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Healthcare Providers, Telecom (And Other SOE) Employees, Veterinarians, And Liquor Store Employees – The “Foreign Officials” Of 2011

A “foreign official.”  Without one, there can be no FCPA anti-bribery violation (civil or criminal).  Who were the “foreign officials” of 2011 (at least from an enforcement perspective – recognizing of course that the meaning of this key FCPA element is the subject of much on-going dispute).

This post, describes the “foreign officials” from 2011 corporate FCPA enforcement actions.  There were 16 core corporate enforcement actions in 2011.  Of the 16 enforcement actions, 13 (81%) involved, in whole or in part, employees of alleged state-owned or state-controlled enterprises or entities (“SOEs”).  These enterprises and entities ranged from manufacturing companies, oil and gas companies, telecommunications companies, health-care entities, engineering firms / design institutes, liquor stores, and insurance companies.

In 2010, 60% of corporate FCPA enforcement actions involved, in whole or in part, employees of alleged SOEs (see here at pages 108-119).  In 2009, 66% of corporate FCPA enforcement actions involved, in whole or in part, employees of alleged SOEs (see here at pages 410-44).

As to whether Congress intended employees of SOEs to be “foreign officials” under the FCPA, see here for my “foreign official” declaration in the Carson case and this prior post which includes links to all judicial decisions on this key FCPA element.

Not only did SOE employees comprise the bulk of “foreign officials” in 2011, but so too did individuals with apparent ministerial or clerical duties (see Tyson Foods, IBM, Ball Corp., and Diageo).

As noted in the 2010 “foreign official” post (here), this is noteworthy for the following reason.

The FCPA’s original definition of “foreign official” was as follows. “… any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or any person acting in an official capacity for or on behalf of such government or department, agency or instrumentality. Such terms do not include any employee of a foreign government or any department, agency, or instrumentality thereof whose duties are essentially ministerial or clerical.”

This last sentence was the FCPA’s original (albeit indirect) facilitating payment or grease exception. The relevant House Report states in pertinent part as follows: “… a gratuity paid to a customs official to speed the processing of a customs document would not be reached by this bill. Nor would it reach payments made to secure permits, licenses, or the expeditious performance of similar duties of an essentially ministerial or clerical nature which must be performed in any event.”

When Congress amended the FCPA in 1988 it, among other things, amended the definition of foreign official by removing this indirect facilitating payment exception from the “foreign official” definition by creating a stand-alone facilitating payment exception currently found in the statute.

The relevant House Report indicates that Congress did not seek to disturb Congress’s original intent. “The policy adopted by Congress in 1977 remains valid, in terms of both U.S. law enforcement and foreign relations considerations. Any prohibition under U.S. law against this type of petty corruption would be exceedingly difficult to enforce, not only by U.S. prosecutors but by company officials themselves. Thus while such payments should not be condoned, they may appropriately be excluded from the reach of the FCPA. U.S. enforcement resources should be devoted to activities have much greater impact on foreign policy.”

In sum, of the 16 corporate FCPA enforcement actions from 1011, 15 (94%) involved, in whole or in part, SOE employees and/or “foreign officials” with apparent ministerial or clerical duties.  The one exception is Armor Holdings which involved payments to a United Nations procurement official, an employee of a “public international organization” a term inserted into the FCPA’s “foreign official” definition by way of the 1998 amendments.

The remainder of this post describes (as per DOJ/SEC allegations) the “foreign officials” of 2011.  As is apparent from the specific descriptions below, in certain instances the enforcement agencies describe the “foreign official” with reasonable specificity; in other instances with virtually no specificity.

[Note:  certain of the enforcement actions below technically only involved FCPA books and records and internal control charges.  As most readers know, actual charges in most FCPA enforcement actions hinge on voluntary disclosure, cooperation, collateral consequences, and other non-legal issues.  Thus, even if an FCPA enforcement action is resolved without FCPA anti-bribery charges, the actions remain very much about the “foreign officials” involved.  As I’ve said before, if an employee of a U.S. company consistently entertains his brother-in-law in the corporate suite and seeks reimbursement for “client entertainment” you will not be reading about this FCPA books and records and internal controls enforcement action]

Maxwell Technologies

DOJ

“Pinggao Group Co. Ltd. (formerly Pingdingshan High Voltage Switchgear Works (“Pinggao Group”) was a state-owned manufacturer of electric-utility infrastructure in Henan Province China.”

“New Northeast Electric Shenygan HV Switchgear Co. Ltd. (“Shenygang HV”) was a state-owned manufacturer of electric-utility infrastructure in Liaoning Province China.”

“Xi-an XD High Voltage Apparatus Co., Ltd. a/k/a Xi-an Shinky High Voltage Electric Co. Ltd. (“Xi-an XD”) was a state-owned manufacturer of electric utility infrastructure in Shaanxi Province China.”

“… payments conveyed to officials of foreign governments employed by state-owned entities, including Pinggao Group, Shenyang HV, and Xi-an XD …”

SEC

Presumably the same as above, although the SEC complaint merely refers to “officials at state-owned entities in China.”

Tyson Foods

DOJ

“The Government of Mexico administers an inspection program, Tipo Inspeccion Federal (“TIF”), for meat-processing facilities.  […].  The inspection program at each facility is supervised by an on-site veterinarian who is a government employee (“TIF veterinarian”) paid by the state, who ensures that all exports are in conformity with Mexican health and safety laws.  Therefore, TIF veterinarians are foreign officials as defined by the FCPA …”.

“Wives of the TIF veterinarians.”

SEC

Same as above.

IBM

SEC

“government officials in South Korea and China”

“the foreign government officials involved worked for sixteen South Korean government entities (“SKGE”)”; “Chief Operations for the Electronic Operations Division of SKGE 1”; “manager of the government controlled SKGE 2”; “SKGE 3’s Director of Planning”; “SKGE 4 was a state-owned agency of the South Korea government – an employee of SKGE 4 responsible for reviewing personal computer procurement bids”; “Director of SKGE 5’s information technology department”; “government officials of SKGE 6”; “key decision makers at ten other SKGE’s;”

“Chinese government officials”; employees of “government-owned or controlled customers in China”

Ball Corp.

SEC

“employees of the Argentine government to secure the importation of prohibited use machinery and the exportation of raw materials at reduced tariffs” “government customs officials”

JGC Corp.

DOJ

“The Nigerian National Petroleum Corporation (“NNPC”) was a Nigerian government-owned company charged with development of Nigeria’s oil and gas wealth and regulation of the country’s oil and gas industry.  NNPC was a shareholder in certain joint ventures with multinational oil companies.  NNPC was an entity and instrumentality of the Government of Nigeria and its officers and employees were ‘foreign officials’ within the meaning of the FCPA.”

“Nigeria LNG Limited (“NLNG”) was created by the Nigerian government to develop the Bonny Island Project and was the entity that awarded the related […] contracts.  The largest shareholder of NLNG was NNPC, which owned 40% of NLNG.  The other owners of NLNG were multinational oil companies.  Through the NLNG board members appointed by NNPC, among other means, the Nigerian government exercised control over NLNG, including but not limited to the ability to block the award of […] contracts.  NLNG was an entity and instrumentality of the Government of Nigeria and its officers and employees were ‘foreign officials’ within the meaning of the FCPA.”

Bribes to “officials of the executive branch of the Government of Nigeria, officials of NNPC, officials of NLNG, and others.”

Comverse Technologies

DOJ

“Individuals connected to OTE, including employees of OTE’s subsidiaries Cosmote, Cosmofon, and Cosmorom, in order to obtain purchase orders from those companies for Comverse Ltd. products and services, resulting in approximately $1.25 million in adjusted operating income;” OTE is “Hellenic Telecommunications Organization S.A. – a telecommunications provider controlled and partially owned by the Greek Government – the Greek Government was OTE’s largest single shareholder and maintained an interest in over one-third of OTE’s issued share capital.”

As detailed in this prior post, during the relevant time period, the Greek Government owned between 33-38% of OTE, thus establishing a new foreign official “limbo low.”

SEC

Same as above

Johnson & Johnson

DOJ

“Greece has a national healthcare system wherein most Greek hospitals are publicly owned and operated. Health care providers who work at publicly-owned hospitals (“HCPs”) are government employees, providing health care services in their official capacities. Therefore, such HCPs in Greece are “foreign officials” as that term is defined in the FCPA.”

“Poland has a national healthcare system. Most Polish hospitals are owned and operated by the government and most Polish HCPs [health care providers] are government employees providing health care services in their official capacities. Therefore, most HCPs in Poland are “foreign officials” as defined by the FCPA.”

“The national healthcare system in Romania is almost entirely state-run. The healthcare system is funded by the National Health Care Insurance Fund (“CNAS”), to which employers and employees make mandatory contributions. Most Romanian hospitals are owned and operated by the government and most HCPs in Romania are government employees. Therefore, most HCPs in Romania are “foreign officials” as defined by the FCPA.”

SEC

Same as above.

Tenaris

DOJ

Employees of OJSC O’ztashqineftgaz (“OAO”) “a wholly owned subsidiary of Uzbekneftegaz, the state holding company of Uzbekistan’s oil and gas industry.”

Employees of Uzbekekspertiza JSC, “an Uzbekistani government agency.”

SEC

Same as above.

Rockwell Automation

SEC

Employees of Chinese Design Institutes “which were typically state-owned enterprises that provided design engineering and technical integration services that can influence contract awards by end-user state-owned customers” and employees of “other state-owned companies.”

Armor Holdings

DOJ

“Procurement official of the United Nations”

SEC

Same as above.

Cinergy Telecommunications

DOJ

“Telecommunications D’Haiti (“Haiti Teleco”) was the Republic of Haiti’s state-owned national telecommunications company.  Haiti Teleco was the only provider of non-celluar telephone service to and from Haiti. […]  Patrick Joseph was the Director General of Haiti Teleco.  […]  During his tenure at Haiti Teleco, Patrick Joseph was a ‘foreign official’ as that term is defined in the FCPA.”  “Jean Rene Duperval was the Director of International Relations of Haiti Teleco. […]  During his tenure at Haiti Teleco, Duperval was a ‘foreign official’ as that term is defined in the FCPA.”  “Official VJ was the Governor of the Banque de la Republique d’Haiti (“Bank of Haiti”), the state-owned and state-controlled central bank of Haiti.  […]  During his tenure at the Bank of Haiti, Official VJ was a ‘foreign official’ as that term is defined in the FCPA.”

For previous posts on Haiti Teleco, see here, here and here.

Bridgestone Corp.

DOJ

“Foreign government officials in Latin America and elsewhere;” “employees of state-owned entities in Mexico and other Latin American countries;” employee at Petroleos Mexicanos (“PEMEX”).

Diageo

SEC

“Various government officials in India, Thailand, and South Korea”

“Hundreds of Indian officials responsible for purchasing or authorizing the sale of beverages”; “employees of government liquor stores in and around New Delhi”; “government employees of the Indian military’s Canteen Stores Department”; “government officials in the North Region of India and in the State of Assam for the purpose of securing label registrations”; “Excise officials to secure import permits and other administrative approvals.”

A “Thai government and political party official”;   “At various times the Thai Official served as Deputy Secretary to the Prime Minister, Advisor to the Deputy Prime Minister, and Advisor to the Ministry of Agriculture and Cooperatives.  The Thai Official also served on a committee of the ruling Thai Rak Thai political party, and as a member and/or advisor to several state-owned or state-controlled industrial and utility boards.”

South Korean “customs official”; “other South Korean government officials”; “South Korean military officials”

Watts Water Technologies

SEC

Employees of certain Chinese state-owned design institutes.

Aon

DOJ

government officials in Costa Rica”; employees of “Instituto Nacional De Deguros (“INS”), Costa Rica’s state-owned insurance company”

SEC

Same as above.  In addition, officials from an “Egyptian government-owned company, the Egyptian Armament Authority (“EAA”), and its U.S. arm, the Egyptian Procurement Office (“EPO”); “Vietnam Airlines, a Vietnamese government-owned entity”; “BP Migas and Pertamina, two Indonesia state-owned entities in the oil and gas industry”; “Myanmar Airways and Myanmar Insurance, two government-owned entities”; “Biman Bangladesh Airways and Sudharan Bima Corporation, two government-owned entities”; “the son of a former high-ranking government official in Bangladesh with several important political connections”

Magyar Telekom / Deutsche Telekom

DOJ

“Telekom Crne Gore A.D., n/k/a “Crnogorski Telekom,” (“TCG”) and its mobile company subsidiary were, respectively, the Montenegrin state-owned fixed line and cellular telecommunications companies.  […] Before Magyar Telekom acquired TCG, it was controlled by the Government of Montenegro.  Accordingly, employees of TCG were ‘foreign officials’ within the meaning of the FCPA.”

“Macedonian Political Party A and Macedonian Political Party B were political parties in the Macedonian governing coalition during 2005, among other times.  Each party represented a traditional ethic group in Macedonia.  As such, Macedonian Political Party A and Macedonian Political Party B were each a “foreign political party” within the meaning of the FCPA.”  “Macedonian Official #1 was a high-ranking government official with responsibility related to telecommunications laws and regulations […] and a leader of Macedonian Political Party A.  As such, Macedonian Official #1 was a “foreign official” and an official of a foreign political party within the meaning of the FCPA.” “Macedonian Official #2 was a high-ranking government official with responsibility for telecommunications laws and regulations […] and a leader of Macedonian Political Party B.  As such, Macedonian Official #2 was a “foreign official” and an official of a foreign political party within the meaning of the FCPA.”

SEC

Same as above.

DOJ Enforcement Of The FCPA – Year In Review

Yesterday, I highlighted various aspects of the SEC’s enforcement of the FCPA in 2011.

In this post, I highlight certain facts and figures from the DOJ’s FCPA enforcement program in 2011.

In 2011, the DOJ brought 11 corporate FCPA enforcement actions (this includes the enforcement action against Cinergy Telecommunications that remains pending).

[In 2010, the DOJ brought 16 corporate FCPA enforcement actions (in addition to the BAE enforcement action that was related to the FCPA, but did not involve FCPA charges and the Lindsey Manufacturing enforcement action that began in 2010 and resulted in the convictions being vacated and the indictment dismissed in 2011 due to prosecutorial misconduct – see here)]

In the 11 corporate DOJ FCPA enforcement actions from 2011, the DOJ collected approximately $355 million in criminal fines.  Including the $149 million forfeiture in the Jeffrey Tesler individual enforcement action which resulted in a plea agreement in 2011 (see here), the DOJ’s FCPA enforcement program in 2011 took in approximately $504 million.  Approximately $432 million (86%) of the $504 million was in three enforcement actions (JGC Corp., Magyar Telekom / Deutsche Telekom, and Tesler).  Approximately $458 million of the $504 million (91%) collected by the DOJ was in enforcement actions against foreign companies (JGC Corp., Magyar Telekom / Deutsche Telekom, Tenaris, and Bridgestone) or foreign nationals (Tesler).

[In 2010, the DOJ collected approximately $870 million in criminal fines in the 16 corporate FCPA enforcement actions ($1.27 billion by including the $400 million BAE enforcement action)].

Tack on the SEC’s collections in 2011 corporate FCPA enforcement actions of approximately $148 million and the overall corporate FCPA fine, penalty and disgorgement amount from 2011 is approximately $503 million  – approximately $652 million including Tesler.

[In 2010, corporate fines, penalties and disgorgement in DOJ/SEC enforcement actions was approximately $1.8 billion (including the BAE enforcement action)]

DOJ FCPA enforcement in 2011 was both large (JGC Corp. – $219 million) and small (Comverse Technologies – $1.2 million; Aon – $1.8 million).  Three FCPA enforcement actions in 2011 were DOJ only (JGC Corp., Bridgestone, and Cinergy Telecommunications).

In all six corporate FCPA enforcement actions where an analysis was possible, the DOJ agreed to a criminal fine below the minimum range suggested by the sentencing guidelines.  In these six actions, the average was approximately 28% below the minimum guidelines range and the distribution range was 55% below the minimum guidelines range (Bridgestone) and 18% below the minimum guidelines range (Magyar Telekom).  There were no corporate FCPA enforcement action in 2011 in which the company paid a criminal fine within the guidelines range.

[Note – why are only 6 of the 11 enforcement actions included in the above analysis? 4 corporate enforcement actions involved an NPA and the DOJ  does not set forth a guidelines range in the agreement or related documents and 1 enforcement action (Cinergy Telecommunications) remains pending].

[In 2010, the average was approximately 25% below the minimum guidelines range and the distribution range was 55% below the minimum guidelines range (Pride International) and 5% below the minimum guidelines range (Panalpina).  The only two corporate FCPA enforcement actions from 2010 where the company paid a criminal fine within the guidelines range were Alliance One (the company voluntarily disclosed and receive a non-prosecution agreement) and Alcatel-Lucent.]

How many corporate FCPA enforcement actions involved related individual prosecutions of company employees by the DOJ (recognizing that such prosecutions may be forthcoming in the future)?  Of the 11 corporate DOJ enforcement actions or indictments, 8 of the 11 enforcement actions (73%) have not involved thus far any DOJ prosecutions of company employees.  2011 corporate FCPA enforcement actions that have resulted in criminal charges against company employees are Armor Holdings (Richard Bistrong), Bridgestone (Misao Hioki) and Cinergy Telecommunications (Washington Cruz and Amadeus Richers).

[In 2010, 12 of the 17 corporate FCPA enforcement actions (70%) did not involve, and have not yet involved, DOJ prosecutions of company employees.]

Including Washington Cruz and Amadeus Richers (a German citizen) mentioned above, the DOJ brought 10  individual FCPA enforcement actions in 2011.   In December, in connection with the 2008 Siemens enforcement action, the DOJ brought criminal charges against:  Uriel Sharef, Herbert Steffen, Andres Truppel, Ulrich Bock, Stephan Signer, Eberhard Reichert, Carlos Sergi and Miguel Czysch.  All of these individuals are foreign nationals.  Thus, 90% of the DOJ’s individual enforcement actions in 2011 were against foreign nationals.  As noted in yesterday’s SEC year in review post, all 12 of the individuals the SEC charged with FCPA violations in 2011 were foreign nationals (in a few cases, dual citizens of a foreign country and the U.S.).

What about non-prosecution and deferred prosecutions vs. old fashioned law enforcement (i.e., if a company committed a crime the DOJ charged it and if the company did not commit a crime the DOJ did not charge it)?  In 2011, 9 of the 11 corporate FCPA enforcement actions (82%) were resolved via non-prosecution agreements (Comverse Technologies, Tenaris, Armor Holdings, and Aon) or deferred prosecution agreements (Maxwell Technologies, Tyson Foods, JGC Corp., and Johnson & Johnson).  The Magyar Telekom / Deutsche Telekom enforcement action involved both a non-prosecution agreement (Deutsche Telekom) and a deferred prosecution agreement (Magyar Telekom).  The two corporate FCPA enforcement from 2011 that involved an indictment or plea to criminal charges were Bridgestone and Cinergy Telecommunications.

[In 2010, 15 of the 16 (94%) corporate FCPA enforcement actions involved NPAs (4) or DPAs (11)].

As Gibson Dunn highlighted in this recent report, FCPA enforcement actions comprised approximately 40% of the DOJ’s 26 NPAs or DPAs in 2011. [In 2010, FCPA enforcement actions comprised approximately 50% of all DOJ NPA or DPA agreements].  Among the criticisms noted in the Gibson Dunn report of NPAs / DPAs is that “from a company’s perspective, the threat of indictment can force a company to agree to a DPA or NPA based on the government’s perception of alleged misconduct even under novel, expansive, or unlitigated theories of liability.”

In yesterday’s SEC year in review post, I noted that 90% of the $148 million the SEC collected in 2011 corporate FCPA enforcement actions was the result of volunatary disclosures or other instances of public disclosure – not original investigations by the SEC.

What does this number look like for DOJ FCPA enforcement actions in 2011?  Of the $504 million in criminal fines collected by the DOJ in FCPA enforcement actions, $502 million (99%) appear to be result of voluntary disclosures or other instances of public disclosure such as previous foreign law enforcement investigations.  The only exception would appear to be Aon ($1.8 million).

[In 2010, 97% of DOJ criminal fines would appear to fit this description].

This remainder of this post provides an overview of corporate DOJ FCPA enforcement in 2011.

*****

Maxwell Technologies (Jan. 31st)

See here for the prior post.

Charges: FCPA anti-bribery violations and knowingly violating the FCPA’s books and records provisions.

Resolution Vehicle: Criminal information resolved through a DPA (three year term).

Guidelines Range: $10.5 million to $21 million.

Penalty: $8 million (25% below the minimum amount suggested by the guidelines).

Disclosure: Yes, voluntary disclosure.

Monitor: No.

Individuals Charged: No.

Tyson Foods (Feb. 10th)

See here for the prior post.

Charges: Conspiracy to violate the FCPA’s anti-bribery and books and records provisions; FCPA anti-bribery and books and records violations.

Resolution Vehicle: Criminal information resolved through a DPA (two year term).

Guidelines Range: $5.04 to $10.08 million.

Penalty: $4 million (approximately 20% below the minimum amount suggested by the guidelines)

Disclosure: Yes, voluntary disclosure.

Monitor: No.

Individuals Charged: No.

JGC of Japan (April 6th)

See here for the prior post.

Charges: Conspiracy to violate the FCPA’s anti-bribery provisions and aiding and abetting FCPA anti-bribery violations.

Resolution Vehicle: Criminal charges resolved through a deferred-prosecution agreement – term two years.

Guidelines Range: $312.6 million to $625.2 million

Penalty: $218.8 million (30% below the minimum amount suggested by the guidelines).

Disclosure: Yes, based on a previous foreign law enforcement investigation.

Monitor: Yes.

Individuals Charged: No.

Comverse Technology (April 7th)

See here for the prior post.

Charges: None – although the non-prosecution agreement refers to a “knowing violation of the books and records provisions of the FCPA.”

Resolution Vehicle: non-prosecution agreement – term two years.

Guidelines Range: Not set forth in the NPA.

Penalty: $1.2 million.

Disclosure: Yes, voluntary disclosure.

Monitor: No.

Individuals Charged: No.

Johnson & Johnson (April 8th)

See here for the prior post.

Charges: FCPA anti-bribery violations and conspiracy to violate the FCPA’s anti-bribery and books and record provisions.

Resolution Vehicle: Criminal information resolved through a deferred prosecution agreement (three year term).

Guidelines Range: $28.5 million to $57 million.

Penalty: $21.4 million (25% below the minimum amount suggested by the guidelines).

Disclosure: Yes, voluntary disclosure (however Iraq Oil for Food conduct was not voluntarily disclosed).

Monitor: No.

Individuals Charged: None by U.S. authorities (Robert Dougall (a former DePuy executive) previously plead guilty to a U.K. SFO enforcement action – see here).

Tenaris (May 17th)

See here for the prior post.

Charges: None, although the non-prosecution agreement refers to “knowing violations of the FCPA’s anti-bribery and books and records provisions.”

Resolution Vehicle: NPA – term two years.

Guidelines Range: Not set forth in the NPA.

Penalty: $3.5 million.

Disclosure: Yes, voluntary disclosure.

Monitor: No.

Individuals Charged: No.

Cinergy Telecommunications (July 12th)

See here for the prior post.

Charges:  conspiracy to violate the FCPA and to commit wire fraud; FCPA anti-bribery violations; conspiracy to commit money laundering; and money laundering.

Resolution Vehicle:  N/A

Guidelines Range:  N/A

Disclosure:  No.

Monitor:  N/A

Individuals Charged:  Yes.

Armor Holdings (July 13th)

See here for the prior post.

Charges:  None

Resolution Vehicle:  Non-Prosecution Agreement – term two years.

Guidelines Range: Not set forth in the NPA.

Penalty: $10.3 million

Disclosure: Yes, voluntary disclosure.

Monitor: No (although Armor Holdings is now part of BAE and falls under the monitorship in the BAE FCPA-related enforcement action).

Individuals Charged: Yes.

Bridgestone (Sept. 15th)

See here for the prior post.

Charges: Conspiracy to violate the FCPA’s anti-bribery provisions (and conspiracy to violate the Sherman Act).

Resolution Vehicle:  Criminal information resolved via a plea agreement.

Guidelines Range:  For the FCPA conduct, the guidelines range (see here) was approximately $40 million – $80 million.

Penalty: $28 million (it would appear that approximately 80% of this figure – approximately $22 million was based on the FCPA conduct)

Disclosure: Yes, voluntary disclosure.

Monitor: No.

Individuals Charged:  Yes.

Aon Corp. (Dec. 20th)

See here for the prior post.

Charges: N/A although the NPA refers to Aon’s knowing violation of the anti-bribery, books and records, and internal controls provisions.

Resolution Vehicle:  NPA – term two years.

Guidelines Range:  Not set forth in the NPA.

Penalty: $1.8 million.

Disclosure: Aon’s SEC filings stated that  ”following inquiries from regulators, the Company commenced an internal review of its compliance with certain U.S. and non-U.S. anti-corruption laws, including the U.S. Foreign Corrupt Practices Act.”

Monitor: No.

Individuals Charged:  No.

Magyar Telekom / Deutsche Telekom (Dec. 29th)

See here for the prior post.

Charges:  Magyar Telekom – FCPA anti-bribery and books and records charges; Deutsche Telekom – N/A

Resolution Vehicle:  Magyar Telekom – DPA – term two years; Deutsche Telekom – NPA – term two years.

Guidelines Range:  Magyar Telekom – $72.5 million – $145 million; Deutsche Telekom – not set forth in the NPA.

Penalty:  Magyar Telekom – $59.6 million (18% below the minimum Guidelines range); Deutsche Telekom – $4.4 million

Disclosure:  Yes, voluntary disclosure.

Monitor:  No.

Individuals Charged:  No.

SEC Enforcement Of The FCPA – Year In Review

FCPA enforcement, it is not just about the DOJ. Granted, its sticks are less sharp than the DOJ’s, but the SEC also claims a significant piece of the FCPA enforcement pie (query whether it should – but that is a subject for another day).

Today’s post is a Year in Review of SEC FCPA Enforcement.  (See here for a similar post for 2010).  Stay tuned for a similar post on the DOJ’s Enforcement of the FCPA in 2011.

In 2011, the SEC collected approximately $148 million in 13 corporate FCPA enforcement actions.  By comparison, in 2010 the SEC brought in approximately $530 million in 19 corporate FCPA enforcement actions.   SEC FCPA enforcement in 2011 was both small (Ball Corp. – $300,000) and large (Johnson & Johnson – $48.6).

Five corporate FCPA enforcement actions from 2011 were SEC only (IBM, Ball Corp., Rockwell Automation, Diageo, and Watts Water Technologies).  Of the 13 corporate enforcement actions, only 5 (Armor Holdings, Johnson & Johnson, Tyson Foods, Maxwell Technologies, and Magyar Telekom / Deutsche Telekom) included FCPA anti-bribery charges.  In other words 8 SEC FCPA enforcement actions charged FCPA books and records and internal controls only yet in those enforcement actions the SEC collected approximately $51 million in disgorgement and prejudgment interest.  This is noteworthy because many question, and rightfully so, whether disgorgement is an appropriate remedy in cases that do not charge FCPA anti-bribery violations.  See here for a prior post.

Of the $148 million the SEC collected in 2011 corporate FCPA enforcement actions, approximately $80 million (54%) were in two enforcement actions (Johnson & Johnson and Magyar Telekom / Deutsche Telekom).  Of the $148 million, approximately $53 million (36%) were in enforcement actions against foreign issuers (Tenaris, Diageo, and Magyar Telekom / Deutsche Telekom).

The $148 million further breaks down as follows: $9.6 million  in civil penalties; $138.4  in disgorgement and prejudgment interest.  Thus 94% of SEC FCPA enforcement settlement amounts in 2011 consisted of disgorgement and prejudgment interest.  This figure last year was 96%.   If one tries to analyze why some SEC FCPA enforcement actions include a civil penalty, disgorgement and prejudgment interest (Watts Water Technologies, Diageo, Armor Holdings, Rockwell Automation, IBM), whereas other enforcement actions include only disgorgement and prejudgment interest (Comverse Technologies, Johnson & Johnson, Tenaris, Tyson Foods, Maxwell Technologies, Aon, Magyar Telekom / Deutsche Telekom), whereas other enforcement actions include only a civil penalty (Ball Corp.), good luck and please enlighten us all with your insight.

Other notable developments from corporate SEC FCPA enforcement in 2011 include use of the first alternative resolution vehicle (a DPA) against Tenaris (see here for the prior post) and four enforcement actions resolved via administrative proceedings (Ball Corp., Rockwell Automation, Diageo, and Watts Water Technologies).  As noted in this previous guest post, a provision in Dodd-Frank granted the SEC broad authority to impose civil monetary penalties in administrative proceedings.

Another significant development in 2011, albeit not FCPA specific, was the much needed scrutiny on the SEC’s neither admit nor deny settlement policy – a policy relevant to SEC FCPA enforcement actions.  See here for the prior post.   This will remain an issue to watch in 2012 as neither admit nor deny heads to the Second Circuit.

In recent years, the DOJ has been the subject of well deserved criticism for the lack of individual prosecutions in many corporate FCPA enforcement actions.  The same criticism can also be made of the SEC’s FCPA enforcement program. The SEC, at a minimum, has jurisdiction over the employees of companies settling an FCPA enforcement action and can, as demonstrated by certain FCPA enforcement actions, pursue civil FCPA anti-bribery charges, civil FCPA books and records and internal control charges, as well as other related civil charges.

However, in just 2 of the 13 (15%) corporate SEC FCPA enforcement actions in 2011 did the SEC charge individuals (Lessen Chang (Watts Water Technologies) and Elek Straub, Andras Balogh, and Tamas Morvai (Magyar Telekom)) despite allegations in other enforcement actions that employees, including in certain cases senior management, were engaged in the improper conduct at issue.  Last year, the SEC charged individuals in only 3 of the 19 corporate enforcement actions (15%).

In 2011, the SEC did charge 1 individual (Paul Jennings – see here) in connection with the 2010 Innospec enforcement action as well as 7 individuals (Uriel Sharef, Herbert Steffen, Andres Truppel, Ulrich Bock, Stephan Signer, Carlos Sergi and Bernd Regendantz  – see here) in connection with the 2008 Siemens enforcement action.  It is interesting to note that all 12 of the individuals the SEC charged with FCPA violations in 2011 were foreign nationals (in a few cases, dual citizens of a foreign country and the U.S.).

Of the 13 corporate SEC FCPA enforcement actions in 2011, 12 enforcement actions (92%) were the result of corporate voluntary disclosures or previous foreign law enforcement investigations.  The only exception is the Aon enforcement which, as noted in this prior post, “following inquiries from regulators, the Company commenced an internal review of its compliance with certain U.S. and non-U.S. anti-corruption laws, including the U.S. Foreign Corrupt Practices Act.”  Stated in terms of the approximate $148 million the SEC collected in the 13 corporate FCPA enforcement actions in 2011, $133.5 million (90%) was the result of such disclosures.  As noted in last year’s SEC Year in Review post, in 2010, 97% of the SEC’s intake in FCPA enforcement actions was the result of voluntarily or otherwise publicly disclosed information and not the result of original investigation by either the SEC.

This remainder of this post provides an overview of corporate SEC FCPA enforcement in 2011.

*****

Magyar Telekom / Deutsche Telekom (Dec. 29th)

See here for the prior post.

Charges:  Settled civil complaint charging FCPA anti-bribery and books and records and internal controls violations.

Settlement:  $31.2 million in disgorgement and pre-judgement interest.

Disclosure:  Yes, voluntary disclosure.

Individuals Charged:  Yes.

Related DOJ Enforcement Action:  Yes.

Aon Corp. (Dec. 20th)

See here for the prior post.

Charges:  Settled civil complaint charging FCPA books and records and internal controls violations.

Settlement: Approximately $14.5 million (disgorgement of $11,416,814 and prejudgment interest of $3,128,206).

Disclosure:  Aon’s SEC filings stated that  ”following inquiries from regulators, the Company commenced an internal review of its compliance with certain U.S. and non-U.S. anti-corruption laws, including the U.S. Foreign Corrupt Practices Act.”

Individuals Charged:  No.

Related DOJ Enforcement Action: Yes.

Watts Water Technologies (Oct. 13th)

See here for the prior post.

Charges:  None. Administrative cease and desist order finding violations of the FCPA’s books and records and internal control provisions.

Settlement:  $3.8 million ($2.8 million in disgorgement, $820,000 in prejudgment interest and a $200,000 civil monetary penalty).

Disclosure:  Yes, voluntary disclosure.

Individuals Charged: Yes.

Related DOJ Enforcement Action: No.

Diageo (July 27th)

See here for the prior post.

Charges:  None.  Administrative cease and desist order finding violations of the FCPA’s books and records and internal control provisions.

Settlement:  Approximately $16.4 million (approximately $11.3 million in disgorgement, approximately $1.2 million in prejudgement interest; and a $3 million civil penalty).

Disclosure:  Yes, voluntary disclosure and/or based on previous foreign law enforcement investigation.

Individuals Charged:  No.

Related DOJ Enforcement Action: No.

Armor Holdings (July 13th)

See here for the prior post.

Charges:  Settled civil complaint charging FCPA anti-bribery, books and records and internal controls violations.

Settlement:  Approximately $5.7 million (approximately $1.5 million in disgorgement; $458,000 in prejudgment interest; and a $3.7 million civil penalty)

Disclosure:  Yes, voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Comverse Technologies (April 7th)

See here for the prior post.

Charges: Settled civil complaint charging FCPA books and records and internal control violations.

Settlement: Approximately $1.6 million (approximately $1.2 million in disgorgement and approximately $360,000 in prejudgment interest).

Disclosure: Yes, voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Johnson & Johnson (April 8th)

See here for the prior post.

Charges: Settled civil complaint charging FCPA anti-bribery violations and FCPA books and records and internal controls violations.

Settlement: Approximately $48.6 million (approximately $38.2 million in disgorgement and $10.4 million in prejudgment interest).

Disclosure: Yes, voluntary disclosure (however the Iraq Oil for Food conduct was not voluntarily disclosed).

Related DOJ Enforcement Action. Yes.

Rockwell Automation (April 7th)

See here for the prior post.

Charges: None.  Administrative cease and desist order finding violations of the FCPA’s books and records and internal control provisions.

Settlement: Approximately $2.7 million (approximately $1.7 million in disgorgement; approximately $590,000 in prejudgment interest; and a $400,000 civil penalty).

Disclosure: Yes, voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: No.

Tenaris (May. 17th)

See here for the prior post.

Charges: None – resolved via a deferred prosecution agreement – term two years.

Settlement: $5.4 million in disgorgement and prejudgment interest.

Disclosure: Yes, voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Ball Corporation (March 24th)

See here for the prior post.

Charges:   None.  Administrative cease and desist proceeding finding FCPA books and records and internal controls violations.

Settlement: $300,000 penalty.

Disclosure: Yes, voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: No.

IBM Corporation (March 18th)

See here for the prior post.

Charges: Settled civil complaint charging FCPA books and records and internal controls violations.

Settlement: $10 million ($5.3 million in disgorgement, $2.7 million in prejudgment interest, and a $2 million civil penalty).

Disclosure: Yes, the action is reportedly the result of a prior South Korean government investigation.

Individuals Charged: No.

Related DOJ Enforcement Action: No.

Tyson Foods (Feb. 10th)

See here for the prior post.

Charges: Settled civil complaint charging FCPA anti-bribery violations and books and records and internal control violations.

Settlement: $1.2 million in disgorgement and prejudgment interest.

Disclosure: Yes, voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Maxwell Technologies (Jan. 31st)

See here for the prior post.

Charges: Settled civil complaint charging: FCPA anti-bribery, books and records and internal controls violations; and Section 13 disclosure violations.

Settlement: Approximately $6.3 million (approximately $5.6 million in disgorgement and $700,000 in prejudgment interest)

Disclosure: Yes, voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Informative Reads

[You will see a new “Jobs” tab on the site today and I am pleased to announce this new feature of FCPA Professor. FCPA Professor readers include a world-wide audience of attorneys and business, accounting, finance, and compliance professionals with knowledge and experience of the FCPA and related topics.  Both job seekers and organizations seeking to hire individuals with FCPA experience will benefit from a wide selection of job listings, so please spread the word and send this link to your HR department and professional contacts]

The quality of FCPA resources continues to impress.  Three law firm periodic publications I make sure to put on my reading stack are those authored by Gibson Dunn & Crutcher, Shearman & Sterling, and Miller & Chevalier.

Gibson Dunn’s “2011 Year-End FCPA Update” (here) begins as follows.  “2011 marked yet another dynamic year for the Foreign Corrupt Practices Act, including numerous significant enforcement actions, more trials than in any other year in the history of the statute, and a growing public debate about the policy ramifications of a U.S.-dominated international anti-corruption enforcement field. Those close to the statute can feel the unmatched pace at which the 34-year-old law is now developing. With more litigated decisions, more bills pending in Congress, and more interplay between the FCPA and other international laws prohibiting cross-border bribery, there is a growing sense of urgency amongst FCPA practitioners as to the direction the statute will take in the coming years.  […]  There can be no dispute about it–these are interesting times for the FCPA.”  The Update concludes as follows.  “Perhaps the most intriguing current development in the FCPA is that everything that made 2011 such a fascinating year promises only to increase in the years to come, as there will only be more litigation, more legislation, and more international coordination in the near future. Companies and their executives doing business in an increasingly global marketplace are well advised to stay abreast of these developments.”  Sandwiched between is much useful information and analysis sure to be of interest to readers.

Gibson Dunn also released (here) its annual update on corporate deferred prosecution and non-prosecution agreements.  According to the report, the DOJ and SEC entered into 29 NPAs/DPAs in 2011.  Such vehicles were used in FCPA enforcement actions (DOJ or SEC) 11 times – approximately 40% of the total.

Shearman & Sterling’s “Recent Trends and Patterns in the Enforcement of the FCPA” (here) always impresses.  The latest edition begins as follows.   “Although the pace of new FCPA enforcement actions was somewhat off in 2011 – only sixteen corporate cases and eighteen new individual defendants – 2011 was nevertheless an eventful year for FCPA enforcement and indeed for enforcement of other countries’ similar laws. Among the highlights:  defendants took the government to trial in a number of FCPA matters, with mixed results reflecting the difficulty and uncertainty of proving foreign bribery beyond a reasonable doubt; judges in multiple districts largely adopted the government’s expansive interpretation of what constitutes an “instrumentality” of a foreign government, including state-owned entities indirectly controlled by a foreign government; the DOJ and the SEC continued their focus on prosecution of individuals; the U.S. enforcement authorities brought fewer cases in 2011 against non-U.S. companies; despite claims that the government extracted exorbitant fines in FCPA matters, the average penalty continued to be less than $25 million; the DOJ and the SEC almost completely withdrew from their prior practice of routinely requiring an independent monitor in all cases and demonstrated a willingness to accept various forms of self-monitoring; with the advent of the U.K.’s Bribery Act, the British government offered considerable guidance on compliance and began exploring ways of encouraging voluntary disclosures and cooperation by emulating the U.S. system of deferred prosecution agreements.” 

Shearman & Sterling publications are always strong on jurisdictional issues and its most recent “Trends and Patterns” states as follows regarding the Magyar Telekom enforcement action (see here for the prior post).  “The year ended with an entirely new expansion of what constitutes territorial acts. In Magyar Telekom, the DOJ’s sole claim to anti-bribery jurisdiction (but not to books and records jurisdiction) was based on a foreign official’s “U.S.-based email address,” whereby email was “passed through, stored on, and transmitted from servers located in the U.S.” This is a particularly weak jurisdictional basis, given that this one count resulted in a Sentencing Guidelines calculation of eight times what the company would have had to pay under just the books and records provisions.”

Shearman & Sterling’s FCPA Digest (here), at 692 pages, is as complete of an FCPA source as you will find.

Last, but certainly not least, is Miller & Chevalier’s FCPA Winter Review 2012 (here).  Complete with charts and graphs, it is a comprehensive resource on the latest developments in the following areas: enforcement actions against companies and individuals;  FCPA-related private litigation; domestic legislative and U.S. enforcement agency developments; as well as international developments.

If you have not yet had the opportunity to read the above three publications, you should, it will be time well spent.

Surveys And Such

Corruption Perceptions Index

Earlier this month, Transparency International (“TI”) released its annual Corruption Perceptions Index (“CPI”) (see here).  The CPI ranks countries/territories based on how corrupt their public sector is perceived to be and is a composite index drawing on corruption-related data collected by a variety of reputable institutions and reflecting the views of observers from around the world including experts living and working in the countries/territories evaluated.  The CPI scored 183 countries and territories from 0 (highly corrupt) to 10 (very clean) based on perceived levels of public sector corruption.

In a release (here), TI noted that “corruption continues to plague too many countries around the world” and that two-thirds of ranked countries scored less than 5.  The top five (very clean) countries in the CPI were New Zealand, Finland, Denmark, Sweden and Singapore,  the bottom four (highly corrupt) countries were Afghanistan, Myanmar, Somalia and North Korea.

The United States scored 7.1 in the CPI  (the same score the U.S. received in the 2010 CPI – see here for the prior post) a number which placed it 24th out of 183 countries and below several other countries such as Canada, Germany, Japan, and the U.K.

The relative low ranking of the U.S. has again caused some (see here) to ask “can or should the U.S. continue to lead the fight against international graft?”  Related to this topic, for some time I have been highlighting a double-standard between U.S. enforcement of the FCPA and U.S. enforcement of the domestic bribery statute (18 USC 201).  See here for prior posts on the double standard.  It is concerning that corporate interaction with a “foreign official” appears to be subject to greater scrutiny and different standards of enforcement than corporate interaction with a U.S. official.

While the CPI may just seem like a bunch of numbers, and while it is not the only risk assessment tool (see here and here) available,  the index has real-world application as many companies and FCPA compliance professionals calibrate FCPA risk assessment to the CPI.

BRIBEline U.S. Report

Also earlier this month, Trace International released (see here) its BRIBEline U.S. Report which summarizes and analyzes 73 bribery demands in the U.S. reported anonymously to Trace’s online Business Registry for International Bribery and Extortion (BRIBEline – see here) between July 2007 and November 2011.

According to the report:   “the majority of bribe demands, nearly 60%, are made by a person associated with a government, whether at the federal, state or local level, including government officials (16%), the police (14%), officials of the party in office (8%), employees of state-owned entities (7%), members of the military (5%), city officials (4%), state officials (1%) and judges and judicial representatives (1%).”  The report also found that “seven of the bribes demanded by government officials were reported as originating from the Office of the U.S. President or the Office of the U.S. Vice President.”   According to the anonymous bribe reporters, demands from these offices occurred between 2002 and 2007.

Most companies spend considerable time and money training employees and associated parties on foreign bribery issues, but Alexandra Wrage (TRACE President) said that  “the U.S. BRIBEline data indicates that companies doing business in the United States should consider training their employees to appropriately respond to a bribe demand made by a powerful government official or business executive.”

Previous BRIBEline reports (see here) analyzed patterns of bribe demands in Brazil, Mexico, Ukraine, Russia, India and China.

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