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Bribery Perceptions

Last week Transparency International (“TI”) released its Bribe Payers Index (see here).  The index “ranks 28 of the world’s largest economies according to perceived likelihood of companies from these countries to pay bribe’s abroad.”   TI’s data is derived from a survey of approximately 3,000 business executives worldwide.  The executives were asked for each of the 28 countries with which they have a business relationship with (for example as supplier, client, partner or competitor) “how often do firms headquartered in that country engage in bribery in this country.”  

Among the key findings in the index are that “companies from China and Russia were viewed as the most likely to pay bribes” and that “perceptions of the frequency of foreign bribery by country and business sector have on average seen no improvement since the last Bribe Payers Index published in 2008.”

As to China and Russia, the TI report states “it is of particular concern that China and Russia are at the bottom of the index.”  The report states as follows.  “Given the increasing global presence of businesses from these countries, bribery and corruption are likely to have a substantial impact on the societies in which they operate and on the ability of companies to compete fairly in these markets.”

As noted in this prior post, China recently passed an “FCPA-like” law, as did Russia as noted in this post.

In terms of perception of bribery by companies, the U.S. ranked a rather dismal 10th, behind Netherlands, Switzerland, Belgium, Germany, Japan, Australia, Canada, Singapore and the United Kingdom.  Even though the U.S. clearly leads the world in enforcement of its anti-bribery law, the survey seems to suggest that ad hoc enforcement action of the FCPA is not having – at least in the minds of the survey participants – a meaningful deterrent effect in reducing instances of improper payments.

Survey Says

This post summarizes two recent surveys:  Fulbright & Jaworski’s Annual Litigation Trends Survey and Kroll’s Global Fraud Report.

Fulbright & Jaworski’s Annual Litigation Trends Survey

Fulbright & Jaworski LLP recently released its 8th Annual Litigation Trends Survey (available for download here).

Some FCPA / U.K. Bribery Act specific findings of note. 

9% of U.S. companies and 6% of U.K. companies have “engaged outside counsel to assist with a bribery or corruption investigation in the past 12 months.”  Last year the percentages were 12% and 26% respectively.

11% of U.S. companies and 20% of U.K. companies “have engaged in due diligence for bribery or corruption (including FCPA matters) relating to a merger, acquisition or other business transaction with a foreign country in the past 12 months.”  Last year the percentages were 17% and 28% respectively.

12% of U.S. companies “foresee changes in the way [the] company operates due to the new U.K. Bribery Act.”  Last years the percentage was 11%.

General findings of note.  “Fifty-two percent of the public companies and 60% of the larger companies have launched an internal investigation in the past 12 months.”  “Twenty-four percent of U.S. companies and 19% of U.K. companies that conducted an internal investigation went on to report the matter to a regulatory agency.”

The Litigation Trends Survey involved a total of 405 participants, including 275 in the U.S. and 129 in the U.K.  Approximately 75% of participants have the title general counsel or head of litigation.

Kroll Global Fraud Report

Kroll, a leading risk consulting company, recently released in 2011/2012 Global Fraud Report Survey (see here). FCPA / U.K. Bribery Act findings include the following. 

“Despite heightened concerns, only 27% of respondents said they are well-prepared to comply with the Foreign Corrupt Practices Act (FCPA) and UK Bribery Act (UKBA). Of those companies that are subject to one of these two laws, less than half, 43%, have trained senior management, agents, vendors and foreign employees to be compliant with one of these laws, and just 39% have assessed the risks arising from them. Furthermore, only 37% of companies surveyed believe that their due diligence provides a sufficient understanding of a potential partner’s or investment target’s compliance with these acts.”

“47% of respondents consider their companies moderately to highly vulnerable to corruption and bribery.  It is the leading risk causing companies to avoid investing in new regions or countries at 28%.   Only 43% of respondents believe their companies have trained their managers, agents, vendors and foreign employees to be both familiar and compliant with the UK Bribery Act and FCPA.  Just 39% have made a thorough assessment of risks to their organizations as a result of the UKBA or FCPA and have ongoing monitoring systems in place.   Just over half (54%) of companies say they have adequate procedures in place to prevent bribery at all levels. Only 34% of respondents say their compliance regimes are more global as a result of the extraterritorial reach of the UKBA and FCPA.  Only 37% believe their due diligence in advance of an acquisition, joint venture or financing provides sufficient understanding of a target’s compliance with the Acts.”

The Kroll survey involved “more than 1,200 senior executives worldwide from a broad range of industries and functions … polled in June and July 2011.”  According to the survey, “nearly one-half of respondents, 47%, occupy C-suite roles and one-half of participants came from companies with annual revenues of over $500 million.”

Perhaps The Executives Are Just Being Realistic

It has turned out to be a statistics filled week on this site.  If you like statistics, Deloitte’s recent “Anti-Corruption Practices Survey 2011” (here) serves up a buffet of delightful morsels. 

Deloitte “surveyed 276 executives to assess how companies are managing their efforts to prevent corrupt practices in their operations around the world and ensure compliance with legislative requirements.”  The Survey found that approximately 90% of executives said their company had an anti-corruption policy that covered a wide range of potentially corrupt activities.

Even so, the Survey seems to portray, as its most meaningful statistic, that “only 29% of the 276 executives … were very confident their company’s anti-corruption program would prevent and detect corrupt activities.”  According to the Survey, “this low level of confidence indicates that many companies may need to evaluate and upgrade their anti-corruption efforts.”

Perhaps.  Or perhaps the 29% figure indicates the stark reality that not even gold standard FCPA compliance policies and procedures can prevent or detect all problematic payments.  In other words, perhaps the 71% of executives who were not very confident their company’s anti-corruption program would prevent and detect corrupt activities are just being realistic.  As even Assistant Attorney General Lanny Breuer noted earlier this year before a compliance audience – “There will always be rogue employees who decide to take matters into their own hands.   They are a fact of life.”  (See here).  Or as the U.K. Ministry of Justice stated in its Bribery Act guidance (see here) “no policies or procedures are capable of detecting and preventing all bribery.” 

The Survey findings on corruption risks also caught my eye.  Executives were asked to cite “significant” corruption risks.  Use of third parties (not surprisingly) was the top concern and “customs clearance and importation of goods” and “entertainment related to government business/relations” were the 2nd and 3rd highest concerns respectively.  These findings confirm my own observations from participating in executive roundtable forums during which I am always struck that business leaders are most worried about issues Congress did not even have on its radar when it passed the FCPA – yet are worrisome issues given the DOJ’s enforcement positions. 

For instance, the enacting Congress specifically excluded from the FCPA’s “foreign official” definition any employee of a foreign government “whose duties are essentially ministerial or clerical.”   The relevant Senate Report states, in pertinent part, as follows. “The statute does not […] cover so-called ‘grease’ payments such as payments for expediting shipments through customs or placing a transatlantic telephone call, securing required permits, or obtaining adequate police protection, transactions which may involve even the proper performance of duties.”  Similarly, the relevant House Report states, in pertinent part,  as follows.  “The language of the bill is deliberately cast in terms which differentiate between [corrupt payments] and facilitating payments, sometimes called ‘grease payments.’ […] For example, 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 of necessity be performed in any event. While payments made to assure or to speed the proper performance of a foreign official’s duties may be reprehensible in the United States, the committee recognizes that they are not necessarily so viewed elsewhere in the world and that it is not feasible for the United States to attempt unilaterally to eradicate all such payments. As a result, the committee has not attempted to reach such payments.”

Yet, as the Survey results suggest, executives are indeed significantly worried about such issues and compliance dollars are disproportionately spent on such issues.   

Bribes, the reason Congress passed the FCPA in 1977, was identified as a “significant” risk by only 27% of Survey respondents.

Final statistic of note.  On voluntary disclosure, the Survey states as follows.

“Executives were asked whether they thought that if an executive in their industry (not specifically in their own company) uncovered a significant violation of the company’s anti-corruption policy, they would report it to the SEC or the DOJ. Executives were divided on how they thought the typical executive in their industry would respond, with 36 percent saying it was very likely that an executive would report such a violation, 39 percent thinking it was somewhat likely, and 25 percent saying it was not likely. Only 27 percent saw significant benefits in self-reporting violations, while an additional 43 percent saw some benefits.”

*****

A good weekend to all.

DOJ Prosecution Of Individuals – Are Other Factors At Play?

A post earlier this week (here) noted that since 2008, the DOJ has criminally charged 64 individuals with FCPA offenses. 60% of the individuals charged have been in just three cases and 78% of the individuals charged by the DOJ since 2008 have been in just six cases. Considering that there has been 42 “core” corporate DOJ FCPA enforcement actions (NPAs, DPAs, Pleas, or Convictions) since 2008, this was a rather remarkable statistic. The previous post also noted that of the 42 “core” corporate DOJ FCPA enforcement actions, 30 (or 71%) have not (at least yet) resulted in any DOJ charges against company employees. I noted that during this era of the FCPA’s resurgence, the DOJ has consistently stated that prosecution of individuals is a “cornerstone” of its FCPA enforcement strategy. Yet, the numbers paint a different picture – at least in certain enforcement actions.

Yesterday’s post (here) further crunched the numbers on DOJ prosecutions of individuals and exposed (what sure seems like) a public-private divide.  Of the 64 individuals charged since 2008, 50 of the 64 individuals charged (78%) were employees or otherwise affiliated with private business entities.  This was a striking statistic given that 37 of the 42 ”core” corporate DOJ FCPA enforcement actions since 2008 (88%) were against publicly traded corporations.

I concluded yesterday’s post by asking whether FCPA enforcement has resulted in two tiers of justice and/or whether other factors are at play?  I do believe FCPA enforcement has resulted in two tiers of justice (see here for a prior post), but I also believe that other factors are at play as well.

In connection with my testimony at the November 2010 Senate FCPA hearing, I submitted a written statement (here) in which I observed that a possible reason for the absence of individual FCPA criminal charges in many corporate enforcement actions “may have more to do with the quality of the corporate enforcement action than any other factor.”  I noted that given the prevalence of non-prosecution agreements (NPAs) and deferred prosecution agreements (DPAs)  in the FCPA context, and the ease in which DOJ offers these alternative resolution vehicles to companies subject to an FCPA inquiry, companies often agree to enter into such resolution vehicles regardless of the DOJ’s legal theories or the existence of valid and legitimate defenses.   In many cases, it is easier, more cost efficient, and more certain for a company to do so than it is to be criminally indicted and mount a valid legal defense – even if the DOJ’s theory of prosecution is questionable.  This dynamic contributes to what I have called the “facade of FCPA enforcement” (see here).  Individuals, on the other hand, face a deprivation of personal liberty, and are more likely to force the DOJ to satisfy its high burden of proof as to all FCPA elements.

So the question is raised – what impact do NPAs or DPAs have on individual FCPA criminal prosecutions?  The below numbers suggest a significant impact.

According to my analysis, since alternative resolution vehicles were first used in the FCPA context (December 2004 – an NPA as to InVison Technologies), there have been 61 “core” corporate DOJ FCPA enforcement actions.  47 of the 61  “core” corporate DOJ FCPA enforcement actions (77%)  have been resolved via an NPA (19 instances) or a DPA (28 instances).  In these 47 “core” corporate DOJ FCPA enforcement actions, only 7 enforcement actions (15%) have resulted in any individual FCPA criminal charges against company employees.

In other words, when the DOJ resolves an FCPA enforcement action via a NPA or DPA, there is only a 15% likelihood that individual criminal charges will be filed against any company employee or those affiliated with the company.  The 7 “core” corporate DOJ FCPA enforcement actions resolved through an NPA or DPA that have resulted in individual criminal charges are as follows:

Armor Holdings (NPA)  / Richard Bistrong;

Alliance One International (NPA) / Bobby Elkin;

Alcatel-Lucent (DPA) / Christian Sapsizian and Edgar Acosta;

ABB Ltd. (DPA) / John Joseph O’Shea and Fernando Maya Basurto;

Omega Advisors (NPA) / Clayton Lewis;

Schnitzer Steel (DPA) / Si Chan Wooh; and

Willsbro Group (DPA) / Jim Bob Brown, James Tillery, Paul Novak and Jason Steph.

In contrast, in the 14 “core” corporate DOJ FCPA enforcement actions resolved (since invention of NPAs/DPAs in the FCPA context) through actual, prosecuted criminal charges, 10 of these actions (71%) resulted in related prosecution of company employees or those affiliated with the company.  The 4 DOJ FCPA enforcement actions that resulted in actual, prosecuted criminal charges, yet no individual prosecutions of company employees are Siemens, BAE (recognizing that this was an FCPA-related prosecution), DPC Tianjin, and ABB Vetco Gray.   In short, when a corporate entity is actually prosecuted for FCPA violations, there is a 71% chance that a company employee will also be prosecuted.

In summary, when the DOJ resolves an FCPA enforcement action via a NPA or DPA, there is only a 15% likelihood that individual criminal charges will be filed against any company employee or those affiliated with the company.  On the other hand, when the DOJ files actual, prosecuted criminal charges against a company, there is a 71% chance that a company employee will also be prosecuted.

So are there other factors at play?  Yes, there are and I believe a contributing factor to the lack of individual prosecutions in many corporate DOJ FCPA enforcement actions has to do with the quality of the corporate enforcement action in the first place.  As Reynolds Holding recently stated in a Reuters BreakingViews column (here) the current era of enforcement and the dynamics at play “encourage prosecutors to pursue what they can punish, not what the law prohibits.”

Perhaps the question should not be why do so few DOJ corporate FCPA enforcement actions result in individual prosecutions, but rather do many DOJ corporate FCPA enforcement actions actually evidence proof beyond a reasonable doubt that FCPA violations occurred?

DOJ Prosecution Of Individuals: The Public – Private Divide?

Yesterday’s post (here) noted that since 2005, the DOJ has charged 79 individuals with FCPA criminal offenses.

As the below list demonstrates, 55 of the 79 individuals charged (70%) were employees or otherwise affiliated with private business entities.  Of the 64 individuals charged since 2008, 50 of the 64 individuals charged (78%) were employees or otherwise affiliated with private business entities.  This is striking statistic given that 37 of the 42 (88%)  “core” corporate DOJ FCPA enforcement actions since 2008 were against publicly traded corporations.

I recognize that the Africa Sting case can skew statistics, so let’s pretend that manufactured case never occurred.  The numbers would then be as follows: (i)  57 individuals charged with FCPA criminal offenses since 2005; 33 of the 57 individuals (58%) were employees or otherwise affiliated with private business entities; (ii) 42 individuals charged with FCPA criminal offenses since 2008; 28 of the 42 individuals (66%) were employees or otherwise affiliated with private business entities.  Still a striking statistic given that 37 of the 42 (88%) “core” corporate DOJ enforcement actions since 2008 have been against publicly traded corporations.

Individuals Charged With FCPA Criminal Offenses Since 2005 (Employer / Affiliation)

Bold = employed or affiliated with a private business entity

Yaw Osei Amoako, Steven Ott, Roger Young (employees of ITXC Corp. – a publicly traded corporation)

Steven Head (employee of Titan Corp. – a publicly traded corporation)

Christian Sapsizian, Edgar Acosta (employees of Alcatel S.A.  / subsidiary / affiliate – a publicly traded corporation)

Jim Bob Brown, James Tillery, Paul Novak, Jason Steph (employees of subsidiaries of Willsbros Group Inc. – a publicly traded corporation)

Si Chan Wooh (employee of Schnitzer Steel – a publicly traded corporation)

Richard Novak (employed by private individuals who owned and operated several internet-based businesses)

Faheem Salam (employed by Titan Corp. – a publicly traded corporation)

Gerald Green, Patricia Green (owners / operators of several private companies)

William Jefferson (as relevant to FCPA charges – agent / participate in several private business entities)

Leo Winston Smith, Martin Eric Self (employees of Pacific Consolidated Industries LP – a private business entity)

Shu Quan Sheng (owner of AMAC International Inc., but acting on behalf of French Company A – a publicly traded corporation)

Misao Hioki (employee of Bridgestone Corporation – a publicly traded corporation)

Nam Nguyen, Joseph Lukas, Kim Nguyen, An Nguyen (employees / agents of Nexus Technologies – a private business entity)

Albert Jack Stanley, Jeffrey Tesler, Wojciech Chodan (employees / agents of KBR Inc., – a publicly traded corporation and/or other publicly traded corporations)

Richard Morlock, Stuart Carson, Hong Carson, Paul Cosgrove, David Edmonds, Flavio Ricotti, Han Yong Kim (employees of Control Components Inc. – a private business entity)

Ousama Naaman (agent of Innospec – a publicly traded corporation)

John Jospeh O’Shea, Fernando Maya Basurto (employee / agent of ABB Ltd. – a publicly traded corporation)

Charles Paul Edward Jumet, John Warwick (employees of Ports Engineering Consultants Corporation – a private business entity)

Jorge Granados, Manuel Caceres, Juan Pablo Vasquez, Manuel Salvoch (employees of Latin Node Inc. – a private business entity)

Juan Diaz, Antonio Perez, Joel Esquenazi, Carlos Rodriguez, Marguerite Grandison, Jean Fourcand, Washington Vasconez Cruz, Amadeus Richers (employees / agents of Terra Telecommunications Corp., Telecom Consulting Services Corp., and JD Locator Services, Inc. – all private business entities)

Enrique Faustino Aguilar, Angela Maria Gomez Aguilar, Keith Lindsey, Steve Lee (employees / agents of Lindsey Manufacturing Corp. – a private business entity)

Richard Bistrong (employee of Armor Holdings Inc. – a publicly traded corporation)

Amaro Goncalves [employee of Smith & Wesson – a publicly traded corporation], John Mushriqui, Jeanna Mushriqui, David Painter, Lee Wares, Pankesh Patel, Ofer Paz, Israel Weisler, Michael Sacks, John Bensor, Haim Geri, Yochanan Choan, Saul Mishkin, R. Patrick Caldwell, Stephen Giordanella, Andrew Bigelow, Helmie Ashiblie, Daniel Alvirez, Lee Allen Tolleson, John Gregory Godsey, Mark Morales [employee of Allied Defense Group – a publicly traded corporation], Jonathan Spiller (unless otherwise noted – all employees of private business entities)

Bobby Elkin (employee of Alliance One International – a publicly traded corporation)

*****

Two tiers of justice?  Other factors at play?  Tomorrow’s post will explore additional statistics.

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