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Statistics of Note

Fulbright & Jaworski’s Annual Litigation Trends Survey Report is always an interesting read and this year’s report (available for download here) is no exception.

The report compiles survey data from “senior corporate counsel on their experiences and opinions regarding various aspects of litigation and related matters.” “There were 403 participants in the Litigation Trends Survey of 2010, including 275 in the U.S. and 128 in the U.K. (a record high).” Approximately 50% of the survey participants were employed by a company with gross revenues of over $1 billion.

Some statistics that caught my eye.

“Companies that have engaged outside counsel to assist with a corruption or bribery investigation in the past 12 months (including, but not limited to, FCPA in the U.S. and equivalent in U.K.)”

12% U.S., 26% U.K.

Surprising on both fronts. The spike in the U.K. rate 26% in 2010 vs. 12% in 2009 is not surprising given the increased attention to bribery and corruption issues in the U.K. as the Bribery Act nears implementation.

According to the survey, “a quarter of manufacturers have conducted bribery/corruption investigations” and this sector “continues to lead other industries, as it has for the past two years.”

“Companies that 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.”

17% U.S., 28% U.K.

Again surprising on both fronts. FCPA-specific due diligence in M&A and other cross-border transactions is frequently preached by the enforcement agencies, but apparently companies are not getting the message, or if they are, they don’t view FCPA specific due diligence as a value added exercise.

This next statistic is also surprising, particulary given (what at least appears to be from media and other reports) high anxiety levels as to the upcoming U.K. Bribery Act. I like how Miller & Chevalier states it in its recent FCPA Autumn Review 2010 (see here) – the U.K. Bribery Act “about which so much is being said and written” an issue already the “subject of lively debate and ominous forebodings” and a topic “commanding considerable commentary and concern.”

“Do you foresee changes in the way your company operates due to the new U.K. Bribery Act?”

89% no – U.S.

65% no – U.K.

The following non-FCPA statistic was also interesting.

“A quarter of the companies that have conducted an internal investigation reported the matter to a regulatory agency, as a result of the investigation.” I suspect that if this topic was FCPA specific the percentage would have been higher than 25%.

*****

As to FCPA, Inc. issue generally, this recent article in The Lawyer by Matt Byrne caught me eye. It discusses Shearman & Sterling’s “radical strategy” to boost litigation related revenue. The article quotes N.Y. based partner Herb Washer as saying that, among other areas, FCPA-related matters are acting as a catalyst for Shearman’s litigation push. “FCPA enforcement has become an explicit priority of the Department of Justice,” says Washer. “There’s not only a greater number of cases but the fines are trending upwards. There’s very big money at risk and companies are spending big money to defend themselves against allegations. There’s no doubt this is a significant driver for the growth of our practice and many of our competitors.”

Friday Roundup

The Bribery Act is not the only thing delayed in the U.K., where in the world is James Tillery, Thai authorities looking into Alliance One and Universal Corp bribe recipients, and corporate directors appear satisfied … it’s all here in the Friday roundup.

BAE U.K. Plea Agreement Delayed

In a recent article in The Times (London), Alex Spence and David Robertson report that the BAE – SFO plea agreement “is unlikely to come before the courts for approval before November.”

In February (see here) the SFO announced that it “reached an agreement with BAE Systems that the company will plead guilty” to the offense of “failing to keep reasonably accurate accounting records in relation to its activities in Tanzania.” The SFO resolution was controversial given that BAE was viewed by many to have engaged in bribery around the world.

The Times reports “that the SFO fears that a judge may now refuse to approve the BAE settlement or increase the penalties imposed on the company.” The article indicates that “BAE, which has always denied bribery, is understood to be frustrated by the slow progress of the SFO case, but the delay is not thought to have had an impact on the company’s operations.”

James Tillery

In December 2008, James Tillery, a former executive of Willbros International Inc., and Paul Novak, a consultant to the company, were criminally charged “in connection with a conspiracy to pay more than $6 million in bribes to government officials in Nigeria and Ecuador …” (see here).

In November 2009, Novak pleaded guilty to one count of conspiracy to violate the FCPA and one substantive count of violating the FCPA (see here).

Tillery has apparently been hanging out in Nigeria, but is now apparently in custody according to various Nigerian news outlets. According to the sources, “Tillery was believed to have been handed over by officials of Interpol to officials of the US Federal Bureau of Investigation (FBI).”

Apparently this occurred “without the knowledge of Attorney-General of the Federation and Minister of Justice, Mr. Mohammed Adoke, who is supposed to be notified before such action is taken. Under section 6 of the Extradition Act, a request for extradition is supposed to be sent to the AGF who is supposed to arraign such a deportee before a magistrate court and upon the declaration of the magistrate, the deportee is deported accordingly.”

Then it was reported that Tillery’s extradition “was stopped by immigration officials at the Murtala Muhammed International Airport, Lagos because he did not have a travel document.”

Then Tillery’s Nigerian lawyer apparently stepped in and said that the attempted extradition was a “grave assault on the sovereignty of Nigeria” and a violation of Nigeria’s Extradition Act because Tillery renounced his U.S. citizenship and became a Nigerian by naturalization in 2009. Thus, the lawyer argued that the U.S. needed to follow legal steps in Tillery’s extradition.

Then it was reported that Justice Abang Okon of the Federal High Court in Lagos ordered the Federal Government to halt its alleged plan to extradite Tillery from Nigeria to the U.S.

For more on Willbros Group and other individuals involved in related enforcement actions (see here and here).

Thai Authorities Investigating Alliance One / Universal Corp. Bribe Recipients

Earlier this month, the DOJ and SEC announced a joint FCPA enforcement action against tobacco companies Alliance One International Inc. and Universal Corporation. Certain of the allegations against both companies involved bribe payments to “Thai government officials to secure contracts with the Thailand Tobacco Monopoly (TTM), a Thai government agency, for the sale of tobacco leaf.” (See here).

In this prior post, I noted that it is potentially embarrassing for a foreign country to have “one of its own” profiled in a U.S. FCPA enforcement action. With increasing frequency, the end result is that the alleged “foreign official” bribe recipient becomes the subject of an “in-country” investigation.

As noted in this Bangkok Post article:

“A local investigation is expected into US allegations that Thailand Tobacco Monopoly staff accepted US$1.93 million (62 million baht) in bribes to buy Brazilian tobacco. The Department of Special Investigation has asked the Finance Ministry to file a complaint against the TTM staff so it can look into the allegations. DSI director-general Tharit Pengdit told the Bangkok Post yesterday the Finance Ministry, which supervises the state-owned cigarette maker, should file a complaint with the DSI so it can look into the US claims. […] Sathit Limpongpan, permanent secretary for finance, said his ministry would work with the Justice Ministry to seek information from the US Justice Department and would conduct an initial investigation.”

Corporate Directors Are Satisfied

According to a recent legal survey by Corporate Board Member and FTI Consulting (see here), 90% of directors “are satisfied with their in-house legal department’s management” of FCPA issues.

A good weekend to all.

Report Cards

The start of school is just around the corner, but summer is report card time for various groups focused on reducing bribery and corruption.

This post highlights two such report cards: Transparency International’s Annual Progress Report of the OECD Anti-Bribery Convention and The OECD Working Group on Bribery Annual Report.

Transparency International 2010 Progress Report of the OECD Anti-Bribery Convention

On July 28th, Transprancy International (TI) (see here) released its sixth annual Progress Report on Enforcement of the OECD Convention.

“The 2010 report covers 36 of the 38 parties to the Convention, all except Iceland and Luxembourg. It covers enforcement data for the period ending 2009 unless otherwise stated and includes reports on recent case developments through June 2010. Like prior reports, this report is based on information provided by TI experts in each reporting country selected by TI national chapters.”

According to Appendix A of the report, the U.S. experts responding to the TI questionnaire were Lucinda Low (here) and Tom Best (here) of Steptoe & Johnson LLP.

In summary fashion, the report states:

“The increase in the number of countries with active enforcement from four to seven is a very positive development, because active enforcement is considered a substantial deterrent to foreign bribery. With the addition of Denmark, Italy and the United Kingdom, which previously were in the moderate category, there is now active enforcement in countries representing about 30 per cent of world exports, 8 per cent more than in the prior year.”

“The number of countries in the moderate category has changed from 11 to 9 countries, because three countries have moved up to the active category and one country, Argentina have moved up from the lowest category. The risk of prosecution in the nine countries with moderate enforcement – representing about 21 per cent of world exports – is considered an insufficient deterrent. Among this group are G8 members France and Japan.”

“The most disappointing finding is that there are still 20 countries – including G8 member Canada – with little or no enforcement, representing about 15 per cent of world exports. That number has shown little change in the last five years. This is deeply disturbing because companies in these countries will feel little or no constraint about foreign bribery, and many are not even aware of the OECD Convention. Governments in these countries have failed to meet the Convention’s commitment for collective action against foreign bribery.”

The report contains the following conclusions.

Current Levels of Enforcement are too Low to Enable the Convention to Succeed

“With active enforcement in only seven of the 38 parties to the Convention, the Convention’s goal of effectively curbing foreign bribery in international business transactions is still far from being achieved. The current situation is unstable because the Convention is predicated on the collective commitment of all the parties to end foreign bribery. Unless enforcement is sharply increased, existing support could well erode. Danger signals include efforts in some countries to limit the role of investigative magistrates, shorten statutes of limitations and extend immunities from prosecution. The risk of backsliding is particularly acute during a time of recession, when competition for limited orders is intense.”

Cause of Lagging Enforcement: Lack of Political Will

“The principal cause of lagging enforcement is lack of political will. This can take a passive form, such as failure to provide adequate funding and staffing for enforcement. It can also take an active form, through political obstruction of investigations and prosecutions. The lack of political will must be forcefully confronted not only by the Working Group on Bribery but also by the active involvement of the OECD Secretary-General, as well as high-level pressure on the laggards from governments committed to enforcement.”

Although the TI Report probably did not have the U.S. and U.K. in mind when making the above statement, many have questioned whether both the U.S. and U.K. governments lacked the political will to charge BAE, a large defense contractor to both governments, with bribery offenses. The U.S. enforcement action (see here) was not an FCPA enforcement action and the U.K. enforcement action (here) merely concerned a book keeping issue in Tanzania. And of course, TI’s statement about lack of political will was made before the Giffen Gaffe (see here).

Positive developments noted in the TI Report include:

“During the last year prosecutors in the US, Germany and the UK announced a number of settlements of important foreign bribery cases in which the defendants agreed to pay fines amounting to many hundreds of millions of dollars. These settlements demonstrate the ability of prosecutors to resolve cases without interminable litigation. The settlement levels provide a sharp wake-up call to international business regarding the gravity of foreign bribery.”

In seeming recognition of how aggresive enforcement of bribery laws can become a cash cow (see here for more) for the enforcing government, the report then states: “[The settlements] should also make clear to laggard governments that investing in adequate enforcement can have substantial returns.”

Other snippets from the TI Report.

As to the U.K.’s delay of the Bribery Act (see here for more) the report states:

“… it is regrettable that the entry into force of the law has been delayed until April 2011. There should be no further delay. It is also important that the consultation on the publication of official government guidance on compliance will not result in weakening any provision of the law.”

As to the use of alternative resolution vehicles such as non-prosecution and deferred prosecution agreements – a common way corporate FCPA enforcement actions are resolved (see here and here for more) and a model the U.K. SFO seeks to follow – the report contains this recommendation:

“The Working Group should undertake a study on the use of negotiated settlements to resolve foreign bribery cases. There are strong reasons for negotiated settlements, most importantly to avoid the high costs, long delays and unpredictable outcomes of litigation. However, there is concern that these settlements could be questionable deals between prosecutors and politically influential companies. Therefore, procedures should be adopted to make settlement terms public and subject to judicial approval. This should follow a public hearing where representatives of the country where the bribes were paid, competitors and other interested stakeholders such as public interest groups should be given an opportunity to present their views.”

The report also states as follows:

“TI considers that all settlements should be submitted to judicial review independent from the Prosecutor’s Office. This review should include a public hearing with representatives of the country where the bribe was paid, competitiors and civil society organisations before the settlement becomes final and published detailed conclusions.”

In a section of the report discussing current cases and trends, the report notes that some fines and penalties are based on the amount of the bribe while in other cases the fines and penalties are based on the amount of profit or gain from the transaction.

In apparent recognition that many FCPA fines and penalties (even eye-popping ones such as Siemens) still result in the company seemingly emerging from the prosecution with a net profit from the improper activity, the report states:

“TI considers that corporate fines should exceed the amount of profit from the wrongdoing.”

Further, the TI report questions whether the increase in enforcement and the penalties imposed are actually making any difference as it states: “[w]hile the amounts paid by companies are rising steadily in some jurisdictions, the question remains whether there is adequate deterrence.”

Continuing the dialogue on the question of “where should fines and penalties” go (see here and here for more) the report states:

“It would be desirable for the OECD Working Group on Bribery to conduct a study on corporate liability and penalties. TI considers that part of the fines paid or profits reimbursed should be made available for the benefit of the country that suffered from the offence.”

In addition to Transparency International, the OECD itself issued a summer report card.

OECD Working Group on Bribery Annual Report

On June 15th, the OECD Working Group on Bribery issued its annual report (see here).

As stated in the report, “the OECD has been at the forefront of international efforts to combat corruption in business, taking a multi-disciplinary approach, via its Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, as well as through its work in the areas of taxation, development aid, and governance.”

The Anti-Bribery Convention (here) has been implemented by 38 countries (see here) and these countries comprise the OECD Working Group on Bribery.

Among recent achievements noted by OECD Secretary General Angel Gurría are:

“Israel—the Working Group’s newest member— […] underwent a series of intense
evaluations and implemented significant anti-bribery legislative changes to the anti-bribery standards expected of candidates for membership of the OECD;” and

“Chile, which recently became a member of the OECD, also passed legislation that holds Chilean companies liable for bribing foreign public officials when doing business abroad;”.

Secretary General Gurria also noted that “in 2009, Russia officially asked to join the Anti-Bribery Convention as part of its OECD membership drive” and that the OECD is also deepening relations on anti-bribery issues with China, India, Indonesia and Thailand, and hopes to bring other countries on board.”

As the report notes, 2009 “marked the completion of ten years of monitoring Parties’ implementation and enforcement of the Anti-Bribery Convention.”

This is the first year that official data on enforcement efforts by Parties
to the Anti-Bribery Convention is publicly available. The data (see here) is from “Decisions on Foreign Bribery Cases from 1999 to December 2009.”

According to the report, “the data has been compiled and published by the OECD Secretariat on the basis of statistics, data and information provided by the Parties to Convention in order to provide a realistic picture of the level of enforcement in the jurisdiction of each of the Parties. However, the responsibility for the provision and accuracy of information rests solely with the individual Parties.”

Further, in a seeming reference to U.S. enforcement of the FCPA and the frequency by which FCPA enforcement actions are resolved through non-prosecution agreements, the report notes that the data includes information “provided on a voluntary basis by certain countries concerning the number of foreign bribery cases that have been resolved through an agreement between the law enforcement authorities and the accused person or entity, with or without court approval.”

Interested in how many individuals and business entities have been criminally sanctioned by OECD signatory nations for bribery? Curious as to how many investigations are currently pending by signatory nations? Want to compare Hungary to Iceland or the U.S. to Germany?

It is all possible with OECD data.

Nigeria … A Challenging Market

Nigeria.

It is one of Africa’s largest markets. It is also one of the largest oil and gas producing nations in the world.

No surprise then that many companies subject to the FCPA do business in Nigeria.

Problem is, Nigeria is also an incredibly challenging and complex market to do business in from an FCPA perspective.

The recent Bonny Island bribery enforcement actions (see here and here), and Panalpina’s pending FCPA enforcement action (see here), which is largely focused on Nigeria, all highlight this point.

Just how challenging and complex is the Nigerian market?

Based on a report (see here) released earlier this month, incredibly so.

The report, jointly commissioned by the European Union (EU), the UN Office on Drugs and Crime, Nigeria’s Economic and Financial Crimes Commission (EFCC), and the National Bureau of Statistics (NBS), was carried out in 2007 and funded by the EU at a cost of 25 million euro (US$31.2 million). It is the aggregation of results from a survey of 2,200 companies doing business across Nigeria.

Among the findings of the report, 71% of respondents answered that corruption presents a serious risk for doing business in Nigeria and the payment of bribes affects most companies operating in the country. According to the report, one in three companies reported paying a bribe to public officials in undertaking administrative tasks. According to the report, in dealing with police or clearing goods through customs, the payment of bribes is common.

Payment of bribes in connection with custom clearances is at the heart of the pending Panalpina enforcement action (as well as numerous other recent FCPA enforcement actions such as Helmerich & Payne, Inc. (see here) and Nature’s Sunshine Products, Inc. (see here).

The recent Nigeria report, specifically its finding that the payment of bribes is common in clearing goods through customs, begs the questions – is this exactly the reason why Congress included a facilitation payment exception to the FCPA? If the answer if yes, then what does it say about the pending Panalpina enforcement action, the recent Helmerich & Payne and Nature’s Sunshine Products enforcement actions, and the numerous other enforcement actions based in whole or in part on customs issues.

For a prior post on facilitating payments, see here.

Coverage From The Conference Circuit

The end of June was a busy time on the FCPA conference circuit with events taking place around the world.

Wrage Blog (see here) has a summary of certain events, including comments by Hank Walther, the Assistant Chief DOJ Fraud Section, at an event hosted by Ethical Corporation (see here).

As noted in the post, with official FCPA guidance “pretty sparse,” reading the “tea leaves” from comments made by government enforcement attorneys at conferences “become more important.” It all seems like a rather odd way for a law to develop and for enforcement theories and priorities to be disclosed, but such is the current state of affairs.

Among the “tea leaves” discussed in the Wrage Blog post:

“The ‘Siemens Phenomena’ is here to stay. That is, the DOJ will continue to pursue large cases where the alleged misconduct spans multiple continents. [Walther] noted that the Siemens case, with its billion-dollar-plus settlement, was not an outlier. [Walther] pointed to other recent eye-catching settlements: BAE ($400 million), Daimler ($93 million criminal penalty) and KBR ($402 million).”

[Comment: why does the DOJ continue to trumpet the BAE case as an FCPA case when it (or others in government) did not have the gumption to actually charge BAE with FCPA violations despite allegations which seem to support such a charge?]

“…the DOJ’s interest in pursuing marquee names does not mean private companies are off the hook. Per [Walther], the DOJ still likes the smaller cases. Although the public company prosecutions grab the headlines, [Walther] was quick to note that more private companies have been prosecuted under the FCPA than public companies.”

“Individuals remain squarely in the DOJ’s cross hairs. [Walther] pointed out that, even as recently as four or five years ago, the DOJ rarely charged individuals with FCPA violations. What has changed? First, an apparent public policy shift at the DOJ has occurred. The DOJ has come to realize that ‘it can’t build an enforcement regime on criminal fines alone.’ That is, if bribery convictions only impact corporate coffers, then paying bribes just becomes a cost of doing business. If, instead, the specter of jail time is factored into the cost-benefit analysis, then the calculus changes dramatically. Second, the DOJ has become more adept at gathering evidence in FCPA cases.”

For additional coverage on the DOJ’s focus on individuals, see this article from Aruna Viswanatha at Main Justice. Of particular interest, the Main Justice article quotes Walther as saying that “a fine-only enforcement policy allows companies to calculate such settlements as the cost of doing business.”

That fine-only FCPA enforcement actions (particularly those that leave the company in a “net positive” position after the improper payments) and FCPA enforcement actions that allow the company to escape the “most fitting” charges and penalties do not deter is precisely one of the points I made in these prior posts (see here and here) challenging Mark Mendelsohn and William Jacobson’s (both former DOJ FCPA enforcement attorneys) defense of the Siemens enforcement action.

For coverage of another recent event (The Marcus Evans 4th FCPA & Anti-Corruption Compliance Conference) see this piece from Joe Palazzolo at Main Justice regarding how the FBI anti-corruption unit is expanding and being more aggressive.

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