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Africa Sting Update

The Africa Sting case is surely one to watch in 2011.

Recently, certain defendants filed a motion (here) “for an evidentiary hearing requiring the testimony of Richard Bistrong and federal law enforcement agents responsible for managing him in connection with the investigation resulting in the indictment.” The defense claims that Bistrong (see here for a prior post) assured various defendants that the fake Gabon deal had been approved by the U.S. State Department, was not illegal, was not in violation of the FCPA, and that Bistrong “angrily admonished one Defendant who indicated that he was going to tell other defendants that his lawyer had advised that the Gabon deals might be illegal.”

The DOJ response brief is here. The DOJ says that the defense has “presented the Court with selective and misleading facts about this case” and that many of the defendants, wholly apart from the Gabon deal, were involved in paying bribes to foreign officials in other countries. Further, the DOJ argues, pretrial resolution of factual issues is not warranted.

So what does this all mean for the defendants’ entrapment defense?

As entrapment issues are a bit outside my strike zone, I once again go to the bullpen and call upon Dru Stevenson (here) a Professor of Law at South Texas College of Law.

In this guest post, Professor Stevenson analyzes the issues presented in the above briefs.

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“The defendants in the pending FCPA “Africa Sting” case have moved for a pretrial evidentiary hearing, insisting that the government has refused to produce – or perhaps destroyed – potentially exculpatory evidence in the case. The defendant’s allegations of Brady violations (failure to turn over evidence) are serious, but seems based on serious misunderstandings of federal entrapment law.

All of the items alleged to be missing relate to the FBI’s instructions to Bistrong, its undercover informant in the sting operation – a turncoat FCPA violator who offered to set up others as part of his “deal” with the government. The problem is that such information could not be exculpatory under the federal rules for the entrapment defense, which appears to be the defendants’ only theory of the case. Federal courts use only the “subjective test” for entrapment claims, a test that focuses exclusively on the defendant’s own predisposition to commit the crime, NOT the government’s conduct or intentions in the sting operation. It may strike us as upsetting to read about FBI handlers coaching their field operative on lying and deception of the potential felons, but this is legally immaterial for the entrapment defense, because it does not relate to the defendant’s predisposition to commit the crime. If the missing evidence is not “material evidence” for the defense, there is no Brady violation.

Surprisingly, the government’s response brief does not emphasize this issue, but focuses instead on the inappropriateness of a pre-trial hearing when the issues will get full airing at trial. This is probably true, but a court might feel there is no harm in allowing evidentiary hearings before trial, which is rather commonplace.

The defendants advance two points in their brief that, if successful, would dramatically change the law of entrapment in the United States. First, there is a recurring theme throughout the brief that evidence of outright lying by the undercover operative in a sting operation is exculpatory. It is not. All entrapment claims involve sting operations; all sting operations involve some deception and lying to ensnare the defendant; and nearly all entrapment claims fail. Deceiving the defendant may reach a level where it negates the required mens rea for the crime – but this is a mistake of fact defense, a derivative defense that refutes an element of the crime charged, not entrapment, which is an affirmative defense. The defendants in this case do not appear to be raising a derivative defense related to the scienter requirement for FCPA – their case centers on claims of entrapment. Intentional deception is immaterial for the defendant’s predisposition, which is the issue at stake for entrapment in the federal system. Nor does it matter that the undercover operate gave false assurances that the proposed transaction was legal (which the defendants allege happened, and the government denies). This is presumably a common feature of sting operations as well – blithe reassurances that the deal is “completely legal” – just as it is a common feature of conspiracies and recruitment by real criminals, not just undercover agents. In the United States, ignorance of the law is no excuse. There is a seldom-used, and even more seldom-successful, defense of “entrapment by estoppel,” not at issue in this case, for instances where the defendant receives official assurances of legality directly from a government authority, such as an opinion letter from the Attorney General. Yet this would not apply to situations where the co-conspirator merely asserts that he “checked it out” or got “clearance” from the State Department.

A second innovation in the defendant’s brief, which would mark a sea change in entrapment law if successful, is the assertion that dismissal of the charges is an appropriate remedy for “entrapment as a matter of law.” There is no such thing as “entrapment as a matter of law” in the federal system – no Supreme Court cases have ever recognized an entrapment scenario that would need no adjudication or factual determinations. The Supreme Court has been very clear, in every entrapment case, that federal courts should use the “subjective test” for entrapment, which requires a full factual inquiry into the defendant’s predisposition to commit the crime. This is really a two-pronged innovation – one part focused on changing the test used, and the other focused on the procedural juncture for rendering a decision on such claims. “Entrapment as a matter of law” is really another name for the rival version of the entrapment test, usually called the “objective test” (which evaluates what the outrageousness of the government’s conduct rather than the defendant’s subjective predisposition) – a test that the Supreme Court has rejected every time it decided an entrapment case. Essentially, the defendants are asking the court to change the entrapment test used in the federal system from the subjective to the objective test, contrary to long-settled precedent. Further, positioning this decision within a Motion to Dismiss is particularly unprecedented, even for the objective test. Entrapment cases are heavily fact-specific under either test, because they all involve sting operations that included some inducement – and usually a fair amount of false reassurances and even badgering by the agents. Dismissal is generally a remedy for legal problems with the prosecution’s case, not factual problems. Again, it may be troubling to read of the FBI’s undercover operative lying, badgering, and bribing a defendant to commit a crime, but this is a matter for the jury to decide – and, from a policy standpoint, is no different from what would happen in a “true” criminal enterprise. In other words, a defendant who falls for halfhearted, unsupported reassurances by the undercover – or who succumbs to a monetary inducement or mild badgering – would presumably also fall for the same tactics by a criminal organizer.”

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For Professor Stevenson’s other guest posts on the Africa Sting case see here and here.

Judge Denies Esquenazi’s “Foreign Official” Challenge

In a cursory November 19th opinion (see here) devoid of substantive analysis, Judge Jose Martinez (S.D. Fla.) denied Joel Esquenazi’s “foreign official” challenge. (See here and here for prior posts).

Esquenazi’s challenge was launched by a lawyer with no apparent FCPA expertise and his brief did not even scratch the surface as to the FCPA’s extensive legislative history regarding the “foreign official” element. Esquenazi’s “foreign official” brief was just one of several dismissal motions (such as selective and vindictive prosecution and spoilation of defense favorable evidence) filed over a brief time period – a factor which perhaps influenced Judge Martinez’s view of Esquenazi’s otherwise valid “foreign official” challenge – an issue at the core of a significant number of recent FCPA enforcement actions.

In its November 17th response, the DOJ termed Esquenazi’s challenge premature. The DOJ did offer to provide supplemental briefing on the meaning of “foreign official” “to elaborate on how the FCPA’s plain text, its current interpretation by courts, its legislative history, and U.S. treaty obligations provide no support for the defendants’ novel and confusing definition.”

Against this backdrop, within 48 hours of the DOJ’s response, Judge Martinez denied Esquenazi’s challenge.

The substance of Judge Martinez’s decision is as follows.

“The Court […] finds that the Government has sufficiently alleged that Antoine and Duperval were foreign officials by alleging that these individuals were directors in the state-owned Haiti Teleco. Any factual arguments Defendant has on this point may be addressed at trial.”

“The Court also disagrees that Haiti Teleco cannot be an instrumentality under the FCPA’s definition of foreign official. The plain language of this statute and the plain meaning of this term show that as the facts are alleged in the indictment Haiti Teleco could be an instrumentality of the Haitian government.”

As to Esquenazi’s vagueness challenge, the Court stated as follows.

“… the Court also disagrees that the phrase ‘department, agency, or instrumentality’ in the definition of ‘foreign official’ is unconstitutionally vague. ‘Vagueness arises when a statute is so unclear as to what conduct is applicable that persons of common intelligence must necessarily guess at its meaning and differ as to its application.’ Defendant has not met this standard, and the Court find that persons of common intelligence would have fair notice of this statute’s prohibitions.”

DOJ Argues That Esquenazi’s “Foreign Official” Challenge is Premature

The DOJ filed its response brief (here) in the Joel Esquenazi enforcement action – an action which, as described in this prior post, the defendant is challenging the DOJ’s “foreign official” interpretation.

As it did in the Nguyen / Nexus Technologies case (see here – middle of the post) the DOJ asserts as follows. “Although styled as a “motion to dismiss,” the defendants’ submission is instead a premature request for a ruling on the sufficiency of the government’s evidence concerning the status of officers of Telecommunications D’Haiti (“Haiti Teleco”) as a foreign officials of a government instrumentality before the evidence regarding that issue has been presented to the jury. The defendants’ arguments, which are premised on misstatements of both the law and the facts and are premature at best, will be moot after presentation of the government’s case. Therefore the defendants’ motion should be denied.”

The response brief contains a separate section on “the Nature of Haiti Teleco” and states as follows. “At the times relevant to the Indictment, between 2001 and 2004, Haiti Teleco held a state granted monopoly over land line telephone service in Haiti. During that time, Haiti Teleco was 97% state-owned by the Central Bank of Haiti, the Banque de la Republic of Haiti (“BRH”), which held 97% of Haiti Teleco’s shares. No one knows who owned the remaining 3% of Haiti Teleco’s shares, as no records still exist concerning their ownership, yet no person or company has claimed them in institutional memory. Therefore, effectively and functionally, during this period, Haiti Teleco operated with 100% state-ownership. Also during this period, Haiti Teleco was 100% state-controlled.”

The response brief asserts as follows. “… the defendants seek to circumvent the trial process and have the Court determine, before the presentation of any evidence, that the government has not met its burden of proving that Haiti Teleco was a instrumentality of a foreign government as defined by the FCPA. As will be demonstrated in the government’s case-in-chief, whether Haiti Teleco was an instrumentality of the Republic of Haiti is not a close case, a fact the defendants likely understand and therefore attempt to raise this issue before the evidence has been presented. Taken as true, the Indictment is more than sufficient to meet the Hagner standard and the precedent of this Circuit. Therefore, the motion should be denied.”

Under the heading, “Interpretation of the Term Government Instrumentality” the DOJ’s brief states in full as follows.

“The bulk of the defendants’ Motion focuses on suggesting that the Court adopt an insupportably narrow interpretation of government instrumentality that is contradicted by the statute on its face, case law, legislative history, and international treaties. The defendants’ proffered arguments are, in any event, arguments for jury instructions or for the Court after the government’s
case-in-chief pursuant to Federal Rule of Criminal Procedure 29. However, if the Court would like supplemental briefing on the meaning of “foreign official,” the government is more than willing to elaborate on how the FCPA’s plain text, its current interpretation by courts, its legislative history, and U.S. treaty obligations provide no support for the defendants’ novel and confusing definition. These sources confirm that the definition of “foreign official” includes officials of state-owned and state-controlled companies. Further, it is not limited to the narrow and ambiguous restriction that it applies only to “officials performing a public function.” DE 283 at 2. This tortured formulation finds no support, even in the sources the defendants themselves cite. The government stands prepared to brief and argue this issue again, should the defendants raise it, upon a Rule 29 motion or in the context of formulating jury instructions.”

The DOJ response brief also contains a section which argues that the term “foreign official” is not unconstitutionally vague.

Esquenazi Challenges DOJ’s “Foreign Official” Interpretation

Like many FCPA defendants (corporate and individual), Joel Esquenazi allegedly violated the FCPA’s anti-bribery provisions by providing something of value, not to a foreign government official, but to an employee of an alleged state-owned or state-controlled enteprise (“SOE”).

In a December 2009 indictment (here), the DOJ alleged that: (i) “Telecommunications D’Haiti (“Haiti Teleco”) was the Republic of Haiti’s state-owned national telecommunications company;” (ii) Robert Antoine and Jean Rene Duperval were, at various times, “the Director of International Relations of Haiti Teleco” and a “foreign official as that term is defined in the FCPA;” and (iii) Esquenazi, and others provides, things of value to these “foreign officials” in order to obtain or retain business in violation of the FCPA’s anti-bribery provisions.

Unlike most FCPA defendants (corporate and individual), including others charged with Esquenazi in the same indictment, Esquenazi is putting the DOJ to its burden of proof, specifically as to the FCPA’s “foreign official” element.

In a November 2nd motion to dismiss the indictment (here), Esquenazi “respectfully moves the Court to dismiss the indictment for failure to state a criminal offense and, in the alternative, for vagueness with respect to who would constitute a ‘foreign official’ within the meaning of the” FCPA.

The motion states as follows.

“The instant indictment fails to state a criminal offense because it alleges that the recipients of the improper payments were ‘foreign officials’ because they were employees of an entity ‘owned’ by the Republic of Haiti. Such a definition of ‘foreign official’ is unsupported by the text or the purpose of the FCPA. The FCPA is a public bribery statute which criminalizes improper payments to officials performing a public function. Mere control or partial control or ownership (or partial ownership) of an entity by a foreign government no more makes that entity’s employees ‘foreign officials’ than control of General Motors by the U.S. Department of the Treasury makes all GM employees U.S. officials.” (emphasis in original).

Alternatively, the motion states as follows.

“… the Court should dismiss the indictment on the grounds that the FCPA’s definition of ‘foreign official,’ which includes employees of any foreign government ‘department, agency or instumentality,’ is unconstitutionally vague. Especially in the context of third country under a coup such as Haiti was under at the relevant time, a vague definition of ‘foreign official’ to include employees of entities solely based on partial or even full government ‘ownership’ of those entities would unfairly sweep nearly all economic activity within the scope of the statute.”

Richard J. Diaz, an attorney from Coral Gables, Florida, filed the motion on behalf of Esquenazi.

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For prior entries regarding the Haiti Teleco case see here.

As noted in a prior post, an interesting twist is that Haiti Teleco is currently 60% owned by Viettel, a telecommunications company run by Vietnam’s military (see here).

World Bribery & Corruption Compliance Forum – Comments by U.S. Officials

As promised in yesterday’s post (here) that provided a summary of comments by U.K. officials at the World Bribery & Corruption Compliance Forum in London hosted by IBC Legal Conferences, today’s post provides a summary of Charles Duross’s (Deputy Chief – Fraud Section, DOJ) special address as well as comments made by Duross and Thierry Olivier Desmet (Assistant Regional Director, FCPA Unit, SEC) during a panel discussion about voluntary disclosure.

Duross began by noting that the DOJ’s FCPA unit is still very much in a transition phase. He stated that the unit recently added prosecutors with expertise in gathering foreign evidence as well as new prosecutors with the ability to try substantial criminal cases to verdict. Duross stated that the “ability to try lengthy and complex trials” is critical to the FCPA unit’s success and that the unit must continue to be willing to try cases and be put to its burden. Duross stated that the DOJ’s FCPA unit consists of “world class prosecutors” “pure and simple” and that these prosecutors and other personnel make “tremendous personal sacrifices” in their mission of combating bribery. For instance, he noted that in the past few months DOJ prosecutors have traveled to a dozen different countries on four different continents to gather evidence and investigate cases.

Duross also noted that the DOJ works with “tenacious” agents willing to pursue any lead. These agents include, most notably, FBI agents, as well as agents from Immigration, the Internal Revenue Service, Office of Foreign Assets Control, and the Office of Export Enforcement. He said that these agents will “follow the evidence to where it leads them” and that these agents will use traditional law enforcement tools including surveillance, warrants, and wire taps.

Duross stated: “let me be clear – paying bribes to foreign officials to secure business is illegal and is a crime, you will be investigated like any other criminal, and that it doesn’t matter if you wear a tie or you went to a fancy business school.” He said that “if [the DOJ] wins, and we win often, you will go to prison.” He stated that the DOJ is “normally outnumbered by armies of defense attorneys and accountants,” but that DOJ prosecutors are “never outworked and never outhustled.” Duross stated that the DOJ is “always pursuing justice and that it is always seeking to do the right thing.”

Duross also stated that the DOJ continues to expand its network and further development its relationships with foreign counterparts around the world. He stated that the DOJ has “no stronger ties” than with the U.K. and that to say the DOJ has a “close relationship” with the U.K. and the Serious Fraud Office “would be an understatement” as demonstrated by the recent BAE and Innospec prosecutions.

Duross admitted that he takes his new position with a bit of “trepidation” given that he has big shoes to fill (he made specific praise for Peter Clark and Mark Mendelsohn) and given that each new case is followed more closely than the last. He stated that such “scrutiny and criticism can be constructive” and that if it means the DOJ needs to review past practices “we will do so” and that the only way for DOJ to get better is for it to reevaluate what it is doing.

Duross also noted that the DOJ’s FCPA program will be “graded” later this year under the peer review process sponsored by the OECD. The lead examiners in this process are representatives from Argentina and the United Kingdom. He noted that the examiners spent three days in Washington D.C. over the summer and the examiners were provided over 1,000 pages of documents. He also stated that the examiners spent considerable time with the private sector without DOJ involvement something he termed “unprecedented.” According to Duross, the examiner’s report will be made public in mid-October as well as the U.S. response to OECD’s phase 3 questionnaire.

Duross is confident that the U.S. “has a tremendous story to tell” and that if the peer review process identifies area for potential improvement, then “we will welcome this.” Duross said that “if the bar is raised we welcome that” “if it is consistent with our treaty obligations and if all countries are treated equally.”

Duross explained that the FCPA unit has a “number or pending trials” and a significant number of investigations “in the pipeline.” He mentioned upcoming trials in Miami in connection with the Haiti Teleco enforcement actions (see here for prior postings); the upcoming trial of various executives of Control Components Inc. in California – a trial he expects to last two months (see here for prior postings); the pending trials of the Africa Sting defendants in Washington, D.C. (see here for prior postings); and a pending trial in Houston.

In each of these cases, Duross said that the DOJ FCPA unit partners with local AUSA’s who are experts on local trial procedure and have familiarity with the judge. He said that these partnerships are “critical” to the FCPA unit’s success, even if, per DOJ policy, all FCPA prosecutions must be handled by DOJ Main Justice. Duross noted that recently over 90 prosecutors (both DOJ and SEC) participated in “three intense days” of FCPA training at the SEC’s headquarters (see here for a prior post). In concluding on this issue, Duross stated that it would be an “understatement” to say that the DOJ’s team is growing.

In addition to trials, Duross noted that the DOJ’s “pipeline” of investigations “continues to grow.” He said it would “short sighted” if one was left with the view that the only way DOJ receives leads is through voluntary disclosures. Duross dispelled the notion that voluntary disclosures make up the “majority” of its cases. He said that this was “not true and has never been.” According to Duross, when DOJ last looked into this issue a few years ago, the percentage of voluntary disclosure cases was approximately 1/3. On voluntary disclosure, Duross stated that DOJ “has and will continue to provide meaningful credit for companies that provide voluntary disclosures.” He also stated that several voluntary disclosures result in DOJ declinations and that these declinations, which are not often made public, “should not be underestimated.”

During the public Q&A session, I asked Duross about DOJ declinations in FCPA inquiries. I noted that through the FCPA Opinion Release Procedure, DOJ often makes its no-enforcement action decision known as to contemplated business conduct. I asked whether it is in the public interest for the DOJ to publicly disclose its declination decisions, including the facts disclosed by the company and why DOJ, on those facts, declined prosecution. Duross said that the question presented a “difficult issue” and he shared an example of a company that disclosed conduct to the DOJ, but the DOJ declined to prosecute. According to Duross, DOJ asked the company whether it wanted the declination decision to be made public and the company said no – reasoning that it already had disclosed the issue and that there was no need for another public disclosure.

Duross noted that the DOJ receives allegations from a number of sources: the FBI, pro-active investigations, tips from U.S. embassies around the world, anonymous tips, e-mails, and whistleblowers. As to anonymous tips, e-mails, and whistleblowers, Duross stated that DOJ does not immediately launch a full-blown investigation, rather DOJ does its best to verify the information, weight other information, and to make the best judgment possible before commencing an investigation. In sum, Duross said “I don’t want to leave you with the impression that but for voluntary disclosures we would be sitting around on our hands.”

Duross emphasized that the DOJ and its law enforcement partners “make tons of efforts to pursue matters pro-actively” and that the “likelihood of getting caught is increasing over time” and that the world is getting smaller. For instance, Duross said he receives Google Alerts that contain the word bribe. He also shared a story about a “major Fortune 50 company” being the focus of a bribery-related story in a Chinese newspaper. Duross said that the DOJ saw the story on a Sunday night and that by 9:30 a.m. on Monday morning the DOJ had already sent a letter to the general counsel of the company asking for an explanation. Duross explained, that after learning the facts, the DOJ concluded that the newspaper story was incorrect because the case was merely an employee embezzlement matter and had nothing to do with bribery.

Duross next spoke about “tone at the top” and how important it is because non-executive employees look to the board and senior managers for guidance. Duross said that boards and executives should not “let their employees down” and should make clear that unethical and illegal behavior will not be tolerated and that company leaders “should mean it.” On this issue, Duross said that frequently a company voluntarily disclosing will, at the first meeting with DOJ, “slap down on the table its compliance policy.” Duross will then ask the company representative whether anyone has ever been reprimanded for conduct in violation of the policy and that the answer is often “no.” Duross stated that it is “not enough to have a compliance program and a tone at the top,” but rather for a company to “make sure that it means it.”

As to the role of compliance officers, Duross said that vocal support within the business is critical to support the compliance officer so that he/she will not be ignored or willfully disobeyed. Although compliance departments are not viewed as profit centers, Duross encouraged companies to make compliance positions an attractive career track with room for advancement and promotion.

After his remarks, Duross was asked about the general lack of judicial scrutiny of FCPA enforcement actions. He talked about the three FCPA trials in 2009 and said that DOJ is “excited about the upcoming trials” and that the DOJ “welcomes judicial input” on the FCPA.

In his answer, Duross also mentioned the Nexus Technologies enforcement action and how in that action the parties fully briefed the “foreign official” element and that DOJ “won that case.” Although Duross conceded that the judge in that case did not issue a written opinion on the “foreign official” element, Duross did note that the judge, under Rule 11 of the Federal Rules of Criminal Procedure, was required, before accepting the plea, to make sure each element of the crime was met.

[It should be noted that in the Nexus Technology briefing, the DOJ specifically urged the judge, on a number of occassions, not to consider the defendant’s substantive “foreign official” argument because they were premature. The following are snippets from the DOJ’s brief: (i) “the Court need not address any of these faulty arguments at this time:” (ii) “although styled as a motion to dismiss, Defendants’ submission is instead a premature request for a ruling on the sufficiency of the Government’s evidence before any of that evidence has been presented. These arguments, which are premature at best, will be moot after presentation of the Government’s case.” (iii) “because Defendants’ arguments turn entirely on issues of fact, they are premature.”]

During a panel discussion on voluntary disclosure both Duross and Desmet answered questions posed by John Rupp (Covington & Burling – see here).

The first question posed by Rupp was – when is it a crime not to disclose a suspicion of bribery of a public official?

Desmet answered that the concept of materiality is important – would a reasonable investor consider the information important in making a buy or sell decision. Desmet said that the concept of materiality itself has two “sub-concepts”: (i) quantitative materiality (something that impacts a company’s financial statements) – he conceded that very few bribes are quantitatively material; and (ii) qualitative materiality a “complicated gray area” to use Desmet’s words. He said that all bribes can be considered qualitatively material because they may “automatically trigger a books and records violation.” Because of this, Desmet said that it is “prudent” for any issuer to approach the SEC with any “suspicion” of bribes “as soon as” the company learns of the improper payment. When an issuer makes such a disclosure, Desmet said that the Commission will give the company credit for doing so.

Duross answered the question by saying that from the FCPA unit’s perspective, “if there is a bribe we want to hear about it, even if it is small” and that good advice is “to come in and let us know about it.”

Rupp next posed the question – at what point do you expect a company to make a voluntary disclosure?

Duross said, “the earlier the better” although he did also say that the DOJ “does not want to get inundated with a bunch of false starts.” Duross shared an example he said was “troubling” and that was a recent situation where the company voluntarily disclosed a few days after terminating employees in connection with the investigation. When the DOJ asked the company about the employees implicated in the conduct at issue, the company said we terminated them a few days ago and the company then proceeded to say that it no longer had access to the employees.

According to Duross, this “seemed like a bad decision” for the company to make and the conclusion he drew from the company’s decison was that the company did not “want to make the employees available to us.” Duross also added that while a company is often under no affirmative obligation to voluntary disclose, once the voluntary disclosure decision is made, the relationship between the DOJ and company counsel is all about trust and credibility.

Duross said that it is “incredibly difficult” for the DOJ to make important decisions affecting the company if the DOJ senses that the investigation was not done properly or if the DOJ senses that the company is not truly cooperating. Duross said that if the DOJ does not trust company counsel, it may ask the company to go back and redo the investigation of the conduct at issue. According to Duross, a reason a company should consider early in the process to voluntarily disclose is to perhaps save money. He said that the DOJ FCPA unit is “pretty reasonable” and that if a company comes in before the investigation is complete, the DOJ can have some input as to the scope of the investigation – which may turn out to be more limited than what the company may have thought was going to be expected.

In sum, Duross sees the benefits of an early voluntary disclosure as building trust and credibility and perhaps saving the company money.

Duross said that counsel should also not assume that a voluntary disclosure will result in a “passive approach” from the DOJ. Even if a company has voluntarily disclosed conduct, Duross said that the DOJ will go talk to witnesses and use the Mutual Legal Assistance Treaty process to gather evidence. Duross shared a story of outside counsel meeting with the DOJ and giving DOJ a big Powerpoint presentation, when the reality of the situation was that, through no fault of outside counsel, outside counsel had “absolutely no idea of what was going on” because DOJ, as a result of its independent fact-gathering, knew information that even outside counsel did not know.

Duross also cautioned companies to make accurate public statments during an investigation and voluntary disclosure process. On this issue, Duross shared that the DOJ has reached out to companies in the middle of an FCPA inquiry to let the company know that DOJ may disagree with various aspects of the public statements the company is making about the investigation.

Rupp asked – do companies in discussions with you, run the “footnote language by” the DOJ? Duross said, it depends on the practitioner. He did say “to be honest, we don’t want to get into that level of detail in which we are blessing company filings.” Duross did say though that if the company proposes language for a filing or public statement and the DOJ says “no comment” that this should be interpreted by the company as “probably not a good thing.”

Desmet said that when he opens up an FCPA investigation, one of the first things he does is read the company’s SEC filings, including a very detailed review of the company’s MD&A section of the financial statements.

Rupp next asked questions about the SEC’s new whistleblower provisions and asked what will happen if the company has a mere suscipion of an improper payment, the company is in the very early stages of an investigation, a document hold has been issued, electronic documents are being pulled, the company is lining up employees that may have knowledge – but that during this process, a whistleblower contacts the SEC. Rupp asked – will the company in this situation lose the benefits of voluntary disclosure because the whistleblower first contacted the SEC? (See here for my prior post on this issue).

Duross said that the above company probably would be negatively affected under the U.S. Sentencing Guidelines, and probably not receive the sentencing credit for voluntary disclosure, but that this should not be the beginning and end of the analysis. Duross said that there are “lots of different factors” the DOJ considers when resolving an FCPA inquiry per the DOJ’s Principles of Prosecution of Business Organizations and that just because the company was technically not the first in the door does not mean that the DOJ will not try to achieve a “just and fair result.” Duross stated that the SEC, not the DOJ, is in charge of the whistleblower program, but again stated that companies should not think the “world is going to be over” just because a whistleblower “is in first” even if that fact may impact the Sentencing Guidelines culpability score.

Desmet’s answer was very similar on this issue. He noted that while final rules are yet to be issued as to the whistleblower program, he hopes that the Commission would not be rigid in the face of such a hypothetical. He said that if the company comes in a “few days or a few weeks after a whistleblower” that he would “like to think” that such a company would still get credit for self-reporting. In this type of situation, Desmet said that the whistleblower, if otherwise qualified under the provisions, would likely get his/her bounty and the company would likely still get the benefit of self-disclosure as well.

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