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Like A Kid In The Candy Store

Kid in Candy Store

Like every year around this time, I feel like a kid in a candy store given the number of FCPA year in reviews hitting my inbox.  This post highlights various FCPA or related publications that caught my eye.

Reading the below publications is recommended and should find their way to your reading stack.

However, be warned.  The divergent enforcement statistics contained in them (a result of various creative counting methods) are likely to make you dizzy at times and as to certain issues. There will be more on this issue in the near future.

Shearman & Sterling

The firm’s Recent Trends and Patterns in FCPA Enforcement is among the best year-after-year.

Content that caught my eye:

“It is … noteworthy that the DOJ’s and SEC’s prioritization of individual prosecutions comes as enforcement agencies continue to struggle while pursuing FCPA charges against individual defendants. Setbacks in United States v. Sigelman and United States v. Firtash may cause the Department to rethink its strategy. Indeed, while the DOJ has had some success extracting plea agreements, when put to its burden of proof the DOJ (and the SEC for that matter) has experienced difficulty in securing convictions and judgments. Given these struggles, it is possible that future individual defendants may be emboldened to test their chances against the government in court, potentially requiring the DOJ to devote even more resources to trying these individuals. While the DOJ and SEC have made it a clear priority to prosecute individuals for violations of the FCPA, the risk-reward calculations that prosecutors must consider before bringing charges could be altered going forward.”

[For more on this general topic, see “What Percentage of DOJ FCPA Losses is Acceptable?“]

[…]

“[Regarding so-called declinations] we note however, in the cases of Eli Lilly, Goodyear, Mead Johnson Nutrition, Hyperdynamics, and Bristol-Myers, the DOJ’s declination decision might also be explained by a possible lack of jurisdiction. Specifically, in each of the cases above, where all of the illicit conduct was committed by subsidiaries of the parent company, the DOJ may have concluded it was too difficult to prove that the subsidiaries’ conduct should be imputed on the corporate parent—bearing in mind that the DOJ has a higher burden of proof to sustain criminal FCPA charges against a company.”

[…]

“The DOJ’s 2015 prosecution of Daren Condrey in United States v. Condrey raises some questions as to whether government prosecutors are remaining faithful to the government instrumentality test set out in the Eleventh Circuit’s 2014 decision in United States v. Esquenazi.”

[For more on this topic, see this prior post]

[…]

“[Regarding the 2015 BNY Mellon “internship” enforcement action] [T]he government’s approach is bad policy. For better or worse, some of the most educated and most qualified potential hires in many countries are the children of government officials—individuals who benefited from their parents’ privileges and had the opportunity to attend prestigious schools, learn foreign languages, etc. If the government infers an intent to apply corrupt influence from the potential hire’s relationship to government officials, it is likely to chill hiring of such individuals, resulting in a completely unnecessary disadvantage to U.S. and other companies covered by the FCPA.”

Debevoise & Plimpton

The firm’s FCPA Update is the best monthly read there is and the most recent edition states:

“Even adding in amounts agreed or ordered to be recovered from individuals in FCPA cases, last year was by any objective measure one of more muted FCPA enforcement. Various theories can be advanced to explain these figures.

One, and probably the most plausible, is that, in a system of FCPA enforcement against companies that almost never ends in a trial, corporate resolutions require companies’ consent. It was only a matter of time for there to be a dry spell of large corporate resolutions. Thus, there were no large settlements last year because of the mundane fact that none of the larger cases in the pipeline was ready to be settled. Because of potential negotiation delays of various kinds in cases in the pipeline, it is conceivable if not likely there will be large settlements in 2016, which may dampen urges to downplay enforcement risk.

Still, a theory warranting consideration is that more companies subject to the FCPA are “getting it,” the possibility being that after a decade of vigorous enforcement the number of big cases that could be brought is markedly decreased. That the number of FCPA-related investigations reported by public companies declined by about 20 percent, year over year, arguably supports this theory.

But negating this theory is the large number of new foreign corruption matters reported daily in the media, and the kinds of political upheaval and developments in technology, social media culture, whistle-blowing, and transparency movements that drive anti-bribery enforcement. Given the broad jurisdictional reach of the FCPA (particularly as construed by the DOJ and SEC), a large percentage of the new cases reported in the media could well subject companies and individuals alike to future FCPA enforcement risks. These risks are magnified by a growing level of cross-border cooperation among anti-bribery enforcement agencies.

And as the Obama Administration heads into its final year, with a new Attorney General and Assistant Attorney General for the Criminal Division now settled into their roles, the likelihood of increased enforcement seems relatively high.”

Gibson Dunn

The firm’s Year-End FCPA Update is also a quality read year after year.

Gibson Dunn also released (here) its always informative “Year-End Update on Corporate Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs).”

It begins as follows.

“2015 was a blockbuster year in corporate non-prosecution agreements (“NPA”) and deferred prosecution agreements (“DPA”), by sheer numbers alone.  Skyrocketing to 100 [87 NPAs and 13 DPAs], in 2015 the number of agreements more than doubled the numbers in every prior year since 2000 , when Gibson Dunn first began tracking NPA and DPA data.”

Davis Polk

The firm’s Trends in Anti-Corruption Enforcement is here. A visual FCPA Resolution Tracker is here.

Jenner Block

The firm’s Business Guide to Anti-Corruption Laws 2016 is here.

Hogan Lovells

The firm’s Global Bribery and Corruption Review is here.

Arnold & Porter

The firms Global Anti-Corruption Insights is here.

The “Foreign Officials” Of 2015

foreign official2

A “foreign official.”

Without one, there can be no FCPA anti-bribery violation (civil or criminal).  Who were the alleged “foreign officials” of 2015?

This post highlights the alleged “foreign officials” from 2015 corporate DOJ and SEC FCPA enforcement actions.

There were 11 core corporate enforcement actions in 2015.

Of the 11 enforcement actions 6 (55%) explicitly involved, in whole or in part, employees of alleged state-owned or state-controlled entities (“SOEs). These entities ranged from health care providers, to sovereign wealth funds, to a real estate development firm, a sugar factory, a cement company, a diamond mine, and an oil and gas company.

By way of comparison, in 2014 60% of corporate enforcement actions involved, in whole or in part, employees of alleged SOEs (see here). In 2013, 55% of corporate enforcement actions involved, in whole or in part, employees of alleged SOEs (see here). In 2012, 42% of corporate enforcement actions involved, in whole or in part, employees of alleged SOEs (see here at pages 348-353).  In 2011, 81% of corporate enforcement actions involved, in whole or in part, employees of alleged SOEs (see here at pages 29-41).  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).

In 2014, in an issue of first impression for an appellate court, the 11th Circuit set forth a control and function test for whether an alleged SOE can be “instrumentality” under the FCPA such that its employees are “foreign officials” under the FCPA.  As highlighted here and more extensively in my Supreme Court amicus brief supporting the cert petition, there were many flaws in the 11th Circuit’s reasoning.  The Supreme Court declined to hear the case.  As to whether Congress intended employees of SOEs to be “foreign officials” under the FCPA, see here for my “foreign official” declaration.

The remainder of this post describes (as per DOJ/SEC allegations) the “foreign officials” of 2015.  As is apparent from the 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 or findings.  As most readers know, actual charges in many 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, most such actions remain very much about the “foreign officials” involved – a fact evident when reading the actual enforcement action].

PBSJ

SEC

Employees of Qatari Diar Real Estate Investment Company (“Qatari Diar”). Qatari Diar was established by the Qatari government to coordinate the country’s real estate development.

Goodyear

SEC

Employees of Kenyan government-owned or affiliated entities including including the Kenya Ports Authority, the Armed Forces Canteen Organization, the Nzoia Sugar Company, the Kenyan Air Force, the Ministry of Roads, the Ministry of State for Defense, the East African Portland Cement Co., and Telkom Kenya Ltd.

Employees of government-owned or affiliated entities in Angola, including the Catoca Diamond Mine, UNICARGAS, Engevia Construction and Public Works, the Electric Company of Luanda, National Service of Alfadega, and Sonangol.

IAP Worldwide

DOJ

Individual(s) at the Kuwaiti Ministry of the Interior

BHP Billiton

SEC

Government officials and employees of state-owned enterprises to attend the Olympics at the company’s expense. The majority of these invitations were extended to government officials from countries in Africa and Asia that had well-known histories of corruption.

FLIR Systems

SEC

Individuals with the Saudi Arabia Ministry of Interior. Individuals from the Egyptian Ministry of Defense

Louis Berger

DOJ

Various foreign officials in Indonesia, Vietnam, India and Kuwait.

Hyperdynamics

SEC

Payments by company subsidiaries in the Republic of Guinea for purported public relations and lobbying expenses, even though the company lacked sufficient supporting documentation to determine whether the services were actually provided and to identify the ultimate recipient of the funds.

Hitachi

SEC

Various payments to Chancellor House Holdings (Pty) Ltd. (“Chancellor”), a local South African company that was a front for the African National Congress (“ANC”), South Africa’s ruling political party

BNY Mellon

SEC

The company provided “valuable student internships to family members of foreign government officials affiliated with a Middle Eastern sovereign wealth fund.”

Mead-Johnson

SEC

Certain health care professionals at state-owned hospitals in China

Bristol-Myers Squibb

SEC

Various health care providers at state-owned and state-controlled hospitals in China

In The TPP, The U.S. Government Acknowledges The Commercial Aspects Of SOEs

acknowledge

The U.S. government’s position on state-owned or state-controlled enterprises (SOEs) is amusing to say the least.

Is it too much to expect a uniform, consistent, and principled position from the U.S. government?

For instance, in the “foreign official” challenges (Carson, O’Shea, and Esquenazi / Rodriguez) the DOJ pledged allegiance to the OECD Convention and argued that the OECD Convention compelled a meaning of “foreign official” that included employees of SOEs.

As highlighted in my Supreme Court amicus brief filed in connection with the Esquenazi / Rodriguez cert petition, there were a number of problems with the DOJ’s position. Separately, the DOJ’s position was selective because it ignored OECD Convention commentary 15 which states:

“An official of a public enterprise shall be deemed to perform a public function unless the enterprise operates on a normal commercial basis in the relevant market, i.e., on a basis which is substantially equivalent to that of a private enterprise, without preferential subsidies or other privileges.” (emphasis added).

The recent Trans-Pacific Partnership (TPP) agreement has an entire chapter (Chapter 17) devoted to SOEs which rightly recognizes the commercial nature of most SOEs.

The chapter defines SOEs as follows.

state-owned enterprise means an enterprise:

(a) that is principally engaged in commercial activities; and

(b) in which a Party:

(i) directly owns more than 50 percent of the share capital;

(ii) controls, through ownership interests, the exercise of more than 50 percent of the voting rights; or

(iii) holds the power to appoint a majority of members of the board of directors or any other equivalent management body.

commercial activities means activities which an enterprise undertakes with an orientation toward profit-making and which result in the production of a good or supply of a service that will be sold to a consumer in the relevant market in quantities and at prices determined by the enterprise.

This chapter summary notes:

“[This] chapter provides broad coverage of SOEs that are principally engaged in commercial activity.”

[…]

“The SOE chapter includes commitments by TPP Parties to ensure that their SOEs make commercial purchases and sales on the basis of commercial considerations, except when doing so would be inconsistent with any mandate under which an SOE is operating that would require it to provide public services.”

[…]

“Whereas in 2000, there was only one SOE in the Fortune Global 50 list of the largest companies in the world, now there are close to a dozen.”

[…]

“SOEs exist in all TPP countries, are used for different purposes, and are regulated and managed in widely varying ways. Some SOEs provide public services, but other times, extensive government participation in economies through SOEs can distort competition to the detriment of private American firms and their workers. This can occur through SOEs that receive advantages from governments, such as preferential financing, including through State-owned banks; provision of goods or services from the government or from other SOEs at preferential prices or free of charge; direct subsidies and debt forgiveness, or other preferences. These preferences can tilt the playing field in favor of SOEs and against U.S. workers and businesses. Even where enforcement against SOEs in foreign markets has been pursued for anti-competitive behavior or other unlawful behavior, commercial SOEs have avoided prosecution by claiming sovereign immunity.”

“Concerns about the role of SOEs have grown in recent years because SOEs that had previously operated almost exclusively within their own territories are increasingly engaged in international trade of goods and services or acting as investors in foreign markets.”

The TPP And Corruption

TPP

Trade barriers and distortions are often the root causes of bribery.

This has long been recognized, including by Congress in the mid-1970’s when it was considering various legislative approaches to the s0-called foreign corporate payments problem.

As highlighted in “The Story of the Foreign Corrupt Practices Act,” in November 1975 Senate Resolution 265 passed 93-0 and called for executive branch agencies to pursue remedies to the corporate payments problem within the framework of the General Agreement on Tariffs and Trade (GATT).

At the same time, Congress realized that multilateral trade agreement were “largely hortatory in nature and do not include reliable enforcement machinery or sanctions for violators” and that the then-existing trade discussions already included “a large number of complex and difficult negotiating objectives” and that it was not in the U.S. interest “to add yet another major problem” into the trade discussions.

Nevertheless, trade barriers and distortions remain a frequent root cause of bribery.

A long-awaited developed occurred in the trade space last week as the Obama administration released the full text of the Trans-Pacific Partnership (TPP) agreement. As highlighted here:

“The TPP would arguably be the largest free trade agreement in history when considering the economies of the 12 Pacific Rim member countries, covering approximately 40% of the global economy. The agreement must now be individually approved by each of the 12 countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam.”

The TPP is massive document and its potential to reduce trade barriers and distortions is country specific and indeed industry specific.

If the TPP does indeed reduce trade barriers and distortions, then it can help reduce the root causes of bribery and the reason is fairly straight-forward.

  • Trade barriers and distortions create bureaucracy.
  • Bureaucracy creates points of contact with foreign officials.
  • Points of contact with foreign officials create discretion.
  • Discretion creates the opportunity for a foreign official to misuse their position by making bribe demands.

While the potential of the TPP to reduce trade barriers and distortions is found deep within the country and industry specific information in the document, the TPP does contain an “aspirational” chapter (Chapter 26) devoted specifically to anti-corruption.

As highlighted in this U.S. government summary:

“The chapter ensures that U.S. exporters, service suppliers, investors, and other interested stakeholders in TPP have ready access to information about the laws, regulations, and other rules affecting trade or investment in TPP markets; guarantees due process rights; commits TPP Parties to have and enforce anti-bribery laws; and promotes rules against conflicts of interest in government. The chapter guarantees the full rights of governments to regulate for public health, environmental quality, and other public-policy goals.”

“The [chapter] requires TPP Parties to ensure that, to the extent possible, their laws, regulations, and administrative rulings related to any matters covered by the TPP Agreement are publicly available and that regulations are subject to notice and comment.”

Similar to the OECD Convention, the summary document highlights the following “aspirational” portion of the TPP.

“Each TPP Party commits to adopt or maintain laws that criminalize the offering of an undue advantage to a public official (or the solicitation of such an advantage by a public official), as well as other acts of corruption in matters affecting international trade or investment. Parties also commit to effectively enforce their anticorruption laws and regulations.”

One final note regarding the TPP anti-corruption chapter.

Unlike the FCPA’s definition of “foreign official” which is silent as to state-owned or state-controlled enterprises (SOEs) – as highlighted here competing bills introduced in Congress, but rejected by Congress, did contain explicit reference to SOEs – the TPP has no problem in explicitly capturing SOEs in its definition of “foreign public official” which includes “any person exercising a public function for a foreign country, at any level of government, including for a public agency or public enterprise.”

FIFA – A Beautiful Cesspit Of Corruption?

FIFA

Today’s post is from Professor Bruce Bean (Michigan State University College of Law). Professor Bean, who had a diverse practice career including at various law firms and in-house counsel positions, will be leading a panel discussion about the FIFA bribery scandal at International Law Weekend at Fordham University in New York City on November 7th.  (See here for more information).

*****

FIFA, the organization controlling the world’s most popular sport, “football,” (“soccer” to those in North America), is formally known as Fédération Internationale de Football Association. FIFA is very big business. 209 national and other football associations from Andorra to Russia and the Faroe Islands to Australia make up FIFA membership. See here.  In the past three decades television and other broadcast rights, plus corporate sponsorships by international brands like Nike, Coca Cola and Visa have vastly increased the resources now involved in global football and, in particular, its quadrennial world championship, the FIFA World Cup. Between 2007 to 2014 FIFA had $10 billion in revenues and, as a Swiss registered NGO, it paid no taxes on its $969 million in profits.

Perhaps the greatest player of all time, Brazil’s legendary Pelé, published My Life and the Beautiful Game in 1977. The phrase the “beautiful game” is still synonymous with football.  In 2014, however, a whistleblower leaked “hundreds of millions” of FIFA documents to journalists at the London Sunday Times. Early in 2015 Heidi Blake and Jonathan Calvert published The Ugly Game: The Corruption of FIFA and the Qatari Plot to Buy the World Cup, describing a decidedly not very beautiful game.

In fact, FIFA has a decades-long, undistinguished, undisturbed history of involvement in scandals, bribery and corruption. In 2009, the Financial Action Task Force, the international anti-money laundering organization, released a report describing FIFA’s role in money-laundering, game-fixing, illegal gambling, and more. See here. Despite the great popularity of football in Europe and the rest of the world, and unending reports of FIFA corruption, no significant action had ever been taken against FIFA and its allegedly corrupt officials by a nation where football reigns supreme.  In the United States, international football is a minor sport, although there is a growing number who participate.  Nevertheless, on May 20, 2015 the United States Department of Justice an indictment in the U.S. District Court for the Eastern District of New York.  See here.  A Brooklyn Grand Jury returned the Indictment against nine current and former FIFA officials and five businessmen involved with FIFA. The release of the Indictment was coordinated with simultaneous raids and arrests by U.S. and Swiss officials at FIFA facilities in Miami and FIFA headquarters in Zurich. In addition to 14 defendants specifically charged, the Indictment refers to 25 unnamed co-conspirators.

The Indictment details $150 million in bribes paid on behalf of privately-held sports marketing companies to secure broadcast and marketing rights from FIFA for its various regional competitions and for the FIFA World Cup.  The charges filed include racketeering, conspiracy, wire fraud, money laundering, obstruction of justice, tax evasion, and, in one case, the unlawful procurement of naturalization.

Shortly after the US Department of Justice intruded into the world’s most popular sport by announcing the Indictment, Russia’s President Putin declared “This is another blatant attempt to extend [U.S.] jurisdiction to other states.” See here.  Offering a decidedly differing view, the Economist commented on the fact that it was the United States, where football is not that popular, that had finally taken steps regarding FIFA.  “America has a long history of being tougher on white collar crime and corruption than other countries….   Most of Europe is happy [with the U.S. bringing this action], believing that FIFA has long been a cesspit of corruption in desperate need of fresh faces and reform.”   See here.

Strangely, notwithstanding the fact that the U.S. has both the FCPA and the best record of prosecuting international bribery, there are no FCPA allegations in the entire 161 pages of the Indictment.  Why does this year’s highest profile bribery and corruption case not include a single allegation of an FCPA violation?  See this prior FCPA Professor post. FCPA charges were not eliminated because the Department of Justice suddenly decided to abandon its (over)broad view of the jurisdictional nexus required to apply U.S. law to foreigners.  See here.

Rather, there are no FCPA allegations because the FIFA officials allegedly involved with the bribes the Indictment describes are not “foreign officials” as described in the FCPA.  The FCPA defines the “term “foreign official” [as] any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization….”  The FCPA further provides that “’public international organization’ means any … international organization that is designated by the President by Executive order for the purposes of this section, effective as of the date of publication of such order in the Federal Register.”   See here.

The current list of public international organizations includes 80 entities, ranging from the United Nations to the International Fertilizer Development Institute and the Pacific Salmon Commission.  Adding FIFA by Executive Order seems logical and straight-forward.  While FIFA is a private organization, it is responsible to no one and exercises extraordinary power over sovereign nations.  For instance, in October 2015 FIFA banned the Kuwaiti national football team from international play because of a dispute over a Kuwaiti law. See here.  In connection with the FIFA World Cup held in Brazil in 2014, FIFA insisted that Brazil exempt all twelve Brazilian World Cup venues from a 2003 national law prohibiting the sale of alcohol at football matches.  As the FIFA General Secretary announced on a trip to Brazil prior to the commencement of World Cup activities,  “Alcoholic drinks are part of the FIFA World Cup, so we’re going to have them. Excuse me if I sound a bit arrogant but that’s something we won’t negotiate.” See here .

Given the supreme importance of the sport of football in most countries, the long history of scandalous allegations about FIFA and the fact that FIFA is entirely self-governing, responsible to absolutely no one outside itself, there is a strong argument that FIFA should be added to our list of international public organization.

This is not necessarily an easy task, however.

When concerns about corruption possibly related to the Salt Lake City Olympics arose in the late 1990s, three bills were introduced in Congress seeking to bring the International Olympic Committee within the FCPA.  As the FCPA Professor has previously noted, “None of these bills made it out of committee.”  See here.

Given that Congress has been unable to accomplish anything recently, let’s hope the President will act.  He (or perhaps she in the near future) has the authority under 22 USC 288 to designate “public international organizations.”  Adding FIFA to this list will finally bring the ultimate power over international football within the scope of the FCPA.  

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