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Friday Roundup

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Save the date, scrutiny updates, coming attraction, job alert, and for the reading stack. It’s all here in the Friday roundup.

Save the Date

An event notice for East Coast readers.

On Friday, March 6th, the Fordham Law Review is hosting a free symposium opened to the public titled “Fighting Corruption in American and Abroad.”

To learn more about the event click here.

Preet Bharara (U.S. Attorney for the Southern District of New York) will be delivering a keynote address and symposium panels will explore the following topics.

(i) What is Corruption?—How Should We Define It, and Why Is It Bad?

(ii) Landmark Domestic Bribery Prosecutions

(iii) Corruption Regulation in Practice via the Foreign Corrupt Practices Act; and

(iv) The Political Economy of Global Corruption Regulation

I will be appearing on the third panel along with: Lanny Breuer (Partner, Covington & Burling LLP);  Jay Holtmeier (Partner, Wilmer Cutler Pickering Hale and Dorr LLP); and Lucinda Low (Partner, Steptoe & Johnson LLP).

I have previously written about FCPA enforcement during Mr. Breuer’s tenure as Assistant Chief of the DOJ Criminal Division, but my panel presentation will concern a different topic – my forthcoming article:  “The Uncomfortable Truths and Double Standards of Bribery Enforcement.”  The article explores how the U.S. crusade against bribery suffers from several uncomfortable truths, including a double standard regarding corporate interaction with “foreign officials” under the Foreign Corrupt Practices Act and corporate interaction with U.S. officials under the U.S. laws.

Scrutiny Updates

General Cable Corp.

The company initially disclosed FCPA scrutiny in September 2014 and recently disclosed:

“As we previously reported, we have been reviewing, with the assistance of external counsel, certain commission payments involving sales to customers of our subsidiary in Angola. The review has focused upon payment practices with respect to employees of public utility companies, use of agents in connection with such payment practices, and the manner in which the payments were reflected in our books and records. We have determined at this time that certain employees in our Portugal and Angola subsidiaries directly and indirectly made or directed payments at various times from 2002 through 2013 to officials of Angola government-owned public utilities that raise concerns under the Foreign Corrupt Practices Act and possibly under the laws of other jurisdictions.

On February 20, 2015, based on the analysis completed at that time with the assistance of our external counsel and forensic accountants, we concluded that we were able to reasonably estimate the amount of profit derived from sales made to the Angolan government-owned public utilities in connection with the payments described above, which we believe are likely to ultimately be disgorged. As a result, we have recorded an estimated charge in the amount of $24 million as an accrual as of December 31, 2014. The accrued amount reflects only an estimate of the Angola-related profits reasonably likely to be disgorged, and does not include provision for any fines, civil or criminal penalties, or other relief, any or all of which could be substantial.”

Cobalt

As highlighted in this prior post, the company recently prevailed over the SEC regarding the company’s FCPA scrutiny.  Set forth below is what Cobalt’s CEO (Joe Bryant) said during a recent investor conference call.

ANALYST: [J]ust one additional question for you. Back in January, you mentioned or had a press release that the SEC terminated its investigation; but the Department of Justice was still going forward with its parallel investigation into activities in Angola. Where does that stand now, Joe?

JOE BRYANT: Darn it […]. I was hoping to get through this conference without anybody bringing up any FCPA questions.

ANALYST: Sorry about that.

JOE BRYANT: No, I would — it’s pretty simple, really. Our focus in the past several years has obviously been with the SEC; and we brought the DOJ into the investigation early on to make sure that they could run a parallel investigation, if that was what they wanted. By the way, I will say that throughout this entire period, I can’t say enough about the working relationship we developed with the SEC and trying to make sure they understood what we did and they had everything we had in terms of the issue at question.

So we got the SEC out of the way. The DOJ is an independent agency, and it will run its process according to its measures. But I do think that we consider this issue largely behind us.”

Juniper Networks

The company disclosed FCPA scrutiny in August 2013 (albeit in short fashion – see here) and recently disclosed as follows.

“The U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) are conducting investigations into possible violations by the Company of the U.S. Foreign Corrupt Practices Act (FCPA). The Company is cooperating with these agencies regarding these matters. The Company’s Audit Committee, with the assistance of independent advisors, has been investigating and conducting a thorough review of possible violations of the FCPA, and has made recommendations for remedial measures, including employee disciplinary actions in foreign jurisdictions, which the Company has implemented and continues to implement. The Company is unable to predict the duration, scope or outcome of the SEC and DOJ investigations, but believes that an adverse outcome is reasonably possible. However, the Company is not able to estimate a reasonable range of possible loss. The SEC and/or DOJ could take action against us or we could agree to settle. In such event, we could be required to pay substantial fines and sanctions and/or implement additional remedial measures; in addition, it may be determined that we violated the FCPA.”

Mondelez International

Kraft Foods long ago disclosed FCPA scrutiny resulting from its acquisition of Cadbury (see here).  Kraft, currently known as Mondelēz International, Inc., recently disclosed as follows.

“[A]fter we acquired Cadbury in February 2010 we began reviewing and adjusting, as needed, Cadbury’s operations in light of applicable standards as well as our policies and practices. We initially focused on such high priority areas as food safety, the Foreign Corrupt Practices Act (“FCPA”) and antitrust. Based upon Cadbury’s pre-acquisition policies and compliance programs and our post-acquisition reviews, our preliminary findings indicated that Cadbury’s overall state of compliance was sound. Nonetheless, through our reviews, we determined that in certain jurisdictions, including India, there appeared to be facts and circumstances warranting further investigation. We are continuing our investigations in certain jurisdictions, including in India, and we continue to cooperate with governmental authorities.

As we previously disclosed, on February 1, 2011, we received a subpoena from the SEC in connection with an investigation under the FCPA, primarily related to a facility in India that we acquired in the Cadbury acquisition. The subpoena primarily requests information regarding dealings with Indian governmental agencies and officials to obtain approvals related to the operation of that facility. We are continuing to cooperate with the U.S. and Indian governments in their investigations of these matters, including through ongoing meetings with the U.S. government to discuss potential conclusion of the U.S. government investigation.”

Coming Attraction

This recent post highlighted judicial rejection of a deferred prosecution between the DOJ and Fokker Services.

Fokker recently announced:

“After careful review of the Court’s decision, Fokker Services decided to file a Notice of Appeal. Fokker Services has noticed recent press articles which contain highly speculative assumptions and amounts, not based on facts. Fokker cannot run ahead of the outcome of its appeal and will make further announcement only if and when applicable.”

While the case is outside the FCPA context, this appeal will certainly be one to follow as DPAs (as well as NPAs) are a prominent feature of FCPA enforcement.

Job Alert

Avon Calling!  Avon Colombia S.A.S., a subsidiary of Avon Products, Inc., based in Medellin, Colombia, is looking for an attorney to join the Ethics & Compliance team.  The Compliance Counsel has day-to-day operational responsibility for managing the compliance program in the Andean Cluster (Colombia, Ecuador, Peru, and Venezuela).  The program seeks to minimize risk exposure of corporate and regulatory law through company guidance and controls.  A primary activity of the Compliance Counsel is to provide operational advice and interpretation of company policies and procedures, including but not limited to the company’s anti-corruption policy.  As part of the program, the Compliance Counsel supports corporate, regional and local governance, monitoring, auditing, training and communication initiatives.  A primary goal for the Compliance Counsel is to enhance the culture of awareness and adherence to company policies.  Prospective candidates should apply via the Avon website.

Reading Stack

Third parties are not just a corruption risk in the global marketplace, but the domestic marketplace as well.  See here for the New York Daily News article about so-called “expediters” who assist developers navigate bureaucracy “to speed their projects to approval — getting permits faster, addressing violations and filling out key paperwork. It’s an arrangement critics have long slammed as corrupt.”

The most recent edition of the always information Debevoise & Plimpton FCPA Update is here.  Regarding the recent rejection of a DPA in the Fokker Services action (see here) the Update states:

“In the FCPA context and beyond, the Fokker Services decision is a reminder that increased judicial scrutiny of proposed settlement agreements with law enforcement agencies may be the “new normal.” Although the outcome of Fokker Services’ appeal remains to be seen, Judge Leon’s decision may entice prosecutors in future cases to seek harsher terms in DPAs out of concern for heightened judicial scrutiny of proposed DPAs, or instead shy away from DPAs entirely and attempt to achieve sufficient punishment and deterrence through Non-Prosecution Agreements (“NPAs”). In addition, Judge Leon’s concern that no individuals were charged in Fokker Services may further embolden prosecutors to demand individual accountability as part of proposed settlements or in the lead-up to such settlements.”

Some are still drinking the Kool-Aid regarding Morgan Stanley’s so-called declination.  (See here – “A robust compliance program spared Morgan Stanley from prosecution under the FCPA”).  Just goes to show that once a narrative is cast, nothing else seems to matter.

A recent Q&A in the Wall Street Journal’s Risk & Compliance Journal with Pascale Hélène Dubois (the World Bank’s chief suspension and debarment officer).

*****

A good weekend to all.

Friday Roundup

An invite, ripples, the odd dynamic, and scrutiny alerts and updates.  It’s all here in the Friday roundup.

You Are Invited

King & Spalding is pleased to host Professor Mike Koehler for an informal lunch discussion of his recently published book The Foreign Corrupt Practices Act in a New Era. The conversation and related question-and-answer session will be of interest to anyone seeking a candid and comprehensive discussion of legal and policy issues present in this new era of FCPA enforcement.

The event takes place on Thursday, October 2nd at noon at King & Spalding’s office (1700 Pennsylvania Avenue N.W. Washington, D.C.). There is no charge for this event, but pre-registration is required. If you would like to attend, please send your name and contact information to Sylvia Gates at sgates@kslaw.com.  For additional information, see here.

Ripples

My recent article “Foreign Corrupt Practices Act Ripples” highlights how settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from FCPA scrutiny or enforcement in this new era.

Regarding those ripples, Canada’s Globe and Mail reports:

“Hewlett-Packard Co., one of the leading technology suppliers to the Canadian government, is facing a possible 10-year ban on selling products and services to Ottawa in the wake of a high-profile U.S. bribery conviction. The recent criminal conviction, involving bribes paid to Russian government officials, marks the first major test of strict new Canadian integrity rules quietly introduced in March by Public Works and Government Services. Under the new regime, companies face an automatic ban on future government contracts if they or any of their affiliates are convicted of a list of various crimes, such as bribery, even if those crimes occurred outside Canada. “The department is reviewing the recent U.S. court decision regarding HP Russia and is examining the impact of this court decision on our current and future business with HP Canada,” confirmed Alyson Queen, communications director for Public Works Minister Diane Finley. The department will conduct its review “as quickly as possible,” Ms. Queen insisted, adding that the government is “committed to doing business with suppliers who respect the law and act with integrity, including affiliates of suppliers.”

The main point of “Foreign Corrupt Practices Ripples” was described above.  However, the article also states:

“This Article accepts the fact that FCPA scrutiny and enforcement results in many other ripples in this new era. Yet, throughout this Article many questions are posed regarding the legitimacy of certain ripples. Moreover, while it is beyond the focus of this Article, it must nevertheless be highlighted that because of the many ripples of FCPA enforcement, it is important that FCPA enforcement be subjected to meaningful judicial scrutiny and that enforcement actions represent legitimate instances of provable FCPA violations, not merely settlements entered into for reasons of risk aversion. This would seem like an obvious statement. However, the reality is that the majority of corporate FCPA enforcement actions in this new era are based on aggressive and controversial enforcement theories, yet resolved via non-prosecution and deferred prosecution agreements (NPAs / DPAs) not subjected to any meaningful judicial scrutiny by risk-averse business organizations mindful of the adverse consequences of putting the enforcement agencies to its burden of proof in an adversarial proceeding.”

Perhaps Canadian authorities should review this prior post “HP Enforcement Action – Where to Begin.”  The post begins:

“Where to begin? That is the question when analyzing last week’s $108 million Foreign Corrupt Practices Act enforcement action against HP and related entities.  (See here). Should the title of this post have been “The FCPA’s Free-For-All Continues”? Should the title have been “HP = Hocus Pocus” (as in look what the enforcement agencies pulled out their hats this time)? Should the title have been “Warning In-House and Compliance Professionals:  This Post Will Induce Mental Anguish”? Unable to arrive at the best specific title for this post, I simply picked the generic “Where to Begin?” In short, if the HP enforcement action does not leave you troubled as to various aspects of FCPA enforcement you: (i) may not be well-versed in actual FCPA legal authority; (ii) don’t care about the rule of law; or (iii) somehow derive satisfaction from government required transfers of shareholder money to the U.S. treasury regardless of theory. Least there be any misunderstanding, let me begin this post by stating that the enforcement actions against HP Poland, HP Russia and HP Mexico allege bad conduct by certain individuals –  a “small fraction of HP’s global workforce” to use the exact words of the DOJ. As to that “small fraction,” those individuals should be held accountable for their actions by relevant law enforcement authorities. However, as to the actual defendants charged in the enforcement actions – HP Russia, HP Poland and HP Mexico in the DOJ actions – and HP in the SEC administrative proceeding – there are actual legal elements that must be met and there is also prior enforcement agency guidance that ought to be followed.  The entire credibility and legitimacy of the DOJ and SEC’s FCPA enforcement programs depend on these two basics points.”

The Odd Dynamic

I have consistently stated (see here for the most recent iteration) that, based on recent judicial decisions, an odd dynamic exists between application of Dodd-Frank’s anti-retaliation provisions and Dodd-Frank’s whistleblower bounty provisions. As noted in the recent post concerning the Second Circuit’s decision in Liu Meng-Lin v. Siemens, courts have held that the former provisions lack extraterritorial effect while acknowledging that a foreign national could receive a bounty under the whistleblower provisions.

The odd dynamic is front-and-center in the SEC’s recent announcement of “an expected award of more than $30 million to a whistleblower who provided key original information that led to a successful SEC enforcement action.”  According to the release,  “the award will be the largest made by the SEC’s whistleblower program to date and the fourth award to a whistleblower living in a foreign country, demonstrating the program’s international reach.”

In the release, Sean McKessy, Chief of the SEC’s Office of the Whistleblower states:

“This award of more than $30 million shows the international breadth of our whistleblower program as we effectively utilize valuable tips from anyone, anywhere to bring wrongdoers to justice.  Whistleblowers from all over the world should feel similarly incentivized to come forward with credible information about potential violations of the U.S. securities laws.”

Regarding the odd dynamic, the SEC’s order states:

“We believe an award payment is appropriate here notwithstanding the existence of certain extraterritorial aspects of Claimant’s application. See generally Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247, 266 (2010) (discussing analytical framework for determining whether an application of a statutory provision that involves certain foreign aspects is an extraterritorial or domestic application of the provision; explaining that it is a domestic application of the provision if the particular aspect that is the “focus of congressional concern” has a sufficient U.S. territorial nexus); European Community v. RJR Nabisco, Inc., F.3d , 2014 WL 1613878, *10 (2d Cir. Apr. 23, 2014) (applying Morrison framework and finding that “[i]f domestic conduct satisfies every essential element to prove a violation of a United States statute that does not apply extraterritorially, that statute is violated even if some further conduct contributing to the violation occurred outside the United States.”). In our view, there is a sufficient U.S.  territorial nexus whenever a claimant’s information leads to the successful enforcement of a covered action brought in the United States, concerning violations of the U.S. securities laws, by the Commission, the U.S. regulatory agency with enforcement authority for such violations.  When these key territorial connections exist, it makes no difference whether, for example, the claimant was a foreign national, the claimant resides overseas, the information was submitted from overseas, or the misconduct comprising the U.S. securities law violation occurred entirely overseas. We believe this approach best effectuates the clear Congressional purpose underlying the award program, which was to further the effective enforcement of the U.S. securities laws by encouraging individuals with knowledge of violations of these U.S. laws to voluntarily provide that information to the Commission. See S. Rep. No. 111-176 at 110 (2010) (“to motivate those with inside knowledge to come forward and assist the Government to identify and prosecute persons who have violated the securities laws ….”). Finally, although we recognize that the Court of Appeals for the Second Circuit recently held that there was an insufficient territorial nexus for the anti-retaliation protections of Section 21F(h) to apply to a foreign whistleblower who experienced employment retaliation overseas after making certain reports about his foreign employer, Liu v. Siemens, F.3d , 2014 WL 3953672 (2d Cir. Aug. 14, 2014), we do not findthat decision controlling here; the whistleblower award provisions have a different Congressional focus than the anti-retaliation provisions, which are generally focused on preventing retaliatory employment actions and protecting the employment relationship.”

Scrutiny Alerts and Updates

BHP Billiton

In its most recent annual report the company stated:

“As previously disclosed, BHP Billiton received requests for information in August 2009 from the US Securities and Exchange Commission (SEC). Following that request, the Group commenced an internal investigation and disclosed to relevant authorities evidence that it has uncovered regarding possible violations of applicable anticorruption laws involving interactions with government officials. The issues relate primarily to matters in connection with previously terminated exploration and development efforts, as well as hospitality provided as part of the Company’s sponsorship of the 2008 Beijing Olympics. The Group is currently discussing a potential resolution of the matter. As has been publicly reported, the Australian Federal Police has indicated that it has commenced an investigation and the Group continues to fully cooperate with the relevant authorities. In light of the continuing nature of the investigations, it is not appropriate at this stage for BHP Billiton to predict outcomes.”

General Cable Corp.

General Cable Corporation (a Kentucky-based company involved in the development, design, manufacture, marketing and distribution of copper, aluminum and fiber optic wire and cable products and systems for the energy, industrial, specialty, construction and communications markets) recently disclosed:

“We have been reviewing, with the assistance of external counsel, certain commission payments involving sales to customers of our subsidiary in Angola. The review has focused upon payment practices with respect to employees of public utility companies, use of agents in connection with such payment practices, and the manner in which the payments were reflected on our books and records. We have determined at this time that certain employees in our Portugal and Angola subsidiaries directly and indirectly made payments at various times from 2002 through 2013 to officials of Angola government owned public utilities that raise concerns under the FCPA and possibly under the laws of other jurisdictions. We also have been reviewing, with the assistance of external counsel, our use and payment of agents in connection with our Thailand and India operations, which may have implications under the FCPA. We have voluntarily disclosed these matters to the SEC and the United States Department of Justice (“DOJ”) and have provided them with additional information at their request. The SEC and DOJ inquiries into these matters are ongoing. We continue to cooperate with the DOJ and the SEC with respect to these matters. We are implementing a screening process relating to sales agents that we use outside of the United States, including, among other things, a review of the agreements under which they were retained and a risk-based assessment of such agents to determine the scope of due diligence measures to be performed by a third-party investigative firm. However, this screening process may not be effective in preventing future payments or other activities that may raise concerns under the FCPA or other laws. At this time, we are unable to predict the nature of any action that may be taken by the DOJ or SEC or any remedies these agencies may pursue as a result of such actions. Any determination that our operations or activities are not in compliance with existing laws or regulations could result in the imposition of substantial fines, civil and criminal penalties, and equitable remedies, including disgorgement and injunctive relief. Because our review regarding commission payment practices and our use and payment of agents described above is ongoing, we are unable to predict its duration, scope, results, or consequences. Dispositions of these types of matters can result in modifications to business practices and compliance programs, and in some cases the appointment of a monitor to review future business and practices with the objective of effecting compliance with the FCPA and other applicable laws.”

In the first trading day after the disclosure, the company’s stock dropped 6.4% to 17.74.

Embraer-Related

As highlighted in this previous post, Brazil based Embraer (one of  the world’s largest manufacturer of commercial jets with shares traded on the New York Stock Exchange) has been under FCPA scrutiny since 2010.

The Wall Street Journal reports:

“Brazilian authorities have filed a criminal action against eight Embraer employees accusing them of bribing officials in the Dominican Republic in return for a $92 million contract to provide the country’s armed forces with attack planes.”

According to the article:

“[The DOJ and SEC] are also investigating the company’s dealings in the Dominican Republic and elsewhere and have provided their Brazilian counterparts with evidence, according to a request last year for legal assistance from Brazilian prosecutors.

[…]

Brazilian prosecutors filed the 31-page complaint in a criminal court in Rio de Janeiro in August, the first step in a criminal prosecution. A spokesman for the Brazilian prosecutors’ office declined to comment on the case.

The complaint alleges that Embraer sales executives agreed to pay a $3.5 million bribe to a retired Dominican Air Force colonel, who then leaned on legislators to approve the deal and a financing agreement between the Dominican Republic and the National Economic and Social Development Bank. The sale was completed and the aircraft were delivered.

The retired colonel, Carlos Piccini Nunez, was serving as the Dominican Republic’s director of special projects for the armed forces in 2008, around the time of the contract negotiations. The contract provided the Dominican Republic with eight Embraer Super Tucanos, turboprop attack support aircraft that have been a darling of air forces in developing countries for their low maintenance and affordability.

[…]

The criminal complaint alleges that an Embraer vice president for sales, Eduardo Munhos de Campos, promised to pay the bribe, and that he was assisted in arranging the payments by Orlando Jose Ferreira Neto, another vice president; Embraer regional directors Acir Luiz de Almeida Padilha Jr., Luiz Eduardo Zorzenon Fumagalli and Ricardo Marcelo Bester ; and managers Albert Phillip Close, Luiz Alberto Lage da Fonseca and Eduardo Augusto Fernandes Fagundes.”

Goldman Sachs

The company was recently the focus of this Wall Street Journal article which began:

“A yearslong probe of Goldman Sachs Group’s ties to Libya’s sovereign-wealth fund is focusing on an internship and other perks allegedly offered by the Wall Street bank to win business from the Gadhafi regime, according to people familiar with the matter. The Securities and Exchange Commission is reviewing the New York-based bank’s decision in June 2008 to hire as an intern the brother of Mustafa Zarti, then deputy chief of the Libyan Investment Authority, the people said. The move came after Goldman entered into more than $1 billion worth of trades with the authority, and just as the firm’s relationship with the Libyan fund had begun to sour. The investigators are also reviewing why the brother, Haitem Zarti, was allowed to remain at the firm for almost a year, long after most Wall Street internships last, the people added.”

AgustaWestland / Finmeccanica Related

The Wall Street Journal goes in-depth into the Italian trial of Giuseppe Orsi, former CEO of AgustaWestland – a unit of Finmeccanica Spa, concerning bribery allegations in India. As highlighted in this previous post, Finmeccanica, which is approximately 30% owned by the Italian government, has ADRs registered with the SEC and AgustaWestland does extensive business in the U.S. (see here), including with the U.S. government.

*****

A good weekend to all.

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