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Time Out Regarding Certain Goodyear Commentary

TIme Out

Pardon me for being that guy, but in the Foreign Corrupt Practices Act space someone needs to put on the stripes because the information gatekeepers of much FCPA content tend to be non-lawyer journalists writing stories by cobbling together the views of experts who use the opportunity to comment as free marketing for FCPA compliance and investigative services.

And let’s call a spade a spade, FCPA practitioners often have a self-interest in more FCPA investigations, more voluntary disclosures, more enforcement actions and more post-enforcement action compliance obligations.

Much to my surprise, the recent SEC administrative action against Goodyear (see here for the prior post) has generated an unusual amount of commentary.  Indeed, in the days that followed I was contacted by numerous media outlets but my consistent response was along the following lines: “There is nothing noteworthy or special about the Goodyear FCPA enforcement action.  The media and law firm coverage of this otherwise ordinary settlement is just the latest example of FCPA Inc. using enforcement actions as opportunities to market FCPA compliance services.”

So in the spirit of March Madness, I call a time out regarding certain Goodyear commentary.

A Law360 article titled “Attorneys React to SEC’s FCPA Action Against Goodyear” contained a roundup of sorts of attorney comments.

One practitioner stated:

“Today’s settlement demonstrates that the SEC and the DOJ are continuing to investigate and bring high-profile FCPA cases against large U.S. companies with multinational operations.”

Whoops, wrong talking point as the Goodyear enforcement action was SEC only with no DOJ component.

Another practitioner stated:

“In recent years … the SEC adopted an increasingly broad view of parent-subsidiary liability, now charging parent corporations with anti-bribery violations based on the acts of their subsidiaries without pleading any direct involvement by the parent in those violations. Goodyear is the latest example of this trend.”

Whoops, again the wrong talking point as Goodyear: (i) was not “charged” with anything (the enforcement action was an SEC cease and desist proceeding); and (ii) the SEC merely “found” violations of the books and records and internal controls provisions – not the anti-bribery provisions.

Another frequent observation from commentators was that the Goodyear action evidences how the SEC is “pursuing” commercial bribery cases given that the SEC enforcement action made generic references to alleged payments to private customers in connection with tire sales.

Let’s go to the monitor for this one.  The Goodyear enforcement action, like most corporate FCPA enforcement actions, was based on a voluntary disclosure.”  Can the word “pursue” really be used to describe enforcement actions that originate from voluntary disclosures?  Or would it be more accurate to say that the SEC “processed” the company’s voluntary disclosure?

Another frequent observation from commentators was how Goodyear “staved off criminal prosecution and fines” through its voluntary disclosure and cooperation.

Time out on this one, and not just a 30-second time out, but a full one.

There is no allegation or suggestion in the SEC enforcement action that Goodyear was involved in or had knowledge of the alleged improper conduct at its subsidiaries.  A parent company like Goodyear is a separate and distinct entity from its foreign subsidiaries and is not automatically liable for foreign subsidiary conduct – including potential anti-bribery violations – absent knowledge, approval, or participation in the bribery scheme.  In other words, criminal legal liability does not ordinary hop, skip and jump around a multinational corporation absent an alter ego analysis or control / participation in the underlying conduct.

On the other hand, the SEC takes the position that because foreign subsidiary books and records are consolidated with the parent company’s for purposes of financial reporting that subsidiary books and records issues are parent company issues.  As to internal controls, the SEC takes the seemingly simplistic position that because certain alleged payments were made by foreign subsidiaries, the parent company issuer must not have had effective internal controls.

In other words, based on the SEC’s allegations – or lack thereof – what criminal prosecution did Goodyear stave off?

And then there were the comments seeking to invoke fear – a common FCPA Inc. marketing device.  One practitioner stated:

“[The Goodyear action] could presage an uptick in enforcement activity in Africa, which has attracted increased global investment and, in certain countries, posted impressive recent economic growth. Despite these advancements, several African countries remain high on Transparency International’s Corruption Perceptions Index. As such, the [enforcement action] provides a clear reminder of the need to conduct appropriate pre- and post-acquisition due diligence on businesses operating in regions and industries that pose a high corruption risk.”

Another frequent comment, sure to induce March “madness” in informed readers, was the comparison to the settlement amount in Goodyear compared to say, Avon or Alcoa.

This article asserted as follows. “For Goodyear … coming clean seems to have paid off—at least compared to the penalty imposed on Avon Products Inc. in December.”

For starters, the Avon enforcement action – like the Goodyear enforcement action – was the result of a voluntary disclosure.

Second, and most importantly, FCPA settlement amounts are largely a function of the net financial benefit obtained through the alleged improper payments.  Thus comparing one settlement to another is of little value.

A full time-out is also needed to comment on this Wall Street Journal Risk & Compliance Journal which carried the headline “Lawyers Point to Goodyear As a Model In Its Handling of Bribery Probe.”  Based on the views of two FCPA practitioners, the article asserts that the Goodyear enforcement action provides a “model for companies to emulate when they discover misconduct in their own firms.”

I beg to differ.

The conduct at issue in the SEC’s enforcement action was very limited in scope (compared to Goodyear’s overall business operations) and the company learned of the alleged improper conduct through an effective internal control  – a report through the company’s confidential ethics hotline.

Given these circumstances, a perfectly acceptable, legitimate and legal response would have been for Goodyear to thoroughly investigate the issues, promptly implement remedial measures, and effectively revise and enhance compliance policies and procedures – all internally and without disclosing to the enforcement agencies.

Indeed, as recently noted in this Global Investigations Review article, James Koukios (Senior Deputy Chief of DOJ’s Fraud Section) recently stated: “We understand that sometimes companies choose not to self-report, and it is not always the wrong thing to do. I think a lot of it depends on how serious the issue is and whether it is an issue that can be investigated, addressed, remediated internally, and is more of a one-off versus systemic problem.”

Likewise, as former DOJ FCPA enforcement attorney Billy Jacobson notes in this recent WSJ Risk & Compliance Journal article “more and more companies are making the decision not to disclose instead they remediate controls, get rid of culpable individuals and clean up compliance internally.”

In short, Goodyear’s decision to voluntarily disclose was not necessarily a model for other companies to emulate.  Indeed a credible argument can be made that Goodyear’s decision was a poor decision that caused needless expenditure of shareholder money. Although, to my knowledge Goodyear did not disclose it pre-enforcement action professional fees and expenses, in a typical FCPA enforcement action, such professional fees and expenses exceed (often by ratios of 3, 5, or more) the enforcement action settlement amount – which in the case of Goodyear was $16 million.

Moreover, as a condition of settlement, Goodyear was required to report to the SEC, “at no less than 12 month intervals during a three year term” on the status of its remediation and implementation of compliance measures.”  As highlighted in this prior post, this is little more than a government required transfer of shareholder wealth to FCPA Inc.

Issues To Consider From The Goodyear Enforcement Action

Issues

recent post highlighted the SEC FCPA enforcement action against Goodyear.

This post continues the analysis by highlighting various issues to consider associated with the enforcement action.

Invoking a Standard That Does Not Even Exist Under the FCPA

To anyone who values the rule of law, it is troubling when an FCPA enforcement agency invokes a standard of liability that does not even exist under the FCPA.

As previously highlighted in this article, “Why You Should Be Alarmed By the ADM FCPA Enforcement Action,” the enforcement agencies’ invocation of a ‘‘failure to prevent or detect’’ internal controls standard is alarming because such a standard does not even exist in the FCPA and is inconsistent with actual legal authority. Just as important, such a standard is inconsistent with enforcement agency guidance relevant to the internal-controls provisions.

Nevertheless, and notwithstanding such legal authority and enforcement agency guidance, the SEC again referenced the “prevent and detect” standard twice in the Goodyear enforcement action.

The internal-controls provisions are specifically qualified through concepts of reasonableness and good faith. This statutory standard is consistent with congressional intent in enacting the provisions. Relevant legislative history states: ”

“While management should observe every reasonable prudence in satisfying the objectives called for [in the books-and-records and internal-controls provisions], . . . management must necessarily estimate and evaluate the cost/benefit relationships to the steps to be taken in fulfillment of its responsibilities . . . . The size of the business, diversity of operations, degree of centralization of financial and operating management, amount of contact by top management with day-to-day operations, and numerous other circumstances are factors which management must consider in establishing and maintaining an internal accounting controls system.”

As highlighted here, the only judicial decision to directly address the substance of the internal-controls provisions states, in pertinent part, as follows:

“The definition of accounting controls does comprehend reasonable, but not absolute, assurances that the objectives expressed in it will be accomplished by the system. The concept of ‘‘reasonable assurances’’ contained in [the internal control provisions] recognizes that the costs of internal controls should not exceed the benefits expected to be derived. It does not appear that either the SEC or Congress, which adopted the SEC’s recommendations, intended that the statute should require that each affected issuer install a fail-safe accounting control system at all costs. It appears that Congress was fully cognizant of the cost-effective considerations which confront companies as they consider the institution of accounting controls and of the subjective elements which may lead reasonable individuals to arrive at different conclusions. Congress has demanded only that judgment be exercised in applying the standard of reasonableness.”

In addition, various courts have held—in the context of civil derivative actions in which shareholders seek to hold company directors liable for breach of fiduciary duties due to the company’s alleged FCPA violations— that just because improper conduct allegedly occurred somewhere within a corporate hierarchy does not mean that internal controls must have been deficient.

The ‘‘failure to prevent and detect’ standard is also alarming when measured against the enforcement agencies’ own guidance concerning the internal controls provisions.  As highlighted here, the SEC’s most extensive guidance on the internal controls provisions states, in pertinent part, as follows:

“The accounting provisions’ principal objective is to reaching knowing or reckless conduct.”

“Inherent in this concept [of reasonableness] is a toleration of deviations from the absolute. One measure of the reasonableness of a system relates to whether the expected benefits from improving it would be significantly greater than the anticipated costs of doing so. Thousands of dollars ordinarily should not be spent conserving hundreds. Further, not every procedure which may be individually cost-justifiable need be implemented; the Act allows a range of reasonable judgments.”

“The test of a company’s internal control system is not whether occasional failings can occur. Those will happen in the most ideally managed company. But, an adequate system of internal controls means that, when such breaches do arise, they will be isolated rather than systemic, and they will be subject to a reasonable likelihood of being uncovered in a timely manner and then remedied promptly. Barring, of course, the participation or complicity of senior company officials in the deed, when discovery and correction expeditiously follow, no failing in the company’s internal accounting system would have existed. To the contrary, routine discovery and correction would evidence its effectiveness.”

A Government Required Transfer of Shareholder Wealth to FCPA Inc.?

According to Goodyear’s initial disclosure of the matter, the voluntary disclosure resulted from an anonymous source reporting through a confidential ethics hotline. In short, an effective internal control.

According to the SEC, Goodyear “promptly halted the improper payments” and voluntarily reported the matter to the SEC (and DOJ).  Goodyear also provided significant cooperation with the SEC’s investigation and undertook significant remedial efforts and disciplinary actions.  Goodyear also implemented “improvements to its compliance program, both specific to its operations in sub-Saharan Africa, and globally.”  In short, an effective internal control and remediation.

Nevertheless, as a condition of settlement, Goodyear is required to report to the SEC, “at no less than 12 month intervals during a three year term” on the status of its remediation and implementation of compliance measures.”  The SEC’s Order contains further specifics about initial reviews, written reports, and follow-up reviews and reports.

Let’s call a spade a spade folks.  This amounts to little more than a government required transfer of shareholder wealth to FCPA Inc.  (See here for the prior post of the same title).

Top 5

While the Goodyear enforcement action was clearly not a top ten enforcement action in terms of overall settlement amount, it was the 4th largest SEC only FCPA enforcement action of all-time behind (Eli Lilly, General Electric and Diageo).

No-Charged Bribery Disgorgement

As in prior years, in the Goodyear enforcement action the SEC continued its practice of ordering disgorgement even though the offending company was not charged with violating the FCPA’s anti-bribery provisions.

As highlighted in this previous post, so-called no-charged bribery disgorgement is troubling.

Among others, Paul Berger (here) a former Associate Director of the SEC Division of Enforcement) has stated that “settlements invoking disgorgement but charging no primary anti-bribery violations push the law’s boundaries, as disgorgement is predicated on the common-sense notion that an actual, jurisdictionally-cognizable bribe was paid to procure the revenue identified by the SEC in its complaint.” Berger noted that such “no-charged bribery disgorgement settlements appear designed to inflict punishment rather than achieve the goals of equity.”

Not The First FCPA Enforcement Action Against a Goodyear Entity

As highlighted in this prior post, in 1989 the DOJ charged Goodyear International Corp., a subsidiary of Goodyear Tire & Rubber Co., with FCPA anti-bribery violations for alleged improper payments to Iraqi officials.  Goodyear International pleaded guilty and agreed to pay a $250,000 fine.

A Future Enforcement Action Against a Tire Industry Company?

It will be interesting to see if anything comes from the following sentence in the SEC’s Order. The SEC is “not imposing a civil penalty based upon [Goodyear’s] cooperation in a Commission investigation and related enforcement action.”

Without Admitting Or Denying The SEC’s Findings, Goodyear Resolves SEC Administrative Action

Goodyear

As highlighted in this previous post, in February 2012 Goodyear Tire & Rubber Company disclosed as follows.

“In June 2011, an anonymous source reported, through our confidential ethics hotline, that our majority-owned joint venture in Kenya may have made certain improper payments. In July 2011, an employee of our subsidiary in Angola reported that similar improper payments may have been made in Angola. […]  Following our internal investigation, we … voluntarily disclosed the results of our investigation to the DOJ and the SEC, and are cooperating with those agencies in their review of these matters.”

As highlighted in this previous post, in October 2014 Goodyear disclosed that it recorded a charge of $16 million in connection with the above FCPA inquiry.

Yesterday, an actual enforcement action dripped from the FCPA pipeline as the SEC announced an administrative action against Goodyear in which the company, without admitting or denying the SEC’s findings, agreed to pay approximately $16 million.

In summary fashion, the SEC Order states:

“This case involves violations of the books, records, and internal control provisions of the Foreign Corrupt Practices Act (“FCPA”) by Goodyear. Goodyear, headquartered in Akron, Ohio, is one of the world’s largest tire companies. From 2007 through 2011, Goodyear subsidiaries in Kenya (Treadsetters Tyres Ltd., or “Treadsetters”) and Angola (Trentyre Angola Lda., or “Trentyre”) routinely paid bribes to employees of government-owned entities and private companies to obtain tire sales. These same subsidiaries also paid bribes to police, tax, and other local authorities. In all, between 2007 and 2011, Goodyear subsidiaries in Kenya and Angola made over $3.2 million in illicit payments.

All of these bribery payments were falsely recorded as legitimate business expenses in the books and records of these subsidiaries which were consolidated into Goodyear’s books and records. Goodyear did not prevent or detect these improper payments because it failed to implement adequate FCPA compliance controls at its subsidiaries in sub-Saharan Africa.”

Under the heading “Improper Payments in Kenya,” the Order states:

“Treadsetters is a retail tire distributor in Kenya. In 2002, Goodyear acquired a minority ownership interest in Treadsetters. By 2006, Goodyear had acquired a majority ownership interest in the company, though the day-to-day operations of Treadsetters continued to be run by Treadsetters’ founders and the local general manager. During the relevant time period, Treadsetters had annual revenues of approximately $20 million.

From 2007 through 2011, Treadsetters’ management regularly authorized and paid bribes to employees of government-owned or affiliated entities, and private companies, to obtain business. The practice was routine and appears to have been in place prior to Goodyear’s acquisition of Treadsetters. The bribes generally were paid in cash and falsely recorded on Treadsetters’ books as expenses for promotional products.

Treadsetters’ general manager and finance director were at the center of the scheme. They approved payments for phony promotional products, and then directed the finance assistant to write-out the checks to cash. Treadsetters’ staff then cashed the checks and used the money to make improper payments to employees of customers, which included both government owned entities and private companies.

Between 2007 and 2011, Treadsetters paid over $1.5 million in bribes in connection with the sale of tires. This included improper payments to employees of government-owned or affiliated entities 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. During that same time period, Treadsetters also made approximately $14,457 in improper payments to local government officials in Kenya, including city council employees, police, and building inspectors.

Goodyear did not detect or prevent these improper payments because it failed to conduct adequate due diligence when it acquired Treadsetters, and failed to implement adequate FCPA compliance training and controls after the acquisition.”

Under the heading “Improper Payments in Angola,” the Order states:

“Trentyre was incorporated in 2007, and is a wholly-owned subsidiary of Goodyear. Trentyre is primarily engaged in selling new tires for mining equipment. During the relevant time period, Trentyre had annual revenues between $6 million and $20 million.

From 2007 through 2011, Trentyre paid over $1.6 million in bribes to employees of government-owned or affiliated entities, and private companies, to obtain tire sales. Trentyre paid approximately $1.4 million of these bribes to 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. A majority of these improper payments were paid to employees of Trentyre’s largest customer at the time, the Catoca Diamond Mine, which is owned by a consortium of mining interests, including Endiama E.P., Angola’s national mining company, and ALROSA, a Russian mining company. During the same time period, Trentyre also made approximately $64,713 in improper payments to local government officials in Angola, including police and tax authorities.

The bribery scheme was put in place by Trentyre’s former general manager. To hide the scheme and generate funds for the improper payments, Trentyre falsely marked-up the costs of its tires by adding to its invoice price phony freight and customs clearing costs. On a monthly basis, as tires were sold, the phony freight and clearing costs were reclassified to a balance sheet account. Trentyre made improper payments to employees of customers both in cash and through wire transfers. As bribes were paid, the amounts were debited from the balance sheet account, and falsely recorded as payments to vendors for freight and clearing costs.

Goodyear did not prevent or detect these improper payments because it failed to implement adequate FCPA compliance training and controls at this subsidiary.”

Under the heading “Legal Standards and Violations,” the Order states:

“Goodyear subsidiaries in Kenya and Angola made improper payments to employees of government-owned entities and private companies to obtain business. These improper payments were falsely recorded as legitimate business expenses in the books and records of these subsidiaries which were consolidated into Goodyear’s books and records. Accordingly, Goodyear violated [the FCPA’s books and records provisions]. […] Goodyear also violated [the internal controls provisions] by failing to devise and maintain sufficient accounting controls to prevent and detect these improper payments.”

Under the heading “Goodyear’s Cooperation and Remedial Efforts,” the Order states:

“In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by Respondent and cooperation afforded the Commission staff. After receiving information about the bribes, Goodyear promptly halted the improper payments and reported the matter to Commission staff. Goodyear also provided significant cooperation with the Commission’s investigation. This included voluntarily producing documents and reports and other information from the company’s internal investigation, and promptly responding to Commission staff’s requests for information and documents. These efforts assisted the Commission in efficiently collecting evidence including information that may not have been otherwise available to the staff.

Goodyear also has undertaken remedial efforts. In Kenya, Goodyear divested its ownership interest in Treadsetters, and ceased all business dealings with the company. In Angola, after Goodyear halted the improper payments its subsidiary lost its largest customer. Goodyear is now in the process of divesting this subsidiary.

Goodyear also undertook disciplinary action against certain employees, including executives of its Europe, Middle East and Africa region who had oversight responsibility, for failing to ensure adequate FCPA compliance training and controls were in place at the company’s subsidiaries in sub-Saharan Africa.

Goodyear also implemented improvements to its compliance program, both specific to its operations in sub-Saharan Africa, and globally. In Africa, the improvements include expanded on-line and in-person anti-corruption training for subsidiary management, sales, and finance personnel; regular audits, by internal audit, specifically focused on corruption risks; quarterly self-assessment questionnaires required of each subsidiary regarding business with government-affiliated customers; quarterly management certifications from every subsidiary that cover among other things controls over financial reporting; and annual testing of internal controls at each subsidiary. To increase oversight, Goodyear also put in place a new regional management structure, and added new compliance, accounting, and audit positions. Goodyear is also making technology improvements, where possible, to electronically link subsidiaries in sub-Saharan Africa to its global network. At the parent company, Goodyear created a new senior position of Vice President of Compliance and Ethics, which further elevated the compliance function within the company. Goodyear has also expanded on-line and in-person anti-corruption and ethics training at its other subsidiaries, and implemented a new Integrity Hotline Web Portal, which enhanced users’ ability to file anonymous online reports to its hotline system. With that system, Goodyear is also implementing a new case management system for legal, compliance and internal audit to document and track complaints, investigations and remediation. Goodyear also has updated its policies governing third-party agents and vendors, and is in the process of implementing a new third-party due diligence software tool.”

Without admitting or denying the SEC’s findings, Goodyear agreed to pay $16,228,065 (disgorgement of $14,122,525 and prejudgment interest of $2,105,540). In addition, Goodyear is required to report to the SEC staff “periodically, at no less than 12-month intervals during a three-year term, [on] the status of its remediation and implementation of compliance measures.”  The Order states that the SEC “is not imposing a civil penalty based upon its cooperation in a Commission investigation and related enforcement action.”

In this SEC release, Scott Friestad (Associate Director of the SEC’s Enforcement Division) stated:

“Public companies must keep accurate accounting records, and Goodyear’s lax compliance controls enabled a routine of corrupt payments by African subsidiaries that were hidden in their books. This settlement ensures that Goodyear must forfeit all of the illicit profits from business obtained through bribes to foreign officials as well as employees at commercial companies in Angola and Kenya.”

Joan McKown (Jones Day and a former SEC enforcement division attorney) represented Goodyear.

Yesterday, Goodyear’s stock closed down .09%.

Friday Roundup

Roundup2

Scrutiny updates, the story of the FCPA, keep it simple, and for the reading stack. It’s all here in the Friday roundup.

Scrutiny Updates

Goodyear

Goodyear Tire & Rubber Co. has been under FCPA scrutiny for approximately three years concerning conduct in Kenya and Angola. Earlier this week the company disclosed:

“In June 2011, an anonymous source reported, through our confidential ethics hotline, that our majority-owned joint venture in Kenya may have made certain improper payments. In July 2011, an employee of our subsidiary in Angola reported that similar improper payments may have been made in Angola. Outside counsel and forensic accountants were retained to investigate the alleged improper payments in Kenya and Angola, including our compliance in those countries with the U.S. Foreign Corrupt Practices Act. We do not believe that the amount of the payments in question in Kenya and Angola, or any revenue or operating income related to those payments, are material to our business, results of operations, financial condition or liquidity.

As a result of our review of these matters, we have implemented, and are continuing to implement, appropriate remedial measures and have voluntarily disclosed the results of our initial investigation to the U.S. Department of Justice and the Securities and Exchange Commission, and are cooperating with those agencies in their review of these matters. As a result of ongoing discussions with the government, we have recorded a charge of $16 million in connection with these matters in the third quarter of 2014. While we currently estimate that the most likely amount of the loss associated with these matters is approximately $16 million, the actual amount of the loss could vary, and the timing of any resolution and payment cannot yet be determined.”

Key Energy Services

Here is what the company disclosed about its third quarter expenses associated with its FCPA investigation.

“The results for the third quarter include a pre-tax charge of $60.8 million, or $0.25 per share, for an impairment of the Company’s U.S. assets and pre-tax costs of $16.1 million, or $0.07 per share, related to the previously disclosed Foreign Corrupt Practices Act (“FCPA”) investigations.”

Doing the math, that is approximately $243,000 in professional fees and expenses per working day.

Avon

Avon has been under FCPA scrutiny since June 2008.  As highlighted here, in May 2014 the company disclosed that it and the DOJ/SEC reached an agreement in principle to resolve FCPA enforcement actions for an aggregate amount of $135 million. Approximately six months later, there has still yet to be an enforcement action.  Yesterday, Avon disclosed:

“As previously reported, we have reached an understanding with respect to terms of settlement with each of the DOJ and the staff of the SEC. Based on these understandings, the Company would, among other things: pay aggregate fines, disgorgement and prejudgment interest of $135 with respect to alleged violations of the books and records and internal control provisions of the FCPA, with $68 payable to the DOJ and $67 payable to the SEC; enter into a deferred prosecution agreement (“DPA”) with the DOJ under which the DOJ would defer criminal prosecution of the Company for a period of three years in connection with alleged violations of the books and records and internal control provisions of the FCPA; agree to have a compliance monitor which, with the approval of the government, can be replaced after 18 months by the Company’s agreement to undertake self monitoring and reporting obligations for an additional 18 months. If the Company remains in compliance with the DPA during its term, the charges against the Company would be dismissed with prejudice. In addition, as part of any settlement with the DOJ, a subsidiary of Avon operating in China would enter a guilty plea in connection with alleged violations of the books and records provision of the FCPA. The expected terms of settlement do not require any change to our historical financial statements.

Final resolution of these matters is subject to preparation and negotiation of documentation satisfactory to all the parties, including approval by our board of directors and, in the case of the SEC, authorization by the Commission; court approval of the SEC settlement; and court approval of the DPA and acceptance of the expected guilty plea by an Avon subsidiary operating in China. We can provide no assurances that satisfactory final agreements will be reached, that authorization by the Commission or the court approvals will be obtained or that the court will accept the guilty plea or with respect to the timing or terms of any such agreements, authorization, and approvals and acceptance.”

The Story of the FCPA

Assistant Attorney General Leslie Caldwell’s recent speech (see here for the prior post) has generated follow-up discussion at the FCPA Blog (here and here), including as to the motivation of Congress in passing the law.

Read the “story” of the FCPA for yourself.  This article weaves together information and events scattered in the FCPA’s voluminous legislative record to tell the FCPA’s story through original voices of actual participants who shaped the law.

Keep it Simple

Over at thebriberyact.com, this post begins:

“Three years ago Bribery Inc. went mad.  Every law firm, accounting firm and uncle Tom Cobley and all got into the anti bribery business. Many detailed anti-bribery policies were sold, placed on corporate intranets and training given. Three years on and many are reviewing their policies and looking back at how they’ve been operating for the last three years.  This is a sensible thing to do. Many anti-bribery policies are extensive. […] We could go on.  And many policies do. And this is where they go wrong. Because the longer they are the less likely it is anyone will read them or even know where to find them.”

Referencing comments made by U.K. Serious Fraud Office Director David Green, the post states:

“The SFO Director said that he doesn’t really like long anti-bribery policies.  Broadly speaking he is concerned that they probably won’t be read or understood by employees. The obvious consequence of the anti-bribery policy not being read is that it is unlikely to be followed. His observation and the concern which underpins it resonates with us.”

It resonates with me as well.  (See this previous post titled “Compliance Fatigue?”).

That is why my global anti-bribery online training course (created in conjunction with Emtrain) keeps things simple. To see how the course engages employees in a business organization and inspires them to spot risk (see this video). To see how the course trains gatekeepers in a business organization to minimize risk (see this video).

Reading Stack

Thomas Fox (FCPA Compliance and Ethics Blog) is out with a new book titled “Doing Compliance: Design, Create, and Implement an Effective Anti-Corruption Compliance Program.”  (See here for more information).

The latest FCPA Update from Debevoise & Plimpton is here.

Dorsey & Whitney’s Anti-Corruption Digest (Oct. 2014) is here.

Sidley & Austin’s Anti-Corruption Quarterly is here.

*****

A good weekend to all.

 

“Get The Business, I Don’t Want To Know How”

[This post is part of a periodic series regarding “old” FCPA enforcement actions]

In 1989 the DOJ charged (see here) Goodyear International Corp., a subsidiary of Goodyear Tire & Rubber Co., with FCPA anti-bribery violations.  The two-paragraph information states, in pertinent part, as follows.

“[In 1984] Goodyear International corruptly used the U.S. mails to convey a check, in payment of an invoice for bogus advertising expenses in the amount of $167,429, in furtherance of an offer, payment and promise to pay money in the aggregate amount of $981,124, to an official of the Government of Iraq, to induce said official to use his influence to affect and influence an act of the Government of Iraq, to wit, the purchase of truck tires manufactured by the defendant, in order to obtain and retain business with the Government of Iraq.”

Goodyear International pleaded guilty (see here for the plea agreement) to the information and was ordered to pay a fine of $250,000 (see here).

The “Statement of Facts Supporting the Guilty Plea” (see here) makes for an interesting read.

The conduct at issue focused on David Janasik (a regional export manager for Goodyear International) and his relationships with certain alleged Iraqi officials.  According to the statement of facts, an Iraqi official told Janasik that Goodyear International’s competitors “had been willing to pay cash ‘commissions’ to the official in order to ensure a ‘good relationship’ between those companies and the Iraqi government’s purchasing organization.  The same official then “explained to Janasik that absent such payments Goodyear International could hope for only very limited business from” the government.  The statement of facts indicate, however, that “Janasik told [the official] that such payments were against [company] policy and that he did not feel that he could do business on those terms.”

Thereafter, according to the statement of facts, Janasik told Goodyear International’s Assistant Director for Export Operations of the payment demand and the Assistant Director for Export Operations, in turn, discussed the payment demand with Goodyear International’s Regional Director for Europe / Vice President who stated, with respect to Janasik’s contact in Iraq, “get the business, I don’t want to know how.”

According to the statement of facts, Janasik then carried out the scheme by using Goodyear International’s advertising manager for Greece – who has once operated an advertising agency in Iraq – to arrange for false invoices to be prepared billing Goodyear for Arab language advertising purportedly placed in Baghdad newspapers.

According to this New York Times article, “Goodyear auditors uncovered the scheme in 1985 and immediately reported it to the Justice Department for prosecution.” Interestingly, according to other media reports, Charles F.C. Ruff, a lawyer for Goodyear, said “I don’t think by any measure the company blesses everything that was said in the statement of facts.”

According to media reports,  Janasik pleaded guilty to federal income tax charges in connection with the bribery scheme, cooperated in the DOJ’s investigation, and was sentenced to two years’ probation and a $10,000 fine.

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