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Issues To Consider From The PTC Enforcement Action

IssuesThis post went in-depth regarding this week’s $28 million Foreign Corrupt Practices Act enforcement action against PTC Inc. and related entities.

This post continues the analysis by highlighting various issues to consider.

Timeline

As highlighted in this previous post, the company first disclosed its FCPA scrutiny in August 2011. Thus, the timeline was approximately 4.5 years.

Pre and Post – Enforcement Action Professional Fees and Expenses

Unlike some issuers under FCPA scrutiny, PTC does not appear to have disclosed its pre-enforcement action professional fees and expenses over the past 4.5 years. If the company’s scrutiny followed a typical path, those pre-enforcement action professional fees and expenses likely were equal to or exceeded the $28 million settlement amount.

Given that PTC did not disclose its pre-enforcement action professional fees and expenses, it is unlikely that the company will disclose its post-enforcement action professional fees and expenses either. However, there will be plenty because, as a condition of settlement, the company is required to report to the DOJ for a three year term.

Let’s pause to consider whether this is truly necessary or simply another government required transfer of shareholder wealth to FCPA Inc. (see here, here and here for prior posts).

In the words of the DOJ:

“The [PTC Entities] engaged in extensive remedial measures, including a review and enhancement of the Companies’ and PTC Inc.’s compliance program, the establishment of a dedicated compliance team at the corporate level and at PTC China and enhanced policies for business partners, the termination of the business partners involved in the misconduct described in the Statement of Facts …, and the implementation of new customer travel policies and additional controls around expense reimbursement.”

In the words of the SEC:

“As part of its internal review and investigation, PTC undertook significant remedial measures including terminating the senior staff at PTC-China implicated in the FCPA violations. PTC also revised its pre-existing compliance program, updated and enhanced its financial accounting controls and its compliance protocols and policies worldwide, and implemented additional specific enhancements in China. These steps included: (1) reviewing and enhancing its anti-bribery policy, code of ethics, and gifts and entertainment policies to correct previous deficiencies; (2) establishing a dedicated compliance team, including a chief compliance officer and a new compliance director in China; (3) expanding its other compliance resources in China, including hiring a new vice president of finance for Asia and adding additional legal staff in China; (4) hiring a new management team in China, including a new China President; (5) enhancing its FCPA training for employees; (6) severing its relationships with the business partners that were implicated in the FCPA violations and discontinuing the use of COD partners or business referral partners generally; (7) implementing a comprehensive due diligence program for all other business partners that includes a risk-scoring system operated by a third party vendor and that includes FCPA training as part of the onboarding process; (8) obtaining quarterly anti-corruption certifications from sales staff; and (9) undertaking periodic compliance audits.”

Against this backdrop, is it truly necessary for PTC to report to the government for three years regarding its “remediation efforts to date, their proposals reasonably designed to improve the Companies’ internal controls, policies, and procedures for ensuring compliance with the FCPA and other applicable anti-corruption laws, and the proposed scope of the subsequent reviews”?

One Core Enforcement Action

Certain FCPA Inc. participants have adopted creative counting methods when it comes to keeping FCPA enforcement statistics.

No doubt, some will count the PTC enforcement action as three separate enforcement actions (the DOJ component, the SEC component as to the company, and the SEC component as to the individual) even though each action was based on the same core conduct. Counting FCPA enforcement actions this way distorts FCPA enforcement statistics because this week’s action was one core action.

First Individual DPA by the SEC

The Yu Kai Yuan DPA, which the SEC termed the first DPA with an individual in an FCPA case, might be the most inconsequential legal document you will ever read.

Based on the same core conduct in the DOJ NPA and the SEC administrative order, the SEC alleged that Yuan (a Chinese citizen who resides in Shanghai and was last a sales executive for PTC entities in China in 2011) caused violations of the FCPA’s books and records and internal controls provisions.

The only specific allegation as to Yuan in the DPA is the first paragraph which merely identifies him. There is no other specific allegation regarding him including how he caused violations of the FCPA’s books and records and internal controls provisions.

Without admitting or denying the SEC’s allegations, Yuan agreed to refrain from violating the “federal and state securities law” and to “refrain from violating the applicable rules promulgated by any self-regulatory organization or professional licensing board.”

If what the SEC is seeking is more individual enforcement actions in connection with corporate FCPA actions, the Yuan DPA represents one way to juice the statistics.

Additional Sloppy or Incomplete Pleading

The recipients of the travel and entertainment alleged were employees of alleged Chinese state-owned entities.

That is all the DOJ and SEC state in the resolution documents.

Even though the two-factor control and function test set forth in Esquenazi is flawed (see pgs. 24-43 in this article for a detailed discussion of why), it would seem incumbent on the enforcement agencies to include allegations or findings relevant to this two-factor test as the business community (at least one intended audience of FCPA resolution documents) remains confused regarding the contours of the “foreign official” element.

Assumed Causation

Like many, many other FCPA enforcement actions, the PTC action assumes causation.

In other words, it is assumed that the only reason the Chinese SOEs purchased PTC products and services is because certain of the SOE employees engaged in non-business travel and received other things of value such as iPods, wine and clothing from PTC entities.

Such assumed causation, very much relevant to disgorgement issues, would seem to speculative at best.

Just Plain Silly

Speaking of assumed causation, some have asserted that the Yuan individual DPA by the SEC was “inspired in part by the Yates memo issued over at the Justice Department.”

My own two cents is that suggesting such a connection is just plain silly. The Yuan DPA signatures began in November 2015 and as stated by the SEC the DPA was the “result of significant cooperation [Yuan] provided during the SEC’s investigation” – an investigation which began in 2011.

Application of DD-3

One often overlooked reason for the general increase in FCPA enforcement in the modern era is that in 1998 the statute was expanded through the dd-3 portion of the FCPA which applies to, generally speaking, non-issuer foreign companies and foreign nationals, to the extent the “while in the territory of the U.S.” jurisdictional prong has been satisfied.

The DOJ’s NPA was against PTC China entities, not PTC Inc., and invoked dd-3. While not explicit in the resolution documents, the “while in territory of the U.S.” jurisdictional prong was presumably met given that certain PTC China employees accompanied the alleged Chinese “foreign officials” on their travels to the U.S.

Issues To Consider From The SciClone Enforcement Action

IssuesThis recent post highlighted the SEC’s $12.8 million Foreign Corrupt Practices Act enforcement action against SciClone Pharmaceuticals.

The action was based on the marketing and promotional activities of a subsidiary that provided various things of value to healthcare professionals employed by state-owned hospitals in China including weekend trips, foreign language classes, “golf in the morning and beer drinking in the evening,” and travel to the Grand Canyon and Disneyland.

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

Time Line

In August 2010, SciClone disclosed that the SEC had issued the company a subpoena inquiring about its business practices in China.

If the SEC wants the public to have confidence in its SEC enforcement program, it must resolve instances of FCPA scrutiny much quicker. 5.5 years is simply inexcusable.

For instance, SciClone previously disclosed that in “July 2015, SciClone reached an agreement in principle with the staff of the US Securities and Exchange Commission (SEC) for a proposed settlement” and its disclosure specified the exact amount in last week’s settlement.

Should it really take 7 months to finalize an agreement in principle to settle?

Nearing 20

According to my figures, SciClone is the 18th corporate FCPA enforcement action based on the enforcement theory that employees of certain foreign health care systems are “foreign officials” under the FCPA.

This enforcement theory has never been subjected to any meaningful judicial scrutiny and, perhaps most telling as to its validity and legitimacy, is that none of the corporate enforcement actions based on this theory have resulted in related charges against an individual.

Initial Disclosure of Settlement Amount

In March 2014, SciClone disclosed, in connection with its FCPA scrutiny, “that a payment of $2.0 million to the government in penalties, fines and/or other remedies is probable.”

As highlighted above, the final settlement was $12.8 million.

Anything of Value

The enforcement action contains the following list of things of value.

  • “weekend trips, vacations, gifts, expensive meals, foreign language classes, and entertainment”
  • attendance at “the annual Qingdao Beer Festival consisting of golf in the morning and beer-drinking in the evening”
  • “vacations to Anji, China”
  • “paying for family vacations and regular family dinners”
  • “$8,600 in lavish gifts”
  • non-business “travel to Las Vegas and Los Angeles with tours of the Grand Canyon or Disneyland.”
  • “sightseeing and [travel to] tourist locations such as Mt. Fuji.”
  • “a weekend stay on the island of Hainan, a resort destination”

Chinese Travel Companies

Purported travel companies, as well as the fapiao’, are well-known compliance risks in China. On these issues, the SEC’s order states:

“Local Chinese travel companies were routinely hired to provide services (such as arranging transportation, accommodations, and meals for HCPs) in connection with what were ostensibly legitimate conferences, seminars, and other events. In addition to a lack of due diligence for these third party vendors … there was a lack of controls over the events to ensure they had an appropriate business purpose and that the events actually occurred. Many events did not include a legitimate educational purpose or the educational activities were minimal in comparison to the sightseeing or recreational activities.”

[…]

As part of its remedial efforts, SciClone conducted a detailed, comprehensive internal review of promotion expenses of employees … This review found high exception rates indicating violations of corporate policy that ranged from fake fapiao, inconsistent amounts or dates with fapiao, excessive gift or meal amounts, unverified events, doctored honoraria agreements, and duplicative meetings.”

Professional Fees and Expenses

Even though SciClone, in its March 2015 annual report, disclosed for the FY ended December 31, 2013 “$5.3 million related to legal matters associated with the ongoing government investigation and our ongoing improvements to our FCPA compliance efforts,” the company’s other disclosures over its long period of FCPA scrutiny lack specifics regarding pre-enforcement action professional fees and expenses.

Nevertheless, it is a safe assumption that the aggregate of such fees and expenses exceeded the $12.8 million settlement amount. Add to this SciClone’s post-enforcement action reporting obligations and the biggest “winner” of SciClone’s FCPA journey would appear to be the law firm representing SciClone.

Other Ripples

FCPA Professor has followed SciClone’s FCPA scrutiny since day one in August 2010 (see here).

As chronicled on FCPA Professor, the biggest storyline was how SciClone’s disclosure of the SEC subpoena triggered a nearly 40% drop in the company stock price, resulting in an absolute feeding frenzy of plaintiff lawyers filing FCPA-related civil claims. (See here and here).

Indeed, SciClone’s FCPA scrutiny is prominently featured in the article “Foreign Corrupt Practices Act Ripples“ which 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.

Nevertheless, savvy investors know that FCPA-induced dips often present buying opportunities and SciClone’s stock closed last Friday (the first day of trading after announcement of the FCPA enforcement action) up 8% and substantially higher compared to its August 2010 close (recognizing of course that a number of factors can influence a company’s stock price over the course of nearly 6 years).

For Your Viewing Pleasure

In this 2014 video, SciClone’s CEO talks about the company’s FCPA scrutiny and, more generally, compliance.

Friday Roundup

Roundup2

Alleged bribery at the U.N., former Siemens exec pleads guilty to long-standing charges, scrutiny alerts and updates, quotable, and for the reading stack.

It’s all here in the Friday roundup.

Alleged Bribery at the United Nations

The United Nations does much preaching about bribery and corruption, yet perhaps it should look inward as once again one of its own is alleged to have engaged in bribery and corruption.

This recent criminal complaint charges John Ashe and others with a variety of criminal offenses.  Ashe is described as having various positions at the U.N. including serving as the Permanent Representative of Antigua to the U.N. and recently serving as the President of the U.N. General Assembly.

According to the complaint, various other defendants (most of whom are alleged to be naturalized U.S. citizens, as well as a Chinese national who allegedly has a New York-based non-governmental organization) made bribe payments to Ashe in connection with a U.N. sponsored conference center in Macau, China and to influence business interactions with Antiguan government officials.

The alleged bribery is charged under 18 USC 666 (theft or bribery concerning programs receiving federal funds) on account of the U.N. receiving U.S. federal government funds.

However, Ashe is likely a “foreign official” under the FCPA given that the definition of “foreign official” includes individuals associated with “public international organizations” and the U.N. has been designated as such an organization.

Moreover, as highlighted above, the alleged payors of the bribes to Ashe are predominately naturalized U.S. citizens subject to the FCPA’s anti-bribery provisions. The Chinese national defendant is alleged to have engaged in conduct in the U.S. likely sufficient to satisfy the dd-3 prong of the FCPA.

The recent enforcement action is certainly not the first to involve bribery of a U.N. official.

As highlighted here, the Richard Bistrong enforcement action involved bribe payments to, among others, U.N. officials.

For additional coverage of the Ashe charges, see here.

Former Siemens Exec Pleads Guilty

Recently, the DOJ announced that Andres Truppel of Argentina, the former chief financial officer of Siemens S.A. – Argentina (Siemens Argentina), pleaded guilty to conspiring to violate the anti-bribery, internal controls and books and records provisions of the FCPA; and to commit wire fraud.

On social media, some commentators have tried to link the guilty plea to the recent Yates Memo.  Such an attempt is off-target as Truppel and other former Siemens executives and agents were criminally charged in December 2011.

As highlighted in this prior post from nearly four years ago, the Siemens Argentina individual enforcement action was brought after the DOJ faced much scrutiny for not bringing any individual enforcement action in connection with a bribery scheme “unprecedented in scale and geographic reach” in which there existed at Siemens a “corporate culture in which bribery was tolerated and even rewarded at the highest levels of the company.” (Those are direct quotes from DOJ/SEC).

This scrutiny occurred, among other places, during the Senate’s November 2010 FCPA hearing in which hearing Chair Senator Arlen Specter gave me this homework assignment regarding the Siemens enforcement action.

As highlighted in the prior post, despite the Siemens Argentina individual enforcement action, the fact remains that only a sliver of the conduct at issue in the 2008 enforcement action against Siemens resulted in individual prosecutions.  As alleged by the enforcement agencies, the corruption at Siemens involved more than $1.4 billion in bribes to government officials in Asia, Africa, Europe and the Americas.  As alleged (see here) “among the transactions on which Siemens paid bribes were those to design and build metro transit lines in Venezuela; metro trains and signaling devices in China; power plants in Israel; high voltage transmission lines in China; mobile telephone networks in Bangladesh; telecommunications projects in Nigeria; national identity cards in Argentina; medical devices in Vietnam, China, and Russia; traffic control systems in Russia; refineries in Mexico; and mobile communications networks in Vietnam.”

For additional coverage of the Truppel plea, see here and here.

Scrutiny Alerts and Updates

There has never been an FCPA enforcement action against a Canadian company, but recently Kinross Gold Corp (a company with shares listed on the NYSE) stated:

“In August 2013, Kinross received information regarding allegations of improper payments made to government officials and certain internal control deficiencies at its West Africa mining operations. Kinross takes such allegations very seriously and action was immediately taken in accordance with Kinross’ Whistleblower Policy. External legal counsel was immediately retained to conduct an objective internal investigation into the allegations.

In March and December 2014, and July 2015, Kinross received subpoenas from the United States Securities and Exchange Commission (the “SEC”) seeking information and documents on substantially the same subjects as had previously been raised. In December 2014, Kinross received similar requests for information from the United States Department of Justice (the “DOJ”).

Kinross is fully cooperating with the SEC and DOJ and continues to diligently pursue its own internal investigation, which, over the course of the past 25 months, has not identified issues that Kinross believes would have a material adverse effect on the Company’s financial position or business operations. Our internal investigation is ongoing, and additional issues or facts could become known as the investigation continues.

It is important to note that the SEC subpoenas expressly state that: “This investigation is confidential and nonpublic and should not be construed as an indication by the Commission or its staff that any violation has occurred, nor as a reflection upon any person, entity or security.”

Kinross is committed to operating in accordance with the highest ethical standards and conducting business in an honest and transparent manner that is in compliance with the law. Kinross has a longstanding culture of ethical conduct and accountability consistent with its Code of Business Conduct and Ethics and related anti-corruption compliance program.”

Quotable

Informed by my prior experience as an FCPA lawyer in private practice, I have long pinned one of causes for the inexcusable long duration of FCPA inquiries on the high attrition rates at the DOJ and SEC’s FCPA Unit.

Since leaving the DOJ, Paul Pelletier (former Acting Chief and Principal Deputy Chief of the DOJ’s Fraud Section and currently a partner at Mintz Levin) has offered an informed voice on the long duration of DOJ FCPA inquiries.  (See here for instance).

Commenting on the Yates Memo in this recent FCPA Blog guest post, Pelletier writes:

“To avoid delay in the efficient and timely prosecution of business entities, implementation of the formal requirements of the Yates Memo will require the deft and even hand of prosecutors, both experienced in investigating and prosecuting complex corporate white collar crime and trained in the methods of real time prosecutions. This unique experience and specific training are required and essential.

From 2002 through 2010, the average Criminal Division tenure of a Fraud Section prosecutor exceeded 5 years and according to the OECD’s most recent Foreign Bribery Report, during that same time frame, the average duration of a foreign bribery investigation measured from the last act of the offense to resolution was approximately 3 years. Commentators have noted an increasingly high and troubling turnover rate in the Fraud Section since 2010, radically altering the average tenure of Section prosecutors. Moreover, since 2010 the average investigatory duration of foreign bribery matters has doubled to more than sixyears.

Whatever explanation may be offered for these jaw dropping statistics, the practical effect is that most FCPA investigations will be passed from prosecutor to prosecutor, almost certainly leading to unnecessarily protracted investigations—perhaps an exclamation point which highlights the critical consequences to FCPA investigations flowing from implementation of the Yates Memo, absent a root cause cure.

Given the formal requirements of the Yates Memo, no matter how good the prosecutors’ intentions or how noble their cause, without the DOJ’s commitment to sustained and focused training combined with a similar effort to retain prosecutors with the experience essential to the success of the endeavor, corporations (including employees and shareholders) caught up in the throes of an FCPA investigation, if they choose to cooperate, are likely to be forced to suffer the untold and unwarranted costs and disruptions of seemingly interminable investigations. That should not be the consequence of DOJ’s renewed focus.”

For the Reading Stack

This recent Wall Street Journal Risk & Compliance Journal article states:

“The Justice Department’s Foreign Corrupt Practices Act unit is focusing its enforcement efforts on quality rather than quantity. Spokesman Peter Carr said after years of handling smaller cases coming from corporate self-reporting, the unit is now putting more at stake and going after blockbuster cases. Initiatives to boost foreign corruption enforcement personnel and resources are being used to go after that high-profile wrongdoing, Mr. Carr said. Many of those programs began years ago. His comments came in response to news that the Department’s anti-bribery efforts were eclipsed by the Securities and Exchange Commission in the third quarter. “The department several years ago handled more cases based on self-reporting by companies, and as a result of that we saw more resolutions, but smaller cases,” Mr. Carr said in an email. “We are currently focusing on bigger, higher impact cases, including those against culpable individuals, both in the U.S. and abroad, and those take longer to investigate and absorb significant resources, but there are a lot of cases out there. In fact, the department is increasing its FCPA resources, and the three new FBI squads focusing on this issue are now staffed and operational.” […] “Our investigations of FCPA cases are as robust as ever, and the resources we dedicate to FCPA cases continue to grow.  These are sophisticated cases that can take years to investigate,” Mr. Carr said. “The number of public announcements about filed cases or resolutions will vary over time, but our commitment to FCPA cases is strong.”

*****

A good weekend to all.

Friday Roundup

Roundup

Survey says, scrutiny alert, chuckle, and for the reading stack.  It’s all here in the Friday roundup.

Survey Says

Items that caught my eye from Kroll/Compliance Week’s recent 2015 Anti-Bribery and Corruption Benchmarking Report (a report based on approximately 250 survey responses from compliance professionals of large companies).

The average respondent to the survey was associated with a company that employs 22,000 employees and has more than 2,900 third party relationships.

In the minds of some, FCPA compliance is easy.  But as previously highlighted here, consider if the respondent companies were 99% compliant on a daily basis.  99% success in most all areas of life is rewarded, but 99% compliance for the respondent companies would mean 220 employee and 29 third party violations.

Against this backdrop, I am not at all surprised that approximately 50% of respondents in the survey were less than confident that company financial controls can catch potential books and records violations of the FCPA.

After all, the FCPA’s books and records (and internal control provisions) are among the broadest legal provisions one can find even if they are qualified in several respects.

As noted in the report accompanying the survey findings:

“There is a little bit of anti-bribery and anti-corruption fatigue at the board level across large organizations.  In 2009 and 2010 lawyers and regulators predicted doomsday scenarios, bolstered by an explosion in the growth of formal investigation and fines imposed.  That uptick leveled off in recent years, leading some companies to believe they have more time to get their houses in order.”

Perhaps the lesson is that boards should take with a grain of salt the doomsday scenarios of FCPA Inc. because they are often self-serving.

Scrutiny Update

As previously highlighted here, in September 2013 Hyperdynamics disclosed:

“[On] September 2013 [the company] received a subpoena from the United States Department of Justice (DOJ) requesting that the Company produce documents relating to its business in Guinea.  In 2006, a Production Sharing Contract was signed by the Company and the government of Guinea granting rights to an oil and gas concession offshore Guinea.  The Company understands that the DOJ is investigating whether Hyperdynamics’ activities in obtaining and retaining the concession rights and its relationships with charitable organizations potentially violate the U.S. Foreign Corrupt Practices Act or U.S. anti-money laundering statutes.  The Company has retained legal counsel to represent it in this matter and is cooperating fully with the government.  The Company is unable to predict when the investigation will be completed, what outcome may result and what costs the Company will incur in the course of the investigation.”

Last week the company disclosed:

“As set forth in the attached letter, the United States Department of Justice (DOJ) has closed its investigation into possible violations by Hyperdynamics of the Foreign Corrupt Practices Act (FCPA) without bringing any charges against the Company.  Hyperdynamics had cooperated with the government’s investigation, and DOJ noted the value of the Company’s cooperation in its letter.  Ray Leonard, President and CEO, commented, “This is an important development for Hyperdynamics. We are extremely pleased to be informed that the DOJ has closed its inquiry into this matter.” As previously disclosed, both the DOJ and SEC issued subpoenas to Hyperdynamics concerning possible violations of the FCPA and other laws. The SEC investigation has not yet been resolved.”

To those who frequently overuse the “d” word (as in declination), this was a DOJ declination.  However, when a company merely receives a subpoena and the DOJ closes its investigation, I prefer to call that the law enforcement investigative process.

Nevertheless, it what seems to be a new trend for FCPA Inc., the law firm representing Hyperdynamics issued this press release stating:

“Covington represented Hyperdynamics in an investigation conducted by the U.S. Department of Justice into potential violations of the Foreign Corrupt Practices Act related to its business activities in the Republic of Guinea. The Justice Department has completed its investigation without bringing any charges against the company. Hyperdynamics received a subpoena from the Justice Department in September 2013 concerning possible violations of the FCPA and other laws relating to its business in Guinea. The Houston-based oil and gas company fully cooperated with the government’s investigation and the Justice Department noted the value of the company’s cooperation in its declination letter. […] The SEC also issued a subpoena to Hyperdynamics concerning possible violations of the FCPA and other laws. The SEC investigation has not yet been resolved. The Covington team handling the matter included Lanny BreuerNancy Kestenbaum and Barbara Hoffman.”

Lanny Breuer is the former head of the DOJ’s criminal division.

According to disclosures by Hyperdynamics, the company spent approximately $11.2 million on its FCPA scrutiny.

Chuckle

There has been much recent discussion and war of words concerning the length of FCPA scrutiny (see here and here).

Against this backdrop, I had a good chuckle when I recently stumbled upon this 2005 speech by the DOJ’s then Assistant Attorney General of the Criminal Division.

“Simply put, speed matters in corporate fraud investigations.  The days of five-year investigations, of agreement after agreement tolling the statute of limitations – while ill-gotten gains are frittered away and investor confidence sinks – are increasingly a thing of the past.”

For the Reading Stack

As highlighted in this prior post, last month  Paul Pelletier (former principal deputy chief of the DOJ Criminal Division’s Fraud Section) penned a dandy Wall Street Journal editorial titled “The Foreign Bribery Sinkhole at Justice.”

In this recent piece Pelletier goes into more-depth on the same topic.  In pertinent part he writes:

“[T]he pattern of costly delay in FCPA investigations continues unabated.  While every government investigation and resolution poses unique facts and circumstances that may serve to delay the investigatory process, these recent long-developing FCPA resolutions, together with the findings of the OECD report, are convincingly problematic.  The staggering investigative costs, ultimately borne by employees and shareholders alike, however, also can reach unconscionable levels.

[…]

The Department of Justice has recently articulated that at least part of the rationale or justification for these interminable investigations is that “[c]ompared to other white collar crime, the challenges associated with FCPA investigations can be much greater.”  The DOJ offered “overseas evidence” as one basis for this greater challenge.2

But this statement fails to explain the  more than twofold increase in investigatory durations from historical norms.  A dispassionate, experience-based analysis of this overly broad assertion exposes a faulty premise.  Simply put, the DOJ can and must do better.

[…]

With a cooperating corporation, FCPA investigators routinely find themselves in the unique position of having prompt access to overseas evidence and witnesses without a need to resort to cumbersome international treaty requests.  Such cooperation is much like the prosecution having secured a cooperator with unfettered access to the critical evidence.

[…]

Regardless of the reason or reasons for these protracted investigations, both the continued vitality of the DOJ’s FCPA enforcement efforts and the prominence of the United States as the global leader of anti-corruption enforcement would seem to demand a renewed effort to dramatically reduce the time frame necessary to achieve resolution.

[…]

Legitimate enterprises benefit from those kinds of real-time revelations, and criminal political regimes can be immediately identified and deterred.  Moreover, when a criminal resolution discloses and punishes criminal conduct that occurred five or more years earlier, any deterrent effect of the resolution is significantly diminished.  This is particularly true in industries where the overseas corrupt conduct flourishes with abandon.

At that late stage, the principal deterrent effect is relegated to the size of the monetary penalty — something the DOJ continues to emphasize with all too much frequency and relish.  As recent cases have demonstrated, lengthy FCPA investigations also place untenably wasteful financial burdens on corporations, their employees and their shareholders.

[…]

Given that the DOJ’s FCPA unit within the Fraud Section has more than doubled in size from 2009 to today and has been fortified by a dedicated squad of FBI agents, it is puzzling that many of these investigations seem to drag on interminably.  The DOJ must strive to be more than just “FCPA Inc.,” churning out stale resolutions notable only for their record-breaking penalties.”

In conclusion Pelletier writes:

“The interests of justice are neither served nor advanced when FCPA investigations routinely drag on for five or more years.  Rigorous and prompt FCPA enforcement with respect to current bribery schemes can have a dramatic impact on the insidious and corrosive effect of corruption overseas.  Real-time enforcement is just one component of what must be a larger proactive strategy to root out overseas corruption, which includes punishing the bribe takers as well as the bribe payers and dispossessing the government officials of access to ill-gotten gains.

Curing the deficiencies that lead to costly and wasteful delays will require a systemic and sustained effort, primarily by the DOJ.  It will also require a more focused approach by outside counsel.  Although the ameliorative benefits resulting from such change will not be achieved overnight, the long-term vitality and efficacy of the DOJ’s anti-corruption enforcement efforts ultimately rests on the government’s ability to sustainably alter the status quo.”

*****

A good weekend to all.

Issues To Consider From The Recent BHP Billiton Enforcement Action

Issues

This recent post highlighted the SEC FCPA enforcement action against BHP Billiton.

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

Record-Setting SEC Civil Penalty

At $25 million, the BHP Billiton enforcement action clearly did not set any records in terms of overall settlement amount. (See here for the current top ten FCPA enforcement actions in terms of overall settlement amount).

In most SEC FCPA enforcement actions, the settlement amount comprises (in any given year 95%+) of disgorgement and prejudgment interest.

However, the BHP Billiton comprised solely a $25 million civil penalty.

This is believed to be, by a large margin, the largest-ever SEC civil penalty in an FCPA enforcement action.  Number 2 on this list is believed to be against ABB in 2010 (settlement amount included a $16.5 million civil penalty).

Moreover, the BHP Billiton enforcement action is the second-largest SEC only FCPA enforcement action of all-time behind the $29 million SEC only FCPA enforcement action against Eli Lilly in 2012 (see here for the prior post). (Note: an SEC only FCPA enforcement action means an enforcement action that involved only an SEC component, not an SEC settlement amount in an enforcement action that also involved a DOJ component).

That the BHP Billiton enforcement action – a travel and entertainment action – represents the largest SEC FCPA penalty ever and the second largest SEC only FCPA enforcement action of all-time is nothing short of remarkable and further to the point that FCPA settlement amounts (and components thereof) seem to be getting bigger each year … just because.  (See here for the prior post).

The Absurdity of Just Don’t Bribe

In the minds of some, the FCPA is simple.  Just don’t bribe.

More sophisticated observers recognize the absurdity of such an absolutist position.

In short, a company can do things with customer or prospective customer x and it is generally just fine.  But when the same company does the same thing with customer or prospective customer y, the U.S. government just might call it bribery.

The BHP Billiton enforcement action highlights this dynamic.

To recap, BHP Billiton was an official sponsor of the 2008 Summer Olympics in Beijing, China.  As such, the company received priority access to tickets, hospitality suites, and accommodations for the games.  Not surprisingly, the company invited 650 people (customers, suppliers, etc.) to attend the Olympic Games with three to four day hospitality packages.

According to the SEC’s findings, approximately 75% of these invitees were not alleged “foreign officials.”  Thus no problem.

But lo and behold, approximately 25% of these people invited were alleged “foreign officials” primarily from Africa and Asia and an even smaller percentage of these invited “foreign officials” actually attended the Olympic Games.

The end result, according to the SEC, bribery.

Sure, BHP Billiton was not charged with FCPA anti-bribery violations, but does anyone seriously question whether this enforcement action was regarding anything but the alleged “foreign officials.”?

Avoiding the “D” Word

BHP Billiton was not the subject of a DOJ enforcement action.

To those who overuse the “D” word, this is yet another example of a DOJ “declination.”

However, consider this.

As a foreign issuer, the only way BHP Billiton could have been found to be in violation of the FCPA’s anti-bribery provisions is to the extent “[U.S.] mails or any means or instrumentality of interstate commerce” was used in furtherance of the alleged travel and entertainment expenditures.  The SEC’s enforcement action contained no such findings.

Sure, the DOJ also can bring criminal enforcement actions – including against foreign issuers – for willful violations of the FCPA’s books and records and internal controls provisions, but the SEC’s findings surely did not warrant such treatment.

Time-Line

Like most FCPA inquiries by the DOJ/SEC, BHP Billiton’s FCPA scrutiny followed a glacial pace.

As the company previously disclosed, it received requests for information in August 2009 from the SEC.

Thus, from start to finish it took approximately six years.

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