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The FCPA Guidance Turns 5

the party is over

Five years ago today, on November 14, 2012, the DOJ and SEC released the FCPA Guidance. The guidance generated a substantial amount of buzz, but the festive coverage soon subsidized as the guidance turned 1, 2, 3, 4 and now 5 years old.

Yet, on this fifth anniversary of the FCPA Guidance, it is useful to take a look back.

As highlighted in this post, the 2012 FCPA guidance was a long-time coming to say the least.

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Khuzami, A Signatory Of The 2012 FCPA Guidance, Calls For Additional FCPA Guidance or “Changing” The “Somewhat Controversial” FCPA

khuzamikirkland

You really can’t make this one up and there is a reason why, unfortunately but justifiably, many view Foreign Corrupt Practice Act enforcement with cynicism.

In 2012, Robert Khuzami was head of the SEC’s Division of Enforcement when the SEC, along with the DOJ, issued FCPA Guidance.

The Guidance was signed by two individuals: Khuzami and then Assistant Attorney General Lanny Breuer.

Just above Khuzami’s signature, the Guidance states:

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The FCPA Guidance Turns 4

the party is over

Four years ago yesterday, on November 14, 2012, the DOJ and SEC released the FCPA Guidance. The guidance generated a substantial amount of buzz, but the festive coverage soon subsidized as the guidance turned 1, 2, 3 and now 4 years old.

Yet, on this fourth anniversary of the FCPA Guidance, it is useful to take a look back.

As highlighted in this post, the 2012 FCPA guidance was a long-time coming to say the least. For instance, in the 1988 FCPA amendments Congress encouraged the DOJ to issue FCPA guidance. The DOJ refused. In 2002, the OECD encouraged the DOJ to issue FCPA guidance. The DOJ refused. In 2010, the OECD again encouraged the DOJ to issue FCPA guidance. The DOJ again refused. In the aftermath of the November 2010 Senate FCPA hearing the DOJ was again encouraged to issue FCPA guidance.  The DOJ again refused.

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The FCPA Guidance Turns 3

the party is over

Three years ago, on November 14, 2012, the DOJ and SEC released the FCPA guidance. The guidance generated a substantial amount of buzz, but the festive coverage soon subsidized as the guidance turned 1, 2, and now 3 years old.

Yet, on this third anniversary of the FCPA guidance, it is useful to take a look back, particularly because the DOJ is rumored to be considering additional FCPA guidance that no doubt, if released, will likewise generate a substantial amount of buzz and festive coverage.

As highlighted in this post, the 2012 FCPA guidance was a long-time coming to say the least.

For instance, in the 1988 FCPA amendments Congress encouraged the DOJ to issue FCPA guidance. The DOJ refused. In 2002, the OECD encouraged the DOJ to issue FCPA guidance. The DOJ refused. In 2010, the OECD again encouraged the DOJ to issue FCPA guidance. The DOJ again refused. In the aftermath of the November 2010 Senate FCPA hearing the DOJ was again encouraged to issue FCPA guidance.  The DOJ again refused.

It was only after the FCPA reform movement gained steam in 2011 that the DOJ made the political move in announcing that FCPA guidance would be forthcoming. Tellingly as to the DOJ’s political motivations, actual issuance of the guidance took over one year and occurred a few days after the 2012 elections.  For more on the above chronology of events, see the article “Grading the FCPA Guidance.”

As discussed in this November 2012 post, there was little new information in the guidance to those previously knowledgeable about the FCPA and its enforcement. Yet, to those persuaded by non-lawyer journalist coverage of FCPA topics and/or selling FCPA compliance services, the guidance was indeed “new.”

Sure, the guidance was a useful document to the extent it captured in one document the DOJ and SEC’s views on the FCPA and related topics.

But that is all the guidance did.

Criticism of the guidance was widespread, including by former high-ranking DOJ officials. (See this prior post rounding up approximately 50 law firm client alerts, etc. regarding the guidance).  For instance, Steven Tyrrell, former chief of the DOJ fraud section stated that the guidance was “more of a scrapbook of past DOJ and SEC successes than a guide book for companies who care about playing by the rules.” (See also this prior post highlighting former Deputy Attorney General Larry Thompson’s views on the guidance.)

Indeed, the guidance did not represent the “law,” but rather DOJ and SEC interpretations of the law and as highlighted in this article the guidance was not a well-balanced portrayal of the FCPA as it was replete with selective information, half-truths, and, worse information that was demonstratively false.

Even so, in the guidance, and in connection with its release, the enforcement agencies made some sensible statements (see here for the prior post) such as:

  • the enforcement agencies are “focused on bribes of consequence – ones that have a fundamentally corrosive effect on the way companies do business abroad.”
  • enforcement efforts are focused on “payments of real and substantial value that clearly represent an unambiguous intent to bribe a foreign official to obtain or retain business”
  • enforcement agencies are “interested in companies spending compliance dollars in the most sensible way” and that the guidance can help companies as to where they can “minimize investment and where they can maximize it.”

As highlighted in this prior post, one of the more useful aspects of the guidance is that it could thus be used as a measuring stick for future enforcement activity.

Since the guidance, there have been approximately 30 corporate FCPA enforcement actions.  Several of these enforcement actions such as Ralph LaurenPhillipsStryker, Allianz, Bruker, Layne Christensen, Smith & Wesson, BNY Mellon, Mead Johnson, BHP Billiton, FLIR Systems– raise the issue of whether the enforcement agencies are indeed acting consistent with their own guidance, let alone the FCPA statue itself.

In short, three years has passed since the guidance and not much has changed.

It would seem that the only thing that has changed is that the principal spokespersons / authors of the guidance are now part of FCPA Inc. making millions in the private sector advising companies against the FCPA enforcement climate they helped create.

As far back as 1982 it was recognized in the FCPA context that the United States should be a nation of laws, not a nation of men and women issuing non-binding guidance.

The 2012 FCPA guidance was just that – men and women issuing non-binding guidance.

As FCPA Inc. anticipates a new round of rumored non-binding FCPA guidance by men and women, let’s remember this.

Indeed, just as the men and women who authored the 2012 guidance soon left the government, the men and women who draft this next round of rumored FCPA guidance are likely to exit the government in the next two years.

Friday Roundup

Roundup2

Wal-Mart related, quotable, spot-on, scrutiny alerts and updates and prosecutorial common law defeat. It’s all here in the Friday roundup.

Wal-Mart Related

In its recent 2Q FY2016 earnings call Wal-Mart stated:

“FCPA and compliance-related costs were approximately $30 million, comprised of approximately $23 million for the ongoing inquiries and investigations, and approximately $7 million for our global compliance program and organizational enhancements. Last year, FCPA and compliance-related costs were $43 million in the second quarter. We expect FCPA-related expenses to continue to trend down, so we now expect our full year FCPA-related expenses to range between $130 million and $150 million. This compares to our guidance in February of $160 to $180 million.”

Doing the math, Wal-Mart’s 2Q FCPA and compliance-related costs is approximately $470,000 per working day.

Over the past approximate four years, I have tracked Wal-Mart’s quarterly disclosed pre-enforcement action professional fees and expenses. While some pundits have ridiculed me for doing so, such figures are notable because, as has been noted in prior posts and in my article “Foreign Corrupt Practices Act Ripples,” settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.  Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.

While $470,000 per working day remains eye-popping, Wal-Mart’s recent figure suggests that the company’s pre-enforcement action professional fees and expenses have crested as the figures for the past seven quarters have been approximately $516,000, $563,000, $640,000, $662,000, $855,000, $1.1 million and $1.3 million per working day.

In the aggregate, Wal-Mart’s disclosed pre-enforcement professional fees and expenses are as follows.

FY 2013 = $157 million.

FY 2014 = $282 million.

FY 2015  = $173 million.

FY 2016 = $63 million (projections for the remainder of the FY of approximately $67 – $87 million)

Quotable

Regarding the recent BNY Mellon enforcement action, Jay Darden (Paul Hastings and recently the Assistant Chief of the DOJ’s Fraud Section) stated: “it’s not the U.S. government’s job to regulate hiring policy.” (See here).

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In this Corporate Crime Reporter, Lamia Matta (Miller & Chevalier) states:

“Companies are less aggressive in [voluntarily] reporting. Companies are finding that they don’t save a whole lot by going in and self-reporting as soon as they find a problem. They are still subject to extensive investigation. The cost is the same if they self-report and then cooperate as it would be if they just cooperate. The agencies say that is not the case. But if you look at the trends, that does seem to be the case.”

“The other thing is that the decision to self-report is taking a lot longer than it once used to. Companies might think — it may make sense to self-report, but we are going to wait it out a bit before we do so. The process is now much more considered than it once used to be.”

“And companies are not as inclined to buy into the agencies’ aggressive theories of jurisdiction as they might have once been. For all of these reasons, you are seeing companies being less quick to self report. I don’t know if the self-reporting numbers are down or not. They are difficult to track.”

Spot-On

This Bryan Cave alert regarding the recent order in the DOJ’s enforcement action against Lawrence Hoskins (see here for the prior post) is spot-on.

It states:

“This holding directly contradicts the “guidance” provided by the U.S. in its Resource Guide, published jointly by the Department of Justice and the Securities and Exchange Commission. That guidance states unequivocally:

‘Individuals and companies, including foreign nationals and companies, may also be liable for conspiring to violate     the FCPA—i.e., for agreeing to commit an FCPA violation—even if they are not, or could not be, independently charged with a substantive FCPA violation.

* * *

A foreign company or individual may be held liable for aiding and abetting an FCPA violation or for conspiring to violate the FCPA, even if the foreign company or individual did not take any act in furtherance of the corrupt payment while in the territory of the United States.’

This Order reminds companies and individuals that some of the legal principles surrounding the FCPA recently have been developed out of settlements with the government instead of through the courts. On issues as important as these, it can be worthwhile to test some of the government’s theories in the only place they can be adjudicated.”

To learn about other selective information, half-truths, and information that is demonstratively false in the FCPA Guidance see “Grading the Foreign Corrupt Practices Act Guidance.”

Scrutiny Alerts and Updates

Ford Motor Co.

Reuters reports:

“The [SEC] is helping German prosecutors to investigate the alleged payment of bribes by Ford to speed the passage of containers through Russian customs, a source at the U.S. carmaker said on Tuesday. Ford and Schenker, the freight business of state-owned German rail company Deutsche Bahn, have been under investigation in Germany since 2013 over suspected bribery and other offences related to the busy Russian port of St. Petersburg. The port is Russia’s European gateway with more than 2,000 companies using it for shipments, according to its website, but it is also known among customers for notoriously long delays. The [SEC] has now joined investigations by prosecutors in Cologne, where Ford’s European headquarters are based, a source at the carmaker told Reuters, confirming a report in Tuesday’s Sueddeutsche Zeitung newspaper. Two Ford employees, eight current and former workers at Schenker and one staffer from a Russian contractor are under investigation, a spokesman at the Cologne prosecutor’s office said.”

Petrobras

In regards to this recent media report, the company stated in this filing:

“Petrobras hereby declares that, in relation to news published in the media concerning the payment of a fine to the U.S. authorities, there are no ongoing negotiations regarding the eventual payment of a fine for the winding up of civil and criminal investigations in the United States regarding the violation of the anti-corruption legislation. Nor has there been any decision by the U.S. authorities regarding the merit of such an investigation or the eventual amounts involved.”

SciClone Pharmaceuticals

One of the longest instances of FCPA scrutiny concerns SciClone Pharmaceuticals.  As highlighted in this prior post, in August 2010 the company disclosed:

“On August 5, 2010 SciClone was contacted by the SEC and advised that the SEC has initiated a formal, non-public investigation of SciClone. In connection with this investigation, the SEC issued a subpoena to SciClone requesting a variety of documents and other information. The subpoena requests documents relating to a range of matters including interactions with regulators and government-owned entities in China, activities relating to sales in China and documents relating to certain company financial and other disclosures. On August 6, 2010, the Company received a letter from the DOJ indicating that the DOJ was investigating Foreign Corrupt Practices Act issues in the pharmaceutical industry generally, and had received information about the Company’s practices suggesting possible violations.”

Recently the company disclosed:

“In July 2015, SciClone reached an agreement in principle with the staff of the US Securities and Exchange Commission (SEC) for a proposed settlement for a range of matters, including without admitting or denying possible violations of the Foreign Corrupt Practices Act (FCPA). The agreement, which includes disgorgement, prejudgment interest, and penalties totaling $12.8 million, is contingent upon the execution of formal settlement documents and approval of the settlement by the SEC’s governing Commission. The Company has not yet reached a resolution of these matters with the Department of Justice (DOJ) and management continues to work diligently to obtain closure on this matter.”

Akamai Technologies 

The company updated its previous FCPA-related disclosure as follows:

“We are conducting an internal investigation, with the assistance of outside counsel, relating to sales practices in a country outside the U.S. that represented less than 1% of our revenue during the three and six months ended June 30, 2015, and in each of the years ended December 31, 2014, 2013 and 2012. The internal investigation includes a review of compliance with the requirements of the U.S. Foreign Corrupt Practices Act and other applicable laws and regulations by employees in that market.  In February 2015, we voluntarily contacted the U.S. Securities and Exchange Commission and Department of Justice to advise both agencies of this internal investigation. We are cooperating with those agencies. As of the filing of this quarterly report on Form 10-Q, we cannot predict the outcome of this matter. No provision with respect to this matter has been made in our consolidated financial statements.”

General Cable 

The company recently disclosed the following regarding its previously disclosed FCPA scrutiny.

“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 FCPA and possibly under the laws of other jurisdictions. Based on an analysis completed with the assistance of our external counsel and forensic accountants, we have concluded at this time, that we are able to reasonably estimate the profit derived from sales made to the Angolan government-owned public utilities in connection with the payments described above which we believe is likely to ultimately be disgorged. As a result, we recorded an estimated charge in the amount of $24 million as an accrual as of December 31, 2014. There was no change to the accrual in the second quarter of 2015. The accrued amount reflects the probable and estimable amount of the Angola-related profits that the Company believes is subject to being disgorged, and does not include any provision for any fines, civil or criminal penalties, or other relief, any or all of which could be substantial.
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 and certain transactions in our Egypt and China businesses, which may have implications under the FCPA. We have voluntarily disclosed these matters to the SEC and the DOJ and have provided them with additional information at their request, including information in response to an SEC subpoena. 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. 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. We are continuing to implement a third party screening process on 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. We also have provided anti-corruption training to our global sales force, and ultimately will provide such training to all salaried employees. In addition, we have hired a Chief Compliance Officer, who is responsible for the day-to-day management of our compliance function. The Chief Compliance Officer reports to our Chief Executive Officer, and also has a reporting relationship with the Audit Committee.”
Another Prosecutorial Common Law Defeat

Related to the above, one of the best guest posts in FCPA Professor history was this 2011 post from Michael Levy in which he described the concept of prosecutorial common law.  Prosecutorial common law is all around us.  Take a look at the footnotes of the FCPA Guidance – most of the “authority” cited for “legal” propositions is DOJ or SEC settlements.

For obvious reasons, prosecutorial common law does not sit well with federal court judges.  For instance, in U.S. v. Bodmer, Judge Shira Scheindlin of the Southern District of New York, in rejecting the DOJ’s position that the FCPA’s criminal penalty provisions applied to a foreign national prior to the 1998 FCPA amendments, noted as follows – “the Government’s charging decision, standing alone, does not establish the applicability of the statute.”  Likewise as noted in this previous post about the Giffen enforcement action, Judge William Pauley of the Southern District of New York stated that prosecutorial common law ”is not the kind or quality of precedent this Court need consider.”

Prosecutorial common law recently suffered another defeat when the Southern District of New York ruled that the Food & Drug Administration can’t bar a drug company from marketing a pill for off-label use as long as the claims are truthful.  (See here for the Wall Street Journal article).

The decision follows a 2012 decision in U.S. v. Caronia (see here for the prior post) in which the Second Circuit concluded that the DOJ’s theory of prosecution concerning so-called off-label promotion of drugs was invalid. Prior to Caronia and even after Caronia, the DOJ has used the theory of prosecution to secure billions in settlement against risk-averse pharmaceutical companies.

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A good weekend to all.

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