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Must See Video Clips From Assistant AG Caldwell’s Recent FCPA Speech

must see

Kudos to C-SPAN for broadcasting Assistant Attorney General Leslie Caldwell’s recent Foreign Corrupt Practices Act speech and related Q&A. (See here and here for prior posts). The broadcast represents a valuable public service to the FCPA community compared to the norm where DOJ/SEC FCPA officials appear at private events in which the public has to pay to hear their public officials speak about important topics (see here and here for prior posts criticizing this practice) and in which tidbits of information get reported largely through the filters of FCPA Inc. participants.

This post further advances the public interest by clipping Assistant AG Caldwell’s speech into discrete topics such as: (i) how “it’s impossible for a big global company to make sure that all of its employees are following the law all of the time,” (ii) thresholds for voluntary disclosure including how the DOJ does not “need to hear” or “want to hear” about certain potential FCPA violations; (iii) how some companies have engaged in “way too broad” FCPA investigations, and (iv) what a so-called “declination” means.

These clips represent must see video for corporate managers wrestling with FCPA issues and others in the FCPA community.

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SEC Announces Blockbuster FCPA Enforcement Actions Against ALL Issuers

wow

[Today is April 1st, commonly referred to as April Fools Day. Please keep this in mind when reading this post. In other words, this post should not be taken literally. Even though this post is presented as satire, readers are encouraged to ponder the issues raised.]

Earlier today the SEC announced Foreign Corrupt Practices Act enforcement actions against all issuers subject to the FCPA.

Total SEC recovery in the enforcement actions – all resolved via administrative cease and desist orders and thus not subject to any judicial scrutiny was – approximately $925 billion dollars.

In announcing the enforcement actions, an SEC spokesperson stated:

“Using our data analytics tools, the SEC determined that it was more likely than not – given the SEC’s current FCPA enforcement theories – that all issuers subject to FCPA were in violation of the FCPA’s anti-bribery provisions, or at the very least the FCPA’s books and records and internal controls provisions.”

Pressed for more specifics on the enforcement actions, the SEC spokesperson stated:

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Friday Roundup

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Standard Bank roundup, recent FCPA sentences, scrutiny alert, and for the reading stack.  It’s all here in the Friday roundup.

Standard Bank Roundup

A roundup within the Friday roundup.

The development of the month so far was the U.K. (and related) enforcement action against Standard Bank – a first in two regards.

(i) the first use of Section 7 of the Bribery Act (the so-called failure to prevent bribery offense) in a foreign bribery action; and

(ii) the first use of a deferred prosecution agreement in the U.K..

  • This post highlighted “what” was resolved – an alleged violation of Sec. 7 of the Bribery Act for failure to prevent bribery.
  • This post highlighted “how” the enforcement action was resolved – the U.K.’s first deferred prosecution agreement.
  • This post highlighted the creativity of the SEC in also bringing an enforcement action against Standard Bank.
  • This post highlighted the thoughts of others about the enforcement action.

Recent FCPA Sentences

In 2013 and 2014 the DOJ brought FCPA and related charges against various individuals associated with broker dealer Direct Access Partners in connection with alleged improper payments to Maria Gonzalez (V.P. of Finance / Executive Manager of Finance and Funds Administration at Bandes, an alleged Venezuelan state-owned banking entity that acted as the financial agent of the state to finance economic development projects).

Recently, Tomas Clarke and Ernesto Lujan were sentenced after pleading guilty to FCPA and related offenses.

Lujan was sentenced to two years in prison, followed by three years of supervised release, and consented to a $18.5 million forfeiture “representing the proceeds and property involved in the commission of the offenses alleged.”

Clarke was also sentenced to two years in prison, followed by three years of supervised release, and consented to a $5.8 million forfeiture “representing the proceeds and property involved in the commission of the offenses alleged.”

Previously, Benito Chinea and Joseph DeMeneses were sentenced to four years in prison and consented to $3.6 million and $2.7 million forfeiture.

Scrutiny Alert

Analogic

The company which has been under FCPA scrutiny since 2011 recently disclosed:

“As initially disclosed in our Annual Report on Form 10-K for the fiscal year ended July 31, 2011, we identified certain transactions involving our Danish subsidiary BK Medical ApS, or BK Medical, and certain of its foreign distributors, with respect to which we have raised questions concerning compliance with law, including Danish law and the U.S. Foreign Corrupt Practices Act, and our business policies. These have included transactions in which the distributors paid BK Medical amounts in excess of amounts owed and BK Medical transferred the excess amounts, at the direction of the distributors, to third parties identified by the distributors. We have terminated the employment of certain BK Medical employees and also terminated our relationships with the BK Medical distributors that were involved in the transactions. We have concluded that the transactions identified to date have been properly accounted for in our reported financial statements in all material respects. However, we have been unable to ascertain with certainty the ultimate beneficiaries or the purpose of these transfers. We have voluntarily disclosed this matter to the Danish Government, the U.S. Department of Justice, or DOJ, and the SEC, and are cooperating with inquiries by the Danish Government, the DOJ and the SEC. We believe that the SEC, DOJ, and Danish Government have substantially completed their investigation into the transactions at issue. We are continuing our discussions with the SEC and have commenced discussions with the DOJ and Danish Government concerning a possible resolution of these matters. During the three months ended July 31, 2015, we accrued a $1.6 million charge in connection with a settlement proposal that we made to the SEC, which proposal was rejected by the SEC. In the first quarter of fiscal 2016, the SEC and DOJ made separate settlement proposals that would include payments in the aggregate amount of approximately $15 million. We are uncertain whether the Danish Government will seek to impose sanctions or penalties against us. We further believe that, under Danish law, amounts paid to the SEC and/or the DOJ would be taken into account in determining penalties that may be sought by the Danish Government. There can be no assurance that we will enter into any settlement with the SEC, the DOJ or the Danish Government, and the cost of any settlements or other resolutions of these matters could materially exceed our accruals. During the three months ended October 31, 2015 and 2014, we incurred inquiry-related costs of approximately $0.03 million and $0.8 million, respectively, in connection with this matter.”

Reading Stack

This Law360 article by Gerry Zack (Managing Director in BDO’s global forensics practice) titled “Implicit Bias – the Hidden Investigation Killer” caught my eye.

“Everyone carries a variety of biases around with them on a daily basis. Yet, many people are confident they can set their biases aside when it comes time to perform a workplace investigation, even referring to the final product as an “unbiased investigation.” But science has repeatedly proven that we aren’t nearly as good at setting our biases aside as we’d like to think  …”

The article touches upon affinity bias, confirmation bias, and priming.

Having conducted numerous internal investigations around the world (in the FCPA context and otherwise), I think there is merit to the issues discussed in the article – issues that contribute to the divide between the DOJ and SEC “processing” corporate FCPA internal investigations and the general struggles of the enforcement agencies proving FCPA offenses in the context of an adversarial proceeding.

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From outgoing SEC Commissioner Luis Aguilar – “Commissioner Aguilar’s (Hopefully) Helpful Tips for New SEC Commissioners.”

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A good weekend to all.

Friday Roundup

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Top blog, event notice, scrutiny alerts and updates, what do DOJ FCPA attorneys do, quotable, and for the reading stack.  It’s all here in the Friday Roundup.

Top Blog

I am pleased to share that FCPA Professor has been honored by the American Bar Association as a “Top 100 Blawg.”  (See here).

Described by others as “the Wall Street Journal concerning all things FCPA-related,” and “the most authoritative source for those seeking to understand and apply the FCPA,” FCPA Professor has previously been named a Top Law Blog for in-house counsel by Corporate Counsel and a Top 25 Business Law Blog by LexisNexis.  FCPA Professor readers include a world-wide audience of attorneys, business and compliance professionals, government agencies, scholars and students, journalists and other interested persons.

In addition to informing readers of FCPA news and developments in a timely and in-depth manner, FCPA Professor is a comprehensive website which features, among other things:

  • links to original source documents;
  • a detailed FCPA 101 page;
  • a resource portal; and
  • hundreds of subject matter categories designed to facilitate in-depth FCPA research and analysis.

All of this takes time, money, and substantial effort, yet the content on FCPA Professor is provided free to readers and without compromising and distracting advertisements.

If FCPA Professor adds value to your practice or business or otherwise enlightens your day and causes you to contemplate the issues in a more sophisticated way, please consider a donation – a voluntary yearly subscription – to FCPA Professor.  Yearly subscriptions to other legal publications or sources of information can serve as an appropriate guide for a donation amount.

Event Notice

I will be participating in a free telephonic event on Tuesday, December 8, 2015 at 3pm EST. Sponsored by the Young Advocates and Criminal Litigation Committees of the ABA, the event is titled: “Ask the Professor: What You Need to Know About Anti-Bribery Laws.”

The event will be moderated by Terra Reynolds (Paul Hastings). Click here to learn more and to register.

Scrutiny Alerts and Updates

British American Tobacco

The company, with ADRs traded in the U.S., was recently the focus of this in-depth piece by the BBC. According to the article:

“[T]he BBC obtained hundreds of documents that reveal how BAT employees bribed politicians, public officials and even people working for a rival company in Africa. […] In 2012, BAT lobbyist Julie Adell-Owino arranged bribes totalling US$26,000 for three public officials in Rwanda, Burundi and the Comoros Islands. All three officials were connected to a United Nations effort to reduce the number of tobacco related deaths.”

As highlighted in this prior post, in 2010 U.S. tobacco companies Alliance One and Universal Corporation resolved FCPA enforcement based on alleged improper payments, including in Africa.

J.P. Morgan

The Wall Street Journal focuses on J.P. Morgan’s FCPA scrutiny for its alleged hiring practices in China. According to the article, J.P. Morgan hired 222 candidates under a program known internally as “Sons and Daughters.” The article makes much of the alleged fact that 45% of the hires were referred by Chinese government officials or employees of state-owned companies.  However, according to the article, an equal percentage (44%) were nongovernmental referrals – an issue that could be relevant to corrupt intent.

Vimpelcom

This recent post highlighted Vimpelcom’s disclosure of a $900 million reserve in connection with its FCPA and related scrutiny. The prior post noted that the disclosure was ambiguous as to the various components of the $900 million.

Bloomberg reports:

Vimpelcom “is in talks to pay about $775 million — a near record — to settle U.S. allegations it paid bribes in Uzbekistan to win business, according to three people familiar with the matter. The Amsterdam-based company’s resolution with the Justice Department and the Securities and Exchange Commission could be announced in January, said the people, who asked not to be identified because details of the proposed settlement aren’t public.”

Bloomberg also goes in-depth into the burgeoning Uzbekistan telecom scandal here.

PTC

The company (formerly known as Parametric Technology) has been under FCPA scrutiny since 2011 and recently disclosed:

“We have been in discussions with the U.S. Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) to resolve an investigation concerning expenditures by our business partners in China and by our China business, including for travel and entertainment, that apparently benefited employees of customers regarded as state owned enterprises in China. This matter involves issues regarding compliance with laws, including the U.S. Foreign Corrupt Practices Act. We have recorded liabilities of $28.2 million as a result of our agreements in principle with those agencies to settle the matter. There can be no assurance that we will enter into final settlements on the agreed terms with these agencies or, if not, that the cost of any final settlements, if reached, would not exceed the existing accrual. Further, any settlement or other resolution of this matter could have collateral effects on our business in China, the United States and elsewhere.”

 Wal-Mart

The media continues to gush over Wal-Mart’s FCPA scrutiny.  In the latest example, the Wall Street Journal reports:

“A U.S. investigation into potential foreign bribery by Wal-Mart Stores Inc. has unearthed evidence of possible misconduct by the retailer in Brazil, after investigators found little to support the sweeping allegations involving Mexico that initially prompted the probe, according to documents and people familiar with the matter. Federal prosecutors are examining $500,000 in payments that they believe ultimately went to an individual hired to obtain government permits the company needed to build two stores in Brasília, Brazil’s capital, between 2009 and 2012, an investigative document shows.”

What do DOJ FCPA Attorneys Do?

To the extent a job listing is an accurate depiction, this is what DOJ FCPA attorneys do:

“The Criminal Division, U.S. Department of Justice, is seeking qualified, experienced attorneys for two-year renewable term positions in the Fraud Section located in Washington, DC. The incumbent will serve as a Trial Attorney in the Foreign Corrupt Practices Act (FCPA) Unit or the Securities & Financial Fraud Unit (SFF) and, as such, will independently direct, conduct, and monitor investigations, prepare for and conduct trials, and advise on pleadings and other court filings.

Generally, as a Trial Attorney in the FCPA Unit or the SFF Unit, the incumbent:

  • In collaboration with unit managers, carries out and fosters effective investigations and prosecutions, including advising on strategy and legal complexities, and developing litigation priorities, policy, and legislative recommendations. Recommends charging decisions and proposes dispositions with regard to assigned cases.
  • Partners with and leads Assistant U.S. Attorneys and attorneys in other federal law enforcement agencies in the development, management and trial of complex white collar and corporate investigations and prosecutions. Engages in all phases of investigation and litigation, including, but not limited to, using the grand jury, advising federal law enforcement agents, utilizing international evidence collection tools, preparing appropriate pleadings, and litigating motions and trials before U.S. District Courts across the country.
  • Collaborates with foreign prosecutors and foreign law enforcement officers on international investigations.
  • Evaluates reports of potential violations of the FCPA / securities and financial fraud laws from both internal and outside sources to determine whether investigation is warranted.
  • Advises and instructs Assistant U.S. Attorneys on complicated questions of law and Departmental policy with respect to the FCPA / securities and financial fraud laws.
  • Represents the United States in direct negotiations and discussions with corporate counsel and high-level officials. Participates in discussions with opposing counsel for defendants and in the formulation of settlements often having far-reaching legal consequences.
  • Advises and consults with the Assistant Attorney General, Deputy Assistant Attorney General, Section Chief, et al., reporting on the status of all cases and matters related to civil/criminal remedies.
  • Serves as an expert, providing advice and policy determinations in matters involving the planning, discussion and coordination of the activities related to the investigation and litigation of FCPA cases. Oversees the preparation and litigation assignments of lower graded attorneys, paralegals and clerical personnel.”

Quotable

One thing high-ranking DOJ officials most certainly do is give numerous speeches.

In the latest example, DOJ Deputy Assistant Attorney General Sung-Hee Suh delivered this keynote address at the ABA Criminal Justice Section’s inaugural Global White Collar Crime Institute in Shanghai (an event, I am pleased to say, was organized by my Southern Illinois University School of Law colleague Professor Lucian Dervan).

Set forth below is an expert of Suh’s address.

On internal investigations:

“Until last year, I worked for 15 years in private practice representing companies – often in the context of criminal or regulatory investigations. I believe I have a good sense of the challenges that companies and their counsel face in determining the appropriate scope of an internal investigation. But some of those challenges appear to stem from a misperception that the longer and more expensive and more resource intensive the company’s internal investigation, the more favorably the government will view the company’s cooperation. But broad, aimless investigations by a company – just as by the government – are counter-productive. As we in the Criminal Division have long emphasized, and continue to stress today, an investigation should be narrowly focused on getting to the bottom of what happened, identifying who within the company was involved, and – if the company seeks cooperation credit — providing that information to us on a timely basis.”

On transparency:

“[W]e understand that it has not always been clear why the Department required a corporate entity to plead guilty to resolve a criminal case, as opposed to a deferred or non-prosecution agreement, or why we declined to pursue a criminal resolution altogether with another corporate entity that engaged in similar misconduct. I have also heard companies and their counsel say that they have no idea how the government’s monetary resolutions were arrived at – that it sometimes appears as if the government just picks these numbers out of thin air. Also notable has been the trend among companies over the last several years against voluntary self-reporting, including – and perhaps especially – in the FCPA space, in part due to what is perceived, as noted during this morning’s sessions, that there is little or no benefit to self-reporting. Some lawyers have advised their clients that it’s simply more rational to wait to see if the government comes knocking and then cooperate if and when that happens.”

[…]

“[T]o those companies that are disinclined to self-report in the belief that the government will never know – I say, think again. In the anti-corruption space, the Fraud Section and the Federal Bureau of Investigation are deploying significantly more resources to detect and prosecute companies that choose not to self-disclose in FCPA cases. We’re hiring an additional 10 prosecutors in the FCPA Unit, an increase of over 50%, and the FBI has established three new squads devoted to international corruption investigations and prosecutions.”

On compliance programs:

“No compliance program is foolproof. We understand that. We also appreciate that the challenges of implementing an effective compliance program are compounded by the everincreasing cross-border nature of business and of criminal activity. Many companies’ businesses are all over the world. They are creating products and delivering services not only here in China but overseas and are operating across many different legal regimes and cultures. We also recognize that a smaller company doesn’t have the same compliance resources as a Fortune-50 company. Finally, we know that a compliance program can seem like “state of the art” at a company’s U.S. headquarters, but may not be all that effective in the field, especially in far-flung reaches of the globe.”

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For your viewing pleasure, a video of a roundtable with new DOJ compliance counsel Hui Chen and DOJ Fraud Section Chief Andrew Weissmann.  The first portion of the event consisted of the DOJ officials respond to (likely scripted) questions by a moderator, the second portion – when the video recorder was turned off – consisted of the DOJ officials responding to audience questions.

Reading Stack

I did not come up with the title of the entry or its narrative, but I did answer the questions posed to me in this Corporate Crime Reporter entry about the political aspects of FCPA enforcement as well as questions about an FCPA compliance defense – a defense I have long advocated for (see here for the article “Revisiting a Foreign Corrupt Practices Act Compliance Defense.”

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A Wall Street Journal op-ed by Professor Lucian Dervan titled “The Injustice of the Plea-Bargaining System.”

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A good weekend to all.

Friday Roundup

Roundup2

Rama sentenced but what is the back story, scrutiny alert, and for the reading stack.  It’s all here in the Friday roundup.

Rama Sentenced, But What is the Back Story?

As noted here, last week James Rama, a former executive at defense contractor IAP Worldwide Services, was sentenced to four months in federal prison for his role in a bribery scheme involving a security systems project with the Kuwaiti Ministry of the Interior.

In its sentencing memo, the DOJ requested that Rama be sentenced to one year.  That the judge rejected the DOJ’s sentencing recommendation is not the story – judges frequently reject DOJ sentencing recommendations in individual FCPA cases.

Rather, according to a knowledgeable source who was unable to provide specifics, there is a more interesting back story in connection with the Rama prosecution.  Indeed, as noted in this article:

“Mr. Rama said he was disappointed that after a long investigation the case wasn’t pursued to its “proper conclusion.” Defense counsel William Brennan said the elaborate system required for the bribery reached higher at IAP than the Justice Department prosecuted. “There are people…that should have been prosecuted in this case and for whatever reason they were not,” Mr. Brennan said about the bribery scheme Mr. Rama helped engineer on the ground in Kuwait. The Justice Department lawyers present didn’t respond to the allegations at the hearing. The government said in its settlement with IAP that a “variety of factors, including but not limited to IAP’s cooperation,” led to the non-prosecution agreement.”

Consistent with the above, Rama’s lawyers stated in this sentencing memo as follows.

“Mr. Rama was a minor, albeit integral, part of a much larger scheme concocted by more senior executives at IAP – none of whom will be prosecuted in this case. In addition, IAP has entered into a non-prosecution agreement with the government and agreed to pay a $7.1 million penalty to resolve the matter. It would appear that Mr. Rama is the only individual who will face criminal prosecution in this matter.” (Emphasis in original).

Consistent with there being an interesting backstory in the IAP / Rama prosecution, on the same day the DOJ filed its sentencing memo, the court docket indicates that the DOJ also filed a motion under seal, a motion that will likely never see the light of day.

Just remember as Assistant Attorney General Leslie Caldwell recently stated, “greater transparency benefits everyone.”  (See here for the prior post).

Scrutiny Alert

Approximately four years ago (see here for the prior post), Kraft Foods disclosed FCPA scrutiny resulting from its acquisition of Cadbury in connection with a manufacturing facility in India.  Kraft, now known as Mondelēz International, Inc., was recently the focus of this Wall Street Journal article which states:

“[The SEC] preparing civil charges against snack-food maker Mondelez International Inc. in connection with a long-running investigation of payments its Cadbury unit made in India, said people familiar with the matter. […]  The company concluded in an internal report by its lawyers in 2011 that Cadbury had used a consultant to funnel bribes to Indian officials in return for factory approvals and permits, which ultimately allowed Cadbury to claim a tax exemption valued at more than $90 million, according to the report, which was reviewed by The Wall Street Journal. The report says Cadbury also paid fees to eight other consultants from May 2008 to October 2010 “for which the only reasonable explanation is that they have been used to mask payments to government officials.” […] Mondelez’s outside attorneys at Baker & McKenzie have told government investigators that they identified suspicious payments to consultants but couldn’t determine what ultimately became of the money, according to a person familiar with the matter. […]  The most serious allegations centered on a tax break available to companies that began production in new plants in the Northern Indian state of Himachal Pradesh,where Cadbury’s Baddi plant is located, by March 31, 2010. Cadbury had planned to build a new standalone factory in Baddi, but instead it decided to add a second floor to its existing plant in 2008, with three new production lines for chocolate candies. The company gave the second floor its own entrance and claimed it as an independent unit on paper to qualify for the tax exemption, which would save the company more than $90 million over a decade, according to legal documents the company filed in India. But Cadbury’s lawyers determined in late 2009 that, in order to claim the exemption, the company needed to get separate licenses and approvals for the second-floor unit from Indian authorities, a process that typically takes more than six months, according to a timeline created as part of the internal investigation. With the sunset of the tax break just a few months off, Cadbury hired a consultant to “get all necessary approvals to start-up Unit 2 at Baddi…urgently,” the 2011 report said. Internal investigators concluded that the consultant’s fees—about $55,000—were passed on to Indian officials as bribes, according to their report. […]  In March, an Indian tax commissioner fined Cadbury more than $90 million, rejecting the company’s argument that the addition of a second floor was the legal equivalent, for tax purposes, of a new plant. [A Mondelez spokesman] said the company is appealing the commissioner’s order. “We continue to believe that the decision to claim the excise-tax benefit is valid.”

Reading Stack

An informative read from Morgan Lewis regarding the European Court of Justice opinion in Maximillian Schrems v. Data Protection Commissioner, in which the court struck down a US-EU agreement that allowed companies to move personal electronic data between the European Union and the United States.

“This ruling, which is final and cannot be appealed, is likely to have far-reaching effects on how US corporations investigate allegations of wrongdoing by affiliates and subsidiaries based in Europe, including investigations of potential violations of the US Foreign Corrupt Practices Act (FCPA).”

Among those critical of the DOJ’s recently released Yates Memo is James Koukios (previously the Senior Deputy Chief of the Fraud Section in the DOJ Criminal Division and an Assistant Chief in the Fraud Section’s FCPA Unit).  In this Corporate Crime Reporter interview, Koukios offers his perspectives on the Yates Memo and other issues relevant to FCPA enforcement.

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A good weekend to all.

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