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DOJ’s Knox Follows The Same Tired Script

Department of Justice enforcement officials frequently speak about the Foreign Corrupt Practices Act.  However, most of these events are private in which the public has to fork over a couple thousand of dollars to a private company who markets the public officials to drive attendance at the event (see here for the prior post).  The end result is that there is seldom the opportunity to analyze FCPA statements by DOJ officials.

That is what makes video clips (here and here) of Jeffrey Knox (DOJ Fraud Section Chief) at a recent CFO Network event sponsored by the Wall Street Journal valuable.

In the video clips, Knox follows the DOJ’s same tired script when it comes to voluntary disclosure and other issues when it comes to the DOJ’s FCPA enforcement program.

Moreover, as highlighted below, Knox’s statements on voluntary disclosure are contradicted by previous statements by former Assistant Attorney General Lanny Breuer – as well as numerous statements by former DOJ FCPA enforcement officials.

Most problematic, Knox’s statements on voluntary disclosure and the source of DOJ corporate FCPA enforcement actions are contradicted by the facts.

In the first video clip, Dennis Berman (Business Editor, WSJ) returns to a topic previously explored by Forbes in 2010 (see here for the “Bribery Racket”) as well as the WSJ in 2012 (see here for “FCPA Inc. and the Business of Bribery”) and calls the relationship between FCPA law firms, companies, and the DOJ a “protection racket all around” and that the “three party relationship might bring some good, but in a way it doesn’t feel like justice, it feels like a business arrangement.”

Knox of course disagreed and stated that it is “just not true” that the DOJ outsources its FCPA investigations to law firms.  Knox stated:  “we don’t outsource, internal investigations are a tool, an important tool in many cases for us that is used throughout law enforcement, there is nothing exceptional about the FCPA, but we are not relying on it [internal investigations].”

Knox’s statement that the DOJ does not rely on law firm investigations in bringing FCPA enforcement action is contradicted by previous statements by former Assistant Attorney General Lanny Breuer.  While at the DOJ, Breuer stated that the DOJ “absolutely need[s] companies through their firms to provide us with their investigations.”  (See here).

Moreover, Knox’s statement is contradicted by the facts.

As highlighted here, in 2013, 57% of corporate FCPA enforcement actions were the direct result of voluntary disclosures.  As highlighted here, in 2012, 56% of corporate FCPA enforcement actions were the direct result of voluntary disclosures.  As highlighted here, in 2011, 73% of corporate FCPA enforcement actions were the direct result of voluntary disclosures.

As to voluntary disclosures, Knox stated that the “earlier that the company engages with us the better position it is going to be in” regarding various aspects of its FCPA scrutiny.

For obvious reasons, the DOJ favors voluntary disclosure as it makes its job easier and is the fuel that feeds its FCPA enforcement program.  However, in contrast to Knox’s statement about voluntary disclosure, several former DOJ enforcement officials have questioned the need for  FCPA voluntary disclosures in many instances.

Indeed, the former Chief of the DOJ’s Fraud Section stated (obviously after he left that position) as follows.

“It often will not be in a company’s best interest to disclose if, for example, the allegations prove not to be credible or if it is unclear whether the conduct even amounts to a violation of law. Under those circumstances, a disclosure could unnecessarily embroil the company in a lengthy and costly government investigation and result in other repercussions such as triggering civil litigation and harm to a company’s reputation that could otherwise be avoided. It’s a challenging calculus. […] However, the fact that a company doesn’t disclose a problem that ultimately comes to DOJ’s attention is not necessarily going to damage the company’s credibility with DOJ. Regulators recognize that not every allegation should be of interest to them – and, frankly, having counsel that knows when they’ll be interested and when they won’t is really important.”

Similarly, as noted by a former SEC enforcement attorney and a former DOJ enforcement attorney:

“Not all potential [FCPA] problems, however, are appropriate for disclosure. After investigation, allegations of misconduct may not result in a determination that illicit activity has occurred. […] Prematurely attracting the government’s attention may, as a practical matter, shift the burden to the company to prove the absence of a corruption problem. Enforcement officials may feel the need as a matter of basic human nature to seek some type of resolution to a case where they have invested significant time and effort. Companies need to weigh the potential benefits of cooperation against the significant costs of initiating a potentially unwarranted government investigation.”

As evident from the above video clips, Alexandra Wrage (President of Trace International) joined Knox in the discussion of FCPA issues.  Wrage rightly shot back at Knox’s voluntary disclosure comments and noted that early voluntary disclosure “is terrifying to companies before they have their arms around the scope of the problem.”  Wrage noted that the “idea that a company is going to go in first without knowing the full extent of the problem, I don’t think any general counsel is going to sign off on this.”

In the second video clip, the WSJ’s Berman asks Knox, using various examples of FCPA scrutiny that have resulted in tens or hundreds of millions of dollars in pre-enforcement action professional fees and expenses, “is the cure worst than the disease.”

To his credit, Knox rightly noted that “in some instances companies are spending too much money on investigations.”  His statement is similar to the one Chuck Duross (then the DOJ FCPA’s Unit Chief) made at an ABA conference in September 2013.  As highlighted here, Duross suggested that often company lawyers are seeking to over do it through a global search of operations for FCPA issues.  He discussed a case in which a company and its professional advisors came to a meeting with a global search plan and he said “no, no, no, that is not what I want.”  He indicated that the lawyers and other professional advisors in the room “looked unhappy,” but that the general counsel of the company was happy.  (For more on this dynamic, see this prior post).

For her part, Wrage agreed with Knox that there is “lots of scare tactics by law firms” when it comes to the FCPA.

One final comment.

During the discussion, Knox stated that there is “massive corruption going on around the world.”  Similar to the issues discussed in this recent post, this statement alone ought to cause the enforcement agencies to pause and reflect whether – 37 years after passage of the FCPA – enforcement agency policies and positions (which are frequently modeled by other nations) are most effective in accomplishing the objectives of the FCPA.

Friday Roundup

Root causes, a mere $855,000 per working day, “bad in law,” scrutiny alert, and for the reading stack.  It’s all here in the Friday roundup.

Root Causes

Understanding the root causes of FCPA enforcement actions can help inform pro-active FCPA compliance policies and procedures.  Moreover, recognizing the fallacy of “good companies don’t bribe” can help set realistic expectations in terms of what FCPA compliance policies and procedures can and can not accomplish.

I will be talking about both topics during a free webinar “Understanding the Root Causes of FCPA Scrutiny and Enforcement” on Thursday, May 22nd at 2 p.m. (EDT).  The webinar is hosted by Hiperos and you can register here.

Wal-Mart’s Pre-Enforcement Action Professional Fees and Expenses

Over the past 1.5 years I have tracked Wal-Mart’s 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, 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.

In its 1Q FY2015 earnings conference call yesterday, Wal-Mart disclosed:

“FCPA and compliance-related expenses for the quarter were approximately $53 million. Approximately $34 million of these  expenses represented costs incurred for the ongoing inquiries and  investigations, and approximately $19 million was related to our global  compliance program and organizational enhancements.”

Doing the math, this equates to approximately $855,000 per working day.

While eye-popping, this recent figure suggests that Wal-Mart’s pre-enforcement action professional fees and expenses may have crested as the figures for the past two quarters were approximately $1.1 and $1.3 million per working day.

That pre-enforcement action professional fees and expenses are typically the most expensive aspect of FCPA scrutiny is a fact.  However it must nevertheless be asked – once again – whether FCPA scrutiny has turned into a boondoggle for many involved.

Is Wal-Mart’s conduct for which it is under scrutiny in violation of the FCPA?  Does it even matter?  See my article “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Exposure.”

“Bad in Law”

In 2007, the SEC brought this FCPA enforcement action against Dow Chemical.  The enforcement action was based on allegations that Dow’s “fifth-tier foreign subsidiary” in India, DE-Nocil Crop Protection Ltd. (“DE-Nocil”), made “approximately $39,700 in improper payments to an official in India’s Central Insecticides Board to expedite the registration of three DE-Nocil products.”

It is always interesting to see what happens when the “dust settles” (see here for the prior post).

India’s Hindustan Times reports here as follows.

“As the Central Bureau of Investigation (CBI) did not attach evidence with the supplementary chargesheet against De-Nocil Crop Protection (presently Dow Agro Sciences India, a subsidiary of Dow Chemical of the US) and Agro Pack, the CBI special court, Haryana, at Panchkula, has discharged the companies in a case of bribing an Indian official to get their products registered. On December 30, 2011, the CBI had filed the supplementary charge sheet but attached no oral or documentary evidence. On Wednesday (May 7), special judge, CBI, Haryana, Rakesh Yadav ruled that being not supported by evidence, the supplementary chargesheet was “bad in law” and so the court could not take cognizance of it.  The accused companies no longer have to face trial.”

Query whether this end result is a function of the nature and quality of the India investigation or the nature and quality of SEC neither admit nor deny FCPA enforcement actions.

Scrutiny Alert

In case you missed April’s Buzzfeed report on Cisco’s alleged conduct in Russia, Reuters reports as follows.

“In a series of audits in 2009, Cisco Systems Inc. found that much of the business between resellers of its products and a Russian state-owned telecommunications company, Svyazinvest, could not be verified because it was either “misrepresented” or documents were withheld by the resellers, according to an executive summary of the audits reviewed by Reuters. The June 2009 report on the audits, other internal Cisco documents, and interviews with two sources familiar with the situation, raise questions about whether the company knew what was happening to telecom equipment sales going through its resellers in Russia, as well as whether discounts were passed on to customers as planned.”

For the Reading Stack

An interesting Q&A in Mothers Jones with Ken Silverstein regarding his new book “The Secret World of Oil” and the alleged use of so-called “fixers.”  Note:  the FCPA’s anti-bribery provisions prohibit not only direct payments to “foreign officials” to obtain or retain business, but also indirect payments through various third parties.  Thus, the use of “fixers” if true, is not a way to avoid the FCPA.  Moreover, if Silverstein’s allegations are true, the U.S. government is perhaps ignoring (or not caring) about certain alleged conduct.  Further note:  the Q&A is not completely accurate concerning the James Giffen matter.

*****

A good weekend to all.

Friday Roundup

Wal-Mart’s FCPA expenses, scrutiny alerts and updates, quotable, February 21st, further to the conversation, and for the reading stack.   It’s all here in the Friday roundup.

Wal-Mart’s FCPA Expenses

For over a year now, I have been tracking Wal-Mart’s pre-enforcement action professional fees and expenses and calculating what Wal-Mart is spending per working day on its FCPA scrutiny and exposure.  (See here for the prior post with embedded links to others).  Here is what Wal-Mart executives said yesterday in its earnings conference call for the fourth quarter of FY 2014.

“Core corporate expenses [for the fourth quarter of FY 2014] increased 5.8 percent. FCPA and compliance-related expenses were approximately $58 million, which was below our guidance of $75 to $80 million for the quarter. Approximately $38 million of these expenses represented costs incurred for the ongoing inquiries and investigations, while the remaining $20 million was related to our global compliance program and organizational enhancements.”

[…]

“Corporate & support expenses [for the fiscal year 2014] increased 24.1 percent for the full year, primarily from our investments in leverage services and Global eCommerce. Core corporate expenses, which included $282 million in charges related to FCPA matters, increased 15.6 percent. Approximately $173 million of these expenses represented costs incurred for the ongoing inquiries and investigations, while the remaining $109 million was related to our global compliance program and organizational enhancements.”

[…]

“During the first quarter of this year, we will begin to anniversary the increased costs we’ve incurred for FCPA matters, including compliance program enhancements and the ongoing investigations. These costs will remain in the Corporate and Support area, and we anticipate expenses to be between $200 million and $240 million for the year. [for the fiscal year 2015]

You add it up, and here is what you get.

FY 2013 = $157 million (approximately $$604,000 per working day)

FY 2014 = $282 million (approximately $1.1 million per working day)

FY 2015 = $200 – $240 million (anticipated)

As Wal-Mart’s FCPA scrutiny will once again demonstrate, 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).  For instance, the total of the above pre-enforcement action professional fees and expenses and estimates is approximately $659 million.  A $659 million FCPA settlement amount would be second of all-time.

That pre-enforcement action professional fees and expenses are typically the most expensive aspect of FCPA scrutiny is a fact.  However it must nevertheless be asked whether FCPA scrutiny has turned into a boondoggle for many involved.  Using just Wal-Mart and Avon’s pre-enforcement professional fees and expenses results in FCPA Inc. being over a billion dollar industry!

Is Wal-Mart’s conduct for which it is under scrutiny in violation of the FCPA?  Does it even matter?  See my article “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Exposure.”

Scrutiny Alerts and Updates

Knut Hammarskjold

Earlier this week, the DOJ announced that Knut Hammarskjold “pleaded guilty today for his role in a scheme to pay bribes to foreign government officials and to defraud PetroTiger.”  According to the release, Hammarskjold pleading guilty “to an information charging one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and to commit wire fraud and is scheduled for sentencing on May 16, 2014.”  Despite the DOJ’s announcement, the docket for Hammarskjold’s case does not contain the plea agreement or related documents.  For a comprehensive summary of the DOJ’s charges against Kammarskjold and co-defendants Joseph Sigelman and Gregory Weisman, see this prior post.  As noted in the previous post, Weisman has also pleaded guilty and the charges against Sigelman remain pending.

Mead Johnson

As highlighted in this previous Friday Roundup, last year Mead Johnson Nutritional Company disclosed an internal investigation related to business practices in China.  Thus, contrary to certain reports Mead Johnson’s FCPA scrutiny is not “new,” but earlier this week, the company updated its disclosure as follows.

“Following an SEC request for documents relating to certain business activities of the Company’s local subsidiary in China, the Company is continuing an internal investigation of such business activities. The Company’s investigation is focused on certain expenditures that were made in connection with the promotion of the Company’s products or may have otherwise been made. Certain of such expenditures were made in violation of Company policies and may have been made in violation of applicable U.S. and/or local laws, including the U.S. Foreign Corrupt Practices Act (the “FCPA”).  The investigation is being conducted by outside legal counsel and overseen by a committee of independent members of the Company’s board of directors. The status and results of the investigation are being discussed with the SEC and other governmental authorities.  At this time, the Company is unable to predict the scope, timing or outcome of this ongoing matter or any regulatory or legal actions that may be commenced related to this matter.”

Lyondellbasell

As highlighted in this 2010 post, in connection with a bankruptcy proceeding, Lyondellbasell’s disclosed as follows.

“We have identified an agreement related to a project in Kazakhstan under which a payment was made in late 2008 that raises compliance concerns under the U.S. Foreign Corrupt Practices Act (the “FCPA”).

Yesterday the company disclosed:

“We previously reported that we had identified, and voluntarily disclosed to the U.S. Department of Justice, an agreement related to a former project in Kazakhstan under which a payment was made that raised compliance concerns under the U.S. Foreign Corrupt Practices Act (the “FCPA”). In January 2014, the U.S. Department of Justice advised the Company that it had closed its investigation into this matter. No fine or penalty was assessed.”

In the minds of some, this is a declination.  I beg to differ – see here.

Baxter International

The company recently disclosed as follows.

“The company was the recipient of an inquiry from the U.S. Department of Justice (DOJ) and the SEC that was part of a broader review of industry practices for compliance with the U.S. Foreign Corrupt Practices Act. In January 2014, the company was notified by both the DOJ and the SEC that their respective investigations were closed as to Baxter without any further action taken by either agency.”

For a previous post regarding Baxter, see here.

Alstom

Bloomberg reports:

“Alstom SA, the French maker of trains and power equipment, will be charged in the U.K. over bribery allegations after a five-year investigation, according to two people with knowledge of the case.  The Serious Fraud Office may ask the attorney general to approve charges in the coming weeks, a standard requirement for the agency to prosecute some offenses, according to the people, who asked not to be identified because the case is private.  […] The SFO said in 2011 it suspected that Alstom gave money to companies that acted as “bogus consultants” to bribe overseas officials for contracts from 2004 to 2010, according to court papers at the time.”

If Alstom does face criminal charges in the U.K., the charges are unlikely to fall under the U.K. Bribery Act as the law went effective in July 2011 and is forward-looking only.  As highlighted in previous posts (see here for instance) in 2013 the DOJ brought charges against four individuals associated with Alstom concerning alleged conduct in Indonesia.

Quotable

In this recent Chicago Tribune article, Tom Pritzker (Chairman and Chief Executive Officer of The Pritzker Organization, LLC – the principal financial and investment advisor to various Pritzker family business interests) reportedly stated as follows at a recent Chicago Council on Global Affairs event:

“The way that [FCPA] enforcement is working out of Washington strikes all of us in American business as arbitrary.  It’s a revenue-generating mechanism for Washington, and that makes it additionally difficult in terms of how you figure out how to navigate emerging markets.”

February 21st

Today is a notable day in FCPA history (see this prior post).

I am grateful that I – and this website – have played a role in these events.

Further to the Conversation I

As frequently highlighted on these pages (see here for instance), trade barriers and distortions are often the root causes of bribery and a reduction in bribery will not be achieved without a reduction in trade barriers and distortions.

Simply put, trade barriers and distortions create bureaucracy.

Bureaucracy creates points of contact with foreign officials.

Points of contact with foreign officials create discretion.

Discretion creates the opportunity for a foreign official to misuse their position by making demand bribes.

This recent Wall Street Journal article highlights China’s “quota system” for foreign-films.  As the article states:

“[34 is] maximum number of foreign titles the Chinese government allows into its nation’s theaters every year, a quota in place to try to protect China’s own nascent movie business. Hollywood studios have wondered when that number might be boosted—the last time was in February 2012, when Vice President Joe Biden announced a deal increasing the quota to the current 34 titles, from 20.”

Perhaps you’ve heard that various film companies are under FCPA scrutiny concerning business practices in China.  (See here).

Further to the Conversation II

Whether it’s a federal court judge stating that a pending federal criminal case is “not window dressing” nor is the court  “a potted plant” in concluding that a federal court does indeed have supervisory authority over the DPA process (see here for the prior post) or whether it’s a federal court judge criticizing various common aspects of corporate criminal law enforcement, including DPAs, as “both technically and morally suspect” (see here for the prior post) – there is an important conversation taking place concerning how the DOJ resolves alleged instance of corporate criminal liability.

Further to this conversation, the Better Markets, Inc. (a group that advocates for greater transparency, accountability, and oversight in the financial system) recently filed this complaint for declaratory and injunctive relief against the DOJ and Attorney General Eric Holder.  While the complaint reads more like a policy paper than a complaint, it nevertheless calls the $13 billion settlement between the DOJ and JPMorgan a “mere contract” and alleges in pertinent part:

“Yet, this contract was the product of negotiations conducted entirely in secret behind closed doors, in significant part by the Attorney General personally, who directly negotiated with the CEO of JP Morgan Chase, the bank’s “chief negotiator.” No one other than those involved in those secret negotiations has any idea what JP Morgan Chase really did or got for its $13 billion because there was no judicial review or proceeding at all regarding this historic and unprecedented settlement. However, it is known that JP Morgan Chase’s $13 billion did result in almost complete nondisclosure by the DOJ regarding JP Morgan Chase’s massive alleged illegal conduct.

Thus, the Executive Branch, through DOJ, acted as investigator, prosecutor, judge, jury, sentencer, and collector, without any review or approval of its unilateral and largely secret actions. The DOJ assumed this all-encompassing role even though the settlement amount is the largest with a single entity in the 237 year history of the United States and even though it provides civil immunity for years of illegal conduct by a private entity related to an historic financial crash that has cause economic wreckage affecting virtually every single American. The Executive Branch simply does not have the unilateral power or authority to do so by entering a mere contract with the private entity without any constitutional checks and balances.”

The complaint seeks a declaration that, among other things,

“the DOJ violated the separation of powers doctrine by unilaterally finalizing the $13 billion Agreement without seeking judicial review and approval”

“the DOJ acted in excess of its statutory authority by unilaterally finalizing the $13 billion Agreement without seeking judicial review and approval”

“the DOJ acted arbitrarily and capriciously by unilaterally finalizing the $13 billion Agreement without seeking judicial review and approval.”

I agree with Professor Peter Henning who recently stated in his New York Times Dealbook column:

“The lawsuit faces substantial hurdles that make it unlikely to succeed. As a general matter, private parties do not have standing to challenge a decision by the government to settle a case. The Justice Department has broad discretion in how it chooses to exercise its authority, and courts rarely intervene to scrutinize a decision unless there is evidence involving improper discrimination.

Nevertheless, the frustration expressed by Better Markets about the process for determining what JPMorgan should have paid to resolve multiple investigations is fair.”

Reading Stack

For more on princelings and the hiring practices of certain financial institutions in China, see here from Bloomberg.

A dandy article here from Jon Eisenberg (K&L Gates) titled “Brother Can You Spare $8.9 Billion?  Making Sense of SEC Civil Money Penalties.”  In pertinent part, the article is about:

“Other than negotiations about the wording of settlement documents, agreeing to the amount of the money penalty is often the last barrier to resolution. And it’s one of the most frustrating because the amounts proposed may appear untethered to any principle or precedent.

In an effort to provide more clarity on SEC money penalties, we look at four sources that should inform the negotiations about those penalties: first, the explosive growth in the SEC’s authority to impose civil money penalties; second, the relevant statutory language since the SEC’s authority to impose civil money penalties comes from and is limited by Congress; third, two recent D.C. Circuit decisions making clear that there are meaningful limits on the Commission’s discretion in assessing money penalties; and fourth, the outcome in recent cases before SEC administrative law judges in which the amount of the penalties was contested.”

The article is not FCPA specific, but very much FCPA relevant, particularly given the SEC’s increased interest in resolving corporate FCPA enforcement actions via administrative actions.  In short, Eisenberg’s article is excellent.  Read it.

*****

A good weekend to all.

Further To Wal-Mart’s Pre-Enforcement Action Professional Fees And Expenses

This recent guest post on the FCPA Blog regarding Wal-Mart, specifically its disclosed pre-enforcement action professional fees and expenses, stated “some FCPA watchers are so indignant by the $300 million figure they have broken it down into FCPA compliance dollars spent per day …”.

That would be me (see here, here and here for prior posts).

And clearly I am not the only one that has taken note of Wal-Mart’s pre-enforcement action expenses.  Indeed, the FCPA Blog itself took note (here) and called my initial calculation of Wal-Mart’s per day expenses (when it was a mere $604,000 per working day) “eye popping.”

Just yesterday, Reynolds Holding writing on his Breakingviews column -“Lawyers Need to Brake Their Bribe-Case Gravy Train” – stated:

“Lawyers need to pull the brake on their bribery-probe gravy train. Wal-Mart Stores shelled out about $80 million last quarter alone – some $1.25 million per working day – on an internal corruption investigation. […] Wasteful scorched-earth legal tactics inflate costs, while potentially ruinous U.S. penalties make companies scared to skimp. Smarter lawyering could slow the runaway spending.  Scrutiny under the FCPA typically throws multinationals into attorney-hiring overdrive. Having legal eagles delve into corporate innards helps a company look cooperative and thereby win leniency from the government.   […]  There is a better way. A records search at a multinational’s headquarters can quickly reveal how and, generally, where and to whom bribes are being paid, according to veterans of the Siemens case and others. Investigations in just a few countries can then ferret out the details of a global scheme. That’s often enough to reach a reasonable settlement with Uncle Sam.  Yet unnecessarily far-flung and costly probes persist. Not only does the prospect of enormous fees encourage lawyers running an investigation to engage in overkill. A company’s officers also don’t want to be seen to cut corners or get in the attorneys’ way. The usual healthy corporate tendency to police costs carefully doesn’t apply.  For big companies the waste may not show, either. Even a legal bill of, say, $500 million is a drop in the bucket for a company like Wal-Mart with revenue nearly 1,000 times that figure every year. That shouldn’t, however, let lawyers off the hook. Ethics rules require their fees to be reasonable. In bribery cases, that standard is at risk of becoming corrupted.”

The recent guest post on the FCPA Blog went on to state as follows.

“Over roughly the same period covered by the $300 million cost, Wal-Mart’s sales have been about $1 trillion ($1,000,000,000,000). Those FCPA compliance costs are less than one third of one percent of its sales. And with profits last year of about $17 billion,  Wal-Mart will survive its FCPA spending spree. The world’s largest retailer is finally investing in FCPA compliance in proportion to its size. It’s playing catch up for a decade of what appears to be FCPA neglect.”

Time-out.

The necessity and legitimacy of FCPA pre-enforcement action professional fees and expenses ought not be measured by a company’s profitability or overall sales.

Nor is it necessarily appropriate to say that Wal-Mart is finally investing in FCPA compliance in proportion to its size.  The inference is that a large company with large profits ought to spend more on FCPA compliance than a smaller company with smaller profits.

FCPA risk of course is unique to specific industries, and even within the same industry, often to specific companies.  It is not hard to imagine a small company with smaller profits having a higher FCPA risk profile than a large company with larger profits.

Nor is it necessarily appropriate to say that Wal-Mart is “playing catch up for a decade of what appears to be FCPA neglect.”  Presumably this sentence is based on one read of the Wal-Mart New York Times articles.  It appears, even accepting everything in the Times articles as gospel-truth, that Wal-Mart had some corporate governance failures or deficiencies at certain critical points.  For more on this see my article “Foreign Corrupt Practices Act Enforcement as Seen through Wal-Mart’s Potential Exposure.”

However, as noted in this prior post, let’s not forget other information in the Times articles.

First, according to the Times, Wal-Mart’s subsidiary in Mexico “had taken steps to conceal [the payments] from Wal-Mart’s headquarters in Bentonville, Ark.” and Wal-Mart Mexico’s chief auditor altered reports sent to Bentonville discussing various problematic payments.

Second, according to the Times, Wal-Mart’s investigation “was uncovering the kinds of problems and oversights that plague many global corporations.”

Third, according to the Times, Wal-Mart’s internal reviews began in Spring 2011 – long before the Times April 2012 article, when Wal-Mart’s general counsel learned of an FCPA enforcement action against Tyson Foods (like Wal-Mart, a company headquartered in Arkansas).

Finally, the recent guest post on the FCPA Blog states that Wal-Mart’s pre-enforcement action professional fees and expenses can “be looked at like accumulated liability for a toxic waste  site: First a determination of the origin, size and places of the contamination, then the costs of the clean up and damages.”

Accepting the analogy, perhaps you’ve heard that Superfund and other environmental clean-up costs frequently turn into boondoggles as well. (See e.g., here).

Friday Roundup

Additional individual defendant added to Alstom-related enforcement action, a mere $110,000 per working day, a focus on international philanthropy, scrutiny alerts, and for the reading stack.  It’s all here in the Friday roundup.

Additional Alstom-Related Charges

This prior post highlighted the recently unsealed criminal charges against Frederic Pierucci (a current Alstom employee) and David Rothschild (a former Alstom employee) concerning alleged conduct in connection with the Tarahan coal-fired steam power plant project in Indonesia.  The post highlighted several other individuals generically referred to in the charging documents.

Earlier this week, the DOJ announced (here) that William Pomponi (a former executive of Alstom Power Inc., a Connecticut-based subsidiary of Alstom) was charged for his alleged participation in the same scheme.   Pomponi, previously identified as “Employee A,” is now described as “a Vice President of Regional Sales” at Alstom Power Inc. and “was one of the people responsible for approving the actions of, and authorizing payments to, Consultants A and B, knowing that a portion of the payments [to the consultants] was intended for Indonesian officials in exchange for their influence and assistance in awarding the Tarahan Project …”.

Like the original Pierucci indictment, all of the alleged overt acts in the superseding indictment against Pomponi allegedly occured between 2002 and 2004, although the information does allege wire transfers from Alstom Power Inc.’s bank account to the bank account of Consultant A until 2009.

Like Pierucci, Pomponi is also charged with one count of conspiracy to violate the FCPA, four substantive counts of FCPA anti-bribery violations, money laundering conspiracy and four substantive counts of money laundering.

Kudos to the DOJ for including a link to the charging document in the release.  This used to be DOJ’s practice, but when its new site launched a few years ago, it stopped doing this.  Let’s hope this is a new practice!

Avon’s FCPA Expenses

Nearly five years ago – in June 2008 – Avon launched an internal investigation concerning FCPA compliance in China and other countries.  In many respects, the most notable aspect of Avon’s FCPA scrutiny has been its pre-enforcement action professional and expenses – approaching $350 million (see here for instance).

In its most recent quarterly filing, Avon stated as follows.  “Professional and related fees associated with the FCPA investigations and compliance reviews … amounted to approximately $7 during the three months ended March 31, 2013.”

Headlines read “Avon FCPA Costs Down to $7 Million for Q1” and “Avon Slows Spending on Bribery Probe.”

Both accurate headlines, but it is amazing to note nevertheless that – five years into Avon’s FCPA scrutiny – the company is still spending approximately $110,000 per working day on its FCPA issues.  (See this prior post concerning Wal-Mart’s pre-enforcement action professional fees and expenses and asking “does it really need to cost this much?”).

International Philanthropy

FCPA material pops up in a variety of places.  Such as this article in www.wealthmanagement.com concerning the perils of global giving.  With two FCPA enforcement actions (Schering-Plough and Eli Lilly) based, in whole or in part, on donations made to a Polish castle foundation and with Wynn Resorts under FCPA scrutiny for a donation to the University of Macau (see here), FCPA scrutiny based on international charitable giving is no mere hypothetical.

Scrutiny Alerts

Scrutiny alerts concerning IBM, ADM, Total, and ENRC.

IBM

This recent post highlighted a ProPublica report regarding the relationship between various tech companies including H-P, IBM and Oracle with a ”senior technology officer for Poland’s national police and, later, the nation’s Interior Ministry, [who] set the terms for hundreds of millions of dollars in technology contracts and decided which ones should be awarded without competitive bidding.”

In a recent quarterly filing, IBM disclosed as follows.

“In early 2012, IBM notified the SEC of an investigation by the Polish Central Anti-Corruption Bureau involving allegations of illegal activity by a former IBM Poland employee in connection with sales to the Polish government. IBM is cooperating with the SEC and Polish authorities in this matter. In April 2013, IBM learned that the U.S. Department of Justice (DOJ) is also investigating allegations related to the Poland matter, as well as allegations relating to transactions in Argentina, Bangladesh and Ukraine. The DOJ is also seeking information regarding the company’s global FCPA compliance program and its public sector business. The company is cooperating with the DOJ in this matter.”

In 2011, IBM resolved an FCPA enforcement action concerning alleged conduct in South Korea and China.  (See here).  The settlement is still pending the approval of Judge Richard Leon (D.D.C.).  In 2000, IBM resolved an FCPA enforcement action concerning alleged conduct in Argentina. (See here).

ADM

Archer Daniels Midland Company recently stated as follows in this release.

“ADM is in discussions with the U.S. Department of Justice and the U.S. Securities and Exchange Commission regarding a previously disclosed FCPA matter dating back to 2008 and earlier, and expects a resolution sometime this year. Based upon recent discussions, ADM believes it is appropriate to establish a provision of $25 million ($0.04 per share) to cover the potential assessments that may be imposed by these government agencies.”

Total

France-based Total recently stated as follows (here) concerning its long-running FCPA scrutiny concerning business conduct in Iran.

“In 2003, the United States Securities and Exchange Commission (SEC) followed by the Department of Justice (DoJ) issued a formal order directing an investigation in connection with the pursuit of business in Iran by certain oil companies including, among others, TOTAL.  The inquiry concerns an agreement concluded by the Company with consultants concerning gas fields in Iran and aims to verify whether certain payments made under this agreement would have benefited Iranian officials in violation of the Foreign Corrupt Practices Act (FCPA) and the Company’s accounting obligations. The Company fully cooperates with these investigations.  Since 2010, the Company has been in discussions with U.S. authorities (DoJ and SEC) to consider, as it is often the case in these kinds of proceedings, an out-of-court settlement, which would terminate the investigation in exchange for TOTAL respecting a number of obligations, including the payment of a fine and civil compensation, without admission of guilt.  U.S. authorities have proposed draft agreements that could be accepted by TOTAL. Consequently, and although discussions have not yet been finalized, a provision of $398 million, unchanged since its booking as of June 30, 2012 and reflecting the best estimate of potential costs associated with the resolution of these proceedings, remains booked in the Group’s consolidated financial statements as of March 31, 2013.  In this same affair, TOTAL and its Chief Executive Officer, President of the Middle East at the time of the facts, have been placed under formal investigation, following a judicial inquiry initiated in France in 2006. At this point, the Company considers that the resolution of these cases is not expected to have a significant impact on the Group’s financial situation or consequences on its future planned operations.”

A $398 million FCPA enforcement action would be the third-highest of all-time.

ENRC

Last week the U.K. Serious Fraud Office announced here as follows.

“The Director of the SFO has accepted [Eurasian Natural Resources Corp.] ENRC Plc. for criminal investigation.  The focus of the investigation will be allegations of fraud, bribery and corruption relating to the activities of the company or its subsidiaries in Kazakhstan and Africa.”

In a statement, the U.K. company,  stated as follows.

“The Board of Directors (the ‘Board’) of Eurasian Natural Resources Corporation PLC (‘ENRC’ or, together with its subsidiaries, the ‘Group’) today notes that the SFO has moved to a formal investigation. ENRC confirms that it is assisting and cooperating fully with the SFO. ENRC is committed to a full and transparent investigation of its procedures and conduct.

ENRC has ADRs listed with the SEC and thus could also be subject to the FCPA.

This recent article in the Wall Street Journal states as follows.

“U.K.-listed Eurasian Natural Resources Corp. PLC said … allegations of wrongdoing over minerals sales conducted through a Russian network of agents were thoroughly investigated and dismissed” in 2007.

Reading Stack

Tom Fox (FCPA Compliance and Ethics Blog) has penned a new book – “Best Practices Under the FCPA and Bribery Act: How to Create a First Class Compliance Program.”  I was pleased to contribute the foreword to the book and noted that Tom’s “use of real events as learning devices to demonstrate compliance best practices make [the] book an engaging and informative read.”

Inside the NY Times Wal-Mart investigation (here) from the perspective of the Mexican journalist who assisted in the investigative reporting.

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