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FCPA Enforcement Actions Against Japanese Companies

Japan

When thinking of foreign companies that have resolved Foreign Corrupt Practices Act enforcement actions, most people likely think of German and French companies and to be sure there have been several enforcement actions against companies from those countries.

Yet, the top domiciliary of foreign companies to resolve FCPA enforcement actions is actually Japan.

This post highlights the seven FCPA enforcement actions against Japanese companies and/or related entities (all since 2011) that have netted the U.S. treasury approximately $705 million. Even though approximately 50% of corporate FCPA enforcement actions originate from voluntarily disclosures, none of the enforcement actions against Japanese companies originated in this manner.

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FCPA Enforcement Actions Against Japanese Companies

Japan

When thinking of foreign companies that have resolved Foreign Corrupt Practices Act enforcement actions, most people likely think of German and French companies.

Yet, the top domiciliary of foreign companies to resolve FCPA enforcement actions is actually Switizerland (6) and not far behind is Japan (5), likely soon to be 6 after Japan-based Olympus resolves it FCPA scrutiny (see here for the prior post).

This post highlights the five FCPA enforcement actions against Japanese Companies (all in the past 4.5 years) that have netted the U.S. treasury approximately $403 million.

JGC Corp. (Apr. 2011)

See here for the prior post.

The company was a joint venture partner in the so-called TSKJ consortium that was formed for purposes of bidding on and performing a series of engineering, procurement, and construction contracts to design and build a liquefied natural gas plant on Bonny Island, Nigeria. Previous Bonny Island FCPA enforcement actions involved: KBR / Halliburton (see here), Technip (see here) and Snamprogetti (see here).

The settlement amount was $218.8 million and the criminal charges were resolved via a DOJ deferred prosecution agreement.

In the DPA, the DOJ stated:  “after initially declining to cooperate with the Department based on jurisdictional arguments, JGC began to cooperate, and has agreed to continue to cooperate, with the Department.” There is no mention of voluntary disclosure in the settlement documents ((something the DOJ typically mentions in resolution documents if indeed it has occurred).

Bridgestone (Sept. 2011)

See here for the prior post.

The company pleaded guilty to conspiracy to violate the Sherman Act and conspiracy to violate the FCPA. The FCPA conduct related to allegations of improper payments to officials in Latin America related to the sale of marine hose and other industrial products.

The overall settlement amount was $28 million and from the DOJ’s resolution documents it appears that approximately 80% of the $28 million fine was for the FCPA conduct.

In the DOJ’s release, it “recognized Bridgestone’s cooperation with the investigations, including conducting a worldwide internal investigation, voluntarily making employees available for interviews, and collecting, analyzing and providing to the department voluminous evidence and information.” There is no mention of voluntary disclosure in the settlement documents (something the DOJ typically mentions in resolution documents if indeed it has occurred).

Marubeni (Jan. 2012).

See here for the prior post.

The conduct at issue involved the same Bonny Island, Nigeria conduct in the JGC enforcement action and Marubeni was hired by the TSKJ consortium in connection with the project.

The settlement amount was approximately $56 million and the criminal charges were resolved via a DPA. The DOJ made no mention of voluntary disclosure or cooperation in the resolution documents (something the DOJ typically mentions in resolution documents if indeed it has occurred).

Marubeni (Mar. 2014)

See here for the prior post.

The company was a consortium partner along with Alstom in bidding on and carrying out the Tarahan power project in Indonesia and pleaded guilty to making improper payments to a consultant knowing that a portion of the payments were intended for Indonesian officials in exchange for their influence and assistance in awarding the Tarahan Project to Marubeni and Alstom.

The settlement amount was $88 million and in the plea agreement the DOJ stated that the fine amount was based on, among other things, “the Defendant’s failure to voluntarily disclose the conduct; the Defendants refusal to cooperate with the Department’s investigation when given the opportunity to do so; the lack of an effective compliance and ethics program at the time of the offense; the Defendant’s failure to properly remediate: and the Defendant’s history of prior criminal misconduct.”

Hitachi (Sept. 2015).

See here for the prior post.

According to the SEC, Hitachi violated the FCPA’s books and records and internal controls provisions “when it inaccurately recorded improper payments to South Africa’s ruling political party in connection with contracts to build two multi-billion dollar power plants.”

The settlement amount was $19 million and there was no mention of voluntary disclosure or cooperation in the SEC resolution documents (something the SEC typically mentions in resolution documents if indeed it has occurred).

Olympus (?)

As highlighted in this prior post, the company’s most recent disclosure states:

“Olympus Corporation hereby announces that Olympus Latin America, Inc. (“OLA”), an indirect U.S. subsidiary of ours, and Olympus Optical do Brasil, Ltda. (“OBL”), a Brazilian subsidiary of OLA, have been under investigation by the U.S. Department of Justice (the “DOJ”) relating to the Foreign Corrupt Practices Act concerning their medical business, and that we have recognized an extraordinary loss in connection with such investigation for the first quarter of the fiscal year ending March 2016.

Background of this matter. In October 2011, Olympus Corporation of the Americas (“OCA”), a U.S. subsidiary of ours and the parent company of OLA, self-reported to the DOJ potential issues concerning OLA’s and OBL’s medical businesses in 2011 or earlier. OCA is currently continuing discussions with the DOJ towards a resolution, but in view of the progress at the present time, we have recorded an extraordinary loss of approximately 2,421 million yen (approximately $19 million) as a provision.”

Friday Roundup

Guilty plea in FCPA obstruction case, SEC trims a pending case, across the pond, turnabout is fair play, and for the reading stack.  It’s all here in the Friday roundup.

Cilins Pleads Guilty

Earlier this week, the DOJ announced that Frederic Cilins pleaded guilty “to obstructing a federal criminal investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea.”  The DOJ release further states:

“Cilins pleaded guilty to a one-count superseding information …, which alleges that Cilins agreed to pay money to induce a witness to destroy, or provide to him for destruction, documents sought by the FBI.   According to the superseding information, those documents related to allegations concerning the payment of bribes to obtain mining concessions in the Simandou region of the Republic of Guinea.”

Cilins was originally charged in April 2013 (see this prior post for a summary of the criminal complaint) and there was much activity leading up to Cilins’s March 31st trial date.  For instance, on February 18th the DOJ filed a superseding indictment and on March 4th Cilins filed this motion to dismiss.  In pertinent part, the motion stated:

“For almost a year, the government has proceeded against Mr. Cilins under the theory that he criminally obstructed an investigation conducted by a federal grand jury in the Southern District of New York and the Federal Bureau of Investigation, after he first learned of that investigation in the spring of 2013. Now, on the eve of trial, the government has charged Mr. Cilins with conspiracy to commit criminal obstruction. The supposed conspiracy began in 2012, when, as the government admits, he had no intent to obstruct an American investigation—indeed, well before any such investigation had even been contemplated. The charge is instead based on a radical new theory: that Mr. Cilins interfered with a Guinean civil licensing investigation, which somehow amounts to a violation of U.S. obstruction law under 18 U.S.C. § 1519.

The government’s unprecedented and breathtaking attempt to federalize protection for investigations spread far and wide throughout the world has no basis in the text of the obstruction statute itself and no support in the case law. It also runs up against the well-established presumption that, absent strong evidence to the contrary, Congress did not intend to give federal statutes extraterritorial reach. Not only does § 1519 contain no textual evidence that Congress meant to give the law a worldwide sweep, the statute’s legislative history also confirms the obvious: that Congress wrote a federal obstruction statute in order to criminalize intentional interference with American investigations. The government’s new conspiracy count is fatally defective and must be dismissed.”

Cilins has been widely reported to be linked to Guernsey-based BSG Resources Ltd.  As reported here from 100 Reporters:

“The U.S. Justice Department has formally notified the Franco-Israeli billionaire Beny Steinmetz [the founder of BSG Resources] that he is the target of a federal probe of allegations of bribery in the Republic of Guinea, according to a source with knowledge of the matter. The disclosure places Steinmetz … personally at the center of a broad-based multinational corruption investigation involving some of the largest remaining untapped iron ore deposits in the world.  […] According to the source, who spoke on condition of anonymity, attorneys for Steinmetz have received a so-called “target letter” from federal prosecutors investigating allegations that Steinmetz’s mining company offered millions of dollars in bribes to win and keep the multi-billion dollar concession first awarded by the Guinean government in 2008.  The letter went to Steinmetz’s lawyers in January, the source said.”

For additional coverage of Cilins’s plea, see here from Reuters (noting that the plea agreement does not require any cooperation with the government’s investigation) and here from Bloomberg.

SEC Trims a Pending Case

This recent post highlighted how the SEC has never prevailed in an FCPA enforcement action when put to its ultimate burden of proof.

Against this backdrop, it is notable, as reported by the Wall Street Journal here and citing an SEC official, that the SEC is dropping its claims that former Magyar Telekom executives Elek Straub, Andras Balogh and Tomas Morval bribed Montenegro officials.  (The SEC’s claims that the former executives bribed Macedonian officials remains active).

See this prior post summarizing the SEC’s original 2011 complaint.

Across the Pond

More from the U.K. trial of former News Corp. executive Rebekah Brooks.  From the Guardian:

“Rebekah Brooks has admitted rubber stamping payments to military sources while she was editor at the Sun at the Old Bailey phone hacking trial. Brooks also admitted on Monday that she did not question whether the source of a series of stories that came from a reporter’s “ace military source” was a public official who could not be paid without the law being broken. Crown prosecutor Andrew Edis, QC, quizzed her about a series of emails from the reporter requesting tens of thousands of pounds for his military source. She responded to one request for payment in under a minute and to another within two minutes, the phone hacking trial heard. “You really were just acting as a rubber stamp weren’t you,” Edis asked. Brooks replied: “Yes.”

As noted in previous posts here and here:

“What happens in these trials concerning the bribery offenses will not determine the outcome of any potential News Corp. FCPA enforcement action. But you can bet that the DOJ and SEC will be interested in the ultimate outcome. In short, if there is a judicial finding that Brooks and/or Coulson or other high-level executives in London authorized or otherwise knew of the alleged improper payments, this will likely be a factor in how the DOJ and SEC ultimately resolve any potential enforcement action and how News Corp.’s overall culpability score may be calculated under the advisory Sentencing Guidelines.”

Turnabout Is Fair Play

Last week’s Friday Roundup (here) highlighted how Senator Harry Reid (D-NV) called out Koch Industries on the Senate floor and accused the company of violating the FCPA.  The previous post noted that it was not just executives or companies that support Republican causes that have come under FCPA scrutiny (several Democratic examples could be cited as well).

Indeed, that is just what the Washington Examiner did in this article which states as follows.

“Senate Majority Leader Harry Reid, D-Nev., has received campaign contributions from people and political action committees linked to multiple companies suspected of violating the Foreign Corrupt Practices Act.  […]  [R]ecords reveal that Reid has accepted campaign money from individuals and political action committees associated with 10 companies linked to FCPA investigations.  The contributions total $515,100 between 2009 and 2013.”

The inference from both Senator Reid’s initial volley and the Washington Examiner report would seem to be that companies that resolve FCPA enforcement actions or companies under FCPA scrutiny are bad or unethical companies and that politicians who accept support from such companies are thus tainted as well.

Such an inference is naive in the extreme.

Yes, certain FCPA enforcement actions are based on allegations that executive management or the board was involved in or condoned the improper conduct at issue. However, this type of FCPA enforcement action is not typical.

A typical FCPA enforcement action involves allegations that a small group of people (or perhaps even a single individual) within a subsidiary or business unit of a business organization engaged in conduct in violation of the FCPA. Yet because of respondeat superior principles, the company is exposed to FCPA liability even if the employee’s conduct is contrary to the company’s pre-existing FCPA policies and procedures.

Also relevant to the question of whether companies that resolve FCPA enforcement actions are “bad” or “unethical” is the fact that most FCPA enforcement actions are based on the conduct of third-parties under the FCPA’s third-party payment provisions. Further, certain FCPA enforcement actions are based on successor liability theories whereby an acquiring company is held liable for the acquired company’s FCPA liability.

Finally, given the resolution vehicles typically used to resolve an FCPA enforcement – such as non-prosecution and deferred prosecution agreements – companies subject to FCPA scrutiny often decide it is quicker, more cost efficient, and more certain to agree to such a resolution vehicle than engage in long-protracted litigation with the DOJ or SEC. These resolution vehicles do not require the company to plead guilty to anything (or typically admit the allegations in the SEC context), are not subject to meaningful judicial scrutiny, and do not necessarily represent the triumph of one party’s legal position over the other. Rather resolution via such a vehicle often reflects a risk-based decision often grounded in issues other than facts or the law. Indeed, a former high-ranking DOJ FCPA enforcement official has stated that given the availability of such alternative resolution vehicles, “it is tempting for the [DOJ], or the SEC since it too now has these options available, to seek to resolve cases through DPAs or NPAs that don’t actually constitute violations of the law.”

Last, but certainly not least, many corporate FCPA enforcement actions concern conduct that allegedly took place 5, 7, 10 or even 15 years ago.

Reading Stack

An informative read from Catherine Palmer and Daiske Yoshida (Latham & Watkins) titled “Deemed Public Officials:  A Potential Risk For U.S. Companies in Japan.”  The article states:

“Deemed public officials are officers and employees of entities that are not government owned but serve public functions. This concept is somewhat analogous to state-owned enterprises, but rather than being government owned/controlled entities that participate in commercial activities, these are commercial entities that play quasi-government roles.  […] The statutes that authorized the establishment of these companies stipulate that their officers and  employees are “deemed to be an employee engaged in public service” for the purposes of the Penal Code of Japan.”

Another informative read from Wendy Wysong (Clifford Chance) titled “Why, Whether, and When the FCPA Matters in Capital Market Transactions: The Asian Perspective.”  The article, in part, covers the FCPA’s tricky “issuer” concept and explores FCPA liability in Rule 144A and Regulation S offerings.

*****

A good weekend to all.

Bridgestone Corporation Resolves FCPA (and Antitrust) Enforcement Action

The DOJ announced yesterday (here) that “Bridgestone Corporation [a Japanese company that is the world’s largest manufacturer of tires and rubber products] has agreed to plead guilty and to pay a $28 million criminal fine for its role in conspiracies to rig bids and to make corrupt payments to foreign government officials in Latin America related to the sale of marine hose and other industrial products manufactured by the company.” 

Part conspiracy to violate the Sherman Act and part conspiracy to violate the FCPA, the FCPA portion of the criminal information (see here) alleges that Bridgestone conspired with others to “obtain and retain for Bridgestone’s IEPD [International Engineered Products Department] business million of dollars of sales of marine hose and other industrial products by making corrupt payments to foreign government officials in Latin America and elsewhere.”  Among other things, the DOJ alleged that Bridgestone: (i) “contracted with local sales agents in many of the Latin American countries where Bridgestone sought IEPD sales;” (ii) developed relationships with employees of the state-owned entities [PEMEX in Mexico is specifically mentioned] with which Bridgestone sought to do business;” (iii) “negotiated with employees of state-owned entities who were ‘foreign officials’ under the FCPA, in Mexico and other Lartin American countries, to make corrupt payments to those foreign officials to secure business for Bridgestone and BIPA [Bridgestone Industrial Products of America Inc. – Bridgestone’s U.S. subsidiary];” (iv) “approved the making of corrupt payments to the foreign officials through the local sales agents to secure business for Bridgestone and BIPA;” (v) paid local sales agents commissions within which BIPA included corrupt payments to be paid to the foreign officials; (vi) “coordinated these corrupt payments in Latin America through Bridgestone’s agents in the United States located in BIPA’s offices, including in Houston, Texas; and (vii) “took steps to conceal these payments, including, in some instances writing ‘Read and Destroy’ on facsimiles that contained information related to the corrupt payments and, in other instances using verbal communication rather than written communication to avoid creating written record.”

As to jurisdiction against Bridgestone, the DOJ asserts 78dd-3 and merely alleges that e-mails or faxes were sent to or from Japan to the U.S. in connection with bribery scheme.  Interestingly, in the Africa Sting case, Judge Leon – in the first judicial test of 78dd-3 jurisdiction – seemed to reject the notion that such conduct, in and of itself, satisfied 78dd-3’s “while in the territory of the U.S.” requirement.  See here for the prior post.

According to this filing, it would appear that approximately 80% of the $28 million fine is for the FCPA conduct.  The guidelines range for the antitrust conduct was $6.7 million – $13.4 million.  The guidelines range for the FCPA conduct was $40 million – $80 million. 

In other respects, the DOJ release states as follows.  “Under the plea agreement, the department recognized Bridgestone’s cooperation with the investigations, including conducting a worldwide internal investigation, voluntarily making employees available for interviews, and collecting, analyzing and providing to the department voluminous evidence and information.  In addition, the plea agreement acknowledges Bridgestone’s extensive remediation, including restructuring the relevant part of its business, terminating many of its third-party agents and taking remedial actions with respect to employees responsible for many of the corrupt payments.  Under the terms of the plea agreement, Bridgestone has committed to continuing to enhance its compliance program and internal controls.  As a result of these mitigating factors, the department agreed to recommend a substantially reduced fine.”

In a press release (here), Bridgestone [BSJ] noted as follows.  “Since May 2007, the DOJ has been investigating BSJ’s involvement in international cartel activities relating to the sale of marine hose. The DOJ has also investigated improper payments to government officials through local sales agents focusing primarily on Latin America in connection with certain industrial products. BSJ has cooperated fully in this matter.  The DOJ has agreed that BSJ’s cooperation has been ‘extraordinary’.  The DOJ has also acknowledged that BSJ has engaged in extensive remediation including dismantling the International Engineered Products Department, closing its Houston office of Bridgestone Industrial Products of America, Inc., terminating many of its third party agents, and taking remedial actions with respect to its employees. BSJ has also decided to withdraw from the marine hose business.”  The release further notes that the $28 million fine is a “significant reduction from the applicable sentencing guidelines due to BSJ’s cooperation and remediation efforts.”

Ordinarily, extraordinary cooperation, remediation, etc. allow a company to settle an FCPA enforcement action via a non-prosecution or deferred prosecution agreement.  Yet, the two-crime nature of the Bridgestone enforcement action may have prompted the DOJ to insist on a plea agreement to actual criminal charges.

As noted in the DOJ release, in 2008 Misao Hioki, the former general manager of Bridgestone’s international engineered products department, pleaded guilty to antitrust and FCPA conspiracy charges.  See here for that prior enforcement action.

Since April, Japanese companies have contributed approximately $248 million to the U.S. Treasury for violating the FCPA (recognizing that the Bridgestone action also contains an antitrust component).  See here for the prior JGC Corporation enforcement action.  Another Japanese company, Sojitz Corporation, is also reportedly the subject of an FCPA investigation in relation to conduct in Bahrain.  See here for the prior post. 

You ask, doesn’t Japan have its own “FCPA-like” law?  Yes, it does; however there is no criminal liability for corporations under the law.  To learn more see here.

Finally, the FCPA Blog reports (here) that Bridgestone has ADRs traded in the U.S. over the counter in the pink sheets.  In the past, the SEC has asserted FCPA books and records and internal controls jurisdiction over a company based on such a listing.  Given that DOJ and SEC enforcement actions are typically announced on the same day, and given nothing was announced yesterday by the SEC, it is further interesting that the SEC has apparently chosen to sit out the Bridgestone matter.

The Globalization of Anti-Corruption Law

Today’s post is from Juliet S. Sorensen (here) a  Clinical Assistant Professor of Law at Northwestern University, where her teaching and research interests include international criminal law and corruption.

*****

At the annual meeting of the American Bar Association in Toronto last week, the Presidential Showcase Program of the Criminal Justice Section (here) was entitled “The Globalization of Anti-Corruption Law.”  Moderated by T. Markus Funk of Perkins Coie (here), the panel included Andrew S. Boutros (here) of the U.S. Attorney’s Office in Chicago (appearing in his personal capacity); Walter H. White Jr. (here)  from the London office of McGuire Woods; Tyler Hodgson (here) of the Canadian firm Border Ladner Gervais; and yours truly.

Audience members who braved a driving rainstorm en route to the Metropolitan Toronto Convention Centre on Sunday morning were privy to a wide range of insights and perspectives on the worldwide proliferation of aggressive anti-corruption laws.  Funk set the scene and introduced both the topic and speakers, Boutros spoke about the latest trends in FCPA and international enforcement, White discussed the implications of the brand-new UK Anti-Bribery Act, Hodgson talked about Canadian anti-bribery actions, and I examined the global impact of international anti-bribery conventions such as the OECD Anti-Bribery Convention.

The consensus among the panelists was that aggressive enforcement of bribery statutes is an international trend not limited to the U.S., although the U.S. remains the undisputed leader in that regard.  Even Canada, which Transparency International has deemed the laggard of the G-7 in its anti-bribery enforcement, has brought a significant indictment in the last year and currently has twenty active investigations into possible violations of the Corruption of Foreign Public Officials Act.

After Funk pointed out that the number of FCPA indictments increased by a power of 10 from 2004 to 2010, Boutros noted that many of the most significant recent U.S. cases were against foreign companies.  This points not only to increased commercial globalization—foreign companies that pass bribes overseas possess a jurisdictional connection to the U.S.—but also to increased international cooperation by law enforcement.  Boutros also pointed out an increased trend in what he termed “carbon copy” prosecutions, a phenomenon where foreign authorities rely on the factual findings emerging out of U.S. enforcement actions to vindicate the local laws of their own jurisdiction—often the site of the bribe payment or bribe receipt.    Indeed, a corporate defendant’s obligation to cooperate not just locally, but internationally is increasingly spelled out in U.S. plea agreements or deferred prosecution agreements.  Given that the Double Jeopardy Clause does not bar foreign-federal prosecutions (see, e.g., U.S. v. Jeong), such a term of agreement may well be cause for concern to defense counsel.

That’s not to say, however, that other countries are equal to the U.S. in terms of number or aggressiveness of prosecutions.  In my own remarks, I reviewed three G-7 “case studies”—France, Germany, and Japan—and found that France is hampered in its own prosecutions of foreign bribery by an excessively short statute of limitations (three years) and a ban on plea agreements, and in its cooperation with others by a sweeping blocking statute.  Germany is vigilant in the enforcement of its own anti-bribery laws, but the OECD has encouraged that country to increase the statutory maximums for its applicable fines and sentences of imprisonment, noting that the sentences imposed in these cases by German courts are too low to act as an effective deterrent.  Of the three, it is the anti-bribery landscape in Japan that is the most barren, with scant prosecutions due to a failure to gather evidence both at home and overseas.  In a searing self-assessment required by the OECD, Japan pointed to an absence of whistleblower support in corporate and popular culture and the limited foreign language skills of Japanese investigators overseas as two significant reasons for its failure to meet the expectations of the OECD.

Walter White was peppered with questions about the impact of the sweeping UK Anti-Bribery Act, including its impact on Rupert Murdoch’s News Corp, accused of making payoffs to high-ranking law enforcement in the UK.  White reminded the audience that the UK Anti-Bribery Act was unlikely to be retroactive, and thus would not apply to the actions of News Corp., although there are other UK statutes as well as the FCPA that could encompass News Corp’s actions.

Another question pointed to the limited scope of the FCPA as compared to the UK law, noting that the payment of a bribe by a U.S. subject to a warlord in Afghanistan or Somalia could not be prosecuted under the FCPA as that warlord is not a public official, but that a similar payment by a U.K. subject was a violation of the Anti-Bribery Act.  True, Funk responded, assuming that a warlord operating as a quasi-official in a lawless state was not enough, but don’t forget the Travel Act, 18 U.S.C. § 1952: the Travel Act prohibits the use of a facility of foreign or interstate commerce (such as email, telephone, or personal travel), with intent to promote or distribute the proceeds of an activity that is a violation of state or federal bribery, extortion or arson laws, or a violation of the federal gambling, narcotics, money-laundering or RICO statutes.  Thus, for example, if a U.S. businessperson is negotiating a private deal in a foreign country and offers by telephone and wires money to a foreign counterpart to influence acceptance of the transaction–and such activity is a violation of the federal or state law where the individual is doing business–the Justice Department may conclude that a violation of the Travel Act has occurred.

Finally, an audience member pointed out that, U.S. anti-bribery culture notwithstanding, bribes and “grease” are expected in the normal course of business in many Eastern European and former Soviet republics.  Does that expectation shield the briber payer?

The panel was unanimous that, unless the payments were in fact legal—not merely expected—in the country in question, the U.S. bribe payer could be in violation of the FCPA.  But that’s ok: “leveling the playing field” for honest businesses is one of the stated purposes of the FCPA, the Anti-Bribery Convention, and the UN Convention against Corruption.  And who doesn’t want to play on a level field?

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