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In Depth Into The Och-Ziff FCPA Enforcement Action

och ziff

Last week, the DOJ and SEC announced (here and here) a Foreign Corrupt Practices Act enforcement action against Och-Ziff Capital Management Group (and a related entity) for improper business practices in various African countries. The aggregate settlement amount was $412 million (a $213 million DOJ criminal penalty and a $199 million SEC resolution consisting of disgorgement and prejudgment interest), the 4th largest FCPA settlement amount of all-time.

As highlighted in this previous post, the SEC also found Daniel Och (CEO) and Joel Frank (CFO) culpable for certain of the improper conduct. As indicated in the post, this represents what is believed to be the first time in FCPA history that the SEC also found the current CEO and CFO of the issuer company liable, to some extent, for company FCPA violations. Moreover, the $2.2 million Och agreed to pay, without admitting or denying the SEC’s findings, is the largest settlement amount in FCPA history by an individual in an SEC action.

Whether the Och-Ziff enforcement action is the “first time a hedge fund has been held to account for violating the FCPA” (as the DOJ stated in its release) is a debatable point. (See here for the 2007 FCPA enforcement action on the DOJ’s FCPA website against hedge fund Omega Advisors).

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Friday Roundup

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Scrutiny alerts and updates, asset recovery, Fokker DPA appeal, Holder to private practice, and for the reading stack. It’s all here in the Friday roundup.

Scrutiny Alerts and Updates

Former Yara Executives

Reuters reports:

“A Norwegian court sentenced four former top executives at Yara, the world’s biggest nitrate fertilizer maker, to prison on Tuesday for paying bribes in Libya and India, in one of Norway’s biggest corruption scandals. Prosecutors had accused the men of paying around $8 million in bribes to officials in Indiaand Libya – including to the family of former Libyan leader Muammar Gaddafi’s oil minister and the family of a financial adviser in India’s Ministry of Chemicals and Fertilizers – for the right to establish joint ventures. Former CEO Thorleif Enger got the longest sentence of three years. His lawyer said he would appeal the sentence. Former chief legal officer Kendrick Wallace was sentenced to 2-1/2 years in prison, while former head of upstream activities Tor Holba and former deputy CEO Daniel Clauw were both given two-year jail terms years, court documents showed.”

For more on the underlying Libya investigations, see here.

Cerberus Capital Management

Cerberus Capital Management has been the subject of several recent media articles (see here and here for instance) concerning its purchase of a portfolio of the National Asset Management Agency (Nama) in 2014 in Northern Ireland.  According to reports:

“Northern Irish politicians have called for an investigation after a politican in Dublin alleged that Belfast law firm Tughans had £7m in an account, ‘reportedly earmarked for a Northern Ireland politician’.”

Tughans was engaged as local counsel by Brown Rudnick in connection with its representation of Cerberus. In response to the scrutiny, Brown Rudnick released this statement.

Asset Recovery

The DOJ recently filed this civil forfeiture complaint seeking “£22 million in British pounds (approximately $34 million at current exchange rates) that represent the value of 4,000,000 founders’ shares in Griffiths Energy International Inc. (“Griffiths Energy”), and that are traceable to, and involved in the laundering of, bribe payments made to Chadian diplomats …”.

According to the complaint, Griffiths Energy gave Mahamoud Adam Bechir (“Bechir”), Chad’s ambassador to the United States and Canada from approximately 2004 to 2012, and others “valuable company shares in exchange for Bechir exercising his official influence over the award to the company of lucrative oil development rights in Chad.”

The recent action is the second DOJ civil action filed in connection with the Griffiths Energy matter.  (See here).

See here for the prior post regarding the underlying Canadian enforcement action against Griffiths Energy.

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As highlighted in this Bloomberg article:

“The Justice Department is seeking to seize $300 million claimed to be the proceeds of an international bribery conspiracy involving two Russian phone companies, as the U.S. joins a group of European nations in a telecom corruption probe. The U.S. claims VimpelCom Ltd., part-owned by Russian billionaire Mikhail Fridman, and Mobile TeleSystems OJSC used a web of shell companies and phony consulting contracts to funnel bribes to a close relative of Uzbekistan’s president, Islam Karimov, in exchange for access to that country’s telecommunications market. The assets sought by the U.S., in a complaint filed Monday in Manhattan federal court, are held in Bank of New York Mellon Corp. in Ireland, Luxembourg and Belgium. VimpelCom said in March 2014 that its Amsterdam headquarters had been raided by Dutch prosecutors and that the U.S. Securities and Exchange Commission demanded documents as part of the probe into its business.”

Fokker DPA Appeal

This previous post concerned the pending D.C. Circuit appeal of the DOJ – Fokker Services deferred prosecution agreement. Recently David Debruin (Jenner & Block), the court appointed amicus, filed this brief.

Regarding the following issue: “whether the District Court abused its discretion by denying the parties’ motion to exclude time under the Speedy Trial Act […] which provides for the exclusion of a period of delay pursuant to a deferred prosecution agreement “with the approval of the court.”, the brief states in pertinent part:

“If the Court reaches the merits, it should hold that the District Court had the authority to consider the substantive fairness of the DPA. Under 18 U.S.C. § 3161(h)(2), a DPA requires “approval of the court.” The plain text of this provision grants a district court the discretion to consider the substantive fairness of a DPA before approving it. The parties argue that a district court may reject a DPA only if it concludes that the parties are using the DPA as a pretext for a continuance, but that artificial restriction on judges’ discretion finds no basis in § 3161(h)(2). The legislative history, structure, and purpose of the Speedy Trial Act similarly confirm a district court’s discretion to consider a DPA’s substantive fairness.

Contrary to the parties’ contentions, the District Court’s rejection of the DPA poses no separation-of-powers problem. The District Court’s order does not force the Government to pursue a criminal prosecution. The Government remains free to negotiate a new DPA, try its case, or dismiss the charges. Prosecutorial discretion does not confer upon the Government the right to force a judge to exclude time from the Speedy Trial Act clock for 18 months. A district court order excluding time under the Speedy Trial Act is a judicial act, and separation-ofpowers principles give a judge the authority and the obligation to exercise independent judgment in performing that judicial act. If the Government had wanted to avoid judicial involvement, it should have signed a non-prosecution agreement; by instead choosing to invoke judicial process and filing a motion to exclude time under the Speedy Trial Act, it cannot now characterize the District Court’s denial of that motion as a separation-of-powers violation.

On the merits, the District Court did not abuse its discretion in rejecting the DPA. FSBV willfully violated the U.S. sanctions regime over 1,000 times and repeatedly provided assistance to the Iranian military. Yet under the DPA, as long as it agreed to pay back the revenues it earned and promised not to break the law, it would get off scot-free. The District Court’s conclusion that the DPA was grossly disproportionate to FSBV’s conduct was entirely reasonable.”

Holder to Covington

Recently Covington & Burling announced:

“Former U.S. Attorney General Eric H. Holder, Jr., is returning to Covington as a partner after more than six years of service as the nation’s top law enforcement officer. Mr. Holder will be resident in the firm’s Washington office and focus on complex investigations and litigation matters, including matters that are international in scope and raise significant regulatory enforcement issues and substantial reputational concerns. […] Mr. Holder was a partner at Covington from 2001 until February 2009, when President Obama appointed and the Senate confirmed him as the nation’s 82nd Attorney General.”

Reading Stack

Gibson Dunn’s Mid-Year FCPA Update is here.

Gibson Dunn’s Mid-Year Update on Corporate NPAs and DPAs is here.

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A good weekend to all.

Friday Roundup

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Wal-Mart related, north of the border, scrutiny alerts and updates, and an issue to watch.

It’s all here in the Friday roundup.

Wal-Mart Related

Here is what Wal-Mart said in its recent 4Q FY2015 earnings call.

“FCPA-and compliance-related costs were $36 million in the fourth quarter, comprised of $26 million for the ongoing inquiries and investigations, and $10 million for our global compliance program and organizational enhancements. For the full year, FCPA-and compliance related costs were $173 million, comprised of $121 million for the ongoing inquiries and investigations, and $52 million for our global compliance program and organizational enhancements. Last year, total FCPA-and compliance-related costs were $282 million.”

“In fiscal 2016, we expect our FCPA-related expenses to range between $160 and $180 million.”

Doing the math, Wal-Mart’s 4Q FCPA and compliance-related costs is approximately $563,000 in FCPA-related expenses per working day.

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

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

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

FY 2013 = $157 million.

FY 2014 = $282 million.

FY 2015  = $173 million.

FY 2016 = $160 – $180 million (projected)

North of the Border

Yesterday, the Royal Canadian Mounted Police (RCMP) announced charges against the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc.”  As stated in the release:

“The three entities have been charged with one count of corruption under paragraph 3(1)(b) of the Corruption of Foreign Public Officials Act and one count of fraud under paragraph 380(1)(a) of the Criminal Code.The alleged criminal acts surfaced as part of the ongoing criminal investigation into the company’s business dealings in Lybia.

The charges laid are the following:

In Montreal, Judicial District of Montreal, elsewhere in Canada and abroad

  1. Between on or about August 16, 2001 and on or about September 20, 2011, the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc., did, in order to obtain or retain an advantage in the course of business, directly or indirectly give, offer or agree to give or offer a loan, reward, advantage or benefit of any kind of a value of CAN$47,689,868 or more, to one or several public officials of the “Great Socialist People’s Libyan Arab Jamahiriya” or to any person for the benefit of a public official of the “Great Socialist People’s Libyan Arab Jamahiriya”, to induce these officials to use their positions to influence any acts or decisions of the “Great Socialist People’s Libyan Arab Jamahiriya” for which they perform their duties or functions, thereby committing an indictable offence contrary to paragraph 3(1)(b) of the Corruption of Foreign Public Officials Act.
  2. Between on or about August 16, 2001 and on or about September 20, 2011, the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc. did, by deceit, falsehood or other fraudulent means, whether or not it is a false pretense within the meaning of theCriminal Code, defraud the “Great Socialist People’s Libyan Arab Jamahiriya”, the “Management and Implementation Authority of the Great Man Made River Project” of Libya, the “General People’s Committee for Transport Civil Aviation Authority” of Libya, Lican Drilling Co Ltd, and the “Organization for Development of Administrative Centers” of Benghazi in Libya of property, money or valuable security or service of a value of approximately CAN$129,832,830, thereby committing an indictable offence contrary to paragraph 380(1)(a) of the Criminal Code.”

In the release, Assistant Commissioner Gilles Michaud, Commanding Officer of the RCMP’s National Division, stated: “Corruption of foreign officials undermines good governance and sustainable economic development. The charges laid today demonstrate how the RCMP continues to support Canada’s international commitments and safeguard its integrity and reputation.”

Upon being charged, SNC-Lavalin issued this release which states in full as follows.

“SNC-Lavalin was informed that federal charges have been laid by the Public Prosecution Service of Canada against SNC-Lavalin Group Inc., SNC-Lavalin International Inc. and SNC-Lavalin Construction Inc. Each entity has been charged with one count of fraud under section 380 of the Criminal Code of Canada and one count of corruption under Section 3(1)(b) of the Corruption of Foreign Public Officials Act. SNC-Lavalin firmly considers that the charges are without merit and will vigorously defend itself and plead not guilty in the interest of its current employees, families, partners, clients, investors and other stakeholders.

“The charges stem from the same alleged activities of former employees from over three years ago in Libya, which are publicly known, and that the company has cooperated on with authorities since then,” stated Robert G. Card, President and CEO, SNC-Lavalin Group Inc. “Even though SNC-Lavalin has already incurred significant financial damage and losses as a result of actions taken prior to March 2012, we have always been and remain willing to reach a reasonable and fair solution that promotes accountability, while permitting us to continue to do business and protect the livelihood of our over 40,000 employees, our clients, our investors and our other stakeholders.”

It is important to note that companies in other jurisdictions, such as the United States and United Kingdom, benefit from a different approach that has been effectively used in the public interest to resolve similar matters while balancing accountability and securing the employment, economic and other benefits of businesses.

These charges relate to alleged reprehensible deeds by former employees who left the company long ago. If charges are appropriate, we believe that they would be correctly applied against the individuals in question and not the company. The company has and will continue to fully cooperate with authorities to ensure that any individuals who are believed to have committed illegal acts are brought to justice. The company will also consider claims against these individuals to recover any damages the company has suffered as a result.

While the Public Prosecution Service of Canada and the RCMP have selected this as the next formal step in this 3-year old investigation, there is no change to the company’s right and ability to bid or work on any public or private projects.

Becoming a benchmark in ethics and compliance

Over the past three years, we have made significant changes to the company and remained focused on continuous improvements in ethics and compliance. The tone from the top is clear and unequivocal; there is zero tolerance for ethics violations. The individuals alleged to have been involved in past ethical issues are no longer with the company, and a new CEO has changed the face of the executive team. Under the leadership of the Board of Directors, the company has reinforced its Ethics and Compliance program with huge investments in time and money to rapidly make significant and concrete enhancements, including:

  • Creating the position of Chief Compliance Officer, who reports to the board, and hiring world-renowned leaders in compliance
  • Appointing an Independent Monitor recommended by and who reports solely to, the World Bank Group
  • Appointing compliance officers in all of the company’s business units and regional offices worldwide
  • Creating a dedicated Ethics and Compliance team
  • Further reinforcing internal controls and procedures
  • Further reinforcing its Code of Ethics and Ethics and Compliance Hotline
  • Producing a dedicated  Anti-Corruption Manual
  • Offering annual compliance training to all employees, with a special focus on those working in strategic roles
  • Developing and distributing a world-class Business Partners Policy to employees
  • Using an independent third party to screen candidates for senior management positions
Working hard to build a global leader in the engineering and construction industry

Over the past 3 years and while managing issues created by events prior to 2012, we have worked hard to develop and implement a strategy to become a global Tier-1 player and take our place in a consolidating industry. We have taken concrete steps towards a 5-year goal of doubling our size, and we continue to deliver on our strategy. A clear example is the acquisition of Kentz that added 15,000 employees to our oil and gas business, making us a Tier-1 player in this area.

Since 1911, SNC-Lavalin employees have been working with our clients to create world-class projects that improve people’s quality of life and provide value to our clients. We are the only Canadian player among the top engineering and construction firms in the world, ranking as the number one firm in both Canada and Quebec.

“I would like to thank our more than 40,000 employees, clients, shareholders, partners and other stakeholders for their trust and continuing support,” concluded Mr. Card.”

The portion of SNC-Lavalin’s statement highlighted above in bold and underlined is most interesting.

Scrutiny Alerts and Updates

Flowserve

In 2008, Flowserve Corporation and a related entity agreed to pay approximately $10.5 million to resolve DOJ and SEC FCPA enforcement actions concerning conduct in connection with the U.N. Oil for Food Program in Iraq.  As part of the SEC resolution, Flowserve agreed to final judgment permanently enjoining it from future violations of FCPA’s books and records and internal controls provisions.

Earlier this week, Flowserve disclosed as follows.

“The Company has uncovered actions involving an employee based in an overseas subsidiary that violated our Code of Business Conduct and may have violated the Foreign Corrupt Practices Act. The Company has terminated the employee, is in the process of completing an internal investigation, and has self-reported the potential violation to the United States Department of Justice and the United States Securities and Exchange Commission. While the Company does not currently believe that this matter will have a material adverse impact on its business, financial condition, results of operations or cash flows, there can be no assurance that the Company will not be subjected to monetary penalties and additional costs.”

Eli Lilly

In December 2012, Eli Lilly agreed to pay $29 million to resolve an SEC FCPA enforcement action based on subsidiary conduct in China, Brazil, Poland, and Russia.  At the time, there was no parallel DOJ action which sent a signal to knowledgeable observers that there would likely not be a parallel DOJ action.

Earlier this week, Eli Lilly made this official when it disclosed:

“In August 2003, we received notice that the staff of the Securities and Exchange Commission (SEC) was conducting an investigation into the compliance by Lilly’s Polish subsidiary with the U.S. Foreign Corrupt Practices Act of 1977 (FCPA). Subsequently, we were notified that the SEC had expanded its investigation to other countries and that the Department of Justice (DOJ) was conducting a parallel investigation. In December 2012, we announced that we had reached an agreement with the SEC to settle its investigation. The settlement relates to certain activities of Lilly subsidiaries in Brazil, China, Poland, and Russia from 1994 through 2009. Without admitting or denying the allegations, we consented to pay a civil settlement amount of $29.4 million and agreed to have an independent compliance consultant conduct a 60-day review of our internal controls and compliance program related to the FCPA. In January 2015, the DOJ advised us that they have closed their investigation into this matter.”

Rolls-Royce

As highlighted here, allegations have surfaced that Rolls-Royce “paid bribes for a contract with Brazilian oil firm Petrobras.” According to the report, “one of the Petrobras informants in the case, received at least $200,000 in bribes from Rolls-Royce, which makes gas turbines for Petrobras oil platforms.”

As noted in the report, “Britain’s Serious Fraud Office is separately investigating Rolls-Royce because of concerns over possible bribery in Indonesia and China.”

As highlighted here and here Rolls-Royce is also under investigation in the U.S. by the DOJ and in 2012 Data Systems & Solutions, LLC, a wholly-owned subsidiary of  Rolls-Royce Holdings, resolved an FCPA enforcement action.

U.K. Sentences

The U.K. Serious Fraud Office recently announced that “two employees of Smith and Ouzman Ltd, a printing company based in Eastbourne, were sentenced … following an SFO investigation into corrupt payments made in return for the award of contracts to the company.” As noted in the release:

Smith and Ouzman Ltd specialises in security documents such as ballot papers and education certificates.  Its chairman, Christopher John Smith, aged 72 from East Sussex, was sentenced to 18 months’ imprisonment, suspended for two years, for two counts of corruptly agreeing to make payments, contrary to section 1(1) of the Prevention of Corruption Act 1906, to run concurrently. He was also ordered to carry out 250 hours of unpaid work and has been given a three month curfew.

Nicholas Charles Smith, the sales and marketing director of the company, aged 43 from East Sussex, was sentenced to three years’ imprisonment for three counts of corruptly agreeing to make payments, to run concurrently. The company itself was also convicted of the same three offences and will be sentenced at a later date.

Both men were disqualified from acting as company directors for six years.

Director of the SFO, David Green CB QC commented:

“This case marks the first convictions secured against a corporate for foreign bribery, following a contested trial. The convictions recognise the corrosive impact of such conduct on growth and the integrity of business contracts in the Developing World.”

In passing sentence HHJ Higgins commented:

“Your behaviour was cynical, deplorable and deeply antisocial, suggesting moral turpitude.”

The briberyact.com published in full the Judge’s sentencing remarks.

Issue to Watch

This Wall Street Journal editorial was about Apple’s battle with its corporate monitor in an antitrust action.  While outside the FCPA context, the editorial nevertheless notes:

“Apple might have settled long ago as most corporations do, and that option might even have been cheaper than a protracted appeal. But the company is doing a public service by attempting to vindicate a legal principle and brake the growing abuse of court-appointed monitors and a crank theory of antitrust that will harm many more innovators if it is allowed to stand. If Apple prevails in the Second Circuit, it ought to sue Mr. Bromwich and attempt to disgorge the $2.65 million he has soaked from shareholders.”

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A good weekend to all.

Friday Roundup

The FCPA in the hallways, Super Bowl bribery, no FCPA charges, quotable, survey says, FCPA reform advocate nominated to the federal bench, interesting homework assignment, scrutiny alert, and for the reading stack.  It’s all here in the Friday roundup.

FCPA in the Hallways

Avon’s FCPA scrutiny brought the FCPA to main street.  News Corp.’s and Wal-Mart’s FCPA scrutiny generated world-wide media coverage.  Will the FCPA next become the topic of discussion in middle school and high school hallways across America?

According to this TMZ report:

“A Canadian border official has been fired for allegedly accepting a $10,000 bribe in return for allowing members of Justin Bieber’s entourage with criminal records to enter Canada. Bieber’s camp reportedly gave a female officer at the Niagara Falls border thousands of dollars in backstage passes to get members of his posse into the country while he performed. Canada has a strict policy on not allowing people with certain types of criminal records to enter. It’s unclear when the alleged bribes went down … but Justin performed 2 shows in Toronto last year. The accusations surfaced after more of Bieber’s friends allegedly showed up at the border looking for the same special treatment — and the officers on duty blew the whistle. The Canada Border Services agency reportedly circulated an internal memo reminding officers not to take bribes … and to rat out anyone who does.”

In case you are wondering, there have been several FCPA enforcement actions in recent years concerning alleged payments to customs, immigration and other regulatory officials in connection with a business purpose broadly speaking.

Super Bowl Bribery?

Providing money or other things of value to a person or entity to influence the discretionary acts of that person or entity in connection with a business purpose is bribery … is it not?

Yet, according to this Wall Street Journal article, the above may determine which artist receives the coveted Super Bowl half-time performance slot.  According to the article, the NFL “has asked artists under consideration for the high-profile gig to pay to play” including whether the artists “would be willing to contribute a portion of their post-Super Bowl tour income to the league, or if they would make some other type of financial contribution, in exchange for the halftime gig.”

According to the article, the NFL’s only goal is to “put on the best possible show.”

No FCPA Charges

It is sometimes perplexing why certain alleged conduct results in Foreign Corrupt Practices Act charges, whereas other alleged conduct – clearly implicating the FCPA – does not result in FCPA charges.

Case in point, the recent DOJ prosecution of Alisa Bivens, a U.S. citizen and former foreign program director of International Adoption Guides Inc. (IAG – a South Carolina company).  (See here for the DOJ release).  Bivens recently pleaded guilty to defrauding the U.S. in violation of 18 U.S.C. 317.  As noted in the DOJ release:

“Bivens admitted as part of her plea that she and her co-conspirators submitted fraudulent documents to the State Department to facilitate adoptions of Ethiopian children by U.S. parents from 2006 until 2009.  In support of U.S. visa applications for the Ethiopian children, Bivens and others submitted false documentation, including contracts of adoption signed by orphanages that could not properly give the children up for adoption because, for example, the child in question was never cared for or never resided at the orphanage.”

The DOJ release further states:

“In entering her guilty plea, Bivens also admitted that she and others paid bribes to two Ethiopian officials so that those officials would help with the fraudulent adoptions.   The first of these two foreign officials, an audiologist and teacher at a government school, accepted money and other valuables in exchange for providing non-public medical information and social history information for potential adoptees to the conspirators.   The second foreign official, the head of a regional ministry for women’s and children’s affairs, received money and all-expenses-paid travel in exchange for approving IAG’s applications for intercountry adoptions and for ignoring IAG’s failure to maintain a properly licensed adoption facility.”

Quotable

U.S. Ambassador to China Max Baucus recently delivered this speech to the APEC Network of Anti-Corruption Authorities and Law Enforcement Agencies.  Ambassador Baucus stated:

“The Obama Administration takes a firm stand against American and foreign companies that engage in bribing foreign officials to obtain or retain business.  Other economies here do this as well. In the United States, one of the most effective tools we use to combat corruption is enforcement of the Foreign Corrupt Practices Act.  We pursue corruption at many levels:

  • corporations, both big and small;
  • everyone from sales agents to CEOs;
  • U.S. and foreign companies;
  • citizens and foreign nationals; and
  • direct payers and intermediaries.

Since 2009, the U.S. Department of Justice has taken in $3.4 billion from criminal fines, penalties and forfeitures. And the U.S. Securities and Exchange Commission has seized another $1 billion of profits obtained by illegal or unethical acts over the last ten years.  As a result, more American companies have changed the way they do business.  Companies are now more willing to voluntarily disclose corrupt behavior and report on solicitations for bribes.”

The last sentence of course is debatable.

Even so, what is not debatable is the following from Ambassador Baucus – “we need to adopt international best practices of transparency and rule of law” in the fight against corruption.

U.S. officials preach this virtue abroad, yet the reality is we need to work on these virtues here at home as well.

As to the rule of law, and as noted in this speech by former Federal Reserve Chairman Paul Volcker who was the keynote speaker at the International Bar Association’s annual conference:

“There is frank recognition that the combination of a weak rule of law and corruption is not only economically debilitating, but threatening the political health of both new and old democracies. I do not exclude the United States. We think of ourselves as exemplars of the rule of law. We are certainly world champions in the extent of legislation and regulation governing bribery, conflicts of interest, procurement procedures, campaign financing, protection of human rights and most of all, transparency. All of these are ingredients of what some think of as the rule of law. But we still face the sad fact that in the United States itself, only a quarter of Americans believe that corruption is not widespread in our country. My feeling is that the impression of serious corruption has increased further, a reflection largely of the concern that campaign financing has come to gravely distort the political process. Should we be satisfied that we live with a really effective rule of law, when the perceived need for heavy campaign spending has come to dominate our political process? We let those financing practices infringe in a very basic way upon the rule of law, with its sense of even-handedness and openness. Does it not breed behaviour that is accomplished by any reasonable definition of corruption?”

Survey Says

PwC’s 2014 State of Compliance Survey asked:  “Please select your top 3 areas in terms of current perceived level of risk to your business.”  The most popular responses from survey participants were:

  • Industry-specific regulations – 31%
  • Privacy and confidentiality – 25%
  • Bribery/corruption – 22%

FCPA Reform Advocate Nominated to the Federal Bench

Earlier this week, President Obama announced his intent to nominate Haywood Stirling Gilliam, Jr. (Vice-Chair of Covington & Burling’s White Collar Defense and Investigations practice group) to serve on the United States District Court for the Northern District of California.

As noted in this previous post, in a 2013 Law360 Q&A Gilliam was asked “what aspects of your practice area are in need of reform and why?” and he stated:

“Foreign Corrupt Practices Act enforcement stands out as an area in need of further reform. Over the past several years, FCPA enforcement has been characterized by the U.S. Department of Justice and U.S. Securities and Exchange Commission advancing aggressive enforcement theories, but there have been limited opportunities for courts to scrutinize those theories. Most FCPA enforcement cases end in negotiated resolutions such as deferred prosecution or nonprosecution agreements. In that context, regulators often insist that the settling company or individual accept the government’s expansive theories as a condition of resolving the case.  For example, the DOJ has extracted penalties from non-U.S. based, non-U.S. traded companies not covered under the four corners of the statute by asserting broad theories such as aiding and abetting or conspiracy — even when the foreign entity has not taken any action in the U.S. As a practical matter, that could be a hard case to prove at trial — but the government almost never has to.  The result of this trend has been to enshrine the government’s aggressive enforcement positions as quasi-precedent: The law means what the DOJ and SEC say it means, and defendants (especially publicly traded companies) seldom have a realistic opportunity to push back in court, given the financial and practical costs of fighting a contested enforcement action. Relatively recently, district courts have begun to weigh in on these theories, which is a positive development, but there still is a dearth of FCPA case law as compared to other areas of criminal law.  This absence of settled law makes it challenging for companies to decide how to handle thorny FCPA compliance issues. For example, companies routinely face a difficult choice in deciding whether to self-report potential violations to the government, as opposed to thoroughly investigating and remediating the issues internally. While regulators insist that they will give “meaningful credit” to companies that self-report, the tangible benefits of doing so are far from clear. The recent FCPA resource guide issued by the DOJ and SEC says that the agencies place a “high premium” on self-reporting, but does not give concrete guidance as to how the government weighs self-reporting in deciding whether to charge a case, as opposed to offering a deferred prosecution or nonprosecution agreement, or declining the case outright. While the resource guide is a start, companies and their counsel would benefit from more specific guidance when they are weighing the potential, but uncertain, benefits of disclosure against the cost and distraction that can result from voluntarily handing the government a case that otherwise might not have come to its attention.”

Interesting Homework Assignment

Professors are supposed to give homework, not receive homework.

Yet, as highlighted in this Corporate Crime Reporter article, Professor Brandon Garrett (UVA) recently received a homework assignment from a federal court judge.

The assignment:  “to appear in [a] case as an amicus curiae for the limited purpose of providing the Court with advocacy on questions regarding the scope of the Court’s authority, if any, to consider the fairness and reasonableness of a deferred prosecution in deciding whether to accept or reject such an agreement.”

As noted in the Corporate Crime Reporter article, the DPA is between the DOJ and Saena Tech, a defense contractor and grew out of a domestic bribery investigation.

To say the least, I look forward to reviewing Professor Garrett’s homework and so should you.

Scrutiny Alerts

Och-Ziff

Bloomberg goes in-depth in this article “The Hedge Fund and the Despot” concerning Och-Ziff’s relationships in Zimbabwe and the company’s overall scrutiny.

Barclays

Previous posts (here) have detailed Barclay’s scrutiny on both sides of the Atlantic regarding its business relationships with various Middle Eastern investors.

Reuters reports

“Britain’s fraud prosecutor could decide as soon as next month whether to charge former Barclays executives over undisclosed payments the bank made to Qatari investors in 2008.”

According to the article, “U.S. authorities are also investigating the same Barclays’ Qatari commercial agreements and whether third-party relationships breached anti-bribery rules.”

Reading Stack

From Bloomberg, an in-depth look at  the Libyan Investment Authority (LIA) and its relationships with various companies in the financial services industry which has resulted in FCPA scrutiny.

Informative article here titled “Land of Confusion:  Insurance Coverage for Pre-Suit FCPA Investigation Costs Under D&O Liability Policies.”

An interesting front-page read here from the Wall Street Journal regarding China’s anti-corruption crackdown.

*****

A good weekend to all.

The U.S. Government Bears Some Responsibility

The U.S. government bears some responsibility when it comes to certain circumstances that result in FCPA scrutiny.  While some are likely to view this as a controversial statement or being a corporate apologist, this basic fact has always been relevant to the Foreign Corrupt Practices Act.

As highlighted in this prior post, one of the more insightful things found in the FCPA’s extensive legislative history is an October 1975 article by Milton Gwirtzman published by the New York Times Magazine.  At this point in time, Congress was in the midst of its investigations into the so-called foreign corporate payments problem and Gwirtzman noted:

“If corporate bribery abroad has offended the post-Watergate morality, the companies implicated have nevertheless taken a greater share of the blame than they deserve.  […]  The responsibility for present practices must also be shared by our Government,  which not only encouraged investment in countries whose ethical standards differ  from ours, but also in many respects set the pattern for the graft under censure today.  […]  The rapid acceleration of American private investment in foreign lands, which began in the mid-nineteen-sixties, was seen by our foreign policy makers as a welcome opportunity.  If U.S. firms could build a nation’s infrastructure, supply its consumer goods and hire a portion of its workers, the greater the likelihood the nation would be bound to ours by the safest and strongest of ties, economic self-interest.  As a result, our Government wrote the foreign investment laws of several developing countries and urged our multinationals to make use of them.  New programs were established to insure foreign investment against the risks of war and expropriation.  Embassy personnel were ordered to scout out export possibilities for American firms, which were published in Commerce Business Daily, the Government’s daily list of business opportunities.”

Gwirtzman then stated as follows.  “For all these reasons, it would be unwise, as well as unfair, simply to write off bribery abroad to corporate lust.  It is a symbol of far deeper issues that really involve America’s role in the world.”

In 2004, the U.S. government lifted various sanctions against Libya after Moammar Kadafi agreed to abandon a nuclear weapons program.  The White House encouraged “Libya’s reintegration with the global market” and a White House statement read:  “U.S. companies will be able to buy or invest in Libyan oil and products. U.S. commercial banks and other financial service providers will be able to participate in and support these transactions.”

The front-page article earlier this week in the Wall Street Journal read “Probe Widens Into Dealings Between Finance Firms, Libya.”  The article states, in pertinent part:

“The Justice Department has joined a widening investigation of banks, private-equity firms and hedge funds that may have violated antibribery laws in their dealings with Libya’s government-run investment fund, people familiar with the matter said. The criminal investigation, which has intensified in recent months, is proceeding alongside a civil probe by the Securities and Exchange Commission that began in 2011 and initially honed in on Goldman Sachs Group Inc. The Justice Department’s involvement hasn’t been reported previously. In addition to Goldman Sachs, federal investigators are examining Credit Suisse Group AG , J.P. Morgan Chase & Co., Société Générale SA, private-equity firm Blackstone Group LP and hedge-fund operator Och-Ziff Capital Management Group LLC, these people said. Spokesmen for the Justice Department and the SEC declined to comment.  Authorities are examining investment deals made around the time of the financial crisis and afterward, these people said. In the years leading up to Libya’s 2011 revolution, Western firms—encouraged by the U.S. government—raced to attract investment money from the North African nation, which was benefiting from oil sales and recently had opened to foreign investment. Investigators are trying to determine whether the firms violated the Foreign Corrupt Practices Act, the people said.

[…]

The U.S. lifted sanctions against Libya in 2004 in return for the country’s dismantling of its nuclear-weapons program. By 2008, as the financial crisis set in, Western firms were jockeying for business there. That year, then-Secretary of State Condoleezza Rice visited Libya and met with Col. Gadhafi in part to improve the investment climate there for U.S. companies, she said at the time. The government advised companies on investing in Libya, and U.S. executives went there on a government-sponsored trade mission in 2010.”

Whether its leading trade missions, providing export financing or provide support through diplomatic channels, in certain instances the U.S. government encourages companies (for foreign policy and other strategic interests) to go to the edge of the cliff.  As the passage of time occasionally shows, when the footing on the cliff becomes a bit loose, and the market participants fall over the edge, other segments of the U.S. government then launch a criminal inquiry seeking to discover why.

As I told a Foreign Policy reporter earlier this week in connection with the recent news:

“There is an irony of course in the U.S. government encouraging companies to do business in certain countries because it serves U.S. interests.  Then when the company does business in that country and encounters business conditions that the U.S. government no doubt knew it was going to encounter, the company then becomes the subject of a U.S. law enforcement inquiry.”

As so it goes.

If not before, I predict I will write about this issue again in the next few years when the DOJ and SEC launch an FCPA inquiry of various companies doing business in Myanmar.  In case you haven’t heard, the U.S. government recently eased various restrictions relevant to doing business in that country and is actively encouraging companies to toe the cliff.

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