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Briefing Complete In Jackson – Ruehlen Challenge

This previous post asked whether the SEC would be put to its burden of proof in the Mark Jackson and James Ruehlen FCPA enforcement action.  The answer was yes as the defendants filed a motion to dismiss the SEC’s complaint as highlighted in this previous post.  The SEC filed an opposition brief that is highlighted in this previous post.  Last Friday, Jackson & Ruehlen filed separate reply briefs (see here and here).

In summary, Jackson’s counsel (lead by David Krakoff, BuckleySandler – here) argues as follows (internal citations omitted).

“Plaintiff Securities and Exchange Commission’s [opposition brief] side-steps the issues presented as well as Supreme Court precedent. Rather than address the deficiencies in its Complaint … the SEC ignores them and assumes it is not required to plead actual facts. Rather than properly plead the elements of a Foreign Corrupt Practices Act (“FCPA”) violation, the SEC claims it would simply be too difficult to identify, in any way, the other necessary party in an alleged bribery scheme—the foreign official who received or was to receive alleged bribes, or what acts that specific foreign official took.

But viewed under proper pleading standards, the SEC’s Complaint remains deficient and must be dismissed. The Complaint is nothing more than a series of conclusions about what Jackson “knew” or “believed,” without the necessary foundation of facts suggesting that Jackson did “know” or “believe” what the SEC asserts. Such conclusions are not “well-pleaded” facts which must be accepted by the Court as true for the purpose of a motion to dismiss. The few well-pleaded facts do not rise to the level of a plausible entitlement to relief, and indeed are equally consistent with a legally permissible explanation of Jackson’s conduct, which requires the Complaint to be dismissed. And many of the claims are barred by the statute of limitations.

The SEC has had years to investigate this case, using the full force of its investigatory power. It is not too much to ask, now that it has filed suit, for the SEC to plead actual facts.”

In summary, Ruehlen’s counsel (lead by Joseph Warin, Gibson Dunn – here) argues as follows (internal citations omitted)

“Despite investigating this case for many years, the SEC concedes in its Opposition that the Complaint does not allege the basic facts of an FCPA claim:

• It does not identify any Nigerian official—by name or even by position—to whom bribes were paid, authorized, or intended.

• It does not identify any duty that was breached or any law that was violated by the unknown Nigerian official recipient(s).

• It does not state what the unknown Nigerian officials did in exchange for the bribes or how those actions were intended to assist Noble in   obtaining or retaining business.

These structural flaws cannot be cured through discovery.

First, without alleging the identity of the officials, facts describing their duties and obligations under Nigerian law, and facts showing how Mr. Ruehlen allegedly intended to corrupt them, the SEC’s conclusory claims only raise the “sheer possibility that the defendant has acted unlawfully,” which is insufficient to state a claim.

Second, because the plain language of the FCPA permits payments to foreign officials in order to secure routine governmental actions, the Complaint only alleges conduct that is “not only compatible with, but indeed [is] more likely explained by, lawful . . . behavior.”

Third, the Complaint does not meet the standards of notice pleading under Federal Rule of Civil Procedure 8. Mr. Ruehlen is left to guess who was allegedly bribed, the scope of that person’s authority, and whether that person violated any Nigerian law. He must also guess which Noble record he allegedly falsified and which control he allegedly evaded. Accordingly, the Complaint does not provide Mr. Ruehlen the requisite “fair notice of what the . . . claim is and the grounds upon which it rests,” rendering it impossible for him to answer the Complaint, seek discovery, or prepare his defense.

The briefing is complete and the lines have been drawn.

The Jackson & Ruehlen challenge is a significant event in terms of the SEC’s FCPA enforcement program.  Rarely is the SEC put to its burden of proof in FCPA enforcement actions.  As noted in this prior post, the last time the SEC was put to its burden, in a similar case concerning conduct outside the context of foreign government procurement, the SEC lost.  In addition, as noted in prior posts (here and here) the government (DOJ and SEC) have an overall losing record when put to its burden of proof in cases concerning conduct outside the context of foreign government procurement.

SEC Files Opposition Brief To Jackson and Ruehlen’s Motion To Dismiss

This previous post discussed the February 2012 SEC FCPA enforcement action against Mark Jackson (former Noble Corporation CEO) and James Ruehlen (current Director and Division Manager of Noble’s subsidiary in Nigeria).  The enforcement action is based on the same core set of facts alleged in the 2010 Noble Corporation enforcement action (see here for the prior post).  The February 2012 post noted that unlike the vast majority of FCPA defendants (corporate and individual) charged in an SEC enforcement action, Jackson and Ruehlen appeared poised to launch a defense.

This previous post discussed Jackson’s and Ruehlen’s May 2012 motion to dismiss and noted the significance of the event in terms of the SEC’s FCPA enforcement program as the SEC is rarely put to its burden of proof in FCPA enforcement actions.  To my knowledge, the Jackson and Ruehlen enforcement action represents the first time since the SEC lost the Mattson and Harris individual enforcement actions in 2002 (see here for a prior post discussing the case) that the Commission will be put to its burden of proof in an FCPA enforcement action.

Last Friday the SEC filed its opposition to the motion to dismiss (here) and in summary fashion the SEC’s opposition brief states as follows.

“The Complaint charges defendants Jackson and Ruehlen, a former and current senior officer of Noble Corporation (“Noble”), respectively, with multiple violations of the anti-bribery and accounting provisions of the Foreign Corrupt Practices Act (“FCPA”), 15 U.S.C. § 78dd-1, and other violations of the federal securities laws. Noble, an international oil drilling company, used for years an intermediary “customs agent” to pay bribes to government officials of the Nigerian Customs Service and other Nigerian government officials. Jackson and Ruehlen were intimately involved in arranging, approving, falsely booking, and concealing Noble’s bribe payments to foreign officials. Together, the defendants participated in paying hundreds of thousands of dollars in bribes to improperly obtain approximately eight illegitimate duty exemptions, known as temporary import permits (“TIPs”), and twenty-two TIP extensions. These TIPs and extensions were obtained illicitly so that Noble’s oil rigs offshore in Nigeria could continue to operate under lucrative drilling contracts. Jackson approved the payments and concealed the payments from Noble’s audit committee and auditors. Ruehlen prepared false documents as to the movement of the rigs, sought approval for the payments from Jackson and others at Noble, and processed and paid the bribe money to the intermediary customs agent.

Defendants contend that the Commission has failed to state a claim upon which relief may be granted pursuant to FRCP 12(b)(6). They attack the sufficiency of the Complaint in scattershot fashion, but their arguments distilled to their essence advance six primary arguments for dismissal:

First, the defendants argue that the SEC must allege the “specific identity” of Nigerian officials for whom the defendants authorized the payment of bribes. This line of argument finds no support in the text, legislative history, case law, or purposes of the FCPA. Defendants authorized bribes to foreign officials through intermediaries. The Complaint identifies the officials by country and government agency and alleges defendants’ corrupt intent to improperly influence those officials through the payment of money. Neither the FCPA nor the notice pleading standards of Federal Rule of Civil Procedure 8(a) require anything more. As the language, text, legislative history and policies of the FCPA confirm, a violation of its provisions rests with the intent of the person authorizing the bribes, not with the identity or role of the official targeted for bribery. The name, title or exact position of the official need not be pleaded or proved, as confirmed by decisions under analogous domestic bribery statutes.

Second, the defendants argue that the Complaint fails to allege facts to support the inference that their payments fell outside of the FCPA’s statutory “routine governmental action” (a.k.a. “facilitating payments”) exception. Yet, the SEC is not required to plead preemptively around a statutory exception that a defendant might invoke. For over a century, including in the securities context, the Supreme Court has held that a pleading based on a general provision that defines the elements of a statutory violation need not negate an exception made by proviso or otherwise to those elements. The “facilitating payments” exception fits that rule. Thus, the defendants, not the SEC, must raise the exception’s application in the pleadings and prove its applicability at trial. Moreover, the Complaint satisfies any purported need to “plead around” the exception. The well-pled facts, such as that the bribes were paid to induce foreign officials to falsely certify facts and accept false paperwork, indicate that defendants’ bribes were not “facilitating payments,” i.e., payments authorized to expedite or secure the performance of an ordinarily or commonly performed official act.

Third, Ruehlen claims that the FCPA’s routine government action exception is unconstitutionally vague as applied to him. Claims of this nature have been soundly rejected by the courts, including by the Fifth Circuit. Also, the Complaint abundantly alleges that Ruehlen sought and obtained authorizations to pay bribes that cannot be understood reasonably as anything other than crossing the line of prohibited conduct.

Fourth, the defendants contend that the Complaint does not allege facts giving rise to the inference that they acted “corruptly.” This attack on the Complaint ignores the well-pled facts and misconstrues the law. The legislative history of the FCPA and the decisions in the Fifth Circuit and elsewhere reject defendants’ definition of “corruptly.” Defendants also overlook that states of mind, such as intent and purposes, may be alleged generally. The Complaint alleges defendants’ corrupt intent, and the allegations are supported by ample facts.

Fifth, the defendants seek to dismiss the Complaint as insufficiently pleading alleged securities violations other than bribery. Defendants, for example, argue that the SEC fails to specify the books and records that were falsified and the internal controls that they evaded. Defendants’ line of arguments directed to these issues are, first, largely premised on their attack on the Commission’s bribery claims – an attack that this Court should reject. In addition, the defendants simply ignore the facts actually pled in the Complaint. The allegations set forth in great detail what Jackson and Ruehlen claim not to find in the Complaint, including identifying the books and records falsified and the internal controls evaded or not implemented.

Sixth, the defendants argue that the Complaint is untimely because the applicable statute of limitations permits relief only for conduct occurring five years before the filing of the Complaint on February 24, 2012. Yet buried in footnotes in their briefs, the defendants admit that they signed tolling agreements extending the statute of limitations. The Complaint alleges violative conduct within the limitations period even absent the tolling agreement. What is more, various equitable doctrines would apply to toll the statute. And the statute of limitations does not apply to claims for equitable relief such as injunctions.

Finally, throughout each of their briefs, defendants intermittently challenge facts asserted in the Complaint, advance facts not alleged in the Complaint but purportedly reflected elsewhere, and argue for inferences favorable to them. At the pleadings stage, these arguments are not a proper basis for granting a motion to dismiss and must be rejected. The Commission has stated a claim upon which relief may be granted for each of Claims One through Seven, and defendants’ motions to dismiss should be denied.”

SEC To Be Put To Its Burden – Motion To Dismiss Filed In Jackson And Ruehlen Enforcement Action

In February, the SEC announced here charges against “three oil services executives [associated with Noble Corporation] with violating the FCPA by participating in a bribery scheme to obtain illicit permits for oil rigs in Nigeria in order to retain business under lucrative drilling contracts.”  Previously Noble Corporation (along with several other companies in an enforcement action I dubbed CustomsGate) resolved an FCPA enforcement action involving both a DOJ and SEC component (total settlement amount was approximately $8.2 million ($2.6 million criminal fine via a non-prosecution agreement; $5.6 million in disgorgement and interest via a SEC complaint)  – see here for the prior post.

Like the vast majority of FCPA defendants in SEC enforcement actions, one of the individual defendants, Thomas O’Rourke (the former controller and head of internal audit at Noble Corporation), chose to settle the SEC’s complaint without admitting or denying the SEC allegations.

Not so with the other two individual defendants:  Mark Jackson (former Noble Corporation CEO) and James Ruehlen (current Director and Division Manager of Noble’s subsidiary in Nigeria).  This prior post contained the comments of Jackson’s lawyer, David Krakoff (here – BuckleySandler) who stated as follows: “We unequivocally deny the SEC’s baseless allegations. Mr. Jackson will vigorously defend himself in court where the evidence will show what the SEC already knows, that at all times Mr. Jackson acted in good faith at Noble. He looks forward to clearing his good name in this proceeding.”  The prior post also contained the comments of Ruehlen’s lawyer F. Joseph Warin (here – Gibson Dunn & Crutcher) who stated that “the claims against Mr. Ruehlen are wrong and they will be proven so at trial.”

I noted in the prior post that this could get interesting as the SEC is rarely put to its burden of proof in FCPA enforcement actions (or any of its actions for that matter).

Yesterday Jackson and Ruehlen filed separate motions to dismiss (see here and here).

To my knowledge, this is the first time since the SEC lost the Mattson and Harris individual enforcement actions in 2002 (see here for a prior post discussing the case) that the Commission will be put to its burden of proof in an FCPA enforcement action.

Thus, yesterday’s motion is a significant event in terms of the SEC’s FCPA enforcement program.

The remainder of this post summarizes the motion to dismiss (internal citations omitted).

Ruehlen Motion to Dismiss

Ruehlen was charged in the SEC complaint (here) with Count 1 – FCPA anti-bribery violations; Count 2 – aiding and abetting Noble Corp’s FCPA anti-bribery violations; Count 3 – aiding and abetting Noble Corp’s failures to make and keep accurate books, records, and accounts  and to devise and maintain internal accounting controls; and Claim 4 knowingly circumventing Noble’s internal controls and falsifying or causing to be falsified Noble’s books, records, and accounts in violations of FCPA’s books and records provisions.

In summary, the motion states as follows.

“Despite the repetition of the word “bribe” fifty-three times in its Complaint, Plaintiff fails to allege a violation of law. The FCPA distinguishes between prohibited corrupt payments made to obtain or retain business (i.e., bribes), and permissible payments to “secure the performance of a routine governmental action,” such as “obtaining permits, licenses, or other official documents” or for “processing governmental papers” (i.e., facilitation payments). The Complaint assumes that all payments to foreign officials are per se illegal bribes, never acknowledging the FCPA’s exception for facilitation payments.

The distinction between a permissible facilitation payment and an unlawful bribe turns on the purpose and effect of the payment, namely whether it is being made to induce the recipient to act improperly based on his or her particular role, duties, or responsibilities in order to obtain or retain business—facts that the SEC must allege to state a claim. Despite investigating this matter for nearly five years, the SEC apparently does not know—and therefore cannot allege—the identity, role, duties, or responsibilities of any “Nigerian government officials” to whom Noble or Mr. Ruehlen allegedly authorized payments. By failing to identify the particular foreign officials to whom Noble and Mr. Ruehlen allegedly authorized payments, Mr. Ruehlen and this Court are simply left to guess whether the alleged unidentified government officials had the power to assist Noble in obtaining or retaining business by engaging in non-routine governmental action, as the statute requires. Accordingly, the SEC fails to satisfy its burden of pleading plausible facts under Federal Rule of Civil Procedure 8 and Twombly that the payments at issue were prohibited bribes under the FCPA, rather than lawful facilitation payments.

Second, without identifying the intended recipients of the alleged payments or alleging facts showing how these officials abused their authority on Noble’s behalf, Plaintiff fails to allege that Mr. Ruehlen acted “corruptly,” that is, with “a bad purpose or evil motive,” or with the “intent to influence a foreign official to misuse his official position.”  To the contrary, the Complaint shows that Mr. Ruehlen reasonably believed that the payments were proper because, among other things, they had been reviewed and approved by Noble’s senior management who were tasked with ensuring Noble’s compliance with the FCPA and approving facilitation payments. The failure to plausibly allege facts showing corrupt intent provides an independent basis to dismiss the claims against Mr. Ruehlen.

Third, to the extent that Plaintiff’s first and second claims against Mr. Ruehlen survive these challenges, the Court must nevertheless dismiss them because the law in effect at the time failed to give Mr. Ruehlen “fair notice” of the interpretation now being advanced by the SEC in this case. In addition, the SEC’s strained and subjective interpretation of the FCPA’s facilitation payment exception makes it impossible for well-intentioned individuals to navigate between lawful and unlawful conduct and, therefore, is unconstitutionally vague as applied to Mr. Ruehlen.

Fourth, Claims 3 and 4 must be dismissed because the SEC fails to specify the particular book, record, or account that it claims Mr. Ruehlen knowingly falsified (or unreasonably caused to be false) or the particular internal control that he allegedly knowingly circumvented. Additionally, to the extent that the alleged violations refer to Noble’s decision to treat the special handling fees as facilitation payments rather than bribes, these violations are entirely predicated on the underlying FCPA violations alleged in Claims 1 and 2. Finally, this action is governed by the five-year statute of limitations. Because the claims against Mr. Ruehlen are principally based on alleged conduct that occurred outside the limitations period and because the SEC raises no basis for tolling, they are time-barred and must be dismissed.”

Jackson Motion to Dismiss

Jackson was charged in the SEC complaint (here) with Count 1 – FCPA anti-bribery violations; Count 2 – aiding and abetting Noble Corp’s FCPA anti-bribery violations; Count 3 – aiding and abetting Noble Corp’s failures to make and keep accurate books, records, and accounts  and to devise and maintain internal accounting controls; Count 4 knowingly circumventing Noble’s internal controls and falsifying or causing to be falsified Noble’s books, records, and accounts in violations of FCPA’s books and records provisions and Rule 13b2-1; Count 5 – misleading auditors; Count 6 – signing false certifications; and Count 7 – control person liability.

In summary the motion states as follows.

“The Complaint against Jackson must be dismissed under Rule 12(b)(6) because it fails to state a claim that is plausible on its face. Only factual allegations—not unsupported conclusions or accusations of legal violations—may sustain a Complaint. But, stripped of its conclusions about what Jackson “knew,” the Complaint comes up woefully short in pleading several essential elements of Claim I, a Foreign Corrupt Practices Act (“FCPA”) anti-bribery violation—that Jackson acted with corrupt intent, and that he knew payments would be made to a foreign official to obtain sought-after unlawful acts from that foreign official. Instead, the factual allegations in the Complaint regarding alleged bribes are equally consistent, if not more, with wholly legal actions under the “facilitating payments” exception to the FCPA. The bribery claim therefore must be dismissed as implausible under controlling Supreme Court precedent. And because the other claims in the Complaint are entirely dependent on the existence of illegal bribes, they too must be dismissed. Finally, because the vast majority of the conduct alleged in the Complaint took place well over five years before the Complaint was filed, the bribery claim and many of the derivative claims are barred by the statute of limitations.”

Will The SEC Be Put To Its Burden Of Proof In The Jackson And Ruehlen Enforcement Action?

As discussed in this previous post, in November 2010, Noble Corporation was one of several companies to resolve FCPA enforcement actions in what I called CustomsGate – enforcement actions largely focused on alleged payments to Nigerian customs officials to receive various permits.  The Noble enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $8.2 million ($2.6 million criminal fine via a non-prosecution agreement; $5.6 million in disgorgement and interest via a SEC complaint).

As noted in the previous post, in the Noble Corporation enforcement action it was stated, not once but twice, that the payments at issue “would not constitute facilitation payments for routine governmental actions within the meaning of the FCPA.”  I noted then that one can reasonably conclude that if the DOJ felt the need to express such a statement twice, that the FCPA’s facilitating payment exception should probably be on the minds of many in connection with the CustomsGate enforcement  actions.

Against the backdrop of recent and well-deserved scrutiny of the DOJ’s FCPA enforcement program, the SEC reminds us all that it too can enforce the FCPA.  [As an aside, Professor Barbara Black (University of Cincinnati College of Law) recently released her forthcoming scholarship – see here – “The SEC and the Foreign Corrupt Practices Act:  Fighting Global Corruption is Not Part of the SEC’s Mission].

Last Friday, the SEC announced here charges against “three oil services executives with violating the FCPA by participating in a bribery scheme to obtain illicit permits for oil rigs in Nigeria in order to retain business under lucrative drilling contracts.”

In this complaint filed in the S.D. of Texas, the SEC charged Mark Jackson (former Noble Corporation CEO) and James Ruehlen (current Director and Division Manager of Noble’s subsidiary in Nigeria) based on the same core set of facts relevant to the prior corporate enforcement action – namely that Noble and its wholly-owned subsidiary (Noble-Nigeria) “authorized its customs agent to pay bribes” on the companies behalf “to Nigerian government officials to influence or induce them to (1) favorably process false paperwork, (2) grant temporary import permits (TIPs) based on the false paperwork, and (3) favorably exercise or abuse their discretion in granting extensions to these illicit TIPs.”

The complaint (a meaty 46 pages) next states, in summary fashion, as follows.

“Defendants approved payment of the bribes.  Defendant Ruehlen also assisted the customs agent in preparing false documents, processed the customs agent’s invoices for the bribes, and signed the checks reimbursing the customs agent for the bribes he paid to Nigerian government officials.  Defendants acted in this way to obtain TIPs and TIP extensions and retain business under drilling contracts in Nigeria.  As a consequence, Defendants violated the anti-bribery provisions [of the FCPA.]  Defendants also took steps to circumvent Noble’s internal controls and to falsely record these bribes as legitimate operating expenses on Noble’s books.  Defendant Jackson failed to implement internal accounting controls to prevent the bribery and false recording of the bribes.  As a consequence, Defendants violated the records falsification and internal control provisions of the Exchange Act and aided and abetted Noble’s violations of the books and records and internal control provisions [of the FCPA].  Defendant Jackson misled Noble’s auditors about the bribes and signed certifications required by the Sarbanes-Oxley Act of 2002 falsely stating that he had created and maintained effective internal controls, and that there were no internal control weaknesses, fraud or FCPA violations.  As a consequence, Jackson violated Rules 13b2-2 and 13a-14 of the Exchange Act.  During the violations, Jackson was Noble’s Chief Financial Officer, Chief Operating Officer, and ultimately President and Chief Executive Officer, and Chairman of the Board of Directors.  Jackson directly or indirectly controlled Noble, Defendant Ruehlen, and others, and therefore is liable as a control person under Section 20(a) of the Exchange Act for all of their violations.”

[For previous Section 20(a) control person (or similar) FCPA enforcement actions – see here and here.]

Unlike the vast majority of FCPA defendants (corporate and individual) charged in an SEC enforcement action, Jackson and Ruehlen appear poised to launch a defense.

Jackson’s lawyer, David Krakoff (here – BuckleySandler) stated as follows.  “We unequivocally deny the SEC’s baseless allegations. Mr. Jackson will vigorously defend himself in court where the evidence will show what the SEC already knows, that at all times Mr. Jackson acted in good faith at Noble. He looks forward to clearing his good name in this proceeding.”

Ruehlen’s lawyer F. Joseph Warin (here – Gibson Dunn & Crutcher) told the Wall Street Journal  that his client was the one who initially raised concerns about the payments and that Ruehlen “fully cooperated throughout the investigation and always acted in an ethical and transparent manner.”  Warin stated that “the claims against Mr. Ruehlen are wrong and they will be proven so at trial.”

This will be most interesting to follow as the SEC is rarely put to its burden of proof in FCPA enforcement actions (or any of its actions for that matter).  This is due to the SEC’s long-standing policy of allowing defendants to settle SEC complaints without admitting or denying the SEC’s allegations.  For recent judicial scrutiny of this settlement device, see this prior post.

The last time the SEC is believed to have been put to its burden of proof in an FCPA enforcement action was in the Eric Mattson and James Harris enforcement action also filed in the S.D. of Texas.  Like the Jackson and Ruehlen enforcement action, the Mattson and Harris enforcement action involved conduct outside the context of foreign government procurement.  As detailed in this Memorandum and Order, the SEC had its FCPA anti-bribery charges dismissed in that case.  The case involved alleged goodwill payments to an Indonesian tax official for a reduction in a tax assessment.  The SEC claimed that the FCPA’s unambiguous language plainly encompassed the goodwill payment and the issue before the Court was whether the plain language of the FCPA prohibited goodwill payments for the purpose of reducing a tax assessment.  When Mattson and Harris was decided, the S.D. of Texas in U.S. v. Kay case had already dismissed that case finding that the plain language of the FCPA does not prohibit goodwill payments to foreign government officials to reduce a tax obligation.  The SEC attempted to distinguish the trial court’s Kay ruling by arguing that in the civil enforcement context, the Court should interpret the FCPA’s language more liberally than in criminal cases.  The Court rejected the SEC’s arguments and followed the trial court’s analysis in Kay that the payments at issue to the Indonesian tax official did not violate the FCPA because it did not help Mattson’s and Harris’s employer (Baker Hughes) “obtain or retain business.”

Of course, the 5th Circuit overturned the Kay trial court ruling and held that making payments to a “foreign official” to lower
taxes and custom duties in a foreign country can provide an unfair advantage to the payer over competitors and thereby assist the payer in obtaining and retaining business.  However, the Kay court emphatically stated that not all such payments to a “foreign official” outside the context of directly securing a foreign government contract violate the FCPA; it merely held that such payments “could” violate the FCPA. The 5th Circuit then listed several hypothetical examples of how a reduction in custom and tax liabilities could assist a company in obtaining or retaining business in a foreign country. On the other hand, the court also recognized that “there are bound to be circumstances” in which a custom or tax reduction merely increases the profitability of an existing profitable company and thus, presumably, does not assist the payer in obtaining or retaining business.  The court specifically stated:  “[i]f the government is correct that anytime operating costs are reduced the beneficiary of such advantage is assisted in getting or keeping business, the FCPA’s language that expresses the necessary element of assisting in obtaining or retaining business would be unnecessary, and thus surplusage – a conclusion that we are forbidden to reach.”

The point of this extended discussion in the context of Jackson and Ruehlen is two-fold:  (1) that the SEC has already lost a non-government procurement FCPA case in the S.D. of Texas; and (2) even with the 5th Circuit precedent in Kay, and even taking the SEC’s allegations as true, payments in connection with TIPs would seem to be only to increase the profitability of an existing profitable company and thus – following the logic of the Fifth Circuit – fall outside of the FCPA’s anti-bribery provisions.

It will be interesting to see how this plays out should the SEC’s FCPA anti-bribery charges be fully litigated in the Jackson and Ruehlen enforcement action.

As noted in the SEC’s release last week, the Noble executive enforcement action also involved a separate complaint (here) against Thomas O’Rourke (the former controller and head of internal audit at Noble).  The complaint alleged that O’Rourke: (1) aided and abetted Noble’s violations of the FCPA anti-bribery provisions, books and records and internal controls provisions; and (2) directly violated the FCPA’s internal controls provisions and false records provisions of the Exchange Act.

Under the heading “defendants’ violations” the SEC alleged, among other things, that O’Rourke: (1) “understood that Noble-Nigeria had used false paperwork to obtain TIPs, and that Noble-Nigeria paid its customs agent for ‘special handling charges’ that were passed through to Nigerian officials; (2) “knew that the ‘special handling charges’ were entered into Noble-Nigeria’s books as legitimate operating expenses, and he knew or was reckless in not knowing that those entries were improper”;  (3) “knowingly allowed TIP-related payments to government officials to be improperly accounted for as legitimate operating expenses.

Like the vast majority of FCPA defendants in SEC enforcement actions, O’Rourke chose to settle the SEC’s complaint without admitting or denying the SEC allegations.  According to the SEC release, O’Rourke consented to entry of a court order requiring him to pay a $35,000 civil penalty and permanently enjoining him from future violations.

*****

Last week I participated in a discussion with Howard Sklar regarding a potential FCPA compliance defense (see here for the webcast.)  In the aftermath of the SEC’s charges against the Noble executives, Sklar penned a Forbes blog (here) and stated as follows.  “One example Mike brings to prove his point [that the FCPA should be amended to include a compliance defense] is the Panalpina line of cases, including Noble.  I don’t think he’ll be able to use the Noble case as an example after today.  These complaints are against the CEO (who formerly held the CFO spot) and the country leader for Nigeria.  Plus, there’s Thomas O’Rourke. Thomas O’Rourke was Noble’s Director of Internal Audit, Controller, and VP of Internal Audit.”

Nice try Howard, but you are off-target.

Sklar is correct that I discuss the Noble Corp. enforcement action (and other related CustomsGate enforcement actions) in my “Revisiting a Foreign Corrupt Practices Act Compliance Defense” article (see here at pgs. 9-12 ).  However, that discussion is focused on specific reasons warranting an FCPA compliance defense, including that in many markets, companies subject to the FCPA must navigate challenging environments replete with barriers and other conditions that serve as breeding grounds for payments implicating (at least in the eyes of the enforcement agencies) the FCPA.

In discussing harassment bribes, I then talk about the notoriously corrupt Nigerian Customs Service (“NSC”) and how business interactions with NSC officials have been the basis for several FCPA enforcement actions including the coordinated enforcement actions from November 2010 involving Noble Corp. and others.  Anticipating the counter-argument that the FCPA does not need a compliance defense due to the harassment bribery conditions many companies face in foreign markets because the FCPA already contains a facilitating payments exception, I then stated that so long as the DOJ refuses to recognize a facilitating payments exception to the FCPA, that Congressional intent on the facilitating payments issue is best advanced through an FCPA compliance defense in which a company can assert, as a matter of law, that its pre-existing FCPA policies and procedures sought to prevent such payments in foreign markets.

In short, I was using the Noble Corporation enforcement action in connection with a discussion of facilitating payments, not using that particular enforcement action to support an FCPA compliance defense because it somehow was based on low-level employee conduct.  Indeed, in the DOJ’s non-prosecution agreement (here) which I discussed in this previous post, “Senior Executive,” “Executive A” and “Executive B” are all specifically mentioned as participating in the alleged improper conduct and an FCPA compliance defense would not apply to corporate conduct engaged in by executive officers.

The point of the Noble Corp. reference in my article was that the company should not have been the subject of an FCPA enforcement action based on the alleged conduct because Congress intended to exempt such payments from the FCPA’s anti-bribery provisions (regardless of who made, directed, or authorized the payments).

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