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FCPA And Then Some As Alere Resolves SEC Enforcement Action

alere

One instance of Foreign Corrupt Practices Act scrutiny that has attracted significant investor interest over the past few years (because it occurred in the context of an M&A transaction) involved Alere Inc.

As highlighted in this previous post, the company disclosed in August 2015 that it received an SEC subpoena inquiring about its foreign business practices. Thereafter, Alere announced that it would be acquired by Abbott in a $5.8 billion transaction.

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The First Time Baker Hughes Resolved An FCPA Enforcement Action

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[This post is part of a periodic series regarding “old” FCPA enforcement actions]

As highlighted in this prior post, in 2001 KPMG Siddharta Siddharta & Harsono (KPMG-SSH) and Sonny Harsono resolved a joint DOJ/SEC civil FCPA enforcement regarding alleged improper payments in connection with an Indonesia tax assessment.

As detailed in the prior post, it was a unique FCPA enforcement action at the time (believed to be the first time the DOJ/SEC had ever brought an FCPA action against a professional services firm – i.e. a law firm or accounting firm) and still remains unique in that the DOJ/SEC are believed to have never again brought an FCPA enforcement action against a professional services firm. As further detailed in the prior post, KPMG-SSH was an agent of Baker Hughes and thus it was not surprising that a related FCPA enforcement action against Baker Hughes soon followed.

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Circling Back On The Ping / Harris Corp. Matter

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This September 15th post regarding the SEC’s enforcement action against Jun Ping Zhang (the former Chairman and CEO of CareFx China, a dissolved Chinese subsidiary of Harris Corp) noted that the SEC, in the Ping Order, found that as a result of Ping’s conduct “Harris violated the FCPA’s books and records provisions.”

Elsewhere, the Order stated that as a result of the alleged improper conduct CareFx was awarded over $9.6 million in contracts.

Accordingly, the prior post wondered whether a future Foreign Corrupt Practices Act enforcement action against Harris Corp. would be forthcoming. Indeed, there have been several examples of the SEC first bringing an FCPA enforcement action against an individual and then following up with an FCPA enforcement action against the company. (For instance, in August 2015 the SEC brought an FCPA enforcement action against Vicente Garcia (a former head of Latin American sales for SAP) followed by SAP enforcement action in February 2016- see here).

It turns out that the answer to the question: will there be an FCPA enforcement action against Harris Corp. is no because in this SEC release issued on September 12th (a day before the September 13th Ping Order) the SEC states:

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SEC Brings FCPA Enforcement Action Against Former Executive Of Harris Corp’s Dissolved Chinese Subsidiary

Ping

As highlighted in this prior post, in April 2011 Harris Corporation completed an acquisition of Carefx and in the process acquired its subsidiaries including Carefx China. In connection with its integration activities and the subsequent audit of the financials of the Carefx China operations, Harris Corp. became aware that certain entertainment, travel and other expenses in connection with the Carefx China operations may have been incurred or recorded improperly. In response, Harris Corp. voluntarily disclosed to the DOJ and SEC.

As highlighted in this prior post, a few months ago Harris Corp. disclosed that “during the second quarter of fiscal 2016, the DOJ advised us that they have determined not to take any action against us related to this matter.” The same disclosure stated that the company is “continuing to cooperate with the SEC regarding its investigation.”

In the meantime, earlier this week the SEC announced this administrative action finding that Jun Ping Zhang (pictured – a U.S. citizen and former Chairman and CEO of CareFx China who was terminated in mid-2012) violated the Foreign Corrupt Practices Act. Zhang is currently Senior Vice President, Product Innovation and Chief Technology Officer at MedeAnalytics. (See also here).

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Friday Leftovers

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Scrutiny update, a double standard, ripples, that’s interesting, and for the reading stack.  It’s all here in a leftovers edition of the Friday roundup.

Scrutiny Update

One of the longest-lasting instances of FCPA scrutiny concerns PBSJ Corporation (a global engineering and architectural firm) that first disclosed FCPA scrutiny in December 2009.  PBSJ was subsequently acquired by WS Atkins (a U.K. company) and WS Atkins disclosed in a recently regulatory filing as follows.

“There are ongoing discussions regarding the longstanding and previously reported Department of Justice and Securities and Exchange Commission enquiries relating to potential Foreign Corrupt Practices Act violations by the PBSJ Corporation prior to its acquisition by the Group. We anticipate resolution of this matter before the end of the current financial year.”

Double Standard?

Several FCPA enforcement actions or instances of FCPA scrutiny have been based on providing things of value such as meals, entertainment and consulting fees to foreign physicians.

Against this backdrop, the Wall Street Journal reports:

“As it fights to buy Botox maker Allergan Inc.,  Valeant Pharmaceuticals International Inc. is investing cash and time wooing the doctors it would need on its side after a takeover. A centerpiece of the effort: Valeant said it met with a total of 45 influential cosmetic surgeons and dermatologists in September at events in Aspen, Colo., and Palm Beach, Fla. Valeant paid for the physicians’ airfares, two-night stays at luxury hotels and meals. The company also agreed to provide consulting fees that could amount to as much as $30,000, according to doctors who attended the meetings. Valeant, a smaller player than Allergan in cosmetic medicine, must win over doctors if it wrests control of the Botox maker, since it will rely on the physicians for business. Valeant said the pursuit seems to be paying off. Several doctors who attended the sessions, of what Valeant called its special advisory committee, said they were won over by the company’s plans for Allergan—including attracting patients to physicians’ offices and introducing new products.”

Ripples

My recent article “Foreign Corrupt Practices Act Ripples” highlights that settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from FCPA scrutiny or enforcement in this new era.

One such ripple is offensive use of the FCPA to further advance a litigating position and that is just what Instituto Mexicano Del Seguro Social (“IMSS”) has done in this recent civil complaint against Orthofix International.

You may recall that in July 2012 Orthofix resolved a $7.4 million FCPA enforcement action based on allegations that its Mexican subsidiary paid bribes totaling approximately $317,000 to Mexican officials in order to obtain and retain sales contracts from IMSS. (See here for the prior post).

In the recent civil complaint, IMSS uses the core conduct at issue in the FCPA enforcement action and alleges various RICO claims, fraud claims, and other claims under Mexican law.

That’s Interesting

As has been widely reported (see here for instance), “President Obama called on the Federal Communications Commission … to declare broadband Internet service a public utility, saying that it was essential to the economy …”.

That’s interesting because – as informed readers know – in the 11th Circuit’s “foreign official” decision the court concluded that an otherwise commercial enterprise can be a “instrumentality” of a government if the “entity controlled by the government … performs a function the controlling government treats as its own.”  Among the factors the court articulated for whether an entity performs a “function the controlling government treats as its own” was “whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function.”

Reading Stack

Several law firm client alerts regarding the DOJ’s recent FCPA Opinion Procedure release concerning successor liability (see herehere, here).  In this alert, former DOJ FCPA Unit Chief Charles Duross leads with the headline “Is DOJ Evolving Away from the Halliburton Opinion Standard?” (a reference to this 2008 Opinion Procedure release).

From Foley & Larder and MZM Legal (India) – “Anti-Bribery and Foreign Corrupt Practices Act Compliance Guide for U.S. Companies Doing Business in India.”

Recent interviews (here and here) with Richard Bistrong, a real-world FCPA violator and undercover cooperator.  See here for my previous Q&A with Bistrong.  As noted here, Bistrong recently spoke to my FCPA class at Southern Illinois University School of Law. Having the ability to hear from an individual who violated the law my students were studying, and being able to hear first-hand of real-world business conditions, was of tremendous value to the students and added an important dimension to the class.

Should the government reconsider its use of deferred prosecution agreements?  That is the question posed in this New York Times roundtable (in the context of recent bank prosecutions).

Finally for your viewing pleasure, an FCPA-related interview here of SciClone’s CEO (a company that has been under FCPA scrutiny since approximately August, 2010).

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A good weekend to all.

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