Top Menu

How The DOJ Can Better Achieve Its FCPA Policy Objectives

Last week the DOJ’s Principal Deputy Assistant Attorney General for the Criminal Division, Marshall Miller, delivered this speech focused on how the DOJ is “addressing criminal conduct when it takes place at corporations and other institutions.”  While not specific to the Foreign Corrupt Practices Act, Miller did reference the FCPA several times during the speech.

The post is not about the DOJ’s empty rhetoric when it comes to individual FCPA prosecutions – that post was published last week the same day that Miller carried forward DOJ talking points on individual prosecutions.

Nor is this post about Miller carrying forward the DOJ’s talking points on Morgan Stanley’s so-called declination.  That post was published here in 2012.

Nor is this post about Miller’s suggestion that PetroTiger did not face any charges “of any kind […] and no non-prosecution agreement was entered” because the company voluntarily disclosed and cooperated.  As highlighted in this post regarding the charges against the former PetroTiger executives, the core DOJ allegations concerned self-dealing by the executives and not disclosing conflicts of interest to their employer and other investors involved in a business deal.  To be sure, there have been several companies – ADM, Diebold, Ralph Lauren, Maxwell Technologies, and Tyson Foods to name just a few –  that have voluntarily disclosed and cooperated yet received NPAs or DPAs in the FCPA context.

Nor is this post about the “wow” factor of Miller’s speech – as termed by the FCPA Blog – because contrary to the suggestion by the FCPA Blog, the FCPA information in Miller’s speech was not new – all was previously mentioned in original source documents and/or previously highlighted in prior FCPA Professor posts or by others (see herehere, and here).

Rather, this post highlights for the DOJ (and others) how an FCPA reform proposal can help the DOJ better achieve its policy objectives, as sensibly articulated in Miller’s speech,. in the FCPA context.

For starters, I realize – based on reliable information – that I am a persona non grata within the DOJ’s FCPA Unit.  Nevertheless, I share an interest in advancing policies to make FCPA enforcement more effective so that the laudable objectives of the FCPA can best be achieved.

I’ve written about the below issue several times (see here for “Revisiting a Foreign Corrupt Practices Act Compliance Defense” and see here for the prior post “Seeing the Light From the Dark Ages”).

In his speech, Miller stated the following sensible policy objectives.

“[W]e would like corporations to cooperate.  We will ensure that there are appropriate incentives for corporations to do so.

[…]

I want to focus today on an aspect of [The Principles of Federal Prosecution of Business Organization and/or the DOJ’s internal “Filip” factors]  that I believe, at times, receives insufficient attention – but that lies at the heart of our approach at the Criminal Division.   And that is what the factors have to say about the importance of individual prosecutions to the decision on how to approach a corporation.

[…]

[In analyzing cooperate cooperation], companies are always quick to tout voluntary disclosure of corporate misconduct and the breadth of an internal investigation.   What is sometimes given short shrift, however, is in many ways the heart of effective corporate cooperation: whether that cooperation exposed, and provided evidence against, the culpable individuals who engaged in criminal activity […].

The importance of cooperating regarding individuals is set forth, in black and white, in the text of the [Principles of Prosecution] itself.   Factor Four expressly states that prosecutors should evaluate a corporation’s “willingness to cooperate in the investigation of [its] agents.”   This key point is fleshed out later in the guidance section, where prosecutors are directed to consider the corporation’s “willingness to provide relevant information and evidence and identify relevant actors within and outside the corporation, including senior executives.”

Voluntary disclosure of corporate misconduct does not constitute true cooperation, if the company avoids identifying the individuals who are criminally responsible.  Even the identification of culpable individuals is not true cooperation, if the company fails to locate and provide facts and evidence at their disposal that implicate those individuals.

This principle of cooperation is not new or unique to companies.   We have applied it to criminal cases of all kinds for decades.   Take, for example, organized crime cases.   Mob cooperators do not receive cooperation credit merely for halting or disclosing their own criminal conduct.   Attempted cooperators should not get reduced sentences if they refuse to provide testimony or fail to turn over evidence against other culpable parties.   A true cooperator – whether a mobster or a company – must forthrightly provide all the available facts and evidence so that the most culpable individuals can be prosecuted.

The importance of this principle is enhanced by a second Filip factor – Factor Eight – which states that, in deciding whether to charge a corporation, prosecutors must consider “the adequacy of the prosecution of individuals responsible for the corporation’s malfeasance.”   So, effective and complete corporate cooperation in the investigation and prosecution of culpable individuals is not only called for by Factor Four, but reinforced by Factor Eight.

[…]

Corporations do not act criminally, but for the actions of individuals.   The Criminal Division intends to prosecute those individuals, whether they’re sitting on a sales desk or in a corporate suite.

The prosecution of individuals – including corporate executives – for white-collar crimes is at the very top of the Criminal Division’s priority list under Assistant Attorney General Caldwell.”

The above are all sensible policy statements from the DOJ and are consistent with Attorney General Eric Holder’s similar sensible policy statements articulated on the same day in a different speech.  As Holder stated:

“[T]he department recognizes the inherent value of bringing enforcement actions against individuals, as opposed to simply the companies that employ them.  We believe that doing so is both important – and appropriate – for several reasons:

First, it enhances accountability.  Despite the growing jurisprudence that seeks to equate corporations with people, corporate misconduct must necessarily be committed by flesh-and-blood human beings.  So wherever misconduct occurs within a company, it is essential that we seek to identify the decision-makers at the company who ought to be held responsible.

Second, it promotes fairness – because, when misconduct is the work of a known bad actor, or a handful of known bad actors, it’s not right for punishment to be borne exclusively by the company, its employees, and its innocent shareholders.

And finally, it has a powerful deterrent effect.  All other things being equal, few things discourage criminal activity at a firm – or incentivize changes in corporate behavior – like the prospect of individual decision-makers being held accountable.  A corporation may enter a guilty plea and still see its stock price rise the next day.  But an individual who is found guilty of a serious fraud crime is most likely going to prison.”

Again, sensible policy statements.

The problem is – at least in the FCPA context – the DOJ is not achieving its policy objectives.  This is the unmistakable conclusion from the following statistics.

  • As highlighted in this previous post (with statistics calculated through the end of 2013) since 2008 approximately 75% of corporate FCPA enforcement have not (at least yet) resulted in any DOJ charges against company employees.
  • As highlighted in this previous post, in the 20 most recent DOJ corporate FCPA enforcement actions, only one has resulted (at least yet) in any DOJ charges against company employees.

An FCPA compliance defense can help the DOJ better achieve its above-stated policy objectives.

As stated in my article “Revisiting a Foreign Corrupt Practices Act Compliance Defense.”

“An FCPA compliance defense will better facilitate the DOJ’s prosecution of culpable individuals and advance the objectives of its FCPA enforcement program. At present, business organizations that learn through internal reporting mechanisms of rogue employee conduct implicating the FCPA are often hesitant to report such conduct to the enforcement authorities. In such situations, business organizations are rightfully diffident to submit to the DOJ’s opaque, inconsistent, and unpredictable decision-making process and are rightfully concerned that its pre-existing FCPA compliance policies and procedures and its good faith compliance efforts will not be properly recognized. The end result is that the DOJ often does not become aware of individuals who make improper payments in violation of the FCPA and the individuals are thus not held legally accountable for their actions. An FCPA compliance defense surely will not cause every business organization that learns of rogue employee conduct to disclose such conduct to the enforcement agencies. However, it is reasonable to conclude that an FCPA compliance defense will cause more organizations with robust FCPA compliance policies and procedures to disclose rogue employee conduct to the enforcement agencies. Thus, an FCPA compliance defense can better facilitate DOJ prosecution of culpable individuals and increase the deterrent effect of FCPA enforcement actions.”

Is the DOJ capable of viewing an FCPA compliance defense, not as a race to the bottom, but a race to the top?  Is the DOJ capable of viewing an FCPA compliance defense as helping it better achieve its FCPA policy objectives?

Let’s hope so.

*****

In his speech, Marshall also provided specifics as to what type of cooperation the DOJ looks for.  He stated:

“[I]f a corporation wants credit for cooperation, it must engage in comprehensive and timely cooperation; lip service simply will not do.

Corporations are often too quick to claim that they cannot retrieve overseas documents, emails or other evidence regarding individuals due to foreign data privacy laws.   Just as we carefully test – and at times reject – corporate claims about collateral consequences of a corporate prosecution, the department will scrutinize a claimed inability to provide foreign documents or evidence.   We have forged deepening relationships with foreign governments and developed growing sophistication and experience in analyzing foreign laws.   A company that tries to hide culpable individuals or otherwise available evidence behind inaccurately expansive interpretations of foreign data protection laws places its cooperation credit at great risk.   We strongly encourage careful analysis of those laws with an eye toward cooperating with our investigations, not stalling them.

Understand too, that we will use our own parallel investigation to pressure test a company’s internal investigation: to determine whether the company actually sought to root out the wrongdoing and identify those responsible, as far up the corporate ladder as the misconduct goes, or instead merely checked a box on a cooperation punch list.

Companies that have not conducted comprehensive investigations will not secure significant cooperation benefits.   Worse, companies that hamper the government’s investigation while conducting an internal investigation – for example, by conducting interviews that serve to spread corporate talking points rather than secure facts relating to individual culpability – will pay a price when they ask for cooperation credit.

A few final words: when you come in to discuss the results of an internal investigation to the Criminal Division and make a Filip factor presentation – expect that a primary focus will be on what evidence you uncovered as to culpable individuals, what steps you took to see if individual culpability crept up the corporate ladder, how tireless your efforts were to find the people responsible.

At the risk of being a little too Brooklyn, I’m going to be blunt.

If you want full cooperation credit, make your extensive efforts to secure evidence of individual culpability the first thing you talk about when you walk in the door to make your presentation.

Make those efforts the last thing you talk about before you walk out.

And most importantly, make securing evidence of individual culpability the focus of your investigative efforts so that you have a strong record on which to rely.”

Friday Roundup

Is trust “reasonable,” Sigelman formally indicted, scrutiny alerts and updates, and for the reading stack.  It’s all here in the Friday roundup.

Is Trust “Reasonable”

This prior post asked:

Would FCPA compliance be better achieved if companies had fewer formal internal controls and instead devoted greater effort to fostering trust within a business organization?  Would such an approach even satisfy an issuer’s obligations under the FCPA’s internal controls provisions which require that issuers devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are properly authorized, recorded, and accounted for by the issuer?

The questions are posed once again after reading this New York Times article titled “Berkshire’s Radical Strategy: Trust.”  In the article, Charlie Munger, vice chairman of Berkshire Hathaway (arguably one of the most well-respected companies in America) “ruminates on the state of corporate governance, offering a counternarrative to the distrustful culture of most businesses: instead of filling your ranks with lawyers and compliance people, he argued, hire people that you actually trust and let them do their job.”

As highlighted in the article:

“Here’s a little-known fact: Berkshire Hathaway, the fifth-largest company in the United States, with some $162.5 billion in revenue and 300,000 employees worldwide, has no general counsel that oversees the holding company’s dozens of units. There is no human resources department, either.

If that sounds like a corporate utopia, that’s probably because it is. To some people in this day and age — given the daily onslaught of headlines about scandal and fraud in corporate America — that also may sound almost like corporate negligence.”

Sigelman Formally Indicted

In January 2014, the DOJ announced FCPA and related charges against former executives of PetroTiger Ltd., a British Virgin Islands oil and gas company with operations in Colombia and offices in New Jersey, “for their alleged participation in a scheme to pay bribes to foreign government officials in violation of the FCPA, to defraud PetroTiger, and to launder proceeds of those crimes.”  The individuals charged were former co-CEOs of PetroTiger Joseph Sigelman and Knut Hammarskjold and former general counsel Gregory Weisman.  (See this prior post for additional details).

In this criminal complaint, Sigelman was charged with conspiracy to violate the FCPA’s anti-bribery provisions as well as three substantive FCPA charges.  The FCPA charges were based on allegations that Sigelman and others made at least four transfers of money in the approximate amount of $333,500 to an account in Colombia of a “foreign government official in Colombia.”

In this release, the DOJ announced today that Sigelman was formally criminally indicted for the same conduct.  The release states that Sigelman “charged with conspiracy to violate the FCPA and to commit wire fraud, conspiracy to launder money, and substantive FCPA and money laundering violations.”

The DOJ release further states:  “The case was brought to the attention of the department through a voluntary disclosure by PetroTiger, which cooperated with the department’s investigation.”

As previously noted, both Hammarskjold and Weisman have pleaded guilty.

Scrutiny Alerts

Key Energy Services

Key Energy Services disclosed in its recent SEC filing:

“The U.S. Securities and Exchange Commission has advised us that it is investigating possible violations of the U.S. Foreign Corrupt Practices Act involving business activities of Key’s operations in Russia. We take any such allegations very seriously and are conducting an investigation into the allegations. We are fully cooperating with and sharing the results of our investigation with the Commission. While the outcome of our investigation is currently not determinable, we do not expect that it will have a material adverse effect on our consolidated financial position, results of operations, or cash flows.”

Quanta Services

Quanta Services (an engineering, procurement and construction services company) disclosed in its recent SEC filing:

“On March 10, 2014, the SEC notified Quanta of an inquiry into certain aspects of Quanta’s activities in certain foreign jurisdictions, including South Africa and the United Arab Emirates. The SEC also requested that Quanta take necessary steps to preserve and retain categories of relevant documents, including those pertaining to Quanta’s U.S. Foreign Corrupt Practices Act compliance program. The SEC has not alleged any violations of law by Quanta or its employees. Quanta has complied with the preservation request and is cooperating with the SEC.”

PTC Inc.

PTC Inc. (formerly known as Parametric Technology) first disclosed its FCPA scrutiny in August 2011 and recently disclosed in this  SEC filing:

China Investigation
We have been cooperating to provide information to the U.S. Securities and Exchange Commission and the Department of Justice concerning payments and expenses by certain of our business partners in China and/or by employees of our Chinese subsidiary that raise questions concerning compliance with laws, including the U.S. Foreign Corrupt Practices Act. Our internal review is ongoing and now includes periods earlier than those previously examined. We continue to respond to requests for information from these agencies, including a subpoena issued to the company by the SEC. We cannot predict when or how this matter may be resolved. Resolution of this matter could include fines and penalties; however we are unable to estimate an amount that could be associated with any resolution and, accordingly, we have not recorded a liability for this matter. If resolution of this matter includes substantial fines or penalties, this could materially impact our results for the period in which the associated liability is recorded or such amounts are paid. Further, any settlement or other resolution of this matter could have collateral effects on our business in China, the United States and elsewhere.”
Fresenius Medical Care
Germany-based Fresenius Medical Care first disclosed FCPA scrutiny in August 2012 and stated as follows in its recent SEC filing:
“[The previously disclosed internal] review has identified conduct that raises concerns under the FCPA or other anti-bribery laws that may result in monetary penalties or other sanctions.  In addition, the Company’s ability to conduct business in certain jurisdictions could be negatively impacted.  The Company has recorded a non-material accrual for an identified matter.  Given the current status of the internal review, the Company cannot reasonably estimate the range of possible loss that may result from additional identified matters or from the final outcome of the continuing internal review.”
Financial Services Industry

In case you had not heard that numerous financial services companies were under FCPA scrutiny for alleged hiring practices, the Wall Street Journal reports:

“U.S. regulators have expanded their investigation into large banks’ hiring practices in Asia, seeking more information from at least five U.S. and European firms, according to people close to the probe.  The Securities and Exchange Commission in early March sent letters to a group of companies including Credit Suisse Group AG, Goldman Sachs Group Inc., Morgan Stanley, Citigroup Inc. and UBS AG seeking more information about their hiring in Asia, according to people.  […]  The SEC late last year issued a round of letter to at least six banks, seeking information on their hiring practices, such as whether the firms had special programs dedicated to relatives of influential officials, according to people close to the inquiry.  The second round of requests reflects a deepening of the probe.  The agency is seeking more data on the banks’ recruiting in Asia, including lists of employees hired as a result of referrals from foreign officials and clients, added the people familiar with the investigation.”

As to the above, Goldman disclosed in its most recent SEC filing:

“Regulatory Investigations and Reviews and Related Litigation.

[The company] and certain of its affiliates are subject to a number of other investigations and reviews by, and in some cases have received subpoenas and requests for documents and information from, various governmental and regulatory bodies and self-regulatory organizations and litigation relating to various matters relating to the firm’s businesses and operations, including:

compliance with the U.S. Foreign Corrupt Practices Act, including with respect to the firm’s hiring practices …”

Reading Stack

No surprise that an individual who paid $174 million to post bail has hired an A-list legal team in defense of DOJ allegations that he violated, among other laws, the FCPA.  (See here for a recent New York Times article regarding Dmitry Firtash).

Sound advice from former DOJ FCPA Unit Chief Chuck Duross in this MoFo Tech article concerning FCPA risk and the technology industry:

“[T]echnology companies are also at risk from the distribution model that’s often used in the industry. Many companies sell their products to channel partners, which add some value to the product or service—such as other hardware, software, an installation, or a service plan—and then resell it at a higher price. That’s an entirely appropriate business model. But as with any third party, companies need to appreciate the potential risk if, for example, the distributor is simply reselling at a higher price without adding any legitimate value and using that profit as a slush fund to funnel bribes to government officials. It may seem to the company that it is not violating the FCPA. It has simply sold its product to another company. But if a company’s employees are aware that the distributor is paying (or just offering) bribes to government officials to help sell the product, the company and its employees could be criminally liable as conspirators and aiders and abettors.

What should tech companies be doing to avoid these issues?

One thing is to know the third parties they’re doing business with. It is also fundamental to understand the business reason for working with third parties. One of the first questions asked during a DOJ or SEC investigation will often be, “What was the business purpose behind working with X?” Having a clear answer will earn credibility with regulators and underscore the company’s commitment to compliance. Also, making sure employees—and third parties—understand company policies, are properly trained, execute FCPA certifications, and are subject to appropriate ongoing reviews can prevent violations and mitigate (or avoid altogether) penalties if a problem does occur. That is just good business. Corruption tends to occur at companies with loose control environments. While I was at DOJ, we routinely saw loose control environments leading to embezzlement, self-dealing, fraud, and even antitrust violations. When a company doesn’t know where its money is going, that’s bad business and negatively impacts shareholder value. When companies invest in a compliance program, they are investing in the health of the business.”

This Kyiv Post article notes:

“Some of Ukraine’s underpaid cadre of civil servants might get bonuses from international finance institutions to reduce the temptation of taking bribes. According to Ukrainian Tax Service chief Ihor Bilous, the European Bank for Reconstruction and Development is exploring the idea of setting up a fund that would provide officials with additional pay. ‘Last week I had a meeting with EBRD representatives and they proposed to create a fund to pay money for people who serve the state in high positions,’ Bilous told the Kyiv Post. This idea was successfully implemented in Georgia, he adds, “we need to change the system, state salaries are very low and this situation creates some kind of temptation.”

*****

A good weekend to all, and to all mothers, Happy Mother’s Day!

Rogue Employees Do Exist, Plus A Noticeable Juxtaposition

In the minds of some (see here and here) rogue employees are a myth – a convenient rationalizing for inadequate internal controls and compliance policies and procedures.

The irony of course is that even the DOJ acknowledges the existence and reality of rogue employees.  The U.S. Attorneys’ Manual (9-28.800) states that “no compliance program can ever prevent all criminal activity by a corporation’s employees …” and high-ranking DOJ officials have observed that “there will always be rogue employees who decide to take matters into their own hands.  They are a fact of life.”  As this recent Economist article rightly stated: “fraud by wayward employees, be they high or low, can never be eliminated.”

This post highlights the DOJ’s recent indictment of Asem Elgawhart, the logical relationship this case has to a pending FCPA enforcement action, and how the Elgawhart action further supports the notion that the DOJ’s so-called Morgan Stanley declination was nothing more than a conveniently timed public relations campaign.

Elgawhart Indictment

Elgawhart was employed by Bechtel and was assigned by Bechtel to be the General Manager of Power Generation Engineering and Services Company (PGESCo), a joint venture between Bechtel and Egyptian Electricity Holding Company (the alleged “state-owned and state-controlled electricity company in Egypt”).

According to the DOJ, Elgawhart “used his position and authority as the General Manager of a power generation company to solicit and obtain millions of dollars of kickbacks for his personal benefit from U.S. and foreign power companies that were attempting to secure lucrative contracts to perform power-related services.”

“In total,” the DOJ alleged, “Elgawhart received more than $5 million in kickbacks to help secure more than $2 billion in contracts for the kickback-paying companies, all of which he concealed from his employer, from bidding companies that did not pay kickbacks and from the U.S. Internal Revenue Service.”

Based on these allegations, and as indicated in this DOJ release, Elgawhart was charged in a 8-count indictment with mail and wire fraud, money laundering and various tax offenses.

Bechtel was not criminally charged and there is a good and obvious reason why.  There was no basis to charge Bechtel with any criminal offense.

Indeed, the DOJ alleges that Elgawhart: “defrauded Bechtel,” “concealed material facts from executives at Bechtel,” provided to executives at Bechtel annual Representation Letters containing representations that he “knew to be false,” “concealed and misrepresented material facts to counsel for Bechtel” during interviews, and caused certain evidence to be “deleted and destroyed.”

According to the DOJ, Elgawhart engaged in the above conduct against the following relevant background.

“Bechtel maintained a Code of Business Ethics that imposed on its employees certain standards and duties, including: (a) That employees not misrepresent themselves to anyone; (b) That employees not misuse proprietary, confidential or private information of Bechtel, its customers and suppliers; (c) That employees never give, solicit or accept a gift if that gift may create a payback obligation; and (d) That employees not have a financial interest in an actual or potential supplier, competitor, customer or any other organization that could cause a conflict of interest.

In addition, Bechtel maintained an Ethics and Compliance Policy requiring its employees to fully disclose through a conflict of interest revIew process any activity or transaction that might give rise to a conflict of interest.

During the course of his tenure at Bechtel, Elgawhart acknowledged Bechtel’s policies and agreed to comply with them. In or around 2001, in connection with his continued assignment as General Manager at PGESCo, Elgawhart signed a “Recital of International Employment Conditions” that required Elgawhart to comply with published Bechtel personnel policies and stated that Bechtel could discharge Elgawhart for violations of law, conduct that discredited Bechtel, theft and breach of Bechtel policy.”  [The DOJ also made similar allegations as relevant to PGESCO’s internal controls].

Logical Relationship to Pending FCPA Enforcement Action

Although some have inaccurately described the Elgawhart case as a “Foreign Corrupt Practices Act prosecution,” it is not.  Nevertheless, it is hard not to notice that at the bottom of the DOJ’s release there is reference to the DOJ’s “FCPA enforcement efforts.”

Indeed, there appears to be a logical relationship between the Elgawhart case and a pending FCPA enforcement action.  The Elgawhart indictment specifically alleges that the kickback scheme involved, among other companies, “Power Company A” (a French company engaged in the business of providing power generation and transportation-related services around the world”) including “Power Company A’s subsidiary in Connecticut.”

This is the same exact description of Power Company A (widely known to be Alstom) in the April 2013 FCPA enforcement action against current and former Alstom executives, several of which were employed by Power Company A’s subsidiary in Connecticut.”  (See here for the prior post).

A Noticeable Juxtaposition

As discussed above, Bechtel was not criminally charged in connection with the Elgawhart indictment and there was a good and obvious reason why.  There was no basis to charge Bechtel with any criminal offense.

Similarly, there was no basis to charge Morgan Stanley with any criminal offense in connection with the April 2012 Garth Peterson enforcement action.

Like in the Elgawhart action, in the Peterson action the DOJ alleged as follows as highlighted in this previous post.

  • “Peterson and Chinese Official 1 had a close personal relationship before Peterson joined Morgan Stanley.”
  • A shell company used to facilitate the scheme was owned 47% by Chinese Official 1 and 53% by Peterson and a Canadian Attorney.
  • “Without the knowledge or consent of his superiors at Morgan Stanley, Peterson sought to compensate Chinese Official 1″
  • “Peterson concealed Chinese Official 1’s personal investment [in certain properties] from Morgan Stanley”
  • “Peterson used Morgan Stanley’s past, extensive due diligence [as to certain of the investment properties] to benefit his own interests and to act contrary to Morgan Stanley’s interests.”

Consistent with these allegations, in its press release the DOJ stated:  “Mr. Peterson admitted … that he actively sought to evade Morgan Stanley’s internal controls in an effort to enrich himself and a Chinese government official.”  Moreover, in sentencing Peterson the judge stated that ”it is likely that [Morgan Stanley] would be considered a victim” of Peterson’s conduct.  (See 859 F.Supp.2d 477).

Yet, you all the know the story-line in the Peterson case as it has become part of FCPA religion preached by the DOJ and carried forward at every available opportunity by obedient parishioners.  The DOJ declined to prosecute Morgan Stanley because of its pre-existing compliance policies and procedures!

Most everyone was drinking the Kool-Aid, perhaps because taking a sip from the communal cup was convenient in marketing FCPA compliance services and products.

So why the difference in the DOJ’s public statements regarding Peterson / Morgan Stanley and Elgawhart / Bechtel?

Well, the Peterson enforcement action occurred in April 2012 when FCPA reform (including a corporate compliance defense) was still a hot topic and the DOJ was facing pressure to demonstrate something fair about its FCPA enforcement events.

Indeed, as noted in this previous post which highlighted a Morgan Stanley – Davis Polk webinar (Davis Polk represented Morgan Stanley), Davis Polk stated that part of its advocacy to the DOJ and SEC was that the agencies needed to publicly send a message on compliance and that the Morgan Stanley – Peterson case provided an “ideal case to do so.”  Interestingly, the webinar was moderated by a Davis Polk attorney who called the Morgan Stanley declination “unprecedented and important” and that it was “important and new, it is news that sets precedent.”  This same attorney of course was the Assistant Attorney General (DOJ, Criminal Division) during most of the time period relevant to the enforcement action and is the same person who testified on behalf of the DOJ at the Nov. 2010 Senate FCPA hearing and the June 2011 House FCPA hearing and stated (see here and here for the transcripts of the hearings) that a compliance defense was not necessary because the DOJ already considers compliance efforts when making its enforcement decisions.

In short, the juxtaposition between the DOJ’s statements in connection Peterson / Morgan Stanley and Elgawhart / Bechtel further supports the notion that the DOJ’s so-called Morgan Stanley declination was nothing more than a conveniently timed public relations campaign.

Yet the Kool-Aid continues to be served and enjoyed by many.

Friday Roundup

Scrutiny alerts and updates, sunshine, year in review roundups, and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Alerts and Updates

H-P

The company has been under FCPA scrutiny since at least 2010 and recently disclosed, in pertinent part, as follows.

“The U.S. Department of Justice and the SEC have been conducting an investigation into the Russia GPO deal and potential violations of the Foreign Corrupt Practices Act (“FCPA”). These U.S. enforcement agencies, as well as the Polish Central Anti-Corruption Bureau, are also conducting investigations into potential FCPA violations by an employee of Hewlett-Packard Polska Sp. z o.o., an indirect subsidiary of HP, in connection with certain public-sector transactions in Poland. In addition, the same U.S. enforcement agencies are conducting investigations into certain other public-sector transactions in Russia, Poland, the Commonwealth of Independent States, and Mexico, among other countries.  HP is cooperating with these investigating agencies. In addition, HP is in advanced discussions with the U.S. enforcement agencies to resolve their investigations.”

JPMorgan

The New York Times returned – yet again (see here and here for prior NY Times article) – to JPMorgan’s hiring practices in China.  The article states:

“For Wall Street banks enduring slowdowns in the wake of the financial crisis, China was the last great gold rush. As its economy boomed, China’s state-owned enterprises were using banks to raise billions of dollars in stock and debt offerings — yet JPMorgan was falling further behind in capturing that business.  The solution, the executives decided over email, was to embrace the strategy that seemed to work so well for rivals: hire the children of China’s ruling elite.

[…]

In the months and years that followed, emails and other confidential documents show, JPMorgan escalated what it called its “Sons and Daughters” hiring program, adding scores of well-connected employees and tracking how those hires translated into business deals with the Chinese government. The previously unreported emails and documents — copies of which were reviewed by The New York Times — offer a view into JPMorgan’s motivations for ramping up the hiring program, suggesting that competitive pressures drove many of the bank’s decisions that are now under federal investigation.

The references to other banks in the emails also paint for the first time a broad picture of questionable hiring practices by other Wall Street banks doing business in China — some of them hiring the same employees with family connections. Since opening a bribery investigation into JPMorgan this spring, the authorities have expanded the inquiry to include hiring at other big banks. Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs and Morgan Stanley have previously been identified as coming under scrutiny. A sixth bank, UBS, is also facing scrutiny, according to interviews with current and former Wall Street employees.

[…]

The investigation has also had a chilling effect on JPMorgan’s deal-making in China, interviews show. The bank, seeking to build good will with federal authorities, has considered forgoing certain deals in China and abandoned one assignment altogether.”

Once again, the latest NY Times article sparked much commentary.  See here, here and here.

Former Siemens Executives

The Buenos Aires Herald reports:

“Seventeen people, including former managers of the Siemens company, were … accused of paying off officials in order to help win a contract to produce the national identity cards …”.  The decision was made by Federal Judge Ariel Lijo, who decided to indict them for having allegedly committed bribery.”

Regarding the defendants, the article states:

“Twelve people working for Siemens were included in the indictment: Uriel Jonathan Sharef, Ulrich Albert Otto Fritz Bock, Eberhard George Reichert, Luis Rodolfo Schirado, Andrés Ricardo Truppel, Ernst Michael Brechtel, Bernd Regendatz, Ralph Matthias Kleinhempel and José Alberto Ares. Sharef, for instance, was a member of Siemens’ managing board. He also was the first former board member of a Fortune Global 50 company to be indicted under the US Foreign Corrupt Practices Act, as happened in 2011.  Judge Lijo also charged Carlos Francisco Soriano, Miguel Ángel Czysch and José Antonio David as “middlemen” between the company and Menem’s administration to arrange the payment for benefitting the company in the bid. The magistrate also accused Antonio Justo Solsona, Guillermo Andrés Romero, Orlando Salvestrini, Luis Guillermo Cudmani and Federico Rossi Beguy, who allegedly worked for the company competing in the bid against Siemens IT Services and who presumably agreed not to challenge the government’s decision.”

Allegations regarding the Argentine identity card project were included in the 2008 FCPA enforcement action against Siemens (see here) and also served as the basis for 2011 criminal and civil charges against several former Siemens executives, including those recently charged in Argentina (see here for the prior post summarizing the action).

As noted in this previous post, the U.S. charges against the former Siemens executives were brought after the DOJ faced scrutiny (including at the Senate’s 2010 FCPA hearing) for not bringing any individual enforcement action in connection with a bribery scheme “unprecedented in scale and geographic reach” in which there existed at Siemens a “corporate culture in which bribery was tolerated and even rewarded at the highest levels of the company.”

The U.S. criminal charges against former Siemens executives sits on the docket and a recent docket search indicates that there has not been any activity in the case in over two years.

Sunshine

Mark Cuban, who recently prevailed against the SEC in a long-running insider trading enforcement action, says in this Wall Street Journal article that he is “now considering a new venture publicizing SEC transcripts.”  Says Cuban, “I’m going to get as many as I can, and I’ll put it out there.” “Sunshine is the best disinfectant.”

The article further states:

“Mr. Cuban says he isn’t against the SEC as a whole but thinks that the lawyers who work there should be held responsible for their actions. “There’s such a revolving door, and it was run by attorneys with an attorney’s mind-set looking for their next job,” he says. “It’s a résumé builder.” Mr. Cuban says individual lawyers aren’t held accountable because the public is familiar only with the name of the SEC’s chair, Mary Jo White.  “No wonder they say or do whatever they damn well please,” he says. “I’m like, ‘OK, I’m going to start calling them out by name.’  George Canellos, co-director of the SEC’s enforcement division, sent a response to Mr. Cuban’s statements through an SEC spokesperson: “Mr. Cuban’s comments are without merit and uncalled for. Our lawyers acted in the finest traditions of government counsel and entirely appropriately in strongly advocating the position of the government in this matter.”

On a related note, did you know that the FCPA Professor Scribd page contains approximately 250 hard to find FCPA documents, pleadings, briefs, etc.

Year In Review Roundups

From the Wall Street Journal Risk & Compliance Journal page – a “Q&A with Asheesh Goel, Ropes & Gray, on The Year in FCPA

From Trace Blog – “FCPA Corporate Settlements by the Numbers

From Michael Volkov (Corruption, Crime & Compliance) – “The FCPA Person of the Year – The Prosecutor” and “FCPA Predictions for the New Year – 2014

From Thomas Fox (FCPA Compliance and Ethics Blog) – “My Favorite Blog Posts from 2013

Reading Stack

Thomas Fox (FCPA Compliance and Ethics Blog) and Jon Rydberg (Orchid Advisor) are out with a new book here titled “Anti-Bribery Leadership: Practical FCPA and U.K Bribery Act Compliance Concepts for the Corporate Board Member, C-Suite Executive and General Counsel.”

*****

A good weekend to all.

Friday Leftovers

Scrutiny alerts, corruption in China, quotable, and for the reading stack.  It’s all here in the Friday leftover version of the roundup.

Scrutiny Alerts

Caribbean News Now reports here as follows.

“A complaint has been filed with the Department of Justice (DOJ) in the United States under the Foreign Corrupt Practices Act (FCPA) in relation to a contract purporting to grant oil exploration rights over some eight million acres of Saint Lucia’s maritime territory.  The 46-page complaint, which Caribbean News Now has seen, names Saint Lucia’s prime minister, Dr Kenny Anthony, and RSM Production Company (RSM), a Texas company, along with its president Jack J. Grynberg. Caribbean News Now has also seen a written notification confirming receipt of the document by the DOJ.

[…]

Specifically, the complaint notes that, in or about February 2000, Anthony, as then minister of finance, planning and sustainable development, signed a contract with RSM that purported to grant the company an “Exploration License” in respect of territorial maritime resources belonging to Saint Lucia amounting to 8,726,263 acres.  However, under Saint Lucia’s Minerals Vesting Act, all minerals in, on or under any land in Saint Lucia are vested in and controlled by the Crown and only the governor general may grant a licence to prospect for and/or mine such minerals.  Further, although the contract provides that RSM shall pay a royalty to “the Government” (as required by section 5 of the Minerals Vesting Act), it goes on to state that the liability of RSM in this respect shall be discharged by paying such royalty to the minister and not the government.”

Reuters reports here as follows.

“The U.S. Justice Department is probing Morgan Stanley for its hiring practices in China as part of an industry-wide investigation by the government into whether banks’ employment of politically connected Chinese breached U.S. bribery laws, according to people familiar with the matter.  As part of the industry sweep, the U.S. Securities and Exchange Commission sent letters to Morgan Stanley and other banks, including Goldman Sachs and Citigroup, seeking information about their hiring practices, according to several people familiar with the matter.  The SEC has asked the financial services firms to provide information about their hiring of the relatives of government officials in China …”.

This is not a surprising development following the New York Times August story regarding JPMorgan (see here for the prior post).

Corruption in China

The Congressional-Executive Commission on China recently held a roundtable on “Corruption in China Today: Consequences for Governance, Human Rights, and Commercial Rule of Law.”  As stated on the Commission’s website:

“Corruption takes many forms in China, from corrupt officials at all levels using their public office for private gain and seizing land for development to corrupt state-owned enterprises gaming the system to their advantage. Corruption also continues to be among the root causes of rights abuses against Chinese citizens. Senior leaders acknowledge that corruption threatens the legitimacy of the Communist Party and contributes to citizen dissatisfaction, and President Xi Jinping has stated that fighting corruption is a high priority. But Chinese authorities continue to crack down on independent and citizen-led efforts to combat corruption. Panelists will discuss corruption among Chinese high-level officials and recent anti-corruption efforts, and explore corruption’s role in human rights violations. Panelists also will examine corruption linked to state-owned and other enterprises and explore the implications for commercial rule of law.”

Among the panelists were Professor Daniel Chow (Ohio State) (see here for his statement).  In 2012,  I was pleased to play a role, along with   Professor Chow and the staff of the Ohio State Law Journal, in organizing “The FCPA at Thirty-Five and Its Impact on Global Business,” a full-day symposium at The Ohio State University Moritz College of Law.  (See here).

Quotable

On his Corruption, Crime & Compliance site, Michael Volkov states:

“The idea of legal ‘marketing’ has been diluted in the last few years.  As businesses become smarter consumers of legal services, in-house counsel and Chief Compliance Officers are much better at deciphering legal mumbo jumbo.  Perhaps the best example of legal marketing as an oxymoron, was the roll-out of the UK Bribery Act.  Legal marketing was premised on one idea –fear and fear alone.  Client alert after client alert warned companies about the impending doom, the effective date of the UK Bribery Act.  Not to pat myself on the back (assuming my arm is long enough), but I wrote that the UK Bribery Act was a real non-event in the world anti-corruption compliance and that it was unlikely to have any real impact.  To this day, those words still ring true.  After writing the ‘truth’ about the UK Bribery Act, I received a call from the firm’s London partners and was chastised for undermining their entire ‘marketing’ program.  (In stark contrast, many clients wrote me and thanked me for my ‘honesty.'”

Spot-on.

Nearly three years ago, I wrote:

“The U.K. Bribery Act … has been the subject of much discussion and much over-hype in my opinion.  It has been called the FCPA ‘on steroids’ (here) and if one subscribes to the industry marketing material, you might be left with the impression that the end of the world is near.  […]   In sum, I don’t see how companies already subject to the FCPA and already thinking about compliance in a pro-active manner, have much to worry about when it comes to the U.K. Bribery Act because of the adequate procedures defense.  I will be surprised if U.K. enforcement of the Bribery Act reaches the level of U.S. enforcement of the FCPA …”.

See here for my post the day the U.K. Bribery Act went live in July 2011.

See here for my post “Marketing The FCPA … The FCPA Risks Of … Well, Just About Everything.”

For the Reading Stack

The most recent issue of the always-informative FCPA Update from Debevoise & Plimpton is here.  Among other things, the issue summarizes recent remarks of DOJ and SEC officials regarding the FCPA and FCPA enforcement.

*****

A good weekend to all.

Powered by WordPress. Designed by WooThemes