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News Corp. In the News

Approximately two years ago to the date, News Corp.’s potential FCPA scrutiny dominated the news cycle.  (See here for the prior post).

In recent days, News Corp. has again made the news as a recording of Rupert Murdoch surfaced in which he allegedly stated as follows concerning payments to U.K. public officials to obtain information.  “That situation existed at every newspaper in Fleet Street. Long since forgotten. But absolutely. It was the culture of Fleet Street. We’re talking about payments for news tips from cops. That’s been going on a hundred years, absolutely.”

The disclosure prompted U.K. members of Parliament to demand that News Corp. be charged with Foreign Corrupt Practices Act violations.  (See here for a letter from Tom Watson MP to Senator John D. Rockefeller).

In a statement, News Corp. stated as follows.  “Mr. Murdoch never knew of payments made by Sun staff to police before News Corp. disclosed that to U.K. authorities.  Furthermore, he never said he knew of payments. It’s absolutely false to suggest otherwise.”

For more coverage, see here, here, and here.

BSG Resources Related

This previous post highlighted the April arrest of French citizen Frederic Cillins who was criminally charged by the DOJ for allegedly attempting to obstruct an ongoing FCPA investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea. Cillins has been linked to Guernsey-based BSG Resources Ltd.

This recent article in the New Yorker by Patrick Radden Keefe goes in-depth as to the mining rights at issue, the political environment in Guinea, Cillins, and Beny Steinmetz (the wealthy Israeli for whom BSG Resources is named).  As noted in the article, and also noted in this recent article in Main Justice, BSG Resources and Cillins are claiming that several documents at the center of the bribery probe are fake.

As noted in this recent Wall Street Journal Risk & Compliance Journal post, Cillins was denied bail as he awaits trial. As noted in this Law360 article, U.S. District Judge William H. Pauley reversed a magistrate judge’s decision to allow Frederic Cilins to be released on $15 million bail and stated as follows.  “The court finds that Mr. Cilins is a serious risk of flight and there are no conditions that will ensure his appearance in court.”

Survey Says

According to PwC’s 3rd annual State of Compliance Survey, the top three risks identified by chief compliance officers are:  data privacy and confidentiality; industry specific regulations; and bribery/corruption.

News Corp’s Possible Settlement Amount – Not The Media’s Finest Moment

Before Wal-Mart’s FCPA scrutiny dominated the news cycle in April 2012, there was News Corp.

In July 2011, the U.K. Guardian reported that “up to five U.K. police officers were paid between them a total of at least £100,000 in cash from the News of the World” and the next day the Guardian, based on my comments and those of others, made the link between these payments and the Foreign Corrupt Practices Act.

What followed over the next 10 days was the most intense worldwide media coverage of the FCPA in its history.  (See here for the prior post detailing News Corp.’s FCPA scrutiny).

Like Wal-Mart’s FCPA scrutiny, News Corp.’s continued FCPA scrutiny continues to generate much media attention and some of it is completely off-base.

For instance, earlier this week on his media and modern life column in the Guardian (see here)  Michael Wolff wrote that a possible settlement of FCPA charges by News Corp. “could be as high as $850 million” and “could go as high as billions.”

Anything of course is possible, but Wolff’s reporting (he is also the author of the book “The Man Who Owns the News:  Inside the Secret World of Rupert Murdoch”) should have been met with skepticism by anyone knowledgeable about FCPA enforcement.

The largest FCPA settlement in history is the $800 million enforcement action against Siemens in 2008.   All of the top FCPA enforcement actions involve foreign procurement.  No FCPA enforcement action outside the context of foreign procurement (such as payments to secure foreign licenses, permits, etc.)  has topped $100 million.

News Corp.’s FCPA scrutiny is not based on payments in connection with foreign procurement.  Given the nature of the allegations against it and the type of company News Corp.  is, a record-setting – or even top – FCPA enforcement action is unlikely.

Moreover, even though every company has different disclosure practices, none of the common data-points suggesting an imminent FCPA settlement have been disclosed by News Corp.

Nevertheless, Wolff’s report spread like wild-fire around the internet and among various news organizations and was also carried forward by several websites devoted to the FCPA.

Similar to Las Vegas Sands FCPA reporting in March (see here for the prior post), news of News Corp.’s possible settlement amount was likewise not the media’s finest FCPA moment.

In an analyst call on June 11th, after publication of Wolff’s column, the following exchange occurred between an analyst and Murdoch.

Julie Tanner

Good morning. Julie Tanner with Christian Brothers Investment Services. […]  And my question’s related to the settlement with the Department of Justice, if the board could comment on that? And if so, how much is that? […]

Rupert Murdoch

So let me start with your first question. Nice to see you again. I suspect your question is triggered by an article that was published in the Guardian, which is testimony to the fact, the old adage, that those who are talking don’t know, and those who know aren’t talking. The reality is that there is no settlement that’s been arranged with the Department of Justice. There have been no discussions of amounts. There have been no discussions of fines, period. We have an ongoing cooperative relations with the Department of Justice. That is where things stand. […]

Murdoch’s statements to the market are actionable under the securities laws for any material misrepresentation or omission.  Thus, those interested in following News Corp.’s FCPA scrutiny should place a greater emphasis on his statements than a media and modern life column.

Friday Roundup

An endorsement, it’s an FCPA world,  spot-on, for the reading stack and events of interest.  It’s all here in the Friday roundup.

An Endorsement

Several recent posts (see here for instance) have called for a common FCPA lingua franca including as to what is an FCPA enforcement action.  In this prior post, in an effort to improve the quality and reliability of FCPA statistics and related information, I set forth various metrics for what is an FCPA enforcement action, including the core approach I use in my FCPA data.

Recently Chuck Duross (DOJ FCPA Unit Chief) endorsed the core approach when he stated as follows:

“So the bottom line is, we don’t count statistics the way I guess some of the people, whether it’s the commentators or the media, or law firms and the like.  […]  And so, you know, we count slightly differently by the way, than a lot of people in the public. If you have a parent and two subs plead guilty, and the parent gets a DPA, we don’t count that as three actions. That’s one matter from our prospective, and I think internally it just makes sense for us.”

[The website Main Justice recently posted here the full comments of Duross at the ABA’s National Institute on White Collar Crime] 

As one informed observer recently shared with me, the lack of an FCPA lingua franca “muddies the conversational waters.”

Case in point, earlier this week the Wall Street Journal, citing statistics from a law firm, reported that “since 2009, the Justice Department has brought 108 [FCPA] cases while the SEC has brought 77.”

Using the core approach, the numbers since 2009 are as follows.  DOJ – 46 “core” FCPA enforcement actions; SEC – 50 “core” FCPA enforcement actions.  Obviously, there is a huge difference between these numbers, and even my “core” numbers paint an inadequate picture because many FCPA enforcement actions involve both a DOJ and SEC component based on the same alleged core set of facts.  In short, since 2009, there have been approximately 55 “core” FCPA enforcement actions (and a point could be made that even this number overstates things a bit since it separately counts the seven Panalpina related actions).

For additional reading on a proper perspective on FCPA enforcement statistics, see this prior post.

It’s An FCPA World

Scrutiny alerts / updates regarding Microsoft, News Corp, Optimer Pharmaceuticals and Sig Sauer.

Microsoft

Earlier this week, the Wall Street Journal reported here that the DOJ and SEC “are examining kickback allegations made by a former Microsoft representative in China, as well as the company’s relationship with certain resellers and consultants in Romania and Italy.”  According to the article, “the China allegations come from an anonymous tipster who passed them on to U.S. investigators in 2012.”  The article further states that “the allegations in China were also the subject of a 10-month internal investigation [conducted by an outside law firm] that Microsoft concluded in 2010 [and that the investigation] found no evidence of wrongdoing” and that tipster “whose contract [with Microsoft] ended in 2008, was also involved in a labor dispute with Microsoft in China.”

As to Romania, the articles states that “U.S. government investigators are also reviewing whether Microsoft had a role in allegations that resellers offered bribes to secure software deals with Romania’s Ministry of Communications” and that in Italy “the agencies are looking at Microsoft’s dealings with consultants in Italy that specialize in customer-loyalty programs.”  According to the article, the allegations focus on Microsoft’s Italian unit’s use of “consultants as vehicles for lavishing gifts and trips on Italian procurement officials in exchange for government business.”

For additional coverage, see here from the New York Times.

John Frank (Microsoft Vice President & Deputy General Counsel) responded in a company blog post as follows.

“[T]he Wall Street Journal reported that the U.S. government is reviewing allegations that Microsoft business partners in three countries may have engaged in illegal activity, and if they did, whether Microsoft played any role in these alleged incidents. We take all allegations brought to our attention seriously, and we cooperate fully in any government inquiries. Like other large companies with operations around the world, we sometimes receive allegations about potential misconduct by employees or business partners, and we investigate them fully, regardless of the source. We also invest heavily in proactive training, compliance systems, monitoring and audits to ensure our business operations around the world meet the highest legal and ethical standards. The matters raised in the Wall Street Journal are important, and it is appropriate that both Microsoft and the government review them. It is also important to remember that it is not unusual for such reviews to find that an allegation was without merit. (The WSJ reported earlier this week that an allegation has been made against the WSJ itself, and that, after a thorough investigation, its lawyers have been unable to determine that there was any wrongdoing). We cannot comment about on-going inquiries, but we would like to share some perspective on our approach to compliance. We are a global company with operations in 112 countries, nearly 98,000 employees and 640,000 business partners. We’re proud of the role we play in bringing technology to businesses, governments, non-profits and consumers around the world and the economic impact we have in local communities. As our company has grown and expanded around the world, one of the things that has been constant has been our commitment to the highest legal and ethical standards wherever we do business. Compliance is the job of every employee at the company, but we also have a group of professionals focused directly on ensuring compliance. We have more than 50 people whose primary role is investigating potential breaches of company policy, and an additional 120 people whose primary role is compliance. In addition, we sometimes retain outside law firms to conduct or assist with investigations. This is a reflection of the size and complexity of our business and the seriousness with which we take meeting our obligations. We also invest in proactive measures including annual training programs for every employee, regular internal audits and multiple levels of approval for contracting and expenditure. In a company of our size, allegations of this nature will be made from time to time. It is also possible there will sometimes be individual employees or business partners who violate our policies and break the law. In a community of 98,000 people and 640,000 partners, it isn’t possible to say there will never be wrongdoing. Our responsibility is to take steps to train our employees, and to build systems to prevent and detect violations, and when we receive allegations, to investigate them fully and take appropriate action. We take that responsibility seriously.”

News Corp.

Earlier in the week, in what was a strange article in that the Wall Street Journal was reporting on itself, the WSJ reported here that “the Justice Department last year opened an investigation into allegations that employees at The Wall Street Journal’s China news bureau bribed Chinese officials for information for news articles.  A search by the Journal’s parent company found no evidence to support the claim, according to government and corporate officials familiar with the case.”  The article states as follows.  “According to U.S. and corporate officials, News Corp. has told the Justice Department that some company officials suspect the informant was an agent of the Chinese government, seeking to disrupt and possibly retaliate against the Journal for its reporting on China’s leadership. The company officials came to that view after finding no evidence of the alleged bribery and because of the timing and nature of the accusations, company officials say.”

The article also states as follows concerning News Corp.’s overall FCPA scrutiny which splashed onto the scene in July 2011 (see here for the prior post).

“Since 2011, the Justice Department has been overseeing a criminal investigation of News Corp. relating to revelations that its British papers hacked phones and bribed public officials to get information for articles. Almost two years later, that probe is nearing completion, government and company officials said, setting the stage for settlement negotiations between the U.S. and News Corp.  News Corp., which has hired law firm Williams & Connolly to oversee the FCPA case, is expected to make its final presentation detailing the company’s global bribery investigation to the Justice Department next month, according to people familiar with the matter. It will be then up to the Justice Department to spell out what punishment or sanctions, if any, the agency wants, and at that point negotiations will likely begin. The Justice Department doesn’t publicly discuss cases that close without charges filed. Both sides expect an agreement would include a monetary settlement of some kind, based on the alleged violations in the U.K. The government has also investigated potential misconduct in the company’s former Russian outdoor billboard subsidiary, according to people familiar with the case, specifically whether it paid bribes to local officials to approve sign placements in that country.”

Optimer Pharmaceuticals

Optimer (see here for the prior post) disclosed as follows in a recent SEC filing.

In March 2012, we became aware of an attempted grant in September 2011 to Dr. Michael Chang of 1.5 million technical shares of OBI.  We engaged external counsel to assist us in an internal review and determined that the attempted grant may have violated certain applicable laws, including the FCPA.  In April 2012, we self-reported the results of our preliminary findings to the SEC and the DOJ, which included information about the attempted grant and certain related matters, including a potentially improper $300,000 payment in July 2011 to a research laboratory involving an individual associated with the OBI [Optimer Biotechnology, Inc.] share grant. At that time, we terminated the employment of our then-Chief Financial Officer and our then-Vice President, Clinical Development. We also removed Dr. Michael Chang as the Chairman of our Board of Directors and requested that Dr. Michael Chang resign from the Board of Directors, which he has not. We continued our investigation and our cooperation with the SEC and the DOJ.  As a result of our continuing internal investigation, in February 2013, the independent members of our Board of Directors determined that additional remedial action should be taken in light of prior compliance, record keeping and conflict-of-interest issues surrounding the potentially improper payment to the research laboratory and certain related matters. On February 26, 2013, our then-President and Chief Executive Officer and our then-General Counsel and Chief Compliance Officer resigned at the request of the independent members of our Board of Directors.  In addition, over the past year, we have revised our compliance policies, strengthened our approval procedures and implemented training and internal audit procedures to make our compliance and monitoring more comprehensive.  We continue to cooperate with the SEC and DOJ, including by responding to informal document and interview requests, conducting in-person meetings and updating these authorities on our findings with respect to the attempted OBI technical share grant, the potentially improper payment to the research laboratory and certain matters that may be related.”

Sig Sauer

The Indian Express reports here reports allegations that Sig Sauer (a U.S. arms manufacturer) conspired with an Indian agent and his associates “to sell arms to India in violation of the FCPA and Indian laws. A JV called Sig Sauer Asia LLC was created with the sole purpose of paying 10 per cent commission on all arms deals made with the Defence and Home ministries in India.”

Spot-On

In a recent Q&A on Law360, William Goodman (Kasowitz) stated as follows.

“Q: What aspects of your practice area are in need of reform and why?

A: In the area of federal criminal practice, there must be reform in and reduction of the power of prosecutors to force individuals and corporations to cooperate in marginal cases by threatening draconian outcomes if cooperation is not forthcoming. This practice is particularly reprehensible because it does not achieve anything approaching a fair result in many cases. When lawyers and clients have to cave in to pressure based on a threatened punishment and not based on the merits of the case, the truth and genuine justice take a back seat to expediency.”

In this recent Op-Ed in the Wall Street Journal titled “Corporate Crime and Punishment” David Rivkin and John Carney stated as follows.

“Two weeks ago, a unanimous Supreme Court rebuffed the Securities and Exchange Commission Gabelli v. SEC. The SEC maintained that its enforcement actions for fines under the Investment Advisers Act weren’t subject to the five-year statute of limitations. This wasn’t the first time the courts have pushed back a federal agency for overreaching. It won’t be the last.  But the SEC’s audacity prompts a broader policy question: What good is accomplished by imposing monetary penalties on corporations, as the agency attempted to do in Gabelli? The answer is that when such penalties are sought by the government, they probably do more harm than good.  Monetary damages, including penalties, that are awarded in private lawsuits are an attempt to compensate victims of corporate fraud and other unlawful behavior, usually shareholders or customers, making them as “whole” as the law can approximate. The SEC doesn’t seek monetary fines in most cases—it has an array of other enforcement options including injunctive or remedial relief. When it does pursue a fine, however, the purpose is solely punitive. In Gabelli, for example, the SEC brought two sets of claims against principals of an investment firm who countenanced a client’s “market timing” scheme. The first claim sought disgorgement of profits to the government—a remedy that Gabelli didn’t appeal. But the SEC also sought large monetary fines designed solely to punish the defendants and brand them as wrongdoers. Who is the wrongdoer in such a situation? The company officials who made the bad decisions? The board of directors? The shareholders? Pinning a wrongdoer label on the corporation as a whole or fining a corporation in this way—years after any alleged wrongdoing—punishes current shareholders for conduct that benefited a largely different group of shareholders, if any benefit was conferred at all. From a current shareholder’s point of view, government-imposed corporate fines are virtually indistinguishable from a tax on investing, and are thus a disincentive for doing so.”

[…]

“The principal rationale for levying fines is to deter corporate wrongdoing. The mismatch between the shareholders that benefit from misconduct and those that are ultimately punished undermines this rationale.  Corporate fines are equally problematic when considered as punishment for a manager’s bad conduct. Fine an individual for his conduct, and you are likely to deter him from doing it again. Fine a corporation, and the managers responsible for the misconduct have almost always left or been fired long beforehand. New managers are in place, and for them the tab is just a price of doing business.  Moreover, even the threat of government fines or penalties puts immediate, intense pressure on a corporation to settle, regardless of the merits. A protracted legal fight means a public-relations nightmare. It could also impinge on corporate earnings, the reputations of current executives, and relationships with regulators and other business concerns.  Whether the corporation is actually culpable of wrongdoing is a consideration, but it may not be a major one. That question can be beside the point of getting back to business and avoiding a prolonged battle with the SEC. In the large number of settlement scenarios where actual guilt isn’t the most pressing or relevant consideration, the fines don’t by definition deter any future misconduct.  In any event, when the government obtains fines from corporate wrongdoers, the monies rarely go to any ascertainable “victims”—they merely transfer funds from businesses to an already bloated public sector. With the aggregate penalties often running into the billions of dollars, the economic distortions involved are substantial.”

“More recently, the SEC fined Eli Lilly $29 million in December 2012 for alleged misconduct that purportedly began more than a decade ago.”

As I highlighted in this post, it is an open question whether the Lilly enforcement action really accomplished anything.

Reading Stack

This recent Debevoise & Plimpton FCPA Update focuses on Latin America and contains useful charts of corporate enforcement actions, individual enforcement actions, and instances of FCPA scrutiny (2005 to 2012) that have involved alleged business conduct in Latin America.  Over at his FCPAmericas blog, Matt Ellis also recently posted here and here FCPA enforcement actions involving conduct in Latin America.

A useful update here from WilmerHale titled “Recent Court Decisions Reveal Litigation Challenges for SEC.”  It begins as follows.

“Although the US Securities and Exchange Commission may have significant leverage to get what it wants during the course of an investigation and even in settlements, several recent court decisions strongly suggest that the playing field levels once the agency ends up in litigation. From the US Supreme Court to the federal district courts, litigants are pushing back effectively against the SEC on everything from when the clock starts for the SEC to bring an action for civil monetary penalties to key discovery questions.”

From Sidley & Austin attorneys Kimberly Dunne and Alexis Buese an article (here) titled “Holding the Government to its Burden of Proof in FCPA Cases:  Litigating Jury Instructions.”  The article notes as follows.

“Unlike corporate defendants that resolved FCPA investigations pre‐indictment, individual defendants were not as willing to accept the government’s aggressive pre‐indictment demands or its broad interpretation of the statute, which the defense bar considered vague and untested. What ensued from the indictments that followed were a number of defense upsets.”

In my 2010 article “The Facade of FCPA Enforcement,” I noted that government enforcement agencies, when challenged, are vulnerable in contested actions and encouraged more FCPA defendants to challenge the enforcement agencies and further expose the facade of FCPA enforcement.

Events of Interest

Dow Jones Global Compliance Symposium, April 2-3 in Washington, D.C..  I will be participating in a panel titled “The FCPA:  Does It Need Further Clarifying” along with Paul McNulty (Baker & McKenzie and former Deputy Attorney General) and David Yawman (Senior Vice President & Chief Compliance and Ethics Officer, PepsiCo, Inc.).  The panel is being moderated by Joe Palazzolo of the Wall Street Journal.

TRACE International, in partnership with Barrick Gold Corporation and Arnold & Porter LLP, presents a 1-day seminar on Anti-Corruption for the Extractive Industries being held on April 23, 2013 in Toronto, Canada.  (See here).

Neither Admit Nor Deny: Corporate Crime in the Age of Deferred Prosecutions, Consent Decrees, Whistleblowers and Monitors sponsored by Corporate Crime Reporter at the National Press Club in Washington, D.C. on May 3.  I will be participating in a panel titled “Deferred and Non-Prosecution Agreements” along with Anthony Barkow (Jenner & Block), Steven Fagell (Covington), Kathleen Harris (Arnold & Porter), Denis McInerney (Deputy Assistant Attorney General, DOJ Criminal Division), and David Uhlmann (Univ. of Michigan Law School).

*****

A good weekend to all and good luck with your brackets.

Friday Roundup

In the classroom, survey says, a candid statement, on-point, an informative read, patience and a prediction.  It’s all here in the Friday roundup.

In The Classroom

I was pleased to learn that my recent article “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Exposure” (here) was required reading for the MBA students in Jeffrey Klink’s FCPA-related class at the University of Pittsburgh Joseph S. Katz Graduate School of Business. (See here for a recent profile of the class.)  Klink (a former AUSA and current CEO of Klink & Co., a global risk management firm – here) shared the following.

“During our class we discussed your recent article regarding the Wal Mart case at length.   Many students opined that it was likely that many of the payments were in fact facilitation payments and especially where permits would definitely be issued.  The majority of students, however, believed that probably many payments were not clerical or ministerial, noting that according to the NY Times article, payments caused zoning maps to be changed, and environmental permits were obtained likely without proper process.   Students believed that these kinds of payments were not grease or skid payments, but were in fact bribes designed to allow Wal Mart to open new stores without competition, thus gaining new business.  All but one of the 41 students (a bright law student held out) present believed that Wal Mart had successfully obtained new business by paying  bribes through the $24 million in payments to gestores.  We also discussed the significance of an organization’s compliance culture.   Wal Mart was viewed very negatively by the students, having been subject to successful discrimination suits regarding gender bias, its poor treatment of vendors, locking its own injured employees inside stores, and the facts of the Mexico bribery case, where, if the NY Times article is correct, it was clear that top officials buried facts, did not pursue an investigation, and promoted corrupt executives to high ranking positions.   As geography under the FCPA can also be destiny, I also noted that Mexico is rated #100 by TI, and it doesn’t appear that Wal Mart had a risk plan in place to address its growth in places where corruption and bribery are extremely common and not unexpected.  Many students believed that Wal Mart, like other large organizations, likely engaged in, and continues to engage in, cost – benefit thinking where executives conclude that the cost of bribery is not significant compared to the benefits that accrue to the organization through growth and profits.”

Staying on campus and referring to “THE” New York Times article (see here for the prior post) readers may enjoy this webcast of the recent Wal-Mart focused Milbank Tweed Forum at the NYU School of Law.  Moderated by Professor Kevin Davis (the author of recent FCPA scholarship – here and here), the panel included David Barstow, the investigative reporter at the New York Times who broke the Wal-Mart story.

Survey Says

Speaking of the significance of the FCPA, a recent boardroom survey conducted by BDO USA (an accounting and consulting firm) reveals as follows.  “One-third (33%) of directors cite corruption/bribery as the greatest fraud risk facing their company, compared to approximately one-fifth that identify either revenue recognition (20%) or earnings management (18%).  Two-thirds (68%) of directors indicate their companies conduct business in foreign locations or with foreign customers or suppliers. Of those conducting international business, a majority (57%) say they deal with foreign officials and almost one-third (32%) of those believe compliance risks related to bribery of government officials has increased over the past two years, compared to just four percent reporting a decrease.”

The survey, conducted in late August and early September 2012, examined the opinions of 72 corporate directors of public company boards, with revenues ranging from $250 million to $750 million, regarding financial reporting and corporate governance issues. For more, see this BDO release.

Candid Statement

Hank Walther (a former Assistant Chief in the DOJ’s FCPA unit and currently at Jones Day – see here), stated in this recent interview in the Metropolitan Corporate Counsel as follows.

“Most government attorneys realize that a company can take every reasonable step to prevent wrongdoing but ultimately is powerless if somebody really wants to break the law.”

Makes you wonder why the DOJ is steadfast in its opposition to an FCPA compliance defense.  But then again the current enforcement environment provides the DOJ maximum leverage.  However, for the reasons I articulate in “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (here), the DOJ should be in favor of a compliance defense.

On-Point

This previous post, “Testing Innocence,” noted that the longest individual FCPA sentences (Joel Esquenazi and Carlos Rodriguez) were issued in enforcement actions where the defendants exercised their constitutional rights to a jury trial.  The conduct Esquenazi and Rodriguez allegedly engaged in (and the jury found, although their appeals are pending) paled in comparison to some other FCPA individual prosecutions – such as the individual prosecutions in the Bonny Island Nigeria cases.  What did Esquenazi and Rodriguez do that warranted such a long sentence?  They tested their innocence.

The FCPA community once again saw the high cost of testing innocence this past spring and summer when the individual defendants in the so-called Carson enforcement action pleaded guilty on the eve of trial.  (See here, here, here).  The guilty pleas came after the trial court judge issued a pro-defendant jury instruction relating to knowledge of foreign official.  (See here).  On the brink of the DOJ being put to its ultimate burden of proof on “foreign official” and other elements as well, the DOJ offered plea agreements to substantially reduced charges and the defendants, likely mindful of the high costs of testing their innocence, did what most rationale, risk averse actors in their position would do – agreed to plead guilty.

The Wall Street Journal ran a feature story this week “Federal Guilty Pleas Soar As Bargains Trump Trial” (here) which documented the trend of a “growing number of federal defendants who [plead guilty] often to avoid the lengthy prison sentences that can come with losing at trial.”  Among other things, the article noted that “federal [sentencing] guidelines not only toughened punishments but also formalized a system to reward defendants who plead guilty by reducing sentences if they accept responsibility or cooperate with prosecutors, among other things.  As part of plea deals, federal prosecutors often drop additional charges that could add years, or decades, to a sentence.  Going to trial brings none of those benefits for the accused.”

The WSJ article included research (here) co-authored by my Southern Illinois University School of Law colleague Lucian Dervan (here) which found that 55% of students who were innocent in a control group study pleaded “guilty.”  The study showed “a strong compulsion to have the matter resolved even if it meant confessing to something that they really didn’t do.”

Informative Read

Breon Peace and Ryan Becker (Cleary Gottlieb Steen & Hamilton – here and here) recent authored this informative article in Bloomberg Law that touches upon just about everything you would want to know about the FCPA and statute of limitations.  The article, written in the context of Wal-Mart’s potential FCPA scrutiny discusses black letter law and judicial decisions, but rightly notes in connection with Wal-Mart as follows.

“Given the facts as reported by the New York Times, Wal-Mart, and individuals involved in the bribery scheme, would have a plausible statute of limitations defense to any FCPA actions—even a potential conspiracy charge. As a practical matter, companies, especially publicly held companies like Wal-Mart, typically make a strategic decision to fully cooperate with a DOJ investigation. Despite the potential success of a statute of limitations defense, a company will often make the judgment that the negative press of a protracted investigation and the uncertainty of the outcome at trial make cooperation the more prudent business judgment. The company’s hope is that it will be given credit for the cooperation and it will achieve a better outcome than if it went to trial (i.e., avoid charges, a deferred prosecution agreement, or a reduced fine).”

Patience

Before Wal-Mart’s potential FCPA scrutiny dominated the headlines, there was News Corp.  In July 2011, world-wide media attention focused on the company, not just the phone hacking aspects of the scandal, but the potential FCPA implications as well.  See here for the prior post.  In the prior Q&A style post, I addressed the issue of how long the FCPA gray cloud will likely hang over News Corp. and said that it would likely be between 2-4 years if the case followed the typical pattern.  In February of this year, I noted (here) that the FCPA aspect of News Corp.’s scrutiny was following a typical path.

Eliot Spitzer (former New York Governor, former New York Attorney General and current TV personality) apparently is not aware of the typical path.  In this recent Slate article titled “Why Hasn’t Eric Holder Charged News Corp. With Foreign Corrupt Practices?” Spitzer writes as follows.

“[W]here is the inept U.S. Department of Justice in all this? The DOJ has brought many irrelevant and tiny cases against companies for violating the Foreign Corrupt Practices Act, which makes it illegal to bribe either individuals or government officials, even in a company’s overseas operations. The DOJ loves to use the statute to show just how tough it is. Yet now they have the most important case sitting right there in front of them. It’s easy. Even a rookie could field this one. But what are they doing? It’s not clear. If they fail to make this case against News Corp., Eric Holder is a failure as attorney general.”

Patience.  And while Sptizer is waiting, he may want to brush up on the FCPA – not sure what he means when he says that the FCPA “makes it illegal to bribe either individuals or government officials.”

Prediction

No, I am not going to predict that the DOJ’s FCPA guidance will be released next week.  OK, maybe I will, see here from Compliance Week.

Rather my prediction concerns FCPA risk in India.

The Indian Commerce Ministry recently eased (see here) foreign investment restrictions giving multi-brand retailers greater access to the growing Indian market.  Per the new policy, it will be the “prerogative of the states to allow a multi brand store” and “local and state-level regulations which govern shops and establishment are the prerogative of the respective state governments.”

I predict that India’s new FDI policy will be an FCPA compliance headache for relevant companies seeking to expand in India as the new policy facilitates points of contact between a company and state and local officials in regards to license, permit, and land issues.  In “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (see here), I highlight how companies subject to the FCPA are often funneled into an arbitrary world of low-paying civil servants who frequently supplement their meager salaries through payments condoned in the host country.  I argue that such barriers create the conditions in which harassment bribes flourish and I predict India’s new FDI policy will do just that.

*****

A good weekend to all.

Friday Roundup

Coming attractions, monitor talk, LatinNode related individual sentences, just who are those “gestores,” scholarship of note, and Supreme Court quotables.  It’s all here in the Friday roundup.

Coming Attractions

This prior post contained FCPA practitioner Homer Moyer’s discussion of industry sweeps.  Industries that have been subjected to industry sweeps or are reportedly in the middle of industry sweeps include:  oil and gas, pharmaceutical / medical devices, and financial services.

Add Hollywood film studies to the list.

Reuters reports (here) that the SEC “has sent letters of inquiry to at least five movie studios in the past two months, including News Corp’s 20th Century Fox, Disney, and DreamWorks Animation” that “ask for information about potential inappropriate payments and how the companies dealt with certain government officials in China.”

The New York Times (here) also reported on the letters of inquiry and stated that the SEC “has begun an investigation into whether some of Hollywood’s biggest movie studios have made illegal payments to officials in China to gain the right to film and show movies there.”

In other disclosure news, Turkcell Iletisim Hizmetleri A.S. (Turkcell), Turkey’s only New York Stock Exchange listed company, recently disclosed in an SEC filing (here) as follows.  “Some of [the countries the company operates in] also suffer from relatively high rates of fraud and corruption. For example, allegations have been made regarding improper payments relating to the operations of KCell, a mobile operator in Kazakhstan and 51% subsidiary of Fintur Holdings B.V., in which we hold a 41.45% stake, while TeliaSonera holds the remainder. The allegations were discussed by Turkcell’s Board of Directors, which requested an independent investigation of the allegations made. TeliaSonera initiated an independent investigation as agreed by the Fintur Board. The Turkcell Board has been informed that to date there has not been substantiated any such allegations and the Fintur Board informs us that it has completed its own investigation. Since no assurance can be given that there will not be further requests for investigation, we remain vigilant on this matter.”

In other disclosure news, in October 2006, the SEC informed the Bristol Myers Squibb Company that it had begun a formal inquiry into the activities of certain of the company’s German pharmaceutical subsidiaries and its employees and/or agents.  The company previously disclosed that “the SEC’s inquiry encompasses matters formerly under investigation by the German prosecutor in Munich, Germany, which have since been resolved,” that the inquiry concerns potential violations of the FCPA and that “the company is cooperating with the SEC.”  Yesterday, in a 10-Q filing, the company stated as follows.  “In March, 2012, the Company received a subpoena from the SEC. The subpoena, issued in connection with an investigation under the FCPA, primarily relates to sales and marketing practices in various countries. The Company is cooperating with the government in its investigation of these matters.”

According to my tally, over the past two months, approximately 15 companies have newly disclosed, or been linked to, FCPA scrutiny.  See here for the prior post “The Sun Rose, a Dog Barked, and a Company Disclosed FCPA Scrutiny.”  (And no, Wal-Mart is not included in this list, the company disclosed its FCPA scrutiny in December 2011).

Hercules Offshore disclosed better news in its 10-Q filing yesterday.  The company stated as follows.  “On April 4, 2011, the Company received a subpoena issued by the Securities and Exchange Commission (“SEC”) requesting the delivery of certain documents to the SEC in connection with its investigation into possible violations of the securities laws, including possible violations of the Foreign Corrupt Practices Act (“FCPA”) in certain international jurisdictions where the Company conducts operations. The Company was also notified by the Department of Justice (“DOJ”) on April 5, 2011, that certain of the Company’s activities were under review by the DOJ. On April 24, 2012, the Company received a letter from the DOJ notifying the Company that the DOJ has closed its inquiry into the Company regarding possible violations of the FCPA and does not intend to pursue enforcement action against the Company. The DOJ indicated that its decision to close the matter was based on, among other factors, the thorough investigation conducted by the Company’s special counsel and the Company’s compliance program. The Company, through the Audit Committee of the Board of Directors, intends to continue to cooperate with the SEC in its investigation. At this time, it is not possible to predict the outcome of the SEC’s investigation, the expenses the Company will incur associated with this matter, or the impact on the price of the Company’s common stock or other securities as a result of this investigation.”

For the second straight day, I say kudos to the DOJ.  Yet, I also ask on consecutive days – would anything really change with an FCPA compliance defense?  As I note in “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (here) the DOJ already recognizes a de facto FCPA compliance defense albeit in opaque, inconsistent and unpredictable ways. Thus, an FCPA compliance defense accomplishes, among other things, the policy goal of removing factors relevant to corporate criminal liability from the opaque, inconsistent, and unpredictable world of DOJ decision making towards a more transparent, consistent, and predictable model best accomplished through a compliance defense amendment to the FCPA.

Monitor Talk

As discussed in this prior post, in March Biomet resolved an FCPA enforcement action involving $22.8 million in combined fines and penalties ($17.3 million via a DOJ deferred prosecution agreement, and $5.5 million via a settled SEC civil complaint).  Pursuant to the DPA, Biomet agreed to engage an independent compliance monitor “for a period of not less than 18 months” and to provide periodic reports to the DOJ regarding remediation and implementation of the enhanced compliance measures as described in an attachment to the DPA.

As evidence that investor concern regarding FCPA issues does not end on enforcement action day, during a recent earnings conference call, an analyst asked Biomet CEO Jeff Binder the following question.

“I guess just with regard to the DOJ settlement that was announced for the FCPA potential violations, I’m just wondering — I guess you’re going to have an 18-month monitoring period. So I assume that would only apply to your international business? And then maybe even within the international business, would that only apply to certain regions where there have been problems found? And then what sort of a pricing — sorry, not pricing, but cost impact do you expect from that monitoring? Is it something material or not?”

Binder responded as follows.  “Yes. You’re correct that the monitorship will apply to our businesses outside the United States, but the monitors purview is broad outside the United States. The monitor has the ability to take a look at our businesses across the world. The monitor will do a risk assessment upfront. They’ll understand where our issues have been and they’ll take a look at our processes. They’ll develop that risk assessment. They’ll come up with a work plan that’s based on that risk assessment. And we’ll take it from there. We don’t expect that additional expenses for the monitor will be material to the business. DOJ and SEC require the candidates for the monitorship to submit budgets of the projected services for their work. And I’d just say that the amounts that were set forth in those budgets are not material, and we don’t anticipate significant internal expenses associated with the monitorship.”

LatiNode Individual Sentences

As noted in this DOJ release, in April 2009 LatiNode, a privately held Florida corporation, pleaded guilty to violating the Foreign Corrupt Practices Act in connection with improper payments in Honduras and Yemen and agreed to pay a $2 million criminal penalty.  Thereafter, several of its former executives – Jorge Granados, Manuel Caceres, Manuel Salvoch, and Juan Vasquez were criminally charged and pleaded guility.

Earlier this week Caceres (former vice president of business development at LatiNode) and Vasquez (a former senior commercial executive at LatiNode) were sentenced.  U.S. District Court Judge Joan Lenard (S.D. of Fl.) sentenced Caceres to 23 months followed by 1 year supervised release – the DOJ sought a 36 month sentence.  U.S. District Court Judge Patrricia Seitz (S.D. of Fl.) sentenced Vasquez to 3 years probation, community service, home detention and monitoring and ordered him to pay a $7,500 criminal fine – the DOJ originally sought a 36 month sentence and recently stated that it “would not oppose a sentence for Vasquez that was less than the sentence for Caceres and Salvoch [who is yet to be sentenced].”

As noted in this prior post, in September 2011, Granados was sentenced to 46 months in prison.

“Gestores”

The New York Times article suggested that many of the Wal-Mart Mexican payments at issue were routed through Mexican gestores.   Just who are those “gestores.”?  I found this article from CBS of interest.  The article states as follows.   “A visit to any government office is likely to bring the sighting of a well-dressed man carrying reams of documents who will glide past the long lines, shake hands with the official behind the counter and get ushered into a backroom, where his affairs presumably get a fast-track service. The suspicion is these go-betweens funnel a portion of the fees they charge clients to corrupt officials to smooth the issuance of permits, approvals and other government stamps.  In a country where laws on zoning rules, construction codes and building permits are vague or laxly enforced, the difference between opening a store quickly and having it held up for months may depend on using a gestor.”

Scholarship of Note

Pre-Wal-Mart, the FCPA conversation of the spring focused on charitable contributions in the context of the Wynn-Okada dispute.  See here, here and here for the prior posts.  Other posts have noted (see here) that, strange as it may sound, the FCPA’s anti-bribery provisions are only implicated when something of value is provided, directly or indirectly, to a foreign official to influence the official in obtaining or retaining business.  The FCPA’s anti-bribery provisions are not implicated when the thing of value is provided to a foreign government itself.  Other prior posts (here and here) have discussed Dodd-Frank Act Section 1504’s Resource Extraction Disclosure Provisions.

Given my prior writings on these issues, I was pleased when Emory University School of Law student Francesca Pisano sent me the student comment “Anti-Corruption Law & Corporate Philanthropy: Rethinking the Regulations” (here) selected for publication in a forthcoming issue of the Emory Law Journal.

The abstract states as follows.

“When the 2010 earthquake hit Port-au-Prince, Haiti, U.S. companies donated over $146.8 million to the relief effort. Despite this impressive display of global engagement, commentators suggested that the US anti-corruption laws had discouraged corporations from greater involvement. Even with the laws in force, however, reports of corruption in the relief effort soon surfaced, derailing Haiti’s recovery. Foreign aid that feeds corruption will never achieve sustainable growth, but development efforts will similarly fail if U.S. anti-corruption laws discourage corporate philanthropy.  This comment analyzes the application of two U.S. anti-corruption laws, the Foreign Corrupt Practices Act (“FCPA”) and the Dodd-Frank Section 1504, to international corporate charity. It shows how the FCPA’s ambiguous nature has the unfortunate effect of being both over- and under-inclusive, discouraging bona fide charity while at the same time failing to capture corrupt donations. The recently-enacted Dodd-Frank Section 1504 has great potential, but the SEC’s proposed rules have created a loophole to allow corruption to continue if hidden in corporate charity.  This comment proposes a modification to FCPA enforcement: creating a Safe Harbor Option. This will offer businesses the opportunity to “buy” a rebuttable presumption of legitimacy for their charitable donations by publically disclosing the payments, projects, and recipients of their philanthropy. Granting a presumption of legitimacy to disclosed donations will ameliorate many of the over-inclusive aspects of the FCPA. The increased disclosure will allow the public to monitor corporate charity and question suspicious gifts, ameliorating the under-inclusive aspects of FCPA enforcement. This comment also argues that Section 1504 should be defined expansively to prevent charity from being used to circumvent the congressional goals of increasing transparency and combating corruption. If properly defined, Section 1504 is an excellent example of regulation through disclosure and transparency, rather than prohibitions.”

Supreme Court Quotable

This recent post discussed non-FCPA caselaw that touched upon issues relevant to the recent “foreign official” challenges.  Last week, the Supreme Court issued its opinion (here) in Mohamad v. Palestinian Authority concerning the scope of the Torture Victim Protection Act.  The Court, in an opinion authored by Justice Sotomayor held that the term “individual” in the TVPA encompasses only natural persons, and thus the law does not impose liability against corporatons.  In her opinion, Justice Sotomayor’s stated, among other things, as follows.

“Congress remains free, as always, to give the word [individual] a broader or different meaning. But before we will assume it has done so, there must be some indication Congress intended such a result.”

“We add only that Congress appeared well aware of the limited nature of the cause of action it estab­lished in the Act.”

“The text of the TVPA convinces us that Congress did not extend liability to organizations, sovereign or not. There are no doubt valid arguments for such an extension. But Congress has seen fit to proceed in more modest steps in the Act, and it is not the province of this Branch to do otherwise.”

*****

I went to Walmart last night.  After completing my purchase and before exiting the store, I stopped, looked around, and thought, wow, what a week!

A good weekend to all.

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