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Friday Roundup

Contorted, interesting, deserving?, scrutiny alerts and updates, and for the reading stack.  It’s all here in the Friday Roundup.

Contorted

One of the most contorted words in the FCPA vocabulary is “declination” (see here among other posts).

This K&L Gates report contains a useful summary of DOJ and SEC comments at a recent conference.  It states:

“Mr. Knox [DOJ Criminal Division Fraud Section Chief] stated that companies continue to request specific information regarding the Department’s declinations, but that it is the Department’s long-standing practice not to publish details of declinations without a company’s permission, which is rarely given.  According to Mr. Knox, however, over the last two years, the Department has declined to prosecute dozens of cases.  Notably, Mr. Knox stated that, aside from finding no evidence of criminal conduct, the Department may issue a declination when a case involves an isolated incident, the company had a strong compliance program, and the problem was remediated.”

Newsflash.

If the DOJ does not find evidence of criminal conduct and therefore does not bring a case, this is not a “declination,” it is what the law commands.

On the topic of voluntary disclosure, the K&L Gates report states:

“Mr. Cain [SEC FCPA Unit Deputy Chief] started by stating “there is no perfect compliance program;” therefore, companies will always have some “background issues” which need to be addressed, especially as business and risk profiles change.  Mr. Cain does not expect companies to disclose these “normative” problems; however, companies should disclose “significant problems.”  These “significant problems” are the types of issues which may end up being enforcement actions if the SEC learns of them through means other than self-disclosure.”

“Mr. Knox took the position that it would be “very reckless and foolish” for him “to try and draw a line between matters which should be self-disclosed and matters which shouldn’t.”  In making the decision of whether to self-disclose, he advised companies and counsel to apply “common sense” and ask whether this is “something that [the Department] would be interested in hearing about?”  According to Mr. Knox, if the answer to that question is “yes,” then the Department would “probably want [a company] to self-disclose it.”  Nonetheless, there are instances which are not worthy of self-disclosure because the conduct is “minor” and “isolated” or the allegation of wrongdoing is “much too vague.”  Mr. Knox advised companies to “be thoughtful” when making disclosure decisions and carefully document any decision not to disclose.”

If the above leaves you scratching your head, join the club.

Interesting

My article “Why You Should Be Alarmed by the ADM FCPA Enforcement Action” highlights how ADM and its shareholders were victims of a corrupt Ukrainian government in that the government refused to give ADM something even the DOJ and SEC acknowledged ADM was owed – VAT refunds.  Among other things, the article discusses how VAT refund refusals were well-known and frequently criticized prior to the ADM enforcement action in late 2013.

Fast forward to the present day and VAT refund refusals remain a problem in Ukraine.  Recently the International Monetary Fund issued this release concerning a potential aid package for Ukraine.  Among the conditions is that Ukraine  adopt “reforms to strengthen governance, enhance transparency, and improve the business climate” such as taking “measures to facilitate VAT refunds to businesses.”

Deserving?

Earlier this week, the African Development Bank Group (AfDB) released this statement

“Kellogg Brown & Root LLC, Technip S.A. and JGC Corp. agree to pay the equivalent of US $17 million in financial penalties as part of Negotiated Resolution Agreements with the African Development Bank following admission of corrupt practices by affiliated companies in relation to the award of services contracts for liquefied natural gas production plants on Bonny Island, Nigeria, from 1995 until 2004.”

The Director of the AfDB’s Integrity and Anti-Corruption Department stated:

“This settlement demonstrates a strong commitment from the African Development Bank to ensure that development funds are used for their intended purpose.  At the same time, it is a clear signal to multinational companies that corrupt practices in Bank-financed projects will be aggressively investigated and severely sanctioned. These ground-breaking Negotiated Resolution Agreements substantially advance the Bank’s anti-corruption and governance agenda, a strategic priority of our institution.”

Pardon me for interrupting this feel good moment (i.e. a corporation paying money to a development bank), but why is AfDB deserving of any money from the companies?  As noted here, AfDB’s role in the Bonny Island project was relatively minor as numerous banks provided financing in connection with the project.  Moreover, as noted here, the AfDB “invested in the oil and gas sector through a USD 100 million loan to NLNG [Nigeria LNG Limited] to finance the expansion of a gas liquefaction plant located on Bonny Island.”

As alleged in the U.S. Bonny Island FCPA enforcement actions, the above-mentioned companies allegedly made corrupt payments to, among others, NLNG officials.  And for this, the specific companies paid $579 million (KBR, et al), $338 million Technip, and $219 million (JGC).

Why is the bank that loaned money to NLNG deserving of anything?  Is there any evidence to suggest that the $100 million given to NLNG was not used for its “intended purpose” of building the Bonny Island project?

Scrutiny Alerts and Updates

SBM Offshore, Sweett Group, Citigroup, Cisco, and Societe Generale.

SBM Offshore

The Netherlands-based company (with ADRs traded in the U.S. that provides floating production solutions to the offshore energy industry) has been under FCPA scrutiny for approximately two years.  It recently issued this statement which states, in summary, as follows.

“SBM Offshore presents the findings of its internal investigation, which it started in the first quarter of 2012, as the investigators have completed their investigative activities. The investigation, which was carried out by independent external counsel and forensic accountants, focused on the use of agents over the period 2007 through 2011. In summary, the main findings are:

  • The Company paid approximately US$200 million in commissions to agents during that period of which the majority relate to three countries: US$18.8 million to Equatorial Guinea, US$22.7 million to Angola and US$139.1 million to Brazil;
  • In respect of Angola and Equatorial Guinea there is some evidence that payments may have been made directly or indirectly to government officials;
  • In respect of Brazil there were certain red flags but the investigation did not find any credible evidence that the Company or the Company’s agent made improper payments to government officials (including state company employees). Rather, the agent provided substantial and legitimate services in a market which is by far the largest for the Company;
  • The Company voluntarily reported its internal investigation to the Dutch Openbaar Ministerie and the US Department of Justice in April 2012. It is presently discussing the disclosure of its definitive findings with the Openbaar Ministerie, whilst simultaneously continuing its engagement with the US Department of Justice. New information could surface in the context of the review by these authorities or otherwise which has not come up in the internal investigation to date;
  • At this time, the Company is still not in a position to estimate the ultimate consequences, financial or otherwise, if any, of that review;
  • Since its appointment in the course of 2012 the Company’s new Management Board has taken extensive remedial measures in respect of people, procedures, compliance programs and organization in order to prevent any potential violations of applicable anti-corruption laws and regulations. Both it and the Company’s Supervisory Board remain committed to the Company conducting its business activities in an honest, ethical, respectful and professional manner.”

The SBM Offshore release contains a detailed description of the scope and methodology of its review, as well as remedial measures the company has undertaken.  For this reason, the full release is an instructive read.

Sweett Group

As noted in this prior post, in June 2013 Sweett Group Ltd. (a U.K. based construction company) was the subject of a Wall Street Journal article titled “Inside U.S. Firm’s Bribery Probe.” The focus of the article concerned the construction of a hospital in Morocco and allegations that the company would get the contract if money was paid to “an official inside the United Arab Emirates President’s personal foundation, which was funding the project.”

Earlier this week, the company issued this release which stated:

“[T]here have been further discussions with the Serious Fraud Office (SFO) in the UK and initial discussions with the Department of Justice (DOJ) in the USA.  The Group is cooperating with both bodies and no proceedings have so far been issued by either of them.  The Group has commissioned a further independent investigation which is being undertaken on its behalf by Mayer Brown LLP.  Whilst this investigation is at an early stage and is ongoing, to date still no conclusive evidence to support the original allegation has been found.  However, evidence has come to light that suggests that material instances of deception may have been perpetrated by a former employee or employees of the Group during the period 2009 – 2011.  These findings are being investigated further.”

Citigroup

When first discussing Citigroup’s “FCPA scrutiny” I noted the importance of understanding that the FCPA contains generic books and records and internal controls provisions that can be implicated in the absence of any FCPA anti-bribery issues. (See here for a prior post on this subject).  As highlighted in this recent New York Times Dealbook article, this appears to be what Citigroup’s scrutiny involves.  According to the article:

“Federal authorities have opened a criminal investigation into a recent $400 million fraud involving Citigroup’s Mexican unit, according to people briefed on the matter …  The investigation, overseen by the FBI and prosecutors from the United States attorney’s office in Manhattan, is focusing in part on whether holes in the bank’s internal controls contributed to the fraud in Mexico. The question for investigators is whether Citigroup — as other banks have been accused of doing in the context of money laundering — ignored warning signs.”

Cisco

BuzzFeed goes in-depth as to Cisco’s alleged conduct in Russia that has resulted in FCPA scrutiny for the company. The article states, in pertinent part:

“[T]he iconic American firm is facing a federal investigation for possible bribery violations on a massive scale in Russia. At the heart of the probe by the Department of Justice and the Securities and Exchange Commission, sources tell BuzzFeed, are allegations that for years Cisco, after selling billions of dollars worth of routers, communications equipment, and networks to Russian companies and government entities, routed what may have amounted to tens of millions of dollars to offshore havens including Cyprus, Tortola, and Bermuda.”

“Two former Cisco insiders have described to BuzzFeed what they say was an elaborate kickback scheme that used intermediary companies and went on until 2011. And, they said, Cisco employees deliberately looked the other way.”

“No one is suggesting that Cisco bribed Russia’s top leaders. Instead, the investigation is centered on day-to-day kickbacks to officials who ran or helped run major state agencies or companies. Such kickbacks, according to the allegations, enabled the firm to dominate Russia’s market for IT infrastructure.”

“Last year, according to sources close to the investigation, a whistleblower came forward to the SEC, sketching out a vast otkat [kickback] scheme and providing documents as evidence.”

“The two former Cisco executives laid out for BuzzFeed how the alleged scheme worked:  In Cisco’s Russia operations, funds for kickbacks were built into the large discounts Cisco gave certain middleman distributors that were well-connected in Russia. The size of the discounts are head-turning, usually 35% to 40%, but sometimes as high as 68% percent off the list price.  And there was a catch: Instead of discounting equipment in the normal way, by lowering the price, parts of the discounts were often structured as rebates: Cisco sent money back to the middlemen after a sale. Some intermediaries were so close to the Russian companies and government agencies — Cisco’s end customers — that these intermediaries functioned as their agents. These middleman companies would direct the rebate money to be sent to bank accounts in offshore havens such as Cyprus, the British Virgin Islands, or Bermuda.”

According to the article, WilmerHale is conducting the internal investigation.

Societe Generale

Like other financial services company, Societe Generale has come under FCPA scrutiny for business dealings in Libya.  (See here for the prior post).  As noted in this recent article in the Wall Street Journal, in a U.K. lawsuit the Libyan Investment Authority has alleged that the company “paid a middleman $58 million in alleged bribes to secure almost $2 billion in business … during the final years of dictator Moammar Gadhafi’s rule.”

Reading Stack

The most recent issue of the always informative FCPA Update from Debevoise & Plimpton contains a useful analysis of the DOJ’s recent opinion procedure release (see here for the prior post).  Among other things, the Update states:

“[W]hy did it take eight months for the DOJ to issue an Opinion which could have simply cited [a prior Opinion Release]? The delay does not appear to be related to the DOJ’s heavy workload or bureaucratic inertia, as “significant backup documentation” was provided and “several follow up discussions” took place during the eight months.”

*****

A good weekend to all.  On Wisconsin!

Company Receives DOJ Green Light To Purchase Foreign Businessman’s (Turned “Foreign Official”) Minority Interest In A Company For Fair Market Value

Earlier this week, the DOJ released Foreign Corrupt Practices Act Opinion Procedure Release 14-01.  It is the DOJ’s first Opinion Procedure Release of 2014 and only the second such release since October 2012.   This post provides a summary of Release 14-01.

The Requestor (an issuer) was a financial services company and investment bank that was the majority shareholder of a foreign financial services company (“Foreign Company A”) and had contracted to purchase the remaining minority interest in Foreign Company A from a foreign businessman (“Foreign Shareholder”).

It would appear that the Requestor grew skittish about this mundane, routine transaction for two reasons.

First, approximately 4.5 years after Requestor purchased a majority interest in Foreign Company A (a company founded and owned by Foreign Shareholder), the Foreign Shareholder “was appointed to serve as a high-level official at Foreign Country’s central monetary and banking agency” (“Foreign Agency”).

Second, although the original agreement between the Requestor and the Foreign Shareholder contained a formula for the purchase price of Foreign Shareholder’s shares (the formula was based on a multiple of Foreign Company A’s average net income for the two years preceding the buyout), the parties “agreed not to use the valuation formula” set forth in the original agreement.  According to the release, because Foreign Company A experienced yearly operating  losses from 2008 to 2011 (an event the Requestor attributed to the 2008 global financial crisis) the original formula dictated that Foreign Shareholder’s shares “had no value.”

According to the release, “Requestor contends that any attempt to enforce the [original] Agreement as written would likely have led to litigation or Foreign Shareholder selling the Shares to a third party” – an event Requestor explained would carry substantial risks to Foreign Company A’s operations and profitability.

According to the release, the Requestor and Foreign Shareholder thus agreed “that they would instead ask an accounting firm to make an independent and binding determination of the Share’s value” and according to the release “a leading, highly regarded, global accounting firm” was engaged to do that.

Against this backdrop, the Requestor sought “an opinion that the DOJ will not initiate any enforcement action if Requestor consummates the purchase of the Shares for the appraised value.”  As noted in the Release, the Requestor made several representations and warranties relating to the purchase of the Shares, including the following:

“Foreign Shareholder has represented and warranted that, since his appointment at Foreign Agency, he has recused himself from, and has not influenced or sought to influence, any decisions by Foreign Agency, Foreign Country’s government, or any third party with respect to the Recusal Entities ([the Requestor, Foreign Company A, or their affiliates]). Foreign Shareholder also has recused himself from, and has not influenced or sought to influence, any supervisory or regulatory matters with respect to any of the Recusal Entities. Foreign Shareholder will continue to so recuse himself until after completion of the buyout of the Shares.”

“Requestor obtained a representation from Foreign Shareholder that he has disclosed his ownership interest and the proposed sale of the Shares in Foreign Company A to the relevant government authorities of Foreign Country and the relevant department at Foreign Agency, and the relevant government authorities have informed him that they approve or do not object to the sale of the Shares.”

In the “Analysis” section of the Release, the DOJ stated:

“Based upon all of the facts and circumstances, as represented by the Requestor, the Department does not presently intend to take any enforcement action with respect to the proposed buyout arrangement described in the Request.”

In pertinent part, the DOJ opined as follows.

“[T]he FCPA does not per se prohibit business relationships with, or payments to, foreign officials.” Opinion Release 2010-03, at 3 (Sept. 1, 2010). Where such an arrangement exists, “the Department typically looks to determine whether there are any indicia of corrupt intent, whether the arrangement is transparent to the foreign government and the general public, whether the arrangement is in conformity with local law, and whether there are safeguards to prevent the foreign official from improperly using his or her position to steer business to or otherwise assist the company, for example through a policy of recusal.” Id.

With respect to indicia of corrupt intent, the proffered purpose of the payment is to sever the parties’ existing financial relationship, which began before the Foreign Shareholder held an official position. Doing so would also avoid what would otherwise be an ongoing conflict of interest. The decision by the parties to employ an alternative valuation formula appears reasonable given the facts presently known. Requestor has represented that unforeseen market circumstances, as well as legitimate business considerations, prompted and justified the renegotiation of the buyout formula contained in the [original] Agreement.  […]  [A]ttempting to hold Foreign Shareholder to the terms of the [original] Agreement and pay little or nothing for the Shares presents commercial and legal risks to Requestor. Foreign Shareholder could institute litigation, and Requestor would face litigation costs and bear the risk of having to pay an even greater amount to Foreign Shareholder. Alternatively, Foreign Shareholder is not obligated to sell the Shares back to the Subsidiary and could sell them to a third party, potentially resulting in an undesirable or disadvantageous partnership.”

[R]equestor’s decision to engage the Firm to serve as the independent and binding arbiter of the value of the Shares provides additional assurance that the payment reflects the fair market value of the Shares, rather than an attempt to overpay Foreign Shareholder for a corrupt purpose.

[…]

Accordingly, because the facts, representations, and warranties described in the Request demonstrate at present that the only purpose of the payment to Foreign Shareholder is consideration for the Shares, the Department does not presently intend to take any enforcement action. The Department notes, however, this Opinion does not foreclose future enforcement action should facts indicative of corrupt intent (such as an implied understanding that Foreign Shareholder would direct business to Requestor or inflated earnings projections being used to induce Foreign Shareholder to act on Requestor’s behalf) later become known.”

*****

One frequent criticism of DOJ FCPA releases – including as noted in the OECD’s 2010 Report – is that it simply takes too long for the Requestor to receive an answer.

On this issue, the following is relevant to Release 14-01.  The Requestor submitted the request on July 8, 2013.  On July 25, 2013 the DOJ sent Requestor a letter seeking additional information.  According to the DOJ, on September 19, 2013 the Requestor provided a partial response which was accompanied by significant backup documentation.  According to the DOJ, thereafter the DOJ and counsel for the Requestor had several follow up discussions to clarify certain issues.  On February 13, 2014, the Requestor provided a final submission that addressed the last outstanding issues raised by the DOJ.  On March 17, 2014 the DOJ issued the release.

In short, from start to finish the process took approximately 8 months.

Congress Remains Interested In FCPA Issues

Foreign Corrupt Practices reform may not be the hot issue it was circa 2011 (political posturing by the DOJ in connection with the FCPA Guidance as well as certain headlines caused the issue to simmer), but Congress remains interested in FCPA issues.

For instance, in connection with a recent confirmation hearing for Leslie Caldwell to be the DOJ’s Assistant Attorney General of the Criminal Division, Senator Charles Grassley (R-IA), Ranking Member of the Senate Judiciary Committee, asked Caldwell several FCPA-related questions for the record.

Caldwell punted on every question (perhaps not surprising given that Caldwell is not currently at the DOJ), but the questions posed nevertheless highlight specific FCPA issues on the minds of certain members of Congress.

Set forth in full below are the FCPA-related questions by Senator Grassley and Caldwell’s responses.

*****

“I recently asked Attorney General Holder these questions and have not yet received response.  As the FCPA falls within the Criminal Division, would you please respond to the following questions.

What are the Department’s current enforcement priorities under the FCPA?

Answer:  I am not in the Department; therefore, I am not in a position to address this question.  If I am confirmed as the Assistant Attorney General of the Criminal Division, I assure you that I will be vigilant in pursuing cases under the FCPA.

What particular industries, markets or practices is the Department focusing on, and why?

Answer:  I am not in the Department; therefore, I am not in a position to address this question.  As noted above, if I am confirmed as the Assistant Attorney General of the Criminal Division, I assure you that I will be vigilant in pursuing cases under the FCPA.

What proportion of the Department’s enforcement activity during 2013 involved non-U.S. companies?

Answer:  I am not in the Department; therefore, I am not in a position to address this question.  If I am confirmed as the Assistant Attorney General of the Criminal Division, I assure you that I will be vigilant in pursuing cases against U.S. and non-U.S. companies that violate the FCPA.

Has the Department seen a recent increase in whistleblower claims of FCPA violations?  If so, to what would you attribute that?  How has the Department responded?

Answer:  I am not in the Department; therefore, I am not in a position to address these questions.

Although the Department does not publicize each particular instance in which it declines prosecution despite evidence of an FCPA violation, what characterized the Department’s declinations during 2013?  Did the number increase from 2012?  What factors were most important in leading the Department to decline prosecution?

Answer:  I am not in the Department; therefore, I am not in a position to address these questions.  While I have not been privy to the internal deliberations surrounding the Department’s declination decisions, if confirmed as the Assistant Attorney General of the Criminal Division, I assure you that declination decisions will be based on the law and the evidence presented.

In November 2012, the Department and SEC issued the FCPA “Resource Guide,” which reflected guidance from your agencies regarding the interpretation and enforcement of the FCPA.  Does the Department anticipate updating, supplementing or amending the “Resource Guide” in the foreseeable future?

Answer:  I am not in the Department; therefore, I am not in a position to address this question.

In 2013, the Department issued only one Opinion Release concerning the FCPA.  Does the Department consider the “Resource Guide” a substitute for its opinion release program?

Answer:  I am not in the Department; therefore, I am not in a position to address this question.

Law Firm Partner Cleared To Pay Medical Expenses For Foreign Official’s Daughter

The DOJ recently released this Foreign Corrupt Practices Act Opinion Procedure Release dated December 19th.

Fitting of the holiday season, the DOJ concluded that being a nice person does not equal being a criminal.

As stated in Release 13-01, the “Relevant Facts and Circumstances” are as follows.

“Requestor is a partner with a U.S. law firm (the “Law Firm”). Requestor and other attorneys with the Law Firm have represented Foreign Country A in various international arbitrations. Requestor presently represents Foreign Country A in two international arbitrations for which the Law Firm receives payment. In the past 18 months, the Law Firm has billed fees to Foreign Country A of over $2 million, and Requestor anticipates that in 2014, the fees on matters for Foreign Country A will exceed $2 million.

Over the past several years of these representations, Requestor has become a personal friend of Foreign Official, who works in Foreign Country A’s Office of the Attorney General (the “OAG”). The OAG is responsible for selecting and contracting with international counsel on behalf of Foreign Country A. According to Requestor, however, Foreign Official has not had and will not have in the future any role in the selection of Requestor or the Law Firm as counsel for Foreign Country A. Requestor is not the Law Firm’s “primary relationship attorney,” “originating attorney,” or “lead attorney” for the OAG or the government of Foreign Country A, but has participated in the selection or pitch processes for new business with OAG and/or the government of Foreign Country A, and would expect to do so with regard to future business from these clients.

Requestor proposes to pay the medical expenses of Foreign Official’s daughter, who suffers from a severe medical condition that cannot effectively be treated in Foreign Country A or anywhere in the region. The physicians treating Foreign Official’s daughter have recommended that she receive inpatient care at a specialized facility located in Foreign Country B. Requestor reports that the treatment will cost between approximately $13,500 and $20,500 and that Foreign Official lacks financial means to pay for this treatment for his daughter.

In addition to the above representations, Requestor has further represented that among other things:

•  Requestor’s intention in paying for the medical treatment of Foreign Official’s daughter is purely humanitarian, with no intent to influence the decision of any foreign official in Foreign Country A with regard to engaging the services of the Law Firm, Requestor, or any third person.

• The funds used to pay for the medical treatment will be Requestor’s own personal funds. Requestor will neither seek nor receive reimbursement from the Law Firm for such payments.

• Requestor will make all payments directly to the facility where Foreign Official’s daughter will receive treatment in Foreign Country B. Foreign Official will pay for the costs of his daughter’s related travel.

• Foreign Country A is expected to retain the Law Firm to work on one new matter in the near future.  Requestor is presently unaware of any additional, potential matters as to which Foreign Country A might retain the Law Firm. However, if such a matter develops, Requestor anticipates that Foreign Country A would likely retain the Law Firm given its successful track record and their strong relationship.

• Under the law for Foreign Country A, any government agency such as OAG that hires an outside law firm must publicly publish a reasoned decision justifying the engagement. It is a crime punishable by imprisonment under the penal code of Foreign Country A for any civil servant or public employee to engage in corrupt behavior in connection with public contracting.

In addition, Foreign Official and Requestor have discussed this matter transparently with their respective employers. The government of Foreign Country A and the leadership of the Law Firm have expressly indicated that they have no objection to the proposed payment of medical expenses. Indeed, Requestor has provided a certified letter from the Attorney General of Foreign Country A that represents the following:

• The decision by Requestor to pay for or not to pay for this medical treatment will have no impact on any current or future decisions of the OAG in deciding on the hiring of international legal counsel.

• In the opinion of the Attorney General, the payment of medical expenses for Foreign Official’s daughter under these circumstances would not violate any provision of the laws of Foreign Country A.

The Attorney General further confirms that while Foreign Official handles aspects of the cases on which the Law Firm and Requestor work, Foreign Official has not taken part in any decisions regarding the Firm’s retention for any matter, nor would Foreign Official have such a role in any possible future decision regarding contracting outside counsel, as such decisions are outside of Foreign Official’s responsibilities.

Finally, Foreign Official has represented and warranted in writing that he has not had, does not have, and will not have any influence in the contracting of international lawyers to represent Foreign Country A; he will not attempt to assist Requestor or the Law Firm in the award of future work; and he would not get involved in any decision that the OAG might make in the future in this regard.

Based on the above facts and circumstances, the DOJ set forth, in pertinent part, the following analysis (internal citiations omitted).

“[T]he Department does not presently intend to take any enforcement action with respect to the proposed payment of approximately $13,500 to $20,500 described in the Request.

A person may violate the FCPA by making a payment or gift to a foreign official’s family member as an indirect way of corruptly influencing that foreign official.  However, “the FCPA does not per se prohibit business relationships with, or payments to, foreign officials.”  Rather “the Department typically looks to determine whether there are any indicia of corrupt intent, whether the arrangement is transparent to the foreign government and the general public, whether the arrangement is in conformity with local law, and whether there are safeguards to prevent the foreign official from improperly using his or her position to steer business to or otherwise assist the company, for example through a policy of recusal.”

Although no previous opinion release addresses the precise facts at issue here, the Department has previously expressed its lack of enforcement intent in matters where the requestor provided adequate assurances that the proposed benefit to the foreign official would have no impact on the requestor’s present or future business operations.

This is not to say that paying the medical expenses, or any other expenses, of a foreign official’s family member could never violate the FCPA. The payment of such expenses would certainly violate the FCPA if intended corruptly to influence a foreign official to use his or her position “in order to assist … in obtaining or retaining business for or with, or directing business to, any person.”

Here, however, the facts represented suggest an absence of corrupt intent and provide adequate assurances that the proposed benefit to Foreign Official’s daughter will have no impact on Requestor’s or Requestor’s Law Firm’s present or future business with Foreign Country A. As noted above, Foreign Official does not and will not play any role in the decision to award Foreign Country A’s legal business to Requestor’s Law Firm. Requestor and Foreign Official have informed their respective employers of the proposed gift and neither has objected. Indeed, the Attorney General of Foreign Country A has expressly stated that the proposed gift will not affect the decision to award work to Requestor’s Law Firm and, under the circumstances presented, is not illegal under Foreign Country A’s laws. This is further reinforced by Foreign Country A’s public contracting laws, which require transparent reasoning in contracting for legal work and criminally punish corrupt behavior. Finally, Requestor intends to reimburse the medical provider directly, ensuring that the payments will not be improperly diverted to Foreign Official. Accordingly, based on the representations made in the Request, including those described above, the Department does not presently intend to take enforcement action.”

*****

One criticism of DOJ FCPA Opinion Procedure Releases is the time it takes a requestor to obtain the DOJ’s opinion.  Release 13-01 states as follows.

“[The request was] submitted on October 15, 2013, as well as supplemental information that was submitted by Requestor on November 12, 2013, and November 25, 2013.”

In short, it took over two months for the requestor to obtain the opinion.

*****

It is interesting to note that the DOJ cited U.S. v. Liebo, 923 F.2d 1308 (8th Cir. 1991) twice in Release 13-01.

As noted in this recent post, a key conclusion by the Eighth Circuit in Liebo was that a jury could find that a subordinate who acted at his supervisor’s direction in providing a thing of value to a foreign official lacked “corrupt” intent.

Regarding Princelings And Family Members

As a result of JPMorgan’s scrutiny over its alleged hiring of family members of alleged Chinese “foreign officials,” (see here for the prior post), FCPA Inc.’s vocabulary has been expanded to include the word “princelings.”  But then again “princelings” in China are nothing new – see this excellent May 2012 article in the New York Times – as well as here.

The prior JPMorgan post highlighted at least five FCPA enforcement actions based, in part, on allegations that a company hired family members of alleged “foreign officials” for alleged improper purposes.  As typical with FCPA corporate enforcement actions, none of those enforcement actions were subjected to any meaningful judicial scrutiny.

This Wall Street Journal article earlier this week cites a “U.S. official” who said that “the government wouldn’t even have to show a benefit was actually derived from a hire.  ‘Corrupt intent is the beginning and the end of the analysis,’ the official said. ‘It’s what your intent was, not if you were successful.’  Not so fast, said this FCPA attorney in the WSJ article – that scenario presents “epic proof problems for the government” and “even if the hiring may be motivated by a desire to curry favor with the foreign official, that doesn’t mean the hiring is corrupt if everything else about the hiring is appropriate.”

Indeed, as I noted in the prior post and in the New York Times article, there is nothing inherently illegal about hiring family members of alleged “foreign officials.”

The issue of hiring a family member of an alleged “foreign official” as an agent or representative (not in-house so to speak) has been directly raised in three DOJ FCPA opinion procedure releases.

Release 82-04 (1982) states:

“The Department of Justice has received a review request from Thompson & Green Machinery Company, Inc. (“T & G”) pursuant to the Review Procedure Releases Procedure.

T & G intends to compensate a foreign businessman (“Mr. X”) whom it hired and used as its agent in connection with a generator sale in a foreign country. The written consultant agreement, which obligates T & G to pay “Mr. X” a commission for his efforts in promoting the sale, notes that no part of Mr. X’s commission will be used by Mr. X, either directly or indirectly, to pay any commission or finder’s fee to a third party. Furthermore, the consultant agreement references the FCPA’s prohibition of the payment or giving anything of value to an employee or official of a foreign government. After having been advised that Mr. X’s brother (“Mr. Y”) is an employee of the very foreign government with whom T & G concluded the generator sale, T & G obtained separate affidavits from both Mr. X and Mr. Y in which they pledge adherence to the antibribery provisions of the FCPA. T & G has represented that it will pay Mr. X his commission by check or bank transfer in the country where the services were rendered, and the company will require Mr. X to declare and exchange his commission in accordance with all applicable currency control laws in that foreign country.

Based on all the facts and circumstances as represented by the requestor, the Department does not presently intend to take an enforcement action with respect to the compensation of Mr. X by T & G.”

Release 84-01 (1984) states:

“The Department has reviewed a review request from an American firm which seeks to engage a foreign firm (“Marketing Representative”) as its marketing representative in a foreign country. The Marketing Representative’s principals are related to the head of state of the foreign country. Moreover, one of the Marketing Representative’s principals personally manages certain of the head of state’s private business affairs and investments.

This proposed contractual relationship has raised concerns about the application of the FCPA, and the American firm has requested a determination of the Department’s present enforcement intention under the Act.

The requester has made the following representations, among others, with respect to its proposed contractual relationship with the Marketing Representative:

1. The Marketing Representative will represent that it will not pay or agree to pay, directly or indirectly, any funds or anything of value, on behalf of the American firm, to any public official in the foreign country for the purpose of influencing the official’s official acts, or to induce the official to use his influence to the Marketing Representative’s benefit. The Marketing Representative will also represent that no owner, partner, officer, director, or employee is or will become an official of the foreign government during the term of the agreement.

2. The proposed agency agreement provides that if the Marketing Representative directly or indirectly offers, pays, promises, gives or authorizes payment of any money or anything of value to any government or public official for the purpose of influencing any act or decision of such official in his official capacity, or inducing him to use his influence with the foreign government to influence the government’s decision concerning retention of the American firm, the agreement will automatically be rendered void ab initio and the Marketing Representative will automatically surrender any claim for any payment under the agreement even for sales previously concluded or sales previously rendered. Either party may terminate the agreement without cause upon 30 days’ notice. The agreement is governed by the law of the state in which the American firm has its principal place of business.

3. The Marketing Representative will be solely responsible for all of its costs and expenses incurred in connection with its representation of the American firm, unless the latter expressly assumes responsibility in writing in advance for specified expenses. Any claim for reimbursement of expenses specifically assumed in advance by the American firm must be accompanied by a detailed itemization of expenses claimed and a copy of the American firm’s written authorization of the expenditure. All purchase orders must be in writing. The American firm will pay commissions only in U.S. dollars and only in the foreign country in which the Marketing Representative has its principal place of business.

4. The Marketing Representative will have no right to assign any portion of its rights under the agreement to any third party without the prior written consent of the American firm. Likewise, the Marketing Representative will not obligate the American firm to third parties without the latter’s prior written consent.

5. The Marketing Representative will make, when required, full disclosure to the United States government and the foreign government of its identity and the amount of commission applicable to a specific contract. It has also been represented that the American firm considered several factors in selecting the Marketing Representative. Among these were considered: (1) the number of years the Marketing Representative has been in operation; (2) the Marketing Representative’s successful representation of several large U.S. and foreign corporations; (3) the qualifications of the Marketing Representative’s principals; and (4) the Marketing Representative’s reputation among businessmen and bankers both in the U.S. and abroad.

Based upon all of the facts and circumstances, as presented by the requester, the Department does not presently intend to take any enforcement action premised upon its proposed contractual relationship with Marketing Representative.”

Release 95-03 (1995) states:

 “The Department has received an FCPA opinion request from an American company and several foreign entities and individuals with which the American company proposes to enter into a joint venture. The proposed Joint Venture would engage in cooperative ventures in the investment banking field in a foreign country. The Joint Venture would also apply for a license to do business in the foreign country. Formation of the Joint Venture was conditioned upon, in part, a favorable FCPA opinion from the Department.

One of the proposed Joint Venture partners of the American firm is an entity which is the family investment company of, among others, a relative of the leader of the country in which the Joint Venture will conduct business. The relative is represented to be a prominent businessperson with significant managerial experience and responsibilities and who holds public and political party offices. Without question, the relative is a “foreign government official” as that term is used in the FCPA, and it is this circumstance which has prompted the request under the FCPA Opinion Procedure.

The American company, which will provide 50 percent of the start-up capital for the Joint Venture, would have effectively irrevocable power to appoint the most senior official of the Joint Venture — and any successors — who would have extensive powers in the management of the business of the Joint Venture, including the power to appoint outside auditors. The Joint Venture official would also have the power to take such steps as he or she deemed necessary to ensure compliance with the FCPA, including the power to order an audit.

The role of the foreign government official and member of that official’s immediate family in the Joint Venture would include assisting the Joint Venture in making important contacts in the country, providing investment advice and management consulting services, and development of new business for the Joint Venture.

Each of the parties to the FCPA request would receive a percentage of the gross or net profits received as a result of the government projects awarded to the Joint Venture. The foreign government official and the official’s relative would also receive annual payments in the range of $100,000 to $250,000 for services rendered as officers of the Joint Venture.

The foreign government official and the official’s relative have signed the FCPA Opinion Request, and have thus represented directly to the Department of Justice that they will comply with the FCPA as if they were subject to the Act. All the requestors, including the foreign official, further represent, among other things, the following:

1. Each requestor is familiar with the FCPA and its prohibitions; is in compliance with the laws of the foreign country and the FCPA as if they were subject to it and will remain in compliance for the duration of the Joint Venture.

2. No part of the payments received directly or indirectly by the requestors from the American company will be used for any purpose, nor will any action be taken by any requestor in connection with the business of the Joint Venture, which would constitute a violation of the laws of the foreign country or the FCPA.

3. The foreign official’s government and political party duties do not involve any decisions to award business in connection with the government projects sought by the Joint Venture or in the appointment, promotion, or compensation of the government officials who will decide which companies will receive such business, nor are those duties related to any of the official’s other duties on behalf of the Joint Venture or the interests of the American company.

4. Should the nature of the foreign government official’s public offices or responsibilities change so that the official’s representations in the FCPA Opinion Procedure request would no longer apply, the official will so notify the other requestors so that appropriate actions may be taken.

5. No meetings with government officials on behalf of the Joint Venture will be initiated by the foreign government official and all such meetings will be attended by no fewer than two Joint Venture representatives.

6. In connection with each meeting the official attends with a government official on behalf of the Joint Venture, the official will provide a letter to the Minister and most senior civil servant of the relevant government department, stating that the official is acting solely in the official’s capacity as a participant in the Joint Venture.

7. No member of the Joint Venture will assign its rights under the Joint Venture to a third party without the prior approval in writing of the other Joint Venture members. The requestors acknowledge that such a transfer, if approved, may require consultation with the Department of Justice should the identity of the transferee implicate the FCPA.

8. Specific procedures will be in effect with respect to the operation of the Joint Venture, including requirements concerning the keeping of accurate expense, correspondence, and other records of the business of the Joint Venture, including a requirement that all payments by the Joint Venture will be by check or bank transfer and no payments will be made in cash or by bearer instruments. All payments owed to a requestor or Joint Venture party will be made directly to that party and all payments to foreign parties will be made in the foreign country in question.

Based upon all the facts and circumstances, as represented by the requestors, the Department does not presently intend to take any enforcement action with respect to the prospective Joint Venture described in the request.”

The above releases contain, as do all such releases, the following qualification.

“this Release have no binding application to any party which did not join in the request and can be relied upon by the requesting party only to the extent that the disclosure of facts and circumstances in the request is accurate and complete and continues to accurately and completely reflect such facts and circumstances”

And of course these 1980’s releases were authored by individuals who have long left the DOJ’s FCPA enforcement program.

The above releases are in addition to numerous DOJ FCPA releases that address the issue of hiring an alleged “foreign official” directly or otherwise doing business with an alleged “foreign official” – see  80-04, 82-03, 85-03, 86-01, 93-01, 93-02, 94-01, 96-02, 00-01, 01-02, 08-01, 10-01, 10-03, 12-01.  See here and here for links to the releases.

For addition reading, see “Corrupt Intent, Relationship Building, and Quid Pro Quo Bribery:  Recent Domestic Bribery Cases” in the September 2011 FCPA Update from Debevoise & Plimpton.

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