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Issues To Consider From The Louis Berger Enforcement Action

Issues

This recent post highlighted the DOJ FCPA enforcement action against Louis Berger International (LBI) and two former employees.

This post continues the analysis by highlighting various issues to consider from the enforcement action.

Not The First Time

Last week’s Foreign Corrupt Practices Act enforcement action against LBI was not the only recent enforcement action against the company or related entities.

As highlighted here, in November 2010 the company reached a global settlement with the DOJ related to an investigation of its cost allocating methodologies for overseas U.S. federal contracts. As part of the settlement, the company paid a total of $65 million and the settlement was composed of three separate agreements:

  • A two-year deferred prosecution agreement with the DOJ in which an independent monitor was appointed.
  • A related civil settlement agreement with the DOJ and the relator of a whistleblower lawsuit. In accordance with the agreement, the company accepted responsibility for the actions of former employees who violated the U.S. False Claims Act.
  • An Administrative Agreement with the company’s lead federal agency, the U.S. Agency for International Development.

As highlighted here, in December 2014 Derish Wolff (the former President, CEO and Chairman of the company) pleaded guilty to conspiring to defraud the U.S. Agency for International Development with respect to billions of dollars in contracts for reconstructive work in Iraq and Afghanistan.

As highlighted here, in November 2010 Salvatore Pepe (a former controller and the former CFO of the company) and Precy Pellettieri (a former controller of the company) also pleaded guilty to criminal informations charging them with conspiring to defraud the government with respect to the above conduct.

Government Contracts

Despite the prior enforcement action and the company’s FCPA scrutiny, Louis Berger has raked in numerous government contracts.

For instance, in just the past 9 months the company has been awarded the following government contracts.
  • A $14.8 million operations and maintenance fuels contract by the Defense Logistics Agency Energy for Fort Knox, Kentucky (see here).
  • A $21.6 million operations and maintenance fuels contract by the Defense Logistics Agency Energy at Fort Bliss, Texas (see here).
  • A $20 million contract with Florida’s Turnpike Enterprise to provide facility maintenance and repair services for toll plaza buildings along turnpike roadways in South Florida (see here).
  • A contract to provide air terminal and ground handling services at Kunsan Air base and Gimhae Republic of Korea air base in South Korea under a five-year contract with the United States Transportation Command (see here).
  • A contract from the U.S. Army, Europe to provide transient aircraft services at Stuttgart Army Airfield, Stuttgart Germany, a U.S. Army Airfield operated and maintained by the U.S. Army (see here).
  • A $95 million contract to assist the U.S. Army Corps of Engineers Pittsburgh District in responding to natural disasters and emergencies by providing temporary emergency power (see here).

World Bank Sanction

In February 2015, the company announced that it had accepted a World Bank Sanction based on the Vietnam conduct alleged in last week’s FCPA enforcement action. As noted in the company’s release:

“Louis Berger Group, the U.S.-based operating company within Louis Berger, has been barred from working on World Bank-funded projects for 12 months, subject to compliance with certain conditions. In addition, the Louis Berger parent has accepted terms of a conditional non-debarment for the same period. The sanctions are based on findings of misconduct under the World Bank standards by former employees on two 2007/08 World Bank-funded contracts in Vietnam that Louis Berger self-identified and self-reported to the U.S. government and World Bank.”

Rogue Employees?

Notwithstanding the above prior enforcement action, in relation to last week’s FCPA enforcement action it is fair to pose the question of whether the conduct at issue was engaged in by rogue employees (Richard Hirsch – an employed located in the Philippines, who at times oversaw the Company’s overseas operations in Indonesia and Vietnam and James McClung an employee located in India, who at times oversaw the Company’s overseas operations in Vietnam and India).

For instance, the DPA makes several references to the employees concealing conduct and otherwise creating false documents. Moreover, the DPA twice mentions the “nature and scope of the conduct” as a presumed mitigating factor, something not often found in FCPA resolution documents.

Moreover, compared to most corporate FCPA enforcement actions, there is little mention in the LBI action regarding the company’s control environment or compliance policies and procedures.

Was That Really a Voluntary Disclosure?

The DPA states that LBI voluntarily disclosed the conduct at issue and the Sentencing Guidelines calculation in the DPA credits the company for voluntarily disclosing.

Yet, is it really a voluntary disclosure when the company only took action after – in the words of the DPA – “the government had made LBI … aware of a False Claim Act investigation …”?

Did the Company Need a Compliance Monitor?

The DPA requires that LBI engage a compliance monitor for a three-year period.

Notwithstanding LBI’s prior troubles, query whether the compliance monitor was truly necessary or a government required transfer of shareholder wealth to FCPA Inc. (see here for the prior post).

For instance, in the DPA the DOJ stated that the company “has engaged in extensive remediation, including terminating the employment of officers and employees responsible for the corrupt payments, enhancing its due diligence protocol for third-party agents and consultants, and instituting heightened review of proposals and other transactional documents for all Company contracts.”

Moreover, LBI’s press release (which the company had to clear with the DOJ pursuant to the DPA) states:

“Since 2010, Louis Berger has undergone a massive $25+ million reform effort that resulted in new internal controls, new policies and procedures, and comprehensive systems investments, including a new global accounting system. The company has actively supported the government in its investigation of the culpable individuals and their activities. In addition to separating these former managers from the company, the firm also has added new managers to key positions, including chief financial officer and controller, and regional management teams throughout Asia and the Middle East. Additionally, the company implemented a new corporate operational model to ensure greater centralized oversight and control of overseas business activities. Moreover, the company has reformed its ownership structure by implementing an Employee Stock Ownership Program. The company established an independent compliance and ethics department under the oversight of an independent audit committee, introduced a global helpline through which employees can report potentially non-compliant activities, and implemented a global code of business conduct. Investments also have funded annual worldwide compliance, ethics and anti-corruption training for all employees.”

Timeline

Regardless of the merits of the voluntary disclosure, according to LBI’s press release the company self-reported the conduct at issue to the U.S. government starting in 2010.

Thus, LBI’s FCPA scrutiny lasted 5 years.

Issues To Consider From The Alstom Action

Issues

recent post dived deep into the Alstom FCPA enforcement action.

This post continues the analysis by highlighting various issues to consider associated with the enforcement action.

A Real Head-Scratcher

Alstom entities engaged in conduct in violation of the FCPA.  This is clear from the DOJ’s allegations and consistent with DOJ enforcement theories.  Yet, if the DOJ’s FCPA enforcement program is to be viewed as legitimate and credible, the charged conduct must fit (for lack of a better term) the crime.

The charges against Alstom S.A. are a real head-scratcher.

The conventional wisdom for why the Alstom action involved only a DOJ (and not SEC) component is that Alstom ceased being an issuer in 2004 (in other words 10 years prior to the enforcement action).

Yet, the actual criminal charges Alstom pleaded guilty to – violations of the FCPA’s books and records and internal controls provisions –  were based on Alstom’s status as an issuer (as only issuers are subject to these substantive provisions).

In other words, Alstom pleaded guilty to substantive legal provisions in 2014 that last applied to the company in 2004.

This free-for-all, anything goes, as long as the enforcement agencies collect the money nature of FCPA enforcement undermines the legitimacy and credibility of FCPA enforcement.

Enforcement Action Origins

What were the origins of the Alstom enforcement action?

It appears to be a 2011 Swiss enforcement action that began in October 2007.  (See here, here and here).

Indeed, in briefing in an individual enforcement action (Lawrence Hoskins) connected to the Alstom Indonesia conduct, the DOJ stated:

“When the Government began investigating this case, it sought evidence from various countries including Switzerland […].  The Government obtained orders pursuant to 18 USC 3292, tolling the statute of limitations in this case for the shorter of three years or the time it took to receive the evidence sought.  The first request, to Switzerland, was transmitted on September 22, 2010, and the tolling order reflects tolling beginning on that date.  Switzerland provided responses to the request on December 23, 2013.”

In the Swiss action, “Alstom Network Schweiz AG … was fined CHF2.5 million for negligence in implementing proper controls to prevent bribery by company officials in Latvia, Tunisia and Malaysia, and it was ordered to pay an additional CHF36 million for profits connected to the negligence.”

The foreign law enforcement origins of the Alstom action are typical of other enforcement actions in the Top Ten List of FCPA settlements (Siemens and the Bonny Island, Nigeria enforcement actions – KBR/Halliburton, Snamprogetti/ENI, Technip, and JGC Corp).

No Monitor

On one level, it seems odd that the Alstom enforcement action did not involve a corporate monitor as a condition of settlement. After all, the $772 million enforcement action was the largest DOJ FCPA enforcement action of all-time and per the DOJ “Alstom’s corruption scheme was sustained over more than a decade and across several continents. It was astounding in its breadth, its brazenness and its worldwide consequences.”

However, the resolution documents note “that Alstom is already subject to monitoring requirements pursuant to a February 2012 World Bank Resolution.” (See here).  As stated in the DOJ resolution documents: “in the event that the Integrity Compliance Office [of the World Bank] does not certify that the Company has satisfied the monitoring requirements contained in the World Bank Resolution, the Company shall be required to retain an Independent Compliance Monitor.”

Moreover, the vast majority of the alleged improper conduct in the DOJ enforcement action resided in business units that will soon be part of General Electric in 2015.  Thus, to impose a monitor on Alstom would, in effect, have been to impose a monitor on General Electric.

Third Party Red Flags

Most FCPA enforcement actions result from the conduct of third parties and ineffective corporate controls over third parties.

In this regard, the following paragraph from the Alstom enforcement is a dandy regarding third party red flags.

“A number of consultants that Alstom hired raised a number of “red flags” under Alstom’s own internal policies.  Certain consultants proposed for retention had no expertise or experience in the industry sector in which Alstom was attempting to secure or execute the project.  Other consultants were located in a country different than the project country.  At other times, the consultants asked to be paid in a currency or in a bank account located in a country different than where the consultant and the project were located.  In multiple instances, more than one consultant was retained on the same project, ostensibly to perform the very same services.  Despite, these “red flags,” the consultants were nevertheless retained without meaningful scrutiny.”

FCPA enforcement actions of course are no laughing matter, but the following specific allegations sort of make one chuckle.

“Alstom did not perform any due diligence on the consultant even though the consultant had no knowledge about, or experience in, the power industry.  Rather, the information alleges, the consultant “sold furniture and leather products, and exported chemical products and spare parts.”

“An Alstom entity formally retained a consultant on a [rapid transit] project even thought the consultant did not have the requisite expertise in the transport sector.  According to the information, the consultant’s expertise was as a “wholesaler of cigarettes, wines and pianos.”

More Information Needed As to Lack of Cooperation

Repeatedly in the resolution documents, the DOJ states that Alstom did not “cooperate.”

“The Defendant initially failed to cooperate with the Department’s investigation, responding only to the Department’s subpoenas to the Defendant’s subsidiaries.  Approximately one year into the investigation, the Defendant provided limited cooperation, but still did not fully cooperate with the Department’s investigation.”

“The Company and its parent initially failed to cooperate with the Department’s investigation, responding only to the Department’s subpoena.  Approximately one year into the investigation, the Company and its parent provided limited cooperation, but still did not fully cooperate with the Department’s investigation.”

Likewise, at the DOJ press conference, Assistant Attorney General Caldwell stated:

“The guilty pleas and resolutions announced today also highlight what can happen when corporations refuse to disclose wrongdoing and refuse to cooperate with the department’s efforts to identify and prosecute culpable individuals.”

[…]

“Alstom did not voluntarily disclose the misconduct to law enforcement authorities, and Alstom refused to cooperate in a meaningful way during the first several years of the investigation.”

If the DOJ wants its cooperation message to be fully absorbed by the corporate community, the DOJ should have been more specific about Alstom’s lack of “cooperation.”

Moreover, if “responding only to the DOJ’s subpoena” is considered lack of cooperation by the DOJ, this is troubling.  (See here for the prior post “Does DOJ Expect FCPA Counsel to Role Over and Play Dead?”).

A “Foreign Official” Stretch?

It was a relatively minor allegation in the context of the overall Alstom enforcement action, but one which caught my eye because of its extraordinarily broad implication.

As highlighted in this previous post, Asem Elgawhart was employed by Bechtel Corporation (a U.S. company) and was assigned by Bechtel to be the General Manager of Power Generation Engineering and Services Company (PGESCo), a joint venture between Bechtel and Egyptian Electricity Holding Company (the alleged “state-owned and state-controlled electricity company in Egypt”). According to the DOJ, Elgawhart “used his position and authority as the General Manager of a power generation company to solicit and obtain millions of dollars of kickbacks for his personal benefit from U.S. and foreign power companies that were attempting to secure lucrative contracts to perform power-related services.” “In total,” the DOJ alleged, “Elgawhart received more than $5 million in kickbacks to help secure more than $2 billion in contracts for the kickback-paying companies, all of which he concealed from his employer, from bidding companies that did not pay kickbacks and from the U.S. Internal Revenue Service.” Based on these allegations, and as indicated in this DOJ release, Elgawhart was charged in a 8-count indictment with mail and wire fraud, money laundering and various tax offenses.

In the Alstom enforcement action, PGESCo and Elgawhart are described as follows:

As to Egypt, the information concerns bidding on various projects with the Egyptian Electricity Holding Company (“EEHC”), the state-owned and state-controlled electricity company in Egypt.  According to the information, “EEHC was not itself responsible for conducting the bidding [on projects], and instead relied on Power Generation Engineering & Services Co. (“PGESCo”), which was controlled by an acted on behalf of EEHC.”

PGESCo was controlled by and acted on behalf of EEHC. PGESCo worked “for or on behalf of’ EEHC, within the meaning of the FCPA, Title 15, United States Code, Section 78dd-l (f)( 1) [the FCPA’s “foreign official” definition].

According to the DOJ, Alstom used a consultant whose primary purpose “was not to provide legitimate consulting services to Alstom and its subsidiaries but was instead to make payments to Egyptian officials, including Asem Elgawhary who oversaw the bidding process.”

In short, in the Alstom action the DOJ alleged that Elgawhary, a Bechtel Corporation employee, was an Egyptian “foreign official.” This is an extraordinarily broad “foreign official” interpretation with implications for any person (privately employed) working on foreign projects with participation by a foreign government department, agency or instrumentality.

Rhetoric Undermined

As highlighted in this post, Assistant Attorney General Leslie Caldwell recently defended the DOJ’s frequent use of NPAs and DPAs by stating that the DOJ is able to achieve through such negotiated settlements reforms, compliance controls, and all sorts of behavioral change compared to what it could achieve without use of NPAs and DPAs.

As highlighted in the prior post, the notion that the DOJ is powerless to effect corporate change through old-fashion law enforcement (that is enforcing the FCPA without use of NPAs and DPAs) is plainly false.

Indeed, the Alstom and Alstom Network Schweiz AG plea agreements contain substantively the same corporate compliance program and reporting obligations as the Alstom Power and Alstom Grid DPAs.

False Certification

A likely overlooked allegation in the Alstom enforcement action concerns bidding on various grid projects with alleged state-owned and state-controlled entities in Egypt. According to the charging documents, certain of these projects were “funded, at least in part, by the United States Agency for International Development (“USAID”)” and “an Alstom entity “repeatedly submitted false certifications to USAID in connection with these projects, and did not disclose that consultants were being used, that commissions were being paid, or that unlawful payments were being made.”

These allegations are similar to DOJ allegations in the BAE enforcement action (an enforcement action that alleged conduct that could have served as the basis for FCPA violations, but resulted in no actual FCPA charges).  As noted in this previous post, in the BAE action, the DOJ “filed a criminal charge against BAE Systems charging that the multinational defense contractor conspired to impede the lawful functions of the Departments of Defense and State, made false statements to the Departments of Defense and Justice about establishing an effective anti-corruption compliance program to ensure conformance with the Foreign Corrupt Practices Act and paid hundreds of millions of dollars in undisclosed commission payments in violation of U.S. export control laws.”

How to Count FCPA Enforcement Actions

It is a basic issue:  how to count FCPA enforcement actions.

I use the “core” approach to counting FCPA enforcement actions (see here), an approach endorsed by the DOJ, but many in FCPA Inc. use various different creative counting methods that significantly distort FCPA enforcement statistics (see here).

Pursuant to the “core” approach, the Alstom action was one core enforcement action even though it involved the following components all based, in whole or in part, on the same core conduct.

  • Alstom S.A.
  • Alstom Network Schweiz AG
  • Alstom Power Inc.
  • Alstom Grid Inc.
  • Individual enforcement actions against Frederic Pierucci, David Rothschild, William Pomponi, and Lawrence Hoskins.

Counting the above as 8 FCPA enforcement actions instead of 1 core action highly distorts FCPA enforcement statistics and impacts the denominator of just about any FCPA enforcement statistic imaginable.

With several 2014 FCPA Year in Reviews to be published in January, one needs to be cognizant of these creative counting methods.

An FCPA Enforcement Action With Many Interesting Wrinkles

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

The 1998 Foreign Corrupt Practices Act enforcement action against Saybolt Inc., Saybolt North America Inc. and related individuals had many interesting wrinkles:  a unique origin; a rare FCPA trial; a fugitive still living openly in his native land; and case law in a related civil claim.

As to the unique origin, Saybolt Inc. was a U.S. company whose primary business was conducting quantitative and qualitative testing of bulk commodities, such as oil, gasoline, and other petrochemicals, as well as grains, vegetable oils and other commodities.  The Environmental Protection Agency, Criminal Investigation Division (“EPA-CID”) was investigating the company for allegedly submitting false statements to the EPA about the oxygen content of reformulated gasoline blended in accordance with the requirements of the Clean Air Act.  The investigation was initiated by reports of data falsification at Saybolt’s Massachusetts facility.

During the course of the investigation EPA-CID interviewed Steven Dunlop (the general manager for Latin American operations for Saybolt) who provided the following information.

During a trip to Panama in 1994, Dunlop was advised of new business opportunities that were being offered to Saybolt Panama through the Panamanian Ministry of Commerce and Industries.  Specifically, the DOJ’s criminal complaint alleged that Hugo Tovar (the General Director of the Hydrocarbon Directorate, a division of the Ministry of Commerce and Industries) and Audo Escudero (the Sub-Director of the Hydrocarbon Directorate), offered to Saybolt Panama an opportunity to: (1) receive a substantial reduction in Saybolt Panama’s tax payments to the government of Panama; (2) obtain lucrative new contracts from the government of Panama; and (3) secure a more permanent facility for Saybolt Panama’s operations on highly coveted land near the Panama Canal.  According to the criminal complaint, this parcel of land was coveted because Saybolt Panama “only had a tenuous legal claim on its existing facility” and as a result its operations were continually at risk.

The complaint details various communications between Dunlop and David Mead (the President and CEO of Saybolt) in which Dunlop informed Mead of a $50,000 “fee” that would be needed to accomplish the above opportunities.

The complaint details a 1995 board of directors meeting at Saybolt during which discussion concerned the “$50,000 payoff demanded by the Panamanian officials with whom Saybolt was negotiating.  According to the complaint, present at this meeting were Board members Frerik Pluimers and Philippe Schreiber as well as Mead and Saybolt’s Chief Financial Officer Robert Petoia.  According to the complaint, Dunlop received instructions from Mead that he was to “take the necessary steps to ensure that the $50,000 was paid to the Panamanian officials in order to secure the deal” and that Schreiber was to be his primary contact on all issues concerning the Panamanian transaction.

According to the complaint, “in the minutes leading up to the time he was scheduled to leave his house for the airport” to travel to Panama,” Dunlop had a telephone conversation with Schreiber who advised him “that the action [he] was about to take would constitute a violation of the FCPA.”

According to the complaint, while in Panama Dunlop “learned that the Saybolt funds needed to make” the payment had not yet been received and that Dunlop then tried to contact Mead.  According to the complaint, Mead sent Dunlop an e-mail which stated: “Per telecon undersigned and capo grande Holanda the back-up software can be supplied from the Netherlands.  As previously agreed, you to detail directly to NL attn FP.” According to the complaint, “capo grande Holanda” was a reference to Pluimers (the President of the Dutch holding company that controlled Saybolt, Inc.” and the “back-up software” was a reference to the $50,000 payment.”

The complaint alleged that the funds never arrived in Panama and that Dunlop was receiving pressure from the Panamanian officials “to make the $50,000 payment prior to the upcoming Christmas holidays.”  According to the complaint, Mead told Dunlop on a telephone call to make the $50,000 payment using funds that were in the operating account of Saybolt Panama.

According to the complaint, the $50,000 in cash was obtained by laundering a check through a local construction company and that a “sack full of currency” was handed over to Escudero at a bar in Panama City by the individual who was serving as Saybolt Panama’s liaison with Escudero.  Further, according to the complaint, “shortly after this payment was made, the Ministry of Commerce and Industries and other necessary government agencies acted favorably on Saybolt’s proposal.”

In April 1998, the DOJ filed this indictment against Mead (a citizen of the U.K. and resident of the U.S. and Pluimers (a national and resident of the Netherlands) based on the above conduct.  The indictment charged Mead and Pluimers with conspiracy to violate the FCPA’s anti-bribery provisions and the Travel Act, two substantive violations of the FCPA, and two substantive violations of the Travel Act.

According to the indictment, the purposes and objectives of the conspiracy were:

  • To obtain contracts for Saybolt de Panama and its affiliates to perform import control and inventory inspections for the Ministry of Hydrocarbons, and the Ministry of Commerce and Industries, both departments of the Government of the Republic of Panama;
  • To obtain and to expedite tax benefits for Saybolt de Panama and its affiliates from the Government of the Republic of Panama, including exemptions from import taxes on materials and equipment and reductions in annual profit taxes;
  • To obtain from an agency of the Government of the Republic of Panama a secure and commercially attractive operating location for an inspection facility in Panama; and
  • To “lock out” Saybolt’s competitors by retaining possession and control of Saybolt de Panama’s existing location in Panama.

In September 1998, the DOJ filed this superseding indictment substantially similar to the first and including the same charges.

Mead moved to strike the indictment of allegations that he violated the FCPA and for dismissal of the indictment for failure to state an offense under the Travel Act, and for a Bill of Particulars.   In a one page order, U.S. District Court Judge Ann Thompson denied the motions. Dunlop was given full immunity as was the American attorney present at the board meeting and involved in several conversations with Pluimers, Mead, and Dunlop concerning the alleged payments.

Mead argued that the FCPA only prohibited payments to assist a domestic concern in obtaining and retaining business” and he used Saybolt’s rather complex corporate structure to argue that the business sought to be obtained or retained was for a different Saybolt entity, not a domestic concern.  In his motion, Mead stated “because the government ignores the corporate legal structure and does violence to the FCPA by attempting to end-run congressional policy, the Court must justifiably refuse.”  Elsewhere, the motion stated:

“Whether the government labels foreign corporations as ‘agents of a domestic concern’ or members of an ‘unincorporated organization,’ the government still may not manipulate the Act’s broad language to end-run this congressional policy (of deliberately excluding both foreign subsidiaries and non-subsidiary foreign corporations from FCPA liability).”

The motion also argued that the indictment was devoid of any allegation that Mead acted “willfully” (i.e. with the specific intent to violate the law) because he followed the legal advice of counsel in making the alleged payments.

In response, the DOJ stated that the indictment “describes in detail how Mead – himself a U.S. resident, and also the President of one U.S. corporation (Saybolt Inc.), Executive Vice-President of a second U.S. corporation (Saybolt North America Inc.), and Chief Executive Officer of an unincorporated association (Saybolt Western Hemisphere) – and others decided to send a Saybolt Inc. employee to Panama City, Panama, to oversee the payment of a $50,000 bride, which they believed would be provided to high level government officials, in exchange for favorable treatment of Saybolt’s business interests in Panama.  The Indictment charges that Mead gave the order to go forward with the bribe and it details the contents of the e-mail message that Mead sent from his office in New Jersey to the Saybolt employee in Panama City.”

At trial, Mead argued that the Government failed to meet its burden of proof and that he acted in good faith belief that the payment to the Panamanian officials was lawful.  The relevant jury instructions stated as follows.

“If the evidence shows you that the defendant actually believed that the transaction was legal, he cannot be convicted.  Nor can he be convicted for being stupid or negligent or mistaken.  More is required than that.  But a defendant’s knowledge of a fact may be inferred from “willful blindness” to the knowledge or information indicating there was a high probability that there was something forbidden or illegal about the contemplated transaction and payment.  It is the jury’s function to determine whether or not the defendant deliberately closed his eyes to the inferences and the conclusions to be drawn from the evidence here.”

According to this docket sheet, Mead’s trial occurred in October 1998 and he was found guilty of all charges.  According to the docket, Mead was sentenced to four months imprisonment, to be followed by four months of home confinement, to be followed by three years of supervised release.  According to the docket, he was also ordered to pay a $20,000 criminal fine. After sentencing, US Attorney Donald Stern of Boston, stated: “This sentence puts American executives on notice there will be a price to pay, far more than the monetary cost of the birbe, when they buy off foreign officials.”  For additional reading on Mead’s case, see this transcript of an in-depth CNN story about Mead that aired in 1999.

What about Pluimers?

As indicated by this docket sheet, there has been no substantive activity in the case since 1999 and Pluimers remains a fugitive – albeit living openly in his native Netherlands.  According to this 2011 New York Times article citing a Wikileaks cable, “Pluimers simply has too much influence with high-ranking Dutch officials to be handed over to U.S. authorities.”

What about Saybolt?

In August 1998, the DOJ the filed two separate criminal informations against Saybolt Inc. and its parent corporation Saybolt North American Inc. The first information charged Saybolt with conspiracy and wire fraud related to the company’s “two year conspiracy to submit false statements to the EPA about results of lab analyses. The second information charged Saybolt and Saybolt North America with conspiracy to violate the FCPA and one substantive charge of violating the FCPA.

As noted in this plea agreement, Saybolt agreed to plead guilty to all charges in the informations and agreed to pay a total fine of $4.9 million allocated as follows:  $3.4 million for the data falsification violations and $1.5 million for the FCPA violation. Saybolt also agreed to a five year term of probation.

The conduct at issue in the Saybolt and related enforcement actions also spawned a related civil malpractice action alleging erroneous legal advice by counsel regarding the above-described payments to Panamanian officials.  In Stichting v. Schreiber, 327 F.3d 173 (2d Cir. 2003), the Second Circuit analyzed whether a company, in pleading guilty to FCPA anti-bribery violations, acknowledged acting with intent thus undermining its claims that the erroneous legal advice was the basis for its legal exposure.

The court stated:

“Knowledge by a defendant that it is violating the FCPA – that it is committing all the elements of an FCPA violation – is not itself an element of the FCPA crime.  Federal statutes in which the defendant’s knowledge that he or she is violating the statute is an element of the violation are rare; the FCPA is plainly not such a statute.”

The court also stated concerning “corruptly” in the FCPA:

“It signifies, in addition to the element of ‘general intent’ present in most criminal statutes, a bad or wrongful purpose and an intent to influence a foreign official to misuse his official position.  But there is nothing in that word or anything else in the FCPA that indicates that the government must establish that the defendant in fact knew that his conduct violated the FCPA to be guilty of such a violation.”

“Corporate Bribery Is Not The Simple, Safe Issue It Seems At First Blush”

I tend to read the news with Foreign Corrupt Practices Act goggles on.  It’s an occupational hazard that sometimes is annoying, but often rewarding.

Although the FCPA was not mentioned in a recent Wall Street Journal article “Can Moguls Untangle Nigeria’s Power Lines?,” the article is interesting from so many angles relevant to the issues discussed on this website and highlights that FCPA issues are multi-faceted legal and policy issues involving multiple actors and are often not as simple as some seem to suggest.

Indeed, the article reminded me of one of my favorite statements from the FCPA’s legislative history by Theodore Sorensen:

“Corporate bribery abroad is not the simple, safe issue it seems at first blush. […]  [T]here will be countless situations in which a fair-minded investigator or judge will be hard-put to determine whether a particular payment or practice is a legitimate and permissible business activity or a means of improper influence […]  Reasonable [persons] and even angels will differ on the answers to these and similar questions. At the very least such distinctions should make us less sweeping in our judgments and less confident of our solutions.”

(See here for the “Story of the Foreign Corrupt Practices Act”)

Prior to discussing the article, I want to make crystal clear that the recent Wall Street Journal article does not accuse any companies or individuals of any wrongdoing, nor am I. Rather, I am merely using the general issues discussed in the article to highlight various issues relevant to the FCPA and related issues.

The article highlights how Nigeria’s electrical system is dismal and in disrepair.  According to the article, “the result:  Nigeria produces less than half as much electricity as North Dakota for 249 times more people.  Blackouts strike 320 days a year.”  If the electrical system is modernized, the article notes, “airlines will be able to land after sunset” and “schoolchildren will do their homework after dark.”

Let’s assume for purpose of this post, that in connection with the modernization of Nigeria’s electrical system, Company A involved in the project (a company that is otherwise viewed as selling the best product for the best price) makes an improper payment to a Nigerian “foreign official” to motivate the “foreign official” to select the company’s product for the modernization. This conduct leads to an FCPA enforcement action against Company A and those who claim all FCPA enforcement actions must involve a “victim” will say that the Nigerian people have been victimized, their human rights violated, and some will even request that the FCPA settlement amount be diverted to the Nigerian “victims.”

Without in any way countenancing the above hypothetical payments, I struggle to find any “victims” from a modernized Nigerian electrical system.

Some will say, but wait, because of the improper payment, inferior product will be incorporated into Nigeria’s electrical system (the lines will crumble, electrical fires will ensure, people will be injured).  At least so goes the conventional rhetoric surrounding bribery issues.  Yet recall that Company A is otherwise viewed as selling the best product for the best price and its goods are used the world over because they are the best.

Some will still say, but wait, because of the improper payment, the Nigerian government ended up paying more for the electrical upgrade then it would have paid but for the hypothetical improper payment.  But what if the Nigerian government selected Company A’s product because it was actually cheaper because, by selecting Company A, the Nigerian government availed itself of low interest loans from the Export-Import Bank of the U.S. which titled the balance in favor of Company A?

Again, without in any way countenancing the above hypothetical payments, I struggle to find any “victims” when a foreign government pays a lower price for a better product and indeed is incentivized to choose the product by the U.S. government.

What about the role of the U.S. government?

Is the U.S. government not seeking to influence an act or decision of a foreign official to favor a U.S. company through low interest loans?  After all, the Export-Import Bank low interest loans in Nigeria are in furtherance of President Obama’s $7 billion “Power Africa” initiative.  (See here).

As noted in this prior post, the U.S. government bears some responsibility when it comes to certain circumstances that result in FCPA scrutiny.  Indeed, several FCPA enforcement actions (see herehere and here for instance) have involved conduct in connection with U.S. government financing programs.  There is an irony of course in the U.S. government encouraging companies to do business in certain countries because it serves U.S. interests.  Then when the company does business in that country and encounters business conditions that the U.S. government no doubt knew it was going to encounter, the company then becomes the subject of a U.S. law enforcement inquiry.

Reading the recent Wall Street Journal article about transforming Nigeria’s electrical system with FCPA goggles on was rewarding in that it reminded me of the multi-faceted legal and policy issues involving multiple actors that are often relevant to the issues discussed on this website.

As Theodore Sorensen said “corporate bribery abroad is not the simple, safe issue it seems at first blush.”

Friday Roundup

A roundup of comments made yesterday by Charles Duross (DOJ FCPA Unit Chief) and Kara Brockmeyer (SEC FCPA Unit Chief) at the ABA’s National Institute on the Foreign Corrupt Practices Act in Washington, D.C.

Resources

Duross stated that the DOJ has “20 full-time prosecutors” focused on the FCPA, an “embarrassment of riches” in terms of resources compared to the past he said.  He indicated that the DOJ’s FCPA unit also makes frequent use of Assistant U.S. Attorneys, particularly in litigated cases.  Duross countered the notion that his unit sits “back on our hands” waiting for the next case to come in.  He stated that DOJ FCPA attorneys are “actively encouraged to follow-up on leads” and cited the BizJet enforcement action as an example where the case involved a voluntary disclosure, individuals cooperating, and charging individuals under seal (see here for a prior post).

According to Brockmeyer, the SEC FCPA Unit “has about three dozen” staff dedicated full-time to the FCPA.  This number is in addition to other enforcement attorneys in SEC offices outside of DC who may also work on FCPA cases.  Her best guess is that approximately 75% of SEC FCPA cases are handled in Washington, D.C. with the rest of the cases handled by regional offices (such as Fort Worth, Salt Lake City, etc.) with coordination from D.C.

Law Enforcement Partners

According to Duross, domestic law enforcement partners include U.S. Attorneys Offices and the FBI.  He also mentioned the IRS as a partner in FCPA cases and indicated that the Haiti Teleco case was an “IRS case from start to finish” and thus it was not surprising that the prosecutions in that case included money laundering charges.

Challenges

Despite an “embarrassment of riches” in terms of resources compared to the past, Duross indicated that the FCPA Unit, like other DOJ offices, “could always use more resources.”  He cited the following challenges in bringing FCPA cases:  foreign evidence collection, foreign laws concerning data privacy, foreign blocking statutes, and multi-jurisdictional issues.  As to the later, Duross stated that with increasing frequency more than one sovereign is involved in bribery and corruption investigations and that this is a “fact of life.”  He indicated that the U.S. has encouraged foreign jurisdictions to increase their involvement in this area and that since “we invited them to the party” “we must now deal with it.”

Brockmeyer cited the same general challenges as Duross in terms of enforcing the FCPA.

Case Origins

Brockmeyer indicated that the SEC FCPA Unit tracks its inventory of cases and she shared the following.  30% – 40% of cases come from corporate voluntary disclosures.  According to Brockmeyer, the number of voluntary disclosures has been steady compared to prior years, but as a percentage of the overall enforcement pie it is shrinking because the overall enforcement pie is growing.   Other sources Brockmeyer identified included whistleblower tips (including more sophisticated and detailed tips), enforcement attorneys reading the news, that a “pretty significant number of investigations” began as “spin-offs” of other investigations, and that “increasing number of referrals” are from foreign law enforcement authorities.”

Duross said that the DOJ FCPA Unit does not formally track its inventory like the SEC but his “general sense” was that voluntary disclosures are less than 50% of the inventory of cases.  According to Duross, voluntary disclosure as a source of FCPA cases “is less than people tend to think it is.”  According to Duross, the number of voluntary disclosures has remained steady, but most “get declined and nobody ever hears about them.”

Duross said that over the past several years, FBI agents and DOJ prosecutors (outside of the FCPA unit) have become more sophisticated about the FCPA and that more cases are coming to the FCPA Unit’s attention from others in the field who may spot FCPA issues in their other cases.  Brockmeyer agreed with this comment and stated that SEC enforcement attorneys handling typical accounting fraud cases are also now looking for indicia of FCPA issues.

Related to the above issue, both Brockmeyer and Duross talked about so-called “industry sweeps” (see here for the prior post).

According to Brockmeyer, an industry sweep is not a situation where an existing case may suggest a wider problem in an industry and lead to investigations of others.  Nevertheless, she did indicate that “very occasionally” the SEC does engage in industry sweeps, but “not as often as people think,” where the SEC, in its role as a regulator, sends out “high-level requests for information” to certain industries in which the SEC thinks there are FCPA risk factors.  As to the predication leading to such an inquiry, Brockmeyer said that such a sweep can result even if there is no specific tip as to the industry.  Nevertheless she stated that the SEC is not going to send out information letters “willy-nilly” because the SEC does recognize that when it sends out letters there are costs to the company’s associated with the request.

Duross agreed that following the evidence in one particular case to perhaps another company is not an “industry sweep,” it is simply following the evidence.

Future

According to Duross, the future of the DOJ FCPA’s unit is “bright,” there is a “tremendous pipeline of cases,” and that his unit continues “to do proactive cases” using all of the resources in its toolkit (i.e. wiretaps, etc.).

According to Brockmeyer, the SEC has become more focused on how compliance programs and internal controls are “intertwined.”  She indicated that companies have generally become more sophisticated when it comes to compliance programs, but that much work still needs to be done in monitoring compliance programs and how compliance can impact a company’s overall internal financial controls.

Other Issues

As to the “where else” question (see here for the prior post), Duross suggested that often company lawyers are seeking to over do it through a global search of operations for FCPA issues.  He discussed a case in which a company and its professional advisors came to a meeting with a global search plan and he said “no, no, no, that is not what I want.”  He indicated that the lawyers and other professional advisors in the room “looked unhappy,” but that the general counsel of the company was happy.  (For more on this dynamic, see this prior post).

As to a compliance defense, as I highlight in my article “Revisiting an FCPA Compliance Defense,” the DOJ already recognizes in various ways a de facto compliance defense to the FCPA.  Further support for this proposition is found in the following comment from Duross.  He indicated that a large company (he did not provide the company’s name – other than it would be recognizable to the audience) was a “serial reporter” of FCPA issues to the DOJ’s FCPA Unit.  Duross said that this company has a “good compliance program and system” in place and does “robust” internal investigations when issues arise.  Duross said that he and his unit have a “relationship of trust” with this company and its counsel and that “frankly, most of the time” the issue is “not a particularly large issue.”  According to Duross this company remediates the issue and then it “goes on its way.”

As to the media, Duross indicated that media reports (domestic and foreign) have led the DOJ to open up FCPA investigations.  He stated “what happens in China, doesn’t stay in China.”  Duross stated that while the media can be critical of the DOJ’s FCPA unit and its efforts, that is not necessarily a “bad thing” because “criticism of us can be useful and cause us to look inward.”  Duross indicated that “we should be held accountable for what we do – good and bad.”  Duross shared that one of his biggest surprises upon becoming FCPA Unit chief is realizing how the unit “operates under a microscope” which highlights the need for his unit “to have its A game” at all times.  Duross stated that media reporting of bribery and corruption issues can also spread a message of general deterrence.

Scrutiny Alerts

A roundup of the latest scrutiny alerts.  As Christopher Matthews at the Wall Street Journal’s Risk & Compliance Journal stated “if you’re a corruption probe enthusiast, the hits just keep coming out of China these days.”

Danone

As noted in this article, Dumex Baby Food Co., a subsidiary of France’s Danone SA, is “launching a probe of its infant-formula marketing after China’s state broadcaster alleged the formula maker pays hospital staff to use its products and influence sales.”  Danone has ADRs that are traded in the U.S.

Novortis

Novortis, already on the scrutiny list see here, was the focus of recent media articles (see here) suggesting that “it would investigate allegations published in a Chinese newspaper that its eye care unit Alcon bribed doctors.”  Novortis has ADRs that are traded in the U.S.

Gabriel Resources

Gabriel Resources, a Canada based company with shares traded “over the counter” in the U.S., was the focus of this article concerning allegations of bribery in Romania in connection with a proposed gold mine.

*****

A good weekend to all.

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