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Flipping The Panasonic Enforcement Action Allegations Into “Best Practices”

flipping

Compliance professionals should develop the skill of flipping enforcement action allegations into “best practices.”

In doing so, recognize that “best practices” are not necessarily legal requirements. The Foreign Corrupt Practices Act sets forth the law (not negotiated DOJ or SEC resolution vehicles not subjected to any meaningful judicial scrutiny) and when it comes to internal controls the law states that issuers shall ” devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that” certain specified objectives are met.

Nevertheless, compliance professionals need to be cognizant of allegations in enforcement actions for the simple reason that the DOJ and the SEC hold the big sticks and will have certain expectations of companies.

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Issues To Consider From The Panasonic Enforcement Action

Issues

This prior post went in-depth into the $280 million Foreign Corrupt Practices Act enforcement action against Japan-based Panasonic Corp.  and a U.S. subsidiary Panasonic Avionics Corp. (PAC).

This post continues the analysis by highlighting additional issues to consider.

Timeline

As highlighted in this prior post, Panasonic’s FCPA scrutiny appears to have begun in early 2013. Thus from start to finish, the company’s FCPA scrutiny lasted approximately 5.5 years.

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Panasonic Corp. And Related Entity Resolve $280 Million Avionics Industry FCPA Enforcement Action

panasonic

Yesterday, the DOJ and SEC announced (here and here) a parallel Foreign Corrupt Practices Act enforcement action against Japan-based Panasonic Corp.  and a U.S. subsidiary Panasonic Avionics Corp. (PAC).

As stated in the enforcement action, Panasonic was an issuer until April 2013 and again “for a brief period between 2015 and 2016 as a result of a share swap that retriggered Panasonic’s obligation to file its financial statements with the SEC.”

As highlighted in this post, the enforcement action consisted of:

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Scrutiny Alerts And Updates

This post revisits themes originally explored in this prior post “The Sun Rose, A Dog Barked and a Company Disclosed FCPA Scrutiny” and this prior post “Recent Disclosures Raise Many Questions.”

Why, in this era of increased FCPA compliance, does there seem to be more, not less, FCPA inquiries?  Does effective compliance reduce FCPA scrutiny or does effective compliance uncover more potential FCPA issues?  If every company hired FCPA counsel to do a thorough review of its world-wide operations would – given the current enforcement theories – 50% of companies find technical FCPA violations?  75%? 95%?  If the answer is any one of these numbers (and my guess is that 95% is probably the best answer), is that evidence of how corrupt business has become, evidence of how unhinged FCPA enforcement theories have become, or evidence of something else?

In other words, what does it say about enforcement of a law if, at any given time, the majority of corporations are on the wrong end of how that law is being enforced? 

After all, according to the FCPA Blog’s most recent corporate disclosure list (here) approximately 90 companies are currently under investigation for FCPA violations.  As the FCPA Blog rightly notes “nearly all entries are based on disclosures in SEC filings. That means non-issuers (non-public companies) aren’t included. And perhaps not all issuers have made a disclosure about a pending FCPA investigation, in which case the company may not appear on this list.”

This post highlights FCPA scrutiny and developments concerning the following companies:  UBS, Panasonic, Image Sensing Systems, H-P, Oracle, IBM, InBev, Wal-Mart, and  Net1,

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UBS

It reads like a law school issue-spotting exam.

A Kuwaiti sheik (and also a former Minister of Interior) alleges that a company subject to the FCPA offered a $20 million commission to derail a bid by a company for various telecommunication assets so that the subject company could get a lead role in finding a different buyer.  The sheik alleges that he then used his influence, on the subject company’s behalf, placed a series of telephone calls, and the bid was derailed.  The sheik then assisted the subject company in landing a lead advisory role on the sale to a different buyer giving the subject company a $22.5 million fee.  The subject company then offers the sheik a job paying over $600,000 a year.

So reads this recent article in the Wall Street Journal concerning a Kuwaiti sheik and UBS and the sheik’s efforts to obtain the fee he says he is owed.

Panasonic

According to this recent Wall Street Journal article, “U.S. authorities are investigating whether [Panasonic Avionics Corp. (“PAC”)  a U.S.-based subsidiary of Japanese electronics giant Panasonic Corp. that makes in-flight entertainment and communications systems for airlines] paid bribes abroad to land business.”  According to the article, PAC’s legal department has instructed certain executives and employees to preserve documents “concerning any benefits or gifts provided, or the payment of anything of value, by Panasonic or PAC to any airline employee or government officials.”

Image Sensing Systems

Image Sensing Systems Inc. (a Minnesota based provider of above ground detection and information management solutions for markets including security, police and parking) disclosed in this recent release as follows.

“The Company has learned that Polish authorities are conducting an investigation into alleged violations of Polish law by two employees of ISS Poland, who have been charged with criminal violations of certain laws related to a project in the City of Lodz, Poland. Neither the Company nor any of its subsidiaries has been charged with any offense. A committee of the Company’s independent directors, with the assistance of independent counsel and accounting advisors, is conducting an investigation into these matters focusing on possible violations of Company policy, internal controls, and laws, including the Foreign Corrupt Practices Act, the U.K. Anti-Bribery Act and Polish law. This investigation is ongoing, and the Company is voluntarily disclosing this matter to the Securities and Exchange Commission and the Department of Justice.  ‘We take these matters very seriously, and are cooperating fully. Image Sensing Systems aims to conduct its business lawfully and ethically.  We have taken remedial actions, including ending the employment of the two Polish employees.  We are also assessing and implementing enhancements to our internal policies, procedures and controls.  The Company’s known costs related to the investigation to date were immaterial in 2012 and approximately $1.5 million through March 22, 2013. While we are working diligently towards a timely conclusion, we are presently unable to determine the likely outcome or range of loss, if any, or predict with certainty the timeline for resolution of these matters.'”

H-P, IBM and Oracle

This recent ProPublic report highlights the relationship between various tech companies including H-P, IBM and Oracle with a “senior technology officer for Poland’s national police and, later, the nation’s Interior Ministry, [who] set the terms for hundreds of millions of dollars in technology contracts and decided which ones should be awarded without competitive bidding.

According to the article, Polish prosecutor say that the individual “received more than a $1 million in cash and brand-name gifts in exchange for steering government contracts to the three American companies, as well as to a Polish company called Netline.  According to prosecutors, the gifts included a BMW motorcycle, a Nissan SUV, a Harmon Kardon home theater, a Sony 50 inch television, 12 HP laptops, several iPads and a refrigerator.”

The article further states as follows.

“IBM and Hewlett-Packard said in statements  that they were cooperating with Polish authorities. Hewlett-Packard noted that “no current HP employees are suspects in this case,” while IBM pointed out that “press reports” on the case referred to a “former IBM employee.”  The company said in its statement that it “believes in the highest ethical standards for its employees and is committed to the principles of business ethics and lawful conduct.”  Oracle, whose possible entanglement in the investigation had not been publicly known before today, would not comment for this article”

IBM and Oracle have both recently been the subjects of FCPA enforcement actions (see here and here) and as noted in this post H-P has been under FCPA scrutiny since approximately April 2010.

AB InBev

InBev, a leading global brewer based in Belgium with ADRs traded on the N.Y. Stock Exchange, recently disclosed in its annual report as follows.

“We have been informed by the SEC that it is conducting an investigation into our affiliates in India, including our nonconsolidated Indian joint venture, InBev Indian Int’l Private Ltd, and whether certain relationships of agents and employees were compliant with the FCPA. We are investigating the conduct in question and cooperating with the SEC.”

As noted in this Bloomberg article, AB InBev’s market share in India is about 2 percent and operations are run by an Indian subsidiary, Crown Beers India, and a joint venture with RKJ Group for local production, in which AB InBev holds a minority stake.

Other beverage industry companies also currently the subject of FCPA scrutiny include Owens Illinois (see here for prior post), Beam Inc. (see here for the prior post) and Central European Distribution Corp. (see here for the prior post).

An industry sweep?  (See here from the Wall Street Journal Corruption Currents).

Wal-Mart

In its recent 10-K filing, Wal-Mart stated, in pertinent part, regarding its FCPA scrutiny as follows.

“Our process of assessing and responding to the governmental investigations and the shareholder lawsuits continues. While we believe that it is probable that we will incur a loss from these matters, given the on-going nature and complexity of the review, inquiries and investigations, we cannot reasonably estimate any loss or range of loss that may arise from these matters. Although we do not presently believe that these matters will have a material adverse effect on our business, given the inherent uncertainties in such situations, we can provide no assurance that these matters will not be material to our business in the future.”

[…]

“These matters may require the involvement of certain members of the Company’s senior management that could impinge on the time they have available to devote to other matters relating to the business. The Company expects that there will be on-going media and governmental interest, including additional news articles from media publications on these matters, which could impact the perception among certain audiences of the Company’s role as a corporate citizen.”

Related to Wal-Mart’s overall FCPA scrutiny, this recent article in the Wall Street Journal suggests that Wal-Mart’s “compliance crackdown” is one of the reasons for the company’s stalled growth in India.  Another reason discussed is “India’s labyrinthine process for developing commercial real estate and operating stores”

Net1

As noted in this previous post, in December 2012, Net1 UEPS (a South African telecommunications company with shares traded on a U.S. exchange) disclosed that it received letters from the DOJ and SEC informing the company that the agencies had begun an investigation into whether Net 1 violated the FCPA by engaging in a scheme to make corrupt payments to officials of the Government of South Africa in connection with securing a contract with the South African Social Security Agency to provide social welfare and benefits payments.

The company recently announced as follows.

“[A] full bench of the South African Supreme Court of Appeal (“Appeal Court”) unanimously ruled that the tender process followed by the South African Social Security Agency (“SASSA”) in awarding a contract to Net1’s wholly owned subsidiary Cash Paymaster Services (Proprietary) Limited (“CPS”) was valid and legal.”

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