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Friday Roundup

Further trimmed, scrutiny alerts and updates, facts and figures, quotable, and for the reading stack.  It’s all here in the Friday roundup.

Further Trimmed

When the SEC announced its enforcement action against James Ruehlen and Mark Jackson  (a current and former executive of Noble Corp.) in February 2012, I said that this would be an interesting case to follow because the SEC is rarely put to its burden of proof in FCPA enforcement actions – and when it has been put to its ultimate burden of proof – the SEC has never prevailed in an FCPA enforcement action.

Over the past two years, the SEC’s case has been repeatedly trimmed.  (See this recent post containing a summary).  In the latest cut, the SEC filed an unopposed motion for partial voluntary dismissal with prejudice on March 25th.  In pertinent part, the motion states as follows.

“To narrow this case and streamline the presentation of evidence to the jury, the SEC hereby moves for leave to voluntarily dismiss with prejudice all portions of its claims … predicated upon Noble Corporation’s violation of [the FCPA’s internal controls provisions”.

For additional specifics, see the filing.

As highlighted in this previous post, in 2010 the SEC charged Noble Corporation with violating the FCPA’s anti-bribery, books and records and internal controls provisions based on the same core conduct alleged in the Jackson/Ruehlen action. Without admitting or denying the SEC’s allegations, Noble agreed to agreed to an injunction and payment of disgorgement and prejudgment interest of $5,576,998.

In short, the SEC’s enforcement action against Ruehlen and Jackson is a shell of its former self.   Interesting, isn’t it, what happens when the government is put to its burden of proof in FCPA enforcement actions.

Scrutiny Alerts and Updates

Alstom

Bloomberg reports speculation that a future FCPA enforcement action against Alstom could top the charts in terms of overall fine and penalty amounts.  (See here for the current Top 10).

The article states:

“The Justice Department is building a bribery case against Alstom SA , the French maker of trains and power equipment, that is likely to result in one of the largest U.S. anticorruption enforcement actions, according to two people with knowledge of the probe. Alstom, which has a history checkered with corruption allegations, has hindered the U.S. investigation of possible bribery in Indonesia and now faces an expanded probe including power projects in China and India, according to court documents in a related case. Settlement talks haven’t begun, the company said.”

In response to the Bloomberg article, Alston released this statement.

“Robert Luskin of Patton Boggs, Alstom’s principal outside legal advisor in the USA, states that the Bloomberg article published on 27 March 2014, regarding the investigation of Alstom by the US Department of Justice, does not accurately reflect the current situation: “Alstom is cooperating closely, actively, and in good faith with the DOJ investigation. In the course of our regular consultations, the DOJ has not identified any on-going shortcomings with the scope, level, or sincerity of the company’s effort”.

“The discussions with the DOJ have not evolved to the point of negotiating a potential resolution of any claims. Any effort to estimate the size of any possible fine is sheer speculation, as would be any comparison with other cases that have recently been resolved. Alstom has agreed to focus its efforts on investigating a limited number of projects that we and the DOJ have identified in our discussions. We are working diligently with the DOJ to answer questions and produce documents associated with these specific projects so that we can address any possible improper conduct”.

VimpelCom

Netherlands-based and NASDAQ traded telecommunications company VimpelCom recently disclosed:

“[T]hat in addition to the previously disclosed investigations by the U.S. Securities and Exchange Commission and Dutch public prosecutor office, the Company has been notified that it is also the focus of an investigation by the United States Department of Justice. This investigation also appears to be concerned with the Company’s operations in Uzbekistan. The Company intends to continue to fully cooperate with these investigations.”

On March 12, 2014, VimpelCom disclosed:

“The Company received from the staff of the United States Securities and Exchange Commission a letter stating that they are conducting an investigation related to VimpelCom and requesting documents. Also, on March 11, 2014, the Company’s headquarter in Amsterdam was visited by representatives of the Dutch authorities, including the Dutch public prosecutor office, who obtained documents and informed the Company that it was the focus of a criminal investigation in the Netherlands. The investigations appear to be concerned with the Company’s operations in Uzbekistan. The Company intends to fully cooperate with these investigations.”

Orthofix International

As noted in this Wall Street Journal Risk & Compliance post, Orthofix International recently disclosed:

“We are investigating allegations involving potential improper payments with respect to our subsidiary in Brazil.

In August 2013, the Company’s internal legal department was notified of certain allegations involving potential improper payments with respect to our Brazilian subsidiary, Orthofix do Brasil. The Company engaged outside counsel to assist in the review of these matters, focusing on compliance with applicable anti-bribery laws, including the Foreign Corrupt Practices Act (the “FCPA”). This review remains ongoing.”

As noted in this previous post, in July 2012 Orthofix International resolved a DOJ/SEC FCPA enforcement action concerning alleged conduct by a Mexican subsidiary.  In resolving that action, the company agreed to a three year deferred prosecution agreement.  As is typical in FCPA DPAs, in the Orthofix DPA the DOJ agreed not continue the criminal prosecution of Orthofix for the Mexican conduct so long as the company complied with all of its obligations under the DPA, including not committing any felony under U.S. federal law subsequent to the signing of the agreement.

See this prior post for a similar situation involving Willbros Group (i.e. while the company while under a DPA it was investigating potential additional improper conduct).  As noted here, Willbros was released from its DPA in April 2012, the original criminal charges were dismissed and no additional action was taken.

Besso Limited

Across the pond, the U.K. Financial Conduct Authority (“FCA”) recently issued this final notice to Besso Limited imposing a financial penalty of £315,000 for failing “to take reasonable care to establish and maintain effective systems and controls for countering the risks of bribery and corruption associated with making payments to parties who entered into commission sharing agreements with Besso or assisted Besso in winning and retaining business (“Third Parties”).”

Specifically, the FCA stated:

“The failings at Besso continued throughout the Relevant Period [2005-2011] and contributed to a weak control environment surrounding the making of payments to Third Parties. This gave rise to an unacceptable risk that payments made by Besso to Third Parties could be used for corrupt purposes, including paying bribes to persons connected with the insured or public officials. In particular Besso:  (1) had limited bribery and corruption policies and procedures in place between January 2005 and October 2009. It introduced written bribery and corruption policies and procedures in November 2009, but these were not adequate in their content or implementation; (2) failed to conduct an adequate risk assessment of Third Parties before entering into business relationships; (3) did not carry out adequate due diligence on Third Parties to evaluate the risks involved in doing business with them; (4) failed to establish and record an adequate commercial rationale to support payments to Third Parties; (5) failed to review its relationships with Third Parties, in sufficient detail and on a regular basis, to confirm that it was still appropriate to continue with the business relationship; (6) did not adequately monitor its staff to ensure that each time it engaged a Third Party an adequate commercial rationale had been recorded and that sufficient due diligence had been carried out; and (7) failed to maintain adequate records of the anti-bribery and corruption measures taken on its Third Party account files.”

The FCA has previously brought similar enforcement actions against Aon Limited (see here), Willis Limited (see here), and JLT Speciality Limited (see here).    For more on the U.K. FCA and its focus on adequate procedures to prevent bribery , see this guest post.

Facts and Figures

Trace International recently released its Global Enforcement Report (GER) 2013 – see here to download.  Given my own focus on FCPA enforcement statistics and the various counting methods used by others (see here for a recent post), I particularly like the Introduction of the GER in which Trace articulates a similar “core” approach that I use in keeping my enforcement statistics.  The GER states:

“[W]hen a company and its employees or representatives face multiple investigations or cases in one country involving substantially the same conduct, only one enforcement action is counted in the GER 2013.  An enforcement action in a country with multiple investigating authorities, such as the U.S., is also counted as one enforcement action in the GER 2013.”

The Conference Board recently released summary statistics regarding anti-bribery policies.  It found as follows.

39% of companies in the S&P Global 1200; 23% of companies in the S&P 500; and 14% of companies in the Russell 1000 reported having a policy specifically against bribery.

Given the results of other prior surveys which reported materially higher numbers, these results are very surprising.

Quotable

This recent Wall Street Journal article “Global Bribery Crackdown Gains Steam” notes as follows.

“Cash-strapped countries are seeing the financial appeal of passing antibribery laws because of the large settlements collected by the U.S., according to Nathaniel Edmonds, a former assistant chief at the U.S. Department of Justice’s FCPA division.  “Countries as a whole are recognizing that being on the anticorruption train is a very good train to be on,” said Mr. Edmonds, a partner at Paul Hastings law firm.”

The train analogy is similar to the horse comment former DOJ FCPA enforcement attorney William Jacobson made in 2010 in an American Lawyer article that “[t]he government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore.”  For additional comments related to the general topic, see this prior post.

Reading Stack

This recent Wall Street Journal Risk & Compliance Journal post contains a Q&A with former DOJ FCPA Unit Chief Chuck Duross.  Contrary to the inference / suggestion in the post, Duross did not bring “tougher tactics” such as wires and sting operations to the FCPA Unit.  As detailed in prior posts here and here, undercover tactics and even sting operations had been used in FCPA enforcement actions prior to the Africa Sting case.

Speaking of the Africa Sting case, the Q&A mentions reasons for why the Africa Sting case was dropped.  Not mentioned, and perhaps relevant, is that the jury foreman of the second Africa Sting trial published this guest post on FCPA Professor after the DOJ failed in the second trial.  Two weeks later, the DOJ dismissed all charges against all Africa Sting defendants.

Further relevant to the Africa Sting case, the Wall Street Journal recently ran this article highlighting the role of Richard Bistrong, the “undercover cooperator” in the case.  Bistrong has recently launched an FCPA Blog – see here.

*****

A good weekend to all.

Of Note From The Marubeni Enforcement Action

This previous post highlighted specifics from the recent Marubeni Foreign Corrupt Practices Act enforcement action and this post continues the coverage by discussing various items of note.

Do Legal Principles Even Matter?

Forgive me for being the law guy, but in the aftermath of the Marubeni enforcement action, like so many others, one can legitimately ask – do legal principles even matter?

As highlighted in the previous post, the most recent alleged overt act in support of Marubeni’s conspiracy charge allegedly occurred in November 2008.  In other words, all of the alleged conduct supporting the conspiracy charge was beyond the five year statute of limitations applicable to FCPA offenses.

In addition, the information also charged 7 substantive FCPA anti-bribery violations.  One charge concerned a 2005 wire transfer, three charges concerned 2006 wire transfers, one charge concerned a 2007 wire transfer, and one charge concerned a 2008 wire transfer.  In other words, 6 of the 7 substantive FCPA anti-bribery charges concerned alleged conduct beyond the five year limitations period applicable to FCPA offenses.  (Note:  the final substantive FCPA charge was based on an October 2009 wire transfer made, not by any Marubeni employee, but Alstom employees).

In corporate FCPA enforcement actions, companies often enter into tolling agreements and statute of limitations can also otherwise be extended in other ways, but the DOJ’s criminal information and plea agreement are silent as to any of these issues relevant to statute of limitations.

Is Marubeni A Recidivist?

As noted in the original Marubeni post, last week’s $88 million FCPA enforcement action followed closely on the heels of Marubeni exiting a deferred prosecution agreement from its 2012 FCPA enforcement action based on conduct at Bonny Island, Nigeria.  (See here for the prior post).

Against this backdrop, it is tempting to call Marubeni an FCPA recidivist.

However, as noted in Marubeni’s release (a release that the DOJ needed to approve per the plea agreement) “the Tarahan conduct pre-dates the execution of Marubeni’s 2012 Deferred Prosecution Agreement with the DOJ.”

At the very least, Marubeni is a repeat FCPA offender and joins a category that also includes IBM, Tyco, Aibel Group, General Electric, Diebold (at least as to books and records and internal controls issues) and Ashland Oil (at least in theory given that the first enforcement action occurred prior to passage of the FCPA in 1977).

The distinction Marubeni has among the group though is the shortest gap between enforcement actions.

More Details Please As to Lack of Cooperation

As noted in the previous post, the $88 million Marubeni enforcement action was a relatively rare instance of a company paying a criminal fine within the advisory guidelines range.  The plea agreement includes the DOJ’s justification as to why, including Marubeni’s lack of cooperation.  However, the plea agreement merely states that Marubeni refused to cooperate with the Department’s investigation when given the opportunity to do so.

It sure would have been nice for the DOJ to provide some additional details regarding Marubeni’s apparent lack of cooperation.

For instance, in the Bonny Island, Nigeria enforcement action against JGC Corp. (also a Japanese company), the DOJ stated that the company declined “to cooperate with the Department based on jurisdictional arguments?”

The DOJ’s statement motivated this prior post, “Does the DOJ Except FCPA Counsel to Roll Over and Play Dead?

While the DOJ declined to provide specifics as to Marubeni’s lack of cooperation, it would be truly frightening if the DOJ’s position is that a company is not cooperating if it raises purely legal issues such as jurisdiction or statute of limitations.

FCPA Enforcement Statistics

FCPA enforcement statistics are literally all over the map given the creative and unique ways in which many FCPA Inc. participants keep such statistics.  (For instance, see this prior post for visual proof).

As I have long maintained, the most reliable and accurate way to keep FCPA enforcement statistics is by using the “core” approach, an approach to tracking FCPA enforcement endorsed by the DOJ and a commonly accepted method used in other areas.

Consider the stark difference in approaches using just the Marubeni enforcement action and the April 2013 FCPA enforcement action against current and former employees of Alstom.  The enforcement actions were virtual carbon copies of each other involving the same project in Indonesia, involving the same alleged “foreign officials,” the same consultants, Marubeni was a central actor in the Alstom related action and the Alstom employees were central actors in the Marubeni enforcement action.

In short, the Marubeni and Alstom related action were the same “core” action.

However, many in FCPA Inc. will no doubt count these actions as five enforcement actions:  Marubeni and Alstom employees Frederic Pierucci, David Rothschild, Lawrence Hoskins and William Pomponi.  Make that six enforcement actions when – in all likelihood – Alstom resolves an enforcement action based, in whole or in part, on the same conduct.   In short, by tracking FCPA enforcement statistics this way the statistics will be distorted.

Marubeni Enforcement Action Specifics

A post last week mentioned the $88 million Foreign Corrupt Practices Act enforcement action (the 12th largest of all-time in terms of settlement amount) against Marubeni (a Japanese company).  In 2012, Marubeni resolved a $55 million FCPA enforcement action (see here for the prior post) involving Bonny Island, Nigeria conduct.

This post highlights specifics from the enforcement action in the original source documents – the criminal information and plea agreement.  [Previously, the DOJ released original source documents relevant to an FCPA enforcement action at the same time as announcing the enforcement action.  However, according to a knowledgeable source, the DOJ has a new policy of releasing original source documents only when those documents have been filed-stamped by the relevant court.  While an understandable policy, the end result will likely be that the majority of reporting of FCPA enforcement actions will be reporting exclusively from DOJ press releases, not original source documents.  Not on this website] 

The Marubeni enforcement action is a virtual carbon copy of the April 2013 FCPA enforcement action against various current and former employees of Alstom concerning the Tarahan power project in Indonesia.  Indeed, as highlighted in the previous post, Marubeni is the “Consortium Partner” in the prior enforcement action and those associated with Alstom previously charged (Lawrence Hoskins, Frederic Pierucci, William Pomponi and David Rothschild) are mentioned prominently in the Marubeni enforcement action.

Information

The information alleges that Marubeni and its subsidiaries, including Marubeni Power Systems Corporation (“MPSC”), partnered with Alstom (simply referred to in the Information as Power Company) and its subsidiaries in bidding and carrying out of the Tarahan Project in Indonesia, a $118 project to provide power-related services to the citizens of Indonesia that was bid and contracted through Indonesia’s state-owned and state-controlled electricity company, Perusahaan Listrik Negara (“PLN”). According to the information, Marubeni managed all work on the project, including auxiliary equipment and civil building and installation work.

According to the information, Marubeni and Alstom retained two consultants (the same consultants as in the prior 2013 enforcement action) and the “consultant’s primary purpose was not to provide legitimate consulting services to Marubeni and Alstom but was instead to pay bribes to Indonesian officials who had the ability to influence the award of the Tarahan Project contract.”  The Indonesian officials are the same as the officials in the prior enforcement action.

“Official 1 … a member of Parliament in Indonesia [who] had influence over the award of contracts by PLN, including on the Tarahan Project”

“Official 2 … a high-ranking official at PLN [who] had broad decision-making authority and influence over the award of contracts by PLN, including on the Tarahan Project”

“Official 3 … an official at PLN [who] was a high-ranking member of the evaluation committee for the Tarahan Project. Official 3 had broad decision-making authority and influence over the award of the Tarahan contract.”

According to the information, Marubeni, through its employees and agents made payments to a consultant’s bank account in Maryland, knowing that a portion of the payments to the consultant was intended for Indonesian officials in exchange for their influence and assistance in awarding the Tarahan Project to Marubeni and Alstom.  In addition, the information alleges that Marubeni, through its employees and agents, attended meetings in Connecticut in connection with the Tarahan Project.

There are no specifics in the information concerning the Marbueni employees such as rank, title or position of the employees (as noted in the information, Marubeni has approximately 24,000 employees in over 70 countries).

Based on the above allegations, the information charges Marubeni with conspiracy to violate the FCPA’s anti-bribery provisions. As to jurisdiction, the information alleges that Marubeni, through its employees, together with others, while in Connecticut discussed in person, via telephone and via e-mail the need to obtain the Tarahan Project and making bribe payments to various alleged foreign officials in order to obtain the contract, and offered to pay, promised to pay, and authorized the payment of bribes to obtain the contract.  The information alleges approximately 60 separate overt acts in furtherance in the conspiracy and the vast majority of these allegations concerning the alleged co-conspirators associated with Alstom.  There are relatively few specific overt acts allegations concerning Marubeni employees other than the following.

In 2002 and 2004 employees of Marubeni traveled to Connecticut “to attend meetings … in connection with the Tarahan Project”

Between 2002 – 2004, e-mails were sent to Marubeni employees from co-conspirators or from Marubeni employees to co-conspirators in connection with the project and bribery scheme

Twice in 2005 and once in 2008 “Marubeni caused” wire transfers from a bank account in New York to a consultant’s bank account in Maryland in furtherance of the bribery scheme

The “most recent” allegation supporting Marubeni’s conspiracy charge allegedly occurred in November 2008.

In addition to the conspiracy charge, the information also alleges 7 substantive FCPA anti-bribery violations under the 78dd-3 prong of the statute.  The jurisdictional element of 78dd-3 is “while in the territory of the United States, corruptly to make use of the mails or any means or instrumentality of interstate commerce or to do any other act in furtherance …” of a bribery scheme.

Two of the 7 FCPA anti-bribery charges are Marubeni specific (the above mentioned 2005 and 2008 wire transfers).  The other 5 FCPA anti-bribery charges are based on the conduct of Alstom employees.

Plea Agreement

In the plea agreement, Marubeni admitted to the factual allegations in the information and agreed that it was responsible for the acts of its present and former employees described in the information.

As set forth in the plea agreement, the advisory sentencing guidelines range for the conduct at issue was $63.7 million to $127.4 million.  Pursuant to the plea agreement, Marubeni agreed to pay $88 million.  This is a relatively rare situation of an FCPA corporate defendant paying a criminal fine amount within the guidelines range.

The plea agreement states that the DOJ believes that the fine amount was the appropriate disposition based on:  “(1) the nature and seriousness of the offense; (2) the Defendant’s failure to voluntarily disclose the conduct; (3) the Defendants refusal to cooperate with the Department’s investigation when given the opportunity to do so; (4) the lack of an effective compliance and ethics program at the time of the offense; (5) the Defendant’s failure to properly remediate: and (6) the Defendant’s history of prior criminal misconduct.”

As is typical in corporate FCPA resolutions, Marubeni agreed to a host of compliance requirements and the plea agreement also contains a muzzle clause.

DOJ Release

In this release, Acting Assistant Attorney General Raman stated:

“Marubeni pleaded guilty to engaging in a seven-year scheme to pay – and conceal – bribes to a high-ranking member of Parliament and other foreign officials in Indonesia.  The company refused to play by the rules, then refused to cooperate with the government’s investigation.  Now Marubeni faces the consequences for its crooked business practices in Indonesia .”

Acting U.S. Attorney Michael Gustafson (D. Conn.) stated:

“For several years, the Marubeni Corporation worked in concert with a Connecticut company, among others, to bribe Indonesian officials in order to secure a contract to provide power-related services in Indonesia.  Today’s guilty plea by Marubeni Corporation is an important reminder to the business community of the significant consequences of participating in schemes to bribe government officials, whether at home or abroad.”

FBI Assistant Director in Charge of the Washington Field Office Valerie Parlave stated:

“Companies that wish to do business in the United States or with U.S. companies must adhere to U.S. law, and that means bribery is unacceptable.  The FBI continues to work with our international law enforcement partners as demonstrated in this case to ensure that companies are held accountable for their criminal conduct.  I want to thank the agents, analysts and prosecutors who brought this case to today’s conclusion.”

Marubeni’s Release

In this release, Marubeni stated:

“[The enforcement action follows the successful completion by Marubeni of its obligations under a January 2012 Deferred Prosecution Agreement entered with the DOJ relating to the liquid natural gas project in Nigeria. That Agreement required Marubeni to retain a corporate compliance consultant for two years to review and enhance its anticorruption compliance program to ensure that it satisfies standards specified by the DOJ, and to report to the DOJ regarding the results of this review. This was completed in January 2014, and at the request of the DOJ the related proceeding was dismissed on February 26, 2014.

The Tarahan conduct pre-dates the execution of Marubeni’s 2012 Deferred Prosecution Agreement with the DOJ. Marubeni has undertaken extensive efforts to enhance its anti-corruption compliance program, and believes that its current program is robust and effective. Although the agreement reached with DOJ today does not require Marubeni to further engage a compliance consultant, Marubeni is taking this matter seriously and commits to continue to thoroughly implement and enhance its anti-corruption compliance program.”

Marc Weinstein (Hughes Hubbard & Reed) represented Marubeni.  Weinstein also represented Marubeni in connection with the 2012 FCPA enforcement action.

Of Note From The Diebold Enforcement Action

Yesterday’s post (here) went long and deep as to the Diebold enforcement action.  Today’s post continues the analysis by highlighting additional notable issues.

Prior China Investigation

It is merely one paragraph in the SEC’s complaint, but it may be perhaps the most notable issue in the Diebold enforcement action (an action based primarily on excessive travel and entertainment payments by subsidiaries – the bulk of which occurred in China).  Para. 28 of the SEC’s complaint states:

“Other executives at Diebold were on notice of potential corruption issues at Diebold China. In 2007, a regional government agency in China, the Chengdu Administration of Industry & Commerce (“CDAIC”), opened an investigation involving, among other issues, leisure trips and gifts Diebold China had provided to bank officials. Company executives in China and the U.S. learned of the investigation after a Diebold field office in Chengdu was raided by authorities. Executives A and B took the lead in responding to the investigation. Diebold was able to settle the matter with no corruption charges filed, by paying CDAIC an administrative penalty of 600,000 RMB (approximately $80,000) for business registration violations. Despite being on notice of potential corruption issues at Diebold China, Diebold failed to effectively investigate and remediate these problems.”

In short, the bulk of the conduct at issue in the $48 million Diebold enforcement action was previously investigated by a foreign law enforcement agency and was resolved without corruption charges.

Repeat Offender

As noted in yesterday’s post, in resolving the SEC enforcement action, Diebold agreed to a permanent injunction prohibiting future FCPA violations.

As noted in this prior post, in July 2010 Diebold previously agreed to a permanent injunction prohibiting future FCPA books and records and internal controls violations in a “non-FCPA FCPA enforcement action.”

In other words, Diebold is a repeat FCPA offender (at least as to books and records and internal controls provisions).  As noted in yesterday’s post, this was the reason why the enforcement agencies imposed a compliance monitor on Diebold notwithstanding its voluntary disclosure and cooperation.

The Diebold action once again raises the issue of whether SEC permanent injunctions represent meaningless settlement language.   (See here and here for prior posts).

Rogue?

Notwithstanding the fact that Diebold is a repeat offender, a separate question ought to be asked – was the Diebold enforcement action the result of rogue employees?

According to its website, Diebold employs 16,000 employees with representation in more than 90 countries worldwide.  The enforcement action primarily focuses on the conduct of two employees – Executive A and Executive B.  The SEC’s complaint specifically states that these executives received FCPA training in 2007, yet still continued their alleged improper practices.  In addition, the SEC specifically states that the “executives took further steps to hide the leisure nature of [the problematic] trips including, on at least one occasion, providing false information to the company’s auditors in China.”

Is it fair for Diebold shareholders to pay $48 million to resolve an enforcement action (let alone many millions more in pre and post enforcement action professional fees and expenses) based on conduct allegedly engaged in primarily by .0001% of its employees, employees who were trained on the FCPA, and employees who took steps to conceal their activity from others in the company?

Typical Chronology

Diebold’s FCPA scrutiny followed a typical pattern as set forth below.

As noted in this prior post, in July 2010, the company voluntarily disclosed to the DOJ and SEC conduct it learned of “while conducting due diligence in connection with a potential acquisition in Russia.”

This original source of scrutiny caused the company to conduct an internal review of its “global FCPA compliance” which resulted, as noted in this prior post, in the company thereafter disclosing as follows.  “In the fourth quarter of 2010, the Company identified certain transactions within its Asia Pacific operation over the past several years which may also potentially implicate the FCPA.”

As noted in this prior post, in August 2013, the company disclosed as follows.

“The company has agreed in principle with the DOJ and the SEC to the terms of a proposed settlement of their inquiries, which terms remain subject to final approval by all parties. These proposed settlement terms include combined payments to the U.S. government of approximately $48.0 million in disgorgement, penalties and prejudgment interest, and the appointment of an independent compliance monitor for a minimum period of 18 months.”

In short, the time period from first instance of public disclosure to actual settlement was approximately 3.25 years.  The time period from disclosure of a settlement in principle to actual settlement was approximately 3 months.

Friday Roundup

A sign-off, no surprise, scrutiny alert, for the reading stack, spot-on, and the $10 million man.

Judge Leon Signs-Off On IBM Action

As highlighted in this prior post, in March 2011 the SEC announced an FCPA enforcement action against IBM concerning alleged conduct in South Korea and China.  The settlement terms contained a permanent injunction as to future FCPA violations and thus required judicial approval.  Similar to the Tyco FCPA enforcement action, the case sat on Judge Leon’s docket.  Last month, Judge Leon approved the Tyco settlement (see here) and yesterday Judge Leon approved the IBM settlement.

The common thread between the two enforcement actions would seem to be that both companies were repeat FCPA offenders.

Like Judge Leon’s final order in Tyco, the final order in IBM action states:

“[For a two year period IBM is required to submit annual reports] to the Commission and this Court describing its efforts to comply with the Foreign Corrupt Practices Act (“FCPA”), and to report to the Commission and this Court immediately upon learning it is reasonably likely that IBM has violated the FCPA in connection with either improper payments to foreign officials to obtain or retain business or any fraudulent books and records entries …””

For additional coverage of yesterday’s hearing, see here from Bloomberg.  The article quotes Judge Leon as follows.  IBM “has learned its lesson and is moving in the right direction to ensure this never happens again.” If there’s another violation over the next two years, “it won’t be a happy day.”

However, as noted in this previous post, IBM recently disclosed additional FCPA scrutiny.

No Surprise

This recent post highlighted the 9th Circuit’s restitution ruling in the Green FCPA enforcement action and was titled “Green Restitution Order Stands … For Now.”  As noted in the prior post, the decision practically invited the Greens to petition for an en banc hearing.

No surprise, the Greens did just that earlier this week – see here for the petition.

Scrutiny Alert

This February 2012 post detailed how Wynn Resorts $135 million donation to the University of Macau became the subject of an SEC inquiry.

Earlier this month, Wynn disclosed in an SEC filing as follows:

“On February 13, 2012, Wynn Resorts, Limited (the “Company”) filed a Report on Form 8-K disclosing that it had received a letter from the Salt Lake Regional Office (the “Office”) of the Securities and Exchange Commission (the “SEC”) advising the Company that the Office had commenced an informal inquiry with respect to certain matters, including a donation by Wynn Macau, Limited, an affiliate of the Company, to the University of Macau Development Foundation. On July 2, 2013, the Company received a letter from the Office stating that the investigation had been completed with the Office not intending to recommend any enforcement action against the Company by the SEC.”

According to this report:

“Speaking to The Associated Press from his boat on the Spanish island of Ibiza … CEO Steve Wynn said he never had any doubt federal investigators would clear the company.  ‘We were so sanguine that we never paid any attention to it; we had no exposure. It was a nonevent except for the damn newspapers.'”

For the Reading Stack

The always informative Gibson Dunn Mid-Year FCPA Update and Mid-Year DPA and NPA Update (through July 8th, approximately 30% of all DPAs/NPAs have been used to resolve FCPA enforcement actions).

Sound insight from Robertson Park and Timothy Peterson in this Inside Counsel column:

“Without putting too fine a spin on the matter, the discussion of the potential consequences faced by a company with potential anti-bribery exposure was fundamentally U.S.-centric. The dispositive question was often whether or not the potential misconduct was likely to fall under the umbrella of FCPA enforcement. Would U.S. authorities be interested in pursuing this matter? Would they find out about this matter? There were not many other concerns that mattered. Whether the site of the potential misconduct was in the European, Asian, South American or African sector, the substantial likelihood was that home authorities would have little interest in the matter, and even if they did it was likely an interest that would often frustrate and impede efforts by the Department of Justice or the Securities and Exchange Commission to investigate the matter. Cooperative enforcement was unlikely. This has changed. […]  For companies that learn of a potential international corruption issue, the impact of this emerging global enforcement market means that the headache associated with scoping an internal investigation is now a migraine with diverse and complex symptoms. Companies investigating potential bribery have always faced the question of how, if at all, they plan to disclose any subsequent findings to government authorities. Now, initial assessments of investigative plans in anti-bribery matters must consider a broader array of potentially interested enforcement authorities. Companies must design their anti-bribery investigations at the outset to consider not only the FCPA enforcement regime in the U.S., but also a newly energized U.K. anti-bribery law, along with a growing list of ant-bribery measures in almost all of the important jurisdictions with business growth opportunities.”

Six ways to improve in-house compliance training from Ryan McConnell and Gérard Sonnier.

The reality of facilitation payments from Matt Kelly.

“… Facilitation payments are a fact of life in global business. Nobody likes them, and no compliance officer wants to pay a bribe disguised as a facilitation payment. But when the transaction truly fits the definition of a facilitation payment—money paid to a government official, to speed up some job duty he would normally perform anyway—there shouldn’t be any ethical or legal crisis in paying it. After all, we have facilitation payments domestically in the United States. If you want a passport from the State Department, you pay $165 in fees. If you want an expedited passport, you pay an extra $60 fee and get your passport in half the usual time. That’s a facilitation payment, pure and simple. Other countries have all sorts of facilitation payments as well, say, to get a visa processed quickly or to clear goods through customs rather than let them rot on the docks. Urgent needs happen in business, and facilitation payments get you through them. That’s life.”

The language of corruption from the BBC.

Spot-On

Regardless of what you think of former New York Attorney General Eliot Spitzer, he is spot-on with his observation that the so-called Arthur Anderson effect (i.e. if a business organization is criminally charged it will go out of business) is “overrated.”  As noted in this Corporate Crime Reporter piece, in a new book titled “Protecting Capitalism Case by Case” Spitzer writes:

“Almost all entities have the capacity to regenerate — even if under a new name, with new ownership and new leadership — and forcing them to do so will have the deterrent effect we desire.”

“Most companies would have no trouble continuing in operation once charged. They might suffer reputational harm, perhaps lose contracts, have certain loans be declared to be in default, and lose some personnel and public support. But that would probably be the proper price to be paid in the context of the violations of the law they committed.”

As noted in previous posts, the Arthur Anderson effect was effectively debunked (see here) and even Denis McInerney (DOJ, Deputy Assistant Attorney General) recently acknowledged (see here) that there is a very small chance that a company would be put out of business as a result of actual DOJ criminal charges.

In his new book Spitzer also writes as follows concerning the SEC’s neither admit nor deny settlement policy.

“I hope that the new leadership at the Securities and Exchange Commission will mandate that an admission of guilt is a necessary part of future settlements in cases of this stature or magnitude. The law and justice require such an acknowledgement — or else nothing has been accomplished.”

Speaking of neither admit nor deny, part of the SEC’s talking points defense of this policy is that the SEC is not the only federal agency that makes use of such a settlement policy.

On this score, it is notable – as detailed in this Law360 article – that Bart Chilton, a top official at the U.S. Commodity Futures Trading Commission, “said the commission should rethink its policy of allowing defendants to settle claims without admitting or denying the allegations.”  According to the article, Chilton stated:

“I understand there are certain circumstances where we might not want to require [admissions], but I think we at the CFTC should change our modus operandi.  The default position should be that people who violate the law should admit wrongdoing.”

$10 Million Man

Continuing with neither admit nor deny, one of the defenders of this settlement policy was Robert Khuzami while he was at the SEC as the Director of Enforcement.   As noted in this Kirkland & Ellis release, Khuzami joined the firm as a partner in the global Government, Regulatory and Internal Investigations Practice Group.  According to this New York Times article, Khuzami’s new position “pays more than $5 million per year” and is guaranteed for two years.  In joining Kirkland, the New York Times stated that Khuzami “is following quintessential Washington script: an influential government insider becoming a paid advocate for industries he once policed.”

Khuzami and former Assistant Attorney General Lanny Breuer were the voice and face of the SEC and DOJ last November upon release of the FCPA Guidance.  As detailed in this prior post, Breuer is currently at Covington & Burling making approximately $4 million per year.

*****

A good weekend to all.

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