Top Menu

Friday Roundup

Roundup2

Wal-Mart related, north of the border, scrutiny alerts and updates, and an issue to watch.

It’s all here in the Friday roundup.

Wal-Mart Related

Here is what Wal-Mart said in its recent 4Q FY2015 earnings call.

“FCPA-and compliance-related costs were $36 million in the fourth quarter, comprised of $26 million for the ongoing inquiries and investigations, and $10 million for our global compliance program and organizational enhancements. For the full year, FCPA-and compliance related costs were $173 million, comprised of $121 million for the ongoing inquiries and investigations, and $52 million for our global compliance program and organizational enhancements. Last year, total FCPA-and compliance-related costs were $282 million.”

“In fiscal 2016, we expect our FCPA-related expenses to range between $160 and $180 million.”

Doing the math, Wal-Mart’s 4Q FCPA and compliance-related costs is approximately $563,000 in FCPA-related expenses per working day.

Over the past approximate three years, I have tracked Wal-Mart’s quarterly disclosed pre-enforcement action professional fees and expenses. While some pundits have ridiculed me for doing so, such figures are notable because, as has been noted in prior posts and in my article “Foreign Corrupt Practices Act Ripples,” settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.  Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.

While $563,000 per working day remains eye-popping, Wal-Mart’s recent figure suggests that the company’s pre-enforcement action professional fees and expenses have crested as the figures for the past five quarters have been approximately $640,000, $662,000, $855,000, $1.1 million and $1.3 million per working day.

In the aggregate, Wal-Mart’s disclosed pre-enforcement professional fees and expenses are as follows.

FY 2013 = $157 million.

FY 2014 = $282 million.

FY 2015  = $173 million.

FY 2016 = $160 – $180 million (projected)

North of the Border

Yesterday, the Royal Canadian Mounted Police (RCMP) announced charges against the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc.”  As stated in the release:

“The three entities have been charged with one count of corruption under paragraph 3(1)(b) of the Corruption of Foreign Public Officials Act and one count of fraud under paragraph 380(1)(a) of the Criminal Code.The alleged criminal acts surfaced as part of the ongoing criminal investigation into the company’s business dealings in Lybia.

The charges laid are the following:

In Montreal, Judicial District of Montreal, elsewhere in Canada and abroad

  1. Between on or about August 16, 2001 and on or about September 20, 2011, the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc., did, in order to obtain or retain an advantage in the course of business, directly or indirectly give, offer or agree to give or offer a loan, reward, advantage or benefit of any kind of a value of CAN$47,689,868 or more, to one or several public officials of the “Great Socialist People’s Libyan Arab Jamahiriya” or to any person for the benefit of a public official of the “Great Socialist People’s Libyan Arab Jamahiriya”, to induce these officials to use their positions to influence any acts or decisions of the “Great Socialist People’s Libyan Arab Jamahiriya” for which they perform their duties or functions, thereby committing an indictable offence contrary to paragraph 3(1)(b) of the Corruption of Foreign Public Officials Act.
  2. Between on or about August 16, 2001 and on or about September 20, 2011, the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc. did, by deceit, falsehood or other fraudulent means, whether or not it is a false pretense within the meaning of theCriminal Code, defraud the “Great Socialist People’s Libyan Arab Jamahiriya”, the “Management and Implementation Authority of the Great Man Made River Project” of Libya, the “General People’s Committee for Transport Civil Aviation Authority” of Libya, Lican Drilling Co Ltd, and the “Organization for Development of Administrative Centers” of Benghazi in Libya of property, money or valuable security or service of a value of approximately CAN$129,832,830, thereby committing an indictable offence contrary to paragraph 380(1)(a) of the Criminal Code.”

In the release, Assistant Commissioner Gilles Michaud, Commanding Officer of the RCMP’s National Division, stated: “Corruption of foreign officials undermines good governance and sustainable economic development. The charges laid today demonstrate how the RCMP continues to support Canada’s international commitments and safeguard its integrity and reputation.”

Upon being charged, SNC-Lavalin issued this release which states in full as follows.

“SNC-Lavalin was informed that federal charges have been laid by the Public Prosecution Service of Canada against SNC-Lavalin Group Inc., SNC-Lavalin International Inc. and SNC-Lavalin Construction Inc. Each entity has been charged with one count of fraud under section 380 of the Criminal Code of Canada and one count of corruption under Section 3(1)(b) of the Corruption of Foreign Public Officials Act. SNC-Lavalin firmly considers that the charges are without merit and will vigorously defend itself and plead not guilty in the interest of its current employees, families, partners, clients, investors and other stakeholders.

“The charges stem from the same alleged activities of former employees from over three years ago in Libya, which are publicly known, and that the company has cooperated on with authorities since then,” stated Robert G. Card, President and CEO, SNC-Lavalin Group Inc. “Even though SNC-Lavalin has already incurred significant financial damage and losses as a result of actions taken prior to March 2012, we have always been and remain willing to reach a reasonable and fair solution that promotes accountability, while permitting us to continue to do business and protect the livelihood of our over 40,000 employees, our clients, our investors and our other stakeholders.”

It is important to note that companies in other jurisdictions, such as the United States and United Kingdom, benefit from a different approach that has been effectively used in the public interest to resolve similar matters while balancing accountability and securing the employment, economic and other benefits of businesses.

These charges relate to alleged reprehensible deeds by former employees who left the company long ago. If charges are appropriate, we believe that they would be correctly applied against the individuals in question and not the company. The company has and will continue to fully cooperate with authorities to ensure that any individuals who are believed to have committed illegal acts are brought to justice. The company will also consider claims against these individuals to recover any damages the company has suffered as a result.

While the Public Prosecution Service of Canada and the RCMP have selected this as the next formal step in this 3-year old investigation, there is no change to the company’s right and ability to bid or work on any public or private projects.

Becoming a benchmark in ethics and compliance

Over the past three years, we have made significant changes to the company and remained focused on continuous improvements in ethics and compliance. The tone from the top is clear and unequivocal; there is zero tolerance for ethics violations. The individuals alleged to have been involved in past ethical issues are no longer with the company, and a new CEO has changed the face of the executive team. Under the leadership of the Board of Directors, the company has reinforced its Ethics and Compliance program with huge investments in time and money to rapidly make significant and concrete enhancements, including:

  • Creating the position of Chief Compliance Officer, who reports to the board, and hiring world-renowned leaders in compliance
  • Appointing an Independent Monitor recommended by and who reports solely to, the World Bank Group
  • Appointing compliance officers in all of the company’s business units and regional offices worldwide
  • Creating a dedicated Ethics and Compliance team
  • Further reinforcing internal controls and procedures
  • Further reinforcing its Code of Ethics and Ethics and Compliance Hotline
  • Producing a dedicated  Anti-Corruption Manual
  • Offering annual compliance training to all employees, with a special focus on those working in strategic roles
  • Developing and distributing a world-class Business Partners Policy to employees
  • Using an independent third party to screen candidates for senior management positions
Working hard to build a global leader in the engineering and construction industry

Over the past 3 years and while managing issues created by events prior to 2012, we have worked hard to develop and implement a strategy to become a global Tier-1 player and take our place in a consolidating industry. We have taken concrete steps towards a 5-year goal of doubling our size, and we continue to deliver on our strategy. A clear example is the acquisition of Kentz that added 15,000 employees to our oil and gas business, making us a Tier-1 player in this area.

Since 1911, SNC-Lavalin employees have been working with our clients to create world-class projects that improve people’s quality of life and provide value to our clients. We are the only Canadian player among the top engineering and construction firms in the world, ranking as the number one firm in both Canada and Quebec.

“I would like to thank our more than 40,000 employees, clients, shareholders, partners and other stakeholders for their trust and continuing support,” concluded Mr. Card.”

The portion of SNC-Lavalin’s statement highlighted above in bold and underlined is most interesting.

Scrutiny Alerts and Updates

Flowserve

In 2008, Flowserve Corporation and a related entity agreed to pay approximately $10.5 million to resolve DOJ and SEC FCPA enforcement actions concerning conduct in connection with the U.N. Oil for Food Program in Iraq.  As part of the SEC resolution, Flowserve agreed to final judgment permanently enjoining it from future violations of FCPA’s books and records and internal controls provisions.

Earlier this week, Flowserve disclosed as follows.

“The Company has uncovered actions involving an employee based in an overseas subsidiary that violated our Code of Business Conduct and may have violated the Foreign Corrupt Practices Act. The Company has terminated the employee, is in the process of completing an internal investigation, and has self-reported the potential violation to the United States Department of Justice and the United States Securities and Exchange Commission. While the Company does not currently believe that this matter will have a material adverse impact on its business, financial condition, results of operations or cash flows, there can be no assurance that the Company will not be subjected to monetary penalties and additional costs.”

Eli Lilly

In December 2012, Eli Lilly agreed to pay $29 million to resolve an SEC FCPA enforcement action based on subsidiary conduct in China, Brazil, Poland, and Russia.  At the time, there was no parallel DOJ action which sent a signal to knowledgeable observers that there would likely not be a parallel DOJ action.

Earlier this week, Eli Lilly made this official when it disclosed:

“In August 2003, we received notice that the staff of the Securities and Exchange Commission (SEC) was conducting an investigation into the compliance by Lilly’s Polish subsidiary with the U.S. Foreign Corrupt Practices Act of 1977 (FCPA). Subsequently, we were notified that the SEC had expanded its investigation to other countries and that the Department of Justice (DOJ) was conducting a parallel investigation. In December 2012, we announced that we had reached an agreement with the SEC to settle its investigation. The settlement relates to certain activities of Lilly subsidiaries in Brazil, China, Poland, and Russia from 1994 through 2009. Without admitting or denying the allegations, we consented to pay a civil settlement amount of $29.4 million and agreed to have an independent compliance consultant conduct a 60-day review of our internal controls and compliance program related to the FCPA. In January 2015, the DOJ advised us that they have closed their investigation into this matter.”

Rolls-Royce

As highlighted here, allegations have surfaced that Rolls-Royce “paid bribes for a contract with Brazilian oil firm Petrobras.” According to the report, “one of the Petrobras informants in the case, received at least $200,000 in bribes from Rolls-Royce, which makes gas turbines for Petrobras oil platforms.”

As noted in the report, “Britain’s Serious Fraud Office is separately investigating Rolls-Royce because of concerns over possible bribery in Indonesia and China.”

As highlighted here and here Rolls-Royce is also under investigation in the U.S. by the DOJ and in 2012 Data Systems & Solutions, LLC, a wholly-owned subsidiary of  Rolls-Royce Holdings, resolved an FCPA enforcement action.

U.K. Sentences

The U.K. Serious Fraud Office recently announced that “two employees of Smith and Ouzman Ltd, a printing company based in Eastbourne, were sentenced … following an SFO investigation into corrupt payments made in return for the award of contracts to the company.” As noted in the release:

Smith and Ouzman Ltd specialises in security documents such as ballot papers and education certificates.  Its chairman, Christopher John Smith, aged 72 from East Sussex, was sentenced to 18 months’ imprisonment, suspended for two years, for two counts of corruptly agreeing to make payments, contrary to section 1(1) of the Prevention of Corruption Act 1906, to run concurrently. He was also ordered to carry out 250 hours of unpaid work and has been given a three month curfew.

Nicholas Charles Smith, the sales and marketing director of the company, aged 43 from East Sussex, was sentenced to three years’ imprisonment for three counts of corruptly agreeing to make payments, to run concurrently. The company itself was also convicted of the same three offences and will be sentenced at a later date.

Both men were disqualified from acting as company directors for six years.

Director of the SFO, David Green CB QC commented:

“This case marks the first convictions secured against a corporate for foreign bribery, following a contested trial. The convictions recognise the corrosive impact of such conduct on growth and the integrity of business contracts in the Developing World.”

In passing sentence HHJ Higgins commented:

“Your behaviour was cynical, deplorable and deeply antisocial, suggesting moral turpitude.”

The briberyact.com published in full the Judge’s sentencing remarks.

Issue to Watch

This Wall Street Journal editorial was about Apple’s battle with its corporate monitor in an antitrust action.  While outside the FCPA context, the editorial nevertheless notes:

“Apple might have settled long ago as most corporations do, and that option might even have been cheaper than a protracted appeal. But the company is doing a public service by attempting to vindicate a legal principle and brake the growing abuse of court-appointed monitors and a crank theory of antitrust that will harm many more innovators if it is allowed to stand. If Apple prevails in the Second Circuit, it ought to sue Mr. Bromwich and attempt to disgorge the $2.65 million he has soaked from shareholders.”

*****

A good weekend to all.

Friday Roundup

It’s not every day that …, denied, scrutiny alerts, and a kleptocracy forfeiture action.  It’s all here in the Friday roundup.

It’s Not Every Day …

It’s not every day that a U.S. Senator takes to the Senate floor to accuse a company of violating the Foreign Corrupt Practices Act.

However, as noted here by the Hill, on Tuesday Senator Harry Reid (D-NV) did just that.

“Senate Majority Leader Harry Reid (D-Nev.) on Tuesday accused the Koch  brothers of unlawful business practices in an effort to portray the conservative  billionaires as election-year bogeymen.  Reid charged that Charles and David Koch, who are tied for fourth place on the Forbes list of 400 richest people in the United States, violated the Foreign  Corrupt Practices Act, citing a 2011 report by Bloomberg Markets magazine.  “These are the same brothers whose company, according to a Bloomberg  investigation, paid bribes and kickbacks to win contracts in Africa, India and the Middle East,” Reid said on the Senate floor. “These are the same brothers  who, according to the same report, used foreign subsidiaries to sell millions of  dollars of equipment to Iran, a state sponsor of terrorism.”  Representatives of the Kochs’s business empire fired back quickly in what has  become an escalating battle between the top Democrat in Congress and the press-shy business titans.  A lawyer for Koch Industries said the allegations in the Bloomberg article have been subsequently debunked and did not result in any legal penalty. “Nothing has ever come of any of the allegations that Mr. Reid referred to,” said Mark Holden, general counsel of Koch Industries. “Sen. Reid’s allegations are false,” he added.”

See here for a prior post regarding the referenced Bloomberg article.

Of course it is not just executives or companies that support Republican causes that have come under FCPA scrutiny.  As noted in this prior post the CEO of DreamWorks Animation and the co-founder of Qualcomm Inc., are big spenders for President Obama and the Democratic Party.  Both companies have been the subject of FCPA scrutiny.

Denied

The goal of FCPA Professor is to be a forum in which various views of the FCPA and FCPA enforcement can be expressed.  I frequently extend invitations for guest posts and for years have extended such an invitation to the DOJ.  The answer has always been no.  With Patrick Stokes becoming the new FCPA Unit Chief, I extended the invitation once again.  The DOJ response?  While Mr. Stokes “appreciates the invitation he’ll decline the opportunity.”

You could however, if you are willing to pay over $1,000, have heard Stokes speak yesterday about FCPA “Recent Developments and New Trends” at the ABA National Institute on White Collar Crime in Miami.

As highlighted in this previous post, one should not have to pay to hear public servants speak about the law they enforce.

Scrutiny Alerts

Cisco

This February 14th post was the first to highlight Cisco’s discreet blog post concerning its FCPA scrutiny.  Recently in its quarterly SEC filing the company disclosed:

“At the request of the U.S. Securities and Exchange Commission and the U.S. Department of Justice, the Company is conducting an investigation into allegations which the Company and those agencies received regarding possible violations of the U.S. Foreign Corrupt Practices Act involving business activities of the Company’s operations in Russia and certain of the Commonwealth of Independent States, and by certain resellers of the Company’s products in those countries.  The Company takes any such allegations very seriously and is fully cooperating with and sharing the results of its investigation with the Commission and the Department.  While the outcome of the Company’s investigation is currently not determinable, the Company does not expect that it will have a material adverse effect on its consolidated financial position, results of operations, or cash flows. The countries that are the subject of the investigation collectively comprise less than two percent of the Company’s revenues.”

Citigroup

As has been widely reported (see here from Reuters for instance):

“The SEC is investigating Citigroup for accounting fraud after it disclosed bogus loans in its Mexican Banamex unit, a source familiar with the investigation said.  The securities regulator is also examining whether Citigroup violated the Foreign Corrupt Practices Act, the source said.”

I think it is important to emphasize at times like this, that the FCPA contains generic books and records and internal controls provisions that can be implicated in the absence of any FCPA anti-bribery issues.  (See here for a prior post on this subject).

Rolls Royce Holdings

Rolls Royce Holdings, previously known to be under investigation by the U.K. Serious Fraud Office (see here for the prior post) added the Department of Justice to its recent annual report disclosure.

“A large part of the Group’s business is characterised by competition for individually significant contracts with customers which are often directly or indirectly associated with governments and the award of individually significant contracts to suppliers. The procurement processes associated with these activities are highly susceptible to the risk of corruption. In addition the Group operates in a number of territories where the use of commercial intermediaries is either required by the government or is normal practice. The Group is currently under investigation by law enforcement agencies, primarily the Serious Fraud Office in the UK and the US Department of Justice. Breaches of laws and regulations in this area can lead to fines, penalties, criminal prosecution, commercial litigation and restrictions on future business.”

Rolls Royce later clarified its disclosure as follows.

“Rolls-Royce has been co-operating with regulatory authorities on both sides of  the Atlantic in regard to allegations of bribery and corruption. The Serious  Fraud Office in the UK has launched a formal investigation. The Department of  Justice is also investigating these matters, however we have received no  notification of a formal inquiry being launched in the United States.”

Kleptocracy Forfeiture Action

It receives scant attention compared to FCPA enforcement, but another prong of the DOJ’s efforts to combat bribery and corruption is its Kleptocracy Asset Recovery Initiative under which prosecutors in the DOJ Asset Forfeiture and Money Laundering Section work in partnership with federal law enforcement agencies to forfeit the proceeds of foreign official corruption. (See this 2009 post highlighting Attorney General Holder’s announcement of the program).

Earlier this week, the DOJ announced:

“[The DOJ has] frozen more than $458 million in corruption proceeds hidden in bank accounts around the world by former Nigerian dictator Sani Abacha and conspirators. A civil forfeiture complaint unsealed today in the United States District Court in the District of Columbia seeks recovery of more than $550 million in connection with the largest kleptocracy forfeiture action brought in the department’s history. The restraint of funds announced today includes approximately $313 million in two bank accounts in the Bailiwick of Jersey and $145 million in two bank accounts in France.   In addition, four investment portfolios and three bank accounts in the United Kingdom with an expected value of at least $100 million have also been restrained, but the exact amounts in the accounts will be determined at a later date.”

*****

A good weekend to all.

Across The Pond

This post highlights recent developments from the United Kingdom.

Enforcement Action

In an enforcement action similar to the 2009 action against Aon Limited (see here) and the 2011 action against Willis Limited (see here), the U.K. Financial Conduct Authority (a regulator of the financial services industry) recently announced that JLT Specialty Limited (JLTSL – a company that provides insurance broking and risk management services) was fined “over £1.8million for failing to have in place appropriate checks and controls to guard against the risk of bribery or corruption when making payments to overseas third parties.”

According to the FCA release:

“JLTSL was found to have failed to conduct proper due diligence before entering into a relationship with partners in other countries who helped JLTSL secure new business, known as overseas introducers. JLTSL also did not adequately assess the potential risk of new insurance business secured through its existing overseas introducers.

[…]

JLTSL’s failure to manage the risks created by overseas payments, which occurred between 19th February 2009 and 9th May 2012, breached the FCA’s principle on management and control. During this period, JLTSL received almost £20.7 million in gross commission from business provided by overseas introducers, and paid them over £11.7 million in return. Inadequate systems around these payments created an unacceptable risk that overseas introducers could use the payments made by JLTSL for corrupt purposes, including paying bribes to people connected with the insured clients and/or public officials.”

The FCA’s director of enforcement and financial crime stated:

“These failings are unacceptable given JLTSL actually had the checks in place to manage risk, but didn’t use them effectively, despite being warned by the FCA that they needed to up their game.  Businesses can be profitable but firms must ensure that they take the necessary steps to control the risks in that business.  Bribery and corruption from overseas payments is an issue we expect all firms to do everything they can to tackle. Firms cannot be complacent about their controls – when we take enforcement action we expect the industry to sit up and take notice.”

The FCA release notes that “JLTSL’s penalty was increased because of its failure to respond adequately either to the numerous warnings the FCA had given to the industry generally or to JLTSL specifically.”

Add Another to the Compliance Defense List

What is most striking about many of the opposition pieces written about FCPA reform is that while opponents of FCPA reform warn of a U.S. retreat on bribery and corruption issues should the FCPA be amended, opponents fail to address the fact that an amended FCPA, or revisions to FCPA enforcement policy, would actually align the FCPA with many FCPA-like laws or enforcement policies of peer nations.

For instance, and as discussed in my article “Revisiting a Foreign Corrupt Practices Act Compliance Defense,” many countries have compliance-like defenses in their FCPA-like law.

Add the Isle of Man, a self-governing British Crown Dependency, to the list.  Its recent Bribery Act 2013, largely modeled on the U.K. Bribery Act, states:

“(1) A relevant commercial organisation (“C”) is guilty of an offence under this section if a person (“A”) associated with C bribes another person intending —

(a) to obtain or retain business for C; or

(b) to obtain or retain an advantage in the conduct of business for C.

(2) But it is a defence for C to prove that C had in place adequate procedures designed to prevent persons associated with C from undertaking such conduct.”

Scrutiny Alerts and Updates

As noted in this previous post, Rolls-Royce Holdings has long been under scrutiny concerning its business conduct in China, Indonesia, and other markets.   The Wall Street Journal reports:

“U.K.’s Serious Fraud Office has opened a formal investigation into concerns that employees of the U.K.-based engineering group may have been involved in bribery and corruption. The maker of engines for aerospace, defense and marine customers said a year ago that it had handed over material to the SFO having previously initiated its own independent review into allegations of malpractice in overseas countries, including China and Indonesia. “We have been informed by the Serious Fraud Office that it has now commenced a formal investigation into these matters,” Rolls-Royce said. Rolls-Royce declined to provide further details on the progress of the investigation. An SFO official confirmed that “a criminal investigation into allegations of bribery at Rolls-Royce” is under way but declined to comment further.”

See here for the related U.K. Serious Fraud Office statement.

As noted in this previous post, in June, Data Systems & Solutions, LLC, a wholly-owned subsidiary of  Rolls-Royce Holdings, resolved an FCPA enforcement action.

*****

Interesting snippets from a recent Financial Times article – “GSK China Probe Flags Up Wider Concerns” – concerning GSK in China.

“[A]cross the healthcare spectrum, from doctors to hospital officials to sales representatives for rival local companies, there is agreement that foreign pharmaceutical groups are not the main culprits of corruption in the Chinese healthcare industry. Local companies are far more profligate with so-called “commissions” to doctors because they are not subject to the kind of scrutiny that foreign companies face under global anti-bribery laws. A medical student in a leading Shanghai hospital says: “The supervising doctor in my department sees as many as 80 patients in a morning, and prescribes as much as Rmb100,000 worth of drugs. She definitely takes commissions from drug companies, but that only affects what she prescribes when there are two similar drugs.” That situation normally arises when both are local generic businesses, industry analysts say. “In China, foreign drug companies are the best boys, but the parents beat them first,” says one industry insider, echoing a sentiment heard frequently from Chinese doctors who say foreign drug companies pay for educational activities that no one else will pay for in China.  “Financial flows – both legal and illegal – tied to drug and device sales are funding perhaps 60-80 per cent of total hospital costs,” says George Baeder, an independent drug industry adviser. “Without this funding, the current system would collapse.” Many drug analysts see kickbacks as structural, and therefore hard to eradicate: central and provincial Chinese governments cannot afford to pay doctors a living wage, and many patients cannot afford to pay the true cost of care. Up to now, Beijing has turned a blind eye as pharma companies find ways to subsidise doctor salaries and underwrite their medical education.”

Speaking of GSK, as noted in this New York Times article, the company recently announced that it “will no longer pay doctors to promote its products and will stop tying compensation of sales representatives to the number of prescriptions doctors write.”

Great Speech, But a Major Contradiction

Ben Morgan (SFO – Joint Head of Bribery and Corruption) recently delivered this speech titled “Striking Tigers As Well As Flies:  Non-Selective Anti-Corruption Law Enforcement.”

Morgan talked about “the widely accepted premise that the law should apply to everyone, equally, regardless of any external factors such as the identity of an alleged offender, their background, their status, who they know or, if they are a commercial organisation, their size, their share price, their line of business or their financial resources.”

Morgan stated as follows:

“So if we’re being asked to discuss the need to be non-selective in the way we enforce anti-corruption legislation – to treat all potential defendants equally regardless of the external factors I have mentioned – that implies, does it not, that we have a problem in the way we currently enforce anti-corruption law.  The implicit accusation we are answering in this session is “you don’t strike Tigers; you only strike flies”.  So let’s test that.

First, let’s look at why it might be tempting not to prosecute certain offenders.  Well, on the one hand, it might be for practical reasons.  Many of our countries have endured difficult financial times recently.  In times of austerity and ever decreasing resources, there might be a temptation to avoid prosecuting the really difficult, complex cases that are likely to consume resources.  Those kinds of cases where the evidence is scattered all over the globe, where there are lots of witnesses and perhaps where specialist skills are needed.  Far easier, surely, to deploy what resources one has into the easier targets, the “low hanging fruit”.

Another reason not to prosecute certain offenders might be for political reasons.  Does a situation appear to involve state officials of one’s own country, or of an important ally?  Does it concern an issue that those with power would prefer not to be investigated?  Or perhaps, in the corporate world, does it involve a company that is of real national significance – a major employer and tax payer?

These are the sorts of situations where it seems to me there is a risk that the Tigers might be treated differently to the Flies.  And while they are not to be underestimated, I hope that one thing we can all agree on here is that as a statement of principle, we cannot accept that for any reason the rule of law should be applied differently to some groups than others.”

Morgan’s points are spot-on of course.

However, the irony is that the U.K. government – in the minds of many – contradicted all of these points in its handling of BAE over the past several years. (See here).  (So too did the U.S. government – see here and here).

Friday Roundup

A prosecutorial common law defeat, the SEC repeats its prior positions, better but not good, document issues, and recent scrutiny news.

Prosecutorial Common Law Defeat

One of the best guest posts in FCPA Professor history was this 2011 post from Michael Levy in which he described the concept of prosecutorial common law.  Prosecutorial common law is all around us.  Take a look at the footnotes of the recent FCPA Guidance – most of the “authority” cited for “legal” propositions is DOJ or SEC settlements.

For obvious reasons, prosecutorial common law does not sit well with federal court judges.  For instance, in U.S. v. Bodmer, Judge Shira Scheindlin of the Southern District of New York, in rejecting the DOJ’s position that the FCPA’s criminal penalty provisions applied to a foreign national prior to the 1998 FCPA amendments, noted as follows – “the Government’s charging decision, standing alone, does not establish the applicability of the statute.”  Likewise as noted in this previous post about the Giffen enforcement action, Judge William Pauley of the Southern District of New York stated that prosecutorial common law “is not the kind or quality of precedent this Court need consider.”

Prosecutorial common law recently suffered a major defeat when the Second Circuit, in a non-FCPA case, rejected (see here for the opinion)  a DOJ theory of prosecution concerning off-label promotion of drugs that it has previously used to secure billions (yes that is a “b”) in recent settlements with pharmaceutical companies.

Commenting on this recent development, Levy stated as follows.  “It is amazing to me how consistently this pattern seems to repeat but, given the incentives on both sides, I don’t really see any structural solutions that would change it.”

For additional reading, see this client alert from Debevoise & Plimpton, this client alert from Arnold & Porter, and this client alert from Gibson Dunn.

SEC Responds to Magyar Telekom Execs Motion to Dismiss

Given the SEC’s positions in its recent response to Herbert Steffen’s motion to dismiss (see here for the prior post), it comes as little surprise that the SEC is taking the same positions in its response to the motion to dismiss filed by former Magyar Telecom executives Elek Straub, Andras Balogh and Tamas Morvai.

In its response brief (here), the SEC states, in summary form, as follows.

“The defendants move to dismiss the complaint, arguing that (1) the Court lacks personal jurisdiction; (2) the SEC’s claims are time-barred; (3) the complaint fails to allege facts supporting the SEC’s anti-bribery claims; and (4) the complaint fails to allege facts supporting the SEC’s lying to auditors claims. The Court should deny the motion on all four grounds.

First, the defendants are subject to personal jurisdiction because their conduct caused foreseeable consequences in the United States. The complaint alleges that the defendants orchestrated a bribery scheme in Macedonia; that they concealed their bribes through the use of sham contracts and falsified books and records; that they lied to Magyar’s auditors by signing false annual and quarterly certifications; and that their actions caused Magyar to file annual and quarterly reports with the SEC in the United States that misrepresented the company’s financial statements and included false Sarbanes-Oxley certifications.

Second, the complaint was timely filed within the statute of limitations set forth at 28 U.S.C. § 2462. That provision expressly states that the limitations period does not begin to run until the defendants are “found within the United States.” The defendants acknowledge in their brief that they have remained outside of the United States since their commission of this scheme. Thus, the statute of limitations period has not begun to run as to them. In any event, claims for equitable relief are not subject to the limitations period of Section 2462, which by its terms applies only to “penalties.”

Third, the complaint pleads all facts necessary to support every element of every claim against the defendants.  The defendants met the “interstate commerce” prong of Exchange Act Section 30A, 15 U.S.C. § 78dd-1, by sending, in furtherance of their bribery scheme, electronic mail messages that were routed through servers located in the United States. Because the use of interstate commerce is a jurisdictional element, the Exchange Act does not require that defendants know, let alone “corruptly” intend, that their messages would reach the United States. The complaint sufficiently identifies the foreign officials whom the defendants bribed; Section 30A does not require that the officials be expressly named. And the complaint sufficiently identifies the specific false statements made by each defendant to Magyar’s auditors and why those statements were material.”

Of particular note as to “foreign official,” the SEC makes the sweeping statement that “there is no requirement under the FCPA or in the case law interpreting it that the SEC’s complaint [needs to] identify bribed foreign officials by name.”  The SEC then states in a footnote as follows.  “Any such requirement would be completely at odds with the FCPA’s statutory scheme. […]  By its very structure, [the anti-bribery provisions were] drafted to prohibit corrupt transactions in which the precise identity of a government official might not be known even to the payor.”

As noted in this previous post, the SEC is asserting the same “foreign official” position in the Mark Jackson / James Ruehlen challenge.  Oral arguments are to take place today on that motion in Houston.

It should be noted that in the DOJ’s unsuccessful prosecution of John O’Shea, Judge Hughes stated as follows.  “[W]hile the Government does not have to trace a particular dollar to a particular pocket of a particular official, it has to connect the payment to a particular official, that the funds made under his authority to a foreign official, who can be identified in some reasonable way, that is, with no reasonable doubt.” Judge Hughes also stated as follows.  “You can’t convict a man promising to pay unless you have a particular promise to a particular person for a particular benefit. If you call up the [intermediary] and say, look, I’m going to send you 50 grand, bribe somebody, that does not meet the statute.”

Corruption Perception Index

Transparency International (“TI”) recently released its annual Corruption Perceptions Index (“CPI”) (see here).  The CPI ranks countries/territories based on how corrupt their public sector is perceived to be and is a composite index drawing on corruption-related data collected by a variety of reputable institutions and reflecting the views of observers from around the world including experts living and working in the countries/territories evaluated.

The top three (very clean) countries in the CPI were Denmark, Finland and New Zealand. The bottom three (highly corrupt) countries were Afghanistan, North Korea and Somalia.

The United States placed 19th on the list of 176 countries.  While this is better than last year’s 24th place finish, as noted in this prior post it’s a bit ironic that as the U.S. aggressively expands its Foreign Corrupt Practices Act enforcement theories, the U.S. remains far from the top of the CPI.

Assistant Attorney General Lanny Breuer recently spoke of the U.S. FCPA enforcement effort in religious terms (“we in the United States are in a unique position to spread the gospel of anti-corruption, because there is no country that enforces its anti-bribery laws more vigorously than we do”), yet CPI’s rankings should again cause pause as to our claimed moral superiority.

Document Issues

I am not one to usually highlight FCPA Inc. marketing material, but I thought this video clip from e-discovery firm H5 was instructive as to many of the document issues involved in an FCPA investigation.  The enforcement agencies have commented from time to time that FCPA Inc. has a tendency to sometimes over do it in this area, but be that as it may – data collection, data storage, data analysis, etc. are among the reasons why FCPA investigations often soar into the millions.

Recent Scrutiny News

Rolls-Royce

Reuters reports (here) that Rolls-Royce, the world’s second-largest maker of aircraft engines “said the [U.K. Serious Fraud Office] had asked it to conduct an internal inquiry into dealings involving intermediaries in China, Indonesia and other overseas markets.”  According to the report, “a source close to the investigation said the allegations relate to events in the “distant past” and Rolls-Royce had told the U.S. Department of Justice about the inquiry.”

As noted in this previous post, in June, Data Systems & Solutions, LLC, a wholly-owned subsidiary of Rolls-Royce Holdings, resolved an FCPA enforcement action.

Barclays

Reuters also reports (here) that a previously disclosed DOJ and SEC “investigation into whether Barclays Plc paid bribes to win a banking license in Saudi Arabia has spread to other banks that operate in the region.”

Net 1

Earlier this week, Net 1 UEPS Technologies Inc. disclosed in an SEC filing (here) as follows.

“On November 30, 2012, we received a letter from the U.S. Department of Justice, Criminal Division (the “DOJ”) informing us that the DOJ and the Federal Bureau of Investigation have begun an investigation into whether Net 1 UEPS Technologies, Inc. and its subsidiaries, including their officers, directors, employees, and agents (collectively, “Net 1”) and other persons and entities possibly affiliated with Net 1 violated provisions of the Foreign Corrupt Practices Act and other U.S. federal criminal laws 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 and also engaged in violations of the federal securities laws in connection with statements made by Net 1 in its SEC filings regarding this contract. On the same date, we received a letter from the Division of Enforcement of the Securities and Exchange Commission (the “SEC”) advising us that it is also conducting an investigation concerning our company. The SEC letter states that the investigation is a non-public, fact-finding inquiry.”

In this additional release, the company states as follows.

“These investigations appear to be directed at matters which are similar to those that were the subject of articles which appeared in various South African newspapers after AllPay Consolidated Investment Holdings (Pty) Limited (“AllPay”) instituted legal proceeding in the South African courts to set aside the contract awarded to us in January 2012 by SASSA. AllPay was an unsuccessful bidder for the SASSA contract.”

News of the company’s FCPA scrutiny caused the company’s U.S. listed shares to plunge approximately 58%.  This of course caused several plaintiff law firms to announce investigations of their own.  See here, here, and here.  In the meantime, the company’s shares have risen 46%.

It’s an FCPA world.

*****

A good weekend to all.

Powered by WordPress. Designed by WooThemes