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Quotable, scrutiny alerts and updates, and for the reading stack. It’s all here in the Friday roundup.

Quotable

Royal Dutch Shell resolved an FCPA enforcement action in 2010 concerning conduct in Nigeria. At present, the company is under FCPA scrutiny again for its business practices in Nigeria.

During a recent investor conference call, an analyst asked “in light of the various corruption cases that hit the oil sector, which seem to be more and more frequent, is there anything you think needs to be done better at the industry level to deal with violations of the FCPA?”

Royal Dutch CEO Ben van Beurden stated:

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Friday Roundup

Roundup

Odebrecht / Braskem settlement amount is significantly trimmed, a form of bribery?, quotable, deficient internal controls, and scrutiny alerts and updates. It’s all here in the Friday roundup.

Odebrecht / Braskem Settlement Amount Significantly Trimmed

There was much false and misleading reporting about the FCPA settlement amount in the December 2016 FCPA enforcement action against Odebrecht / Braskem.

As highlighted in this post, after accounting for various credits and deductions (including for payments to Brazil and Swiss law enforcement agencies and a claimed inability to pay) the net FCPA settlement amount (subject to potential future adjustments) was approximately $420 million. The $420 settlement amount consisted of approximately $260 million in connection with the Odebrecht criminal information and plea agreement; $94.8 million in connection with the Braskem criminal information and plea agreement; and $65 million in connection with the SEC’s related enforcement action against Braskem.

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Friday Roundup

Roundup

Is ISO 37001 a flop?, scrutiny alerts and updates, and for the reading stack. It’s all here in the Friday roundup.

Is ISO 37001 a Flop?

Microsoft has been under FCPA scrutiny since March 2013.

This recent blog post by David Howard (Microsoft’s Corporate Vice President & Deputy General Counsel) titled “An Update on Microsoft’s Approach to Compliance” caught my eye. It begins:

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Texas Supreme Court Dismisses Defamation Claim Against Shell And Concludes That Providing An Internal Investigation Report To The DOJ Is “Absolutely Privileged”

Defamation

Shell Oil Company v. Writt is a civil defamation case that has been closely followed by the corporate community given its impact on conducting internal investigations and cooperating with government enforcement agencies.

This recent opinion by the Texas Supreme Court will be welcome news to the corporate community because the court concluded that providing an internal investigating report to the DOJ is “absolutely privilege” under the defamation laws.

In terms of background, as stated by the Texas Supreme Court:

“Shell Oil Company and Shell International,E&P,Inc.(collectively, Shell) received an inquiry from the Department of Justice (DOJ) regarding possible violations of the Foreign Corrupt Practices Act by one of its contractors. Shell met with the DOJ, agreed to perform an internal investigation and report the results to the DOJ, and then did so. Robert Writt, who was employed by Shell until his employment was terminated following the investigation, sued Shell for wrongful termination and for defamation. Writt’s defamation claim was based on Shell’s furnishing the DOJ its report that contained allegedly defamatory statements about him. [His defamation claim was based on allegations that in the report provided to the DOJ, Shell falsely accused him of approving bribery payments and participating in illegal conduct.] Shell asserted that it was absolutely privileged to provide the report to the DOJ and moved for summary judgment. The trial court granted Shell’s motion; the court of appeals reversed.”

In the words of the Texas Supreme Court, the court of appeals:

“[H]eld that the summary judgment evidence did not conclusively establish that at the time Shell provided its report to the DOJ a criminal judicial proceeding against either Shell or Writt was ongoing, actually contemplated, or under serious consideration by either the DOJ or Shell. Therefore, the report was only conditionally, not absolutely, privileged. The court reasoned that Shell cooperated with the DOJ during an ongoing investigation and created the report as a part of its own voluntary internal investigation, but that those actions were not enough to conclusively establish that Shell provided the report under a serious threat of prosecution; nor was the fact the DOJ eventually initiated a criminal proceeding against Shell conclusive evidence that such a proceeding was actually contemplated or under serious consideration by the DOJ as of the time Shell provided the report.”

The Texas Supreme Court addressed the following question: “whether the providing of a report regarding possible criminal activity to a government agency was an absolutely privileged communication or a conditionally privileged one.”

As noted by the court, Texas recognizes two classes of privileges applicable to defamation suits: absolute privilege and conditional or qualified privilege. “An absolute privilege is more properly thought of as an immunity because it is based on the personal position or status of the actor. . . . Such immunity, however, attaches only to a limited and select number of situations which involve the administration of the functions of the branches of government, such as statements made during legislative and judicial proceedings.”

Shell argued that an absolute privilege extends to the report and the statements in it because it was furnished to the DOJ preliminary to a proposed judicial proceeding. It argues that the information contained in its report, including information about Writt, was solicited by the DOJ during an ongoing FCPA investigation; Shell compiled and provided the report under serious and good faith contemplation of a judicial proceeding; and those circumstances are sufficient for an absolute privilege to apply.

Writt did not assert that Shell’s providing the report to the DOJ was not privileged; he simply urges that the court of appeals was correct in classifying Shell’s communication as being conditionally privileged. He argued that Shell’s report was provided during an ongoing investigation, but not as a communication preliminary to a judicial proceeding or as part of a quasi-judicial proceeding

The Texas Supreme Court concluded “that Shell’s statements were made preliminary to a proposed judicial proceeding and were absolutely privileged.”

According to the Texas Supreme Court:

“The summary judgment evidence establishes that at all relevant times, Shell was a target of the DOJ’s investigation.”

[…]

“[W]hen the DOJ’s leverage over Shell vis-à-vis the FCPA and its somewhat draconian potential penalties are considered, it is manifest that Shell was, practically speaking, compelled to undertake its internal investigation and report its findings to the DOJ.”

“From the time Shell was first contacted by the DOJ to the time it provided its report to the DOJ, FCPA compliance was of great concern for U.S. businesses operating overseas and potential violations were not taken lightly. Moreover, businesses that chose not to cooperate were subjected to substantially greater punishments if a DOJ prosecution was successful.”

“In sum, the summary judgment evidence is conclusive that when Shell provided its internal investigation report to the DOJ, Shell was a target of the DOJ’s investigation and the information in the report related to the DOJ’s inquiry. The evidence is also conclusive that when it provided the report, Shell acted with serious contemplation of the possibility that it might be prosecuted.”

As noted in the Texas Supreme Court opinion:

“Six former United States Attorneys General, Michael B. Mukasey, Benjamin R. Civiletti, Edwin Meese, III, 1 Richard L. Thornburgh, William P. Barr, and Alberto R. Gonzales, submitted an amicus curiae letter in support of Shell. The Chamber of Commerce of the United States of America, the National Association of Manufacturers, and the American Petroleum Institute submitted an amicus curiae brief in support of Shell.”

See this prior post concerning the underlying 2010 FCPA enforcement action against Royal Dutch Shell.

Defamation Claims Increase Costs Of Cooperation With Government Investigations

A guest post today from Jeremy Byrum (McGuireWoods LLP).  The post concerns a civil defamation claim relating to Royal Dutch Shell’s 2010 FCPA enforcement action.  (See here for the prior post regarding the enforcement action).

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Defamation Claims Increase Costs of Cooperation with Government Investigations

Disclosing the results of a company’s internal investigation to government investigators is always fraught with potential problems.  The most obvious is the danger of waiving attorney-client privilege and work product protections that would otherwise shield the internal investigation from discovery in parallel litigation.  But another less heralded danger is the risk of defamation claims by employees identified through the investigation as having participated in illegal activity.  The risk associated with such claims was on display in a recent ruling by a Texas court of appeals, which held that Shell Oil Company was only entitled to a conditional privilege, and not “immunity,” for statements it made in a written report to the Department of Justice (DOJ) regarding alleged violations of the FCPA.

On November 4, 2010, the DOJ announced more than $236 million in civil and criminal penalties from the settlement of alleged FCPA violations in Nigeria.  The settlements followed a lengthy investigation of Panalpina Group, a Swiss logistics company, and several of its oil and gas clients, including Shell.  According to the Texas court of appeals’ decision, the DOJ first requested a meeting to discuss Shell’s business with Panalpina in July 2007.  Following that meeting, Shell agreed to conduct an internal investigation, which eventually culminated in a written report that was submitted to the DOJ in February 2009.

Following the 2010 settlements, a former employee sued Shell for defamation, claiming that Shell’s written report falsely stated that he recommended reimbursement to contractors for payments that he knew were bribes.  The trial court granted summary judgment in favor of Shell, finding that Shell had an absolute privilege (i.e., immunity) for the statements it made to the DOJ.  The Texas court of appeals reversed that finding on June 24, 2013, holding that Shell’s written report was only covered by a conditional privilege.  Consequently, Shell is not immune from suit if the former employee can show that Shell’s actions were motivated by malice.

The key legal issue in the case was whether Shell’s statements were made in the context of an ongoing or proposed judicial or quasi-judicial proceeding.  If so, then the statements would be absolutely privileged.  But the appeals court rejected Shell’s argument that the DOJ’s solicitation and the resulting internal investigation were evidence of a proposed judicial proceeding.  Likewise, the court rejected Shell’s argument that the 2010 settlement was evidence of a proposed judicial proceeding.  In the absence of direct evidence that the DOJ was contemplating a judicial proceeding in February 2009, the court rejected Shell’s absolute privilege claim.

The case is also noteworthy for the policy arguments made in the majority and dissenting opinions.  The dissent takes on the key policy issue—the potential chilling effect of the court’s ruling: “If absolute privilege is not available, a cooperating party runs the risk of defamation actions by anyone identified as having involvement in a potentially prohibited transaction.  This risk creates a disincentive for companies to conduct their own investigations, to make frank assessments of fault, and to communicate findings to DOJ.”  The majority focused on a rival policy argument, however, suggesting that absolute immunity would “discourage, rather than encourage, truth-telling” because companies have a “strong motive to deflect blame.”  The majority concluded that a conditional privilege was sufficient protection to encourage companies to cooperate with law enforcement.

The court’s ruling no doubt raises additional concerns for companies considering the already difficult decision whether to disclose the results of an internal investigation.  As the dissent notes: “A company like Shell is, in the face of a DOJ inquiry, in a quandary: it can provide inculpatory statements regarding actions taken on its behalf by its employees, recognizing that it is exposed to a defamation claim.  Or it can face criminal prosecution or penalization for a failure to comply and cooperate adequately with the DOJ’s investigation.”  But this may be less of a dilemma than the dissent imagines.  A company’s concerns about potential defamation claims ordinarily will pale in comparison to the high stakes risks associated with a criminal investigation by the DOJ.  Thus, the feared chilling effect is likely overstated.

Although the Texas court’s decision increases the potential costs of cooperating with a government investigation, it probably will not alter the level of cooperation in most cases.  In all likelihood, companies will continue to assess the appropriate level of cooperation necessary to avoid or minimize their exposure in a criminal investigation, and will simply accept the possibility of defamation claims as an unfortunate cost of doing business.

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