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SEC Enforcement of the FCPA – 2010 Year in Review

FCPA enforcement, it is not just about the DOJ. Granted, its sticks are less sharp than the DOJ’s, but the SEC also claims a significant piece of the FCPA enforcement pie (query whether it should – but that is a subject for another day). For an enforcement agency that, for a long time, did not want any part in enforcing the FCPA’s anti-bribery provisions (more on that in the future as well), the SEC in 2010 brought in $529,967,294 in corporate FCPA settlements. [Note this figure does not include the approximate $50 million the SEC assessed but waived against Innospec based on its claimed inability to pay].

This $529,967,294 breaks down as follows.

$20,182,000 in civil penalties (ABB’s $16.5 million civil penalty makes up approximately 82% of this figure).

$509,785,294 in disgorgement and prejudgment interest.

Thus, 96% of SEC FCPA enforcement settlement amounts in 2010 consisted of disgorgement and prejudgment interest.

Of the disgorgement and prejudgment interest amount, approximately 44% was in the two Bonny Island, Nigeria enforcement actions of 2010 (Technip and ENI/Snamprogetti). For a current Bonny Island bribery scorecard see here.

If one tries to analyze why some SEC FCPA enforcement actions include a civil penalty, disgorgement and prejudgment interest (such as General Electric, ABB, and Tidewater), whereas other enforcement actions include only disgorgement and prejudgment interest (such as Technip, Pride International, Transocean, Noble, Royal Dutch Shell, and RAE Systems), whereas other enforcement actions include only disgorgement and a civil penalty (GlobalSantaFe), whereas other enforcement actions include only disgorgement (such as Innospec, ENI/Snamprogetti, Daimler, Alliance One, Universal, Panalpina, and Alcate-Lucent), whereas other enforcement actions include only a civil penalty (such as NATCO and Veraz Networks), good luck and please enlighten us all with your insight.

It also remains a mystery as to how the SEC goes about its resolving decisions. For instance, in the Panalpina-related enforcement actions, an enforcement action generally alleging the same core conduct against numerous companies, all companies except Royal Dutch Shell were charged in a civil complaint. Royal Dutch Shell resolved its enforcement action via an SEC administrative cease and desist proceeding.

Based on publicly available information, the SEC appears to be a reactive, “me-too” enforcement agency when it comes to FCPA enforcement.

Of the $529,967,294 collected in SEC FCPA enforcement actions in 2010, 97% appears to be in enforcement actions that were voluntarily or otherwise publicly disclosed and not the result of original investigation by either the SEC or DOJ. The only SEC FCPA enforcement action of 2010 apparently not in this category is Royal Dutch Shell on the basis that its SEC’s filings indicate that it was contacted by the DOJ regarding Shell’s use of Panalpina. All other SEC FCPA enforcement actions of 2010 appear to have been voluntarily disclosed in the traditional sense (i.e. the company disclosing the conduct at issue to the enforcement agencies) or the result of some other public disclosure (i.e. the U.N. Oil for Food Report, the result of a whistleblower complaint to U.S. authorities, the result of prior foreign law enforcement agency investigations, or based on disclosures by other companies).

During the November 2010 Senate hearing (see here for complete coverage), it was noted that the DOJ’s FCPA enforcement program is largely corporate-focused, and that individual charges are often lacking in many DOJ FCPA enforcement actions, including the most egregious actions.

The same criticism can also be made of the SEC’s FCPA enforcement program. The SEC, at a minimum, has jurisdiction over the employees of companies settling an FCPA enforcement actio and can, as demonstrated by certain FCPA enforcement actions, pursue civil FCPA anti-bribery charges, civil FCPA books and records and internal control charges, as well as other related civil charges. However, in just 3 SEC FCPA enforcement actions in 2010 (Innospec, Alliance One, and Pride International) did the SEC charge individuals despite allegations that employees, including senior management, were engaged in the improper conduct at issue.

Like the DOJ, the SEC bases much of its FCPA enforcement on untested and dubious legal theories that have never been subjected to any meaningful judicial scrutiny. In the SEC context, FCPA defendants can settle enforcement actions “without admitting or denying” the SEC’s allegations. Thus, most companies find it easier, more cost efficient, and more certain to resolve disputes with its primary government regulator than to engage in long protracted litigation. Even the SEC recently acknowledged that settlement of an SEC enforcement action does “not necessarily reflect the triumph of one party’s position over the other.” (See here at page 949).

Thus, the facade of FCPA enforcement is present in SEC FCPA enforcement, not just DOJ enforcement, and 2010 highlighted this troubling trend.

For instance, many of the SEC’s enforcement actions (ABB and RAE Systems for example) hinge on employees of state-owned or state-controlled enterprises being “foreign officials” under the FCPA. Other enforcement actions, notably the Panalpina related enforcement actions, concern payments made to secure foreign licenses or permits. Another legal theory subject to controversy is successor liability such as in the Alliance One enforcement action where the company’s entire FCPA exposure was based, not on anything it did, but rather successor liability theories (same too as to the bulk of GE’s exposure).

This post provides an overview of SEC FCPA enforcement in 2010.

According to my figures, the SEC brought 19 corporate enforcement actions. As demonstrated below, 7 of the actions were in Panalpina related actions; 2 were the related Bonny Island, Nigeria actions, and 2 were the related Alliance One and Universal actions.

Thus, if one looks at unique enforcement actions (the best way to analyze FCPA facts and figures in my opinion), the SEC brought 11 unique corporate FCPA enforcement actions in 2010. 3 of these enforcement actions (Innospec, GE, and ABB) involved, in whole or in part, Iraqi Oil for Food conduct.

SEC FCPA enforcement in 2010 was both small (Natco – $65,000; Veraz Networks – $300,000) and large (ENI/Snamprogetti – $125 million; Technip – $98 million; Daimler – $91.4 million).

[Note as to the below information – “Voluntary Disclosure” means traditional voluntary disclosure as well as other public disclosure as discussed above. “Individuals Charged” means individuals (employed by the entity resolving the enforcement action) charged by the SEC.]

Natco (Jan. 2010)

See here for the prior analysis.

Principle Allegations: TEST Automation & Controls, Inc., a wholly-owned subsidiary of NATCO Group, “created and accepted false documents while paying extorted immigration fines and obtaining immigration visas in the Republic of Kazakhstan.” According to the complaint, “NATCO’s system of internal accounting controls failed to ensure that TEST recorded the true purpose of the payments, and NATCO’s consolidated books and records did not accurately reflect these payments.”

Charges: FCPA books and records and internal controls violations.

Settlement: $65,000 civil penalty; also administrative cease and desist order.

Voluntary Disclosure: Yes.

Individuals Charged: No.

Related DOJ Enforcement Action: No.

Of Note: According to the SEC, improperly characterizing even extorted payments is an independent violation of the law. The SEC order states that NATCO “expanded its investigation to examine TEST’s other worldwide operations, including Nigeria, Angola, and China, geographic locations with historic FCPA concerns.” However, the SEC order notes that “NATCO’s expanded internal investigation of TEST uncovered no wrongdoing.” This enforcement action (like several others in 2010) once again demonstrates that companies which voluntarily disclose conduct to the enforcement agencies, will likely be asked the “where else” question – even if no concrete evidence exists to suggest FCPA violations elsewhere. Answering this “where else” question significantly increases the costs of an FCPA disclosure and significantly expands the time frame to resolve the disclosed conduct.

Innospec (March 2010)

See here for the prior analysis.

Principle Allegations: “[f]rom 2000 to 2007, Innospec violated the anti-bribery, books and records and internal control provisions of the FCPA when it routinely paid bribes in order to sell Tetra Ethyl Lead (“TEL”) … to government owned refineries and oil companies in Iraq and Indonesia.” According to the SEC, “Innospec’s former management did nothing to stop the bribery activity, and in fact authorized and encouraged it.” The SEC alleges that “Innospec’s internal controls failed to detect the illicit conduct, which continued for nearly a decade.”

Charges: FCPA anti-bribery violations; FCPA books and records and internal controls violations.

Settlement: $60,071,613 in disgorgement, but because of Innospec’s “sworn Statement of Financial Condition” all but $11,200,000 of that disgorgement will be waived.

Voluntary Disclosure: Yes.

Individuals Charged: Yes. See here and here for the SEC enforcement action against Ousama Naaman (Innospec’s agent in Iraq) and David Turner, (the Business Director of Innospec’s TEL Group).

Related DOJ Enforcement Action: Yes (as well as an enforcement action by the U.K. Serious Fraud Office).

Of Note: Despite getting a pass on paying approxmately $50 million in disgorgement, since the March 2010 enforcement action, Innospec has consistently reported positive financial results. See here. It is believed that the $877,000 the SEC will recover from Naaman is the largest SEC recovery against an individual FCPA defendant.

Daimler (April 2010)

See here and here for the prior analysis.

Principle Allegations: “From at least 1998 through 2008, Daimler AG, formerly known as DaimlerChrysler AG (“Daimler”), and certain of its subsidiaries and affiliates, violated the anti-bribery, books and records and internal controls provisions of the Foreign Corrupt Practices Act (the “FCPA”) by making illicit payments, directly or indirectly, to foreign government officials in order to secure and maintain business worldwide. During this time period, Daimler paid bribes to government officials to further government sales in Asia, Africa, Eastern Europe and the Middle East. In connection with at least 51 transactions, Daimler violated the anti-bribery provision of the FCPA by paying tens of millions of dollars in corrupt payments to foreign government officials to secure business in Russia, China, Vietnam, Nigeria, Hungary, Latvia, Croatia and Bosnia. These corrupt payments were made through the use of U.S. mails or the means or instrumentality of U.S. interstate commerce. Daimler also violated the FCPA’s books and records and internal controls provisions in connection with the 51 transactions and at least an additional 154 transactions, in which it made improper payments totaling at least $56 million to secure business in 22 countries, including, among others, Russia, China, Nigeria, Vietnam, Egypt, Greece, Hungary, North Korea, and Indonesia.

Charges: FCPA anti-bribery violations; FCPA books and records and internal control violations.

Settlement: $91.4 million in disgorgement.

Voluntary Disclosure: Yes.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Technip and Eni/Snamprogetti (June / July 2010)

Technip

See here and here for the prior analysis.

Principal Allegations: “Between at least 1995 and 2004, senior executives at Technip, among others, devised and implemented a scheme to bribe Nigerian government officials to assist in obtaining multiple contracts worth over $6 billion to build liquefied natural gas (“LNG”) production facilities on Bonny Island, Nigeria. A four-company joint venture called “TSKJ,” of which Technip was a member, won the contracts. To conceal the illicit payments, Technip and others, through the joint venture, entered into sham “consulting” or “services” agreements with intermediaries who would then funnel their purportedly legitimate fees to Nigerian officials. Specifically, Technip, through the joint venture, implemented this scheme by using a Gibraltar shell company controlled by a solicitor based in the United Kingdom (“the UK Agent”) and a Japanese trading company (“the Japanese Agent”) as conduits for the bribes.” “As a result of the scheme, numerous books and records of Technip contained false information relating to, among other things, the UK Agent and the Japanese Agent, and the payments made to them.” As to Technip’s internal controls violations, the SEC alleges as follows. “Technip conducted due diligence on the UK Agent that was not adequate to detect, deter or prevent the UK Agent from paying bribes, and Technip conducted no due diligence on the Japanese Agent.” “The due diligence procedures adopted by Technip only required that potential agents respond to a written questionnaire, seeking minimal background information about the agent. No additional due diligence was required, such as an interview of the agent, or a background check, or obtaining information beyond that provided by the answers to the questionnaire. A senior executive of Technip admitted that the due diligence procedures adopted by Technip were a perfunctory exercise, conducted so that Technip would have some documentation in its files of purported due diligence. In fact, Technip executives knew that the purpose of the agreements with the UK Agent was to funnel bribes to Nigerian officials, and therefore certain answers by the UK Agent to the questionnaire were false.”

Charges: FCPA anti-bribery violations; FCPA books and records and internal control violations.

Settlement: $98 million in disgorgement and prejudgment interest.

Voluntary Disclosure: Yes.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Eni/Snamprogetti

See here and here for prior analysis.

Principal Allegations: “Between at least 1995 and 2004, senior executives at Snamprogetti, among others, devised and implemented a scheme to bribe Nigerian government officials to assist in obtaining multiple contracts worth over $6 billion to build liquefied natural gas production facilities on Bonny Island, Nigeria” that a four-company JV, of which Snamprogetti was a member, won the contracts to build. According to the SEC, “as a result of the scheme, numerous books and records of Snamprogetti and ENI contained false information relating to, among other things” Tesler and the Japanese Agent “and the payments made to them.” Specifically, the SEC alleged that “Snamprogetti’s business records […] contained the contracts with [Tesler] and the Japanese Agent, which falsely described the purpose of the contracts in order to make it appear that the agents would perform legitimate services.” According to the SEC, “these documents were part of Snamprogetti’s business records and supported Snampogetti’s financial statements, which were consolidated into ENI’s financial statements.” The SEC alleges that “Snamprogetti did not conduct due diligence” on Tesler or the Japanese Agent and “ENI failed to ensure that Snamprogetti complied with ENI’s policies regarding the use of agents.” Specifically, the SEC alleged that “ENI’s policies and procedures governed Snamprogetti’s use of agents” but that “ENI failed to ensure that Snamprogetti conducted due diligence on agents hired through JV’s in which Snamprogetti participated.”

Charges: FCPA anti-bribery violations; FCPA books and records and internal controls violations.

Settlement: $125 million in disgorgement.

Voluntary Disclosure: Yes.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Of Note: The SEC charged Snamprogetti, a non-issuer, as “an agent of a U.S. issuer” with violating the FCPA’s antibribery provisions and knowingly falsifying books and records that supported the financial statements of ENI and knowingly circumventing ENI’s internal accounting controls. The SEC charged ENI with violating the FCPA’s books and records and internal control provisions. According to the SEC, “ENI exercised control and supervision of […] Snamprogetti during the relevant time and on certain of its business decisions, such as Snamprogetti’s entry into the JV.”

Veraz Networks (June 2010)

See here for the prior analysis.

Principle Allegations: “From 2007 to 2008, Veraz resellers, consultants, and employees made and offered payments to employees of government-controlled telecommunications companies in China and Vietnam with the purpose and effect of improperly influencing these foreign officials to award or continue to do business with Veraz.” “Veraz failed to accurately record these improper payments on the Company’s books and records, and failed to implement or maintain a system of effective internal accounting controls to prevent them in violation of the FCPA […] and to put in place internal controls that are reasonably designed to ensure that their books and records are accurate.”

Charges: FCPA books and records and internal control violations.

Settlement: $300,000 civil penalty.

Voluntary Disclosure: Yes.

Individuals Charged: No.

Related DOJ Enforcement Action: No.

Of Note: Although the complaint does not charge FCPA anti-bribery violations, the alleged “foreign officials” were employees of alleged state-owned or state-controlled telecommunications companies (China and Vietnam). Former SEC FCPA enforcement attorney Richard Grime criticized various aspects of the SEC’s enforcement action (see here).

General Electric (July 2010)

See here for the prior analysis.

Principal Allegations: “Two GE subsidiaries – along with two other subsidiaries of public companies that have since been acquired by GE – made illegal kickback payments in the form of cash, computer equipment, medical supplies, and services to the Iraqi Health Ministry or the Iraqi Oil Ministry in order to obtain valuable contracts under the U.N. Oil for Food Program.”

Charges: FCPA books and records and internal control violations.

Settlement: $23.4 million ($1 million penalty, $18.4 million in disgorgement, 4,080,665 in prejudgment interest)

Voluntary Dislcosure: Yes.

Individuals Charged: No.

Related DOJ Enforcement Action: No.

Of Note: Unlike other Iraqi Oil-For-Food cases, the GE enforcement action did not involve a related DOJ enforcement action. Also, unlike most public companies facing FCPA exposure, GE apparently did not previously disclose the SEC’s investigation. Also, according to GE’s release: “The SEC has identified 18 contracts under the Oil-for-Food Program that it alleges were not accounted for or controlled properly. Fourteen of these transactions involve businesses that were not owned by GE at the time of the transactions.”

Alliance One and Universal (Aug. 2010)

See here for the prior analysis.

Alliance One

Principal Allegations: “During the period from 1996 through 2004, Dimon, Incorporated (“Dimon”) made multiple improper payments to foreign officials in Kyrgyzstan and Thailand in violation of the Foreign Corrupt Practices Act (“FCPA”). During the period from 2001 through 2004, Standard Commercial Corporation (“Standard”) made multiple improper payments to foreign officials in Thailand in violation of the FCPA. “Despite their extensive international operations, Dimon and Standard lacked sufficient internal controls designed to prevent or detect violations of the FCPA. During the 2000-2004 period, Dimon and Standard each had a policy manual prohibiting bribery, but the training and guidance provided to their employees regarding compliance with the FCPA were not adequate or effective. Dimon and Standard each also failed to establish a program to monitor compliance with the FCPA by its employees, agents, and subsidiaries.” The SEC’s complaint also contains allegations about other unrelated payments in China, Thailand, Greece and Indonesia. In May 2005, Dimon and Standard merged to form Alliance One International, Inc. (“Alliance One”).

Charges: FCPA anti-bribery violations; FCPA books and records and internal controls violations.

Settlement: $10 million in disgorgement.

Voluntary Dislcosure: Yes.

Individuals Charged: Yes. See here for the SEC enforcement action against Bobby Elkin (Dimon’s former Country Manager Kyrgyzstan), Baxter Myers (Dimon’s former Regional Financial Director), Thomas Reynolds (Dimon’s former Corporate Controller), and Tommy Williams (Dimon’s former Senior Vice President of Sales).

Related DOJ Enforcement Action: Yes.

Of Note: Alliance One’s entire exposure was based, not on anything it did, but rather successor liability theories.

Universal

Principal Allegations: “From 2000 through 2007, Universal Corporation violated the Foreign Corrupt Practices Act (the “FCPA”) by paying, through its subsidiaries, over $900,000 to govemment officials in Thailand and Mozambique to influence acts and decisions by those foreign officials to obtain or retain business for Universal. Those payments were directed by employees at multiple levels of the company, including management in its corporate offices and at its wholly-or majority-owned and controlled foreign subsidiaries. The Company had inadequate internal controls to prevent or detect any of these improper payments, and improperly recorded the payments in its books and records.” “Between 2000 and 2004, Universal subsidiaries paid approximately $800,000 to bribe officials of the government-owned Thailand Tobacco Monopoly (“TTM”) in exchange for securing approximately $11.5 million in sales contracts for its subsidiaries in Brazil and Europe. From 2004 through 2007, Universal subsidiaries made a series of payments in excess of $165,000 to government officials in Mozambique, through corporate subsidiaries in Belgium and Africa. Among other things, the payments were made to secure an exclusive right to purchase tobacco from regional growers and to procure legislation beneficial to the Company’s business.” “In addition, between 2002 and 2003, Universal, subsidiaries paid $850,000 to high ranking Malawian government officials. Those payments were authorized by, among others, two successive regional heads for Universal’s African operations. Universal did not accurately record these payments in its books and records.”

Charges: FCPA anti-bribery violations; FCPA books and records and internal controls violations.

Settlement: $4.6 million in disgorgement.

Voluntary Dislcosure: Yes.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Of Note: The Alliance One / Universal enforcement action is believed to be the first time the enforcement agencies consolidated an enforcement action against two unrelated companies in such a fashion – likely due to the fact that a significant part of the improper conduct at both companies involved the same entity – The Thailand Tobacco Monopoly (“TTM”) – an alleged agency and instrumentality of the Thai government.

ABB (Sept. 2010)

Principal Allegations: “From 1999 to 2004, ABB, through a U.S. subsidiary and six foreign-based subsidiaries, offered and paid bribes to government officials in Mexico to obtain and retain business with government owned power companies, and paid kickbacks to Iraq to obtain contracts under the United Nations Oil for Food Program. In all, ABB’s subsidiaries made at least $2.7 million in illicit payments in these schemes to obtain contracts that generated more than $100 million in revenues for ABB.” “As evidenced by the extent and duration of the illicit payments to foreign officials, the large number of ABB subsidiaries involved in these bribery and kickback schemes, ABB’s knowledge from the prior Commission action of illicit payments by other ABB subsidiaries, the improper recording of millions of dollars of illicit payments in ABB’s books and records, ABB’s failure to detect these irregularities, and ABB’s failure to conduct sufficient due diligence on local agents and others, ABB failed to devise and maintain an effective system of internal controls to prevent or detect these anti-bribery and books and records violations.”

Charges: FCPA anti-bribery violations; FCPA books and records and internal controls violations.

Settlement: $39.3 million ($17.1 milion in disgorgement, $5.7 million in prejudgment interest, and a $16.5 million civil penalty).

Voluntary Dislcosure: Yes.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Of Note: In 2004, ABB Ltd. resolved a separate SEC FCPA enforcement action (see here) involving conduct in Nigeria, Angola and Kazakhstan.

Panalpina Related Settlements (Nov. 2010)

Panalpina

See here for the prior analysis.

Principal Allegations: “Between 2002 and continuing until 2007, Panalpina, Inc. engaged in a series of transactions whereby it directed business to affiliated companies within the Panalpina Group, which then used part of the revenues generated from this business to pay a significant number of bribes to government officials in countries including Nigeria, Angola, Brazil, Russia, and Kazakhstan. These bribes were paid by the Panalpina Group companies in order to assist Panalpina, Inc.’ s issuer customers in obtaining preferential customs, duties, and import treatment in connection with international freight shipments. The practice of Panalpina Group companies making these payments was known to certain Panalpina, Inc. employees, including some members of Panalpina, Inc.’s management.” “The affiliated Panalpina Group companies generally invoiced the issuer customers for the bribes, along with other legitimate fees, either directly or through an affiliated billing entity. These invoices, which contained both legitimate and illegitimate costs incurred by the Panalpina Group companies, inaccurately referred to the payments as ‘local processing,’ ‘special intervention,’ ‘special handling,’ and other seemingly legitimate fees. In reality, these payments were bribes to local government officials in order to secure improper benefits for the issuer customers.”

Charges: FCPA’s anti-bribery violations; aiding and abetting FCPA books and records and internal control violations.

Settlement: $11.3 million in disgorgement.

Voluntary Disclosure: Yes.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Of Note: The SEC specifically stated that Panalpina was not an issuer for purposes of the FCPA, but nevertheless charged Panalpina “while acting as an agent of its issuer customers” with violating the FCPA’s anti-bribery provisions and aiding and abetting its issuer customers’ violations of the FCPA’s anti-bribery provisions and books and records and internal control provisions.

Pride International

See here for the prior analysis.

Principal Allegations: “From in or about 2003 to in or about 2005, employees and/or agents of Pride authorized and/or made payments to third parties while aware of a high probability that all or a portion of such payments would be offered, given, or promised to foreign officials in Venezuela, India, and Mexico in violation of the U.S. Foreign Corrupt Practices Act.” “From approximately 2003 to 2005, Joe Summers, the country manager of the Venezuelan branch of a French subsidiary of Pride, and/or certain other managers authorized payments totaling approximately $384,000 to third-party companies believing that all or a portion of the funds would be given to an an official of Venezuela’s state-owned oil company in order to secure extensions of three drilling contracts. In addition, Summers authorized the payment of approximately $30,000 to a third party believing that all or a portion of the funds would be given to an employee of Venezuela’s state-owned oil company in order to secure an improper advantage in obtaining the payment of certain receivables.” “In or about 2003, a French subsidiary of Pride made three payments totaling approximately $500,000 to third-party companies, believing that all or a portion of the funds would be offered or given by the third-party companies to an administrative judge to favorably influence ongoing customs litigation relating to the importation of a rig into India. Pride’s U.S.-based Eastern Hemisphere finance manager had knowledge of the payments at the time they were made.” “In or about late 2004, Bobby Benton, Pride’s Vice President, Western Hemisphere Operations, authorized the payment of $10,000 to a third party, believing that all or a portion of the funds would be given by the third party to a Mexican customs official in return for favorable treatment by the official regarding certain customs deficiencies identified during a customs inspection of a Pride supply boat.” The SEC’s complaint also describes certain other “transactions entered into by wholly or majority owned Pride subsidiaries operating in Mexico, Kazakhstan, Nigeria, Saudi Arabia, the Republic of Congo, and Libya [that] were not correctly recorded in those subsidiaries’ books.”

Charges: FCPA anti-bribery violations; FCPA books and records and internal control violations.

Settlement: $23.5 million ($19,341,870 in disgorgement, $4,187,848 in prejudgment interest).

Voluntary Disclosure: Yes.

Individuals Charged: Yes. See here for the SEC enforcement action against Joe Summers (former Venezuela Country Manager), here for the SEC enforcement action against Bobby Benton (former Vice President Western Hemisphere Operations).

Related DOJ Enforcement Action: Yes.

Of Note: Numerous of the allegations relate to employees of a state-owned or controlled enterprises being “foreign officials;” payments made to secure legitimate receivables; and/or payments made to secure licenses or permits.

Tidewater

Principal Allegations: “Between August 2001 and November 2005, Tidewater Inc. […] directly or through its subsidiaries, affiliates, employees and agents, violated [the FCPA’s anti-bribery and books and records and internal control provisions] by paying $160,000 in bribes to foreign government officials in Azerbaijan through a third party disguised as legitimate services to influence acts and decisions by these officials to resolve local Azeri tax audits in a Company subsidiary’s favor.” According to the SEC, “these improper payments were authorized by senior employees at Tidewater and its subsidiaries while knowing, or ignoring red flags which indicated a high probability, such payments would be passed to government officials, inaccurately recorded in the Company’s or its affiliates’ books and records, and Tidewater failed to maintain sufficient internal controls to prevent such payments.” As to Nigeria conduct, the SEC complaint alleges, in summary fashion, that “from in or about January 2002 through March 2007, Tidewater, through its subsidiaries and agents, also authorized the reimbursement of approximately $1.6 million to its customs broker in Nigeria used, in whole or in part, to make improper payments to Nigerian Customs Services (“NCS”) employees to induce them to disregard certain regulatory requirements in Nigeria relating to the temporary importation of the Company’s vessels into Nigerian waters.” According to the SEC, both the Azeri and Nigerian payments: “[w]ere improperly recorded as legitimate expenses in the Company’s books and records and all of them, with the exception of the 2003 Azerbaijan payments, were consolidated into Tidewater’s financial statements. Tidewater’s internal controls, including at least two internal audits, failed to detect numerous red flags which should have alerted its management that the Azerbaijan agent and Nigerian customs broker were likely using funds provided by Tidewater, in whole or in part, to make improper payments to government officials.”

Charges: FCPA anti-bribery violations; FCPA books and records and internal control provisions.

Settlement: $8.3 million ($7,223,216 in disgorgement, $881,146 in prejudgment interest and a $217,000 civil penalty).

Voluntary Disclosure: Yes.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Transocean

See here for the prior analysis.

Principal Allegations: “From at least 2002 through 2007, Transocean made illicit payments through its customs agents to Nigerian government officials to extend the temporary importation status of its drilling rigs, to obtain false paperwork associated with its drilling rigs, and obtain inward clearance authorizations for its rigs and a bond registration.” “Transocean made illicit payments through Panalpina World Transport Holding Ltd.’s Pancourier express courier service to Nigerian government officials to expedite the import of various goods, equipment and materials into Nigeria. In most instances, customs duties for these items were not paid by either Panalpina or Transocean. In addition, Transocean made illicit payments through Panalpina to Nigerian government officials to expedite the delivery of medicine and other materials into Nigeria.” As to the company’s internal controls, the SEC complaint simply states as follows. “… [a]s evidenced by the extent and duration of the improper payments to Nigerian officials, the improper recording of these payments in Transocean’s books and records, the failure of Transocean’s management to detect these irregularities, and the actual involvement of certain members of senior management, Transocean failed to devise and maintain an effective system ofinternal controls to prevent or detect these violations.”

Charges: FCPA anti-bribery violations; FCPA books and records and internal controls.

Settlement: $7.2 million ($5,981,693 in disgorgement, $1,283,387 in prejudgment interest).

Voluntary Disclosure: Yes.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Of Note: The enforcement action is largely based, as were other Panalpina related cases, on customs payments and expedited courier service payments.

GlobalSantaFe

See here for the prior analyis.

Principal Allegations: “From approximately January 2002 through July 2007,GlobalSantaFe Corp. (“GSF”) violated the anti-bribery, books and records, and internal controls provisions ofthe Foreign Corrupt Practices Act (the “FCPA”) when GSF made illegal payments through customs brokers to officials of the Nigerian Customs Service (“NCS”) in order to obtain preferential treatment during the customs process for the purpose of assisting GSF in retaining business in Nigeria. Instead of moving its oil drilling rigs out of Nigerian waters when GSF’s permit to temporarily import the rigs into Nigeria had expired, GSF, through its customs brokers, made payments to NCS officials in order to obtain documentation reflecting that the rigs had moved out of Nigerian waters, when in fact, the rigs had not moved at all.” “In addition, GSF, through its customs brokers, made payments to government officials in Gabon, Angola, and Equatorial Guinea in order to obtain preferential treatment during the customs process. These payments were described on invoices as for example, “customs vacation,” “customs escort,” “costs extra to police to obtain visa,” “official dues,” and “authorities fees.”

Charges: FCPA anti-bribery charges; FCPA books and records and internal controls.

Settlement: $5.85 million (approximately 3.75 million in disgorgement and a $2.1 million penalty).

Voluntary Disclosure: Yes.

Individuals Charged: No.

Related DOJ Enforcement Action: No.

Of Note: This was the only Panalpina-related enforcement action that did not involve a DOJ component.

Noble

See here for the prior analysis.

Principal Allegations: “From January 2003 through May 2007, Noble authorized, and its Nigerian subsidiary made, payments to its customs agent in Nigeria, a portion of which certain Noble’s officers and other employees believed would be passed on to Nigerian government offcials. These payments to the customs agent were authorized and made to obtain temporary importation permits (“TIPs”) and extensions of TIPs for drilling rigs, including certain TIPs that were based on false paperwork.” As to the FCPA’s books and records charge, the SEC alleges that “Noble Nigeria recorded the portion of the payments it made to its customs agent that certain Noble personnel believed were being passed on to Nigerian government officials in Noble’s ‘facilitating payment’ account and in some cases to other operating expense accounts…” However, without elaborating the SEC states, “because these payments were not qualifying facilitating payments under the FCPA or otherwise legitimate expenses, Noble created false books and records by recording the payments as such.” As to the internal controls charges, the SEC alleges that “although Noble had an FCPA policy in place, Noble lacked sufficient FCPA procedures, training, and internal controls to prevent the use of the paper process and making of payments to Nigerian government officials to obtain TIPs and TIP extensions.”

Charges: FCPA anti-bribery violations; FCPA books and records and internal controls violations.

Settlement: $5,576,998 ($4,294,933 in disgorgement and $1,282,065 in prejudgment interest).

Voluntary Disclosure: Yes.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Of Note: Recording an apparent facilitating payment as a “facilitating payment” is a violation of the FCPA’s books and records provisions if the SEC does not agree that the payment was a facilitating payment.

Royal Dutch Shell

See here for the prior analysis.

Principal Allegations: “From September 2002 through November 2005, SIEP, on behalf of Shell, authorized the reimbursement or continued use of services provided by a company acting as a customs broker that involved suspicious payments of approximately $3.5 million to officials of the Nigerian Customs Service in order to obtain preferential treatment during the customs process for the purpose of assisting Shell in obtaining or retaining business in Nigeria on Shell’s Bonga Project. As a result of these payments, Shell profited in the amount of approximately $14 million. None of the improper payments was accurately reflected in Shell’s books and records, nor was Shell’s system of internal accounting controls adequate at the time to detect and prevent these suspicious payments.”

Charges: None, action was resolved via an SEC administrative order finding violations of the FCPA’s anti-bribery provisions and books and records and internal control provisions.

Settlement: $18.1 million ($14,153,536 in disgorgement and $3,995,923 in prejudgment interest).

Voluntary Disclosure: Shell’s anual report states as follows. “In July 2007, Shell’s US subsidiary, Shell Oil, was contacted by the US Department of Justice regarding Shell’s use of the freight forwarding firm Panalpina, Inc and potential violations of the US Foreign Corrupt Practices Act (FCPA) as a result of such use. Shell has an ongoing internal investigation and is co-operating with the US Department of Justice and the US Securities and Exchange Commission investigations.”

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Of Note: Shell was the only company in the Panalpina related enforcement actions note to be charged via an SEC complaint.

RAE (Dec. 2010)

See here for the prior analysis.

Principal Allegations: “From 2004 through 2008” RAE Systems violated the FCPA “by paying, through two of its joint venture entities in China, approximately $400,000 to third party agents and government officials in China to influence acts or decisions by foreign officials to obtain or retain business for RAE Systems.” The payments “were made primarily by the direct sales force utilized by RAE Systems” at its two Chinese joint-venture entities: RAE-KLH and RAE-Fushun. “While the payments were made exclusively in China and were conducted by Chinese employees of RAE-KLH and RAE-Fushun, RAE Systems was aware of significant indications of ongoing bribery at RAE-KLH. At the time, RAE Systems failed to effectively investigate these indications, or red flags, and to stop the bribery from continuing. RAE System’s failure to act on these significant red flags allowed, at least in part, bribery to continue at RAE-KLH.” RAE Systems was held liable for RAE-KLH’s improper payments even though “RAE Systems Instruct[ed] KLH Personnel to Stop Bribery Practices.” According to the SEC, “while RAE Systems communicated these instructions to RAE-KLH personnel, RAE Systems did not impose sufficient internal controls or make any changes to the practice of sales personnel obtaining cash advances.”

Charges: FCPA anti-bribery violations; FCPA books and records and internal control violations.

Settlement: $1.25 million ($1,147,800 in disgorgement; $109,212 in prejudgment interest).

Voluntary Dislcosure: Yes.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Of Note: According to the enforcement agencies, the standard of liability for payments made by joint venture partners appears to be something close to strict liability. Also the alleged “foreign officials” were primarily employees of alleged state-owned or state-controlled enterprises (China).

Alcatel-Lucent (Dec. 2010)

See here for the prior analysis.

Principal Allegations: “From December 2001 through June 2006, Alcatel, S.A., now called Alcatel-Lucent, S.A. (“Alcatel”), through its subsidiaries and agents, violated the Foreign Corrupt Practices Act (“FCPA”) by paying more than $8 million in bribes to foreign government officials. Alcatel made these payments to influence acts and decisions by these foreign government officials to obtain or retain business, with the knowledge and approval of certain management level personnel of the relevant Alcatel subsidiaries. Alcatel lacked sufficient internal controls to prevent or detect such improper payments, and improperly recorded the payments in its books and records.” “All of these payments were undocumented or improperly recorded as consulting fees in the books of Alcatel’s subsidiaries, and then consolidated into Alcatel’s financial statements. A lax corporate control environment aided Alcatel’s improper conduct. Alcatel failed to detect or investigate numerous red flags suggesting that its business consultants were likely making illicit payments and gifts to government officials in these countries at the direction of certain Alcatel employees. The respective heads of several Alcatel subsidiaries and geographical regions, some of whom reported directly to Alcatel’s executive committee, authorized extremely high commission payments under circumstances in which they failed to determine whether such payments were, in part, to be funneled to government officials in violation of the FCPA. These high-level employees therefore knew, or were severely reckless in not knowing, that Alcatel paid bribes to foreign government officials.”

Charges: FCPA anti-bribery violations; FCPA books and records and internal controls violations.

Settlement: $45.372 million in disgorgement.

Voluntary Dislcosure: Yes.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Of Note: In 2007, Lucent Technologies Inc. settled a separate SEC FCPA enforcement action (see here).

Friday Roundup

Save the date, Halliburton speaks on Nigeria, and the SEC’s first non-prosecution agreement … it’s all here in the Friday roundup.

Save the Date

FCPA enforcement 2010 is coming to a close. The three most significant events from 2010? The three most interesting events from 2010? And a bold prediction?

That is my task on December 29th when I participate in Securities Docket’s annual “Year in Review” webcast slated for 1 p.m. EST. The webcast is free and you can sign up here.

Other participants who address the same questions as to their area of expertise include Compliance Week editor Matt Kelly, Francine McKenna (re: The Auditors), Francis Pileggi (Delaware corporate law guru), Kevin LaCroix (The D&O Diary), Tracy Coenen (The Fraud Files), Lyle Roberts (The 10b-5 Daily) and Securities Docket’s Bruce Carton.

Halliburton Statement on Nigeria Charges

In last week’s Friday roundup, it was noted that Nigeria dropped charges against Dick Cheney after his former employer, Halliburton, reportedly agreed to pay a $250 million fine. According to various media reports, the sum consisted of $120 million in penalties and the repatriation of $130 million.

A Halliburton spokesman was quoted as saying “we have no comment to make on this.”

Halliburton has now spoken and its statement (here) contradicts the widely reported $250 million figure. The statement reads, in full, as follows:

“Halliburton announced today the resolution of the previously disclosed investigation by the Federal Government of Nigeria (FGN) arising out of allegations of improper payments to government officials in Nigeria in connection with the construction and subsequent expansion by a joint venture known as TSKJ of a natural gas liquefaction project on Bonny Island, Nigeria, in which Halliburton’s former subsidiary KBR, Inc. had an approximate 25 percent interest. Pursuant to this agreement, all lawsuits and charges against KBR and Halliburton corporate entities and associated persons have been withdrawn, the FGN agreed not to bring any further criminal charges or civil claims against those entities or persons, and Halliburton agreed to pay US$32.5 million to the FGN and to pay an additional US$2.5 million for FGN’s attorneys’ fees and other expenses. Among other provisions, Halliburton agreed to provide reasonable assistance in the FGN’s effort to recover amounts frozen in a Swiss bank account of a former TSKJ agent and affirmed a continuing commitment with regard to corporate governance. Any charges related to this settlement will be reflected in discontinued operations.”

SEC’s First Non-Prosecution Agreement

In January 2010, the SEC announced a series of measures (see here) “to further strengthen its enforcement program by encouraging greater cooperation from individuals and companies in the agency’s investigations and enforcement actions.”

“New cooperation tools” not previously available to the SEC, include, among other things:

* “Cooperation Agreements — Formal written agreements in which the Enforcement Division agrees to recommend to the Commission that a cooperator receive credit for cooperating in investigations or related enforcement actions if the cooperator provides substantial assistance such as full and truthful information and testimony.”

* “Deferred Prosecution Agreements — Formal written agreements in which the Commission agrees to forego an enforcement action against a cooperator if the individual or company agrees, among other things, to cooperate fully and truthfully and to comply with express prohibitions and undertakings during a period of deferred prosecution.”

and

* “Non-prosecution Agreements — Formal written agreements, entered into under limited and appropriate circumstances, in which the Commission agrees not to pursue an enforcement action against a cooperator if the individual or company agrees, among other things, to cooperate fully and truthfully and comply with express undertakings.”

The SEC release noted that “similar cooperation tools have been regularly and successfully used by the Justice Department in its criminal investigations and prosecutions.”

Earlier this week, the SEC announced (here) its first non-prosecution agreement against Carter’s Inc. related to enforcement action against its former Executive Vice President (Joseph M. Elles) for engaging in financial fraud and insider trading.

The SEC’s announcement states as follows:

“The SEC also announced that it has entered a non-prosecution agreement with Carter’s under which the Atlanta-based company will not be charged with any violations of the federal securities laws relating to Elles’s unlawful conduct. The non-prosecution agreement reflects the relatively isolated nature of the unlawful conduct, Carter’s prompt and complete self-reporting of the misconduct to the SEC, its exemplary and extensive cooperation in the investigation, including undertaking a thorough and comprehensive internal investigation, and Carter’s extensive and substantial remedial actions. This marks the first non-prosecution agreement entered by the SEC since the announcement of the SEC’s new cooperation initiative earlier this year.”

The NPA (here) is similar to DOJ NPAs and DPAs in the FCPA context. Carter’s agreed to cooperate in the investigation of its former employee and any other related enforcement action and Carter’s is prohibited from making any public statement contrary to the factual basis of the agreement (notwithstanding that the NPA does not contain a factual basis or a statement of facts). The NPA specifically states that the agreement should not “be deemed exoneration of [Carter’s] or be construed as a finding by the Commission that no violation of the federal securities laws have occurred.”

Although the Carter NPA is not in an FCPA enforcement action, it is likely that NPAs (and DPAs) will be frequently used by the SEC (as they are by the DOJ) in the FCPA context.

As I note in the “Facade of FCPA Enforcement” (here), DOJ NPAs and DPAs have exploded in recent years and the “lions share” of these agreements are used to resolve FCPA enforcement actions. Many observers believe that NPAs and DPAs have taken the place of declinations and that companies are pressured to enter into such agreements prematurely even before each element of the relevant charge is established.

With the SEC now using such alternative resolution vehicles, the end result will be even less judicial scrutiny (not that there is much judicial scrutiny at present) as to SEC interpretations of the FCPA and whether factual evidence actually exists to support each element of an FCPA charge.

The FCPA and Potential Reforms

Last week’s U.S. Chamber of Commerce Annual Legal Reform Summit included a panel titled: “Navigating a Global Marketplace — Foreign Corrupt Practices Act and Potential Reforms.”

Amanda Ulrich (here), an associate in the New York office of Debevoise & Plimpton, LLP, provides a summary in this guest post.

*****

The recent expansion of FCPA enforcement and new FCPA-related bounty provisions in the Dodd Frank Act had audience members thoroughly engaged as an impressive assembly of speakers from the public and private sectors gathered to discuss these issues at the United States Chamber of Commerce’s Annual Legal Reform Summit last week.

Michael B. Mukasey, former Attorney General of the United States and current partner at Debevoise & Plimpton LLP, introduced and moderated a panel that also included John S. Darden, former Assistant Chief of the Fraud Section of the Department of Justice (“DOJ”) and currently a partner at Patton Boggs, LLP, Cheryl J. Scarboro, Chief of the FCPA Unit within the Division of Enforcement at the U.S. Securities and Exchange Commission (“SEC”), George J. Terwilliger III, former DOJ Deputy Attorney General and currently global head of the White Collar Practice Group of White & Case LLP, and Andrew Weissmann, former Chief of the Criminal Division of the U.S. Attorney’s Office for the Eastern District of New York and Co-Chair of the White Collar Practice at Jenner & Block LLP. The audience was treated to a vigorous debate on FCPA enforcement between representatives of the private sector who called for more clarity and predictability in enforcement, and individuals arguing the federal government’s perspective, looking to level the playing field for business through increased enforcement and increased cooperation among foreign and domestic agencies.

The discussion opened with remarks by Judge Mukasey, who commented that the rapid expansion of FCPA enforcement in the United States since 2004 has brought increased anxiety to companies, which are concerned about competitive disadvantages in the global business environment. Judge Mukasey suggested, however, that this anxiety should be tempered by the fact that 34 countries have signed on to the Organization of Economic Cooperation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Transactions. He noted further that although the United States remains in the forefront of enforcement, with the UK’s Anti-Bribery Bill coming into effect next year, there is a global trend towards more vigorous enforcement of anti-bribery laws.

Expanding Views on Jurisdiction have led to Global Enforcement by the DOJ

Mr. Darden presented the DOJ’s perspective on the expansion of FCPA enforcement, and explained that, since 2005, the DOJ’s Fraud Section has concluded more than 40 criminal FCPA matters and collected over $2 billion in criminal fines. He noted that the six largest FCPA investigations have been resolved in the past 22 months, that more than 75 individuals have been criminally charged with FCPA violations since 2005, and that more than 45 of those individual prosecutions have taken place in the past two years. These statistics dwarf those of the first thirty years of FCPA enforcement.

According to Mr. Darden, the recent surge in enforcement is the result of an expanding view of jurisdiction by the government, as applied to both corporations and individuals. For corporations, the FCPA applies not only to U.S. corporations and foreign companies whose shares are traded on U.S. exchanges and regulated by the SEC, but also individuals and companies that take any action in the United States in furtherance of a bribery scheme. As a result of a more expansive jurisdictional reach, Mr. Darden argued that the idea that U.S. companies are disadvantaged by stringent FCPA provisions has been turned on its head; he noted that five of the six largest FCPA actions have involved foreign corporations.

Mr. Darden pointed out that the expanding fight against bribery has extended beyond the scope of the FCPA itself. Although the FCPA punishes only the payor (as opposed to the Federal Anti-Kick Back Law, which punishes both the payor and the payee), at least two FCPA-related cases in the last few months have involved charges against foreign officials under other statutes.

SEC stepping up enforcement, increasing cooperation with other agencies, but approaching remedies with more flexibility

Ms. Scarboro described the FCPA program at the SEC, where, she noted, FCPA enforcement has been a high priority for quite some time. In 2010 alone, with several cases still ongoing, the SEC has settled with 11 corporations and 7 individuals, recovering over $400 million in disgorgement and civil penalties.

Ms. Scarboro reminded the audience that the SEC has reorganized its efforts and now has a dedicated unit focused exclusively on combating foreign bribery. She said that the division has become smarter, more proactive, and more internally coordinated; the unit has also increased the SEC’s coordination with the DOJ. In addition, there have been more coordinated efforts with investigative authorities in other countries, including in connection with the Siemens investigation and this year’s Innospec case. Ms. Scarboro said that the SEC and the DOJ have been at the forefront of enforcing this country’s OECD obligations and have begun encouraging and engaging international counterparts in the pursuit of anti-bribery enforcement.

Ms. Scarboro emphasized that the SEC will continue to pursue disgorgement of profits in its FCPA investigations, and also explained that the SEC has begun to focus on industry-wide corruption, taking individual instances of bribery and investigating whether patterns emerge within a given industry. The SEC has stepped up its pursuit of individuals, she said, viewing enforcement against individuals as a better deterrent than enforcing sanctions against a company.

The SEC has pursued a more flexible approach to remedies in its investigations. To encourage cooperation by businesses under scrutiny by federal agencies, Ms. Scarboro explained, the SEC has begun pursuing deferred prosecution and cooperation agreements with companies that voluntarily report and cooperate with the SEC. She said that the SEC fashions relief on a case-by-case basis, given that the facts and circumstances of each case, as well as the level of cooperation, differ significantly, and the SEC considers a broad range of factors in determining the relief in each case.

Calls for Reform from the Private Sector

Andrew Weissman has written critically about the statute in the past, and recently released an article, sponsored by the U.S. Chamber of Commerce’s Institute for Legal Reform, calling for specific reforms to the statute. Mr. Weissmann expressed concern that, because the vast majority of FCPA-related cases against corporations, like those involving allegations of other criminal law violations, are settled without trial, the DOJ and the SEC serve as the judge and jury; thus, there is no meaningful way to question their interpretation of the FCPA’s grey areas.

Mr. Weissman’s second major stated concern was that, due to the lack of clarity in enforcement, companies are less likely to pursue business opportunities in countries seen as highly corrupt, such as China, where the risks of running afoul of the FCPA are high. The potential for FCPA enforcement hangs over such business ventures, and Mr. Weissman characterized this as a tax on companies looking to do business abroad.

Mr. Weissman encouraged the United States to adopt a provision similar to one contained in the UK’s Anti-Bribery Bill, which, when it becomes effective in April 2011, will provide a defense to enforcement actions for companies that devote “adequate” resources to creating and enforcing anti-bribery procedures. Mr. Weissman suggested that the British statute recognizes the limitations of what a corporation can do about the actions of its individual employees.

Mr. Weissman also called for more clarity with respect to what constitutes an “instrumentality” of a foreign government, light-heartedly suggesting that almost everyone in China is an instrumentality of the government. Mr. Weissman fears that, without more clarity, a business would not know whether it could take someone employed at General Motors out to dinner (as the U.S. government is now a shareholder). Similar arguments might apply to hospitality provided to an employee of Bloomberg (as New York Mayor Michael Bloomberg owns 85% of that company), or a Professor at Columbia (a school that receives public grants).

Judge Mukasey noted that the United States has a facilitation payment exception that the UK statute does not have, but Mr. Weissman described the facilitation payment exception as very narrow, and limited to grease payments that expedite inevitable occurrences. Judge Mukasey characterized this exception as applying to payments that help a company to “move up the list” toward an approval it would obtain in any event as opposed to helping a company “get on the list.” Mr. Weissman also noted that there is no de-minimis exception in the FCPA, putting companies at risk of FCPA violations even for very minor favors or transactions.

Although the new UK statute goes beyond the FCPA in some ways – including its extension to commercial bribery – Mr. Weissmann believes that the availability of the “adequate procedures” defense makes that statute more reasonable than the FCPA.

The intent standard applied in FCPA enforcement actions also concerns Mr. Weissman. For individual prosecutions under the FCPA, he explained, the intent standard is “willfulness,” which is considerably more stringent than the “knowing” standard applied to corporations. The “knowing” standard, Mr. Weissman argued, makes doing business in certain countries very risky, as the act in furtherance of the bribery needs to be only an intentional act, that is, not one that is a mistake.

Anomalies Resulting from Increased Enforcement

Mr. Terwilliger began his discussion of anomalies in increased enforcement by noting that U.S. companies are devoted to free market principles, and that corrupt markets are not free – a principle sufficient to justify anti-bribery enforcement but not necessarily sufficient to justify uneven enforcement.

Mr. Terwilliger outlined problems with what he described as the great leverage held by the DOJ and the SEC in FCPA enforcement: few trials (almost no trials involving corporate defendants) and no body of jurisprudence governing the field, which results in no real opportunity for corporations to contest the government’s decision to pursue an FCPA enforcement action.

Although prosecutors stress the benefits of self-reporting and internal investigations, Mr. Terwilliger expressed an ongoing concern of many corporations that plaintiff’s lawyers representing shareholders and sometimes competitors have begun to latch on to those self-reports in pursuing litigation against companies who report bribery activities.

Similarly, Mr. Terwilliger explained that, in his view, the new bounty provisions of the Dodd Frank Act, which provide for recoveries of up to 30% of settlements with the SEC in excess of $1 million, misalign incentives that are crucial for successful self-reporting. The best source for self policing bribery issues are a company’s employees, and as such, companies are now required to rely on people who have financial incentive to go directly to the government to report these issues. Mr. Terwilliger said he viewed this as a major concern given that a company’s willingness to self-report is often a consideration in the remedies pursued by government agencies.

Incentives for Self-Reporting

Mr. Terwilliger argued that the incentives for companies faced with potential FCPA violations are also skewed in the self-reporting context. The better the procedures to detect bribery, the more likely the company will be to uncover bribery and face the decision of whether or not to self-report. Rather than being rewarded for voluntarily rooting out bribery problems, companies are often faced with costly punishment, an anomaly that weighs heavily in the board room when determining whether to self-report. Mr. Terwilliger called for the creation of a presumption of non-criminal disposition and reduced penalties for companies voluntarily reporting FCPA violations. Judge Mukasey added that such an approach could help lawyers in advising their clients on FCPA compliance policies.

Mr. Darden responded that the DOJ would see this as an unnecessary step, because the program is working well without such a “carrot.” Characterizing Mr. Terwilliger’s suggestion as amnesty and comparing it to the anti-trust division’s amnesty program, Mr. Darden said that the DOJ does not need companies to come forward and voluntarily report, whereas the anti-trust division’s amnesty policy is justified by the fact that it is impossible to investigate a cartel without one member of that cartel coming forward. Mr. Darden said that additional carrots are not needed in anti-bribery enforcement, as companies have shown that there is enough incentive to come forward.

Mr. Terwilliger argued that, in his experience with certain long-running voluntary FCPA investigations, it would have been impossible for the DOJ to gather the same evidence as was gathered in a voluntary investigation, and said that the anti-trust program is a very good analogy to the DOJ’s program. He also noted that he was not discussing amnesty, but rather a reduced penalty that would give the company better incentives to self-report.

Mr. Darden and Ms. Scarboro both stated that only about one-third of FCPA investigations are voluntarily reported to the DOJ or the SEC, but the proportion of cases that are resolved with cooperation of the companies being investigated is much higher than one-third, and in those cases that cooperation factors significantly into the remedies the agencies seek.

Ms. Scarboro noted that the U.S. Sentencing Guidelines, which the DOJ uses (and courts apply) in assessing fines for FCPA violations, provide for downward departures, and the availability of non-prosecution agreements gives the DOJ added flexibility. While other enforcement models, like the UK’s, provide for the negotiation of remedies prior to the investigation, the U.S. model gives federal agencies discretion to account for a variety of facts and circumstances after an investigation to assess the proper penalty. The SEC, for example, in determining whether to bring an action against a corporation, considers the corporation’s cooperation in the investigation and its remediation efforts in determining what remedies the SEC will seek, if any.

Ms. Scarboro noted that, in many cases, the level of cooperation is sufficient that the SEC will not initiate a full investigation. Those cases are generally not publicized in order to avoid unwanted publicity or embarrassment for the cooperating companies. Mr. Darden echoed that sentiment, and said that, while some companies affirmatively publicize their avoidance of FCPA charges, in many cases when the DOJ determines not to pursue charges, companies do not want the publicity of the DOJ’s decision not to prosecute or investigate, because that publicity could give rise to the need to issue a new 8-K.

During a Q&A period, Mr. Darden stated that the Federal Prosecution Principles, which were supposed to add clarity, have in some cases raised more questions than answers. In an attempt to give more clarity, especially in the area of compliance, the Prosecution Principles fail to give guidance about the type of cases the DOJ seeks to pursue. For example, the DOJ cares less about a company with some far flung employee who did not “get the memo” on the company’s anti-bribery compliance policy, than it does about a higher level corporate employee generating phony documents. Mr. Darden said that the failure to distinguish these schemes is a weakness in the Federal Prosecution Principles and is driving a need for more clarity.

Conclusion

Although the private sector has called for reform, the federal agencies responsible for FCPA enforcement have signaled no reversal of the trend of increased enforcement of the FCPA against companies and individuals at home and abroad.

“A Tip A Day”

According to Joe Palazzolo’s recent post in Corruption Currents (a Wall Street Journal blog), “a person familiar with the matter” said the SEC “has been receiving at least one tip a day about potential foreign bribery violations” pursuant to Dodd-Frank’s new whistleblower provisions.

Whether those tips turn into enforcement actions will be the question.

As I noted in this prior post, my guess is that the new whistleblower provisions will have a negligible impact on FCPA enforcement.

Speaking generally on Dodd-Frank’s whistleblower provisions (i.e., not just in terms of the FCPA) SEC Chairman Mary Schapiro had this to say (see here) in September 30th testimony before the Senate Committee on Banking, Housing, and Urban Affairs:

“Staff in the Division of Enforcement, with assistance from other divisions and offices, is actively working to draft implementing regulations for the whistleblower program. Pending the issuance of these regulations (due no later than 270 days after the date of enactment of the Act), the staff has been and will continue to be able to receive whistleblower complaints. Also, information for potential whistleblowers has been posted on our website. Already, since the passage of the Act, we have seen a slight uptick in the number of tips and complaints received, and, more importantly, an uptick in the quality of complaints.”

As noted in Schapiro’s testimony, “the first report to Congress on the whistleblower program will be provided on October 30, 2010.”

For more on Dodd-Frank’s whistleblower provisions see here.

DOJ, SEC Receive FCPA Training

The Department of Justice and the Securities and Exchange Commission enforce the Foreign Corrupt Practices Act.

It is thus a bit strange that the DOJ and SEC are receiving FCPA training.

Yet, piecing together information from two prominent law firm event calendars (see here and here) that is exactly what is occuring today in Washington D.C. at the SEC headquarters.

Described as a “joint FCPA training program” for the DOJ, SEC, and FBI and the “SEC’s FCPA Boot Camp” the speakers appear to include a who’s who of the FCPA defense bar.

What prompted this training session? What is the full agenda of topics? What type of questions will DOJ and SEC personnel ask?

Inquiring minds want to know.

Inquiring minds may also wonder – is it proper for the DOJ and SEC to receive training from lawyers and law firms that are frequent “adversaries” in FCPA enforcement actions?

The event is not included on the SEC’s event calendar (see here), but DC readers may want to show up at the SEC’s headquarters today and say “I’m here for the FCPA training” to see what happens.

If anyone has information or insight as to this event, please leave a comment.

A few other DOJ / SEC items of interest to pass along.

Make Your Voice Heard

According to this release, the SEC is seeking public comment on various sections of the recently enacted Dodd-Frank financial reform package. The SEC will post all submissions on SEC’s Internet Web site. As noted in the release, “members of the public who wish to submit official comments on particular rulemaking initiatives should submit comments during the official comment period that starts with the notice of the initiative published in the Federal Register.” (emphasis added).

To learn more about Section 922’s whistleblower provisons, see here and here. To learn more about Section 1504’s Resource Extraction Issuer Disclosure provisions see here.

The Revolving Door Continues to Revolve

Some of you, I know, think it is no big deal when a DOJ prosector enforces a law one day and then the next day defends clients against enforcement of that same law.

Others of you, I know, think that this is an important public policy issue worthy of discussion.

Whatever your persuasion, it should be noted that yet another DOJ attorney with FCPA responsibilties has left government service for a private law firm to engage in an FCPA practice.

According to this Main Justice story, Steven Fagell, Assistant Attorney General Lanny Breuer’s deputy chief of staff, is leaving the DOJ to return to Covington & Burling LLP (Breuer’s previous employer), the firm he worked at prior to joining the DOJ in January 2009. Main Justice reports that “as a member of the Criminal Division’s senior leadership team, Fagell served as a counselor to Breuer and worked on a broad range of issues including the Financial Fraud Enforcement Task Force and the Foreign Corrupt Practices Act.” According to Tim Hester, Covington’s managing partner, Fagell is expected to work on FCPA matters at the firm (see here).

For other recent movement betweent the DOJ and the FCPA bar see here, here and here.

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