Category: SEC

SEC Announces Blockbuster FCPA Enforcement Actions Against ALL Issuers

[Today is April 1st, commonly referred to as April Fools Day. Please keep this in mind when reading this post. In other words, this post should not be taken literally. Even though this post is presented as satire, readers are encouraged to ponder the issues raised.]

Earlier today the SEC announced Foreign Corrupt Practices Act enforcement actions against all issuers subject to the FCPA.

Total SEC recovery in the enforcement actions – all resolved via administrative cease and desist orders and thus not subject to any judicial scrutiny was – approximately $925 billion dollars.

In announcing the enforcement actions, an SEC spokesperson stated:

“Using our data analytics tools, the SEC determined that it was more likely than not – given the SEC’s current FCPA enforcement theories – that all issuers subject to FCPA were in violation of the FCPA’s anti-bribery provisions, or at the very least the FCPA’s books and records and internal controls provisions.”

Pressed for more specifics on the enforcement actions, the SEC spokesperson stated:

Issues To Consider From The Nordion (Canada Inc.) Enforcement Action

Just When You Think You’ve Seen It All – Along Comes The Nordion (Canada) Inc. Enforcement Action

There have been several Foreign Corrupt Practices Act enforcement actions in the past 30 days or so.

But, just when you think you’ve seen it all in FCPA enforcement-land, along comes the Nordion (Canada) Inc. enforcement action announced yesterday by the SEC.

The basic findings, as set forth in this administrative order, were as follows.

Approximately 16 years ago, Mikhail Gourevitch (a dual Canadian and Israeli citizen who was fired years ago by Nordion) represented to the company that “his purported childhood friend from Russia” could help the company’s business in Russia.

Gourevitch and this eventual agent “conspired to use a portion of the funds Nordion paid the Agent to bribe Russian government officials to obtain approval for TheraSphere” a liver cancer therapy.

Gourevitch also received kickbacks from the Agent and otherwise “hid the scheme from Nordion” through, among other things, misrepresentations to his employer. In the words of the SEC, through his conduct Gourevitch “secretly enrich[ed] himself” and received “at least $100,000 for his role in the arrangement which was not disclosed to Nordion.”

In August 2014, Nordion was acquired by Nordion (Canada) Inc., a privately held company. The SEC’s order finds that Nordion (not the actual Respondent in the action Nordion (Canada) Inc.) violated the FCPA’s books and records and internal controls provisions and Nordion (Canada) Inc. agreed, without admitting or denying the SEC’s findings, agreed to pay $375,000.

Friday Roundup

Scrutiny alerts and updates, double standard, ripple, job description, new website, quotable and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Alerts and Updates

Vimpelcom / TeliaSonera

As highlighted in this recent post, when recently asked about the slowdown in 2015 DOJ corporate FCPA enforcement Andrew Weissmann (Chief of the DOJ Fraud Section) stated: “just wait three months, it might be a very different picture.”

According to this report:

“Vimpelcom “is set to announce a settlement with the US Department of Justice and Swiss and Dutch authorities that will be “just shy of a billion dollars.” […]  A source close to the DoJ, which does not comment publicly on individual cases, said it is expected that approximately three-quarters of the funds would go to the US government and the remainder to the European governments. […] [S]ources say [the Vimpelcom action] is a precursor for a much larger settlement coming down the line with TeliaSonera, the Swedish telecom operator.”

See this prior post titled “The Burgeoning Uzbekistan Telecommunication Investigations.”

SBM Offshore

Previous posts have highlighted SBM Offshore’s scrutiny including its disclosure in November 2014 that the DOJ informed the company “that it is not prosecuting the Company and has closed its inquiry” into allegations of improper conduct in Brazil and other countries.

Earlier this week, the company disclosed:

“[The DOJ] has informed SBM Offshore that it has re-opened its past inquiry of the Company and has made information requests in connection with that inquiry.  The Company is seeking further clarification about the scope of the inquiry.  The Company remains committed to close-out discussions on this legacy issue which the Company self-reported to the authorities in 2012 and for which it reached a settlement with the Dutch Public Prosecutor in 2014.”

British American Tobacco

This previous Friday roundup highlighted the scrutiny surrounding British American Tobacco. Recently, several members of Congress sent this letter to Andrew Weissmann (Chief of the DOJ’s Fraud Section) stating in pertinent part:

“We are deeply troubled by recent media reports alleging that British American Tobacco (BAT) conspired to bribe politicians and public health officials across Central and East Africa to block, weaken, and delay the passage and implementation of public health laws designed to protect people from the deadly effects of tobacco. We request the Department of Justice to investigate BAT’s alleged bribery to determine whether it violated the Foreign Corrupt Practices Act.”

General Cable

The company has been under FCPA scrutiny since approximately September 2014 and recently disclosed:

“As previously disclosed, we have been reviewing, with the assistance of external counsel, our use and payment of agents in connection with, and certain other transactions involving, our operations in Angola, Thailand, India, China and Egypt (the “Subject Countries”). Our review has focused upon payments and gifts made, offered, contemplated or promised by certain employees in one or more of the Subject Countries, directly and indirectly, and at various times, to employees of public utility companies and/or other officials of state owned entities that raise concerns under the Foreign Corrupt Practices Act (“FCPA”) and possibly under the laws of other jurisdictions. We have substantially completed our internal review in the Subject Countries and, based on our findings, we have increased our outstanding FCPA-related accrual of $24 million by an incremental $4 million, which represents the estimated profit derived from these subject transactions that we believe is probable to be disgorged. We have also identified certain other transactions that may raise concerns under the FCPA for which it is at least reasonably possible we may be required to disgorge estimated profits derived therefrom in an incremental aggregate amount up to $33 million.

The amounts accrued and the additional range of reasonably possible loss solely reflect profits that may be disgorged based on our investigation in the Subject Countries, and do not include, and we are not able to reasonably estimate, the amount of any possible fines, civil or criminal penalties or other relief, any or all of which could be substantial. The SEC and DOJ inquiries into these matters remain ongoing, and we continue to cooperate with the DOJ and the SEC with respect to these matters.”

Qualcomm 

As highlighted in previous posts, Qualcomm has been under FCPA scrutiny for over four years and recently disclosed:

“On March 13, 2014, the Company received a Wells Notice from the SEC’s Los Angeles Regional Office indicating that the staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Company for violations of the anti-bribery, books and records and internal control provisions of the FCPA. The bribery allegations relate to benefits offered or provided to individuals associated with Chinese state-owned companies or agencies. The Wells Notice indicated that the recommendation could involve a civil injunctive action and could seek remedies that include disgorgement of profits, the retention of an independent compliance monitor to review the Company’s FCPA policies and procedures, an injunction, civil monetary penalties and prejudgment interest.

A Wells Notice is not a formal allegation or finding by the SEC of wrongdoing or violation of law. Rather, the purpose of a Wells Notice is to give the recipient an opportunity to make a “Wells submission” setting forth reasons why the proposed enforcement action should not be filed and/or bringing additional facts to the SEC’s attention before any decision is made by the SEC as to whether to commence a proceeding. On April 4, 2014 and May 29, 2014, the Company made Wells submissions to the staff of the Los Angeles Regional Office explaining why the Company believes it has not violated the FCPA and therefore enforcement action is not warranted.

On November 19, 2015, the DOJ notified the Company that it was terminating its investigation and would not pursue charges in this matter. The DOJ’s decision is independent of the SEC’s investigation, with which we continue to cooperate.”

Double Standard

While we wait for additional FCPA enforcement actions against financial service firms based on alleged improper internship and hiring practices in the mold of the BNY Mellon action, the Wall Street Journal reports:

“Wall Street is emerging as a particularly dominant funding source for Republicans and Democrats in the presidential election, early campaign-finance reports filed with the Federal Election Commission show. So far, super PACs have received more than one-third of their donations from financial-services executives, according to data from the nonpartisan Center for Responsive Politics.”

Separately, certain FCPA enforcement actions have been based on alleged “foreign officials” receiving speaking fees or excessive honorariums. Against this backdrop, here is the list of Hillary Clinton’s speaking fees for speeches delivered to Wall Street audiences after she left the State Department but while she was a presumptive presidential candidate.

Ripple

Och-Ziff Capital Management has been under FCPA scrutiny since 2011. In this recent investor conference call, a company executive stated: “Uncertainty stemming from the FCPA investigation has also had some impact on investment decisions by certain LPs.”

In other words, a ripple of FCPA scrutiny.

To learn how FCPA scrutiny and enforcement has a range of negative financial impacts on a company beyond enforcement action settlement amounts, see “FCPA Ripples.”

Job Description

What is the Assistant Deputy Chief of the DOJ’s Foreign Corrupt Practices Act Unit expected to do? See here for the job opening and expected duties.

New Website

The U.K. Serious Fraud Office recently unveiled a new website. Among the feature is a “current cases” page which specifically lists the following companies are under investigation for bribery/corruption offenses.

• Alstom Network UK Ltd & Alstom Power Ltd
• ENRC Ltd
• GPT Special Project Management Ltd
• Innovia Securency PTY Ltd
• Rolls-Royce PLC
• Soma Oil & Gas

Quotable

In this Corporate Crime Reporter interview, Crispin Rapinet (a partner at Hogan Lovells in London) states:

“The danger of deferred prosecution agreements is the commercial temptation to deal with a problem that may or may not be in reality a real problem. If you pushed the prosecutor to actually establish that it is a criminal offense, it may not be that straight-forward. But the temptation for any corporate to deal with that risk through a commercial settlement which involves a sum of money and living with someone looking over your shoulder for a period of time is understandably great.

Whether that, from a jurisprudential point of view, is the ideal world is questionable. You can see why people might take the view of — we don’t actually know whether these people have committed a criminal offense or not. But the power of the threat of the cost and time and management distraction associated with defending a claim, to say nothing of the ultimate risk if you are ultimately unsuccessful in your defense, is such that in the overwhelming majority of circumstances where these problems arise, the commercial temptation is to enter into a deferred or non prosecution agreement.”

Spot-on.

For The Reading Stack

An informative read here from Jon Eisenberg (K&L Gates) regarding SEC civil monetary penalties.

Why Does The SEC Have An FCPA Unit?

Notwithstanding the fact that the SEC played an important role (indeed a more prominent role than the DOJ) in addressing the foreign corporate payment payments problem in the 1970s’s that led to enactment of the Foreign Corrupt Practices Act, it is a historical fact that the SEC never wanted any role in enforcing the FCPA’s anti-bribery provisions.

It is also a historical fact that the SEC did not object to various bills introduced during the FCPA reform debates of the 1980’s that sought to “divest” the SEC of enforcement authority over the anti-bribery provisions.

In both cases, the SEC explicitly stated that enforcement of the anti-bribery provisions was not central to the SEC’s investor protection mission.

Against this backdrop, it is strange that the SEC announced in August 2009 that it was forming a specialized FCPA Unit. In making the announcement, then SEC Enforcement Director Robert Khuzami stated:

“The Foreign Corrupt Practices Act unit will focus on new and proactive approaches to identifying violations of the Foreign Corrupt Practice Act, which prohibits U.S. companies from bribing foreign officials for government contracts and other business. While we have been active in this area, more needs to be done, including being more proactive in investigations, working more closely with our foreign counterparts, and taking a more global approach to these violations.”

In January 2010, the five specialized SEC units, including the FCPA Unit, were formally launched. In making the announcement, Khuzami stated:

“These specialized units address both challenges through improved understanding of complex products and markets, earlier and better capability to detect emerging fraud and misconduct, greater capacity to file cases with strike-force speed, and an increase in expertise throughout the Division.”

Since 2010, the SEC’s FCPA Unit has steadily grown. For instance, in previous public comments Kara Brockmeyer (SEC FCPA Unit Chief) stated:

“the SEC FCPA Unit has about three dozen staff dedicated full-time to the FCPA.  This number is in addition to other enforcement attorneys in SEC offices outside of DC who may also work on FCPA cases.”

SEC FCPA Unit staff are public employees and as public employees it is worth asking the question: what are these approximate 40 people doing on a daily basis?

For instance, in 2014 and 2015 the SEC brought 16 corporate FCPA enforcement actions. 7 (approximately 45%) were the result of corporate voluntary disclosures. In such actions, the word “enforce” the FCPA is a bit too much, when the reality is the SEC largely “processes” the corporate voluntary disclosure.

Regardless of the origins of the SEC’s corporate FCPA enforcement actions, is the SEC actually litigating these cases and having to prove anything (a task that can require substantial time and resources if the defendant is mounting a defense)?

Nope.

Of the 16 corporate FCPA enforcement actions brought by the SEC over the past two years, 14 (88%) were resolved through administrative actions or a deferred prosecution agreement. The other two actions were resolved through settled civil complaints.

As one of only five “specialized units” at the SEC, one might think that a reasonably proportionate total of the SEC’s overall enforcement actions would come from the FCPA Unit.

Not true.

Since 2011, the SEC has broken its enforcement statistics into specific categories. As highlighted by the SEC’s own data below, FCPA enforcement actions are a miniscule percentage of overall SEC enforcement actions.

• FY 2014 – FCPA actions .9% of total actions
• FY 2013 – FCPA actions .7% of total actions
• FY 2012 – FCPA actions 2% of total actions
• FY 2011 – FCPA actions 2.7% of total actions

[Note: the SEC’s fiscal year is not a calendar year]

There is certainly more to having an FCPA unit than srictly enforcement action output.

Nevertheless, given the above output it is a fair question to again ask – what do the approximately 40 people in the SEC’s FCPA Unit actually do on a daily basis?

More fundamentally, why does the SEC have an FCPA Unit?