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Potpourri

A Friday roundup of recent FCPA events.

An FCPA Sentencing Trend?

As noted in yesterday’s DOJ release (here), two former executives of Willbros International Inc. (a subsidiary of Houston-based Willbros Group Inc.) were sentenced for their roles in a conspiracy to make improper payments to “foreign officials” in Nigeria and Ecuador.

Jason Edward Steph was sentenced to 15 months in prison and Jim Bob Brown was sentenced to 366 days in prison.

For more on the Willbros matter, see here and here.

The DOJ’s sentencing recommendations appear to be sealed, but one can assume, given the “light” sentences, that perhaps the DOJ likely sought sentences greater than those issued by District Court Judge Simeon Lake.

If so, this would appear to continue a trend of judges sentencing FCPA defendants to prison sentences less than those recommended by DOJ.

For instance, in Frederic Bourke case, a case which involved a “massive bribery scheme” according to DOJ, Judge Shira Scheindin rejected the 10-year prison sentence proposed by DOJ and sentenced Bourke to 366 days in prison. (see here). In sentencing Bourke, Judge Scheindin is reported to have said “after years of supervising this case, it’s still not entirely clear to me whether Mr. Bourke is a victim or a crok or a little bit of both.”

With several FCPA sentencing dates on the horizon, this apparent trend will be an issue to watch.

See here for local media coverage regarding the sentences.

Kozeny’s Tan Not in Jeopardy

While Bourke (see here) prepares his appeal, Viktor Kozeny, the alleged master-mind of the scheme to bribe officials in Azerbaijan in connection with privatization of the state-owned oil company, will be staying put in The Bahamas as an appellate court again rejected DOJ’s extradition attempts.

As noted in the recent Bahamian Court of Appeals decision (here), Kozeny, a Czech national, has been living in The Bahamas since 1995 and has not departed the country since 1999.

The opinion notes that there is no dispute “that there was a conspiracy to corrupt the Azeri officials and that such officials were paid money, given gifts and provided shares in certain companies under the control of [Kozeny] without payment; and had certain medical procedures paid for them by [Kozeny].

Even so, the court concluded that while The Bahamas did indeed have a bribery/corruption statute, it applied only to bribes within The Bahamas or given to a Bahamian public officer. Thus, because Kozeny’s conduct would not violate Bahamian law, the appellate court upheld the lower court’s denial of the extradition request.

For additional coverage (see here and here and here).

According to these reports, the decision may be appealed to London’s Privy Council pursuant to Bahamian legal procedure. Kozeny’s U.S. lawyer is quoted as saying “enough is enough” and U.S. prosecutors should finally accept the fact that Kozney, a non-U.S. citizen, could not violate the FCPA as it existed in 1998 – the year in which the bribe scheme perhaps ended – although, as noted in the opinion, the U.S. alleges that the bribe scheme continued into 1999.

Why is this relevant?

Because the FCPA was amended in 1998 to include, among other provisions, 78dd-3 which applies the antibribery provisions to “any person” (i.e. foreigners) “while in the territory of the U.S.” from making use of the mails or any other means or instrumentality of interstate commerce in furtherance of an improper payment.

The SFO Continues to “Step-It-Up”

Today, the U.K. Serious Fraud Office (the functional equivalent of the DOJ) issued a release (here) indicating that a former BAE agent has been charged with “conspiracy to corrupt” for “conspiring with others to give or agree to give corrupt payments […] to unknown officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc.”

For local media coverage of the charges (see here).

With a new Bribery Bill expected in the U.K. by years end, the SFO continues to “step-it-up” (see here for more on the SFO).

Disclosing FCPA Compliance

Public companies dislose FCPA issues all the time. Rarely though do the disclosures concern issues other than internal investigations and potential enforcement actions.

Accordingly, two recent SEC filings caught my eye.

China MediaExpress Holdings, Inc. (a Delaware company) recently disclosed (here) that it:

“[e]ntered into a securities purchase agreement with Starr Investments Cayman II, Inc. Under this agreement, Starr will, subject to various terms and conditions, purchase from the Company 1,000,000 shares of Series A Convertible Preferred Stock and warrants to purchase 1,545,455 shares of the Common Stock of the Company for an aggregate purchase price of US$30,000,000.”

One of the conditions was that the company “shall have adopted a program with respect to compliance with the US Foreign Corrupt Practices Act” and a post-closing covenant obligates the company to “implement a program regarding compliance with the US Foreign Corrupt Practices Act not later than April 30, 2010.”

Cardtronics Inc. (an operator of ATM networks around the world) (here) recently disclosed (here) that:

“On January 25, 2010, the Board of Directors by unanimous vote approved three management proposed modifications to the Company’s Code of Business Conduct and Ethics. The modifications as approved by the Board include: (i) adding a section that addressed compliance with the Foreign Corrupt Practices Act and International Anti-Bribery and Fair Competition Act of 1998.”

Costa Rica Joins the Club

Last, but certainly not least, Costa Rica recently announced a first … the first time a foreign corporation has paid the government damages for corruption.

As noted here, telecom company Alcatel-Lucent recently disclosed a $10 million payment to settle a corruption case in Costa Rica in which it was accused of paying kicbacks to former Costa Rican President Miguel Angel Rodriguez (and others government officials) in return for a 2001 contract worth $149 million.

There has been FCPA/corruption issues on both sides “of the hyphen” as noted here in this recent Main Justice article.

And with that, have a nice weekend.

The Investigative Agency That Prefers Not to Investigate

The Serious Fraud Office (“SFO”) in the United Kingdom is similar to the U.S. DOJ.

According to the SFO’s website (here), it “investigates fraud and corruption.” Elsewhere on the website (here) it notes that the SFO is the “lead agency” in the U.K. “for investigating and prosecuting cases of domestic and overseas corruption.” Elsewhere on the website (here) is a specific page as to how the SFO “investigates and prosecutes” and the page notes that a thorough investigation “often includes examining vast quantities of documents which have often been left in a deliberately obscure and fragmented form.”

All sounds rather intense from an investigative standpoint.

Problem is, the SFO recently stated that it would prefer not to investigate bribery and corruption cases!

As discussed elsewhere (see here), the SFO recently made public additional guidance as to its July 2009 memo titled “Approach of the Serious Fraud Office to Dealing with Overseas Corruption.” (See here for my prior post on this memo).

While it is commendable for a government agency to provide more guidance to those subject to a law, the following sentence in the SFO letter (see here) caused me to pause (let alone read multiple times):

“Our very strong preference is that all investigative work should be carried out by the professional advisers [of the company disclosing a potential issue] and that it is not necessary for the SFO to conduct any investigation itself.”

Have we seriously come to the point (on both sides of the Atlantic) where the government agencies tasked with investigating and prosecuting bribery and corruption cases no longer view it as their responsibility to investigate the factual circumstances supporting the charges?

A Trip Around the World

Grab your bags and your passport, it’s time for a quick trip around the world.

First stop, Germany.

Siemens

In December 2008, Siemens (a global corporation organized under the laws of Germany with shares listed on the New York Stock Exchange since March 2001) agreed to pay $800 million in combined fines and penalties to settle FCPA charges for a pattern of bribery the Department of Justice (“DOJ”) termed “unprecedented in scale and geographic scope.” The combined fines and penalties were easily the largest ever levied against an FCPA violator.

This week, Siemens announced (see here) that it “has come to an agreement about settlements with six further former Board members against whom damages were claimed in connection with past cases of corruption in the company.” See (here) for press coverage.

Next stop, the U.K.

SFO Charges Former DePuy Executive

The U.K.’s Serious Fraud Office (“SFO”) (an enforcement agency similar to the U.S. DOJ), recently announced (see here) that Robert John Dougall, the former Vice President of Market Development of DePuy International Limited was charged with conspiracy for “making corrupt payments and/or giving other inducements to medical professionals working in the Greek public healthcare system.” The SFO has previously indicated (see here) that it seeks to generally model DOJ’s enforcement strategies, and that model now seems to include a broad interpretation of the potential universe of recipients of improper payments (i.e. not just core government officials, but also employees of public healthcare systems). There is greater cooperation between law enforcement agencies around the world in investigating cases of alleged improper payments, a fact highlighted by the SFO release which notes that the case “was referred to the [SFO] by the [DOJ] and accepted in March 2008.” Depuy (see here) is “part of the Johnson & Johnson family of companies.” In February 2007, Johnson & Johnson disclosed a potential FCPA issue and the company’s most recent announcement on the issue is in its November 2009 10-K filing (see here).

Next stop, Australia.

Money to Print Money

The Age of Melbourne has reported (see here) that Securency International (see here) and certain of its executives are being investigated by the Australian Federal Police for alleged breaches of Australia’s criminal code which prohibit payments to foreign government officials to obtain a business advantage. According to the article, Securency (according to its website – a world leader in secure polymer substrate technology and the supplier of a range of unique substrates which are used for the printing of banknotes and other security documents), is also under scrutiny in the U.K., Vietnam, and Nigeria. The article notes that the Securency matter could be Australia’s first prosecution for foreign bribery.

Final stop, the beaches of the Bahamas.

Kozeny Extradition Hearing

While Frederic Bourke (see here) prepares his appeal, Viktor Kozeny, the alleged master-mind of the bribery scheme, continues to enjoy life in the Bahamas as U.S. government attempts at extradition have thus far failed. This week, the U.S. government’s appeal hearing was heard in the Bahamas. See here for press coverage.

Halliburton / KBR … The Sequel

In February 2009, Halliburton Co., KBR Inc., and Kellogg Brown & Root LLC agreed to resolve parallel DOJ and SEC FCPA enforcement actions concerning improper payments to Nigerian officials in connection with the Bonny Island liquefied natural gas project. (see here, here, and here).

The combined $579 million in fines and penalties remains the most ever against a U.S. company for FCPA violations.

Included in the web of companies involved in the Nigeria conduct was M.W. Kellogg Company (“MWKL”), a United Kingdom joint venture 55% owned by KBR. MWKL is mentioned in the linked DOJ and SEC materials above.

It looks like Halliburton’s exposure via M.W. Kellogg is not over.

Today, in a 10-Q filing (see here – p. 10), Halliburton stated as follows:

“In the United Kingdom, the Serious Fraud Office (SFO) is considering civil claims or criminal prosecution under various United Kingdom laws and appears to be focused on the actions of MWKL, among others. Violations of these laws could result in fines, restitution and confiscation of revenues, among other penalties, some of which could be subject to our indemnification obligations under the master separation agreement. Our indemnity for penalties under the master separation agreement with respect to MWKL is limited to 55% of such penalties, which is KBR’s beneficial ownership interest in MWKL. Whether the SFO pursues civil or criminal claims, and the amount of any fines, restitution, confiscation of revenues or other penalties that could be assessed would depend on, among other factors, the SFO’s findings regarding the amount, timing, nature and scope of any improper payments or other activities, whether any such payments or other activities were authorized by or made with knowledge of MWKL, the amount of revenue involved, and the level of cooperation provided to the SFO during the investigations.”

It used to be that companies with FCPA exposure could get a good night’s sleep after resolving DOJ and (if an issuer) SEC enforcement actions.

As this action (and others in recent years) demonstrate, the landscape has changed and “tag-a-long” FCPA-like enforcement actions or inquiries in other countries I think will become the new norm.

An Update From Across the Pond

The U.S. is not the only country with an “FCPA-like” domestic statute. The United Kingdom has a similar law (actually a mix of several different statutes on the books for nearly one-hundred years – however, in March 2009, a new bill – the “Bribery Bill” was introduced in Parliament and is currently being debated).

As discussed in a July post (see here), the U.K.’s Serious Fraud Office (“SFO”) (an enforcement agency similar to the U.S. DOJ) announced “the first prosecution brought in the U.K. against a company for overseas corruption.”

The company – Mabey & Johnson Ltd. (“M&J”) – a U.K. company that designs and manufacturers steel bridges used in more than 115 countries worldwide.

Last week, the SFO issued a press release announcing the details of M&J’s £6.6 million sentence (see here).

The SFO also released two “prosecution opening statements” relating to (a) the company’s conduct in Jamaica and Ghana; and (b) the company’s breach of United Nations Oil for Food Regulations (see here and here).

To state the obvious, one enforcement action does not constitute a practice.

Subject to that qualification, I offer some comments about the SFO’s released documents compared to what the DOJ and SEC typically release in an FCPA enforcement action (where indeed a common practice has developed).

Naming Names

Unlike a typical DOJ deferred prosecution, non-prosecution agreement or plea or SEC complaint, the SFO documents name names. Specifically identified in the documents are numerous “public officials” in Jamaica, Ghana, Angola, Madagascar, Mozambique, and Bangladesh (see pages 11, 25, 28, 32, 33, 35, and 38) alleged to have received improper payments from M&J (or its agents) to help secure company business.

The SFO documents also specifically identify the agents and their companies which were used by M&J to make certain of the improper payments (see pages 12, 22, 28, 32, 35, 37).

Is there value to “naming names,” does it “punish” the foreign or public official recipient of the improper payment (given that the FCPA only punishes the bribe payor not the bribe recipient)? Does naming the agent effectively blacklist the individual/company and thus serve a useful public function for other companies doing business in that particular market?

All interesting questions to ponder. There is also an interesting historical FCPA angle as well. Many, including the Ford administration, were opposed to the FCPA as it now exists, opting instead for a disclosure approach on the theory, to use the famous Justice Brandeis quote that “sunshine is the best disinfectant.”

Back to the SFO documents.

As referenced above, the applicable term used in the SFO documents is “public official” not “foreign official” as used in the FCPA. Do these terms means the same thing? All of the “public officials” identified in the SFO documents are government Ministers or Ambassadors (what I’ll call core government officials).

There is no exception though, an exception relevant to the current debate over the FCPA’s “foreign official” term and whether it should include employees of state-owned or state-controlled companies.

The Angolan “public officials” appear to be Directors of Empresa Nacional des Pontes, an “Angolan State owned entity.”

Joint Venture Partners

Under the FCPA, conventional wisdom seems to hold that joint venture partners will be liable for improper payments made by other joint venture partners, particularly when the joint venture partners share revenues and profits of contracts secured through improper payments and particularly when the joint venture’s board includes individuals from both companies. (see here for a discussion of this issue in connection with the recent Halliburton/KBR enforcement action).

Not so in the M&J matter.

The SFO documents reference a joint venture relationship between M&J and Kier International Ltd. (“Kier”) in order to facilitate both the construction and engineering aspects of “Jamaica 1” (the contract allegedly secured through the bribe payments).

According to the SFO documents, M&J and Kier agreed that “overall revenue and profits from the JV with respect of Jamaica I would be divided 57% and 43% respectively.” The documents further state that under the terms of the JV “a sponsor would have primary responsibility for representing the JV” and that “Kier was nominated to act as the sponsor.” Further the documents indicate that “the supervisory board” of the JV comprised both M&J and Kier executives.

However, the documents evidence that the “SFO has investigated the relationship between Kier and M&J in respect of this contract” and “all the evidence currently available to the SFO” indicates that “there is no evidence that Kier [was] privy to these corrupt practices.”

Will JV partners in the cross-hairs of a future FCPA enforcement action be citing to the SFO’s decision as to Kier in the M&J enforcement action to argue that there is no basis for FCPA liability (whether anti-bribery or books and records of internal controls)? Perhaps so.

Cooperation

Despite these apparent differences between the M&J enforcement action and a “typical” FCPA enforcement action, there are some similarities and it is clear that the SFO is following DOJ’s lead when it comes to “rewarding” voluntary disclosure (see pages 40-41 “the SFO have sought where appropriate to have regard to the model for corporate regulation adopted by the Department of Justice in the United States of America under the Foreign Corrupt Practices Act 1977.”).

The SFO’s stance in the M&J matter, in which it noted that M&J’s internal investigation and subsequent voluntary disclosure were “meriting specific commendation” (see pg. 7) is consistent with the approach the SFO set forth in July when it released a memo titled “Approach of the Serious Fraud Office to Dealing with Overseas Corruption” (see here).

Individuals

Finally, much like the DOJ, the SFO appears interested in charging individuals (not just corporations) for participating in improper payments. The SFO specifically noted that “a number of individuals are the subjects of investigation with regard to the corrupt business practices of M&J” (see pg. 5) and it explained that it did not “name certain directors, executives and employees of M&J at this stage because they may face trial in English Courts.”

Again, to restate the obvious, one enforcement action does not constitute a practice. Yet when doing a comparative analysis of the FCPA with other FCPA-like statutes one has got to start “somewhere” and that “somewhere” now exists with release of the specific facts of the U.K.’s first prosecution against a company for overseas corruption.”

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