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Friday Roundup

Motion to dismiss filed in the former Magyar Telekom execs case, a noticeable lack of FCPA charges, checking in on recent disclosures, quotable from the current SEC FCPA Unit Chief, quotable regarding FCPA Inc., what’s up with that investigation, I hear you travel alot, there’s an app for that, counter-points, and for the weekend reading stack.  It’s all here in the Friday roundup.

Motion to Dismiss Filed in SEC Enforcement Action

This previous post highlighted how former Magyar Telekom executives Elek Straub, Andras Balogh and Tamas Morvai planned to challenge the SEC’s charges against them.  Earlier this week, the defendants filed this memorandum in support of their motion to dismiss.

In summary fashion, the memorandum states as follows.

“There are several bases for dismissing the complaint.

 First, this Court lacks personal jurisdiction over the defendants. The complaint alleges conduct by foreign national defendants that occurred wholly outside, and with no nexus to, the United States. Nowhere does the complaint allege that defendants purposefully directed their conduct at the United States. Following constitutional due process principles, the defendants lack the requisite minimum contacts with the forum, and it would be inconsistent with traditional notions of fair play and substantial justice to require them to defend this action in the United States. Indeed, the SEC has acknowledged that its jurisdictional position lacks precedent “on all fours factually” and “may be breaking new ground[.]”

“Second, the SEC’s claims are time-barred […]  There is no doubt that the complaint was filed outside the five-year period. Specifically, the complaint was filed on December 29, 2011, more than five years after all three defendants had left Magyar Telekom, and more than five years after the alleged conduct occurred. Consequently, the five-year period has expired.”

“Third, with regard to the remaining claims, the complaint fails to adequately state the claims alleged. More specifically, the complaint: (i) fails to adequately plead that the defendants corruptly made use of interstate commerce, as is required to state a claim for bribery and the claims stemming from the alleged bribery under the FCPA (books and records and internal controls violations, falsifying books and records, and lying to auditors); (ii) fails to adequately plead that the intended payment recipients were “foreign official[s]” under the FCPA; (iii) fails to allege sufficient facts supporting the aiding and abetting claims; and (iv) fails to meet the heightened pleading requirements under Rule 9, including allegations of individualized culpable conduct by each defendant. The complaint also merely parrots the statutory language and fails to allege that the defendants profited personally from any of the alleged conduct. For all these reasons, the complaint should be dismissed with prejudice.”

As to “foreign official” the motion states that the complaint’s reference to “officials” “government officials” and other vague allegations represent “mere legal conclusions that the recipients were “foreign officials” under the FCPA.  The motion states as follows.  “A legal conclusion couched as a ‘factual allegation’ is insufficient to establish the essential element that the intended recipient be a foreign official.  Repeated references to “government officials” without underlying facts presents nothing ‘more than labels and conclusions’ that constitute ‘a formulaic recitation of the elements of a cause of action.””

Indeed, in my 2010 article “The Facade of FCPA Enforcement” (here) I noted the frequency in which enforcement agency FCPA pleadings “contain little more than uninformative, bare-bones statement of facts replete with legal conclusions.”  I said that the “most common and troubling use of bare-bones, uninformative, legal conclusory statements of facts or allegations is when the enforcement agencies describe the ‘foreign officials’ involved in the alleged conduct giving rising to the FCPA violation.”  In the article, I noted that because there is generally no threat that these bare-boned, uninformative facts or legal conclusions will ever be subject to meaningful judicial scrutiny, that the enforcement agencies get away with such practices.

At least until recently.

Noticeable Lack of FCPA Charges

Numerous FCPA enforcement actions have been based on allegations of payments to foreign customs personnel in connection with customs, license, permit type issues.

Thus, the lack of FCPA charges were noticeable in the DOJ’s recent criminal indictment of APEGO Inc., and various of is employees and agents.  As noted in this recent DOJ Release (N.D. of Georgia), charges were filed alleging conspiracy and twelve counts of importing notebooks and filler paper from China using false  documents.

The indictment (here) includes the following allegations.

“It was further part of the conspiracy that [certain individuals] paid bribes to Taiwanese customs officials on behalf of defendants APEGO and Gung to allow U.S.-bound lined paper products made by the Watanabe Group in China but lacking required country of origin labels, or mislabeled ‘Made in Taiwan,’ to enter Taiwan from China and clear Taiwanese customs.”

Elsewhere, the indictment alleges: (i) that in December 2006 various bribes were paid to Taiwanese customs officials which “allowed defendant APEGO to transship these products from Taiwan to the United States more quickly and less expensively by limiting the need to ‘rework’ the products and cartons (i.e. relable ‘Made in Taiwan’) in Taiwan”; (ii) that in March 2007 when customs officials at a certain Taiwan port no longer accepted bribes, the company arranged for its shipments to be processed through another port in a different part of the country where bribes were paid for the same purpose

Recent Disclosures

Owens-Illinois

Owens-Illinois, Inc. (an Ohio based company that describes itself as the world’s largest glass container manufacturer and preferred partner for many of the world’s leading food and beverage brands) recently disclosed as follows.

“The Company is conducting an internal investigation into conduct in certain of its overseas operations that may have violated the antibribery provisions of the United States Foreign Corrupt Practices Act (FCPA), the FCPA’s books and records and internal controls provisions, the Company’s own internal policies, and various local laws. In October 2012, the Company voluntarily disclosed these matters to the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). The Company intends to cooperate with any investigation by the DOJ and the SEC. The Company is presently unable to predict the duration, scope or result of its internal investigation, of any investigations by the DOJ or the SEC or whether either agency will commence any legal action. The DOJ and the SEC have a broad range of civil and criminal sanctions under the FCPA and other laws and regulations including, but not limited to, injunctive relief, disgorgement, fines, penalties, and modifications to business practices. The Company also could be subject to investigation and sanctions outside the United States. While the Company is currently unable to quantify the impact of any potential sanctions or remedial measures, it does not expect such actions will have a material adverse effect on the Company’s liquidity, results of operations or financial condition.”

Given the recent FCPA scrutiny of the beverage industry (Diageo, Beam Inc., and Central European Distribution Company) one might wonder whether Owens-Illinois’s recent disclosure is connected to those developments.

Barclays

This previous post detailed how Barclays PLC’s relationship with Qatar’s sovereign-wealth fund was under scrutiny by U.K. authorities.

The company recently disclosed (here) as follows.  “Subsequent to reporting the investigations of the Financial Services Authority and Serious Fraud Office in July and August 2012 respectively, Barclays has been informed by the US Department of Justice (DOJ) and US Securities and Exchange Commission (SEC) that they are undertaking an investigation into whether the Group’s relationships with third parties who assist Barclays to win or retain business are compliant with the United States Foreign Corrupt Practices Act. Barclays is investigating and fully co-operating with the DOJ and SEC.”

According to this article in the Wall Street Journal, the focus is “on Barclay’s use of external brokers who facilitated meetings between bank officials and powerful Middle Eastern families.”  The article further notes that “Barclays recently started conducting an internal investigation, with the help of an outside law firm, to figure out whether it or its Middle Eastern introducers might have run afoul” of the FCPA.

Schlumberger

The company recently disclosed as follows.

“In 2007, Schlumberger received an inquiry from the United States Department of Justice (“DOJ”) related to the DOJ’s investigation of whether certain freight forwarding and customs clearance services of Panalpina, Inc., and other companies provided to oil and oilfield service companies, including Schlumberger, violated the Foreign Corrupt Practices Act. In October 2012, Schlumberger was advised by the DOJ that it has closed its inquiry as it relates to Schlumberger.”

For more on the numerous Panalpina-related enforcement actions – what I’ve termed CustomsGate – see here.

The company’s recent disclosure would seem not to address the issues previously the focus of a front-page Wall Street Journal article in October 2010 concerning alleged conduct in Yemen.  (See here for the prior post).

Quotable

In this recent Reuters article, current SEC FCPA Unit Chief Kara Brockmeyer stated as follows.

“I would hate to think the companies view [FCPA] enforcement actions as the cost of doing business.  If we find that out, it will certainly increase the size of the penalty.”

One thing that is becoming increasingly clear in this new era of FCPA enforcement is that investors do appear to view FCPA scrutiny and enforcement actions as a cost of doing business and akin to a regulatory violation.

The Reuters article also stated that there has yet to be a repeat FCPA prosecution.  This is a false statement.  Companies that have resolved more than one FCPA enforcement action over time include: Tyco, ABB, Baker Hughes and General Electric.

Quotable

On his Corruption, Crime & Compliance site (here) Michael Volkov recently observed as follows.

“The FCPA Paparazzi has done a great disservice to the business community.  Call it a complete lack of credibility.  Legal marketing has become confused in this day and age – marketing has now been turned into the “Fear Factor,” meaning that lawyers need to scare potential clients into hiring them.  That is flat out wrong.   Each week, new client alerts, client warnings and other cries of impending disaster are transmitted through the Internet to businesses.  If I were a general counsel, I would have them on “auto delete.”  Talk about a waste of time and effort.”

What’s Up With That Investigation?

One of the many FCPA industry sweeps reportedly underway concerns Hollywood movie industry in China.  (See here for the prior post).  This recent post on the New York Times Media Decoder blog highlights the “powerful gatekeeper of China’s rapidly growing film world, the China Film Group chairman Han Sanping who was recently in the U.S. to receive a China Entertainment Visionary of the Year award, and asks what’s up with the investigation.

I Hear You Travel Alot

My frequent searches for FCPA content often turn up interesting content.  Such as this thread from top-law-schools.com which asks what type of attorneys get to travel the most?  One response was as follows.   “From what I hear, FCPA is the way to go for travel to other countries because you have lots of interviews of foreign employees.”

The FCPA is certainly the reason for the majority of stamps in my passport.

Counter-Points

Alexandra Wrage (President of Trace International) made some observations recently in her Corporate Counsel column (here) about FCPA enforcement in various Presidential administrations.  While interesting to think about, the actual stats have little substantive value.  Instances of FCPA scrutiny tend to last between 2-4 years (and thus straddle administrations) and various instances of FCPA scrutiny (for instance Pfizer) can last approximately 8 years.  Moreover, rather than “aggressively enforce the FCPA,” as the article notes, what the enforcement agencies more often than not actually do (as evidenced by statistics demonstrating which enforcement actions resulted from voluntary disclosures) is process corporate voluntary disclosures.

There’s An App for That

Law firm O’Melveny & Myers announced (here) the “launch of its FCPA app, the first multi-functional mobile application (app) created by a law firm.”  Richard Grime, partner and head of O’Melveny’s FCPA practice stated as follows.  “We understand the complexities our clients and colleagues face in achieving their business goals in the global marketplace, and thus, have created this mobile application as a fast, yet informative, way for them to remain current with the evolving statutes and provisions imposed by the FCPA and other anti-corruption laws.”

Weekend Reading

Sidley & Austin recently released its Anti-Corruption Quarterly (here).  Among other articles is one focused on the new “sheriff in town.”

The article states as follows.

“Investigating potential violations of the FCPA historically has been the purview of the SEC and the DOJ, but recently, Congress has entered the fray. Two House committees, the House Oversight and House Energy committees, recently instituted an independent FCPA investigation of Wal-Mart, after a New York Times article reported on an alleged massive bribery campaign at Wal-Mart’s Mexican affiliate. These House investigations mean that companies now have to consider the possibility of facing a congressional investigation—in addition to investigations by the SEC and the DOJ—when FCPA violations have occurred.”

The article further states as follows.

“Although congressional committees routinely investigate companies, the current congressional investigation into Wal-Mart is the first investigation in the FCPA context and it may signal the beginning of a trend: high-profile companies or companies that are drawn into political fights (often unwillingly) may find themselves the target of a congressional inquiry if their FCPA problems become public. Whatever effect the congressional investigation may have on Wal-Mart, the possibility of such an investigation is a factor that high-profile companies facing FCPA concerns should weigh.”

For more on Wal-Mart’s FCPA scrutiny, see my recent article “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Exposure” (here).

Miller Chevalier also recently released its FCPA Autumn Review – see here.

Morrison Foerster also recently released its End of Summer Round-Up – see here.

This recent Jones Day publication concerning upcoming FCPA Guidance contains the following paragraph that should be read by those who simply label companies that have resolved FCPA enforcement actions or are the subject of FCPA scrutiny as bad or corrupt companies.

“It is the job of a prosecutor to make charging decisions and to decide in the first instance what does and does not violate the law. As prosecutors and enforcement attorneys assess the facts to make charging decisions, they are compelled to view the world, therefore, in binary terms: black and white, right and wrong. As defense counsel, settlement discussions with our counterparts in the DOJ and SEC frequently hinge on which side of the line the conduct sits. Particularly for those of us who served as prosecutors, we acknowledge in these discussions the difficult mission of the enforcement officials to draw and defend lines. The world of business, however, frequently operates in territory that is somewhat grey: a world in which business persons strive to grow the company ethically in situations where the application of the existing rules are not entirely clear. For instance, in the current era of FCPA enforcement, international businesses struggle with their responsibilities to monitor and control the conduct of third parties with whom they do business: distributors and sub-distributors, joint venture partners, dealers, and resellers. Even for companies that are firmly dedicated to compliance with the FCPA, is not always clear when a third party amounts to an agent whose improper conduct might someday be ascribed to the company and its employees. Good and ethical companies struggle, every day, with the concept of defining an agent of the company as opposed to an independent customer who engages in an arm’s-length transaction to purchase the company’s products.”

*****
A good weekend to all.

Strange Things Happen In Threes – Another Challenge In A SEC FCPA Enforcement Action Filed

It’s been said that strange things happen in threes.

Until very recently, the last time the SEC was challenged in a Foreign Corrupt Practices Act enforcement action was 2002 in the Eric Mattson and James Harris enforcement action.  As noted in this previous post, the SEC lost.

After a 10 year period enforcing the FCPA against cooperating corporate and individual defendants, this past summer Mark Jackson and James Ruehlen’s challenged the SEC in an FCPA enforcement action.  (See here for the briefing, oral arguments are set for Halloween).

This post last week noted that former Maygar Telekom executives Elek Straub, Andras Balogh and Tamas Morvai plan on challenging the SEC’s enforcement action against them.  Briefing is to be completed in mid-December and oral arguments are scheduled for mid-January 2013.

Strange things happen in threes.

Last week, Chris Matthews (Wall Street Journal – Corruption Currents) reported here that former Siemens executive Herbert Steffen has filed a motion to dismiss the SEC’s charges against him.

As noted in this previous post, Steffen is among a group of former Siemens executives charged by the SEC (and DOJ) in connection with the Argentina conduct at issue in the widespread Siemens enforcement action from 2008.

In his motion to dismiss (here) Steffen moves to dismiss the SEC complaint for lack personal jurisdiction and for the SEC’s failure to file the complaint within the applicable five-year statute of limitations.

The motion states as follows.

“Mr. Steffen, 74 years of age, is a German citizen residing in Germany. He is trained as an engineer, and spent his entire career at Siemens Aktiengesellschaft (“Siemens”) and its subsidiaries with postings in Germany, Brazil, and Argentina. He was never employed in the United States, and never travelled to the United States on business for Siemens during the entire period alleged in the complaint. The complaint alleges he had managerial positions in Siemens’ Argentina business from 1983 through 1989 and again in 1991.   There are no allegations of any improprieties during the period he had such responsibilities. He retired from Siemens nearly ten years ago and has not been employed since.  The complaint alleges that between 2000 and 2003, when Mr. Steffen was Group President of Siemens Transportation Systems in Germany, he was recruited to assist in efforts to recover a contract that the Argentine government planned to terminate.  It further alleges that in that capacity he engaged in conduct that the SEC contends violated or aided and abetted violations of Sections 13(b)(2), 13(b)(5) and 30A of the Securities Exchange Act of 1934.  The last alleged act attributed to Mr. Steffen in the complaint is alleged to have occurred sometime in “the first half of 2003.”  The complaint does not allege that Mr. Steffen ever entered the United States. Nor does it allege that he initiated any contact with anyone in the United States. Although it alleges that he participated in “one or more telephone conversations with defendant Sharef” (another Siemens employee), it expressly alleges that Mr. Sharef “called him from the United States.”  Because the complaint fails to plead facts sufficient to establish personal jurisdiction over Mr. Steffen, and because the SEC’s claims are barred because they were not filed within the applicable five-year statute of limitations, we respectfully move to dismiss all the claims against Mr. Steffen pursuant to Fed R. Civ. P. 12.”

The statute of limitations portion of Steffen’s states, among other things, as follows.

“At the September 28, 2012 scheduling conference before this Court, the SEC expressed the view that the applicable statute of limitations was tolled indefinitely because Mr. Steffen is a foreign defendant who has not been in the United States and does not own property in the United States. The SEC’s rationale for this novel argument was language in a sixty-year-old statute that neither expressly mentions tolling the statute of limitations nor has been held by any court to support the interpretation offered by the SEC.  The interpretation advanced by the SEC is particularly nonsensical, given the relative ease with which service of process can be effected on foreign defendants residing abroad. Moreover, the proposed interpretation—which as a practical matter would extend indefinitely the statute of limitation as to those individuals with the least connection to the United States— disregards, with no indication from Congress, the strong judicial policy favoring statute of limitations. [… Because the SEC cannot overcome its lack of diligence in pursuing its claims within the five-year statute of limitations, its claims against Mr. Steffen should be dismissed.”

Steffen is represented by Skadden lawyers Erich Schwartz (here – former Assistant Director of the SEC Enforcement Division) and Amanda Grier (here).

As noted in Chris Matthew’s Corruption Currents post, “the SEC said in a court letter filed last Friday it had reached an agreement with Uriel Sharef, a former member of Siemens’ managing board, to settle the foreign bribery charges pending against him.”

On the same day the SEC enforcement action was brought in December 2011, the SEC announced settlement of the charges against Bernd Regendatz.  As to the other defendants charged by the SEC, the docket notes a default by Ulrich Bock and Stephan Singer and that Andrews Truppel was recently served.  The docket contains no information as to Carlos Sergi.

As noted in the December 2011 post, the DOJ also charged several former Siemens executives as well.  The docket does not contain any entries since December 2011.

Former Magyar Telekom Execs To Challenge SEC

In December 2011, the DOJ and SEC brought related FCPA enforcement actions against Magyar Telekom and Deutsche Telekom alleging various bribery schemes in Macedonia and Montenegro.  (See here for the prior post).  Total fines and penalties were approximately $95 million ($59.6 million against Magyar Telekom via a DOJ deferred prosecution agreement, $4.4 million against Deutsche Telekom via a DOJ non-prosecution agreement, and $31.2 million against Magyar Telekom via a settled SEC civil complaint).

As indicated in the prior post, the sole jurisdictional allegations in the enforcement action (other than the companies made filings with the SEC) were two e-mails that passed through, were stored on, and transmitted to servers located in the U.S.  The prior post also highlighted that the alleged improper conduct occurred in 2005 and 2006.

The Magyar Telekom enforcement action was a rare instance that also involved charges against individuals.  As noted in the prior post, the SEC, in addition to charging the company, also brought civil charges against former Magyar Telekom executives: Elek Straub (former Chairman and CEO of Magyar Telekom) and Andras Balogh and Tamas Morvai (two former senior executives in Magyar Telekom’s Strategy Department) based on the same alleged Macedonia and Montenegro bribery schemes.

The prior post provided the following summary of the individual charges.  In both schemes, the SEC alleged that the individuals authorized or caused the payments at issue with “knowledge, the firm belief, or under circumstances that made it substantially certain” that all or a portion of the money would be forwarded to foreign officials.  The complaint also alleged that the individuals caused the payments to be falsely recorded in Magyar Telekom’s books and records.  The complaint charged the defendants  with violating or aiding and abetting violations of the anti-bribery, books and records, and internal controls provisions of the FCPA; knowingly circumventing internal controls and falsifying books and records; and making false statements to the company’s auditor.

Litigation of jurisdictional issues (heck litigation of any issue) in corporate FCPA enforcement actions is nearly non-existent.  However, foreign nationals individually charged with FCPA offenses are more likely to contest aggressive jurisdictional theories.  Indeed, a notable development from 2011 was judicial rejection of the DOJ’s asserted jurisdiction in prosecution of a foreign national in the Africa Sting case.  (See here for the prior post regarding Africa Sting defendant Pankesh Patel).

Litigation of statute of limitations issues is also nearly non-existent in FCPA enforcement actions.  Dig into the details of most FCPA enforcement actions and one quickly discovers that the conduct at issue is old – in some cases very old. However, cooperation is the name of the game in corporate FCPA inquiries and asserting statute of limitations issues is not cooperating.  Thus, most companies the subject of FCPA scrutiny enter into tolling agreements with the enforcement agencies or otherwise waive statute of limitations defenses.  However, individuals charged with FCPA offenses tend to fight more including by asserting black letter legal defenses such as statute of limitations.

Which brings us back to the former Magyar Telekom executives.   As reported last week by Law360, lawyers for the defendants argued last week at an initial appearance in the U.S. District Court (S.D. of New York)  that the court lacks jurisdiction over the defendants.  William Sullivan (Pillsbury Winthrop Shaw Pittman –  here, counsel for Balogh) is quoted as follows concerning the jurisdictional issues.  “The allegations that an email may have been caught in a U.S. server without the knowledge of the alleged sender is not enough.”

The Law360 article also suggests that the defendants are likely to raise statute of limitation defenses.

Straub is represented by Saul Pilchen of Skadden Arps Slate Meagher & Flom LLP (see here).

Morvai is represented by Michael Koenig and Victoria Lane of Greenberg Traurig.

In an order issued last week, Judge Richard Sullivan set the following schedule for the defendants’ contemplated omnibus motion to dismiss.

  • Oct. 29, 2012 (Defendants to file their motion and accompanying brief)
  • Nov. 30, 2012 (SEC to file its opposition brief)
  • Dec. 14, 2012 (Defendants to file their reply brief)
  • Jan. 17, 2013 (Oral argument)

Given that the enforcement agencies have continued to push the envelope on jurisdictional and statute of limitations issues (coupled with the fact that the DOJ recently lost a jurisdictional challenge in the Africa Sting case), the judicial challenge by the former Magyar Telekom executives is a notable development.  It is also a needed development in that the expected challenge will facilitate judicial scrutiny of these issues

It will be a busy end of the year for the SEC’s FCPA unit.  As noted in this previous post (and links embedded therein), on October 31st oral arguments will take place in the S.D. of Texas on defendants’ motion to dismiss in the Jackson and Ruehlen SEC FCPA enforcement action.

Friday Roundup

In the classroom, survey says, a candid statement, on-point, an informative read, patience and a prediction.  It’s all here in the Friday roundup.

In The Classroom

I was pleased to learn that my recent article “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Exposure” (here) was required reading for the MBA students in Jeffrey Klink’s FCPA-related class at the University of Pittsburgh Joseph S. Katz Graduate School of Business. (See here for a recent profile of the class.)  Klink (a former AUSA and current CEO of Klink & Co., a global risk management firm – here) shared the following.

“During our class we discussed your recent article regarding the Wal Mart case at length.   Many students opined that it was likely that many of the payments were in fact facilitation payments and especially where permits would definitely be issued.  The majority of students, however, believed that probably many payments were not clerical or ministerial, noting that according to the NY Times article, payments caused zoning maps to be changed, and environmental permits were obtained likely without proper process.   Students believed that these kinds of payments were not grease or skid payments, but were in fact bribes designed to allow Wal Mart to open new stores without competition, thus gaining new business.  All but one of the 41 students (a bright law student held out) present believed that Wal Mart had successfully obtained new business by paying  bribes through the $24 million in payments to gestores.  We also discussed the significance of an organization’s compliance culture.   Wal Mart was viewed very negatively by the students, having been subject to successful discrimination suits regarding gender bias, its poor treatment of vendors, locking its own injured employees inside stores, and the facts of the Mexico bribery case, where, if the NY Times article is correct, it was clear that top officials buried facts, did not pursue an investigation, and promoted corrupt executives to high ranking positions.   As geography under the FCPA can also be destiny, I also noted that Mexico is rated #100 by TI, and it doesn’t appear that Wal Mart had a risk plan in place to address its growth in places where corruption and bribery are extremely common and not unexpected.  Many students believed that Wal Mart, like other large organizations, likely engaged in, and continues to engage in, cost – benefit thinking where executives conclude that the cost of bribery is not significant compared to the benefits that accrue to the organization through growth and profits.”

Staying on campus and referring to “THE” New York Times article (see here for the prior post) readers may enjoy this webcast of the recent Wal-Mart focused Milbank Tweed Forum at the NYU School of Law.  Moderated by Professor Kevin Davis (the author of recent FCPA scholarship – here and here), the panel included David Barstow, the investigative reporter at the New York Times who broke the Wal-Mart story.

Survey Says

Speaking of the significance of the FCPA, a recent boardroom survey conducted by BDO USA (an accounting and consulting firm) reveals as follows.  “One-third (33%) of directors cite corruption/bribery as the greatest fraud risk facing their company, compared to approximately one-fifth that identify either revenue recognition (20%) or earnings management (18%).  Two-thirds (68%) of directors indicate their companies conduct business in foreign locations or with foreign customers or suppliers. Of those conducting international business, a majority (57%) say they deal with foreign officials and almost one-third (32%) of those believe compliance risks related to bribery of government officials has increased over the past two years, compared to just four percent reporting a decrease.”

The survey, conducted in late August and early September 2012, examined the opinions of 72 corporate directors of public company boards, with revenues ranging from $250 million to $750 million, regarding financial reporting and corporate governance issues. For more, see this BDO release.

Candid Statement

Hank Walther (a former Assistant Chief in the DOJ’s FCPA unit and currently at Jones Day – see here), stated in this recent interview in the Metropolitan Corporate Counsel as follows.

“Most government attorneys realize that a company can take every reasonable step to prevent wrongdoing but ultimately is powerless if somebody really wants to break the law.”

Makes you wonder why the DOJ is steadfast in its opposition to an FCPA compliance defense.  But then again the current enforcement environment provides the DOJ maximum leverage.  However, for the reasons I articulate in “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (here), the DOJ should be in favor of a compliance defense.

On-Point

This previous post, “Testing Innocence,” noted that the longest individual FCPA sentences (Joel Esquenazi and Carlos Rodriguez) were issued in enforcement actions where the defendants exercised their constitutional rights to a jury trial.  The conduct Esquenazi and Rodriguez allegedly engaged in (and the jury found, although their appeals are pending) paled in comparison to some other FCPA individual prosecutions – such as the individual prosecutions in the Bonny Island Nigeria cases.  What did Esquenazi and Rodriguez do that warranted such a long sentence?  They tested their innocence.

The FCPA community once again saw the high cost of testing innocence this past spring and summer when the individual defendants in the so-called Carson enforcement action pleaded guilty on the eve of trial.  (See here, here, here).  The guilty pleas came after the trial court judge issued a pro-defendant jury instruction relating to knowledge of foreign official.  (See here).  On the brink of the DOJ being put to its ultimate burden of proof on “foreign official” and other elements as well, the DOJ offered plea agreements to substantially reduced charges and the defendants, likely mindful of the high costs of testing their innocence, did what most rationale, risk averse actors in their position would do – agreed to plead guilty.

The Wall Street Journal ran a feature story this week “Federal Guilty Pleas Soar As Bargains Trump Trial” (here) which documented the trend of a “growing number of federal defendants who [plead guilty] often to avoid the lengthy prison sentences that can come with losing at trial.”  Among other things, the article noted that “federal [sentencing] guidelines not only toughened punishments but also formalized a system to reward defendants who plead guilty by reducing sentences if they accept responsibility or cooperate with prosecutors, among other things.  As part of plea deals, federal prosecutors often drop additional charges that could add years, or decades, to a sentence.  Going to trial brings none of those benefits for the accused.”

The WSJ article included research (here) co-authored by my Southern Illinois University School of Law colleague Lucian Dervan (here) which found that 55% of students who were innocent in a control group study pleaded “guilty.”  The study showed “a strong compulsion to have the matter resolved even if it meant confessing to something that they really didn’t do.”

Informative Read

Breon Peace and Ryan Becker (Cleary Gottlieb Steen & Hamilton – here and here) recent authored this informative article in Bloomberg Law that touches upon just about everything you would want to know about the FCPA and statute of limitations.  The article, written in the context of Wal-Mart’s potential FCPA scrutiny discusses black letter law and judicial decisions, but rightly notes in connection with Wal-Mart as follows.

“Given the facts as reported by the New York Times, Wal-Mart, and individuals involved in the bribery scheme, would have a plausible statute of limitations defense to any FCPA actions—even a potential conspiracy charge. As a practical matter, companies, especially publicly held companies like Wal-Mart, typically make a strategic decision to fully cooperate with a DOJ investigation. Despite the potential success of a statute of limitations defense, a company will often make the judgment that the negative press of a protracted investigation and the uncertainty of the outcome at trial make cooperation the more prudent business judgment. The company’s hope is that it will be given credit for the cooperation and it will achieve a better outcome than if it went to trial (i.e., avoid charges, a deferred prosecution agreement, or a reduced fine).”

Patience

Before Wal-Mart’s potential FCPA scrutiny dominated the headlines, there was News Corp.  In July 2011, world-wide media attention focused on the company, not just the phone hacking aspects of the scandal, but the potential FCPA implications as well.  See here for the prior post.  In the prior Q&A style post, I addressed the issue of how long the FCPA gray cloud will likely hang over News Corp. and said that it would likely be between 2-4 years if the case followed the typical pattern.  In February of this year, I noted (here) that the FCPA aspect of News Corp.’s scrutiny was following a typical path.

Eliot Spitzer (former New York Governor, former New York Attorney General and current TV personality) apparently is not aware of the typical path.  In this recent Slate article titled “Why Hasn’t Eric Holder Charged News Corp. With Foreign Corrupt Practices?” Spitzer writes as follows.

“[W]here is the inept U.S. Department of Justice in all this? The DOJ has brought many irrelevant and tiny cases against companies for violating the Foreign Corrupt Practices Act, which makes it illegal to bribe either individuals or government officials, even in a company’s overseas operations. The DOJ loves to use the statute to show just how tough it is. Yet now they have the most important case sitting right there in front of them. It’s easy. Even a rookie could field this one. But what are they doing? It’s not clear. If they fail to make this case against News Corp., Eric Holder is a failure as attorney general.”

Patience.  And while Sptizer is waiting, he may want to brush up on the FCPA – not sure what he means when he says that the FCPA “makes it illegal to bribe either individuals or government officials.”

Prediction

No, I am not going to predict that the DOJ’s FCPA guidance will be released next week.  OK, maybe I will, see here from Compliance Week.

Rather my prediction concerns FCPA risk in India.

The Indian Commerce Ministry recently eased (see here) foreign investment restrictions giving multi-brand retailers greater access to the growing Indian market.  Per the new policy, it will be the “prerogative of the states to allow a multi brand store” and “local and state-level regulations which govern shops and establishment are the prerogative of the respective state governments.”

I predict that India’s new FDI policy will be an FCPA compliance headache for relevant companies seeking to expand in India as the new policy facilitates points of contact between a company and state and local officials in regards to license, permit, and land issues.  In “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (see here), I highlight how companies subject to the FCPA are often funneled into an arbitrary world of low-paying civil servants who frequently supplement their meager salaries through payments condoned in the host country.  I argue that such barriers create the conditions in which harassment bribes flourish and I predict India’s new FDI policy will do just that.

*****

A good weekend to all.

A Wide-Ranging Interview

The FCPA Report is an online publication that contains articles on a variety of FCPA topics to assist lawyers in relevant practice areas, in-house counsel,  and risk and compliance managers stay ahead of the curve.  It launched this June and features thematic sourced and researched by primarily lawyers, as well as contributed articles by experts in the field, interviews with leading figures, and reports on important developments. It is available to subscribers and trial subscribers at www.fcpareport.com.

I was pleased to do a telephone interview with the FCPA Report in mid-August.  Today’s post sends you to the wide-ranging Q&A previously published, in two parts, in the FCPA Report and linked to here with permission.

Topics covered in the Q&A include the following:  statute of limitations, judicial scrutiny, the duration of FCPA scrutiny, voluntary disclosure, Wal-Mart’s FCPA scrutiny, facilitation payments, obtain or retain business, foreign official, corporate fines, victims issues, a private right of action, FCPA Inc. and the revolving door, the three buckets of FCPA financial exposure and Foreign Corrupt Practices Act reform.

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