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Issues To Consider From The Teva Enforcement Action

Issues

This previous post went in-depth into the $519 million Foreign Corrupt Practices Act enforcement action against Teva Pharmaecutical (the first-ever FCPA enforcement action against an Israeli company, by far the largest-ever FCPA enforcement action against a pharmaceutical company, and 4th largest FCPA settlement of all-time).

Set forth below are additional issues to consider.

Timeline

As highlighted in this prior post, Teva’s FCPA scrutiny began in July 2012. Thus from start to finish the company’s FCPA scrutiny lasted approximately 4.5 years. If the DOJ and SEC want the public to view its FCPA enforcement program as legitimate, credible, and effective, it must resolve instances of FCPA scrutiny much faster.

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In Depth Into The $519 Million Teva FCPA Enforcement Action

Copaxone

Records continue to be set as 2016 Foreign Corrupt Practices Act enforcement enters its final days.

Yesterday, the DOJ and SEC announced (here and here) a $519 million enforcement action against Teva Pharmaceutical Industries Ltd. (an Israeli company with American Depository Receipts traded in the U.S.) and a related entity. The settlement amount included a $283 million DOJ component and a related $236 million SEC component.

The action is believed to be the first-ever FCPA enforcement action against an Israeli company and by far the largest-ever FCPA enforcement action against a pharmaceutical company. (The $70 million 2011 enforcement action against Johnson & Johnson is second on that list). You better go ahead and update your top ten list again because the Teva enforcement action is the 4th largest of all-time. (Odebrecht / Braskem held that spot for less than 24 hours and is now bumped to 5th largest FCPA settlement amount of all-time).

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Friday Roundup

Roundup

Guilty plea, scrutiny alerts and updates, SEC Director of Enforcement to leave, sound analysis of the JPMorgan enforcement action, and for the reading stack.

It’s all here in the Friday roundup.

Mebiame Guilty Plea

As highlighted in this previous post, in August 2016 the DOJ unsealed a criminal complaint charging Samuel Mebiame, a Gabonese national connected to Och-Ziff, with conspiracy to violate the FCPA’s anti-bribery provisions. In pertinent part, the complaint alleged that Mebiame, on behalf of Och-Ziff and related entities, routinely paid bribes to foreign government officials in at least each Niger, Guinea and Chad.”

Today, the DOJ announced that Mebiame pleaded guilty.

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Friday Roundup

Roundup

Scrutiny alerts, noisy exit, double standard, quotable and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Alerts

FIFA-Related

As predicted in this May post about the FIFA-related enforcement action, while the enforcement action was not an FCPA enforcement action it was likely to lead to scrutiny of various companies concerning books and records and internal controls issues.

Sure enough.

Various reports (see here and here for instance) suggest that the SEC is :examining the behavior of several companies with links to FIFA or other soccer bodies caught up in a major corruption scandal to see if there were possible violations of U.S. federal bribery laws, a person with knowledge of the matter said.”  According to the article:

“The civil probe, which is in its early stages and may not lead to any findings of wrongdoing or enforcement action, is being conducted by the U.S. Securities and Exchange Commission.” […] The SEC probe centers on publicly-traded companies who have been involved in soccer contracts, such as athletic shoes and sportswear company Nike Inc, said the source, who asked not to be named because of the non-public nature of the investigation. The exact scope of the probe and the names of other companies being scrutinized could not be learned. An SEC spokeswoman declined to comment.”

GSK

Reuters reports:

“Drugmaker GlaxoSmithKline, which was fined a record 3 billion yuan ($483 million) for corruption in China last year and is examining possible staff misconduct elsewhere, faces new allegations of bribery in Romania. GSK confirmed it was looking into the latest claims of improper payments set out in a whistleblower’s email sent to its top management on Monday. A copy of the email was seen by Reuters. The company is already probing alleged bribery in Poland, the United Arab Emirates, Lebanon, Jordan, Syria and Iraq. The latest allegations say GSK paid Romanian doctors hundreds, and in one cases thousands, of euros between 2009 and 2012 for prescribing its medicines, including prostate treatments Avodart and Duodart and Parkinson’s disease drug Requip. According to the email, the doctors were notionally paid for speaking engagements, but in three out of six cases, including the most highly paid one, they did not give any speech. The other three medics gave only one speech each, despite receiving multiple payments. GSK also provided doctors with many international trips and made payments to them under the guise of participation in advisory boards, the email said. […] The sender of the Romania email said its contents would be passed on to the U.S. Department of Justice and the Securities and Exchange Commission (SEC), which are investigating GSK for possible breaches of the Foreign Corrupt Practices Act.”

Noisy Exit

My article “Foreign Corrupt Practices Act Ripples” chronicles, among other things, how the FCPA is increasingly being used offensively by litigants.  One such example is a “noisy exit” a term coined by FCPA Professor in 2010 to describe an employee alleging unfair employment practices in connection with some aspect of FCPA scrutiny or enforcement.

The latest example is this civil complaint recently filed by Keisha Hall (a certified public accountant, certified fraud examiner and former director of finance for the Latin America region of Teva Pharmaceutical USA, INC.’s (“Teva”).

According to the complaint,  Teva allegedly fired Hall after she “began cooperating in a Securities and Exchange Commission/Department of Justice investigation into potential violations of the Foreign Corrupt Practices Act (“FCPA”) and the Sarbanes-Oxley Act (“SOX”), stemming from, among other things, allegations of bribery of government officials in the region.”

As highlighted in this prior post, Teva has been under FCPA scrutiny since July 2012.

Double Standard

A few weeks after an official is sworn in to a high-ranking government position, the official asserts herself into a pending government investigation against a corporation and brokers a settlement (an unusual task given the official’s position).

From that point forward, the corporation significantly increases its contributions to a charitable organization set up by the official’s family and pays the official’s spouse $1.5 million to participate in a series of question and answer sessions with the corporation’s CEO.

A prudent FCPA practitioner would immediately see numerous red flags and recommend an internal investigation.

But wait, the official is not a foreign official, it’s a U.S. official and once again it is Hillary Clinton.  (See here for the Wall Street Journal’s recent article “Clinton’s Complicated UBS Ties.”)

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On the other side of the Presidential ticket is Donald Trump.  Regardless of what you think of “The Donald” he is blunt.  In this recent Wall Street Journal article, Trump explains why he previously donated to Hillary Clinton’s 2008 presidential campaign and other political campaigns.

“As a businessman, [Trump] needed to curry favor with an influential senator from his home state. In turn, he said, [Clinton] had incentive to court him as a campaign donor. “As a businessman and a very substantial donor to very important people, when you give, they do whatever the hell you want them to do,” Mr. Trump said. “As a businessman, I need that.”

Quotable

In this recent Law360 article “FCPA Challenges Make for Spotty Trial Record for DOJ,” Michael Levy (Paul Hastings) states:

“We’ve seen several trials in which the judges have been skeptical, if not outwardly hostile, to some of the government’s more aggressive interpretations of the FCPA. While those trials may have fallen apart for other reasons, that skepticism still played, I believe, a substantial role.”

“Without the development of the law through judicial decisions, it’s very unclear what judges believe the FCPA means compared to what the DOJ think the FCPA means.”

(See here for Levy’s FCPA Professor guest post titled “Prosecutorial Common Law”).

In the same article, George Terwilliger (McGuireWoods and a former high-ranking DOJ official) states:

“It is fundamental to due process that a person of ordinary intelligence should be able to read a law and understand what is required or prohibited, as the case may be. Many people of great intelligence on both sides of an FCPA question debate just such issues.”

“That does not produce the fair warning that those subject to the law deserve to have.”

For the Reading Stack

An informative article here by Jon N. Eisenberg (K&L Gates) titled “Are Public Companies Required to Disclose Government Investigations.”  While not FCPA-specific, the article is FCPA relevant and begins as follows.

“For many public companies, the first issue they have to confront after they receive a government subpoena or Civil Investigative Demand (“CID”) is whether to disclose publicly that they are under investigation. Curiously, the standards for disclosure of investigations are more muddled than one would expect. As a result, disclosure practices vary—investigations are sometimes disclosed upon receipt of a subpoena or CID, sometimes when the staff advises a company that it has tentatively decided to recommend an enforcement action, sometimes not until the end of the process, and sometimes at other intermediate stages along the way. In many cases, differences in the timing of disclosure may reflect different approaches to disclosure. We discuss below the standards that govern the disclosure decision and practical considerations. We then provide five representative examples of language that companies used when they disclosed investigations at an early stage.”

Friday Roundup

Roundup2

Scrutiny alert and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Alert

In August 2012, the Israel-based Teva Pharmaceuticals first disclosed its FCPA scrutiny and in its most recent annual report the company disclosed as follows.

“For several years, we have been conducting a voluntary worldwide investigation into business practices that may have implications under the FCPA. We have engaged outside counsel to assist in the investigation, which was prompted by the receipt, beginning in 2012, of subpoenas and informal document requests from the SEC and the Department of Justice (“DOJ”) to produce documents with respect to compliance with the FCPA in certain countries. We have provided, and will continue to provide, documents and other information to the SEC and the DOJ, and are cooperating with these agencies in their investigations of these matters. In the course of our investigation, which is continuing, we have identified certain business practices and transactions in Russia, certain Eastern European countries, certain Latin American countries and other countries in which we conduct business, which likely constitute violations of the FCPA and/or local law. In connection with our investigation, we have also become aware that affiliates in certain countries under investigation provided to local authorities inaccurate or altered information relating to marketing or promotional practices. We have brought and continue to bring these issues to the attention of the SEC and the DOJ. Our internal investigation is not complete and additional issues or facts could become known to management as the investigation continues, which may expand the scope or severity of the potential violations and/or extend to additional jurisdictions. Our investigation is expected to continue through the end of 2015, and may continue beyond that date.”

Reading Stack

From Shearman & Sterling attorneys in the New York Law Journal “A Bribe Is a Bribe: FCPA’s Influence on International Arbitration.”

“Although bribery investigations conducted under the auspices of the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) may appear, at first glance, detached from the world of international arbitration, BSG Resources v. Guinea highlights an issue that practitioners should understand when advising their clients on the potential repercussions of FCPA liability. While practitioners are generally aware of the litigation risks associated with FCPA investigations in the U.S. courts, they would also be well advised in considering the implications that FCPA liability may have on their clients’ recourse to foreign investment protections and bilateral investment treaties, and related international arbitration.”

For additional information on this topic, see this prior guest post.

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The attorneys who represented Mark Jackson in SEC. v. Jackson (the SEC’s failed case against Noble executives in connection with Nigerian permits – see herehere, and here for prior posts) ask whether the SEC has written the facilitating payments exception out of the FCPA?  The article states:

“Last summer, a lawsuit brought by the Securities and Exchange Commission (SEC) alleging Foreign Corrupt Practices Act (FCPA) violations against two individuals related to Noble Corporation, a global oil and gas drilling services company, nearly went to trial in federal court in Texas. SEC v. Jackson and Ruehlen, No. 12-cv-563 (S.D. Tex.). […] As one of the only civil FCPA cases to proceed to that stage of litigation, the case provided unique insights into the SEC’s interpretation of key provisions of the FCPA. The case ultimately settled on very favorable terms for the individuals, but the SEC’s position on the facilitating payments exception to the FCPA was a notable departure from its own stated guidance and may herald a renewed attempt by the SEC to further narrow the exception to the point of irrelevance.”

[…]

“Due to the settlement [in the case], the court never had the opportunity to rule on the fate of the FCPA’s facilitating-payments exception under the SEC’s newfound interpretation. But the SEC’s position on this issue signals a shift in policy toward the practical elimination of the exception. If the SEC continues down the road established in this case, it will be interesting to examine whether courts accept the SEC’s position eliminating the exception. However, since most FCPA cases are not litigated, the SEC may seek to push its novel interpretation into law, without approval by the courts, by including it in settlement agreements going forward. Counsel should be aware of this effort and, where possible and appropriate, resist the SEC’s efforts to rewrite the law.”

My own two cents on the issue is consistent with other observations, and that is yes, the enforcement agencies have largely read facilitating payments out of the FCPA, along with the corrupt intent element in many cases.

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Much has been written about the recently leaked records from HSBC, including this piece regarding Jeffrey Tesler’s role in the Bonny Island, Nigeria bribery cases (4 out of 10 cases in the top ten in terms of FCPA settlements).  According to the article:

“Leaked records from HSBC, a huge global bank based in London, reveal new details about the bank’s role as a conduit for the bribes — and new details about how Tesler operated. The files, obtained by the French newspaper Le Monde and the International Consortium of Investigative Journalists, show ties between Tesler and high-ranking Nigerians not previously named publicly in connection with the scandal, raising the possibility of renewed questions about Nigeria’s handling of the affair.”

[…]

The files obtained by Le Monde and ICIJ show that nine people, including members of the Tesler family and Nigerian nationals, held a variety of roles with accounts  at HSBC Private Bank (Suisse) between 1990 and 2003 — months before the completion of the gas plant. Nine of the 12 accounts instructed HSBC to keep all correspondence under lock and key in a bank safe.

Despite Tesler being under investigation since 2003, HSBC continued to offer advice, services and cash withdrawals to Tesler and his family, whose accounts with the bank totaled tens of millions of dollars at one point in 2006/2007. HSBC advised the family even though its individual files for Tesler and those close to him include references to “criminal cases” and “the Tesler affair.”

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A good weekend to all.

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