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Vantage Drilling Announces Closure Of DOJ Investigation, Just Don’t Call It A “Declination”

Vantage

I hope the usual suspects don’t muddy up the conversation again by calling this one a “declination.” (See here for the recent post).

As highlighted in this August 2015 post, Houston-based Vantage Drilling disclosed:

“In July 2015, we became aware of media reports that our agent utilized in the contracting of the Titanium Explorer drillship has entered into a plea arrangement with the Brazilian authorities in connection with the agent’s role in obtaining bribes on behalf of former Petrobras executives.  We have since confirmed that our agent, who has represented multiple international companies in their contracts with Petrobras, has entered into such discussions and provided evidence to the Brazilian authorities of an alleged bribery scheme between the former Petrobras executives and a former director of Vantage.

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Friday Roundup

Roundup

Scrutiny alert, a potential increase FCPA statutory penalty amounts, Second Circuit appeal begins, SEC enforcement chief on whistleblowers, marketing the black hole, of note, and a ripple. It’s all here in the Friday roundup.

Scrutiny Update

VimpelCom was not the only company involved in the Uzbek telecommunications bribery scheme. As highlighted in this prior post, Swedish telecom company (a company with ADRs registered with the SEC) and Russia-based Mobile TeleSystems PJSC (a company with shares traded on the New York Stock Exchange) have also been scrutiny.

Recently, Telia issued this release:

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Friday Roundup

Roundup

Assistant Attorney General Leslie Caldwell on the DOJ’s FCPA Pilot Program, scrutiny alerts and updates, quotable and for the reading stack. It’s all here in the Friday roundup.

Caldwell on the FCPA Pilot Program

This article contains a recent Q&A with Assistant Attorney General Leslie Caldwell about the DOJ’s FCPA Pilot Program.

After reading the below excerpts, you might also want to read the article “Grading the DOJ’s FCPA Pilot Program.”

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Friday Roundup

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Checking in on Wal-Mart’s professional fees and expenses, still pouting, scrutiny alerts and updates, and for the reading stack.  It’s all here in the Friday roundup.

Wal-Mart’s Professional Fees and Expenses

In its recent 3Q FY2016 earnings call Wal-Mart stated:

“FCPA and compliance related costs were approximately $30 million, comprised of $22 million for ongoing inquiries and investigations, and $8 million for our global compliance program and organizational enhancements.”

Doing the math, Wal-Mart’s 3Q FCPA and compliance-related costs is approximately $470,000 per working day.

Over the past approximate four years, I have tracked Wal-Mart’s quarterly disclosed pre-enforcement action professional fees and expenses. While some pundits have ridiculed me for doing so, such figures are notable because, as has been noted in prior posts and in my article “Foreign Corrupt Practices Act Ripples,” settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.  Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.

While $470,000 per working day remains eye-popping, Wal-Mart’s recent figure suggests that the company’s pre-enforcement action professional fees and expenses have crested as the figures for the past eight quarters have been approximately $470,000, $516,000, $563,000, $640,000, $662,000, $855,000, $1.1 million and $1.3 million per working day.

In the aggregate, Wal-Mart’s disclosed pre-enforcement professional fees and expenses are as follows.

FY 2013 = $157 million.

FY 2014 = $282 million.

FY 2015  = $173 million.

FY 2016 = $93 million (through the first three quarters).

Still Pouting 

This prior post discussed why SNC-Lavalin should be grateful about various aspects of Canada’s legal system (compared to the U.S.) and not pout. Namely, that Canada does not offer deferred prosecution agreements and enforcement authorities must actually prove cases to prevail.

As noted here, with a new government in Ottawa, SNC-Lavalin’s new CEO continues the pout.

“SNC-Lavalin Group Inc.’s CEO wants the new federal government to allow companies to settle corporate corruption cases — as what happens in the United States and United Kingdom — so that Canadian firms can remain competitive. In his first speech since taking control of Canada’s largest engineering company last month, Neil Bruce said federal corruption charges laid against a few of SNC-Lavalin’s legal entities unfairly point the finger at 40,000 employees who did nothing wrong. Instead, Canada should allow corporate settlements outside the court system so that SNC-Lavalin and other Canadian businesses are not at a disadvantage when competing against rival firms in other G7 countries, Bruce said.

[…]

The company has said it will plead not guilty to the charges but is willing to pay a fine for the alleged transgressions of former employees.”

Scrutiny Alerts and Updates

Affinia Group

As noted in this May 2015 post, Affinia Group (a North Carolina based company involved in design, manufacture, distribution and marketing of industrial grade products and services, including extensive offerings of aftermarket parts for automotive and heavy-duty vehicles) has been under FCPA scrutiny and the company disclosed:

“As previously disclosed, the Company conducted a review of certain allegations arising in connection with business operations involving its subsidiaries in Poland and Ukraine. The allegations raised issues involving potential improper payments in connection with governmental approvals, permits, or other regulatory areas and possible conflicts of interest. The Company’s review was supervised by the Audit Committee of Affinia’s Board of Directors and conducted with the assistance of outside professionals. Affinia voluntarily self-reported on these matters to the U.S. Department of Justice and the U.S. Securities and Exchange Commission and cooperated fully with the U.S. government.  The U.S. Department of Justice has advised that it has decided to decline to prosecute the Company in this matter.”

Several companies have been under scrutiny based on alleged improper relationships with Petrobras.  Three such companies: Ensco, Transocean, and Vantage Group recently  made disclosures.

Ensco

The company recently disclosed:

“Pride International, Inc. (“Pride”), a company we acquired in 2011, commenced drilling operations in Brazil during 2001 and, in 2008, entered into a drilling contract with Petrobras for DS-5, a rig Pride had ordered from a shipyard in South Korea.

Beginning in 2006, Pride conducted periodic compliance reviews of its business with Petrobras, and, after the acquisition, Ensco conducted similar compliance reviews, the most recent of which commenced in early 2015 after media reports were released regarding ongoing investigations of various kickback and bribery schemes in Brazil involving Petrobras.

While conducting our compliance review, we became aware of an internal audit report by Petrobras alleging irregularities in relation to DS-5 – specifically, that Petrobras overpaid under the drilling contract. We believe this allegation is inaccurate, as publicly available data show that the contract’s compensation terms were in line with other contracts signed by Petrobras and other customers with our competitors during the same timeframe (late 2007 and early 2008). We provided this information to Petrobras in June 2015. We continue to operate DS-5 under its existing contract. In addition, all our other rigs contracted to Petrobras – ENSCO 6001, 6002, 6003 and 6004 – continue to work under their contracts.

Upon learning of the Petrobras internal audit report, our Audit Committee appointed independent counsel to lead an investigation into the alleged irregularities. Subsequently, the internal audit report and the alleged irregularities were referenced in Brazilian court documents connected to the prosecution of former Petrobras directors and employees as well as certain other third parties, including a former marketing consultant who provided services to Pride in connection with DS-5. The former marketing consultant entered into a plea agreement with the Brazil authorities. This plea agreement was referenced in a Brazilian court proceeding relating to a project for a competitor having no connection to us. This court proceeding document states that another court action would be made public in due course with respect to DS-5; to date no further proceedings relating to DS-5 have been released.

Independent counsel, under the direction of our Audit Committee, has substantially completed the investigation of these allegations by reviewing and analyzing available documents and correspondence and interviewing current and former employees involved in the contracting of DS-5 as well as the former marketing consultant.

To date, our Audit Committee has found no evidence that Pride or Ensco or any of their current or former employees were aware of or involved in any wrongdoing, and our Audit Committee has found no evidence linking Ensco or Pride to any illegal acts committed by our former marketing consultant. Although the investigation is substantially complete, we cannot predict whether any new or additional allegations will be made and what impact those allegations will have on the timing or conclusions of the investigation. Our Audit Committee will examine any new or additional allegations and the facts and circumstances surrounding them. To date, we have not been contacted by Brazil authorities, and no authority has alleged wrongdoing by Pride or Ensco or any of their current or former employees. In June and July 2015, we voluntarily contacted the SEC and the U.S. Department of Justice (“DOJ”), respectively, to advise them of this matter and our Audit Committee’s independent investigation, and we provided them an update on the investigation in September 2015. We cannot predict whether any governmental authority will seek to investigate this matter, or if a proceeding were opened, the scope or ultimate outcome of any such investigation. If the SEC or DOJ determines that violations of the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”) have occurred, or if any governmental authority determines that we have violated applicable anti-bribery laws, they could seek civil and criminal sanctions, including monetary penalties, against us, as well as changes to our business practices and compliance programs, any of which could have a material adverse effect on our business and financial condition.”

As highlighted in this previous post, in 2010 Pride International resolved a $56 million FCPA enforcement action based on alleged conduct in Nigeria, India, Mexico, Venezuela and other countries.

Transocean

The company recently disclosed:

“We are currently investigating allegations made by a former Petrobras employee relating to the award of a drilling services contract to us. These allegations were made public through an investigation being conducted by Brazilian authorities in response to allegations of corrupt practices involving Petrobras business. To date, we have not identified any wrongdoing by any of our employees or agents in connection with our business in Brazil. We will continue to investigate these types of allegations and, if contacted, will cooperate with governmental authorities. Through the process of monitoring and proactive investigation, we strive to ensure no violation of our policies, code of integrity or law has, or will, occur; however, there can be no assurance as to the outcome of these matters.”

As highlighted in this previous post, in 2010 Transocean resolved a $20.7 million FCPA enforcement action based on alleged conduct in Nigeria.

Vantage Drilling

The company recently disclosed:

“In July 2015, we became aware of media reports that the Brazilian agent that we used in the contracting of the Titanium Explorer drillship, Mr. Padilha, had entered into a plea arrangement with the Brazilian authorities in connection with his role in obtaining bribes for former Petrobras executives.  Mr. Padilha, who simultaneously has represented several international companies in their contracts with Petrobras, provided evidence to the Brazilian prosecutors of an alleged bribery scheme between former Petrobras executives and Mr. Su, a former member of our Board of Directors and a significant shareholder.  Mr. Su was the sole owner of the company that owned the Titanium Explorer at the time the alleged bribe was paid.  At the same time we learned of Mr. Padilha’s plea agreement, we voluntarily contacted the SEC and the DOJ to advise them of these recent developments. We subsequently terminated his advisory contract with us.  Our internal and independent investigations, which are still ongoing, to date have found no evidence of wrongdoing by our employees or participation in any manner with the inappropriate acts alleged to have been conducted by Mr. Padilha.

We cannot predict whether any governmental authority will seek to investigate this matter, or if a proceeding were opened, the scope or ultimate outcome of any such investigation. If the SEC or DOJ determines that we have violated the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”), or if any governmental authority determines that we have violated applicable anti-bribery laws, they could seek civil and criminal sanctions, including monetary penalties, against us, as well as changes to our business practices and compliance programs, any of which could have a material adverse effect on our business and financial condition.”

Reading Stack

“The (Unintended) Consequences of the Yates Memo” here from Kurt Wolfe (Allen & Overy).

“The Yates Memo’s Chilling Effect on FCPA Self-Disclosure” here from Alison Tanchyk and Melissa Coates (Morgan, Lewis & Bockius). “Ironically, the unintended consequence [of the Yates Memo] may be fewer companies opting to self-disclose FCPA concerns, leading to fewer individual corruption prosecutions.”

*****

A good weekend to all.

Friday Roundup

Roundup2

Nominate, scrutiny alerts and updates, and is it asking too much for the enforcement agencies to get the law right. It’s all here in the Friday roundup.

Nominate

As highlighted here, last month marked the six year anniversary of FCPA Professor. If FCPA Professor adds value to your practice or business or otherwise enlightens your day and causes you to contemplate the issues in a more sophisticated way, please consider nominating FCPA Professor for the ABA’s Top Legal Blog contest.

Scrutiny Alerts and Updates

Olympus 

As highlighted in this prior post, Japan-based Olympus has been under FCPA scrutiny since at least August 2012 in connection with alleged relationships with physicians in Brazil.  According to this company document the company recently recorded ¥2.4 billion (approximately $19 million) “based on progress in discussions with U.S. DOJ with regard to Foreign Corrupt Practices Act.”

This “Notice of Recognition of Extraordinary Loss Due to the Investigation by the U.S. Department of Justice Against Subsidiaries Relating to the Foreign Corrupt Practices Act” states:

“Olympus Corporation hereby announces that Olympus Latin America, Inc. (“OLA”), an indirect U.S. subsidiary of ours, and Olympus Optical do Brasil, Ltda. (“OBL”), a Brazilian subsidiary of OLA, have been under investigation by the U.S. Department of Justice (the “DOJ”) relating to the Foreign Corrupt Practices Act concerning their medical business, and that we have recognized an extraordinary loss in connection with such investigation for the first quarter of the fiscal year ending March 2016.

Background of this matter. In October 2011, Olympus Corporation of the Americas (“OCA”), a U.S. subsidiary of ours and the parent company of OLA, self-reported to the DOJ potential issues concerning OLA’s and OBL’s medical businesses in 2011 or earlier. OCA is currently continuing discussions with the DOJ towards a resolution, but in view of the progress at the present time, we have recorded an extraordinary loss of approximately 2,421 million yen as a provision.

Future outlook.  In connection with this matter, we have recognized an extraordinary loss of approximately 2,421 million yen for the first quarter of the fiscal year ending March 2016, the results of which we are announcing today. However, there is no change to the consolidated earnings forecast due to this matter. We will promptly disclose developments concerning this matter.”

Orthofix International

As noted in this previous post, in July 2012 Orthofix International resolved a DOJ/SEC FCPA enforcement action concerning alleged conduct by a Mexican subsidiary.  In resolving that action, the company agreed to a three year deferred prosecution agreement.  During the term of the DPA, Orthofix disclosed that it was “investigating allegations involving potential improper payments with respect to our subsidiary in Brazil.”

Recently, the DOJ and Orthofix filed a Joint Status Report with the court stating:

“The DPA was scheduled to expire on July 17, 2015. The Department and Orthofix agreed on June 15, 2015, however, to extend the Term of the DPA for an additional two months in order to give the Department additional time to (1) evaluate Orthofix’s compliance with the internal controls and compliance undertakings in the DPA and (2) further investigate potentially improper conduct the company disclosed during the term of the DPA. The Department and Orthofix agree that this two-month extension extends all of the terms of the DPA and does not waive, or in any way prejudice, any of the Department’s rights under the DPA.

The DPA’s expiration date has thus been extended to September 17, 2015. The Department intends to complete its evaluation and further investigation in August 2015, and will notify the Court and Orthofix of its proposed course of action shortly thereafter.”

Och-Ziff Capital Management

The company has been under FCPA scrutiny since 2011 concerning various activities in Africa.  Recently the Wall Street Journal went in-depth in this article titled “U.S. Probes Och-Ziff’s Mugabe Tie.”  According to the article:

“U.S. authorities are investigating whether Och-Ziff Capital Management Group LLC knew that part of a $150 million investment in a small African miner would wind up in the hands of Zimbabwe President Robert Mugabe’s government, according to people familiar with the probe. Och-Ziff last year disclosed that a broader Justice Department and Securities and Exchange Commission investigation is examining the $47 billion New York hedge fund’s business in Africa under the Foreign Corrupt Practices Act. The act bars firms doing business in the U.S. from giving money or items of value to foreign officials for business, either directly or through intermediaries. The publicly traded hedge-fund firm is in talks to settle the probe into its ties to a network of investors and deal makers that it worked with on business from Libya to South Africa, according to people familiar with the investigation. Och-Ziff and others have poured hundreds of millions of dollars into mining operations in the past decade as commodities prices soared. In Zimbabwe, U.S. authorities are examining Och-Ziff’s connection to a $100 million payment to Mr. Mugabe’s government in early 2008, the people said. The investigation into Och-Ziff’s ties to the payment, which was made through the African mining company it invested in, Central African Mining & Exploration Co., or Camec, hasn’t been previously disclosed. Camec at the time described the payment as a loan. Och-Ziff has denied that it knew some of the money would end up with the Zimbabwe government. Human-rights groups said the funds were used to carry out a violent crackdown on the opposition during a tough election Mr. Mugabe ultimately won in 2008. U.S. investigators are scrutinizing a March 2008 trip to Zimbabwe taken by Och-Ziff’s Africa director at the time, Vanja Baros,according to people familiar with the investigation. The people said Mr. Baros met several people involved in channeling the money to the Mugabe government, includingBilly Rautenbach, a Zimbabwean businessman with close ties to the dictator.”

Vantage Drilling

The company recently disclosed:

“In July 2015, we became aware of media reports that our agent utilized in the contracting of the Titanium Explorer drillship has entered into a plea arrangement with the Brazilian authorities in connection with the agent’s role in obtaining bribes on behalf of former Petrobras executives.  We have since confirmed that our agent, who has represented multiple international companies in their contracts with Petrobras, has entered into such discussions and provided evidence to the Brazilian authorities of an alleged bribery scheme between the former Petrobras executives and a former director of Vantage.  The former director, Mr. Su, was the sole owner of the company that owned the Titanium Explorer at the time the alleged bribe was paid.  We have not been contacted by any governmental authority in connection with these allegations.  However, we voluntarily contacted the SEC and the Department of Justice (the “DOJ”) to advise them of these recent developments.  We continue to investigate the matter, but as of now, our internal and independent investigations have found no evidence of wrongdoing by our employees or participation in any manner with the inappropriate acts alleged to have been conducted by the agent.

We cannot predict whether any governmental authority will seek to investigate this matter, or if a proceeding were opened, the scope or ultimate outcome of any such investigation. If the SEC or DOJ determines that we have violated the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”), or if any governmental authority determines that we have violated applicable anti-bribery laws, they could seek civil and criminal sanctions, including monetary penalties, against us, as well as changes to our business practices and compliance programs, any of which could have a material adverse effect on our business and financial condition.

On August 21, 2012, we filed a lawsuit against Mr.  Su, a former member of our Board of Directors and the owner of F3 Capital, our largest shareholder, asserting breach of fiduciary duties, fraud, fraudulent inducement and negligent misrepresentation, and unjust enrichment based on Mr. Su’s conduct in his dealings with the Company both immediately prior to, and during his tenure as one of our directors. On June 20, 2014, we received notice that Mr. Su had filed a countersuit against the Company and certain of the Company’s current and former officers and directors. The countersuit alleges fraud, breach of fiduciary duty, negligent misrepresentation, tortious interference with contract, and unjust enrichment and seeks indemnification from us with respect to the matters that are the basis of our lawsuit.”

NCR

As highlighted in this August 2012 post, NCR disclosed:

“NCR has received anonymous allegations from a purported whistleblower regarding certain aspects of the Company’s business practices in China, the Middle East and Africa, including allegations which, if true, might constitute violations of the Foreign Corrupt Practices Act.  NCR has certain concerns about the motivation of the purported whistleblower and the accuracy of the allegations it received, some of which appear to be untrue.  NCR takes all allegations of this sort seriously and promptly retained experienced outside counsel and began an internal investigation that is ongoing.”

Recently the company disclosed:

“With respect to the FCPA, the Company made a presentation to the staff of the Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) providing the facts known to the Company related to the whistleblower’s FCPA allegations, and advising the government that many of these allegations were unsubstantiated. The Company responded to subpoenas of the SEC and to requests of the DOJ for documents and information related to the FCPA, including matters related to the whistleblower’s FCPA allegations. The Company’s investigations of the whistleblower’s FCPA allegations identified a few opportunities to strengthen the Company’s comprehensive FCPA compliance program, and the Company continues to evaluate and enhance its compliance program as appropriate.
With respect to the DOJ, the Company responded to its most recent requests for documents in 2014. With respect to the SEC, on June 22, 2015, the SEC staff notified the Company that it did not intend to recommend an enforcement action against the Company with respect to these matters.”

To some, this represents a “declination.”  To more sophisticated observers this appears to represent unfounded whistleblower allegations.

Alexion Pharmaceuticals

The company recently disclosed:

“[W]e received a subpoena in connection with an investigation by the Enforcement Division of the SEC requesting information related to our grant-making activities and compliance with the Foreign Corrupt Practices Act in various countries. The SEC also seeks information related to Alexion’s recalls of specific lots of Soliris and related securities disclosures. Alexion is cooperating with the SEC’s investigation, which is in its early stages. At this time, Alexion is unable to predict the duration, scope or outcome of the SEC investigation. Any determination that our operations or activities are not, or were not, in compliance with existing United States or foreign laws or regulations, including by the SEC pursuant to its investigation of our compliance with the FCPA and other matters, could result in the imposition of a broad range of civil and criminal sanctions against Alexion and certain of our directors, officers and/or employees, including injunctive relief, disgorgement, substantial fines or penalties, imprisonment, interruptions of business, debarment from government contracts, loss of supplier, vendor or other third-party relationships, termination of necessary licenses and permits, and other legal or equitable sanctions. Other internal or government investigations or legal or regulatory proceedings, including lawsuits brought by private litigants, may also follow as a consequence. Violations of these laws may result in criminal or civil sanctions, which could disrupt our business and result in a material adverse effect on its reputation, business, results of operations or financial condition. Cooperating with and responding to the SEC in connection with its investigation of our FCPA practices and other matters, as well as responding to any future U.S. or foreign governmental investigation or whistleblower lawsuit, could result in substantial expenses, and could divert management’s attention from other business concerns and could have a material adverse effect on our business and financial condition and growth prospects.”

Flowserve

In 2008 Flowserve Corp. and related entities resolved a DOJ and SEC FCPA enforcement action related to the United Nations Oil for Food Program.  In resolving the enforcement action, Flowserve agreed to pay $10.5 million in combined fines and penalties and agreed to a permanent “obey the law” injunction. (see here and here).

Recently, Flowserve disclosed:

“As previously disclosed in our 2014 Annual Report, we terminated an employee of an overseas subsidiary after uncovering actions that violated our Code of Business Conduct and may have violated the Foreign Corrupt Practices Act.  We have completed our internal investigation into the matter, self-reported the potential violation to the United States Department of Justice (the “DOJ”) and the SEC, and are continuing to cooperate with the DOJ and SEC.  We recently received a subpoena from the SEC requesting additional information and documentation related to the matter and are in the process of responding.  We currently believe that this matter will not have a material adverse financial impact on the Company, but there can be no assurance that the Company will not be subjected to monetary penalties and additional costs.”

Is It Asking Too Much?

Practitioners recently snuffed out some subtle changes to the November 2012 FCPA Guidance issued by the DOJ and SEC.

The changes make the FCPA Guidance consistent with … well the law.

Is it asking too much for the enforcement agencies to get the law right? After all, it took the FCPA enforcement agencies over a year to write the pamphlet style FCPA Guidance.

But then again, the law has seemingly never been the FCPA enforcement agencies’ strong suit when all they have to do in the vast majority of situations is convince themselves of their legal interpretations.

The recent changes are not the biggest flub in the original FCPA Guidance.

As highlighted in this prior post, in the original guidance the enforcement agencies literally rewrote the FCPA statute.  Only after being called out, did the Guidance change.  (See here for the prior post).

To learn about other selective information, half-truths, and information that is demonstratively false in the FCPA Guidance see “Grading the Foreign Corrupt Practices Act Guidance.”

*****

A good weekend to all.

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