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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?

Voluntary Disclosures and the Role of FCPA Counsel

Dyncorp International Inc. (“Dyncorp”), a provider of “specialized, mission critical professional and support services for the U.S. military, non-military U.S. governmental agencies and foreign governments” (according to its recent 10-Q filing) (see here) recently disclosed a potential FCPA issue.

Page 19 of its filing states:

“We have identified certain payments made to expedite the issuance of a limited number of visas and licenses from foreign government agencies that may raise compliance issues under the U.S. Foreign Corrupt Practices Act. The payments, which we believe totaled approximately $300,000 in the aggregate, were made to sub-contractors in connection with servicing a single existing task order that the Company has with a U.S. government agency. We have retained outside counsel to investigate these payments. We are in the process of evaluating our internal policies and procedures and are committed to improving our compliance procedures. During the past week, we voluntarily brought these matters to the attention of the U.S. Department of Justice and the Securities and Exchange Commission. We cannot predict the ultimate consequences of these matters at this time, nor can we reasonably estimate the potential liability, if any, related to these matters. However, based on the facts currently known, we do not believe that these matters will have a material adverse effect on our business, financial condition, results of operations or cash flow. We have not recorded any reserves with respect to this matter.” (emphasis added).

This disclosure, along with the more recent disclosure that Dyncorp’s Senior Vice President, Chief Compliance Officer and Executive Counsel was terminated (see here) has been covered by the Wall Street Journal (see here and here) and has been discussed elsewhere (see here).

I inject the following question/issue into the conversation (so to speak).

Why did Dyncorp voluntarily disclose to DOJ/SEC conduct that is arguably not even a violation of the FCPA? More broadly, what do such voluntary disclosures of potential FCPA issues say about the potential conflict of interests FCPA counsel has in advising companies as to the important disclosure issue.

First things first.

As readers of this blog likely know, many FCPA enforcement actions result from voluntary disclosures companies make to DOJ and (if an issuer) to SEC.

The reason?

There are some “carrots” out there.

First, “The Principles of Federal Prosecution of Business Organizations” (see here) (a.k.a. the former Thompson Memo which is now included in the US Attorney Manual) state that one of the factors a prosecutor should consider in deciding whether to criminally charge a company is the “value of cooperation” and the “corporation’s timely and voluntary disclosure of wrongdoing and its cooperation with the government’s investigation…” (see 9-28.700).

Second, Chapter Eight of the Federal Sentencing Guidelines (specifically s. 8C2.5(g)) (see here) will reduce an organization’s “culpability score” (which is key in calculating a company’s fine upon conviction as well as the company’s fine in a settlement) if: “the organization (A) prior to an imminent threat of disclosure or government investigation; and (B) within a reasonably prompt time after becoming aware of the offense, reported the offense to appropriate governmental authorities, fully cooperated in the investigation, and clearly demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct”

See (here) for what Assistant AG Breuer recently told an FCPA audience about voluntary disclosure.

A company deciding whether or not to voluntarily disclose to the government will thus have to weigh the risk of the government finding out about the conduct in the absence of the company’s voluntary disclosure (and thus likely assume the risk of a harsher fine/penalty) vs. voluntarily disclosing the conduct to the government, yet being able to take advantage of the above mentioned “carrots”.

In weighing these options in the face of evidence of an actual FCPA violation, companies often choose the voluntary disclosure route – although the merits of the voluntary disclosure route and how to assess the leniency are issues subject to debate.

The weighing of these options when confronted with evidence of an actual FCPA violation is one thing.

However, and as demonstrated by Dyncorp’s recent disclosure, companies often also voluntarily disclose conduct to DOJ/SEC that may only potentially violate the FCPA.

Perhaps the analysis is similar to that above; however, is there any other area of law where companies (and their counsel) race to Washington to tell the government not about an actual violation of law, but merely about a potential violation of law (save perhaps for the DOJ’s antitrust leniency program (see here) which nevertheless involves actual violations)?

Before addressing the issue of what potential conflict of interest FCPA counsel may have in advising companies as to the important disclosure issue (particularly where the disclosure merely involves a potential FCPA violation), a bit about why the conduct Dyncorp disclosed is arguably not even a violation of the FCPA.

I’ve written before (see here) about the Fifth Circuit’s decision in U.S. v. Kay, 359 F.3d 738 (5th Cir. 2004) on the FCPA’s obtain or retain business element and how the court concluded that payments to customs officials to reduce customs duties and sales tax could fall within the FCPA, but that such conduct does not automatically constitute an FCPA violation. The Kay case is one of the few instances in which a court has rendered a substantive FCPA decision.

Post-Kay there has been an explosion in FCPA enforcement actions involving payments made to secure foreign government licenses, permits, and certifications or otherwise involving custom duties and the like. However, because these enforcement actions have not been contested, it remains an open question as to under what circumstances such payments can indeed satisfy the FCPA’s obtain or retain business element.

Dyncorp’s disclosure (“[w]e have identified certain payments made to expedite the issuance of a limited number of visas and licenses from foreign government agencies”) involves the type of payments at issue in Kay and one reason why the conduct Dyncorp disclosed is arguably not even a violation of the FCPA is the equivocal nature of the Kay decision (the only case law on this subject).

Here is the real head-scratcher though.

The Dyncorp payments were not made in order to obtain or retain business with any foreign government or foreign government entity, but rather assisted Dyncorp obtain or retain business with the U.S. government.

Has there ever been an FCPA enforcement action where the questionable payments were made to assist the payor in obtaining or retaining business with the U.S. government? To my knowledge no, and if anyone is aware of such an enforcement action please do let me know.

True, the DOJ’s “Lay-Person’s Guide to the FCPA” (see here) (the DOJ’s interpretation of the statute) notes “that the business to be obtained or retained does not need to be with a foreign government or foreign government instrumentality.”

However, as the Kay court noted, the payments still need to be in connection with foreign business (i.e. seemingly not business with the U.S. government).

The Kay court framed the issue as follows: “…how attenuated can the linkage be between the effect of that which is sought from the foreign official in consideration of a bribe (here, tax minimization) and the briber’s goal of finding assistance or obtaining or retaining foreign business with or for some person, and still satisfy the business nexus element of the FCPA?” (emphasis added).

Later in the opinion, the Kay court framed the issue as follows: “…the question whether the defendants’ alleged payments constitute a violation of the FCPA truly turns on whether these bribes were intended to lower ARI’s cost of doing business in Haiti enough to have a sufficient nexus to garnering business there or to maintaining or increasing business operations that ARI already had there, so as to come within the scope of the business nexus element as Congress used it in the FCPA.” (emphasis added).

In holding “that Congress intended for the FCPA to apply broadly to payments intended to assist the payor, either directly or indirectly, in obtaining or retaining business for some person, and that bribes paid to foreign tax officials to secure illegally reduced customs and tax liability constitute a type of payment that can fall within this broad coverage” (emphasis added), the Kay court still nevertheless focused on business in a foreign country (… “the FCPA’s legislative history instructs that Congress was concerned about both the kind of bribery that leads to discrete contractual arrangements and the kind that more generally helps a domestic payor obtain or retain business for some person in a foreign country…) (emphasis added).

The Kay court’s focus on foreign business is consistent with the FCPA’s extensive legislative history which also focuses on payments made to secure foreign business, not business with the U.S. government.

This provides another reason why Dyncorp’s disclosure of “certain payments made to expedite the issuance of a limited number of visas and licenses from foreign government agencies” in “connection with servicing a single existing task order that the Company has with a U.S. government agency” is arguably not even a violation of the FCPA.

So the question remains, why did Dyncorp disclose this conduct – conduct that could only potentially violate the FCPA?

This leads to the final issue/question – what potential conflict of interest does FCPA counsel have in advising companies as to the important disclosure issue (particularly where the disclosure only involves a potential FCPA violation)?

By raising this issue/asking this question, I am not accusing Dyncorp’s counsel of anything (I don’t even know which firm is representing Dyncorp). Rather, I ask this question in the context of the Dyncorp’s disclosure because it seems to present (for the above reasons) the perfect “case” in which to raise this lurking issue / ask this lurking question (even though the same question could legitimately be asked in connection with other corporate voluntary disclosures of conduct that could potentially violate the FCPA).

It truly is the “elephant in the [FCPA] room” in my estimation.

Here is the potential conflict of interest as I see it. FCPA counsel has every incentive (it would seem) to nudge a corporate client to make the disclosure.

Simply stated, no disclosure, the “case” (for all practical purposes) is over and thus no more billable hours.

Conversely, with the disclosure the “case” continues meaning more billable hours.

Often times if a voluntary disclosure is made the “case” continues for several more years as DOJ (and if applicable) SEC will demand a wide range of factual information and documents involving the conduct at issue.

Morever, often times the “case” gets expanded because a favorite question of the enforcement agencies is something along the following lines – “if Business Unit A was involved in this conduct in Country A, how do we know that Business Unit A was not also involved in this conduct in Country B, and, more broadly, how do we know that the Company (in general) was also not involved in this same conduct in Countries C,D, and E (all FCPA high-risk jurisdictions)?

Because cooperation with the government’s investigation is a prominent factor a prosecutor weighs in deciding whether to criminally charge a business entity under the above described “Principles of Prosecution”, a corporate client invariably (yet reluctantly) will accept FCPA’s counsel’s recommendation to broaden the “case” to demonstrate cooperation with the DOJ/SEC’s investigation.

Next thing the company knows, it is paying for a team of lawyers (accompanied by forensic accountants and other specialists) to travel around the world to answer DOJ/SEC’s questions even though the voluntary disclosure that got this whole process started involved conduct that may not actually violate the FCPA.

Because FCPA counsel’s “worldwide review” will often not be deemed credible unless it comes back to DOJ/SEC with at least something of concern or suspicion, FCPA counsel will often disclose several small, non-material, practically meaningless issues which also could potentially violate the FCPA.

DOJ/SEC, to demonstrate the thoroughness of its investigation, will often include these “tag-along” facts in the ultimate resolution documents (most often a non-prosecution or deferred prosecution agreement).

Thus, disclosure often times leads to significantly more work, and more billable hours for FCPA counsel. Because FCPA counsel is able to demand premium billing for its services given the high-profile, sensitive nature of the issue, the disclosure decision is literally a several hundred thousand / multimillion dollar issue for FCPA counsel and could mean the difference between several more months / years of work and no additional work.

To be clear, I am not suggesting any actual conflict of interest by Dyncorp’s counsel (or any other FCPA counsel for that matter).

Rather, I am pointing out that a potential conflict of interest is present in FCPA counsel’s disclosure advice given the significant difference in billable hours hinging on the disclosure decision.

This potential conflict of interest is hardly ever discussed, and this is not surprising given that few “outside” of the FCPA bar (given the opaque nature in which FCPA enforcement actions are resolved) even know how the disclosure and resolution process actually works to ask the question.

Here is another issue that is hardly ever discussed.

The same enforcement officials who often encourage the voluntary disclosure route, and speak of the credit that will be given to a company when it voluntarily discloses, are the same individuals who often rotate in and out of government service and the FCPA bar. Again, I am not suggesting any actual conflict of interests by these individuals.

However, these potential conflict of interest issues (i.e. the “elephants in the [FCPA] room”) should not be shoved aside in analyzing why there are so many FCPA voluntary disclosures (including of conduct that may only potentially violate the statute) and why FCPA enforcement is indeed the unique creature that it is.

Another FCPA Speech

Last week it was the Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum (see here), this week the audience for Assistant Attorney General Lanny Breuer was ACI’s National Forum on the FCPA

The ACI conference (see here) is a signature event for the FCPA bar and FCPA compliance community. Breuer participated in past ACI events as a private FCPA practitioner at Covington & Burling and yesterday he gave the keynote luncheon address.

The link to the speech on the DOJ website is inactive, but the speech is embedded in this piece from the WSJ Law Blog (see here).

The speech covers a wide range of topics and will be of interest to all FCPA practitioners and others interested in following FCPA developments.

Here are a few highlights:

On individual prosecutions – “…we tried more individuals for FCPA violations than in any prior year. And we indicted more individuals than ever before. That is no accident. In fact, prosecution of individuals is a cornerstone of our enforcement strategy. […] Put simply, the prospect of significant prison sentences for individuals should make clear to every corporate executive, every board member, and every sales agent that we will seek to hold you personally accountable for FCPA violations.”

On how the DOJ learns of FCPA issues – “Although many of these cases come to us through voluntary disclosures, which we certainly encourage and will appropriately reward, I want to be clear: the majority of our cases do not come from voluntary disclosures. They are the result of pro-active investigations, whistle blower tips, newspaper stories, referrals from our law enforcement counterparts in foreign countries, and our Embassy personnel abroad, among other sources.”

On resolving corporate FCPA matters – “…despite rumors to the contrary, we do also decline prosecution in appropriate cases. […] With regard to corporate cases, the Department will continue to pursue guilty pleas or, if necessary, indictments against corporations – when the criminal conduct is egregious, pervasive and systemic, or when the corporation fails to implement compliance reforms, changes to its corporate culture, and undertake other measures designed to prevent a recurrence of the criminal conduct. We also recognize that there will be situations in which guilty pleas or criminal charges are not appropriate. Now, we may have good-faith disagreements about when those circumstances present themselves, but we do not take our task lightly. We are mindful of direct impact on the company itself, as well as the numerous collateral consequences that often flow from these charging decisions. We are sophisticated attorneys, and we understand the challenges and complexities involved in doing business around the globe.”

On corporate monitors – “In appropriate cases, we will also continue to insist on a corporate monitor, mindful that monitors can be costly and disruptive to a business, and are not necessary in every case. That said, corporate monitors continue to play a crucial role and responsibility in ensuring the proper implementation of effective compliance measures and in deterring and detecting future violations.”

On whether to make a voluntary disclosure – this is a “sometimes difficult question” […] a question I grappled with as a defense lawyer. I strongly urge any corporation that discovers an FCPA violation to seriously consider making a voluntary disclosure and always to cooperate with the Department. The Sentencing Guidelines and the Principles of Federal Prosecution of Business Organizations obviously encourage such conduct, and the Department has repeatedly stated that a company will receive meaningful credit for that disclosure and that cooperation. […] I can assure you that the Department’s commitment to meaningfully reward voluntary disclosures and full and complete cooperation will continue to be honored in both letter and spirit. I am committed to no less.”

On the road ahead – “In addition to holding culpable individuals accountable and meaningfully rewarding voluntary disclosures and genuine cooperation, we will continue to focus our attention on areas and on industries where we can have the biggest impact in reducing foreign corruption.” Breuer then discusses the pharma industry in particular.

On asset forfeiture and recovery – “We will seek forfeiture in all appropriate cases going forward. […] We will be taking advantage of the expertise of both the Fraud Section and our Asset Forfeiture and Money Laundering Section to forfeit and recover the proceeds of foreign corruption offenses.” Breuer’s comments on this topic largely shadow the recent comments of Attorney General Holder (see here).

On enhanced resources – “As I imagine most of you have heard, in 2007 the FBI created a squad with agents dedicated to investigating potential FCPA violations. The squad has been growing in size and in expertise over the past two years. In addition, we have begun discussions with the Internal Revenue Service’s Criminal Investigation Division about partnering with us on FCPA cases around the country. Finally, we are now pursuing strategic partnerships with certain U.S. Attorney’s Offices throughout the United States where there are a concentration of FCPA investigations.”

On Mark Mendelsohn’s rumored departure as DOJ Deputy Chief – FCPA – “… as we look to the future, we will be building on the extraordinary efforts and success of our Deputy Chief over the FCPA area, my friend Mark Mendelsohn, who is beginning to explore options for the next phase of his career. Mark has been an exceptional public servant and a visionary steward of the FCPA Program. Regardless of where Mark chooses to go, we will miss him greatly.”

******

Last week, I questioned Breuer’s characterization of the Jefferson verdict in his pharma address (see here). In that address he said as follows:

“In the past few months, we have the completed the trials of the Greens in California, of Mr. Bourke in New York and of former Congressman William Jefferson in Virginia. In each of these cases, individuals were found guilty of FCPA violations and face jail time.”

Yesterday, Breuer correctly noted, as to the Jefferson case, as follows: Jefferson “was convicted of a conspiracy of which one object was to violate the FCPA by bribing former high-ranking Nigerian government officials.”

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.”

FCPA Aches and “Payne”s

Helmerich & Payne Inc. (“H&P”) is an international drilling contractor headquartered in Tulsa. It has land and offshore operations in South America. To operate in that region, H&P must import and export equipment and materials. According to the DOJ and SEC, therein lies the problem.

H&P recently settled a DOJ and SEC FCPA enforcement action based on the conduct of two wholly-owned second tier subsidiaries, Helmerich & Payne (Argentina) Drilling Company (“H&P Argentina”) and Helmerich & Payne de Venezuela, C.A. (“H&P Venezuela”).

Pursuant to a two-year DOJ non-prosecution agreement, H&P acknowledged responsibility for the conduct of H&P Argentina and H&P Venezuela in making various improper payments to officials of the Argentine and Venezuelan customs services. According to a DOJ release (see here), the payments “were made in order to import and export goods that were not within regulations, to import good that could not lawfully be imported, and to evade higher duties and taxes on the goods.” Pursuant to the agreement, H&P will pay a $1 million penalty.

In a parallel action, H&P agreed to an SEC settlement under which it agreed to pay approximately $375,000. The SEC cease-and-desist order (“Order”) (see here) finds that: (i) “H&P Argentina paid Argentine customs officials approximately $166,000 to permit the importation and exportation of equipment and materials without required certifications, to expedite the importation of equipment and materials, and to allow the importation of materials that could not imported under Argentine law; and (ii) “H&P Venezuela paid Venezuelan customs officials approximately 19,673 either to permit the importation and exportation of equipment and materials that were not in compliance with Venezuelan importation and exportation regulations or to secure a partial inspection, rather than a full inspection, of the goods being imported.”

According to the Order, the payments were “falsely, or at least misleadingly” described as “additional assessments,” “extra costs,” “extraordinary expenses,” “urgent processing,” “urgent dispatch,” or “customs processing.” The SEC found that as a result of the payments, H&P avoided approximately $320,000 in expenses it would have otherwise incurred had it properly imported and exported the equipment and materials. The subsidiaries’ financial results were included in H&P’s filings with the SEC and, based on the above conduct, the SEC found that H&P violated the FCPA books and records and internal control provisions.

The Order is silent as to H&P’s knowledge of or involvement in the above described payments.

No doubt H&P received an SEC cease and desist order (the least harsh SEC sanction) and a DOJ non-prosecution agreement because of its conduct upon learning of the payments. As described in the Order, during an FCPA training session, an employee voluntarily disclosed some potentially problematic payments, through a customs broker, in Argentina to customs officials. Thereafter, H&P hired FCPA counsel, conducted an internal investigation, and voluntarily reported the conduct at issue to the government.

According to H&P’s Form 8-K filed on July 30, 2009 (see here), “[t]here are no criminal charges involved in the settlements and disciplinary action has been taken by the company with respect to certain employees involved in the matter, including in some cases, termination of employment.” The 8-K also notes that both settlements “recognize the company’s voluntary disclosure, cooperation with both agencies, and its proactive remedial efforts.”

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