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SEC Enforcement Of The FCPA – Year In Review

Foreign Corrupt Practices Act enforcement, it is not just about the DOJ.  Granted, as a civil enforcement agency its sticks are less sharp than the DOJ’s, but the SEC also claims a significant piece of the FCPA enforcement pie (query whether it should – but that is a subject for another day – for instance as discussed in “The Story of the Foreign Corrupt Practices Act” the SEC wanted no part in enforcing the FCPA’s anti-bribery provisions).

Today’s post is a year in review of SEC FCPA Enforcement.  (See here for a similar post for 2011 and here for a similar post for 2010).  Stay tuned for a similar post on DOJ FCPA enforcement in 2012.

Settlement Amounts

In 2012, the SEC collected approximately $118 million in 8 corporate FCPA enforcement actions.  By comparison, in 2011 the SEC collected approximately $148 million in 13 corporate FCPA enforcement actions.  In 2010, the SEC collected approximately $530 million in 19 corporate FCPA enforcement actions.

The range of SEC FCPA enforcement actions in 2012 was, on the high end, $45.1 million in the Pfizer enforcement action, and on the low end, $2 million in the Oracle enforcement action.

Three corporate FCPA enforcement actions from 2012 were SEC only (Oracle, Allianz, and Eli Lilly).

Of the 8 corporate enforcement actions from 2012, only 4 (Smith & Nephew, Biomet, Tyco, and Eli Lilly) included FCPA anti-bribery charges.  In other words, 4 SEC FCPA enforcement actions charged FCPA books and records and internal controls violations only, yet in those enforcement actions, the SEC collected approximately $57.4 million in disgorgement and prejudgment interest.  This is noteworthy because many question, and rightfully so, whether disgorgement is an appropriate remedy in cases that do not charge FCPA anti-bribery violations.  See here for a prior post on so-called “non-bribery disgorgement” cases.  In 2011, 8 of the 13 SEC FCPA corporate enforcement actions charged FCPA books and records and internal controls violations only and the SEC collected approximately $51 million in disgorgement and prejudgment interest in those non-bribery disgorgement cases.

Of the $118 million the SEC collected in 2012 corporate FCPA enforcement actions, approximately $75 million (64%) were in two enforcement actions (Pfizer and Eli Lilly).  Of the $118 million, approximately $104 million (88%) were in enforcement actions against pharmaceutical or other health care related companies.  All of these enforcement actions were based, in whole or in part, on the enforcement theory that employees of various foreign health care systems (such as physicians, nurses, mid-wives, lab personnel, etc.) are “foreign officials” under the FCPA.  See this prior post which traced the origins and prominence of this enforcement theory.

The $118 million the SEC collected in 2012 FCPA enforcement actions breaks down as follows:  $16 million in civil penalties and $102 million in disgorgement and prejudgment interest.  Thus, 86% of SEC FCPA settlement amounts in 2012 consisted of disgorgement and prejudgment interest.  In 2011, disgorgement and prejudgment interest comprised 94% of SEC FCPA enforcement settlement amounts and in 2010, disgorgement and prejudgment interest comprised 96% of SEC FCPA enforcement settlement amounts  If one tries to analyze why some SEC FCPA enforcement actions in 2012 included a civil penalty, disgorgement and prejudgment interest (Allianz and Eli Lilly), whereas other enforcement actions included only disgorgement and prejudgment interest (Smith & Nephew, Biomet, Orthofix, Pfizer, and Tyco), whereas other enforcement actions included only a civil penalty (Oracle), good luck and please enlighten us all with your insight.

Corporate vs. Individual Actions

Of the 8 SEC corporate FCPA enforcement actions from 2012, 0 (0%) have involved, at present, related SEC charges against company employees.  In 2011, just 2 of the 13 (15%) corporate SEC FCPA enforcement actions involved related SEC charges against company employees and in 2010, just 3 of the 19 (15%) corporate SEC FCPA enforcement actions involved related SEC charges against company employees.

In 2012, the SEC did charge 3 individuals (Thomas O’Rourke, Mark Jackson, and David Ruehlen) in connection with the 2010 Noble Corporation enforcement action.  Without admitting or denying the SEC’s allegations, O’Rourke agreed to resolve the matter by paying a $35,000 civil penalty.  The SEC’s case against Jackson and Ruehlen remains pending.  (See here for the most recent post).  In addition, as noted in this prior post, the SEC also charged Subramanian Krishnan (former CFO of Digi International) with aiding and abetting violations of the FCPA’s books and records provisions and substantive FCPA internal controls violations.  However, as noted in the prior post, it was unclear as to the nature of the SEC’s allegations.  This action appears to have been a “non-FCPA, FCPA enforcement action” as the action is not listed on the SEC’s FCPA website.

Voluntary Disclosures

Of the 8 corporate SEC FCPA enforcement actions in 2011, 4 enforcement actions (50%) (Orthofix, Pfizer, Tyco, and Oracle) were the result of corporate voluntary disclosures.  3 enforcement actions (38%) (Smith & Nephew, Biomet and Eli Lilly) appear to have been based on corporate disclosures following an industry sweep (a sweep that may have been prompted by Johnson & Johnson’s voluntary disclosure – see here for the prior post).  1 enforcement action (Allianz) was based on the SEC opening an investigation after receiving an anonymous complaint of possible FCPA violations

This remainder of this post provides an overview of corporate SEC FCPA enforcement in 2012.

Eli Lilly (December 20th)

See here for the prior post.

Charges: Settled civil complaint charging violations of the FCPA’s anti-bribery provisions, and books and records and internal controls provisions.

Settlement: Approximately $29.4 million (approximately $14 million in disgorgement, approximately $6.7 million in prejudgment interest, and an $8.7 million civil penalty)

Disclosure:  According to the company’s disclosures, it was first notified of an investigation in August 2003.

Individuals Charged: No.

Related DOJ Enforcement Action: No.

Allianz (December 17th)

See here for the prior post.

Charges:  None. Administrative cease and desist order finding violations of the FCPA’s books and records and internal control provisions.

Settlement: Approximately $12.4 million (approximately $5.3 million in disgorgement, approximately $1.8 million in prejudgment interest, and a civil penalty of approximately $5.3 million).

Disclosure:  According to the SEC – “In response to the March 2009 Whistleblower complaint, Allianz convened a Whistleblower Committee to do an internal investigation and retained counsel to conduct an internal investigation of Utama’s payment practices in Indonesia. Allianz did not report the conduct to the Commission staff.  In April 2010, the staff opened an investigation after receiving an anonymous complaint of possible FCPA violations.”

Individuals Charged: No.

Related DOJ Enforcement Action: No.

Tyco International (September 24th)

See here for the prior post.

Charges:  Settled civil complaint charging violations of the FCPA’s anti-bribery provisions, and books and records and internal controls provisions.

Settlement:  Approximately $13.1 million ($10.5 million in disgorgement and approximately $2.6 million in prejudgment interest).

Disclosure: Voluntary disclosure.

Individuals Charged:  No.

Related DOJ Enforcement Action:  Yes.

Oracle  (August 16th)

See here for the prior post.

Charges: Settled civil complaint charging violations of the FCPA’s books and records and internal controls provisions.

Settlement: $2 million civil penalty.

Disclosure: Voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: No.

Pfizer (August 7th)

See here for the prior post.

Charges: Settled civil complaint against Pfizer charging violations of the FCPA’s books and records and internal controls provisions.  Settled civil complaint against Wyeth charging violations of the FCPA’s books and records and internal controls provisions.

Settlement: As to Pfizer, approximately $26.3 million ($16 million in disgorgement and $10.3 in prejudgment interest).  As to Wyeth, approximately $18.8 million ($17.2 million in disgorgement and $1.6 million in prejudgment interest).

Disclosure: Voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes as to Pfizer, no as to Wyeth.

Orthofix International (July 10th)

See here for the prior post.

Charges: Settled civil complaint charging violations of the FCPA’s books and records and internal controls provisions.

Settlement: $5.2 million (approximately $5 million in disgorgement and approximately $240,000 in prejudgment interest).

Disclosure: Voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action:  Yes.

Biomet (March 26th)

See here for the prior post.

Charges:  Settled civil complaint charging violations of the FCPA’s anti-bribery provisions, and books and records and internal controls provisions.

Settlement: $5.5 million ($4.4 million in disgorgement and $1.1 million in prejudgment interest).

Disclosure: Industry sweep inquiry followed by disclosure of misconduct at issue, including a portion of which that was voluntarily disclosed.

Individuals Charged: No.

Related DOJ Enforcement Action:  Yes.

Smith & Nephew (Feb. 6th)

See here for the prior post.

Charges:  Settled civil complaint charging violations of the FCPA’s anti-bribery provisions, and books and records and internal controls provisions.

Settlement: $5.4 million ($4,028,000 in disgorgement and $1,398,799 in prejudgment interest).

Disclosure: Industry sweep inquiry followed by disclosure of misconduct at issue.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

What You Need To Know From Q4

This post provides a summary of Foreign Corrupt Practices Act enforcement actions and FCPA related events from the fourth quarter of 2012.  See here for a similar post from Q1, here for Q2 and here for Q3.  Year in reviews for both DOJ and SEC FCPA enforcement will be forthcoming.

DOJ Enforcement

The DOJ did not bring any FCPA enforcement actions in the fourth quarter.

SEC Enforcement

The SEC resolved two corporate FCPA enforcement actions in the fourth quarter.  Total recovery in these enforcement actions was approximately $41.8  million.  At present, none of the enforcement actions have resulted in any individual charges against company employees.

Eli Lilly (December 20th)

See here for the prior post.

Charges: Settled civil complaint charging violations of the FCPA’s anti-bribery provisions, and books and records and internal controls provisions.

Settlement: Approximately $29.4 million (approximately $14 million in disgorgement, approximately $6.7 million in prejudgment interest, and an $8.7 million civil penalty)

Disclosure:  According to the company’s disclosures, it was first notified of an investigation in August 2003.

Individuals Charged: No.

Related DOJ Enforcement Action: No.

Allianz (December 17th)

See here for the prior post.

Charges:  None. Administrative cease and desist order finding violations of the FCPA’s books and records and internal control provisions.

Settlement: Approximately $12.4 million (approximately $5.3 million in disgorgement, approximately $1.8 million in prejudgment interest, and a civil penalty of approximately $5.3 million).

Disclosure:  According to the SEC – “In response to the March 2009 Whistleblower complaint, Allianz convened a Whistleblower Committee to do an internal investigation and retained counsel to conduct an internal investigation of Utama’s payment practices in Indonesia. Allianz did not report the conduct to the Commission staff.  In April 2010, the staff opened an investigation after receiving an anonymous complaint of possible FCPA violations.”

Individuals Charged: No.

Related DOJ Enforcement Action: No.

Other Developments

FCPA Guidance

On November 14th, the Department of Justice and Securities and Exchange Commission issued non-binding FCPA Guidance regarding its views of the FCPA and its enforcement.  FCPA Professor has extensively covered various aspects of the Guidance and 11 prior posts can be found here.  In addition, see here for a download link of my recent publication “Grading the Foreign Corrupt Practices Act Guidance.”

SEC Challenges

2002 was believed to be the last time the SEC was put to its burden of proof in an FCPA enforcement action.  However, last quarter saw developments in not just one, not just two, but three FCPA enforcement actions in which the SEC is being put to its burden of proof.

As detailed in this prior post, on December 11th, Judge Keith Ellison (S.D. Tex.) issued a lengthy decision granting Mark Jackson and James Ruehlen’s motion to dismiss the SEC’s claims that seek monetary damages while denying the motion to dismiss as to claims seeking injunctive relief.  Even though Judge Ellison granted the motion as to SEC monetary damage claims, the dismissal is without prejudice meaning that the SEC will be allowed to file an amended complaint within 30 days.  Presumably after the SEC does this, a new round of briefing will begin again.

In short, Judge Ellison’s decision was based on statute of limitations grounds (specifically that the SEC failed to plead any facts to support an inference that it acted diligently in bringing the complaint) as well as the SEC’s failure to adequately plead discretionary functions relevant to the facilitation payments exception.  As to the second issue, Judge Ellison concluded, in what is believed to be an issue of first impression, that the SEC must bear the burden of negating the facilitation payments exception.

In addition, Judge Ellison’s decision also touched upon whether the SEC needs to specifically identify the alleged ”foreign officials” as well as corrupt intent.  As to the first issue, Judge Ellison concluded that the identity of the foreign official need not be pled with specificity nor does the FCPA mandate a bright-line rule of detailed pleadings about a foreign official’s particular duties.  In so concluding, Judge Ellison acknowledged his disagreement with Judge Lynn Hughes (also in the S.D. of Texas) who stated the opposite in the DOJ’s unsuccessful prosecution of John O’Shea.

The other two SEC challenges have been brought by foreign national defendants who claim, among other things, that the SEC has not established personal jurisdiction over them and that the SEC’s FCPA claims against them are barred under the statute of limitations.

This prior post links to the full briefings in SEC v. Herbert Steffen (a former Siemens executive) and SEC v. Elek Straub, Andras Balogh and Tamas Morvai (former Magyar Telecom executives).  As noted in the prior post, the DOJ and SEC are bringing more FCPA enforcement actions against foreign actors – for instance in 2011 90% of DOJ individual prosecutions were against foreign nationals and 100% of SEC individual prosecutions were against foreign nationals.  Thus, the two challenges are noteworthy, particularly so because Judge Leon, in the Africa Sting case, rejected the DOJ’s jurisdictional theory against U.K. national Pankesh Patel (see here for the prior post) in what was believed to be the first instance of judicial scrutiny concerning FCPA jurisdiction against foreign nationals.

35 Years of the FCPA

On December 20th, the FCPA turned 35.  In connection with this anniversary, I published “The Story of the Foreign Corrupt Practices Act.”  The article weaves together information and events scattered in the FCPA’s voluminous legislative record to tell the FCPA’s story through original voices of actual participants who shaped the law.

FCPA Inc. and the Business of Bribery

Last quarter started with a high-profile focus on the Foreign Corrupt Practices Act industry.  Borrowing the terms FCPA Inc. and the Business of Bribery I have been using for some time, the Wall Street Journal ran a series of FCPA related articles, including a lead article titled “FCPA Inc.: The Business of Bribery.”  This prior post highlighted the Wall Street Journal articles, including an article concerning compliance costs, an article concerning prosecution of individuals, and an article regarding the FCPA’s history and certain reasons for the increase in enforcement.

“Foreign Official” Opinion Procedure Release

Last quarter an FCPA Opinion Procedure Release surfaced that further discombobulates the DOJ’s “foreign official” position.  As discussed in this prior post, in Release 12-01 the Requestor sought to engage a Foreign Royal Family Member.

The DOJ’s opinion was that “the Royal Family Member does not qualify as a foreign official under [the FCPA] so long as the Royal Family Member does not directly or indirectly represent that he is acting on behalf of the royal family or in his capacity as a member of the royal family.”   The DOJ further stated as follows.   “[W]hether a member of a royal family is a ‘foreign official’ turns on such factors as (i) how much control or influence the individual has over the levers of governmental power, execution, administration, finances, and the like; (ii) whether a foreign government characterizes an individual or entity as having governmental power; and (iii) whether and under what circumstances an individual (or entity) may act on behalf of, or bind, a government.  This inquiry is fact-intensive and no single factor is dispositive.”

As noted in the prior post, by focusing on the Royal Family Member’s particular duties or lack thereof, the DOJ actually drifted far-away from the Carson factors it cited to support its decision.  The Carson factors all focus on the status of the entity employing an alleged “foreign official” without any reference to a specific individual’s particular duties or lack thereof.

In its recent 11th Circuit “foreign official” brief (here), the DOJ likewise elevated status over duties in assessing whether employees of Haiti Teleco were “foreign officials” under the FCPA.  However, in Release 12-01 the DOJ switched gears and elevated duties above status.  In doing so, the DOJ actually goes back to the FCPA’s original definition of “foreign official” which categorically excluded certain bona fide traditional government officials based on their duties.  In short, the DOJ’s Release further added to the existing confusion of a key element of the FCPA.

What You Need To Know From Q3

This post provides a summary of FCPA enforcement actions and FCPA related events from the third quarter of 2012.  See here for a similar post from Q1 and here for Q2.  For a similar post regarding Q3, see here from the FCPA Blog.

DOJ Enforcement

The DOJ resolved 4 corporate FCPA enforcement action in the second quarter.  DOJ recovery in these enforcement action was approximately $32.9 million.   All 4 enforcement actions were resolved via a deferred prosecution agreement (2) or a non-prosecution agreement (2).  (Note the Tyco enforcement action involved an NPA as to Tyco and a plea agreement as to an indirect subsidiary).  At present, none of the enforcement actions have resulted in any individual charges against company employees.

DOJ statistics through Q3 are as follows.

9 core corporate enforcement actions resolved.

$142.2 million in total fines and penalties recovered.

All 9 corporate enforcement actions have been resolved with either a DPA or NPA. (Note the Tyco clarification above).

At present, none of the corporate enforcement actions have resulted in any individual charges against company employees.

Tyco International (September 24th)

See here for the prior post.

Charges:  Tyco Valves & Controls Middle East Inc. – conspiracy to violate the FCPA’s anti-bribery provisions, Tyco International – none.

Resolution Vehicle: Criminal information against Tyco Valves & Controls Middle East Inc. resolved through a plea agreement and a non-prosecution agreement (three year term) as to Tyco International.

Guidelines Range:  As to Tyco Valves & Controls $2.1 million – $4.2 million.  As to Tyco International, not set forth in the NPA.

Penalty:  Tyco agreed to pay a $13.68 million penalty (the $2.1 million penalty Tyco Valves & Controls agreed to pay pursuant to the plea agreement is included in this figure).

Disclosure:  Voluntary disclosure.

Monitor: No.

Individuals Charged: No.

Pfizer (August 7th)

See here for the prior post.

Charges:  Conspiracy to violate the FCPA’s anti-bribery and books and records provisions and a substantive FCPA anti-bribery violation.

Resolution Vehicle: Criminal information against Pfizer HCP resolved through a deferred prosecution agreement (two year term).

Guidelines Range: $22.8 – $45.6 million.

Penalty: $15 million (34% below the minimum amount suggested by the Guidelines).

Disclosure: Voluntary disclosure.

Monitor: No.

Individuals Charged: No.

NORDAM Group (July 17th)

See here for the prior post.

Charges: None.

Resolution Vehicle: Non-prosecution agreement (three year term).

Guidelines Range: Not set forth in the NPA.

Penalty: $2 million.

Disclosure: Voluntary disclosure.

Monitor: No.

Individuals Charged: No.

Orthofix International (July 10th)

See here for the prior post.

Charges: FCPA internal controls violation.

Resolution Vehicle: Criminal information resolved through a deferred prosecution agreement (three year term).

Guidelines Range: $2.22 – $4.44 million.

Penalty: $2.2 million.

Disclosure: Voluntary disclosure.

Monitor: No.

Individuals Charged: No.

SEC Enforcement

The SEC resolved 4 corporate FCPA enforcement actions in the third quarter.  Total recovery in these enforcement actions was approximately $65.4  million.  At present, none of the enforcement actions have resulted in any individual charges against company employees.

SEC statistics through Q3 are as follows.

6 core corporate enforcement actions resolved.

$76.3 million in total fines and penalties recovered.

At present, none of the corporate enforcement actions have resulted in any individual charges against company employees.

Tyco International (September 24th)

See here for the prior post.

Charges:  Settled civil complaint charging violations of the FCPA’s anti-bribery provisions, and books and records and internal controls provisions.

Settlement:  Approximately $13.1 million ($10.5 million in disgorgement and approximately $2.6 million in prejudgment interest).

Disclosure: Voluntary disclosure.

Individuals Charged:  No.

Related DOJ Enforcement Action:  Yes.

Oracle  (August 16th)

See here for the prior post.

Charges: Settled civil complaint charging violations of the FCPA’s books and records and internal controls provisions.

Settlement: $2 million civil penalty.

Disclosure: Voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: No.

Pfizer (August 7th)

See here for the prior post.

Charges: Settled civil complaint against Pfizer charging violations of the FCPA’s books and records and internal controls provisions.  Settled civil complaint against Wyeth charging violations of the FCPA’s books and records and internal controls provisions.

Settlement: As to Pfizer, approximately $26.3 million ($16 million in disgorgement and $10.3 in prejudgment interest).  As to Wyeth, approximately $18.8 million ($17.2 million in disgorgement and $1.6 million in prejudgment interest).

Disclosure: Voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes as to Pfizer, no as to Wyeth.

Orthofix International (July 10th)

See here for the prior post.

Charges: Settled civil complaint charging violations of the FCPA’s books and records and internal controls provisions.

Settlement: $5.2 million (approximately $5 million in disgorgement and approximately $240,000 in prejudgment interest).

Disclosure: Voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action:  Yes.

Other Developments

Breuer Defends NPAs / DPAs

As indicated by the above Q3 statistics, the vast majority of corporate FCPA enforcement actions are resolved via NPAs or DPAs.  As noted in this recent post, Assistant Attorney General Lanny Breuer recently defended the DOJ’s frequent use of such alternative resolution vehicles.  In short, Breuer’s defense of DPAs and NPAs was unconvincing.  The Assistant Attorney General is clearly troubled by traditional notions of corporate criminal liability.  However, rather than seek substantive solutions to this issue, Breuer instead defended an alternate reality that is equally problematic.  This alternative reality benefits the DOJ, benefits the private bar, but harms other stakeholders and undermines the rule of the law and justice.

Bistrong Sentenced

As noted in this post, over the summer the DOJ suffered a final embarrassing setback in the Africa Sting cases as Judge Leon rejected the DOJ’s recommendation of no jail time for Richard Bistrong and sentenced the conductor of the manufactured sting to 18 months in prison followed by three years of supervised release.  As noted in yesterday’s post (here), Bistrong recently reported to federal prison.

Deep Within Section 1504

As noted in this post, in late August, the SEC adopted final rules implementing Section 1504 of Dodd-Frank, the so-called Resource Extraction Disclosure Provisions.  Deep within the 232 pages of Section 1504 SEC final rules, the SEC adopted an FCPA reform proposal advanced by the Chamber of Commerce as well as contradicted an enforcement theory at issue in several of its prior FCPA actions.  Specifically, the SEC concluded in its Section 1504 final rules that a company owned by a foreign government is a company that is at least majority-owned by a foreign government.  With this conclusion, he SEC will be hard pressed to allege in future FCPA enforcement actions that an entity with less than 50% foreign government ownership or control is an instrumentality of a foreign government and that its employees are “foreign officials” under the FCPA.  This is assuming of course that the SEC cares about intellectual honesty and consistency.

Looking ahead to the fourth quarter, the DOJ’s long promise of FCPA guidance will likely be issued (perhaps this week), briefing in the historic 11th circuit “foreign official” appeal will soon be complete, and oral arguments (as well as perhaps a decision) will be forthcoming in the Jackson / Ruehlen challenge.

Summer Reading Spectacular

Grab your beverage of choice, find some shade, and sit back and enjoy the recent work product of FCPA Inc – plus the recent annual report of the OECD Working Group on Bribery.

Gibson Dunn

Gibson Dunn recently released it 2012 mid-year FCPA update (see here).  The update begins as follows.   “As the Foreign Corrupt Practices Act turns 35 years old, the spike in enforcement activity that we first observed five years ago appears (at least for the moment) to be leveling off. Nevertheless, numerous developments this year bespeak a statute that is maturing rather than falling into obscurity: the first sustained pattern of trial activity; increasing “private attorney general” enforcement; and serious policy debates between industry, executive, and legislative interests leading up to much-anticipated statutory guidance from government regulators. The first half of 2012 was packed with important FCPA developments.”  Thereafter, the update is a buffet of useful information and summaries including recent sentencing activity, a discussion of FCPA-related civil litigation, legislative and policy developments, U.K. developments, and a handy chart containing DOJ and SEC statements on corporate cooperation.

Another Gibson Dunn update you should read concerns NPA and DPAs.  The firm recently released (here) its mid-year update on corporate deferred prosecution and non-prosecution agreements.  As noted in the update, once again among the most frequent use of such agreements is to resolve FCPA enforcement actions.

Speaking of NPAs and DPAs, Law36o carried an article yesterday titled “DOJ Develops a Taste for Deferred Prosecution Deals.”  I liked what Skadden partner John Carroll (here) had to say – that such agreements are a “way for the government to outsource its work and harvest relatively easy settlements” because “the government only has to win the case in the government’s office; it doesn’t have to win in the courtroom.”

Miller Chevalier

Miller & Chevalier recently released its FCPA Summer Review 2012 (see here).  The review begins as follows.  “‘Expectant’ describes the mood of FCPA practitioners during the first half of 2012. With a slow first half of the year for enforcement releases, and expected developments such as the issuance of the new FCPA Guidance around the corner, the second half of 2012 should be eventful, if not historic, for the 35-year old statute.”  Thereafter, the review contains several goodies such as a chart containing known declinations in FCPA investigations 2008 to the present, “comings” and “goings” in the DOJ’s FCPA team, and how a recent district court rulings(discussed in this previous post) appears to have impacted the deferred prosecution agreement in the recent Data Systems enforcement action (see here for the previous post).

Debevoise & Plimpton

Debevoise & Plimpton recently released its periodic FCPA Update (see here).  Among other things, the update contains an article on the “current status of the ‘selective waiver’ doctrine, i.e., the notion that a waiver of attorney-client privilege or work-product protection in a submission to the government is not a ‘waiver to all others.'”  As the article notes, this is often an issue for counsel to consider in FCPA investigatons when disclosing to the DOJ or SEC.

Sidley Austin

Sidley Austin recently released its anti-corruption quarterly (see here).  Although the quarterly did not include a certain FCPA related development from the second quarter, it did contain an informative lead article concerning FCPA joint venture liability.

OECD Annual Report

The OECD Working Group on Bribery recently released its annual report (here).  Spectacular it is not.  For all the good the OECD does in raising awareness of bribery and its effects and seeking to reduce bribery and corruption around the world, its enforcement statistics remain misleading, incomplete and in some cases inaccurate.

For instance, as noted in this prior post, it is fairly obvious why OECD member countries have varying degrees of enforcement of bribery and corruption offenses.  Among other reasons, in most OECD member countries, prosecuting authorities have two choices – to prosecute or not to prosecute – there is no such thing as non-prosecution or deferred prosecution agreements.  Moreover, in many OECD member countries there is no such thing as corporate criminal liability – or even if there is – such corporate liability can only be based on the actions of high-ranking executives or officers. This of course is materially different than the U.S. respondeat superior standard in which a business organization can face legal liability based on the actions of any employee to the extent the employee was acting within the scope of his or her duties and to the extent the conduct was intended to benefit, at least in part, the organization.

The OECD’s statistics as to the U.S. are incomplete.  Footnotes in the report state that DOJ and SEC enforcement actions “exclusively for violations of the books and records and internal control provisions of the FCPA” are not captured.  This misses a meaningful chunk of FCPA enforcement actions as it is common for the DOJ and SEC to structure settlements (so as to avoid collateral consequences or to reward cooperation or both) without charging FCPA anti-bribery violations (such as in Siemens and Daimler).

Moreover, the OECD statistics as to the U.S. are inaccurate in some cases.  In a table “Decisions on Foreign Bribery Cases from 1999 to December 2011,” in a column titled number of individuals and legal persons acquitted / found not liable, the report indicates that only 1 individual or legal person has been acquitted or found not liable in a U.S. foreign bribery case.  Not true.

*****

A good weekend to all.

What You Need To Know From Q2

This post provides a summary of FCPA enforcement actions and FCPA related events from the second quarter of 2012.  See here for a similar recent post from the FCPA Blog.

DOJ Enforcement

The DOJ resolved 1 corporate FCPA enforcement action in the second quarter.  DOJ recovery in this enforcement action was approximately $8.8 million.   This enforcement action was resolved with a deferred prosecution agreement.  At present, this enforcement action has not resulted in any individual charges against company employees.

DOJ statistics through Q2 are as follows.

5 core corporate enforcement actions resolved.

$109. 3 million in total fines and penalties recovered.

All 5 corporate enforcement actions have been resolved with either a DPA or NPA.

At present, none of the corporate enforcement actions have resulted in any individual charges against company employees.

Data Systems & Solutions (June 18th)

See here for the prior post.

Charges:  Conspiracy to violate the FCPA’s anti-bribery provisions and one substantive FCPA anti-bribery violation.

Resolution Vehicle: Criminal information resolved via a DPA (term 2 years).

Guidelines Range: $12.6 – $25.2 million

Penalty: $8.8 million (30% below the minimum amount suggested by the Guidelines).

Disclosure: DPA states as follows:  “following the receipt of subpoenas in connection with the government’s investigation, DS&S initiated an internal investigation and provided real-time reports and updates of its investigation into the conduct described in the Information”

Monitor: No.

Individuals Charged: No.

In addition to the above corporate enforcement action, in Q2 the DOJ brought charges against Garth Peterson (a former managing director for Morgan Stanley’s real estate business in China), see here for the prior post.  As to Morgan Stanley, the DOJ’s release stated as follows.  “After considering all the available facts and circumstances, including that Morgan Stanley constructed and maintained a system of internal controls, which provided reasonable assurances that its employees were not bribing government officials, the Department of Justice declined to bring any enforcement action against Morgan Stanley related to Peterson’s conduct.  The company voluntarily disclosed this matter and has cooperated throughout the department’s investigation.”

SEC Enforcement

The SEC did not bring any FCPA enforcement actions in Q2.

SEC statistics through Q2 are as follows.

2 core corporate enforcement actions resolved.

$10.9 million in total fines and penalties recovered.

At present, none of the corporate enforcement actions have resulted in any individual charges against company employees.

Other Events

Wal-Mart

Unless you lived in a cave during Q2, you know that Wal-Mart was in the news.  As noted in this previous post, in late April the New York Times ran a front-page story concerning alleged conduct in Mexico.  This previous post noted that the New York Times article was both remarkable and unremarkable.

The unremarkable portion of the Times article is that a foreign subsidiary of a multi-national company operating in a FCPA high-risk jurisdiction allegedly made payments to “foreign officials” to facilitate or grease the issuance of certain licenses or permits.  Indeed, those who closely follow the FCPA knew that Wal-Mart disclosed potential FCPA scrutiny in December 2011 (see this prior post).

The remarkable aspects of the Times article include the alleged conduct (or lack thereof) of Wal-Mart and its top executives upon learning of problematic conduct in its Mexican subsidiary.  Even in 2005 and continuing today, most business leaders, audit committees, and boards tend to overreact to FCPA issues and often reflexibly launch broad internal investigations.  However, the payment issues at Wal-Mart Mexico apparently resulted in exactly the opposite at Wal-Mart’s corporate headquarters.  Thus, Wal-Mart is mostly a corporate governance story.

Even so, there are some core and fundamental FCPA issues worthy of exploration.  This previous post noted that Wal-Mart’s FCPA scrutiny raises two distinct and important questions that can be asked about many instances of FCPA scrutiny in this new era.

The first question is whether, given the DOJ and SEC’s current enforcement theories, the Mexican payments at issue – allegedly in connection with permitting, licensing and inspection issues – can expose Wal-Mart to an FCPA enforcement action?  The answer is likely yes and in the past several years the enforcement agencies have brought several FCPA enforcement actions premised on payments to obtain foreign licenses, permits and the like.

The second (and from my perspective more important) question is whether Congress, in passing the FCPA, intended the law to capture payments occurring outside the context of foreign government procurement and involving ministerial and clerical acts by foreign officials.  The answer from the FCPA’s legislative history is no.  The previous post then discussed the enforcement agencies overall losing record when its enforcement theory that payments outside the context of foreign government procurement fall under the FCPA’s anti-bribery provisions has been subjected to FCPA scrutiny.

Will any of this matter?  Likely no as discussed in the previous post.  Should Wal-Mart’s FCPA scrutiny impact FCPA reform?  As observed in this prior post, no it should not.  Will it?  Yes, perceptions matters as confirmed by a House lawyer in a recent speech noted in this prior post.

Prior posts also noted that not only will the DOJ and SEC be examining the conduct of Wal-Mart and its executives, but so too will plaintiff firms representing shareholders and that derivative cases and securities fraud actions were likely to follow.  They soon did, approximately a dozen such civil suits, as noted in this previous post.

In late April and early May it was indeed an FCPA world (see here for the prior post).  Instances of FCPA scrutiny regarding well-known companies, particularly a company that seems to generate much passion, is good for the FCPA in that it causes a broad audience to contemplate the FCPA and FCPA enforcement.  Yet at the same time, such instances result in many armchair FCPA commentators (see here for the prior post) resulting in many wanting to indeed live in a cave.

Carson Developments

Q2 saw four guilty pleas in the long-running and closely followed “Carson” enforcement action involving several former employees of Control Components Inc.  In April, husband and wife Stuart and Hong Carson pleaded guilty (see here for the prior post).  In May, Paul Cosgrove pleaded guilty (see here for the prior post).  In June, David Edmonds pleaded guilty (see here for the prior posts).  Each of the pleas were to a fraction of the charges the defendants faced in the original indictment and as to allegations of conduct not included in the original indictment.  Moreover, as noted in the prior posts, the pleas closely followed Judge Selna issuing a jury instruction regarding “knowledge of status of foreign official” that would have been difficult for the DOJ to prove.

The reality of our criminal justice system is that the DOJ can effectively control when its enforcement theories are put to the ultimate burden of proof and defendants (individuals that are parents, individuals with health issues, individuals nearing retirement age) are likely to accept watered-down plea deals rather than test their innocence, put the DOJ to its ultimate burden of proof and risk the trial penalty (see here for the prior post).

SEC Put To Its Burden

Most defendants in an SEC FCPA enforcement action (corporate or individual) settle the SEC’s charges, a decision facilitiated by the SEC’s neither admit or deny settlement policy.  Not Mark Jackson or James Ruehlen.  As noted in this previous post, the former Noble Corporation CEO and current Director and Division Manager of Noble’s subsidiary in Nigeria filed a motion to dismiss the SEC’s charges that are based on the same core set of conduct as the SEC’s enforcement action against Noble Corporation in 2010.  As noted in this previous post, the SEC recently filed its opposition brief.

This matter will be interesting to follow as the SEC is rarely put to its burden of proof and the last time it was in an FCPA enforcement action, it lost  (see here for a prior post discussing the Mattson and Harris enforcement actions in 2002).

Watts Water Technologies Malpractice Claim

As noted in this previous post, Watts Water Technologies recently filed a malpractice complaint against Sidley Austin LLP based on allegations that the firm was negligent in providing M&A due diligence in connection with a China acquisition.  Watts claims that Sidley’s conduct resulted in its October 2011 SEC enforcement action.

The action is believed to be the first instance of a law firm being sued for malpractice in connection with FCPA issues.  On one level this is not all that surprising as most FCPA attorneys tend to do investigate work and assist clients during the FCPA enforcement process where the conduct at issue has already taken place.  However, as FCPA counseling and transactional-based work become more common, it is likely not going to be the last case.  In short, it is reasonable for a company to expect that counsel will conduct complete and thorough due diligence and bring any and all adverse information to the company’s attention so that it can assess the risk of completing the transaction.

U.K. Developments

The second quarter saw a change in leadership at the U.K. Serious Fraud Office.  As noted in this tribute post, Richard Alderman retired and was replaced by David Green.  A hallmark of Alderman’s tenure at the SFO was openness, an issue that have suffered under Green’s leadership as he, unlike Alderman, does not make his speeches public on the SFO’s website.

As noted in this previous post, the U.K. Ministry of Justice recently announced the opening of a consultation process concerning DPAs. As noted in the previous post, kudos to the U.K. for rejecting NPAs – a resolution vehicle that was used to resolve four corporate FCPA enforcement actions in 2011 and four corporate enforcement actions in 2010.  Moreover, even though the U.K. proposed model for DPAs is inspired by the U.S. model, it is clear that U.S. style DPAs is not the goal of the U.K.  As related to Bribery Act prosecutions, I posed the following questions in the previous post.   Why does a law with an adequate procedures defense require the third option of a deferred prosecution agreement – the first two options being prosecute vs. not prosecute?  If a corporate has adequate procedures, but an isolated act of bribery nevertheless occurs within its organization, the corporate presumably would not face prosecution under the Bribery Act.  Seems like a reasonable result.  In other words, no need for the third option in such a case.  On the other hand, if a corporate does not have adequate procedures (i.e. has no committment to anti-bribery compliance) and an act of bribery occurs within its organization, it presumably would face prosecution under the Bribery Act.  Seems like a reasonable result.  Does a third option really need to be created for corporates who do not implement adequate procedures?

Looking ahead to Q3, briefing in the 11th circuit “foreign official” challenge will pick up, the Jackson / Ruehlen motion to dismiss may be decided and the question on everyone’s mind is when will FCPA guidance be released?

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