I’ve read every Foreign Corrupt Practices Act enforcement action in the public domain.
In its settled civil complaint, the SEC mentioned several South African newspaper articles to support its allegations that Hitachi (a Japanese company) knew, or should have known, that Chancellor House was an African National Congress funding vehicle.
Specifically, the SEC alleged:
“In August 2006, an HPA [a majority-owned subsidiary of HPE based in South Africa, that executed power station orders in South Africa, HPE in turn is wholly-owned subsidiary of Hitachi based in Germany] director received a telephone call from a reporter with the Mail & Guardian, a South African weekly newspaper that focuses on political analysis, investigative reporting, and South African news and culture. The reporter asked HPA to comment on whether there was a link between HPA’s 25% shareholder, Chancellor, and the ANC. HPA declined to comment.
On November 10, 2006, the same day that Hitachi submitted its bid for the Medupi power station contract, the Mail & Guardian published an article entitled, The ANC’ s New Funding Front. The article exposed Chancellor as a business front set up by the ANC “to seek profit on its behalf,” generally by acquiring “empowerment” stakes in businesses seeking state procurements. “This means,” the Mail & Guardian stated, “the ANC, as ruling party, has been both player and referee.”
Both HPA and HPE were aware of the Mail & Guardian’s reporting on Chancellor’s relationship to the ANC. On November 13, 2006, an HPA director forwarded two HPE executives a copy of The ANC’s New Funding Front. The same HPA director reported to the HPE executives that he had spoken to Chancellor’s chairman, who had denied the allegations in the newspaper.
In January 2007, both the Mail & Guardian and a separate South African newspaper, the Financial Mail, published articles that confirmed Chancellor was a funding vehicle for the ANC. In Financing the ANC, published on January 19, 2007, the Financial Mail quoted the ANC Secretary General and organizational head of the ANC’s operations as admitting that Chancellor was an “ANC vehicle” that existed for the sole purpose of funding the ANC. The Mail & Guardian reported this same admission by the ANC Secretary General a week later, in an article entitled, ANC Admits It Used BEE Funding Front.
In December 2007, the Financial Mail published another article about Hitachi’s relationship with Chancellor. The Financial Mail quoted an HPE executive as saying that there was “no proof’ that Chancellor was an ANC front company and if Chancellor was indeed a front· for the ANC, “this would contradict our own governance rules.” In fact, as Hitachi knew well before December 2007, and as the ANC’s Secretary General had confirmed publicly eleven months earlier, Chancellor was an alter ego of the ANC.
A week after the publication of the Financial Mail article, on December 14, 2007, Eskom and Hitachi -through HPE and HPA- executed the second of two contracts: a $2.71 billion contract to build the boiler works for the Kusile power station.”
The above allegations were not necessary for the SEC to properly allege the claims it brought against Hitachi (violations of the FCPA’s books and records and internal controls provisions).
However, I take the position that when the SEC includes specific non-outcome determinative allegations in an FCPA enforcement action, the SEC is doing more than just practicing its typing skills.
Were the above allegations in the Hitachi enforcement action intended to send a message to compliance practitioners that they have constructive knowledge of information in foreign newspapers?
If so, this is troubling as journalists frequently get things wrong and/or take things out of context. Indeed, several FCPA articles in major U.S. newspapers have been wrong.