Is trust “reasonable,” Sigelman formally indicted, scrutiny alerts and updates, and for the reading stack. It’s all here in the Friday roundup.
Is Trust “Reasonable”
This  prior post asked:
Would FCPA compliance be better achieved if companies had fewer formal internal controls and instead devoted greater effort to fostering trust within a business organization? Would such an approach even satisfy an issuer’s obligations under the FCPA’s internal controls provisions which require that issuers devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are properly authorized, recorded, and accounted for by the issuer?
The questions are posed once again after reading this  New York Times article titled “Berkshire’s Radical Strategy: Trust.” In the article, Charlie Munger, vice chairman of Berkshire Hathaway (arguably one of the most well-respected companies in America) “ruminates on the state of corporate governance, offering a counternarrative to the distrustful culture of most businesses: instead of filling your ranks with lawyers and compliance people, he argued, hire people that you actually trust and let them do their job.”
As highlighted in the article:
“Here’s a little-known fact: Berkshire Hathaway, the fifth-largest company in the United States, with some $162.5 billion in revenue and 300,000 employees worldwide, has no general counsel that oversees the holding company’s dozens of units. There is no human resources department, either.
If that sounds like a corporate utopia, that’s probably because it is. To some people in this day and age — given the daily onslaught of headlines about scandal and fraud in corporate America — that also may sound almost like corporate negligence.”
Sigelman Formally Indicted
In January 2014, the DOJ announced FCPA and related charges against former executives of PetroTiger Ltd., a British Virgin Islands oil and gas company with operations in Colombia and offices in New Jersey, “for their alleged participation in a scheme to pay bribes to foreign government officials in violation of the FCPA, to defraud PetroTiger, and to launder proceeds of those crimes.” The individuals charged were former co-CEOs of PetroTiger Joseph Sigelman  and Knut Hammarskjold  and former general counsel Gregory Weisman . (See this  prior post for additional details).
In this  criminal complaint, Sigelman was charged with conspiracy to violate the FCPA’s anti-bribery provisions as well as three substantive FCPA charges. The FCPA charges were based on allegations that Sigelman and others made at least four transfers of money in the approximate amount of $333,500 to an account in Colombia of a “foreign government official in Colombia.”
In this  release, the DOJ announced today that Sigelman was formally criminally indicted for the same conduct. The release states that Sigelman “charged with conspiracy to violate the FCPA and to commit wire fraud, conspiracy to launder money, and substantive FCPA and money laundering violations.”
The DOJ release further states: “The case was brought to the attention of the department through a voluntary disclosure by PetroTiger, which cooperated with the department’s investigation.”
As previously noted, both Hammarskjold and Weisman have pleaded guilty.
Key Energy Services
“The U.S. Securities and Exchange Commission has advised us that it is investigating possible violations of the U.S. Foreign Corrupt Practices Act involving business activities of Key’s operations in Russia. We take any such allegations very seriously and are conducting an investigation into the allegations. We are fully cooperating with and sharing the results of our investigation with the Commission. While the outcome of our investigation is currently not determinable, we do not expect that it will have a material adverse effect on our consolidated financial position, results of operations, or cash flows.”
“On March 10, 2014, the SEC notified Quanta of an inquiry into certain aspects of Quanta’s activities in certain foreign jurisdictions, including South Africa and the United Arab Emirates. The SEC also requested that Quanta take necessary steps to preserve and retain categories of relevant documents, including those pertaining to Quanta’s U.S. Foreign Corrupt Practices Act compliance program. The SEC has not alleged any violations of law by Quanta or its employees. Quanta has complied with the preservation request and is cooperating with the SEC.”
“China InvestigationWe have been cooperating to provide information to the U.S. Securities and Exchange Commission and the Department of Justice concerning payments and expenses by certain of our business partners in China and/or by employees of our Chinese subsidiary that raise questions concerning compliance with laws, including the U.S. Foreign Corrupt Practices Act. Our internal review is ongoing and now includes periods earlier than those previously examined. We continue to respond to requests for information from these agencies, including a subpoena issued to the company by the SEC. We cannot predict when or how this matter may be resolved. Resolution of this matter could include fines and penalties; however we are unable to estimate an amount that could be associated with any resolution and, accordingly, we have not recorded a liability for this matter. If resolution of this matter includes substantial fines or penalties, this could materially impact our results for the period in which the associated liability is recorded or such amounts are paid. Further, any settlement or other resolution of this matter could have collateral effects on our business in China, the United States and elsewhere.”
“[The previously disclosed internal] review has identified conduct that raises concerns under the FCPA or other anti-bribery laws that may result in monetary penalties or other sanctions. In addition, the Company’s ability to conduct business in certain jurisdictions could be negatively impacted. The Company has recorded a non-material accrual for an identified matter. Given the current status of the internal review, the Company cannot reasonably estimate the range of possible loss that may result from additional identified matters or from the final outcome of the continuing internal review.”
In case you had not heard that numerous financial services companies were under FCPA scrutiny for alleged hiring practices, the Wall Street Journal reports :
“U.S. regulators have expanded their investigation into large banks’ hiring practices in Asia, seeking more information from at least five U.S. and European firms, according to people close to the probe. The Securities and Exchange Commission in early March sent letters to a group of companies including Credit Suisse Group AG, Goldman Sachs Group Inc., Morgan Stanley, Citigroup Inc. and UBS AG seeking more information about their hiring in Asia, according to people. […] The SEC late last year issued a round of letter to at least six banks, seeking information on their hiring practices, such as whether the firms had special programs dedicated to relatives of influential officials, according to people close to the inquiry. The second round of requests reflects a deepening of the probe. The agency is seeking more data on the banks’ recruiting in Asia, including lists of employees hired as a result of referrals from foreign officials and clients, added the people familiar with the investigation.”
As to the above, Goldman disclosed in its most recent SEC filing :
“Regulatory Investigations and Reviews and Related Litigation.
[The company] and certain of its affiliates are subject to a number of other investigations and reviews by, and in some cases have received subpoenas and requests for documents and information from, various governmental and regulatory bodies and self-regulatory organizations and litigation relating to various matters relating to the firm’s businesses and operations, including:
compliance with the U.S. Foreign Corrupt Practices Act, including with respect to the firm’s hiring practices …”
No surprise that an individual who paid $174 million to post bail has hired an A-list legal team in defense of DOJ allegations that he violated, among other laws, the FCPA. (See here  for a recent New York Times article regarding Dmitry Firtash).
Sound advice from former DOJ FCPA Unit Chief Chuck Duross in this  MoFo Tech article concerning FCPA risk and the technology industry:
“[T]echnology companies are also at risk from the distribution model that’s often used in the industry. Many companies sell their products to channel partners, which add some value to the product or service—such as other hardware, software, an installation, or a service plan—and then resell it at a higher price. That’s an entirely appropriate business model. But as with any third party, companies need to appreciate the potential risk if, for example, the distributor is simply reselling at a higher price without adding any legitimate value and using that profit as a slush fund to funnel bribes to government officials. It may seem to the company that it is not violating the FCPA. It has simply sold its product to another company. But if a company’s employees are aware that the distributor is paying (or just offering) bribes to government officials to help sell the product, the company and its employees could be criminally liable as conspirators and aiders and abettors.
What should tech companies be doing to avoid these issues?
One thing is to know the third parties they’re doing business with. It is also fundamental to understand the business reason for working with third parties. One of the first questions asked during a DOJ or SEC investigation will often be, “What was the business purpose behind working with X?” Having a clear answer will earn credibility with regulators and underscore the company’s commitment to compliance. Also, making sure employees—and third parties—understand company policies, are properly trained, execute FCPA certifications, and are subject to appropriate ongoing reviews can prevent violations and mitigate (or avoid altogether) penalties if a problem does occur. That is just good business. Corruption tends to occur at companies with loose control environments. While I was at DOJ, we routinely saw loose control environments leading to embezzlement, self-dealing, fraud, and even antitrust violations. When a company doesn’t know where its money is going, that’s bad business and negatively impacts shareholder value. When companies invest in a compliance program, they are investing in the health of the business.”
This  Kyiv Post article notes:
“Some of Ukraine’s underpaid cadre of civil servants might get bonuses from international finance institutions to reduce the temptation of taking bribes. According to Ukrainian Tax Service chief Ihor Bilous, the European Bank for Reconstruction and Development is exploring the idea of setting up a fund that would provide officials with additional pay. ‘Last week I had a meeting with EBRD representatives and they proposed to create a fund to pay money for people who serve the state in high positions,’ Bilous told the Kyiv Post. This idea was successfully implemented in Georgia, he adds, “we need to change the system, state salaries are very low and this situation creates some kind of temptation.”
A good weekend to all, and to all mothers, Happy Mother’s Day!