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Friday Roundup

A tribute, resource alert, bureaucratic brazennessscrutiny alerts and updates, a bushel, quotable, and for the reading stack. It’s all here in the Friday roundup.

James McGrath

I join Tom Fox (FCPA Compliance and Ethics Blog [1]) in paying tribute to James McGrath.  Owner of his own Ohio-based firm McGrath & Grace [2] and founder and editor of his own Internal Investigations Blog [3], McGrath was a bear of a man as Fox wrote.  Yet a gentle and kind bear and I will remember Jim for his desire to learn and engage with students.  He was an occasional contributor to FCPA Professor (see here [4]) and his candid wit resulted in this [5] classic post.  I last communicated with Jim a few weeks ago and he was excited to share some new things in his life and I was happy and excited for him.  Moreover, Jim paid me a visit in Southern Illinois this past spring which is no small feat as one has to make a big of effort to get here.  I enjoyed our visit and discussion.

You will be missed Jim, rest in peace.

Resource Alert

The University of Houston Law Center announced [6]:

“[Release of] a searchable database [7] that contains the compliance codes for Fortune 500 companies.  The project was led by Houston attorney Ryan McConnell, an adjunct professor at the University of Houston Law Center. McConnell worked with a team of recent graduates and current students to develop the database, which covers 42 different topics. “The free database allows any company to conduct benchmarking on virtually every compliance area covered in a code of conduct and to spot compliance trends within their industry,” McConnell explained. “In addition to proactively building a program, when compliance failures occur, whether a foreign bribery violation or environmental issue, stakeholders – whether they are shareholders in a lawsuit or criminal investigators – frequently scrutinize the company’s compliance program.  This database provides a powerful tool for anyone to evaluate the strength of a company’s compliance program, including subject matters addressed in the code and the organization’s core values.”

Bureaucratic Brazenness

This [8] recent Wall Street Journal column “The New Bureaucratic Brazenness” caught my eye.

“We’re all used to a certain amount of doublespeak and bureaucratese in government hearings. That’s as old as forever. But in the past year of listening to testimony from government officials, there is something different about the boredom and indifference with which government testifiers skirt, dodge and withhold the truth. They don’t seem furtive or defensive; they are not in the least afraid. They speak always with a certain carefulness—they are lawyered up—but they have no evident fear of looking evasive. They really don’t care what you think of them. They’re running the show and if you don’t like it, too bad.

[…]

Everything sounds like propaganda. That will happen when government becomes too huge, too present and all-encompassing. Everything almost every level of government says now has the terrible, insincere, lying sound of The Official Line, which no one on the inside, or outside, believes.

[…]

We are locked in some loop where the public figure knows what he must pronounce to achieve his agenda, and the public knows what he must pronounce to achieve his agenda, and we all accept what is being said while at the same time everyone sees right through it. The public figure literally says, “Prepare my talking points,” and the public says, “He’s just reading talking points.” It leaves everyone feeling compromised. Public officials gripe they can’t break through the cynicism. They cause the cynicism.”

I sort of feel this way when I hear DOJ and SEC FCPA enforcement attorneys speak.  Do you?

For instance, last year I attended an event very early in tenure of a high-ranking SEC enforcement official.  This person – who came to the SEC from private practice – candidly stated something to the effect that given his very new position he did not yet know what he was supposed to say.

Scrutiny Alerts and Updates

Sanofi

As recently reported in this [9] Wall Street Journal article:

“Sanofi said it has told U.S. authorities about allegations of improper payments to health-care professionals in the Mideast and East Africa, joining a lineup of pharmaceutical companies that have faced similar claims. Among the allegations are that Sanofi employees made improper payments to doctors in Kenya and other East African nations, handing out perks based on whether the doctors prescribed or planned to prescribe Sanofi drugs, according to the firm and e-mails from a tipster The Wall Street Journal viewed. The French pharmaceutical company said it hired New York law firm Weil Gotshal & Manges LLP to look into the claims and the investigation is continuing. “At this stage, it is too early to draw conclusions,” a company spokesman said. “Sanofi takes these allegations seriously.”

[…]

“The Sanofi investigation began after the firm received a series of anonymous allegations that wrongdoing occurred between 2007 and 2012 in parts of the Middle East and East Africa, the company said. One allegation was that employees of subsidiary Sanofi Kenya bribed medical professionals, a claim made via emails sent to Sanofi senior management last October and in March and viewed by the Journal. Sanofi paid for influential medical professionals to attend conferences, many of which were abroad, and gave them cash and gifts at its own events to win business, the emails allege. Copies of letters the tipster said were sent to Sanofi Kenya by medical professionals, as well as what the emails describe as other Sanofi documents, which were also reviewed by the Journal, indicate that doctors would request money from Sanofi Kenya to attend conferences and events and that Sanofi employees would take into account the applicant’s value to Sanofi’s business before deciding whether to sponsor them or not.”

As highlighted in this [10] August 2013 post, Sanofi’s conduct in China has also been under scrutiny.

GSK

As recently reported in this [11] Reuters article:

“GlaxoSmithKline, which was slapped with a record $489 million fine for corruption in China last month, said on Tuesday it was looking into allegations of corruption in the United Arab Emirates. Britain’s biggest pharmaceuticals group confirmed the investigation following allegations of improper payments set out in a whistleblower’s email sent to its top management on Monday. The email, purporting to be from a GSK sales manager in the Gulf state, was seen by Reuters. The company is already investigating alleged bribery in a number of Middle East countries, including Lebanon, Jordan, Syria and Iraq, as well as Poland. “As we have already said, we are undertaking an investigation into our operations in the Middle East following complaints made previously. This investigation continues and these specific claims were already being investigated as part of this process,” a GSK spokesman said.”

DynCorp

The Washington Times reports here [12]

“State Department investigators uncovered evidence that agents working for one of the largest U.S. military contractors paid tens of thousands of dollars in bribes to Pakistani officials to obtain visas and weapons licenses, but records show the government closed the case without punishing DynCorp.

[…]

But investigators closed the case after deciding they couldn’t prove or disprove the company had the “requisite corrupt” intent required to prove a violation of the Foreign Corrupt Practices Act (FCPA), which bars U.S. companies from bribing foreign officials.

“There was no evidence to support the allegations that DynCorp or its employees had specific knowledge of bribes paid Pakistani government officials,” an investigator wrote in a memo closing out the case last year.

Still, investigators concluded there were violations of the FCPA involving both Speed-Flo and Inter-Risk, both of which are based in Islamabad.”

AgustaWestland / Finmeccanica Related

As noted in this [13] Wall Street Journal article:

“An Italian court found Giuseppe Orsi, the former chief executive of defense firm Finmeccanica, not guilty of international corruption, absolving him of the most serious charge he faced in connection with a 560-million-euro contract won in 2010 to supply the Indian government with 12 helicopters. The three judge panel found Mr. Orsi, 68, guilty of falsifying invoices and sentenced him for that crime to two years in prison, a penalty that was immediately suspended. “A nightmare is over for me and my family,” a visibly relieved Mr. Orsi told reporters after the judge had read the verdict. Italian prosecutors had argued that Mr. Orsi, who at the time of the alleged corruption was CEO of Finmeccanica unit AgustaWestland, directed a plan to pay tens of millions of dollars to Indian officials, including the former top officer in the Indian air force, to win the helicopter-supply competition. Mr. Orsi rose to become CEO of Finmeccanica in 2011 and resigned last year when the corruption charges surfaced. The court also absolved Bruno Spagnolini, who followed Mr. Orsi as CEO of AgustaWestland, of corruption while finding him guilty of falsifying invoices. In reading the verdict, the judge said that while prosecutors had proven that fake invoices had been issued, there was no corruption. Prosecutors had argued there was a direct connection between the false invoices and the payment of kickbacks.”

A Bushel

Matthew Fishbein [14] (Debevoise & Plimpton) was awarded an FCPA Professor Apple Award [15] for this this [16] recent article titled “Why Aren’t Individuals Prosecuted for Conduct Companies Admit.”  Fishbein continues with his spot-on observations in this [17] recent Corporate Crime Reporter Q&A.  For additional reading on the same topics see:

The Facade of FCPA Enforcement [18]“ (2010)

My 2010 Senate FCPA testimony [19] (“The lack of individual prosecutions in the most high-profile egregious instances of corporate bribery causes one to legitimately wonder whether the conduct was engaged in by ghosts. […]  However, a reason no individuals have been charged in [most FCPA] enforcement actions may have more to do with the quality of the corporate enforcement action than any other factor. As previously described, given the prevalence of NPAs and DPAs in the FCPA context and the ease in which DOJ offers these alternative resolution vehicles to companies subject to an FCPA inquiry, companies agree to enter into such resolution vehicles regardless of the DOJ’s legal theories or the existence of valid and legitimate defenses. It is simply easier, more cost efficient, and more certain for a company … to agree to a NPA or DPA than it is to be criminally indicted and mount a valid legal defense – even if the DOJ’s theory of prosecution is questionable …”.

But Nobody Was Charged [20]” (2011)

“DOJ Prosecution of Individuals – Are Other Factors At Play?” (2011 [21]) (2013 [22]) (2014 [23])

Why You Should Be Alarmed by the ADM Enforcement Action [24]” (2014).

Quotable

In this [25] recent speech, SEC Chair Mary Jo White stated:

“In fiscal year 2013, we brought more than 675 enforcement actions and obtained orders for $3.4 billion in total penalties and disgorgement.  We will soon be announcing the results for our 2014 fiscal year, which ended yesterday.  It was another very productive year as those numbers will show. But numbers only tell part of the story. The quality and breadth of actions are really the more meaningful measure of an effective enforcement program. (emphasis added).”

As to international cooperation, White stated:

“International cooperation is essential to the SEC’s enforcement program, and indeed, to all of our enforcement programs.  In today’s global marketplace, fraudulent schemes and other misconduct commonly have cross-border elements, and the need for seamless cooperation among us has never been greater.

The SEC’s investigations and enforcement actions often involve witnesses and evidence in different countries around the world.  And I know that the same is true in your investigations and enforcement cases.

Faced with this simple reality, if we are to continue to conduct these investigations successfully, and prosecute the offenses and wrongdoers to the fullest extent of our laws, broad and effective use of the MMoU, and our bilateral agreements, is more important than ever.

No one knows that better than the SEC.  Virtually every week, I meet with my fellow Commissioners to decide which cases to bring.  Rarely is there a week when one or more of the cases recommended by the enforcement staff does not involve critical international assistance.  In fact, in the last fiscal year, the SEC made more than 900 requests for international assistance and, as a result, we were able to obtain critical evidence that helped us prosecute wrongdoers for a vast array of serious offenses.

In one recent FCPA case, for example, the SEC obtained valuable evidence — bank and other corporate records — from German prosecutors. [HP] And, we received great support from regulators in Australia, Guernsey, Liechtenstein, Norway, Canada, Switzerland, and the United Kingdom in another major FCPA action. [Alcoa].”

From the Houston Chronicle [26], a Q&A with former Deputy Attorney General – and current FCPA practitioner – George Terwilliger.

Q: How will enforcement of the Foreign Corrupt Practices Act (FCPA) hinder U.S. energy companies from doing business abroad?

A: Notwithstanding all the good things that are happening with energy upstream production in the United States, the real growth opportunities remain overseas. And a lot of them are in places that are ethically challenged at best in terms of their business and legal cultures. Two things cause problems for companies subject to U.S. law.

One, ambiguities are in the law itself. What is a foreign official? What organizations are covered as entities of foreign governments that are state-owned enterprises three times removed?

Then there’s the uncertainty of the parameters of enforcement policy. Why is this case prosecuted and that one isn’t? Why does this case settle for this much money and that one for that much money? There’s not a lot of transparency, and it’s not apparent to the people who work at this all the time exactly where those parameters are.

Q: Why is that a problem?

A: A company subject to U.S. law that is looking at an opportunity overseas looks at what the profitability model is and then they look at the risk inherent in doing business in that environment. The least little thing that comes up in that process — there’s a piece of real estate they want us to use as a staging area that’s owned by the brother-in-law of the cousin of the oil minister — and they look at it and go, “You know what? We’re not going to do that. It’s not worth the risk.”

Q: Are companies passing up business opportunities because of those risks?

A: Yes, that happens. Companies forgo economic opportunities because the uncertainties are perceived to be too great given the potential return on the investment. The objective of the law is to have a corruption-free level playing field. Most American business people I think believe that given a level playing field they can compete very well, particularly with foreign competitors. The problem is when that playing field is knocked out of kilter by the influence of corruption. Perhaps companies from other countries don’t operate under these constraints, then the playing field isn’t level anymore.

Q: What can mitigate those risks and balance the playing field for U.S. companies abroad?

A: For some time I have advocated some kind of corporate amnesty for companies that investigate themselves, fix their problems and disclose them to the government. If companies become aware of corrupt activity, I think given an incentive to report that they would do it. And that will help the government and help the objectives of this program rather than playing a kind of gotcha game.

Q: Are there any incentives now for companies to disclose potential violations?

A: The Securities Exchange Commission and the Justice Department have articulated policies that whatever the penalty should be for some wrongdoing, it will be less if you self-report, cooperate with an investigation and so forth. I don’t think that’s widely believed in the U.S. corporate community. And it’s almost impossible to measure. I have represented companies where we have made voluntary disclosures that have not been prosecuted. And the government has said the reason they are not prosecuting is because of internal investigation and cooperation. So I’m not saying it doesn’t happen. At the end of the day, companies wrestle with the question of, “Is it really worth it?” All the heartache that’s going to flow from a voluntary disclosure, particularly on something that may be marginal as a violation, is it worth what that’s going to cost? In terms of damage to reputation, shareholder issues, management issues with the board and so forth, is that going to be worth it in terms of what a company might get in terms of some forbearance of penalty?

Reading Stack

“It’s as if the FCPA Super Bowl just ended in a tie.”  (See here [27] from Bracewell & Giuliani attorneys Glen Kopp and Kedar Bhatia regarding the Supreme Court recently declining to hear the “foreign official” challenge in U.S. v. Esquenazi).   

A legitimate concern or a bluff?  (See here [28] from The Globe and Mail – “The head of Canadian engineering giant SNC-Lavalin Group Inc. says any move by authorities to charge the company in connection with an extensive bribery scandal would immediately threaten its future and could force it to close down.”).

An interesting video [29] on Bloomberg’s “Market Matters” regarding the DOJ’s approach to prosecuting alleged corporate crime. The FCPA is not specifically discussed, although the issues discussed are FCPA relevant.

From the Economist [30] “The Kings of the Courtroom:  How Prosecutors Came to Dominate the Criminal-Justice System.” (“The prosecutor has more control over life, liberty and reputation than any other person in America,” said Robert Jackson, the attorney-general, in 1940. As the current attorney-general, Eric Holder, prepares to stand down, American prosecutors are more powerful than ever before. Several legal changes have empowered them. The first is the explosion of plea bargaining, where a suspect agrees to plead guilty to a lesser charge if the more serious charges against him are dropped. Plea bargains were unobtainable in the early years of American justice. But today more than 95% of cases end in such deals and thus are never brought to trial.”).

*****

A good weekend to all.