- FCPA Professor - http://fcpaprofessor.com -

Friday Roundup

Survey says, scrutiny alert, chuckle, and for the reading stack.  It’s all here in the Friday roundup.

Survey Says

Items that caught my eye from Kroll/Compliance Week’s recent 2015 Anti-Bribery and Corruption Benchmarking Report [1] (a report based on approximately 250 survey responses from compliance professionals of large companies).

The average respondent to the survey was associated with a company that employs 22,000 employees and has more than 2,900 third party relationships.

In the minds of some, FCPA compliance is easy.  But as previously highlighted here [2], consider if the respondent companies were 99% compliant on a daily basis.  99% success in most all areas of life is rewarded, but 99% compliance for the respondent companies would mean 220 employee and 29 third party violations.

Against this backdrop, I am not at all surprised that approximately 50% of respondents in the survey were less than confident that company financial controls can catch potential books and records violations of the FCPA.

After all, the FCPA’s books and records (and internal control provisions) are among the broadest legal provisions one can find even if they are qualified in several respects.

As noted in the report accompanying the survey findings:

“There is a little bit of anti-bribery and anti-corruption fatigue at the board level across large organizations.  In 2009 and 2010 lawyers and regulators predicted doomsday scenarios, bolstered by an explosion in the growth of formal investigation and fines imposed.  That uptick leveled off in recent years, leading some companies to believe they have more time to get their houses in order.”

Perhaps the lesson is that boards should take with a grain of salt the doomsday scenarios of FCPA Inc. because they are often self-serving.

Scrutiny Update

As previously highlighted here [3], in September 2013 Hyperdynamics disclosed:

“[On] September 2013 [the company] received a subpoena from the United States Department of Justice (DOJ) requesting that the Company produce documents relating to its business in Guinea.  In 2006, a Production Sharing Contract was signed by the Company and the government of Guinea granting rights to an oil and gas concession offshore Guinea.  The Company understands that the DOJ is investigating whether Hyperdynamics’ activities in obtaining and retaining the concession rights and its relationships with charitable organizations potentially violate the U.S. Foreign Corrupt Practices Act or U.S. anti-money laundering statutes.  The Company has retained legal counsel to represent it in this matter and is cooperating fully with the government.  The Company is unable to predict when the investigation will be completed, what outcome may result and what costs the Company will incur in the course of the investigation.”

Last week the company disclosed [4]:

“As set forth in the attached letter [5], the United States Department of Justice (DOJ) has closed its investigation into possible violations by Hyperdynamics of the Foreign Corrupt Practices Act (FCPA) without bringing any charges against the Company.  Hyperdynamics had cooperated with the government’s investigation, and DOJ noted the value of the Company’s cooperation in its letter.  Ray Leonard, President and CEO, commented, “This is an important development for Hyperdynamics. We are extremely pleased to be informed that the DOJ has closed its inquiry into this matter.” As previously disclosed, both the DOJ and SEC issued subpoenas to Hyperdynamics concerning possible violations of the FCPA and other laws. The SEC investigation has not yet been resolved.”

To those who frequently overuse the “d” word (as in declination), this was a DOJ declination [6].  However, when a company merely receives a subpoena and the DOJ closes its investigation, I prefer to call that the law enforcement investigative process.

Nevertheless, it what seems to be a new trend for FCPA Inc., the law firm representing Hyperdynamics issued this [7] press release stating:

“Covington represented Hyperdynamics in an investigation conducted by the U.S. Department of Justice into potential violations of the Foreign Corrupt Practices Act related to its business activities in the Republic of Guinea. The Justice Department has completed its investigation without bringing any charges against the company. Hyperdynamics received a subpoena from the Justice Department in September 2013 concerning possible violations of the FCPA and other laws relating to its business in Guinea. The Houston-based oil and gas company fully cooperated with the government’s investigation and the Justice Department noted the value of the company’s cooperation in its declination letter. […] The SEC also issued a subpoena to Hyperdynamics concerning possible violations of the FCPA and other laws. The SEC investigation has not yet been resolved. The Covington team handling the matter included Lanny Breuer [8]Nancy Kestenbaum [9] and Barbara Hoffman [10].”

Lanny Breuer is the former head of the DOJ’s criminal division.

According to disclosures by Hyperdynamics, the company spent approximately $11.2 million on its FCPA scrutiny.

Chuckle

There has been much recent discussion and war of words concerning the length of FCPA scrutiny (see here [11] and here [12]).

Against this backdrop, I had a good chuckle when I recently stumbled upon this [13] 2005 speech by the DOJ’s then Assistant Attorney General of the Criminal Division.

“Simply put, speed matters in corporate fraud investigations.  The days of five-year investigations, of agreement after agreement tolling the statute of limitations – while ill-gotten gains are frittered away and investor confidence sinks – are increasingly a thing of the past.”

For the Reading Stack

As highlighted in this [11] prior post, last month  Paul Pelletier [14] (former principal deputy chief of the DOJ Criminal Division’s Fraud Section) penned a dandy Wall Street Journal editorial titled “The Foreign Bribery Sinkhole at Justice [15].”

In this [16] recent piece Pelletier goes into more-depth on the same topic.  In pertinent part he writes:

“[T]he pattern of costly delay in FCPA investigations continues unabated.  While every government investigation and resolution poses unique facts and circumstances that may serve to delay the investigatory process, these recent long-developing FCPA resolutions, together with the findings of the OECD report, are convincingly problematic.  The staggering investigative costs, ultimately borne by employees and shareholders alike, however, also can reach unconscionable levels.

[…]

The Department of Justice has recently articulated that at least part of the rationale or justification for these interminable investigations is that “[c]ompared to other white collar crime, the challenges associated with FCPA investigations can be much greater.”  The DOJ offered “overseas evidence” as one basis for this greater challenge.2

But this statement fails to explain the  more than twofold increase in investigatory durations from historical norms.  A dispassionate, experience-based analysis of this overly broad assertion exposes a faulty premise.  Simply put, the DOJ can and must do better.

[…]

With a cooperating corporation, FCPA investigators routinely find themselves in the unique position of having prompt access to overseas evidence and witnesses without a need to resort to cumbersome international treaty requests.  Such cooperation is much like the prosecution having secured a cooperator with unfettered access to the critical evidence.

[…]

Regardless of the reason or reasons for these protracted investigations, both the continued vitality of the DOJ’s FCPA enforcement efforts and the prominence of the United States as the global leader of anti-corruption enforcement would seem to demand a renewed effort to dramatically reduce the time frame necessary to achieve resolution.

[…]

Legitimate enterprises benefit from those kinds of real-time revelations, and criminal political regimes can be immediately identified and deterred.  Moreover, when a criminal resolution discloses and punishes criminal conduct that occurred five or more years earlier, any deterrent effect of the resolution is significantly diminished.  This is particularly true in industries where the overseas corrupt conduct flourishes with abandon.

At that late stage, the principal deterrent effect is relegated to the size of the monetary penalty — something the DOJ continues to emphasize with all too much frequency and relish.  As recent cases have demonstrated, lengthy FCPA investigations also place untenably wasteful financial burdens on corporations, their employees and their shareholders.

[…]

Given that the DOJ’s FCPA unit within the Fraud Section has more than doubled in size from 2009 to today and has been fortified by a dedicated squad of FBI agents, it is puzzling that many of these investigations seem to drag on interminably.  The DOJ must strive to be more than just “FCPA Inc.,” churning out stale resolutions notable only for their record-breaking penalties.”

In conclusion Pelletier writes:

“The interests of justice are neither served nor advanced when FCPA investigations routinely drag on for five or more years.  Rigorous and prompt FCPA enforcement with respect to current bribery schemes can have a dramatic impact on the insidious and corrosive effect of corruption overseas.  Real-time enforcement is just one component of what must be a larger proactive strategy to root out overseas corruption, which includes punishing the bribe takers as well as the bribe payers and dispossessing the government officials of access to ill-gotten gains.

Curing the deficiencies that lead to costly and wasteful delays will require a systemic and sustained effort, primarily by the DOJ.  It will also require a more focused approach by outside counsel.  Although the ameliorative benefits resulting from such change will not be achieved overnight, the long-term vitality and efficacy of the DOJ’s anti-corruption enforcement efforts ultimately rests on the government’s ability to sustainably alter the status quo.”

*****

A good weekend to all.