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

Friday Roundup

A plethora of scrutiny alerts and updates and for the reading stack. It’s all here in the Friday Roundup.

Scrutiny Alerts and Updates

Unaoil Related

The disclosures keep coming from companies mentioned in the recent Unaoil media reports (see here [1] for the prior post).

FMC Technologies, an oil and gas services company, recently disclosed [2]:

“On March 28, 2016 we received an inquiry from the United States Department of Justice (“DOJ”) related to the DOJ’s investigation of whether certain services Unaoil S.A.M. provided to its clients, including FMC Technologies, violated the Foreign Corrupt Practices Act. We are cooperating with the DOJ’s inquiry and are conducting our own internal investigation.”

KBR, a company which resolved an FCPA enforcement action in 2009 concerning conduct in Nigeria , recently disclosed:

“Recently, there have been news reports related to Unaoil, a Monaco based company, and activities Unaoil may have engaged in related to international projects involving several global companies, including KBR. It has also been reported that the U.S. DOJ is conducting an investigation of Unaoil related to the information reported in these news articles. The DOJ has contacted the Company in connection with that investigation and the Company is cooperating with its requests for information.”

Quad Graphics

The company recently disclosed [3]:

“In April 2016, the Company self-reported to the SEC and the Department of Justice (“DOJ”) certain Foreign Corrupt Practices Act (“FCPA”) issues related to its Peru operations. These issues appear to be isolated to the Company’s Peru operations, which had approximate annual sales ranging from $55 million to $85 million during the five year period 2011 through 2015. The self-reported issues were identified by the Company’s financial internal controls. The Company, under the oversight of its Audit Committee and Board of Directors, proactively initiated an investigation into this matter with the assistance of external legal counsel and external forensic accountants. In connection with this investigation, the Company has made and continues to evaluate certain enhancements to its compliance program. The Company is fully cooperating with the SEC and the DOJ. At this time, the Company does not anticipate any material adverse effect on its business or financial condition as a result of this matter.”

Alere

As highlighted in this previous post [4], the company which provides point of care diagnostics disclosed that it received an SEC subpoena inquiring about foreign business practices in August 2015. Thereafter, Alere announced that it would be acquired by Abbott in a $5.8 billion transaction. Thereafter, in March 2016 Alere also announced that it would “be unable to file its 2015 Form 10-K within the extension period because it is continuing to conduct an analysis of certain aspects of the timing of revenue recognition, more specifically, revenue cutoff, in Africa and China for the years ended December 31, 2013, 2014 and 2015 (and each of the quarters in those annual periods).

The company also disclosed as follows:

“On March 11, 2016, the Company received a grand jury subpoena from the United States Department of Justice requiring the production of documents relating to, among other things, sales, sales practices and dealings with third-parties (including distributors and foreign governmental officials) in Africa, Asia and Latin America and other matters related to the U.S. Foreign Corrupt Practices Act.  The Company is in the process of responding to the subpoena and intends to cooperate with the government’s investigation.”

Alere recently disclosed [5]:

“The Company … announced certain developments relating to the pending merger transaction with Abbott. In recent discussions between the parties, Abbott informed Alere that it has serious concerns about, among other things, the accuracy of various representations, warranties and covenants made by Alere in the parties’ merger agreement. Abbott indicated that these concerns relate to the delay in filing the 2015 Form 10-K and governmental investigations previously announced by Alere. Abbott has requested information from Alere about these and other matters, citing contractual rights to receive information under the merger agreement. In the initial meeting in which Abbott expressed its concerns to Alere, as part of a discussion about potential paths forward, Abbott requested that Alere agree to terminate the merger agreement in return for a payment by Abbott to Alere in the range of between $30 and $50 million in respect of Alere’s transaction expenses. Alere’s Board of Directors promptly rejected that request. In these recent discussions, Abbott affirmed its commitment to abide by its obligations under the merger agreement. In this regard, Alere was pleased with the statements in Abbott’s press release this morning that it had arranged committed financing for its acquisition of Alere. Alere likewise affirmed its commitment to abide by its obligations under the merger agreement. Alere further stated that it is completely confident that there is no basis for a termination of the merger agreement and that the merger will be consummated in accordance with its terms.”

Key Energy

The company, which has been under FCPA scrutiny since early 2014, recently disclosed: [6]

“As previously disclosed, Key Energy Services, Inc. (“Key” or the “Company”) has been cooperating with investigations by the Department of Justice and the Securities and Exchange Commission into possible violations by Key of the Foreign Corrupt Practices Act (“FCPA”).

Key has been informed by the Department of Justice that the Department has closed its investigation and that it has decided to decline prosecution of the Company.

In addition, Key has been engaged in negotiations with the staff of the Division of Enforcement of the SEC in an effort to reach a resolution of the staff’s investigation related to these same matters. Key has reached an agreement in principle with the staff on the terms of a proposed offer of settlement, which must be presented to the Commission for approval. While there is no assurance that the offer of settlement will be accepted by the Commission, Key is optimistic that the proposed resolution will become final in the second quarter of 2016. In connection with the offer of settlement, Key has accrued a liability in the amount of $5 million.”

Och-Ziff

Och-Ziff, a publicly-traded hedge fund that has been under FCPA scrutiny since 2011 (no that is not a typo), recently disclosed that the company has “entered into discussions with the government about resolution” of the matter and has taken a “$200.0 million FCPA investigation reserve accrual … in the first quarter of 2016.”

During an investor conference call, the company’s CFO stated:

“We believe it is probable that the final amount of the monetary settlement will be greater than the reserve, but at this point in time we’re unable to reasonably estimate what that amount would be.

In order to meet any final monetary settlement we have retained the entire amount of our distributable earnings this quarter and we drew $120 million on our revolver at the end of last month. When we have further clarity on the final settlement figure we will assess any additional sources of capital that may be needed.

While we remain hopeful that this matter can be resolved by midyear, pinpointing the exact time of a resolution is difficult. It is possible that the timetable may take longer than we hope. We are doing everything we can to bring the process to close in the best way possible for the business, our shareholders, our LPs and our employees.”

Fresenius 

The company has been under FCPA scrutiny since August 2012.

During a recent conference call, an investor asked “any update on the FCPA investigation and progress you’re making there?”

Rice Powell, the company’s CEO stated:

“We are making progress. We continue to what I would say look at some things, get comfortable, document it. If we need to change a practice or a policy, we’re doing that. So, I think we’re still just kind of moving through the process that we need to.

I think what sometimes seems to be taking forever, I have to remind people that when you’re operating in 120-something, 130-something countries with product in 40 or 50 on the service side, it takes a while as you go through and look at your programs and what you need to do to improve them and those sort of things.”

Grifols

The company recently disclosed:

“The Group continues carrying out an internal investigation, already started prior to the acquisition of Talecris, in relation to possible breaches of the Foreign Corrupt Practices Act (FCPA) of which Talecris was aware in the context of a review unrelated to this matter. This FCPA investigation is being carried out by an external legal advisor. In principle, the investigation was focused on sales to certain Central and Eastern European countries, specifically Belarus and Russia, although trading practices in Brazil, China, Georgia, Iran and Turkey are also being investigated, in addition to other countries considered necessary.

In July 2009, the Talecris Group voluntarily contacted the U.S. Department of Justice (DOJ) to inform them of an internal investigation that the Group was carrying out regarding possible breaches of the FCPA in certain sales to certain central and East European countries and to offer the Group’s collaboration in any investigation that the DOJ wanted to carry out. As a result of this investigation the Group suspended shipments to some of these countries. In certain cases, the Group had safeguards in place which led to terminating collaboration with consultants and suspending or terminating relations with distributors in those countries under investigation as circumstances warranted.

As a consequence of the investigation, the agreement with Talecris’ Turkish distributor was terminated and a settlement agreement was reached between the parties. In November 2012, the Group was notified by the DOJ that the proceedings would be closed, without prejudice to the fact that they could be reopened in the future should new information arise. The Group continues with the in-depth review of potential irregular practices.

Furthermore, an investigation was opened in Italy, in relation with the criminal prosecution in Naples against 5 employees of the Company, including the former General Manager.

From these 5 employees of the Company initially charged, the Naples Tribunal resolved discharging 3 of them, continuing the judicial process only against the remaining 2 employees. Additionally, the Company has finalized the internal investigation opened in Italy as consequence of the indicated judicial proceedings, and in November 2015 a meeting took place with the DOJ to report on the conclusions derived from the investigation. Although the Naples judicial proceedings is still under legal dispute and DOJ’s final decision, after the meeting held last November, is still pending, the Company as well as its legal advisors consider the likelihood of this issue affecting the financial statements of the Company to be remote.

Additionally to the above and as part of the in-depth review of potential irregular practices that the Group is carrying out in relation to its recent acquisitions, the Company opened internal investigations in Mexico as well as in the Czech Republic to review the commercial practices in such countries. Both investigations have finalized, without having detected any significant practice that could imply a breach of the FCPA.

The legal advisors recommend limiting disclosure of the aforementioned information in these condensed consolidated interim financial statements, because the matter is currently under legal dispute.”

Reading Stack

As noted in this 2010 post [7], I have long wondered about the “shelf-life” of the Arthur Anderson case.

In other words, how long will the 2002 prosecution (and related consequences) guide DOJ corporate charging decisions? I asked in 2010: will a DOJ prosecutor in 2015 or 2020 be persuaded not to criminally indict a corporation because of what happened in 2002? Should a corporation escape the most severe consequences of criminal conduct just because it employs lots of people?

The so-called “Arthur Anderson” effect on DOJ policy is chronicled in my article “Measuring the Impact of NPAs and DPAs on FCPA Enforcement.” [8] My observations are just that, observations.

Samuel Buell is a Duke Law Professor who has first-hand experience with the Arthur Anderson case in that prior to academia, Buell was a DOJ prosecutor on the Arthur Anderson case. In this recent Corporate Crime Reporter Q&A [9] Buell discusses the Arthur Anderson case and how the company rejected – several times – plea agreements and DPAs.

Recommended reading to be sure.

Another recent Corporate Crime Reporter Q&A with Buell is here [10].

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Marketing the “black hole” that is FCPA enforcement (see here [11]).

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A good weekend to all.