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Friday Roundup

DOJ seeks legislative changes, a focus on FCPA Inc., credit ratings, across the pond, scrutiny update, and for the reading stack.

It’s all here in the Friday Roundup

DOJ Seeks Legislative Changes

The DOJ’s efforts to eradicate corruption and bribery is broader than just Foreign Corrupt Practices Act enforcement and includes: “public integrity prosecutions, bribery prosecutions, prosecutions of taxpayers who seek to conceal foreign accounts, money laundering prosecutions, [and its] Kleptocracy Initiative.”

Regarding these other efforts, last week the DOJ issued this press release [1] announcing that it “will submit to Congress proposals for legislative amendments in two areas:  first, regarding the illegal proceeds of transnational corruption; and second, regarding substantive corruption offenses.” For further details on the proposed legislative amendments, see this 13 page document released by the DOJ. [2]

A Focus on FCPA Inc.

This American Lawyer [3] article titled “Firms Cash In on Anti-Bribery Expertise Amid Litigation Slowdown” begins: “big-ticket litigations involving scores of lawyers may be thinner on the ground these days, but a surge in global anti-corruption probes is helping to make up for it at a few firms.”

Other prior articles to touch upon the same general issues include the following:

Credit Ratings

The article “FCPA Ripples [8]” highlights how settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from FCPA scrutiny or enforcement in this new era.

Among the many “ripples” of FCPA scrutiny and enforcement discussed in the article are negative credit ratings which increase the cost of capital for business organizations under FCPA scrutiny.

On this issue, Moody’s recently released this report [9] “Heightened US FCPA Enforcement to Continue But Priorities Shift.” In short, Moody’s states: “the wide range of potential outcomes and timing in [FCPA cases] can create substantial short-to-medium term uncertainty for credit investors, and we often view this uncertainty as credit negative.”

While that is the key take-away from the Moody’s report, there are several factual errors and curious and speculative statements in the report. For starters, BAE was not an FCPA enforcement action. The curious and speculative statements include: (i) “the DOJ is shifting its focus to ‘high impact’ corporate cases and individual prosecutions, while the SEC is focusing on the books and records and internal controls provisions of the FCPA;” (ii) “heightened [FCPA enforcement] will benefit those companies that respond by strengthening their controls and compliance policies, reducing their susceptibility to fines, penalties, legal damages, reputation loss and higher capital/borrowing and other costs;” and (iii) “the slowdown in DOJ enforcement [in 2015] was also partly due to an increase in voluntary self-disclosure and cooperation by corporations, which the DOJ indicated led to an uptick in the number of cases where it declined prosecution.”

Across the Pond

Earlier this week, the U.K. Serious Fraud Office announced:

“[Peter Chapman] a former manager of a polymer banknote manufacturer, Securency PTY Ltd, was … convicted of four counts of making corrupt payments to a foreign official contrary to the Prevention of Corruption Act 1906. He was acquitted on two counts.

[…]

Mr Chapman paid bribes to an agent of Nigerian Security Printing and Minting PLC in order to secure orders for the purchase of reams of polymer substrate from Securency. The total value of the bribes, he was convicted of paying to the agent was approximately US$205,000.

Commenting on the conviction, Director of the SFO David Green CB QC said:

“This has been a long, detailed investigation and a complex prosecution involving assistance from a wide range of jurisdictions. Crimes like this damage the UK’s commercial reputation and this conviction shows that such activity will not be tolerated.”

The Reserve Bank of Australia (RBA) and Securency referred allegations of corruption to the Australian Federal Police (AFP) in May 2009. The allegations were that Securency, at the time jointly owned by RBA and UK manufacturing firm Innovia Films Ltd, paid bribes to foreign government officials via agents in order to secure contracts with certain governments in Asia and Africa for the printing of banknotes.”

As noted in this subsequent SFO release [10]: Chapman “was sentenced to 30 months on each count, to be served concurrently. Due to time already served, he is serving the remainder of his sentence on licence.”

Scrutiny Update

Petrobras Related

According to Bloomberg [11]:

“U.S. authorities are investigating more than a dozen companies as part of an international bribery probe that has already led to more than 150 arrests in Brazil, according to people familiar with the matter.

Prosecutors in the U.S. and Brazil are effectively dividing the investigation to suit their respective strengths as they pursue suspected graft related to Brazil’s state-run oil giant. Brazilian law allows authorities to file criminal graft charges against people but not companies, whereas the U.S. has been more successful pursuing companies accused of corruption.

The U.S. Justice Department and Securities and Exchange Commission have been speaking with their Brazilian counterparts and gathering information from companies, said three people who spoke on the condition of anonymity. The U.S. is hoping the exchange of documents and other information will allow it to mount a case against Petroleo Brasileiro SA, known as Petrobras, and companies that it had contracts with, two of the people said.

[…]

U.S. authorities are looking at any company that has been named publicly in the Brazilian investigation, two of the people said. Those include builders Odebrecht SA, OAS SA and Andrade Gutierrez SA. Executives from all three companies were convicted or pleaded guilty in the scandal. Centrais Eletricas Brasileiras SA, known as Eletrobras, has also been mentioned and a former executive has been arrested.

These companies have shares or bonds that trade in the U.S., allowing American authorities to claim jurisdiction.

[…]

SBM Offshore NV, a Dutch-based oil and gas company, is also getting another look by U.S. prosecutors after the U.S. cleared it of corruption allegations in 2014, the two people said. At the time, SBM said in a statement it would pay $240 million to Dutch authorities and take remedial measures, without admitting wrongdoing, to settle bribery allegations involving Brazil and two other countries.

[…]

Brazil informed the U.S. last year that it believed an additional four companies paid bribes to win contracts from Petrobras, Carlos Lima, a Brazilian prosecutor, said in June. Those companies are units or affiliates of Samsung Heavy Industries Co., Skanska AB, AP Moeller-Maersk A/S and Toyo Engineering Corp.”

Harris Corp.

As highlighted here [12], Harris Corp. was the last publicly traded company to put the DOJ to burden of proof in an FCPA enforcement and in 1991 a federal court judge granted a defense motion for acquittal after the DOJ’s case-in-chief.

As highlighted here [13], in 2011 the company disclosed FCPA scrutiny in connection with an acquisition in China. The company recently disclosed [14]:

“As an international company, we are, from time to time, the subject of investigations relating to our international operations, including under U.S. export control laws and the Foreign Corrupt Practices Act (“FCPA”) and other similar U.S. and international laws. On April 4, 2011, we completed the acquisition of Carefx Corporation (“Carefx”) and thereby also acquired its subsidiaries, including in China (“Carefx China”). Following the closing, we became aware that certain entertainment, travel and other expenses in connection with the Carefx China operations may have been incurred or recorded improperly. In response, we initiated an internal investigation and learned that certain employees of the Carefx China operations had provided pre-paid gift cards and other gifts and payments to certain customers, potential customers, consultants, and government regulators, after which we took certain remedial actions. The results of the investigation have been disclosed to our Audit Committee, Board of Directors and auditors, and voluntarily to the U.S. Department of Justice (“DOJ”) and the SEC. The SEC and DOJ initiated investigations with respect to this matter. During the second quarter of fiscal 2016, the DOJ advised us that they have determined not to take any action against us related to this matter. The DOJ further advised us that its decision was based on its overall view of the evidence as to our level of acquisition due diligence and integration efforts, our voluntary disclosure to the DOJ and SEC, our remediation efforts and our cooperation throughout the investigation, which is continuing. At this time we also are continuing to cooperate with the SEC regarding its investigation. We cannot predict at this time the duration or scope of, developments in, results of, or any regulatory action or other potential consequences from, such investigation or otherwise in connection with this matter. However, based on the information available to date, we do not believe that this matter will have a material adverse effect on our financial condition, results of operations or cash flows.”

Sable Mining Africa

According to this Wall Street Journal article:

“[The company] made payments to government officials in West Africa in 2010 before winning lucrative mineral concessions, according to documents reviewed and interviews conducted by The Wall Street Journal.

Separately, investigative nonprofit Global Witness, in a report released Wednesday and reviewed by the Journal, says its investigation shows Sable made payments to government officials and people close to the government in Liberia and Guinea, hoping to get favorable decisions for mining deals. Sable, which is registered in the British Virgin Islands, owns mining rights to a plot of land in Guinea it says is rich in iron ore, and has secured the right to export it through Liberia.”

For the Reading Stack

The FCPA has always been a law much broader than its name suggests. Indeed, the FCPA’s books and records and internal controls provisions are some of the most generic legal provisions one can find and most alleged violations of these provisions have nothing to do with foreign bribery. (For lack of a better word, call these non-FCPA FCPA enforcement actions).

A dandy article here [15] from Orrick attorneys discussing recent SEC enforcement actions addressing internal controls failures outside the context of alleged foreign bribery.

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A good weekend to all.