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Friday Roundup

Assistant Attorney General Leslie Caldwell on the DOJ’s FCPA Pilot Program, scrutiny alerts and updates, quotable and for the reading stack. It’s all here in the Friday roundup.

Caldwell on the FCPA Pilot Program

This article [1] contains a recent Q&A with Assistant Attorney General Leslie Caldwell about the DOJ’s FCPA Pilot Program.

After reading the below excerpts, you might also want to read the article “Grading the DOJ’s FCPA Pilot Program [2].”

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What are the goals behind the FCPA pilot program?

We know that FCPA violations are frankly rampant around the world. We also know that there’s a lot of FCPA activity that we never hear about. And a lot of times [companies have] commissioned an internal investigation, and that internal investigation has been done by an outside law firm. That outside investigation has taken some remedial steps: fired some people, changed some compliance processes. [They’ve] put that investigation on the shelf and they hoped that’s the end of it. If we ever hear about it through other means, they will then tell us about their investigation and they’ll cooperate with us about what they did two years ago, three years ago. So, part of the goal is to get at the vast amount of information that we know exists about FCPA violations by giving companies a more concrete incentive to self-report.

We know there are more FCPA violations out there and with our increase in resources we hope to detect more. Another idea is that we can get evidence that might be otherwise be very hard for us to get about the individuals who were responsible for the FCPA violation in the hopes that we can prosecute them. In some way it implements the Yates memo, the individual culpability memo, to come up with an operational way to get at that information about individuals that we know is out there.

Traditionally, how many investigations have been generated from self-reports?

A few years ago—maybe six or seven years ago—I would say that the majority of FCPA [prosecutions] were as a result of self-reports. In recent years that’s declined sharply. I think that the reason that that’s declined is that companies perceived that there wasn’t any significant [difference] between doing the investigation, putting it on the shelf, hoping the government never comes calling, and cooperating when they do [and] doing the investigation and self-reporting. At the same time we’ve developed more cases through other means. We’ve got very robust relationship with a lot of countries around the world, law enforcement-to-law enforcement. We get information from other sources like competitors, whistleblowers [and] international development agencies like the World Bank. So it’s not like we’re sitting, waiting for the self-reports. To the contrary, we’re out there looking and finding a lot of cases and working cooperatively with countries around the world. But we know that there’s a lot that’s in the possession of U.S. companies already that we’re not getting. So we’re hoping this will motivate people to give it to us.

Have you had any takers yet?

I don’t know the answer. We certainly have companies that have already self-reported who are eligible for the program. Some companies that self-reported are getting the benefits—including in one case a declination of prosecution—because of the way they handled the violations.

Some defense lawyers think the program will be enticing for big companies with big problems, but companies with more discreet programs still might do the investigation and stick it on a shelf. What do you think?

The department has never been interested in prosecuting as criminal FCPA violations discreet, small violations such as a one-time bribe to a customs official in name-that-country to get a shipment into that country earlier than they otherwise would have. That’s an FCPA violation, but that’s not something that we’d ever be interested in prosecuting. We used to get a lot of self-reports of that kind of thing and we would not be interested. That’s not what we’re looking for. We’re looking for self-reports where there’s a significant violation of the FCPA and the company opts to handle it in a way that we view as responsible and appropriate. I think that a company with a really big program might be more worried about the possibility of discovery through other means and that might also motivate self-reporting. I could see where a smaller company or a big company with a smaller problem might be willing to take their chances. But you know that they should realize that there are a lot of people out there who are aware of the FCPA and we’re working with governments in other countries who are sharing information with us. I think the risk of getting caught goes up every day.

You mentioned the Yates memo earlier. Have there been any changes in terms of number of individuals being charges or targeted in white-collar cases since the Yates memo was issued?

I think that it’s too soon to tell whether more individuals are being charged. Most of these corporate cases have a long gestation period. I do think that there’s been a change in mind-set of prosecutors in some places. In the Criminal Division and the bigger offices like the Northern District … I don’t think anything has really changed because they were always focusing on individuals. But I think that’s changed at some places across the country where they’re now more focused on individuals. The other thing we’ve seen change, is when companies are cooperating with the government they’ve been providing a lot more detail and a lot more information about who knew what and who knew what when. Whereas before we use to see things presented in the passive voice in the sense that “mistakes were made.” We’re not seeing that anymore. Companies know that that’s not acceptable.

In an area such as this, where enforcement agencies can be a competitor at the same time they cooperate, how do you promote cooperation across borders and across agencies?

Across agencies is easy because the fraud section of the Criminal Division has the exclusive criminal jurisdiction. We work with U.S. attorneys, but we’re in all the FCPA cases. We coordinate very nicely and work very well with the SEC, so we’re never racing with the SEC. The problems arise when we’re racing with another country who might also want to prosecute.

That’s more of what I was getting at.

Yeah. I think over the past few years, sometimes through hard lessons, we’ve learned to figure out earlier in the game whose interests really should control here. I think we’ve gotten a lot better at it, in part because we’ve gotten a lot more experience and everything is getting more international in the criminal world. Between cyber and FCPA, we’re developing a lot of relationships with countries like Indonesia and Vietnam—countries that we might not even have treaties with. With our more traditional partners like the U.K., we’ve gotten a lot better at talking to each other and making sure that we’re not stepping all over each other’s feet or rushing to each other’s respective courthouses.

How do the enforcement agencies in the Northern District of California fit into the overall FCPA strategy and approach?

They’re important players. The SEC office out here has a dedicated FCPA group, which most offices don’t. Part of that is a recognition that the Northern District is the home of Silicon Valley, which has a lot of companies that operate in a lot of challenging parts of the world where [corruption] is a problem.

Scrutiny Alerts and Updates

SNC-Lavalin

According to this report:

“SNC-Lavalin paid a secret Caribbean-registered company to intercede on its behalf to obtain hundreds of millions of dollars in business in Algeria, the Panama Papers show, in a similar pattern to how the engineering giant operated in Libya, for which it is facing charges of paying bribes and committing fraud.

Montreal-based SNC landed at least $4 billion in contracts in Algeria during a prosperous decade for the company in North Africa. The Panama Papers reveal a number of those deals were obtained through the services of a shadowy firm called Cadber Investments SA registered in the British Virgin Islands.

The revelations, from a joint investigation by CBC’s French-language service Radio-Canada and the Toronto Star, call into question SNC insiders’ dealings in yet another country, contributing to a mounting toll of evidence that some staff at Canada’s premier engineering firm repeatedly engaged in suspicious commercial practices.”

Unaoil

The Huffington Post returns to Unaoil’s alleged business practices.

As noted in this [3] article:

“Reports from The Huffington Post and Fairfax Media of a massive bribery scheme by global oil services company Unaoil have “some foundations,” says Iraq’s ambassador to the United States. “I’m not saying that all the conclusions of the report [are] right, nor am I saying that there were no foundations for it,” Ambassador Lukman Faily told HuffPost on Monday. “There are some foundations for those reports.”

Meanwhile Unaoil issued this statement [4]:

“Unaoil can confirm it has been the victim of a four-month extortion attempt by criminals.

The extortionists demanded huge sums of money from us in exchange for stolen emails and threatened that if we didn’t pay they would go to the media. As reported in The Australian, our expert advisers have indicated to us that they believe the extortionists are at the very least involved with the media sources of the articles published by Fairfax Media and Huffington Post.

Despite being told by our company that the emails they were in possession of were stolen, Fairfax Media rushed to publish them, and we are deeply disturbed by their actions, which have had a negative impact on our business.

We deny the allegations made by Fairfax Media’s reporters. We will be vigorously defending ourselves and are exploring all legal options. We are engaging with the UK Authorities and therefore are unable to comment in any detail at this time. We stand by our firm’s legacy and look forward to the facts of this case being properly brought to light.

Fairfax Media’s reporting is littered with sensationalist distortions and misleading correlations, even going so far as to attempt to draw a line between Unaoil and the Arab Spring.

Unaoil is an industrial company that has made significant contributions to civil society in Iraq and elsewhere, including building critical infrastructure and educating hundreds of vulnerable children. Prior to Fairfax’s reporting, we also employed many hundreds of Iraqis.”

For whatever it is worth, in this initial post [5] I called the Unaoil media coverage a “bit over-the-top and breathless.”

Core Labs

The Netherlands-based company with shares listed on the NYSE recently disclosed [6]:

“[I]t has been reported that the United States Department of Justice (the “DOJ”) is conducting an investigation of Unaoil, a Monaco based company, related to activities Unaoil may have engaged in related to international projects involving several global companies, including Core Lab. The DOJ has contacted us in connection with that investigation, and we are cooperating with its requests for information.”

Vantage Drilling

The company provided an update on its previously disclosed FCPA scrutiny and recently disclosed [7]:

“In July 2015, we became aware of media reports that Hamylton Padilha, the Brazilian agent the Company used in the contracting of the Titanium Explorer drillship to Petroleo Brasileiro S.A. (“Petrobras”), had entered into a plea arrangement with the Brazilian authorities in connection with his role in facilitating the payment of bribes to former Petrobras executives. Among other things, Mr. Padilha provided information to the Brazilian authorities of an alleged bribery scheme between former Petrobras executives and Mr. Hsin-Chi Su, who was, at the time of the alleged bribery scheme, a member of the Board of Directors and a significant shareholder of VDC. When we learned of Mr. Padilha’s plea agreement and the allegations, we voluntarily contacted the U.S. Department of Justice (“DOJ”) and the SEC to advise them of these recent developments, as well as the fact that we had engaged outside counsel to conduct an internal investigation of the allegations. Our internal investigation is ongoing and we are cooperating with the DOJ and SEC in their investigation of these allegations. In connection with our cooperation with the DOJ and SEC, we recently advised both agencies that in early 2010, we engaged outside counsel to investigate a report of allegations of improper payments to customs and immigration officials in Asia. That investigation was concluded in 2011, and we determined at that time that no disclosure was warranted; however, in an abundance of caution, we are reviewing the matter again in light of the allegations in the Petrobras matter. Although we cannot predict the outcome of this matter, if the DOJ or the SEC determine that violations of the U.S. Foreign Corrupt Practices Act (“FCPA”) have occurred, the Company could be subject to civil and criminal sanctions, including monetary penalties, as well as additional requirements or changes to our business practices and compliance programs, any or all of which could have a material adverse effect on our business and financial condition. Additionally, if we become subject to any judgment, decree, order, governmental penalty or fine, this may constitute an event of default under the terms of our secured debt agreements and result in our outstanding debt becoming immediately due and payable.”

Quotable

In this [8] recent Corporate Crime Reporter Q&A, Sean Hecker (Debevoise) is asked “if the Justice Department started pushing major corporations to guilty pleas, would you anticipate some of those companies taking the Department to trial?” and responds:

“It’s rare. Those of us who are trial lawyers chomp at the bit in some of these cases. You say to yourself — it’s all well and good that there is a theory here that folks acted improperly, but if push came to shove, could they really prove it up in front of a jury? There is some skepticism in the defense bar about some of the resolutions that have been reached. It continues to be the case that it is going to be the rare public company and the rare public company board that allows the company to take an indictment and go to trial on a significant matter. But that’s not to say that it won’t happen. If the issue is sufficiently cabined and the company gets the wherewithal to conclude that it won’t be the end of the company to try the case, you may see a couple of those cases over the coming years. And that would be great for the system. It would be an important check on the system to be able to put a case in front of a jury and see whether the government could actually prove up a theory. The government is typically in a position where they have a huge sword hanging over a company’s head. All of us who do what we do think that the playing field would be more balanced if there were companies occasionally able to fight. But it will be rare.”

For the Reading Stack

In this recent speech [9] U.K. SFO General Counsel Alun Milford talks about how the SFO “is a law enforcement agency, not a regulator,” how the SFO learns of cases, the two-stage test for prosecuting corporates, and the Standard Bank DPA.