A public service announcement, Wal-Mart’s pre-enforcement action professional fees and expenses, scrutiny alert, happenings in Bermuda, a fee dispute, quotable, a useful timeline, for the reading stack, and good for a few chuckles. It’s all here in the Friday roundup.
A Public Service Announcement
Section 5 of the Federal Trade Commission Act requires the disclosure of a material connection between an advertiser and an endorser when the relationship isn’t otherwise apparent to consumers. As the FTC has made clear, the law applies to bloggers.
Certain members of the FCPA’s blogosphere (who frequently write about compliance best practices, transparency, conflicts of interest and related topics) may want to take notice and act accordingly.
Wal-Mart Check In
In its recent 1Q FY2017 earnings call presentation Wal-Mart disclosed $25 million in Foreign Corrupt Practices Act and compliance related expenses ($21 million for ongoing investigations and inquiries and $4 million for global compliance program and organizational enhancements).
Doing the math, Wal-Mart’s 1Q FCPA and compliance-related costs is approximately $396,000 per working day.
Over the past approximate four years, I have tracked Wal-Mart’s quarterly disclosed pre-enforcement action professional fees and expenses.
While some pundits have ridiculed me for doing so, such figures are notable because, as has been noted in prior posts and in my article “Foreign Corrupt Practices Act Ripples,” settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.
Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.
While $396,000 per working day remains eye-popping, Wal-Mart’s recent figure suggests that the company’s pre-enforcement action professional fees and expenses have largely crested as the figures for the past ten quarters have been approximately $520,000, $470,000, $470,000, $516,000, $563,000, $640,000, $662,000, $855,000, $1.1 million and $1.3 million per working day.
In the aggregate, Wal-Mart’s disclosed pre-enforcement professional fees and expenses are as follows.
FY 2013 = $157 million.
FY 2014 = $282 million.
FY 2015 = $173 million.
FY 2016 = $126 million.
1Q 2017 = $25 million.
According to this Bloomberg report:
“Standard Chartered Plc informed the U.S. Department of Justice about allegations of bribery involving MAXpower Group Pte, an Indonesian power company in which its private-equity division is a minority shareholder, according to a person familiar with the matter.”
According to this article, Bermuda is “modernizing” its laws relating to bribery and corruption. Part of the modernization is to enact “new legislation which is based on an international gold standard in the UK’s Bribery Act 2010.”
Like the U.K . Bribery Act, Bermuda is poised to enact a compliance defense relevant to corporate criminal liability.
As highlighted in the article “Revisiting an FCPA Compliance Defense,” most OECD Convention countries that recognize corporate criminal liability (note: several countries do not) have compliance-like defenses relevant to their FCPA-like laws.
Relevant to this issue, it was interesting to hear Billy Jacobson (former Assistant Chief for FCPA enforcement in the DOJ fraud section) discuss in this recent FCPA Flash podcast how, if the FCPA were passed today (instead of 1977), it would likely contain a compliance defense.
Just because the FCPA was passed nearly 40 years ago, doesn’t mean that it can’t be “modernized” and made consistent with the FCPA-like laws of other peer nations.
A Fee Dispute
Because law firm engagement letters frequently contain dispute resolution clauses that mandate arbitration, lawyer-client fee disputes are seldom the focus of public attention. That is until the dispute escalates as it has between Eurasian Natural Resources Corp. and Dechert in connection with an FCPA (and related) internal investigation.
As highlighted here by the American Lawyer:
“Eurasian Natural Resources Corp. hired Dechert in 2011 to probe Kazakh corruption allegations, but the law firm broadened the focus of its investigation to Africa. Dechert billed ENRC $23.5 million. Whether because Dechert was too honest about what it found, or because, in ENRC’s words, the firm engaged in “systematic and gross overcharging,” ENRC fired Dechert in 2013, shortly before the Africa report was due. Challenging the fees in court, general counsel Beat Ehrensberger testified that “Dechert made decisions regarding the methods and scope of investigation for the principal purpose of expanding the work to generate higher fees.” More colorfully, the GC testified that Dechert’s Neil Gerrard reportedly referred to himself as being “in rape mode.”
Michael Koehler, a law professor and expert on the Foreign Corrupt Practices Act, warns that “these things morph easily into a boondoggle for FCPA Inc.” Investigative fees routinely exceed fines several times over, he says, but most fee disputes are resolved quietly in arbitration.
Dechert not only fought for its fees in open court—but asked to waive attorney-client confidentiality.
On April 20, the English Court of Appeal agreed that Dechert had no legitimate reason to waive its privilege. So what was Dechert thinking? Observers speculate that the firm aimed to pressure its client to pay in full, betting that the company would prefer not to see corruption allegations against it aired in public. The judges noted that the U.K. Serious Fraud Office, which has opened a criminal inquiry, would obviously attend an open hearing. ENRC said that it would be forced to drop its fee fight if the court made the fee fight public.
“This is one of the most grotesque and cynical tactics ever used by a law firm against its own client,” argues a lawyer with knowledge of the case. “They basically tried to turn the Serious Fraud Office into their bill collector.” Of course, we shouldn’t forget that the bribery alleged against the client is infinitely worse. “The claims that ENRC has made against Dechert are completely unfounded,” states a Dechert spokeswoman, “and Dechert is defending itself vigorously.”
From a recent Bloomberg BNA article on the DOJ’s FCPA Pilot Program and Yates Memo.
While DOJ officials are hoping that the FCPA program will get companies to more readily self-report any problems they uncover, an in-house lawyer for a large technology firm told Bloomberg BNA that it may have the opposite effect.
“Honestly, our automatic approach is to rectify the problem, discipline the officer or employees involved, then take our chances on the government finding out, especially now,” after the Yates memo and the FCPA initiative, said the attorney, who requested anonymity to prevent bringing attention to her company.
The DOJ’s policy changes also make it more difficult for general counsel to get cooperation from employees worried about being targeted by federal prosecutors, she said.
As highlighted in the article “Grading the DOJ’s FCPA Pilot Program” the above in-house response is sensible which is why the DOJ’s pilot program falls short of accomplishing the laudable goals articulated by the DOJ compared to other alternatives previously advanced.
From the 7th Circuit’s recent decision in U.S. v. Weimert (in which the court reversed mail and wire fraud convictions and ordered a judgment of acquittal).
“Federal mail and wire fraud statutes encompass a broad range of behavior. Their limits can be difficult to draw with certainty. But there are limits nonetheless, and they must be defined by more than just prosecutorial discretion.”
Insert the “Foreign Corrupt Practices Act” for “federal mail and wire fraud statutes” and that is pretty much the point of my 2010 article “The Facade of FCPA Enforcement.”
A useful timeline here from the Third Edition of “Federal Erosion of Business Civil Liberties” by the Washington Legal Foundation which details in chronological fashion many issues including DOJ Criminal Prosecution Policies and Deferred Prosecution and Non-Prosecution Agreements.”
Regarding the later and specific to the FCPA context, see the article “Measuring the Impact of NPAs and DPAs on FCPA Enforcement.”
For the Reading Stack
Yesterday the U.S. Chamber Institute for Legal Reform and the National Association of Criminal Defense Lawyers hosted a symposium on overcriminalization. In connection with the symposium, two papers were released.
See here for “DOJ’s New Threshold for ‘Cooperation’: Challenges Posed by the Yates Memo and USAM Revisions.”
See here for “Enforcement Gone Amok: The Many Faces of Over-Enforcement in the United States.”
Good for a Few Chuckles
A while back I had a discussion with a journalist I greatly respect. She told me she was getting pressure from her editor to “go to FCPA conferences and break news.” The well-informed journalist stated that “FCPA conferences are the last place to go to break news.”
Nevertheless, the practice continues of covering statements at FCPA or related conferences as if they represent news.
A few examples caused me to chuckle.
In this WSJ Risk & Compliance Journal example we learn that a senior vice president and chief compliance officer of General Cable, a company under FCPA scrutiny, had something nice to say about the DOJ.
In this WSJ Risk & Compliance Journal example we learn – courtesy of a quote from a principle of a compliance consulting firm – that “one of the best ways to determine the effectiveness of a [compliance] program is to hire an independent third-party expert to come in and assess the program against all regulatory and legal requirements, and against the best practices of companies inside and outside one’s industry.”
A good weekend to all.