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

Friday Roundup

Checking in on Wal-Mart, DOJ “declinations,” another installment of as we say not as we do, scrutiny alerts, and cashing in. It’s all here in the Friday roundup.

Wal-Mart

In its recent 2Q FY2017 earnings call presentation [1] Wal-Mart disclosed $28 million in Foreign Corrupt Practices Act and compliance related expenses ($23 million for ongoing investigations and inquiries and $5 million for global compliance program and organizational enhancements). The Q2 expenses of $28 million are higher than the Q1 expenses of $25 million.

Doing the math, Wal-Mart’s 2Q FCPA and compliance-related costs is approximately $445,000 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 [2] for doing so, such figures are notable because, as has been noted in prior posts and in the article “Foreign Corrupt Practices Act Ripples [3],” 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.

Over the past eleven quarters, Wal-Mart’s pre-enforcement action professional fees and expenses have been $396,000, $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.

FY 2017 (1Q, 2Q) = $53 million.

DOJ “Declinations”

The DOJ has never provided a meaningful, substantive definition of what it means by “declination.”

In any event, the DOJ recently added a “declinations” tab to its FCPA website [4]. If you go to the “Pilot Program” section and click on “declinations” you will see the following.

Declinations

 

 

 

 

 

As We Say, Not As We Do

Previous posts here [5] and here [6] have highlighted SEC enforcement actions against companies for non-existent, theoretical muzzling of individuals in certain employment agreements. Last week, the SEC brought yet another enforcement action of this type against Health Net Inc. [7] “for illegally using severance agreements requiring outgoing employees to waive their ability to obtain monetary awards from the SEC’s whistleblower program.”

In the words of the SEC’s Associate Director of Enforcement:

“Financial incentives in the form of whistleblower awards, as Congress recognized, are integral to promoting whistleblowing to the Commission. Health Net used its severance agreements with departing employees to strip away those financial incentives, directly targeting the Commission’s whistleblower program.”

Of note, the SEC’s order specifically stated:

“Though the Commission is unaware of any instances in which (i) a former employee of [Health Net] who executed the above noted agreements did not communicate directly with Commission staff about potential securities law violations or (ii) [Health Net] took action to enforce those provisions or otherwise prevent such communications, [Health Net] – by use of [the] agreements – directly targeted the SEC’s whistleblower program by removing the critically important financial incentives that are intended to encourage persons to communicate directly with the Commission staff about possible securities law violations.”

Without admitting or denying the SEC’s finding in an administrative, Health Net agreed to hand over $340,000 to the SEC.

As highlighted in the previous posts, the irony is that all NPAs and DPAs that the SEC has used to resolve corporate FCPA enforcement actions contain a so-called muzzle clause along the following lines:

“Respondent agrees not to take any action or to make or permit any public statement through present or future attorneys, employees, agents, or other persons authorized to speak for it, except in legal proceedings in which the Commission is not a party in litigation or otherwise, denying, directly or indirectly, any aspect of this Agreement or creating the impression that the statements in [the Statement of Facts” are without factual basis. […] Prior to issuing a press release concerning this Agreement, the Respondent agrees to have the text of the release approved by the staff of the Division.”

Similar to the SEC’s own internal controls deficiencies [8], this appears to be another example of as we say, not as we do.

Scrutiny Alerts

Australia media reports:

“Two Australian companies are embroiled in bribery scandals that reach into the offices of the presidents of Sri Lanka and the Republic of Congo, as the firms sought to secure multimillion-dollar contracts.

[…]

A Fairfax Media and 7.30 investigation has uncovered internal documents from Perth-based listed mining company Sundance Resources that suggest it bribed the leader of the Republic of Congo as it sought presidential approval in 2007 for one of Africa’s most ambitious iron ore projects.

[…]

A Fairfax Media investigation has separately uncovered evidence … involving the iconic Snowy Mountains Engineering Company (SMEC). […]  The firm’s overseas staff allegedly bribed officials to secure a $2.3 million aid-funded sewerage project in Sri Lanka in 2011 and, in partnership with a Canadian company, a $2.2 million power plant project in Bangladesh in 2007. Company emails also reveal Sri Lankan President Maithripala Sirisena and his adviser allegedly demanded a political “donation” to be paid by SMEC when Mr Sirisena was a cabinet minister.”

Sundance Resources had ADRs registered with the SEC.

Cashing In

A number of articles have been written about FCPA Inc. and the business of bribery. Not all have been as blunt as this piece [9] from a private detective firm which ends with the following advice.

“I would suggest that you all read up on the Act [the piece discusses the FCPA and UK Bribery Act] and see how you can use it to enhance your turnover and offer new services. What on the face of it first appeared to be a negative legislation can be used to your advantage.”

*****

A good weekend to all.