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Friday Roundup

Scrutiny alerts and updates, ripples, difficult business conditions, resource alerts, and for the reading stack. It’s all here in the Friday roundup.

Scrutiny Alerts and Updates

Wal-Mart

Bloomberg reports [1]:

“Wal-Mart Stores Inc. is butting heads with the U.S. government over how to wrap up a long-running foreign corruption investigation. Officials have proposed that the world’s biggest retailer pay at least $600 million to resolve probes by the Justice Department and the Securities and Exchange Commission into whether it bribed government officials in markets from Mexico to India and China, according to three people familiar with the matter. The retailer has rebuffed the government’s request, two of them said.

With the impasse, prosecutors have gone back to elicit more evidence from witnesses about alleged bribe-paying in Mexico, the people said. That will put additional pressure on the company to settle. Some of the people familiar with the matter said the U.S. could propose a penalty well above $600 million. The government has some challenges as well. Some of the behavior it’s been investigating in Mexico, where the bulk of Wal-Mart’s non-U.S. stores are located, may be too old to prosecute, people familiar with the matter have said. Officials are working to wrap up an agreement with Wal-Mart before a new administration takes over in January, the people said.”

Electrobas

Reuters reports [2]:

“An internal probe at Brazil’s Eletrobras is finding signs of corruption in as many as seven large projects at the state-led utility in addition to the two facilities where police have already made arrests in a graft probe, a source with direct knowledge of the situation told Reuters.

[…]

The Eletrobras internal probe involves around 200 people from law firms Hogan Lovells, WFaria and Pinheiro Neto, the source said. Risk consulting firm Kroll and auditing companies KPMG and PwC are also taking part in the work …”.

Embraer

Reuters reports:

“A U.S. investigation of Brazilian planemaker Embraer SA is looking into alleged bribery in the sale of aircraft to Mozambique’s state airline in 2008, newspaper Folha de S.Paulo reported on Thursday. Investigators were looking into a deal that sent two E190 commercial jets to Linhas Aéreas de Moçambique for an undisclosed sum, Folha reported, with providing sources. The newspaper had reported that a probe into potential violations of the U.S. Foreign Corrupt Practices Act was scrutinizing the sale of three surveillance aircraft to India in 2008 and two E170 jets to Saudi Aramco in 2010. Embraer reaffirmed in a statement on Thursday it has been cooperating and negotiating a formal accord with U.S. officials after voluntarily expanding an internal investigation.”

Ripples

Usually FCPA “ripples” (see here [3] for article) happen during FCPA scrutiny and before an FCPA enforcement action and not after (with the obvious exception of post-enforcement action professional fees and expenses related to reporting obligations and/or monitors).

Yet highlighted below are two post-enforcement action “ripples.”

Och-Ziff

As highlighted here [4], Fitch Rating placed Och-Ziff on a negative ratings watch.

“The Rating Watch Negative follows … announcement that OZM has entered into a settlement with the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) regarding violations of the Foreign Corrupt Practices Act (FCPA). The settlement includes a $412 million fine and deferred prosecution agreement for OZM and a guilty plea by one of OZM’s subsidiaries, OZ Africa Management GP LLC. OZM’s founder, Daniel Och, also agreed to pay a $2.2 million fine related to record-keeping violations, while OZM’s CFO, Joel Frank, agreed to pay a yet-to-be-determined fine related to record-keeping violations. The Rating Watch Negative indicates a heightened probability of potential negative rating action over a shorter period of time relative to the Negative Outlook previously assigned to OZM. While OZM’s parent company avoided a guilty plea as part of the settlement, Fitch believes that the guilty plea by its subsidiary, OZ Africa Management GP LLC, and the administrative settlements agreed to by Daniel Och and Joel Frank could potentially contribute to reputational damage for the overall firm and result in near-term assets under management (AUM) outflows. Fitch also notes that OZM may potentially experience increased fee pressure and fundraising challenges as a result of the settlement. Fitch expects that OZM’s elevated legal expenses should begin to normalize, albeit with some lag, following the settlement. However, potential AUM outflows would pressure OZM’s management fees and thus its cash flow leverage and interest coverage metrics.”

See also this recent article [5] from the always informative Professor Peter Henning at his White Collar Watch NY Times column.

Siemens

Recently the Federal Communications Commission announced [6]:

“Siemens Corporation and Siemens Medical Solutions have agreed to pay $175,000 to resolve a Federal Communications Commission investigation into whether the companies failed to disclose corporate felony convictions as required by the Commission’s rules. Siemens, Siemens Medical, and some of their subsidiaries hold numerous FCC wireless licenses and were required to disclose prior criminal convictions for violations of the Foreign Corrupt Practices Act and, separately, obstruction of justice on their applications.

“A felony conviction is a serious offense that the Commission considers when deciding whether a company is fit to hold a license or other authorization,” said Enforcement Bureau Chief Travis LeBlanc. “It is our duty to ensure that any person or company that fails to submit candid, complete, and accurate information about their background – criminal or otherwise – will be held accountable.”

Under FCC rules, wireless license holders, like Siemens, Siemens Medical, and some of their subsidiaries, are required to disclose any felony convictions in their license applications. Such disclosures are important to the Commission’s role of ensuring that licenses to use wireless spectrum are provided to appropriate entities. Siemens, Siemens Medical, and some of their subsidiaries failed to meet their statutory and regulatory obligation to timely disclose its felony conviction on applications filed between 2007 and mid-2015.

The FCC Enforcement Bureau’s investigation found that, in 2008, Siemens AG, the parent company of Siemens and Siemens Medical, pleaded guilty to criminal charges of violating the internal accounting provisions of the Foreign Corrupt Practices Act (FCPA). Some Siemens AG subsidiaries also pleaded guilty to criminal charges for conspiracy to violate provisions of the FCPA arising from bribes and kickbacks paid to foreign government officials to secure government contracts for projects like a national identity card in Argentina and telecommunications equipment in Bangladesh and Nigeria. That case resulted in Siemens AG paying $450 million in criminal fines to the United States Department of Justice and a $350 million disgorgement to the United States Securities and Exchange Commission. In addition, in 2007, Siemens Medical pleaded guilty to a single federal charge of obstruction of justice in connection with a civil matter, paying $2.5 million in fines and restitution.

Siemens and Siemens Medical fully cooperated with the Bureau’s investigation. As part of today’s settlement, Siemens and Siemens Medical will pay a $175,000 fine. Both companies will also adopt a compliance plan to prevent future failures to disclose the felonies at issue or any other material factual information in future Commission license applications. The plan requires Siemens and Siemens Medical to develop and implement procedures to monitor compliance with the Commission’s rules governing the making of truthful and accurate statements to the Commission. The companies must also designate a senior manager as a compliance officer, develop a comprehensive training program, and report to the Enforcement Bureau regularly on compliance.”

Kudos to the FCC for its “investigation” – that had to be pretty easy given that Siemens FCPA enforcement action generated world-wide media coverage. Sure, Siemens may have failed to disclose certain issues, but was the FCC really “in the dark” here?

Difficult China Business Conditions

This prior post [7] highlighted how several companies have exited foreign countries in the aftermath of FCPA scrutiny or enforcement.

While not an exact parallel, this recent [8] article about restructurings by McDonald’s and Yum Brands in China caught my eye. As highlighted in the article, Yum Brands chose to spin off Yum China as a separately listed company whereas McDonald’s is in the process of selling the business altogether and converting its corporate-owned outlets to the franchise model by selling a 20-year franchise operating agreement to run all of the stores to potential bidders.

The article highlights the following reason, among others, for the restructuring:

“Restaurants owned directly by foreign companies also face challenges in finding suitable real estate for new stores. Negotiations are often done face-to-face with local powerbrokers, and U.S. listed companies operating under the Foreign Corrupt Practices Act often cannot compete with local competitors. For McDonald’s and other foreign companies, outsourcing the operational aspect of running the business resolves most of these issues inherent in China.”

For more on McDonald’s in China, see this recent [9] Wall Street Journal article.

Resource Alert

Hughes Hubbard & Reed recently released its Fall 2016 FCPA and Anti-Bribery Alert [10]. The firm’s more comprehensive cumulative alert is here [11] which contains (i) descriptions of all FCPA settlements and criminal matters from 2005 through 2016 (including recent updates), (ii) a discussion of other FCPA and related developments, and (iii) a summary of each DOJ Review and Opinion Procedure Release issued from 1980-present.

Debevoise & Plimpton’s most recent and always informative FCPA Update is here [12]. Regarding the Nu Skin Enterprises enforcement (see here [13] for the prior post), it states:

“Despite the issues raised by Schering-Plough, Eli Lilly and now Nu Skin in the context of overseas bribery, donations to charities connected with public officials are common in the United States, and even have become an issue in this year’s presidential election. Moreover, the U.S. Department of Justice has recently, and controversially, included donations to charities as part of the penalty to be paid by banks in some recent settlements. The potential for a double standard is especially relevant to a books and records charge based on the fact that “the payment to the charity was inaccurately and/or unfairly described as a donation rather than a payment to influence the Party Official to favorably impact the outcome of the AIC investigation.” Both domestically and internationally, both can be true simultaneously.”

To read more about this double standard see the article “The Uncomfortable Truths and Double Standards of Bribery Enforcement [14]” (containing several charitable contribution examples).

For the Reading Stack

Bloomberg goes in-depth [15] into Dan Gertler the “DRC Partner” at the center of the recent Och-Ziff FCPA enforcement action (see here [16] for the prior post).

An interesting article here [17] regarding Houston’s relationship with oil-rich Angola.

“Bright Angolan students, many of them sons and daughters of the elite, study under oil-industry scholarships at the University of Houston.”

An interesting read here [18] from the Wall Street Journal “The Origins of Corporate Crime.”

*****

A good weekend to all.