Guilty plea, scrutiny alerts and updates, SEC Director of Enforcement to leave, sound analysis of the JPMorgan enforcement action, and for the reading stack.
It’s all here in the Friday roundup.
Mebiame Guilty Plea
As highlighted in this previous post, in August 2016 the DOJ unsealed a criminal complaint charging Samuel Mebiame, a Gabonese national connected to Och-Ziff, with conspiracy to violate the FCPA’s anti-bribery provisions. In pertinent part, the complaint alleged that Mebiame, on behalf of Och-Ziff and related entities, routinely paid bribes to foreign government officials in at least each Niger, Guinea and Chad.”
Today, the DOJ announced that Mebiame pleaded guilty.
Scrutiny Alerts and Updates
This recent “The FCPA Pipeline Is Bulging” post highlighted the following recent disclosure from Israel-based Teva Pharmaceuticals Limited, a company that has been under FCPA scrutiny since 2012:
“For several years, Teva has conducted a voluntary worldwide investigation into business practices that may have implications under the U.S. Foreign Corrupt Practices Act (“FCPA”), following the receipt, beginning in 2012, of subpoenas and informal document requests from the SEC and the DOJ with respect to compliance with the FCPA in certain countries. Management has established a provision of approximately $520 million based on advanced discussions with the DOJ and SEC to settle these FCPA matters. The provision relates to conduct in Russia, Mexico and Ukraine during the time period covering 2007-2013. Any final settlement would be subject to court, DOJ and SEC Commission approval.”
“Teva Pharmaceutical Industries is investigating claims by an anonymous tipster that the company bribed state healthcare workers in Romania to get them to prescribe its medication, a Teva spokeswoman said. The internal probe, which has not previously been reported, comes as the Israel-based company prepares to settle U.S. government investigations into alleged bribery in several other countries. The spokeswoman confirmed the internal investigation was ongoing, but declined to comment on the allegations.”
This June 2016 post highlighted how the DOJ determined that Biomet breached its 2012 DPA (used to resolve an FCPA enforcement action concerning alleged conduct in Argentina, Brazil and China) because of subsequent problematic conduct in Mexico and Brazil.
In a recent court filing in the case, the DOJ states: “The parties have made substantial progress in [settlement] discussions and expect to resolve this matter within approximately four weeks.”
Cemex SAB de CV, a Mexico-based building materials company with shares traded on the NYSE, recently disclosed:
“On December 9, 2016, CEMEX informed the Mexican Stock Exchange (Bolsa Mexicana de Valores) that it had received a subpoena from the United States Securities and Exchange Commission (“SEC”) seeking information to determine whether there have been any violations of the U.S. Foreign Corrupt Practices Act (“FCPA”). This subpoena arises from the matter previously reported by CEMEX regarding the new cement plant being built by CEMEX Colombia S.A. (“CEMEX Colombia”) in the department of Antioquia in the municipality of Maceo, Colombia (the “Maceo Project”). This subpoena does not mean that the SEC has concluded that CEMEX or any of its affiliates has broken the law.
As previously disclosed, internal audits and investigations by CEMEX and CEMEX Latam Holdings, S.A. (“CEMEX Latam”) had raised questions about payments relating to the Maceo Project. Those payments, totaling approximately U.S.$20.5 million, were made to a non-governmental third party in connection with the acquisition of the land, mining rights, and benefits of the tax free zone for the Maceo Project. These payments did not adhere to CEMEX’s and CEMEX Latam’s established protocols. As announced on September 23, 2016, the CEMEX Latam and CEMEX Colombia officers responsible for the implementation and execution of the above referenced payments were terminated and the then Chief Executive Officer of CEMEX Latam resigned.
CEMEX Latam and CEMEX Colombia had already, in September 2016, brought the matter to the attention of the Colombian Attorney General, so that it could take any actions it deemed appropriate. As per the requirements of the audit committees of CEMEX and CEMEX Latam, CEMEX Colombia has also retained external counsel to assist CEMEX Latam and CEMEX Colombia in their collaboration with the Colombian Attorney General, which is still conducting its investigation. In accordance with CEMEX Latam’s controls and customary procedures, an independent audit team reporting to external legal counsel in Colombia was engaged. CEMEX’s external auditors are also reviewing CEMEX’s internal audit documentation. CEMEX maintains an anti-bribery policy applicable to all of its employees and subsidiaries.
CEMEX has been cooperating with the SEC and the Colombian Attorney General and intends to continue cooperating fully with the SEC and the Colombian Attorney General. It is possible that the United States Department of Justice or investigatory entities in other jurisdictions may also open investigations into this matter. To the extent they do so, CEMEX intends to cooperate fully with those inquiries, as well. At this point, CEMEX is unable to predict the duration, scope, or outcome of the SEC investigation or any other investigation that may arise; however, CEMEX does not expect this matter to have a material adverse impact on its consolidated results of operations, liquidity or financial position.”
Ceresney to Depart SEC
Yesterday, the SEC announced that Director of Enforcement Andrew Ceresney “will leave the agency by the end of the year.”
As is typical in such instances, the SEC’s release largely defines Ceresney’s tenure by the numbers. Relevant to the FCPA, the release states:
“In the fiscal year that just ended, the Division filed 21 actions involving violations of the Foreign Corrupt Practices Act – the most in the SEC’s history. The FCPA cases filed in the last few years were highly impactful, including those against a hedge fund and its sitting CEO and CFO, a Dutch telecommunications company, and three cases involving violations of the FCPA through hiring practices or the provision of valuable internships – against JPMorgan Chase & Co., Qualcomm Incorporated and BNY Mellon.”
Those later three cases are of course consistent with Cereseny’s frequent discussion of the SEC’s broad interpretation of anything of value under the FCPA. Yet, these three cases were not subjected to one ounce of judicial scrutiny and in this regard my favorite quote from Ceresney’s tenure at the SEC was when he rightly acknowledged that “FCPA law … is not well developed. Companies typically enter settlements in FCPA cases, leading to a paucity of case law.”
Sound Analysis of the JPMorgan Enforcement Action
The most recent issue of the always informative Debevoise & Plimpton FCPA Update contains a sound analysis of the recent JPMorgan internship and hiring enforcement action. Consistent with observations made in this previous post, the Update states:
“The description of the referral candidates is based on a relatively small number of examples, which interestingly include referrals from both private parties and government entities, including state-owned enterprises. The JPMorgan-APAC NPA provides examples of referrals from four clients, two of which are private entities, and one Chinese official. The SEC Order also includes examples of both private and public referrals. Although the private referrals are associated with some of the most colorful internal documents showing the quid pro quo nature of hiring, it is unclear why else the DOJ would include them. It is impossible to violate the anti-bribery provisions of the FCPA by providing a benefit to a non-“foreign official,” unless the recipient gives all or part of that benefit to a “foreign official,” which is not alleged in the JPMorgan-APAC NPA. While it is theoretically possible to violate the books and records and internal controls provisions of the FCPA based on conduct related to private entities, it is unclear if the SEC’s inclusion of private referrals suggests a desire to expand its enforcement powers in this direction.”
A comparison between the JPMorgan-APAC NPA and the SEC Order raises the question of what “profit” means in this context. While there should be a textbook answer, this does not appear to be the case. The JPMorgan-APAC NPA is explicit that JPMorganAPAC “earned at least $35 million in profits” from mandates associated with the hires. That said, a separate entity, JPMorgan (the parent) paid $105,507,668 in disgorgement pursuant to the SEC Order. Given all the operative facts in the SEC Order involved JPMorgan-APAC, it is difficult to see why the SEC demanded disgorgement three times higher than the amount of profits described in the JPMorgan-APAC NPA. It could be that the SEC is using a different underlying figure, perhaps including profits made in connection with private referrals. However, the SEC Order’s statement of fact contains the following sentence: “The referring SOEs entered into transactions totaling more than $100,000,000 in revenue for JPMorgan APAC or its affiliates during this period.” It would seem, therefore, that the SEC defines “profits” to be disgorged to be “revenue.”
NPAs and other consensual resolutions of FCPA cases are negotiated documents, and there is a benefit to issuers and US-based companies to having their foreign subsidiaries, rather than the parent company, enter into the agreement with the government. For this reason, the company may consciously not pay too much attention to jurisdictional niceties. However, because there is a dearth of FCPA caselaw and negotiated resolutions act as soft law, it is worth noting that the DOJ’s assertion of agency jurisdiction appears to be incorrect as a matter of agency and corporate law. For at least 90 years, it has been black letter law that a wholly owned subsidiary is not an agent merely by virtue of ownership, and agency between a parent and subsidiary is seldom a basis for ignoring the corporate form as agency is a consensual relationship. Instead, the corporate distinction between a parent and subsidiary can be disregarded only when the parent “authoriz[es]” the activity (as provided for in the FCPA itself) or where the parent has ignored the corporate formalities such that the distinction between the companies is mere form. Neither of these circumstances is alleged in the JPMorgan-APAC NPA. There is no basis for suggesting that the term “agent” in the FCPA should be interpreted to differ from the common law meaning.”
For the Reading Stack
A useful compilation of sentences recently imposed in FCPA individual prosecutions by BakerHostetler.
An informative piece by Dechert attorneys regarding FCPA enforcement actions involving conduct in India and related issues.
A good weekend to all.