Offensive use of the FCPA, a weekend homework assignment, already answered, scrutiny alert, and for the reading stack. It’s all here in the Friday roundup.
Offense Use of the FCPA
FCPA Ripples highlights, among other things, how the FCPA is increasingly being used offensively including in connection with battles for corporate control.
The latest example concerns Elliott Management Corporation’s efforts to unseat board members at Arconic Inc. The recent departure of Arconic’s CEO Klaus Kleinfeld for apparently threatening Elliott Management (an existing Arconic shareholder) was all over the news (see here for example) and this recent Elliott Management letter to Arconic shareholders assails the “poor judgment” of Arconic’s board including the following.
The Board’s repeated championing of Dr. Kleinfeld and its endorsement of his character is a damning indictment of the Board’s judgment. Dr. Kleinfeld had a lengthy history of ethical issues before becoming
Alcoa’s CEO. He was forced to resign from Siemens following that company’s bribery scandal because the Siemens Board determined that Dr. Kleinfeld had failed to adequately supervise the Siemens Corporation. This scandal led to the payment by Siemens of $1.6 billion in total fines – including the largest Foreign Corrupt Practices Act (FCPA) fine in U.S. history – and it resulted in Dr. Kleinfeld paying the Siemens Supervisory Board €2 million personally for his actions (or inaction). At Alcoa Inc. (Alcoa), Dr. Kleinfeld served on the Board before becoming CEO and was a member of the Audit Committee when Alcoa made hundreds of millions of dollars of improper payments that were used to bribe Bahraini government officials. These payments – a violation of the FCPA – resulted in the imposition of nearly $400 million in fines on Alcoa.
Given this history, at the very least, the Board should have been on heightened alert and should have adopted a zero tolerance policy for any ethical lapses. Instead, it did the opposite. This Board was apparently willing to excuse anything to protect Dr. Kleinfeld. In doing so, it fundamentally abrogated its responsibilities. This Board was apparently willing to excuse anything to protect Dr. Kleinfeld. In doing so, it fundamentally abrogated its responsibilities. The Board became Dr. Kleinfeld’s advocate rather than the Corporation’s steward and thereby created an “anything goes” culture amidst which Dr. Kleinfeld seemingly felt that it was permissible to threaten a Company shareholder.”
Weekend Homework Assignment
Syngenta AG is a global Swiss agribusiness company that produces agrochemicals and seeds. The company recently announced that its shareholders have approved an acquisition by China National Chemical Corporation (a state-owned enterprise).
When the acquisition closes, will the 28,000 employees of Syngenta now be Chinese “foreign officials.”
Below is the two-part control and function test that the 11th Circuit articulated in U.S. v. Esquenazi, the only case law of precedent concerning the FCPA’s “foreign official” element.
“An ‘instrumentality’ [under the FCPA] is an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own. Certainly, what constitutes control and what constitutes a function the government treats as its own are fact-bound questions. It would be unwise and likely impossible to exhaustively answer them in the abstract.
“To decide if the government ‘controls’ an entity, courts and juries should look to the:
- foreign government’s formal designation of that entity;
- whether the government has a majority interest in the entity;
- the government’s ability to hire and fire the entity’s principals;
- the extent to which the entity’s profits, if any, go directly into the governmental fisc, and, by the same token, the extent to which the government funds the entity if it fails to break even;
- and the length of time these indicia have existed.”
As to the second element – “deciding if the entity performs a function the government treats as its own, Courts and juries should examine whether
- the entity has a monopoly over the function it exists to carry out;
- whether the government subsidizes the costs associated with the entity providing services;
- whether the entity provides services to the public at large in the foreign country;
- and whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function.”
This recent FCPA Blog post seems to suggest that it is an open question whether the FCPA’s internal controls provisions are absolutist or utilitarian. It is not an open question.
Rather the FCPA itself, FCPA legal authority, and even FCPA enforcement agency guidance already answer the question. However, the problem is that the enforcement agencies in several FCPA enforcement actions seem to act inconsistent with all three.
The U.K. Serious Fraud Office announced: ”
“The SFO confirms that it is investigating the activities of Petrofac PLC, its subsidiaries, and their officers, employees and agents for suspected bribery, corruption and money laundering. This investigation is related to the SFO’s ongoing investigation into the activities of Unaoil.”
As highlighted in this previous post, Petrofac previously announced:
“[The company] has concluded the independent investigation commissioned by the Board into allegations in the media related to the historical provision of services to the Company by Unaoil, a Monaco based company. The Board confirms that no evidence was found that any Director of the Company was aware of the alleged misconduct that is the subject of the allegations. The independent investigation has thoroughly investigated the allegations, based solely on the information available to the Company, and recognising their historical nature and wider context beyond Petrofac. The Company confirms that it engaged Unaoil for the provision of local consultancy services primarily in Kazakhstan between 2002 and 2009. The independent investigation did not find evidence confirming the payment of bribes.”
Alexion Pharmaceuticals has been under FCPA scrutiny since May 2015 and earlier this week had its Sao Paulo offices raided “by Brazilian authorities Monday as part of an investigation into the drugmaker’s sales practices, according to the country’s national police.” (See here from Bloomberg). According to the article: “Brazil’s police are investigating whether Alexion, with help from a local patient association, subsidized lawsuits for patients to get access to the company’s lead drug Soliris through the national health system, according to a request for a search warrant reviewed by Bloomberg.”
Regarding the company’s FCPA scrutiny, its most recent quarterly report states:
“The investigations have focused on operations in various countries, including Brazil, Colombia, Japan, Russia and Turkey, and Alexion’s compliance with the FCPA and other applicable laws. At this time, Alexion is unable to predict the duration, scope or outcome of these investigations.”
For the Reading Stack
A new book from compliance professional Timur Khasanov-Batirov titled “Integrity Corp. – 50 Tips for your Compliance Program in the Post-Soviet States.
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