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Friday Roundup

Roundup

Across the pond, the big picture, ripple, a muddy mess, to FCPA Inc., scrutiny alert, silly and erroneous, misleading, ISO 37001 related, and for the reading stack.

It’s all here in the Friday roundup.

Across the Pond

In this recent speech, David Green (Director of the U.K. Serious Fraud Office) said the U.K. Bribery Act is “regarded as a gold standard internationally” and, as further proof that so-called enforcement competition does exist, he stated:

“[I]f we take our foot off the pedal in relation to corporate crime and commercial bribery, others will fill the void. The Department of Justice in Washington is not shy about enforcing the Foreign Corrupt Practices Act against foreign companies. If we don’t, they will. Of the top 10 financial penalties exacted under the FCPA since 2008, seven were against non-American companies: French, German, British, Dutch and Israeli.

It is surely right that the UK should lead enforcement in relation to UK companies or companies with strong connections here. That demonstrates our commitment to the level playing field and ensures that hefty financial penalties go to UK public coffers rather than elsewhere.”

In the speech Green also discussed the recent Rolls-Royce DPA (see here and here for prior posts) and stated as follows:

“Although Rolls-Royce did not in fact self-report to the SFO, once approached by us the level of cooperation (described by Sir Brian Leveson as “full, unambiguous and proactive”) was remarkable, and he found that it properly put the company in the same position as if it had self-reported.

Both the SFO and later, in approving the SFO approach, the court, were also prepared to “step back” towards the end of the penalty calculation, and ensure that the end result reflected totality and was proportionate, in this case justifying a 50% discount. Even so, the penalty was equivalent to a years’ profits for Rolls-Royce.

Finally, the Rolls-Royce DPA was coordinated with linked enforcement actions in Brazil and the USA, showing that the SFO will use its good offices to achieve that coordinated settlement where such is possible.

DPAs have been a real success, enabling cooperative companies to account for conduct to a court in a transparent way without sustaining a criminal conviction, or the collateral damage (including disbarment), that may well follow. The company is able to draw a line under the past and radically to overhaul compliance and removing the board on whose watch the conduct took place.

Once a DPA is completed, the investigator/prosecutor can then move or concentrate resource on human suspects and on new investigations. It should never be thought that a DPA with a company somehow lets culpable former senior management off the hook: far from it.”

The Big Picture

This recent guest post on the FCPA Blog by a senior partner in a boutique law firm in Washington, D.C. specializing in international anti-corruption compliance and investigations states that “we fight [corruption] because we must, and because it would be wrong to sit on the sidelines.”

Just to be clear, I am not questioning the sincerity or motivation of the author.

What I am doing is addressing the big picture issue and calling a spade a spade and that is this: FCPA Inc. is multi-billion dollar industry and the last decade or so has witnessed more FCPA lawyers, more FCPA compliance firms, more FCPA compliance products, etc. Indeed, the post was published on a site with approximately 20 blinking and flashing ads for various industry participants.

Certainly the fight against corruption (like the fight against poverty, drugs, etc.) is a noble cause. But have these other “fights” become as lucrative as the fight against corruption? And if the answer is no, which I think it most certainly is, why has the fight against corruption become so lucrative?

And what has been the end result of all this?

Not less FCPA enforcement, but more FCPA enforcement.

Not fewer instances of FCPA scrutiny, but more instances of FCPA scrutiny.

Ripple

Petrofac (a U.K. based oil and gas company with ADRs registered with the SEC) has been under scrutiny since Spring 2016 regarding its relationship with Unaoil.

Recently, Ohio National Fund, Inc. disclosed:

“Petrofac Limited – Shares of U.K. based oilfield services firm Petrofac Limited declined sharply after the U.K.’s Serious Fraud Office (“SFO”) launched an investigation into bribery allegations related to the firm’s past relationship with controversial Monaco-based consultancy Unaoil. While we had been constructive on the stock given its healthy pipeline of outstanding bids, strategic refocus on core assets, and prudent balance sheet deleveraging, the escalating fraud investigation seems to us a thesis changer. Over the past three years, nearly all of the SFO’s investigations have led to charges being filed. Of particular concern, the executives currently running Petrofac Limited also ran the company when the alleged improprieties occurred. Any legal action against these individuals could materially impact Petrofac Limited’s ability to win new business, without which the company’s financial situation is tenuous. A change in circumstances requires a reassessment of the new reality, and we decided to liquidate our stake in Petrofac Limited given the rising risk profile.”

As highlighted in the article “FCPA Ripples” settlement amounts in an FCPA or related enforcement action are often only a relatively small slice of the overall financial ramifications of FCPA and related scrutiny.

A Muddy Mess

One reason the term “declination” is a big, muddy mess is because of posts like this from the FCPA Blog.

For additional reading on how some are muddying the conversational waters on this topic, see prior posts here, here, and here among others.

To use the term “declination” anytime a company is under FCPA scrutiny but there is no enforcement action is like saying the police “declined” to charge a sober driver with drunk driving when passing through a field sobriety checkpoint.

As a DOJ official recently stated: “Our responsibility as prosecutors is to follow the facts wherever they lead us. Sometimes the facts lead us to stop and close an investigation.”

It would be nice if certain FCPA information sources would stop muddying the FCPA’s conversational waters.

But then again when you are selling a commercial product that tracks so-called “declinations” perhaps this is of minor concern. (By the way, a frequent feature of this free, public website is FCPA scrutiny alerts and updates).

Perkins to FCPA Inc.

Following in the footsteps of numerous other FCPA enforcement attorneys at the DOJ and SEC who leave government service for lucrative positions in FCPA Inc., Hughes Hubbard & Reed recently announced that Laura Perkins (most recently Assistant Chief of FCPA enforcement in the DOJ’s Fraud Section) has joined the firm as a partner. As stated in the release:

“In her career at DOJ, she led or supervised hundreds of FCPA investigations and tried nearly two dozen cases involving a variety of frauds and other federal crimes.

[…]

As an Assistant Chief of the FCPA unit, Laura supervised and directed hundreds of complex investigations and prosecutions of companies, business executives, and others for violations of the FCPA and associated statutes. She assisted in the management of the FCPA unit and the FCPA program, formulating enforcement priorities and policies, determining whether potential violations warrant criminal investigation and prosecution, advising domestic and foreign law enforcement and regulators on questions of law and departmental policy, and coordinating and conducting training for domestic and foreign partners.

Laura was closely involved in the development of the FCPA pilot program, which was designed to motivate companies to voluntarily self-disclose FCPA-related misconduct, fully cooperate with the Fraud Section, and remediate flaws in their controls and compliance programs.”

Kevin Abikoff, Co-Chair of the Anti-Corruption & Internal Investigations Group at Hughes Hubbard stated:

“FCPA enforcement has grown exponentially over the last 10 years and we are expecting a continued focus on anti-corruption activity in the U.S. Non-U.S. enforcement activity in jurisdictions that have been historically quiet, such as Brazil, are warming up, which also creates cases in the U.S.  Laura’s experience at the highest levels of FCPA enforcement will play an important role as we continue to take on complex global matters. In addition, she is a seasoned and impressive trial lawyer, experienced investigator and has deep and practical knowledge of monitorships.  Clients will benefit from her rare insight into the DOJ’s white-collar criminal enforcement practices, policies, and priorities.”

Regarding the general issue of DOJ or SEC FCPA enforcement attorneys leaving for lucrative positions with FCPA Inc. to provide defense and compliance services to business organizations subject to the enforcement climate they helped create, I have long proposed a prohibition on DOJ or SEC FCPA enforcement attorneys with supervisory and discretionary authority from providing FCPA defense or compliance services for five years upon leaving government service.

Indeed, the legitimacy and credibility of the DOJ and SEC’s entire FCPA enforcement programs hinge on this policy proposal being adopted. For additional reading on this topic, see here and here.

 

Silly and Erroneous

This recent article titled “FCPA Standstill” is just plain silly and contains numerous factual errors.

For starters, it just plain silly to compare FCPA enforcement during the first 9 months of a new administration to prior 9 months of an established administration.

Furthermore, comparing anything to 2016 FCPA enforcement is going to look small because 2016 was a record-setting year in the nearly 40 year history of the law. (See here for the article The FCPA’s Record-Breaking Year”). Compare 2017 FCPA enforcement thus far to a more normal year such as 2015 and the following fact is true: there has been as much DOJ corporate FCPA enforcement in the first 9 months of the Trump administration than all DOJ corporate FCPA enforcement in 2015.

The article asserts that the Obama administration brought 24 FCPA enforcement actions between Jan. 20 – Sept. 2016. Actually, between those dates there were 16 core corporate FCPA enforcement actions. (It is only through creative counting methods that one can achieve such distorted statistics. See here for the article “A Common Language to Remedy Distorted FCPA Enforcement Statistics”).

Elsewhere, the article asserts that in 2016 the DOJ brought 26 FCPA enforcement actions. Actually, in 2016 the DOJ brought 13 core corporate FCPA enforcement actions.

Elsewhere, the article asserts that as of Sept. 1, 2017 the DOJ had only reported one new FCPA enforcement action (the article suggests this was U.S. v. Richers an individual action). Actually, in June there were two DOJ FCPA enforcement actions – a $4 million action against CDM Smith and a $11.2 million action against Linde. (See here and here).

The article seems to discount other FCPA actions brought during the Trump administration because the actions “had roots in the Obama administration.” Given that the typical life cycle of an FCPA inquiry tends to be 2-4 years, the “roots” of FCPA enforcement actions brought during the first few years of the Obama administration were planted in the Bush administration.

Let’s not lose our breath here folks.

FCPA enforcement is not going anywhere and September and the 3rd and 4th quarters historically have been the most active periods for FCPA enforcement.

Misleading

Contrary to the assertion in this Wall Street Journal Risk & Compliance article, the DOJ has frequently used undercover investigation tactics in FCPA enforcement actions.

In addition to the Africa Sting obviously, as well as the Joseph Sigelman matter, DOJ undercover investigating tactics have frequently been profiled on FCPA Professor. (See here, here, here, here, here, and here).

ISO 37001 Related

See here for the latest laughable marketing attempt by an individual selling ISO 37001 certifications titled “A Front End ISO 37001 Certification Audit Sure Beats a Back End DOJ Investigation.”

Of course front end compliance “sure beats a back end” FCPA investigation, but you don’t need an ISO 37001 certification to demonstrate front end compliance – there are many other more cost-efficient ways to do this.

Moreover, as to a point raised in the article, certain of the few companies that appear to be interested in ISO 37001 are currently under FCPA scrutiny and thus are very much “under the gun.”

Reading Stack

The FCPA Update from Debevoise & Plimpton is always a solid read.

The latest edition is here and I particularly recommend the “declination” portion of the Update beginning at pg. 9).

“A declination traditionally has involved the DOJ’s (or SEC’s) exercising discretion not to bring a case that it could, because of equitable considerations or reasons such as the small size or limited nature of violations. Such a “traditional declination” differs from an authority’s decision to close an investigation upon concluding it could not carry its burden of proof, given insufficient evidence, lack of jurisdiction, expiration of the limitations period, or other factors.

[…]

To best encourage companies to self-disclose potential FCPA violations, the DOJ and the SEC would be well-served to provide additional guidance regarding under what circumstances they will consider declining to bring any enforcement action, including a “declination with disgorgement” under the Pilot Program.”

The lead author is former SEC FCPA Unit Chief Kara Brockmeyer.

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