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Friday Roundup

Roundup

Scrutiny alerts and updates, just plain silly, #precisionmatters, and for the reading stack. It’s all here in the Friday roundup.

Scrutiny Alerts and Updates

Societe Generale

As highlighted in this 2014 post, Societe Generale, among other companies, has been under FCPA scrutiny regarding its dealings with Libya’s government-run investment fund. The French financial services company recently disclosed:

“In the context of the investigations by US authorities (the US Department of Justice (“DOJ”) and the Commodity Futures Trading Commission) regarding IBOR submissions and the DOJ investigation of transactions involving Libyan counterparties, Societe Generale has entered into a phase of more active discussions with these US authorities with a view to reaching a resolution of these two matters within the coming weeks. Although the financial impact of the disputes cannot be determined with certainty, as of 31 December 2017, the Bank has booked in its financial statements a provision for disputes for EUR 2.3 bn, in compliance with IFRS standards. Within this provision, approximately 1 bn [$1.23 billion] in euro equivalent is allocated to the IBOR and Libyan matters.”

Cemex

As highlighted in this December 2016 post, Cemex SAB de CV, a Mexico-based building materials company with shares traded on the NYSE, disclosed that it was under FCPA and related scrutiny by the SEC and the Colombian Attorney General and that “it is possible that the United States Department of Justice or investigatory entities in other jurisdictions may also open investigations into this matter.”

Sure enough as CEMEX recently disclosed “on March 12, 2018, the DOJ issued a grand jury subpoena to CEMEX, S.A.B. de C.V. relating to its operations in Colombia and other jurisdictions.” The full disclosure states:

“In December 2016, CEMEX, S.A.B. de C.V. received subpoenas 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 stemming from 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”). These subpoenas do not mean that the SEC has concluded that CEMEX, S.A.B. de C.V. or any of its affiliates violated the law. As discussed in “Item 4—Information on the Company—Regulatory Matters and Legal Proceedings—Maceo, Colombia—Legal Proceedings in Colombia” in CEMEX, S.A.B. de C.V.’s annual report on Form 20-F for the year ended December 31, 2016, internal audits and investigations by CEMEX, S.A.B. de C.V. and CEMEX Latam Holdings, S.A. (“CEMEX Latam”) had raised questions about payments relating to the Maceo Project. The payments made to the non-governmental individual representing CI Calizas y Minerales S.A. in connection with the Maceo Project did not adhere to CEMEX, S.A.B. de C.V.’s and CEMEX Latam’s internal controls. 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, S.A.B. de C.V. has been cooperating with the SEC and the Colombian Attorney General’s Office (the “Attorney General’s Office”) and intends to continue cooperating fully with the SEC and the Attorney General’s Office.

CEMEX, S.A.B. de C.V. previously disclosed that it was possible that the United States Department of Justice (“DOJ”) and other investigatory entities in other jurisdictions could also open investigations into this matter. In this regard, on March 12, 2018, the DOJ issued a grand jury subpoena to CEMEX, S.A.B. de C.V. relating to its operations in Colombia and other jurisdictions.

CEMEX, S.A.B. de C.V. intends to cooperate fully with the SEC, DOJ, and any other investigatory entity. As of March 14, 2018, CEMEX, S.A.B. de C.V. is unable to predict the duration, scope, or outcome of either the SEC investigation or the DOJ investigation, or any other investigation that may arise, or, because of the current status of the SEC investigation and the preliminary nature of the DOJ investigation, the potential sanctions which could be borne by CEMEX, S.A.B. de C.V., or if such sanctions, if any, would have a material adverse impact on CEMEX, S.A.B. de C.V.‘s results of operations, liquidity and financial condition.”

Just Plain Silly

This guest post on the FCPA Blog titled “U.S. Enforcement Is Down, But International Enforcement Is Up” is just plain silly.

Of course corporate enforcement will appear “down” if one’s only point of reference is 2016’s record breaking year.

In addition, there is NO reference at all in the post to 2017 individual FCPA enforcement by the DOJ which was significantly up compared to prior years as well as historical five year averages. (See here for the prior post).

Further, since when is comparing one nation’s enforcement (U.S.) to an entire continent’s enforcement (Europe) even a valid comparison? 

#precisionmatters

While DOJ compliance counsel, Hui Chen called out much compliance commentary for its “lack of precision and intellectual rigor.”

Chen encouraged all to “hold each other accountable for precision, accuracy, and intellectual rigor in the statements we make” by using #precisionmatters.

Duly noted and #precisionmatters for Chen’s latest piece titled “Seven Signs of Ineffective Compliance Programs.” In large part, the article is a collection of little more than vague generalities and catchphrases (“financial discipline” “lack of visibility” “dominated compliance” “continuous improvement” etc.).

In the article, under the heading “Disproportionate Focus on Gifts-Meals-Travel-Entertainment,” Chen writes:

“This is a sibling of the FCPA-focused compliance, one that demonstrates a rudimentary understanding of risks. I have never seen a company whose largest category of spending are in these categories, yet I have seen multiples of compliance hours spent on these than on million-dollar distributor discounts or hundreds of dollars on marketing funds. In immature compliance programs, the amount of time and angst sweated over these categories is disproportionate to the risk they represent.”

Um .. maybe, just maybe, this is because business organizations are reacting to FCPA enforcement actions actually brought that contain allegations about “golf in the morning and beer drinking in the evening”, spa and sauna sessions, food and entertainment, and evenings at karaoke bars.

When are DOJ or SEC officials (current or former) going to realize that business organizations are reacting to the compliance landscape they are creating?

Going on Offense

Venezuela’s PDVSA is notoriously corrupt, but continues to go on offense. In this recent complaint against over a dozen companies and individuals, PDVSA US Litigation Trust alleges:

“This action arises from an on-going conspiracy among international oil companies and traders, their banks, and co-conspirators, including corrupt agents and officials of the Venezuelan state-owned energy company Petrleos de Venezuela, S.A. (“PDVSA”): (a) to fix prices, rig bids, and eliminate competition in the purchase and sale of crude oil and hydrocarbon products by PDVSA; (b) to misappropriate PDVSA proprietary data and intellectual property; and (c) to systematically loot PDVSA by causing corrupt PDVSA officials not to collect monies due PDVSA, to pay inflated prices for products and services acquired by PDVSA, to accept artificially low prices for products sold by PDVSA, to overlook the failure to deliver products and services paid for by PDVSA, and to fraudulently conceal what was owed to PDVSA.

[…]

By bribing and corrupting PDVSA agents and officials, the … Enterprise was able to favor the Oil Company Conspirators and disadvantage, or exclude, many legitimate American and other competitors, including by: (a) structuring tenders for PDVSA contracts to favor the Oil Company Conspirators and [Enterprise] and disadvantage, or exclude, competitors; (b) securing inside, proprietary information concerning PDVSA’s requirements and plans before such information was publicly available, again with the purpose and effect of advantaging the Oil Company Conspirators and disadvantaging, or excluding, competitors; and (c) securing inside, proprietary information concerning competing bids so that the Oil Company Conspirators could beat them.

By bribing and corrupting PDVSA agents and officials, the … Enterprise also induced such agents and officials not to collect the full amounts due to PDVSA for the sale of PDVSA products to the Oil Company Conspirators and to overlook the failure of the Oil Company Conspirators to deliver the full amount of products bought and paid for by PDVSA.

Initially, the … Enterprise acquired the proprietary inside PDVSA information used to implement its schemes by bribing and corrupting PDVSA agents and officials to provide such information on a case-by-case basis.

However, as the conspiracy progressed, the … Enterprise was able to obtain direct access to PDVSA’s proprietary servers, including by installing an interconnected, “clone server,” and otherwise obtaining direct access to PDVSA’s servers, that enabled the … Enterprise to misappropriate PDVSA inside and proprietary information on a real-time basis.

The losses to PDVSA and the gains to Defendants as a result of the misdeeds by the … Enterprise amount to many billions of dollars.”

Reading Stack

An informative post here from Eric Carlson (Covington & Burling) regarding social media use in China and challenges raised by the following factor in the DOJ’s November 2017 FCPA Corporate Enforcement Policy: “apropriate retention of business records, and prohibiting the improper destruction or deletion of business records, including prohibiting employees from using software that generates but does not appropriately retain business records or communications.”

An informative read here from Professor Donald Langevoort “Caremark and Compliance: A Twenty Year Lookback.”

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