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Friday Roundup

Scrutiny alert, novice FCPA commentary matters, additional charges, survey says, across the pond, and for the reading stack. It’s all here in the Friday roundup.

Scrutiny Alert

Some companies disclose Foreign Corrupt Practices Act very early and then update the disclosure for years. Other companies have different disclosure practices. Global asset management firm Legg Mason Inc. (a company that has not previously disclosed FCPA scrutiny) recently disclosed [1]:

“We expect that we will shortly complete negotiations with both the U.S. Department of Justice (“DOJ”) and the SEC staff to resolve a Foreign Corrupt Practices Act investigation concerning the activities of our former Permal business in connection with managing assets of Libyan governmental entities in structures established by a third-party financial institution.  Those investments were made in calendar years 2005 to 2007 and all were terminated no later than 2012.  The matter does not relate to any of our or our affiliates’ current business activities or client relationships and has focused on the actions of former employees of Permal who left that firm four or more years ago.  Based on discussions to date, we believe that any resolution of this matter will not result in restrictions on our or our affiliates’ ongoing business activities. We have accrued a $67 million charge to earnings for this matter in the year ended March 31, 2018, representing our current estimated liability for the settlement of the matter. This accrual reflects in part the net revenues of approximately $31 million earned by our former Permal business from managing assets of Libyan governmental entities. Any such resolution, including the actual amount of the payments required to ultimately settle this matter, which are uncertain and may be higher than the amounts we have currently accrued, are subject to the final review and approval of the DOJ, the SEC Commissioners and our Board of Directors.”

Novice FCPA Commentary Matters

As highlighted in this previous post [2], in December 2016 General Cable resolved an FCPA enforcement action concerning conduct in Angola, Bangladesh, Indonesia, Thailand, China, and Egypt. The $75.8 million enforcement action involved a DOJ non-prosecution agreement in which the company agreed to pay an approximate $20.5 million penalty and an SEC administrative cease and desist order in which the company agreed to pay approximately $55.3 million in disgorgement and prejudgment interest. The NPA had a three year term.

On May 22, Capitol Forum reported that General Cable was again being investigated for FCPA violations citing a Freedom of Information Act request that referenced an ongoing DOJ investigation. The same day, General Cable’s stock fell approximately 4%.

[3]

Anyone well experienced on FCPA matters would have known that General Cable’s 2016 FCPA enforcement action was resolved via a three year NPA. In addition, anyone well experienced on FOIA matters in the FCPA context would have known that the DOJ frequently denies FOIA requests connected to prior FCPA enforcement actions if the action (because of a multi-year NPA or DPA) remain live.

Just goes to show that once again novice, uninformed, and inaccurate FCPA commentary matters.

In response General Cable released this statement [4] “in response to a recent press report about an alleged new investigation by the United States Department of Justice.” It stated:

“We are aware of a recent press report regarding an alleged new DOJ investigation under the United States Foreign Corrupt Practices Act (FCPA) involving General Cable. To the best of our knowledge, we have been and remain in compliance with the terms of our December 2016 Non-Prosecution Agreement (NPA) entered into with the DOJ. We periodically communicate with the DOJ as required by the NPA, and we are not aware of any new DOJ enforcement action or investigation against the Company at this time.”

Additional Rolls Royce Related Charges

As highlighted in prior posts here [5] and here [6], in January 2017 the DOJ announced a $170 million Foreign Corrupt Practices Act enforcement action against U.K. based Rolls-Royce concerning conduct in Thailand, Brazil, Kazakhstan, Azerbaijan, Angola, Iraq and elsewhere.

As highlighted in this prior post [7], in November 2017 the DOJ announced an FCPA enforcement action against five individuals based on the same Kazakhstan conduct alleged in the prior corporate action. That is, bribery in connection with a contract to supply gas turbine units to Asia Gas Pipeline LLC (AGP) for approximately $145 million.

In connection with the same conduct, the DOJ recently announced [8]:

“Azat Martirossian, 62, a citizen of Armenia, and Vitaly Leshkov, 50, a citizen of Russia, were charged by a superseding indictment … with one count of conspiracy to launder money and 10 counts of money laundering.  Petros Contoguris, 70, a citizen of Greece, was also charged on these counts, as well as one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA), and seven counts of violating the FCPA.  Contoguris previously had been charged on all of these counts in an indictment that was filed on Oct. 12, 2017 and unsealed on Nov. 7, 2017.”

In the release, Acting Assistant Attorney General John Cronan stated:

“The charges announced today against Azat Martirossian and Vitaly Leshkov further demonstrate the Criminal Division’s unwavering resolve to prosecute those who facilitate corruption and launder illicit proceeds. Thanks to the coordinated efforts by our prosecutors and agents—working closely with their counterparts throughout the world—these defendants will face prosecution for their allegedly corrupt schemes.”

U.S. Attorney Benjamin Glassman (S.D. Ohio) stated:

“The charges filed today reflect the continued determination of the United States to prosecute those who engage in foreign corrupt business practices. International actors should think twice before executing bribery schemes because the United States can and will discover and prosecute such schemes and their perpetrators.”

Acting Inspector in Charge Nicole Davis of the U.S. Postal Inspection Service’s Criminal Investigations Group stated:

“The U.S. Postal Inspection Service has a long history of successfully investigating complex fraud and corruption cases. Corruption and bribery schemes such as this involving international corporations and conspirators are not victimless crimes.  This type of conduct can damage competitive domestic and international markets, and cause immeasurable economic losses both here in the United States and around the world.  Anyone who engages in deceptive practices like this should know they will not go undetected and will be held accountable, regardless of where they are.  The collaborative investigative work on this case conducted by Postal Inspectors and our domestic and international law enforcement partners illustrates our efforts to protect the United States and the international marketplace.”

Assistant Director Christopher Hacker of the FBI’s Criminal Investigative Division stated:

“The allegations outlined today exemplify how a small group of individuals, who knowingly engage in illegal payments in an attempt to advance businesses dealings, create an uneven global marketplace. The FBI with our partners continues to work these important cases in order to remove the notion that bribery, through backroom deals, is an acceptable way of doing business. This investigation demonstrates the importance of international cooperation amongst law enforcement in combatting fraud and money laundering on a global basis.”

Special Agent in Charge Matthew DeSarno of the FBI’s Washington Field Office Criminal Division stated:

“Today’s charges serve as a reminder of the important role the FBI plays in rooting out international corruption. No one is above the law, so let today’s announcement be a warning to those who may try to perpetrate a similar scheme that the FBI will work with global partners in its mission to detect and prevent corrupt business practices, and we will continue to hold those who attempt to take advantage of international markets accountable.”

Survey Says

I am always a bit skeptical of survey data when the results seem to dovetail nicely with the product offering of the company publishing the survey. In any event, according to the 15th EY Global Fraud Survey [9]:

“The scale of bribery and corruption has shown no improvement globally since 2012, despite the unprecedented level of enforcement activity and introduction of new corporate criminal liability laws in that time. […] This year’s survey found that despite regulators and law enforcement agencies around the world imposing more than US$11b of financial penalties since 2012, 38% of global executives still believe bribery and corrupt practices remain prevalent in business.”

Across the Pond

As highlighted in this prior post [10], in November 2017 the U.K. Serious Fraud Office announced that it “charged two individuals in relation to the Unaoil investigation.”

The SFO recently announced [11] that the individuals – Basil Al Jarah (Unaoil’s Iraq partner) and Ziad Akle (Unaoil’s territory manager for Iraq) face additional charges. Both individuals were “charged with conspiracy to give corrupt payments to secure the award of a contract worth US$733 million to Leighton Contractors Singapore PTE Ltd for a project to build two oil pipelines in southern Iraq.”

For the Reading Stack

The most recent edition of the always informative FCPA Update from Debevoise & Plimpton is here [12]. Regarding the recent Dun & Bradstreet enforcement action, the Update states:

“The D&B resolutions raise questions about the surprisingly long delay in settling – six years after the company first disclosed the investigation and more than five and a half years after a Chinese court convicted one of D&B’s subsidiaries, imposing an RMB one million fine on the subsidiary and sentencing four executives to fines and up to two years’ imprisonment

[…]

Why the SEC took six years from the time D&B self-reported to the date of the Order remains a mystery. When resolutions are so delayed, companies may end up being held to a more stringent standard that has evolved since the underlying conduct occurred. For instance, HDBC was established in 2006, two years prior to the Halliburton Opinion Release, which was the first Opinion Release to highlight the importance of post-acquisition remediation and integration. Furthermore, the conduct at Roadway had been the subject of Chinese proceedings that ended in early 2013 – raising the question of why the SEC decided in 2018 to proceed at all, given both the passage of time and the preexisting local enforcement action against one of the subsidiaries.

[…]

With regard to the internal controls provision, the D&B Order does not specifically state the factual predicate for the alleged violations.

[…]

DOJ’s declination letter announces that DOJ will not prosecute violations of the FCPA’s anti-bribery provisions (15 U.S.C. § 78dd-1 et seq.) rather than potential criminal violations of the accounting provisions. However, the letter does not assert any U.S. nexus (e.g., that D&B headquarters was involved or that any payments went through a U.S. bank). Nor is such a nexus included in the SEC’s order, likely because such allegations are unnecessary for violating the accounting provisions. From this letter settlement, it is therefore impossible to know if DOJ satisfied the minimum jurisdictional predicate for the provisions listed in the order, the prosecutions of which are being declined.”

See here [13] for the recent article “The Dun & Bradstreet Enforcement Action – A Microcosm Of The Many Problems With FCPA Enforcement.”

*****

An informative article here [14] recently published in the ABA Criminal Justice Section Newsletter by PwC professionals regarding various third parties common in Latin America.

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This Economist article [15] concerns “governments in Europe are catching up with America in pursuing corporate graft.” However, when reading the article keep the following in mind.

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