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Friday Roundup

Chevron and others get the front-page treatment, the Aguilar prosecution is officially over as well, some additional FCPA compliance survey data, Wal-Mart civil suits continue to pile up, and Chinese state-owned enterprises continue their global M&A push, it’s all here in the Friday roundup.

Kazakhstan Customs Inquiry

In yesterday’s Wall Street Journal, Christopher Matthews and Joe Palazzolo broke a story (“Oil Giants Launch Bribe Probes”) about an apparent investigation regarding Kazakh customs issues involving members of Karachaganka Petroleum Operating BV (“KPO”) including Chevron Corp. and Eni SpA, as well as a logistics arm of Deutsche Post AG, DHL, which handles freight shipments for the group.  (For more on KPO see here).  According to tips discussed in the WSJ article, the “KPO joint venture authorized DHL to bribe Kazakh customs officials to ignore paperwork irregularities that could have delayed shipments.”  The WSJ article discusses “the difficult choices companies face operating in developing countries” and notes that, according to a knowledgeable source, when KPO logistics officials ordered DHL representatives to “stop payments to customs officials” in March 2011 the “customs inspectors found problems with virtually very KPO shipment” and “nothing was cleared to pass” until DHL resumed the payments.

Payments in connection with foreign customs, licenses, permits and the like have been fertile ground for FCPA enforcement activity, although as noted in this recent post in connection with Wal-Mart’s potential FCPA exposure, it is an open question in many cases whether the conduct at issue is the type of conduct Congress sought to capture in passing the FCPA.

In 2007, Chevron resolved an enforcement action (here) involving Iraqi Oil for Food conduct and in 2010 Eni (and related entities) resolved an enforcement action (see here for the prior post) involving Bonny Island, Nigeria conduct.  In addition, as highlighted in this recent post, Eni is also reportedly under investigation concerning its conduct in Libya.

Aguilar Conviction Vacated

This recent post highlighted the official end to the Lindsey Manufacturing prosecution.  The prosecution of Angela Maria Gomez Aguilar, who was tried along with the Lindsey defendants, is officially over as well.  As noted in this previous post, Aguilar (a purported agent of Lindsey Manufacturing) was granted a judgment of acquittal after the DOJ’s case as to one substantive count of money laundering, but the jury convicted her of one count of money laundering conspiracy.  After the conviction, Aguilar negotiated an agreement with the DOJ for a time-served sentence and immediate release from custody.  Following Judge Matz’s dismissal of the indictment last December based on numerous instances of prosecutorial misconduct (see here for the prior post), Aguilar obtained an agreement from the DOJ to stipulate to a motion vacating the one count of conviction, an agreement which took effect upon the DOJ’s recent decision not to further pursue its appeal.

As noted in this recent release, Judge Matz this week signed an order vacating Aguilar’s conviction.  In the release, Aguilar’s counsel, Stephen Larson (Arent Fox – here) stated as follows.  “The government overreached in its efforts to press this case.  It is bittersweet whenever a prosecution is terminated for misconduct.  Although Ms. Aguilar is greatly relieved by Judge Matz’s decision to end this ordeal, it is tragic that it was permitted to go this far.  I am pleased that the Department of Justice has recognized as much by opting not to pursue its appeal in this case.”

Kroll’s 2012 FCPA Benchmarking Report

This post discussed recent FCPA survey data.  Add Kroll’s recent FCPA Benchmarking Report (here) to the list.

As noted in the Report, the study was “designed to take the pulse of corporate compliance officers at U.S. based multinationals and to provide benchmarks for the current state of anti-bribery preparedness.”

Survey results that caught my eye include the following.

“Sixty-nine percent of all respondents said their companies were either moderately or highly exposed to bribery risk; this number jumps to 100 percent in the pharmaceutical industry and drops to 46 percent in the financial services industry.  […] 85 percent believe [such risk] will increase or stay the same in the future.”

“Fifty-three percent of respondents said their compliance departments have increased their budgets in the last year; 49 percent said they have increased hiring; and 22 percent said they have experienced a centralization of compliance decision-making.”

“The most frequently cited challenges to anti-bribery compliance include the inability to anticipate regulators’ next moves (21 percent) and ensuring that employee training is taken seriously and is used when a risky situation presents itself (20 percent).”

“Seventy-nine percent of respondents characterized their compliance efforts as a strategic advantage in addition to being a strong defensive tactic.”

“[T]he weakest link among survey respondents was how they handled third party relationships.  While 99 percent of respondents said they had anti-bribery provisions for employees in their companies’ codes of conduct, that number fell to 73 percent when compliance officers were asked about anti-bribery provisions for third parties.  […] The scope of [FCPA risk by using third parties] is exacerbated by the fact that approximately three in four U.S. companies (77 percent) report that they partner with foreign companies to do business abroad.  Thirty-seven percent of respondents said they do business with between 100 and 1,000 third parties; 27 percent said they work with between 1,000 and 10,000 third parties; and 17 percent said they work with between 10,000 and 100,000 different third parties.  A small number said they worked with more than 100,000 different third parties.”

It’s a third-party world.

The Report was based on responses from “139 senior corporate compliance executives from companies ranging in size from $100 million to over $10 billion in revenues per year” who were interviewed by phone from July 2011 to February 2012.  Survey respondents were drawn mainly from four industries:  financial services, IT/telecommunications, energy, and pharmaceuticals.

The report was published by Kroll Advisory Solutions (here), a company that assists clients mitigate and respond to risks, including FCPA issues.

Wal-Mart Civil Suits

One of my earliest Wal-Mart posts (here) noted that not only will the DOJ and SEC likely be examining the conduct of Wal-Mart executives, but so too will plaintiff law firms representing shareholders who will likely scour Wal-Mart’s SEC filings and other statements to the market in bringing derivative claims alleging breach of fiduciary duty and potential Section 10(b) claims based on material omissions concerning Wal-Mart Mexico.

Sure enough.

Wal-Mart’s recent quarterly SEC filing stated as follows.

“The Company is a defendant in several recently-filed lawsuits in which the complaints closely track the allegations set forth in a news story that appeared in the New York Times on April 21, 2012.  One of these is a securities lawsuit that was filed on May 7, 2012 in the United States District Court for the Middle District of Tennessee, in which the plaintiff alleges various violations of the U.S. Foreign Corrupt Practices Act (the “FCPA”) beginning in 2005, and asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, relating to certain prior disclosures of the Company. The plaintiff seeks to represent a class of shareholders who purchased or acquired stock of the Company between December 8, 2011, and April 20, 2012, and seeks damages and other relief based on allegations that the defendants’ conduct affected the value of such stock. In addition, eleven derivative complaints were filed in April and May 2012, in Delaware and Arkansas, also tracking the allegations of the Times story, and naming various current and former officers and directors as additional defendants. The plaintiffs in the derivative suits (in which the Company is a nominal defendant) allege, among other things, that the defendants who are or were directors or officers of the Company breached their fiduciary duties in connection with oversight of FCPA compliance. While management cannot predict the outcome of these matters, management does not believe the outcome will have a material effect on the Company’s financial condition or results of operations.”

Chinese SOEs

This recent post focused on China SOEs and provided links to data and analysis concerning the ever increasing global push of Chinese SOEs.  Yesterday, the Wall Street Journal ran an article titled “China Buys Overseas Assets” that discusses a recent report from A Capital, a private equity firm based in China and Paris (see here for A Capital’s report).  As indicated in the article, “China’s overseas investment surged in the first quarter [of 2012] to $21.4 billion as state-owned companies snapped up resource-related assets around the globe.”  According to the report, state-owned companies accounted for 98% of all deal value in the first quarter, a new high.


A good weekend to all.

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