Scrutiny alerts and updates, quotable, and for the reading stack. It’s all here in the Friday Roundup.
Scrutiny Alerts And Updates
Yesterday, Avon’s stock dropped approximately 22% to $17.50. The company disclosed a drop in third quarter sales and weaker than expected earnings. Avon also disclosed , in pertinent part, the following regarding its long-running FCPA scrutiny:
“As previously reported in our Quarterly Report on Form 10-Q for the period ending June 30, 2013, we made an offer of settlement to the DOJ and the SEC in June 2013 that, among other terms, would have included payment of monetary penalties of approximately $12. Although our offer was rejected by the DOJ and the staff of the SEC, we accrued the amount of our offer in the second quarter of 2013.
In September 2013, the staff of the SEC proposed terms of potential settlement that included monetary penalties of a magnitude significantly greater than our earlier offer. We disagree with the SEC staff’s assumptions and the methodology used in its calculations and believe that monetary penalties at the level proposed by the SEC staff are not warranted. We anticipate that the DOJ also will propose terms of potential settlement, although they have not yet done so and we are unable to predict the timing or terms of any such proposal. If the DOJ’s offer is comparable to the SEC’s offer and if the Company were to enter into settlements with the SEC and the DOJ at such levels, we believe that the Company’s earnings, cash flows, liquidity, financial condition and ongoing business would be materially adversely impacted.
Although we are working to resolve the government investigations through settlement, our discussions are at early stages and at this point we do not know if those efforts will be successful and, if they are, what the timing or terms of any such settlements would be. We expect any such settlements will include civil and/or criminal fines and penalties, and may also include non-monetary remedies, such as oversight requirements and additional remediation and compliance requirements. We may be required to incur significant future costs to comply with the non-monetary terms of any settlements with the SEC and the DOJ. If we are able to reach settlements with the SEC and the DOJ, the Company believes that such settlements are likely to include monetary penalties that would be material to its earnings and cash flows in the relevant fiscal period and could, depending on the amounts of the settlements, materially adversely impact the Company’s liquidity, financial condition and ongoing business.
There can be no assurance that our efforts to reach settlements with the government will be successful. If we do not reach settlements with the SEC and/or the DOJ, we cannot predict the outcome of any subsequent litigation with the government but such litigation could have a material adverse effect on our earnings, cash flow, liquidity, financial condition and ongoing business.>We have not recorded an additional accrual beyond the amount recorded in the second quarter of 2013 because at this time, in light of the early stages of our discussions of possible settlement terms with the government, the magnitude of the difference between our offer and the amount proposed by the SEC and the absence of a proposal from the DOJ, and our inability to predict whether we will be able to reach settlements with the government, we cannot reasonably estimate the amount of additional loss above the amount accrued to date.
Until these matters are resolved, either through settlement or litigation, we expect to continue to incur costs, primarily professional fees and expenses, which may be significant, in connection with the government investigations. Furthermore, under certain circumstances, we may also be required to advance and/or reimburse significant professional fees and expenses to certain current and former Company employees in connection with these matters.”
In certain respects, Avon’s disclosure was similar to its August disclosure (see here  for the prior post) in which it stated “we made an offer of settlement to the DOJ and the SEC that, among other terms, included payment of monetary penalties of approximately $12 [million]. The DOJ and the SEC have rejected the terms of our offer.”
The fact that there is a negotiation and back and forth between the SEC and a company concerning an FCPA settlement number is not unusual, what is a bit unusual is that this back and forth is being aired in public via the company’s SEC filings.
“U.S. and Brazilian authorities are investigating whether aircraft maker Embraer SA bribed officials in the Dominican Republic in return for a $90 million contracts to furnish the country’s armed forces with attack planes.”
According to the article, U.S. authorities say they have “evidence – including bank records and e-mails – that they believe shows that Embraer executives had approved a $3.4 million bribe to a Dominican official with influence over military procurement.”
“The company has initiated an internal investigation of, and is voluntarily complying with a Securities and Exchange Commission request for documents relating to, certain business activities of the company’s local subsidiary in China. The company’s investigation is focused on certain expenditures that were made by the subsidiary in connection with the promotion of the company’s products or may have otherwise been made and that may not have complied with company policies and applicable U.S. and/or local laws. The company has retained outside legal counsel to conduct the investigation, which is being overseen by a committee of independent members of the company’s board of directors. At this time, the company is unable to predict the scope, timing or outcome of this ongoing matter or any regulatory or legal actions that may be commenced related to this matter.”
The on-line publication Vocativ recently published an article “Tut-Tut: Did National Geographic Bribe Egypt’s Famed Indiana Jones?” The article begins as follows.
“This is not your typical story about international bribery. For one thing, it involves mummies. It also involves one of America’s most beloved institutions: National Geographic. Vocativ has learned that the Justice Department has opened a criminal bribery investigation into the prestigious nonprofit. At issue: Nat Geo’s tangled relationship with Dr. Zahi Hawass, a world-famous Indiana Jones–type figure who for years served as the official gatekeeper to Egypt’s glittering antiquities. Beginning in 2001 and continuing for a decade, National Geographic paid the archaeologist between $80,000 and $200,000 a year for his expertise. The payments came at a time when the popularity of mummies and pharaohs was helping transform the 125-year-old explorer society into a juggernaut with multiple glossies, a publishing house and a television channel. But they also came as Hawass was still employed by the Egyptian government to oversee the country’s priceless relics.”
According to the article, Hawass also worked with National Geographic competitor, the Discovery Channel.
Although National Geographic is a non-profit entity, the FCPA’s definition of “domestic concern” is “any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship …”.
As noted in this  previous post, in August the company disclosed that it “received a subpoena … from the SEC to produce documents
with respect to compliance with the FCPA in Latin America.” Earlier this week, Teva disclosed  as follows.
“Beginning in 2012, Teva received subpoenas and informal document requests from the SEC and the Department of Justice (“DOJ”) to produce documents with respect to compliance with the Foreign Corrupt Practices Act (the “FCPA”) in certain countries. Teva has provided and will continue to provide documents and other information to the SEC and the DOJ, and is cooperating with the government in their investigations of these matters. Teva is also conducting a voluntary investigation into certain business practices that may have FCPA implications and has engaged independent counsel to assist in its investigation. In the course of its investigation, which is continuing, Teva has identified in Russia, certain Eastern European countries, and certain Latin American countries issues that could potentially rise to the level of FCPA violations and/or violations of local law. Teva has brought these issues to the attention of the SEC and the DOJ. No conclusion can be drawn at this time as to any likely outcomes in these matters.”
As highlighted in this  previous post, in August JPMorgan’s hiring practices in China came under scrutiny.
The company recently disclosed :
“The Firm has received subpoenas and requests for documents from the SEC’s Division of Enforcement regarding, among other things, hiring practices relating to candidates referred by clients, potential clients and government officials, the Firm’s employment of certain former employees in Hong Kong, its business relationships with certain related clients in the Asia Pacific region and its engagement of consultants in the Asia Pacific region. The Firm has also received a request for documents from the U.S. Department of Justice regarding the same referral hiring practices. The Firm is cooperating with these investigations. Separate inquiries on these or similar topics have been made by other authorities, including authorities in other jurisdictions, and the Firm is responding to those inquiries.”
From Attorney General Eric Holder at the Arab Forum on Asset Recovery in Morocco .
“As we’ve all seen – and as President Obama has said – “[t]he struggle against corruption is one of the great struggles of our time.” Fortunately […] corruption is no longer widely seen as an accepted cost of doing business. It is no longer tolerated as an unavoidable aspect of government. On the contrary – it is now generally understood that the consequences of corruption are devastating – eroding trust in public and private institutions, undermining confidence in the fairness of free and open markets, siphoning precious resources at a time when they could hardly be more scarce, and all too often breeding contempt for the rule of law.
This is why, as Attorney General, I’ve consistently worked to ensure that anticorruption remains a top priority for my colleagues at every level of the United States Department of Justice – within as well as beyond our borders.”
A recent article  in Corporate Counsel titled “The Perils of Keeping FCPA Infractions Under Wraps” states:
“Charles Duross, the deputy chief of the U.S. Justice Department’s Foreign Corrupt Practices Act Unit, delivered an ominous message Monday to in-house lawyers at the Association of Corporate Counsel’s Annual Meeting in Los Angeles: Failure to report potential bribery is more perilous than ever. Duross, who is based in Washington, D.C., said DOJ is handling a “pretty steady stream of cases,” with every major U.S. attorney’s office investigating alleged violations of the FCPA, which prohibits bribery of foreign officials. “The risk of getting caught . . . is greater today than any point previously,” Duross said. “I think that’s kind of a no-brainer.” Duross said he isn’t naïve about the calculus companies have to perform when deciding whether to report a potential FCPA infraction to the U.S. government. But if a company makes the disclosure on its own, he noted, the Justice Department stands ready to help. DOJ can make deferred-prosecution or non-prosecution agreements with businesses—or even decline to pursue any action against them, he said. “It’s a tough one” for companies, Duross said. “No doubt about it.” Self-reporting can be overrated, according to New York-based Morrison & Foerster partner Carl Loewenson Jr., a co-chairman of the firm’s securities litigation, enforcement, and white-collar defense group who also spoke at the ACC event. Making the disclosures is great for business at the DOJ, as well as law firms and accounting offices, he said. But companies that report almost always get some type of a public charge, he noted. “I think that these days there are too many cases in which too many companies are being too reflexive about self-reporting” to the government, Loewenson said. “In some cases, not in all, you can solve these problems yourself.”
Several spot-on observations in the most recent issue  of the always informative FCPA Update from Debevoise & Plimpton concerning the recent Diebold enforcement action (see here  and here  for prior posts).
“Although there are significant aggravating factors that might explain imposing $48 million in penalties and disgorgement on a company that voluntarily disclosed what are, unfortunately, common improprieties in China, combined with wholly unrelated commercial bribery in Russia, the size of the financial resolution – apart from the substantial burdens of the monitorship – raises questions about future enforcement of the FCPA, as well as the incentives for companies to self-report.
The first noteworthy aspect of this resolution is the enforcement agencies’ decision to use the books and records and internal controls provisions as a vehicle for obtaining monetary relief penalizing purely commercial bribery (40% of the improper payments at issue). While not entirely novel or outside the theoretical reach of those provisions, were the enforcement agencies routinely to investigate issuers in connection with commercial bribery abroad, the “risk-based” calculus of almost all corporate compliance programs would potentially need to be rebalanced.
Second, the total financial aspect of the resolution was 16 times the total value of alleged improper payments. In describing the improper payments, the enforcement agencies aggregated a number of often small payments over five years. When considered alongside the Ralph Lauren enforcement action from earlier this year, the Diebold enforcement action, and in particular its imposition of a monitor, long-considered one of the most burdensome aspects of FCPA settlements, could call into question one common view of the statements relating to gifts and corrupt intent in the November 2012 DOJ/SEC joint Resource Guide to the U.S. Foreign Corrupt Practices Act: namely, that FCPA covered companies should not “sweat the small stuff.”
“[T]he Diebold enforcement actions revive the pre-guidance confusion about the government’s enforcement priorities and raise significant questions about the value of voluntary disclosure. The confusion, arising from repeated charges related to relatively small expenditures, including, even, $500 for four pairs of shoes provided as gifts to Chinese officials, was part of the background of frustration with the government’s enforcement of the FCPA that led to publication of the joint DOJ/ SEC Resource Guide. It has been commonly thought that the Resource Guide’s distinctions between “expensive gifts” and “token[s] of esteem or gratitude” signified at least an implicit recognition by U.S. enforcement agencies that compliance resources would be better allocated to topics other than gifts valued at a few hundred dollars, let alone gifts that individually do not exceed $100 in value. But the Diebold case will raise new questions about the government’s enforcement priorities, questions that will only be amplified by the imposition of a monitor, potentially one of the most disruptive, burdensome, and costly components of FCPA settlement tools, and one that had been in declining use for several years.”
An observant article  from The Lawyer titled “Round Table on Cross-Border Disputes – Bandwagons Roll.” It states:
“Co-operation [between foreign law enforcement regulators] is good.'” […] More co-operation between regulators when they are trying to address the same issues is welcome.” However, co-operation – while praised for attempting to provide consistency – has its drawbacks. “They all want to impose sanctions for the same conduct.” […] “It’s common now for a company to finish a US Foreign Corrupt Practices Act or UK Bribery Act investigation that has taken three years and generated huge fees, to turn around and see a long line of regulators from, say, China or India with their own legal and political concerns.”
It does not necessarily justify the behavior, but the following article  at least puts the behavior in the proper context and highlights why Congress specifically included a facilitation payments exception in the FCPA’s anti-bribery provisions.
“Seventy-five percent of businesses in Vietnam pay bribes to government agencies on their own volition in order to avoid being stuck in red tape, a World Bank specialist says. At an anti-corruption conference held in Hanoi Thursday, Soren Davidsen said that sixty-three percent of firms questioned in a survey said they paid the “unofficial fees” to speed up procedures.”
A useful compliance resource here  from the U.S. – China Business Council titled “Best Practices for Managing Compliance in China.”
A good weekend to all,