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Issues To Consider From The Panasonic Enforcement Action

This prior post [1] went in-depth into the $280 million Foreign Corrupt Practices Act enforcement action against Japan-based Panasonic Corp.  and a U.S. subsidiary Panasonic Avionics Corp. (PAC).

This post continues the analysis by highlighting additional issues to consider.

Timeline

As highlighted in this prior post [2], Panasonic’s FCPA scrutiny appears to have begun in early 2013. Thus from start to finish, the company’s FCPA scrutiny lasted approximately 5.5 years.

Once again, if the SEC/DOJ want the public to have confidence in its FCPA enforcement program, it must resolve instances of FCPA scrutiny much quicker. The validity and credibility of FCPA enforcement depends on this. Having FCPA scrutiny linger for over five years is inexcusable particularly since Panasonic, in the words of the DOJ:

“The Company received credit for its cooperation with the Fraud Section’s investigation, including conducting a thorough internal investigation; making factual presentations to the Fraud Section; providing facts learned during witness interviews conducted by the Company; voluntarily making U.S. and foreign employees available for interviews in the United States with the Fraud Section and the SEC; in one instance, proactively alerting the Fraud Section to material information relevant to the investigation; collecting, analyzing, and organizing voluminous evidence from multiple jurisdictions; and disclosing to the Fraud Section conduct in the Middle East of which the Fraud Section was previously unaware.”

Old Conduct

The conduct at PAC was egregious and involved high-level executives. Even so, the law (in this case statute of limitations) should matter. As stated by the SEC:

“The anti-bribery violation is the result of a 2007 bribery scheme involving senior management of one of Panasonic’s U.S. subsidiaries, Panasonic Avionics Corporation (“PAC”), whereby a lucrative consulting position was provided to a government official (“Government Official”) who assisted PAC in obtaining and retaining business from a state-owned airline (“Government Airline”).”

In other words, the 2018 FCPA anti-bribery violation was based on conduct that occurred 11 years ago and beyond any conceivable limitations period. But then again, when companies under scrutiny waive statute of limitations defenses or toll the statute of limitations (as Panasonic presumably did) fundamental legal principles do not matter.

[3]

The old conduct is also legally relevant given that the SEC settlement amount of $143 million consisted entirely of disgorgement and prejudgment interest.

As highlighted here [4], in June 2017 the Supreme Court unanimously held in SEC v. Kokesh that disgorgement is a penalty and thus disgorgement actions must be commenced within five years of the date the claim accrues. However, as highlighted in this post [5], Kokesh, not to mention other Supreme Court decisions and other legal principles, only matter to the extent companies under FCPA scrutiny do not roll over and play dead.

Executives

The resolution documents refer to two executives who separated from Panasonic in 2017. As highlighted in this release [6], in February 2017 Paul Margis (CEO) and Paul Bottiaux (CFO) left Panasonic.

Vague Foreign Official

“Foreign officials” are typically vaguely described in FCPA resolution documents. Even so, normally the “foreign official’s” country is mentioned. Not so in the Panasonic enforcement action in which the “foreign official” is vaguely described as “a senior contracts official at Middle East Airline until February 2008 – the Middle East Airline is described as a commercial airline based in the Middle East that is wholly-owned by a foreign government.”

On this score, it is worth noting that the foreign officials in the BNY Mellon enforcement action [7] were vaguely described as individuals “affiliated with a Middle Eastern sovereign wealth fund.”

In any event, perhaps the “foreign official” in the Panasonic enforcement action was associated with Emirates airline. After all, in a March 2017 civil complaint filed by CoKinetic Systems Corp. the company alleged that “Panasonic had directed its representatives in the Middle East to funnel illicit payments to Emirates engineers in Dubai in order to induce them to support discontinuing the use of CoKinetic’s AirPlay software in favor of returning to Panasonic’s IFE software. According to the Emirates employee, “money has already flowed to people in Emirates engineering.” (See CoKinetic Systems Corp. v. Panasonic Avionics Corp. Case 1:17-cv-01527-PKC).

SOX Certification Issues

The Panasonic enforcement action contained various allegations about Sarbanes Oxley certification issues which, if the DOJ and SEC are serious about individual accountability, will presumably be recast in future enforcement actions against culpable individuals.

SOX certification issues are not common in FCPA enforcement actions, but then again are not unheard of either as the following enforcement actions demonstrate: Analogic [8], Maxwell Technologies [9], HP [10], Alain Riedo [11] and Paul Jennings. [12]

No Criminal History?

Granted the DPA is against PAC, but it also makes mention of Panasonic. It is interesting that the DPA states that “the Company has no prior criminal history” against the following backdrop.

Why Disclose?

Once again (see here [15] and here [16] for prior posts), the DOJ shot itself in the foot by making decisions that should result in any board member, audit committee member, or general counsel informed of current events not making the decision to voluntarily disclose.

Panasonic did not voluntarily disclose and even though the conduct at PAC was egregious and involved high-level executives, the DOJ still agreed to a penalty amount 20% below the minimum amount suggested by the advisory guidelines.

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