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Kudos To Cobalt – Refusing To Settle Is An Option

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In certain instances, FCPA scrutiny and enforcement is not necessarily about the law and facts, but rather a game of risk aversion in which business organizations (particularly issuers) have little appetite for putting the government to its burden of proof.

But attention general counsel, audit committee members, and board of directors.  Just because the SEC thinks your company has violated the Foreign Corrupt Practices Act, it isn’t necessarily so and you don’t have to roll over and write a check.  To state the obvious, unless a company caves, the SEC actually has to prove an FCPA violation and history has demonstrated that when forced to do, the SEC often fails.

For years, these pages have followed Cobalt International’s FCPA scrutiny concerning its business operations in Angola. The scrutiny began in 2011 and escalated in 2014 when the company disclosed it received a Wells Notice from the SEC (a rare occurrence in the FCPA context) which stated that it “made a preliminary determination to recommend that the SEC institute an enforcement action against the Company.”

Many companies in this situation would have rolled over and cut a check to make the SEC go away.

However, Cobalt refused and in public comments its Chairman and CEO stated:

“This Wells Notice does nothing to change our prior conclusion that our activity in Angola have fully complied with all laws, including the Foreign Corrupt Practices Act, and Cobalt continues to strongly refute any allegation of any wrongdoing.”

As highlighted in this previous post, in early 2015 Cobalt beat back the SEC as it disclosed:

“[The Company] has received a termination letter from the United States Securities and Exchange Commission (“SEC”) advising Cobalt that the SEC’s FCPA investigation relating to Cobalt’s operations in Angola has concluded and that the Staff does not intend to recommend any enforcement action by the SEC.”

However, in March 2017 the SEC again came knocking about other aspects of Cobalt’s business practices in Angola and once again Cobalt publicly stated: “we believe our activities in Angola have complied with all applicable laws, including the FCPA, and we will cooperate with the SEC’s inquiry.”

As highlighted last week, Cobalt recently disclosed:

“On January 29, 2018, the United States Securities and Exchange Commission concluded its FCPA investigation relating to the Angolan operations of Cobalt International Energy, Inc. and advised that the SEC staff does not intend to recommend any enforcement action by the SEC against Cobalt. This formally concludes the SEC investigation, which was opened in March 2017.”

This Global Investigations Review article about Cobalt’s recent instances of FCPA scrutiny quotes its outside counsel, Michael Goldberg at Baker Botts, as follows. “we made it clear we were not going to settle, not even for a slap on the wrist, because we did nothing wrong.”

In this regard, kudos to Cobalt.

As highlighted several times on these pages, the business community is, at least in part, responsible for the current aggressive FCPA enforcement climate. Indeed, as Homer Moyer (a dean of the FCPA bar) has observed:

“One reality is the enforcement agencies’ [FCPA] views on issues and enforcement policies, positions on which they are rarely challenged in court. The other is what knowledgeable counsel believe the government could sustain in court, should their interpretations or positions be challenged. The two may not be the same. The operative rules of the game are the agencies’ views unless a company is prepared to go to court or to mount a serious challenge within the agencies.”

Cobalt did just that and more business organizations would be wise to follow its lead.

I don’t know what the precise contours of the FCPA landscape would look like today if more companies chose Cobalt’s path, but I confident in saying that the landscape would look different.

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