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What You Need To Know From Q4

This post provides a summary of Foreign Corrupt Practices Act enforcement actions and FCPA related events from the fourth quarter of 2012.  See here [1] for a similar post from Q1, here [2] for Q2 and here [3] for Q3.  Year in reviews for both DOJ and SEC FCPA enforcement will be forthcoming.

DOJ Enforcement

The DOJ did not bring any FCPA enforcement actions in the fourth quarter.

SEC Enforcement

The SEC resolved two corporate FCPA enforcement actions in the fourth quarter.  Total recovery in these enforcement actions was approximately $41.8  million.  At present, none of the enforcement actions have resulted in any individual charges against company employees.

Eli Lilly (December 20th)

See here [4] for the prior post.

Charges: Settled civil complaint charging violations of the FCPA’s anti-bribery provisions, and books and records and internal controls provisions.

Settlement: Approximately $29.4 million (approximately $14 million in disgorgement, approximately $6.7 million in prejudgment interest, and an $8.7 million civil penalty)

Disclosure:  According to the company’s disclosures, it was first notified of an investigation in August 2003.

Individuals Charged: No.

Related DOJ Enforcement Action: No.

Allianz (December 17th)

See here [5] for the prior post.

Charges:  None. Administrative cease and desist order finding violations of the FCPA’s books and records and internal control provisions.

Settlement: Approximately $12.4 million (approximately $5.3 million in disgorgement, approximately $1.8 million in prejudgment interest, and a civil penalty of approximately $5.3 million).

Disclosure:  According to the SEC – “In response to the March 2009 Whistleblower complaint, Allianz convened a Whistleblower Committee to do an internal investigation and retained counsel to conduct an internal investigation of Utama’s payment practices in Indonesia. Allianz did not report the conduct to the Commission staff.  In April 2010, the staff opened an investigation after receiving an anonymous complaint of possible FCPA violations.”

Individuals Charged: No.

Related DOJ Enforcement Action: No.

Other Developments

FCPA Guidance

On November 14th, the Department of Justice and Securities and Exchange Commission issued non-binding FCPA Guidance regarding its views of the FCPA and its enforcement.  FCPA Professor has extensively covered various aspects of the Guidance and 11 prior posts can be found here [6].  In addition, see here [7] for a download link of my recent publication “Grading the Foreign Corrupt Practices Act Guidance.”

SEC Challenges

2002 was believed to be the last time the SEC was put to its burden of proof in an FCPA enforcement action.  However, last quarter saw developments in not just one, not just two, but three FCPA enforcement actions in which the SEC is being put to its burden of proof.

As detailed in this [8] prior post, on December 11th, Judge Keith Ellison (S.D. Tex.) issued a lengthy decision granting Mark Jackson and James Ruehlen’s motion to dismiss the SEC’s claims that seek monetary damages while denying the motion to dismiss as to claims seeking injunctive relief.  Even though Judge Ellison granted the motion as to SEC monetary damage claims, the dismissal is without prejudice meaning that the SEC will be allowed to file an amended complaint within 30 days.  Presumably after the SEC does this, a new round of briefing will begin again.

In short, Judge Ellison’s decision was based on statute of limitations grounds (specifically that the SEC failed to plead any facts to support an inference that it acted diligently in bringing the complaint) as well as the SEC’s failure to adequately plead discretionary functions relevant to the facilitation payments exception.  As to the second issue, Judge Ellison concluded, in what is believed to be an issue of first impression, that the SEC must bear the burden of negating the facilitation payments exception.

In addition, Judge Ellison’s decision also touched upon whether the SEC needs to specifically identify the alleged ”foreign officials” as well as corrupt intent.  As to the first issue, Judge Ellison concluded that the identity of the foreign official need not be pled with specificity nor does the FCPA mandate a bright-line rule of detailed pleadings about a foreign official’s particular duties.  In so concluding, Judge Ellison acknowledged his disagreement with Judge Lynn Hughes (also in the S.D. of Texas) who stated the opposite in the DOJ’s unsuccessful prosecution of John O’Shea.

The other two SEC challenges have been brought by foreign national defendants who claim, among other things, that the SEC has not established personal jurisdiction over them and that the SEC’s FCPA claims against them are barred under the statute of limitations.

This [9] prior post links to the full briefings in SEC v. Herbert Steffen (a former Siemens executive) and SEC v. Elek Straub, Andras Balogh and Tamas Morvai (former Magyar Telecom executives).  As noted in the prior post, the DOJ and SEC are bringing more FCPA enforcement actions against foreign actors – for instance in 2011 90% of DOJ individual prosecutions were against foreign nationals and 100% of SEC individual prosecutions were against foreign nationals.  Thus, the two challenges are noteworthy, particularly so because Judge Leon, in the Africa Sting case, rejected the DOJ’s jurisdictional theory against U.K. national Pankesh Patel (see here [10] for the prior post) in what was believed to be the first instance of judicial scrutiny concerning FCPA jurisdiction against foreign nationals.

35 Years of the FCPA

On December 20th, the FCPA turned 35.  In connection with this anniversary, I published “The Story of the Foreign Corrupt Practices Act [11].”  The article weaves together information and events scattered in the FCPA’s voluminous legislative record to tell the FCPA’s story through original voices of actual participants who shaped the law.

FCPA Inc. and the Business of Bribery

Last quarter started with a high-profile focus on the Foreign Corrupt Practices Act industry.  Borrowing the terms FCPA Inc. and the Business of Bribery I have been using for some time, the Wall Street Journal ran a series of FCPA related articles, including a lead article titled “FCPA Inc.: The Business of Bribery.”  This [12] prior post highlighted the Wall Street Journal articles, including an article concerning compliance costs, an article concerning prosecution of individuals, and an article regarding the FCPA’s history and certain reasons for the increase in enforcement.

“Foreign Official” Opinion Procedure Release

Last quarter an FCPA Opinion Procedure Release surfaced that further discombobulates the DOJ’s “foreign official” position.  As discussed in this [13] prior post, in Release 12-01 the Requestor sought to engage a Foreign Royal Family Member.

The DOJ’s opinion was that “the Royal Family Member does not qualify as a foreign official under [the FCPA] so long as the Royal Family Member does not directly or indirectly represent that he is acting on behalf of the royal family or in his capacity as a member of the royal family.”   The DOJ further stated as follows.   “[W]hether a member of a royal family is a ‘foreign official’ turns on such factors as (i) how much control or influence the individual has over the levers of governmental power, execution, administration, finances, and the like; (ii) whether a foreign government characterizes an individual or entity as having governmental power; and (iii) whether and under what circumstances an individual (or entity) may act on behalf of, or bind, a government.  This inquiry is fact-intensive and no single factor is dispositive.”

As noted in the prior post, by focusing on the Royal Family Member’s particular duties or lack thereof, the DOJ actually drifted far-away from the Carson factors it cited to support its decision.  The Carson factors all focus on the status of the entity employing an alleged “foreign official” without any reference to a specific individual’s particular duties or lack thereof.

In its recent 11th Circuit “foreign official” brief (here [14]), the DOJ likewise elevated status over duties in assessing whether employees of Haiti Teleco were “foreign officials” under the FCPA.  However, in Release 12-01 the DOJ switched gears and elevated duties above status.  In doing so, the DOJ actually goes back to the FCPA’s original definition of “foreign official” which categorically excluded certain bona fide traditional government officials based on their duties.  In short, the DOJ’s Release further added to the existing confusion of a key element of the FCPA.