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Friday Roundup

By on November 30, 2012 in Bourke, Central European Distribution Co., Double Standard, FCPA Appeals, Offensive Use of FCPA, Victims

Two years ago today, you just can’t make this stuff up, no new trial for Bourke, more offensive use of the FCPA, and ICE is not melting away.  It’s all here in the Friday roundup.

Two Years Ago Today

Two years ago today, the Senate held a hearing titled “Examining Enforcement of the Foreign Corrupt Practices Act.”  (See here for the full hearing transcript.  I had the pleasure to testify at the hearing (see here for my written testimony).  I went to Capital Hill without an agenda and on behalf of no one but myself.  My testimony represented my beliefs and I was proud of what I said then and I remain proud today.

You Just Can’t Make This Stuff Up

Try as you might, you just can’t make up a better example of the double-standard I frequenlty write about.  (See here for numerous other prior posts).

Our FCPA enforcement agencies are bringing enforcement actions against companies for conduct that includes providing $600 bottles of wine, Cartier watches, cameras, kitchen appliances, business suits, and executive education classes to individuals employed by foreign companies that are allegedly state-owned or state-controlled.  (These are all allegations found in recent FCPA enforcement actions).

Assistant Attorney General Lanny Breuer recently declared (see here) that “we in the United States are in a unique position to spread the gospel of anti-corruption.”

Against this backdrop, the Wall Street Journal reports (here) that President Obama’s fundraising advisers “have urged the White House to accept corporate donations for his January 2013 inaugural celebration rather than rely exclusively on weary donors who underwrote his $1 billion re-election effort.”  Among the justifications put forward by the Obama team according to the Wall Street?  The inauguration is “more of a civic event than a partisan political affair.”

Bourke Development

Perhaps this is finally the end of the FCPA enforcement action against Frederick Bourke.  As noted in this previous post, in July 2009 Bourke was convicted by a jury for conspiring to pay bribes to Azerbaijan officials.  At sentencing, Judge Shira Scheindin (S.D.N.Y.) sentenced Bourke to 366 days in prison, even though she commented that “after years of supervising this case, it’s still not entirely clear to me whether Mr. Bourke is a victim or a crook or a little bit of both.”

An appeal to the Second Circuit followed, largely on knowledge issues.  As highlighted in this previous post, in December 2011, the Second Circuit affirmed Bourke’s conviction.  Bourke subsequently requested a new trial based on newly discovered evidence relating to alleged perjury of a key trial witness.  Judge Scheindin denied Bourke’s request.  Bourke then appealed the issue to the Second Circuit.

Earlier this week, in an order (here) the Second Circuit affirmed the trial court decision and rejected Bourke’s request for a new trial.  In short, the Second Circuit concluded that Bourke failed to present newly discovered evidence or that the key trial witness in fact committed perjury.

As noted in this Bloomberg article, Bourke’s lawyers plan to ask the Second Circuit to consider the case again.

Offensive Use of the FCPA

Rarely does one hear of offensive use of the FCPA to accomplish a business objective.  Usually it is the other way around – the FCPA thwarts a business objective such as acquiring a foreign target, not hiring the foreign agent who says he knows a way to get that lucrative contract, etc.

But with increasing frequency, the FCPA is being used offensively (at least it seems).  See this prior post for offensive use of the FCPA in the on-going Wynn-Okada dispute.

Recently Chris Matthews (Wall Street Journal Corruption Currents) has been reporting (here, here, and here) on seemingly offensive use of the FCPA in regards to CEDC Distribution Company, a company that has previously disclosed FCPA scrutiny.  (See here for the prior post).

In short, Russian billionaire Roustam Tariko, the founder of CEDC rival Russian Standard vodka brand and CEDC’s largest shareholder, claimed that CEDC executives themselves were the subject of FCPA investigation.

Tariko’s claims prompted CEDC to issue this letter to shareholders that stated, in pertinent part, as follows.

“As you may be aware, earlier this week, Mr. Roustam Tariko, Chairman of Russian Standard, published a letter to CEDC investors that has created anxiety and confusion in the marketplace.  What you may not be aware of is that Mr. Tariko’s letter was published less than 48 hours after the CEDC Board voted 5 to 3 (the 3 being Mr. Tariko and his Board designees) against Mr. Tariko’s request that he be given total control over CEDC’s operations and finance. This request follows repeated attempts by Russian Standard to remove the interim CEO.  The purpose of this letter is to provide you with (1) an explanation as to why we did not give Mr. Tariko complete control over CEDC last weekend when he asked us to; (2) correct information regarding FCPA matters; (3) a current and accurate picture of the CEDC/RTL Strategic Partnership; and (4) information as to the steps we are taking to address the challenges facing CEDC.”

ICE is Not Melting Away

Previous posts here and here (among others) have the detailed the unsuccessful peition by Instituto Constarricense de Electricidad of Costa Rica (“ICE”) for victim status of Alcatel-Lucent’s wide-ranging bribery scheme.  The petition followed the December 2010 announcement that Alcatel-Lucent and certain subsidiaries agreed to resolve a wide-ranging FCPA enforcement action, including conduct in Costa Rica involving payments to ICE officials.  Even though ICE acknowledged that “three disloyal and corrupt [ICE] Directors and two disloyal and corrupt employees” were the recipients of Alcatel Lucent’s bribe payments, it nevertheless claimed it was a victim because the corrupt activities of Alcatel-Lucent caused the company “massive losses” and “catastrophic harm.”

After several unsuccessful 11th Circuit appeals, ICE has petitioned the Supreme Court to hears it case (see here).  The question presented for review is as follows.  “Whether a crime victim who is denied rights conferred by the federal Crime Victims’ Rights Act has a right to directly appeal the denial of those rights.”

*****

A good weekend to all.

 

SEC Responds To Steffen’s Motion To Dismiss

By on November 29, 2012 in Foreign Nationals, Herbert Steffen, Jurisdiction, Siemens Argentina Enforcement Action, Statute of Limitations

Overshadowed by FCPA guidance waiting and now the guidance, the foreign official challenge in the 11th Circuit, and the DOJ’s “Kool-Aid” stand in the Morgan Stanley so-called declination (see here for the prior post), one of the most significant FCPA stories of 2012 is that the SEC is being put to its burden of proof in an FCPA enforcement action.  Not once, not twice, but three times. (See this prior post for discussion of the three cases and links to previous posts).

As noted in the previous post, two of the challenges focus on the SEC’s alleged jurisdiction over foreign nationals.  With both the DOJ and SEC 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 – the 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 for the prior post) in what was believed to be the first instance of judicial scrutiny concerning FCPA jurisdiction against foreign nationals.

Recently the SEC filed its opposition brief (here) to Herbert Steffen’s motion to dismiss.  Steffen is a former Siemens executives who was charged in December 2011 (see here for the prior post).

In summary, the SEC states as follows.

“Steffen’s motion contends (1) that the Court lacks personal jurisdiction over him and (2) that the SEC’s claims are time-barred under the five-year statute of limitations set forth in 28 U.S.C. § 2462. The Court should deny the motion on both grounds.

Steffen is subject to personal jurisdiction in this Court because his conduct caused foreseeable consequences in the United States. The complaint alleges that Steffen played a central role in a long-running bribery scheme at Siemens Aktiengesellschaft (“Siemens”); that he coerced a reluctant lower-ranking official to authorize and cover up bribe payments; and that his actions caused Siemens to file annual and quarterly reports with the SEC in the United States that misrepresented the company’s financial statements and that included false Sarbanes-Oxley certifications. The exercise of personal jurisdiction over Steffen on these facts is consistent with a long line of Second Circuit case law and entirely reasonable. Because Section 27 of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. § 78aa, provides for nationwide service of process, the Court need not look to New York’s long-arm statute, the N.Y. C.P.L.R., as a basis for jurisdiction.

Nor are the SEC’s claims time-barred. The plain language of 28 U.S.C. § 2462 provides that the five-year limitations period runs only “if, within the same period, the offender . . . is found within the United States in order that proper service may be made thereon.” 28 U.S.C. § 2462. Steffen is a German national who, by his own admission, has lived outside the United States during the entire relevant period. And even if he had spent the last five years in this country, the bribery scheme Steffen was a part of did not conclude until February 6, 2007, when Siemens realized the scheme’s objective, a $217 million arbitration award against the Argentine government. The SEC filed its complaint less than five years later, on December 13, 2011. Finally, as a long line of decisions in the Southern District of New York have recognized, the SEC’s claims for equitable relief — in this case, an injunction and disgorgement — are not subject to Section 2462 at all.”

In addition to its “foreseeable consequences” assertion, the SEC brief also contains the following sentence as to its alleged jurisdiction.

“Steffen also discussed the bribery scheme over the telephone with defendant Sharef while Sharef was in the United States, and a portion of the payments that Steffen pressured Regendantz to make were deposited in a New York bank.”  [As noted in this previous post, Sharef has agreed in principle to a settlement with the SEC and Regendantz previously settled with the SEC].

In its brief, the SEC acknowledges that there is no case law interpreting its Section 2462 tolling position.

The Guidance As A Useful Measuring Stick For Future Enforcement Agency Activity

By on November 28, 2012 in Guidance

Now that the enforcement agencies have issued Foreign Corrupt Practices Act guidance, it can serve as a useful measuring stick for future enforcement agency activity.  Principal Deputy Chief of the DOJ Fraud Section Jeffrey Knox recently stated (see here) that the legal community can have confidence that the enforcement agencies will act consistently with the Guidance.

Many will be watching and in this regard several Guidance statements are noteworthy particularly because certain past FCPA enforcement actions, in whole or in part, have seemingly run counter to the statements.

Below is a list of ten meaningful statements in the Guidance as to future enforcement agency accountability.

“[T]he FCPA does not cover every type of bribe paid around the world for every purpose …” (Pg. 14)

“The corrupt intent requirement [of the FCPA] protects companies that engage in the ordinary and legitimate promotion of their business while targeting conduct that seeks to improperly induce officials into misusing their positions.” (Pg. 15)

“[A]s a practical matter, an entity is unlikely to qualify as an instrumentality [of a foreign government and its employees as “foreign officials”] if a government does not own or control a majority of its shares.” (Pg. 21)

“Successor liability does not […] create liability where none existed before. For example, if an issuer were to acquire a foreign company that was not previously subject to the FCPA’s jurisdiction, the mere acquisition of that foreign company would not retroactively create FCPA liability for the acquiring issuer.” (Pg. 28)

“The ‘in reasonable detail’ qualification [of the FCPA’s books and records provisions] was adopted by Congress ‘in light of the concern that such a standard, if unqualified, might connote a degree of exactitude and precision which is unrealistic.’ […] The term ‘reasonable detail’ is defined in the statute as the level of detail that would ‘satisfy prudent officials in the conduct of their own affairs.’ Thus, as Congress noted when it adopted this definition, ‘[t]he concept of reasonableness of necessity contemplates the weighing of a number of relevant factors, including the costs of compliance.'” (Pg. 39)

“Like the ‘reasonable detail’ requirement in the books and records provision, the [FCPA’s internal control provisions] defines ‘reasonable assurances’ as ‘such level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs.’ The Act does not specify a particular set of controls that companies are required to implement. Rather, the internal controls provisions gives companies the flexibility to develop and maintain a system of controls that is appropriate to their particular needs and circumstances.” (Pg. 40)

“Companies may not be able to exercise the same level of control over a minority-owned subsidiary or affiliate as they do over a majority or wholly owned entity. Therefore, if a parent company owns less than 50% of a subsidiary or affiliate, the parent is only required to use its best efforts to cause the minority-owned subsidiary or affiliate to devise and maintain a system of internal accounting controls consistent with the issuer’s own obligations under the FCPA.” (Pg. 43)

“The [DOJ’s] Principles of Federal Prosecution provide that prosecutors should recommend or commence federal prosecution if the putative defendant’s conduct constitutes a federal offense and the admissible evidence will probably be sufficient to obtain and sustain a conviction …”. (Pg. 52)

“[U.S. Sentencing Guidelines] reflect the recognition that a company’s failure to prevent every single violation does not necessarily mean that a particular company’s compliance program was not generally effective.  DOJ and SEC understand that ‘no compliance program can ever prevent all criminal activity by a corporation’s employees,’ and they do not hold companies to a standard of perfection.” (Pg. 56)

“Under the Alternative Fines Act … courts may impose significantly higher fines than those provided by the FCPA – up to twice the benefit that the defendant sought to obtain by making the corrupt payment, as long as the facts supporting the increased fines are included in the indictment and either proved to the jury beyond a reasonable doubt or admitted in a guilty plea proceeding.” (Pg. 68 citing Southern Union v. United States, 132 S.Ct. 2344 (2012))

The Guidance And Declinations

By on November 27, 2012 in Declination Decisions, Guidance, Legislative History

Much of the buzz surrounding the Guidance concerns six anonymized examples of matters DOJ and SEC declined to pursue, including a discussion of the facts DOJ and SEC considered when choosing to decline the particular matters.  However, contrary to the buzz, this is not first time, nor most detailed instance, of the DOJ publicly disclosing it FCPA “declination” decisions.

In 1983 in the context of FCPA reform hearings, a House Committee wanted to better understand and access the DOJ’s FCPA enforcement program.  To this end, it requested a variety of information from the DOJ, including its closed FCPA cases.  The DOJ responded with “summaries of all closed investigations of alleged FCPA violations” and its response detailed 83 investigations summarized over 18 pages.

In reading the summaries, it is interesting to note that several instances concern conduct that would very likely be the basis of an FCPA enforcement action in this current era.  It is further interesting to observe from the summaries something old-fashioned on display. That is the DOJ being mindful of the evidentiary burdens it would be put to in bringing an action (either in persuading a grand jury to indict or ultimately prevailing at trial).   For most of the FCPA’s history, the DOJ had two choices when faced with conduct that might implicate the FCPA: prosecute or do not prosecute.  In this era, the DOJ has created and championed a system with a third option – non-prosecution and deferred prosecution agreements. Since introduced to the FCPA context in 2004, this third option is one of the more obvious reasons for the increase in FCPA enforcement.

More recently, the DOJ provided information concerning its FCPA “declination” decisions in follow-up answers to questions asked at the June 2011 House FCPA hearing.  (See here for the prior post).  The information DOJ provided to Congress then is substantively similar to the “declination” information included in Guidance.

Aside from not being as revolutionary as observers may think, the Guidance “declination” examples raise more questions than answers.  For instance, in three of the examples, it is not even clear based on the information provided that the FCPA was violated.  For instance, Example 1 at most indicates that a company received competitor bid information from a third party with connections to a foreign government and discovered various FCPA red flags during an internal investigation.  Example 4 at most indicates that a customs agent engaged by a company’s foreign subsidiary made small bribe payments without any discussion of whether the company or its foreign subsidiary possessed the requisite knowledge under the FCPA’s third-party payment provisions.  Example 5 at most indicates that a company, in connection with its acquisition of a foreign company, learned of potential improper payments without any discussion of whether the foreign company was subject to the FCPA’s jurisdiction.  (For additional reading on this quality of the examples, see this recent Guidance alert authored by WilmerHale – specifically pgs. 8-9).

Moreover, in all of the declination examples in the Guidance, the factors motivating the “declination” decision – such as voluntary disclosure and cooperation, effective remedial measures, small improper payments – can often be found in many instances in which FCPA enforcement actions were brought.

The discussion of so-called “declinations” in the Guidance raises once again the pressing question of how the enforcement agencies actually define a “declination.”  To my knowledge, the DOJ has never offered a definition, but perhaps in an effort to portray a fair and balanced FCPA enforcement program, the DOJ appears to be advocating an expansive definition.  However, in the criminal context the term “declination” should be reserved for instances in which the DOJ concludes that it can prove beyond a reasonable doubt all the necessary elements of a cause of action, yet decides not to pursue the action.

With this definition, many of the Guidance “declination” examples are like a police officer “declining” to issue a speeding ticket in instances in which the driver was not speeding.  This is not a “declination”-  it is what the law commands – and such reasoning applies in the FCPA context as well.

What If?

By on November 26, 2012 in FCPA Reform, Guidance, Legislative History, OECD

What if, instead of issuing guidance in 2012, the DOJ would have issued guidance in 1988 after Congress, as part of the FCPA’s 1988 amendments, encouraged the DOJ to issue such guidance?

For instance, a relevant House Report stated as follows.  “In order to enhance compliance with the provisions of the FCPA [the FCPA amendment] establishes a procedure for the [DOJ] to issue guidance describing examples of activities that would or would not conform with the [DOJ’s] present enforcement policy regarding FCPA violations.”

The Sixth Circuit noted that the 1998 amendments “clearly evince[d] a preference for compliance in lieu of prosecution; however, in response to Congress’s suggestion, the DOJ determined in 1990 that “no guidelines are necessary.”  (See here and here for prior posts).

What if, instead of issuing guidance in 2012, the enforcement agencies would have issued guidance in 2002 after the OECD, in its Phase 2 Report of the U.S., encouraged the U.S. to issue such guidance?

In pertinent part, the OECD Report stated as follows.  “Despite the abundance of articles and commentaries on [the FCPA], there is only limited amount of authoritative or official guidance available on compliance with the twenty five-year statute.  […]  Much of the authority or guidance regarding the Act comes from speeches from DOJ and SEC officials, DOJ opinions, DOJ and SEC complaints, settlements that have been filed, and informal discussions of issues between companies’ counsel and the DOJ or the SEC.  […]  The status of these various sources of information is however not always clear:  there could be merit in regrouping and consolidating them in a single guidance document.”

The OECD Phase 2 Report concluded on this issue as follows.  “In the view of the lead examiners, the time has come to explore the need for further forms of guidance, mainly to assist new players […] on the international scene, and to provide a valuable risk management tool to guide companies through some of the pitfalls which might arise in structuring international transactions involving potential exposures.”

What if, instead of issuing FCPA guidance in 2012, the enforcement agencies would have issued guidance in 2010 after the OECD, this time in its October 2010 Phase 3 Report of the U.S., stated as follows.  “The evaluators recommend that the United States consider consolidating and summarizing [all relevant sources of FCPA information] to ensure easy accessibility, especially for [companies] which face limited resources.”

Despite Congress suggesting FCPA guidance in 1988, and repeated OECD recommendations for guidance in 2002 and 2010, the DOJ refused to issue guidance.

For instance, in the aftermath of a November 30, 2010 Senate FCPA hearing, Senator Amy Klobuchar asked the DOJ the following post-hearing question.  “Do you believe companies could comply with more certainty with the FCPA if they were provided with more generally-applicable guidance from the Department in regards to situations covered by the FCPA that are not clear cut or fall into ‘gray’ area.”   The DOJ response was that it “believes it provides clear guidance with respect to FCPA enforcement through a variety of means” and it then listed the same general categories of information the OECD identified in 2002 as being deficient. (See here).

Although the enforcement agencies state in the Guidance that its issuance was “in part, a response to [the OECD’s] Phase 3 recommendations” the DOJ’s above response after the OECD Phase 3 recommendations calls into question the genuineness of this motivation.

Another likely motive for issuing the Guidance was the desire of the enforcement agencies to forestall introduction of an actual FCPA reform bill.

As to this issue, the following background is relevant.  After the November 2010 Senate FCPA hearing, FCPA reform gained steam heading into a June 2011 House hearing.  The House hearing evidenced bi-partisan support for certain aspects of FCPA reform and at the conclusion of the hearing Chair James Sensenbrenner stated that “we will be drafting [an FCPA reform] bill.  (See here).  Against this backdrop, in November 2011, Assistant Attorney General Lanny Breuer announced that in 2012 the DOJ intended to issue FCPA guidance.  (See here).

Those on Capitol Hill who were inclined to introduce an FCPA reform bill said that they would await DOJ’s FCPA guidance before introducing such a bill.  (See here).   That the Guidance was issued very soon after the November presidential election, during a lame duck Congress, would seem to advance, in addition to the above information, the notion that issuance and the timing of the Guidance was in part political.

Regardless of the enforcement agencies’ motivations in issuing the Guidance when they did, it is telling that it took over a year – from the time of Breuer’s announcement –  to issue the Guidance.  After all, both the DOJ and SEC have specific FCPA units and both enforcement agencies have indicated, in various ways and in various settings, that the FCPA is a clear and unambiguous statute.

The point is this.

While the Guidance is a useful resource guide as it collects in one document the positions and policies of the enforcement agencies, and for this the agencies deserve credit and a pat on the back, the pat on the back could have and should have occurred a long time ago.

Those who closely follow the FCPA are left to wonder what if the Guidance was issued two years, ten years, or twenty-four years ago?

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