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It Ought To Stop

By on November 6, 2012 in FCPA Inc.

One of the most unexplored segments of FCPA Inc. is the conference industry.  If you have not noticed, there is an active and vibrant FCPA conference circuit that is dominated by a few corporate conference organizing firms.

One way in which the conference firms drive attendance to their events is by touting the public servants who will speak at the event.

For instance, one such conference firm is currently and actively marketing (including through press releases) its upcoming event by touting the long list of DOJ/SEC speakers at the event.  The conference firm’s marketing materials note the following speakers.

Keynote Speaker: Lanny Breuer (Assistant Attorney General, Criminal Division, DOJ).

Other Government Speakers:  Jeffrey Knox (Principal Deputy Chief, Fraud Section, DOJ); Charles Duross (Deputy Chief, Fraud Section, DOJ); Nathanial Edmonds (Assistant Chief, Fraud Section, DOJ); James Koukios (Assistant Chief, Fraud Secton, DOJ); Jason Jones (Assistant Chief, Fraud Section, DOJ); Kara Brockmeyer (Chief, FCPA Unit, SEC); Tracy Price (Assistant Director, FCPA Unit, SEC); and Sean McKessy (Head of Whistleblower Office, SEC).

To hear your DOJ and SEC public servants speak at this event, the conference firm is charging between approximately $2,000 – $4,000 per person (depending on when you register) for the conference and related workshop events.

As noted in the previous post regarding this issue, the following questions are raised by these frequent FCPA events and how they are marketed.  Should public servants be allowed to speak at private conferences and events that charge thousands of dollars to attend?  Should public servants be used as pawns by corporate conference organizers to boost attendance and thus revenue?  Should the enforcement agencies release all speeches, comments and remarks, including answers to questions posed by the audience?  Do small to medium size enterprises have the resources to attend such events?

Touting the public servants who will speak at events to drive attendance and revenue at the events, and public servants who allow themselves to be used in such a way, are not the only problematic feature of many FCPA conferences.

Another problematic feature of such events is that conference attendees likely think that they are hearing from panelists who are selected based on the power and persuasion of their ideals, when the reality is often something different.

A knowledgable source with experience as a sponsor of various high-profile FCPA conference events confirmed to me the following.

What most people do not know about several FCPA conferences is that many speaker slots are reserved for corporate sponsors of the event.  In other words, the conference has the look and feel of pay to play (or speak as the case may be).  Moreover, certain of the corporate sponsors exercise what amounts to veto power in the selection of panel participants.  In short, a corporate sponsor can veto participation by an industry competitor in the panel or event.  Thus, those attending the event may think that they are hearing from panels of leading practitioners, compliance professionals, etc. selected on a merit based system (and in some cases that is true), but the reality is that many of the conference speakers are selected on a pay to play basis.

This knowledgable source told me as follows.

“[Conference firm] affords the lead sponsor of a given event the right to veto speakers and sponsors that the sponsor construes to be direct competitors.  Last time that I checked, the sponsor could veto as many as 3 competing organizations from playing any role whatsoever in the event … speaker/sponsor/exhibitor.  This can have the effect of skewing the agenda of the conference to the point of view of the sponsor willing to pony up the most money. Different firms have different types of professionals, sets of experiences, approaches and service offerings.   By allowing the lead sponsor to play this heavy handed role, [conference firm] is limiting conference attendees’ ability to hear from a variety of perspectives.  Indeed, attendees that only spring for one conference a year hear only that skewed perspective, no one else’s.”

Everyone and every company is entitled to make a buck.  However, when business success relies, at least in part, on touting public servants and opaquely restricting deliveries to the marketplace of ideals, it ought to stop.

*****

This is the second time I have touched upon the above issues (see here for the prior post “Addressing the ‘Luncheon Law’ Nature of the FCPA).  Such repeat issues are justified when my discussions with others inform me that there is a wide consensus on an issue, but further analysis does not occur because others may lack a forum and/or because others may not want to speak up because of their positions.

Stop Drinking The Kool-Aid

By on November 5, 2012 in Compliance Defense, Garth Peterson, Morgan Stanley

Since April the Department of Justice has been running a Kool-Aid stand and many people have been drinking the Kool-Aid.

The Kool-Aid being served up and consumed is Morgan Stanley’s so-called declination.

As noted in this prior post, in April in resolving an enforcement action against Garth Peterson (a former managing director for Morgan Stanley’s real estate business in China), the DOJ stated as follows concerning Morgan Stanley.

“After considering all the available facts and circumstances, including that Morgan Stanley constructed and maintained a system of internal controls, which provided reasonable assurances that its employees were not bribing government officials, the Department of Justice declined to bring any enforcement action against Morgan Stanley related to Peterson’s conduct.  The company voluntarily disclosed this matter and has cooperated throughout the department’s investigation.”

Since then, Morgan Stanley’s so-called declination has been the talk of the FCPA conference circuit and has been the basis for many FCPA Inc. client alerts and marketing material.   It seems as if many (but not all) have merely carried forward the DOJ’s statement without an ounce of analysis.  (See here for the prior post “Morgan Stanley’s So-Called Declination”).  This recent press release demonstrates that Morgan Stanley’s so-called declination is even being used to peddle compliance products.  In this recent webinar, Morgan Stanley and its counsel, Davis Polk, engaged in what seems like a victory lap celebration.

Since opening up its Kool-Aid stand, the DOJ has been on a marketing blitz as to its “product.”  In this September speech, Assistant Attorney General Lanny Breuer stated as follows.  “Because Morgan Stanley voluntarily disclosed Peterson’s misconduct, fully cooperated with our investigation, and showed us that it maintained a rigorous compliance program, including extensive training of bank employees on the FCPA and other anti-corruption measures, we declined to bring any enforcement action against the institution in connection with Peterson’s conduct.  That is smart, and responsible, enforcement.”

In this October speech, Breuer likewise stated as follows.  “Because Morgan Stanley voluntarily disclosed Peterson’s misconduct, fully cooperated with our investigation and showed us that it maintained a rigorous compliance program, including extensive training of bank employees on the FCPA and other anti-corruption measures, we declined to bring any enforcement action against the institution in connection with Peterson’s conduct. Prosecutors need to be smart about how they use their discretion in the FCPA context, as in every context.  And, as we did in the Peterson case, we always attempt to strike an appropriate balance between vigorous and responsible enforcement.”

An experienced FCPA practitioner, who otherwise holds Breuer in high regard, recently told me that Breuer’s recent speeches on Morgan Stanley’s so-called declination are a “joke.”

I agree and suggest that before anyone speaks or writes another word about Morgan Stanley’s so-called declination, they do something basic and old-fashioned.  Read the original source documents.

The original source documents evidence the following as to Peterson’s involvement in a real estate investment scheme with Chinese Official 1.

According to the DOJ’s information (here) and as noted in this prior post:

  • “Peterson and Chinese Official 1 had a close personal relationship before Peterson joined Morgan Stanley.”
  •  A shell company used to facilitate the scheme was owned 47% by Chinese Official 1 and 53% by Peterson and a Canadian Attorney.
  • “Without the knowledge or consent of his superiors at Morgan Stanley, Peterson sought to compensate Chinese Official 1″
  • “Peterson concealed Chinese Official 1’s personal investment [in certain properties] from Morgan Stanley”
  • “Peterson used Morgan Stanley’s past, extensive due diligence [as to certain of the investment properties] to benefit his own interests and to act contrary to Morgan Stanley’s interests.”

Consistent with these allegations, in the DOJ’s release Breuer himself stated as follows.  “Mr. Peterson admitted … that he actively sought to evade Morgan Stanley’s internal controls in an effort to enrich himself and a Chinese government official.”

Additional original source documents became available in connection with Peterson’s sentencing and shed additional light on information relevant to Morgan Stanley’s so-called declination.  As noted in this prior post, in its sentencing submission, the DOJ stated that Peterson “repeatedly and consistently lied to his Morgan Stanley supervisors and co-workers” concerning the conduct at issue and that  “each of Peterson’s [Morgan Stanley required FCPA certifications] was but another lie that lulled his employer into trusting Peterson.”  In his sentencing submission, Peterson stated as follows concerning the Chinese Official he had a relationship with prior to joining Morgan Stanley.  “The Chinese Official was a close friend of Peterson’s – in many ways a father figure to him – and Peterson helped him in order to repay the help that the Chinese Official had given him through his career.”  Peterson also asserted that his attempt to influence the ”father figure” Chinese Official in the investment project giving rise to the enforcement action was an attempt to recoup an investment for this mother.

In the recent Morgan Stanley – Davis Polk webinar (here), Morgan Stanley’s counsel specifically said that Peterson was acting “for his own benefit” and that Morgan Stanley had the advantage of facts because Peterson had “personal interests in the transactions” at issue and that he acted for “his own benefit” not “Morgan Stanley’s.”

In the webinar, Davis Polk stated that part of its advocacy to the DOJ and SEC was that the agencies needed to publicly send a message on compliance and that the Morgan Stanley – Peterson case provided an “ideal case to do so.”

Interestingly, the webinar was moderated by Davis Polk attorney Greg Andres who called the Morgan Stanley declination “unprecedented and important” and that it was “important and new, it is news that sets precedent.”  Andres is not exactly an impartial observer on this issue.  Prior to recently rejoining Davis Polk, he was the Assistant Attorney General (DOJ, Criminal Division) during most of the time period relevant to the enforcement action and he seemed to be using the webinar to justify the compliance defense views he offered on behalf of the DOJ during the Nov. 2010 Senate FCPA hearing and the June 2011 House FCPA hearing.  (See here and here for the transcripts of the hearings).  In short, Andres testified that a compliance defense is not needed because the DOJ already considers a company’s compliance efforts internally when deciding how to proceed in any particular case.

Morgan Stanley may indeed have being doing the right thing in its compliance program and for that it deserves credit.

However, the DOJ’s use of the Peterson enforcement action (a situation in which an individual acted for his own benefit with a person he had a prior close relationship with to recover his mother’s investment) to champion its policy position that a compliance defense is not needed because it already takes compliance into account is off-base.

The reason Morgan Stanley was not prosecuted for Peterson’s actions is because there was no basis to hold Morgan Stanley liable even under lenient respondeat superior standards.

Should you remain unconvinced, consider what U.S. District Court Judge Jack Weinstein (E.D.N.Y.) noted in the case – “it is likely that [Morgan Stanley] would be considered a victim” of Peterson’s conduct.  (See 859 F.Supp.2d 477).

Stop drinking the Kool-Aid.

Friday Roundup

By on November 2, 2012 in Andras Balogh, APEGO Inc., Barclays, Beverage Industry, Congressional Activity, Elek Straub, Entertainment Industry, FCPA Inc., Financial Services Industry, Foreign Official, Jurisdiction, Owens-Illinois, Permits / Licenses / Customs / Tax, Repeat Offenders, Schlumberger, Sovereign Wealth Funds, Statute of Limitations, Tamas Morvai

Motion to dismiss filed in the former Magyar Telekom execs case, a noticeable lack of FCPA charges, checking in on recent disclosures, quotable from the current SEC FCPA Unit Chief, quotable regarding FCPA Inc., what’s up with that investigation, I hear you travel alot, there’s an app for that, counter-points, and for the weekend reading stack.  It’s all here in the Friday roundup.

Motion to Dismiss Filed in SEC Enforcement Action

This previous post highlighted how former Magyar Telekom executives Elek Straub, Andras Balogh and Tamas Morvai planned to challenge the SEC’s charges against them.  Earlier this week, the defendants filed this memorandum in support of their motion to dismiss.

In summary fashion, the memorandum states as follows.

“There are several bases for dismissing the complaint.

 First, this Court lacks personal jurisdiction over the defendants. The complaint alleges conduct by foreign national defendants that occurred wholly outside, and with no nexus to, the United States. Nowhere does the complaint allege that defendants purposefully directed their conduct at the United States. Following constitutional due process principles, the defendants lack the requisite minimum contacts with the forum, and it would be inconsistent with traditional notions of fair play and substantial justice to require them to defend this action in the United States. Indeed, the SEC has acknowledged that its jurisdictional position lacks precedent “on all fours factually” and “may be breaking new ground[.]”

“Second, the SEC’s claims are time-barred […]  There is no doubt that the complaint was filed outside the five-year period. Specifically, the complaint was filed on December 29, 2011, more than five years after all three defendants had left Magyar Telekom, and more than five years after the alleged conduct occurred. Consequently, the five-year period has expired.”

“Third, with regard to the remaining claims, the complaint fails to adequately state the claims alleged. More specifically, the complaint: (i) fails to adequately plead that the defendants corruptly made use of interstate commerce, as is required to state a claim for bribery and the claims stemming from the alleged bribery under the FCPA (books and records and internal controls violations, falsifying books and records, and lying to auditors); (ii) fails to adequately plead that the intended payment recipients were “foreign official[s]” under the FCPA; (iii) fails to allege sufficient facts supporting the aiding and abetting claims; and (iv) fails to meet the heightened pleading requirements under Rule 9, including allegations of individualized culpable conduct by each defendant. The complaint also merely parrots the statutory language and fails to allege that the defendants profited personally from any of the alleged conduct. For all these reasons, the complaint should be dismissed with prejudice.”

As to “foreign official” the motion states that the complaint’s reference to “officials” “government officials” and other vague allegations represent “mere legal conclusions that the recipients were “foreign officials” under the FCPA.  The motion states as follows.  “A legal conclusion couched as a ‘factual allegation’ is insufficient to establish the essential element that the intended recipient be a foreign official.  Repeated references to “government officials” without underlying facts presents nothing ‘more than labels and conclusions’ that constitute ‘a formulaic recitation of the elements of a cause of action.””

Indeed, in my 2010 article “The Facade of FCPA Enforcement” (here) I noted the frequency in which enforcement agency FCPA pleadings “contain little more than uninformative, bare-bones statement of facts replete with legal conclusions.”  I said that the “most common and troubling use of bare-bones, uninformative, legal conclusory statements of facts or allegations is when the enforcement agencies describe the ‘foreign officials’ involved in the alleged conduct giving rising to the FCPA violation.”  In the article, I noted that because there is generally no threat that these bare-boned, uninformative facts or legal conclusions will ever be subject to meaningful judicial scrutiny, that the enforcement agencies get away with such practices.

At least until recently.

Noticeable Lack of FCPA Charges

Numerous FCPA enforcement actions have been based on allegations of payments to foreign customs personnel in connection with customs, license, permit type issues.

Thus, the lack of FCPA charges were noticeable in the DOJ’s recent criminal indictment of APEGO Inc., and various of is employees and agents.  As noted in this recent DOJ Release (N.D. of Georgia), charges were filed alleging conspiracy and twelve counts of importing notebooks and filler paper from China using false  documents.

The indictment (here) includes the following allegations.

“It was further part of the conspiracy that [certain individuals] paid bribes to Taiwanese customs officials on behalf of defendants APEGO and Gung to allow U.S.-bound lined paper products made by the Watanabe Group in China but lacking required country of origin labels, or mislabeled ‘Made in Taiwan,’ to enter Taiwan from China and clear Taiwanese customs.”

Elsewhere, the indictment alleges: (i) that in December 2006 various bribes were paid to Taiwanese customs officials which “allowed defendant APEGO to transship these products from Taiwan to the United States more quickly and less expensively by limiting the need to ‘rework’ the products and cartons (i.e. relable ‘Made in Taiwan’) in Taiwan”; (ii) that in March 2007 when customs officials at a certain Taiwan port no longer accepted bribes, the company arranged for its shipments to be processed through another port in a different part of the country where bribes were paid for the same purpose

Recent Disclosures

Owens-Illinois

Owens-Illinois, Inc. (an Ohio based company that describes itself as the world’s largest glass container manufacturer and preferred partner for many of the world’s leading food and beverage brands) recently disclosed as follows.

“The Company is conducting an internal investigation into conduct in certain of its overseas operations that may have violated the antibribery provisions of the United States Foreign Corrupt Practices Act (FCPA), the FCPA’s books and records and internal controls provisions, the Company’s own internal policies, and various local laws. In October 2012, the Company voluntarily disclosed these matters to the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). The Company intends to cooperate with any investigation by the DOJ and the SEC. The Company is presently unable to predict the duration, scope or result of its internal investigation, of any investigations by the DOJ or the SEC or whether either agency will commence any legal action. The DOJ and the SEC have a broad range of civil and criminal sanctions under the FCPA and other laws and regulations including, but not limited to, injunctive relief, disgorgement, fines, penalties, and modifications to business practices. The Company also could be subject to investigation and sanctions outside the United States. While the Company is currently unable to quantify the impact of any potential sanctions or remedial measures, it does not expect such actions will have a material adverse effect on the Company’s liquidity, results of operations or financial condition.”

Given the recent FCPA scrutiny of the beverage industry (Diageo, Beam Inc., and Central European Distribution Company) one might wonder whether Owens-Illinois’s recent disclosure is connected to those developments.

Barclays

This previous post detailed how Barclays PLC’s relationship with Qatar’s sovereign-wealth fund was under scrutiny by U.K. authorities.

The company recently disclosed (here) as follows.  “Subsequent to reporting the investigations of the Financial Services Authority and Serious Fraud Office in July and August 2012 respectively, Barclays has been informed by the US Department of Justice (DOJ) and US Securities and Exchange Commission (SEC) that they are undertaking an investigation into whether the Group’s relationships with third parties who assist Barclays to win or retain business are compliant with the United States Foreign Corrupt Practices Act. Barclays is investigating and fully co-operating with the DOJ and SEC.”

According to this article in the Wall Street Journal, the focus is “on Barclay’s use of external brokers who facilitated meetings between bank officials and powerful Middle Eastern families.”  The article further notes that “Barclays recently started conducting an internal investigation, with the help of an outside law firm, to figure out whether it or its Middle Eastern introducers might have run afoul” of the FCPA.

Schlumberger

The company recently disclosed as follows.

“In 2007, Schlumberger received an inquiry from the United States Department of Justice (“DOJ”) related to the DOJ’s investigation of whether certain freight forwarding and customs clearance services of Panalpina, Inc., and other companies provided to oil and oilfield service companies, including Schlumberger, violated the Foreign Corrupt Practices Act. In October 2012, Schlumberger was advised by the DOJ that it has closed its inquiry as it relates to Schlumberger.”

For more on the numerous Panalpina-related enforcement actions – what I’ve termed CustomsGate – see here.

The company’s recent disclosure would seem not to address the issues previously the focus of a front-page Wall Street Journal article in October 2010 concerning alleged conduct in Yemen.  (See here for the prior post).

Quotable

In this recent Reuters article, current SEC FCPA Unit Chief Kara Brockmeyer stated as follows.

“I would hate to think the companies view [FCPA] enforcement actions as the cost of doing business.  If we find that out, it will certainly increase the size of the penalty.”

One thing that is becoming increasingly clear in this new era of FCPA enforcement is that investors do appear to view FCPA scrutiny and enforcement actions as a cost of doing business and akin to a regulatory violation.

The Reuters article also stated that there has yet to be a repeat FCPA prosecution.  This is a false statement.  Companies that have resolved more than one FCPA enforcement action over time include: Tyco, ABB, Baker Hughes and General Electric.

Quotable

On his Corruption, Crime & Compliance site (here) Michael Volkov recently observed as follows.

“The FCPA Paparazzi has done a great disservice to the business community.  Call it a complete lack of credibility.  Legal marketing has become confused in this day and age – marketing has now been turned into the “Fear Factor,” meaning that lawyers need to scare potential clients into hiring them.  That is flat out wrong.   Each week, new client alerts, client warnings and other cries of impending disaster are transmitted through the Internet to businesses.  If I were a general counsel, I would have them on “auto delete.”  Talk about a waste of time and effort.”

What’s Up With That Investigation?

One of the many FCPA industry sweeps reportedly underway concerns Hollywood movie industry in China.  (See here for the prior post).  This recent post on the New York Times Media Decoder blog highlights the “powerful gatekeeper of China’s rapidly growing film world, the China Film Group chairman Han Sanping who was recently in the U.S. to receive a China Entertainment Visionary of the Year award, and asks what’s up with the investigation.

I Hear You Travel Alot

My frequent searches for FCPA content often turn up interesting content.  Such as this thread from top-law-schools.com which asks what type of attorneys get to travel the most?  One response was as follows.   “From what I hear, FCPA is the way to go for travel to other countries because you have lots of interviews of foreign employees.”

The FCPA is certainly the reason for the majority of stamps in my passport.

Counter-Points

Alexandra Wrage (President of Trace International) made some observations recently in her Corporate Counsel column (here) about FCPA enforcement in various Presidential administrations.  While interesting to think about, the actual stats have little substantive value.  Instances of FCPA scrutiny tend to last between 2-4 years (and thus straddle administrations) and various instances of FCPA scrutiny (for instance Pfizer) can last approximately 8 years.  Moreover, rather than “aggressively enforce the FCPA,” as the article notes, what the enforcement agencies more often than not actually do (as evidenced by statistics demonstrating which enforcement actions resulted from voluntary disclosures) is process corporate voluntary disclosures.

There’s An App for That

Law firm O’Melveny & Myers announced (here) the “launch of its FCPA app, the first multi-functional mobile application (app) created by a law firm.”  Richard Grime, partner and head of O’Melveny’s FCPA practice stated as follows.  “We understand the complexities our clients and colleagues face in achieving their business goals in the global marketplace, and thus, have created this mobile application as a fast, yet informative, way for them to remain current with the evolving statutes and provisions imposed by the FCPA and other anti-corruption laws.”

Weekend Reading

Sidley & Austin recently released its Anti-Corruption Quarterly (here).  Among other articles is one focused on the new “sheriff in town.”

The article states as follows.

“Investigating potential violations of the FCPA historically has been the purview of the SEC and the DOJ, but recently, Congress has entered the fray. Two House committees, the House Oversight and House Energy committees, recently instituted an independent FCPA investigation of Wal-Mart, after a New York Times article reported on an alleged massive bribery campaign at Wal-Mart’s Mexican affiliate. These House investigations mean that companies now have to consider the possibility of facing a congressional investigation—in addition to investigations by the SEC and the DOJ—when FCPA violations have occurred.”

The article further states as follows.

“Although congressional committees routinely investigate companies, the current congressional investigation into Wal-Mart is the first investigation in the FCPA context and it may signal the beginning of a trend: high-profile companies or companies that are drawn into political fights (often unwillingly) may find themselves the target of a congressional inquiry if their FCPA problems become public. Whatever effect the congressional investigation may have on Wal-Mart, the possibility of such an investigation is a factor that high-profile companies facing FCPA concerns should weigh.”

For more on Wal-Mart’s FCPA scrutiny, see my recent article “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Exposure” (here).

Miller Chevalier also recently released its FCPA Autumn Review – see here.

Morrison Foerster also recently released its End of Summer Round-Up – see here.

This recent Jones Day publication concerning upcoming FCPA Guidance contains the following paragraph that should be read by those who simply label companies that have resolved FCPA enforcement actions or are the subject of FCPA scrutiny as bad or corrupt companies.

“It is the job of a prosecutor to make charging decisions and to decide in the first instance what does and does not violate the law. As prosecutors and enforcement attorneys assess the facts to make charging decisions, they are compelled to view the world, therefore, in binary terms: black and white, right and wrong. As defense counsel, settlement discussions with our counterparts in the DOJ and SEC frequently hinge on which side of the line the conduct sits. Particularly for those of us who served as prosecutors, we acknowledge in these discussions the difficult mission of the enforcement officials to draw and defend lines. The world of business, however, frequently operates in territory that is somewhat grey: a world in which business persons strive to grow the company ethically in situations where the application of the existing rules are not entirely clear. For instance, in the current era of FCPA enforcement, international businesses struggle with their responsibilities to monitor and control the conduct of third parties with whom they do business: distributors and sub-distributors, joint venture partners, dealers, and resellers. Even for companies that are firmly dedicated to compliance with the FCPA, is not always clear when a third party amounts to an agent whose improper conduct might someday be ascribed to the company and its employees. Good and ethical companies struggle, every day, with the concept of defining an agent of the company as opposed to an independent customer who engages in an arm’s-length transaction to purchase the company’s products.”

*****
A good weekend to all.

“Carbon Copy” Prosecutions: A Growing Anticorruption Phenomenon In A Shrinking World

By on November 1, 2012 in FCPA Scholarship, Related Foreign Investigations

Andrew Boutros and Markus Funk recently released (here) their article “Carbon Copy” Prosecutions:  A Growing Anticorruption Phenomenon in a Shrinking World” published in The University of Chicago Legal Forum.  Boutros is an Assistant U.S. Attorney in the N.D. of Illinois and Lecturer in Law at the University of Chicago Law School (who co-wrote the article in his personal capacity) and Funk is a partner at Perkins Coie.  Boutros and Funk are Co-Chair’s of the ABA’s Global Anti-Corruption Task Force.

In summary, the authors, using recent enforcement actions, note as follows.

“[I]f a corporation reaches a negotiated resolution with US authorities on international bribery-related charges—whether through a non-prosecution agreement, a deferred prosecution agreement, or a guilty plea—there is a bona fide risk that other countries will initiate prosecutions based on the same facts as, and admissions arising out of, the US investigation and resolution.  [I]f an individual corporate officer is even tangentially involved or implicated in a US-negotiated resolution, that corporate officer—even if not named at all in the resolution—faces potential criminal charges overseas. The officer, therefore, has a strong incentive to ensure that the resolution either does not name him or her or describes the officer’s conduct in the most positive light (or at least neutrally).  [The] Article examines this growing—but still largely under-recognized—international phenomenon of “carbon copy” prosecutions.”

What is a carbon copy prosecution?  The authors define the term to mean “successive, duplicative prosecutions by multiple sovereigns for conduct transgressing the laws of several nations, but arising out of the same common nucleus of operative facts.”

The article then “details the myriad cost-benefit considerations that companies might weigh when deciding whether to make voluntary front-end disclosures to foreign authorities concurrently with their disclosures of potential FCPA violations to U.S. officials.”  Among the considerations the authors identify is 5th Amendment double jeopardy issues and the collateral estoppel effect of U.S. resolutions on international enforcement actions and vice versa.

In addition, the authors note as follows.  “The net effect of [DOJ and SEC FCPA settlement policies] is that when a company enters into a negotiated resolution with the DOJ – particularly in those cases with parallel SEC enforcement actions – it is essentially powerless to defend against, much less deny, the factual basis on which the resolution is based.  This all but ensures that a company that settles with the DOJ – or both the DOJ and SEC in parallel proceedings – will have little or no choice but to settle with foreign authorities, should such authorities choose to exercise jurisdiction and enforce their corollary anticorruption laws.”

Although the notion of carbon copy prosecutions have been known for some time, Boutros and Funk’s article is an important contribution to Foreign Corrupt Practices Act literature and provides an analytical scrutiny to this observable trend.  For this reason, the article should find a place on your reading stack.

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