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Remembering Stephen Solarz

Stephen Solarz, the former Democratic congressman from New York died last week at the age of 70.

His obituary (see here) does not mention the Foreign Corrupt Practices Act. However Solarz, along with Representative Robert Eckhardt and Senators Frank Church and William Proxmire, were leaders in the mid-1970’s as Congress investigated various foreign corporate payments – a process that resulted in the FCPA being signed by President Carter in December 1977.

Below are a few of Solarz’s FCPA highlights.

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On June 3, 1975, Solarz introduced H.R. 7539 – believed to be the first bill (of many that would follow) to address foreign corporate payments. The bill stated: “Any American company or any official or employee of an American company who, with intent to influence any official act affecting such company, gives or attempts, offers, promises, conspires to give any thing of value to any foreign government, any foreign official, or any foreign political organization, shall be fined not more than $10,000 or imprisoned not more than one year, or both.”

During a June 1975 hearing before the House Subcommittee on International Economic Policy, Solarz testified as follows. “It is tragic when one hears that a major U.S. concern bribes a foreign official in order to secure special trade concessions or when another leading multinational corporation makes a massive political donation to an incumbent political party in order to maintain business relations.” “[T]o deal with the problem,” Solarz said he introduced H.R. 7539 “to specifically prohibit the bribery of any foreign government, foreign official, or foreign political organization by any American company or official or employee thereof.” Solarz stated that “[t]his legislation would remove any questions which American business persons, foreign governments and their officials, and any others may have about the manner in which a U.S. firm operates overseas.”

On June 11, 1976, Solarz introduced H.R. 14340 – a bill that attempted to deal with the foreign corporate payments issue not by directly prohibiting such payments, but rather by requiring companies to disclose such payments. Titled the “International Contributions, Payments, and Gifts Disclosure Act,” H.R. 14340 provided that issuers shall be required to file a sworn disclosure statement “to provide a complete accounting of any offer or agreement of any agent of employee of a company or its parent, to make any contribution, pay any fee, or give anything of significant value in connection with (A) direct and indirect political contributions to foreign government; (B) direct and indirect payments and gifts to employees of foreign governments which are intended to influence the decisions of such employees and which are made either with or without the consent of their sovereign; and (C) direct and indirect payments and gifts to employees of foreign, nongovernmental purchasers and sellers which are intended to influence normal commercial decisions of their employer and which are made without the employer’s knowledge or consent.”

On July 1, 1976, Solarz introduced H.R. 14681 – a bill that attempted to deal with the foreign corporate payments issue indirectly through the Overseas Private Investment Corporation (“OPIC”). H.R. 14681 provided that the OPIC “shall issue such regulations and take such other steps as are necessary to provide for the termination of any insurance or reinsurance issued […] which is applicable to any investor with respect to a project if [OPIC] determines […] that such investor or any agent of such investor” inter alia “has offered, paid, or agreed to pay any significant amount of money or has offered, given, or promised to give anything of significant value to an individual who is an official of a foreign government or instrumentality thereof for the purpose of inducing that individual to use his influence within such foreign government or instrumentality to affect any decision or other action of such foreign government or instrumentality with respect to such project.”

H.R. 14681 passed the House on August 24, 1976. Solarz remarked on the House floor in urging passage of H.R. 14681 as follows: “This legislation is based on a very fundamental and important assumption which is that agencies of the U.S. Government should not insure corporations which are engaged in paying bribes to foreign officials. It seems to me that we have a moral obligation, as well as a political interest, in prohibiting practices which are both corrupt and counterproductive. Whatever the private advantages of illegal payments to foreign officials may be to the corporations which engage in them, I think they are far outweighed by the public disadvantages to the foreign policy of our own country, if and when they are disclosed. Mr. Speaker, in the last several months a number of agencies of our own Government, including the IRS and the SEC and the other body in this Congress, have attempted to deal with this problem by passing new legislation and promulgating revised regulations. I think we have a responsibility to act as well. This bill is by no means a panacea. Obviously, it will not eliminate the problem of bribery. But it is a significant step forward in the right direction, and it is a new beginning of which I think we can be proud.”

During a September 1976 hearing before the House Subcommittee on Consumer Protection, Solarz’s written statement states as follows. “It is clear that American companies have engaged in bribery on a grand and international scale to such an extent that the conduct of American foreign relations has been damaged. Headline after headline has appeared concerning some new American multinational company coming forward with an admission of corporate bribery or other payments to foreign officials. One day it is Lockheed. Another day it is Gulf. A third day it is General Tire. And the list goes on and on to include a roster of some of the United States largest and most distinguished corporations.” Among other things, Solarz stated that the “problem with corporate bribery overseas is that it poses very significant problems for our own foreign policy.” Among other things, Solarz stated that “our relationship with Japan is the foundation of our whole foreign policy in the Far East, and yet we see the government of a valued ally being shaken as a result of the disclosures relating to the Lockheed scandal.” In his written statement, Solarz noted that “the Netherlands have been similarly shaken by the allegations surrounding Prince Bernhard, husband of Queen Juliana and Inspector General of the Armed Forces, suggesting that he received $1.1 million in Lockheed payoffs.” Similarly, Solarz noted that Italy “is essential to the viability of the southern plank of NATO, where a stable government committed to continued participation in NATO is essential to our own security interests and where the Italian Communist Party has made significant gains in the most recent elections, we find that the Government has been at least partially undermined as a result of allegations concerning the possible bribery of some of the highest officials of the Italian Government by American corporations.”

During an April 1977 hearing before the House Subcommittee on Consumer Protection and Finance, Solarz’s written statement states as follows. “The time is long overdue … for affirmative and meaningful steps to be taken to cope with this situation. Failure to take prompt and effective action can only encourage the continuation of these practices, and thereby, continue to create serious problems in our international economic and political relations throughout the world. The stability of numerous governments has been threatened and political parties in several countries have been seriously compromised.”

The FCPA’s New Frontier

China-based entities have previously been involved in FCPA enforcement actions.

For example, in March 2010, DaimlerChrysler China Ltd. was charged in connection with the Daimler enforcement action and agreed to a deferred prosecution agreement. (See here). In May 2005, DPC (Tianjin) Co. Ltd., a Chinese subsidiary of U.S. based Diagnostic Products Corporation (“DPC”), was charged in connection with the DPC enforcement action. (See here).

However, to my knowledge, a China-based issuer has never been the focus of an FCPA inquiry.

I’ve noted for a few years now that it is only a matter of time. See here – “Why Compliance with the U.S. Foreign Corrupt Practices Act Matters in China” and here “Welcome to the Club”.

The time has come.

Last week, as first reported by Joe Palazzolo (Wall Street Journal – Corruption Currents), Rino International Corp., a Dalian, China-based issuer (here), disclosed in an SEC filing (here) as follows:

“The Company has been notified by the Staff of the Securities and Exchange Commission (the “SEC”) that it is conducting a formal investigation relating to the Company’s financial reporting and compliance with the Foreign Corrupt Practices Act for the period January 1, 2008 through the present. The Company is cooperating with the SEC’s investigation. It is not possible to predict the outcome of the investigation, including whether or when any proceedings might be initiated, when these matters may be resolved or what if any penalties or other remedies may be imposed.”

The same day, Rino announced (here) that its shares have been delisted from the NASDAQ exchange.

The SEC’s inquiry and Rino’s delisting appear to be a result of a scathing November research report by Muddy Waters LLC Research Report on the company (see here).

Whether the SEC’s FCPA inquiry is focused on books and records and internal controls issues, or anti-bribery issues as well, with more China-based companies listing shares on U.S. exchanges, and thus becoming subject to the FCPA, the Rino inquiry may represent a new frontier of FCPA enforcement.

A U.K. Friday Roundup

With all the focus on the Senate’s FCPA hearing earlier this week, let’s take a break and go across the pond for the Friday roundup.

Debarment and the Bribery Act, BAE’s upcoming sentencing hearing, and Royal interest in the SFO’s BAE investigation, its all here.

Debarment and the U.K. Bribery Act

Pass a new Bribery Act that creates a new offense for corporate bribery and it is bound to intersect with other laws.

So the U.K. Ministry of Justice is learning, specifically as to the European Union’s debarment directive which provides that companies found guilty of bribery offenses shall be debarred from public contracts.

According to this article in the U.K. Telegraph, the Ministry of Justice is “considering how the regulations implementing the 2004 EU Procurement Directives should be amended to reflect the new Bribery Act and we intend to clarify this point before commencement of the Act” – scheduled for April 2011.

European Union Directive 2004/18/EC (here) was a specific factor the DOJ considered in its resolutions of the Siemens, BAE, and Daimler enforcement actions.

See here for the DOJ’s sentencing memo in Siemens (p. 11), here for the DOJ’s sentencing memo in BAE (p. 15), and here for the DOJ’s sentencing memo in Daimler (p. 12).

If the DOJ would have prosecuted these companies with the charge best fitting the facts (an FCPA anti-bribery violation) the companies would have been at risk of being debarred from certain EU public contracts – not to mention U.S. government contracts pursuant to 48 CFR 9.406.

BAE Hearing Scheduled

BAE’s sentencing hearing in connection with the U.K. portion of the case is scheduled for Dec. 20th in London (see here for more). The U.S. portion of the case concluded in March (see here).

The last time a U.K. Serious Fraud Office (“SFO”) plea agreement in a bribery case was before a court (in the Innospec matter), the SFO received several lashings (see here).

Prince Andrew’s Keen Interest in the BAE Case

The U.K. Guardian (here) reports that Prince Andrew, the Duke of York, took a keen interest in the SFO’s investigation of the BAE matter, specifically the al-Yamana deal with Saudi Arabia. According to the Guardian, Prince Andrew demanded a special meeting with the SFO, the SFO thought the request was out of order, but SFO Director Richard Alderman was ultimately summoned to Buckingham Palace in May 2008 for a meeting. The Guardian quotes the SFO as saying that “no confidential details” were discussed during the meeting.

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A good weekend to all.

Cheney Reportedly To Be Charged By Nigerian Authorities In Connection With Bonny Island

During Tuesday’s Senate subcommittee FCPA hearing, Senator Christopher Coons noted, in connection with other nations ramping up enforcement of their own bribery laws, that “today we are the only nation that is extending extraterritorial reach and going after the citizens of other countries, we may some day find ourselves on the receiving end of such transnational actions.”

Prescient statement.

Bloomberg is reporting (here) that Nigeria’s Economic and Financial Crimes Commission will soon files charges against former Vice President Dick Cheney and officials from five foreign companies, including Halliburton Co., in connection with the Bonny Island bribery scheme.

Bloomberg reports that indictments will be filed in a Nigeria court and that an arrest warrant for Cheney “will be issued and transmitted through Interpol” for enforcement. As noted by Bloomberg, Cheney was CEO of Halliburton from 1995 until 2000.

In February 2009, Halliburton, Kellogg Brown & Root LLC, and KBR Inc. agreed to pay $579 million in combined DOJ/SEC FCPA enforcement action to resolve charges related to Bonny Island. According to the DOJ, the improper conduct took place between 1994 and 2004. The case remains the largest ever FCPA enforcement action against a U.S. company.

See here for the DOJ resolution and here for the SEC resolution.

The DOJ’s press release (here) states that the “successful prosecution of KBR […] demonstrates that no one is above the law” and that the FBI “will continue to investigate these matters by working in partnership with other law enforcement agencies, both foreign and domestic, to ensure that corporate executives who have been found guilty of bribing foreign officials in return for lucrative business contracts, are punished to the full extent of the law.”

Over the summer, Technip and Snamprogetti/Eni, joint venture partners with KBR, also agreed to settle FCPA enforcement actions in connection with Bonny Island.

Technip agreed to pay $338 million in a joint DOJ / SEC enforcement action (see here and here).

Snamprogetti/ENI agreed to pay $365 million in a joint DOJ / SEC enforcement action (see here and here).

The fourth joint venture partner, JGC of Japan, has yet to resolve its exposure although it has been reported that it is settlement discussions with the DOJ.

For a complete run-down of “Bonny Island Bribery Club Statistics” see here.

The only individual charged thus far has been Albert Jack Stanley (see here). Stanley pleaded guilty and was originally scheduled to be sentenced in May 2009, but has not yet been sentenced.

Two joint venture agents, Jeffrey Tesler and Wojciech Chodan (both U.K. citizens) have also been charged (see here). Tesler and Chodan have been fighting extradition.

Yesterday, the U.K. Guardian (here) reported that Chodan, who had given up his extradition battle, is to arrive in the U.S. in the next 10 days to stand trial. The Guardian reports that Tesler will seek to overturn his extradition today.

Examining Enforcement of the FCPA

It was a honor to participate in yesterday’s hearing “Examining Enforcement of the FCPA” before the Senate Subcommittee on Crime and Drugs chaired by Senator Specter.

See here for C-SPAN coverage of the hearing.

See here for the prepared statement of Greg Andres (DOJ).

See here for my prepared statement.

See here for Andrew Weissmann’s prepared statement.

See here for Michael Volkov’s prepared statement.

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