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The FCPA’s Impact On Raising Capital

By on April 13, 2018 in ADM, Collateral Effects, Och-Ziff Capital, Och-Ziff Capital Management
raising capital

The 2014 article “FCPA Ripples” goes in-depth, using various case studies, to demonstrate how settlement amounts in an actual Foreign Corrupt Practices Act enforcement action are often only a relatively minor component of the overall financial consequences that can result from FCPA scrutiny or enforcement. Numerous prior posts have done so as well (see here).

In addition to pre and post-enforcement action professional fees and expenses, market capitalization, credit ratings, M&A activity, lost or delayed business opportunities, and offensive use of the FCPA (to name just a few ripples) this post highlights how FCPA scrutiny and enforcement can also negatively impact a company’s ability to raise capital.

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Why You Should Be Alarmed By The ADM FCPA Enforcement Action

By on January 24, 2014 in ADM, FCPA Scholarship, Permits / Licenses / Customs / Tax, Ukraine, Victims

I am pleased to share my new article recently published by Bloomberg BNA’s White Collar Crime Report titled “Why You Should Be Alarmed By The ADM FCPA Enforcement Action.”

The abstract is as follows.

“Like all statutes, the Foreign Corrupt Practices Act has specific elements that must be met in order for there to be a violation. However, with increasing frequency in this new era of FCPA enforcement, it appears that the Department of Justice and the Securities and Exchange Commission have transformed FCPA enforcement into a free-for-all in which any conduct the enforcement agencies find objectionable is fair game to extract a multimillion-dollar settlement from a risk-averse corporation. A case in point is the recent $54 million FCPA enforcement action against Archer Daniels Midland Co. (ADM) and related entities.  After discussing the principal features of this enforcement action – namely that ADM and its shareholders were victims of a corrupt Ukraine government – this article highlights why anyone who values the rule of law should be alarmed by the ADM enforcement action.”

In Depth On The ADM Enforcement Action

By on December 30, 2013 in 2013 Enforcement Actions, ADM, Agriculture Industry, Alfred Toepfer Int’l, DOJ Enforcement Action, Foreign Non-Issuer Company, Jurisdiction, Non-Prosecution Agreement, Permits / Licenses / Customs / Tax, SEC Enforcement Action, Tax Payments, Ukraine, Venezuela

On December 20th, the DOJ and SEC announced (here and here) that Archer Daniels Midland Company (“ADM”) agreed to resolve a Foreign Corrupt Practices Act based on the conduct of an indirect subsidiary in Ukraine and a joint venture partner in Venezuela.  The enforcement action had been expected for some time (as noted in this prior post, in November the company disclosed that it had agreed in principle to the settlement).

[Although announced on December 20th, original source documents relevant to the enforcement action did not become publicly available until December 24th and the documents are still not on the DOJ’s FCPA website].

The enforcement action involved a DOJ criminal information against Alfred C. Toepfer International Ukraine Ltd. resolved via a plea agreement, a non-prosecution agreement involving ADM, and a SEC settled civil complaint against ADM.

ADM entities agreed to pay approximately $54 million to resolve alleged FCPA scrutiny ($17.7 million in criminal fines to resolve the DOJ enforcement action and $36.5 million to resolve the SEC enforcement action).

This post summarizes both the DOJ and SEC enforcement actions.

DOJ

Alfred C. Toepfer International Ukraine Ltd. (ACTI Ukraine)

The criminal information begins as follows.

“At certain times between in or around 2002 and in or around 2008, the Ukrainian government did not have the money to pay value-added tax (“VAT”) refunds that it owed to companies that sold Ukrainian goods outside of Ukraine.” (emphasis added).

Thereafter, the information alleges, in pertinent part, as follows.

“In order to obtain VAT refunds from the Ukrainian government, ACTI-Ukraine [an indirect 80%-owned subsidiary of ADM], with the help of its affiliate, Alfred C. Toepfer International GmbH (ACTI Hamburg) [an indirect 80%-owned subsidiary of ADM], paid third-party vendors to pass on nearly all of that money as bribes to government officials.”

“In order to disguise the bribes, ACTI Ukraine and ACTI Hamburg devised several schemes involving the use of Vendor 1 [a U.K. export company that used both truck and rail services for the export of goods from Ukraine] and Vendor 2 [a Ukrainian insurance company that provided insurance policies for commodities].  In some instances, ACTI Ukraine and ACTI Hamburg paid Vendor 1, a vendor that provided export-related services for ACTI Ukraine, to pass on nearly all the money they paid it as bribes to Ukrainian government officials in exchange for those officials’ assistance in obtaining VAT refunds for and on behalf of ACTI Ukraine.  In addition, ACTI Ukraine purchased unnecessary insurance policies from Vendor 2 so that Vendor 2 could use nearly all of that money to pay bribes to Ukranian government officials in exchange for those officials’ assistance in obtaining VAT refunds for and on behalf of ACTI Ukraine.”

“In total, ACTI Ukraine, ACTI Hamburg, and their executives, employees, and agents paid roughly $22 million to Vendor 1 and Vendor 2 to pass on nearly all of that money to Ukrainian government officials to obtain over $100 million in VAT refunds.  These VAT refunds gave ACTI Ukraine a business advantage resulting in a benefit to ACTI Ukraine and ACTI Hamburg of roughly $41 million.”

“In furtherance of the bribery scheme, employees from ACTI Ukraine and its co-conspirators, while in the territory of the United States, and specifically in the Central District of Illinois, communicated in-person, via telephone, and via electronic mail with employees of ACTI Ukraine’s and ACTI Hamburg’s parent company, Archer Daniels Midland Company (ADM), which owned an 80% share of the ACTI entities, about the accounting treatment of VAT refunds in Ukraine.  During those communications, the ACTI employees mischaracterized the bribe payments as “charitable donations” and “depreciation.”

Based on the above allegations, the DOJ charged ACTI Ukraine with conspiracy to violate the FCPA’s anti-bribery provisions under 78dd-3.  This prong of the FCPA has the following jurisdictional element.

“while in the territory of the United States, corruptly to make use of the mails or any means or instrumentality of interstate commerce or to do any other act in furtherance” of a bribery scheme.

There is no allegation in the criminal information that anyone associated with ACTI Ukraine “while in the territory of the U.S.” made use of the mails or any means or instrumentality of interstate commerce.”

Rather, the information alleges, as to overt acts, as follows.

“[In July 2002 – 11 years prior to the enforcement action] executives from ACTI Hamburg [not the defendant ACTI Ukraine] traveled to ADM’s headquarters in Decatur, Illinois for business meetings.  In one of those meetings, these ACTI executives met with executives from ADM’s tax department and discussed ACTI Ukraine’s ability to recover VAT refunds and the way in which ACTI Ukraine was accounting for the write-down of those refunds.  During this discussion, the ACTI Hamburg executives stated that the way in which ACTI Ukraine was recovering its VAT refunds was by making charitable donations.  ACTI Ukraine was not making such donations in conjunction with VAT recovery.  In fact, ACTI Ukraine was writing down its VAT receivable based upon anticipated payments to Vendor 1.”

The other overt acts alleged in the information all concern e-mail traffic, none of which fits the jurisdictional element of “while in the territory of the U.S.”

The above charge against ACTI Ukraine was resolved via a plea agreement in which the company admitted, agreed, and stipulated that the factual allegations in the information are true and correct and accurately reflects the company’s “criminal conduct.”

As set forth in the plea agreement, the advisory Sentencing Guidelines calculation for the conduct at issue was between $27.3 million and $54.6 million and ACTI Ukraine agreed to a $17,711,613 criminal fine.  The plea agreement states as follows.

“The parties have agreed that a fine of $17,771,613 reflects an approximately thirty-percent reduction off the bottom of the fine range as well as a deduction of $1,338,387 commensurate with the fine imposed by German authorities on ACTI Hamburg.”

The plea agreement further states that this fine amount is the “appropriate disposition based on the following factors”:

“(a) Defendant’s timely, voluntary, and thorough disclosure of the conduct; (b) the Defendant’s extensive cooperation with the Department; and (c) the Defendant’s early, extensive, and unsolicited remedial efforts already undertaken and those still to be undertaken.”

As is common in corporate FCPA enforcement actions, the plea agreement contains a “muzzle clause” prohibiting ACTI Ukraine or anyone on its behalf from making public statements “contradicting the acceptance of responsiblity” of ACTI Ukraine

ADM

The NPA between the DOJ and ADM concerns the above Ukraine conduct as well as alleged conduct in Venezuela.  Only the Venezuela conduct is highlighted below.

The Statement of Facts attached to the NPA states as follows regarding “conduct relating to Venezuela.”

“From at least in or around 2004 to in or around 2009, when customers in Venezuela purchased commodities through ADM Venezuela [a joint venture between ADM Latin America (ADM Latin – a wholly owned subsidiary of ADM) and several individuals in Venezuela], the customers paid for the commodities via payment to ADM Latin.  During this time period, a number of customers overpaid ADM Latin for the commodities by including a brokerage commission in the cost of the commodities.  At the instruction of ADM Venezuela, including Executive A [a high-level executive at ADM Venezuela] and ADM’s Latin’s customers, rather than repaying these excess amounts to the customer directly, ADM Latin made payments to third-party bank account outside of Venezuela, which, in many instances, were used to funnel payments to accounts owned by employees or principles of the customer.  In addition, ADM Venezuela personnel prepared invoices to ADM Latin’s customers that violated Venezuelan laws and regulations regarding foreign currency exchanges.”

The NPA states that in approximately 1998, “ADM identified the customer “commission” practice as a business risk and recognized that customers may attempt to engage in such transactions with ADM Latin through the prospective joint venture, and instituted a policy that prohibited the repayment of excess funds to any account other than that originally used by the customer to make the payment.  However, although this policy was made known to Executive A and some ADM Venezuela employees, it was initially not formalized and from in or around 1999 until in or around 2004 the same practices continued.  The customers submitted excess payments to ADM Latin, claiming that the overpayment was attributable to deferred credit expenses (“DCE”).”

The NPA further states as follows.

“In or around 2004, ADM conducted an audit of ADM Venezuela due to an issue pertaining to Executive A and uncovered the payments to third-party bank accounts being made through DCE.  Although ADM took some remedial measures, including terminating the employment of the credit employee who had signed off on the refunds, conducting limited training on compliance for its joint venture partners, and instituting a written policy prohibiting refund payments of DCE to bank account different than the accounts from which the money came, the policy was narrowly drawn only to cover DCE payments.  ADM did not train ADM Latin employees and did not take adequate steps to monitor ADM Latin and ADM Venezuela to prevent such payments in forms other than DCE.  From in or around 2004 to in or around 2009, various customers, with the help of ADM Venezuela, including Executive A, began classifying these additional expenses as “commissions” or “commissions K,” rather than DCE, which were processed by the accounting department at ADM Latin, rather than the credit department.  Therefore, when the customers instructed that the excess “commissions” be paid to third-party entities at third-party bank accounts, ADM Latin authorized and made the payments.”

The NPA further states that “in or around 2008, Executive A, and others at ADM Venezuela negotiated the sale of soybean oil from ADM Latin to Industrias Diana [an oil company headquartered in Venezuela that was wholly owned by Petroleos de Venezuela, Venezuela’s state-owned and controlled national oil company].”  According to the NPA, in connection with this sale, “Broker 1 [a third-party agent that purportedly performed brokerage services for customers of ADM Latin, including Industrias Diana, in connection with the purchase of commodities] submitted an invoice to ADM Latin for the $1,735,157 commission amount, which ADM Latin paid to Broker 1’s bank account.  Broker 1 then transferred this amount, in large part, to an account in the name of an employee of Industrias Diana.”

The NPA states as follows.

“On a number of other occasions, ADM Latin made payments to Broker 1’s bank account in connection with the purchase of commodities by other customers.  Broker 1 then transferred those amounts, in large part, to bank accounts outside of Venezuela in the name of the principals of those customers.  In total, ADM Latin transferred roughly $5 million to Broker 1.”

According to the NPA, certain of Broker 1’s transfers were to “accounts owned and controlled by Executive A, as well as numerous transfers to a company in which Executive A had ownership interests.”

The NPA states that the DOJ will “not criminally prosecute ADM … for any crimes … related to violations of the internal controls provisions of the FCPA arising from or related to improper payments by the Company’s subsidiaries, affiliates or joint ventures in Ukraine and Venezuela … and any other conduct relating to internal controls, books and records, or improper payments disclosed by the Company to the Department prior to the date on which this Agreement is signed.”

The NPA has a term of three years and ADM “agreed to pay a monetary penalty of $9,450,000 provided, however, that any criminal penalties that might be imposed by the Court on ACTI Ukraine in connection with its guilty plea and plea agreement … will be deducted from the $9,450,000 penalty agreed to under this Agreement.”

Pursuant to the NPA, ADM agreed to “report to the Department periodically regarding remediation and implementation of the compliance program and internal controls, policies, and procedures, as described in Attachment C” to the NPA.

In the DOJ release, Acting Assistant Attorney General Mythili Raman stated:

“As today’s guilty plea shows, paying bribes to reap business benefits corrupts markets and undermines the rule of law.  ADM’s subsidiaries sought to gain a tax benefit by bribing government officials, and then attempted to deliberately conceal their conduct by funneling payments through local vendors.  ADM, in turn, failed to implement sufficient policies and procedures to prevent the bribe payments, although ultimately ADM disclosed the conduct, cooperated with the government, and instituted extensive remedial efforts.  Today’s corporate guilty plea demonstrates that combating bribery is and will remain a mainstay of the Criminal Division’s mission.  We are committed to working closely with our foreign and domestic law enforcement partners to fight global corruption.”

The release further states:

“The agreements acknowledge ADM’s timely, voluntary and thorough disclosure of the conduct; ADM’s extensive cooperation with the department, including conducting a world-wide risk assessment and corresponding global internal investigation, making numerous presentations to the department on the status and findings of the internal investigation, voluntarily making current and former employees available for interviews, and compiling relevant documents by category for the department; and ADM’s early and extensive remedial efforts.”

SEC

The SEC’s complaint (here) is based on the same Ukraine allegations set forth in the above DOJ action.

In summary fashion, the complaint alleges:

“This matter involves violations of the books and records and internal controls provisions of the Foreign Corrupt Practices Act (“FCPA”) by ADM. At certain times between 2002 and 2008, Alfred C. Toepfer, International G.m.b.H. (“ACTI Hamburg”) and its affiliate, Alfred C. Toepfer, International (Ukraine) Ltd. (“ACTI Ukraine”) paid approximately $22 million to two third-party vendors so that they could pass on nearly all of that money as bribes to Ukrainian government officials to obtain over $100 million in accumulated value added tax (“VAT”) refunds. These payments were recorded by ACTI Hamburg and ACTI Ukraine in their books and records as insurance premiums and other business expenses. ADM indirectly owns a majority of ACTI Hamburg and ACTI Ukraine through its 80% interest in Alfred C. Toepfer International B.V. (“ACTI”), and in 2002, ADM began consolidating ACTI’s financial results into its financial statements.

In order to disguise the purpose of these improper payments, ACTI Hamburg and ACTI Ukraine made certain payments for export-related services and insurance premiums to third parties, but, in fact, nearly all of these payments were intended to be passed on through these third parties as bribes to Ukrainian government officials in exchange for obtaining VAT refunds for and on behalf of ACTI Ukraine.

ACTI’s conduct went unchecked by ADM, and ACTI continued to make these improper payments for several years. ADM’s anti-bribery compliance controls in existence at the time were insufficient in that they did not deter and detect these payments. ACTI Hamburg and ACTI Ukraine created inaccurately described reserves in their books and records, manipulated commodities contracts that were kept open for an extended period of time, structured payments to avoid detection, and created fictitious insurance contracts to hide from ADM and others the payments to third-parties to secure VAT refunds in Ukraine.

Due to the consolidation of ACTI’s financial results, which included these inaccurately characterized payments, into ADM’s books and records, ADM violated [the FCPA’s books and records provisions]. ADM violated [the FCPA’s internal controls provisions] by failing to maintain an adequate system of internal controls to detect and prevent the illicit payments.”

Under the heading “ADM’s Violations,” the complaint states:

“ACTI Hamburg and ACTI Ukraine characterized their improper payments to the Shipping Company and the Insurance Company as insurance premiums and other business expenses even though nearly all of those payments were intended to be used for payment to Ukrainian government officials. Due to the consolidation of ACTI’s financial results into ADM’s, ADM’s financial records also failed to reflect the true nature of the payments.

Between 2002 and 2008, ADM’s anti-corruption policies and procedures relating to ACTI were decentralized and did not prevent improper payments by ACTI to third-party vendors in the Ukraine or ensure that these transactions were properly recorded by ACTI. In this respect, ADM failed to implement sufficient anti-bribery compliance policies and procedures, including oversight of third-party vendor transactions, to prevent these payments at ACTI Hamburg and ACTI Ukraine.

Through its various schemes, ACTI Ukraine and ACTI Hamburg paid roughly $22 million in improper payments to obtain more than $100 million in VAT refunds earlier than they otherwise would have. Getting these VAT refunds earlier—before the Ukraine endured a brief period of hyperinflation—gave ACTI Ukraine a business advantage resulting in a benefit to ADM of roughly $33 million.”

Under the heading “ADM’s Discovery and Subsequent Remedial Measures,” the complaint states:

“In mid-2008, after becoming aware of these insurance expenses, ADM controllers questioned ACTI executives regarding these expenses, particularly the basis for the accounting treatment of these expenses. An ACTI Ukraine employee disclosed to its outside auditors that the insurance payments were, in fact, made to secure VAT refunds. After ADM controllers received this information, ADM’s legal and compliance departments took action, which led to an immediate investigation in which ADM ultimately uncovered ACTI’s various schemes to secure VAT refunds.

Following discovery of these payments, ADM immediately retained outside counsel to conduct an internal investigation. As a result of the investigation, using its authority as majority shareholder through the ACTI supervisory board, ADM terminated certain ACTI executives. ADM then voluntarily conducted a world-wide risk assessment and corresponding global internal investigation, made numerous presentations to the Department of Justice and Securities and Exchange Commission, made current and former employees available for interviews, produced documents without subpoena, and implemented early and extensive remedial measures.”

As noted in the SEC’s release, ADM agreed to pay approximately $36.5 million to resolve the action (disgorgement of $33,342,012 plus prejudgment interest of $3,125,354), consented to the entry of a final judgment permanently enjoining it from future violations of the FCPA books and records and internal control provisions, and to report on its FCPA compliance efforts for a three year period.  The release states:

“The SEC took into account ADM’s cooperation and significant remedial measures, including self-reporting the matter, implementing a comprehensive new compliance program throughout its operations, and terminating employees involved in the misconduct.”

In the release, Gerald Hodgkins (Associated Director in the SEC’s enforcement division) stated:

“ADM’s lackluster anti-bribery controls enabled its subsidiaries to get preferential refund treatment by paying off foreign government officials.  Companies with worldwide operations must ensure their compliance is vigilant across the globe and their transactions are recorded truthfully.”

William Bachman and Jon Fetterolf (Williams Connolly) represented ADM.

Robin Bergen (Clearly Gottlieb Steen & Hamilton) represented ATCI Ukraine.

In this press release, ADM’s Chairman and CEO stated:

“In 2008, soon after we became aware of some questionable transactions by a non-U.S. subsidiary, we engaged an outside law firm and an accounting firm to undertake a comprehensive internal investigation.  In early 2009, we voluntarily disclosed the matter to appropriate U.S. and foreign government agencies and undertook a comprehensive anti-corruption global risk analysis and compliance assessment. We have also implemented internal-control enhancements, and taken disciplinary action, including termination, with a number of employees. The conduct that led to this settlement was regrettable, but I believe we handled our response in the right way, and that the steps we took, including self-reporting, underscore our commitment to conducting business ethically and responsibly.”

Friday Roundup

By on November 8, 2013 in ADM, Bio-Rad, Double Standard, FCPA Inc., GlaxcoSmithKline, Layne Christensen, Voluntary Disclosure, Weatherford International

That’s just so fringe, where now?, the pulse of FCPA Inc., scrutiny alerts and updates, for the reading stack, and save the date.  It’s all here in the Friday Roundup.

That’s Just So Fringe

Many in the anti-corruption space have latched onto developments in other countries and carried forward the torch of reform.  Just goggle Anna Hazare’s hunger strike in India or discover the wealth of material written about marches and demonstrations in Brazil prior to Brazil’s bribery laws being amended.

Recently there was a march in Washington D.C., protesting, in part, government corruption.  (See here).  Why has there not been similar coverage in the anti-corruption space?  Where are those who otherwise carried forward the torch of reform?  Apparently the reaction is – when it happens here in the U.S. – well, that’s just so fringe.

Where Now?

As DOJ Deputy Assistant Attorney, John Burretta “oversaw the Criminal Division’s Fraud Section, among others, including the Fraud Section’s FCPA Unit.”  He also “supervised the preparation of the DOJ and SEC’s Resource Guide to the U.S. Foreign Corrupt Practices Act, issued in November 2012.”

Like most other DOJ policy leaders and FCPA enforcement attorneys with supervisory powers during this new era of FCPA enforcement, Burretta is now in the private sector as he recently joined Cravath as a partner.  (See here).  According to his Cravath bio, “his practice focuses on investigations and white collar criminal defense, including advising and representing clients in matters related to the FCPA” among other things.

The Pulse of FCPA Inc.

Few FCPA Inc. participants are publicy-traded companies.  Thus, it is often difficult to take the pulse of FCPA Inc. other than anecdotal information.

However, one FCPA Inc. participant that is publicly traded is FTI Consulting.  The company recently disclosed that revenues for the quarter in its relevant business segment increased nearly 2% compared to the prior year “due to higher services revenues primarily for investigations involving the Foreign Corrupt Practices Act and interest rate setting process concerning the London Interbank Offered Rate (“LIBOR”) …”.

It’s only one company, but with few FCPA Inc. datapoints publicly available, it is a relevant datapoint.

Scrutiny Alerts and Updates

Weatherford

Weatherford International recently disclosed as follows concerning its long-running FCPA scrutiny:

“During the quarter ended June 30, 2013, negotiations related to the oil-for-food and FCPA matters progressed to a point where we recognized a liability for a loss contingency that we believe is probable and for which a reasonable estimate can be made.  The Company estimates that the amount of this loss is $153 million and recognized a loss contingency equal to such amount in the quarter ended June 30, 2013.  Since our last 10-Q filing, substantial progress in the negotiations was made, and these negotiations have recently concluded. These negotiations have resulted in agreements with representatives of the DOJ and the SEC enforcement staff relating to terms and total payments to be made to government agencies relating to the oil-for-food and FCPA matters subject in each case to final review and approval by the DOJ and SEC Commission as well as judicial approval.  The agreements would require total payments to government agencies equal to the $153 million loss contingency that the Company recognized in the quarter ended June 30, 2013.  The agreements would also include (1) an agreement under which criminal prosecution for the Company would be deferred for three years and a plea agreement would impose a criminal conviction on one of the Company’s subsidiaries; (2) a requirement to retain, for a period of at least 18 months, an independent monitor responsible to assess the Company’s compliance with the terms of the agreement so as to address and reduce the risk of recurrence of alleged misconduct, after which the Company would continue to evaluate its own compliance program and make periodic reports to the DOJ and SEC; and (3) a requirement to maintain agreed compliance monitoring and reporting systems.  If final settlement terms differ from the agreements we have reached with DOJ and SEC representatives or if necessary approvals are not ultimately obtained, we could become subject to injunctive relief, disgorgement, fines, penalties, sanctions or imposed modifications to business practices that could adversely affect our results of operations.”

A $153 million FCPA settlement amount would be 8th largest of all time based on the current top ten settlement list.

Layne Christensen Co.

Layne Christensen Co. recently disclosed as follows concerning its long-running FCPA scrutiny:

“The Company is engaged in discussions with the DOJ and the SEC regarding a potential negotiated resolution of these matters. The Company believes that it is likely that any settlement will include both the payment of a monetary fine and the disgorgement of any improper benefits. In May 2013, the staff of the SEC orally advised the Company that they calculated the estimated benefits to the Company from allegedly improper payments, plus interest thereon, to be approximately $4.8 million, which amount was accrued by the Company as of April 30, 2013. Based on the results of the Company’s internal investigation, an analysis of the resolution of recent and similar FCPA resolutions, the Company currently estimates a potential settlement range for resolving these matters (including the amount of a monetary penalty and the disgorgement of any improper benefits plus and interest) of $10.4 million to $16.0 million. The Company has increased its reserve for the settlement of these matters from $4.8 million to $10.4 million, representing the low end of this range.  At this time, we can provide no assurances as to whether the Company will be able to settle for an amount equal to its current reserve or within its estimated settlement range or whether the SEC or DOJ will accept voluntary settlement terms that would be acceptable to the Company. Furthermore, the Company cannot currently assess the potential liability that might be incurred if a settlement is not reached and the government was to litigate the matter. As such, based on the information available at this time, any additional liability related to this matter is not reasonably estimable. The Company will continue to evaluate the amount of its liability pending final resolution of the investigation, and any related settlement discussions with the government; the amount of the actual liability for any fines, penalties, disgorgement or interest that may be recorded in connection with a final settlement could be significantly higher than the liability accrued to date.  Other than the indication of the estimated disgorgement amount noted above, the Company has not received any proposed settlement offers from the SEC or DOJ and there can be no assurance that its discussions with the DOJ and SEC will result in a final settlement of any or all of these issues or, if a settlement is reached, the timing of any such settlement or that the terms of any such settlement would not have a material adverse effect on the Company.”

ADM

ADM recently disclosed as follows concerning its long-running FCPA scrutiny.

“The Company has completed its internal review and is engaged in discussions with the DOJ and SEC to resolve this matter. In connection with this review, government agencies could impose civil penalties or criminal fines and/or order that the Company disgorge any profits derived from any contracts involving inappropriate payments. Included in selling, general, and administrative expenses for the nine months ended September 30, 2013 were charges for the Company’s current estimate of potential disgorgement, penalties, and fines that may be paid by the Company in connection with this matter of $54 million. As of September 30, 2013, the estimated loss provision liability of $54 million is included in accrued expenses and other payables in the Company’s consolidated balance sheet. These events have not had, and are not expected to have, a material impact on the Company’s business or financial condition.”

GSK

In my first GSK post over the summer, I posed the question – based on GSK disclosures and public statements – whether GSK is the victim of rogue employee conduct?

According to this U.K. Independent article:

“GlaxoSmithKline, the British drug company at the heart of a bribery investigation in China, is likely to avoid a company-wide charge for  allegedly funneling up to £300m in kickbacks to doctors and government officials.  Instead, police are likely to charge some of its Chinese executives, according to reports citing legal and industry sources.  Such an outcome would see Chinese police drop  claims made in September that corruption was co-ordinated at a company level.  […] The [Chinese] police investigation into GSK is likely to be concluded around the end of November or in December, said a person with direct knowledge of the probe. The sources noted it was difficult to predict what Chinese authorities would ultimately do. But the most likely legal scenario was that they would charge Chinese GSK executives, said the person with direct knowledge of the investigation and two other sources familiar with the matter. The sources declined to be identified because of the sensitivity of the case. Indeed, the Ministry of Public Security had tried to find evidence tying GSK   as a legal entity to the alleged wrongdoing, but it was unlikely authorities would be able to prove its involvement at a corporate level, said the person with direct knowledge of the investigation.” (emphasis added).

Bio-Rad Labs

Bio-Rad recently disclosed that it recorded “an accrued expense of $20 million in connection with the Company’s initial efforts to resolve the previously disclosed investigation of the Company in connection with the United States Foreign Corrupt Practices Act.”

For The Reading Stack

The always informative Miller & Chevalier quarterly update is out.  (See here for the Autumn 2012 FCPA Review).

From an article titled “The ‘Mens Rea’ Component Within the Issue of the Over-Federalization of Crime” by John Baker and William Haun in Engage, a Federalist Society publication.

“Designed to prohibit bribery of foreign officials for any business advantage, the [FCPA’s] breadth allows the federal government to hold businesses liable for actions by rogue agents.  As former U.S. Attorney General Michael Mukasey and Jones Day partner James Dunlop note, this “adds unnecessary uncertainty and opens businesses to massive, largely unavoidable, liability, with few offsetting benefits.”  The statute’s broad language can transgress the intent of Congress.  In discussing the example of Wal-Mart, Professor Mike Koehler has shown that Congress had no desire to apply the Act against “grease payments” to clerical employees, but that the backroom nature of FCPA enforcement gives that congressional limitation uncertain relevance. The reluctance of corporations to go to trial minimizes judicial review of the FCPA’s use. As a result, the FCPA investigations have developed a “prosecutorial common law,” allowing the Department of Justice (DOJ) to impose burdensome compliance costs without having to prove in court that criminal activity has actually occurred or is likely to occur.  Companies spend millions to “comply” with requirements possessing an unknown reach.  In remarks on the FCPA, former U.S. Attorney General Mukasey observed that, given how few FCPA cases actually see a court room, “there is a whole body of law being developed” in prosecutor’s offices through negotiated FCPA settlements with major companies. Even if the settlements are reasonable, as General Mukasey noted, they do not provide any clarity or consistency necessary to “demystify” an ordinary person’s responsibilities under the law.  He noted that DOJ and the business community reached an understanding on some aspects of the FCPA.  Such agreements, however, should not serve as the functional equivalent of legislation.  It is the obligation of Congress to establish clear mens rea requirements for the FCPA and other statutes, not the executive via piecemeal prosecution.”

What’s one takeaway point from the recent Diebold enforcement actions?  According to Richard Smith (Norton Rose Fulbright) in this recent Law360 article:

“The Diebold settlements underscore the need for companies to fully evaluate whether voluntary disclosure is in the company’s best interest. Although U.S. authorities may be willing to reward companies for self-disclosing FCPA issues — indeed, the DOJ specifically stated in the DPA that it credited Diebold for making such a disclosure — the positive credit received is not always clear. The ultimate financial and operational burden on a company may, in any given instance, outweigh credit received.  Based on previous enforcement action settlements, some companies may have assumed that voluntary disclosure assists the company in avoiding the imposition of a compliance monitor. In light of the Diebold settlements, however, companies assessing the option of self-disclosure must consider the real possibility that doing so may not shield them from the increased costs and scrutiny associated with the retention of independent compliance monitors.”

Save The Date

On December 4th in Washington, D.C., George Washington University Law School is hosting a full-day symposium titled “The International Fight Against Corruption: Are the OECD and UN Conventions Achieving their Objectives?”  To learn more about the event, see here.

Friday Roundup

By on August 9, 2013 in ADM, China, Diebold, GlaxcoSmithKline, Juniper Networks, Multimedia, Sanofi

Future enforcement actions and scrutiny alerts, in the interest of completeness, and for the reading stack.  It’s all here in the Friday Roundup.

Future Enforcement Actions and Scrutiny Alerts

Stay tuned for future FCPA enforcement actions against Diebold and ADM in the approximate $50 million range.

Diebold

Diebold recently stated as follows in this filing.

“Diebold continues to monitor its compliance with the FCPA. It also is continuing its cooperation with the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) in their ongoing inquiries, and is making continued progress toward a timely resolution of this matter. The company has agreed in principle with the DOJ and the SEC to the terms of a proposed settlement of their inquiries, which terms remain subject to final approval by all parties. These proposed settlement terms include combined payments to the U.S. government of approximately $48.0 million in disgorgement, penalties and prejudgment interest, and the appointment of an independent compliance monitor for a minimum period of 18 months.”

ADM

Archer Daniels Midland Company recently stated as follows in this release.

“ADM has been in discussions with the U.S. Department of Justice and the U.S. Securities and Exchange Commission regarding a previously disclosed FCPA matter dating back to 2008 and earlier. Based upon recent progress in these discussions, ADM believes it is appropriate to increase its provision to $54 million, a $29 million increase over the $25 million established in the first quarter.”
Juniper Networks
Some FCPA disclosures are detailed some are not.  Juniper Networks recent disclosure certainly falls into the latter category.  The company disclosed as follows.
“The U.S. Securities and Exchange Commission and the U.S. Department of Justice are conducting investigations into possible violations by the Company of the U.S. Foreign Corrupt Practices Act. The Company is cooperating with these agencies regarding these matters. The Company is unable to predict the duration, scope or outcome of these investigations.”
Sanofi
According to this report in China Daily:

“French pharmaceutical company Sanofi AG said on Aug 8 it is taking a bribery allegation in China very seriously and is reviewing and addressing the issue.  Chinese newspaper 21st Century Business Herald reported that Sanofi staff bribed more than 500 doctors at 79 hospitals in China with 1.7 million yuan ($277,800). The company said in a statement: ‘Sanofi takes any allegation very seriously and has established processes in place for reviewing and addressing such issues in a manner that is consistent with our legal and ethical obligations. At this time, it would be premature to comment on events that may have occurred in 2007.’  […]  Sanofi said in its statement it is confident about its business operations in China and committed to conducting its global business with integrity.  ‘We have zero tolerance to any unethical practice,’ the company said. ‘We are determined to respect the ethical principles governing our activities and are committed to abiding by the laws and regulations that apply in each country where we operate.’  This month, Sanofi’s office in Shenyang, Liaoning province, was visited by the Chinese authorities amid a wave of crackdowns on bribery and corruption in the country’s pharmaceutical sector.”

In the Interest of Completeness

This recent post generically referred to the SEC’s case against Fabrice Tourre.  In the interest of completeness, the Wall Street Journal also stated as follows.

“For a chance, SEC attorneys went to trial against a real-live person and allowed a jury to decide whether he had violated the law.  This is progress, and a welcome departure from the SEC’s custom of charging institutions and then demanding money paid by shareholders to settle case without having to go to court.  And despite his loss, kudos to Mr. Tourre for manfully seeking to clear his name while accepting the risk of trial.  (Here).

I also liked this recent editorial from the Wall Street Journal concerning the Tourre case.

“The Securities and Exchange Commission is doing a victory lap over last week’s verdict against former Goldman Sachs trader Fabrice Tourre, but its spin is revealing about the political motivation behind the case. Lead SEC prosecutor Matthew Martens keeps saying again and again that the case was ‘about Wall Street greed.’ Last time we checked, greed is not a crime under the securities laws or any other statutes in the federal code. […] Greed has existed since man committed original sin, and no doubt it has always existed on Wall Street and most other places. Greed in moderation might even be  called ambition. While the media most often attribute it to bonus-seeking  traders on Wall Street, greed can exist in other locations, too. Perhaps you  have noticed how frequently prosecutors leave their government jobs for higher  pay as corporate attorneys. Mr. Martens may eventually be one of them.”

Speaking of which, this previous Friday roundup highlighted former SEC Enforcement Director of Enforcement Robert Khuzami’s new position at Kirkland & Ellis.  This Bloomberg column states:

“The appalling — yet hardly surprising — news that Robert Khuzami, the former enforcement director at the Securities and Exchange Commission, has cashed in his four-year stint for a $5 million-plus salary at Kirkland & Ellis, a prominent Wall Street law firm, is the latest example of the corrupt relationship between money and power in the U.S.”

Speaking of which, in this post on his Corruption Crime and Compliance site, Michael Volkov states: “I am sure Justice Department and Securities and Exchange Commission lawyers sometimes sit back and marvel at the world they have helped create …”.

Indeed, this is why I have long argued that the unique attributes of FCPA enforcement and the special government policies that impact enforcement, and thus make it a highly niched area of law, warrant special solutions. As to DOJ and SEC FCPA enforcement attorneys who have supervisory and discretionary positions and articulate government FCPA policies, it is in the public interest that such individuals be prohibited, when leaving government service, from providing FCPA defense or compliance services in the private sector for a five-year period.

For the Reading Stack

See here for an article in the New York Times regarding fake receipts in China.  Among other things, the article states:

“[The use of fake receipts] is so pervasive that auditors at multinational corporations are also being duped. The British pharmaceutical company GlaxoSmithKline is still trying to figure out how four senior executives at its China operation were able to submit fake receipts to embezzle millions of dollars over the last six years. Police officials say that some of the cash was used to create a slush fund to bribe doctors, hospitals and government officials. […]  China’s fapiao system took root in the late 1980s and early 1990s, when the government began requiring companies to use official receipts issued by the tax authorities for every business transaction. The receipts usually come with a number and government seal.  But the tax receipt system was quickly exploited. Gangs began producing high-quality imitations of the official invoices using specially designed printers with markings that bore a striking likeness to red government seals.  And at many companies, rogue employees started colluding with advertising, consulting and travel agencies to forge or falsify receipts for the purpose of embezzling corporate funds.”

Looking for a good slide show to spice up FCPA training?  See here from the Huffington Post regarding companies that recently resolved FCPA enforcement actions.

This article is titled “False Claims Act Settlements Often are Business Deals” and states:

“But for contractors, the decision on whether to settle a case or to fight accusations and go to trial can have less to do with guilt or innocence and more to do with practical business considerations. ‘Often, it’s really just a cost-benefit analysis,’ said Jonathan Cone, counsel at the Crowell & Moring LLP law firm. ‘In some cases, it’s actually more cost-effective to settle a case rather than risk losing business with the federal government.'”

Spot-on and the logic is even more compelling the bigger and sharper the DOJ’s stick becomes (i.e. a criminal FCPA enforcement action vs. a civil False Claims Act action).

*****

A good weekend to all.

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