Friday Roundup
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.”
“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.”
“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.
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.
Friday Roundup
Additional individual defendant added to Alstom-related enforcement action, a mere $110,000 per working day, a focus on international philanthropy, scrutiny alerts, and for the reading stack. It’s all here in the Friday roundup.
Additional Alstom-Related Charges
This prior post highlighted the recently unsealed criminal charges against Frederic Pierucci (a current Alstom employee) and David Rothschild (a former Alstom employee) concerning alleged conduct in connection with the Tarahan coal-fired steam power plant project in Indonesia. The post highlighted several other individuals generically referred to in the charging documents.
Earlier this week, the DOJ announced (here) that William Pomponi (a former executive of Alstom Power Inc., a Connecticut-based subsidiary of Alstom) was charged for his alleged participation in the same scheme. Pomponi, previously identified as “Employee A,” is now described as “a Vice President of Regional Sales” at Alstom Power Inc. and “was one of the people responsible for approving the actions of, and authorizing payments to, Consultants A and B, knowing that a portion of the payments [to the consultants] was intended for Indonesian officials in exchange for their influence and assistance in awarding the Tarahan Project …”.
Like the original Pierucci indictment, all of the alleged overt acts in the superseding indictment against Pomponi allegedly occured between 2002 and 2004, although the information does allege wire transfers from Alstom Power Inc.’s bank account to the bank account of Consultant A until 2009.
Like Pierucci, Pomponi is also charged with one count of conspiracy to violate the FCPA, four substantive counts of FCPA anti-bribery violations, money laundering conspiracy and four substantive counts of money laundering.
Kudos to the DOJ for including a link to the charging document in the release. This used to be DOJ’s practice, but when its new site launched a few years ago, it stopped doing this. Let’s hope this is a new practice!
Avon’s FCPA Expenses
Nearly five years ago – in June 2008 – Avon launched an internal investigation concerning FCPA compliance in China and other countries. In many respects, the most notable aspect of Avon’s FCPA scrutiny has been its pre-enforcement action professional and expenses – approaching $350 million (see here for instance).
In its most recent quarterly filing, Avon stated as follows. “Professional and related fees associated with the FCPA investigations and compliance reviews … amounted to approximately $7 during the three months ended March 31, 2013.”
Headlines read “Avon FCPA Costs Down to $7 Million for Q1” and “Avon Slows Spending on Bribery Probe.”
Both accurate headlines, but it is amazing to note nevertheless that – five years into Avon’s FCPA scrutiny – the company is still spending approximately $110,000 per working day on its FCPA issues. (See this prior post concerning Wal-Mart’s pre-enforcement action professional fees and expenses and asking “does it really need to cost this much?”).
International Philanthropy
FCPA material pops up in a variety of places. Such as this article in www.wealthmanagement.com concerning the perils of global giving. With two FCPA enforcement actions (Schering-Plough and Eli Lilly) based, in whole or in part, on donations made to a Polish castle foundation and with Wynn Resorts under FCPA scrutiny for a donation to the University of Macau (see here), FCPA scrutiny based on international charitable giving is no mere hypothetical.
Scrutiny Alerts
Scrutiny alerts concerning IBM, ADM, Total, and ENRC.
IBM
This recent post highlighted a ProPublica report regarding the relationship between various tech companies including H-P, IBM and Oracle with a ”senior technology officer for Poland’s national police and, later, the nation’s Interior Ministry, [who] set the terms for hundreds of millions of dollars in technology contracts and decided which ones should be awarded without competitive bidding.”
In a recent quarterly filing, IBM disclosed as follows.
“In early 2012, IBM notified the SEC of an investigation by the Polish Central Anti-Corruption Bureau involving allegations of illegal activity by a former IBM Poland employee in connection with sales to the Polish government. IBM is cooperating with the SEC and Polish authorities in this matter. In April 2013, IBM learned that the U.S. Department of Justice (DOJ) is also investigating allegations related to the Poland matter, as well as allegations relating to transactions in Argentina, Bangladesh and Ukraine. The DOJ is also seeking information regarding the company’s global FCPA compliance program and its public sector business. The company is cooperating with the DOJ in this matter.”
In 2011, IBM resolved an FCPA enforcement action concerning alleged conduct in South Korea and China. (See here). The settlement is still pending the approval of Judge Richard Leon (D.D.C.). In 2000, IBM resolved an FCPA enforcement action concerning alleged conduct in Argentina. (See here).
ADM
Archer Daniels Midland Company recently stated as follows in this release.
“ADM is 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, and expects a resolution sometime this year. Based upon recent discussions, ADM believes it is appropriate to establish a provision of $25 million ($0.04 per share) to cover the potential assessments that may be imposed by these government agencies.”
Total
France-based Total recently stated as follows (here) concerning its long-running FCPA scrutiny concerning business conduct in Iran.
“In 2003, the United States Securities and Exchange Commission (SEC) followed by the Department of Justice (DoJ) issued a formal order directing an investigation in connection with the pursuit of business in Iran by certain oil companies including, among others, TOTAL. The inquiry concerns an agreement concluded by the Company with consultants concerning gas fields in Iran and aims to verify whether certain payments made under this agreement would have benefited Iranian officials in violation of the Foreign Corrupt Practices Act (FCPA) and the Company’s accounting obligations. The Company fully cooperates with these investigations. Since 2010, the Company has been in discussions with U.S. authorities (DoJ and SEC) to consider, as it is often the case in these kinds of proceedings, an out-of-court settlement, which would terminate the investigation in exchange for TOTAL respecting a number of obligations, including the payment of a fine and civil compensation, without admission of guilt. U.S. authorities have proposed draft agreements that could be accepted by TOTAL. Consequently, and although discussions have not yet been finalized, a provision of $398 million, unchanged since its booking as of June 30, 2012 and reflecting the best estimate of potential costs associated with the resolution of these proceedings, remains booked in the Group’s consolidated financial statements as of March 31, 2013. In this same affair, TOTAL and its Chief Executive Officer, President of the Middle East at the time of the facts, have been placed under formal investigation, following a judicial inquiry initiated in France in 2006. At this point, the Company considers that the resolution of these cases is not expected to have a significant impact on the Group’s financial situation or consequences on its future planned operations.”
A $398 million FCPA enforcement action would be the third-highest of all-time.
ENRC
Last week the U.K. Serious Fraud Office announced here as follows.
“The Director of the SFO has accepted [Eurasian Natural Resources Corp.] ENRC Plc. for criminal investigation. The focus of the investigation will be allegations of fraud, bribery and corruption relating to the activities of the company or its subsidiaries in Kazakhstan and Africa.”
In a statement, the U.K. company, stated as follows.
“The Board of Directors (the ‘Board’) of Eurasian Natural Resources Corporation PLC (‘ENRC’ or, together with its subsidiaries, the ‘Group’) today notes that the SFO has moved to a formal investigation. ENRC confirms that it is assisting and cooperating fully with the SFO. ENRC is committed to a full and transparent investigation of its procedures and conduct.
ENRC has ADRs listed with the SEC and thus could also be subject to the FCPA.
This recent article in the Wall Street Journal states as follows.
“U.K.-listed Eurasian Natural Resources Corp. PLC said … allegations of wrongdoing over minerals sales conducted through a Russian network of agents were thoroughly investigated and dismissed” in 2007.
Reading Stack
Tom Fox (FCPA Compliance and Ethics Blog) has penned a new book – “Best Practices Under the FCPA and Bribery Act: How to Create a First Class Compliance Program.” I was pleased to contribute the foreword to the book and noted that Tom’s “use of real events as learning devices to demonstrate compliance best practices make [the] book an engaging and informative read.”
Inside the NY Times Wal-Mart investigation (here) from the perspective of the Mexican journalist who assisted in the investigative reporting.
Friday Roundup
Some light reading to ease you into your holiday weekend. A News Corp. checkup, ADM’s delayed disclosure, and some news from Canada … it’s all here in the Friday roundup.
News Corp. Checkup
As detailed in this Reuter’s piece by Mark Hosenball and Georgina Prodhan, the News Corp. internal investigation is proceeding as one might suspect. According to the article, the firm leading the investigation is “looking for anything that U.S. government investigators might be able to construe as evidence the company violated American law, particularly the Foreign Corrupt Practices Act …”. Lawyers are combing through e-mails and financial records and journalists at other News Corp. U.K. newspapers reportedly have been or will be interviewed as part of the investigation.”
To learn more about News Corp.’s potential FCPA exposure – see this prior post.
ADM’s Delayed Disclosure
From a disclosure perspective, issuers handle FCPA inquiries and investigations across a wide spectrum. Some disclose the existence of a potential issue or inquiry at the first available opportunity and some never disclose the inquiry and it is not publicly known until the actual enforcement action.
Archer Daniels Midland Company (ADM) choose a middle option, a delayed (much delayed) disclosure. Here is what ADM said its most recent annual report filed on August 25th.
“Since August 2008, the Company has been conducting an internal review of its policies, procedures and internal controls pertaining to the adequacy of its anti-corruption compliance program and of certain transactions conducted by the Company and its affiliates and joint ventures, primarily relating to grain and feed exports, that may have violated company policies, the U.S. Foreign Corrupt Practices Act, and other U.S. and foreign laws. The Company initially disclosed this review to the U.S. Department of Justice, the Securities and Exchange Commission, and certain foreign regulators in March 2009 and has subsequently provided periodic updates to the agencies. The Company engaged outside counsel and other advisors to assist in the review of these matters and has implemented, and is continuing to implement, appropriate remedial measures.”
Canada News
This March 2010 post detailed NGO requests for Canadian authorities to investigate Blackfire Exploration (a privately owned Canadian exploration and mining company headquartered in Calgary) given allegations of payments to a Mexican mayor. Update. Canadian authorities recently raided the company’s offices and alleged in an affidavit “that the company funnelled bribes into the personal bank account” of the Mayor “to ensure protection from anti-mining protestors.” So reports Greg McArthur in this piece from The Globe and Mail.
Staying up north, this recent post highlighted the Niko Resources enforcement action. For a dandy read about the facts and circumstances leading to the enforcement action, as well as Canada’s historical efforts in enforcing its “FCPA-like” law – see here from McArthur as well.
*****
A good weekend to all.