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Observations From The OECD’s Phase 4 U.S. Review Report

By on November 19, 2020 in Affirmative Defense – Promotional Expenses, Deferred Prosecution Agreements, Disgorgement, Enforcement Agency Policy, Facilitating Payments, FCPA Statistics, Individual Enforcement Action, Industry Sweeps, Kokesh, Non-Prosecution Agreement, Obtain or Retain Business, OECD, Origins of FCPA Actions, Statute of Limitations, Voluntary Disclosure, Whistleblowers, Yates Memo
oecd

Recently, the OECD released its Phase 4 review of the United State’s implementation of the OECD Anti-Bribery Convention … in effect a review of the FCPA, its enforcement, and related issues.

The first question one needs to ask themselves is whether they care what “experts from Argentina and the United Kingdom” (as stated by the OECD “the report and its recommendations reflect the findings of experts from Argentina and the United Kingdom”) think about the U.S. Foreign Corrupt Practices Act, U.S. law enforcement (DOJ and SEC) policies and practices, and U.S. jurisprudence.

In any event, the Phase 4 Report “explores issues such as detection, enforcement, corporate liability, and international cooperation, as well as covering unresolved issues from prior reports.” (See here for a 2010 post summarizing the OECD’s Phase 3 review).

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When It Comes To Employee FCPA Training, Companies Should Consider Omitting Reference To The FCPA’s Facilitating Payments Exception And Affirmative Defenses

By on June 19, 2014 in Affirmative Defense – Local Law, Affirmative Defense – Promotional Expenses, Compliance, Facilitating Payments

Employee FCPA training is obviously an essential component of an effective Foreign Corrupt Practices Act compliance program. Yet when it comes to employee training, companies should consider omitting reference to the FCPA’s facilitating payments exception and affirmative defenses.

You may be asking in your best Gary Coleman impersonation “whatcha talkin bout.”

What I am talking about begins with a parenting analogy.  Would a parent best achieve compliance with the command “clean your room” if the parent spent much time telling a child why they should clean their room, but then ended the conversation by telling the child various “outs” not to clean their room?

Of course not, and the same logic applies to rank-and-file employee FCPA training.

By including the FCPA’s facilitating payments exception and the FCPA’s affirmative defenses (the local law affirmative defense and the reasonable and bona fide expenditures affirmative defense) in employee training, companies are providing employees with concepts and words of art that employees can use to justify their conduct – conduct that could expose the company to FCPA scrutiny and enforcement based on enforcement agency theories.

By training rank-and-file employees on the FCPA’s facilitating payments exception – and its guiding principle of “routine government action” – companies are inviting employees to make discretionary, subjective calls as to what “routine government action” is.

By training rank-and-file employees on the FCPA’s local law affirmative defense, companies are inviting employees to justify their conduct if the conduct is accepted or condoned in a foreign country (even though the local law affirmative defense only applies to conduct lawful under the written laws and regulations of a foreign country).

By training rank-and-file employees on the FCPA’s reasonable and bona fide expenditures affirmative defense companies are inviting employees to make discretionary, subjective calls as to what “reasonable’ and “bona fide” mean as well as whether such an expense is “directly related” to business purposes specifically set forth in the affirmative defense.

A company with best-in-class FCPA compliance policies and procedures does not want rank-and-file employees making these discretionary, subjective calls in the global marketplace.

The point of employee FCPA training is to provide employees with “FCPA goggles” so that they can spot FCPA risk and report it to designated experts in the company to allow the experts to decide issues that could potentially implicate the FCPA’s facilitating payment exception and/or the FCPA’s affirmative defenses.

Many FCPA training courses in the marketplace contain discussion of the FCPA’s facilitating payments exception and affirmative defenses in rank-and-file employee training and thereby actually increase the company’s overall risk exposure.

The Global Anti-Bribery Course I have developed in partnership with Emtrain takes a different approach and best assists companies in reducing their overall risk exposure by omitting reference to the FCPA’s facilitating payments exception and affirmative defenses in rank-and-file employee training.  (Such concepts are – as is appropriate – included in the executive / manager version of the course).

To learn more about the course, see here.

To read what others are saying about the course, see here.

Can We Make The Expenditure In The First Place? Practical Advice For Navigating Gift, Travel And Entertainment Issues

By on May 22, 2013 in Affirmative Defense – Promotional Expenses, Guest Posts, Travel and Entertainment

Today’s post is from Brian Chilton (DLA Piper LLP (US)).

*****

I first had the pleasure of meeting Professor Koehler in 2002, a time when, to paraphrase TRACE’s Alexandra Wrage, the legal world was still learning to spell F-C-P-A. Mike was a hard-working young associate already keenly (and presciently) interested in the statute’s nuances, and he was helping me wade through the bowels of a company’s documents detailing travel, meals, gifts and entertainment involving foreign officials after the company was “invited” to do so by the DOJ/SEC.

As the readers of Mike’s blog know all too well, FCPA awareness and enforcement has exploded since 2002, but one thing remains the same: gifts, meals, entertainment and travel remain the part of the statute that companies still find the most vexing in terms of day-to-day compliance. Rarely a day goes by that I don’t receive a call or email from a client with a question in this area.

The number and results of enforcement actions focusing exclusively on this area might lead a casual observer to conclude a gift/travel/entertainment mistake is unlikely to result in a serious penalty. But those practicing in the area know that a disproportionate number of enforcement matters ultimately resulting in a high penalty for bribes unrelated to gifts/meals/travel/entertainment had their genesis in marketing/promotion expenses that soon turned out to be the “tip of the iceberg” revealing more extensive and substantial corruption. Companies who focus on keeping a clean FCPA house in the gifts/meals/entertainment/travel part of the statute stand a better chance of keeping big problems from occurring elsewhere among the statute’s danger zones, both because it sends a strong “tone from the top” and because it keeps small problems from going undetected until they’ve morphed into big ones.

Advising companies to “keep a clean house” and accomplishing that are, of course, two entirely different matters. Companies, and particularly their business people on the front lines, understandably find the FCPA’s statutory language in this area quite frustrating, where the statutory language provides an affirmative defense to prosecution under the FCPA’s anti-bribery provisions if the thing of value otherwise given to the foreign official is (1) reasonable, (2) bona fide, and (3) directly related to the promotion, demonstration, or explanation of (4) the payer’s products or services. Congress purposefully left the key terms broad and undefined, providing a high degree of flexibility, but with a commensurate degree of uncertainty. Business people struggling with what’s lawful and what’s not feel like they’ve been given guidance that’s no more helpful than the famous admonition given by Justice Potter Stewart in the context of discerning nudity that loses the protection of the First Amendment: “I know it when I see it.”

The recent DOJ/SEC Guidance devotes all of one page (p.24) to the subject, helpfully pointing out, “Whether any particular payment is a bona fide expen­diture necessarily requires a fact-specific analysis.” At the risk of vast understatement, the business community was hoping for more.

Nevertheless, the Guidance does offer “non-exhaustive list of safeguards, compiled from several DOJ Opinion releases that is better than nothing:

• Do not select the particular officials who will participate in the party’s proposed trip or program, or else select them based on pre-determined, merit based criteria;

• Pay all costs directly to travel and lodging vendors and/or reimburse costs only upon presentation of a receipt;

• Do not advance funds or pay for reimbursements in cash;

• Ensure that any stipends are reasonable approximations of costs likely to be incurred and/or that expenses are limited to those that are necessary and reasonable;

• Ensure the expenditures are transparent, both within the company and to the foreign government;

• Do not condition payment of expenses on any action by the foreign official;

• Obtain written confirmation that payment of the expenses is not contrary to local law;

• Provide no additional compensation, stipends, or spending money beyond what is necessary to pay for actual expenses incurred;

• Ensure that costs and expenses on behalf of the foreign officials will be accurately recorded in the company’s books and records.

Those are all good procedures to follow for planning meals/gifts/entertainment/travel after a decision to engage in such has been made, but what the Guidance largely ignores, and what businesses most want help with, is more fundamental than the “how.” It is, “Can we make the expenditure in the first place?” Here I offer some additional practical guidance built up through many years and many questions in this area.

Compliance for promotional and marketing expenses should conceptually focus on three fundamental questions.  The most important is to determine whether the expenditure is “bona fide” or “corrupt.”  This requires that the business purpose of the expenditure be carefully defined.  In other words, ask, “What products or services does the Company wish to promote, demonstrate, or explain?” As the DOJ/SEC Guidance alludes to, the more the item leans in the direction of “fun,” and away from “business,” the more likely it is to be perceived by DOJ/SEC as not bona fide.

On the “bona fide” question, it turns out that Justice Stewart’s formulation is not so bad after all. Anyone who has been around the business world long enough should have sufficient instincts to “know it when they see it” in terms of an expenditure that appears to be intended to ingratiate the company with the foreign official versus one that is hospitably polite, but not so nice as to overwhelm the business purpose. Here I like to advise my clients to apply what I call “The Spouse Eye-Roll Test.” We all have those business occasions where decorum requires us to include our spouse in an event, and, when we finally get around to inviting them, they react with the expected eye roll and an exasperated “Do I really have to go again this year?” You know your gift/meal/entertainment/travel has veered into the “too nice” realm if you can imagine your spouse, upon being given/invited to what you’re planning for the official, instead breaking into a big smile and saying, “Wow! That sounds great!”

The next step is to make sure that expenditures are directly related to the defined business purpose, rather than being only indirectly or tangentially related to the business purpose.  In other words, ask, “Is the expenditure necessary to promote, demonstrate, or explain the product or service at the core of the defined business purpose?”  The more the expenditure, both in terms of time and resources, is slanted in the direction of fun, so that the fun aspect begins to overwhelm the business aspect, the more likely it is that the expenditure is only indirectly promoting the Company’s goods and services. Similarly, expenditures related to “good will” or “team building” or “establishing the relationship” with foreign officials are almost always indirect rather than direct. Thus, the next time a marketing person says, “We need to give the gift/have the meal/pay for the trip to establish good will with this official,” your compliance radar should be going off BING BING BING BING BING.

The final question to ask is, “Is the amount of the expenditure reasonable?”  The reasonableness of the expenditure is contextual fact specific, so that there are no broad general rules that can be defined in advance in order to ensure compliance.  Nevertheless, appropriate areas to look in order to measure reasonableness include:  (1) prevailing market rates for similar expenditures; (2) the amount of the expenditure versus the government official’s salary or receipt of similar benefits from his or her own government; (3) activity of the Company’s U.S.-regulated competitors when entertaining similar foreign government officials in a similar context; (4) custom both locally and within the particular industry; and (5) a company’s own reimbursement guidelines for its own people at a similar peer level to the official when traveling/eating on the company dime. Company reimbursement allowances tend to be highly frugal and business oriented so that using that as the expected baseline for expenditures involving government officials is a very good analytical starting point.

Finally, I do have one procedural “how” to add to the DOJ/SEC’s list that is probably the single best thing a company can do to avoid a violation in this area: BEGIN PLANNING EARLY. Given the statute’s breadth and flexibility in this area, if planning for a particular gift/meal/entertainment/travel expenditure begins early enough, and legal compliance is part of that early planning, an appropriate plan satisfying both the legal and business goals can almost always be constructed  (the exception is those rare cases where the government official involved is truly and implacably corrupt).

Where most violations occur, despite a company’s otherwise good track record and intentions, is where the business person in Farawayistan plans the trip and calls the compliance counsel for approval only after the government official is already flying toward Company HQ while seated comfortably in First Class. When companies call me to review their plans, I usually have to tweak some minor aspect of the plan (“Well, maybe the side trip to Disney World is not such a great idea . . . .”), but so long as they consult me before invitations are issued and itineraries decided, I’ve never had to say, “No, you can’t do that.”

My thanks to the Professor for asking me to sit in for him while he and his family take a well-deserved vacation. I hope I’ve offered some additional practical advice in this area, though I know the readers are all looking forward to your return. Hook a few northern pike for us, Mike! (But make sure your fishing license is in order so that we don’t end up with an embarrassing incident involving things of value and government officials, especially if you stray too far north into those foreign, Canadian waters . . . . )

*****

Brian Chilton has been practicing in the area of anti-corruption, including as a former federal prosecutor, for over 20 years. His first novel in a three novel series, Issachar’s Heirs (White Feather Press, LLC), is due to be released around August 2013.

Amendments To Simplify The FCPA For U.S. Businesses

By on September 24, 2012 in Affirmative Defense – Local Law, Affirmative Defense – Promotional Expenses, Compliance Defense, Facilitating Payments, FCPA Reform, Guest Posts, Parent – Subsidiary Issues

Foreign Corrupt Practices Act reform may be in sleep mode at the moment, but this has not stopped (nor should it) forward-thinking individuals from contemplating FCPA reform.

Case in point, Stephen Clayton, with today’s guest post.  Clayton is currently an attorney in private practice specializing in FCPA services.  Previously, he was an in-house counsel, including for Sun Microsystems.  At Sun, he responsible for all legal work in East and South Asia, Latin America, Australia/New Zealand and Canada, and then became Senior Director, Anti-Corruption Compliance, responsible for Sun’s global FCPA compliance.  Sun was acquired by Oracle in early 2010 at which point Clayton established his private practice.  Clayton also teaches an FCPA-related course for Golden Gate University’s School of Accounting.

*****

Amendments to Simplify the FCPA for US Businesses

Proposals for and against amending the FCPA have been percolating in Congress for the past 2 years. The U.S. Chamber of Commerce took a lead role, advocating that substantial changes are needed to promote international business by U.S. companies. Other groups, including the Open Society Foundations, have opposed any revisions that they say would weaken the FCPA or impede enforcement.   The amendments that would provide the most help US business people have not been proposed by any of the parties lobbying Congress.

Bribery is still very common in international business and US companies are harmed by it every day. Congress should consider common sense changes to the 35-year-old FCPA that would make the law less confusing and more in tune with anti-corruption compliance practices in 2012.  If changes are to be made to the FCPA, they should enable good companies and ethical business people understand and follow the law. It is easier for business people to comply with a clearly worded, strict law than try to deal with a complicated, confusingly worded law that has to be filtered through layers of lawyers. The proposals by the Chamber and its opponents retained all of the complexity and confusion in the current law, so in the end would not benefit business.

There are six changes would substantially reduce the confusion business people and in house lawyers have about the FCPA and thereby enable them to do international business with a clear understanding of their legal risks and implement effective compliance programs.

1. Eliminate the Exception for Facilitating Payments.

This exception creates the illusion that minor bribery of employees of foreign governments can be “legal.” Å corporate policy allowing employees to pay any bribes is morally indefensible. Even if corporate management believes small bribes are a necessary practice, it is extremely difficult to determine which bribes Congress considers “legal.” The facilitating payments exception is offensive to normal US ethical standards for corporate governance. The majority of companies that examine facilitating payments prohibit their employee and agents from paying them.  Congress should eliminate the exception.

2. Eliminate the affirmative defense for bribes that are “lawful under the written law or regulation of the country.”

Countries do not have written laws that permit conduct that is illegal under the FCPA. But business people and non-specialist lawyers see this language in the statute and think it must have some meaning. Here again they are forced to guess which types of bribes Congress considers to be “legal.” What difference does it make to good corporate governance if a country rigs its laws to allow bribery of members of its royal family or specific government employees? It is still bribery and clean, ethical US companies would lose business to the bribe payers. This affirmative defense is essentially meaningless and confusing and there is no reason for it to remain in the law.

3. Add provisions to the FCPA making commercial (private) corruption a federal crime.

The most glaring flaw of the FCPA is that it makes it a crime to bribe only certain people, i.e. “foreign officials” including employees of “instrumentalities” of foreign governments. By making that distinction, Congress created the impression that US companies can legally pay bribes to all other people. The FCPA as it is now written causes companies and their lawyers to spend an extraordinary amount of time trying to determine if corrupt payments made on their behalf are legal or illegal. This is the most confusing aspect of the FCPA and puts company management in an ethical conundrum. Amending the FCPA to criminalize all bribery of anyone in international business will end the confusion. In international business in the 21st century, it should not matter if the recipient of a bribe is a government official or works for an instrumentality of a government or is an employee or officer of a commercial company.

4. Add a U.K. style strict liability crime of failure to prevent bribery to the FCPA and a corresponding affirmative defense for proving an adequate compliance program.

The U.K. Bribery Act of July 2011 contains a new crime that does not exist in the FCPA: Failure by a Business Organization to Prevent Bribery. It’s a strict liability crime – if bribery of anyone occurred in a company’s business, the company has violated this law. To balance strict liability, the UKBA includes an affirmative defense. If the company whose employees paid bribes can prove it had in place adequate processes to prevent bribery before the bribery occurred, it may avoid liability for this specific crime.

Congress should consider amending the FCPA to incorporate this U.K. legal innovation that makes it easy for company management to understand that all bribery by employees and agents is a crime.

5. Amend the FCPA to clarify that a parent company is responsible for the violations of its subsidiaries.  

Executives of US companies create, manage and are responsible for their company’s foreign subsidiaries. US management hires the subsidiary’s managers and gives them their instructions and goals. Subsidiaries exist to generate profits and provide business advantages to the parent company. U.S. law should be unambiguous on the point that subsidiaries and their employees cannot be a convenient and easily manipulated shield from criminal liability for bribery.

Limiting a company’s liability for the FCPA violations of its subsidiaries adds to the list of gray areas that perpetuate the argument that Congress intended that only certain types bribes of certain people are illegal. Congress can remove uncertainty by amending the FCPA so it is impossible to doubt that a parent company is always responsible for the bribery, corruption and false records of any of its subsidiaries.  This is the kind of clear legal guidance US companies need.

6. Widen the scope of the FCPA’s “reasonable and bona fide expenditures” affirmative defense.

Companies should be able to engage normal sales and marketing operations and be confident this will not violate the law.  Congress needs to promote legitimate, properly documented business practices. The current affirmative defense is poorly worded and unnecessarily restrictive. It limits bona fide business expenditures to those “directly related to the promotion, demonstration or explanation of products or services; or the execution or performance of a contract…” That limitation is not necessary and is confusing to business people.

Conclusion:

These six amendments would make it easier for corporate management and in house lawyers to understand what is prohibited by the FCPA and significantly improve their ability to develop reasonable compliance programs. Many major companies already have policies that prohibit facilitation payments, make commercial (private) bribery by their employees and agents a terminable offense and apply their FCPA compliance program to all their subsidiaries. Congress should follow this leadership by business and bring the FCPA into the 21st century.  Congress should not enact a slate of amendments that only serve to perpetuate the most obvious flaw in the FCPA – that it prohibits only certain (poorly defined) bribery of certain (poorly defined) people and therefore permits all other bribery.  Amendments that merely play with the definitions of who can be bribed in what manner will not help US companies. All bribery in international business harms US companies and must be clearly illegal.

Wynn – Okada And Offensive Use Of The FCPA

By on February 29, 2012 in Affirmative Defense – Promotional Expenses, Gaming Industry, Kazuo Okada, Las Vegas Sands, Offensive Use of FCPA, Philippines, South Korea, Travel and Entertainment, Wynn Resorts

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

But then again, rarely does one hear of a corporate board member accusing the company of conduct that could implicate the FCPA, which then causes the SEC to open an inquiry, which then results in the company accusing the board member of separate and distinct conduct that could implicate the FCPA.

This post discusses Wynn’s internal investigation report that accuses Kazuo Okada (a member of its board) of prima facie FCPA violations.  For previous posts on the Wynn-Okada dispute, see here and here.  The Wynn internal investigation report (here) discusses a number of issues (such as breach of fiduciary duty, issues under Nevada gaming laws and issues under Philippine law), but this post will focus on the FCPA issues in the report authored Louis Freeh (former Director of the FBI) of Freeh, Sporkin & Sullivan LLP.

In summary, the Freeh Report states as follows.  “Mr. Okada, his associates and companies appear to have engaged in a longstanding practice of making payments and gifts to his two (2) chief gaming regulators at the Philippines Amusement and Gaming Corporation (“PAGCOR”), who directly oversee and regulate Mr. Okada’s Provisional Licensing Agreement to operate in that country.  Since 2008, Mr. Okada and his associates have made multiple payments to and on behalf of these chief regulators, former PAGCOR Chairman Efraim Genuino and Chairman Cristino Naguiat (his current chief regulator), their families and PAGCOR associates, in an amount exceeding $110,000.”  The report categorizes this conduct as “prima facie violations” of the FCPA.

Because jurisdiction will clearly be an issue in any potential FCPA enforcement action against Okada (a Japanese national currently serving as Director and Chairman of the Board of Universal Entertainment Corporation, a Japanese company), the Freeh Report sensibly begins with a jurisdictional analysis.

According to the report, Aruze USA Inc. (“Aruze USA”) is a wholly-owned subsidiary of Universal incorporated in Nevada and Okada is a Director of Aruze USA and serves as its President, Secretary, and Treasurer.  In addition, the report states that Okada also currently serves as a Director, Secretary, and Treasurer of Aruze Gaming America, Inc. (“Aruze Gaming”), a U.S. company.

Thus, based on the information in the Freeh report, depending upon which “hat” Okada wears at any given time, he is, in the language of the FCPA, a “domestic concern” or “any person other than an issuer or a domestic concern.”  The Freeh Report covers both bases and correctly notes that FCPA violations can be committed by a “domestic concern” regardless of any U.S. nexus (this was part of the FCPA’s 1998 amendments), but that FCPA violations can be committed by “any person” only if the “while in the territory of the U.S.” jurisdictional test is met.  If Okada is merely “any person” under the FCPA, the Freeh Report states that “means or instrumentalties of interstate commerce” were used by Okada.  Specifically, the Freeh Report states that many of Okada payments at issue passed through the accounts (either the Universal City Ledger Account or the Aruze City Ledger Account) “maintained at the corporate offices of Wynn Resorts, Limited in Las Vegas, Nevada where periodic deposits are made from Universal into the Wynn Resorts, Limited operating account at Bank of America in Las Vegas, Nevada.”

Back to the Freeh Report’s discussion of Philippine PAGCOR Officials at Wynn Resort properties.  The report highlights 36 “separate instances, from May 2008 through June 2011 when Mr. Okada, his associates and companies made payments exceeding $110,000 which directly benefited senior PAGCOR officials, including two chairman and their family members.”  For starters, 35 of the 36 instances involve charges to the Aruze City Ledger account in amounts ranging from $253 to $5,380 for stays (generally multi-night stays) at the Wynn Macau or Wynn Las Vegas.  As separately discussed below, the one instance that sticks out is the September 2010 stay of various PAGCOR officials at the Wynn Macau for which approximately $50,000 was charged to the Aruze City Ledger.

The Freeh Report terms all of these instances “prima facie” FCPA violations, a term presumably chosen carefully because as every first-year law student knows “prima facie” means on first appearance, on the face of it, a fact presumed to be true unless disproved by some evidence to the contrary.

It is here that the Freeh Report is shockingly deficient as it does not contain any discussion of the FCPA’s affirmative defense for payments, gifts, etc. that are a “reasonable and bona fide expenditure, such as travel and lodging expenses, incurred by or on behalf of a foreign official … directly related to (a) the promotion, demonstration, or explanation of products or services; or (b) the execution or performance of a contract with a foreign government or agency thereof.”  The Freeh Report notes, yet disagrees with, Okada’s assertion that “all his efforts in the Philippines prior to the change of presidential administration in the summer of 2010 were undertaken on behalf of and for the benefit of Steve Wynn and Wynn Resorts.”  Summer 2010 is obviously a vague term, but Okada’s assertion could be relevant to 23 of the 36 instances detailed in the Freeh Report.

The one instance identified in the Freeh Report that sticks out is approximately $50,000 charged to the Aruze City Ledger in September 2010 for a five day stay at the Wynn Macau by “then and current PAGCOR Chairman and CEO Cristino L. Naguiat, Jr., his wife, three children, nanny and other PAGCOR officials.”  The Freeh Report devotes five pages to this visit and states, among other things, that Chairman Naguiat occupied Villa 81 (the most expensive accommodation at Wynn Macau – a room that costs approximately $6,000 per day and is mostly reserved for “high-rollers”).  Even if Chairman Naguiat and his delegation visited the resort, in whole or in part, for a business purpose it is unlikely that such expenses would be viewed as “reasonable and bona fide” and directly related to a business purpose – even if the Freeh Report does note that some of the charges may have been reimbursed by Chairman Naguiat’s delegation.

In addition, the Freeh Report says that “Mr. Okada, his associates and companies” made “similar payments to a Korean government official who oversees Mr. Okada’s initial gaming investment in that country.”  The report notes that Okada was pursuing development of a resort complex in the Incheon Free Economic Zone and the report notes six instances in which “possible Korean government officials” stayed at Wynn properties.  Total charges to the Aruze City Account were $5,945 and ranged from $507 to $1,597.  The Freeh Report states that “these payments made for or on behalf of possible Korean government officials may be part of a continuing pattern by Mr. Okada and his associates to commit prima facie violations of the FCPA.”

Finally, the Freeh Report also states that “Universal paid expenses related to then-PAGCOR Chairman Genuino’s trip to Beijing during the 2008 Olympics.

Have there been FCPA enforcement actions focused on excessive and travel entertainment expenses paid to “foreign officials”?  The answer is yes.  In 2007, Lucent Technologies resolved related DOJ and SEC enforcement actions (see here and here) focused on hundreds of trips for Chinese “foreign officials” that included primarily sightseeing, entertainment and leisure.  According to the allegations in that enforcement action, Chinese “foreign officials” were treated to trips to Boston, Las Vegas, the Grand Canyon and Hawaii “for strictly entertainment, travel and leisure purposes.”  In 2009 UTStarcom resolved related DOJ and SEC enforcement actions (see here for the prior post) focused on hundreds of trips for Chinese “foreign officials” that likewise were to places such as Hawaii, Las Vegas, and New York.

However, in pointing numerous FCPA fingers at Okada, even the Freeh Report points a few fingers back at Wynn.  For instance, as to the accounts Okada allegedly used to make the improper payments the report states as follows.

“As a Director of Wynn Resorts, Mr. Okada is entitled to receive the courtesy of what is called a “City Ledger Account.”  Such accounts were originally instituted as a result of Sarbanes Oxley’s prohibition of extensions of credit, in the form of a personal loan from an issuer to an officer or director.  The accounts were funded by deposits from the director or his company.  Such an account exists for billing conveniences related to charges incurred at various Wynn Resorts locales.  Mr. Okada has availed himself of this courtesy and established such a City Ledger Account.  Within Wynn Resorts, this Okada City Ledger Account is referred to either as the “Universal City Ledger Account” or as the “Aruze City Ledger Account.””

Elsewhere, the Freeh Report states that funds in connection with the problematic September 2010 visit were “advanced from the Wynn Macau” to a representative of Aruze USA.

In other words, while accusing Okada of committing “prima facie” FCPA violations through his use of the accounts, including the September 2010 visit, the Freeh Report acknowledges that the accounts were provided to him by Wynn as a courtesy for billing conveniences related to charges incurred at various Wynn Resort locales and that portions of the money used in connection with the problematic September 2010 visit were advanced from the Wynn Macau.

The Freeh Report puts the DOJ (and perhaps even the SEC given Okada’s membership on the Wynn Board) in a difficult position.  How can the agencies not investigate the conduct at issue when the former Director of the FBI is terming the conduct “prima facie” FCPA violations.  An analogy would be like calling the fire department to inform that your house is on the fire, but the fire department fails to show up.  Based on media reports, it appears that the agencies are indeed in active investigation mode.  According to a Feb. 24th article in the Financial Times (“US Probes Wynn Resorts’ Allegations), “the US Securities and Exchange Commission’s investigation is looking into allegations that Mr Okada made at least $110,000 in unauthorised payments to two gaming officials in the Philippines” and last week “Wynn’s attorney, Debra Yang, a partner with Gibson Dunn &  Crutcher and former US attorney for the Los Angeles area, flew to Washington and met with criminal prosecutors at the Department of Justice.”

Does the Freeh Report and the FCPA allegations against Okada evidence offensive use of the FCPA to accomplish a business objective?  The FCPA allegations against Okada – a Wynn business rival – contributed to a finding that Okada was “unsuitable” under Nevada gaming regulations, which then facilitated Wynn’s purchase of Okada’s Wynn shares at a substantial discount.

Another way of asking the same question is as follows – if the Freeh report found the same exact conduct (i.e. 36 instances – 35 of which were very minor in scope, totaling $110,000 involving a person other than Okada) would Wynn have gone public with such “prima facie” FCPA violations through a voluntary disclosure?  I highly doubt it.

By publicly stating that Okada’s conduct (36 instances of lodging expenses and entertainment for “foreign officials” – 35 of which were very minor in scope) evidences “prima facie” FCPA violations, is Wynn opening itself up to greater scrutiny as to its own relationships with the “foreign officials” which regulate its businesses abroad?  Is Wynn supremely confident that someone associated with the company did not charge $253 to a corporate account for a “foreign official” to stay a night at one of its hotels?  Did Wynn leave a chocolate for the “foreign official” on his pillow or pay for a fancy dinner?

In a strange twist to the story, yesterday the Wall Street Journal reported that Wynn competitor Las Vegas Sands CEO Sheldon Adelson stated that “complimentary hotel rooms is a common practice in the gambling industry.”  Las Vegas Sands is already under FCPA scrutiny (see here for the prior post) and if that investigation was not already focused on travel and entertainment issues, you can bet it is headed in that direction.

I agree with Professor Peter Henning who writes the White Collar Crime Watch at the New York Times that Wynn’s accusations against Okada “open up a can of worms” (see here) and that Wynn’s accusations “means the Justice Department and the Securities and Exchange Commission will be scouring the company’s books for possible violations, a front that neither side can control” and that “by invoking the specter of overseas bribery, Wynn has effectively opened itself up to a wide-ranging federal investigation of its dealings in Macao and elsewhere.”

The question Wynn will have to ask itself as this presumably goes forward is whether it was worth using the unhinged FCPA enforcement theories defining this new era to oust a business rival?

As to the big, big picture, if the DOJ or SEC do bring an enforcement action against Okada (or Wynn) for the conduct described in the Freeh Report, are we prepared to confront the glaring double standard increasingly coming into focus during this new era of FCPA enforcement?  For more on the double standard and corporate benefits given to U.S. officials, see here, here, here, and here.

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