Friday Roundup
The U.K. SFO flexes its pre-Bribery Act muscle in criminally charging an Alstom subsidiary, other scrutiny alerts and updates, nominate, double standard, quotable, and for the reading stack. It’s all here in the Friday roundup.
Alstom
As has been widely reported (see here and here for instance), the U.K. Serious Fraud Office announced:
“Alstom Network UK Ltd, formerly called Alstom International Ltd, a UK subsidiary of Alstom, has been charged with three offences of corruption contrary to section 1 of the Prevention of Corruption Act 1906, as well as three offences of Conspiracy to Corrupt contrary to section 1 of the Criminal Law Act 1977. The alleged offences are said to have taken place between 1 June 2000 and 30 November 2006 and concern large transport projects in India, Poland and Tunisia.”
According to the release, “the SFO investigation commenced as a result of information provided to the SFO by the Office of the Attorney General in Switzerland concerning the Alstom Group, in particular Alstom Network UK Ltd.”
I inquired with the SFO press office regarding any original source charging documents and was informed as follows. “Beyond our press release today, the nearest date for documents likely to be made available would be the charge sheet at the first court hearing – presently arranged for 9 September, at Westminster Magistrates’ Court.”
As readers likely know, since April 2013 the DOJ has charged four individuals associated with Alstom Power Inc., a subsidiary of Alstom, in connection with an alleged bribery scheme involving the Tarahan coal-fired steam power plant project in Indonesia. (See more below for a recent guilty plea).
As was the case in the U.S. – U.K. enforcement action against BAE (see here for the prior post) there may have been and/or currently is turf war issues between the agencies as to which agency is going to prosecute alleged conduct occurring in various countries.
Speaking of the DOJ action against various individuals associated with Alstom Power, last week, the DOJ announced that William Pomponi, a former vice president of regional sales at Alstom Power, pleaded guilty to a criminal information charging him with conspiracy to violate the FCPA in connection with the awarding of the Tarahan power project in Indonesia.
Assistant Attorney General Leslie R. Caldwell stated:
“The Criminal Division of the Department of Justice will follow evidence of corruption wherever it leads, including into corporate boardrooms and corner offices. As this case demonstrates, we will hold both companies and their executives responsible for criminal conduct.”
As noted in the DOJ release:
“Pomponi is the fourth defendant to plead guilty to charges stemming from this investigation. Frederic Pierucci, the vice president of global boiler sales at Alstom, pleaded guilty on July 29, 2013, to one count of conspiracy to violate the FCPA and one count of violating the FCPA; and, David Rothschild, a former vice president of regional sales at Alstom Power Inc., pleaded guilty to conspiring to violate the FCPA on Nov. 2, 2012. Marubeni Corporation, Alstom’s consortium partner on the Tarahan project, pleaded guilty on March 19, 2014, to one count of conspiracy to violate the FCPA and seven counts of violating the FCPA, and was sentenced to pay a criminal fine of $88 million. FCPA and money laundering charges remain pending against Lawrence Hoskins, the former senior vice president for the Asia region for Alstom, and trial is scheduled for June 2, 2015.”
See here for the original post highlighting the enforcement action against the individuals associated with Alstom and here for the original post regarding the Marubeni enforcement action.
Scrutiny Alerts and Updates
SEC Enforcement Action Against Former Magyar Telekom Executives
From Law360:
“The SEC has slimmed down its FCPA case against three former Magyar Telekom PLC executives, dropping claims they bribed government officials in Montenegro, according to a new complaint … The amended complaint alleged former Magyar CEO Elek Straub and two other former executives, Andras Balogh and Tamas Morvai, authorized bribe payments to government officials in the Republic of Macedonia in exchange for regulations designed to hurt a competitor. The SEC, in its initial complaint in December 2011, had also alleged the defendants engaged in a second bribery scheme in Montenegro. The agency said in a July 14 court filing that it would “continue to pursue the same legal causes of action alleged in its original complaint,” but without the claims related to Montenegro. The SEC previously advised the court and defense attorneys in January 2014 of its intention to narrow the suit.”
Interesting, isn’t it, what happens when the SEC is put to its burden of proof.
Kowalewski Pleads Guilty
The DOJ announced:
“Bernd Kowalewski, the former President and CEO of BizJet, pleaded guilty … to conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and a substantive violation of the FCPA in connection with a scheme to pay bribes to officials in Mexico and Panama in exchange for those officials’ assistance in securing contracts for BizJet to perform aircraft maintenance, repair and overhaul services.”
Assistant Attorney General Leslie Caldwell stated:
“The former CEO of BizJet, Bernd Kowalewski, has become the third and most senior Bizjet executive to plead guilty to bribing officials in Mexico and Panama to get contracts for aircraft services. While Kowalewski and his fellow executives referred to the corrupt payments as ‘commissions’ and ‘incentives,’ they were bribes, plain and simple. Though he was living abroad when the charges were unsealed, the reach of the law extends beyond U.S. borders, resulting in Kowalewski’s arrest in Amsterdam and his appearance in court today in the United States. Today’s guilty plea is an example of our continued determination to hold corporate executives responsible for criminal wrongdoing whenever the evidence allows.”
U.S. Attorney Danny Williams (N.D. Okla.) stated:
“I commend the investigators and prosecutors who worked together across borders and jurisdictions to vigorously enforce the Foreign Corrupt Practices Act. Partnership is a necessity in all investigations. By forging and strengthening international partnerships to combat bribery, the Department of Justice is advancing its efforts to prevent crime and to protect citizens.”
See here and here for posts regarding the 2012 DOJ enforcement action against BizJet and here and here for the 2013 DOJ enforcement action against Kowalewski and others associated with BizJet.
Cilins Sentenced
As noted in this prior post, in April 2013 the DOJ announced (here) that “Frederic Cilins a French citizen, has been arrested and accused of attempting to obstruct an ongoing investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea.” The Criminal Complaint charged Cilins with one count of tampering with a witness, victim, or informant; one count of obstruction of a criminal investigation; and one count of destruction, alteration, and falsification of records in a federal investigation. Cilins was linked to Guernsey-based BSG Resources Ltd and in March 2014 the DOJ announced that Cilins pleaded guilty “to obstructing a federal criminal investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea.” (See this prior post).
Last week, the DOJ announced that Cilins was sentenced to 24 months in prison. In the DOJ release, U.S. Attorney Preet Bharara said:
“Frederic Cilins went to great lengths to thwart a Manhattan federal grand jury’s investigation into an alleged bribery scheme in the Republic of Guinea. In an effort to prevent the federal authorities from learning the truth, Cilins paid a witness for her silence and to destroy key documents. Today, Cilins learned that no one can manipulate justice.”
Assistant Attorney General Leslie Caldwell said:
“Cilins offered to bribe a witness in an FCPA investigation to stop the witness from talking to the FBI. Today’s sentence holds Cilins accountable for his effort to undermine the integrity of our justice system, and sends a message that those who interfere with federal investigations will be prosecuted and sent to prison.”
FBI Assistant Director-in-Charge George Venizelos said:
“Cilins obstructed the efforts of the FBI during the course of this investigation. His guilty plea and sentence demonstrate our shared commitment with the U.S. Attorney’s Office to hold accountable those who seek to interfere with the administration of justice. This case should be a reminder to all those who try to circumvent the efforts of a law enforcement investigation: the original crime and the cover-up both lend themselves to prosecution.”
According to the release, Cilins was also ordered to pay a fine of $75,000 and to forfeit $20,000.
GSK
From Reuters:
“GlaxoSmithKline faces new allegations of corruption, this time in Syria, where the drugmaker and its distributor have been accused of paying bribes to secure business, according to a whistleblower’s email reviewed by Reuters. Britain’s biggest drugmaker said on Thursday it was investigating the latest claims dating back to 2010, which were laid out in the email received by the company on July 18. The allegations relate to its former consumer healthcare operations in Syria, which were closed down in 2012 due to the worsening civil war in the country. […] GSK has been rocked by corruption allegations since last July, when Chinese authorities accused it of funneling up to 3 billion yuan ($480 million) to doctors and officials to encourage them to use its medicines. The former British boss of the drugmaker’s China business was accused in May of being behind those bribes. Since then, smaller-scale bribery claims have surfaced in other countries and GSK is now investigating possible staff misconduct in Poland, Iraq, Jordan and Lebanon. Syria is the sixth country to be added to the list. The allegations there center on the company’s consumer business, including its popular painkiller Panadol and oral care products. Although rules governing the promotion of non-prescription products are not as strict as for prescription medicines, the email from a person familiar with GSK’s Syrian operations said alleged bribes in the form of cash, speakers’ fees, trips and free samples were in breach of corruption laws. The detailed 5,000-word document, addressed to Chief Executive Andrew Witty and Judy Lewent, chair of GSK’s audit committee, said incentives were paid to doctors, dentists, pharmacists and government officials to win tenders and to obtain improper business advantages.”
Separately, this Reuters article states that the U.K. SFO “is working with authorities in China in a first for such Anglo-Chinese cooperation as it carries out its own investigation into alleged corruption at GSK.” The article quotes SFO Director David Green as follows: “Certainly, so far as I am aware it is the first time we have had cooperation with the Chinese on an SFO case.”
Separately, in the U.S. this Wall Street Journal article states:
“Federal Bureau of Investigation agents have been interviewing current and former GSK employees in connection with bribery allegations made against the drug maker in China, according to a person familiar with the matter, as fresh claims of corruption surfaced against Glaxo’s operations in Syria. The interviews have taken place in Washington, D.C., in the past few months and are part of a Justice Department investigation into GSK’s activities in China, the person added. The U.S. Securities and Exchange Commission also is investigating the company’s business in China, according to people familiar with the matter.”
Key Energy Services
The company stated as follows in its Second Quarter 2014 Update and Earnings Release.
“Pre-tax expenses of approximately $5 million were incurred in connection with the previously disclosed Foreign Corrupt Practices Act investigations.”
Nominate
If FCPA Professor adds value to your practice or business or otherwise enlightens your day and causes you to contemplate the issues in a more sophisticated way, please consider nominating FCPA Professor for the ABA Journal’s Blawg 100 list (see here).
Double Standard
Beginning in 2009, I began writing about the “double standard” and how – despite the similarities between the FCPA and 18 USC 201 (the domestic bribery statute) – a U.S. company’s interaction with a “foreign official” is subject to more scrutiny and different standards than interaction with a U.S. official. Since 2009, approximately 30 posts have appeared under the “double standard” subject matter tag.
Against this backdrop, I was happy to see another individual tackle the same general topic. See here from the Global AntiCorruption Blog – “Is U.S. Campaign Finance Law More Permissive of Corruption Than the FCPA?”
Quotable
In this Corporate Crime Reporter interview, former U.S. Attorney Neil MacBride (E.D. Va.) says the following regarding the use of non-prosecution and deferred prosecution agreements: “The Department now has the ability to reach more ambiguous conduct where it might be more difficult to prove a criminal conviction in court.”
Wait a minute!
If the conduct is ambiguous and the DOJ would have a difficult time to prove a criminal conviction in court, there should be no non-prosecution or deferred prosecution agreement. Period. End of story. The rule of law commands such a result.
Reading Stack
Over at the FCPA Compliance & Ethics blog, Tom Fox recently published a three-part series on M&A issues and the FCPA. See Part I, Part II, and Part III.
Sherman & Sterling’s mid-year FCPA Digest, including its “Trends and Patterns” is here. Among the trends and patterns:
“Recent paper victories by the SEC could be perceived as setbacks in the Commission’s actions against
individual defendants; andThe SEC has continued its practice of pursuing its theory of strict liability against a parent corporation
for the acts of its corporate subsidiaries.”
Kudos to Sherman & Sterling for adopting the “core” approach to keeping FCPA statistics. (See here for the prior post regarding my suggested “core” approach). The Digest states:
“We count all actions against a corporate “family” as one action. Thus, if the DOJ charges a subsidiary and the SEC charges a parent issuer, that counts as one action. In addition, we count as a “case” both filed enforcement actions (pleas, deferred prosecution agreements, and complaints) and other resolutions such as non-prosecution agreements that include enforcement-type aspects, such as financial penalties, tolling of the statute of limitations, and compliance requirements.”
The most recent edition of Miller & Chevalier’s FCPA Update is here. Debevoise & Plimpton’s always informative FCPA Update is here and Mayer Brown’s FCPA mid-year update is here.
Warning, the enforcement statistics cited in certain of the above updates will cause confusion because they do not adopt the “core” approach.
*****
A good weekend to all.
World Cup Puts Focus on Complex Compliance Issues In Brazil
Today’s post is from Gregory Paw (Pepper Hamilton LLP).
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Tomorrow afternoon, Brazil begins what many hope will be a month-long showcase of “joga bonito” – the Brazilian passion for football summarized by Pelé as “play beautifully” – with the opening game of the 2014 World Cup pitting the host team against Croatia in São Paulo. Yet the days leading to the opening have been filled with anxious scenes of subway strikes by groups of laborers, social advocates and students, and the accompanying snarls of traffic clogging the streets of the nation’s biggest city. The protests are not as large as those of last spring, but nonetheless put into context the issues of the past year as Brazil adjusts to a post-boom economy and debates the public spending priorities that favored sports venues over other public works projects. All of these events are of importance to compliance professionals watching the Brazilian business landscape for important anti-corruption trends and a better understanding of the current risk environment.
The past year has seen passage of landmark anti-corruption legislation, and the growing pains that can come with implementing a law that ushers important change. Brazil currently lacks a centralized enforcement infrastructure for its powerful new anti-corruption law. Brazil’s 27 states and its municipalities, as well as each branch of national government, all can launch investigations and render interpretations on open issues under the new law, such as the critical issue of whether any liability cap exists. The inevitable inconsistencies will make compliance an ongoing challenge.
Equally important is the persistent culture of corruption that continues to dominate the Brazilian business news. Many of the recent stories have focused on infrastructure projects in preparation for the World Cup and the 2016 Olympics. Cost overruns for Brazil’s 12 World Cup host stadiums are soaring. For example, an audit from the Court of Accounts of the Brazilian Federal District demonstrated a near-doubling from the $312 million 2012 estimated cost, with overpriced construction work alone accounting for $196 million of this overrun. Political donations from connected companies “are making corruption in this country even worse and making it increasingly difficult to fight,” said an Audit Court arbiter in recent local press reports. “These politicians are working for those who financed campaigns.” At least a dozen other federal investigations are underway.
The problems are not limited to sports stadiums. A scandal involving as many as 15 public transportation systems is said to have revealed corruption by several multi-national companies and inflated project costs in an area of vital public need. The multi-nationals mentioned as part of the probe, Siemens, Alstom and Bombardier, have denied wrongdoing and pledged cooperation. But in January 2014, a federal court banned Siemens from bidding on new government work, and a public prosecutor in São Paulo is said to have sought to cancel Alstom’s corporate registration.
Touching deeper to the core of the Brazilian economy are corruption investigations at Petrobras, the state-run oil and gas company. Swimming under a mountain of debt and declining stock value, Petrobras has launched an internal review of alleged bribery by a Dutch company that serviced off-shore oil rigs. The Brazilian Congress also has launched a probe into two deals that have turned very expensive – one involving the purchase of a refinery in Texas and the other involving a refinery in the northeastern Brazilian coastal town of Recife. Both deals cost many times more than their expected prices. Petrobras’ president recently met federal police personally to turn over company files pursuant to a court order. Petrobras says the cost overruns come from insufficient infrastructure in Brazil’s poor-but-growing northeast, but critics focus on mismanagement and an alleged culture of graft as these issues play out in advance of a presidential election in October. The arrest in March of the former head of the company’s refining and supply unit in a money laundering probe has added to the swirl of rumors. For her part, President Dilma Rousseff – also the former chair of Petrobras – has defended the company, explaining in April 2014 local press reports that “Petrobras will never be stained with any wrongdoing. Whatever needs to be investigated will be investigated with maximum rigor.”
Against this backdrop, Brazilian economic growth has slowed by more than half of its peak 2010 rate, and a March 2014 poll by a Brazilian news organization found that more than two-thirds of the population thought corruption was lower during Brazil’s time of dictatorship. Perhaps part of that feeling comes from the current greater media transparency on corruption probes. But companies operating in Brazil can expect that the focus on anti-corruption issues will only continue to remain a complicated compliance challenge. Most important is a continuing focus on compliance fundamentals:
- Leadership setting clear expectations on ethics and compliance
- Risk awareness, coupled with controls designed to address those risks
- Due diligence and monitoring of business partners
- Nurturing the compliance commitment through training and communications
- Promptly follow up if potential issues arise
These fundamental steps will best protect companies operating in Brazil, where hope runs high that the attention from the World Cup will highlight the Brazilian spirit and creativity which has proven so resilient through past eras of change.
A Reminder That The FCPA Has Long Tentacles
The FCPA has long tentacles as FCPA scrutiny and enforcement can impact a wide range of business activities.
Such as merger and acquisition activity.
Two recent developments serve as a reminder.
As noted here, Zimmer Holdings Inc. agreed to acquire Biomet Inc. in a cash and stock transaction valued at approximately $13.35 billion.
In March 2012 Biomet resolved a $22.8 million Foreign Corrupt Practices Act enforcement action ($17.3 million via a DOJ deferred prosecution agreement and $5.5 million via a settled SEC civil complaint). The DPA had a three year term and, as is common, contained the following clause:
“Sale or Merger: Biomet agrees that in the event it sells, merges, or transfers all or substantially all of its business operations as they exist as of the date of this Agreement, whether such sale is structured as a stock or asset sale, merger, or transfer, it shall include in any contract for sale, merger, or transfer a provision binding the purchaser, or any successor in interest thereto, to the obligations described in this Agreement.”
The Zimmer – Biomet merger highlights how FCPA compliance obligations of a target company can be inherited by the acquiring company.
News of General Electric’s possible purchase of Alstom’s energy business highlights how FCPA scrutiny of a target company can be, depending on how the transaction is structured, inherited by the acquiring company.
Alstom has been under FCPA (and related) scrutiny for several years. Among other things, former Alstom employees and business partners have resolved FCPA enforcement actions concerning the Tarahan power plant project in Indonesia (see here and here for prior posts). Documents filed in connection with the individual enforcement actions suggest that the following Alstom projects are also under scrutiny: (i) “projects in Indonesia other than the Tarahan Project, including intended payments to government officials in connection with the Labuan Angin and the Maura Tawar projects;” (ii) “projects in India, including intended payments to government officials in connection with the Sipat, Barh I, and Barh II projects;” and (iii) the following projects in China – “Baima PRC Project,” “Qilu, Maoming, Guangzhou, Wuhan, Jin Men,Yueyang.”
In short, Alstom’s FCPA scrutiny is well known. Thus, a potential GE – Alstom transaction would not seem to implicate many of the thorny due diligence issues discussed in certain FCPA Opinion Procedure Releases or certain hypotheticals discussed in the FCPA Guidance.
In any event, the FCPA Guidance states:
“Companies acquire a host of liabilities when they merge with or acquire another company, including those arising
out of contracts, torts, regulations, and statutes. As a general legal matter, when a company merges with or acquires another company, the successor company assumes the predecessor company’s liabilities Successor liability is an integral component of corporate law and, among other things, prevents companies from avoiding liability by reorganizing. Successor liability applies to all kinds of civil and criminal liabilities, and FCPA violations are no exception. Whether successor liability applies to a particular corporate transaction depends on the facts and the applicable state, federal, and foreign law.”
As referenced in the FCPA Guidance “whether successor liability applies to a particular corporate transaction depends on the facts and the applicable state, federal, and foreign law.”
Here it is important to recognize the following black-letter legal principles.
In a stock purchase agreement, the acquiring company will ordinarily inherit the target company’s pre-acquisition legal liability. In an asset purchase agreement, the acquiring company ordinarily (subject to certain limited exceptions) does not inherit pre-acquisition legal liability of the seller.
In this area, as in others, the free-for-all nature of FCPA enforcement is apparent.
In “The Federal Common Law of Successor Liability and the Foreign Corrupt Practices Act” forthcoming in the William & Mary Business Law Review, Taylor Phillips (Bass Berry) writes:
“Although successor liability is a key aspect of the government’s FCPA enforcement policy, the Department of Justice and the Securities and Exchange Commission have not distinguished clearly between the contexts of mergers, stock purchases, and asset acquisitions. As demonstrated by this article, asset purchases should be recognized as an acquisition structure that minimizes the risk of FCPA liability. That is because the law that should be applicable to such transactions is not a relatively broad federal common law of successor liability. Instead, it is state common law, which traditionally concedes only very narrow exceptions to the general rule of successor nonliability. Furthermore, given the remedial foundations of most successor liability doctrines, it is not obvious that traditional state common law encompasses punitive — much less criminal — successor liability theories.”
Friday Roundup
Telling, scrutiny alerts and updates, and query whether. It’s all here in the Friday roundup.
Telling
It is a rather telling indication of the nonsensical nature of criminal law “enforcement” when what is presumed to be a well-intentioned legislator introduces a bill that fails in its intended purpose.
Case in point, Representative John Conyers (D-Michigan) recently introduced the “Corporate Crime Database Act” to require the Attorney General to:
“acquire data, for each calendar year, regarding all administrative, civil, and criminal judicial proceedings initiated or concluded by the Federal Government and State governments against any corporation or corporate official acting in an official capacity involving a felony or misdemeanor charge or any civil charge where potential fines may be $1,000 or more.”
The problem of course, and why the bill fails in its intended purpose, is that a meaningful percentage of DOJ enforcement actions do not result in “judicial proceedings.” Rather, many DOJ enforcement actions are resolved through non-prosecution agreements. Moreover, many of the requirements in the bill hinge on “charges” and NPAs do not involve charges.
(See here and here for similar posts).
Scrutiny Alerts and Updates
GSK
In this week’s GSK news, as reported here:
“GlaxoSmithKline is facing a criminal investigation in Poland for allegedly bribing doctors to promote its lung drug Seretide, adding to problems for a company already accused of corruption in China and Iraq. Poland’s Central Anti-Corruption Bureau, or CBA, said on Monday that 13 people had been charged in connection with the investigation launched by Polish prosecutors. Britain’s biggest drugmaker said one employee had been disciplined following a company probe into the matter and it was co-operating with the Polish authorities. “The investigation found evidence of inappropriate communication in contravention of GSK policy by a single employee. The employee concerned was reprimanded and disciplined as a result,” the drugmaker said in a statement.”
Further, as reported here:
“[GSK] is investigating claims its employees bribed doctors in Jordan and Lebanon by offering perks such as flexible travel arrangements and free samples that doctors could sell on, according to emails reviewed by The Wall Street Journal. […] Glaxo has said it has launched an internal investigation into its operations in the United Arab Emirates, Qatar, Bahrain, Oman, Kuwait, Lebanon, Syria, Jordan and Iraq. […] Glaxo sales representatives allegedly bribed doctors in Jordan to prescribe Glaxo drugs by issuing free samples that the doctors were then allowed to sell on, according to the emails. Glaxo representatives also allegedly permitted Jordanian doctors to bring their spouses on business trips that Glaxo paid for, according to the emails. Doctors were issued with business-class tickets to attend conferences but would exchange them at travel agencies for two economy-class tickets, allowing their spouses or other family members to come along free, a practice local Glaxo employees were aware of, according to the emails. Glaxo said that it is against company policy to allow airplane tickets to be exchanged for tickets of a lower value or refunded. The emails allege Glaxo sales representatives gave doctors in Jordan up to 60 free samples of its vaccine Synflorix, which they then sold on at up to $70 a vial. In Lebanon, Glaxo employees allegedly gave doctors free Synflorix vials as part of an incentive scheme to get them to prescribe the vaccine and not its competitors, another email to company representatives said. In both countries, Glaxo made payments to “key opinion-leader” doctors—influential and leading practitioners in their field—for lectures and other speaking engagements that may not have taken place, the emails allege, in return for them prescribing more Glaxo drugs.”
In response to the above recent media reports, GSK released this statement which states, in pertinent part, as follows.
“GSK can confirm we are investigating allegations regarding the activity of a small number of individuals in our operations in Jordan and Lebanon. We started investigating using internal and external teams as soon as we became aware of these claims. These investigations have not yet concluded. We have zero tolerance for unethical or illegal behaviour. We expect our employees to uphold our high standards and we believe the vast majority do so. GSK welcomes and respects people speaking up where they have concerns and we have a number of channels internally to enable them to do this, including hotlines and online portals. We implement regular training for employees in compliance matters and we continue to improve compliance processes and procedures wherever we see a need. We publicly disclose all cases of misconduct identified in the company. Last year there were 161 violations relating to breaches of our sales and marketing polices, resulting in 48 dismissals and 113 written warnings. These numbers are very similar to those reported by other companies in our sector. We are confident in our processes and controls and that we do not have a systemic issue with unethical behaviour in GSK. However, we recognise there are concerns regarding interactions between pharmaceutical companies and doctors, particularly related to perceptions of conflicts of interest. That’s why we are the first company to have committed to undertake fundamental reforms to our business model to eliminate this concern by stopping payments to doctors to speak about our products, stopping payments to doctors to attend medical conferences and stopping pay for our sales reps being linked to individual sales targets.”
BSG Resources / Beny Steinmetz
Regarding BSG Resources and Beny Steinmetz, as reported here:
“Billionaire Beny Steinmetz approved millions of dollars in payments to a wife of the former president of Guinea as he fought to keep part of the world’s largest iron-ore deposit, a suspect in a U.S. graft investigation said in conversations secretly taped by the FBI. The 109 pages of transcripts were among a cache of evidence posted on a Guinean government website April 9. The transcripts were introduced in the course of an investigation by the West African nation into whether bribery was used to obtain rights to the Simandou deposit. The Federal Bureau of Investigation shared evidence with the Guinean government from its own probe into the circumstances surrounding the award of the licenses, according to the Guinean release. Both Steinmetz and his company BSG Resources Ltd. have denied any wrongdoing by the Guernsey-based company or its employees. BSGR said April 10 it would prove all allegations of bribery and corruption are false.”
Alstom / Marubeni Related
“Indonesia’s main anti-corruption court sentenced a lawmaker to three years’ jail today for accepting bribes from French company Alstom and Japan’s Marubeni in a multimillion-dollar contract. Izedrik Emir Moeis was found guilty of accepting USD 357,000 from the companies to help them secure a USD 118 million joint contract in 2004 to supply and install boilers at a power plant on the island of Sumatra.”
(See here and here for previous posts on the related FCPA enforcement actions).
Query Whether
Given a common theory of FCPA enforcement, query whether hotels in the Middle East are state-owned or state-controlled. Arabianbusiness.com reports:
“Almost 55 percent of hotel suppliers have been asked to offer a monetary bribe by a hotel procurement manager, while 72.6 percent of suppliers know of other supply firms that are using bribes, according to the results of a new industry survey carried out earlier this year. The Hotelier Middle East Supplier Survey 2014, which received 108 responses during January and February of this year, also found 46.8 percent of suppliers believe that corruption, in terms of bribery, is a problem in the region’s hotel supply sector that is negatively impacting business.”
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A good weekend to all.
Friday Roundup
Further trimmed, scrutiny alerts and updates, facts and figures, quotable, and for the reading stack. It’s all here in the Friday roundup.
Further Trimmed
When the SEC announced its enforcement action against James Ruehlen and Mark Jackson (a current and former executive of Noble Corp.) in February 2012, I said that this would be an interesting case to follow because the SEC is rarely put to its burden of proof in FCPA enforcement actions – and when it has been put to its ultimate burden of proof – the SEC has never prevailed in an FCPA enforcement action.
Over the past two years, the SEC’s case has been repeatedly trimmed. (See this recent post containing a summary). In the latest cut, the SEC filed an unopposed motion for partial voluntary dismissal with prejudice on March 25th. In pertinent part, the motion states as follows.
“To narrow this case and streamline the presentation of evidence to the jury, the SEC hereby moves for leave to voluntarily dismiss with prejudice all portions of its claims … predicated upon Noble Corporation’s violation of [the FCPA’s internal controls provisions”.
For additional specifics, see the filing.
As highlighted in this previous post, in 2010 the SEC charged Noble Corporation with violating the FCPA’s anti-bribery, books and records and internal controls provisions based on the same core conduct alleged in the Jackson/Ruehlen action. Without admitting or denying the SEC’s allegations, Noble agreed to agreed to an injunction and payment of disgorgement and prejudgment interest of $5,576,998.
In short, the SEC’s enforcement action against Ruehlen and Jackson is a shell of its former self. Interesting, isn’t it, what happens when the government is put to its burden of proof in FCPA enforcement actions.
Scrutiny Alerts and Updates
Alstom
Bloomberg reports speculation that a future FCPA enforcement action against Alstom could top the charts in terms of overall fine and penalty amounts. (See here for the current Top 10).
The article states:
“The Justice Department is building a bribery case against Alstom SA , the French maker of trains and power equipment, that is likely to result in one of the largest U.S. anticorruption enforcement actions, according to two people with knowledge of the probe. Alstom, which has a history checkered with corruption allegations, has hindered the U.S. investigation of possible bribery in Indonesia and now faces an expanded probe including power projects in China and India, according to court documents in a related case. Settlement talks haven’t begun, the company said.”
In response to the Bloomberg article, Alston released this statement.
“Robert Luskin of Patton Boggs, Alstom’s principal outside legal advisor in the USA, states that the Bloomberg article published on 27 March 2014, regarding the investigation of Alstom by the US Department of Justice, does not accurately reflect the current situation: “Alstom is cooperating closely, actively, and in good faith with the DOJ investigation. In the course of our regular consultations, the DOJ has not identified any on-going shortcomings with the scope, level, or sincerity of the company’s effort”.
“The discussions with the DOJ have not evolved to the point of negotiating a potential resolution of any claims. Any effort to estimate the size of any possible fine is sheer speculation, as would be any comparison with other cases that have recently been resolved. Alstom has agreed to focus its efforts on investigating a limited number of projects that we and the DOJ have identified in our discussions. We are working diligently with the DOJ to answer questions and produce documents associated with these specific projects so that we can address any possible improper conduct”.
VimpelCom
Netherlands-based and NASDAQ traded telecommunications company VimpelCom recently disclosed:
“[T]hat in addition to the previously disclosed investigations by the U.S. Securities and Exchange Commission and Dutch public prosecutor office, the Company has been notified that it is also the focus of an investigation by the United States Department of Justice. This investigation also appears to be concerned with the Company’s operations in Uzbekistan. The Company intends to continue to fully cooperate with these investigations.”
On March 12, 2014, VimpelCom disclosed:
“The Company received from the staff of the United States Securities and Exchange Commission a letter stating that they are conducting an investigation related to VimpelCom and requesting documents. Also, on March 11, 2014, the Company’s headquarter in Amsterdam was visited by representatives of the Dutch authorities, including the Dutch public prosecutor office, who obtained documents and informed the Company that it was the focus of a criminal investigation in the Netherlands. The investigations appear to be concerned with the Company’s operations in Uzbekistan. The Company intends to fully cooperate with these investigations.”
Orthofix International
As noted in this Wall Street Journal Risk & Compliance post, Orthofix International recently disclosed:
“We are investigating allegations involving potential improper payments with respect to our subsidiary in Brazil.
In August 2013, the Company’s internal legal department was notified of certain allegations involving potential improper payments with respect to our Brazilian subsidiary, Orthofix do Brasil. The Company engaged outside counsel to assist in the review of these matters, focusing on compliance with applicable anti-bribery laws, including the Foreign Corrupt Practices Act (the “FCPA”). This review remains ongoing.”
As noted in this previous post, in July 2012 Orthofix International resolved a DOJ/SEC FCPA enforcement action concerning alleged conduct by a Mexican subsidiary. In resolving that action, the company agreed to a three year deferred prosecution agreement. As is typical in FCPA DPAs, in the Orthofix DPA the DOJ agreed not continue the criminal prosecution of Orthofix for the Mexican conduct so long as the company complied with all of its obligations under the DPA, including not committing any felony under U.S. federal law subsequent to the signing of the agreement.
See this prior post for a similar situation involving Willbros Group (i.e. while the company while under a DPA it was investigating potential additional improper conduct). As noted here, Willbros was released from its DPA in April 2012, the original criminal charges were dismissed and no additional action was taken.
Besso Limited
Across the pond, the U.K. Financial Conduct Authority (“FCA”) recently issued this final notice to Besso Limited imposing a financial penalty of £315,000 for failing “to take reasonable care to establish and maintain effective systems and controls for countering the risks of bribery and corruption associated with making payments to parties who entered into commission sharing agreements with Besso or assisted Besso in winning and retaining business (“Third Parties”).”
Specifically, the FCA stated:
“The failings at Besso continued throughout the Relevant Period [2005-2011] and contributed to a weak control environment surrounding the making of payments to Third Parties. This gave rise to an unacceptable risk that payments made by Besso to Third Parties could be used for corrupt purposes, including paying bribes to persons connected with the insured or public officials. In particular Besso: (1) had limited bribery and corruption policies and procedures in place between January 2005 and October 2009. It introduced written bribery and corruption policies and procedures in November 2009, but these were not adequate in their content or implementation; (2) failed to conduct an adequate risk assessment of Third Parties before entering into business relationships; (3) did not carry out adequate due diligence on Third Parties to evaluate the risks involved in doing business with them; (4) failed to establish and record an adequate commercial rationale to support payments to Third Parties; (5) failed to review its relationships with Third Parties, in sufficient detail and on a regular basis, to confirm that it was still appropriate to continue with the business relationship; (6) did not adequately monitor its staff to ensure that each time it engaged a Third Party an adequate commercial rationale had been recorded and that sufficient due diligence had been carried out; and (7) failed to maintain adequate records of the anti-bribery and corruption measures taken on its Third Party account files.”
The FCA has previously brought similar enforcement actions against Aon Limited (see here), Willis Limited (see here), and JLT Speciality Limited (see here). For more on the U.K. FCA and its focus on adequate procedures to prevent bribery , see this guest post.
Facts and Figures
Trace International recently released its Global Enforcement Report (GER) 2013 – see here to download. Given my own focus on FCPA enforcement statistics and the various counting methods used by others (see here for a recent post), I particularly like the Introduction of the GER in which Trace articulates a similar “core” approach that I use in keeping my enforcement statistics. The GER states:
“[W]hen a company and its employees or representatives face multiple investigations or cases in one country involving substantially the same conduct, only one enforcement action is counted in the GER 2013. An enforcement action in a country with multiple investigating authorities, such as the U.S., is also counted as one enforcement action in the GER 2013.”
The Conference Board recently released summary statistics regarding anti-bribery policies. It found as follows.
39% of companies in the S&P Global 1200; 23% of companies in the S&P 500; and 14% of companies in the Russell 1000 reported having a policy specifically against bribery.
Given the results of other prior surveys which reported materially higher numbers, these results are very surprising.
Quotable
This recent Wall Street Journal article “Global Bribery Crackdown Gains Steam” notes as follows.
“Cash-strapped countries are seeing the financial appeal of passing antibribery laws because of the large settlements collected by the U.S., according to Nathaniel Edmonds, a former assistant chief at the U.S. Department of Justice’s FCPA division. “Countries as a whole are recognizing that being on the anticorruption train is a very good train to be on,” said Mr. Edmonds, a partner at Paul Hastings law firm.”
The train analogy is similar to the horse comment former DOJ FCPA enforcement attorney William Jacobson made in 2010 in an American Lawyer article that “[t]he government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore.” For additional comments related to the general topic, see this prior post.
Reading Stack
This recent Wall Street Journal Risk & Compliance Journal post contains a Q&A with former DOJ FCPA Unit Chief Chuck Duross. Contrary to the inference / suggestion in the post, Duross did not bring “tougher tactics” such as wires and sting operations to the FCPA Unit. As detailed in prior posts here and here, undercover tactics and even sting operations had been used in FCPA enforcement actions prior to the Africa Sting case.
Speaking of the Africa Sting case, the Q&A mentions reasons for why the Africa Sting case was dropped. Not mentioned, and perhaps relevant, is that the jury foreman of the second Africa Sting trial published this guest post on FCPA Professor after the DOJ failed in the second trial. Two weeks later, the DOJ dismissed all charges against all Africa Sting defendants.
Further relevant to the Africa Sting case, the Wall Street Journal recently ran this article highlighting the role of Richard Bistrong, the “undercover cooperator” in the case. Bistrong has recently launched an FCPA Blog – see here.
*****
A good weekend to all.