Friday Roundup
Knox to FCPA Inc., DOJ response brief filed, SFO speeches, and asset recovery. It’s all here in the Friday roundup.
Knox to FCPA Inc.
As highlighted in this prior post, over the summer Jeffrey Knox (DOJ Fraud Section Chief) followed the same tired script on a number of FCPA issues. It will be interesting to hear / read of Knox’s positions in the future as – following a well-traveled career path for DOJ FCPA enforcement attorneys – he is leaving government service for the private sector to provide FCPA investigative and compliance services to business organizations subject to the current era of FCPA enforcement. (See here from the Washington Post, here from the Wall Street Journal, and here from the New York Times).
Knox is headed to Simpson Thatcher (also home to former SEC FCPA Unit Chief Cheryl Scarboro – see here for the prior post). This Simpson Thatcher release states in pertinent part:
“Mr. Knox will be a partner based in the Firm’s Washington, D.C. office and a member of the Firm’s Government and Internal Investigations Practice. During his tenure at the DOJ, Mr. Knox served as the Chief and, before then, the second-ranking official of the Criminal Division’s Fraud Section, which has responsibility for some of the nation’s most significant fraud cases, including … Foreign Corrupt Practices Act (FCPA) criminal investigations and prosecutions in the United States.”
[…]
“We are pleased to welcome Jeff back to the Firm,” said Bill Dougherty, Chairman of Simpson Thacher’s Executive Committee. “His deep experience in overseeing high-stakes government investigations and enforcement actions will be a significant asset to our clients as they navigate an increasingly complex enforcement landscape.” “We are very excited that Jeff is joining our Government and Internal Investigations team here at Simpson Thacher. As Chief of the Fraud Section, Jeff has presided over many of the most significant financial fraud, healthcare fraud, and FCPA investigations in recent years, and we know that he is greatly respected within both the DOJ and the white collar bar. His experience and insight will provide substantial value to our clients,” added Mark J. Stein, Head of the Firm’s Government and Internal Investigations Practice.”
The release further states: “[Knox] was a contributor to the DOJ and SEC’s A Resource Guide to the FCPA, published in 2012.”
As I have done in all previous instances of high-ranking DOJ or SEC FCPA enforcement attorneys leaving government services for lucrative FCPA related jobs in the private sector (see here for instance), I will restate my position.
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, upon leaving government service, from providing FCPA defense or compliance services in the private sector for a five-year period.
DOJ Response Brief Filed
This previous post highlighted the motion to dismiss filed by former Alstom executive Lawrence Hoskins in the criminal FCPA action against him. In short, the motion to dismiss stated that the DOJ’s indictment “charges stale and time-barred conduct that occurred more than a decade ago; it asserts violations of U.S. law by a British citizen who never stepped foot on U.S. soil during the relevant time period; and, it distorts the definition of the time-worn legal concept of agency beyond recognition.” As noted in the prior post, much of Hoskins’s brief focuses on the issue of whether he withdrew from the alleged criminal conspiracy involving alleged improper payments at the Tarahan power plant project in Indonesia.
Earlier this week, the DOJ filed this response brief. In pertinent part, the DOJ’s brief states:
“The defendant seeks to have the Court take the extraordinary step of dismissing the Indictment against him at this pretrial phase based on his interpretation of the legal import of certain allegations contained in the Indictment, supplemented by his own selective version of events contained in an affidavit attached to his motion. The Indictment, however, sets forth more than sufficient facts to support the charged crimes. Moreover, at trial the Government expects to present substantial additional evidence supporting the charges, including facts that bear directly on the arguments raised by the defendant in his motion. The defendant’s motion thus represents a novel effort to – in effect – invent and obtain summary judgment in the criminal process based on the claim that he has established the factual basis for his defenses. For good reason, the law provides that only after the Government has presented its case should a judge and jury grapple with the legal and factual sufficiency of that evidence. Thus, the defendant’s motion should be denied. Even addressing the merits of his arguments at this premature stage, however, the defendant’s motion should fail.
In particular, the defendant’s motion fails because: (1) the issue of withdrawal is necessarily a factual one to be decided by a jury and, nonetheless, the defendant did not withdraw from the charged conspiracies; (2) the Indictment has adequately alleged, and the Government will prove at trial, that the defendant was an “agent” of a domestic concern under the Foreign Corrupt Practices Act (“FCPA”), the charged conduct is domestic (not extraterritorial), and Congress has not specially excepted the defendant from prosecution under the FCPA and, thus, he can be liable for causing, aiding and abetting, or conspiring to commit an FCPA violation even if he is not guilty as a principal; and (3) the Indictment alleges continuing transactions (the bribe payments) that were initiated from Connecticut and alleges that the defendant aided and abetted the transactions through acts in Connecticut, and thus the money laundering charges are properly venued in the District of Connecticut.”
SFO Speeches
David Green’s (Director of the U.K. Serious Fraud Office) recent speech regarding a “cross-section of SFO cases” included the following in the foreign bribery space:
- Barclays/Qatar: is an investigation, begun in 2012, into the circumstances surrounding Barclays’ £8bn recapitalisation in 2008.
- Rolls Royce: concerns allegations of bribery carried out by local agents in return for orders in various markets, touching several divisions of Rolls Royce business activity.
- GlaxoSmithKline: this is an investigation into allegations that bribes were paid in order to increase business in several jurisdictions.
- GPT: this investigation concerns a subsidiary’s business relationship with the Saudi National Guard.
- Alstom: this is an ongoing investigation into the use of British subsidiaries of a major French multinational to dispense bribes in several jurisdictions in order to secure large infrastructure contracts. Charges have already been laid against a subsidiary.
- The Sweett Group: this investigation concerns allegations of bribes paid in return for building contracts in North Africa.
For another recent speech by Alun Milford (General Counsel of the SFO) on cooperation and disclosure, see here.
Asset Recovery
In news related to the DOJ’s Kleptocracy Asset Recovery Initiative (under which prosecutors in the DOJ Asset Forfeiture and Money Laundering Section work in partnership with federal law enforcement agencies to forfeit the proceeds of foreign official corruption – see this 2009 post highlighting Attorney General Holder’s announcement of the program), the DOJ announced:
“The Department of Justice has seized approximately $500,000 in assets traceable to corruption proceeds accumulated by Chun Doo Hwan, the former president of the Republic of Korea. This seizure brings the total value of seized corruption proceeds of President Chun to more than $1.2 million. […] Chun Doo Hwan orchestrated a vast campaign of corruption while serving as Korea’s president,” said Assistant Attorney General Caldwell. “President Chun amassed more than $200 million in bribes while in office, and he and his relatives systematically laundered these funds through a complex web of transactions in the United States and Korea. Today’s seizure underscores how the Criminal Division’s Kleptocracy Initiative – working in close collaboration with our law enforcement partners across the globe – will use every available means to deny corrupt foreign officials and their relatives safe haven for their assets in the United States.”
*****
A good weekend to all.
Friday Roundup
U.S. reportedly did not cooperate, Avon’s reaches a settlement “understanding” and other scrutiny alerts, the “financial SWAT team,” at the SEC, FCPA Inc. news, and for the reading stack. It’s all here in the Friday roundup.
U.S. Reportedly Did Not Cooperate
The DOJ talks a lot about cooperation with foreign law enforcement partners with its comes to its Foreign Corrupt Practices Act enforcement program. For instance, and as noted in this prior post, in June 2013 the DOJ’s Acting Assistant Attorney General stated:
“Through our increased work on prosecutions with our foreign counterparts and our participation in various multi-lateral fora like the OECD and United Nations, it is safe to say that we are cooperating with foreign law enforcement on foreign bribery cases more closely today than at any time in history. This type of collaboration is absolutely critical if we are going to have a meaningful impact on corruption internationally. As our economies become more interdependent, corruption itself is increasingly transnational. What may be a domestic corruption concern for one country may very well be a foreign bribery concern for another.”
In 2012 and 2013 (see here and here) the DOJ brought related FCPA enforcement actions against BizJet and various former executives regarding, in part, conduct involving officials from Panama’s Aviation Authority.
Panama also investigated the conduct at issue, but according to this report in Panama-Guide.com (a website that provides English translations of original source news articles):
“Panama’s Superior Prosecutor for Organized Crime requested the judges responsible for the case to provisionally close a case involving allegations of the payments of bribes to officials of the Civil Aviation Authority by the US company BizJet, that received the contract to maintain the presidential aircraft between 2004 and 2009. The prosecutor sent his request in early March 2014, because law enforcement authorities in the United States failed to respond to a second request for judicial assistance in order to clarify key pieces of data (evidence) contained in the Panamanian investigation. The prosecutor sent their first request for assistance to the United States in May 2012 asking for collaboration, but the answer they sent in response to the Panamanian investigators was not enough (insufficient) for them to continue the investigation. They sent a second request for assistance in 2013, asking for the evidence that linked the Panamanians to the alleged bribes. According to judicial sources, these elements would be important to the process. The director of the AAC, Rafael Barcenas, confirmed that the officials mentioned in investigation in the United States are still working for the entity, and while there is no legal decision his office will not take any action against them.”
Scrutiny Alerts
Avon
Yesterday, Avon disclosed as follows regarding the FCPA scrutiny it has been under since 2008.
“We have now reached an understanding with respect to terms of settlement with each of the DOJ and the staff of the SEC. Based on these understandings, the Company would, among other things: pay aggregate fines, disgorgement and prejudgment interest of $135 [million] with respect to alleged violations of the books and records and internal control provisions of the FCPA, with $68 [million] payable to the DOJ and $67 [million] payable to the SEC; enter into a deferred prosecution agreement (“DPA”) with the DOJ under which the DOJ would defer criminal prosecution of the Company for a period of three years in connection with alleged violations of the books and records and internal control provisions of the FCPA; agree to have a compliance monitor which, with the approval of the government, can be replaced after 18 months by the Company’s agreement to undertake self monitoring and reporting obligations for an additional 18 months. If the Company remains in compliance with the DPA during its term, the charges against the Company would be dismissed with prejudice. In addition, as part of any settlement with the DOJ, a subsidiary of Avon operating in China would enter a guilty plea in connection with alleged violations of the books and records provision of the FCPA. The expected terms of settlement do not require any change to our historical financial statements. Final resolution of these matters is subject to preparation and negotiation of documentation satisfactory to all the parties, including approval by our board of directors and, in the case of the SEC, authorization by the Commission; court approval of the SEC settlement; and court approval of the DPA and acceptance of the expected guilty plea by an Avon subsidiary operating in China. We can provide no assurances that satisfactory final agreements will be reached, that authorization by the Commission or the court approvals will be obtained or that the court will accept the guilty plea or with respect to the timing or terms of any such agreements, authorization, and approvals and acceptance.”
A $135 million settlement will be the 11th largest in terms of fine / penalty amounts.
Some media outlets were quick to link disclosure of the future FCPA settlement to the approximate 10% slide in Avon’s stock price yesterday. For instance, USA Today stated:
“Avon Products stock swooned more than 12% in mid-day trading after the company agreed to pay $135 million for long-standing federal changes that it paid bribes in China and other countries.”
However, Avon’s FCPA disclosure was in the same SEC filing in which the company disclosed, among other things, a 6% drop in total units sold during Q1, beauty sales were off 12%, and sales in North America fell 22%.
Johnson Controls
In its most recent quarterly filing, Johnson Controls first disclosed the following:
“In June 2013, the Company self-reported to the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) alleged Foreign Corrupt Practices Act (FCPA) violations related to its Building Efficiency marine business in China dating back to 2007. These allegations were isolated to the Company’s marine business in China which had annual sales ranging from $20 million to $50 million during this period. The Company, under the oversight of its Audit Committee and Board of Directors, proactively initiated an investigation into this matter with the assistance of external legal counsel and external forensic accountants. In connection with this investigation, the Company has made and continues to evaluate certain enhancements to its FCPA compliance program. The Company continues to fully cooperate with the SEC and the DOJ; however, at this time, the Company is unable to predict the ultimate resolution of this matter with these agencies.”
In 2007, Johnson Controls was a signatory to the York International FCPA enforcement action (see here and here) principally involving alleged conduct in connection with the Iraq Oil for Food Program. According to the DOJ, “nearly all of the conduct described in the [York International Criminal] Information took place prior to York’s acquisition by Johnson Controls, Inc. on December 9, 2005.”
JPMorgan
In its most recent quarterly filing, JPMorgan disclosed as follows regarding its pending FCPA scrutiny:
“Referral Hiring Practices Investigations. Various regulators are investigating, among other things, the Firm’s compliance with the Foreign Corrupt Practices Act and other laws with respect to the Firm’s hiring practices related to candidates referred by clients, potential clients and government officials, and its engagement of consultants in the Asia Pacific region. The Firm is cooperating with these investigations.”
Teva Pharamaceuticals
In August 2012, the company first disclosed its FCPA scrutiny and in its most recent SEC filing disclosed as follows.
“Beginning in 2012, Teva received subpoenas and informal document requests from the Securities and Exchange Commission (“SEC”) and the Department of Justice (“DOJ”) to produce documents with respect to compliance with the U.S. Foreign Corrupt Practices Act (the “FCPA”) in certain countries. Teva has provided and will continue to provide documents and other information to the SEC and the DOJ, and is cooperating with the government in their investigations of these matters. Teva is also conducting a voluntary worldwide investigation into certain business practices that may have FCPA implications and has engaged independent counsel to assist in its investigation. In the course of its investigation, which is continuing, Teva has identified issues in Russia, certain Eastern European countries, certain Latin American countries and other countries where it conducts business that could rise to the level of FCPA violations and/or violations of local law. In connection with its investigation of these issues, Teva has become aware that Teva affiliates in certain countries under investigation provided to local authorities inaccurate or altered information relating to marketing or promotional practices. Teva continues to bring these issues to the attention of the SEC and the DOJ. No conclusion can be drawn at this time as to any likely outcomes in these matters.”
Och-Ziff
Och-Ziff Capital Management disclosed as follows in its recent quarterly filing:
“Beginning in 2011, and from time to time thereafter, the Company has received subpoenas from the Securities and Exchange Commission and requests for information from the U.S. Department of Justice in connection with an investigation involving the Foreign Corrupt Practices Act and related laws. The investigation concerns an investment by a foreign sovereign wealth fund in some of the Och-Ziff funds in 2007 and investments by some of the funds, both directly and indirectly, in a number of companies in Africa. At this time, the Company is unable to determine how the investigation will be resolved and what impact, if any, it will have. An adverse outcome could have a material effect on the Company’s consolidated financial statements. “
“Financial SWAT Team”
It receives scant attention compared to FCPA enforcement, but another prong of the DOJ’s efforts to combat bribery and corruption is its Kleptocracy Asset Recovery Initiative under which prosecutors in the DOJ Asset Forfeiture and Money Laundering Section work in partnership with federal law enforcement agencies to forfeit the proceeds of foreign official corruption. (See this 2009 post highlighting Attorney General Holder’s announcement of the program).
Earlier this week, speaking at Ukraine Forum on Asset Recovery Attorney General Holder announced “the creation of a dedicated Kleptocracy squad within the FBI.” He stated:
“This specialized unit will partner with our Asset Forfeiture and Money Laundering Section to aggressively investigate and prosecute corruption cases – not only in Ukraine, but around the world. The squad of about a dozen personnel will consist of case agents and forensic analysts who are capable of unraveling the intricate money laundering transactions commonly employed by kleptocrats. Their sophisticated work will be supported by deputy marshals from the United States Marshals Service and analysts from FinCEN, which is our financial intelligence unit. And this new initiative will provide the United States with increased capacity to respond rapidly to political crises as they arise – so we can help prevent stolen assets from being dissipated or secreted away by deposed regimes.”
At the SEC
Further to the notion that SEC enforcement seems at times to be a numbers game, SEC Chair Mary Jo White testified as follows before the House Financial Services Committee.
“The Commission continues to pursue companies that bribe foreign officials to obtain or retain business, and over the last two-and-a-half years, we have obtained over $679 million in monetary relief from FCPA actions. For example, the SEC has brought FCPA actions charging a company with a bribe scheme involving business with Aluminum Bahrain; another company with various bribes and improper payments in the Middle East and Africa and violations of U.S. sanctions and export control laws involving Cuba, Iran, Syria, and Sudan; and a third company with bribe schemes involving business with the National Iranian Oil Company. The Commission is also focused on holding individuals accountable, with ongoing FCPA-related litigation against former executives of a number of corporations.”
Fact check.
Since 2008, approximately 82% of corporate SEC FCPA enforcement actions have not (at least yet) resulted in any SEC charges against company employees and the SEC has not brought an individual FCPA enforcement action since 2012.
Although White’s FCPA testimony focused on the numbers, elsewhere she was quick to point out that:
“Quantitative metrics alone, however, are not the proper yardstick of the measure of Enforcement’s effectiveness. Enforcement considers the quality, breadth, and effect of the actions pursued.”
Staying with the SEC, its tough to beat the following for lack of transparency. Recently in an insider trading enforcement action, the SEC entered into a non-prosecution agreement with an “individual.”
FCPA Inc. News
Few FCPA Inc. participants are publicy-traded companies. Thus, it is often difficult to take the pulse of FCPA Inc. other than anecdotal information. However, one FCPA Inc. participant that is publicly traded is FTI Consulting. In a recent earnings release, the company stated:
“The major driver of quarterly results was Forensic and Litigation Consulting with a record quarter, fueled by a number of front-page newspaper assignments from across the globe relating to high-stakes client events ranging from FCPA investigations to mortgage-backed security litigations. Similarly, our Technology business continued to perform very well, driven by ongoing FCPA and financial services investigations as well as increased cross-border M&A related ‘second request’ activity.”
As previously highlighted, as Acting Assistant Attorney General for the Criminal Division, Mythili Raman often carried forward much of the same rhetoric former Assistant Attorney General Lanny Breuer frequently articulated concerning the DOJ’s FCPA enforcement program. Raman will now be joining Breuer at Covington & Burling. The firm announced that “Mythili Raman … is joining Covington & Burling as a partner. Ms. Raman will practice in the firm’s litigation and white collar groups and be resident in the Washington office.”
As noted in this Covington biography:
“As Acting Assistant Attorney General of the Criminal Division from 2013-2014, and before then, as the Principal Deputy Assistant Attorney General of the Criminal Division from 2009-2013, Ms. Raman oversaw the work of more than 600 prosecutors and led the Justice Department’s national and international criminal law enforcement initiatives, including investigations of [among other things] violations of the U.S. Foreign Corrupt Practices Act.”
For additional coverage see here from the New York Times and here from the Wall Street Journal.
For the Reading Stack
ProPublica takes a look at various aspects of white-collar law enforcement, including the “Breu Crew” (a reference to former Assistant Attorney General Lanny Breuer”) in “The Rise of Corporate Impunity.” See here for my article “Lanny Breuer and Foreign Corrupt Practices Act Enforcement.”
Three cheers for Northwestern Professors Juliet Sorensen and Karen Alter for resisting the “feel good” notion that the International Criminal Court ought to be prosecuting corruption. Writing in “Let Nations, Not the World, Prosecute Corruption,” the authors state:
“It is easy to understand the attraction of adding the crime of corruption to the International Criminal Court’s jurisdiction. Like violent atrocities, embezzlement and blackmail may be perpetrated on innocents. Corruption can be an international crime, featuring offshore accounts, money laundering and bribery of foreign officials. Moreover, when political leaders are involved in mass corruption, their crimes can become too dangerous for local judges and prosecutors to tackle. […] But to add this crime to the court’s jurisdiction would be a mistake. It is limited for good reason to genocide, war crimes, crimes against humanity and in the future, the crime of aggression. […] Before we give the court a new and even harder crime to prosecute, we must make sure that it can succeed in its core mandate. What international criminal law does best is prosecute those most responsible, at the apex of the pyramid, when individual nations are unwilling or unable to do so. Finally, we must recognize that already the International Criminal Court faces a crisis of political support. […] The status quo is surely not a perfect one. But international intervention is not a panacea. The International Criminal Court needs to stay focused on the important task of prosecuting those most responsible for mass atrocities. Rather than put more resources into international criminal prosecution, the resources and energy of the international community should go towards bolstering national resources to investigate, prosecute, and deter public corruption.”
See here for “Anti-Corruption Compliance: Meeting the Global Standard” recently published in Bloomberg BNA’s Corporate Law and Accountability Report by Arnold & Porter attorneys Keith Korenchuk, Samuel Witten and Daniel Bernstein:
“Designing an effective anti-corruption compliance program that meets the requirements of many different jurisdictions seems like a daunting task. Executives at global companies are likely to ask themselves: Do we need dozens of different compliance programs? Will we be subject to conflicting standards in the various countries where we do business? How can we ensure proper oversight of activity that occurs all over the globe? In addressing these questions, multinational companies should take note of the broad global consensus that has developed around what governments and international organizations expect of corporate anti corruption compliance programs. While there is no one-size-fits-all program—and a company must bear in mind applicable local laws—this global standard is welcome news. Here we review the commonly accepted best practices for an anti-corruption compliance program.”
From various Jones Day attorneys (here), “India’s New Corporate Social Responsibility Requirements – Beware of the Pitfalls”:
“In August 2013, the Indian parliament passed the Indian Companies Act, 2013 (the “New Act”), which has replaced the Companies Act of 1956. The New Act has made far-reaching changes affecting company formation, administration and governance, and it has increased shareholder control over board decisions. […] One of the New Act’s most startling changes—which came into effect on April 1, 2014—has been to impose compulsory corporate social responsibility obligations (“CSR”) upon Indian companies and foreign companies operating in India. These obligations mainly come in the form of mandatory amounts companies must contribute to remediating social problems. This is a wholly new requirement; although companies were permitted, within certain limits, to make charitable contributions in the past, the New Act is essentially a self-administered tax. […] If the Indian company undertaking CSR is a subsidiary of a United States entity, or if its business activities “touch” the U.K., then the U.S. Foreign Corrupt Practices Act (“FCPA”) or the U.K. Bribery Act (“UKBA”), respectively, as well as other regulatory laws of these jurisdictions, may apply to the Indian company’s CSR payments. This may raise serious issues of compliance and liability.”
See here for “China Introduces New Health Care Sector Anti-Corruption Regulations” by Richard Grams and Allan Golder:
“As part of a concerted effort to tackle systemic commercial bribery in the country’s health care sector, China’s National Health and Family Planning Commission recently introduced separate new regulations aimed at hospitals and physicians, as well as the medical product companies that supply them.”
*****
A good weekend to all.
Friday Roundup
It’s not every day that …, denied, scrutiny alerts, and a kleptocracy forfeiture action. It’s all here in the Friday roundup.
It’s Not Every Day …
It’s not every day that a U.S. Senator takes to the Senate floor to accuse a company of violating the Foreign Corrupt Practices Act.
However, as noted here by the Hill, on Tuesday Senator Harry Reid (D-NV) did just that.
“Senate Majority Leader Harry Reid (D-Nev.) on Tuesday accused the Koch brothers of unlawful business practices in an effort to portray the conservative billionaires as election-year bogeymen. Reid charged that Charles and David Koch, who are tied for fourth place on the Forbes list of 400 richest people in the United States, violated the Foreign Corrupt Practices Act, citing a 2011 report by Bloomberg Markets magazine. “These are the same brothers whose company, according to a Bloomberg investigation, paid bribes and kickbacks to win contracts in Africa, India and the Middle East,” Reid said on the Senate floor. “These are the same brothers who, according to the same report, used foreign subsidiaries to sell millions of dollars of equipment to Iran, a state sponsor of terrorism.” Representatives of the Kochs’s business empire fired back quickly in what has become an escalating battle between the top Democrat in Congress and the press-shy business titans. A lawyer for Koch Industries said the allegations in the Bloomberg article have been subsequently debunked and did not result in any legal penalty. “Nothing has ever come of any of the allegations that Mr. Reid referred to,” said Mark Holden, general counsel of Koch Industries. “Sen. Reid’s allegations are false,” he added.”
See here for a prior post regarding the referenced Bloomberg article.
Of course it is not just executives or companies that support Republican causes that have come under FCPA scrutiny. As noted in this prior post the CEO of DreamWorks Animation and the co-founder of Qualcomm Inc., are big spenders for President Obama and the Democratic Party. Both companies have been the subject of FCPA scrutiny.
Denied
The goal of FCPA Professor is to be a forum in which various views of the FCPA and FCPA enforcement can be expressed. I frequently extend invitations for guest posts and for years have extended such an invitation to the DOJ. The answer has always been no. With Patrick Stokes becoming the new FCPA Unit Chief, I extended the invitation once again. The DOJ response? While Mr. Stokes “appreciates the invitation he’ll decline the opportunity.”
You could however, if you are willing to pay over $1,000, have heard Stokes speak yesterday about FCPA “Recent Developments and New Trends” at the ABA National Institute on White Collar Crime in Miami.
As highlighted in this previous post, one should not have to pay to hear public servants speak about the law they enforce.
Scrutiny Alerts
Cisco
This February 14th post was the first to highlight Cisco’s discreet blog post concerning its FCPA scrutiny. Recently in its quarterly SEC filing the company disclosed:
“At the request of the U.S. Securities and Exchange Commission and the U.S. Department of Justice, the Company is conducting an investigation into allegations which the Company and those agencies received regarding possible violations of the U.S. Foreign Corrupt Practices Act involving business activities of the Company’s operations in Russia and certain of the Commonwealth of Independent States, and by certain resellers of the Company’s products in those countries. The Company takes any such allegations very seriously and is fully cooperating with and sharing the results of its investigation with the Commission and the Department. While the outcome of the Company’s investigation is currently not determinable, the Company does not expect that it will have a material adverse effect on its consolidated financial position, results of operations, or cash flows. The countries that are the subject of the investigation collectively comprise less than two percent of the Company’s revenues.”
Citigroup
As has been widely reported (see here from Reuters for instance):
“The SEC is investigating Citigroup for accounting fraud after it disclosed bogus loans in its Mexican Banamex unit, a source familiar with the investigation said. The securities regulator is also examining whether Citigroup violated the Foreign Corrupt Practices Act, the source said.”
I think it is important to emphasize at times like this, that the FCPA contains generic books and records and internal controls provisions that can be implicated in the absence of any FCPA anti-bribery issues. (See here for a prior post on this subject).
Rolls Royce Holdings
Rolls Royce Holdings, previously known to be under investigation by the U.K. Serious Fraud Office (see here for the prior post) added the Department of Justice to its recent annual report disclosure.
“A large part of the Group’s business is characterised by competition for individually significant contracts with customers which are often directly or indirectly associated with governments and the award of individually significant contracts to suppliers. The procurement processes associated with these activities are highly susceptible to the risk of corruption. In addition the Group operates in a number of territories where the use of commercial intermediaries is either required by the government or is normal practice. The Group is currently under investigation by law enforcement agencies, primarily the Serious Fraud Office in the UK and the US Department of Justice. Breaches of laws and regulations in this area can lead to fines, penalties, criminal prosecution, commercial litigation and restrictions on future business.”
Rolls Royce later clarified its disclosure as follows.
“Rolls-Royce has been co-operating with regulatory authorities on both sides of the Atlantic in regard to allegations of bribery and corruption. The Serious Fraud Office in the UK has launched a formal investigation. The Department of Justice is also investigating these matters, however we have received no notification of a formal inquiry being launched in the United States.”
Kleptocracy Forfeiture Action
It receives scant attention compared to FCPA enforcement, but another prong of the DOJ’s efforts to combat bribery and corruption is its Kleptocracy Asset Recovery Initiative under which prosecutors in the DOJ Asset Forfeiture and Money Laundering Section work in partnership with federal law enforcement agencies to forfeit the proceeds of foreign official corruption. (See this 2009 post highlighting Attorney General Holder’s announcement of the program).
Earlier this week, the DOJ announced:
“[The DOJ has] frozen more than $458 million in corruption proceeds hidden in bank accounts around the world by former Nigerian dictator Sani Abacha and conspirators. A civil forfeiture complaint unsealed today in the United States District Court in the District of Columbia seeks recovery of more than $550 million in connection with the largest kleptocracy forfeiture action brought in the department’s history. The restraint of funds announced today includes approximately $313 million in two bank accounts in the Bailiwick of Jersey and $145 million in two bank accounts in France. In addition, four investment portfolios and three bank accounts in the United Kingdom with an expected value of at least $100 million have also been restrained, but the exact amounts in the accounts will be determined at a later date.”
*****
A good weekend to all.
World Bank / U.N. Report Rightly Identifies A Problem, Yet Ends With Contradiction
The Stolen Asset Recovery Initiative, a partnership between the World Bank Group and the U.N. Office on Drugs and Crime, recently released this report titled “Left Out of the Bargain: Settlements in Foreign Bribery Cases and Implications for Asset Recovery.”
The report addresses the “core issue of how the imposition of monetary sanctions through settlement compares to the requirements of the U.N. Convention Against Corruption on the recovery and return of the proceeds of corruption.”
This post highlights other topics, beyond the above core issue, addressed in the lengthy report.
For starters, the report is a useful resource in understanding how other nations prosecute and resolve bribery and corruption offenses as well as how settlements in one jurisdiction affect legal actions in other jurisdiction (that is double jeopardy issues). Also informative was the section of the report detailing countries who “have taken enforcement actions against foreign companies or individuals who have bribed their public officials” In other words, carbon-copy prosecutions (see here for the prior post).
From my perspective, the most notable feature of the report was its call for greater transparency of bribery and corruption settlements.
As the report notes, “over the past decade, there has been significant progress in battling foreign bribery, with the clear trend of many cases being resolved through settlements rather than full trials.”
In the Executive Summary, under the heading “Additional Observations,” the report states:
“This study calls for greater transparency in settlements. The negotiation of settlements takes place between the authorities and implicated parties behind closed doors. One critical step would be to inform affected jurisdictions that a negotiation toward a settlement is taking place. The study shows that forms of settlements (such as Non-Prosecution Agreement, Deferred Prosecution Agreement, penalty notice, or a guilty plea) provide varying degrees of transparency. In some jurisdictions, the outcomes of settlements are publicly available, illustrating that greater transparency is possible. Most settlements are negotiated with little oversight by a judge and sometimes without any public hearing at the conclusion. The report emphasizes that once an agreement has been reached, it should not be shielded from public view. More transparency helps ensure fairness to all affected jurisdictions and parties.”
After noting that the “United States has resolved more foreign bribery cases by way of settlement than any other nation,” the report states that the U.S. has some “unique procedural features” in that non-prosecution agreements and deferred prosecution agreements are “unique even among the common law jurisdictions.”
The report notes that NPAs in the U.S. have no judicial involvement and then states that “in general, if a judge oversees the [settlement] process, the public will have more confidence in the outcome” and that “without the stamp of judicial approval, settlements may have less legitimacy.”
Elsewhere, the report notes that settlements, and the “abbreviated procedures [they contain] have also helped in no small measure to boost the enforcement of foreign bribery laws and regulations globally.”
Under the heading “reduced role of the courts,” the report states:
“The more cases are concluded by means of a settlement rather than proceeding to trial, the more the role of the courts is reduced. In common law systems, in particular, the greater involvement of courts usually leads to greater clarification of what the law means. But as greater use is made of settlements and guilty pleas, this clarifying role is diminished. In a trial, issues are litigated with full arguments made on each side, permitting a judge to weigh the merits of the legal issues in light of the facts. In common law jurisdictions, such case law plays a large role, and its effect on the development of law is considered desirable. Moreover, in such systems, legal precedent is often binding on future cases.”
Despite the above spot-on statements on the issue of settlements, the report ends with a Conclusion section and the first conclusion is stated as follows.
“Over the past decade, enforcement actions against foreign bribery have increased. This is a positive and welcome trend, especially since improvements in enforcement also improve the climate for asset recovery. This progress in enforcement has largely been due to the effective use of settlements in a steadily increasing number of jurisdictions.”
From calling for greater transparency of settlements, to stating that settlements have less legitimacy, to criticizing the reduced role of the judiciary in settlements, to calling such a state of affairs “effective.”
That is quite the contradiction.
Friday Roundup
Enforcement agency speeches, “foreign official” delay, and for reading stack. It’s all here in the Friday roundup.
Enforcement Agency Speeches
This prior post detailed comments by Mary Jo White prior to becoming SEC Chairman.
Last week, White spoke before the Investment Company Institute on the general topic of the SEC’s role in an increasingly global financial and regulatory system. She stated as follows (see here) concerning the SEC’s enforcement of the FCPA.
“Of course, misrepresentations and other unlawful actions travel in both directions across borders, which is another reason why our partnership with our regulatory counterparts abroad is so important. Among the most prominent concerns in this regard is bribery by U.S. companies overseas, which not only undermines international markets and governments but also simultaneously undermines the reporting and disclosure integrity of our own markets. Thus, strong and fair enforcement of the Foreign Corrupt Practices Act, which forbids U.S. companies from bribing foreign officials, has been and will continue to be a priority for us. Our first objective is to help companies avoid FCPA violations by educating them. And so our staff along with our colleagues at the Department of Justice recently published a comprehensive Guide to the FCPA to give clear guidance and clear up some myths. Of course, the other side of education is deterrence. Deterrence can mean strong enforcement actions with tough disgorgement and penalties. But it can also mean the tangible benefits that come with cooperation – as demonstrated by the Non-Prosecution Agreement with Ralph Lauren Corporation we announced in April. In this particular case, the corporation’s Argentine subsidiary paid bribes to government and customs officials to improperly secure the importation of their products into the country. The bribes occurred during a period when the U.S. parent company lacked meaningful anti-corruption compliance and control mechanisms over its foreign subsidiary. The misconduct came to light as a result of the company’s efforts to improve internal controls and compliance. And the company immediately reported the problem to the SEC and provided exceptional assistance to our investigation. Successful FCPA cases also increasingly require assistance from foreign law enforcement authorities. That is why we recently partnered with the DOJ and FBI in conducting a foreign bribery training program that provided intensive training to 130 foreign investigators and prosecutors from 30 countries, many on which the SEC staff relies for mutual legal assistance in FCPA cases.”
Yesterday, Daniel Suleiman (DOJ Deputy Chief of Staff for the Criminal Division) spoke at the Minnesota Bar Association’s Annual International Business Law Institute. (See here). Suleiman offered “some views from the U.S. Department of Justice on the topic of anti-corruption enforcement” and “what the Justice Department is doing in the area of criminal enforcement to fight corruption at home and abroad.” He stated, in pertinent part, as follows.
“I think of our anti-corruption efforts as falling into three principal buckets: number one is criminal prosecution; number two is assisting foreign countries to build up their judicial, prosecutorial, and investigative institutions; and number three is the pursuit, through civil actions, of the proceeds of foreign official corruption. I will discuss each of these buckets in turn.
First and foremost, the Criminal Division is a litigating operation. We investigate and prosecute cases. Our corruption prosecutions are of two kinds: we prosecute corruption by domestic officials, and we prosecute foreign bribery offenses under the Foreign Corrupt Practices Act, or FCPA.”
[…]
“[W]e have an incredibly strong team of prosecutors who focus exclusively on enforcing the FCPA. Depending upon how familiar you are with FCPA enforcement, you may know that the Criminal Division is the entity in the United States with primary responsibility for criminal enforcement of the Act. It is Justice Department policy that no FCPA prosecution can be brought without authorization from the Criminal Division, which distinguishes FCPA prosecutions from most other kinds of federal criminal cases. The Securities and Exchange Commission, which is a few blocks up the street from us, has primary responsibility for the Act’s civil enforcement.”
“Foreign bribery enforcement has for a long time been an important aspect of U.S. policy. The FCPA was enacted roughly 35 years ago, around the same time that our Public Integrity Section was created to focus on public corruption prosecutions, and it was the first effort of any nation to specifically criminalize the act of bribing foreign officials. The statute was enacted in the wake of the Watergate scandal, but it took more than 20 years for the Act to become a strong enforcement tool. And, over the past several years, the Justice Department has substantially increased its enforcement of the Act.”
“One important aspect of our FCPA enforcement involves, of course, our corporate resolutions. We have collected billions of dollars in criminal fines and penalties to resolve FCPA investigations against companies doing business abroad, including BizJet International Sales and Support Inc., a Lufthansa subsidiary; Alcatel-Lucent; Johnson & Johnson; and many others.”
“But another, critically important aspect of our enforcement regime involves holding individuals responsible for FCPA offenses. There is no greater deterrent to corporate crime than the prospect of prison time. As many have recognized, if people don’t go to prison, then enforcement can come to be seen as merely the cost of doing business. In the past four years, the Criminal Division’s FCPA Unit has obtained over three dozen criminal convictions of individuals, including of people who have been sentenced to as many as 15 years in prison.”
“We are as active today in this area as we have ever been. In the past month alone, we have announced charges against several key defendants in ongoing, active FCPA investigations. In mid-April, in a case that we are prosecuting with the U.S. Attorney’s Office in Manhattan, we secured the arrest of a defendant in connection with an alleged bribery scheme to secure mining rights in the Republic of Guinea. In a separate case, which we are prosecuting with the U.S. Attorney’s Office in Connecticut, we also secured the arrest last month of a defendant in connection with an alleged bribery scheme to secure power contracts in Indonesia. And just two days ago, together with the U.S. Attorney’s Office in Manhattan, we announced charges against two broker-dealer employees and a senior Venezuelan banking official for engaging in a multi-million dollar bribery scheme.”
[…]
“Finally, I want to tell you about a relatively new Justice Department initiative. About three-and-a-half years ago, Attorney General Holder gave a speech in Qatar, at which he pledged to increase the United States’ commitment to recovering foreign corruption proceeds. Since that time, the Criminal Division has led the charge in developing what we refer to as the Kleptocracy Asset Recovery Initiative.”
“The initiative’s purpose is to identify the proceeds of foreign official corruption – in other words, the spoils – forfeit them through civil actions, and, to the extent possible, repatriate the forfeited funds for the benefit of the people harmed. In most criminal prosecutions, a court can order forfeiture, upon conviction, as part of the defendant’s sentence. Often, however, it may be impractical or impossible to bring a criminal prosecution against a particular person – because that person is immune from prosecution, for example, beyond our jurisdiction, or otherwise unavailable. In these circumstances, we have begun bringing civil forfeiture actions to recover the stolen property.”
“We have brought several Kleptocracy cases in the past couple of years, and forfeited millions of dollars in corrupt proceeds. The most high-profile of our Kleptocracy cases to date involves two civil actions we have brought against approximately $70 million in assets allegedly belonging to a government minister in Equatorial Guinea who is also the son of that country’s president. According to court papers, despite an official government salary of less than $100,000 per year, this minister amassed wealth of over $100 million. Among the items we are seeking to forfeit are nearly $2 million worth of Michael Jackson memorabilia (including the white glove), a Gulfstream G-V jet worth $38.5 million, and a $30 million house in Malibu. These are hard, and hard-fought, cases, but we believe strongly that foreign officials who amass wealth through corruption should not be permitted to use the United States as a haven for their ill-gotten gains.”
“Foreign Official” Delay
Oral argument in the “foreign official” challenge pending in the 11th Circuit – originally scheduled for later this month, has been postponed until the week of October 7th.
This is a historic appeal in that it will be the first instance in which a circuit court directly confronts the enforcement theory that employees of alleged state-owned or state-controlled entities are “foreign officials” under the FCPA (see here for a prior post, including embedded links).
Scrutiny Alerts
For more on Barclay’s scrutiny, on both sides of the Atlantic, see this recent article in Middle East Monitor concerning the bank’s relationship with the Abu Dhabi government, including Sheikh Mansour, the deputy prime minister of the United Arab Emirates.
Samuel Rubenfeld (Wall Street Journal Risk & Compliance Journal) has the latest (here) regarding BSG Resources Ltd. a Guernsey-based company in the news after Frederic Cilins, a French citizen associated with the company, was recently 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. (See here for the prior post). As noted in the WSJ article, BSG recently released this detailed statement concerning its conduct in Guinea.
Reading Stack
Several articles of interest to pass along from last week’s Corporate Crime Reporter conference. This article details comments made by Denis McInerney (DOJ Criminal Division Deputy Assistant Attorney General) regarding non-prosecution and deferred prosecution agreements. This article details comments made by McInerney concerning my suggested two-step reform plan (see here for the prior post) and also details McInerney’s response to my question concerning the definition of a declination. Articles here and here concern corporate monitors.
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Over the years, Bloomberg’s David Glovin has written some excellent articles concerning Viktor Kozney, Frederic Bourke, et al. With Bourke soon to report to prison, Glovin pens another great article here.
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This prior post discussed the NY Times recent “With Bags of Cash, CIA Seeks Influence in Afghanistan” story and how the story put our stark double standards in the headlines once again. More recently, the NY Times reports (here) as follows. “[Afghan President] Karzai said he had called a meeting […] with the CIA’s Kabul station chief. “I told him because of all these rumors in the media, please do not cut all this money, because we really need it,” he said. “We want to continue this sort of assistance, and he promised that they are not going to cut this money.” For more on the situation, including the views of others, see here from Alison Frankel’s On the Case column.
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See here from Josh Goodman (an attorney at the Federal Trade Commission) titled “The Anti-Corruption and Antitrust Connection.”
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A good weekend to all.