Friday Roundup
Like it, quotable, and scrutiny alerts and updates. It’s all here in the Friday roundup.
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Quotable
What did Paul Pellitier (a former Principal Deputy Chief of the Criminal Division’s Fraud Section) think about Assistant Attorney General Leslie Caldwell’s recent “we do not expect companies to aimlessly boil the ocean” speech (see here for the prior post). Pellitier wrote in a guest post on the FCPA Blog:
“Somewhat surprisingly, however, AAG Caldwell seemed to place the blame for the arduousness of government FCPA investigations squarely on companies for “spend[ing] years, and many millions of dollars, investigating potential violations.”
Although AAG Caldwell’s candid remarks provide enough reason to be hopeful, they don’t address critical distinctions between corporate internal investigations and the government’s own overarching criminal investigations that may serve to cause investigatory delays.
As an initial observation, it remains an unavoidable fact that companies simply are not incentivized to incur substantial costs by acting needlessly in the conduct of those internal inquiries. Moreover, while it may be true that, on occasion, a company has “boiled the ocean” in the conduct of an internal investigation, the notion that federal investigators would routinely permit an “aimless” internal inquiry to negatively affect the course or duration of the government’s investigation is, at base, unconvincing.
There is no doubt, however, that, regardless of the level of corporate cooperation, government investigators and prosecutors are not merely museum docents here. As AAG Caldwell pointed out, the government does not (and cannot) sit idly by and rely exclusively on the company’s internal investigation in making its charging decisions, but rather, conducts its own independent inquiry and “pressure tests” the company’s internal investigation. As such, the government plainly is the driver of the investigatory bus.”
As to Pellitier’s comments, it is of course true that “companies simply are not incentivized to incur substantial costs by acting needlessly in the conduct of those internal inquiries.”
Yet it may be true that: (i) FCPA Inc. may be so incentivized; (ii) FCPA Inc. participants are often the go-between between the DOJ/SEC and a company’s board of directors / audit committee; and (iii) few board of directors / audit committees are going to reject FCPA Inc. advice when the issue is a high-profile, sensitive, potentially criminal FCPA matter.
Scrutiny Alerts and Updates
Here is what Brian Robinson (CFO, General Cable Corporation) said on a recent earnings conference call about the company’s FCPA scrutiny.
“I wanted to provide an update regarding the ongoing FCPA-related investigation. The general scope of our internal investigation remains broadly consistent with our past disclosures and we continue to believe, subject to any new developments, that our internal investigation will be concluded or substantially concluded later in this calendar year. As we’ve stated before, once we complete our internal review, we cannot predict how long it will take the SEC or DOJ to conclude their work or what the ultimate outcome may be, including the amount of any fines or penalties we may pay.
We also cannot guarantee that the scope of this ongoing investigation will not change or expand in the future as it unfolds. As we’ve said before, any determination that our operations or activities are not in compliance with existing laws or regulations could result in the imposition of substantial fines, civil and criminal penalties, and equitable remedies including disgorgement and injunctive relief.
In February of this year, based on the analysis completed at that time, with the assistance of our external counsel and forensic accountants, we concluded that we are able to reasonably estimate the amount of profit derived from sales made to the Angolan government owned public utilities that we believe are likely to ultimately be disgorged in connection with our ongoing investigation. As a result, we recorded an estimated charge in the amount of $24 million as an accrual as of December 31, 2014. The accrued amount reflects only an estimate of the Angola related profits reasonably likely to be disgorged and does not include provision for any fines, civil or criminal penalties, or other relief. There has been no change in the amount of accrual since it was put in place in February.”
*****
Bank of New York Mellon Corp. recently disclosed:
“In January 2011, the Enforcement Division of the U.S. Securities and Exchange Commission (the “SEC Staff”) informed several financial institutions, including BNY Mellon, that it had commenced an inquiry into certain of their business practices and relationships with sovereign wealth fund clients. In the third quarter of 2014, the SEC Staff issued Wells notices to certain current and former employees of BNY Mellon, informing them that the SEC Staff has made a preliminary determination to recommend enforcement action against them for alleged violations of the U.S. Foreign Corrupt Practices Act in connection with the provision of a limited number of internships to relatives of sovereign wealth fund officials. BNY Mellon received a similar Wells notice in the fourth quarter of 2014. On Jan. 23, 2015, BNY Mellon received an additional subpoena from the SEC expanding the scope of the SEC’s inquiry into the provision of internships and employment opportunities offered to officials and relatives of officials at government-related entities. BNY Mellon has fully cooperated with the SEC Staff’s investigation.”
Speaking of the above disclosure, this World Finance video (7 minutes in length) asks “is bribery part of life on Wall Street?” (Note- challenging enforcement agency interpretations of facts or law (as recently highlighted here) is not lobbying as suggested in the video).
*****
A good weekend to all.
Wall Street Firms Push Back Against FCPA Scrutiny
For the past several years, a number of banks have been under FCPA scrutiny based on alleged hiring practices in China and elsewhere. (See here among other prior posts).
Among the banks under scrutiny are the following: JP Morgan, Bank of New York Mellon Corp., Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, Goldman Sach Group Inc., Morgan Stanley, and UBS AG.
The Wall Street Journal reports:
“Wall Street banks are embroiled in an intense dispute with the U.S. government over its “aggressive” interpretation of foreign-bribery laws, a flurry of legal wrangling in a probe with broad implications for how corporations do business overseas, according to people familiar with the matter.
The previously unreported campaign by banks goes to the heart of a wide-ranging inquiry into whether they ran afoul of U.S. antibribery laws by giving jobs to relatives of managers of state-owned companies and other well-connected officials, including the kin of high-ranking Chinese government officials known as “princelings,” allegedly to curry favor in getting deals.
In a series of meetings, calls and letters to regulators and federal prosecutors, banks have accused the government of overreaching by threatening to criminalize standard business practices in some countries, according to people close to the firms. The pushback differs from the normal squabbling over settlement terms, in part because the outcome is likely to set a blueprint for future cases, according to people familiar with the matter.
The government maintains its approach, which the banks have privately called “aggressive,” is within the confines of the law.”
According to the article, JP Morgan “is preparing a white paper to submit to the Securities and Exchange Commission and Justice Department, setting out the bank’s concerns about their approach.” The white paper is being written by Mark Mendelsohn.
Mendelsohn’s assignment is most interesting as the former DOJ FCPA Unit Chief describes himself on his law firm bio as the “architect and key enforcement official of DOJ’s modern Foreign Corrupt Practices Act (FCPA) enforcement program.” As highlighted in prior posts here and here, when Mendelsohn left the DOJ in April 2010 others stated as follows.
- “Mr. Mendelsohn has overseen a hot field in prosecution in recent years” and that “it has been up to the Justice Department – and specifically to Mr. Mendelsohn – to interpret the law.”
- “Mark Mendelsohn transformed the FCPA from a legal backwater to a headline practice” and during his “term, no corporations mounted a courtroom defense against FCPA charges; instead all made deals with the DOJ to settle their cases.” “That gave Mendelsohn extraordinary power — in the FCPA realm, he and the DOJ became prosecutor, judge, and jury.”
His own law firm, which is now representing a major Wall Street firm in the midst of FCPA scrutiny, issued a release at the time stating Mendelsohn “built the DOJ’s modern FCPA program.”
In certain respects, the FCPA scrutiny of JP Morgan and other Wall Street banks is a reflection of the DOJ (and SEC’s) modern FCPA enforcement program.
According to the Wall Street Journal article, Bank of New York Mellon Corp. “is expected in coming months to settle an SEC inquiry that includes allegations the firm gave internships to relatives of officials at a Middle Eastern sovereign-wealth fund.”
As I told the Wall Street Journal in the article, in FCPA history only one public company has forced the DOJ to carry its burden of proof as to the elements of an FCPA anti-bribery violation and the government will likely get away with pushing the envelope on the legal boundaries in the hiring probe. When push comes to shove, these banks are not going to risk a criminal indictment to litigate a disputed legal issue.
Chalk it up to another potential example of the “facade of FCPA enforcement.”
Indeed, in many instances of FCPA scrutiny in this new era two distinct questions can be asked.
The first is whether, given the DOJ’s and SEC’s enforcement theories, the conduct at issue can expose a company to FCPA scrutiny and an FCPA enforcement action? The second is whether Congress in passing the FCPA intended to capture the alleged conduct at issue and whether a court would find the alleged conduct to be in violation of the FCPA?
As a practical matter, risk-averse corporations care more about the first question than the second.
However, those who value the rule of law should care more about the second question. As former Attorney General Alberto Gonzales rightly noted:
“In an ironic twist, the more that American companies elect to settle and not force the DOJ to defend its aggressive interpretation of the [FCPA], the more aggressive DOJ has become in its interpretation of the law and its prosecution decisions.”
Corporations often complain about the expansive enforcement theories that have come to define this new era of enforcement. However, the business community itself is, at least in part, responsible for the current aggressive FCPA enforcement climate. Indeed, as Homer Moyer, a dean of the FCPA bar rightly observed:
“One reality is the enforcement agencies’ [FCPA] views on issues and enforcement policies, positions on which they are rarely challenged in court. The other is what knowledgeable counsel believe the government could sustain in court, should their interpretations or positions be challenged. The two may not be the same. The operative rules of the game are the agencies’ views unless a company is prepared to go to court or to mount a serious challenge within the agencies.”