Sentenced, convicted, and ridiculous. It’s all here in the Friday roundup.
Sentenced
As highlighted in this prior post, in 2019 the DOJ criminally charged Armengol Alfonso Cevallas Diaz (an Ecuadorian citizen) in connection with a bribery scheme involving PetroEcuador officials.
Earlier this week, the DOJ announced that Cevallas was sentenced to 35 months in prison for FCPA and money laundering charges. As stated in the DOJ release:
Transparency International’s latest Corruption Perception Index, monitor issues, scrutiny alert, Chinese SOEs, SEC press releases, hot, and for the reading stack. It’s all here in the Friday roundup.
Transparency International’s Latest Corruption Perceptions Index
Transparency International, a global civil society organization dedicated to the fight against corruption, released recently the 20th edition of its Corruption Perceptions Index (“CPI”). (See here for TI’s release). As stated by TI, the CPI “measures the perceived levels of public sector corruption worldwide” and 175 countries are ranked with Denmark, New Zealand, Finland, Sweden, Norway, and Switzerland (topping the list – i.e. low levels of perceived corruption) and South Sudan, Afghanistan, Sudan, North Korea and Somalia (on the bottom of the list – i.e. high levels of perceived corruption).
TI’s CPI is a popular tool on which many business organizations rank perceived risk, but query whether the CPI is a reliable or meaningful measure of the specific risks specific business organizations face when competing in the global marketplace?
For starters, perceptions are just that, perceptions. To be sure, there are countless honest and ethical people living in Somalia just as there are countless dishonest and unethical people living in Denmark. Moreover, at its core, FCPA risk is the function of specific business actors (employees and agents) coming into contact with specific foreign officials, in the context of specific foreign business conditions. These risk points are often industry specific and within a country are often region specific. None of these factors, or very few, are captured by the CPI.
Thus, while I enjoy each time this year looking at the CPI map, I don’t think it is a very useful tool for business organizations when adopting policies and procedures designed to minimize FCPA risk.
Monitor Issues
An interesting blurb here from Courthouse News Service.
“Siemens and a monitor charged with keeping watch over the German conglomerate’s compliance with a settlement agreement over federal corruption and bribery charges can fight to keep records of that agreement out of the hands of reporters, a federal judge ruled. (See 2014 WL 6817009). 100Reporters – a press outlet with a self-proclaimed mission to “cover corruption of all sorts” – sued the Justice Department under the Freedom of Information Act this past summer, seeking records of Siemens’ compliance with a 2008 settlement of violations of the Foreign Corrupt Practices Act. Siemens pleaded guilty and agreed to pay a precedent-setting $1.6 billion penalty to U.S. and EU authorities to settle charges that it routinely used bribes and slush funds to secure massive public works contracts around the world. Part of the settlement included four-year compliance monitoring by Dr. Theo Waigel, who was given broad access to Siemens’ confidential and commercially sensitive information and records to make annual reports to the Justice Department. The DOJ closed the compliance monitoring in 2012, determining that Siemens had “satisfied its obligations under the plea agreement.” After the Justice Department denied 100Reporters’ request for compliance monitoring documents – including the four annual reports from Waigel – and the group sued, Siemens and Waigel demanded to get involved, citing the right of intervention. For Siemens’ part, the company argued that the reports contained confidential and proprietary information not fit for public consumption. Waigel complained that his personal reputation – and the unfettered access of future compliance monitors – was on the line because he promised Siemens confidentiality while examining the company’s records and delivering his reports to the Justice Department. Both Siemens and Waigel have a legal interest in fighting 100Reporters’ FOIA request, U.S. District Judge Rudolph Contreras held in a 31-page ruling issued Wednesday. Specifically, Contreras dismissed 100Reporters’ claims that Siemens, Waigel and the DOJ are all fighting from the same legal position. “Requiring Siemens to monitor the DOJ’s litigation posture from the sidelines until Siemens disagrees with a decision by the agency is inefficient and impractical; indeed, Siemens likely would have limited, if any, insight into the DOJ’s strategy during the litigation, and once Siemens did learn of a hypothetical shift in the DOJ’s position, such as a decision to release a specific category of materials, it might be too late for Siemens to undue any damage done,” Contreras wrote. Furthermore, not allowing Siemens and Waigel to intervene now – and forcing them to wait months or years until the Justice Department has done its withholding analysis – would put them both in danger of missing federal filing deadlines, the judge said. The potential injury to Siemens if the documents are released is both “particularized and sufficiently imminent,” Contreras wrote. “It is not surprising, then, that 100Reporters cannot cite a single FOIA case in which a court denied on standing grounds the application of a prospective intervenor whose own confidential materials were the clear subject of the FOIA request,” he added. Contreras also rejected calls by 100Reporters to limit Siemens’ involvement solely to FOIA exemption 4, which bars release of confidential and commercially sensitive information. “A more functional and practical approach is required, and fatally, 100Reporters fails to offer any concrete or realistic consequences to this litigation from Siemens’s (or Waigel’s) intervention that might require the court to impose a limitation on the scope of the defenses that an intervenor may raise as this case, which still is in its infancy, proceeds to the merits,” Contreras wrote. The judge refused 100Reporters’ claims that allowing Siemens and Waigel to get involved would unnecessarily delay the proceedings, advising the group in a footnote “raise such concerns then,” if and when any delays occur.”
The California Lawyer goes in-depth in an article titled “The Secret Life of a Corporate Monitor.”
“Without naming the subjects of his monitoring, Dan Ray talked generally about the highly secretive world of government-appointed corporate monitors, where progress reports are confidential, judges rarely get involved, and the DOJ alone determines whether corporations have complied with terms of the agreements. Monitors are not government employees or agents, and they do not contract with or receive payment from the government. Fees generally are negotiated between the corporation and the monitor.”
Through some basic internet research, it is not that difficult to figure out which companies Ray monitored. (See here, here and here).
Scrutiny Alert
The Financial Times reports:
“In a Florida court on Tuesday, a judge granted a request by US prosecutors to seize an ice cream cooler, a walk-in freezer, dozens of other pieces of catering equipment and three properties belonging to a woman called Mamadie Touré. It was just one of a ceaseless stream of such requests, through which the authorities seek forfeiture of what they say are ill-gotten assets. But this was no ordinary woman and no ordinary case. Ms Touré is the widow of Lansana Conté, a dictator who ruled the resource-rich but dirt poor west African state of Guinea for 24 years before his death in 2008. And US prosecutors’ interest in Ms Touré runs to much more than a few refrigerators and some Jacksonville real estate. Their court filing in the forfeiture request spells out the details of a two-year US investigation into one of the most wide-ranging cases of alleged corruption in recent years. Prosecutors alleged in that filing, lodged last week and seen by the Financial Times, that Ms Touré received bribes totalling $5.3m to help a mining company win iron-ore rights in Guinea. The rights in question were to exploit the northern half of a hillside called Simandou, considered the planet’s richest virgin deposit of iron ore. The company involved is not named in the filing. But references to documents published in a Guinean inquiry, to the timing of the award of the mining rights and to a separate criminal case make it obvious that the company is BSG Resources, the mining arm of Israeli billionaire Beny Steinmetz’s family conglomerate.”
Chinese SOEs
An interesting article recently in the Wall Street Journal. According to the article:
“At the end of 2013, China had about 155,000 firms owned by central, provincial and local governments, according to the Ministry of Finance. Beijing itself directly controls less than 120 of the biggest and most strategically significant industrial companies, which are responsible for building the world’s largest nuclear reactors and most extensive high speed rail network, buying up mining and agricultural resources overseas, and spreading Chinese goodwill with infrastructure projects across the developing world. […] Many smaller state-owned firms make goods with no obvious strategic significance, like spirits and toothpaste …”.
The article contains an interesting chart comparing six China SOEs with U.S. counterparts. According to the chart, the six SOEs have approximately 2.6 million employees.
SEC Press Releases
Russell Ryan (King & Spalding and former assistant director of enforcement at the SEC ) returns to the Wall Street Journal’s opinion page with this dandy piece titled “Get the SEC Out of the PR Business.” He begins:
“Press releases are par for the course when the Securities and Exchange Commission files a case in federal court that it must later prove to a judge or jury. But the agency is increasingly shunting cases into its own administrative proceedings, where it initiates the prosecution and ultimately decides guilt or innocence—along with the severity of any sanctions—subject to only limited review in court. Given the SEC’s peculiar quasi-judicial role in these cases, you might think the agency would refrain from gratuitously stoking prehearing publicity against the accused. Think again. The SEC now routinely issues press releases when it files charges in administrative cases it will eventually decide. This practice calls into question the agency’s ability to decide those cases fairly and impartially.”
[…]
“SEC releases also stray beyond a fair and accurate summary of agency action. Many confuse what happened by asserting—often in the headline or lead sentence—that the SEC “charged” the accused with wrongdoing. But at this initial stage only SEC staff employees, typically from the enforcement division, have “charged” any wrongdoing. Commissioners, at least in theory, have merely scheduled a hearing to determine whether the employees can prove their charges—a determination the commissioners are supposed to make after an administrative judge conducts the hearing and makes a preliminary decision. Not surprisingly, media reports often reinforce the misperception that SEC commissioners are prosecuting these cases rather than deciding them. One of the most troubling features of SEC prehearing press releases is the partiality they betray in favor of agency prosecutors over the accused. In virtually all cases, the SEC allows its prosecuting employees not only to ghostwrite the official press release but also to insert gratuitous quotations that embellish the formal accusations with more colorful words and phrases like “tricks,” “calculated fraud,” “reaping substantial profits,” and “choosing profits over compliance.” The accused is never extended similar courtesies. When the SEC initiates enforcement action administratively rather than in court, it should embrace its primary role as impartial decision maker. That means resisting the urge to stoke prehearing publicity and maintaining strict neutrality in both fact and appearance. By failing to do so, the SEC risks having administrative fines and other sanctions swept aside if a court someday concludes, quite reasonably, that agency press releases plausibly suggest prejudgment of cases or lack of impartiality. The agency may consider that scenario unlikely. But given its determination to prosecute more cases administratively, that may not be a risk worth taking.”
Hot
You probably already knew that FCPA and related practices are hot. But just in case you need another reminder, see here. The latest edition of “What’s Hot and What’s Not in the Legal Profession” contains the following under the “hot” category.
“Anti-corruption. Larger U.S. firms continue to increase enforcement of the Foreign Corrupt Practices Act, leading to more prosecutions. The U.K., China, Brazil and Canada have all enacted anti-bribery laws in the past few years and are now increasing investigations.”
You can elevate your FCPA knowledge and practical experience by attending the FCPA Institute in Miami (Jan. 12-13, 2015). Join other firm lawyers, in-house counsel, auditing professionals and others already registered for the FCPA Institute – Miami by clicking here to register. CLE credit is available.
Reading Stack
The lastest edition of Debevoise & Plimpton’s always informative FCPA Report is here.
From Foley & Lardner attorney Aaron Murphy and Daniel Seltzer (Senior Director, Anticorruption for Accenture) “The End of Whac-A-Mole Compliance: A Global Approach to Anti-Corruption Actions.”
*****
A good weekend to all.
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.”
*****
A good weekend to all.
A happy holiday to all, scholars program, scrutiny alerts and updates, departing speech, spot-on and inexcusable. It’s all here in the Friday roundup.
Happy Holiday
Readers often encourage me to “share” more about myself and background. I have obliged in part, by going off-topic once a year to share my Ironman triathlon results.
I will oblige once again, particularly since it is March Madness.
Happy Mike Koehler Day!
That’s right, on this day 21 years ago (gosh that is hard to believe) my hometown of Elkhart Lake, Wisconsin retired my #21 basketball jersey and proclaimed it “Mike Koehler Day.” No facilitating payments were necessary. I ended my high school basketball career, and still remain, the third leading scorer in the history of Wisconsin high school basketball (#1 leading scorer in the history of the state that did not play for their dad)! A poorly timed illness ended my high school career without that “one shining moment” I dreamed of, and while I was academic all-conference at the University of South Dakota, my college basketball career was uneventful.
So there you have it, you now know something more about me.
Back to the task at hand.
Scholars Program
Kudos to Trace International for launching a new scholars program. The Trace Scholars Program is aimed at developing exceptional leaders in the field of anti-corruption who are committed to advancing commercial transparency. The TRACE Scholar Program will fully fund, with tuition, lodging and travel, two international LLM students from developing countries to pursue studies related to strategies and tools for increasing transparency and reducing corruption. TRACE Scholars will spend an academic year at one of two universities (the University of Washington School of Law or the University of Maryland Francis King Carey School of Law) followed by a paid summer internship at TRACE headquarters in Annapolis, Maryland.
Scrutiny Alerts and Updates
Och-Ziff Capital Management Group, SL Industries, SciClone Pharmaceuticals, TeliSonera and a clarification regarding Beny Steinmetz.
Och-Ziff Capital Management Group
Och-Ziff Capital Management Group stated in its recent annual report as follows:
“Beginning in 2011, and from time to time thereafter, we have received subpoenas from the SEC and requests for information from the U.S. Department of Justice (the “DOJ”) in connection with an investigation involving the FCPA and related laws. The investigation concerns an investment by a foreign sovereign wealth fund in some of our funds in 2007 and investments by some of our funds, both directly and indirectly, in a number of companies in Africa. At this time, we are 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 our business, financial condition or results of operations.”
A day after the company’s annual report, the company’s stock closed down approximately 3.5% and you can rest assured plaintiffs firms will soon be announcing “investigations” and/or filing civil suits. For more see here from Bloomberg.
SL Industries
As noted in this Wall Street Journal Risk & Compliance Journal post has disclosed:
“During 2012, the Company conducted an investigation to determine whether certain employees of SL Xianghe Power Electronics Corporation, SL Shanghai Power Electronics Corporation and SL Shanghai International Trading Corporation, three of the Company’s indirect wholly-owned subsidiaries incorporated and operating exclusively in China, may have improperly provided gifts and entertainment to government officials (the “China Investigation”). The Company had retained outside counsel and forensic accountants to assist in the China Investigation. Based upon the China Investigation, the estimated amounts of such gifts and entertainment were not material to the Company’s financial statements. Such estimates did not take into account the costs to the Company of the China Investigation itself, or any other additional costs.
The China Investigation included determining whether there were any violations of laws, including the U.S. Foreign Corrupt Practices Act (“FCPA”). The Company’s outside counsel contacted the DOJ and the Securities and Exchange Commission (the “SEC”) voluntarily to disclose that the Company was conducting an internal investigation, and agreed to cooperate fully. Additionally, the Company hired outside consultants to provide assistance in implementing a mandatory FCPA compliance program for all of its employees which is now completed by such employees annually. Also, during the first and second quarters of 2013 the Company engaged outside consultants to perform FCPA compliance tests at its operations in China and Mexico, which, going forward, will be performed by the Company annually. On September 26, 2013, the DOJ notified the Company that it had closed its inquiry into this matter without filing criminal charges. The Company has not received an update from the SEC regarding the status of its inquiry. The Company cannot predict at this time whether any action may be taken by the SEC.”
SciClone Pharmaceuticals
SciClone Pharmaceuticals has been under FCPA scrutiny since August 2010 (see here for the prior post). In its most recent annual report, the company disclosed:
“For the year ended December 31, 2013, we determined that a payment of $2.0 million to the government in penalties, fines and/or other remedies is probable. Accordingly, we have recorded $2.0 million of operating expense in our 2013 results of operations to reflect our estimate of a probable loss incurred related to potential penalties, fines and/or other remedies in the ongoing investigations with the SEC and DOJ.”
Once again highlighting that any actual enforcement action fines and penalties are just the tip of the iceberg in terms of a company’s overall financial exposure due to FCPA scrutiny, SciClone also disclosed:
“Additional increases in general and administrative expenses for the year ended December 31, 2013, included higher professional expenses of approximately $5.3 million related to legal matters associated with the ongoing government investigation and our ongoing improvements to our FCPA compliance efforts …”.
TeliaSonera
Various media have reported (see here from the Wall Street Journal for instance) that the DOJ and SEC have opened investigations of Swedish telecommunications company TeliaSonera. According to the reports:
“[The DOJ and SEC] have requested documents relating to the acquisition of an Uzbekistan wireless data license and spectrum frequencies in 2007. The deals were done with a Gibraltar-based holding company with alleged ties to Uzbekistan’s authoritarian regime. The U.S. DOJ and the SEC join several authorities investigating the transactions. The scrutiny was sparked after a Swedish television program in 2012 alleged TeliaSonera may have been involved in corruption when it bought its Uzbeki telecom license.”
Steinmetz
Regarding Beny Steinmetz, the founder of BSG Resources, the 100 Reporters story that identified him as a “target” of a DOJ investigation has been amended as follows.
“After this story was published, the source informed 100Reporters that the source had mischaracterized the letter in question as a “target letter.” Later conversations and further reporting suggested that the letter had instead indicated that Steinmetz was a subject and not a target of the investigation.”
Departing Speech
As highlighted in this February post concerning the announced departure of Mythili Raman as Acting Assistant Attorney, Raman carried forward much of the same rhetoric former Assistant Attorney General Lanny Breuer frequently articulated concerning the DOJ’s FCPA enforcement program. (See here for my article “Lanny Breuer and Foreign Corrupt Practices Act Enforcement).
Like other DOJ FCPA officials before her, Raman frequently highlighted certain enforcement statistics, yet conveniently ignored the most telling enforcement statistic of all – the DOJ’s dismal record when actually put to its burden of proof in FCPA enforcement actions. In short, for a long time the DOJ’s FCPA Unit has had a distorted view of success.
During his last day as head of the Criminal Division, Raman delivered this speech before an FCPA audience and the critique remains the same. Among other things, Raman stated:
“[The DOJ’s] successful foreign bribery prosecutions speaks for itself …”
“These efforts and these successes are the product of the skill, hard work and determination of the talented prosecutors in our Fraud Section’s FCPA Unit, working in tandem with federal prosecutors across the country at many of the 94 U.S. Attorney’s Offices.”
“We have been successful in our efforts to prosecute individuals in part because we are using all of the law enforcement techniques that are at our disposal.”
Spot-On
I’ve written a number of times that trade barriers and distortions are often the root causes of bribery and a reduction in bribery will not be achieved without a reduction in trade barriers and distortions. Few in the anti-bribery space seem to grasp this basic issue, perhaps because it is just easier to pound the pavement for more enforcement or blame everything on those evil corporations.
However, Evelyn Suarez (Williams Mullen) gets it. In this recent piece about the pending Trade Facilitation Agreement (“FTA”), she writes:
“There can be no trade facilitation when border officials solicit bribes and grant favorable treatment to those who pay such bribes. The demand side of corruption has generally been overlooked, and the implementation of TFA provides an excellent and even funded opportunity to address the problem. Thus, measures to ensure public integrity must be adopted along with the trade facilitation measures specified in TFA.”
Spot-on.
Inexcusable
Did you know that NCR Corp. has “paid FCPA penalties in 2014”?
Did you know that Avon has “paid FCPA penalties in 2014?”
Did you know that in 2013 the “U.S. government handed down .. just five FCPA enforcement actions”?
Of course you did not know this, because every one of the above statements are false.
Yet every one of the above statements is included in just one paragraph in this recent Inside Counsel article.
Simply inexcusable, and once again not the media’s finest FCPA moment. (See here, here and here for prior posts).
*****
A good weekend to all – and good luck with your brackets.
Guilty plea in FCPA obstruction case, SEC trims a pending case, across the pond, turnabout is fair play, and for the reading stack. It’s all here in the Friday roundup.
Cilins Pleads Guilty
Earlier this week, the DOJ announced that Frederic 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.” The DOJ release further states:
“Cilins pleaded guilty to a one-count superseding information …, which alleges that Cilins agreed to pay money to induce a witness to destroy, or provide to him for destruction, documents sought by the FBI. According to the superseding information, those documents related to allegations concerning the payment of bribes to obtain mining concessions in the Simandou region of the Republic of Guinea.”
Cilins was originally charged in April 2013 (see this prior post for a summary of the criminal complaint) and there was much activity leading up to Cilins’s March 31st trial date. For instance, on February 18th the DOJ filed a superseding indictment and on March 4th Cilins filed this motion to dismiss. In pertinent part, the motion stated:
“For almost a year, the government has proceeded against Mr. Cilins under the theory that he criminally obstructed an investigation conducted by a federal grand jury in the Southern District of New York and the Federal Bureau of Investigation, after he first learned of that investigation in the spring of 2013. Now, on the eve of trial, the government has charged Mr. Cilins with conspiracy to commit criminal obstruction. The supposed conspiracy began in 2012, when, as the government admits, he had no intent to obstruct an American investigation—indeed, well before any such investigation had even been contemplated. The charge is instead based on a radical new theory: that Mr. Cilins interfered with a Guinean civil licensing investigation, which somehow amounts to a violation of U.S. obstruction law under 18 U.S.C. § 1519.
The government’s unprecedented and breathtaking attempt to federalize protection for investigations spread far and wide throughout the world has no basis in the text of the obstruction statute itself and no support in the case law. It also runs up against the well-established presumption that, absent strong evidence to the contrary, Congress did not intend to give federal statutes extraterritorial reach. Not only does § 1519 contain no textual evidence that Congress meant to give the law a worldwide sweep, the statute’s legislative history also confirms the obvious: that Congress wrote a federal obstruction statute in order to criminalize intentional interference with American investigations. The government’s new conspiracy count is fatally defective and must be dismissed.”
Cilins has been widely reported to be linked to Guernsey-based BSG Resources Ltd. As reported here from 100 Reporters:
“The U.S. Justice Department has formally notified the Franco-Israeli billionaire Beny Steinmetz [the founder of BSG Resources] that he is the target of a federal probe of allegations of bribery in the Republic of Guinea, according to a source with knowledge of the matter. The disclosure places Steinmetz … personally at the center of a broad-based multinational corruption investigation involving some of the largest remaining untapped iron ore deposits in the world. […] According to the source, who spoke on condition of anonymity, attorneys for Steinmetz have received a so-called “target letter” from federal prosecutors investigating allegations that Steinmetz’s mining company offered millions of dollars in bribes to win and keep the multi-billion dollar concession first awarded by the Guinean government in 2008. The letter went to Steinmetz’s lawyers in January, the source said.”
For additional coverage of Cilins’s plea, see here from Reuters (noting that the plea agreement does not require any cooperation with the government’s investigation) and here from Bloomberg.
SEC Trims a Pending Case
This recent post highlighted how the SEC has never prevailed in an FCPA enforcement action when put to its ultimate burden of proof.
Against this backdrop, it is notable, as reported by the Wall Street Journal here and citing an SEC official, that the SEC is dropping its claims that former Magyar Telekom executives Elek Straub, Andras Balogh and Tomas Morval bribed Montenegro officials. (The SEC’s claims that the former executives bribed Macedonian officials remains active).
See this prior post summarizing the SEC’s original 2011 complaint.
Across the Pond
More from the U.K. trial of former News Corp. executive Rebekah Brooks. From the Guardian:
“Rebekah Brooks has admitted rubber stamping payments to military sources while she was editor at the Sun at the Old Bailey phone hacking trial. Brooks also admitted on Monday that she did not question whether the source of a series of stories that came from a reporter’s “ace military source” was a public official who could not be paid without the law being broken. Crown prosecutor Andrew Edis, QC, quizzed her about a series of emails from the reporter requesting tens of thousands of pounds for his military source. She responded to one request for payment in under a minute and to another within two minutes, the phone hacking trial heard. “You really were just acting as a rubber stamp weren’t you,” Edis asked. Brooks replied: “Yes.”
As noted in previous posts here and here:
“What happens in these trials concerning the bribery offenses will not determine the outcome of any potential News Corp. FCPA enforcement action. But you can bet that the DOJ and SEC will be interested in the ultimate outcome. In short, if there is a judicial finding that Brooks and/or Coulson or other high-level executives in London authorized or otherwise knew of the alleged improper payments, this will likely be a factor in how the DOJ and SEC ultimately resolve any potential enforcement action and how News Corp.’s overall culpability score may be calculated under the advisory Sentencing Guidelines.”
Turnabout Is Fair Play
Last week’s Friday Roundup (here) highlighted how Senator Harry Reid (D-NV) called out Koch Industries on the Senate floor and accused the company of violating the FCPA. The previous post noted that it was not just executives or companies that support Republican causes that have come under FCPA scrutiny (several Democratic examples could be cited as well).
Indeed, that is just what the Washington Examiner did in this article which states as follows.
“Senate Majority Leader Harry Reid, D-Nev., has received campaign contributions from people and political action committees linked to multiple companies suspected of violating the Foreign Corrupt Practices Act. […] [R]ecords reveal that Reid has accepted campaign money from individuals and political action committees associated with 10 companies linked to FCPA investigations. The contributions total $515,100 between 2009 and 2013.”
The inference from both Senator Reid’s initial volley and the Washington Examiner report would seem to be that companies that resolve FCPA enforcement actions or companies under FCPA scrutiny are bad or unethical companies and that politicians who accept support from such companies are thus tainted as well.
Such an inference is naive in the extreme.
Yes, certain FCPA enforcement actions are based on allegations that executive management or the board was involved in or condoned the improper conduct at issue. However, this type of FCPA enforcement action is not typical.
A typical FCPA enforcement action involves allegations that a small group of people (or perhaps even a single individual) within a subsidiary or business unit of a business organization engaged in conduct in violation of the FCPA. Yet because of respondeat superior principles, the company is exposed to FCPA liability even if the employee’s conduct is contrary to the company’s pre-existing FCPA policies and procedures.
Also relevant to the question of whether companies that resolve FCPA enforcement actions are “bad” or “unethical” is the fact that most FCPA enforcement actions are based on the conduct of third-parties under the FCPA’s third-party payment provisions. Further, certain FCPA enforcement actions are based on successor liability theories whereby an acquiring company is held liable for the acquired company’s FCPA liability.
Finally, given the resolution vehicles typically used to resolve an FCPA enforcement – such as non-prosecution and deferred prosecution agreements – companies subject to FCPA scrutiny often decide it is quicker, more cost efficient, and more certain to agree to such a resolution vehicle than engage in long-protracted litigation with the DOJ or SEC. These resolution vehicles do not require the company to plead guilty to anything (or typically admit the allegations in the SEC context), are not subject to meaningful judicial scrutiny, and do not necessarily represent the triumph of one party’s legal position over the other. Rather resolution via such a vehicle often reflects a risk-based decision often grounded in issues other than facts or the law. Indeed, a former high-ranking DOJ FCPA enforcement official has stated that given the availability of such alternative resolution vehicles, “it is tempting for the [DOJ], or the SEC since it too now has these options available, to seek to resolve cases through DPAs or NPAs that don’t actually constitute violations of the law.”
Last, but certainly not least, many corporate FCPA enforcement actions concern conduct that allegedly took place 5, 7, 10 or even 15 years ago.
Reading Stack
An informative read from Catherine Palmer and Daiske Yoshida (Latham & Watkins) titled “Deemed Public Officials: A Potential Risk For U.S. Companies in Japan.” The article states:
“Deemed public officials are officers and employees of entities that are not government owned but serve public functions. This concept is somewhat analogous to state-owned enterprises, but rather than being government owned/controlled entities that participate in commercial activities, these are commercial entities that play quasi-government roles. […] The statutes that authorized the establishment of these companies stipulate that their officers and employees are “deemed to be an employee engaged in public service” for the purposes of the Penal Code of Japan.”
Another informative read from Wendy Wysong (Clifford Chance) titled “Why, Whether, and When the FCPA Matters in Capital Market Transactions: The Asian Perspective.” The article, in part, covers the FCPA’s tricky “issuer” concept and explores FCPA liability in Rule 144A and Regulation S offerings.
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A good weekend to all.
