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Like A Kid In The Candy Store

By on January 29, 2016 in BNY Mellon, Declination Decisions, Deferred Prosecution Agreements, FCPA Statistics, Foreign Official, Individual Enforcement Action, Interns, Non-Prosecution Agreement, Year in Review 2015
Kid in Candy Store

Like every year around this time, I feel like a kid in a candy store given the number of FCPA year in reviews hitting my inbox.  This post highlights various FCPA or related publications that caught my eye.

Reading the below publications is recommended and should find their way to your reading stack.

However, be warned.  The divergent enforcement statistics contained in them (a result of various creative counting methods) are likely to make you dizzy at times and as to certain issues. There will be more on this issue in the near future.

Shearman & Sterling

The firm’s Recent Trends and Patterns in FCPA Enforcement is among the best year-after-year.

Content that caught my eye:

“It is … noteworthy that the DOJ’s and SEC’s prioritization of individual prosecutions comes as enforcement agencies continue to struggle while pursuing FCPA charges against individual defendants. Setbacks in United States v. Sigelman and United States v. Firtash may cause the Department to rethink its strategy. Indeed, while the DOJ has had some success extracting plea agreements, when put to its burden of proof the DOJ (and the SEC for that matter) has experienced difficulty in securing convictions and judgments. Given these struggles, it is possible that future individual defendants may be emboldened to test their chances against the government in court, potentially requiring the DOJ to devote even more resources to trying these individuals. While the DOJ and SEC have made it a clear priority to prosecute individuals for violations of the FCPA, the risk-reward calculations that prosecutors must consider before bringing charges could be altered going forward.”

[For more on this general topic, see “What Percentage of DOJ FCPA Losses is Acceptable?“]

[…]

“[Regarding so-called declinations] we note however, in the cases of Eli Lilly, Goodyear, Mead Johnson Nutrition, Hyperdynamics, and Bristol-Myers, the DOJ’s declination decision might also be explained by a possible lack of jurisdiction. Specifically, in each of the cases above, where all of the illicit conduct was committed by subsidiaries of the parent company, the DOJ may have concluded it was too difficult to prove that the subsidiaries’ conduct should be imputed on the corporate parent—bearing in mind that the DOJ has a higher burden of proof to sustain criminal FCPA charges against a company.”

[…]

“The DOJ’s 2015 prosecution of Daren Condrey in United States v. Condrey raises some questions as to whether government prosecutors are remaining faithful to the government instrumentality test set out in the Eleventh Circuit’s 2014 decision in United States v. Esquenazi.”

[For more on this topic, see this prior post]

[…]

“[Regarding the 2015 BNY Mellon “internship” enforcement action] [T]he government’s approach is bad policy. For better or worse, some of the most educated and most qualified potential hires in many countries are the children of government officials—individuals who benefited from their parents’ privileges and had the opportunity to attend prestigious schools, learn foreign languages, etc. If the government infers an intent to apply corrupt influence from the potential hire’s relationship to government officials, it is likely to chill hiring of such individuals, resulting in a completely unnecessary disadvantage to U.S. and other companies covered by the FCPA.”

Debevoise & Plimpton

The firm’s FCPA Update is the best monthly read there is and the most recent edition states:

“Even adding in amounts agreed or ordered to be recovered from individuals in FCPA cases, last year was by any objective measure one of more muted FCPA enforcement. Various theories can be advanced to explain these figures.

One, and probably the most plausible, is that, in a system of FCPA enforcement against companies that almost never ends in a trial, corporate resolutions require companies’ consent. It was only a matter of time for there to be a dry spell of large corporate resolutions. Thus, there were no large settlements last year because of the mundane fact that none of the larger cases in the pipeline was ready to be settled. Because of potential negotiation delays of various kinds in cases in the pipeline, it is conceivable if not likely there will be large settlements in 2016, which may dampen urges to downplay enforcement risk.

Still, a theory warranting consideration is that more companies subject to the FCPA are “getting it,” the possibility being that after a decade of vigorous enforcement the number of big cases that could be brought is markedly decreased. That the number of FCPA-related investigations reported by public companies declined by about 20 percent, year over year, arguably supports this theory.

But negating this theory is the large number of new foreign corruption matters reported daily in the media, and the kinds of political upheaval and developments in technology, social media culture, whistle-blowing, and transparency movements that drive anti-bribery enforcement. Given the broad jurisdictional reach of the FCPA (particularly as construed by the DOJ and SEC), a large percentage of the new cases reported in the media could well subject companies and individuals alike to future FCPA enforcement risks. These risks are magnified by a growing level of cross-border cooperation among anti-bribery enforcement agencies.

And as the Obama Administration heads into its final year, with a new Attorney General and Assistant Attorney General for the Criminal Division now settled into their roles, the likelihood of increased enforcement seems relatively high.”

Gibson Dunn

The firm’s Year-End FCPA Update is also a quality read year after year.

Gibson Dunn also released (here) its always informative “Year-End Update on Corporate Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs).”

It begins as follows.

“2015 was a blockbuster year in corporate non-prosecution agreements (“NPA”) and deferred prosecution agreements (“DPA”), by sheer numbers alone.  Skyrocketing to 100 [87 NPAs and 13 DPAs], in 2015 the number of agreements more than doubled the numbers in every prior year since 2000 , when Gibson Dunn first began tracking NPA and DPA data.”

Davis Polk

The firm’s Trends in Anti-Corruption Enforcement is here. A visual FCPA Resolution Tracker is here.

Jenner Block

The firm’s Business Guide to Anti-Corruption Laws 2016 is here.

Hogan Lovells

The firm’s Global Bribery and Corruption Review is here.

Arnold & Porter

The firms Global Anti-Corruption Insights is here.

Friday Roundup

By on August 28, 2015 in BNY Mellon, Double Standard, FCPA Statistics, Greens, Permits / Licenses / Customs / Tax, Siriwan
Roundup2

The latest edition of the double standard, survey says, when the dust settles, and for the reading stack.  It’s all here in the Friday roundup.

Double Standard

An individual currently holds political office in one unit of government, yet is also a candidate for a higher unit of government.

Among the contributors to organizations supporting the individual’s campaign for higher office are companies that have secured millions in contracts from the lower unit of government run by the individual.  After all, the individual may not prevail in the higher office race and thus return to the lower unit.

A prudent FCPA practitioner would spot the “red flags” as the contributions could be viewed as a way to curry favor with the individual upon return to the lower unit of government.

However, the individual (more accurately individuals) are not “foreign officials” they are current governors Chris Christie, John Kasich, Bobby Jindal, and Scott Walker who are also running for President.

For the latest edition of the double standard, see this Wall Street Journal article.

Bribery?

Silly you for even mentioning the “b” word.  This is all about “First Amendment rights” according to a source in the article.

Why do business interactions with “foreign officials” seem to be subject to different standards than business interactions with U.S. officials? Why do we reflexively label a “foreign official” who receives “things of value” from private business interests as corrupt, yet generally turn a blind eye when it happens here at home or call it something different such as participation in the political process? Is the FCPA enforced too aggressively or is enforcement of the U.S. domestic bribery statute too lax? Ought not there be some consistently between enforcement of the FCPA and the domestic bribery statute?

For approximately 50 other post highlighting these double standards, see this subject matter tag.

Survey Says

According to this recent ASEAN (Association of Southeast Asian Nations) Business Outlook Survey:

“The risk of pressure to bribe officials for essential licenses and permits varies greatly depending on the country from which executives responded. Less than half of the respondents in Brunei, Malaysia, Myanmar, and Singapore foresee that this risk will hinder their long-term operations, while large percentages of respondents in Cambodia (89%), Laos (85%), and Vietnam (74%) foresee that it will.”

“In contrast, facilitation payments for routine government services are a more common part of international business. (Routine government services may include processing governmental papers, such as visas and work orders, or such services as police protection, power supply, phone service, etc.) In nearly all countries, the risk of pressure to bribe officials to speed up routine government services is slightly higher than the comparable risk for essential licenses and permits.”

In passing the FCPA, Congress recognized the inherent difficulties companies encounter in foreign markets and thus elected not to capture payments in connection with licenses, permits and the like in the anti-bribery provisions.  (To learn more, see “The Story of the FCPA“).  Congress also chose to exempt facilitation payments from the anti-bribery provisions.

When The Dust Settles

FCPA enforcement actions only focus on alleged bribe payers.  However, when an FCPA enforcement action concludes, there is still an alleged “foreign official” who allegedly received the bribe payments.  When the dust settles, what happens to the “foreign official”?

For years, guest contributor Mike Dearington followed the DOJ’s 2011 enforcement action against Juthamas Siriwan, the former government officer of the Tourism Authority of Thailand, and Jittisopa Siriwan, the daughter of the alleged “foreign official” who was also alleged to be an “employee of Thailand Privilege Card Co. Ltd.” an entity controlled by TAT and an alleged “instrumentality of the Thai government.”  The Siriwan’s allegedly received improper payments from Gerald and Patricia Green who were convicted of FCPA and related offenses in 2009 and served time in federal prison. (See prior posts at this subject matter tag).

In short, the federal court judge overseeing the DOJ’s money laundering case against Siriwan stayed the case pending expected legal proceedings in Thailand against Siriwan.

Earlier this week, the Bangkok Post reported:

“The Criminal Court has indicted former Tourism Authority of Thailand (TAT) governor Juthamas Siriwan and her daughter in a film festival bribery case, the Office of the Attorney-General spokesman said Wednesday.  Prosecutors indicted Mrs Juthamas, 68, and her daugther Jittisopha, 41, in the Criminal Court on Tuesday on charges of taking bribes, corruption and bid-rigging, plus breaching Section 6 of the law dealing with state employees’ offences and Section 12 of the law governing submitting tenders to state agencies, which carries a maximum jail term of 20 years.”

This development is expected to functionally end the U.S. prosecution.

In other news relevant to the above enforcement action, the Hollywood Reporter reports that Gerald Green recently died.  He was 83.

Reading Stack

The most recent edition of the always informative FCPA Update by Debevoise & Plimpton has a nice write-up of the recent BNY Mellon enforcement action (see here and here for prior posts).  In pertinent part, the Update states:

In the SEC’s View, a Thing of Value Can Be Purely Psychological

[T]he government’s investigations in this area face a key threshold legal issue under the FCPA: can providing a job or internship to an official’s relative constitute a thing of value to the official him/herself? Can offering the purely psychological benefit of helping a child or relative land a job give rise to an actionable attempt at bribery? The official does not stand to see any personal financial gain from the internship, except in the arguable circumstance of reducing the official’s financial obligations to a dependent. But the SEC seems to have purposely disclaimed – or at least strained – that theory here, given that one of the internships at issue was unpaid. The SEC addressed this thorny issue in a single sentence in the Order, asserting that “[t]he internships were valuable work experience, and the requesting officials derived significant personal value in being able to confer this benefit on their family members.”

The SEC has previously suggested that an intangible benefit can be a “thing of value” under the FCPA, having faulted Schering-Plough for providing a requested donation to a legitimate charity with which a foreign official and his spouse were closely involved, in an alleged attempt to influence the official. The BNYM Order, however, seems to represent a significant expansion of that thinking. Notably, in Schering-Plough the SEC charged only a “books and records” violation, not a violation of the FCPA’s anti-bribery provisions. Moreover, even assuming intangible prestige or listing an internship on a resumé can be a thing of value, Schering-Plough at least involved a transfer of funds at the official’s request, which arguably allowed the official himself to reap the prestige of the donation. Here, the prestigious and valuable work experiences – one of which was entirely unpaid – went not to the official but to the official’s family member, and thus only indirectly benefited the official.

Evidentiary Issues: Quid Pro Quo or Internal Speculation?

The BNYM case and others like it also raise difficult evidentiary issues for FCPA enforcement authorities. How can one draw the line between a genuine quid pro quo – an actual exchange of a personal benefit to an official for a business assignment – from mere internal speculation and anxiety about potentially damaging an important relationship? Here, the BNYM Order is notable for what it does not say: the Order does not place the internship hiring requests in the context of any specific business opportunity, or any review or re-evaluation of whether the Sovereign Wealth Fund should maintain its existing business relationship with BNYM. Rather, the cited internal communications reflect a generalized desire to gather additional business in the future or to a perception that existing business could be diminished relative to competitors.

Here, the lack of any tie to a concrete business opportunity could simply be a function of the asset management business, in which funds for investment are (in general terms) fungible. Time will tell whether, in other contexts, courts or enforcement authorities will focus more on an attempt to win a specific business opportunity rather than simply an effort to create or maintain good relations that may (or may not) bear fruit over time. For now, the SEC appears to have followed the controversial “quid pro quo lite” theory that has garnered some success in DOJ criminal domestic bribery prosecutions; in that sense, the reach of the Order may not be that surprising – although its theoretical underpinnings in the FCPA arena remain largely untested.

The SEC’s justification for the imposition of a disgorgement remedy is also difficult to locate within its factual recitation. The disgorgement amount of $8.3 million cannot be explained by the relatively minor new investment with BNYM (of less than $1 million). It stands to reason, then, that the disgorgement amount is based, at least in part, on BNYM’s retention of its existing business with the Sovereign Wealth Fund. The causation analysis on that point is not transparent, as the facts stated do not suggest any meaningful way to assess the degree to which the intern hires arguably contributed to maintaining the existing relationship. The result may be the product of any number of unstated factors that went into the settlement, highlighting once again, why settlements should not make law.

[…]

Overall, the BNYM Order highlights two areas of frequent criticism of FCPA enforcement. First, the activity under scrutiny bears a strong similarity to what are perceived as common practices in the private sector in which firms seek to accommodate client representative requests in order to maintain good relations with key decision makers. In this way, enforcement authorities risk criticism that they are using the FCPA to excise business practices affecting relationships with foreign officials abroad that are routinely tolerated in the private sector in the United States – and that are not unprecedented or even rare in the context of companies’ relationships with officials employed by the United States federal, state, and local governments.

Second, the SEC’s choice of a consented-to cease-and-desist order to announce a new and expansive interpretation of the FCPA leaves its interpretations of the law entirely untested by judicial scrutiny and adversarial process. Given that BNYM did not admit the allegations in the Order, BNYM had very little incentive to challenge the SEC’s view of the facts and law, yet as with Schering-Plough’s resolution (referenced above), the SEC’s debatable interpretive position may go years (or decades) without judicial scrutiny.

As noted at the outset, the BNYM Order is just the first resolution of a case of this kind. Others may follow, including in DOJ matters, which will likely shed additional light on the landscape in this area.”

*****

A good weekend to all.

Do Your Hiring Practices Live Up To The SEC’s New Expectations?

By on August 24, 2015 in BNY Mellon, Compliance, Human Resources
HR

As highlighted several times on FCPA Professor, there are two distinct questions that can be asked in connection with many instances of Foreign Corrupt Practices Act scrutiny and enforcement.

The first is whether, given the DOJ’s and/or 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 in violation of the FCPA?

In a legal system based on the rule of law, the second question of course is more important, but as a practical matter risk averse business organizations care more about the first question.

Previous posts (here and here) highlighted critical questions concerning last week’s SEC enforcement action against BNY Mellon based on the company’s alleged internship hiring practices – an enforcement action that is expected to be the first of similar actions expected in coming months.

Now that the dust has settled, and until a business organization stands up to the SEC (small chance that will happen as the SEC has never been put to its burden of proof in a corporate FCPA enforcement action in history), issuers would be wise to ask whether its hiring practices live up to the SEC’s new expectations.

Those expectations, articulated by the SEC in the BNY Mellon action, are phrased below in the form of questions.

  • Does the company’s anti-corruption policy “explicitly address the hiring of government officials’ relatives”?
  • Does the company require “that every application for a full-time hire or an internship be routed through a centralized HR application process”?
  • Does the company’s Code of Conduct “require that every year each employee certify that he or she is not responsible for hiring through a non-centralized channel”?
  • Does the company’s application process require “that each applicant indicate whether he/she is a close personal associate of a government official or has recently been a government official?”

Even if your company is not an issuer subject to SEC jurisdiction, all business organizations should ask the above questions given that the SEC also charged BNY Mellon with FCPA anti-bribery violations – provisions which apply to all forms of business organization.

In short, the compliance message from the BNY Mellon enforcement action is that FCPA compliance is not just a legal function, not just a finance, accounting and auditing function, but now also a human resources function.

Friday Roundup

By on August 21, 2015 in Akamai Technologies, BNY Mellon, Ford Motor Co., General Cable Corp., Guidance, Hiring Family Members of Foreign Officials, Investigative Fees, Petrobras, Prosecutorial Common Law, SciClone Pharmaceuticals, Voluntary Disclosure, Wal-Mart
Roundup2

Wal-Mart related, quotable, spot-on, scrutiny alerts and updates and prosecutorial common law defeat. It’s all here in the Friday roundup.

Wal-Mart Related

In its recent 2Q FY2016 earnings call Wal-Mart stated:

“FCPA and compliance-related costs were approximately $30 million, comprised of approximately $23 million for the ongoing inquiries and investigations, and approximately $7 million for our global compliance program and organizational enhancements. Last year, FCPA and compliance-related costs were $43 million in the second quarter. We expect FCPA-related expenses to continue to trend down, so we now expect our full year FCPA-related expenses to range between $130 million and $150 million. This compares to our guidance in February of $160 to $180 million.”

Doing the math, Wal-Mart’s 2Q FCPA and compliance-related costs is approximately $470,000 per working day.

Over the past approximate four years, I have tracked Wal-Mart’s quarterly disclosed pre-enforcement action professional fees and expenses. While some pundits have ridiculed me for doing so, such figures are notable because, as has been noted in prior posts and in my article “Foreign Corrupt Practices Act Ripples,” settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.  Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.

While $470,000 per working day remains eye-popping, Wal-Mart’s recent figure suggests that the company’s pre-enforcement action professional fees and expenses have crested as the figures for the past seven quarters have been approximately $516,000, $563,000, $640,000, $662,000, $855,000, $1.1 million and $1.3 million per working day.

In the aggregate, Wal-Mart’s disclosed pre-enforcement professional fees and expenses are as follows.

FY 2013 = $157 million.

FY 2014 = $282 million.

FY 2015  = $173 million.

FY 2016 = $63 million (projections for the remainder of the FY of approximately $67 – $87 million)

Quotable

Regarding the recent BNY Mellon enforcement action, Jay Darden (Paul Hastings and recently the Assistant Chief of the DOJ’s Fraud Section) stated: “it’s not the U.S. government’s job to regulate hiring policy.” (See here).

*****

In this Corporate Crime Reporter, Lamia Matta (Miller & Chevalier) states:

“Companies are less aggressive in [voluntarily] reporting. Companies are finding that they don’t save a whole lot by going in and self-reporting as soon as they find a problem. They are still subject to extensive investigation. The cost is the same if they self-report and then cooperate as it would be if they just cooperate. The agencies say that is not the case. But if you look at the trends, that does seem to be the case.”

“The other thing is that the decision to self-report is taking a lot longer than it once used to. Companies might think — it may make sense to self-report, but we are going to wait it out a bit before we do so. The process is now much more considered than it once used to be.”

“And companies are not as inclined to buy into the agencies’ aggressive theories of jurisdiction as they might have once been. For all of these reasons, you are seeing companies being less quick to self report. I don’t know if the self-reporting numbers are down or not. They are difficult to track.”

Spot-On

This Bryan Cave alert regarding the recent order in the DOJ’s enforcement action against Lawrence Hoskins (see here for the prior post) is spot-on.

It states:

“This holding directly contradicts the “guidance” provided by the U.S. in its Resource Guide, published jointly by the Department of Justice and the Securities and Exchange Commission. That guidance states unequivocally:

‘Individuals and companies, including foreign nationals and companies, may also be liable for conspiring to violate     the FCPA—i.e., for agreeing to commit an FCPA violation—even if they are not, or could not be, independently charged with a substantive FCPA violation.

* * *

A foreign company or individual may be held liable for aiding and abetting an FCPA violation or for conspiring to violate the FCPA, even if the foreign company or individual did not take any act in furtherance of the corrupt payment while in the territory of the United States.’

This Order reminds companies and individuals that some of the legal principles surrounding the FCPA recently have been developed out of settlements with the government instead of through the courts. On issues as important as these, it can be worthwhile to test some of the government’s theories in the only place they can be adjudicated.”

To learn about other selective information, half-truths, and information that is demonstratively false in the FCPA Guidance see “Grading the Foreign Corrupt Practices Act Guidance.”

Scrutiny Alerts and Updates

Ford Motor Co.

Reuters reports:

“The [SEC] is helping German prosecutors to investigate the alleged payment of bribes by Ford to speed the passage of containers through Russian customs, a source at the U.S. carmaker said on Tuesday. Ford and Schenker, the freight business of state-owned German rail company Deutsche Bahn, have been under investigation in Germany since 2013 over suspected bribery and other offences related to the busy Russian port of St. Petersburg. The port is Russia’s European gateway with more than 2,000 companies using it for shipments, according to its website, but it is also known among customers for notoriously long delays. The [SEC] has now joined investigations by prosecutors in Cologne, where Ford’s European headquarters are based, a source at the carmaker told Reuters, confirming a report in Tuesday’s Sueddeutsche Zeitung newspaper. Two Ford employees, eight current and former workers at Schenker and one staffer from a Russian contractor are under investigation, a spokesman at the Cologne prosecutor’s office said.”

Petrobras

In regards to this recent media report, the company stated in this filing:

“Petrobras hereby declares that, in relation to news published in the media concerning the payment of a fine to the U.S. authorities, there are no ongoing negotiations regarding the eventual payment of a fine for the winding up of civil and criminal investigations in the United States regarding the violation of the anti-corruption legislation. Nor has there been any decision by the U.S. authorities regarding the merit of such an investigation or the eventual amounts involved.”

SciClone Pharmaceuticals

One of the longest instances of FCPA scrutiny concerns SciClone Pharmaceuticals.  As highlighted in this prior post, in August 2010 the company disclosed:

“On August 5, 2010 SciClone was contacted by the SEC and advised that the SEC has initiated a formal, non-public investigation of SciClone. In connection with this investigation, the SEC issued a subpoena to SciClone requesting a variety of documents and other information. The subpoena requests documents relating to a range of matters including interactions with regulators and government-owned entities in China, activities relating to sales in China and documents relating to certain company financial and other disclosures. On August 6, 2010, the Company received a letter from the DOJ indicating that the DOJ was investigating Foreign Corrupt Practices Act issues in the pharmaceutical industry generally, and had received information about the Company’s practices suggesting possible violations.”

Recently the company disclosed:

“In July 2015, SciClone reached an agreement in principle with the staff of the US Securities and Exchange Commission (SEC) for a proposed settlement for a range of matters, including without admitting or denying possible violations of the Foreign Corrupt Practices Act (FCPA). The agreement, which includes disgorgement, prejudgment interest, and penalties totaling $12.8 million, is contingent upon the execution of formal settlement documents and approval of the settlement by the SEC’s governing Commission. The Company has not yet reached a resolution of these matters with the Department of Justice (DOJ) and management continues to work diligently to obtain closure on this matter.”

Akamai Technologies 

The company updated its previous FCPA-related disclosure as follows:

“We are conducting an internal investigation, with the assistance of outside counsel, relating to sales practices in a country outside the U.S. that represented less than 1% of our revenue during the three and six months ended June 30, 2015, and in each of the years ended December 31, 2014, 2013 and 2012. The internal investigation includes a review of compliance with the requirements of the U.S. Foreign Corrupt Practices Act and other applicable laws and regulations by employees in that market.  In February 2015, we voluntarily contacted the U.S. Securities and Exchange Commission and Department of Justice to advise both agencies of this internal investigation. We are cooperating with those agencies. As of the filing of this quarterly report on Form 10-Q, we cannot predict the outcome of this matter. No provision with respect to this matter has been made in our consolidated financial statements.”

General Cable 

The company recently disclosed the following regarding its previously disclosed FCPA scrutiny.

“We have been reviewing, with the assistance of external counsel, certain commission payments involving sales to customers of our subsidiary in Angola. The review has focused upon payment practices with respect to employees of public utility companies, use of agents in connection with such payment practices, and the manner in which the payments were reflected in our books and records. We have determined at this time that certain employees in our Portugal and Angola subsidiaries directly and indirectly made or directed payments at various times from 2002 through 2013 to officials of Angola government-owned public utilities that raise concerns under the FCPA and possibly under the laws of other jurisdictions. Based on an analysis completed with the assistance of our external counsel and forensic accountants, we have concluded at this time, that we are able to reasonably estimate the profit derived from sales made to the Angolan government-owned public utilities in connection with the payments described above which we believe is likely to ultimately be disgorged. As a result, we recorded an estimated charge in the amount of $24 million as an accrual as of December 31, 2014. There was no change to the accrual in the second quarter of 2015. The accrued amount reflects the probable and estimable amount of the Angola-related profits that the Company believes is subject to being disgorged, and does not include any provision for any fines, civil or criminal penalties, or other relief, any or all of which could be substantial.
We also have been reviewing, with the assistance of external counsel, our use and payment of agents in connection with our Thailand and India operations and certain transactions in our Egypt and China businesses, which may have implications under the FCPA. We have voluntarily disclosed these matters to the SEC and the DOJ and have provided them with additional information at their request, including information in response to an SEC subpoena. The SEC and DOJ inquiries into these matters are ongoing. We continue to cooperate with the DOJ and the SEC with respect to these matters. At this time, we are unable to predict the nature of any action that may be taken by the DOJ or SEC or any remedies these agencies may pursue as a result of such actions. We are continuing to implement a third party screening process on sales agents that we use outside of the United States, including, among other things, a review of the agreements under which they were retained and a risk-based assessment of such agents to determine the scope of due diligence measures to be performed by a third-party investigative firm. We also have provided anti-corruption training to our global sales force, and ultimately will provide such training to all salaried employees. In addition, we have hired a Chief Compliance Officer, who is responsible for the day-to-day management of our compliance function. The Chief Compliance Officer reports to our Chief Executive Officer, and also has a reporting relationship with the Audit Committee.”
Another Prosecutorial Common Law Defeat

Related to the above, one of the best guest posts in FCPA Professor history was this 2011 post from Michael Levy in which he described the concept of prosecutorial common law.  Prosecutorial common law is all around us.  Take a look at the footnotes of the FCPA Guidance – most of the “authority” cited for “legal” propositions is DOJ or SEC settlements.

For obvious reasons, prosecutorial common law does not sit well with federal court judges.  For instance, in U.S. v. Bodmer, Judge Shira Scheindlin of the Southern District of New York, in rejecting the DOJ’s position that the FCPA’s criminal penalty provisions applied to a foreign national prior to the 1998 FCPA amendments, noted as follows – “the Government’s charging decision, standing alone, does not establish the applicability of the statute.”  Likewise as noted in this previous post about the Giffen enforcement action, Judge William Pauley of the Southern District of New York stated that prosecutorial common law ”is not the kind or quality of precedent this Court need consider.”

Prosecutorial common law recently suffered another defeat when the Southern District of New York ruled that the Food & Drug Administration can’t bar a drug company from marketing a pill for off-label use as long as the claims are truthful.  (See here for the Wall Street Journal article).

The decision follows a 2012 decision in U.S. v. Caronia (see here for the prior post) in which the Second Circuit concluded that the DOJ’s theory of prosecution concerning so-called off-label promotion of drugs was invalid. Prior to Caronia and even after Caronia, the DOJ has used the theory of prosecution to secure billions in settlement against risk-averse pharmaceutical companies.

****
A good weekend to all.

Issues To Consider From The BNY Mellon Enforcement Action

By on August 20, 2015 in Anything of Value, BNY Mellon, Books and Records, FCPA Statistics
Issues

This recent post highlighted and offered initial commentary on the SEC’s FCPA enforcement action against BNY Mellon.  This post continues the analysis by highlighting other issues to consider.

First Ever

FCPA practitioners would likely be hard pressed to imagine an enforcement action that includes alleged violations of the FCPA’s anti-bribery provisions and internal controls provisions, without alleged violations of the books and records provisions

There would be good reason for the struggle – it has never happened before – until earlier this week.

The BNY Mellon enforcement action is believed to be the first-ever SEC FCPA enforcement action not to include allegations or findings regarding books and records violations.  A future post will explore this issue in more detail.

A Step Further Than Schering-Plough and Eli Lilly

The FCPA’s anti-bribery provisions expressly state, in pertinent part, that money, a gift, or anything of value must be given to, offered to, or promised to: (1) a foreign official; (2) a foreign political party of official or candidate for foreign political office; or (3) any person “while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official, to any foreign political party or official thereof, or to any candidate for foreign political office …”.

Regardless of the prong, as evident from the statutory text, the thing of value must ultimately be intended for a “foreign official.”

Previously in the Schering-Plough and Eli Lilly enforcement actions the SEC alleged that the companies violated the FCPA by making charitable contributions to a bona fide Polish charity dedicated to restoring historical cases.  However, as alleged by the SEC, the charity was a pet project of an alleged Polish official with discretionary authority over the purchase of pharmaceuticals.

While perhaps a distinction without a difference, the charges/findings in both cases as to the above conduct were limited to the FCPA’s books and records and internal control provisions.

Even so, the enforcement theory was clear: in analyzing “anything of value” the enforcement agencies will put themselves in the shoes of the alleged “foreign official” and ask how the recipient perceived the thing of value and whether the recipient subjectively valued the thing of value.

The BNY Mellon enforcement action goes a step further than Schering-Plough and Eli Lilly by finding violations of the FCPA’s anti-bribery provisions.  The key language from the SEC is the following: “The internships were valuable work experience, and the requesting officials derived significant personal value in being able to confer this benefit on their family members.” (emphasis added).

Notable Findings

Notwithstanding the SEC’s findings that the Interns did not meet BNY’s Mellon’s supposed “rigorous criteria” for hiring and were not evaluated and hired through the company’s “established internship programs,” the following SEC findings are notable.

One of the Interns (Intern C) was not paid.

As to the other two interns, the SEC’s order states: “because Interns A and B had already graduated from college” BNY paid the interns “above the normal salary scale for BNY Mellon undergraduate interns but below the scale for postgraduate interns.”

In other words, the SEC found that BNY Mellon violated the FCPA’s anti-bribery provisions, not necessarily because of the compensation offered to the Interns, but rather the SEC’s belief that the Interns should never have been interns at BNY Mellon in the first place and because of this – again in the words of the SEC – the alleged “foreign officials” “derived significant personal value in being able to confer this benefit on their family members.”

Time Line

According to BNY Mellon’s disclosures: “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.”

Thus, BNY Mellon was under FCPA scrutiny for approximately 4.5 years.

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