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Friday Roundup

By on October 30, 2015 in AEI, Bio-Rad, Bristol Myers Squibb, Goldman Sachs, H-P, Jaguar Energy, Millicom, Related Civil Litigation, SEC
Roundup2

Scrutiny alerts and updates, civil litigation updates, SEC enforcement statistics, and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Alerts and Updates

Millicom

The telecom and media company headquartered in Luxembourg with shares traded over the counter (OTC) in the U.S. recently disclosed:

“Millicom … announced that it has reported to law enforcement authorities in the United States and Sweden potential improper payments made on behalf of the company’s joint venture in Guatemala. A Special Committee of the Board of Directors made the decision in connection with an independent investigation being overseen by the Special Committee and conducted by international law firm Covington & Burling LLP, with the support of Millicom’s management team. Millicom is committed to fully cooperating with the authorities. It is not possible at this time to predict the matter’s likely duration or outcome. Millicom is committed to the highest ethical business standards and to full compliance with all applicable laws and regulations in every market in which the company operates.”

AEI

Speaking of FCPA scrutiny in Guatemala, according to this article in the Nation, Jaguar Energy Guatemala, a subsidiary of Houston-based AEI, “participated in an influence-trafficking scheme to obtain privileged information and favors from high-level Guatemalan officials. Among other things, the subsidiary is accused of paying to obtain meetings with the country’s former president Otto Pérez Molina.”

Goldman Sachs

The Wall Street Journal recently went in-depth regarding a Malaysian government investment fund,  1Malaysia Development Bhd., or 1MDB, and the role of Prime Minister Najib Razak. As noted in this article:

“[T]he fund has become the center of a political scandal that has engulfed Malaysia’s government. The fund is mired in debts of over $11 billion. It is a subject of a raft of local and international investigations, including, in Malaysia, by the central bank, auditor general, anticorruption agency and a parliament committee. It has faced accusations that billions of dollars are missing and that money was misused for political purposes or siphoned off in corruption by individuals.”

According to this article:

“Goldman Sachs Group Inc.’s role as adviser to a politically connected Malaysia development fund resulted in years of lucrative business. It also brought exposure to an expanding scandal. As part of a broad probe into allegations of money laundering and corruption investigators at the Federal Bureau of Investigation and the Justice Department have begun examining Goldman Sachs’s role in a series of transactions at 1Malaysia Development Bhd., people familiar with the matter said. The inquiries are at the information-gathering stage, and there is no suggestion of wrongdoing by the bank, the people said. Investigators “have yet to determine if the matter will become a focus of any investigations into the 1MDB scandal,” a spokeswoman for the FBI said.”

Bristol-Myers

It was fairly obvious to knowledgeable observers that when the SEC brought an FCPA enforcement action against Bristol-Myers earlier this month (see here for the prior post), but the DOJ did not, that this signaled that there would not be a DOJ enforcement action as such parallel actions are almost always brought on the same day. Should there be any doubt, the company recently disclosed: “The Company has also been advised by the Department of Justice that it has closed its inquiry into this matter.”

Civil Litigation Updates

As highlighted in Foreign Corrupt Practices Act Ripples, settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall consequences that can result from FCPA scrutiny or enforcement. Among other things, FCPA scrutiny or enforcement often leads to private shareholder litigation as well as other civil claims such as wrongful termination by employees who allegedly “blew the whistle.”

Two developments from the FCPA-related civil dockets.

This recent post highlighted the civil lawsuit filed by Sanford Wadler, the former General Counsel and Secretary of Bio-Lab Laboratories, against the company and certain executive officers and board members in the aftermath of the company’s FCPA scrutiny and enforcement action. In his complaint, Wadler alleged various unfair employment practices. In this recent decision from the Northern District of California, the court largely denied the defendants’ motion to dismiss and allowed the bulk of Wadler’s claims to proceed.

It did not take long for the Ninth Circuit to affirm a lower court order dismissing derivative claims against H-P directors for, among other things, alleged breach of fiduciary duty in connection with the company’s FCPA scrutiny.  The court’s 4 page order is here.

SEC Enforcement Statistics

Although the SEC has a specialized FCPA Unit (one of only five specialized units at the SEC) and declared the FCPA to be a “vital part” of its overall enforcement program, the fact remains that FCPA enforcement is a relatively minor part of the SEC’s overall enforcement program.

Indeed, as noted in this recent SEC release:

“In the fiscal year that ended in September, the SEC filed 807 enforcement actions covering a wide range of misconduct, and obtained orders totaling approximately $4.2 billion in disgorgement and penalties.  Of the 807 enforcement actions filed in fiscal year 2015, a record 507 were independent actions for violations of the federal securities laws and 300 were either actions against issuers who were delinquent in making required filings with the SEC or administrative proceedings seeking bars against individuals based on criminal convictions, civil injunctions, or other orders.”

In the SEC’s FY 2015, there were 13 FCPA enforcement actions.

Nevertheless, the SEC’s release does mention:

Combating Foreign Corrupt Practices

Reading Stack

The most recent FCPA Update by Debevoise & Plimpton is here.

Miller & Chevalier’s Autumn FCPA Review is here.

An informative read here from Professor Peter Henning at his White Collar Crime Watch column in the New York Times titled “Reforming the SEC’s Administrative Process.”

*****

A good weekend to all.

A Government Required Transfer Of Shareholder Wealth To FCPA Inc.?

By on October 12, 2015 in Bristol Myers Squibb, Enhanced Compliance Obligations, FCPA Inc.
Transfer of wealth

This is the third time FCPA Professor has highlighted this specific topic.

The prior two posts (here and here) were in connection with FCPA enforcement actions against healthcare companies Johnson & Johnson and Pfizer and the “enhanced compliance obligations” imposed upon the companies in resolving an FCPA enforcement action.

In last week’s FCPA enforcement action against Bristol-Myers (BMS), the SEC also imposed enhanced compliance obligations on the company as a condition of settlement.

Specifically, the SEC order requires BMS tp “report to the Commission periodically, at no less than nine-month intervals during a two-year term, the status of its FCPA and anticorruption related remediation and implementation of compliance measures.”

The order also requires BMS to “undertake two follow-up reviews and submit written reports relating to [its] remedial efforts to devise and maintain policies and procedures reasonably designed to detect and prevent violations of the FCPA and other applicable anticorruption laws.”

Are the post-enforcement action requirements imposed on BMS really necessary?

After all, in the same order, under the heading “Remedial Efforts,” the SEC stated:

“BMS has implemented significant measures to enhance its anti-bribery and general compliance training and policies and to strengthen its accounting and monitoring controls relating to interactions with HCPs, including travel and entertainment expenses, meetings, sponsorships, grants, and donations funded by BMS China. BMS took numerous steps to improve the internal controls and compliance program at BMS China. Examples include a 100% pre-reimbursement review of all expense claims; the implementation of an accounting system designed to track each expense claim, including the request, approval, and payment of each claim; and the retention of a third-party vendor to conduct surprise checks at events sponsored by sales representatives. Additionally, BMS terminated over ninety employees, and disciplined an additional ninety employees, including sales representatives and managers of BMS China, who failed to comply with or sufficiently supervise compliance with relevant policies. In addition, BMS replaced certain BMS China officers as part of an overall effort to enhance “tone at the top” and a culture of compliance. Further, BMS revised the compensation structure for BMS China employees by reducing the portion of incentive-based compensation for sales and distribution, eliminated gifts to HCPs, implemented enhanced due diligence procedures for third-party agents, implemented monitoring systems for speaker fees and third-party events, and incorporated risk assessments based on data analytics into its compliance program.”

Again, are the post-enforcement action requirements imposed on BMS really necessary?

Or is this another example of a boundless and unconstrained government required transfer of shareholder wealth to FCPA Inc.?

Such post-enforcement action reporting obligations are, of course, lucrative for FCPA Inc.  Hence one of the reasons you probably do not see those in the industry raising concerns about the emerging trend of “enhanced compliance obligations.”

Yet such concerns should be raised and have been raised here for a third time.

For additional reading about the Johnson & Johnson and Pfizer post-enforcement action “enhanced compliance compliance obligations” see “FCPA Ripples.”

Issues To Consider From The Bristol-Myers Enforcement Action

By on October 8, 2015 in Bristol Myers Squibb, Compliance, Double Standard
Issues

This recent post highlighted the SEC’s FCPA enforcement action against Bristol-Myers.

This post continues the analysis by highlighting various issues to consider from the enforcement action.

False and Misleading SEC Release

The SEC routinely brings enforcement actions against companies for false and misleading public statements.

Pardon me for being the stickler, but the first paragraph of the SEC’s press release announcing the Bristol-Myers action is false and misleading. It states:

“The Securities and Exchange Commission today announced that New York-based pharmaceutical company Bristol-Myers Squibb has agreed to settle charges that its joint venture in China made cash payments and provided other benefits to health care providers at state-owned and state-controlled hospitals in exchange for prescription sales.”

The above is false and misleading because the only charges that the SEC brought against Bristol-Myers (BMS) were the following as stated in the SEC’s order:

“BMS, through the actions of certain BMS China employees, violated [the FCPA’s books and records provisions] by falsely recording, as advertising and promotional expenses, cash payments and expenses for gifts, meals, travel, entertainment, speaker fees, and sponsorships for conferences and meetings provided to foreign officials, such as HCPs at state-owned and state-controlled hospitals as well as employees of state-owned pharmacies in China, to secure prescription sales. BMS also violated [the FCPA’s internal controls provisions] by failing to devise and maintain a system of internal accounting controls relating to payments and benefits provided by sales representatives at BMS China to these foreign officials.”

No Allegations Regarding Germany

As previously stated in Bristol-Myers disclosures, its FCPA scrutiny began in 2006 the following way.

“In October 2006, the SEC informed the Company that it had begun a formal inquiry into the activities of certain of the Company’s German pharmaceutical subsidiaries and its employees and/or agents. The SEC’s inquiry encompasses matters formerly under investigation by the German prosecutor in Munich, Germany, which have since been resolved. The Company understands the inquiry concerns potential violations of the Foreign Corrupt Practices Act (FCPA). The Company has been cooperating with the SEC.

In March 2012, the Company received a subpoena from the SEC issued in connection with its investigation under the FCPA, primarily relating to sales and marketing practices in various countries. In particular, the Company is investigating certain sales and marketing practices in China. The Company has been cooperating with the government in its investigation and is in discussions with the SEC regarding a potential settlement agreement that would result in a resolution of the SEC’s investigation. The Company believes it is fully reserved for this matter.”

Given the above disclosure, it is notable that the Bristol-Myers enforcement action concerned conduct only in China. Granted, 2006 is a long time ago but the SEC has not shied away from “old” allegations in other FCPA enforcement actions and, as a practical matter, statute of limitations have little impact in corporate FCPA enforcement actions.

Double Standard

At its core, the Bristol-Myers action focused on various things of value (such as gifts, meals, travel, entertainment, speaker fees, and sponsorships for conferences and meetings) provided to foreign physicians.

Pardon me for saying this, but this happens all the time in the U.S. (See here and here for the most recent posts).

Compliance Take-Aways

Regardless of the above, set forth below are certain compliance take-aways from the Bristol-Myers action:

  • If a company is going to provide FCPA training to its employees (and companies most certainly should), the company needs to make sure the employees are actually taking the training.  The SEC’s order dings Bristol-Myers as follows: “[The] BMS sales force in China received limited training and much of it was inaccessible to a large number of sales representatives who worked in remote locations. For example, when BMS rolled out mandatory anti-bribery training in late 2009, 67% of employees in China failed to complete the training by the due date.”
  • The use and abuse of employee reimbursement requests.  The SEC’s order dings Bristol-Myers as follows. “BMS lacked effective internal controls sufficient to provide reasonable assurances that funds advanced and reimbursed to employees of BMS China were used for appropriate and authorized purposes.”
  • Boots on the ground.  The SEC’s order dings Bristol-Myers as follows. “The corporate compliance officer responsible for the Asia-Pacific region through 2012 was based in the U.S. and rarely traveled to China. There was no dedicated compliance officer for BMS China until 2008, and no permanent compliance position in China until 2010.”

Next Up – Bristol-Myers

By on October 6, 2015 in 2015 Enforcement Actions, Anything of Value, Bristol Myers Squibb, China, Healthcare Providers As Foreign Officials, Joint Venture, Pharmaceutical Industry, SEC Enforcement Action
BMS

First it was Johnson & Johnson (see here – $70 million enforcement action in April 2011).

Then it was Smith & Nephew (see here – $22 million enforcement action in February 2012).

Then it was Biomet (see here – $22.8 million enforcement action in March 2012).

Then it was Pfizer / Wyeth (see here  – $60 million enforcement action in August 2012).

Then it was Eli Lilly (see here – $29 million enforcement action in December 2012).

Then it was Stryker (see here – $13.2 million enforcement action in October 2013).

Then it was Mead Johnson (see here – $12 million enforcement action in July 2015).

The latest of the most recent Foreign Corrupt Practices Act enforcement actions (there are many more than those listed above) premised on the theory that physicians of certain foreign health care systems are “foreign officials” under the FCPA is Bristol-Myers Squibb Co. (“BMS”).

Some will say this enforcement action – like certain of the others mentioned above – merely involved the FCPA’s books and records and internal controls provisions, but make no mistake about it, this action – as well as the prior actions – was all about the alleged “foreign officials.”

Yesterday, the SEC announced this administrative cease and desist order in which BMS agreed, without admitting or denying the SEC’s findings, to pay approximately $14.7 million.

The order states in summary fashion as follows.

“These proceedings arise out of violations of the internal controls and recordkeeping provisions of the FCPA by BMS and its majority-owned joint venture in China. Between 2009 and 2014, BMS failed to design and maintain effective internal controls relating to interactions with health care providers (“HCPs”) at state-owned and state-controlled hospitals in China. Through various mechanisms during this period, certain sales representatives of the joint venture improperly generated funds that were used to provide corrupt inducements to HCPs in the form of cash payments, gifts, meals, travel, entertainment, and sponsorships for conferences and meetings in order to secure new sales and increase existing sales. BMS falsely recorded the relevant transactions as legitimate business expenses in its books and records.”

The findings focus on Bristol-Myers Squibb (China) Investment Co. Limited (“BMS China), a company through which BMS conducts business in China, and how BMS China, in turn, primarily operates in China through Sino-American Shanghai Squibb Pharmaceuticals Limited (“SASS”), a majority-owned joint venture.

According to the Order:

“BMS holds a 60% equity interest in SASS and has held operational control over this entity since 2009 when it obtained the right to name the President of SASS and a majority of the members of SASS’s Board of Directors.

BMS began operating in China in 1982 when it formed SASS, the first SinoAmerican pharmaceutical joint venture. Following a successful product launch in 2005, BMS China’s business grew quickly. By 2009, BMS China had 1490 full-time employees and net sales of more than $200 million. This upward trend continued through 2014 when the number of full-time employees expanded to 2464 and net sales reached nearly $500 million.

Certain BMS China employees achieved their sales, in part, by providing HCPs and other government officials with cash and other inducements in exchange for prescriptions and drug listings.”

Under the heading “Failure to Respond to Red Flags,” the Order states:

“BMS China failed to respond effectively to red flags indicating that sales personnel provided improper payments and other benefits in order to generate sales from HCPs. In 2009, BMS China initiated a review of travel and entertainment expenses submitted for reimbursement by its sales personnel and found non-compliant claims, fake and altered invoices and receipts, and consecutively numbered receipts. Shortly thereafter, BMS China retained a local accounting firm to conduct monthly post-payment reviews of all claims for travel, entertainment, and meeting expenses to identify false, improperly documented, and unsubstantiated claims. BMS China brought this function in-house in early 2011 and the results of both the external and internal reviews were provided to management of BMS China as well as regional compliance and corporate business managers who reported directly to senior management of BMS.

During the period between mid-2009 and late 2013, BMS China identified numerous irregularities in travel and entertainment and event documentation, including fake and altered purchase orders, invoices, agendas, and attendance sheets for meetings with HCPs that likely had not occurred. BMS China inaccurately recorded the reimbursement of these false claims as legitimate business expenses in its books and records, which were then consolidated into the books and records of BMS.

Certain BMS China employees admitted that they had submitted false reimbursement claims and used the funds for the benefit of HCPs in support of sales by BMS China. They also alleged that the use of false reimbursement claims to fund payments to and for the benefit of HCPs in order to secure prescription sales was a widespread practice at BMS China. In emails to the BMS China President in November 2010 and January 2011, certain terminated employees wrote that they used the funds to pay rebates, provide entertainment, and fund gift cards for HCPs, as there was no other way to meet their sales targets. Citing the “open secret” that HCPs in China rely upon the “gray income” to maintain their livelihood, they said that they tried to meet the demands of the HCPs for the benefit of BMS China. Despite the widespread exceptions and serious allegations of potentially widespread bribery practices, BMS China did not investigate these claims.”

Under the heading “Compliance and Controls Environment,” the Order states:

“Despite its longstanding presence in China, BMS did not implement a formal FCPA compliance program until April 2006 when it adopted its first standalone anti-bribery policy and corresponding corporative directive. At approximately the same time, BMS began conducting compliance assessments and audits of BMS China that included a review of internal controls relating to anti-bribery risks. These internal reviews revealed weaknesses in the monitoring of payments made to HCPs, the lack of formal processes around the selection and compensation of HCPs as speakers, deficiencies in obtaining and documenting the approval of donations, sponsorships, and consulting arrangements with HCPs, and the failure to conduct post-event verification of meetings and conferences sponsored by sales representatives. Reports of these findings were provided to senior management of BMS China as well as members of BMS’s global compliance department.

These identified controls deficiencies were not timely remediated and compliance resources were minimal. The corporate compliance officer responsible for the Asia-Pacific region through 2012 was based in the U.S. and rarely traveled to China. There was no dedicated compliance officer for BMS China until 2008, and no permanent compliance position in China until 2010. In addition, the BMS sales force in China received limited training and much of it was inaccessible to a large number of sales representatives who worked in remote locations. For example, when BMS rolled out mandatory anti-bribery training in late 2009, 67% of employees in China failed to complete the training by the due date.

Annual internal audits of BMS China repeatedly identified substantial gaps in internal controls, and the results were reported to the Audit Committee and senior management of BMS. In connection with each audit, the audit team cited a lack of effective controls and documentation relating to interactions with HCPs and the monitoring of potential inappropriate payments to HCPs. Among Internal Audit’s conclusions were that BMS China’s controls around the review and approval of travel and entertainment expenses and gifts to HCPs were not effective and that it failed to track payments to HCPs, including high-risk payments, in its quarterly review of potential inappropriate payments, and to enforce controls relating to the documentation, approval, and payment of distributor rebates. Internal Audit also cited the lack of due diligence assessments of distributor compliance, including anti-bribery compliance, the failure to properly document and approve agreements with HCPs who served as speakers, and the lack of a mechanism to ensure that services were received in exchange for sponsorships. As a result, Internal Audit issued a series of qualified opinions in connection with its annual audits of BMS China between 2009 and 2013.”

Under the heading “Internal Documents Reveal Improper Benefits Provided to HCPs,” the Order states:

“Emails and other BMS China documents detail, among other things, proposed “activity plans,” “action plans,” and plans for “investments” in HCPs to increase prescription sales. These contemporaneous documents were prepared at the direction of, and sometimes transmitted to, district and regional sales managers of BMS China, and show that sales representatives used funds derived from travel and expense claims to make cash payments to HCPs and to provide gifts, meals, entertainment, and travel to HCPs in order to induce them to prescribe products sold and marketed by BMS China. The sales representatives provided a variety of benefits to HCPs, ranging from small food and personal care items to shopping cards, jewelry, sightseeing, and cash payments, in exchange for prescription sales. This kind of conduct was captured in a July 2013 email from a sales representative to a regional manager. The sales representative explained that a former sales representative had offered cash for sales to HCPs at a local hospital and “the attitude of the director of the infectious diseases department was extremely clear when I took over: ‘No money, no prescription.’” Similarly, the work plans prepared by other sales representatives also identified correlations between the value of the benefits provided to specific HCPs and the volume of prescription sales expected.

Certain documents within BMS China were replete with references to “investments” made in order to obtain sales, such as offering speaking engagements and sponsorships for domestic and international conferences and meetings in exchange for prescriptions. Some sales representatives also sought to increase prescription sales and maintain drug listings at pharmacies by hosting cash promotions and events for pharmacy employees. Based on the volume of prescriptions, certain BMS China sales representatives gave cash, shopping cards, and foodstuffs as promotional prizes to pharmacy employees; at least one sales representative characterized the expenses as a “departmental development fee” in contemporaneous documents.”

Based on the above, the Order finds:

“As described herein, BMS, through the actions of certain BMS China employees, violated [the FCPA’s books and records provisions] by falsely recording, as advertising and promotional expenses, cash payments and expenses for gifts, meals, travel, entertainment, speaker fees, and sponsorships for conferences and meetings provided to foreign officials, such as HCPs at state-owned and state-controlled hospitals as well as employees of state-owned pharmacies in China, to secure prescription sales. BMS also violated [the FCPA’s internal controls provisions] by failing to devise and maintain a system of internal accounting controls relating to payments and benefits provided by sales representatives at BMS China to these foreign officials. As identified in various internal reviews, audits, and investigations conducted since at least 2009, BMS lacked effective internal controls sufficient to provide reasonable assurances that funds advanced and reimbursed to employees of BMS China were used for appropriate and authorized purposes.”

Under the heading “Remedial Efforts,” the Order states:

“BMS has implemented significant measures to enhance its anti-bribery and general compliance training and policies and to strengthen its accounting and monitoring controls relating to interactions with HCPs, including travel and entertainment expenses, meetings, sponsorships, grants, and donations funded by BMS China. BMS took numerous steps to improve the internal controls and compliance program at BMS China. Examples include a 100% pre-reimbursement review of all expense claims; the implementation of an accounting system designed to track each expense claim, including the request, approval, and payment of each claim; and the retention of a third-party vendor to conduct surprise checks at events sponsored by sales representatives. Additionally, BMS terminated over ninety employees, and disciplined an additional ninety employees, including sales representatives and managers of BMS China, who failed to comply with or sufficiently supervise compliance with relevant policies. In addition, BMS replaced certain BMS China officers as part of an overall effort to enhance “tone at the top” and a culture of compliance. Further, BMS revised the compensation structure for BMS China employees by reducing the portion of incentive-based compensation for sales and distribution, eliminated gifts to HCPs, implemented enhanced due diligence procedures for third-party agents, implemented monitoring systems for speaker fees and third-party events, and incorporated risk assessments based on data analytics into its compliance program.”

As stated in the Order:

“Without admitting or denying the findings, Bristol-Myers Squibb consented to the order and agreed to return $11.4 million of profits plus prejudgment interest of $500,000 and pay a civil penalty of $2.75 million.  Bristol-Myers Squibb also agreed to report to the SEC for a two-year period on the status of its remediation and implementation of FCPA and anti-corruption compliance measures.”

In the SEC’s release Kara Krockmeyer (Chief of the SEC’s FCPA Unit stated):

“Bristol-Myers Squibb’s failure to institute an effective internal controls system and to respond promptly to indications of significant compliance gaps at its Chinese joint venture enabled a widespread practice of providing corrupt inducements in exchange for prescription sales to continue for years.”

Yesterday Bristol-Myers’s stock closed down .47%.

According to reports, Bristol-Myers was represented by F. Joseph Warin of Gibson Dunn.

Friday Roundup

By on April 27, 2012 in Biomet, Bristol Myers Squibb, Charitable Contributions, China, Compliance Defense, Declination Decisions, Disney, DreamWorks, Entertainment Industry, FCPA Scholarship, FCPA Sentences, Foreign Official, Hercules Offshore, Industry Sweeps, Juan Vasquez, Kazakhstan, Manuel Caceres, Mexico, Monitor, News Corporation, Pharmaceutical Industry, Telecommunications Industry, Turkcell, Wal-Mart

Coming attractions, monitor talk, LatinNode related individual sentences, just who are those “gestores,” scholarship of note, and Supreme Court quotables.  It’s all here in the Friday roundup.

Coming Attractions

This prior post contained FCPA practitioner Homer Moyer’s discussion of industry sweeps.  Industries that have been subjected to industry sweeps or are reportedly in the middle of industry sweeps include:  oil and gas, pharmaceutical / medical devices, and financial services.

Add Hollywood film studies to the list.

Reuters reports (here) that the SEC “has sent letters of inquiry to at least five movie studios in the past two months, including News Corp’s 20th Century Fox, Disney, and DreamWorks Animation” that “ask for information about potential inappropriate payments and how the companies dealt with certain government officials in China.”

The New York Times (here) also reported on the letters of inquiry and stated that the SEC “has begun an investigation into whether some of Hollywood’s biggest movie studios have made illegal payments to officials in China to gain the right to film and show movies there.”

In other disclosure news, Turkcell Iletisim Hizmetleri A.S. (Turkcell), Turkey’s only New York Stock Exchange listed company, recently disclosed in an SEC filing (here) as follows.  “Some of [the countries the company operates in] also suffer from relatively high rates of fraud and corruption. For example, allegations have been made regarding improper payments relating to the operations of KCell, a mobile operator in Kazakhstan and 51% subsidiary of Fintur Holdings B.V., in which we hold a 41.45% stake, while TeliaSonera holds the remainder. The allegations were discussed by Turkcell’s Board of Directors, which requested an independent investigation of the allegations made. TeliaSonera initiated an independent investigation as agreed by the Fintur Board. The Turkcell Board has been informed that to date there has not been substantiated any such allegations and the Fintur Board informs us that it has completed its own investigation. Since no assurance can be given that there will not be further requests for investigation, we remain vigilant on this matter.”

In other disclosure news, in October 2006, the SEC informed the Bristol Myers Squibb Company that it had begun a formal inquiry into the activities of certain of the company’s German pharmaceutical subsidiaries and its employees and/or agents.  The company previously disclosed that “the SEC’s inquiry encompasses matters formerly under investigation by the German prosecutor in Munich, Germany, which have since been resolved,” that the inquiry concerns potential violations of the FCPA and that “the company is cooperating with the SEC.”  Yesterday, in a 10-Q filing, the company stated as follows.  “In March, 2012, the Company received a subpoena from the SEC. The subpoena, issued in connection with an investigation under the FCPA, primarily relates to sales and marketing practices in various countries. The Company is cooperating with the government in its investigation of these matters.”

According to my tally, over the past two months, approximately 15 companies have newly disclosed, or been linked to, FCPA scrutiny.  See here for the prior post “The Sun Rose, a Dog Barked, and a Company Disclosed FCPA Scrutiny.”  (And no, Wal-Mart is not included in this list, the company disclosed its FCPA scrutiny in December 2011).

Hercules Offshore disclosed better news in its 10-Q filing yesterday.  The company stated as follows.  “On April 4, 2011, the Company received a subpoena issued by the Securities and Exchange Commission (“SEC”) requesting the delivery of certain documents to the SEC in connection with its investigation into possible violations of the securities laws, including possible violations of the Foreign Corrupt Practices Act (“FCPA”) in certain international jurisdictions where the Company conducts operations. The Company was also notified by the Department of Justice (“DOJ”) on April 5, 2011, that certain of the Company’s activities were under review by the DOJ. On April 24, 2012, the Company received a letter from the DOJ notifying the Company that the DOJ has closed its inquiry into the Company regarding possible violations of the FCPA and does not intend to pursue enforcement action against the Company. The DOJ indicated that its decision to close the matter was based on, among other factors, the thorough investigation conducted by the Company’s special counsel and the Company’s compliance program. The Company, through the Audit Committee of the Board of Directors, intends to continue to cooperate with the SEC in its investigation. At this time, it is not possible to predict the outcome of the SEC’s investigation, the expenses the Company will incur associated with this matter, or the impact on the price of the Company’s common stock or other securities as a result of this investigation.”

For the second straight day, I say kudos to the DOJ.  Yet, I also ask on consecutive days – would anything really change with an FCPA compliance defense?  As I note in “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (here) the DOJ already recognizes a de facto FCPA compliance defense albeit in opaque, inconsistent and unpredictable ways. Thus, an FCPA compliance defense accomplishes, among other things, the policy goal of removing factors relevant to corporate criminal liability from the opaque, inconsistent, and unpredictable world of DOJ decision making towards a more transparent, consistent, and predictable model best accomplished through a compliance defense amendment to the FCPA.

Monitor Talk

As discussed in this prior post, in March Biomet resolved an FCPA enforcement action involving $22.8 million in combined fines and penalties ($17.3 million via a DOJ deferred prosecution agreement, and $5.5 million via a settled SEC civil complaint).  Pursuant to the DPA, Biomet agreed to engage an independent compliance monitor “for a period of not less than 18 months” and to provide periodic reports to the DOJ regarding remediation and implementation of the enhanced compliance measures as described in an attachment to the DPA.

As evidence that investor concern regarding FCPA issues does not end on enforcement action day, during a recent earnings conference call, an analyst asked Biomet CEO Jeff Binder the following question.

“I guess just with regard to the DOJ settlement that was announced for the FCPA potential violations, I’m just wondering — I guess you’re going to have an 18-month monitoring period. So I assume that would only apply to your international business? And then maybe even within the international business, would that only apply to certain regions where there have been problems found? And then what sort of a pricing — sorry, not pricing, but cost impact do you expect from that monitoring? Is it something material or not?”

Binder responded as follows.  “Yes. You’re correct that the monitorship will apply to our businesses outside the United States, but the monitors purview is broad outside the United States. The monitor has the ability to take a look at our businesses across the world. The monitor will do a risk assessment upfront. They’ll understand where our issues have been and they’ll take a look at our processes. They’ll develop that risk assessment. They’ll come up with a work plan that’s based on that risk assessment. And we’ll take it from there. We don’t expect that additional expenses for the monitor will be material to the business. DOJ and SEC require the candidates for the monitorship to submit budgets of the projected services for their work. And I’d just say that the amounts that were set forth in those budgets are not material, and we don’t anticipate significant internal expenses associated with the monitorship.”

LatiNode Individual Sentences

As noted in this DOJ release, in April 2009 LatiNode, a privately held Florida corporation, pleaded guilty to violating the Foreign Corrupt Practices Act in connection with improper payments in Honduras and Yemen and agreed to pay a $2 million criminal penalty.  Thereafter, several of its former executives – Jorge Granados, Manuel Caceres, Manuel Salvoch, and Juan Vasquez were criminally charged and pleaded guility.

Earlier this week Caceres (former vice president of business development at LatiNode) and Vasquez (a former senior commercial executive at LatiNode) were sentenced.  U.S. District Court Judge Joan Lenard (S.D. of Fl.) sentenced Caceres to 23 months followed by 1 year supervised release – the DOJ sought a 36 month sentence.  U.S. District Court Judge Patrricia Seitz (S.D. of Fl.) sentenced Vasquez to 3 years probation, community service, home detention and monitoring and ordered him to pay a $7,500 criminal fine – the DOJ originally sought a 36 month sentence and recently stated that it “would not oppose a sentence for Vasquez that was less than the sentence for Caceres and Salvoch [who is yet to be sentenced].”

As noted in this prior post, in September 2011, Granados was sentenced to 46 months in prison.

“Gestores”

The New York Times article suggested that many of the Wal-Mart Mexican payments at issue were routed through Mexican gestores.   Just who are those “gestores.”?  I found this article from CBS of interest.  The article states as follows.   “A visit to any government office is likely to bring the sighting of a well-dressed man carrying reams of documents who will glide past the long lines, shake hands with the official behind the counter and get ushered into a backroom, where his affairs presumably get a fast-track service. The suspicion is these go-betweens funnel a portion of the fees they charge clients to corrupt officials to smooth the issuance of permits, approvals and other government stamps.  In a country where laws on zoning rules, construction codes and building permits are vague or laxly enforced, the difference between opening a store quickly and having it held up for months may depend on using a gestor.”

Scholarship of Note

Pre-Wal-Mart, the FCPA conversation of the spring focused on charitable contributions in the context of the Wynn-Okada dispute.  See here, here and here for the prior posts.  Other posts have noted (see here) that, strange as it may sound, the FCPA’s anti-bribery provisions are only implicated when something of value is provided, directly or indirectly, to a foreign official to influence the official in obtaining or retaining business.  The FCPA’s anti-bribery provisions are not implicated when the thing of value is provided to a foreign government itself.  Other prior posts (here and here) have discussed Dodd-Frank Act Section 1504’s Resource Extraction Disclosure Provisions.

Given my prior writings on these issues, I was pleased when Emory University School of Law student Francesca Pisano sent me the student comment “Anti-Corruption Law & Corporate Philanthropy: Rethinking the Regulations” (here) selected for publication in a forthcoming issue of the Emory Law Journal.

The abstract states as follows.

“When the 2010 earthquake hit Port-au-Prince, Haiti, U.S. companies donated over $146.8 million to the relief effort. Despite this impressive display of global engagement, commentators suggested that the US anti-corruption laws had discouraged corporations from greater involvement. Even with the laws in force, however, reports of corruption in the relief effort soon surfaced, derailing Haiti’s recovery. Foreign aid that feeds corruption will never achieve sustainable growth, but development efforts will similarly fail if U.S. anti-corruption laws discourage corporate philanthropy.  This comment analyzes the application of two U.S. anti-corruption laws, the Foreign Corrupt Practices Act (“FCPA”) and the Dodd-Frank Section 1504, to international corporate charity. It shows how the FCPA’s ambiguous nature has the unfortunate effect of being both over- and under-inclusive, discouraging bona fide charity while at the same time failing to capture corrupt donations. The recently-enacted Dodd-Frank Section 1504 has great potential, but the SEC’s proposed rules have created a loophole to allow corruption to continue if hidden in corporate charity.  This comment proposes a modification to FCPA enforcement: creating a Safe Harbor Option. This will offer businesses the opportunity to “buy” a rebuttable presumption of legitimacy for their charitable donations by publically disclosing the payments, projects, and recipients of their philanthropy. Granting a presumption of legitimacy to disclosed donations will ameliorate many of the over-inclusive aspects of the FCPA. The increased disclosure will allow the public to monitor corporate charity and question suspicious gifts, ameliorating the under-inclusive aspects of FCPA enforcement. This comment also argues that Section 1504 should be defined expansively to prevent charity from being used to circumvent the congressional goals of increasing transparency and combating corruption. If properly defined, Section 1504 is an excellent example of regulation through disclosure and transparency, rather than prohibitions.”

Supreme Court Quotable

This recent post discussed non-FCPA caselaw that touched upon issues relevant to the recent “foreign official” challenges.  Last week, the Supreme Court issued its opinion (here) in Mohamad v. Palestinian Authority concerning the scope of the Torture Victim Protection Act.  The Court, in an opinion authored by Justice Sotomayor held that the term “individual” in the TVPA encompasses only natural persons, and thus the law does not impose liability against corporatons.  In her opinion, Justice Sotomayor’s stated, among other things, as follows.

“Congress remains free, as always, to give the word [individual] a broader or different meaning. But before we will assume it has done so, there must be some indication Congress intended such a result.”

“We add only that Congress appeared well aware of the limited nature of the cause of action it estab­lished in the Act.”

“The text of the TVPA convinces us that Congress did not extend liability to organizations, sovereign or not. There are no doubt valid arguments for such an extension. But Congress has seen fit to proceed in more modest steps in the Act, and it is not the province of this Branch to do otherwise.”

*****

I went to Walmart last night.  After completing my purchase and before exiting the store, I stopped, looked around, and thought, wow, what a week!

A good weekend to all.

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