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For-Profit Public Enforcement

By on March 11, 2015 in Cash Cow
Bucket full of money

An article by Margaret Lemos (Duke University School of Law) and Max Minzner (University of New Mexico School of Law) titled For-Profit Public Enforcement in the Harvard Law Review recently caught my eye.  The article does not concern – or even mention – the Foreign Corrupt Practices Act, but the issues discussed in the article are nevertheless FCPA relevant.

Why?

Because it seems the metric by which DOJ FCPA prosecutors judge themselves is by the quantity of enforcement actions brought and not necessarily the quality of those enforcement actions.

For instance, as highlighted in this previous post, when the DOJ’s Assistant Chief of the Criminal Division left the DOJ, the FCPA talking point in the DOJ press release was as follows.

“The Criminal Division has also substantially increased enforcement of the Foreign Corrupt Practices Act (FCPA), convicting three dozen individuals for FCPA-related offenses – a record number – and entering into more than 40 corporate resolutions involving eight of the top 10 largest FCPA penalties in history.”

There was no mention in the DOJ’s press release of the several instances during the individual’s tenure at DOJ in which the DOJ was put to its burden of proof in FCPA enforcement actions and lost.

Likewise, as highlighted here and here, when the DOJ’s FCPA Unit Chief left the DOJ, the main talking point seemed to be as follows.

“Under his leadership, the FCPA Unit resolved more than 40 corporate cases, which include about two-thirds of the top 25 biggest corporate resolutions ever. Those matters resulted in approximately $1.9 billion in monetary penalties and the conviction of more than two dozen business executives and money launderers.”

Again there was no mention in the relevant press releases of the several instances during the individual’s tenure at DOJ in which the DOJ was put to its burden of proof in FCPA enforcement actions and lost.

That FCPA enforcement may be a convenient cash cow for the government was an issue specifically addressed in this prior post. The post profiled various statements to this effect, several from former DOJ and SEC officials, including the following quote from a former Assistant Chief of DOJ FCPA enforcement: “[t]he government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore.”

In short, the issues discussed in “For-Profit Public Enforcement” may have certain parallels to FCPA enforcement.

The article abstract is as follows.

“This Article investigates an important yet undertheorized phenomenon: financial incentives in public enforcement. Each year, public enforcers assess billions of dollars in penalties and other financial sanctions for violations of state and federal law. Why? If the awards in question were the result of private lawsuits, the answer would be obvious. We expect that private enforcers — the victims of law violations and their fee-seeking attorneys — will attempt to maximize financial recoveries. Record recoveries come as no surprise in private class actions, for example. But dollar signs are harder to explain in the context of public enforcement. Unlike private attorneys who are paid a percentage of the recovery, public enforcers are paid by salary. They have no direct financial stake in successful enforcement efforts. We assume that public enforcers pursue financial awards only for their deterrent value, not for the benefits that such recoveries can bring the enforcement agency itself.

Or do they? Contrary to the conventional wisdom on the division between public and private enforcement, this Article argues that public enforcers often seek large monetary awards for self-interested reasons divorced from the public interest in deterrence. The incentives are strongest when enforcement agencies are permitted to retain all or some of the proceeds of enforcement — an institutional arrangement that is common at the state level and beginning to crop up in federal law. Yet even when public enforcers must turn over their winnings to the general treasury, they may have reputational incentives to focus their efforts on measurable units like dollars earned. Financially motivated public enforcers are likely to behave more like private enforcers than is commonly appreciated: they will undertake more enforcement actions, focus on maximizing financial recoveries rather than securing injunctive relief, and compete with other would-be enforcers for lucrative cases. Those effects will often be undesirable, particularly in circumstances where the risk of overenforcement is high. But financial incentives might provide a valuable spur to action for agencies that currently are performing well below optimal levels. Policymakers recognize as much when they seek to boost private enforcement by promising prevailing plaintiffs supracompensatory damages. We show that financial incentives can serve a similar purpose in the public sphere, offering policymakers an additional tool for calibrating the level of public enforcement.”

In other respects, the article talks about:

“Law enforcement is a big business.”

“[A]gencies seeking to build reputations as effective enforcers will tend to emphasize easily measurable accomplishments rather than more amorphous forms of success.”

“[F]inancial recoveries purport to convey information about the size or importance of the agency’s enforcement program.”

“[H]igh recoveries (either in a single case or in the aggregate) can make an enforcement program appear effective. An agency that is trying to cultivate a reputation as an effective enforcer may therefore find special value in financial awards.”

“[E]nforcement lawyers can be subdivided into two categories: career attorneys seeking a long-term career in the public sector and non-career attorneys who plan for the private sector after a short period of time.”

“Individual [enforcement] attorneys may seek to develop a public reputation for effective enforcement, and emphasizing monetary awards is a straightforward way to do this.  Just as [enforcement] agencies focus on financial rewards because they are easy to measure and easy to compare, individual lawyers may do the same because other measures of their competence are difficult to evaluate.  In other words, agency attorneys may believe that the best sort of ‘winning’ record is one that begins with a dollar sign and ends with a long series of zeroes.  A reputation for strong enforcement is initially valuable internally, but when the lawyer leaves the public sector, it is also useful for attracting clients.”

“[T]here is reason to believe that a strong enforcement program will lead to more job-creation in private firms that defend against the relevant government actions. […] The more robust the enforcement program, the more lucrative are the job prospects for former enforcement attorneys.”

Is The DOJ Picking on Non-U.S. Companies and Individuals?

By on June 18, 2014 in Cash Cow, DOJ, Enforcement Agency Policy, Foreign Issuers, Foreign Nationals, Foreign Non-Issuer Company, Guest Posts, Jurisdiction

Today’s post is from David Simon (Foley & Lardner).

*****

The debate over whether the United States should impose its values on the rest of the world through enforcement of the Foreign Corrupt Practices Act (“FCPA”) is over.

Almost everyone now rejects the cultural relativist argument—that there are different business cultures in different parts of the world, and that the United States should respect those differences and refrain from imposing our standards of doing business on U.S. companies operating abroad.  Rather, the rise of anti-corruption legislation, the proliferation of OECD standards, and increased enforcement—not only by the United States, but by many countries enforcing their own anticorruption laws—all show an emerging consensus that corruption of this nature is objectively bad.  The United States should be commended for leading the way on this.

Yet the recent enforcement activity of the Department of Justice[i] (“DOJ”) raises questions as to whether it is enforcing the FCPA in a manner consistent with the statute’s purpose (and the overarching purpose of domestic criminal law).  According to Deputy Assistant Attorney General James Cole, whose remarks are available here, that purpose is U.S.-centric:

“In enacting the FCPA … Congress recognized that foreign bribery had tarnished the image of U.S. businesses, impaired public confidence in the financial integrity of U.S. companies, and had hampered the functioning of markets, resulting in market inefficiencies, market instability, sub-standard products and services, and an unfair playing field.”

True enough, but it is hard to dispute that the focus of FCPA enforcement has to some extent shifted away from U.S. businesses and citizens.  As noted on FCPA Professor, eight of the top ten corporate FCPA settlements have involved non-U.S. businesses.

Likewise, the number of individual FCPA prosecutions against non-U.S. citizens has been increasing.  In recent years, individual criminal prosecutions have been brought against citizens of the Ukraine, Hungary, Slovakia, Switzerland, Venezuela, and Sri Lanka—and some involve very tenuous connections to the United States.

For example, as previously highlighted on this blog, in December 2011 the DOJ charged, among others, former Siemens executive and German national Stephan Signer under the FCPA based on conduct concerning the Argentine prong of the 2008 Siemens enforcement action.  The jurisdictional allegation against Signer was that he caused Siemens to transfer two wires to bank accounts in the United States in furtherance of a scheme to bribe Argentine government officials.[ii]

I do not argue that the FCPA does not permit the DOJ to charge non-U.S. citizens or companies.  Indeed, the 1998 amendments make it clear that Congress intended to give the DOJ that power, providing it with jurisdiction over several categories of non-U.S. entities and individuals.  It should be noted, however, that the DOJ has adopted a markedly broad interpretation of the FCPA’s territorial jurisdiction provisions, resulting in increasingly attenuated connections between the United States and individual defendants like Mr. Signer.  These connections may include merely “placing a telephone call or sending an e-mail, text message, or fax from, to, or through the United States.”[iii]  The legal significance of these increasingly tenuous jurisdictional justifications, previously referred to on FCPA Professor as “de facto extraterritorial jurisdiction,” remains a contentious, and related, issue.

The question I raise here is not whether the DOJ’s policy of enforcement is legal, but whether such a focus (or, at least, the perception of such a focus) on non-U.S. persons and companies is prudent and appropriate.  In describing the principles underlying the jurisdiction to prescribe, the American Law Institute (“ALI”) notes that the United States has “generally refrained from exercising jurisdiction where it would be unreasonable to do so.”[iv]  But “[a]ttempts by some states—notably the United States, to apply their law on the basis of very broad conceptions of territoriality or nationality [has bred] resentment and brought forth conflicting assertions of the rules of international law.”[v]  Indeed.

The concerns I have about this are not confined to FCPA enforcement.  The same trend is apparent in other areas of the law, such as economic sanctions and export controls.  The pattern of enforcement being concentrated against non-U.S. companies is shown just as sharply under those laws, with the recent economic sanctions against such firms as ING Bank ($619 million against Netherlands financial institution), Royal Bank of Scotland ($100 million against UK financial institution), and Credit Suisse ($536 million against Swiss financial institution).  With the U.S. Government reportedly considering the first $10 billion penalty for violations of U.S. economic sanctions laws against BNP Paribas (a French financial institution), French President Francois Hollande reportedly has personally lobbied against what is perceived as an unfair singling out of an EU financial institution for payment of such a large fine.  To the French Government, at least, the inequity of the U.S. Government assessing a fine that surpasses the entire yearly profits of one of the largest French financial institutions is plain.

The pattern of enforcement described above, should it be allowed to continue, sends a message to the rest of the world that the DOJ is mostly interested in big dollar settlements and soft foreign targets.  Is this the message we wish to send to our foreign allies in the fight against corruption?

Although the DOJ’s application of the FCPA (and other laws governing international business conduct)  to prosecute increasing numbers of foreign persons may be legal, and technically “reasonable” at international law, that does not necessarily make it appropriate or advisable.  Rather, these attempts to apply a broad conception of territoriality in pursuit of greater numbers of prosecutions and larger settlements may be more damaging than DOJ perceives.  This has the potential to undermine the U.S. position that anti-corruption is a global issue, and counteracts the progress the U.S. has made in altering its image from that of an overreaching imperialist power to a competent and moderate leader in the creation and enforcement of global anti-corruption norms.

*****

This article in today’s New York Times DealBook discusses many of the same issues highlighted in the above post.

[i] I focus here principally on the DOJ, not the SEC.  The DOJ, of course, is a law enforcement agency charged with enforcing criminal laws.  The SEC is a regulatory agency, and the companies and individuals subject to its jurisdiction essentially opt in by taking advantage of the U.S.’s financial markets.

[ii] Indictment at 40, United States v. Uriel Sharef, et. al., 11CR-1-56 (S.D.N.Y 2011), available at http://www.justice.gov/criminal/fraud/fcpa/cases/sharef-uriel/2011-12-12-siemens-ndictment.pdf.

[iii] See U.S. Dep’t of Justice & U.S. Sec. Exch. Comm’n, A Resource Guide to the U.S. Foreign Corrupt Practices Act, 11 (Nov. 14, 2012), available at http://www.justice.gov/criminal/fraud/fcpa/guide.pdf.

[iv] Restatement (Third) of the Foreign Relations Law of the United States, § 403 cmt. a. (1986).

[v] Id. at Chapter One: Jurisdiction to Prescribe, Subchapter A.: Principles of Jurisdiction to Prescribe, Introductory Note.

“They’re Grading Prosecutors On Those Kinds Of Recoveries”

By on June 4, 2014 in Cash Cow

According to this article, at a recent Global Lawyer Forum sponsored by InsideCounsel in Chicago, DLA Piper partner Tara Lee talked about the aggressive nature of U.S. regulators and stated as follows.

“I think, frankly, it comes at least in part from a profit motive.  The Department of Justice, in the past three to six years, has made more money from two categories of enforcement — the FCPA and the False Claims Act — than they have in every kind of criminal fine combined. … They’re grading prosecutors on those kinds of recoveries.”

Regardless of what one thinks of Lee’s comment, one has to at least acknowledge the widely perceived opinion that FCPA enforcement is a government cash cow.  For instance, this prior post collected numerous such statements (many from former DOJ enforcement attorneys).

The perception that FCPA enforcement is a government cash cow is driven by a number of factors including the theories of enforcement advanced in many large enforcement actions.  For instance, this prior post regarding the $398 million Total enforcement action highlighted the following points.

  • The enforcement action was against a French oil and gas company for making improper payments to an Iranian Official through use of an employee of a Swiss private bank and a British Virgin Islands company.
  • The vast majority of the alleged improper conduct took place between 1995 and 1997 (that is 16 to 18 years prior to the 2013 enforcement action).
  • The sole U.S. jurisdictional nexus (a required legal element for an anti-bribery violation since Total is a foreign issuer) was a 1995 wire transfer of $500,000 (representing less than 1% of the alleged bribe payments at issue) from a New York based account.

The perception that FCPA enforcement is a government cash cow is also driven by the undeniable fact that FCPA settlement amounts have come a long way in a short amount of time.  (See here for the prior post).  Indeed, as FCPA practitioners from Gibson Dunn rightly observed: “[a]n unmistakable characteristic of [2013] FCPA enforcement is that the market rate for resolving a corporate FCPA enforcement action spiked precipitously in 2013.”

The perception that FCPA enforcement is a government cash cow is also driven – to a significant extent – by the apparent obsession the DOJ and SEC have with FCPA enforcement statistics.

  • How did the DOJ describe FCPA enforcement under a recent former Assistant Attorney General?  By the numbers (see here).
  • How did another former Assistant Attorney General describe FCPA enforcement in her last speech in that position?  By the numbers (see here).
  • How did the former Chief of the DOJ’s FCPA Unit describe his tenure at the DOJ?  By the numbers (see here).
  • How did current Deputy Attorney General James Cole describe FCPA enforcement in his last FCPA specific speech?  By the numbers (see here).
  • How did current SEC Chair Mary Jo White describe FCPA enforcement in her recent Congressional testimony?  By the numbers (see here).

Returning to the statement that began this post, Lee’s statement has merit and prosecutors and enforcement agencies seem to be grading themselves on quantitative metrics such as the number of enforcement actions and the settlement amounts collected.

However, by focusing on the quantity of FCPA enforcement, the quality of that enforcement is often left unexplored. The simplistic notion advanced by the enforcement agencies (and others) seems to be that more FCPA enforcement is an inherent good regardless of enforcement theories, regardless of resolution vehicles, and regardless of actual outcomes when put to its burden of proof.

This logic is troubling and ought to be rejected.

In a legal system founded on the rule of law, a more meaningful form of government enforcement agency success is prevailing in the context of an adversarial system when put to the burden of proof. As to this form of success, during this new era of FCPA enforcement, the DOJ and SEC have had far less “success” in enforcing the FCPA.  (See here for instance).

(By the way, the InsideCounsel article contains, similar to most recent InsideCounsel articles about the FCPA, false and misleading statistics.  For instance, contrary to the suggestion in the article, between 2009 and 2011 there have not been 162 DOJ and SEC FCPA cases.  In addition, contrary to the suggestion in the article, the SEC did not collect $3.4 billion in FCPA penalties in 2013.)

Friday Roundup

By on March 28, 2014 in Africa Sting, ALSTOM, Besso Limited, Cash Cow, FCPA Statistics, Financial Services Authority, Financial Services Industry, James Ruehlen, Mark Jackson, Noble Corporation, Orthofix International, Repeat Offenders, Richard Bistrong, Undercover Investigations, United Kingdom, VimpelCom

Further trimmed, scrutiny alerts and updates, facts and figures, quotable, and for the reading stack.  It’s all here in the Friday roundup.

Further Trimmed

When the SEC announced its enforcement action against James Ruehlen and Mark Jackson  (a current and former executive of Noble Corp.) in February 2012, I said that this would be an interesting case to follow because the SEC is rarely put to its burden of proof in FCPA enforcement actions – and when it has been put to its ultimate burden of proof – the SEC has never prevailed in an FCPA enforcement action.

Over the past two years, the SEC’s case has been repeatedly trimmed.  (See this recent post containing a summary).  In the latest cut, the SEC filed an unopposed motion for partial voluntary dismissal with prejudice on March 25th.  In pertinent part, the motion states as follows.

“To narrow this case and streamline the presentation of evidence to the jury, the SEC hereby moves for leave to voluntarily dismiss with prejudice all portions of its claims … predicated upon Noble Corporation’s violation of [the FCPA’s internal controls provisions”.

For additional specifics, see the filing.

As highlighted in this previous post, in 2010 the SEC charged Noble Corporation with violating the FCPA’s anti-bribery, books and records and internal controls provisions based on the same core conduct alleged in the Jackson/Ruehlen action. Without admitting or denying the SEC’s allegations, Noble agreed to agreed to an injunction and payment of disgorgement and prejudgment interest of $5,576,998.

In short, the SEC’s enforcement action against Ruehlen and Jackson is a shell of its former self.   Interesting, isn’t it, what happens when the government is put to its burden of proof in FCPA enforcement actions.

Scrutiny Alerts and Updates

Alstom

Bloomberg reports speculation that a future FCPA enforcement action against Alstom could top the charts in terms of overall fine and penalty amounts.  (See here for the current Top 10).

The article states:

“The Justice Department is building a bribery case against Alstom SA , the French maker of trains and power equipment, that is likely to result in one of the largest U.S. anticorruption enforcement actions, according to two people with knowledge of the probe. Alstom, which has a history checkered with corruption allegations, has hindered the U.S. investigation of possible bribery in Indonesia and now faces an expanded probe including power projects in China and India, according to court documents in a related case. Settlement talks haven’t begun, the company said.”

In response to the Bloomberg article, Alston released this statement.

“Robert Luskin of Patton Boggs, Alstom’s principal outside legal advisor in the USA, states that the Bloomberg article published on 27 March 2014, regarding the investigation of Alstom by the US Department of Justice, does not accurately reflect the current situation: “Alstom is cooperating closely, actively, and in good faith with the DOJ investigation. In the course of our regular consultations, the DOJ has not identified any on-going shortcomings with the scope, level, or sincerity of the company’s effort”.

“The discussions with the DOJ have not evolved to the point of negotiating a potential resolution of any claims. Any effort to estimate the size of any possible fine is sheer speculation, as would be any comparison with other cases that have recently been resolved. Alstom has agreed to focus its efforts on investigating a limited number of projects that we and the DOJ have identified in our discussions. We are working diligently with the DOJ to answer questions and produce documents associated with these specific projects so that we can address any possible improper conduct”.

VimpelCom

Netherlands-based and NASDAQ traded telecommunications company VimpelCom recently disclosed:

“[T]hat in addition to the previously disclosed investigations by the U.S. Securities and Exchange Commission and Dutch public prosecutor office, the Company has been notified that it is also the focus of an investigation by the United States Department of Justice. This investigation also appears to be concerned with the Company’s operations in Uzbekistan. The Company intends to continue to fully cooperate with these investigations.”

On March 12, 2014, VimpelCom disclosed:

“The Company received from the staff of the United States Securities and Exchange Commission a letter stating that they are conducting an investigation related to VimpelCom and requesting documents. Also, on March 11, 2014, the Company’s headquarter in Amsterdam was visited by representatives of the Dutch authorities, including the Dutch public prosecutor office, who obtained documents and informed the Company that it was the focus of a criminal investigation in the Netherlands. The investigations appear to be concerned with the Company’s operations in Uzbekistan. The Company intends to fully cooperate with these investigations.”

Orthofix International

As noted in this Wall Street Journal Risk & Compliance post, Orthofix International recently disclosed:

“We are investigating allegations involving potential improper payments with respect to our subsidiary in Brazil.

In August 2013, the Company’s internal legal department was notified of certain allegations involving potential improper payments with respect to our Brazilian subsidiary, Orthofix do Brasil. The Company engaged outside counsel to assist in the review of these matters, focusing on compliance with applicable anti-bribery laws, including the Foreign Corrupt Practices Act (the “FCPA”). This review remains ongoing.”

As noted in this previous post, in July 2012 Orthofix International resolved a DOJ/SEC FCPA enforcement action concerning alleged conduct by a Mexican subsidiary.  In resolving that action, the company agreed to a three year deferred prosecution agreement.  As is typical in FCPA DPAs, in the Orthofix DPA the DOJ agreed not continue the criminal prosecution of Orthofix for the Mexican conduct so long as the company complied with all of its obligations under the DPA, including not committing any felony under U.S. federal law subsequent to the signing of the agreement.

See this prior post for a similar situation involving Willbros Group (i.e. while the company while under a DPA it was investigating potential additional improper conduct).  As noted here, Willbros was released from its DPA in April 2012, the original criminal charges were dismissed and no additional action was taken.

Besso Limited

Across the pond, the U.K. Financial Conduct Authority (“FCA”) recently issued this final notice to Besso Limited imposing a financial penalty of £315,000 for failing “to take reasonable care to establish and maintain effective systems and controls for countering the risks of bribery and corruption associated with making payments to parties who entered into commission sharing agreements with Besso or assisted Besso in winning and retaining business (“Third Parties”).”

Specifically, the FCA stated:

“The failings at Besso continued throughout the Relevant Period [2005-2011] and contributed to a weak control environment surrounding the making of payments to Third Parties. This gave rise to an unacceptable risk that payments made by Besso to Third Parties could be used for corrupt purposes, including paying bribes to persons connected with the insured or public officials. In particular Besso:  (1) had limited bribery and corruption policies and procedures in place between January 2005 and October 2009. It introduced written bribery and corruption policies and procedures in November 2009, but these were not adequate in their content or implementation; (2) failed to conduct an adequate risk assessment of Third Parties before entering into business relationships; (3) did not carry out adequate due diligence on Third Parties to evaluate the risks involved in doing business with them; (4) failed to establish and record an adequate commercial rationale to support payments to Third Parties; (5) failed to review its relationships with Third Parties, in sufficient detail and on a regular basis, to confirm that it was still appropriate to continue with the business relationship; (6) did not adequately monitor its staff to ensure that each time it engaged a Third Party an adequate commercial rationale had been recorded and that sufficient due diligence had been carried out; and (7) failed to maintain adequate records of the anti-bribery and corruption measures taken on its Third Party account files.”

The FCA has previously brought similar enforcement actions against Aon Limited (see here), Willis Limited (see here), and JLT Speciality Limited (see here).    For more on the U.K. FCA and its focus on adequate procedures to prevent bribery , see this guest post.

Facts and Figures

Trace International recently released its Global Enforcement Report (GER) 2013 – see here to download.  Given my own focus on FCPA enforcement statistics and the various counting methods used by others (see here for a recent post), I particularly like the Introduction of the GER in which Trace articulates a similar “core” approach that I use in keeping my enforcement statistics.  The GER states:

“[W]hen a company and its employees or representatives face multiple investigations or cases in one country involving substantially the same conduct, only one enforcement action is counted in the GER 2013.  An enforcement action in a country with multiple investigating authorities, such as the U.S., is also counted as one enforcement action in the GER 2013.”

The Conference Board recently released summary statistics regarding anti-bribery policies.  It found as follows.

39% of companies in the S&P Global 1200; 23% of companies in the S&P 500; and 14% of companies in the Russell 1000 reported having a policy specifically against bribery.

Given the results of other prior surveys which reported materially higher numbers, these results are very surprising.

Quotable

This recent Wall Street Journal article “Global Bribery Crackdown Gains Steam” notes as follows.

“Cash-strapped countries are seeing the financial appeal of passing antibribery laws because of the large settlements collected by the U.S., according to Nathaniel Edmonds, a former assistant chief at the U.S. Department of Justice’s FCPA division.  “Countries as a whole are recognizing that being on the anticorruption train is a very good train to be on,” said Mr. Edmonds, a partner at Paul Hastings law firm.”

The train analogy is similar to the horse comment former DOJ FCPA enforcement attorney William Jacobson made in 2010 in an American Lawyer article that “[t]he government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore.”  For additional comments related to the general topic, see this prior post.

Reading Stack

This recent Wall Street Journal Risk & Compliance Journal post contains a Q&A with former DOJ FCPA Unit Chief Chuck Duross.  Contrary to the inference / suggestion in the post, Duross did not bring “tougher tactics” such as wires and sting operations to the FCPA Unit.  As detailed in prior posts here and here, undercover tactics and even sting operations had been used in FCPA enforcement actions prior to the Africa Sting case.

Speaking of the Africa Sting case, the Q&A mentions reasons for why the Africa Sting case was dropped.  Not mentioned, and perhaps relevant, is that the jury foreman of the second Africa Sting trial published this guest post on FCPA Professor after the DOJ failed in the second trial.  Two weeks later, the DOJ dismissed all charges against all Africa Sting defendants.

Further relevant to the Africa Sting case, the Wall Street Journal recently ran this article highlighting the role of Richard Bistrong, the “undercover cooperator” in the case.  Bistrong has recently launched an FCPA Blog – see here.

*****

A good weekend to all.

“Total”ly Milking The FCPA Cash Cow?

By on June 3, 2013 in Cash Cow, Foreign Issuers, Jurisdiction, Statute of Limitations, Total S.A.

There are many who believe that certain aspects of FCPA enforcement represent a cash cow for the government.

This previous post on the White Collar Crime Prof Blog stated as follows.  “FCPA is a cash cow. Big companies, most of whom are quite vulnerable, will do anything to avoid a civil or criminal trial. FCPA becomes a cost of doing business. The money flows into the government.”

In this article, a former Assistant Director in the SEC Division of Enforcement stated that one reason for the increase in FCPA enforcement is a “very simple reason–it’s lucrative.”

This post from the Chamber of Commerce titled “Justice’s FCPA Cash Cow” stated that “FCPA prosecutions have turned into a cash cow for the Justice Department” and the author noted as follows.  “I’m pretty sure using the justice system as an ATM wasn’t what the authors of the FCPA had in mind.”

This Business Insider article notes that “the profitability enforcement has garnered for the government” is one of the reasons for the increase in FCPA enforcement.  The article states “quite simply, [FCPA enforcement] is lucrative for the government” and it quotes David Krakoff, (BuckleySandler and a former federal prosecutor) as follows.  ” You have to think of the SEC and the DoJ as businesses.  They are looking for growth areas, too.”

As noted in this previous post, Adam Siegel (co-chair of the global white collar group at Freshfields Bruckhaus Deringer and a former federal prosecutor) stated as follows concerning increased enforcement.  “We’re in an economic climate today where I don’t think there’s a single government in the world that isn’t struggling to find resources.  This area has emerged … as a money making center, which is kind of bizarre.”

Matthew  Jacobs, a former DOJ prosecutor who now heads the San Francisco offices of  Vinson & Elkins LLP, stated as follows in a recent Law360 article (“FCPA  Enforcement Will Stay Robust Beyond Obama’s 2nd Term”): “The Department of  Justice has figured out that conducting investigations of corporations is a  lucrative business.  This is the one area of government activity that actually  brings money in rather than shoots money out. We’re talking about literally  billions of dollars that the government is able to collect … as long as there’s  a budget issue it’s not too cynical to say that … generating revenue is a factor  in bringing these cases.”

This Forbes contributor noted as follows. “FCPA enforcement has long been considered a cash cow for the Department of Justice.”

See also this prior post titled “Is the FCPA a Government Cash Cow” as well as my comments to the New York Times in this article.

And who can forget the comments of William Jacobson, a former DOJ Assistant Chief for FCPA enforcement.  Referencing a different member of the animal kingdom, he stated in a 2010 American Lawyer article that “[t]he government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore.”

Those who believe that certain aspects of FCPA enforcement represent a government grab for easy settlement money will find new support in the recent $398 million Total enforcement action (see here for the prior post).

The salient points as to the third largest settlement in FCPA history are as follows.

  • The enforcement action was against a French oil and gas company for making improper payments to an Iranian Official through use of an employee of a Swiss private bank and a British Virgin Islands company.
  • The vast majority of the alleged improper conduct took place between 1995 and 1997 (that is 16 to 18 years ago).
  • The sole U.S. jurisdictional nexus (a required legal element for an anti-bribery violation since Total is a foreign issuer) is a 1995 wire transfer of $500,000 (representing less than 1% of the alleged bribe payments at issue) from a New York based account.
  • The same exact conduct at issue is the focus of a French law enforcement investigation (i.e. Total’s “home” country).

So old is the conduct giving rise to the Total enforcement action, that the DOJ made the unusual statement in the DPA that “evidentiary challenges” were present for both parties given that “most of the underlying conduct occurred in the 1990s and early 2000s.”

A $398 million U.S. enforcement action against a French company for allegedly making improper payments to an Iranian Official with the sole U.S. jurisdictional nexus being an immaterial wire transfer through a U.S. account 18 years ago does not exactly dispel beliefs that certain aspects of FCPA enforcement represent a U.S. government cash cow.

Rather the Total enforcement action supports the legitimacy of this belief.

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