Friday Roundup
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.
Okada Cites “Federal Interest In The Uniform Interpretation Of The FCPA” In Seeking To Remove Wynn Complaint To Federal Court
Previous posts here, here and here have discussed the battle royale between Wynn Resorts and its Director Kazuo Okada and his companies. The dispute has included Okada accusing Wynn of conduct that could implicate the FCPA and Wynn also accusing Okada of separate and distinct conduct that could implicate the FCPA. It is a rare instance of the FCPA being used offensively to seemingly accomplish business objectives.
Yesterday, attorneys for Kazuo Okada’s companies, Aruze USA, Inc. and Universal Entertainment Corporation, filed a notice of removal (here) in the U.S. District Court, District of Nevada. The notice of removal asserts that the wide-ranging civil complaint previously filed by Wynn Resorts in Nevada state court depends “on the resolution of a substantial, disputed federal question regarding the scope and interpretation of the Foreign Corrupt Practices Act.” The notice of removal states that Wynn’s state court complaint seeks a “judicial declaration confirming [Wynn’s] conclusion that Defendants are ‘unsuitable’ because they violated the FCPA.”
Under the heading “Uniform Interpretation of the FCPA”, the notice of removal states that “there is an important federal interest in the uniform interpretation of the FCPA” and “given the exclusive federal jurisdiction over criminal and injunctive relief for FCPA violations, and the potential for conflicting interpretations of the ambiguous statutory language, [the federal court] should retain subject matter jurisdiction to ensure that the federal law relating to the FCPA is interpreted in a uniform manner.”
FCPA caselaw is sparse. Because of the “carrots” and “sticks’ relevant to resolving criminal FCPA enforcement actions (as well as the SEC’s neither admit nor deny settlement policy), few corporate or individual FCPA defendants put the enforcement agencies to their burden of proof and thus many FCPA enforcement theories escape judicial scrutiny.
This is what makes the Wynn-Okada dispute so tantalizing for FCPA followers. The civil dispute implicating the FCPA is between well funded rivals who are staking out litigation positions (including as to the FCPA) that are likely to result in judicial scrutiny.
Separately yesterday, attorneys for Kazuo Okada’s companies, Aruze USA, Inc. and Universal Entertainment Corporation filed an expansive counterclaim and answer. As to Wynn’s $135 million donation to the University of Macau (see here for the prior post), the counterclaim and answer states as follows. The donation “suspiciously … covers essentially the same 10-year period” as Wynn Macau’s current gaming concession, that Okada was “concerned about the lack of deliberation of the boards of Wynn Resorts and Wynn Macau” in approving the donation, and that the “Chancellor of University of Macau is also the head of Macao’s government, with ultimate oversight of gaming matters.” As to the Freeh Report (see here for the prior post), the counterclaim and answer states that “Freeh was not preparing an objective report of the facts by an ‘independent’ investigator – he was providing the [Wynn] Board with an argumentative document as an advocate against Mr. Okada.”
Friday Roundup
Reader mail, an Olympic loophole, this week’s disclosure(s), the SEC speaks, and so do executives … it’s all here in the Friday Roundup.
Reader Mail
At times, even I ask myself why I spend countless hours maintaining a free website. Then I receive an e-mail from a reader such as the one below (the reader encouraged me to share it) and I keep writing.
“I just wanted to thank you for your blog. My son-in-law, [former Africa Sting defendant], was involved in the sting case.
After his arrest we found your website and learned alot from it. We had never heard of the fcpa before all of this happened. Your site was the most informative and easy for nonlawyers to understand. I would check it everyday for updates! It was my lifeline! Thank you again for writing so much about the case. I’m just glad it is over and life can go back to normal.
Sincerely,
[Relative of former Africa Sting defendant]”
Olympic Loophole
A recent article in the Wall Street Journal (A Battle for Mongolia’s Copper Lode – Feb. 22nd) reminded me of a post lost in the unpublished archives.
Last August, Rio Tinto PLC, which manages the Oyu Tolgoi mine in Mongolia, announced (here) that the company “signed an agreement with the Mongolian National Olympic Committee (MNOC) to be a Gold Partner sponsor for the Mongolian National Team competing at the London 2012 Olympic and Paralympic Games.” In the release, Rio Tinto Country Director Mongolia, David Paterson, stated “we are sponsoring the National Olympic Team as part of our long-term commitment to Mongolia and Oyu Tolgoi.” The release further stated as follows. “Rio Tinto’s Olympic sponsorship is just one of many ways the company is contributing to Mongolia’s development. For example, Rio Tinto invests in numerous programmes that assist regional and local communities and young Mongolians in the areas of education and training, local procurement practices and sustainable development.”
An August 2011, Wall Street Journal article discussing Rio Tinto’s sponsorship states that Mongolia “is a key battleground for mining companies, which are vying to extract its rich mineral deposits” and that the Oyu Tolgoi project “is expected to yield 1.2 billion metric tons of copper and 650,000 ounces of gold a year in its first 10 years, as well as silver and other metals.”
For more on Rio Tinto’s involvement at Oyu Tolgoi, see here from the company’s website.
On one level, engaged corporate citizens with a committment to community welfare and development is a good thing and ought to be encouraged.
But, on another level, and FCPA jurisdictional issues aside (although Rio Tinto’s ADR’s are traded on a U.S. exchange), is a company’s sponsorship of a country’s Olympic team any less problematic than a company providing a laptop computer or an expensive bottle of wine to an employee of a state-owned or state-controlled enterprise? What about pre-paid gifts cards (oops, getting ahead of myself, that is coming up next)? Such instances have never been the sole basis for an FCPA enforcement action, but such allegations (or those similar) are frequently included in FCPA enforcement actions suggesting that the enforcement agencies do indeed view such conduct as problematic.
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. Even the DOJ recognizes this. See here for DOJ Opinion Procedure Release 09-01 in which the DOJ states that the proposed course of conduct “fall[s] outside the scope of the FCPA in that the [thing of value] will be provided to the foreign government, as opposed to individual government officials …”.
Is this an FCPA loophole? If so, ought it be closed?
This Week’s Disclosure(s)
Back to those pre-paid gift cards.
On Feb. 16th in this prior post, I commented (somewhat tongue-in-cheek) that every week another company seems to be disclosing FCPA scrutiny. So far two weeks have passed and there have been two new disclosures. This week’s disclosure is from W.W. Grainger Inc. (consistently ranked as one of the “world’s most admired companies” by Forbes). In a recent SEC filing, the company (a broad-line distributor of maintenance, repair and operating supplies and other related products and services) stated as follows.
“The Company is conducting an inquiry into alleged falsification of expense accounts submitted by employees in certain sales offices of Grainger China LLC, a subsidiary of the Company. In the course of the investigation the Company learned that sales employees may have provided prepaid gift cards to certain customers. The extent and value of the gift cards are subject to further inquiry. The Company’s investigation includes determining whether there were any violations of laws, including the U.S. Foreign Corrupt Practices Act. Consequently, on January 24, 2012, the Company contacted the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) to voluntarily disclose that the Company was conducting an internal investigation, and agreed to fully cooperate and update the DOJ and SEC periodically on further developments. The Company has retained outside counsel to assist in its investigation of this matter. Because the investigation is on-going, the Company cannot predict at this time whether any regulatory action may be taken or any other potential consequences may result from this matter.”
Finally on the disclosure front, in August 2011, Brucker Corp. made an FCPA disclosure concerning its Brucker Optics subsidiary in China. Recently, the company further disclosed as follows.
“As previously reported, in 2011 the Audit Committee of our Board of Directors commenced an internal investigation, with the assistance of independent outside counsel and an independent forensic consulting firm, in response to certain anonymous communications received by us alleging improper conduct in connection with the China operations of our Bruker Optics subsidiary. The Audit Committee’s investigation, which included a review of compliance by Bruker Optics and its employees in China and Hong Kong with the requirements of the Foreign Corrupt Practices Act (FCPA) and other applicable laws and
regulations, has been completed. The investigation found evidence indicating that payments were made that improperly benefited employees or agents of government-owned enterprises in China. The investigation also has found evidence that certain employees of Bruker Optics in China and Hong Kong failed to comply with our corporate policies and standards of conduct. As a result, we have taken personnel actions, including the termination of certain individuals. We have also terminated our business relationships with certain third party agents, implemented an enhanced FCPA compliance program, and strengthened the financial controls and oversight at our subsidiaries operating in China and Hong Kong. We have also initiated a review of the China operations of our other subsidiaries, which is being conducted with the assistance of an independent audit firm.
“In the fiscal year ended December 31, 2011, $4.3 million was recorded for legal and other professional services incurred related to the internal investigation of these matters.”
As noted in Brucker’s initial filing, in 2010, the China operations of Bruker Optics accounted for less than 2.5 percent of the Company’s consolidated net sales and less than 1.0 percent of its consolidated total assets.
SEC Speaks
The Subject to Inquiry Blog published by McGuireWoods has this post regarding the recent SEC Speaks event. Regarding anti-corruption enforcement, the post states as follows.
The Commission now has a “cross-border group” charged with ferreting out corruption in corporations that trade on US exchanges, but are headquartered abroad. The group is particularly interested in the accounting policies and financial disclosures of cross-border companies, many of which rely on “small US audit firms.” As a result, the SEC is leaning on audit firms, which the SEC regards as “gatekeepers.” To that end, the SEC issued guidance in 2010 and again in 2012, advising that they conduct risk-based analyses of their overseas clients. According to Kara Brockmeyer, head of the SEC’s FCPA Unit, the SEC has seen a spike in Form 8-K reports of accounting irregularities, as well as a jump in Rule 10A reports. She expects additional 10A reports to flow in through the Office of the Whistleblower.
Brockmeyer noted that the SEC is also devoting significant resources to Foreign Corrupt Practices Act (FCPA) enforcement. The SEC’s FCPA Unit is focusing heavily on international cooperation, teaming with regulators around the world. She highlights the FCPA Unit’s cooperation with Switzerland, Russia, and China, each of which recently enacted anticorruption laws. The FCPA Unit brought 20 FCPA enforcement cases 2011, including 19 against companies and one against an individual. Brockmeyer cautioned, however, that the 2011 numbers should not be seen as a model. Indeed, in 2012 the SEC has already charged 14 individuals with FCPA violations, compared with only five companies charged.
From the Executive’s Mouth
Some excerpts from earnings conference calls that caught my eye.
From Bill Utt (President, CEO and Chairman of KBR Inc.) during a recent call. “I would also like to report that in February KBR successfully concluded our three-year independent corporate monitorship related to KBR’s 2009 plea under the US Foreign Corrupt Practices Act case. Overall, the engagement with our corporate monitor was a positive experience for KBR. We remain committed to consistently doing the right thing every time, and our commitment to compliance is a fundamental part of KBR’s culture. In fact, our compliance programs are paying off in terms of new work as we were recently awarded an international project where our compliance program was a differentiating factor in KBR securing the work.”
From Kevin Royal (Senior VP, CFO of Maxwell Technologies) during a recent call. “Now I would like to provide an update regarding the shareholder derivatives. As we have disclosed in past public filings in 2010, two shareholders had alleged that certain of our past and current officers and directors failed to prevent us from violating the US Foreign Corrupt Practices Act, or FCPA. It is important to note that the Company is only a nominal defendant in this suit. In December 2011 mediation was held and a proposed settlement was reached wherein $3 million would be paid to plaintiff’s counsels, with $2.7 million to be paid by our insurance carrier, and $290,000 would be paid by the Company. In addition, we would be required to insure that certain corporate governance measures are in place and in force. The agreement is subject to among other things, court approval and notice to our shareholders. Without admitting any wrongdoing, the defendants to this suit are willing to enter into this settlement in order to expedite resolution of the matter, and to relieve the defendants and the Company from further financial burden. We are pleased that this suit is near final settlement, and look forward to putting this matter behind us.” [For a recent post on FCPA-related civil litigation titled “A Purpose or Parasitic” – see here].
From Bernard Duroc-Danner (President and CEO of Weatherford International in response to a question about the company’s FCPA inquiry) “Well, there’s not a lot to say about, that I can say, about the DOJ process. To a degree, I think it fell off the screen as it were. For us it moves slowly, that’s all I can tell you. So, I don’t have much of an update that I can tell you. And actually even if I could, I wouldn’t have much of an update period.”
*****
On that note, a good weekend to all.
Wynn Resorts $135 Million University of Macau Donation The Subject Of SEC Scrutiny
In May 2011, Wynn Resorts donated $135 million to the University of Macau (see here for the University’s press release).
In an 8-K filing yesterday, Wynn Resorts Ltd. disclosed as follows.
“As previously disclosed, in May 2011, Wynn Macau, a majority owned subsidiary of Wynn Resorts, Limited (the “Company”), made a commitment to the University of Macau Development Foundation in support of the new Asia-Pacific Academy of Economics and Management. This contribution consists of a $25 million payment made in May 2011 and a commitment for additional donations of $10 million each year for the calendar years 2012 through 2022 inclusive. The pledge was consistent with the Company’s longstanding practice of providing philanthropic support for deserving institutions in the markets in which it operates. The pledge was made following an extensive analysis which concluded that the gift was made in accordance with all applicable laws. The pledge was considered by the Boards of Directors of both the Company and Wynn Macau and approved by 15 of the 16 directors who serve on those boards. The sole dissenting vote was Mr. Kazuo Okada whose stated objection was to the length of time over which the donation would occur, not its propriety.
Also as previously disclosed, Mr. Okada commenced litigation on January 11, 2012 [see here for the complaint], in Nevada seeking to compel the Company to produce information relating to the donation to the University of Macau, among other things.
On February 8, 2012, following Mr. Okada’s lawsuit, the Company received a letter from the Salt Lake Regional Office of the U.S. Securities and Exchange Commission (“SEC”) requesting that, in connection with an informal inquiry by the SEC, the Company preserve information relating to the donation to the University of Macau, any donations by the Company to any other educational charitable institutions, including the University of Macau Development Foundation, and the Company’s casino or concession gaming licenses or renewals in Macau. The Company intends to fully comply with the SEC’s request.”
While the Wynn’s disclosure does not specifically mention the Foreign Corrupt Practices Act, given that the company’s disclosure of the SEC inquiry appears to link the donation to the “Company’s casino or concession gaming licenses or renewals in Macau” it is likely that the SEC’s interest in the donation is based, at least in part, on the FCPA. As Okada alleges in his complaint “Wynn Macau’s gaming concession expires in June 2022” – the last year of Wynn’s donation committment. According to Okada’s complaint “he objected to this donation, which appears to be unprecedented in the annals of the University” [which he alleges sits on land owned by the government].
According to Wynn’s most recent quarterly filing, the company’s Macau operations constitute approximately 75% of the company’s overall revenue. Macau is also a focus of the company’s expansion plans.
Charitable donations are not in and of themselves prohibited by the FCPA’s anti-bribery provisions. For instance, see here for a 2009 FCPA Opinion Procedure Release. Yet, such donations do carry FCPA risk and, as anyone who has reviewed DOJ NPAs and DPAs know, FCPA best practices is to have adequate controls as to charitable donations (see here for the recent Aon NPA – specifically Appendix B).
Charitable donations hit the radars of FCPA practitioners as a result of a 2004 SEC FCPA enforcement action against Schering-Plough (see here). In the enforcement action, the SEC alleged that Schering-Plough violated the FCPA when its wholly-owned Polish subsidiary (“S-P Poland”) improperly recorded a bona fide charitable donation to a Polish foundation that restored castles where the founder/president of the foundation was also a director of a government health fund that provided money to hospitals throughout Poland for the purchase of pharmaceutical products. Although the SEC and Schering-Plough ultimately resolved the matter based only on violations of the FCPA books and records and internal control provisions, the enforcement action is commonly viewed as standing for the proposition that “payments to a bona fide charity could violate the FCPA if made to influence the actions of a government official” (see this client alert from Wilmer Cutler).
Wynn is not the only casino under scrutiny for Macau conduct. Las Vegas Sands has also been under FCPA scrutiny concerning its operations in Macau. In a question out of left-field, during the June 2011 FCPA hearing in the House, Representative Quayle (R-AZ) asked the DOJ whether it “looked into the gambling practices in Macau and if there is any illegal activity occurring in that arena?” (See here page 71).
Like Wynn’s Macau inquiry, the Las Vegas Sands inquiry also seems to have started with a civil lawsuit. See here for the prior post.
A Delicious Fact Pattern
The facts would make a delicious exam question.
A company subject to the FCPA engages foreign police officers to protect its local production facility. The company spends millions to, among other things, feed the police officers. Analyze the company’s FCPA exposure.
The fact pattern is very much real world.
According to various media reports Freeport Indonesia, a subsidiary of Phoenix based mining company Freeport McMoRan Cooper & Gold, has paid police officials in Papua New Guinea over $14 million in security related allowances, food and other in-kind necessities.
In this Jakarta Post article, the company claims that the funds given to security personnel guarding project sites in Papua are allowed under a multi-national pact initiated in 2000 (the Voluntary Principles on Security and Human Rights – see here) by the U.S. and U.K. government which allows companies to contribute or reimburse the costs of protecting their facilities and personnel. A Freeport spokesperson says that the company “uses the voluntary principles as guidelines to disburse the security funds” and that the money was “given voluntarily and without any intention of bribing state officials.” The Jakarta Post article says Freeport’s spending on government-provided security measures has increased from $8 million in 2008 to $14 million in 2010. A company spokesperson is quoted as saying that “about 80 percent of the funds were spent to support facilities and infrastructure, including meals for officers, and rest of the funds were transferred to the bank accounts of military units.”
As indicated by this 2006 New York Times article, the Freeport payments discussed above have been in the public domain for some time.