Two For Tuesday In FCPA Enforcement Land – First Up Nortek
Just when you think you’ve seen all possible combinations of Foreign Corrupt Practices Act enforcement, along comes yesterday’s “two for Tuesday” in which the SEC announced in the same press release two non-prosecution agreements against two separate companies and the DOJ simultaneously released two so-called “declination” letters against the same two companies.
This post highlights the enforcement action against Nortek Inc. and a second post today highlights the enforcement action against Akamai Technologies. From there future posts will highlight issues to consider from the enforcement actions (and there are many including the question of just what charges – based on the SEC’s statement of facts – did the DOJ actually decline?”).
Fear-Based FCPA Marketing
As is his occasional style, Mike Volkov began this post on his Corruption Crime & Compliance blog with a rant:
“Akin to politics (to a smaller degree), there is a fair amount of disinformation, some call it bloviating, put out by the FCPA Paparazzi. Some of this disinformation is motivated by immature attempts to “market” legal services; other sources of disinformation carry a readily apparent bias, one way or the other, and usually are supported by self-citations to one’s own “scholarship” to prove their points.”
When ranting, one can at least be a bit more specific and perhaps provide supporting links so that readers can decide for themselves the veracity of the assertions.
In any event, it was a bit ironic that a few days after the above rant a post was published on Corruption Crime & Compliance titled “Doing Business in China Should be “Scary.“
Whistled For A Foul: Las Vegas Sands Agrees To Pay $9 Million To Resolve Books And Records And Internal Controls Action
The Foreign Corrupt Practices Act has always been a law much broader than its name suggests.
In addition to anti-bribery provisions, the FCPA also contains more generic books and records and internal controls provisions. While there are a few sentences in this 15 page administrative order released yesterday against Las Vegas Sands (LVS) that touch upon issues relevant to the anti-bribery provisions, the enforcement action was on balance a pure books and records and internal controls action.
Among other things, the SEC found that LVS lacked supporting documentation or appropriate authorization concerning the company’s involvement with a Chinese basketball team, the purchase of a building, a high-speed ferry service, and other aspects of its casino business in Macau.
The substance of yesterday’s enforcement action has been in the public domain for years. (See this 2012 New York Times article and this 2012 Wall Street Journal article). Indeed, FCPA Professor has been following LVS’s scrutiny since November 2010 upon the “noisy exist” of Steven Jacobs (the former President of Macau Operations) from the company. (See here for the original post).
In summary fashion, the order states:
Issues To Consider From The Novartis Enforcement Action
This prior post went in-depth into the recent $25 million Foreign Corrupt Practices Act enforcement action against Novartis.
This post continues the analysis by highlighting various issues to consider.
Origin and Timeline
Below is how Novartis has described the origin of its FCPA scrutiny in public filings.
“After reports of Chinese government investigations of competitors for alleged improper use of certain China-based travel agencies to reward healthcare providers, Novartis commenced an internal investigation in 2013 concerning its local affiliates’ relationships with China-based travel agencies (and other vendors). Novartis is communicating with the US Securities and Exchange Commission (SEC) about this internal investigation.”
Chinese Travel Companies
As highlighted in this recent guest post, several FCPA enforcement actions have been based on alleged improper travel involving alleged Chinese officials. Often times, this travel is facilitated through Chinese travel agencies – a well-known corruption risk.
Novartis Coughs Up $25 Million To Resolve FCPA Enforcement Action Based On Conduct Of Indirect Chinese Subsidiaries
What happens when a Swiss corporation, with over 120,000 employees, has two indirect Chinese subsidiaries and a few employees of those subsidiaries, who concealed their conduct from the parent corporation, allegedly provided various things of value (such as an excursion to Niagara falls, spa and sauna sessions, and cover charges to a strip club) to various Chinese healthcare professionals?
Why of course, $25 million to the U.S. treasury because the Swiss corporation has shares traded on the New York Stock Exchange.
Yesterday, the SEC announced this Foreign Corrupt Practices Act enforcement action against Novartis.
By my count, it is the 22nd FCPA enforcement against a healthcare related company (i.e. pharma, medical device, etc.) premised on the enforcement theory (regardless of whether the action was resolved “merely” through books and records and internal controls issues) that employees of certain foreign health care systems are “foreign officials” under the FCPA and thus occupy a status similar to Presidents and Prime Ministers and other bona fide government officials.