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Friday Roundup

Shining a light on monitor reports, the Wal-Mart effect, when the dust settles, and Alberto Gonzalez joins the club, it’s all here in the Friday roundup.

Shining A Light on Monitor Reports

As Willkie Farr & Gallagher notes in this recent client alert, although the imposition of compliance monitors in FCPA enforcement actions is less frequent than it used to be, “companies that do receive monitors must now be concerned that their reports may be publicly disclosed.”  This is due to a recent decision (here) in SEC v. American International Group. Inc. (D.D.C.) in which Judge Gladys Kessler granted journalist Sue Reisigner’s Motion for Leave to Intervene and for Access to Monitor’s Reports.

In 2004, the SEC filed a complaint against AIG alleging violations of the federal securities laws.  Under the terms of the settlement consent order, AIG, among other things, agreed to retain an independent consultant, selected by the Fraud Section of the DOJ and acceptable to the SEC to review various AIG transactions.  At the conclusion of the consultant’s review, the consultant was required  to provide copies of reports of his or her findings to the SEC and DOJ.  Thereafter, the SEC and AIG filed a joint motion for clarification stating that it was not the intent of the parties that information provided by AIG to the independent consultant be disseminated or available to anyone outside of the entities identified in the consent order.  The court granted the motion.

Enter Sue Reisinger who filed Freedom of Information Act requests requesting disclosure of the consultant reports.  Her requests were denied citing the court’s order restricting dissemination of the reports.  Thereafter, Reisinger filed a Motion to Intervene and for Access to Monitor’s Reports.  The SEC and AIG filed a joint opposition.  Reisinger argued that “the Court should order the SEC to make the IC Reports publicly available on two grounds:  (1) a First Amendment right to access to judicial proceedings and (2) a common law right of access to judicial records.

As to the second issue, the key issues were whether the IC reports are a “judicial record” and if so, competing interests in publicity and secrecy.  Judge Kessler concluded that the IC reports “are relevant to the judicial function and therefore are properly considered judicial records.”  Judge Kessler stated as follows.  “The Reports may provide information leading the SEC to return to this Court to secure further relief.  In other words, the Consent Order empowers the Court to retain jurisdiction for the purposes of enforcing the Consent Order, including compliance with the IC Reports.”  In addition, Judge Kessler concluded that “the central role the IC Reports play in the operation of the Consent Order makes them precisely the kind of documents that must be open to the public in order for the federal courts ‘to have a measure of accountability and for the public to have confidence in the administration of justice.'”  As to the balancing of interests, Judge Kessler stated that the public’s interest in favor of disclosure of the IC Reports “is overwhelming” and that “there is no question that the public interest far outweighs AIG’s or the SEC’s interest in confidentiality …”.

As to the first issue, Judge Kessler concluded that there is no First Amendment right of access to the IC Reports because the SEC “brought a civil, not criminal, action against AIG” and “Reisinger has not even attempted to make the requisite showing that ‘such access has historically been available.”   As the Willkie client alert notes however, given that Judge Kessler’s analysis as to this first issue focused on the civil nature of the proceedings, it leaves “the door open for an additional argument that the First Amendment would mandate public disclosure of corporate monitor reports in the context of a criminal settlement.”

As to monitors, Professor Brandon Garrett (University of Virginia Law School) and the Corporate Crime Reporter are seeking information on certain corporate monitors in the FCPA context and otherwise – see here.

The Wal-Mart Effect

Wal-Mart is clearly not the only company subject to the FCPA that needs licenses, permits and the like when doing business in Mexico.  It is likely that Wal-Mart’s potential FCPA exposure has caused sleepless nights for many company executives doing business in Mexico and the general region.

The FCPA is also on the minds of investors of other companies doing business in Mexico – such as Kimco Realty Corporation (here).

In a recent earnings call, a UBS analyst asked the following question.  “I hate to even ask this question. But I’m wondering if you have any comments on the Wal-Mart allegations down in Mexico and if Kimco had conducted any reviews, maybe not so much of your local Mexico employees. Maybe my concern is more toward JV partners to make sure that they’re operating to the same high ethical standards that Kimco has already operated toward.”

David Henry (Kimco Realty Corporation – Vice Chairman, President, CEO) answered as follows.  “Obviously, we anticipated this question, so permit me to be very, very specific in a response, and I’d like to make the following points.  One, the extent of what we know about the Wal-Mart actions is what we read in the New York Times article, the same way you did. We are not aware of any Wal-Mart improprieties with respect to any of our Mexican properties or any of our Mexican operating partners. The acquisitions and development of the Wal-Mart projects in our portfolio occurred in 2005 or later, and this is a year after the activities that were described in the article occurred.  With respect to all of our Wal-Mart projects, the developer obtained the building permit, not Wal-Mart. We employ a third-party consultant to oversee the construction process. There’s a construction manager in many cases right on site that reviews and approves every payment we make on these development projects. We also have our own Kimco employees provide asset management and oversee the project construction and approve the individual payments. As part of our normal operating procedures, all of our local Mexican development partners execute letters certifying to us they are not aware of any kind of improper payments. We have a very comprehensive FCPA policy, foreign corrupt practices act policy, at Kimco that includes extensive training for all of our employees that are directly or indirectly involved with any international projects. The training includes members of senior management and our Board are taken through this training on an annual basis.  And then I just have to zoom up to the highest level. From the very beginning, when we went to both Canada and Mexico and then South America, we really tried to set the right tone because we’ve always emphasized that we are a public company and as a public company we adhere to the highest ethical standards and we expect that all of our local operating partners to also meet those standards. So that gives you the highest level of flavor I can give you at this point.”

When the Dust Settles

In 2010, Daimler (and certain of its subsidiaries) resolved a wide-ranging FCPA enforcement – see here for the prior post.

As to conduct in Russia, the DOJ also filed a two count criminal information against DaimlerChrysler Automotive Russia SAO (“DCAR”), a “Moscow-based, wholly-owned subsidiary of Daimler” that “sold Daimler spare parts, assisted with the sale of vehicles from various Daimler divisions in Germany, including in particular its overseas sales division (“DCOS”), to government customers in [Russia], and also imported Daimler passenger and commercial vehicles into Russia for sale to customers and distributors.”

The charged conduct focused on Daimler’s, DCAR’s and DCOS’s relationships with: “the Russian Ministry of Internal Affairs (“MVD”) a department and agency of the Russian government principally responsible for police, militia, immigration and other functions” including supervising the “Russian traffic police; “the Special Purpose Garage (“SPG”) an ‘instrumenality’ of the Russian government” whose employees were “foreign officials” under the FCPA; “Machinoimport a Russian government-owned and controlled purchasing agent for the City of Moscow,” an “instrumentality of the Russian government” whose employees were “foreign officials” under the FCPA; and “Dorinvest a Russian government-owned and controlled purchasing agent for the City of Moscow,” an “instrumentality of the Russian government” whose employees were “foreign officials” under the FCPA.

The information charged that “Daimler, through DCAR, made improper payments at the request of Russian government officials or their designess in order to secure business from Russian government customers.”  Among other things, the information charges that: “between 2000 and 2005″ Daimler’s sale of vehicles to Russian government customers was approximately “€64,660,000″ and that “in connection with these vehicle sales, DCAR and Daimler made over €3 million in improper payments to Russian government officials employed at their Russian governmental customers, their designess, or to third-party shell companies that provided no legitimate services to Daimler or DCAR with the understanding that the funds would be passed on, in whole or in part, to Russian government officials.”

In this recent article, The Moscow Times reports that Russian “investigators have reportedly dropped inquiries against military officials and employees of four companies implicated in a 2010 corruption case involving kickbacks for state purchases of Mercedes automobiles.”

For more on the dynamic of what I’ve called “when the dust settles” – see this prior post.

Alberto Gonzalez Joins the Club

What club you ask?

The former Attorney General who has taken a great interest in the FCPA club.  Former Attorney General Michael Mukasey’s FCPA reform activities are well known, this prior post discussed a recent FCPA speech by former Attorney General John Ashcroft, and in this recent article in Corporate Counsel, Gonzalez and his co-authors forecast the future of FCPA enforcement.


A good weekend to all.

Friday Roundup

A costly monitor, Daimler’s DPA debacle, meeting releases, and another addition to the list (in an unusual way), it’s all here in the Friday roundup.

Willbros Monitor Costs

Earlier this week, Willbros Group announced (here) “that in connection with the Company’s completion of the requirements of the DPA and expiration of the term of the monitorship, on March 30, 2012, the DOJ filed a motion to dismiss the criminal charges filed previously against the Company stemming from legacy issues in Nigeria and South America in 2005 and prior years, which led to the DPA.”  In May 2008, Willbros resolved parallel DOJ (here) and SEC (here) FCPA enforcement actions and agreed to pay approximately $32 million in combined fines and penalties.

Pursuant to the May 2008 DOJ DPA, the monitor was supposed to be engaged by Willbros within 60 days.  However the company disclosed that its monitor was not engaged until September 25, 2009 – an astounding year plus delay in engaging the monitor.  Furthermore, although the monitor was supposed to serve a three year term per the DPA, the early termination provisions of the DPA apparently were triggered.  Even though the monitor got a late start and its three year term was trimmed, the Willbros monitor had a nice assignment.  Doing the math from figures disclosed in various SEC filings, the Willbros monitor cost has been approximately $10.2 million subject to increase for 1st quarter 2012 expenses ($3.6 million for the year ended Dec. 31, 2011; $4 million for the year ended Dec. 31, 2010; and $2.6 million for the year ended Dec. 31, 2009).

During a recent earnings conference call, Randy Harl (President and CEO of Willbros) stated as follows.  “The DOJ monitorship brought great positive change to Willbros in the form of a stronger compliance culture. The cost of the monitor and the major spending to establish the required controls and processes are behind us. However, we will continue to invest in a compliance culture.”

Daimler DPA Debacle

While Willbros’s DPA expired, Daimler’s DPA was extended.  As noted by Christopher Matthews in this Wall Street Journal Corruption Currents report, the two year DPA was set to expire, but was extended until December 31st.  As noted in this prior post, in April 2010, Daimler agreed to pay approximately $185 million to resolve parallel DOJ and SEC FCPA enforcement actions.  The prior post, along with this post, noted that the prosecution was a joke from the start, among other things, U.S. District Court Judge Richard Leon approved settlement on April Fool’s Day.  The DOJ’s release noted that Daimler (and three of its subsidiaries) “brazenly offered bribes in exchange for business around the world” and that Daimler “saw foreign bribery as a way of doing business.”  The DOJ alleged improper conduct all the way up to senior levels of the company, yet Daimler was not required to plead guilty to anything.

Instead Daimler was offered a two-year DPA. The term of the DPA could be extended if Daimler “knowingly violated any provision of the Agreement.”  This recently filed amendment to the DPA is silent as to the reason for the extension.

I intended, but forgot, to include the above Daimler development in yesterday’s post (here) regarding NPAs and DPAs.  Needless to say, the Daimler DPA debacle furthers the rationale for abolishing such resolution vehicles.

Chamber Sponsored FCPA Roundtable

Earlier this week, the U.S. Chamber of Commerce Institute for Legal Reform hosted a roundtable discussion regarding the FCPA and upcoming FCPA guidance with Assistant Attorney General Lanny Breuer, SEC Enforcement Division chief Robert Kuzami and Commerce Department General Counsel Kameron Kerry.

In this release, Lisa Rickard (President of the U.S. Chamber Institute for Legal Reform) stated as follows.  “The business community is pleased with today’s frank and productive discussion on the significant uncertainty that many U.S. businesses face when attempting to comply in good faith with the FCPA.  We are encouraged by the thoughtful dialogue that helped us reach a mutual understanding on many of these important issues.  We look forward to working with the administration as it prepares the forthcoming guidance.”  As noted in the release, the roundtable was attended by the following business groups or trade associations:   the Advanced Medical Technology Association, the American Insurance Association, the International Association of Drilling Contractors, the International Stability Operations Association, the National Association of Criminal Defense Lawyers, the National Association of Manufacturers, the National Foreign Trade Council, PhRMA, the Professional Services Council, the Retail Industry Leaders Association, and The Financial Services Roundtable.

In this release, Rosario Palmieri (Vice President for Infrastructure, Legal and Regulatory Policy of the National Association of Manufacturers) stated as follows.  “Manufacturers are facing a great deal of uncertainty when it comes to complying with the Foreign Corrupt Practices Act.  Today we had a very productive discussion and were able to share manufacturers’ concerns. We are hopeful that a continuing dialogue with the Administration will help us meet our mutual goals of increasing exports, stamping out corruption and providing clear rules of the road for international business.”

Another Addition to the List

In this recent release, Transparency International urges the DOJ to investigate the conduct of Walters Power International  (an Oklahoma based company that supplies, develops, services and manages electrical generation power plants around the world see here) in connection with power plant projects in Pakistan.  It is certainly not the traditional way in which companies become the subject of FCPA scrutiny, but even so it makes the list, and according to my tally, in the last seven weeks, eight companies have newly become the focus of FCPA scrutiny.

Also, last week’s post (here) discussed recent Libya related disclosures by Total S.A. and Eni S.p.A.  It turns out that Marathon Oil Corp. can be added to that list.  In its recent annual report, the company stated as follows.  “On May 25, 2011, we received a subpoena issued by the SEC requiring production of documents related to payments made to the government of Libya, or to officials and persons affiliated with officials of the government of Libya. We have been and intend to continue cooperating with the SEC in its investigation.”


A good weekend to all.

The Siemens Argentina Individual Enforcement Actions Are A Step Forward, But Issues Remain

Last week (see here for the prior post) the DOJ and SEC brought FCPA enforcement actions against several former executives and agents of Siemens.  As noted in this initial post, the enforcement action comes nearly three years after the Siemens corporate enforcement action, a portion of which concerned improper conduct in Argentina and allegations that Siemens S.A. (Argentina), and those acting on its behalf, engaged in a bribery scheme in connection with an Argentine government contract to produce national identity cards.

The Siemens Argentina individual enforcement actions were brought after the DOJ faced scrutiny for not bringing any individual enforcement action in connection with a bribery scheme “unprecedented in scale and geographic reach” in which there existed at Siemens a “corporate culture in which bribery was tolerated and even rewarded at the highest levels of the company.”

Thus, the Siemens Argentina individual enforcement actions with allegations (and that is all they are at this point) of individual improper conduct are a welcome development and the DOJ ought to be recognized for bringing what will likely be a difficult case to prosecute.  Among other things, extradition issues loom, and many of the defendants are likely to aggressively mount a defense.

While a welcome development, two facts remain unchanged by last week’s development.

First, Siemens itself was never charged with FCPA anti-bribery violations for the same conduct its former employees and agents are now facing FCPA anti-bribery charges.  The reason is that FCPA anti-bribery charges would have hurt Siemens too much.  In its sentencing memorandum (here), the DOJ in explaining its charging decisions specifically stated as follows.  “The Department’s analysis of collateral consequences included the consideration of the risk of debarment and exclusion from government contracts.”  As noted last week in a Wall Street Journal article by Vanessa Fuhrmans “Shrugging Off Bribery Case, Siemens Gains Favor in the U.S.” (here),  “three years after Siemens AG reached a record foreign-bribery settlement with U.S. authorities, the German industrial conglomerate is capitalizing on business from an unexpected place—the U.S. government.”  Among things, the article notes that “Siemens today isn’t just benefitting from its ongoing business with the government. It’s made capturing more business and influence in Washington a central part of its U.S. strategy.” 

In short, the notion that certain companies selling certain products to certain customers are essentially immune from FCPA anti-bribery scrutiny remains a troubling issue, notwithstanding last week’s development. 

[Incidentally, under the FCPA’s former so-called Eckhardt amendment, the lack of FCPA anti-bribery charges against Siemens would have precluded the FCPA anti-bribery charges the individuals now face.  See U.S. v. McLean, 738 F.2d 655 (5th Cir. 1984)  (“[B]oth the language of the Act and its legislative history reveal a clear intent to impose criminal sanctions against the employee who acts at the behest of and for the benefit of his employer only where his employer has been convicted of similar FCPA violations. […] We hold that in order to convict an employee under the FCPA for acts committed for the benefit of his employer, the government must first convict the employer.”]

Second, even with last week’s development, the fact remains that the DOJ and SEC have addressed – through individual enforcement actions – only a sliver of the conduct at issue in the 2008 enforcement action.  As alleged by the enforcement agencies, the corruption at Siemens involved more than $1.4 billion in bribes to government officials in Asia, Africa, Europe and the Americas.  As alleged (see here) “among the transactions on which Siemens paid bribes were those to design and build metro transit lines in Venezuela; metro trains and signaling devices in China; power plants in Israel; high voltage transmission lines in China; mobile telephone networks in Bangladesh; telecommunications projects in Nigeria; national identity cards in Argentina; medical devices in Vietnam, China, and Russia; traffic control systems in Russia; refineries in Mexico; and mobile communications networks in Vietnam.” 

Some individual or individuals presumably paid or authorized these numerous non-Argentina bribes.   If last week’s development is the only individual enforcement actions resulting from the 2008 Siemens enforcement action, continued scrutiny and asking of the why questions is warranted.

What other egregious corporate FCPA enforcement action might yield future individual enforcement actions?  Based on the DOJ’s allegations, Daimler would seem like a good bet.  See here for the prior post.

Will There Be Any Daimler-Related Prosecutions?

Bribery schemes are often facilitated, aided and abetted, and enabled by third parties and with increasing frequency the DOJ targets such enablers.  In November 2009, Assistant Attorney General Lanny Breuer stated as follows.  “The use of intermediaries to pay bribes will not escape prosecution under the FCPA.  The Department will continue to hold accountable all the players in an FCPA scheme – from the companies and their executives who hatch the scheme, to the consultant they retain to carry it out.“  Recent FCPA enforcement actions that have targeted such enablers include:  Jeffrey Tesler and Wojciech Chodan (in connection with the Bonny Island, Nigeria cases); the Aquilars (in connection with the Lindsey Manufacturing enforcement action); Ousama Naaman (in connection with the Innospec enforcement action); and Paul Novak (in connection with the Willsbro enforcement action).

The March 2010 FCPA enforcement action against Daimler and its related entities (see here for the prior post) contained unusually detailed allegations concerning the conduct of various enablers in Daimler’s bribery scheme.  Thus, back in March 2010, I observed as follows.  “The alleged improper payments involved dozens and dozens of third parties, including several located in the U.S., which were allegedly utilized by Daimler and its affiliates to bribe foreign officials. Given Daimler’s use of numerous U.S. based entities, it will be interesting to see if any of these U.S. entities and/or entity employees will be prosecuted for their role in the respective bribery schemes.”

A year and a half has passed, there have been no related prosecutions, and it is appropriate to again ask the question – will any U.S. enablers of Daimler’s bribery scheme be held accountable?

Based on the DOJ’s allegations in the Daimler enforcement action, the following entities would seem to be the most logical candidates.

M.F. Mechanical & Electrical, Inc. (Daimler payment to the entity for the benefit of Chinese “foreign officials” – para 50 of Daimler AG information);

Shores International, a Texas corporation (Daimler payment to the entity for the benefit of the wife of a Chinese government official – para 51 of Daimler AG information);

Lily Energy Services, Inc., a Texas corporation (Daimler payment to the entity for the benefit of Chinese “foreign officials” – para 52 of Daimler AG information);

King Jack Inc., a California corporation (Daimler payment to the entity for the benefit of Chinese “foreign officials” –  para 53 of Daimler AG information);

Oldenburgh Financial Corporation, incorporated in Delaware, and United Petrol Group LLP, incorporated in Oregon (Daimler payments to the entities for the benefit of Latvian government officials –  para 106 of Daimler AG information);

Biotop Group, Inc., a Delaware corporation, and Marketing Research and Consultants LLC, a Wyoming corporation (Daimler payments to the entities for the benefit of Croatian government officials – para 123-128 of Daimler AG information)

Turkey and the FCPA

The following FCPA enforcement actions have involved (in whole or in part) business conduct in Turkey.

Daimler AG (March 2010)

In March 2010, Damiler AG agreed to settle a wide-ranging FCPA enforcement action alleging that “between 1998 and January 2008, Daimler made hundreds of improper payments worth tens of milions of dollars to foreign officials in at least 22 countries – including China, Croatia, Egypt, Greece, Hungary, Indonesia, Iraq, Ivory Coast, Latvia, Nigeria, Russia, Serbia and Montenegro, Thailand, Turkey, Turkmenistan, Uzbekistan, Vietnam, and others – to assist in securing contracts with government customers for the purchase of Daimler vehicles valued at hundreds of milions of dollars.”

As to Turkey, the criminal information (here) charges that Daimler’s Corporate Audit Department “discovered three binders located in a safe at MB Turk’s [a Daimler subsidiary in Turkey] offices in Istabul” that, along with other evidence, demonstrated that “MB Turk made approximately €6.05 million in payments to third parties in connection with vehicle export transactions that involved the sale of vehicles to non-Turkish government customers in North Korea, Latvia, Bulgaria, Libya, Romania, Russia, Saudi Arabia, Yemen, and other countries in deals with revenues of approximately €95 million.” According to the information, at least €3.88 million of the €6.05 million comprised of “improper payments and gifts […] paid to foreign government officials or to third parties with the understanding that the payments and gifts would be passed on, in whole or in part, to foreign government officials to assist in securing the sale of Daimler vehicles to government customers.”

Daimler agreed to pay $185 million in combined DOJ and SEC fines and penalties (see here).

York International Corp. (Oct. 2007)

In October 2007, York International Corporation (York), a global provider of heating, ventilation, air conditioning, and refrigeration products and services, agreed to pay approximately $22 million in combined fines and penalties to settle DOJ and SEC enforcement actions principally relating to improper payments made by various subsidiaries to the Iraqi government under the United Nations Oil-for-Food Program. The enforcement action also involved certain other improper payments made in connection with government projects in Bahrain, Egypt, India, Turkey and the United Arab Emirates. (see here).

Delta & Pine Land Co. (July 2007)

In July 2007, the SEC announced a settled FCPA enforcement action against Delta & Pine Land Company, a Mississippi-based cottonseed company, and its subsidiary, Turk Deltapine, Inc. According to the SEC, between 2001 – 2006, Turk Deltapine made payments of approximately $43,000 to officials of the Turkish Ministry of Agricultural and Rural Affairs in order to obtain various governmental reports and certifications that were necessary for Turk Deltapine to obtain, retain and operate its business in Turkey. Per the complaint, the improper payments were discovered by Delta & Pine, but instead of halting the payments, the payments continued via a third party supplier and pursuant to an inflated invoice scheme. Based on the above conduct, Delta & Pine and Turk Deltapine jointly agreed to pay a $300,000 civil penalty and engage an independent compliance consultant. (see here and here).

Micrus Corp. (March 2005)

In March 2005, Micrus Corporation, a privately-held California medical device manufacturer, agreed to a two year non-prosecution agreement with the DOJ to resolve its FCPA liability in connection with over $100,000 in payments (disguised in the company’s books and records as stock options, honorariums and commissions) to physicians employed at publicly owned and operated hospitals in France, Turkey, Spain, and Germany.(see here) and here)


Thanks for reading, safe travels, and may your turkey be golden brown!

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