Potpourri
Disgraceful, scrutiny alerts, resource alert, for the reading stack, and for your consideration. It’s all here in a potpourri edition of FCPA Professor.
Disgraceful
It’s a disgraceful practice.
A for-profit business invites a high-ranking DOJ official to its private event in which people have to pay to hear the public official speak.
It’s a disgraceful practice.
The for-profit company treats the DOJ official’s comments as if they own his words and then put the words behind a paywall.
Andrew Weissmann, the DOJ’s fraud section chief, recently spoke at GIR Live, an event hosted by a private for-profit company. According to this teaser post Weissmann spoke about issues of public concern including “how the department will factor in compliance, how it intends to reward those that self-report, and how it aims to increase transparency around resolutions and declinations.”
I requested a transcript of Mr. Weissmann’s remarks from the DOJ press office and was told: “[Mr. Weissmann] did not prepare formal remarks but spoke from notes, so I don’t have anything to provide. You’re welcome to check with the event organizers to see if they have a recording of it.”
Thankfully, Carlos Ayres was at the event and publicly posted a summary of Mr. Weisssmann’s remarks on the FCPAmericas website. According to his post:
“Weissmann said that the DOJ will publish in the next weeks a list of questions that companies can expect to be asked when being assessed by the DOJ’s new compliance consultant.”
“Weissmann said that the DOJ will shed more light on declination decisions in the short term, publishing related data with aggregate information.”
“Weissmann stated that DOJ will make an effort to complete cases for companies that self-report within one year.”
Thank you Mr. Ayres for your public service in sharing the comments of a high-ranking DOJ official on matters of public concern.
Scrutiny Alerts
HSBC Holdings
The company recently disclosed:
“Hiring practices investigation
The US Securities and Exchange Commission (the ‘SEC’) is investigating multiple financial institutions, including HSBC, in relation to hiring practices of candidates referred by or related to government officials or employees of state-owned enterprises in AsiaPacific. HSBC has received various requests for information and is cooperating with the SEC’s investigation. Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any possible impact on HSBC, which could be significant.”
Novartis
The Swiss company, which qualifies as an issuer under the FCPA, was recently the focus of news reports. According to this article:
“South Korean authorities raided Novartis offices in search of evidence the company provided bribes to local doctors, according to media reports. The Seoul Western District Prosecutors’ Office confiscated various documents, including account books, in order to determine whether rebates the drug maker offered physicians may have actually been bribes.”
Mondelēz International, Inc.
Approximately five years ago (see here for the prior post), Kraft Foods disclosed FCPA scrutiny resulting from its acquisition of Cadbury in connection with a manufacturing facility in India. Kraft, now known as Mondelēz International, Inc., recently disclosed:
“As we previously disclosed, on February 1, 2011, we received a subpoena from the SEC in connection with an investigation under the FCPA, primarily related to a facility in India that we acquired in the Cadbury acquisition. The subpoena primarily requests information regarding dealings with Indian governmental agencies and officials to obtain approvals related to the operation of that facility. We are continuing to cooperate with the U.S. and Indian governments in their investigations of these matters, including through ongoing meetings with the U.S. government to discuss potential conclusion of the U.S. government investigation. On February 11, 2016, we received a “Wells” notice from the SEC indicating that the staff has made a preliminary determination to recommend that the SEC file an enforcement action against us for violations of the books and records and internal controls provisions of the Exchange Act in connection with the investigation. We intend to make a submission to the staff of the SEC in response to the notice.”
So-called Wells Notices are rare in the FCPA context for the simple reason that few issuers actually publicly push back against the SEC. See here for an example of a company that prevailed against the SEC after receiving a Wells Notice.
Key Energy Services
The company has been under FCPA scrutiny since Spring 2014 and continues to bleed cash in connection with its scrutiny. In this recent filing, the company disclosed $2.7 million “related to” its FCPA scrutiny.
Sweet Group
The U.K. Serious Fraud Office recently announced:
“Construction and professional services company Sweett Group PLC was … sentenced and ordered to pay £2.25 million as a result of a conviction arising from a Serious Fraud Office investigation into its activities in the United Arab Emirates. The company pleaded guilty in December 2015 to a charge of failing to prevent an act of bribery intended to secure and retain a contract with Al Ain Ahlia Insurance Company (AAAI), contrary to Section 7(1)(b) of the Bribery Act 2010. The relevant conduct occurred between 1 December 2012 and 1 December 2015.”
In the release, David Green (Director of the SFO) stated:
“Acts of bribery by UK companies significantly damage this country’s commercial reputation. This conviction and punishment, the SFO’s first under section 7 of the Bribery Act, sends a strong message that UK companies must take full responsibility for the actions of their employees and in their commercial activities act in accordance with the law.”
As further noted in the release:
“His Honour Judge Beddoe described the offence as a system failure and said that the offending was patently committed over a period of time. Referring to Section 7 of the Bribery Act 2010 and to Sweett’s ignorance of its subsidiary’s actions , HHJ Bedoe said:
The whole point of section 7 is to impose a duty on those running such companies throughout the world properly to supervise them. Rogue elements can only operate in this way – and operate for so long – because of a failure properly to supervise what they are doing and the way they are doing it.
The SFO’s investigation into Sweett Group PLC, which commenced on 14 July 2014, uncovered that its subsidiary company, Cyril Sweett International Limited had made corrupt payments to Khaled Al Badie, the Vice Chairman of the Board and Chairman of the Real Estate and Investment Committee of AAAI to secure the award of a contract with AAAI for the building of the Rotana Hotel in Abu Dhabi. The amount is broken down as £1.4m in fine, £851,152.23 in confiscation. Additionally, £95,031.97 in costs were awarded to the SFO.”
Maxwell Technologies
In 2011, Maxwell Technologies (a California-based manufacturer of energy storage and power delivery products) resolved parallel DOJ and SEC FCPA enforcement actions concerning alleged business conduct in China by agreeing to pay approximately $14 million. The company recently disclosed:
“In January 2011, we reached settlements with the SEC and the U.S. Department of Justice (“DOJ”) with respect to charges asserted by the SEC and DOJ relating to the anti-bribery, books and records, internal controls, and disclosure provisions of the U.S. Foreign Corrupt Practices Act (“FCPA”) and other securities laws violations. We paid the monetary penalties under these settlements in installments such that all monetary penalties were paid in full by January 2013. With respect to the DOJ charges, a judgment of dismissal was issued in the U.S. District Court for the Southern District of California on March 28, 2014.
On October 15, 2013, we received an informal notice from the DOJ that an indictment against the former Senior Vice President and General Manager of our Swiss subsidiary had been filed in the United States District Court for the Southern District of California. The indictment is against the individual, a former officer, and not against the Company and we do not foresee that further penalties or fines could be assessed against us as a corporate entity for this matter. However, we may be required throughout the term of the action to advance the legal fees and costs incurred by the individual defendant and to incur other financial obligations. While we maintain directors’ and officers’ insurance policies which are intended to cover legal expenses related to our indemnification obligations in situations such as these, we cannot determine if and to what extent the insurance policy will cover the legal fees for this matter. Accordingly, the legal fees that may be incurred by us in defending this former officer could have a material impact on our financial condition and results of operation.
Swiss Bribery Matter
In August 2013, our Swiss subsidiary was served with a search warrant from the Swiss federal prosecutor’s office. At the end of the search, the Swiss federal prosecutor presented us with a listing of the materials gathered by the representatives and then removed the materials from our premises for keeping at the prosecutor’s office. Based upon the our exposure to the case, we believe this action to be related to the same or similar facts and circumstances as the FCPA action previously settled with the SEC and the DOJ. During initial discussions, the Swiss prosecutor has acknowledged both the existence of our deferred prosecution agreement (“DPA”) with the DOJ and our cooperation efforts thereunder, both of which should have a positive impact on discussions going forward. Additionally, other than the activities previously reviewed in conjunction with the SEC and DOJ matters under the FCPA, we have no reason to believe that additional facts or circumstances are under review by the Swiss authorities. In late March 2015, we were informed that the Swiss prosecutor intended to inform the parties in April 2015 as to whether the prosecutor’s office would bring charges or abandon the proceedings. However, to date, the Swiss prosecutor has not issued its formal decision. At this stage in the investigation, we are currently unable to determine the extent to which we will be subject to fines in accordance with Swiss bribery laws and what additional expenses will be incurred in order to defend this matter. As such, we cannot determine whether there is a reasonable possibility that a loss will be incurred nor can we estimate the range of any such potential loss. Accordingly, we have not accrued an amount for any potential loss associated with this action, but an adverse result could have a material adverse impact on our financial condition and results of operation.”
As noted here by Wall Street Journal – Risk & Compliance Journal, in the same disclosure Maxwell disclosed approximately $2.4 million in FCPA professional fees and expenses in 2015.
Resource Alert
As highlighted here, Stanford Law School and Sullivan & Cromwell recently announced the launch of an FCPA clearinghouse – “a public database that aggregates and curates source documents and provides analytic tools related to enforcement of the Foreign Corrupt Practices Act (FCPA).”
For the Reading Stack
An informative read here in Bloomberg Law from John Cunningham and Geoff Martin (both of Baker & McKenzie) titled “Casting a Wider Net: Conspiracy Charges in FCPA Cases.”
Another informative read here in the New York Times regarding the DOJ’s Kleptocracy Asset Recovery Initiative.
For Your Consideration
Did U.S. involvement in Afghanistan result in more corruption? Did the U.S. fail to conduct adequate due diligence on intermediaries (a frequent FCPA enforcement theory against companies)? NPR explores the issue here.
Like A Kid In The Candy Store
Like every year around this time, I feel like a kid in a candy store given the number of FCPA year in reviews hitting my inbox. This post highlights various FCPA or related publications that caught my eye.
Reading the below publications is recommended and should find their way to your reading stack.
However, be warned. The divergent enforcement statistics contained in them (a result of various creative counting methods) are likely to make you dizzy at times and as to certain issues. There will be more on this issue in the near future.
Shearman & Sterling
The firm’s Recent Trends and Patterns in FCPA Enforcement is among the best year-after-year.
Content that caught my eye:
“It is … noteworthy that the DOJ’s and SEC’s prioritization of individual prosecutions comes as enforcement agencies continue to struggle while pursuing FCPA charges against individual defendants. Setbacks in United States v. Sigelman and United States v. Firtash may cause the Department to rethink its strategy. Indeed, while the DOJ has had some success extracting plea agreements, when put to its burden of proof the DOJ (and the SEC for that matter) has experienced difficulty in securing convictions and judgments. Given these struggles, it is possible that future individual defendants may be emboldened to test their chances against the government in court, potentially requiring the DOJ to devote even more resources to trying these individuals. While the DOJ and SEC have made it a clear priority to prosecute individuals for violations of the FCPA, the risk-reward calculations that prosecutors must consider before bringing charges could be altered going forward.”
[For more on this general topic, see “What Percentage of DOJ FCPA Losses is Acceptable?“]
[…]
“[Regarding so-called declinations] we note however, in the cases of Eli Lilly, Goodyear, Mead Johnson Nutrition, Hyperdynamics, and Bristol-Myers, the DOJ’s declination decision might also be explained by a possible lack of jurisdiction. Specifically, in each of the cases above, where all of the illicit conduct was committed by subsidiaries of the parent company, the DOJ may have concluded it was too difficult to prove that the subsidiaries’ conduct should be imputed on the corporate parent—bearing in mind that the DOJ has a higher burden of proof to sustain criminal FCPA charges against a company.”
[…]
“The DOJ’s 2015 prosecution of Daren Condrey in United States v. Condrey raises some questions as to whether government prosecutors are remaining faithful to the government instrumentality test set out in the Eleventh Circuit’s 2014 decision in United States v. Esquenazi.”
[For more on this topic, see this prior post]
[…]
“[Regarding the 2015 BNY Mellon “internship” enforcement action] [T]he government’s approach is bad policy. For better or worse, some of the most educated and most qualified potential hires in many countries are the children of government officials—individuals who benefited from their parents’ privileges and had the opportunity to attend prestigious schools, learn foreign languages, etc. If the government infers an intent to apply corrupt influence from the potential hire’s relationship to government officials, it is likely to chill hiring of such individuals, resulting in a completely unnecessary disadvantage to U.S. and other companies covered by the FCPA.”
Debevoise & Plimpton
The firm’s FCPA Update is the best monthly read there is and the most recent edition states:
“Even adding in amounts agreed or ordered to be recovered from individuals in FCPA cases, last year was by any objective measure one of more muted FCPA enforcement. Various theories can be advanced to explain these figures.
One, and probably the most plausible, is that, in a system of FCPA enforcement against companies that almost never ends in a trial, corporate resolutions require companies’ consent. It was only a matter of time for there to be a dry spell of large corporate resolutions. Thus, there were no large settlements last year because of the mundane fact that none of the larger cases in the pipeline was ready to be settled. Because of potential negotiation delays of various kinds in cases in the pipeline, it is conceivable if not likely there will be large settlements in 2016, which may dampen urges to downplay enforcement risk.
Still, a theory warranting consideration is that more companies subject to the FCPA are “getting it,” the possibility being that after a decade of vigorous enforcement the number of big cases that could be brought is markedly decreased. That the number of FCPA-related investigations reported by public companies declined by about 20 percent, year over year, arguably supports this theory.
But negating this theory is the large number of new foreign corruption matters reported daily in the media, and the kinds of political upheaval and developments in technology, social media culture, whistle-blowing, and transparency movements that drive anti-bribery enforcement. Given the broad jurisdictional reach of the FCPA (particularly as construed by the DOJ and SEC), a large percentage of the new cases reported in the media could well subject companies and individuals alike to future FCPA enforcement risks. These risks are magnified by a growing level of cross-border cooperation among anti-bribery enforcement agencies.
And as the Obama Administration heads into its final year, with a new Attorney General and Assistant Attorney General for the Criminal Division now settled into their roles, the likelihood of increased enforcement seems relatively high.”
Gibson Dunn
The firm’s Year-End FCPA Update is also a quality read year after year.
Gibson Dunn also released (here) its always informative “Year-End Update on Corporate Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs).”
It begins as follows.
“2015 was a blockbuster year in corporate non-prosecution agreements (“NPA”) and deferred prosecution agreements (“DPA”), by sheer numbers alone. Skyrocketing to 100 [87 NPAs and 13 DPAs], in 2015 the number of agreements more than doubled the numbers in every prior year since 2000 , when Gibson Dunn first began tracking NPA and DPA data.”
Davis Polk
The firm’s Trends in Anti-Corruption Enforcement is here. A visual FCPA Resolution Tracker is here.
Jenner Block
The firm’s Business Guide to Anti-Corruption Laws 2016 is here.
Hogan Lovells
The firm’s Global Bribery and Corruption Review is here.
Arnold & Porter
The firms Global Anti-Corruption Insights is here.
Assistant AG Caldwell Regarding Exorbitant Pre-Enforcement Action Professional Fees and Expenses – “That’s Not Us, That’s The Companies” Who Are Responsible, Plus Other DOJ Musings
The war of words regarding who is to blame for exorbitant pre-enforcement action professional fees and expenses continued in recent weeks.
By way of background and as highlighted in this prior post, in April Assistant Attorney General Leslie Caldwell stated – “we do not expect companies to aimlessly boil the ocean.”
Certain FCPA lawyers disputed Caldwell’s assertion – see here and here.
Recently, Assistant AG Caldwell again shot-back stating – as noted in this Wall Street Journal Risk & Compliance post – “That’s not us. That’s the companies” who are responsible for the pre-enforcement action professional fees and expenses.
*****
Staying with the same topic, as noted in this recent Morgan Lewis “Lawflash,” here is what DOJ Fraud Section Chief Andrew Weissmann had to say at a recent event:
“When asked about the rising costs of Foreign Corrupt Practices Act (FCPA) investigations, Mr. Weissmann dismissed the suggestion that high investigative and defense expenses—which have cost some companies nearly half a billion dollars—are a predicate to receiving full cooperation credit. Noting some of the staggering legal fees in the hundreds of millions of dollars, Mr. Weissmann advised the audience that companies do not need to “boil the ocean” when investigating corporate misconduct. Although there may be “historical evidence” of DOJ asking companies to engage in “widespread investigations,” he assured the audience that this “is not the current Department of Justice view.”
Mr. Weissmann described a “real life example” of a multinational company that voluntarily disclosed FCPA misconduct in an unnamed foreign country by a team of individuals who also had responsibilities in three other countries. Because “there was very good reason to think that they would have engaged in the same conduct in those other countries,” Mr. Weissmann said, DOJ expected the company to investigate those countries in order to receive full cooperation credit, and the company complied. Mr. Weissmann noted that the company was neither asked nor expected to expand its investigation to the “Antarctic,” for instance, or high-risk countries (as determined by Transparency International’s Corruption Perceptions Index) where the company operated. As explained by Mr. Weissmann, “If there is an issue in one country and just speculation that the same issues could be happening elsewhere, then we should deal with the issue that is before us and come to a very quick resolution.” Investigations should be “appropriately tailored to the facts at issue,” he said, because both DOJ and the companies it investigates share the same interest in “prompt resolutions.”
As noted in this prior post, prior to becoming DOJ Fraud Section Chief, Weissmann was a vocal critic of various aspects of DOJ FCPA enforcement. Set forth below is what Weissmann wrote in Restoring Balance: Proposed Amendments to the FCPA.
“The current FCPA enforcement environment has been costly to business. Businesses enmeshed in a fullblown FCPA investigation conducted by the U.S. government have and will continue to spend enormous sums on legal fees, forensic accounting, and other investigative costs before they are even confronted with a fine or penalty, which, as noted, can range into the tens or hundreds of millions. In fact, one noteworthy innovation in FCPA enforcement policy has been the effective outsourcing of investigations by the government to the private sector, by having companies suspected of FCPA violations shoulder the cost of uncovering such violations themselves through extensive internal investigations.
From the government’s standpoint, it is the best of both worlds. The costs of investigating FCPA violations are borne by the company and any resulting fines or penalties accrue entirely to the government. For businesses, this arrangement means having to expend significant sums on an investigation based solely on allegations of wrongdoing and, if violations are found, without any guarantee that the business will receive cooperation credit for conducting an investigation.”
*****
Back to Morgan Lewis’s “Lawflash” – here is what it says about other aspects of Weissmann’s recent remarks.
“Mr. Weissmann confirmed DOJ’s commitment to providing more transparency regarding cooperation credit and declinations by including greater factual details in non-prosecution agreements (NPAs) and deferred prosecution agreements (DPAs) and providing “general statistics” about declinations in a series of “anonymized examples.” Currently, because declinations are rarely, if ever, publicly announced, companies and their counsel have limited insight into how and why such determinations are made. That will change, Mr. Weissmann said, with DOJ providing the public with greater transparency about the declinations process and what companies can do to increase their chances of receiving declinations. Likewise, although DOJ’s website already contains some information about DPAs and NPAs, Mr. Weissmann assured the audience that they can expect to see more detail in the future about what exactly happened that resulted in specific dispositions to help companies assess the benefits of full cooperation.”
*****
Finally on the DOJ speech “beat,” Assistant AG Cadlwell recently delivered this speech to a paying audience at Compliance Week.
The topic?
“[C]orporate accountability. How corporations should be holding themselves accountable by designing compliance programs that don’t just look good on paper but actually work. Compliance programs that are designed to protect the company’s reputation, customers, counterparties and the public, as well as ensuring compliance with the law.”
In pertinent part, Caldwell stated:
“A corporation’s internal compliance policies and practices, and its compliance professionals, are the first lines of defense against fraud, abuse and corruption. As all of you know, there is no “one size fits all” compliance program. Rather, effective compliance programs are those that are tailored to the unique needs, risks and structure of each business or industry. While a corporate compliance program must, by definition, address regulatory risk and the risk of potential violations of law, a strong compliance program will not stop there. A strong program also will aim to deter employee misconduct, whether or not that misconduct poses obvious regulatory risk.
While companies have for years appropriately adopted a “risk-based” approach to compliance, we have seen that corporations all too often misdirect their focus to the wrong type of risk. We have repeatedly seen corporations target the risk of regulatory or law enforcement exposure of institutional and employee misconduct, rather than the risk of the misconduct itself. The result: compliance programs are too often behind the curve, effectively guarding against yesterday’s corporate problem but failing to identify and prevent tomorrow’s scandals.
In designing compliance programs, companies would be wise to examine all of their lines of business – including those not subject to regulation – and determine where specific risks are and how best to control or mitigate them. It is also critical that compliance programs take into account the operational realities and risks attendant to the particular company’s business, and are designed to prevent and detect particular types of misconduct likely to occur in a particular line of business.
For example, to comply with the Foreign Corrupt Practices Act (FCPA), businesses that tend to be exposed to corruption must employ different internal controls than businesses that have less exposure to corruption.
[…]
Too often we have heard companies say that a particular course of criminal conduct took them by surprise, when a hard look at the business practices would have identified the risk. And, far too often, we have heard companies exclaim in defense that everyone else is doing it – that others in the industry are engaged in the same misconduct. But as you all know, an industry-wide compliance failure is not a defense to knowing and willful criminal activity.
With this principle that compliance programs should be proactive, and not merely reactive in mind, there are some general hallmarks of effective compliance programs that I’d like to share with you today.
- A company must ensure that its senior leaders provide strong, explicit and visible support for its corporate compliance policies.Corporate management must enforce compliance policies, not tacitly encourage or pressure employees to engage in misconduct to achieve business objectives.
- We look not just at the written policies, but to other messages otherwise conveyed to employees, including through in-person meetings, emails, telephone calls, incentives/bonuses, etc.; and will make a determination regarding whether the company meaningfully stressed compliance or, when faced with a conflict between compliance and profits, encouraged employees to choose profits.
- Senior executives should be responsible for the implementation and oversight of compliance.Those executives should have authority to report directly to independent monitoring bodies – for example, internal auditors or the board of directors.
- A company’s policies should be clear and in writing and should easily be understood by employees.But having written policies – even those that appear specific and comprehensive “on paper” – is not enough.
- Compliance teams need adequate funding and access to necessary resources.And they must have an appropriate stature within the company.
- A company should have an effective process – with sufficient resources – for investigating and documenting allegations of violations.
- A company periodically should review its compliance policies and practices to keep it up to date with evolving risks and circumstances, including when the company merges with or acquires another company.In particular, if a U.S.-based entity merges with, acquires or is acquired by a foreign entity, all compliance policies should be reviewed and revised accordingly.
- A company should have an effective system for confidential, internal reporting of compliance violations.
- A company should implement mechanisms designed to enforce its policies, including incentivizing compliance and disciplining violations.
- A company should sensitize third parties with which it interacts (for example, vendors, agents or consultants) to the company’s expectation that its partners are compliant.This means more than including boilerplate language in a contract.It means taking action – including termination of a business relationship – if a partner demonstrates a lack of respect for laws and policies.
Corporations also must ensure compliance with the laws of all the countries in which they operate. We appreciate that this may present a major compliance challenge, as international corporations often must bridge cultural, as well as geographic, divides. But such challenges do not justify non-compliance.
[…]
Overall, our message is simple: we expect corporate entities to take compliance risk as seriously as they take other business-related risks.
[…]
When a compliance program works and a company suspects or discovers potential criminal wrongdoing, a company would be wise to conduct a thorough internal investigation. While we in the Criminal Division will not tell a company how it should conduct an investigation, we evaluate the quality of a company’s internal investigation, both through our own investigation and in considering what if any charges to bring against a company. In that regard, we have seen some “best practices” with regard to internal investigations.
Good internal investigations uncover the facts. They don’t promote corporate talking points or whitewash the truth. The investigation should be focused on rooting out the relevant facts, identifying and interviewing the knowledgeable actors and capturing and preserving relevant documents and other evidence. The investigation should seek to identify responsible individuals, even if those individuals hold senior positions at the company.
It is reasonable to take resources – time and money – into account. If an internal investigation unearths criminal conduct, the inquiry should be thorough enough to identify the relevant facts, players, documents and other evidence, and to get a sense of the pervasiveness of the misconduct. But, we do not believe that it is necessary or productive for a company to employ its internal investigators to look under every rock and pebble – particularly when a company has offices or personnel around the globe that do not appear to be involved in the misconduct at issue. In fact, doing so will cost companies much more in the end, both in fees but also because it ultimately will delay our investigation and delay resolution and closure for the company.
For example, if a multi-national corporation discovers an FCPA violation in one country, and has no basis to suspect that the misconduct is occurring elsewhere, the Criminal Division would not expect that the internal investigation would extend beyond the country in which the violation was discovered. By contrast, if the known offenders operated in multiple countries, we would expect that the internal investigation would extend into those locations as well.
Once your company learns of potential criminal conduct and confirms it through a reasonable internal investigation, the company then must choose whether to disclose the conduct to the government, and whether to cooperate in the government’s investigation. These are the company’s choices, and very few companies have a legal obligation to disclose criminal misconduct to the department. Likewise, there is no obligation to cooperate beyond compliance with lawful process. But if a company chooses to cooperate with the government in its investigation – particularly at an early stage – the company likely will receive significant credit for such efforts when the government is contemplating what prosecutorial action to take.
In conducting an investigation, determining whether to bring charges and negotiating plea or other agreements, federal prosecutors take into account, among other factors, the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents. Prosecutors also consider the availability of alternative or supplemental remedies such as civil or regulatory enforcement action.
To receive cooperation credit, a company must do more than comply with subpoenas or other compulsory process. Companies must provide a full accounting of the known facts about the conduct or events under review, and affirmatively must identify responsible individuals (and provide evidence supporting their culpability), including corporate executives and officers – and they must do so in a timely way. A company’s cooperation may be particularly helpful where the criminal conduct continued over an extended period of time, and the knowledgeable or culpable individuals and/or the relevant documents are dispersed or located abroad. Under these circumstances, cooperation includes helping to circumvent barriers to the investigation by making knowledgeable personnel available for interviews or testimony, and by producing documents and other evidence that otherwise may not be readily accessible to the government.
We recognize that some foreign data privacy laws may limit or prohibit the disclosure of certain types of data or information. Over the years, the Criminal Division has developed an understanding of certain oft-cited data privacy laws, and we will challenge what we perceive to be unfounded reliance on these laws to justify withholding requested information. Companies should avoid this by giving careful consideration to the government’s requests for information, refraining from making broad “knee jerk” claims that large categories of information are protected from disclosure and producing what can be disclosed.
[…]
Corporate accountability through a strong, tailored compliance program and thorough internal investigations should be the standard for your companies.
[…]
Corporate accountability through compliance, investigations and protections against breaches is a good practice for all of your companies. And in the Criminal Division, I am emphasizing accountability on our side as well, particularly through our work with regulators and other law enforcement agencies, and through increased transparency about our decision-making where possible.
Many of the cases handled by the Criminal Division also involve parallel investigations or civil or enforcement actions by civil or regulatory authorities. Even if certain misconduct could be pursued civilly or through regulatory action, criminal investigation and prosecution often is appropriate.
It is department policy that criminal prosecutors and civil attorneys coordinate with one another and with agency attorneys, to the extent permissible, to protect and advance the government’s overall interests. Early and effective coordination is critical to ensuring the efficient use of resources and the best ultimate outcome.
We have heard concerns expressed about regulatory “piling on.” We agree that there is the potential for unfairness when a company is asked to pay penalties and fines to different regulators and enforcement authorities based on the same set of facts.
Different law enforcement authorities have distinct and important functions. Companies know who their regulators are, and they know that they are subjecting themselves to those regulatory schemes and the laws of the countries in which they operate. But we are trying to address this concern and are mindful of making sure that companies are not punished unfairly.
Since becoming Assistant Attorney General, one of my priorities has been to ensure that the Criminal Division is as transparent as possible about its decision making. While we are limited in the information we can disclose to the public about matters in which we decline to prosecute, when we file charges, secure a guilty plea or enter into a deferred prosecution or non-prosecution agreement, the Criminal Division will place in the public record detailed information explaining the rationale for the particular resolution whenever possible.
Whether we secure a guilty plea or enter into an NPA or DPA, these resolutions generally have the same key components: admissions, a detailed statement of facts, remediation and/or enhanced compliance requirements and penalties. Depending on the facts and circumstances of a particular case, the Criminal Division also may require the imposition of a compliance monitor. Companies would be wise to study these publicly-available documents to measure their compliance or to assess their exposure.
In our view, increased transparency benefits everyone. From the Criminal Division’s perspective, if companies know the benefits that likely will flow from self-reporting or cooperating with the government’s investigation, we are confident that more companies will be willing to voluntarily disclose identified misconduct and cooperate, including against culpable individuals. In addition, transparency takes a significant amount of the guess work out of assessing the likely benefits of cooperation, as well as the costs of refusing to cooperate or offering limited or partial assistance.
Regardless of the form of resolution, the Criminal Division is committed to enforcing compliance with its terms. In particular, when a company that is subject to the terms of an NPA or a DPA violates the terms of the agreement, if proportional to the breach, the Criminal Division will not hesitate to tear up the agreement and prosecute the offending entity based on the admitted statement of facts. If we do so, as with the other resolutions, the Criminal Division will be transparent and include its rationale in publicly-filed documents. In addition to statements contained in public filings in cases investigated or prosecuted by the Criminal Division, our commitment to transparency also is effectuated by the participation of Criminal Division personnel in conferences such as this one.”
Issues To Consider From The Recent BHP Billiton Enforcement Action
This recent post highlighted the SEC FCPA enforcement action against BHP Billiton.
This post continues the analysis by highlighting various issues to consider from the enforcement action.
Record-Setting SEC Civil Penalty
At $25 million, the BHP Billiton enforcement action clearly did not set any records in terms of overall settlement amount. (See here for the current top ten FCPA enforcement actions in terms of overall settlement amount).
In most SEC FCPA enforcement actions, the settlement amount comprises (in any given year 95%+) of disgorgement and prejudgment interest.
However, the BHP Billiton comprised solely a $25 million civil penalty.
This is believed to be, by a large margin, the largest-ever SEC civil penalty in an FCPA enforcement action. Number 2 on this list is believed to be against ABB in 2010 (settlement amount included a $16.5 million civil penalty).
Moreover, the BHP Billiton enforcement action is the second-largest SEC only FCPA enforcement action of all-time behind the $29 million SEC only FCPA enforcement action against Eli Lilly in 2012 (see here for the prior post). (Note: an SEC only FCPA enforcement action means an enforcement action that involved only an SEC component, not an SEC settlement amount in an enforcement action that also involved a DOJ component).
That the BHP Billiton enforcement action – a travel and entertainment action – represents the largest SEC FCPA penalty ever and the second largest SEC only FCPA enforcement action of all-time is nothing short of remarkable and further to the point that FCPA settlement amounts (and components thereof) seem to be getting bigger each year … just because. (See here for the prior post).
The Absurdity of Just Don’t Bribe
In the minds of some, the FCPA is simple. Just don’t bribe.
More sophisticated observers recognize the absurdity of such an absolutist position.
In short, a company can do things with customer or prospective customer x and it is generally just fine. But when the same company does the same thing with customer or prospective customer y, the U.S. government just might call it bribery.
The BHP Billiton enforcement action highlights this dynamic.
To recap, BHP Billiton was an official sponsor of the 2008 Summer Olympics in Beijing, China. As such, the company received priority access to tickets, hospitality suites, and accommodations for the games. Not surprisingly, the company invited 650 people (customers, suppliers, etc.) to attend the Olympic Games with three to four day hospitality packages.
According to the SEC’s findings, approximately 75% of these invitees were not alleged “foreign officials.” Thus no problem.
But lo and behold, approximately 25% of these people invited were alleged “foreign officials” primarily from Africa and Asia and an even smaller percentage of these invited “foreign officials” actually attended the Olympic Games.
The end result, according to the SEC, bribery.
Sure, BHP Billiton was not charged with FCPA anti-bribery violations, but does anyone seriously question whether this enforcement action was regarding anything but the alleged “foreign officials.”?
Avoiding the “D” Word
BHP Billiton was not the subject of a DOJ enforcement action.
To those who overuse the “D” word, this is yet another example of a DOJ “declination.”
However, consider this.
As a foreign issuer, the only way BHP Billiton could have been found to be in violation of the FCPA’s anti-bribery provisions is to the extent “[U.S.] mails or any means or instrumentality of interstate commerce” was used in furtherance of the alleged travel and entertainment expenditures. The SEC’s enforcement action contained no such findings.
Sure, the DOJ also can bring criminal enforcement actions – including against foreign issuers – for willful violations of the FCPA’s books and records and internal controls provisions, but the SEC’s findings surely did not warrant such treatment.
Time-Line
Like most FCPA inquiries by the DOJ/SEC, BHP Billiton’s FCPA scrutiny followed a glacial pace.
As the company previously disclosed, it received requests for information in August 2009 from the SEC.
Thus, from start to finish it took approximately six years.
Assessing DOJ Transparency
Recently Assistant Attorney General Leslie Caldwell gave this speech at an event hosted by New York University Law School’s Program on Corporate Compliance and Enforcement.
The focus of the speech, as stated by Caldwell, was “the Criminal Division’s efforts to increase transparency in its corporate prosecutions.” It is an important topic as transparency is a fundamental tenet of the rule of law.
Caldwell’s speech was mostly forward-looking so time will tell how transparent the DOJ will be in the future including in the FCPA context.
This post assesses DOJ transparency as it relates to Foreign Corrupt Practices Act enforcement over the past several years and highlights that DOJ transparency is as foggy as the road in the picture.
When reading the below excerpts from Caldwell’s speech, you may want to keep the following points in mind.
Since 2010, the DOJ has used NPAs or DPAs to resolve approximately 85% of corporate FCPA enforcement actions. These resolution vehicles are negotiated behind closed doors in Washington, D.C. and thus are anything but transparent.
Caldwell states in her speech that “the factual statements filed with resolution documents typically include a detailed recitation of the misconduct, as publicly admitted by the company.” However, you can judge for yourself whether the following FCPA NPAs contain “a detailed recitation of the misconduct”.
Ralph Lauren NPA (3 page statement of facts most of which identifies relevant parties);
NORDAM Group NPA (2.5 page statement of facts most of which identifies the relevant parties);
Lufthansa Technik NPA (no statement of facts relevant to the entity).
In any event, kudos to Caldwell for recognizing that “opaque” enforcement “carries little deterrent effect.”
The article “The Facade of FCPA Enforcement” highlights four pillars which contribute to the “facade” of FCPA enforcement. One pillar highlighted was “same facts, different result.” The article used what were substantively carbon-copy enforcement actions against Lucent Technologies and UTStarcom, which nevertheless led to materially different charges and penalties, to make the point that FCPA charging decisions are not based solely on the facts and law, but less transparent factors as well.
In any event, kudos to Caldwell for recognizing that “unreasoned” enforcement “carries little deterrent effect.”
Further to the point that FCPA charging decisions seem not to be based solely on the facts and law, but less transparent factors as well, consider the BAE enforcement action. Despite the DOJ alleging conduct that clearly implicated the FCPA’s anti-bribery provisions, BAE (a large U.S. defense contractor) was not charged with violating the FCPA.
Consider also the mysterious conclusion to James Giffen enforcement action. Giffen was criminally charged with making more than $78 million in unlawful payments to two senior officials of the Republic of Kazakhstan in connection with certain oil transactions in which various American oil companies acquired valuable rights in Kazakhstan.” However, Giffen’s defense was that his actions were made with the knowledge and support of the CIA, the National Security Council, the Department of State and the White House. In 2010, the enforcement action took a sudden and mysterious turn when Giffen agreed to plead guilty to a one-paragraph superseding indictment charging a misdemeanor tax violation. Perhaps one day the reasoning behind the sudden turn of events will become transparent.
Consider also certain subtle statements in the FCPA Guidance relevant to transparency.
Footnote 379 of the Guidance states as follows. “Historically, DOJ had, on occasion, agreed to DPAs with companies that were not filed with the court. That is no longer the practice of DOJ.”
Page 75 of the Guidance suggests that the DOJ has used NPAs in individual FCPA-related cases (e.g., “If an individual complies with the terms of his or her NPA, namely, truthful and complete cooperation and continued law-abiding conduct, DOJ will not pursue criminal charges.” The Guidance also states that “in circumstances where an NPA is with a company for FCPA-related offenses, it is made available to the public through DOJ’s website.” (emphasis added). This statement suggests that when an NPA is with an individual for FCPA-related offenses, the agreement is not made public.
Indeed, as highlighted in the prior post “Secret FCPA Enforcement” there have been whispers in the FCPA bar for years about secret FCPA enforcement. As noted in the prior post, not once, not twice, but three times I sought clarification from the DOJ of the above Guidance statements.
In each instance there was no response. So much for that transparency thing.
Indeed, a key qualifier in Caldwell’s recent speech about transparency was the following statement: “we [the DOJ] usually publicly announce corporate resolutions and pleas, and make the documents available on our website”) (emphasis added).
Last, but not least before turning to actual excerpts from Caldwell’s speech, is the topic of so-called DOJ declinations. As evidence of the DOJ’s purported transparency, Caldwell states that the FCPA Guidance “has a section on declinations and provides anonymized examples of real FCPA cases in which we declined to bring a prosecution.”
However, as highlighted in the article “Grading the FCPA Guidance” the Guidance declination examples raise more questions than answers. For instance, in three of the examples, it is not even clear based on the information provided that the FCPA was violated. Moreover, in all the declination examples in the Guidance, the factors motivating the declination decision—such as voluntary disclosure and cooperation, effective remedial measures, small improper payments—can often be found in many instances in which FCPA enforcement actions were brought.
At last to the excerpts in Caldwell’s speech.
“One of my priorities in the Criminal Division is to increase transparency regarding charging decisions in corporate prosecutions. I know that many corporate counsel have concerns about what they perceive as a lack of transparency in how the department decides when to bring charges, or to seek some lesser resolution.
Greater transparency benefits everyone. The Criminal Division stands to benefit from being more transparent in part because if companies know the benefits they are likely to receive from self-reporting or cooperating in the government’s investigation, we believe they will be more likely to come in and disclose wrongdoing and cooperate. And on the flip side, companies can better evaluate the consequences they might face if they do not receive cooperation credit. Transparency also helps to reduce any perceived disparity, in that companies can compare themselves, as best as possible, to other similarly-situated companies engaged in similar misconduct.
There are often limits to how much we can disclose about our investigations and prosecutions—particularly for investigations in which no charges were brought—but we are trying to be more clear about our expectations for corporate cooperation and the bases for our corporate pleas and resolutions.
One of the themes of today’s program is the shaping of corporate culture. Shaping corporate culture through deterrence is an area where the Criminal Division plays an important role. One important purpose of criminal prosecution of corporations is the deterrence of future would-be wrongdoers. But to achieve deterrence, the Criminal Division must transparently communicate its expectations and the consequences of corporate misconduct. An opaque or unreasoned enforcement action carries little deterrent effect.
We recognize the productive role we can play in influencing corporate conduct, and we take seriously the effects of our enforcement actions. Wherever possible, we try to communicate clear guidance to the corporate community through our criminal resolutions, our interactions with companies and their counsel during an investigation or prosecution and other channels such as conferences like this one.
During my first year in leading the Criminal Division, we have tried to make as clear as possible what we expect from those companies that choose to cooperate. Put simply, if a company wants cooperation credit, we expect that company to conduct a thorough internal investigation and to turn over evidence of wrongdoing to our prosecutors in a timely and complete way. Perhaps most critically, we expect cooperating companies to identify culpable individuals—including senior executives if they were involved—and provide the facts about their wrongdoing.
As this sophisticated audience knows, there is no “off the rack” internal investigation that can be applied to every situation at every company. Effective investigations must be tailored to the unique misconduct at issue and the circumstances of each company. But, there are hallmarks of all good internal investigations. Chief among them is the identification of wrongdoers. Prosecuting individuals, including corporate executives, for their criminal wrongdoing is a top priority for the Criminal Division. Corporations seeking cooperation credit should conduct their internal investigations with those principles in mind.
The mere voluntary disclosure of corporate misconduct—by itself—is not enough. All too often, corporations expect cooperation credit for voluntarily disclosing and describing the corporate entities’ misconduct, and issuing a corporate mea culpa. True cooperation, however, requires identifying the individuals actually responsible for the misconduct—be they executives or others—and the provision of all available facts relating to that misconduct.
Investigations must also be independent and designed to uncover the facts, not to spread company talking points or whitewash the truth. We expect that the complete facts about the wrongdoing will be provided, and in a timely way. As we work to be transparent, we expect transparency in return. Transparency is a two-way street, and we expect companies that are claiming to cooperate to walk the walk.
The Criminal Division, meanwhile, will conduct its own investigation. We will pressure test a company’s internal investigation with the facts we gather on our own, and we will consider the adequacy of an internal investigation when we evaluate a company’s claim of cooperation.
Let me be clear, however, the Criminal Division does not dictate how a company should conduct an investigation. If a company decides to conduct an internal investigation and seek cooperation credit, that company must determine how best to conduct its own internal investigation. Although we can provide guideposts, the manner in which an internal investigation is conducted is an internal corporate decision.
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We recognize that information about the bases for our corporate guilty pleas and resolutions is an important reference point for companies that are evaluating whether to self-disclose a violation or cooperate. Corporations may wish for a formula or definitive matrix that could be applied in this context. But, while a rote formula might bring certainty and consistency, it would do so at the expense of the individualized justice that comes with thoughtful and nuanced prosecutorial decision-making.
For decades, the department has disclosed the factors that prosecutors must evaluate when considering corporate criminal charges and resolutions. The corporate prosecution principles were originally adopted two decades ago—in the Holder Memo, issued when now Attorney General Holder was the Deputy Attorney General—and have been refined through the years into the current Filip Memo, otherwise known as the Principles of Prosecution of Business Organizations.
This audience is no doubt versed in the comprehensive considerations laid out in the nine Filip factors, which are publicly available on the Internet. When applied to a particular case against a business organization, the factors could lead to charges, a deferred prosecution agreement or a non-prosecution agreement—known as DPAs and NPAs—or a declination.
Arriving at a corporate resolution requires a unique balancing of the Filip factors in each case. But this balancing does not take place in a prosecutorial vacuum. In virtually every instance, we invite company counsel to make a presentation regarding the application of the Filip factors in the case at hand before we make a charging decision. Again, wherever possible, we encourage an open and transparent dialogue between the company and our prosecutors at every stage.
In each of our corporate resolutions—be it a guilty plea, NPA or DPA—we provide an explanation of the key factors that led to our decision. The factual statements filed with resolution documents typically include a detailed recitation of the misconduct, as publicly admitted by the company. The actual agreements outline the factors that were significant in determining the type of resolution, such as the corporation’s cooperation—if any—and remedial measures. We usually publicly announce corporate resolutions and pleas, and make the documents available on our website.
In the future, you should expect that our resolutions will include even more detailed explanations of our considerations. This is a priority of mine. While these documents already provide significant insight into our thought processes, they will soon provide an even greater explanation of our analysis and conclusions.
In addition to their use as enforcement tools, our plea agreements, DPAs and NPAs provide a transparent explanation of the department’s expectations when it comes to compliance programs. Companies seeking to measure their own compliance programs need look no further than many of the resolutions we have made publicly available.
DPAs and NPAs provide explicit roadmaps for companies to get back on track, sometimes under the watchful eye of a monitor or court. There is perhaps no more transparent guidance to a specific corporation than the terms in a DPA or NPA, especially when we set forth remedial or compliance measures we expect.
These agreements have real teeth. When companies subject to a NPA or DPA are required to cooperate and fail to do so, or where they engage in other criminal conduct during the term of the agreement, the Criminal Division will not hesitate to tear up a DPA or NPA and file criminal charges, where such action is appropriate and proportional to the breach. The Criminal Division’s role is not just to set guideposts for companies that have engaged in significant misconduct, but to prosecute those corporations when they ignore those guideposts. Just as with individuals, companies are expected to learn from their mistakes. A company that is already subject to a DPA or NPA for violating the law should not expect the same leniency when it crosses the line again.
Over the course of my career, I have found that when it comes to affecting corporate conduct, nothing has a more powerful impact than concrete examples. Such examples have traditionally stemmed from publicized corporate prosecutions, as it is more challenging to publicize investigations in which we decline to file charges. The department has maintained a long-standing practice not to discuss non-public information on matters it has declined to prosecute, based in large part on concerns about the privacy rights and interests of uncharged parties. There are serious privacy concerns inherent in publicly identifying an individual who was implicated in our criminal investigation if we eventually decide not to bring charges. Indeed, internal department policy prohibits us from publicly identifying those individuals who have been investigated, but not charged.
Likewise, companies often strongly oppose publicity that they were under Justice Department scrutiny, even if we ultimately declined to prosecute.
The challenge we are currently working to address is how to publicize these cases while taking into consideration the legitimate concerns of the companies and individuals who were under investigation. We are looking for ways to better inform the community about cases in which we decline to prosecute, as there is often as much to learn from a decision not to bring charges as a decision to prosecute. We seek not just to prosecute, but to encourage and reward good corporate citizenship, and increasing transparency can play an important role in achieving that goal.
A significant example of our efforts in this regard is the Foreign Corrupt Practices Act Resource Guide published by the Criminal Division and the Securities and Exchange Commission. The Guide has a section on declinations and provides anonymized examples of real FCPA cases in which we declined to bring a prosecution. Although each potential case is based on its own unique circumstances and facts, the examples in the Guide provide useful insight into the circumstances of real-world declination decisions.
The Criminal Division’s FCPA website continues this effort at transparency by posting relevant enforcement actions and opinion letters. The department responds to opinion requests concerning enforcement intent about prospective actions that might violate the anti-bribery provisions of the FCPA. This procedure enables companies and individuals to request a determination in advance as to whether proposed conduct would constitute a violation of the FCPA. These opinion letters are publicly available on our website. While they are binding only on the party that makes the request, they provide significant guidance on the department’s approach to enforcing the FCPA.
Through these and other steps, the Criminal Division has prioritized increased transparency in our corporate investigations and prosecutions. We strive to disclose more information, to the extent we can, while protecting ongoing investigations and privacy rights. And we encourage companies to do the same—to self-disclose criminal violations and to cooperate with our investigations—or risk the consequences.”