A Q&A With Homer Moyer
In running a site called “FCPA Professor” it is only appropriate to touch base with a “Dean” on occasion.
I do so in this post with Homer Moyer, a “dean” of the FCPA bar. Moyer, a partner with Miller & Chevalier (see here) addresses a variety of topics in this Q&A – from evolution of the FCPA and FCPA enforcement to voluntary disclosure and investigative fees. Moyer closes out the Q&A with a few FCPA reform proposals of his own.
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Your government experience prior to law practice was with the Commerce Department, not the DOJ or SEC as is typical of many FCPA enforcement lawyers. How has your Commerce Department experience informed your FCPA practice?
I was at the Commerce Department when the FCPA was enacted, and I chaired an inter-agency group on FCPA issues. Of greater value to my later FCPA practice, however, was having served as general counsel of the Department that deals most directly with corporate issues and that both promotes and regulates American businesses. Also of great value were the experiences of having litigated cases as both a prosecutor and defense counsel. Perhaps most important, however, is having now seen hundreds of different FCPA issues for dozens of different clients.
Working on FCPA cases at the SEC or DOJ provides prosecutors with unique experience, but not the opportunity to counsel and represent corporate clients, manage complex legal issues for them, or help them devise and implement innovative compliance programs.
Describe your first FCPA matter or case? What were the issues? What were your client’s concerns?
One of my early cases, some 20 years ago, presented a host of issues that had not yet become commonplace. The case I have in mind involved potential vicarious liability for the acts of a third party, a third party who claimed that the work it did for a U.S. company created a “constructive partnership” that entitled it to share the company’s profits, questions of whether to consult voluntarily with DOJ, an industry with which DOJ was not yet well-acquainted, innovative compliance enhancements, related civil litigation, and forged evidence presented to a court.
That matter ended well, but it presented issues of first impression and foreshadowed how complicated FCPA cases could be.
The FCPA has evolved much since your first case. From your perspective, has this evolution been positive? Any negative aspects of this evolution? How has this evolution affected your practice and your clients?
The evolution of FCPA enforcement has unquestionably brought more and more attention to the issue of official corruption and has had an indisputable impact on corporate behavior, or the “supply side” of the bribery equation. In addition, it has done something that unilateral U.S. laws rarely do, namely, led to a far-reaching change and consensus in the international legal landscape, as now reflected in international anti-corruption conventions to which more than 150 countries have become signatories.
Despite two sets of amendments, the FCPA itself has changed relatively little since it was adopted in 1977. Its “evolution” has primarily been through a steady escalation in enforcement — the number and variety of enforcement actions, expansive interpretations of key provisions, the size and variety of penalties, the frequency of voluntary disclosures, and a steady rise in the levels of sophistication the government looks for in independent investigations, due diligence processes, and compliance programs.
Has this evolution been positive or negative? Few people would now dispute that corruption and bribery of foreign officials imposes staggering economic and social costs, frequently on countries that can afford it least. The question then becomes whether FCPA enforcement has made a positive difference in reducing or eliminating corruption. It probably has, but more relevant today is the continuing pervasiveness of official corruption and the daunting challenges to controlling it on a global basis.
With respect to the FCPA itself, complaints that it has created an “uneven playing field” have been somewhat undercut by aggressive FCPA enforcement against non-U.S. companies, by new international anti-corruption conventions, and by the beginnings of genuine enforcement in some other countries. And the lament that few FCPA cases are adjudicated in court does not distinguish FCPA enforcement from the enforcement patterns of many other regulatory laws. The infrequency of judicial review may occasionally embolden the government to overreach, but it has rarely resulted in abusive prosecutions.
In terms of our own practice, the increase in enforcement has plainly caused clients to be far more focused on anti-corruption issues than was once the case. This has certainly caused Miller & Chevalier’s long-standing FCPA practice to grow dramatically. It also appears to have created something of a traffic jam of newly minted “FCPA lawyers.”
Your point “that few FCPA cases are adjudicated in court does not distinguish FCPA enforcement from the enforcement patterns of many other regulatory laws” is a very valid point. However, isn’t a key difference though that other laws have benefited from several dozen circuit court opinions and perhaps a few Supreme Court decisions, such that the parameters of the law are at least set by someone other than the enforcement agencies? [Granted, 2011 will likely see several trial court decisions as to certain FCPA elements, but the FCPA is still a law that is lacking much meaningful precedential case law.]
One has to take the view — and I certainly do — that independent judicial review is a good thing — a critical part of our legal system and important to preserving the rule of law. Judicial review, or the prospect of judicial review, can help prevent regulatory or enforcement excesses. In some regulatory programs — environmental statutes come to mind — the level of judicial review is robust. And we are beginning to see more judicial review in FCPA cases involving individual defendants.
At the same time, some regulatory areas have been subject to as little, or even less, judicial scrutiny than the FCPA. Statutory restrictions on judicial review and judicial deference to agency interpretations of regulations having “national security” ramifications effectively reduce judicial oversight. One can look long and hard for good case law on the regulations enforced by the Office of Foreign Assets Controls (“OFAC”) or on export controls rules under the ITAR (International Traffic in Arms Regulations), each of which has seen regulatory overreaching and little accountability. One recent Federal Circuit Court opinion referred to the discretion reserved by the Executive Branch combined with the lack of clarity in the ITAR as something that would be expected of a totalitarian regime, not the United States Government.
In the end, however, the amount of judicial review is determined by the private sector. Clients are, of course, free to challenge FCPA enforcement actions, although historically corporate clients have tended to favor settlement as a preferable route. Moreover, recent FCPA court decisions reflect that courts will not necessarily interpret laws differently from enforcement agencies. Nonetheless, both corporate and individual defendants are free to challenge agency interpretations of the laws they enforce, and I and many other counsel would undoubtedly be available to help.
When President Obama, high-ranking DOJ officials and others in government talk about corruption and bribery, they talk about the bridge that crumbles because the contractor was selected based on a bribe payment or other similar scenarios. However, very few FCPA enforcement actions fit this scenario, rather the alleged violator is generally viewed as an industry leader that sells the best products for the best prices. Do you agree that a divide exists between such government or civil society statements and typical FCPA enforcement action scenarios? If so, how do we bridge this divide?
Bribery of foreign officials is, in the first instance, typically designed to overcome market forces and to distort competition, not to ensure the purchase of the best products at the best price. Whether or not a bridge is the best metaphor, FCPA violations reflect illicit payments that are made to enrich corrupt officials and that shift that cost to consumers and taxpayers. The consistent scenario in FCPA enforcement actions is that an alleged violator, or someone acting on its behalf, did, in fact, pay bribes, often egregious ones.
The most significant “divide” today is the uneven enforcement among signatories to anti-corruption conventions. Whereas the 1980s saw an industry push to repeal or relax the FCPA on the grounds that it was creating a competitive disadvantage for American companies, the more common complaint today is that other countries must consistently and meaningfully enforce their own anti-corruption laws to assure that the proverbial playing field is level.
Many calls to roll back the FCPA are now anomalous, as they would put the United States out of compliance with international conventions that the FCPA inspired and that the United States fought hard to achieve. They also run counter to the anti-corruption momentum of the last 20 years and would effectively legalize some practices that are coming to be universally condemned, if not yet universally punished.
I find that most U.S. multinational corporations would be delighted to compete on the merits. Indeed, some companies are affirmatively using integrity in the marketplace to gain a competitive advantage. Many have voluntarily prohibited “facilitating payments,” even though they are permissible under the FCPA. It is also interesting to note that Siemens, after paying record-shattering FCPA fines and taking aggressive steps to transform its entire corporate culture, has been posting record profits.
What is your reaction to this statement from a recent high-ranking DOJ official – ““the government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore.” Do you believe that FCPA enforcement has become a government cash cow? FCPA enforcement fines and penalties simply go into the U.S. Treasury. Are there better places for this money accepting the notion that bribery results in victims?
FCPA fines probably don’t rise to the level of a governmental “cash cow.” In fiscal terms, they are of no real moment. The government unfortunately needs some much bigger revenue cows.
I do believe, however, that law enforcement penalties should be a consequence of, not a reason for, enforcing criminal laws. And although penalties have risen, I do not have the sense that revenue production has been a driver of FCPA enforcement.
Your interesting question about whether penalties might be used to compensate the “victims” of corruption is a favorite in developing countries. It highlights the difficulties of tracing, seizing, and repatriating funds that corrupt officials have stolen from their countries. Even where recovery of funds is possible, assuring that they are then used to benefit the citizens who were cheated by official corruption is a challenge. That is, however, the right use of repatriated funds.
Because countries that have been cheated by their own rulers have rarely been able to recover the stolen funds, some have asked whether they should be compensated with funds collected as penalties in anti-corruption enforcement actions. This would be a break from past law enforcement patterns, and the idea appears not to have gained significant traction. The strongest case for making that break probably relates to funds collected as disgorgement of profits rather than pure fines. Indeed, one could argue that it would be more just for the bounties that whistleblowers can now earn under the Dodd-Frank law to go not to whistleblowers, but rather to the countries affected for the benefit of the victims of corruption.
Your response speaks of corrupt “officials,” “official corruption” and “rulers.” Yet, the vast majority of FCPA enforcement actions involve no such individual – rather the alleged recipient of the bribe is an employee of an alleged state-owned or state-controlled enterprise. In these cases, would not the most direct victim be the competitor who lost the contract or did not have the opportunity to bid. Are you in favor of an FCPA private right of action?
In most FCPA violations, there is more than one victim. Competitors can certainly be victims. So can government agencies or instrumentalities that are procuring goods or services. Even where there is an admitted bribe, however, determining which competitors may have been “victims” would undoubtedly be a messy and imperfect process. And allegations of improper payments are far more common than proof of improper payments, as any practitioner knows, and the complications of trying to identify victims and allocate compensation among everyone claiming status as a victim might make us long for the days when the principal issues were simply the ones you have asked about here.
What percentage of internal investigations you have worked on in the past 3-5 years that ended with a conclusion that the company violated the FCPA resulted in a voluntary disclosure? Same question for investigations you worked on during the time period 1995-2005? Why the difference?
Although we have clients who, after weighing all the relevant factors, have elected not to disclose, the percentage of matters that result in voluntary disclosures has plainly been rising. The reasons include changes in the sentencing guidelines, the enactment of Sarbanes-Oxley, greater Audit Committee oversight of investigations, the campaign by enforcement agencies to assure companies that voluntary disclosure and cooperation will result in “tangible benefits,” and the gradually spreading view that this is true, if not numerically predictable.
With Avon’s recent disclosure that it has spent over $100 million in professional fees and expenses in connection with an FCPA inquiry and other similar disclosures (albeit perhaps not as dramatic) have professional fees and expenses (law firm, accounting firm, etc.) associated with FCPA internal investigations gotten out of control?
I have to confess to being stunned at some of the reported costs of investigations. To be sure, the costs of investigations have risen with increased emphasis on electronic documents and the insistence that investigations must be independent, thorough, and knowledgeable.
Accepting those requirements, the cost-effectiveness of an investigation can be significantly improved by developing a careful work plan, utilizing a firm with experienced FCPA lawyers at all levels of seniority, tailoring the type of investigation to the type of issue, and making informed and reasonable judgments about when to stop an investigation and focus on remediation. In my experience, it is often possible to have a reasoned and productive dialogue with enforcement agencies about the scope and extent of investigations.
FCPA reform proposals are floating around and are reportedly being considered by certain members of Congress. In your view what reform proposals have merit and what issues are at the top of Homer Moyer’s FCPA reform list?
I find some of the calls for statutory reform less than compelling. Proposals to change the statute in ways that would be inconsistent with international conventions to which the U.S. is committed are unlikely to be successful, in my view, and could well open the door to other “reforms” that advocates for change might dislike, such as eliminating the exception for facilitating payments.
To be sure, in enforcing the FCPA, the government tries to overreach from time to time — exercising anti-bribery jurisdiction over foreign subsidiaries and aggressive applications of dd-3 jurisdictional on the grounds that some step in the process took place “in the territory of the United States” come to mind as occasional examples. When enforcement agencies overreach, they should be challenged.
My dream list of “reforms” might read something like the following:
• Internal DOJ guidance that voluntarily disclosed matters must normally be resolved by the Department within 90 days after completion of an internal investigation; that agencies should make public their calculations of credit for voluntary disclosure and coordination; and that the Department will publish sanitized summaries of its declinations.
• An amendment to tweak the whistle-blower provision of Dodd-Frank to relieve the SEC of the conundrum of implementing the statute consistent with its terms but in a manner that does not undercut effective corporate compliance programs;
• An agreement among prosecutors that in the case of parallel investigations by more than one country, private parties may request state-to-state consultations (as called for by the OECD convention), and the consulting states should assure that investigations are coordinated and penalties made complementary so that companies do not face redundant penalties or unnecessarily overlapping investigations.
• Insistence by the OECD that OECD membership for China, Russia, and India must include accession to the Anti-Corruption Convention, accelerated peer review, and possible reconsideration of OECD membership if implementation and enforcement of anti-corruption laws prove to be insufficient.
• Multilateral reform measures designed to minimize current legal impediments to identifying and seizing funds stolen by corrupt officials and to facilitate repatriation of such funds.
The FCPA Mulligan Rule?
The FCPA Opinion Procedure regulations (here) state that issuers and domestic concerns subject to the FCPA may “obtain an opinion of the Attorney General as to whether certain specified, prospective — not hypothetical — conduct conforms with the Department’s present enforcement policy regarding the antibribery provisions of the Foreign Corrupt Practices Act.”
Since 1980, the DOJ has issued 55 FCPA opinion procedure releases (see here and here).
In nearly every instance the DOJ expresses an opinion that it does not intend to take any enforcement action as to the disclosed facts or conduct? If my figures are correct, in 54 of the 55 opinion procedure releases (98%) the DOJ expressed such an opinion. [The only exception would appear to be 98-01 (here)].
Perhaps you already knew this, but recently I learned something that may help explain this 98% no enforcement statistic.
What did I learn?
That often times, when the requestor senses that it will not receive a favorable DOJ opinion, it simply withdraws the request. I confirmed that this practice does indeed occur with a former high-ranking DOJ FCPA official and others.
Call it the FCPA mulligan rule.
Sec. 80.15 of the opinion procedure regulations specifically states that “a request submitted under the foregoing procedure may be withdrawn prior to the time the Attorney General issues an opinion to such request.”
But here is the issue as I see it.
How does the requestor get the sense that it will receive an unfavorable DOJ opinion so that it can withdraw the request before the opinion procedure is publicly released?
After all, Sec. 80.09 of the regulations, titled “no oral opinion,” states: “no oral clearance, release or other statement purporting to limit the enforcement discretion of the Department of Justice may be given.”
This would seen to eliminate DOJ oral communications to the requestor as to DOJ’s initial observations which may then motivate the requestor to withdraw the request.
Sec. 80.8 of the regulations requires that the Attorney General “respond to the request by issuing an opinion …”. So if the initial DOJ observation which then motivates the requestor to withdraw the request is communicated in writing, should the writing be made public in the same fashion as the opinions that are actually released? Would this not add to the mix of information available as to the FCPA?
As long as I am in question mode, let me throw out this question (see here for the prior post) – should DOJ’s declination decisions be made public?
At a recent public event, I asked Charles Duross (DOJ FCPA chief) this question and he said (see here) that it was a “difficult issue.” In a recent video (here – start at the 6 minute mark), William Stuckwisch (DOJ) wondered aloud whether DOJ declination decisions should be made public. Last, but not least, in this recent Q&A with Sue Reisinger of Corporate Counsel Billy Jacobson (a former high-ranking DOJ FCPA official) stated: “The Justice Department could publicize cases anonymously that it has not brought because of the company’s actions.”
World Bribery & Corruption Compliance Forum – Comments by U.S. Officials
As promised in yesterday’s post (here) that provided a summary of comments by U.K. officials at the World Bribery & Corruption Compliance Forum in London hosted by IBC Legal Conferences, today’s post provides a summary of Charles Duross’s (Deputy Chief – Fraud Section, DOJ) special address as well as comments made by Duross and Thierry Olivier Desmet (Assistant Regional Director, FCPA Unit, SEC) during a panel discussion about voluntary disclosure.
Duross began by noting that the DOJ’s FCPA unit is still very much in a transition phase. He stated that the unit recently added prosecutors with expertise in gathering foreign evidence as well as new prosecutors with the ability to try substantial criminal cases to verdict. Duross stated that the “ability to try lengthy and complex trials” is critical to the FCPA unit’s success and that the unit must continue to be willing to try cases and be put to its burden. Duross stated that the DOJ’s FCPA unit consists of “world class prosecutors” “pure and simple” and that these prosecutors and other personnel make “tremendous personal sacrifices” in their mission of combating bribery. For instance, he noted that in the past few months DOJ prosecutors have traveled to a dozen different countries on four different continents to gather evidence and investigate cases.
Duross also noted that the DOJ works with “tenacious” agents willing to pursue any lead. These agents include, most notably, FBI agents, as well as agents from Immigration, the Internal Revenue Service, Office of Foreign Assets Control, and the Office of Export Enforcement. He said that these agents will “follow the evidence to where it leads them” and that these agents will use traditional law enforcement tools including surveillance, warrants, and wire taps.
Duross stated: “let me be clear – paying bribes to foreign officials to secure business is illegal and is a crime, you will be investigated like any other criminal, and that it doesn’t matter if you wear a tie or you went to a fancy business school.” He said that “if [the DOJ] wins, and we win often, you will go to prison.” He stated that the DOJ is “normally outnumbered by armies of defense attorneys and accountants,” but that DOJ prosecutors are “never outworked and never outhustled.” Duross stated that the DOJ is “always pursuing justice and that it is always seeking to do the right thing.”
Duross also stated that the DOJ continues to expand its network and further development its relationships with foreign counterparts around the world. He stated that the DOJ has “no stronger ties” than with the U.K. and that to say the DOJ has a “close relationship” with the U.K. and the Serious Fraud Office “would be an understatement” as demonstrated by the recent BAE and Innospec prosecutions.
Duross admitted that he takes his new position with a bit of “trepidation” given that he has big shoes to fill (he made specific praise for Peter Clark and Mark Mendelsohn) and given that each new case is followed more closely than the last. He stated that such “scrutiny and criticism can be constructive” and that if it means the DOJ needs to review past practices “we will do so” and that the only way for DOJ to get better is for it to reevaluate what it is doing.
Duross also noted that the DOJ’s FCPA program will be “graded” later this year under the peer review process sponsored by the OECD. The lead examiners in this process are representatives from Argentina and the United Kingdom. He noted that the examiners spent three days in Washington D.C. over the summer and the examiners were provided over 1,000 pages of documents. He also stated that the examiners spent considerable time with the private sector without DOJ involvement something he termed “unprecedented.” According to Duross, the examiner’s report will be made public in mid-October as well as the U.S. response to OECD’s phase 3 questionnaire.
Duross is confident that the U.S. “has a tremendous story to tell” and that if the peer review process identifies area for potential improvement, then “we will welcome this.” Duross said that “if the bar is raised we welcome that” “if it is consistent with our treaty obligations and if all countries are treated equally.”
Duross explained that the FCPA unit has a “number or pending trials” and a significant number of investigations “in the pipeline.” He mentioned upcoming trials in Miami in connection with the Haiti Teleco enforcement actions (see here for prior postings); the upcoming trial of various executives of Control Components Inc. in California – a trial he expects to last two months (see here for prior postings); the pending trials of the Africa Sting defendants in Washington, D.C. (see here for prior postings); and a pending trial in Houston.
In each of these cases, Duross said that the DOJ FCPA unit partners with local AUSA’s who are experts on local trial procedure and have familiarity with the judge. He said that these partnerships are “critical” to the FCPA unit’s success, even if, per DOJ policy, all FCPA prosecutions must be handled by DOJ Main Justice. Duross noted that recently over 90 prosecutors (both DOJ and SEC) participated in “three intense days” of FCPA training at the SEC’s headquarters (see here for a prior post). In concluding on this issue, Duross stated that it would be an “understatement” to say that the DOJ’s team is growing.
In addition to trials, Duross noted that the DOJ’s “pipeline” of investigations “continues to grow.” He said it would “short sighted” if one was left with the view that the only way DOJ receives leads is through voluntary disclosures. Duross dispelled the notion that voluntary disclosures make up the “majority” of its cases. He said that this was “not true and has never been.” According to Duross, when DOJ last looked into this issue a few years ago, the percentage of voluntary disclosure cases was approximately 1/3. On voluntary disclosure, Duross stated that DOJ “has and will continue to provide meaningful credit for companies that provide voluntary disclosures.” He also stated that several voluntary disclosures result in DOJ declinations and that these declinations, which are not often made public, “should not be underestimated.”
During the public Q&A session, I asked Duross about DOJ declinations in FCPA inquiries. I noted that through the FCPA Opinion Release Procedure, DOJ often makes its no-enforcement action decision known as to contemplated business conduct. I asked whether it is in the public interest for the DOJ to publicly disclose its declination decisions, including the facts disclosed by the company and why DOJ, on those facts, declined prosecution. Duross said that the question presented a “difficult issue” and he shared an example of a company that disclosed conduct to the DOJ, but the DOJ declined to prosecute. According to Duross, DOJ asked the company whether it wanted the declination decision to be made public and the company said no – reasoning that it already had disclosed the issue and that there was no need for another public disclosure.
Duross noted that the DOJ receives allegations from a number of sources: the FBI, pro-active investigations, tips from U.S. embassies around the world, anonymous tips, e-mails, and whistleblowers. As to anonymous tips, e-mails, and whistleblowers, Duross stated that DOJ does not immediately launch a full-blown investigation, rather DOJ does its best to verify the information, weight other information, and to make the best judgment possible before commencing an investigation. In sum, Duross said “I don’t want to leave you with the impression that but for voluntary disclosures we would be sitting around on our hands.”
Duross emphasized that the DOJ and its law enforcement partners “make tons of efforts to pursue matters pro-actively” and that the “likelihood of getting caught is increasing over time” and that the world is getting smaller. For instance, Duross said he receives Google Alerts that contain the word bribe. He also shared a story about a “major Fortune 50 company” being the focus of a bribery-related story in a Chinese newspaper. Duross said that the DOJ saw the story on a Sunday night and that by 9:30 a.m. on Monday morning the DOJ had already sent a letter to the general counsel of the company asking for an explanation. Duross explained, that after learning the facts, the DOJ concluded that the newspaper story was incorrect because the case was merely an employee embezzlement matter and had nothing to do with bribery.
Duross next spoke about “tone at the top” and how important it is because non-executive employees look to the board and senior managers for guidance. Duross said that boards and executives should not “let their employees down” and should make clear that unethical and illegal behavior will not be tolerated and that company leaders “should mean it.” On this issue, Duross said that frequently a company voluntarily disclosing will, at the first meeting with DOJ, “slap down on the table its compliance policy.” Duross will then ask the company representative whether anyone has ever been reprimanded for conduct in violation of the policy and that the answer is often “no.” Duross stated that it is “not enough to have a compliance program and a tone at the top,” but rather for a company to “make sure that it means it.”
As to the role of compliance officers, Duross said that vocal support within the business is critical to support the compliance officer so that he/she will not be ignored or willfully disobeyed. Although compliance departments are not viewed as profit centers, Duross encouraged companies to make compliance positions an attractive career track with room for advancement and promotion.
After his remarks, Duross was asked about the general lack of judicial scrutiny of FCPA enforcement actions. He talked about the three FCPA trials in 2009 and said that DOJ is “excited about the upcoming trials” and that the DOJ “welcomes judicial input” on the FCPA.
In his answer, Duross also mentioned the Nexus Technologies enforcement action and how in that action the parties fully briefed the “foreign official” element and that DOJ “won that case.” Although Duross conceded that the judge in that case did not issue a written opinion on the “foreign official” element, Duross did note that the judge, under Rule 11 of the Federal Rules of Criminal Procedure, was required, before accepting the plea, to make sure each element of the crime was met.
[It should be noted that in the Nexus Technology briefing, the DOJ specifically urged the judge, on a number of occassions, not to consider the defendant’s substantive “foreign official” argument because they were premature. The following are snippets from the DOJ’s brief: (i) “the Court need not address any of these faulty arguments at this time:” (ii) “although styled as a motion to dismiss, Defendants’ submission is instead a premature request for a ruling on the sufficiency of the Government’s evidence before any of that evidence has been presented. These arguments, which are premature at best, will be moot after presentation of the Government’s case.” (iii) “because Defendants’ arguments turn entirely on issues of fact, they are premature.”]
During a panel discussion on voluntary disclosure both Duross and Desmet answered questions posed by John Rupp (Covington & Burling – see here).
The first question posed by Rupp was – when is it a crime not to disclose a suspicion of bribery of a public official?
Desmet answered that the concept of materiality is important – would a reasonable investor consider the information important in making a buy or sell decision. Desmet said that the concept of materiality itself has two “sub-concepts”: (i) quantitative materiality (something that impacts a company’s financial statements) – he conceded that very few bribes are quantitatively material; and (ii) qualitative materiality a “complicated gray area” to use Desmet’s words. He said that all bribes can be considered qualitatively material because they may “automatically trigger a books and records violation.” Because of this, Desmet said that it is “prudent” for any issuer to approach the SEC with any “suspicion” of bribes “as soon as” the company learns of the improper payment. When an issuer makes such a disclosure, Desmet said that the Commission will give the company credit for doing so.
Duross answered the question by saying that from the FCPA unit’s perspective, “if there is a bribe we want to hear about it, even if it is small” and that good advice is “to come in and let us know about it.”
Rupp next posed the question – at what point do you expect a company to make a voluntary disclosure?
Duross said, “the earlier the better” although he did also say that the DOJ “does not want to get inundated with a bunch of false starts.” Duross shared an example he said was “troubling” and that was a recent situation where the company voluntarily disclosed a few days after terminating employees in connection with the investigation. When the DOJ asked the company about the employees implicated in the conduct at issue, the company said we terminated them a few days ago and the company then proceeded to say that it no longer had access to the employees.
According to Duross, this “seemed like a bad decision” for the company to make and the conclusion he drew from the company’s decison was that the company did not “want to make the employees available to us.” Duross also added that while a company is often under no affirmative obligation to voluntary disclose, once the voluntary disclosure decision is made, the relationship between the DOJ and company counsel is all about trust and credibility.
Duross said that it is “incredibly difficult” for the DOJ to make important decisions affecting the company if the DOJ senses that the investigation was not done properly or if the DOJ senses that the company is not truly cooperating. Duross said that if the DOJ does not trust company counsel, it may ask the company to go back and redo the investigation of the conduct at issue. According to Duross, a reason a company should consider early in the process to voluntarily disclose is to perhaps save money. He said that the DOJ FCPA unit is “pretty reasonable” and that if a company comes in before the investigation is complete, the DOJ can have some input as to the scope of the investigation – which may turn out to be more limited than what the company may have thought was going to be expected.
In sum, Duross sees the benefits of an early voluntary disclosure as building trust and credibility and perhaps saving the company money.
Duross said that counsel should also not assume that a voluntary disclosure will result in a “passive approach” from the DOJ. Even if a company has voluntarily disclosed conduct, Duross said that the DOJ will go talk to witnesses and use the Mutual Legal Assistance Treaty process to gather evidence. Duross shared a story of outside counsel meeting with the DOJ and giving DOJ a big Powerpoint presentation, when the reality of the situation was that, through no fault of outside counsel, outside counsel had “absolutely no idea of what was going on” because DOJ, as a result of its independent fact-gathering, knew information that even outside counsel did not know.
Duross also cautioned companies to make accurate public statments during an investigation and voluntary disclosure process. On this issue, Duross shared that the DOJ has reached out to companies in the middle of an FCPA inquiry to let the company know that DOJ may disagree with various aspects of the public statements the company is making about the investigation.
Rupp asked – do companies in discussions with you, run the “footnote language by” the DOJ? Duross said, it depends on the practitioner. He did say “to be honest, we don’t want to get into that level of detail in which we are blessing company filings.” Duross did say though that if the company proposes language for a filing or public statement and the DOJ says “no comment” that this should be interpreted by the company as “probably not a good thing.”
Desmet said that when he opens up an FCPA investigation, one of the first things he does is read the company’s SEC filings, including a very detailed review of the company’s MD&A section of the financial statements.
Rupp next asked questions about the SEC’s new whistleblower provisions and asked what will happen if the company has a mere suscipion of an improper payment, the company is in the very early stages of an investigation, a document hold has been issued, electronic documents are being pulled, the company is lining up employees that may have knowledge – but that during this process, a whistleblower contacts the SEC. Rupp asked – will the company in this situation lose the benefits of voluntary disclosure because the whistleblower first contacted the SEC? (See here for my prior post on this issue).
Duross said that the above company probably would be negatively affected under the U.S. Sentencing Guidelines, and probably not receive the sentencing credit for voluntary disclosure, but that this should not be the beginning and end of the analysis. Duross said that there are “lots of different factors” the DOJ considers when resolving an FCPA inquiry per the DOJ’s Principles of Prosecution of Business Organizations and that just because the company was technically not the first in the door does not mean that the DOJ will not try to achieve a “just and fair result.” Duross stated that the SEC, not the DOJ, is in charge of the whistleblower program, but again stated that companies should not think the “world is going to be over” just because a whistleblower “is in first” even if that fact may impact the Sentencing Guidelines culpability score.
Desmet’s answer was very similar on this issue. He noted that while final rules are yet to be issued as to the whistleblower program, he hopes that the Commission would not be rigid in the face of such a hypothetical. He said that if the company comes in a “few days or a few weeks after a whistleblower” that he would “like to think” that such a company would still get credit for self-reporting. In this type of situation, Desmet said that the whistleblower, if otherwise qualified under the provisions, would likely get his/her bounty and the company would likely still get the benefit of self-disclosure as well.
Friday Roundup
The DOJ appears not interested in Anadarko’s allegations and more disclosure news … its all here in the Friday roundup.
DOJ Appears Not Interested in Anadarko’s Allegations
The Jubilee field is located off the coast of Ghana.
Participants in the West Cape Three Points Block include: Kosmos Energy LLC; Anadarko Petroleum Corporation; Tullow Oil PLC; Ghana National Petroleum Corporation; E.O. Group Ltd.; and Sabre Oil and Gas Limited.
Anadarko (here) apparently reported Kosmos (here) to U.S. authorities for possible violations of the FCPA “in connection with securing licensing and exploration and production agreements.”
Anadarko apparently made similar allegations against EO Group.
Apparently, the DOJ is not interested – according to this Bloomberg article by David Wethe and and Jason McClure.
The article, which cites to a May 12 letter from the DOJ to Kosmos and June 2 letter from the DOJ to EO Group, states that the DOJ does not intend to “take any enforcement action” or pursue charges against either company and that the DOJ closed its inquiry into the matter.
According to the article, “Ghana is pressing ahead with its own criminal inquiry into alleged corruption in the development of the field.”
Disclosure News
From Orthofix International N.V.’s Form 8-K filed August 31 (see here):
“During a recent internal management review of Promeca S.A. DE C.V. (“Promeca”), one of its Mexican subsidiaries, the Company received allegations of improper payments, allegedly made by certain of Promeca’s local employees in Mexico, to employees of a Mexican governmental health care entity. The Company has engaged Hogan Lovells US LLP and Deloitte Financial Advisory Services LLP to conduct an internal investigation focusing on compliance with the Foreign Corrupt Practices Act (“FCPA”) and voluntarily contacted the U.S. Securities and Exchange Commission and the United States Department of Justice to advise both agencies that an internal investigation is underway. During 2009, Promeca accounted for approximately one percent of the Company’s consolidated net sales and consolidated total assets. The internal investigation is in its early stages and no conclusions can be drawn at this time as to its outcome; however, the FCPA and related statutes and regulations provide for potential criminal and civil sanctions in connection with FCPA violations, including criminal fines, civil penalties, and disgorgement of past profits.”
From Diageo PLC’s 2010 Preliminary Results Release, dated August 26th (see here)
“SEC investigation: As previously reported, Diageo Korea and several of its current and former employees have been subject to investigations by Korean authorities regarding various regulatory and control matters. Convictions for improper payments to a Korean customs official have been handed down against two former Diageo Korea employees, and a former and two current Diageo Korea employees have been convicted on various counts of tax evasion. Diageo had previously voluntarily reported the allegations relating to the convictions for improper payments to the US Department of Justice and the US Securities and Exchange Commission (SEC). The SEC has commenced an investigation into these and other matters, and Diageo is in the process of responding to the regulators‟ enquiries regarding activities in Korea, Thailand, India and elsewhere. Diageo‟s own internal investigation in Korea, Thailand, India and elsewhere remains ongoing. The US Foreign Corrupt Practices Act (FCPA) and related statutes and regulations provide for potential monetary penalties, criminal sanctions and may result in some cases in debarment from doing business with governmental entities in connection with FCPA violations. Diageo is unable to quantify meaningfully the possible loss or range of loss to which these matters may give rise.”
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A good Labor Day weekend to all.
Digi’s Disappearing Act … And A Proposal
SEC filings are carefully crafted, tightly worded documents created by in-house specialists and often vetted by outside professionals. In short, precise words matter in SEC filings.
In a July 22nd 8-K filing (here), Digi International Inc. provided an update on its previously disclosed FCPA internal investigation including this statement: “[t]he investigation also identified certain books and records and related internal controls issues under the FCPA.” (emphasis added).
Given the above wording, it would seem reasonable to conclude that the company (with the assistance and input from outside counsel) identified conduct that implicated the FCPA. Why else would the disclosure contain the clause “under the FCPA”?
Fast forward to August 2nd when the company issued a press release (here) stating, in reference to the July 22nd 8-K and the investigation, that: “Digi has now received confirmation through discussions with representatives of the DOJ and the SEC that they will not be initiating any enforcement proceedings against Digi.”
That’s quite the disappearing act. And a quick one at that.
As noted in a prior post (here) Digi is “the leading supplier of multifunction communication devices to the U.S. Federal Government.”
FCPA enforcement (or lack of enforcement in this case) is already largely an opaque process and Digi’s curious disappearing act serves as another example for why transparency and accountability in FCPA enforcement is needed.
So here is my proposal to shed more light on the DOJ and SEC’s enforcement of the FCPA.
In instances such as Digi (i.e. when a company voluntarily discloses an FCPA internal investigation to the DOJ and the SEC and when the DOJ and the SEC decline enforcement) require the DOJ and the SEC to publicly state, in a thorough and transparent manner, the facts the company disclosed to the agencies and why the agencies declined enforcement on those facts.
Here is why I think the proposal makes sense and is in the public interest.
For starters, the DOJ and the SEC are already wildly enthusiastic when it comes to talking about FCPA issues. Enforcement attorneys from both agencies are frequent participants on the FCPA conference circuit and there seems to be no other single law that is the focus of more DOJ or SEC speeches than the FCPA. Thus, there is clearly enthusiasm and ambition at both agencies when it comes to the FCPA.
Further, both the DOJ and the SEC have the resources to accomplish this task. Both agencies have touted the increased FCPA resources in their respective offices and the new personnel hired to focus on the FCPA. Combine enthusiasm and ambition with sufficient resources and personnel and the proposal certainly seems doable.
Most important, the DOJ is already used to this type of exercise. It is called the FCPA Opinion Procedure Release (see here) a process the DOJ frequently urges those subject to the FCPA to utilize.
Under the Opinion Procedure regulations, an issuer or domestic concern subject to the FCPA can voluntarily disclose prospective business conduct to the DOJ which then has 30 days to respond to the request by issuing an opinion that states whether the prospective conduct would, for purposes of the DOJ’s present enforcement policy, violate the FCPA.
The DOJ’s opinions are publicly released (see here for the most recent one) and the FCPA bar and the rest of FCPA Inc. study these opinions in great detail in advising clients largely because of the general lack of substantive FCPA case law.
If the DOJ is able to issue an enforcement opinion as to voluntarily disclosed prospective conduct there seems to be no principled reason why the enforcement agencies could not issue a non-enforcement opinion as to voluntarily disclosed actual conduct
Such agency opinions would seem to be more valuable to those subject to the FCPA than the already useful FCPA Opinion Procedure Releases. If the enforcement agencies are sincere about providing guidance on the FCPA, as they presumably are, such agency opinions would seem to provide an ideal platform to accomplish such a purpose.
Requiring the enforcement agencies to disclose non-enforcement decisions after a voluntary disclosure could also inject some much needed discipline into the voluntary disclosure decision itself – a decision which seems to be reflexive in many instances any time facts suggest the FCPA may be implicated.
(For more on the important voluntary disclosure decision and the role of FCPA counsel see here.)
Notwithstanding the presence of significant conflicting incentives to do otherwise, it is hoped that FCPA counsel advises clients to disclose only if a reasonably certain legal conclusion has been reached that the conduct at issue actually violates the FCPA. Accepting this assumption, transparency in FCPA enforcement would be enhanced if the public learned why the enforcement agencies, in the face of a voluntary disclosure, presumably disagreed with the company’s conclusion as informed by FCPA counsel. If the enforcement agencies agreed with the conclusion that the FCPA was violated, but decided not to bring an enforcement action, transparency in FCPA enforcement would similarly be enhanced if the public learned why.
A final reason in support of the proposal is that it would give companies such as Digi a benefit by contributing to the mix of public information about the FCPA.
In most cases, companies spend millions of dollars investigating conduct that may implicate the FCPA and on the voluntary disclosure process. When the enforcement agencies decline an enforcement action, presumably because the FCPA was not violated, these costs are forever sunk and the company can legitimately ask why it just spent millions investigating and disclosing conduct that the DOJ and the SEC did not conclude violated the FCPA.
However, if the enforcement agencies were required to publicly justify their declination decision, the company would achieve, however small, a return on its investment and contribute to the mix of public information about the FCPA – a law which the company will remain subject to long after its voluntary disclosure and long after the enforcement agencies declination decision. Thus, the company, the company’s industry peers, and indeed all those subject to the FCPA would benefit by learning more about the DOJ and the SEC’s enforcement conclusions.
Transparency, accountability, useful guidance, a return on investment.
All would be accomplished by requiring the enforcement agencies to publicly justify a declination decision in the limited instances where no enforcement action follows a voluntary disclosure.