Assistant Attorney General Caldwell’s Unconvincing Defense Of DPAs / NPAs
As noted in this Global Investigations Review article, at a recent event in Paris in connection with the release of the OECD’s Foreign Bribery Report, Assistant Attorney General Lisa Caldwell defended the DOJ’s frequent use of DPAs and NPAs to resolve Foreign Corrupt Practices Act enforcement actions. As stated in the article:
“Caldwell defended the Department of Justice’s (DoJ) reliance on settlements in FCPA cases. “In the United States we are often able to achieve much more through a settlement – a negotiated settlement – than we could achieve following conviction at trial,” she said. “We are able to impose reforms, impose compliance controls, and impose all sorts of behavioural change that a court would never be able to impose following even a conviction at trial.” Since 2009 over 50 companies have settled with the DoJ for alleged FCPA violations. Caldwell told the audience in Paris: “Companies cannot be sent to jail, so all a court can do is say you will pay ‘x’. We can say: ‘you will also have a monitor and will do all sorts of other things for the next five years, and if you don’t do them for the next five years then you can still be prosecuted’.” “In the United States system at least it is a more powerful tool than actually going to trial,” she said.
Post-enforcement action compliance obligations typically last 2-3 years, not 5 as Caldwell suggested. Regardless, Caldwell’s defense of DPAs and NPAs is just as unconvincing as former Assistant Attorney General Lanny Breuer’s defense of DPAs and DPAs in September 2012 (see here for the prior post).
For starters, the function of the DOJ’s criminal division, as stated on its website, is to “serve the public interest through the enforcement of criminal statutes.” Whether the function of the DOJ is, in addition, to “impose reform, impose compliance controls, and all impose all sorts of behavioral changes” on a business organization is a point of much disagreement. (See, e.g., “Prosecutors in the Boardroom“).
Regardless of one’s thoughts on whether the DOJ’s criminal division ought to play the role of a quasi-regulator, the notion that the DOJ is powerless to effect corporate change through old-fashion law enforcement (that is enforcing the FCPA without use of NPAs and DPAs) is plainly false.
For instance, the Siemens enforcement action did not involve the use of an NPA or DPA. Yet, it is clear from the plea agreement, sentencing memorandum, and judgment that the DOJ was able to obtain the reforms, compliance controls and behavioral changes it wanted. More recently in 2014, the Alcoa enforcement action was resolved without an NPA or DPA. The plea agreement and judgment in the case (see here and here) again demonstrate that the DOJ was again able to obtain the reform, compliance controls and behavioral changes it wanted.
To return to Caldwell’s words, perhaps NPAs and DPAs are indeed a more powerful tool in FCPA enforcement actions than actually going to trial, but then again the DOJ is 0-2 in FCPA history when put to its ultimate burden of proof by a business organization in an FCPA enforcement action.
Just because the DOJ may have difficulty proving FCPA violations against business organizations and just because the DOJ is troubled – with good reason – by traditional notions of corporate criminal liability, does not mean the DOJ needs to continue to champion the alternate universe of NPAs and DPAs it has created.
*****
To read a different perspective on Caldwell’s recent remarks, see here from Tom Fox at the FCPA Compliance and Ethics Blog.
Friday Leftovers
Scrutiny update, a double standard, ripples, that’s interesting, and for the reading stack. It’s all here in a leftovers edition of the Friday roundup.
Scrutiny Update
One of the longest-lasting instances of FCPA scrutiny concerns PBSJ Corporation (a global engineering and architectural firm) that first disclosed FCPA scrutiny in December 2009. PBSJ was subsequently acquired by WS Atkins (a U.K. company) and WS Atkins disclosed in a recently regulatory filing as follows.
“There are ongoing discussions regarding the longstanding and previously reported Department of Justice and Securities and Exchange Commission enquiries relating to potential Foreign Corrupt Practices Act violations by the PBSJ Corporation prior to its acquisition by the Group. We anticipate resolution of this matter before the end of the current financial year.”
Double Standard?
Several FCPA enforcement actions or instances of FCPA scrutiny have been based on providing things of value such as meals, entertainment and consulting fees to foreign physicians.
Against this backdrop, the Wall Street Journal reports:
“As it fights to buy Botox maker Allergan Inc., Valeant Pharmaceuticals International Inc. is investing cash and time wooing the doctors it would need on its side after a takeover. A centerpiece of the effort: Valeant said it met with a total of 45 influential cosmetic surgeons and dermatologists in September at events in Aspen, Colo., and Palm Beach, Fla. Valeant paid for the physicians’ airfares, two-night stays at luxury hotels and meals. The company also agreed to provide consulting fees that could amount to as much as $30,000, according to doctors who attended the meetings. Valeant, a smaller player than Allergan in cosmetic medicine, must win over doctors if it wrests control of the Botox maker, since it will rely on the physicians for business. Valeant said the pursuit seems to be paying off. Several doctors who attended the sessions, of what Valeant called its special advisory committee, said they were won over by the company’s plans for Allergan—including attracting patients to physicians’ offices and introducing new products.”
Ripples
My recent article “Foreign Corrupt Practices Act Ripples” highlights that settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from FCPA scrutiny or enforcement in this new era.
One such ripple is offensive use of the FCPA to further advance a litigating position and that is just what Instituto Mexicano Del Seguro Social (“IMSS”) has done in this recent civil complaint against Orthofix International.
You may recall that in July 2012 Orthofix resolved a $7.4 million FCPA enforcement action based on allegations that its Mexican subsidiary paid bribes totaling approximately $317,000 to Mexican officials in order to obtain and retain sales contracts from IMSS. (See here for the prior post).
In the recent civil complaint, IMSS uses the core conduct at issue in the FCPA enforcement action and alleges various RICO claims, fraud claims, and other claims under Mexican law.
That’s Interesting
As has been widely reported (see here for instance), “President Obama called on the Federal Communications Commission … to declare broadband Internet service a public utility, saying that it was essential to the economy …”.
That’s interesting because – as informed readers know – in the 11th Circuit’s “foreign official” decision the court concluded that an otherwise commercial enterprise can be a “instrumentality” of a government if the “entity controlled by the government … performs a function the controlling government treats as its own.” Among the factors the court articulated for whether an entity performs a “function the controlling government treats as its own” was “whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function.”
Reading Stack
Several law firm client alerts regarding the DOJ’s recent FCPA Opinion Procedure release concerning successor liability (see here, here, here). In this alert, former DOJ FCPA Unit Chief Charles Duross leads with the headline “Is DOJ Evolving Away from the Halliburton Opinion Standard?” (a reference to this 2008 Opinion Procedure release).
From Foley & Larder and MZM Legal (India) – “Anti-Bribery and Foreign Corrupt Practices Act Compliance Guide for U.S. Companies Doing Business in India.”
Recent interviews (here and here) with Richard Bistrong, a real-world FCPA violator and undercover cooperator. See here for my previous Q&A with Bistrong. As noted here, Bistrong recently spoke to my FCPA class at Southern Illinois University School of Law. Having the ability to hear from an individual who violated the law my students were studying, and being able to hear first-hand of real-world business conditions, was of tremendous value to the students and added an important dimension to the class.
Should the government reconsider its use of deferred prosecution agreements? That is the question posed in this New York Times roundtable (in the context of recent bank prosecutions).
Finally for your viewing pleasure, an FCPA-related interview here of SciClone’s CEO (a company that has been under FCPA scrutiny since approximately August, 2010).
*****
A good weekend to all.
And The Apple Goes To …
Fitting of the season, the FCPA Professor apple award goes to Matthew Fishbein (Debevoise & Plimpton).
In this recent article titled “Why Aren’t Individuals Prosecuted for Conduct Companies Admit,” Fishbein (who previously served in the U.S. Attorney’s Office for the Southern District of New York as Chief Assistant U.S. Attorney and Chief of the Criminal Division, among other DOJ positions), picks an orchard. He writes:
“The public has every right to wonder how it can be that the government brings no charges against individuals in the wake of [corporate criminal settlements]. Companies act only through the conduct of individuals—if the conduct is as egregious as portrayed in these settlements, and if the massive penalties are appropriate, how is it that so often the government charges no individuals?
[…]
Prosecutors’ increasing appreciation of the leverage they enjoy over corporate entities, coupled with companies’ determinations that a “bad” settlement is likely better than a “good” litigation, has resulted in a greater number of corporate settlements in cases where the government would be unlikely to prevail if forced to prove its case in court. The result, increasingly common over the last 20 years, is that prosecutors can obtain what appears to be a monumental victory without needing to develop a theory, supported by evidence, that could survive a legal challenge or prevail before a jury.
Prosecutors have far less leverage over individuals. People, unlike corporations, often face the prospect of incarceration and financial ruin in the event of a criminal conviction. As a result, individuals are more likely to test the government’s legal theories and version of the facts. Of course, the government often does pursue complex cases against individuals where the legal theory is clear and the facts compelling (for example, the recent wave of insider trading cases). But in many of the recent settlements, prosecutors know from their interactions with lawyers for individuals that, unlike with the corporation, they are likely to have a fight on their hands if they bring charges. Prosecutors are under enormous pressure from Congress and the public to pursue cases against senior executives who are thought to have caused the financial crisis. If they thought they would prevail, is there any doubt that they would bring these cases?
[…]
As NPAs and DPAs have become increasingly common, the government’s leverage over corporations in negotiating these settlements has become more apparent. In addition to the tremendous risks associated with an indictment, prosecutors have several other powerful sources of negotiating leverage. These include: government suspension and debarment; the loss of key licenses, such as banking licenses; the drain on the time and energy of corporate executives and other witnesses; legal costs; and costs associated with the uncertainty of a criminal investigation and potential indictment.
Corporations are also reluctant to go to trial because they are risk averse. Regardless of the strength of the government’s case, the facts in corporate criminal cases are often complex or esoteric, and there is always a chance that a jury may not understand why a few problematic documents do not add up to criminal liability.
In light of these factors, companies often may view an admission of criminal conduct as preferable to a legal victory that clears the company’s name but requires years of uncertainty. By entering into a settlement, a company often confines its exposure to a press conference followed by writing a large check, after which the incident may be relegated to a paragraph in a 10-Q filing. By contrast, a company that goes to trial may receive negative—and unpredictable—news coverage for years.
From a business perspective, the preference to settle appears to be prudent: Even though DPAs often involve damaging admissions and massive fines, such negotiated resolutions tend to lead to an immediate increase in a company’s stock price. […] The increase of a company’s stock price after it admits to often egregious criminal conduct and pays a multimillion dollar fine reflects the strong desire of shareholders and the market—and the consequent pressure on corporate executives—to resolve investigations by entering into settlements. The market appears to value the certainty of a resolution more than it is concerned by admissions of criminal conduct.
The above factors all contribute to an environment in which the government can test the limits of its leverage in negotiating corporate settlements. In recent years, prosecutors have pushed those limits further, knowing that they often need not develop a theory of criminal liability that would likely survive a court challenge. A December 2013 NPA that Archer Daniels Midland (ADM) entered into to settle FCPA charges provides a telling example. Under the NPA, ADM agreed to pay $54 million in penalties for bribing foreign government officials. Although it was undisputed that officials of ADM indirect subsidiary ACTI Ukraine paid off foreign officials, they did so in order to receive tax refunds owed by the Ukrainian government.
According to FCPA expert and Southern Illinois University School of Law Professor Michael Koehler, “it is difficult to square [the elements of the FCPA] with the facts alleged in the [ACTI] Ukraine information, and anyone who values the rule of law should be alarmed by it.” The FCPA was designed to prevent companies from “corruptly” acquiring “business”—not receiving owed tax refunds. Moreover, the statute specifically exempts from its anti-bribery provisions “payments to a foreign official…the purpose of which is to expedite or to secure the performance of a routine government action by a foreign official.”
The ADM NPA appears to reflect what Mark Mendelsohn, former head of the Justice Department’s FCPA Unit, has described as the “danger” of NPAs and DPAs: “it is tempting for the [Justice Department] or the SEC…to seek to resolve cases through DPAs or NPAs that don’t actually constitute violations of the law.” But if a case turns out to be marginal, why would a prosecutor pursue it? My experience as a former prosecutor and current defense lawyer suggests that there are at least three reasons for this phenomenon.
First, competition between prosecutors’ offices and public demands for immediate investigations in the wake of high-profile stories place substantial pressure on prosecutors to investigate companies quickly and to pursue cases without having necessarily vetted their appropriateness for criminal charges.
Second, many of the subjects of corporate investigations are complicated, esoteric, and place a substantial burden on the limited resources of prosecutors’ offices. After a lengthy investigation, a prosecutors’ office may not be inclined to simply close a case, especially if it can induce the company to enter into a settlement.
Third, as a result of the leverage discussed above, prosecutors can obtain settlements and massive payments in even marginal cases. Corporate prosecutions represent a low-risk, high-reward opportunity: The risk inherent in pursuing a marginal case is blunted by the high likelihood that a corporation will settle because of the prosecutor’s superior leverage and the corporate defendant’s rational risk aversion. And as settlements increase and monetary penalties skyrocket, the government accumulates and issues press releases reporting record amounts in fines and forfeitures.
[…]
[F]ew prosecutions of individuals actually occur. The reason is simple: Prosecutors do not possess the same kind of leverage over individuals that they do over companies. Because an admission of wrongdoing by an individual has far greater consequences, individuals are more likely to test the prosecution’s case. In cases where the evidence of criminal conduct is weak, prosecutors may well succeed in inducing the corporation to settle, but fail to convince individuals to do the same. Consequently, we see DPAs, often accompanied by inflammatory statements of fact (drafted by prosecutors) documenting outrageous criminal conduct by the company through its employees, without any follow-up prosecution of individuals.
Prosecutors have long been able to charge companies for the criminal conduct of their employees. And in the appropriate case, it makes sense that the corporation, which is created by the laws of the state, should be held accountable to ensure that its employees follow the law. But it follows that if criminal conduct has occurred, the individuals responsible should also be pursued.
The leverage the government can exercise over companies has tipped the scales to a troubling degree. By using their considerable leverage to induce companies to enter into settlements in increasingly marginal cases and forcing them to admit to egregious conduct to settle charges that likely would not survive a legal challenge or be proved to a jury, prosecutors have created a situation where the public is deceived into thinking that the individuals involved in corporate criminal conduct are receiving a free pass.
If these cases were exposed to the light of day by the adversarial system, the public would learn that they are often far murkier than they appear in the DPA’s statement of facts. Instead, however, the public sees a fundamental disconnect between the prosecution of corporations and the prosecution of individuals—and is justifiably left to wonder why prosecutors do not pursue the individuals through whom all corporations must act.”
For additional reading on the above topics see:
“The Facade of FCPA Enforcement” (2010)
My 2010 Senate FCPA testimony (“The lack of individual prosecutions in the most high-profile egregious instances of corporate bribery causes one to legitimately wonder whether the conduct was engaged in by ghosts. […] However, a reason no individuals have been charged in [most FCPA] enforcement actions may have more to do with the quality of the corporate enforcement action than any other factor. As previously described, given the prevalence of NPAs and DPAs in the FCPA context and the ease in which DOJ offers these alternative resolution vehicles to companies subject to an FCPA inquiry, companies agree to enter into such resolution vehicles regardless of the DOJ’s legal theories or the existence of valid and legitimate defenses. It is simply easier, more cost efficient, and more certain for a company … to agree to a NPA or DPA than it is to be criminally indicted and mount a valid legal defense – even if the DOJ’s theory of prosecution is questionable …”.
“But Nobody Was Charged” (2011)
“DOJ Prosecution of Individuals – Are Other Factors At Play?” (2011) (2013) (2014)
“Why You Should Be Alarmed by the ADM Enforcement Action” (2014).
*****
[The FCPA Apple Award recognizes informed, candid, and fresh thought-leadership on the Foreign Corrupt Practices Act or related topics. There is no prize, medal or plaque awarded to the FCPA Professor Apple Award recipient. Just recognition by a leading FCPA website visited by a diverse group of readers around the world. There is no nomination procedure for the Apple Award. If you are writing something informed, candid and fresh about the FCPA or related topics, chances are high that I will find your work during my daily searches for FCPA content.]
Friday Roundup
The problem with NPAs and DPAs, how does your product go to market in China, media coverage in China, victory, scrutiny alerts and updates, and for the reading stack. It’s all here in the Friday roundup.
The Problem With NPAs and DPAs
I’ve long called for the abolition of NPAs and DPAs in the FCPA context as part of a two-pronged reform approach (see here among other posts). As highlighted here among other posts, NPAs and DPAs are problematic across a wide spectrum and the agreements often contain meaningless or senseless language.
This recent Wall Street Journal Law Blog post titled “5 Things Companies Agree to But Can’t Deliver On in DPAs” is a worthy read. It begins:
“FCPA lawyers have a love-hate relationship with deferred-prosecution agreements,” said Laurence Urgenson, a partner at Mayer Brown. “We need them to get around the collateral consequences of prosecutions…but there is language in the agreements that drives us crazy.” Mr. Urgenson said the agreements originated with settlements prosecutors would reach with individuals, often children, placing certain requirements on them as a condition for the charges eventually being dropped. But many of those requirements make no sense in a settlement with a company; Mr. Urgenson picked out some of his favorites.”
How Does Your Product Go To Market In China?
Returning to issues discussed in this 2011 post and this 2011 post, this recent article in Food Navigator – Asia (not my typical source of FCPA material) states as follows concerning practices in China:
“One currently emerging trend is how companies are apparently becoming more comfortable to talk openly about measures they are taking to avoid gaining approvals and still move their products to market. Indeed, four companies outlined to us the agreements they had made with Chinese distributors to deliver their products to locations near to China and then leave the local partners to navigate their movement into the People’s Republic. Most likely, this would be done in cahoots with ministry officials in deals that would involve sweeteners and other transactions. ‘Once we’ve delivered the product, it isn’t our problem what our partner decides to do with it,’ an executive at a U.S.-based multinational told us in Hong Kong. ‘It’s not the cost of approvals that concerns us, it’s the time,” a mid-market manufacturer, also from the U.S., told us. “It is important for us that we hit China right now.’ Not all the companies we talked to about this were from America, but the fact that two were was surprising. This is not least because business practices there are governed by the FCPA … […] What is surprising to us is not the fact that these practices exist at all, it is how U.S. businesses in particular have now become comfortable enough to openly brief the press about their part in this trend.”
That makes two of us that are surprised!
Media Coverage in China
This prior 2012 post titled “All the News That Fit? To Print” highlighted the practice of paying journalists for media coverage in China. Related to the general issue is this recent New York Times article which describes how “journalists who worked for a business news website under investigation in Shanghai have described a scheme of extorting Chinese companies, which were pressed to pay in return for the production of flattering articles or the burying of damaging ones.”
Victory
In this prior post I exposed how the DOJ and SEC literally re-wrote the FCPA statute in the November 2012 issued FCPA Guidance. The post highlighted the difference – even a first year law student would be expected to see – between what the FCPA actually says and the version of the FCPA in the Guidance.
Set forth below is the text of the FCPA regarding the “obtain or retain business” element.
”anything of value to
any foreign official for purposes of
(A) (i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (iii) securing any improper advantage; or
(B) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality,
in order to assist such issuer in obtaining or retaining business for or with, or directing business to, any person;
Set forth below is how the text of the FCPA was [originally] portrayed in the FCPA Guidance.
“anything of value to
any foreign official for purposes of
(A) (i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (iii) securing any improper advantage; or
(B) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in order to assist such issuer in obtaining or retaining business for or with, or directing business to, any person;
Recently, I received an interesting e-mail from a reader who was confused by my prior post because the FCPA Guidance does not portray the FCPA as suggested in my original post. The reader was right! That’s because the DOJ/SEC changed the version of the FCPA originally set forth in the Guidance to its proper form. To prove that the original FCPA Guidance literally re-wrote the FCPA, here is the version of the FCPA that originally appeared in the FCPA Guidance which relevant portions highlighted.
Subtle yes, but sometimes victory occurs in the shadows.
Scrutiny Alerts and Updates
HP Russia
Related to the April 2014 DOJ enforcement action against HP related entities (see here for the prior post), the DOJ announced yesterday that HP Russia formally pleaded guilty.
As stated in the DOJ release
“In a brazen violation of the FCPA, Hewlett Packard’s Russia subsidiary used millions of dollars in bribes from a secret slush fund to secure a lucrative government contract,” said Principal Deputy Assistant Attorney General Marshall Miller. “Even more troubling was that the government contract up for sale was with Russia’s top prosecutor’s office. Tech companies, like all companies, must compete on a level playing field, not resort to secret books and sham transactions to hide millions of dollars in bribes. The Criminal Division has been at the forefront of this fight because when corruption takes hold overseas, American companies and the rule of law are harmed. Today’s conviction and sentencing are important steps in our ongoing efforts to hold accountable those who corrupt the international marketplace.”
“Today’s conviction and sentence of HP Russia demonstrates that the United States Attorney’s Office is dedicated to aggressively prosecuting all forms of corporate fraud that touch our district, wherever they may occur,” said U.S. Attorney Melinda Haag. “HP’s cooperation during the investigation is what we expect of major corporate leaders facing the challenges of doing business around the world.”
“For more than a decade HP Russia business executives participated in an elaborate scheme that involved paying bribes to government officials in exchange for large contracts,” said Assistant Director in Charge of the FBI’s Washington Field Office Andrew McCabe. “There is no place for bribery in any business model or corporate culture. Along with the Department of Justice, the IRS and international law enforcement partners, the FBI is committed to investigating corrupt backroom deals that threaten our global commerce.”
Image Sensing Systems
Earlier this week, the company issued the following release:
“Image Sensing Systems, Inc. today announced that the DOJ has closed its inquiry into the Company in connection with the previously disclosed investigation of potential violations of the FCPA citing the Company’s voluntary disclosure, thorough investigation, cooperation and voluntary enhancements to its compliance program. The SEC earlier notified the Company that it had closed its investigation under the FCPA without recommending enforcement action. Kris Tufto, Image Sensing Systems chief executive officer, commented, “We are very pleased to conclude the DOJ and SEC investigations without further action. From the very beginning, we have voluntarily cooperated with the authorities and have worked diligently to implement measures to enhance our internal controls and compliance efforts. We understand that those efforts have been recognized and that the resolution of the investigation reflects this cooperation.” As previously reported by Image Sensing Systems, it had learned in early 2013 that Polish authorities were conducting an investigation into alleged violations of Polish law by two employees of Image Sensing Systems Europe Limited SP.Z.O.O., its Polish subsidiary, who had been charged with criminal violations of certain laws related to a project in Poland. A special subcommittee of the audit committee of the board of directors immediately engaged outside counsel to conduct an internal investigation. Image Sensing Systems voluntarily disclosed the matter to the DOJ and the SEC, and it has cooperated fully with those agencies in connection with their review.”
Alstom
Regarding the previously announced U.K. criminal charges against Alstom (see here for the prior post), the U.K. Serious Fraud Office recently released this charge sheet detailing the charges in connection with alleged conduct in India, Poland and Tunisia.
Reading Stack
A very interesting read from the New York Times “Foreign Powers By Influence at Think Tanks.” The article begins as follows.
“More than a dozen prominent Washington research groups have received tens of millions of dollars from foreign governments in recent years while pushing United States government officials to adopt policies that often reflect the donors’ priorities, an investigation by The New York Times has found. The money is increasingly transforming the once-staid think-tank world into a muscular arm of foreign governments’ lobbying in Washington.”
Forbes asks – is it “silly season” in China? What is perhaps silly is the advice highlighted in the article to negotiate the regulatory minefield:
“[B]uild a network. ‘Involve some powerful local Chinese partners in some peripheral areas in order to build a political foundation. I don’t necessarily recommend an overall partnership, since they would be better off with a well-placed approach in specific areas. Have a partnership in marketing or R&D and develop a perception that you are working closely with Chinese firms, but in reality you will not give away anything that is sensitive.”
This is probably only going to increase a company’s risk because of the FCPA’s third-party payment provisions.
*****
A good weekend to all.
Friday Roundup
The FCPA in the hallways, Super Bowl bribery, no FCPA charges, quotable, survey says, FCPA reform advocate nominated to the federal bench, interesting homework assignment, scrutiny alert, and for the reading stack. It’s all here in the Friday roundup.
FCPA in the Hallways
Avon’s FCPA scrutiny brought the FCPA to main street. News Corp.’s and Wal-Mart’s FCPA scrutiny generated world-wide media coverage. Will the FCPA next become the topic of discussion in middle school and high school hallways across America?
According to this TMZ report:
“A Canadian border official has been fired for allegedly accepting a $10,000 bribe in return for allowing members of Justin Bieber’s entourage with criminal records to enter Canada. Bieber’s camp reportedly gave a female officer at the Niagara Falls border thousands of dollars in backstage passes to get members of his posse into the country while he performed. Canada has a strict policy on not allowing people with certain types of criminal records to enter. It’s unclear when the alleged bribes went down … but Justin performed 2 shows in Toronto last year. The accusations surfaced after more of Bieber’s friends allegedly showed up at the border looking for the same special treatment — and the officers on duty blew the whistle. The Canada Border Services agency reportedly circulated an internal memo reminding officers not to take bribes … and to rat out anyone who does.”
In case you are wondering, there have been several FCPA enforcement actions in recent years concerning alleged payments to customs, immigration and other regulatory officials in connection with a business purpose broadly speaking.
Super Bowl Bribery?
Providing money or other things of value to a person or entity to influence the discretionary acts of that person or entity in connection with a business purpose is bribery … is it not?
Yet, according to this Wall Street Journal article, the above may determine which artist receives the coveted Super Bowl half-time performance slot. According to the article, the NFL “has asked artists under consideration for the high-profile gig to pay to play” including whether the artists “would be willing to contribute a portion of their post-Super Bowl tour income to the league, or if they would make some other type of financial contribution, in exchange for the halftime gig.”
According to the article, the NFL’s only goal is to “put on the best possible show.”
No FCPA Charges
It is sometimes perplexing why certain alleged conduct results in Foreign Corrupt Practices Act charges, whereas other alleged conduct – clearly implicating the FCPA – does not result in FCPA charges.
Case in point, the recent DOJ prosecution of Alisa Bivens, a U.S. citizen and former foreign program director of International Adoption Guides Inc. (IAG – a South Carolina company). (See here for the DOJ release). Bivens recently pleaded guilty to defrauding the U.S. in violation of 18 U.S.C. 317. As noted in the DOJ release:
“Bivens admitted as part of her plea that she and her co-conspirators submitted fraudulent documents to the State Department to facilitate adoptions of Ethiopian children by U.S. parents from 2006 until 2009. In support of U.S. visa applications for the Ethiopian children, Bivens and others submitted false documentation, including contracts of adoption signed by orphanages that could not properly give the children up for adoption because, for example, the child in question was never cared for or never resided at the orphanage.”
The DOJ release further states:
“In entering her guilty plea, Bivens also admitted that she and others paid bribes to two Ethiopian officials so that those officials would help with the fraudulent adoptions. The first of these two foreign officials, an audiologist and teacher at a government school, accepted money and other valuables in exchange for providing non-public medical information and social history information for potential adoptees to the conspirators. The second foreign official, the head of a regional ministry for women’s and children’s affairs, received money and all-expenses-paid travel in exchange for approving IAG’s applications for intercountry adoptions and for ignoring IAG’s failure to maintain a properly licensed adoption facility.”
Quotable
U.S. Ambassador to China Max Baucus recently delivered this speech to the APEC Network of Anti-Corruption Authorities and Law Enforcement Agencies. Ambassador Baucus stated:
“The Obama Administration takes a firm stand against American and foreign companies that engage in bribing foreign officials to obtain or retain business. Other economies here do this as well. In the United States, one of the most effective tools we use to combat corruption is enforcement of the Foreign Corrupt Practices Act. We pursue corruption at many levels:
- corporations, both big and small;
- everyone from sales agents to CEOs;
- U.S. and foreign companies;
- citizens and foreign nationals; and
- direct payers and intermediaries.
Since 2009, the U.S. Department of Justice has taken in $3.4 billion from criminal fines, penalties and forfeitures. And the U.S. Securities and Exchange Commission has seized another $1 billion of profits obtained by illegal or unethical acts over the last ten years. As a result, more American companies have changed the way they do business. Companies are now more willing to voluntarily disclose corrupt behavior and report on solicitations for bribes.”
The last sentence of course is debatable.
Even so, what is not debatable is the following from Ambassador Baucus – “we need to adopt international best practices of transparency and rule of law” in the fight against corruption.
U.S. officials preach this virtue abroad, yet the reality is we need to work on these virtues here at home as well.
As to the rule of law, and as noted in this speech by former Federal Reserve Chairman Paul Volcker who was the keynote speaker at the International Bar Association’s annual conference:
“There is frank recognition that the combination of a weak rule of law and corruption is not only economically debilitating, but threatening the political health of both new and old democracies. I do not exclude the United States. We think of ourselves as exemplars of the rule of law. We are certainly world champions in the extent of legislation and regulation governing bribery, conflicts of interest, procurement procedures, campaign financing, protection of human rights and most of all, transparency. All of these are ingredients of what some think of as the rule of law. But we still face the sad fact that in the United States itself, only a quarter of Americans believe that corruption is not widespread in our country. My feeling is that the impression of serious corruption has increased further, a reflection largely of the concern that campaign financing has come to gravely distort the political process. Should we be satisfied that we live with a really effective rule of law, when the perceived need for heavy campaign spending has come to dominate our political process? We let those financing practices infringe in a very basic way upon the rule of law, with its sense of even-handedness and openness. Does it not breed behaviour that is accomplished by any reasonable definition of corruption?”
Survey Says
PwC’s 2014 State of Compliance Survey asked: “Please select your top 3 areas in terms of current perceived level of risk to your business.” The most popular responses from survey participants were:
- Industry-specific regulations – 31%
- Privacy and confidentiality – 25%
- Bribery/corruption – 22%
FCPA Reform Advocate Nominated to the Federal Bench
Earlier this week, President Obama announced his intent to nominate Haywood Stirling Gilliam, Jr. (Vice-Chair of Covington & Burling’s White Collar Defense and Investigations practice group) to serve on the United States District Court for the Northern District of California.
As noted in this previous post, in a 2013 Law360 Q&A Gilliam was asked “what aspects of your practice area are in need of reform and why?” and he stated:
“Foreign Corrupt Practices Act enforcement stands out as an area in need of further reform. Over the past several years, FCPA enforcement has been characterized by the U.S. Department of Justice and U.S. Securities and Exchange Commission advancing aggressive enforcement theories, but there have been limited opportunities for courts to scrutinize those theories. Most FCPA enforcement cases end in negotiated resolutions such as deferred prosecution or nonprosecution agreements. In that context, regulators often insist that the settling company or individual accept the government’s expansive theories as a condition of resolving the case. For example, the DOJ has extracted penalties from non-U.S. based, non-U.S. traded companies not covered under the four corners of the statute by asserting broad theories such as aiding and abetting or conspiracy — even when the foreign entity has not taken any action in the U.S. As a practical matter, that could be a hard case to prove at trial — but the government almost never has to. The result of this trend has been to enshrine the government’s aggressive enforcement positions as quasi-precedent: The law means what the DOJ and SEC say it means, and defendants (especially publicly traded companies) seldom have a realistic opportunity to push back in court, given the financial and practical costs of fighting a contested enforcement action. Relatively recently, district courts have begun to weigh in on these theories, which is a positive development, but there still is a dearth of FCPA case law as compared to other areas of criminal law. This absence of settled law makes it challenging for companies to decide how to handle thorny FCPA compliance issues. For example, companies routinely face a difficult choice in deciding whether to self-report potential violations to the government, as opposed to thoroughly investigating and remediating the issues internally. While regulators insist that they will give “meaningful credit” to companies that self-report, the tangible benefits of doing so are far from clear. The recent FCPA resource guide issued by the DOJ and SEC says that the agencies place a “high premium” on self-reporting, but does not give concrete guidance as to how the government weighs self-reporting in deciding whether to charge a case, as opposed to offering a deferred prosecution or nonprosecution agreement, or declining the case outright. While the resource guide is a start, companies and their counsel would benefit from more specific guidance when they are weighing the potential, but uncertain, benefits of disclosure against the cost and distraction that can result from voluntarily handing the government a case that otherwise might not have come to its attention.”
Interesting Homework Assignment
Professors are supposed to give homework, not receive homework.
Yet, as highlighted in this Corporate Crime Reporter article, Professor Brandon Garrett (UVA) recently received a homework assignment from a federal court judge.
The assignment: “to appear in [a] case as an amicus curiae for the limited purpose of providing the Court with advocacy on questions regarding the scope of the Court’s authority, if any, to consider the fairness and reasonableness of a deferred prosecution in deciding whether to accept or reject such an agreement.”
As noted in the Corporate Crime Reporter article, the DPA is between the DOJ and Saena Tech, a defense contractor and grew out of a domestic bribery investigation.
To say the least, I look forward to reviewing Professor Garrett’s homework and so should you.
Scrutiny Alerts
Och-Ziff
Bloomberg goes in-depth in this article “The Hedge Fund and the Despot” concerning Och-Ziff’s relationships in Zimbabwe and the company’s overall scrutiny.
Barclays
Previous posts (here) have detailed Barclay’s scrutiny on both sides of the Atlantic regarding its business relationships with various Middle Eastern investors.
Reuters reports
“Britain’s fraud prosecutor could decide as soon as next month whether to charge former Barclays executives over undisclosed payments the bank made to Qatari investors in 2008.”
According to the article, “U.S. authorities are also investigating the same Barclays’ Qatari commercial agreements and whether third-party relationships breached anti-bribery rules.”
Reading Stack
From Bloomberg, an in-depth look at the Libyan Investment Authority (LIA) and its relationships with various companies in the financial services industry which has resulted in FCPA scrutiny.
Informative article here titled “Land of Confusion: Insurance Coverage for Pre-Suit FCPA Investigation Costs Under D&O Liability Policies.”
An interesting front-page read here from the Wall Street Journal regarding China’s anti-corruption crackdown.
*****
A good weekend to all.