Category: Deferred Prosecution Agreements

Confusing And Conflicting Policy Statements From The U.K. SFO

As the United Kingdom settles into the Bribery Act and enters the “facade” era of enforcement (see here for the prior post), it is difficult to reconcile the confusing and conflicting statements from Serious Fraud Office officials.

For instance, in this recent speech by Alun Milford (SFO General Counsel) titled “Corporate Criminal Liability and Deferred Prosecution Agreements” he states:

“Whatever the offence under investigation, there can be no prosecution unless the two stage test set out in the Code for Crown Prosecutors is met. First, there must be sufficient evidence for a realistic prospect of conviction. If there is not, then that is the end of the matter.”

This is inconsistent with what the SFO previously said when it rolled out its Code of Practice relevant to DPAs.  In defending adoption of the “lower evidential test” in the Code of Practice and addressing concerns that this standard “was so easily satisfied as to have very little substance,” the SFO’s response was, in pertinent part, as follows.

“One of the principal purposes of DPAs is to bring a resolution to cases of corporate criminality more quickly. […] If a prosecutor had to be satisfied that the evidence against an organization was sufficient to meet the Full Code Test (“Prosecutors must be satisfied that there is sufficient evidence to provide a realistic prospect of conviction against each suspect on each charge”) without the alternative of the ‘lower’ evidential test before considering whether a DPA was in the public interest, a key purpose of DPAs, as was the express intention of parliament, would become redundant. In order to achieve one of parliament’s key intentions in legislating for the introduction of DPAs a ‘lower’ evidential test is necessary.”

“Satisfaction of the Full Code Test, particularly in view of the well documented difficulties in proving corporate liability, would in most circumstances require a complete an full scale investigation, sometimes spanning many jurisdictions, which inevitably is time consuming and expensive. It is not intended for there to be such an investigation before a DPA is entered into.”

It is also difficult to square the above previous SFO statement – “it is not intended for there to be such a [full scale] investigation before a DPA is entered into” with the following statement from Milford’s recent speech regarding self-reporting:

“It is clear that we cannot accept such [self] reports at face value, especially where the company denies any wrongdoing on its part. [Note:  Query why a company would self-report if it denies any wrongdoing on its part – but that is separate issue]

Even in the case of a self-report, we will need to conduct our own, independent investigation into the extent of the wrongdoing not least because, if on initial review the case seemed right in principle for a DPA disposal, we would need to satisfy ourselves and possibly also a judge that the extent of what was reported was accurate. If, on embarking on our investigation, we find evidence trails disturbed, witnesses tipped off and their first accounts denied us, then we will find it hard to regard the company’s conduct in the preparation of the report as anything other than unhelpful, not least as we will in all probability have identified key individuals within the company as suspects who we might wish to prosecute.”

When law enforcement agencies create alternate realities with different standards and procedures – none of which have historical grounding in rule of law principles – the end result is confusing and conflicting policy statements.

That is exactly what is occurring at the present as the U.K. prepares to enter the “facade” era.

Calls For Action Regarding How DOJ Resolves Alleged Instances Of Corporate Crime

Deferred prosecution and non-prosecution agreements of course are not unique to Foreign Corrupt Practices Act enforcement. However, year-after-year the most prominent use of NPAs and DPAs tends to be in connection with FCPA enforcement.  (See here for Gibson Dunn’s useful summary of NPAs and DPAs).

Thus, last week’s introduction of H.R. 4540 “Accountability in Deferred Prosecution Act of 2014” by Representative Bill Pascrell (D-NJ) is relevant to FCPA enforcement.

In short, the bill provides, among other things, as follows.

“In order to promote uniformity and to assist prosecutors and organizations as they negotiate and implement deferred prosecution agreements and nonprosecution agreements, the Attorney General shall, not later than 90 days after the date of the enactment of this Act, issue public written guidelines [concerning a variety of issues] for deferred prosecution agreements and nonprosecution agreements.”

I have long called for NPAs and DPAs to be abolished in the FCPA context so long as such reform is coupled with a compliance defense.  (See here and here).  Thus, I do not believe that H.R. 4540 goes far enough in reining in the alternate world that the DOJ has created and championed through frequent use of NPAs and DPAs.  However, H.R. 4540 highlights that Congress need not be a “potted plant” when it comes to how DOJ resolves alleged instances of corporate crime.

H.R. 4540 is not the first time that Representative Pascrell has introduced the “Accountability in Deferred Prosecution Act.”  See here for a similar bill introduced in 2009.

*****

Last week, Ralph Nader, Public Citizen and the Center for Corporate Policy sent this letter to Attorney General Eric Holder urging the Justice Department to prepare an annual report and public database on corporate crime.  The letter states:

“Currently, the DOJ does not compile comprehensive data on corporate crime.  This is a notable oversight.  It is as if the Department of Education had no measures for how well our children learn, or if the U.S. Department of Agriculture had no idea of how much wheat or corn our farmers grew.  The failure to measure can lead to sloppy thinking, bad decisions and entrenched neglect.  We urge the DOJ to equip itself with the power afforded by measurement and data analysis.”

The letter further states:

“The DOJ should also issue an annual report on corporate crime.  At a minimum, the report should provide an estimate of the total annual cost of corporate crime in the United States. It should include not only costs of crimes committed by individuals against businesses and investors (white collar crime), but also the costs that corporate crime imposes on the rest of society, such as the trillions of dollars lost, and millions of Americans who lost their jobs, due to the mortgage fraud-induced financial crisis of 2008-9.  The report should present an analysis of trends in corporate crime and an explanation of the relative effectiveness of different sanctions. While the UCR [Uniform Crime Reporting Program] does measure certain forms of white collar crime, it is far from a thorough treatment of corporate crime. The DOJ’s annual corporate crime report should also tally data about prosecutions. This should include the number of cases referred to U.S. attorneys for prosecution each year by the FBI or other federal and state agencies, as well as the status and ultimate disposition (i.e. how many referrals were prosecuted; how many prosecuted were found guilty; how many settled with deferred and non prosecution agreements; the magnitude and kind of penalties involved; how many cases settled).”

Readers likely know that the DOJ and SEC have FCPA specific websites (here and here); however both websites are incomplete in certain respects.  For instance, the DOJ website does not contain several FCPA enforcement actions (I recently requested information from the DOJ concerning the following FCPA enforcement actions:  U.S. v. UNC/Lear Services and U.S. v. Litton Applied Technology Division).

As relevant to the above letter to Attorney General Holder and as this previous post highlighted, the DOJ does not even know whether NPAs and DPAs deter future conduct in the FCPA context.  In response to an OECD question concerning deterrence, the DOJ merely stated:

“Scholars have recognized that quantifying deterrence is extremely difficult. This is equally true for the deterrent effect of DPAs and NPAs. Thus, as discussed at the time this recommendation was made, measuring ‘the impact of NPAs and DPAs in deterring the bribery of foreign public officials’ would be a difficult task, save providing certain anecdotal and other circumstantial evidence.”

Friday Roundup

FCPA scrutiny equals a raise, Qualcomm declines to cave, scrutiny alerts, industry specific risks, survey says, gaps in the narrative, a pulse on FCPA Inc., quotable and not quotable, and for the reading stack.  It’s all here in the Friday Roundup

FCPA Scrutiny Equals A Raise

There are some things that happen in the FCPA space that cause one to scratch their head.

Such as a company being under FCPA scrutiny paying audit committee members more money because of the time devoted to the FCPA scrutiny.  In its recent proxy statement, Wal-Mart disclosed as follows.

“Since November 2011, the Audit Committee has been conducting an internal investigation into, among other things, alleged violations of the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”) and other alleged crimes or misconduct in connection with foreign subsidiaries, and whether prior allegations of such violations and/or misconduct were appropriately handled by Walmart. The Audit Committee and Walmart have engaged outside counsel from a number of law firms and other advisors who are assisting in the ongoing investigation of these matters. This investigation has resulted in a significant increase in the workload of the Audit Committee members since the commencement of this investigation, and during fiscal 2014, the Audit Committee conducted 13 additional meetings related to the investigation and compliance matters, and Audit Committee members received frequent updates via conference calls and other means of communication with outside counsel and other advisors related to the investigation. As it had done in November 2012 in recognition of the significantly increased commitment of time required of the Audit Committee to conduct this investigation, in November 2013, the CNGC (Compensation, Nomination, and Governance Committee) and the Board approved an additional annual fee in the amount of $75,000 payable to each Audit Committee member other than the Audit Committee Chair for fiscal 2014, and an additional annual fee in the amount of $100,000 payable to the Audit Committee Chair for fiscal 2014. These amounts were prorated for directors who served on the Audit Committee during a portion of fiscal 2014. The CNGC determined the amounts of these additional fees based on (1) the CNGC’s and the Board’s review of the significant additional time and effort that had been required of the Audit Committee members during the previous Board term in connection with these matters, which were in addition to the time spent by the Audit Committee with respect to the Audit Committee’s other duties and its regularly scheduled meetings, and (2) the expectation that the Audit Committee members would continue to expend approximately the same amount of time and effort in discharging their responsibilities as Audit Committee members at least through the remainder of fiscal 2014.”

Qualcomm Declines to Cave

Rare are so-called Wells Notices in the FCPA context for the simple reason that few issuers actually publicly push back against the SEC.  Thus, the below disclosure by Qualcomm earlier this week stands out:

“Securities and Exchange Commission (SEC) Formal Order of Private Investigation and Department of Justice Investigation : On September 8, 2010, the Company was notified by the SEC’s Los Angeles Regional office of a formal order of private investigation. The Company understands that the investigation arose from a “whistleblower’s” allegations made in December 2009 to the audit committee of the Company’s Board of Directors and to the SEC. In 2010, the audit committee completed an internal review of the allegations with the assistance of independent counsel and independent forensic accountants. This internal review into the whistleblower’s allegations and related accounting practices did not identify any errors in the Company’s financial statements. On January 27, 2012, the Company learned that the U.S. Attorney’s Office for the Southern District of California/Department of Justice (collectively, DOJ) had begun an investigation regarding the Company’s compliance with the Foreign Corrupt Practices Act (FCPA). As previously disclosed, the audit committee conducted an internal review of the Company’s compliance with the FCPA and its related policies and procedures with the assistance of independent counsel and independent forensic accountants. The audit committee has completed this comprehensive review, made findings consistent with the Company’s findings described below and suggested enhancements to the Company’s overall FCPA compliance program. In part as a result of the audit committee’s review, the Company has made and continues to make enhancements to its FCPA compliance program, including implementation of the audit committee’s recommendations.

As previously disclosed, the Company discovered, and as a part of its cooperation with these investigations informed the SEC and the DOJ of, instances in which special hiring consideration, gifts or other benefits (collectively, benefits) were provided to several individuals associated with Chinese state-owned companies or agencies. Based on the facts currently known, the Company believes the aggregate monetary value of the benefits in question to be less than $250,000, excluding employment compensation.

On March 13, 2014, the Company received a Wells Notice from the SEC’s Los Angeles Regional Office indicating that the staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Company for violations of the anti-bribery, books and records and internal control provisions of the FCPA. The bribery allegations relate to benefits offered or provided to individuals associated with Chinese state-owned companies or agencies. The Wells Notice indicated that the recommendation could involve a civil injunctive action and could seek remedies that include disgorgement of profits, the retention of an independent compliance monitor to review the Company’s FCPA policies and procedures, an injunction, civil monetary penalties and prejudgment interest.

A Wells Notice is not a formal allegation or finding by the SEC of wrongdoing or violation of law. Rather, the purpose of a Wells Notice is to give the recipient an opportunity to make a “Wells submission” setting forth reasons why the proposed enforcement action should not be filed and/or bringing additional facts to the SEC’s attention before any decision is made by the SEC as to whether to commence a proceeding. On April 4, 2014, the Company made a Wells submission to the staff of the Los Angeles Regional Office explaining why the Company believes it has not violated the FCPA and therefore enforcement action is not warranted.

The Company is continuing to cooperate with the SEC and the DOJ, but is unable to predict the outcome of their investigations or any action that the SEC may decide to file.”

Needless to say, this instance of FCPA scrutiny will be interesting to follow.

Scrutiny Alerts

Hiring Probes Expand

Reuters reports here:

“U.S. government agencies that have been probing banks’ hiring of children of powerful Chinese officials are expanding existing investigations in other industries across Asia to include hiring practices …The U.S. Justice Department and the Securities and Exchange Commission have been asking global companies in a range of industries including oil and gas, telecommunications and consumer products for information about their hiring practices to determine if they could amount to bribery …”.

For more on JPMorgan’s FCPA scrutiny which got this started, see here.  For more on so-called industry sweeps, see here.

Delphi Automotive

Delphi Automotive disclosed in it most recent SEC quarterly filing as follows:

“During the first quarter of 2014, Delphi identified certain potentially improper payments, made by certain manufacturing facility employees in China, that may violate certain provisions of the U.S. Foreign Corrupt Practices Act (the “FCPA”). Under the oversight of Delphi’s Audit Committee of the Board of Directors, Delphi has engaged outside counsel to assist in the review of these matters, and to evaluate existing controls and compliance policies and procedures. This review remains ongoing. Violations of the FCPA could result in criminal and/or civil liabilities and other forms of penalties or sanctions. Delphi has voluntarily disclosed these matters to the U.S. Department of Justice and the SEC, and is cooperating fully with these agencies. Although Delphi does not expect the outcome of this review to have a material adverse impact on the Company, there can be no assurance as to the ultimate outcome of these matters at this time.”

United Technologies

United Technologies disclosed in its most recent SEC quarterly filing as follows:

“Non-Employee Sales Representative Investigation

In December 2013 and January 2014, UTC made voluntary disclosures to the United States Department of Justice, the Securities and Exchange Commission Division of Enforcement and the United Kingdom’s Serious Fraud Office to report the status of its internal investigation regarding a non-employee sales representative retained by United Technologies International Operations, Inc. (UTIO) and International Aero Engines (IAE) for the sale of Pratt & Whitney and IAE engines and aftermarket services, respectively, in China. On April 7, 2014, the SEC notified UTC that it is conducting a formal investigation and issued a subpoena to UTC seeking production of documents related to the disclosures. UTC is cooperating fully with the investigation. Because the investigation is at an early stage, we cannot predict its outcome or the consequences thereof at this time. At the outset of the internal investigation, UTIO and IAE suspended all commission payments to the sales representative, and UTIO and IAE have not resumed making any payments. This led to two claims by the sales representative for unpaid commissions: a civil lawsuit filed
against UTIO and UTC and an arbitration claim against IAE. We are contesting the lawsuit and the arbitration claim. We do not believe that the resolution of the lawsuit or the arbitration will have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.”

Industry Specific Risk

The reasons why companies become the subject of FCPA scrutiny are often unique to the industry the company is in.  This is why FCPA compliance is best tailored to a company’s unique risk profile as informed by a risk assessment.

This recent Wall Street Journal Risk & Compliance post from the Dow Jones Global Compliance Symposium is informative in collecting industry insight.

“Technology. Melissa Lea, Chief Global Compliance Officer, SAP AG. Profit margins for distributors are flexible in tech as so much of the cost is related to labor. And that flexibility offers room for partners to try to pad expenses to pay bribes. “Any time you hear about flexibility it opens the door for corruption,” said Ms. Lea, who noted that authorities have recently cracked down on bribery in the technology sector, once thought to be amongst the cleanest industries.

Pharmaceuticals. Rady A. Johnson, Chief Compliance & Risk Officer, Pfizer Inc. Drug companies pay doctors for a variety of consulting services and often invite them to attend events to promote their products. But since it’s these same doctors that prescribe drugs, pharmaceutical companies need to ensure that fancy conferences and payments for services are not cover for bribes. “We can’t do our job without interacting with health care professionals,” Mr. Johnson said. But companies need to ensure those interactions are appropriate and well defined, he said. In 2012, Pfizer agreed to pay more than $60 million to settle investigations into improper payments made to doctors and foreign officials.

Banks. W.C. Turner Herbert, Director of Anti-Corruption, Bank of America Corp.  Lately in the banking sector, corruption concerns have centered on hiring the relatives of foreign officials in exchange for business. In the past few years, U.S. authorities have investigated a number of banks over allegations of the practice, including Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. “Its a new area of enforcement without much precedence,” Mr. Herbert said. While hiring well-connected people shouldn’t, by itself, be a red flag, compliance officers need to ensure the selection is done on “merit and the business objectives” of the job, he said. “What draws red flags is if he’s not qualified,” Mr. Herbert said.

Survey Says

In connection with the above-mentioned Dow Jones Global Compliance Symposium, Dow Jones released this “Anti-Corruption Survey Results 2014.”  The survey was conducted on-line “among compliance professionals worldwide” and 383 responses “were completed among companies with anti-corruption programs.”  It is difficult to assess survey results without knowing the precise questions asked, but the Dow Jones survey does contain some interesting nuggets.

Such as “approximately 30% of companies spend $1 million or more on anti-corruption staff and policies.”

In “Revisiting a Foreign Corrupt Practices Act Compliance Defense,” I suggest that the current FCPA enforcement environment does not adequately recognize a company’s good faith commitment to FCPA compliance and does not provide good corporate citizens a sufficient return on their compliance investments.

Compliance defense opponents (such as the DOJ) like to point out that such a defense will result in “paper compliance” and “check-a-box” exercises.  Such clichés, however, ignore the reality of the situation – this many companies are making substantial investments of time and money in pro-active compliance policies and procedures.

One irony of course is that several former DOJ FCPA enforcement attorneys who have criticized a compliance defense as resulting in “paper compliance” and “check-a-box” exercises now devote a substantial portion of their private practice advising companies on FCPA compliance.

Gaps in the Narrative

You know the narrative.

In 2002, an accounting partnership (Arthur Anderson) was convicted of obstruction of justice for shredding documents related to its audit of Enron.  Even though the Supreme Court ultimately tossed the conviction, Arthur Anderson essentially went out of business.  Because of this, in the minds of some, the DOJ can’t criminally charge business organizations with crimes and thus the DOJ has crafted alternative resolution vehicles such as non-prosecution and deferred prosecution agreements to avoid the perceived collateral consequences of a criminal indictment or conviction.

Never mind that the narrative is based on a false premise.  (See here for the guest post and article by Gabriel Markoff titled “Arthur Anderson and the Myth of the Corporate Death Penalty).

Nevertheless, the narrative persists and is accepted by some as gospel truth.

However, perhaps you have heard that in early April Pacific Gas & Electric Corporation (PG&E – a public company) was criminally charged with multiple violations of the Natural Gas Pipeline Safety Act.

The company’s stock is still trading (in fact it is up since the criminal charges were announced), it is still employing people, and it is still operating its business.

Recognizing the fallacy of the narrative is important for corporate leaders of businesses subject to DOJ scrutiny in the FCPA context or otherwise.  Defenses can be mounted and the DOJ can and should be put to its burden of proof more often.

A Pulse on FCPA Inc.

Law360 highlights “Four Practices Areas Generating Big Billable Hours.”  As to the FCPA the article notes:

“The Foreign Corrupt Practices Act, which mandates certain accounting transparency requirements and gives the U.S. government the power to pursue businesses that bribe foreign officials, is creating long workdays for attorneys throughout the world.  “If Foreign Corrupt Practices Act were a stock, I wish I would have held it,” said William Devaney, co-chair of  Venable LLP’s FCPA and anti-corruption practice group. “We’ve seen huge growth in the practice area since 2004, and with the government’s current focus on FCPA, it’s safe to say anti-corruption enforcement will be around for a long time.”  After the FCPA was amended in 1998 to include additional anti-bribery provisions, the U.S. government began actively applying the FCPA to not only large companies but also their smaller counterparts.  As a result, Devaney says, a lot of midmarket and smaller companies are now coming into the FCPA compliance fold after acknowledging their obligations under the law, resulting in a surge in demand.
And according to Aaron G. Murphy, a partner with Akin Gump Strauss Hauer & Feld LLP, foreign countries passing legislation similar to the FCPA will create an explosion of fraud investigations that begin abroad but later will involve the U.S. Department of Justice.  Murphy said the FCPA stood as one of the lone anti-corruption laws in the world for 20 years, then in the mid-1990s, numerous foreign governments adopted similar rules to punish local and international corruption. “No politician has ever been elected on a ‘get softer on corruption’ ticket,” Murphy said. “If anti-corruption laws get modified, they will probably get stronger, not weaker. So we likely won’t see, 20 years from now, attorneys reminiscing about when companies had to deal with corruption laws. This practice area is here to stay.”

That the FCPA practice is here to stay is all the more reason to elevate your FCPA knowledge and practical skills at the FCPA Institute.

The three other practice areas highlighted in the article were:  export controls and trade sanctions; civil false claims act; and patent litigation and patent trolls.

Quotable

The White House recently announced that President Obama named Kirkland & Ellis partner W. Neil Eggleston to be White House Counsel (see here).  FCPA Professor has highlighted in the past (see here and here) certain of Eggleston’s spot-on comments regarding the FCPA or related issues.

In this interview Eggleston stated: “I worry that [NPAs and DPAs] will become a substitute for a prosecutor deciding – this is not an appropriate case to bring – there is no reason to subject this corporation to corporate criminal liability. In the old days, they would have dropped the case. Now, they have the back up of seeking a deferred or non prosecution agreement, when in fact the case should not have been pursued at all. That’s what I’m worried about – an easy out.”

In another interview, Eggleston was asked “what is an important issue or case relevant to your practice area and why” and stated: “We are beginning to see the development of case law in the FCPA area, which I believe is good for the process. Most of these cases have been settled. When that occurs, defendants have little incentive to refuse to agree to novel Department of Justice theories of prosecution or jurisdiction, so long as the penalty is acceptable. The department then cites its prior settlement as precedent when settling later ones. But no court approved the earlier settlement, and the prior settlement should have no precedential value in favor of the DOJ in later settlements. As the DOJ increases its prosecution of individuals, we will see many more trials, which will give rise to courts, not the DOJ, interpreting the statute.”

Not Quotable

DOJ Deputy Attorney General James Cole was a keynote speaker earlier this week at the Dow Jones Global Compliance Symposium.   According to the event agenda, the title was “What the Justice Department Has in Its Sights” and described as follows.

“From foreign bribery to insider trading, the U.S. Department of Justice has been at the forefront of rigorous enforcement that has forced companies to treat compliance seriously. We interview James Cole, deputy attorney general, about where the department is focusing its efforts now.”

I reached out to the DOJ Press Office for a transcript of Mr. Cole’s remarks and was told “we don’t have one.”

It is unfortunate that public officials speak about matters of public interest at private conferences that charge thousands of dollars to attend.

Reading Stack

The FCPA Guidance was sort of interesting to read, but as noted in my article “Grading the FCPA Guidance” it lacks any legal authority or effect.  A hat tip to the Tax Law Prof Blog for highlighting a recent U.S. Tax Court decision finding that IRS Guidance is “not binding precedent” nor “substantial authority” for a tax position.

The New York Times here goes in-depth on Dmitry Firtash, the Ukrainian businessman recently criminally charged in connection with an alleged bribery scheme involving Indian licenses (see here for the prior post).

An informative three-part series (here, here and here) by Tom Fox (FCPA Compliance & Ethics Blog) regarding gifts, travel and entertainment.

Miller & Chevalier’s FCPA Spring 2014 Review is here.

HP And Related Entities Resolve $108 Million FCPA Enforcement Action

Hewlett-Packard Co. (“HP”) has over 300,000 employees worldwide.

Among the employees during a certain relevant time period, were 5 individuals in Russia employed by a subsidiary, 1 individual in Poland employed by a subsidiary, and a vaguely defined group of individuals in Mexico employed by a subsidiary that worked on one sales deal.

The above individuals engaged in conduct largely occurring 7-14 years ago.

The government alleges that all of these individuals were specifically trained on the FCPA by HP and that HP had other internal controls in place as relevant to these individuals.

Notwithstanding these controls, the government alleges that the individuals willfully circumvented HP’s controls to make alleged improper payments to alleged “foreign officials” by, among other things, creating secret slush funds, concealing certain other information, making false representations, and engaging in other covert means such as anonymous e-mail accounts and pre-paid mobile telephones.

So reads the latest Foreign Corrupt Practices Act enforcement action.

Yesterday the DOJ and SEC announced (here and here) a coordinated FCPA enforcement action against various HP and related entities based on alleged conduct in Russia, Poland and Mexico.  As noted in this previous post, HP has been under FCPA scrutiny since early 2010.

The enforcement action involved:

HP and related entities agreed to pay approximately $108.2 million (all guaranteed by HP) to resolve the alleged FCPA scrutiny (approximately $76.7 million in the DOJ actions; and approximately $31.5 million in the SEC action).

The enforcement action, in terms of settlement amount, is the 11th largest of all-time and the 2nd largest of all-time against a U.S. company (recognizing of course that HP’s foreign subsidiaries were a large focus of the enforcement actions).

This post summarizes both the DOJ and SEC enforcement actions based on a review of the original source documents (comprising approximately 175 pages in total).

DOJ Enforcement Action

The enforcement action involved a criminal information against HP Russia resolved via a plea agreement; a criminal information against HP Poland resolved via a DPA; and an NPA concerning HP Mexico.

HP Russia

According to the information, HP Russia is a wholly owned subsidiary of HP and was principally responsible for transacting business in Russia and the Commonwealth of Independent States (“CIS”).  During the relevant time period, the information alleges that HP Russia had approximately 315 and 55o employees and that HP Russia “was subject to HP’s internal accounting controls, and HP Russia’s financial results were included in the consolidated financial statements that HP filed with the SEC.”

The alleged conduct concerns five employees at HP Russia.

  • HP Russia Executive 1

  • HP Russia Executive 2

  • HP Russia Manager 1

  • HP Russia Manager 2

  • HP Russia Manager 3

The conduct at issue concerns “a project to automate the telecommunications and computing infrastructure of the Office of the Prosecutor General of Russia (“GPO” or “GP”),” a project valued at approximately $100 million.  According to the information, the Russian government used a state-owned entity organized under the Department of Affairs of the President of the Russian Federation, to manage the GPO project tender and execution.”

In pertinent part, the information alleges as follows.

“Between in or about 2000 and 2007, HP Russia and co-conspirators agreed to make and did make improper payments to secure, retain and implement the GPO project.  Members of the conspiracy structured the deal to create a secret slush fund, which by 2003 totaled approximately ($10 million at then-prevailing exchange rates), at least part of which was intended for bribes, kickbacks, and other improper payments.  To execute and hide the scheme, members of the conspiracy failed to implement internal controls intended to maintain accountability over HP’s assets, willfully circumvented existing internal controls, and falsified corporate books and records relied on by HP officers and external auditors to authorize the transaction and prepare HP’s consolidated financial statements.”

Regarding the slush fund, the information alleges that HP Russia “created million of dollars in excess margin for use as a slush fund” by selling product to an “often-used channel partner of HP” which in turn sold product to an intermediary at a mark-up. According to the information, “To keep track of the fund, which was concealed in the project’s financials, HP Russia maintained two sets of project pricing records:  off-the-books versions, known only to conspirators, which identified slush fund recipients, and sanitized versions of the same documents which were provided to HP credit, finance, and legal officers outside of HP Russia.” According to the information, “one example of an off-the-books document was an encrypted, password-protected spreadsheet.”

According to the information, various HP Russia employees concealed the slush fund during HP’s Solution Opportunity Approval and Review (“SOAR”) process which applied to “all-service related projects valued at greater than $500,000 anywhere in the world, including Russia.”  Among other things, the information alleges that HP Russia employees made false representations and falsely certified the adequacy of HP Russia’s internal controls, a certification the information alleges that “was relied upon by HP’s EMEA business to certify to HP’s headquarters in the United States that EMEA’s financial statements were accurate.”

According to the information, the alleged improper payments (approximately €8 million) were made through various intermediaries to “Russian Official A,” a director of a Russian government agency who assumed responsibility for the GPO Project as well as “Individual A,” an associate of Russian Official A, for things such as:

  • “expensive jewelry, luxury automobiles, travel, and other items typically associated with gifts”

  • “travel services, vehicles, tuition, electronic equipment, cotton, textiles, and various other items”

  • a “hotel bill: and “other luxury purchases” such as “expensive watches, swimming pool technology, and other items”

  • “furniture, vehicles, clothing, travel services, household appliances, hotel stays, and other items”

Based on the above alleged conduct, the information charges (i) conspiracy to violate the FCPA’s anti-bribery provisions and books and records and internal controls provisions; (ii) one count of violating the FCPA’s anti-bribery provisions; (iii) one count of violating the FCPA’s internal controls provisions; and (iv) one count of violating the FCPA’s books and records provisions.

The conduct alleged in the information allegedly occurred between December 2000 and February 2007.  As to U.S. jurisdictional allegations, the information alleges a 2001 meeting in Rockville, Maryland regarding the GPO project; a 2003 e-mail “which was routed through the United States;” and a 2003 certification “transmitted to HP’s offices in California.”

The above charges were resolved via a plea agreement in which HP Russia agreed to plead guilty to the four charges described above.  Pursuant to the plea agreement, HP Russia agreed to pay a criminal fine of approximately $58.8 million.  In the plea agreement, HP agreed to guarantee HP Russia’s payment as well as other conditions imposed upon HP Russia such as cooperation, and compliance obligations typical in corporate FCPA enforcement actions.  Among other things, the plea agreement imposed upon HP a three year reporting obligation to the DOJ regarding remediation and implementation of various compliance measures. As pertinent to the above allegations, in the plea agreement HP Russia and HP waived any and all statute of limitation defenses.

According to the plea agreement, the advisory fine range based on the alleged conduct at issue was $87 million to $174 million.   The plea agreement states that the approximate $58.8 million fine was appropriate based on the following factors:

“(a) monetary assessments that HP has agreed to pay to the SEC and is expected to pay to law enforcement authorities in Germany relating to the same conduct at issue …; (b) HP Russia’s and HP’s cooperation has been, on the whole, extraordinary, including conducting an extensive internal investigation, voluntarily making U.S. and foreign employees available for interviews, and collecting, analyzing, and organizing voluminous evidence and information for the Department; (c) HP Russia and HP have engaged in extensive remediation, including by taking appropriate disciplinary action against culpable employees of HP and enhancing their internal accounting, reporting, and compliance functions; (d) HP has committed to continue enhancing its compliance program and internal accounting controls … (e) the misconduct identified … was largely undertaken by employees associated with HP Russia, which employed a small fraction of HP global workforce during the relevant period; (f) neither HP nor HP Russia has previously been subject of any criminal enforcement action by the Department or law enforcement authority in Russia or elsewhere; (g) HP Russia and HP have agreed to continue to cooperate with the Department and other U.S. and foreign law enforcement authorities, if requested by the Department …”

HP Poland

According to the information, HP Poland is a wholly owned subsidiary of HP and, among other functional responsibilities, HP Poland managed most of HP’s activities in Poland and had more than 200 employees during the relevant time period.   According to the information, HP Poland “was subject to HP’s internal accounting controls, and HP Poland’s financial results were included in the consolidated financial statements that HP filed with the SEC.”

The specific alleged conduct concerned “HP Poland Executive” (a citizen of Poland who was the District Manager of Public Sector Sales and Public Sector Sales Lead).

According to the information, HP Poland “(i) caused the falsification of HP’s books and records; and (ii) circumvented HP’s existing internal controls, in connection with a scheme to make corrupt payments to one or more foreign officials in Poland, including the Polish Official [the Director of Information and Communications Technology within the Polish National Police Agency (“KGP”) which was part of the Polish Ministry of the Interior and Administration].”

According to the information, “the conduct was related to HP Poland’s efforts to secure and maintain millions of dollars in technology contracts with the Polish government.”  The information alleges that HP Poland “resorted to corruption to foster a relationship with the Polish Official.”

Specifically, the information alleges that in 2006 the Polish Official attended a technology-industry conference in San Francisco and that the “weekend before the conference” HP Poland “paid for dinners, gifts, and sightseeing by the Polish Official in San Francisco.”  The information also alleges that HP Poland took the Polish Official on a side trip to Las Vegas “with no legitimate business purpose” and that while in Las Vegas HP Poland paid for the Polish Official’s “transportation and expenses … including lodging, drinks, dining, shows, other events on or near the Las Vegas Strip, and a private tour flight over the Grand Canyon.”  As to the above travel and entertainment allegations, the information also alleges that “another global technology company” (“Company A”) also wined and dined the Polish Official and paid for his expenses.

The information also alleges that “beginning in late 2006, HP Poland started providing technology products to the Polish Official for personal use.”  The information states:

“Early gifts included HP products, such as desktop and laptop computers, and later expanded to include additional HP computers, HP-branded mobile devices, an HP printer, iPods, flat screen televisions, cameras, a home theater system, and other items.”

According to the information, the above things of value were provided to the Polish Official “in circumvention of HP’s internal controls” and were not “properly reflected in HP’s books and records.”

The information also alleges that in early 2007, “shortly after receiving the first of these gifts, Polish Official signed a contract with HP Poland on behalf of the Polish government, valued at approximately $4.3 million.  A month later, the Polish Official signed another contract with HP Poland, valued at approximately $5.8 million.”

According to the information, “around the date of the second contract award, HP Poland expanded the bribes to include large cash payments to Polish Official from off-the-books accounts.  HP Poland agreed to pay Polish Official 1.2% of HP Poland’s net revenue on any contract awarded by KGP.”

The information then specifically alleges that in 2007 “Polish Official signed a KGP contract with HP Poland valued at approximately $15.8 million” and that “HP Poland Executive delivered to Polish Official’s personal residence a bag filled with approximately $150,000 in cash.”  The information also alleges another instance in which HP Poland Executive met Polish Official in a Warsaw parking lot and gave Polish Official another bag filled with approximately $100,000 in cash.  Further, the information alleges that in 2008, on at least four separate occasions, HP Poland Executive gave Polish Official bags of cash totaling at least $360,000.  According to the information, in 2008, Polish Official signed three contracts on behalf of KGP with HP Poland for approximately $32 million.

As to the above payments, the information alleges that HP Poland willfully circumvented HP’s internal controls and falsified corporate books and records relied on by HP’s officers and external auditors to prepare HP’s financial statements.  Moreover, the information alleges that HP Poland facilitated the corrupt relationship with Polish Official through covert means such an anonymous e-mail accounts, pre-paid mobile telephones, and other means to circumvent HP’s internal controls.

In total, the information alleges between 2006 and 2010 HP Poland “provided Polish Official cash worth the equivalent of approximately $600,000, gifts valued in excess of $30,000, and several thousand dollars in improper travel and entertainment benefits.” According to the information, “during this same time span, the Polish government awarded to HP Poland at least seven contracts for KGP-related information technology products and services, with a total value of approximately $60 million.

Based on the above conduct, the information charges HP Poland with violating the FCPA’s books and records and internal controls provisions.

The above charges were resolved via a DPA in which HP Poland admitted and accepted responsibility for the above conduct.  The DPA has a term of three years and it lists the following relevant considerations considered by the DOJ;

“(a) HP Poland’s cooperation with the Department’s investigation; (b) HP Poland’s ultimate parent corporation, HP, has committed to maintain and continue enhancing its compliance program and internal accounting controls …; and (c) HP Poland and HP have agreed to continue with the Department and other U.S. and foreign law enforcement authorities in any ongoing investigation …”

Based on the advisory guidelines calculation in the DPA, the fine range for the alleged conduct at issue was $19.3 million to $38.6 million.  Pursuant to the DPA, HP Poland agreed to pay approximately $15.5 million, an amount deemed “appropriate” given the “nature and extent of HP Poland’s and HP’s cooperation and their extensive remediation in this matter.”

Like the HP Russia plea agreement, in the HP Poland DPA, HP agrees to guarantee the payment of HP Poland and to implement various compliance measures and report to the DOJ for a three year period.  As is typical in FCPA DPAs, the HP Poland DPA contains a so-called “muzzle clause.”

HP Mexico

The NPA with HP Mexico (a wholly-owned subsidiary of HP based in Mexico) states that beginning in 2008 “HP Mexico began presales activities and discussions with Pemex (Mexico’s alleged state-owned petroleum company) to sell to Pemex a suit of business technology optimization (“BTO”) software, hardware, and licenses.”  According to the NPA, BTO is a niche product that requires sophisticated knowledge to integrate with other software products and the contracts for this software sale were for approximately $6 million.

According to the NPA, “HP Mexico sales managers on the BTO Deal ultimately decided that they could not win the business without working with, and making payments to, a Mexican information-technology consulting company. (“Consultant”)”  According to the information, “HP Mexico sales managers knew that Pemex’s Chief Operating Officer (“Official A”) was a former principal of Consultant” and that “HP Mexico employees also knew that Official A supervised Pemex’s Chief Information Officer (“Official B”), who was a key signatory on behalf of Pemex for the BTO Deal.”

According to the NPA, while the Consultant had prior technical experience, “HP Mexico ultimately retained Consultant in connection with HP Mexico’s bid for the sale to Pemex primarily because of Consultant’s connections to Official A, Official B, and other senior Pemex officials.”  According to the information, as part of its agreement with Consultant, HP Mexico agree to pay Consulant a commission, “which HP Mexico also called an ‘influencer fee,’ equal to 25% of the licensing and support components of the BTO Deal.”

To circumvent HP’s internal controls regarding channel partners, the NPA states that “HP Mexico executives pursuing the BTO Deal arranged for another entity (“Intermediary”), which was already an approved HP Mexico channel partner, to join in the transactions” and that “HP Mexico executives recorded Intermediary as the deal partner in its internal tracking system.”

The NPA states “HP Mexico through the Intermediary, Consultant made a cash payment of approximately $30,000 to an entity controlled by Official B” and that “Consultant made three additional cash payments totaling approximately $95,000 to the Official B controlled entity.”

According to the NPA, “in total, HP Mexico received approximately $2,527,750 as its net benefit on the BTO Deal.”

According to the NPA, the DOJ agreed to enter it based on the following factors:

“(a) HP Mexico and HP’s cooperation, including conducting an extensive internal investigation, voluntarily making U.S. and foreign employees available for interviews, and collecting, analyzing, and organizing voluminous evidence and information for the DOJ; (b) HP Mexico and HP have engaged in extensive remediation, including taking appropriate disciplinary action against culpable employees, enhancing their due diligence protocol for third-party agents and consultants, and enhancing their controls for payments of sales commissions to channel partners in Mexico; (c) HP Mexico’s and HP’s continued commitment to enhancing their compliance programs and internal controls; and (d) HP Mexico’s and HP’s agreement to continue to cooperate with the DOJ in any ongoing investigation.”

In the NPA HP Mexico admitted and acknowledged responsibility for the above conduct.  Pursuant to the NPA, HP Mexico agreed to pay a forfeiture of approximately $2.5 million.  Pursuant to the NPA, which has a term of 3 years, HP Mexico and HP agreed to various compliance obligations.  As is typical in FCPA NPAs, the NPA contains a so-called muzzle clause.

In the DOJ release, Deputy Assistant Attorney General Bruce Swartz states:

“Hewlett-Packard subsidiaries created a slush fund for bribe payments, set up an intricate web of shell companies and bank accounts to launder money, employed two sets of books to track bribe recipients, and used anonymous email accounts and prepaid mobile telephones to arrange covert meetings to hand over bags of cash.  Even as the tradecraft of corruption becomes more sophisticated, the department is staying a step ahead of those who choose to violate our laws, thanks to the diligent efforts of U.S. prosecutors and agents and our colleagues at the SEC, as well as the tremendous cooperation of our law enforcement partners in Germany, Poland and Mexico.”

Melinda Haag (U.S. Attorney for the N.D. of California) states:

“The United States Attorney’s Office, working alongside our colleagues in the Criminal Division, will vigorously police any efforts by companies in our district to illegally sell products to foreign governments using bribes or kickbacks in violation of the FCPA,  Today’s resolution with HP reinforces the fact that there is no double standard: U.S. businesses must respect the same ethics and compliance standards whether they are selling products to foreign governments or to the United States government.”

Valerie Parlave (Assistant Director in Charge of the FBI’s Washington Field Office) states:

“This case demonstrates the FBI’s ability to successfully coordinate with our foreign law enforcement partners to investigate and bring to justice corporations that choose to do business through bribery and off-the-book dealings.  I want to thank the agents who worked on this case in Washington, New York and in our Legal Attaché offices in Mexico City, Moscow, Berlin and Warsaw as well as the prosecutors.  Their work ensures a level playing field for businesses seeking lucrative overseas government contracts.”

Richard Weber (Chief of the Internal Revenue Service – Criminal Investigation) states:

“This agreement is the result of untangling a global labyrinth of complex financial transactions used by HP to facilitate bribes to foreign officials.  IRS-CI has become a trusted leader in pursuit of corporations and executives who use hidden offshore assets and shell companies to circumvent the law.  CI is committed to maintaining fair competition, free of corrupt practices, through a potent synthesis of global teamwork and our dynamic financial investigative talents.”

SEC Enforcement Action

The enforcement action involved an administrative cease and desist order against HP and is based on the same Russia, Poland and Mexico conduct described above.

Under the heading “Summary,” the order states:

“From approximately 2003 to 2010 (the “relevant period”), HP Co.’s indirect, wholly-owned subsidiaries in Russia, Mexico and Poland, by and through their employees, agents and intermediaries, made unlawful payments to various foreign government officials to obtain business. These payments were also falsely recorded in the subsidiaries’ books and records and, ultimately, in HP Co.’s books and records. In Russia, HP Co.’s subsidiary (“HP Russia”) made payments through HP Russia’s agents to a Russian government official to retain a multi-million dollar contract with the federal prosecutor’s office. The payments were made through shell companies engaged by the agents to perform purported services under the contract. In Poland, certain agents or employees of HP Co.’s Polish subsidiary (“HP Poland”) provided gifts and cash bribes to a Polish government official to obtain contracts with Poland’s national police agency. In Mexico, HP Co.’s Mexican subsidiary (“HP Mexico”) made improper payments to a third party in connection with a sale of software to Mexico’s state-owned petroleum agency. HP Co. and its consolidated subsidiaries (collectively, “HP”) earned approximately $29 million in illicit profits as a result of this improper conduct.

The payments and improper gifts to government officials made directly or through intermediaries were falsely recorded in the relevant HP subsidiaries’ books and records as legitimate consulting and service contracts, commissions, or travel expenses. In fact, the true purpose of the payments and gifts was to make improper payments to foreign government officials to obtain lucrative government contracts for HP. During the relevant period, HP lacked sufficient internal controls to detect and prevent the improper payments and gifts made by executives and representatives of certain of its foreign subsidiaries.”

As to HP Russia, the order also states under the heading “Additional Conduct,” as follows.

“In June and July 2006, several European HP subsidiaries, including HP Russia, arranged for a high-profile customer marketing event in connection with the FIFA World Cup soccer tournament in Germany. Despite managerial directives not to invite representatives of government customers, certain HP sales employees arranged for a number of government or state-owned customers to attend the event. In all, HP Russia and other European subsidiaries of HP paid tens of thousands of dollars in travel and entertainment expenses for these government customers, and HP Co.’s internal controls failed to detect or prevent the conduct.

Finally, in June 2005, HP Russia paid more than $2.5 million to a third party distributor for the supply of software and implementation services to a Russian state-owned enterprise. HP Russia’s records do not reflect what, if any, work was actually performed by the distributor for these payments, and communications among HP Russia employees suggest that the distributor may have played an influential role in connection with obtaining the contract. The payments to the distributor were recorded in HP Russia’s books and records as a payment for providing software and services, even though there was minimal evidence concerning what was actually provided for these payments.”

Based on the above, the order finds violations of the FCPA’s books and records and internal controls provisions.  Specifically, the order states:

“HP’s global operations are organized by geographic regions and sub-regions, as well as business units. Employees in HP’s foreign subsidiaries may report to a supervisor in both their geographic region and their business unit. During the relevant period, HP’s foreign subsidiaries operated pursuant to compliance policies and directives developed by HP and implemented at the local subsidiary level by the country or regional management. Although HP had certain anti-corruption policies and controls in place during the relevant period, those policies and controls were not adequate to prevent the conduct described herein and were insufficiently implemented on the regional or country level. Further, HP failed to devise and maintain an adequate system of internal accounting controls sufficient to provide reasonable assurance that: (1) access to assets was permitted only in accordance with management’s authorization; (2) transactions were recorded as necessary to maintain accountability for assets; and (3) transactions were executed in accordance with management’s authorization.

[…]

As described above, HP Co. violated Section 13(b)(2)(A) of the Exchange Act. Its subsidiaries in Russia, Poland and Mexico falsely recorded the payments made to agents as payments for legitimate services or commissions, when the true purpose of these payments was to make corrupt payments to government officials to obtain business. The false entries were then consolidated and reported by HP in its consolidated financial statements. HP Co. also violated Section 13(b)(2)(B) by failing to devise and maintain sufficient accounting controls to detect and prevent the making of improper payments to foreign officials and ensure that payments were made only to approved channel partners.”

Under the heading “Remedial Efforts,” the order states:

“In response to the Commission’s investigation, HP retained outside counsel to assist it in conducting an internal investigation into improper conduct in the jurisdictions that were the subject of the staff’s inquiry, as well as in other jurisdictions where HP identified additional issues. HP cooperated with the Commission’s investigation by voluntarily producing reports and other materials to the Commission staff summarizing the findings of its internal investigation. HP also cooperated by, among other things, voluntarily producing translations of numerous documents, providing timely reports on witness interviews, and by making foreign employees available to the Commission staff to interview.

HP has also undertaken significant remedial actions over the course of the Commission’s investigation, including by implementing a firm-wide screening process for its channel partners, training its public sector sales staff on its policies for dealing with business intermediaries, increasing compliance-related training for its global work force, and implementing additional enhancements to its internal controls and compliance functions. In addition, HP took disciplinary actions against certain of its employees in response to the conduct identified by the Commission staff and by the company through its internal investigation.”

In resolving the matter, the SEC ordered HP to cease and desist from committing future violations of the FCPA’s books and records and internal controls provisions and to pay disgorgement of $29 million and prejudgment interest of $5 million. According to the order, approximately $2.5 million of the disgorgement amount will be satisfied by HP’s payment of $2.5 million in forfeiture in connection with the HP Mexico DOJ action.  The order also requires HP to report to the SEC for a three year period regarding the status of its remediation and implementation of various compliance measures.

In the SEC release, Kara Brockmeyer (Chief of the SEC’s FCPA Unit) states:

“Hewlett-Packard lacked the internal controls to stop a pattern of illegal payments to win business in Mexico and Eastern Europe. The company’s books and records reflected the payments as legitimate commissions and expenses.  Companies have a fundamental obligation to ensure that their internal controls are both reasonably designed and appropriately implemented across their entire business operations, and they should take a hard look at the agents conducting business on their behalf.”

Gibson Dunn attorneys Joseph Warin and John Chesley represented the HP entities.

In this release (a release HP had to consult with the DOJ before issuing) HP Executive Vice President and General Counsel John Schultz states:

“The misconduct described in the settlement was limited to a small number of people who are no longer employed by the company.  HP fully cooperated with both the Department of Justice and the Securities and Exchange Commission in the investigation of these matters and will continue to provide customers around the world with top quality products and services without interruption.”

HP’s stock closed yesterday up approximately .8%

“The FCPA Guide Presents A Classic Case Of Treating A Symptom While Ignoring The Disease”

This recent post highlighted a Foreign Corrupt Practices Act article by former Deputy DOJ Assistant General Larry Thompson in a recent issue of the American Criminal Law Review (“ACLR”).  Thompson’s article was part of a symposium edition of the ACLR (Volume 51, Number 1, Winter 2014) titled “Reducing Corporate Criminality:  Evaluating Department of Justice Policy on the Prosecution of Business Organizations and Options for Reform.”

In addition to Thompson’s article, there was another FCPA article in the ACLR edition that should likewise make its way onto your reading stack.

Barry Pollack (Miller & Chevalier) was the lead author of an article focusing on DOJ guidance surrounding the FCPA, including the 2012 FCPA Guidance.  (See “Lone Wolf Or The Start Of A New Pack:  Should The FCPA Guidance Represent A New Paradigm In Evaluating Corporate Criminal Liability Risks?”).

Commenting on DOJ settlement documents (NPAs/DPAs, etc.) serving as “de facto agency ‘jurisprudence’ guiding corporate conduct”, Pollack observes, consistent with my own observations in “The Facade of FCPA Enforcement” (2010), as follows.

“While publicly available resources regarding settlement dispositions through plea agreements, DPAs, and NPAs are helpful in providing corporations with some insight into the DOJ’s enforcement priorities and practices, there are some very important differences and limitations which distinguish these settlement documents from case law. Most importantly, these settlements represent the results of privately-negotiated agreements between the DOJ and corporate defendants, which are subject to little or no judicial scrutiny. While plea agreements and DPAs are filed with the court and are technically subject to a judge’s approval, the DOJ and defendants are not generally required to present or defend the factual assertions or legal theories contained in such agreements. Furthermore, NPAs are subject to no judicial scrutiny because they are not filed with the court. Accordingly, these documents provide fertile ground for the prosecution to advance expansive enforcement theories based on bare-boned and undeveloped factual assertions without having to meet the burden of proof beyond a reasonable doubt, given that the promise of avoiding the costly and risky endeavor of litigation through settlement provides every incentive to corporate defendants to accept the prosecution’s position so long as the matter is resolved quickly and for the lowest fine possible.

As a result, the agreements do not necessarily contain all of the relevant facts that went into determining the outcomes. They may contain broader enforcement theories than what would result from fully litigated cases, they do not have precedential value and thus do not bind the DOJ to act consistently, and they may not represent cases where criminal FCPA violations would have been found had the cases actually been litigated.”

Regarding the 2012 FCPA Guidance, Pollack writes:

“Overall, while the Guide is comprehensive and represents an unprecedented undertaking, it marks no sharp departure from current practice. Rather, the Guide clarifies the statute and how it is applied by the enforcement agencies, expressly confirms pre-existing enforcement practices and policies apparent in settlement documents to practitioners in the field, and consolidates current agency thinking into a single, comprehensive reference source.”

Spot-on and consistent with my own observations in “Grading the Foreign Corrupt Practices Act Guidance.”

Further, Pollack states that the “FCPA Guide presents a class case of treating a symptom while ignoring the disease.”

Among the “facets” of the disease is that “the collateral consequences for contesting and litigating corporate criminal liability are far too great for a corporation of any size.”

The article then states:

“Unless and until at least one of these aspects of the disease is eradicated, the symptoms of the disease will continue to exist. The symptoms are over- and under-compliance based on a lack of clear understanding regarding what the law forbids, and the acceptance by risk-adverse corporations of criminal dispositions in cases that are eminently defensible.

In a world where the disease exists, the FCPA Guide makes perfect sense. It provides an authoritative source of information regarding current practice. Before the Guide was issued, practitioners could only cite to their own experience and the limited information available in negotiated settlements.”

[…]

“The FCPA Guide is not as novel as it might appear.”

[…]

“The authors hope that at some point, Congress will turn its attention to fighting the disease.”

I’ll second that, but add the DOJ and SEC to the mix (i.e. hopefully the enforcement agencies will turn its attention to better fighting the disease by reconsidering certain enforcement agency policies and procedures).  (See here among other posts for more).