Friday Roundup
Make your voice heard, scrutiny alerts, “foreign official” fun, and for the reading stack. It’s all here in the Friday roundup.
Make Your Voice Heard
Yesterday, the U.K. Serious Fraud Office announced a consultation on “a draft Code of Practice setting out their approach to the use of Deferred Prosecution Agreements (DPAs).” According to the release, the U.K. is seeking “views on eight points covered in the draft Code, including the circumstances when a prosecutor should consider a DPA, the criteria to apply when making this decision, and on the disclosure approach envisaged.”
Make your voice heard, “comments are welcome from interested individuals and organisations” and “the consultation closes on Friday 20 September 2013.” See here for my previous post urging the U.K. to reject DPAs.
Staying in the U.K. this report states as follows. “The UK Serious Fraud Office is actively investigating two cases under the Bribery Act, said Kevin Davis, the SFO’s chief investigating officer. He also revealed that a further six cases which might lead to prosecutions were under investigation.”
Scrutiny Alerts
Medtronic
Let’s say law enforcement sets up a sobriety checkpoint on the highway. A sober driver successfully passes through it. Would we call this an instance of law enforcement “declining” to prosecute the driver for drunk driver?
Of course not, and the same logic should apply in the FCPA context as well.
In June 2008, Medtronic disclosed as follows.
“On September 25, 2007, the Company received a letter from the SEC requesting information relating to any potential violations of the U.S. Foreign Corrupt Practices Act in connection with the sale of medical devices in an unspecified number of foreign countries, including Greece, Poland and Germany. The letter notes that the Company is a significant participant in the medical device industry, and seeks any information concerning certain types of payments made directly or indirectly to government-employed doctors. A number of competitors have publicly disclosed receiving similar letters. On November 16, 2007, the Company received a letter from the Department of Justice requesting any information provided to the SEC. The Company is cooperating with both requests.”
In June 2009, Medtronic disclosed as follows.
“On September 25, 2007, the Company received a letter from the SEC requesting information relating to any potential violations of the U.S. Foreign Corrupt Practices Act in connection with the sale of medical devices in an unspecified number of foreign countries, including Greece, Poland and Germany. Turkey, Italy and Malaysia have since been added to the inquiry. The letter notes that the Company is a significant participant in the medical device industry, and seeks any information concerning certain types of payments made directly or indirectly to government-employed doctors. A number of competitors have publicly disclosed receiving similar letters. On November 16, 2007, the Company received a letter from the Department of Justice requesting any information provided to the SEC. Since that time the SEC and Department of Justice have made additional requests for information from the Company. The Company is cooperating with the requests.”
Earlier this week, Medtronic stated as follows.
“On September 25, 2007 and November 16, 2007, the Company received letters from the U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ), respectively, requesting information relating to any potential violations of the U.S. Foreign Corrupt Practices Act in connection with the sale of medical devices in several non-U.S. countries. A number of competitors have publicly disclosed receiving similar letters. Subsequently, the SEC and DOJ made additional requests for information from the Company. In June 2013, the SEC and the DOJ both informed the Company that they would be closing their investigations without pursuing any enforcement action or charges against the Company.”
The headline on the FCPA Blog read “Medtronic Wins Double Declination.” The headline on the Risk & Compliance Blog of the Wall Street Journal read “Medtronic Says SEC, DOJ Declined to Prosecute for FCPA Violations.”
I just don’t understand it at all. (See here for more).
HLW International / Sweett Group
Architecture firm HLW International LLP and Sweett Group Ltd. (a U.K. based construction company) recently were the subject of a leading Wall Street Journal article titled “Inside U.S. Firm’s Bribery Probe” by Joe Palazzolo and Chris Matthews. The focus of the article concerns the construction of a hospital in Morocco and the alleged promise by a Sweet executive that HLW would get the design contract if it agreed to pay 3.5% of the contract value to “an official inside the United Arab Emirates President’s personal foundation, which was funding the project.”
Charitable donations have been the focus of prior FCPA enforcement actions against Eli Lilly and Schering-Plough as well as the focus of Wynn Resort’s current FCPA scrutiny.
“Foreign Official” Fun
In the Carson “foreign official” challenge, Judge Selna concluded, in denying the defendants’ motion to dismiss (see here), that “the question of
whether state-owned companies qualify as instrumentalities under the FCPA is a question of fact.” Judge Selna stated that “several factors bear on the question of whether a business entity constitutes a government instrumentality” including the following.
- The foreign state’s characterization of the entity and its employees;
- The foreign state’s degree of control over the entity;
- The purpose of the entity’s activities;
- The entity’s obligations and privileges under the foreign state’s law, including whether the entity exercises exclusive or controlling power to administer its designated functions;
- The circumstances surrounding the entity’s creation; and
- The foreign state’s extent of ownership of the entity, including the level of financial support by the state (e.g., subsidies, special tax treatment, and loans).
According to Judge Selna, the above “factors are not exclusive, and no single factor is dispositive.”
According to this recent article in the Wall Street Journal:
“Companies listed on China’s stock exchanges received 85.68 billion yuan ($13.83 billion) in government subsidies last year, up 23% from a year earlier, while corporate profits rose less than 1%, according to a Chinese data provider. The subsidies were equivalent to more than 4% of the companies’ total profits last year, up from around 3% between 2009 and 2011. The subsidies—largely from local authorities but also from the national government—took the form of cheap land, tax rebates, support for loan repayments and straight-up cash. There were a range of reasons, including research and development and support for government environment priorities.”
Reading Stack
The Seventh Edition of the FCPA Handbook from O’Melveny & Myers.
A focus on Southeast Asia in the always informative FCPA Update from Debevoise & Plimpton.
A mini-roundup of Canada’s recent amendments to its Corruption of Foreign Public Officials Act here (Osler), here (Dentons), and here (Fasken Martineau).
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A good weekend to all.
Total Agrees To Pay $398 Million To Resolve Its FCPA Scrutiny
Yesterday, the DOJ and SEC announced (here) and (here) a Foreign Corrupt Practices Act enforcement action against Total S.A., a French oil and gas company that has American Depositary Shares registered with the SEC and traded on the New York Stock Exchange.
The enforcement action involved a DOJ criminal information resolved via a deferred prosecution agreement and a SEC administrative cease and desist order. Total agreed to pay approximately $398 million to resolve its alleged FCPA scrutiny ($245.2 million to resolve the DOJ enforcement action and $153 million to resolve the SEC enforcement action). The $398 million enforcement action is the third largest in FCPA history in terms of fine / penalty amount.
DOJ
The DOJ enforcement action involved a criminal information (here) resolved through a deferred prosecution agreement (here).
Information
In the criminal information, the DOJ charged Total with conspiracy to violate the FCPA’s anti-bribery provisions and violating the FCPA’s books and records and internal controls provisions. The conduct at issue centered on Total’s negotiation of a contract with the National Iranian Oil Company (“NIOC”) in 1995 and 1997 for the development of the certain oil and gas fields. NIOC is described in the information as a “government-owned corporation operating under the direction and control of the Ministry of Petroleum of Iran.”
The information alleges as conspiracy “to obtain and retain lucrative contracts related to [the oil and gas fields] through the promise and payment of tens of millions of dollars in unlawful payments to the Iranian Official and others. The Iranian Official is described in the information as “the Chairman of an Iranian engineering company that was more than 90% owned by the Government of Iran and substantially controlled by the Government of Iran.” The information further states that “from at least early 2001, the Iranian Official was the head of an Iranian organization concerned with fuel consumption, which was a wholly owned subsidiary of NIOC, and was a government advisor to a high-ranking Iranian official.”
The information alleges that Total caused Total International Ltd. (a wholly-owned subsidiary of Total registered in Bermuda) to execute purported consulting agreements with Intermediary One (described as an employee of a Swiss private bank who acted at the direction of the Iranian Official) and Intermediary Two (described as a British Virgin Islands company that acted at the direction of the Iranian Official) as a “mechanism for Total to pay at the direction of the Iranian Official millions of dollars in unlawful payments.”
According to the information, Total paid approximately $60 million to accounts designated by Intermediary One and Two. The information allegations that “Total mischaracterized the payments under the various consulting agreements as ‘business development expenses,’ when they were, in fact, unlawful payments for the purpose of inducing the Iranian Official to use his influence in connection with the granting of development rights” in the oil and gas projects.
The information then alleges 20 overt acts in furtherance of the conspiracy. 19 of the overt acts (95%) are alleged to have taken place between 10 to 18 years ago. The most recent alleged overt act is a November 2004 wire transfer. The only alleged overt act with a U.S. nexus is a 1995 wire transfer of $500,000 (.8% of the overall bribe payments) from Total International’s account at Banker’s Trust in New York to an account in Switzerland.
As to the FCPA books and records charge, the information states as follows.
“… Total knowingly falsified and caused to be falsified books, records, and accounts, required to, in reasonable detail, accurately and fairly reflect the transactions and dispositions of Total, to wit: Total (a) mischaracterized the unlawful payments under the various consulting agreements as ‘business development expenses’ and (b) improperly characterized the unlawful consulting agreements as legitimate consulting agreements.”
As to the FCPA internal controls charge, the information states as follows.
“… Total knowingly circumvented and knowingly failed to implement a system of internal accounting controls sufficient to provide reasonable assurances that transactions and dispositions of Total’s assets complied with applicable law, including the FCPA, to wit: Total: (a) failed to implement adequate anti-bribery compliance policies and procedures; (b) failed to maintain an adequate system for the selection and approval of consultants; (c) failed to conduct adequate audits of payments to purported consultants; (d) failed to establish a sufficiently empowered and competent corporate compliance office; (e) failed to take reasonable steps to ensure the company’s compliance and ethics program was followed; (f) failed to evaluate regularly the effectiveness of the company’s compliance and ethics program; (g) failed to provide appropriate incentives to perform in accordance with the compliance and ethics program; (h) concealed the consulting agreements’ true nature and true participants; (i) performed no due diligence concerning the named or unnamed parties to these agreements; and (j) lacked controls sufficient to provide reasonable assurances that the consulting agreements complied with applicable laws.”
DPA
The above charges against Total were resolved via a DPA in which Total admitted, accepted, and acknowledged that it was responsible for the acts of its officers, employees, agents, and subsidiaries as charged in the information.
The DPA has a term of three years and under the heading “relevant considerations” it states as follows.
“The Department enters into this Agreement based on the individual facts and circumstances presented by this case and Total. Among the facts considered were the following: (a) the related investigation by French criminal enforcement authorities of the same conduct that forms the basis of this resolution and to which the Department has been providing assistance; (b) the evidentiary challenges presented to both parties by this matter, in which most of the underlying conduct occurred in the 1990s and early 2000s; and (c) Total’s production of relevant documents from abroad and disclosure of the results of its internal investigation into the misconduct described in the Information.”
Pursuant to the DPA, the advisory Sentencing Guidelines range for the conduct at issue was $235.2 to $470.4 million. The $245.2 million that Total agreed to pay pursuant to the DPA is a rare instance of an FCPA corporate penalty being within the Guidelines range. Most corporate FCPA criminal fines are approximately 25% below the minimum amount suggested by the Guidelines range.
Pursuant to the DPA, Total agreed to review its existing internal controls, policies and procedures regarding compliance with the FCPA, the anti-corruption provisions of French law, and other applicable anti-corruption laws. The specifics are detailed in Attachment C to the DPA. The DPA also requires Total to engage a corporate compliance monitor who is a French national for a three year term. The specifics, including the Monitor’s reporting obligations to the DOJ, are detailed in Attachment D to the DPA.
In the DOJ’s release (here) Acting Assistant Attorney General Mythili Raman stated as follows.
“Today we announce the first coordinated action by French and U.S. law enforcement in a major foreign bribery case. Our two countries are working more closely today than ever before to combat corporate corruption, and Total, which bought business through bribes, now faces the criminal consequences across two continents.”
The DOJ release further states as follows.
“In addition, French enforcement authorities announced earlier today that they had requested that Total, Total’s Chairman and Chief Executive Officer, and two additional individuals be referred to the Criminal Court for violations of French law, including France’s foreign bribery law.”
In this Wall Street Journal article, “Total said the company and [its CEO] acted in accordance with all applicable French laws. The decision to send [Total] and its CEO to trial now rests with the magistrate in charge of the investigation.” Total’s CFO is quoted as follows concerning he U.S. settlement. “These settlements, the outcome of which are customary in the U.S., allow us to put an end to this investigation.”
SEC
The SEC’s administrative cease and desist order (here) is based on the same core set of facts alleged in the above DOJ action.
The Order states, in summary fashion, as follows.
“During the relevant time period, Total and others violated the anti-bribery provisions of the Foreign Corrupt Practices Act by making payments at the direction of the Iranian Official in connection with obtaining contracts. In addition, Total lacked sufficient internal controls and, by mischaracterizing the payments as legitimate consulting fees, Total violated the books and records [and internal controls] provisions of the federal securities laws.”
Under the heading “Total’s Steps to Conceal the Payments” the Order states as follows.
“From the inception of Total’s relationship with the Iranian Official Total mischaracterized the expenses under the Consulting Agreements as ‘business development expenses’ when they were, in fact, unlawful payments for the purpose of inducing the Iranian Official to use his influence in connection with granting rights to Total for the development of the [oil and gas] fields. Total improperly characterized the unlawful consulting agreements as legitimate consulting agreements. Total ceased making payments to the Iranian Official’s designated intermediary in approximately November 2004.”
As noted in this SEC release, the Order requires Total to pay disgorgement of $153 million in illicit profits and to cease and desist from committing future FCPA violations. In the release, Andrew Calamari (Director of he SEC’s New York Regional Office) stated as follows. “Total used illicit payments to win business in Iran, and reaped substantial financial benefits as a result. Total must now pay back all of its profits from the company’s corrupt conduct and additionally pay criminal penalties on top of that.”
Robert Luskin (Patton Boggs) represented Total.
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Total’s most recent SEC filing states, in pertinent part, as follows.
“In 2003, the SEC followed by the DOJ issued a formal order directing an investigation in connection with the pursuit of business in Iran by certain oil companies, including among others, Total.”
“Since 2010, the Company has been in discussions with U.S. authorities (DOJ and SEC)” to resolve the case.
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The Total enforcement action is not the first FCPA enforcement action against a foreign oil and gas company focused on conduct in Iran’s oil and gas fields. In 2006, the DOJ and SEC brought a coordinated FCPA enforcement action against Norway-based Staoil by which the company agreed to pay $21 million in combined fines and penalties. Like the Total enforcement action, the Statoil enforcement action was also based on a slim US jurisdictional nexus – that the company received an invoice from a U.K. consulting company instructing that money “be routed through a United States bank in New York, New York to a bank account in Switzerland” which the company paid.
U.K. Deferred Prosecution Agreements Expected In Early 2014 – A Work In Progress
Today’s post is from Robert Amaee (Covington & Burling). Amaee is the United Kingdom Expert for FCPA Professor.
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The UK Crime and Courts Bill, which contained the implementing legislation for Deferred Prosecution Agreements (“DPAs”), received Royal Assent on 25 April 2013. The legislation will enable the UK Serious Fraud Office and the Crown Prosecution Service (the “Prosecutors”) to enter into DPAs with organisations — most likely from early 2014 — to deal with a specified list of economic crimes, including bribery, fraud and money laundering.
The move by the UK government to introduce implementing legislation for DPAs reflected an acknowledgement expressed in the UK Ministry of Justice’s May 2012 consultation paper on DPAs that: (1) there was little incentive for companies to self-report due to uncertainty over where that process would lead and (2) the options available to the Prosecutors for tackling economic crime were unduly limited.
The Prosecutors will welcome the addition of DPAs to their armory and the likelihood of there being a greater number of global settlements in multi-jurisdictional cases involving economic crime. There are, however, a number of factors peculiar to the UK version of DPAs that organisation will need to examine before a decision is taken to self-report instances of suspected wrongdoing or to enter into DPA negotiations with the Prosecutor.
The Process
The newly-enacted legislation contemplates that – following the commencement of an investigation into suspected economic crime – the Prosecutor may decide to enter into DPA negotiations with an organisation. Once the Prosecutor and organisation have formulated an agreed statement of facts concerning the alleged offence, which may or may not include admissions, that statement will be presented in private to a Crown Court judge. Details of the alleged offending, a draft indictment, the agreed – or contemplated – conditions to be included in the DPA and a list of any issues that have not yet been resolved also will be provided to the judge at the preliminary hearing.
At the conclusion of the preliminary hearing, the judge will be asked by the Prosecutor to declare that resolving the matter by means of a DPA is in the interests of justice and that the proposed terms of the DPA are fair, reasonable and proportionate. The judge could decide that certain steps must be taken, or further lines of inquiry pursued, before he/she will consider issuing the declaration at the subsequent preliminary hearing or hearings.
Following the preliminary hearing(s), agreement of the terms of the proposed DPA between the Prosecutor and organisation and the resolution of any outstanding issues, the Prosecutor and organisation will return to the Crown Court for a final hearing in private. The purpose of that hearing is for the Prosecutor to seek the judge’s approval of the DPA and its terms. If the DPA is approved, the Prosecutor must publish details of the DPA and the declarations made and reasons provided by the judge at the preliminary and final hearings.
In the event of an alleged breach of the DPA by an organisation, the Prosecutor can make an application to the Crown Court. In such circumstances, if the judge finds – on the balance of probabilities – that the organisation has breached the DPA, he/she can either: (1) ask the Prosecutor and organisation to agree to a proposal for remedying the breach or (2) terminate the DPA. Once the DPA has expired – assuming that the organisation has complied with the terms of the DPA – the Prosecutor is unable to bring criminal proceedings against the organisation for the same offence(s) unless it can be shown that the organisation knew – or ought to have known – that it provided inaccurate, misleading or incomplete information to the Prosecutor.
It is expected that the Director of the SFO and the Director of Public Prosecutions shortly will issue a draft Code for Prosecutors that will contain further detail on the DPA process, including guidance on the principles to be applied by the Prosecutor when deciding whether a DPA is the appropriate means of resolving a particular case and the disclosure obligations of Prosecutors. In addition, the UK Sentencing Council is expected to produce guidance on corporate criminal fines, including for those offences eligible for resolution by means of a DPA.
A Work in Progress
While the UK approach toward DPAs builds upon the US system, there are a number of noteworthy factors unique to the UK system. One such factor is the significant role played by the judiciary. In contrast to the US, the UK DPA process mandates a notable degree of oversight and involvement by the judiciary from an early stage in negotiations through to the handling of any alleged breaches of a DPA.
The level of judicial involvement built into the UK system is intended to enshrine transparency in the DPA process and takes the ultimate outcome of a DPA negotiation out of the hands of the Prosecutor. An inevitable consequence of this judicial involvement is the introduction of additional uncertainty into the DPA process. It is not difficult to conceive of negotiations that have taken a number of months to reach the Crown Court being greatly protracted or even terminated by a judge who takes the view that what has been proposed is not fair, just or reasonable or that it is not in the interest of justice to pursue discussions. By that stage discussions may be at an advanced stage and the Prosecutor will have amassed case materials provided by the organisation in the course of the negotiations. While the Prosecutor, in most cases, will not be able to rely either on the fact that it conducted DPA negotiations with the organisation, or on any draft DPA in future criminal proceedings, he/she is entitled to rely on evidence obtained from investigations pursued as a result of anything said in any unsigned statement of facts or in the draft DPA. Any pre-existing material provided by the organisation during the DPA process also could become admissible in subsequent proceedings.
Another factor worthy of consideration is the nature of the admissions that may have to be made by an organisation to secure a DPA. In particular, it is unclear whether the Prosecutor is likely to need to insist — as a condition of agreeing to a DPA — on an admission of the involvement of a “controlling mind” of the organisation in the alleged wrongdoing or, in the appropriate case, the lack of adequacy of an organisation’s anti-bribery systems and controls.
In order to attribute criminal liability to an organisation for offences requiring mens rea, a UK prosecutor needs to prove that the offender was a directing mind and will of the organisation. This ‘identification principle’ requires that the acts and state of mind of those who represent the directing mind and will be imputed to the organisation. The UK courts have restricted the application of this principle to the actions of ‘controlling officers’ of the organisation, namely the Board of Directors, the Managing Director and senior officers who carry out functions of management and speak and act as the organisation. The Prosecutors have found this test to impose a high barrier to corporate prosecutions, meaning that many cases against organisations do not proceed as sufficient evidence cannot be amassed by the Prosecutor to implicate a controlling mind of that organisation.
It may be that the soon to be issued Code for Prosecutors will address this topics but, at this stage, a question mark remains over whether a Prosecutor can be satisfied with agreeing to a statement of facts or admissions that fall short of implicating a controlling mind of the organisation. If an organisation seeking to resolve matters by way of a DPA is required to provide documentation or make admissions in relation to the role of a particular senior officer and his or her involvement in any wrongdoing during the early DPA negotiations with the Prosecutor, the organisation could be left at a disadvantage in the event that there is a derailment of the negotiations and a subsequent prosecution of the organisation.
It remains to be seen whether concerns about the level of uncertainty inherent in the UK DPA process or about any admissions that may have to be made will be justified and sufficient to deter organisations from reporting instances of possible wrongdoing and seeking to enter into discussions with the Prosecutor. Experience with DPAs in the US would tend to suggest that, irrespective of the legal arguments that could be deployed, the prospect of a settlement may well prove attractive enough for many organisations to prompt them to explore the UK DPA process in the hope of avoiding a drawn-out and uncertain court battle and the associated business disruption and reputational damage.
Friday Roundup
Enforcement agency speeches, “foreign official” delay, and for reading stack. It’s all here in the Friday roundup.
Enforcement Agency Speeches
This prior post detailed comments by Mary Jo White prior to becoming SEC Chairman.
Last week, White spoke before the Investment Company Institute on the general topic of the SEC’s role in an increasingly global financial and regulatory system. She stated as follows (see here) concerning the SEC’s enforcement of the FCPA.
“Of course, misrepresentations and other unlawful actions travel in both directions across borders, which is another reason why our partnership with our regulatory counterparts abroad is so important. Among the most prominent concerns in this regard is bribery by U.S. companies overseas, which not only undermines international markets and governments but also simultaneously undermines the reporting and disclosure integrity of our own markets. Thus, strong and fair enforcement of the Foreign Corrupt Practices Act, which forbids U.S. companies from bribing foreign officials, has been and will continue to be a priority for us. Our first objective is to help companies avoid FCPA violations by educating them. And so our staff along with our colleagues at the Department of Justice recently published a comprehensive Guide to the FCPA to give clear guidance and clear up some myths. Of course, the other side of education is deterrence. Deterrence can mean strong enforcement actions with tough disgorgement and penalties. But it can also mean the tangible benefits that come with cooperation – as demonstrated by the Non-Prosecution Agreement with Ralph Lauren Corporation we announced in April. In this particular case, the corporation’s Argentine subsidiary paid bribes to government and customs officials to improperly secure the importation of their products into the country. The bribes occurred during a period when the U.S. parent company lacked meaningful anti-corruption compliance and control mechanisms over its foreign subsidiary. The misconduct came to light as a result of the company’s efforts to improve internal controls and compliance. And the company immediately reported the problem to the SEC and provided exceptional assistance to our investigation. Successful FCPA cases also increasingly require assistance from foreign law enforcement authorities. That is why we recently partnered with the DOJ and FBI in conducting a foreign bribery training program that provided intensive training to 130 foreign investigators and prosecutors from 30 countries, many on which the SEC staff relies for mutual legal assistance in FCPA cases.”
Yesterday, Daniel Suleiman (DOJ Deputy Chief of Staff for the Criminal Division) spoke at the Minnesota Bar Association’s Annual International Business Law Institute. (See here). Suleiman offered “some views from the U.S. Department of Justice on the topic of anti-corruption enforcement” and “what the Justice Department is doing in the area of criminal enforcement to fight corruption at home and abroad.” He stated, in pertinent part, as follows.
“I think of our anti-corruption efforts as falling into three principal buckets: number one is criminal prosecution; number two is assisting foreign countries to build up their judicial, prosecutorial, and investigative institutions; and number three is the pursuit, through civil actions, of the proceeds of foreign official corruption. I will discuss each of these buckets in turn.
First and foremost, the Criminal Division is a litigating operation. We investigate and prosecute cases. Our corruption prosecutions are of two kinds: we prosecute corruption by domestic officials, and we prosecute foreign bribery offenses under the Foreign Corrupt Practices Act, or FCPA.”
[…]
“[W]e have an incredibly strong team of prosecutors who focus exclusively on enforcing the FCPA. Depending upon how familiar you are with FCPA enforcement, you may know that the Criminal Division is the entity in the United States with primary responsibility for criminal enforcement of the Act. It is Justice Department policy that no FCPA prosecution can be brought without authorization from the Criminal Division, which distinguishes FCPA prosecutions from most other kinds of federal criminal cases. The Securities and Exchange Commission, which is a few blocks up the street from us, has primary responsibility for the Act’s civil enforcement.”
“Foreign bribery enforcement has for a long time been an important aspect of U.S. policy. The FCPA was enacted roughly 35 years ago, around the same time that our Public Integrity Section was created to focus on public corruption prosecutions, and it was the first effort of any nation to specifically criminalize the act of bribing foreign officials. The statute was enacted in the wake of the Watergate scandal, but it took more than 20 years for the Act to become a strong enforcement tool. And, over the past several years, the Justice Department has substantially increased its enforcement of the Act.”
“One important aspect of our FCPA enforcement involves, of course, our corporate resolutions. We have collected billions of dollars in criminal fines and penalties to resolve FCPA investigations against companies doing business abroad, including BizJet International Sales and Support Inc., a Lufthansa subsidiary; Alcatel-Lucent; Johnson & Johnson; and many others.”
“But another, critically important aspect of our enforcement regime involves holding individuals responsible for FCPA offenses. There is no greater deterrent to corporate crime than the prospect of prison time. As many have recognized, if people don’t go to prison, then enforcement can come to be seen as merely the cost of doing business. In the past four years, the Criminal Division’s FCPA Unit has obtained over three dozen criminal convictions of individuals, including of people who have been sentenced to as many as 15 years in prison.”
“We are as active today in this area as we have ever been. In the past month alone, we have announced charges against several key defendants in ongoing, active FCPA investigations. In mid-April, in a case that we are prosecuting with the U.S. Attorney’s Office in Manhattan, we secured the arrest of a defendant in connection with an alleged bribery scheme to secure mining rights in the Republic of Guinea. In a separate case, which we are prosecuting with the U.S. Attorney’s Office in Connecticut, we also secured the arrest last month of a defendant in connection with an alleged bribery scheme to secure power contracts in Indonesia. And just two days ago, together with the U.S. Attorney’s Office in Manhattan, we announced charges against two broker-dealer employees and a senior Venezuelan banking official for engaging in a multi-million dollar bribery scheme.”
[…]
“Finally, I want to tell you about a relatively new Justice Department initiative. About three-and-a-half years ago, Attorney General Holder gave a speech in Qatar, at which he pledged to increase the United States’ commitment to recovering foreign corruption proceeds. Since that time, the Criminal Division has led the charge in developing what we refer to as the Kleptocracy Asset Recovery Initiative.”
“The initiative’s purpose is to identify the proceeds of foreign official corruption – in other words, the spoils – forfeit them through civil actions, and, to the extent possible, repatriate the forfeited funds for the benefit of the people harmed. In most criminal prosecutions, a court can order forfeiture, upon conviction, as part of the defendant’s sentence. Often, however, it may be impractical or impossible to bring a criminal prosecution against a particular person – because that person is immune from prosecution, for example, beyond our jurisdiction, or otherwise unavailable. In these circumstances, we have begun bringing civil forfeiture actions to recover the stolen property.”
“We have brought several Kleptocracy cases in the past couple of years, and forfeited millions of dollars in corrupt proceeds. The most high-profile of our Kleptocracy cases to date involves two civil actions we have brought against approximately $70 million in assets allegedly belonging to a government minister in Equatorial Guinea who is also the son of that country’s president. According to court papers, despite an official government salary of less than $100,000 per year, this minister amassed wealth of over $100 million. Among the items we are seeking to forfeit are nearly $2 million worth of Michael Jackson memorabilia (including the white glove), a Gulfstream G-V jet worth $38.5 million, and a $30 million house in Malibu. These are hard, and hard-fought, cases, but we believe strongly that foreign officials who amass wealth through corruption should not be permitted to use the United States as a haven for their ill-gotten gains.”
“Foreign Official” Delay
Oral argument in the “foreign official” challenge pending in the 11th Circuit – originally scheduled for later this month, has been postponed until the week of October 7th.
This is a historic appeal in that it will be the first instance in which a circuit court directly confronts the enforcement theory that employees of alleged state-owned or state-controlled entities are “foreign officials” under the FCPA (see here for a prior post, including embedded links).
Scrutiny Alerts
For more on Barclay’s scrutiny, on both sides of the Atlantic, see this recent article in Middle East Monitor concerning the bank’s relationship with the Abu Dhabi government, including Sheikh Mansour, the deputy prime minister of the United Arab Emirates.
Samuel Rubenfeld (Wall Street Journal Risk & Compliance Journal) has the latest (here) regarding BSG Resources Ltd. a Guernsey-based company in the news after Frederic Cilins, a French citizen associated with the company, was recently arrested and accused of attempting to obstruct an ongoing investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea. (See here for the prior post). As noted in the WSJ article, BSG recently released this detailed statement concerning its conduct in Guinea.
Reading Stack
Several articles of interest to pass along from last week’s Corporate Crime Reporter conference. This article details comments made by Denis McInerney (DOJ Criminal Division Deputy Assistant Attorney General) regarding non-prosecution and deferred prosecution agreements. This article details comments made by McInerney concerning my suggested two-step reform plan (see here for the prior post) and also details McInerney’s response to my question concerning the definition of a declination. Articles here and here concern corporate monitors.
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Over the years, Bloomberg’s David Glovin has written some excellent articles concerning Viktor Kozney, Frederic Bourke, et al. With Bourke soon to report to prison, Glovin pens another great article here.
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This prior post discussed the NY Times recent “With Bags of Cash, CIA Seeks Influence in Afghanistan” story and how the story put our stark double standards in the headlines once again. More recently, the NY Times reports (here) as follows. “[Afghan President] Karzai said he had called a meeting […] with the CIA’s Kabul station chief. “I told him because of all these rumors in the media, please do not cut all this money, because we really need it,” he said. “We want to continue this sort of assistance, and he promised that they are not going to cut this money.” For more on the situation, including the views of others, see here from Alison Frankel’s On the Case column.
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See here from Josh Goodman (an attorney at the Federal Trade Commission) titled “The Anti-Corruption and Antitrust Connection.”
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A good weekend to all.
Seeing The Light From The “Dark Ages”
During the panel session on DOJ non-prosecution and deferred prosecution agreements last week at the Corporate Crime Reporter sponsored conference in Washington, D.C., I shared my belief that it seems like DOJ is clearly troubled, with good reason, by traditional notions of corporate criminal liability. (See here for the prior post when I said the same thing about Lanny Breuer’s NPA/DPA speech last September). However, rather than seek substantive solutions to this issue, the DOJ defends an alternate reality (NPAs / DPAs) that are equally problematic.
After listening to fellow panelist Denis McInerney (DOJ, Deputy Assistant Attorney General) describe the goals of DOJ prosecution – among other things, to better promote compliance and to hold individuals accountable – I offered a solution in the Foreign Corrupt Practices Act context that could help the DOJ achieve these laudable goals.
Have a compliance defense and abolish NPAs and DPAs.
A compliance defense, along the lines I outlined in my article “Revisiting a Foreign Corrupt Practices Act Compliance Defense,” would not eliminate corporate criminal liability. Far from it. Rather, a compliance defense would only apply when, notwithstanding a company’s pre-existing compliance policies and procedures and its good-faith efforts to comply the law, a non-executive employee or agent acts contrary to those policies and procedures in violation of the law.
If a company did not have pre-existing compliance policies and procedures, it could not avail itself of a compliance defense. Similarly, even if a company did have pre-existing compliance policies and procedures, the company could not avail itself of a compliance defense if executive officers or employees (a concept already used in the U.S. Sentencing Guidelines) were involved in the improper conduct.
If this were the framework governing corporate criminal liability, then NPAs and DPAs should be abolished and the DOJ would return to the historical choice of two options: charge or do not charge.
At the conference, I stated my genuine belief that such a two-step reform would better incentive more robust corporate compliance, reduce improper conduct, and thus best advance the FCPA’s objectives of reducing bribery. Such a two-step reform would also increase public confidence in FCPA enforcement actions and allow the DOJ to better allocate its limited prosecutorial resources to cases involving corrupt business organizations and the individuals who actually engaged in the improper conduct. (See the article for additional details).
In short, this two-step reform will better allow the DOJ to achieve many of the objectives McInerney articulated.
However, not surprisingly, McInerney’s response to my two-step reform was the comment that this would be like returning to the “dark ages.”
The question is why?
Presumably most countries have an incentive to better promote compliance and to hold individuals accountable for wrongdoing. Does this mean that the following OECD Convention countries that have a compliance-like defense relevant to their FCPA-like laws are living in the “dark ages” – Australia, Chile, Germany, Hungary, Italy, Japan, Korea, Poland, Portugal, Sweden, Switzerland, and the United Kingdom. (See here).
Are Stanley Sporkin (former Director of the SEC Division of Enforcement, among other positions), James Doty (current head of the PCAOB), and Andrew Weissmann (former Director of the Enron Task Force and current General Counsel of the FBI) all living in the “dark ages”? All have supported compliance-like defenses or concepts relevant to the FCPA. (See here, here, and here).
Are former Attorney Generals Michael Mukasey and Alberto Gonzales or other former high-ranking DOJ officials such as Larry Thompson living in the “dark ages”? (See here, here, and here). Is former DOJ FCPA Unit chief Joseph Covington living in the “dark ages.” (See here).
Or have all these individuals, and others who support an FCPA compliance defense, seen the light and it’s the DOJ who is living in the “dark ages”?