Worth Reading
Transparency International – UK (“TI-UK”) recently published “Deterring and Punishing Corporate Bribery” (here) and it is worth reading. A meaty 93 pages, the document is full of useful information, from U.K. charging issues, corporate criminal liability principles under U.K. law, a list of SFO and FSA bribery or related enforcement actions and much more.
As noted in the foreword, the “paper seeks to identify the problems faced by prosecutors and companies in trying to settle cases of overseas bribery against the background of the current legal system and practice, and to make some recommendations to improve transparency, recognising that bribery is a serious criminal offence and there is a strong public interest in seeing offenders prosecuted.”
Several of the recommendations in the report I agree with such as the following.
- “all settlements should be subject to judicial scrutiny independent from the prosecutor’s office” [that clearly does not happen in the U.S. given frequent use of non-prosecution and deferred prosecution agreements]
- “victim countries should receive restitution and prosecutors should work with development agencies … to manage this process” [although figuring out just how to do this is the difficult issue]
- “prosecutors should properly label bribery offenses and not select alternative charges in order to avoid mandatory debarment, which is a logical and fair outcome in certain cases as it provides a very strong deterrent to corporate offending” [this frequently happens in the U.S., for instance, Siemens, Daimler, BAE – none of these companies were charged with FCPA anti-bribery violations because of potential debarment concerns]
The recommendation from the TI-UK report that I disagree with (and I am grateful for the citations and mentions in the report) is the following. “[The U.K.] government should consider the introduction of DPAs or some similar sentencing procedure after a thorough assessment of the alternatives. DPAs have proved to be a useful procedure to settle FCPA cases in the USA but the process has also been criticized with little judicial oversight.” Elsewhere, the report states as follows. “The reason that this [high level of U.S. enforcement of the FCPA] is possible with relatively few resources is that in the US most FCPA cases are settled through either [DPAs or NPAs] both of which avoid the preparation of casework for a trial by jury.”
How is a resolution vehicle that avoids the preparation of casework for a trial by jury a good thing? Requiring an enforcement agency to meet its burden of proof in an adversarial proceeding before independent observers who consider mitigating facts and weigh viable defenses is central to the rule of law and how law best advances. Allowing enforcement agencies a third option (the first two options being prosecute vs. not prosecute) facilitates both the under-prosecution of egregious instances of corporate conduct as well as the over-prosecution of corporate conduct and contributes to a facade of enforcement.
Moreover, as I noted in this previous post, why does the U.K. need alternative resolution vehicles when the U.K. Bribery Act has an adequate procedures defense. If a corporate has adequate procedures, but an isolated act of bribery nevertheless occurs within its organization, the corporate presumably would not face prosecution under the Bribery Act. Seems like a reasonable result. In other words, no need for the third option in such a case. On the other hand, if a corporate does not have adequate procedures (i.e. has no committment to anti-bribery compliance) and an act of bribery occurs within its organization, it presumably would face prosecution under the Bribery Act. Seems like a reasonable result. Does a third option really need to be created for corporates who do not implement adequate procedures? Also relevant to the analysis and further suggesting that alternative resolution vehicles are not needed in the U.K. is the notion that (Section 7 of the Bribery Act aside) corporate criminal liability in the U.K. requires evidence that a so-called controlling mind of the corporate was involved in the improper conduct.
Next Up – Smith & Nephew
[A new job has been posted to the Jobs Board – see here. Both job seekers and organizations seeking to hire individuals with FCPA or related experience will benefit from a wide selection of job listings, so please spread the word and send the job link to your HR department and professional contacts]
When Johnson & Johnson resolved its $70 million FCPA enforcement action in April 2011 (see here for the prior post) focused on foreign health care providers as “foreign officials”, I said (here) stay tuned for more as several more health care providers as “foreign official” enforcement actions were likely in the pipeline.
On the heels of the DOJ’s likely worst week ever enforcing the FCPA in individual enforcement actions, the DOJ and SEC announced parallel enforcement actions against medical devices maker Smith & Nephew Inc. (“S&N”) and Smith & Nephew plc. (“PLC”). PLC is a U.K. company with ADR shares traded on the New York Stock Exchange and S&N is a wholly-owned subsidiary of PLC headquartered in Memphis, TN.
Total fines and penalties were approximately $22.2 million ($16.8 million against S&N via a DOJ deferred prosecution agreement, and $$5.4 million against PLC via a settled SEC civil complaint).
DOJ
The DOJ enforcement action involved a criminal information (here) against S&N resolved through a deferred prosecution agreement (here).
Criminal Information
The information begins as follows. “Greece has a national healthcare system wherein most Greek hospitals are publily owned and operated. Health care providers who work at publicly-owned hospitals (“HCPs”) are government employees, providing health care services in their officials capacities. Therefore, such HCPs in Greece are “foreign officials” as that term in defined in the FCPA …”.
The conduct at issue focuses on S&N’s and Smith & Nephew Orthopaedics GmbH’s (“GmbH”) (a German company “reporting to S&N) relationship with the entities of the Greek Distributor (an “agent and distributor for S&N and GmbH in Greece”). According to the information, S&N and GmbH sold products to the entities “at a discount to the ‘list’ price and the Greek Distributor would re-selll to Greek HCPs and government hospitals at a profit.” The information also alleges that S&N and GmbH “would cover marketing expenses for [the] Greek Distributor, up to ten percent of sales.”
The information charges one count of conspiracy to violate the FCPA’s anti-bribery provisions and alleges that “the purpose of the conspiracy was to secure lucrative business with hospitals in the Greek public health care system by making and promising to make corrupt payments of money and things of value to publicly-employeed Greek HCPs.” According to the information, “S&N, certain of its executives, employees, and affiliates agreed to sell to [the] Greek Distributor at full list price, then pay the amount of the distributor discount – between 25 and 40 percent of the sales made by [the] Greek Distributor – to an off-shore shell company controlled by [the] Greek Distributor, in order to provide off-the-books funds for [the] Greek Distributor to pay cash incentives and other things of value to publicly-employed Greek HCPs to induce the purchase of S&N products, while concealing the payments.” According to the information, S&N “falsely recorded or otherwise accounted for the payments to the shell companies on its books and records as ‘marketing services’ in order to conceal the true nature of the payments in the consolidated books and records of S&N and GmbH.”
According to the information, “[i]n total, from 1998 to 2008, S&N, and its affiliates and employees, authorized the payment, directly or indirectly, of approximately $9.4 million to [the] Greek Distributor’s shell companies, some or all of which was used to pay cash incentives to publicly-employeed Greek HCPs to induce the purchase of S&N products.”
According to the information, in 1999 “the S&N Chief Financial Officer raised with S&N Legal questions from internal auditors about the payments to the Greek Distributor’s shell companies.” The information states that the Greece Sales Manager (a U.S. citizen based in Memphis who oversaw S&N sales in Greece) met with Legal Advisor (a U.S. citizen based in Memphis who was Senior Corporate Counsel for S&N) “to discuss issues with GmbH’s relationship with [the] Greek Distributor, during which the fact that surgeons in Greece were being paid to use medical devices products was discussed …”. The information states that thereafter, the Legal Advisor “briefed a more senior S&N lawyer on the issue …”.
Based on the allegations in the information and the SEC complaint discussed below, the Greek Distributor seems to be the same distributor/agent at issue in the previous Johnson & Johnson enforcement action.
The S&N information alleges that the “Greek Distributor traveled to Memphis, Tennessee and met with VP International (a U.S. citizen based in Memphis who served as Vice President for International Sales for S&N) and others regarding reductions in Greek government reimbursement rates for S&N products sold by [the] Greek Distributor” and that “during the meeting, [the] Greek Distributor proposed that the discount to [the] Greek Distributor be increased to account for the reimbursement reduction, without any reduction in the ‘marketing’ payments to the Shell Company.” According to the information, the Greek Distributor communicated with VP International and the Greece Sales Manager that his commission could not be reduced because he was “paying cash incentives right after each surgery.” According to the information, “S&N terminated all relationships with [the] Greek Distributor and related entities in June 2008.”
Based on the same core set of conduct, the information also charges one count of FCPA anti-bribery violations and one count of FCPA books and records violations.
DPA
The DOJ’s charges against S&N were resolved via a deferred prosecution agreement. Pursuant to the DPA, S&N admitted, accepted and acknowledged “that it is responsible for the acts of its officers, employees and agent, and wholly-owned subsidiaries.”
The term of the DPA is three years and it states that the DOJ entered into the agreement based on the following factors: (a) S&N investigated and disclosed to the DOJ and SEC the misconduct at issue; (b) S&N reported its findings to the DOJ and SEC; (c) S&N cooperated fully with the DOJ’s and SEC’s investigation; (d) S&N undertook remedial measures, including the implementation of an enhanced compliance program and agreed to undertake further remedial measures; (e)-(f) S&N agreed to continue to cooperate with the DOJ, and with foreign authorities, in any investigation of its directors, officers, employees, agents, consultants, subsidiaries, contractors and subcontractors relating to violations of the FCPA or other corrupt payments; (g) S&N “has cooperated and agreed to continue to cooperate with the DOJ in the DOJ’s investigations of other companies and individuals in connection with business practices overseas in various markets;” and (h) “were the DOJ to initiate a prosecution of S&N and obtain a conviction, instead of entering into this Agreement to defer prosecution, S&N would potentially be subject to exclusion from participation in federal health care programs pursuant to 42 USC 1320a-7(a).”
Pursuant to the DPA, the advisory Sentencing Guidelines range for the conduct at issue was $21 – $42 million. The DPA states as follows. “S&N agrees to pay a monetary penalty in the amount of $16.8 million, a 20 percent reduction off the bottom of the fine range. S&N and the DOJ agree that this fine is appropriate given S&N’s internal investigation, the nature and extent of S&N’s cooperation in this matter, and S&N’s extensive remediation.”
Pursuant to the DPA, S&N agreed to engage an independent compliance monitor “for a period of not less than 18 months” and to provide periodic reports to the DOJ regarding remediation and implementation of the enhanced compliance measures set forth by the monitor as described in an attachment to the DPA. As is customary in FCPA DPA’s, S&N agreed that it shall not make any public statement contradicting its acceptance of responsibility.
See here for the DOJ’s release. The DOJ release states as follows. “The matter is part of an investigation into bribery by medical device companies of physicians employed by government institutions.”
SEC
The SEC’s settled civil complaint (here) against PLC is based on the same core conduct as described above and “concerns violations of the [FCPA] by PLC through its subsidiaries to obtain sales for their medical device business.” In summary fashion, the SEC complaint alleges as follows. “From 1997 to June 2008, two of PLC’s subsidiaries engaged in a scheme with a distributor who made illicit payments to public doctors employed by government hospitals or agencies in Greece.” The complaint further alleges that PLC failed to “have an adequate internal control system in place to detect and prevent the illicit payments” and that PLC “improperly recorded these payments in its accounting books and records.” The complaint specifically alleges that PLC “failed to act on numerous red flags of bribery.” The complaint states as follows. “Among other things, even though PLC was aware that S&N and GmbH were conducting business in Greece and was aware of the heightened risks of the Greek market, PLC did not require proof of services rendered by Company A and B [entities associated with the Greek Distributor]. PLC failed to question the reasons for paying the Greek Distributor for Greek sales to accounts in the names of entities located outside of Greece. PLC failed to conduct due diligence on Company A and Company B. PLC also failed to conduct any audits of the transactions.”
Based on the above allegations, the SEC complaint charges FCPA anti-bribery, books and records and internal controls violations.
As stated in the SEC’s release (here), without admitting or denying the SEC’s allegations, PLC consented to entry of a court order permanently enjoining it from future FCPA violations and ordering it to pay $4,028,000 in disgorgement and $1,398,799 in prejudgment interest.
The SEC’s release states as follows. “The SEC’s investigation into the medical device industry is continuing.” In the release, Kara Brockmeyer (Chief of the SEC’s FCPA Unit) stated as follows. “Smith & Nephew’s subsidiaries chose a path of corruption rather than fair and honest competition. The SEC will continue to hold companies liable as we investigate the medical device industry for this type of illegal behavior.”
In this release, Smith & Nephew stated as follows. “Smith & Nephew and other medical device companies were asked by the SEC and DOJ in late 2007 to look into possible improper payments to government-employed doctors and voluntarily report any issues. Smith & Nephew found and reported evidence of improper payments by a distributor in Greece that had been appointed by Smith & Nephew subsidiaries and was terminated in 2008. The individuals implicated are no longer associated with the Group. In the release, Olivier Bohuon (CEO of Smith & Nephew) states as follows. “We have what I believe to be a world-class compliance programme, having enhanced it significantly since this investigation began in 2007. These legacy issues do not reflect Smith & Nephew today. But they underscore that we must remain vigilant every place we do business and let nothing compromise our
commitment to integrity.”
Paul Gerlach (here – Sidley & Austin, the former Associate Director of the SEC’s Enforcement Division) and Angela Burgess (here – Davis Polk & Wardwell) represented Smith & Nephew.
U.S. Bonny Island Bribery Bounty Grows
Few question the U.S. foreign bribery surplus, but it should be asked: is the US Treasury the best place for fines and penalties when a foreign company bribes a foreign official?
In April 2011, JGC Corp. of Japan formally joined the Bonny Island (Nigeria) bribery club – see here for the prior post. Some predicted this was the end of the Bonny Island enforcement actions, but I ended the post as follows. “This may not be the last we hear of Bonny Island bribery. Consulting Company B (based in Japan) was a key participant in the bribery scheme. Does anyone know anything about Consulting Company B and whether it might be next to resolve its Bonny Island exposure? If so, please share.”
Yesterday, the DOJ shared as it announced (here) that Marubeni Corporation (a Japanese trading company headquartered in Tokyo) resolved an FCPA enforcement action by agreeing to pay a $54.6 million criminal penalty.
As the DOJ trumpets in the headline of its release, the U.S. Bonny Island bribery intake now stands at $1.7 billion. Previous enforcement actions were brought against the four TSKJ joint venture partners: Kellogg Brown & Root LLC / Halliburton Co. / KBR Inc. ($579 million in combined DOJ/SEC fines and penalties); Technip S.A. ($338 million in combined DOJ/SEC fines and penalties); Snamprogetti Netherlands BV / ENI S.p.A. ($365 million in combined DOJ/SEC fines and penalties); and JGC Corp. of Japan ($219 million in DOJ fines). In addition, as the DOJ notes in its release, is Jeffrey Tesler’s $149 million forfeiture, Wojciech Chodan’s $700,000 forfeiture, and Albert Jack Stanley’s guilty plea.
This post summarizes the Marubeni enforcement action, the first FCPA enforcement action of 2012.
The DOJ enforcement action involved a criminal information (here) against Marubeni Corporation resolved through a deferred prosecution agreement (here)
Criminal Information
The information focuses on the same Bonny Island (Nigeria) conduct at issue in the above referenced enforcement actions. According to the information, Marubeni is a “major Japanese trading company headquartered in Tokyo, Japan, with operations around the world, including in Nigeria.” The company’s shares are listed in Japan and the U.K.
According to the information, the TSKJ joint venture, in addition to hiring Jeffrey Tesler, “also hired Marubeni to help it obtain and retain business in Nigeria, including by offering to pay and paying bribes to Nigerian government officials.” The information further states as follows. “By the time TSKJ had stopped paying Marubeni in June 2005, TSKJ had paid Marubeni $51 million in part for use in bribing Nigerian government officials. Marubeni was an agent within the meaning of the FCPA of TSKJ and of each of the joint venture companies, including KBR and Technip. Thus, Marubeni was an agent of a “domestic concern” within the meaning of the FCPA and an agent of an “issuer” within the meaning of the FCPA.”
Based on the above allegations, the information charges one count of conspiracy and one count of aiding and abetting FCPA anti-bribery provisions. The information contains the following U.S. jurisdictional allegations. (1) “Marubeni met with Stanley and others in Houston, Texas to discuss Marubeni’s contracts with TSKJ and its fees;” (2) “Marubeni’s co-conspirators caused wire transfers totaling approximately $132 million to be sent from Maderia Company’s 3’s bank account in Amsterdam, The Netherlands, to bank accounts in New York, New York, to be further credited to bank accounts in Switzerland and Monaco controlled by Tesler for Tesler to use to bribe Nigerian government officials;” (3) “on or about April 7, 1999 Marubeni faxed a letter to Stanley in Houston, Texas, regarding Marubeni’s fee for Train 3.” The aiding and abetting charge is based on the following allegation: “Marubeni aided and abetted KBR in causing the following corrupt payments to be wire transferred from Madeira Company 3’s bank account in Amsterdam, The Netherlands, to Marunbeni’s bank accounts in Japan intending for Marubeni to use such funds in part to bribe Nigerian government officials: $17 million in payments between August 2002 and June 2004 “payments to Marubeni pursuant to Agreement for Trains 4 & 5.”
As in prior Bonny Island bribery enforcement actions, the “foreign officials” identified were Nigeria LNG Limited (“NLNG”) officers and employees, NLNG is majority owned by multinational oil companies and Nigerian National Petroleum Corporation (“NNPC”) owns 49% of NLNG and “through the NLNG board members appointed by NNPC, among other means, the Nigerian government exercised control over NLNG, including but not limited to the ability to block the award of EPC contracts.” In addition, the Marubeni enforcement action (like the prior enforcement actions) generically refer to the other Nigerian government officials.
Deferred Prosecution Agreement
The DOJ’s charges against Marubeni were resolved via a deferred prosecution agreement. Pursuant to the DPA, Marubeni admitted, accepted, and acknowledged “that it is responsible under U.S. law for acts of its employees and agents” as set forth in the information.
The term of the DPA is two years and it states that the DOJ entered into the agreement based “on the individual facts and circumstances presented by this case” and that “among the facts considered were that Marubeni has agreed to undertake remedial measures as contemplated by [the DPA], and the impact on Marubeni, including collateral consequences, of a guilty plea or criminal conviction.” When the DOJ cites the facts considered in resolving a matter via a DPA or NPA typically the facts are much more extensive than above.
As detailed in the DPA, the advisory Sentencing Guidelines range for the charges at issue was $54.6 million – $109.2 million. Pursuant to the DPA, Marubeni agreed to pay $54.6 million – a rare instance in which the fine amount is within the guidelines range.
Pursuant to the DPA, Marubeni represented that it “has implemented and will continue to implement a compliance and ethics program designed to prevent and detect violations of the FCPA, the anti-corruption provisions of Japanese law, and other applicable anti-corruption laws throughout its operations …”. The specifics of such a program are set forth in an attachment to the DPA. In the DPA, Marubeni agreed to annual reporting obligations to the DOJ regarding its compliance program and internal controls. In addition, Marubeni also agreed to engage a “corporate compliance consultant” for a two-year period.
As is common in FCPA DPA’s Marubeni expressly agreed that it shall not, directly or indirectly, “make any public statement … contradicting the acceptance of responsibility by Marubeni” set forth in the DPA.
In the DOJ’s release, Mythili Raman (Principal Deputy Assistant Attorney General, Criminal Division) stated as follows. “With today’s resolution, the department has held accountable all five of the corporations that participated in the massive, decade-long scheme to bribe Nigerian government officials in connection with the so-called Bonny Island project. As a result of this extensive investigation, the department and our partners have obtained more than $1.7 billion in penalties and forfeiture orders from the joint venture partners, their agents and individuals who sought illegally to obtain the Bonny Island contracts. Several individuals also have pleaded guilty for their roles in the scheme. Our FCPA enforcement efforts are an essential part of our comprehensive approach to rooting out corruption across the globe.”
In this company release, Marubeni said that the effects of the enforcement action on its business forecasts “will not be material.” One interesting aside is that Marubeni states in its most recent annual report (here) as follows. “FTSE4Good Global Index: The FTSE4Good Global Index is a stock price indicator developed and established by the Financial Times Stock Exchange (FTSE), a joint venture between the Financial Times Ltd. of the U.K. and the London Stock Exchange. Companies are evaluated on their environmental sustainability efforts, relationships with stakeholders, protection of human rights, safeguarding of labor standards in their supply chains, and commitment to preventing corruption. Marubeni has been consistently selected for inclusion in the index since 2001, when the index was initially established.” (emphasis added).
Derek Adler (here) and Marc Weinstein (here) of Hughes Hubbard & Reed LLP represented Marubeni.
DOJ Enforcement Of The FCPA – Year In Review
Yesterday, I highlighted various aspects of the SEC’s enforcement of the FCPA in 2011.
In this post, I highlight certain facts and figures from the DOJ’s FCPA enforcement program in 2011.
In 2011, the DOJ brought 11 corporate FCPA enforcement actions (this includes the enforcement action against Cinergy Telecommunications that remains pending).
[In 2010, the DOJ brought 16 corporate FCPA enforcement actions (in addition to the BAE enforcement action that was related to the FCPA, but did not involve FCPA charges and the Lindsey Manufacturing enforcement action that began in 2010 and resulted in the convictions being vacated and the indictment dismissed in 2011 due to prosecutorial misconduct – see here)]
In the 11 corporate DOJ FCPA enforcement actions from 2011, the DOJ collected approximately $355 million in criminal fines. Including the $149 million forfeiture in the Jeffrey Tesler individual enforcement action which resulted in a plea agreement in 2011 (see here), the DOJ’s FCPA enforcement program in 2011 took in approximately $504 million. Approximately $432 million (86%) of the $504 million was in three enforcement actions (JGC Corp., Magyar Telekom / Deutsche Telekom, and Tesler). Approximately $458 million of the $504 million (91%) collected by the DOJ was in enforcement actions against foreign companies (JGC Corp., Magyar Telekom / Deutsche Telekom, Tenaris, and Bridgestone) or foreign nationals (Tesler).
[In 2010, the DOJ collected approximately $870 million in criminal fines in the 16 corporate FCPA enforcement actions ($1.27 billion by including the $400 million BAE enforcement action)].
Tack on the SEC’s collections in 2011 corporate FCPA enforcement actions of approximately $148 million and the overall corporate FCPA fine, penalty and disgorgement amount from 2011 is approximately $503 million – approximately $652 million including Tesler.
[In 2010, corporate fines, penalties and disgorgement in DOJ/SEC enforcement actions was approximately $1.8 billion (including the BAE enforcement action)]
DOJ FCPA enforcement in 2011 was both large (JGC Corp. – $219 million) and small (Comverse Technologies – $1.2 million; Aon – $1.8 million). Three FCPA enforcement actions in 2011 were DOJ only (JGC Corp., Bridgestone, and Cinergy Telecommunications).
In all six corporate FCPA enforcement actions where an analysis was possible, the DOJ agreed to a criminal fine below the minimum range suggested by the sentencing guidelines. In these six actions, the average was approximately 28% below the minimum guidelines range and the distribution range was 55% below the minimum guidelines range (Bridgestone) and 18% below the minimum guidelines range (Magyar Telekom). There were no corporate FCPA enforcement action in 2011 in which the company paid a criminal fine within the guidelines range.
[Note – why are only 6 of the 11 enforcement actions included in the above analysis? 4 corporate enforcement actions involved an NPA and the DOJ does not set forth a guidelines range in the agreement or related documents and 1 enforcement action (Cinergy Telecommunications) remains pending].
[In 2010, the average was approximately 25% below the minimum guidelines range and the distribution range was 55% below the minimum guidelines range (Pride International) and 5% below the minimum guidelines range (Panalpina). The only two corporate FCPA enforcement actions from 2010 where the company paid a criminal fine within the guidelines range were Alliance One (the company voluntarily disclosed and receive a non-prosecution agreement) and Alcatel-Lucent.]
How many corporate FCPA enforcement actions involved related individual prosecutions of company employees by the DOJ (recognizing that such prosecutions may be forthcoming in the future)? Of the 11 corporate DOJ enforcement actions or indictments, 8 of the 11 enforcement actions (73%) have not involved thus far any DOJ prosecutions of company employees. 2011 corporate FCPA enforcement actions that have resulted in criminal charges against company employees are Armor Holdings (Richard Bistrong), Bridgestone (Misao Hioki) and Cinergy Telecommunications (Washington Cruz and Amadeus Richers).
[In 2010, 12 of the 17 corporate FCPA enforcement actions (70%) did not involve, and have not yet involved, DOJ prosecutions of company employees.]
Including Washington Cruz and Amadeus Richers (a German citizen) mentioned above, the DOJ brought 10 individual FCPA enforcement actions in 2011. In December, in connection with the 2008 Siemens enforcement action, the DOJ brought criminal charges against: Uriel Sharef, Herbert Steffen, Andres Truppel, Ulrich Bock, Stephan Signer, Eberhard Reichert, Carlos Sergi and Miguel Czysch. All of these individuals are foreign nationals. Thus, 90% of the DOJ’s individual enforcement actions in 2011 were against foreign nationals. As noted in yesterday’s SEC year in review post, all 12 of the individuals the SEC charged with FCPA violations in 2011 were foreign nationals (in a few cases, dual citizens of a foreign country and the U.S.).
What about non-prosecution and deferred prosecutions vs. old fashioned law enforcement (i.e., if a company committed a crime the DOJ charged it and if the company did not commit a crime the DOJ did not charge it)? In 2011, 9 of the 11 corporate FCPA enforcement actions (82%) were resolved via non-prosecution agreements (Comverse Technologies, Tenaris, Armor Holdings, and Aon) or deferred prosecution agreements (Maxwell Technologies, Tyson Foods, JGC Corp., and Johnson & Johnson). The Magyar Telekom / Deutsche Telekom enforcement action involved both a non-prosecution agreement (Deutsche Telekom) and a deferred prosecution agreement (Magyar Telekom). The two corporate FCPA enforcement from 2011 that involved an indictment or plea to criminal charges were Bridgestone and Cinergy Telecommunications.
[In 2010, 15 of the 16 (94%) corporate FCPA enforcement actions involved NPAs (4) or DPAs (11)].
As Gibson Dunn highlighted in this recent report, FCPA enforcement actions comprised approximately 40% of the DOJ’s 26 NPAs or DPAs in 2011. [In 2010, FCPA enforcement actions comprised approximately 50% of all DOJ NPA or DPA agreements]. Among the criticisms noted in the Gibson Dunn report of NPAs / DPAs is that “from a company’s perspective, the threat of indictment can force a company to agree to a DPA or NPA based on the government’s perception of alleged misconduct even under novel, expansive, or unlitigated theories of liability.”
In yesterday’s SEC year in review post, I noted that 90% of the $148 million the SEC collected in 2011 corporate FCPA enforcement actions was the result of volunatary disclosures or other instances of public disclosure – not original investigations by the SEC.
What does this number look like for DOJ FCPA enforcement actions in 2011? Of the $504 million in criminal fines collected by the DOJ in FCPA enforcement actions, $502 million (99%) appear to be result of voluntary disclosures or other instances of public disclosure such as previous foreign law enforcement investigations. The only exception would appear to be Aon ($1.8 million).
[In 2010, 97% of DOJ criminal fines would appear to fit this description].
This remainder of this post provides an overview of corporate DOJ FCPA enforcement in 2011.
*****
Maxwell Technologies (Jan. 31st)
See here for the prior post.
Charges: FCPA anti-bribery violations and knowingly violating the FCPA’s books and records provisions.
Resolution Vehicle: Criminal information resolved through a DPA (three year term).
Guidelines Range: $10.5 million to $21 million.
Penalty: $8 million (25% below the minimum amount suggested by the guidelines).
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: No.
Tyson Foods (Feb. 10th)
See here for the prior post.
Charges: Conspiracy to violate the FCPA’s anti-bribery and books and records provisions; FCPA anti-bribery and books and records violations.
Resolution Vehicle: Criminal information resolved through a DPA (two year term).
Guidelines Range: $5.04 to $10.08 million.
Penalty: $4 million (approximately 20% below the minimum amount suggested by the guidelines)
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: No.
JGC of Japan (April 6th)
See here for the prior post.
Charges: Conspiracy to violate the FCPA’s anti-bribery provisions and aiding and abetting FCPA anti-bribery violations.
Resolution Vehicle: Criminal charges resolved through a deferred-prosecution agreement – term two years.
Guidelines Range: $312.6 million to $625.2 million
Penalty: $218.8 million (30% below the minimum amount suggested by the guidelines).
Disclosure: Yes, based on a previous foreign law enforcement investigation.
Monitor: Yes.
Individuals Charged: No.
Comverse Technology (April 7th)
See here for the prior post.
Charges: None – although the non-prosecution agreement refers to a “knowing violation of the books and records provisions of the FCPA.”
Resolution Vehicle: non-prosecution agreement – term two years.
Guidelines Range: Not set forth in the NPA.
Penalty: $1.2 million.
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: No.
Johnson & Johnson (April 8th)
See here for the prior post.
Charges: FCPA anti-bribery violations and conspiracy to violate the FCPA’s anti-bribery and books and record provisions.
Resolution Vehicle: Criminal information resolved through a deferred prosecution agreement (three year term).
Guidelines Range: $28.5 million to $57 million.
Penalty: $21.4 million (25% below the minimum amount suggested by the guidelines).
Disclosure: Yes, voluntary disclosure (however Iraq Oil for Food conduct was not voluntarily disclosed).
Monitor: No.
Individuals Charged: None by U.S. authorities (Robert Dougall (a former DePuy executive) previously plead guilty to a U.K. SFO enforcement action – see here).
Tenaris (May 17th)
See here for the prior post.
Charges: None, although the non-prosecution agreement refers to “knowing violations of the FCPA’s anti-bribery and books and records provisions.”
Resolution Vehicle: NPA – term two years.
Guidelines Range: Not set forth in the NPA.
Penalty: $3.5 million.
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: No.
Cinergy Telecommunications (July 12th)
See here for the prior post.
Charges: conspiracy to violate the FCPA and to commit wire fraud; FCPA anti-bribery violations; conspiracy to commit money laundering; and money laundering.
Resolution Vehicle: N/A
Guidelines Range: N/A
Disclosure: No.
Monitor: N/A
Individuals Charged: Yes.
Armor Holdings (July 13th)
See here for the prior post.
Charges: None
Resolution Vehicle: Non-Prosecution Agreement – term two years.
Guidelines Range: Not set forth in the NPA.
Penalty: $10.3 million
Disclosure: Yes, voluntary disclosure.
Monitor: No (although Armor Holdings is now part of BAE and falls under the monitorship in the BAE FCPA-related enforcement action).
Individuals Charged: Yes.
Bridgestone (Sept. 15th)
See here for the prior post.
Charges: Conspiracy to violate the FCPA’s anti-bribery provisions (and conspiracy to violate the Sherman Act).
Resolution Vehicle: Criminal information resolved via a plea agreement.
Guidelines Range: For the FCPA conduct, the guidelines range (see here) was approximately $40 million – $80 million.
Penalty: $28 million (it would appear that approximately 80% of this figure – approximately $22 million was based on the FCPA conduct)
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: Yes.
Aon Corp. (Dec. 20th)
See here for the prior post.
Charges: N/A although the NPA refers to Aon’s knowing violation of the anti-bribery, books and records, and internal controls provisions.
Resolution Vehicle: NPA – term two years.
Guidelines Range: Not set forth in the NPA.
Penalty: $1.8 million.
Disclosure: Aon’s SEC filings stated that ”following inquiries from regulators, the Company commenced an internal review of its compliance with certain U.S. and non-U.S. anti-corruption laws, including the U.S. Foreign Corrupt Practices Act.”
Monitor: No.
Individuals Charged: No.
Magyar Telekom / Deutsche Telekom (Dec. 29th)
See here for the prior post.
Charges: Magyar Telekom – FCPA anti-bribery and books and records charges; Deutsche Telekom – N/A
Resolution Vehicle: Magyar Telekom – DPA – term two years; Deutsche Telekom – NPA – term two years.
Guidelines Range: Magyar Telekom – $72.5 million – $145 million; Deutsche Telekom – not set forth in the NPA.
Penalty: Magyar Telekom – $59.6 million (18% below the minimum Guidelines range); Deutsche Telekom – $4.4 million
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: No.
Informative Reads
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The quality of FCPA resources continues to impress. Three law firm periodic publications I make sure to put on my reading stack are those authored by Gibson Dunn & Crutcher, Shearman & Sterling, and Miller & Chevalier.
Gibson Dunn’s “2011 Year-End FCPA Update” (here) begins as follows. “2011 marked yet another dynamic year for the Foreign Corrupt Practices Act, including numerous significant enforcement actions, more trials than in any other year in the history of the statute, and a growing public debate about the policy ramifications of a U.S.-dominated international anti-corruption enforcement field. Those close to the statute can feel the unmatched pace at which the 34-year-old law is now developing. With more litigated decisions, more bills pending in Congress, and more interplay between the FCPA and other international laws prohibiting cross-border bribery, there is a growing sense of urgency amongst FCPA practitioners as to the direction the statute will take in the coming years. […] There can be no dispute about it–these are interesting times for the FCPA.” The Update concludes as follows. “Perhaps the most intriguing current development in the FCPA is that everything that made 2011 such a fascinating year promises only to increase in the years to come, as there will only be more litigation, more legislation, and more international coordination in the near future. Companies and their executives doing business in an increasingly global marketplace are well advised to stay abreast of these developments.” Sandwiched between is much useful information and analysis sure to be of interest to readers.
Gibson Dunn also released (here) its annual update on corporate deferred prosecution and non-prosecution agreements. According to the report, the DOJ and SEC entered into 29 NPAs/DPAs in 2011. Such vehicles were used in FCPA enforcement actions (DOJ or SEC) 11 times – approximately 40% of the total.
Shearman & Sterling’s “Recent Trends and Patterns in the Enforcement of the FCPA” (here) always impresses. The latest edition begins as follows. “Although the pace of new FCPA enforcement actions was somewhat off in 2011 – only sixteen corporate cases and eighteen new individual defendants – 2011 was nevertheless an eventful year for FCPA enforcement and indeed for enforcement of other countries’ similar laws. Among the highlights: defendants took the government to trial in a number of FCPA matters, with mixed results reflecting the difficulty and uncertainty of proving foreign bribery beyond a reasonable doubt; judges in multiple districts largely adopted the government’s expansive interpretation of what constitutes an “instrumentality” of a foreign government, including state-owned entities indirectly controlled by a foreign government; the DOJ and the SEC continued their focus on prosecution of individuals; the U.S. enforcement authorities brought fewer cases in 2011 against non-U.S. companies; despite claims that the government extracted exorbitant fines in FCPA matters, the average penalty continued to be less than $25 million; the DOJ and the SEC almost completely withdrew from their prior practice of routinely requiring an independent monitor in all cases and demonstrated a willingness to accept various forms of self-monitoring; with the advent of the U.K.’s Bribery Act, the British government offered considerable guidance on compliance and began exploring ways of encouraging voluntary disclosures and cooperation by emulating the U.S. system of deferred prosecution agreements.”
Shearman & Sterling publications are always strong on jurisdictional issues and its most recent “Trends and Patterns” states as follows regarding the Magyar Telekom enforcement action (see here for the prior post). “The year ended with an entirely new expansion of what constitutes territorial acts. In Magyar Telekom, the DOJ’s sole claim to anti-bribery jurisdiction (but not to books and records jurisdiction) was based on a foreign official’s “U.S.-based email address,” whereby email was “passed through, stored on, and transmitted from servers located in the U.S.” This is a particularly weak jurisdictional basis, given that this one count resulted in a Sentencing Guidelines calculation of eight times what the company would have had to pay under just the books and records provisions.”
Shearman & Sterling’s FCPA Digest (here), at 692 pages, is as complete of an FCPA source as you will find.
Last, but certainly not least, is Miller & Chevalier’s FCPA Winter Review 2012 (here). Complete with charts and graphs, it is a comprehensive resource on the latest developments in the following areas: enforcement actions against companies and individuals; FCPA-related private litigation; domestic legislative and U.S. enforcement agency developments; as well as international developments.
If you have not yet had the opportunity to read the above three publications, you should, it will be time well spent.