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Friday Roundup

Briefing complete,  an isn’t it ironic follow-up, and going for the gold.  It’s all here in the Friday roundup.

Briefing Complete In Historic “Foreign Official” Challenge

This previous post highlighted the appeal of Carlos Rodriguez and Joel Esquenazi to the 11th Circuit on a host of issues, including whether the trial court erred as a matter of law in its jury instruction regarding what constitutes an “instrumentality” of a foreign government – and thus who are “foreign officials” under the FCPA.  As noted in the post, this is a historic appeal, the first time in the FCPA’s history that “foreign official” will be squarely before an appellate court.  This previous post highlighted the DOJ’s response brief.

Yesterday lawyers for Rodriguez and Esquenazi filed reply briefs here and here.

Among other things, Rodriguez’s brief argues as follows.  “This Court should reject the Government’s assertion that the OECD Anti-Bribery Convention requires that this Court affirm the jury instruction incorporating the government function interpretation.  […] Before the United States adopted the OECD 1997 Convention on Combating Bribery in 1998, the United States had no obligation to prohibit foreign bribery.  Thus, the law of nations sheds no light on what Congress intended when it adopted the relevant definition of foreign official in 1977.   In 1998, when Congress amended the FCPA in light of the OECD’s Convention, Congress did not add “public enterprise” to the definition of foreign official.  This Court should not apply terms from the Convention that Congress chose not to adopt into the FCPA.”

Among other things, Esquenazi’s brief argues that the “government’s untethered definition of instrumentality cannot stand,” “the government engages in a selective and misleading reading of the FCPA’s legislative history,” and that the “government’s vehemence proves too much.”  As to the later point, the brief states as follows.  “The Government spends a significant part of its brief arguing that its broad (and fatally flawed) definition of “instrumentality” is crystal clear.  First, few statutory terms have received such extensive governmental resuscitation efforts. Second, there is a difficult-to-ignore, growing consensus among observers (including two former United States Attorneys General) that the Government is misreading “instrumentality.”

Regarding my “foreign official” declaration (here) that the DOJ is seeking to exclude from the record, the brief states as follows.  “The Government protests Esquenazi’s citation to Professor Michael J. Koehler’s declaration addressing the legislative history of the FCPA, which was filed in United States v. Carson.  Aside from the analysis contained in the Koehler declaration, the substance of the declaration is the legislative history of the FCPA. The Court can surely take notice of legislative history, and evaluate the utility and accuracy of Professor Koehler’s declaration for itself. But the Government’s claim that the declaration of a professor filed in another criminal proceeding and under penalty of perjury is somehow of lower status than a law review article reviewed by law students strains credulity.”

David Simon (Foley & Lardner – here) leads the appellate team for Rodriguez.  Markus Funk (Perkins Coie – here) leads the appellate team for Esquenazi.

Isn’t It Ironic Follow-Up

In this prior post, I asked isn’t it ironic, don’t you think, that while the U.S. is bringing enforcement actions against companies for conduct that includes providing $600 bottles of wine, Cartier watches, cameras, kitchen appliances, business suits, and executive education classes to individuals deemed “foreign officials,” the U.S. has legitimized corporate influence over government in this country?   I noted that this uncomfortable truth will be clear on display as the elections unfold.

Sure enough, earlier this week, the Wall Street Journal had a page one article “Movie Mogul’s Starring Role in Raising Funds for Obama” (here) detailing Jeffrey Katzenberg’s extensive political contributions and close ties to President Obama.  Hosting a dinner that raised $15 million for President Obama.  Check.  Writing a $2 million check to jump start a super PAC supporting President Obama.  Check.  A planned $40,000 per person dinner with President Obama.  Check.

The WSJ article notes that “Mr. Katzenberg’s fundraising prowess has earned him access and a role as the informal liaison between Hollywood and the White House, as the industry continues seeking government help against online piracy” among other issues.

If President Obama was a foreign official and expensive wine was served at the dinner, such allegations might very well find their way into an FCPA enforcement action … and have already.  If the super PAC was a charitable donation and President Obama a foreign official, such allegations might very well find their way into an FCPA enforcement action … and have already.

Isn’t it ironic don’t you think?

But the irony does not stop there.

As noted in the article, among the access that Katzenberg had was attending a State Department lunch during the recent U.S. visit of China’s presumed future leader Xi Jinping.  The lunch occurred in the context of Hollywood’s eagerness to tap into the lucrative Chinese market.

As noted in this previous post, it was widely reported this past spring that the SEC has sent letters of inquiry to several Hollywood studios, including Katzenberg’s DreamWorks Animation, seeking information about potential inappropriate payments and how the companies interact with certain government officials in China.

Isn’t it ironic don’t you think?

Going for the Gold

It’s interesting to witness the lengths FCPA Inc. will go to market its compliance services.  After dozens of London Olympic, Bribery Act, FCPA, are you prepared type pieces, up next is the Winter Olympics in Sochi, Russia, and with that a marketing opportunity.   This recent law firm piece states as follows.  “With the conclusion of the 2012 Summer Olympics in London, the world’s eyes will soon turn to Sochi, the Black Sea resort city in Russia, which will host the 2014 Winter Olympics. In addition to serving as the backdrop for the usual feats of athletic prowess and national pride, the Sochi games may also be fertile ground for prosecutions under the United States’ Foreign Corrupt Practices Act (FCPA). The U.S. government’s actions in this setting will serve as a signal to any company doing business abroad that it must be proactive in ensuring compliance with the FCPA.”

As Above the Law recently observed here, the FCPA “freak-out session is entertaining to watch.”


A good weekend to all.

Isn’t It Ironic, Don’t You Think?

[Proper citation to Alanis Morissette is in order, this song makes for good background music as well for this post]

This post has been in the works for some time, but with the recent political conventions ending and the election season beginning in earnest, it was time to finish it.  To be sure, this is not the first time I have written about this general topic, see here, here, here, here and here for prior posts regarding the double standard.

Isn’t it ironic, don’t you think, that as the U.S. aggressively expands its Foreign Corrupt Practices Act enforcement theories and snares foreign firms on flimsy jurisdictional theories, the U.S. continues to slide in Transparency International’s Corruption Perception Index (a well-known index that ranks countries on how corrupt their public sector is perceived to be)?  Never in the top 10, the U.S. has now fallen out of the top 20.

Isn’t it ironic, don’t you think, that while the U.S. is bringing enforcement actions against companies for conduct that includes providing $600 bottles of wine, Cartier watches, cameras, kitchen appliances, business suits, and executive education classes to individuals deemed “foreign officials,” the U.S. has legitimized corporate influence over government in this country?

Think about this glaring double standard in the context of Las Vegas Sands (“Sands”) and its CEO Sheldon Adelson.

This ProPublica investigation “Inside the Investigation of Leading Republican Money Man Sheldon Adelson” revealed that “Adelson instructed a top executive to pay about $700,000 in legal fees to Leonel Alves, a Macau legislator whose firm was serving as an outside counsel to Las Vegas Sands” and that the payment was under FCPA scrutiny “because of Alves’ government and political roles in Macau.”  As noted in this previous post, Sands has been under FCPA scrutiny for approximately two years.

Numerous articles for been writing about Sands (and perhaps Adelson’s) FCPA exposure.  See here from the Wall Street Journal “Sands China Deals Scrutinized” (noting that Sands is under investigation by the DOJ and SEC for a variety of potential FCPA issues including a planned Adelson Center for U.S.-China Enterprise designed to help small and medium size U.S. businesses break into the Chinese market, Sands’ sponsorship of a Chinese basketball team, and Sands’ creation of a high-speed ferry services to bring gamblers from Macau to Hong Kong and obtaining a favorable administrative judgment).  See also here from the New York Times “Scrutiny for Casino Mogul’s Frontman in China.”

At the same time, Adelson is a top Republican donor in U.S. elections.  See here from the Wall Street Journal, “Casino Mogul Aids Romney’s Backers” (June 14, 2012) (noting that Aldelson and his wife have given $10 million to the main political action committee supporting Mitt Romney).  As noted in the article, Adelson and his family also previously gave $25 million to other political action committees this election cycle.  In addition, as noted in the article, “during the early primary season Mr. Adelson and his family kept Newt Gingrich’s campaign alive with $21 million in donations.”

Aldeson is not the only corporate titan seeking to influence (and influencing) the political process.  Earlier this week, the Wall Street Journal reported here “Investor Bankrolls Big Romney Campaign” how Joe Ricketts, the founder of what become online brokerage TD Ameritrade Inc., “plans to spend $10 million airing ads supporting GOP nominee Mitt Romney.”  The article reported that Ricketts total political spending on the 2012 election is expected to be about $18.5 million.

This is not, of course, just a Republican issue.  The Wall Street Journal Article noted that DreamWorks Animation CEO Jeffrety Katzenberg and Irwin Jacobs, co-founder of Qualcomm Inc., are big spenders for President Obama and the Democratic Party.  See also here from National Public Radio as to Katzenberg and here from Bloomberg Businessweek as to Jacobs.

Yet the U.S. political expenditures discussed above are perfectly legal.  In Citizens United, the Supreme Court stated that such expenditures “do not give rise to corruption or the appearance of corruption.”

Yet payments made in the foreign context, even payments that pale in magnitude and degree, would be clear crimes under U.S. law. because they indeed give rise to corruption and the appearance of corruption.”

I close with the same questions posed in my previous double standard posts.  Will a U.S. company’s interaction with a “foreign official” be subject to more scrutiny and different standards than its interaction with a U.S. official?  Do we reflexively label a “foreign official” who receives “things of value” directly or indirectly from private business interests as corrupt, yet when a U.S. official similarly receives “things of value” directly or indirectly from private business interests we merely say “well, no one said our system is perfect”?

This is not a question of what the law is, but what the law should be, and whether there is any intellectual and moral consistency between these two extreme opposites.  This is an issue of facing an uncomfortable truth that will be clear display the next several months.

A Double Standard? Part V

Prior posts have explored the issue of whether there is a double standard between enforcement of the Foreign Corrupt Practices Act and enforcement of U.S. domestic bribery statutes.

See here for “A Double Standard?” here for “A Double Standard? Part II,” here for “A Double Standard? Part III,” and here for “Double Standard? Part IV.”

The following questions were posed:  will a U.S. company’s interaction with a “foreign official” (however that term is interpreted) be subject to more scrutiny and different standards than its interaction with a U.S. official; do we reflexively label a “foreign official” who receives “things of value” from private business interests as corrupt, yet when a U.S. official similarly receives “things of value” from private business interests we merely say “well, no one said our system is perfect”?

Wal-Mart’s recent FCPA scrutiny has shined a light on many topics directly and indirectly related to the FCPA in recent days.  One topic that is frequently showing up in my daily FCPA searches is the notion of a double standard as explored in the above posts.

In this recent clip from The War Room with Jennifer Granholm on Current TV, Granholm makes the general point that in the U.S., corporations frequently seek to influence the political process in ways that benefit its business interests.  Referring to Wal-Mart’s FCPA scrutiny, Granholm termed it “wildly ironic” that the company is under criminal investigation for potential violations of the FCPA for its interactions with Mexican officials, yet corporations have various legal vehicles, post-Citizens United, to influence U.S. officials.

In this recent Fox News segment, commentators note that “the [U.S.] government wants to give the impression that it is law-abiding and others are not when the same behavior is engaged” in by both and that “when the government itself gives bribes in foreign countries every day of the week, they just call it foreign aid.”  During the segment, an issue explored is how, when a U.S. company needs to receive a permit in the local community or needs something done, the company may call up its lobbyist who then may make a campaign donation to the official.  Guests on the program stated that there is a contradiction between potential FCPA scrutiny and legal U.S. corporate practices that “does not make moral sense.”

See this prior post “Is There a Difference?” for a discussion of similar issues.  Also, see this prior post discussing the sentencing of FCPA defendant Bobby Elkins during which the sentencing judge reportedly stated that the CIA routinely bribes Afghan warlords, but the CIA’s conduct is not illegal and that this parallel “sort of goes to the morality of the situation” Elkins faced.  And then of course there is the James Giffen FCPA enforcement action.  The enforcement action began with allegations (here) that Giffen made more than $78 million in unlawful payments to two senior Kazakhstan officials in connection with oil transactions for major American oil companies and abruptly ended in August 2010 with a one-paragraph superseding information (here) charging a misdemeanor tax violation and the company he worked for settling an FCPA enforcement action focused solely on two snowmobiles (here).  Part of Giffen’s defense was that his actions were taken with the knowledge and support of the CIA, the National Security Council, the Department of State and the White House. (See here for a prior post).

A while back, a reader sent me this article from Salon titled “America’s Pervasive Pay-Off System.”  The author discusses petty bribery in Africa and states as follows.  “It’s not that the United States lacks corruption, […]— or even pervasive corruption.  It’s just not of the low-level and petty variety like the kind [the author explained in Africa], not most of the time anyway.  In America, corruption is concentrated at the highest levels of society — and it masquerades, for example, under the name of “campaign finance.””  Likewise, the St. Louis Post-Dispatch recently carried this editorial that stated as follows.  “The fact is that even the United States government pays bribes. The “Great  Sunni Awakening” that shut off the worst of the insurgency in the Iraq War was  made possible by payments  to tribal leaders. In Afghanistan, the U.S. military routinely paid  off warlords, including some with ties to the Taliban. And then there all the U.S. politicians taking campaign contributions in  return for ‘access.’ This is a difference without a distinction.”

One of my favorite quotes from the FCPA’s legislative history was made by Theodore Sorensen who stated in the midst of Congressional deliberations regarding what would become the FCPA as follows.   “Corporate bribery is not the simple, safe issue it seems at first blush.”  Noting “countless situations in which a fair-minded investigator or judge will be hard-put to determine whether a particular payment or practice is a legitimate and permissible business activity or a means of improper influence,” Sorensen stated that “reasonable men and even angels will differ on the answers … [and] such distinctions should make us less sweeping in our judgments and less confident of our solutions.”


The above post is further to my work in progress “A Double Standard?” first presented at the Law and Society Annual Meeting in San Francisco in June 2011 during a panel titled “Corruption, International Business and Economic Development.”

A Double Standard? Part IV

A company learns of potential legislation that will negatively affect its business. A company representative reportedly begs a government official (who heads a key committee that will decide the fate of the legislation) to vote in a way that serves the company’s interest and the company otherwise spends millions to seek to influence the legislative body. The government official reverses his prior position and votes in a way that serves the company’s interest. One month later, the company’s CEO and the government official appear at a event in which the company announces it is making a $30 million charitable donation, $11 million of which will benefit schools in the government official’s district, the largest gift ever to the city’s schools.

Businesses are prohibited from making campaign contributions to a government official. So businesses give money to a foundation set up by the government official’s wife months after the official took office. Even though the charity is named and led by the official’s wife, the government official is pictured alongside his wife on the corporate solicitation page of the charity’s web site and the official’s chief fundraiser is listed as the charity’s treasurer.

A prudent FCPA practitioner would immediately see the “red flags;” counsel the companies at issue to conduct a lengthy and expensive internal investigation as to the conduct at issue and related conduct; and – mindful of the enforcement agencies guidance and cognizant of the carrots and sticks they posses – likely suggest voluntarily disclosure of the investigative findings.

But wait.

The government officials in the above real-life scenarios were not “foreign officials” – they were U.S. government officials!

See here for the New York Times story on General Electric’s tax exposure and its interactions with Representative Charles Rangel.

See here for the New York Times story on Louisiana governor Bobby Jindal and his wife’s charity.

Scrap those internal investigation plans, forget about voluntary disclosure, and slim chance there will be an enforcement action. Nobody said our system was perfect, but that is just how the system works some will say.

But why should corporate interaction with a “foreign official” be subject to greater scrutiny and different standards of enforcement than corporate interaction with a U.S. official? After all, there is a U.S. domestic bribery statute (18 USC 201) with elements very similar to the FCPA.

Why do we reflexively label a “foreign official” who receives “things of value” from private business interests as corrupt, yet generally turn a blind eye when it happens here at home?

Is the FCPA enforced too aggressively or is enforcement of the U.S. domestic bribery statute too lax?

Ought not there be some consistency between these two statutes?

For prior posts on the FCPA’s double standard see here, here and here.

Stay Tuned for More

As have been widely reported (see here for the New York Times article), an FCPA sweep of the pharmaceutical / medical device industry is currently underway. Merck, Medtronic, Zimmer and several other companies are reportedly under investigation.

For instance, last week Eli Lilly disclosed (here) that it is “in advanced discussions with the SEC to resolve their investigation” that began in August 2003 as to “compliance by Polish subsidiaries of certain pharmaceutical companies, including Lilly, with the [FCPA].”

AstraZeneca disclosed (here) last week as follows. “As previously disclosed, AstraZeneca has received inquiries from the US Department of Justice and the Securities and Exchange Commission in connection with an investigation into Foreign Corrupt Practices Act issues in the pharmaceutical industry across several countries. AstraZeneca is cooperating with these inquiries and is investigating, among other things, sales practices, internal controls, certain distributors, and interactions with healthcare providers, institutions, and other government officials. AstraZeneca is investigating inappropriate conduct in certain countries, including China.”

Johnson & Johnson, previously included in the group of companies under investigation, resolved an FCPA enforcement action last month (see here for the prior post).

Many have suggested that J&J’s voluntarily disclosed conduct served as the point of entry for the industry wide sweep based on this sentence from the J&J deferred prosecution agreement – “J&J has cooperated and agreed to continue to cooperate with the Department in the Department’s investigations of other companies and individuals in connection with business practices overseas in various markets.”

Thus, the J&J enforcement action in many ways provides a glimpse into potential future FCPA enforcement actions involving the pharmaceutical / medical device industry.

Two issues likely to be found in such future FCPA enforcement actions are discussed below.

42 USC 1320a-7(a)

The J&J deferred prosecution agreement states – for why the DOJ agreed to resolve the case the way it did – as follows. “Were the Department to initiate a prosecution of J&J or one of its operating companies and obtain a conviction, instead of entering into this Agreement to defer prosecution, J&J could be subject to exclusion from participating in federal health care programs pursuant to 42 U.S.C. 1320a-7(a).” (See here for those provisions).

This component of the J&J enforcement is nothing new – as many companies such as Siemens, BAE and others – have escaped the most serious consequences of the alleged criminal conduct because of “who” the companies were (i.e. the products sold and to whom).

This feature of FCPA enforcement is controversial (for additional reading – see here for my Q&A exchange with former Senator Arlen Specter and here for the recent article titled “FCPA Sanctions: To Big to Debar”).

In recent months, the DOJ has pledged allegiance to the OECD Convention on Bribery to defend certain of its sentencing and “foreign official” enforcement positions (see here for instance).

Does the OECD Convention say anything about enforcement agencies looking at the unique aspects of an alleged violator and then crafting a resolution to fit that alleged violator?

Yes it does.

Article 5 of the OECD Convention (here), under the heading “Enforcement,” states that investigation and prosecution of bribery offenses “shall not be influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved.”

Health-Care Providers as “Foreign Officials”

As noted in the prior J&J post (here) the principal FCPA enforcement theory at issue in the pharmaceutical / medical device industry sweep would seem to be the notion that [insert country] had a national healthcare system wherein most [insert country] hospitals are publicly owned and operated and thus health care providers who work at publicly-owned hospitals are government employees providing health care services in their official capacities. According to the DOJ, the individuals are therefore “foreign officials” “as that term is defined in the FCPA.”

Against this backdrop, it is interesting to observe that in the United States approximately 20% of hospitals are owned by state or local governments (see here). In addition, approximately 150 more medical centers are run by the Veterans Health Administration (see here).

Are we calling 20+% of U.S. health-care providers U.S. officials? If not, why not and why the difference?

Something to keep in mind as additional pharmaceutical / medical device FCPA enforcement actions burst onto the scene.

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