Of Note From The Eli Lilly Enforcement Action
This previous post went long and deep as to the Eli Lilly enforcement action from last month. This post continues the analysis by highlighting additional notable issues.
If This Is The Standard, Then Every Issuer Is An FCPA Violater.
This previous post discussed how the SEC’s August 2012 FCPA enforcement action against Oracle diluted FCPA enforcement to a new level.
The SEC’s China allegations against Lilly further dilutes FCPA enforcement. The focus of the allegations is that sales representatives at Lilly-China, between 3-6 years ago, submitted false expense reports for items such as wine, speciality foods, a jade bracelet, meals, visits to bath houses, card games, karaoke bars, door prizes, spa treatments and cigarettes. Because the SEC charged only FCPA books and records and internal controls violations based on these allegations, the identity of the ultimate recipients was not relevant, although the SEC did allege that the ultimate recipients were “government-employed physicians.”
If the SEC’s position is that an issuer violates the FCPA’s books and records and internal controls provisions because some employees, anywhere within its world-wide organization, submit false expense reports for such nominal and inconsequential items, then every issuer has violated and will continue to violate the FCPA.
Once again, the SEC’s charging decisions prove hallow its recent Guidance related rhetoric. (See here for the prior post).
What Is Really Being Accomplished?
Let me state for the record, lest there be any misunderstanding, that I support strong FCPA enforcement as to conduct Congress intended to capture in passing the FCPA, that adheres to fundamental legal principles, and that actually makes a difference in accomplishing the FCPA’s objective. My criticisms and concerns of the DOJ and SEC’s FCPA enforcement has been across a wide spectrum, including that in egregious instances of corporate bribery, the DOJ has been too lenient. See here for my article “The Facade of FCPA Enforcement” and here for my November 2010 Senate testimony.
To be sure, certain things were accomplished by the Lilly enforcement action. $29.4 million was added to the U.S. treasury and FCPA Inc.’s pre-enforcement action professional fees and expenses likely exceeded that amount.
Beyond this, it is an open question whether the Lilly enforcement action really accomplished anything.
For starters, let’s start with the SEC’s mission. As stated on its website, the SEC’s mission is “to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”
How is this mission accomplished by the Poland and Russia allegations in the SEC’s complaint?
The Poland allegations concern approximately $39,000 in payments made by Lilly-Poland approximately 12 years ago to a legitimate and bona fide Polish charitable foundation, albeit one allegedly headed by the Director of a Government Health Fund.
The Russia allegations, the only allegations in the complaint that give rise to FCPA anti-bribery charges, concern the conduct of Lilly-Vostok and its use of various third parties in connection with government pharmaceutical business. There is only one paragraph in the SEC’s complaint concerning specific knowledge of the alleged improper conduct and that paragraph (para. 28 of the complaint) cites a Lilly-Vostok e-mail from 18 years ago and another Lilly-Vostok e-mail from 13 years ago.
The same what is really being accomplished question could also be asked concerning a post-enforcement action requirement imposed on Lilly by the SEC.
The SEC devoted a paragraph of its complaint to “Lilly’s Remedial Measures” and stated as follows.
“Since the time of the conduct noted in this Complaint, Lilly has made improvements to its global anti-corruption compliance program, including: enhancing anticorruption due diligence requirements for relationships with third parties; implementing compliance monitoring and corporate auditing specifically tailored to anti-corruption; enhancing financial controls and governance; and expanding anti-corruption training throughout the organization.”
In other words, per the SEC, over the last approximate decade, Lilly has made extensive enhancements to its FCPA compliance program. Against this backdrop, what is really being accomplished by the requirement that Lilly engage a compliance consultant for a 60 day period?
“Check The Box” Due Diligence?
One of the greater frustrations I experienced during my FCPA practice career was attending meetings with SEC FCPA enforcement attorneys and learning of the alternate world they lived in. In their alternate world, companies – 7 to 10 years ago – were supposed to have current FCPA best practices throughout their organization and the absence of such current best practices was evidence of FCPA books and records and internal control violations.
I was reminded of this alternate world when reading the SEC’s release (here) in connection with the Lilly enforcement action. In it, Kara Novaco Brockmeyer (Chief of the SEC Enforcement Division’s Foreign Corrupt Practices Unit) stated as follows. “Eli Lilly and its subsidiaries possessed a ‘check the box’ mentality when it came to third-party due diligence.”
“Check the Box” due diligence?
The SEC’s allegations concerning due diligence (or lack thereof) focus on the conduct of Lilly-Vostok, a Russian subsidiary, between 1994 through 2005. In other words, 7 to 18 years ago. Even the SEC acknowledged that, as to the relevant third-parties, “Lilly’s due diligence” consisted of “ordering a Dun and Bradstreet report and conducting a search using an internet service to scan publicly available information.” Elsewhere, the SEC acknowledges that Lilly-Vostok “in conjunction with outside counsel” conducted due diligence on various third parties.
Effective due diligence? Probably not – the SEC alleges that certain beneficial owners were not identified and that there was no documentation that certain third parties were capable of performing the engaged services. Due diligence consistent with today’s best practices? Probably not.
Yet to call such due diligence efforts – which took place 7 to 18 years ago – “check the box” is emblematic of the SEC’s alternate reality.
The Double Standard On Display
I have frequently written about the FCPA’s double standard. (See here for all prior posts). The double standard regards the seemingly obvious fact that there is little intellectual or moral consistency between enforcement of the FCPA and enforcement of the U.S. domestic bribery statute (18 USC 201). The double standard is present when a U.S company’s interaction with a “foreign official” is subject to more scrutiny and different standards than its interaction with a U.S. official.
Prior double standard posts (here and here) have explored the frequency in which U.S. business gives to charitable donations favored by influential politicans. No consequences or legal action is taken.
Yet when a U.S. company gives to charitable donation favored by foreign politicians – well that is stuff of bribery and corruption. In addition to the Chudow (Poland) Castle Foundation allegations in the SEC’s Lilly complaint, is the following allegation concerning Russia.
“From 2005 through 2008, Lilly-Vostok made various proposals to government officials in Russia regarding how Lilly-Vostok could donate to or otherwise support various initiatives that were affiliated with public or private institutions headed by the government officials or otherwise important to the government officials. Examples included their personal participation or the participation of people from their institutions in clinical trials and international and regional conferences and the support of charities and educational events associated with the institutes. At times, these proposals to government officials were made in a communication that also included a request for assistance in getting a product reimbursed or purchased by the government. Generally, Lilly-Vostok personnel believed these proposals were proper because of their relevance to public health issues and many of the proposals were reviewed by counsel. Nonetheless, Lilly-Vostok did not have in place internal controls through which such proposals were vetted to ascertain whether Lilly-Vostok was offering something of value to a government official for a purpose of influencing or inducing him or her to assist Lilly-Vostok in obtaining or retaining business.”
No DOJ Involvement
As indicated in the prior Lilly post, the Lilly enforcement action was the latest in a series of FCPA enforcement actions begun in 2011 against pharmaceutical / health care-related companies. All actions (Johnson & Johnson, Smith & Nephew, Biomet, and Pfizer) have been based on the same general set of allegations (things of value to various foreign health care providers for an alleged business purpose). However, the Lilly enforcement action is the only enforcement action with no DOJ involvement. In “The Facade of FCPA Enforcement,” I discuss how the lack of enforcement transparency contributes to the facade of enforcement when the same core set of facts are resolved with materially different results.
A Message For Internal Audit
I have long discussed (see here and here for prior posts and here for a recent interview) the importance of FCPA goggles for internal audit and finance professionals – meaning that internal audit and finance personnel should be specifically trained to approach their specific job functions not only in the traditional way, but also with “FCPA goggles” on. I have noted that it is clear from recent FCPA enforcement actions that the SEC expects much more from non-legal personnel when it comes to FCPA compliance, including the ability to spot FCPA issues and display a high degree of (I’ll call it) intellectual curiosity as to certain issues.
The SEC’s complaint against Lilly contains an emphatic message to the internal audit community. Paragraph 46 of the complaint states, in full, as follows.
“[D]espite an understanding that certain emerging markets were most vulnerable to FCPA violations, Lilly’s audit department, based out of Indianapolis, had no procedures specifically designed to assess the FCPA or bribery risks of sales and purchases. Accordingly, transactions with off-shore entities or with government-affilated entities did not receive specialized or closer review for possible FCPA violations. In assessing these transactions, the auditors relied upon the standard accounting controls which primarily assured the soundness of the paperwork. There was little done to assess whether, despite the existence of facially acceptable paperwork, the surrounding circumstances or terms of a transaction suggested the possibility of an FCPA violation or bribery.”
Friday Roundup
Better late than never, Judge Leon pulls a Judge Rakoff, Edmonds sentenced, it’s official, whistleblower statistics, it ought to stop marketing, China related issues, ICE melted quickly, and a U.K. enforcement action. It’s all here in the Friday roundup.
The Foreign Corrupt Practices Act Under The Microscope
Academic publishing is seldom quick. Yet before the calendar flips into another year, I am pleased to share my article concerning 2011 FCPA enforcement. The abstract of “The Foreign Corrupt Practices Act Under The Microscope” (see here to download) recently published in the University of Pennsylvania Journal of Business Law is as follows. Information in the article is current as of January 16, 2012.
For most of the Foreign Corrupt Practices Act’s history, key decisions concerning its scope and enforcement were made behind closed doors around conference room tables in Washington, D.C. The FCPA took on a life of its own and, in many instances, the statute came to mean whatever the DOJ or SEC could get putative corporate FCPA defendants (mindful of the consequences of actual prosecuted charges) to agree to behind those closed doors. However, as the enforcement agencies continued to push the envelope on enforcement theories and practices, and as the DOJ brought more individual FCPA enforcement actions, including through manufactured sting operations, business entities and individuals alike began to openly fight back. While many FCPA enforcement decisions and procedures remain opaque, 2011 witnessed the most intense year of public scrutiny in the FCPA’s history. This Article (i) provides an overview of 2011 FCPA enforcement and discusses certain problematic enforcement trends, and (ii) highlights how in 2011 the FCPA was subjected to the most meaningful public scrutiny in its history. FCPA enforcement trends and scrutiny demonstrate that as the FCPA nears its thirty-fifth year, basic legal and policy questions remain as to the purpose, scope, and effectiveness of the FCPA.
Start your collection of FCPA Year in Reviews. For my 2011 (short version), see here. For 2010, see here (short version), here (long version). For 2009, see here (long version).
Judge Leon Pulls a Judge Rakoff
My post concerning the SEC’s March 2011 enforcement action against IBM was titled “Questions Abound in IBM Enforcement Action.” (See here). Among the issues I discussed were the following. That in December 2000, IBM resolved an FCPA enforcement action and consented, as part of the settlement, to the entry of an Order that requires IBM to cease and desist from committing or causing any future violation of [the FCPA’s books and records provisions]. I noted that because the March 2011 enforcement action alleged FCPA books and records charges, that IBM was thus in clear violation of the 2000 court order.
The case was assigned to Judge Richard Leon (of Africa Sting fame) and lingered for a long time. This Wall Street Journal Corruption Currents post and this Bloomberg article report that Judge Leon has refused to approve the settlement.
As stated by Bloomberg – “The heart of the dispute is that Leon, who has had the case under review for 22 months, wants reporting on a broader range of possible wrongdoing than the company is willing to turn over. Leon, who spoke loudly and angrily, asked why the regulator would agree to limit such requirements for a company with a history of books-and-records violations. […] “I guess you want that $10 million judgment on your list of achievements this year,” Leon told [the SEC lawyer]. “Well, it’s not going to happen.” He scheduled a hearing for Feb. 4.”
As stated by Wall Street Journal Corruption Current – “Leon also questioned broader SEC settlement policies and warned that he was among “a growing number of district judges who are increasingly concerned” by those policies.”
In not “rubber stamping” the SEC – IBM settlement, Judge Leon pulled a Judge Rakoff. Judge Rakoff of the S.D. of N.Y. has been a frequent focus on this site – see here, here, here and here. See also, the discussion of Judge Rakoff in my 2010 article “The Facade of FCPA Enforcement.”
Edmonds Sentence
This past June, David Edmonds, a defendant in the long-running “Carson” enforcement action involving former employees of Control Components Inc., agreed to plead guilty on the eve of trial to substantially reduced charges. (See here for the prior post). Earlier this week, Judge James Selna sentenced Edmonds to four months in prison and four months of home confinement. (See here for Judge Selna’s sentencing memo). As noted in the DOJ’s sentencing memo (here), the DOJ sought a 14 month prison sentence.
Other defendants previously sentenced in the case are Stuart Carson (4 months in prison followed by 8 months of home detention), Hong Carson (3 years probation to include 6 months of home detention) and Paul Cosgrove (13 months home detention).
It’s Official
Imagine a foreign country in which the president is actively seeking and accepting corporate money to fund inaugural festivities. All sorts of red flags right?
But wait, this describes the United States and President Obama’s upcoming inauguration. As detailed in this prior post, President Obama’s fundraising advisers “have urged the White House to accept corporate donations for his January 2013 inaugural celebration rather than rely exclusively on weary donors who underwrote his $1 billion re-election effort.”
It’s now official. As noted by this recent New York Times article “President Obama’s finance team is offering corporations and other institutions that contribute $1 million exclusive access to an array of inaugural festivities.” As noted in the article, Obama’s finance team is offering four different packages “with differing levels of access depending on the level of contribution.”
Our FCPA enforcement agencies are 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 employed by foreign companies that are allegedly state-owned or state-controlled. (These are all allegations found in recent FCPA enforcement actions).
But remember, as Assistant Attorney General Lanny Breuer recently declared (see here), “we in the United States are in a unique position to spread the gospel of anti-corruption.”
Whistleblower Statistics
The Dodd-Frank Act enacted in July 2010 contained whistleblower provisions applicable to all securities law violations including the Foreign Corrupt Practices Act. In this prior post from July 2010, I predicted that the new whistleblower provisions would have a negligible impact on FCPA enforcement. As noted in this prior post, my prediction was an outlier (so it seemed) compared to the flurry of law firm client alerts that predicted that the whistleblower provisions would have a significant impact on FCPA enforcement.
So far, there have not been any whistleblower awards in connection with FCPA enforcement actions. Given that enforcement actions (from point of first disclosure to resolution) typically take between 2-4 years, it still may be too early to effectively analyze the impact of the whistleblower provisions on FCPA enforcement.
Whatever your view, I previously noted that the best part of the new whistleblower provisions were that its impact on FCPA enforcement can be monitored and analyzed because the SEC is required to submit annual reports to Congress. Last month, the SEC released (here) its annual report for FY2012.
Of the 3,001 whisteblower tips received by the SEC in FY2012, 3.8% (115) related to the FCPA. As noted in this similar post from last year, in FY2011 (a partial reporting year) 3.9% of the 334 tips received by the SEC related to the FCPA.
It Ought to Stop Marketing
In this previous post titled “It Ought to Stop” I focused on the FCPA conference industry and how conference firms drive attendance to their events by touting the public servants who will speak at the event.
Here is how conference firm C5 touts its upcoming conference in a press release (here).
Ask the U.S. DOJ and U.S. SEC directly how your company can remain compliant
Hear the latest on the newly released FCPA guidance. Along with the U.S. Securities & Exchange Commission’s, Charles E. Cain, the Deputy Chief of the FCPA Unit, Enforcement Division, we will have Matthew S. Queler, from the Criminal Division at the U.S. Department of Justice, presenting comprehensive, insightful and practical details of the U.S. government’s interpretation of the guidance, and highlight recent examples designed to help prevent future violations. Their session at 14:00 on Day 1, will help you navigate the ever evolving markets and recognize the current enforcement trends; giving you the tools to reanalyse risk profiles and minimize areas of exposure. Finally, to top off the hour you will be given an exclusive opportunity to have your FCPA questions answered. The only way to obtain answers directly from the U.S. DOJ and U.S. SEC is to register for this forum!
The event, depending when you register and which package you select, costs between €4341 – €1795.
It ought to stop.
China Related Issues
An occassional topic of discussion on this site is Chinese state-owned enterprises (SOEs) and how such companies are frequently doing business outside its borders, including here in the U.S. (See here, here, and here for prior posts).
Wall Street Journal Columnist Dennis Berman “hit the nail on the head” in his recent column when he noted that one of “the most intriguing business stories of the past month has been taking place in San Francisco, where a group of U.S. developers is planning the biggest real-estate expansion there since the 1906 earthquake. The group—which includes Lennar Corp., Ross Perot Jr. and others —isn’t getting financing from an American bank or pension fund. No, the money, some $1.7 billion of it, is coming from the China Development Bank, a policy arm of the Chinese state. As Berman further notes, a financing contingency is that China Railway Construction Corp. – a state-owned infrastructure builder with roots in the People’s Liberation Army—take part in the projects, which will develop up to 20,000 new homes.
Another occasional topic of discussion on this site is how Chinese companies are listing shares on U.S. exchanges and thus becoming “issuers” for purposes of the FCPA. (See here for a prior post). A core FCPA enforcement action of a Chinese issues has never occurred, but I predict it will some day – diplomatic and foreign policy issues aside. Only now, the universe of potential targets is shrinking. As noted in this recent Wall Street Journal article, several Chinese companies have delisted from U.S. exchanges. The article provides the following information. “At the peak, at year-end 2010, 167 Chinese companies were listed on Nasdaq and 99 on the NYSE. That compares with 84 China-based companies on NYSE and 129 on Nasdaq as of Nov. 30, 2012, according to the exchanges.” For more, see this recent article from the New York Times.
ICE Melted Quickly
This recent post highlighted the cert petition of Instituto Constarricense de Electricidad of Costa Rica (“ICE”) to the Supreme Court related to victim issues in connection with the December 2010 Alcatel-Lucent FCPA enforcement action. After several unsuccessful 11th Circuit appeals, ICE petitioned the Supreme Court to hears it case (see here). The question presented for review is as follows. “Whether a crime victim who is denied rights conferred by the federal Crime Victims’ Rights Act has a right to directly appeal the denial of those rights.”
The ice melted quickly as recently the Supreme Court denied ICE’s petition.
U.K. Enforcement Action
Earlier this week, the U.K. Serious Fraud Office announced (here) charges against former employees of Swift Group (an oil and gas services provider) following “a two-year investigation into allegations of corruption in relation to the tax affairs of Swift Technical Energy Solutions Ltd, a Nigerian subsidiary of the Swift Group of companies.” According to the SFO release, “the value of the bribes alleged to have been paid is approximately£180,000.”
The SFO release notes that Paul Jacobs (the former Chief Financial Officer of Swift), Bharat Sodha (the former Tax Manager of Swift), Nidhi Vyas (the former Financial Controller of Swift), and Trevor Bruce (the former Area Director for Nigeria of Swift) were charged in relation to “bribes to tax officials to avoid, reduce or delay paying tax on behalf of workers placed by Swift. The charges relate to payments said to have been made to agents of the Rivers State Board of Internal Revenue and the Lagos State Board of Internal Revenue, both in Nigeria. The payments were made in 2008 and 2009.”
*****
A happy holiday season to all.
Friday Roundup
Two years ago today, you just can’t make this stuff up, no new trial for Bourke, more offensive use of the FCPA, and ICE is not melting away. It’s all here in the Friday roundup.
Two Years Ago Today
Two years ago today, the Senate held a hearing titled “Examining Enforcement of the Foreign Corrupt Practices Act.” (See here for the full hearing transcript. I had the pleasure to testify at the hearing (see here for my written testimony). I went to Capital Hill without an agenda and on behalf of no one but myself. My testimony represented my beliefs and I was proud of what I said then and I remain proud today.
You Just Can’t Make This Stuff Up
Try as you might, you just can’t make up a better example of the double-standard I frequenlty write about. (See here for numerous other prior posts).
Our FCPA enforcement agencies are 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 employed by foreign companies that are allegedly state-owned or state-controlled. (These are all allegations found in recent FCPA enforcement actions).
Assistant Attorney General Lanny Breuer recently declared (see here) that “we in the United States are in a unique position to spread the gospel of anti-corruption.”
Against this backdrop, the Wall Street Journal reports (here) that President Obama’s fundraising advisers “have urged the White House to accept corporate donations for his January 2013 inaugural celebration rather than rely exclusively on weary donors who underwrote his $1 billion re-election effort.” Among the justifications put forward by the Obama team according to the Wall Street? The inauguration is “more of a civic event than a partisan political affair.”
Bourke Development
Perhaps this is finally the end of the FCPA enforcement action against Frederick Bourke. As noted in this previous post, in July 2009 Bourke was convicted by a jury for conspiring to pay bribes to Azerbaijan officials. At sentencing, Judge Shira Scheindin (S.D.N.Y.) sentenced Bourke to 366 days in prison, even though she commented that “after years of supervising this case, it’s still not entirely clear to me whether Mr. Bourke is a victim or a crook or a little bit of both.”
An appeal to the Second Circuit followed, largely on knowledge issues. As highlighted in this previous post, in December 2011, the Second Circuit affirmed Bourke’s conviction. Bourke subsequently requested a new trial based on newly discovered evidence relating to alleged perjury of a key trial witness. Judge Scheindin denied Bourke’s request. Bourke then appealed the issue to the Second Circuit.
Earlier this week, in an order (here) the Second Circuit affirmed the trial court decision and rejected Bourke’s request for a new trial. In short, the Second Circuit concluded that Bourke failed to present newly discovered evidence or that the key trial witness in fact committed perjury.
As noted in this Bloomberg article, Bourke’s lawyers plan to ask the Second Circuit to consider the case again.
Offensive Use of the FCPA
Rarely does one hear of offensive use of the FCPA to accomplish a business objective. Usually it is the other way around – the FCPA thwarts a business objective such as acquiring a foreign target, not hiring the foreign agent who says he knows a way to get that lucrative contract, etc.
But with increasing frequency, the FCPA is being used offensively (at least it seems). See this prior post for offensive use of the FCPA in the on-going Wynn-Okada dispute.
Recently Chris Matthews (Wall Street Journal Corruption Currents) has been reporting (here, here, and here) on seemingly offensive use of the FCPA in regards to CEDC Distribution Company, a company that has previously disclosed FCPA scrutiny. (See here for the prior post).
In short, Russian billionaire Roustam Tariko, the founder of CEDC rival Russian Standard vodka brand and CEDC’s largest shareholder, claimed that CEDC executives themselves were the subject of FCPA investigation.
Tariko’s claims prompted CEDC to issue this letter to shareholders that stated, in pertinent part, as follows.
“As you may be aware, earlier this week, Mr. Roustam Tariko, Chairman of Russian Standard, published a letter to CEDC investors that has created anxiety and confusion in the marketplace. What you may not be aware of is that Mr. Tariko’s letter was published less than 48 hours after the CEDC Board voted 5 to 3 (the 3 being Mr. Tariko and his Board designees) against Mr. Tariko’s request that he be given total control over CEDC’s operations and finance. This request follows repeated attempts by Russian Standard to remove the interim CEO. The purpose of this letter is to provide you with (1) an explanation as to why we did not give Mr. Tariko complete control over CEDC last weekend when he asked us to; (2) correct information regarding FCPA matters; (3) a current and accurate picture of the CEDC/RTL Strategic Partnership; and (4) information as to the steps we are taking to address the challenges facing CEDC.”
ICE is Not Melting Away
Previous posts here and here (among others) have the detailed the unsuccessful peition by Instituto Constarricense de Electricidad of Costa Rica (“ICE”) for victim status of Alcatel-Lucent’s wide-ranging bribery scheme. The petition followed the December 2010 announcement that Alcatel-Lucent and certain subsidiaries agreed to resolve a wide-ranging FCPA enforcement action, including conduct in Costa Rica involving payments to ICE officials. Even though ICE acknowledged that “three disloyal and corrupt [ICE] Directors and two disloyal and corrupt employees” were the recipients of Alcatel Lucent’s bribe payments, it nevertheless claimed it was a victim because the corrupt activities of Alcatel-Lucent caused the company “massive losses” and “catastrophic harm.”
After several unsuccessful 11th Circuit appeals, ICE has petitioned the Supreme Court to hears it case (see here). The question presented for review is as follows. “Whether a crime victim who is denied rights conferred by the federal Crime Victims’ Rights Act has a right to directly appeal the denial of those rights.”
*****
A good weekend to all.
Friday Roundup
Beverage industry news, a long-running FCPA-related civil case settles, checking in on the World Bank, survey says, and on-point. It’s all here in the Friday roundup.
Beverage Industry News
Disclosure by Central European Distribution Corp.
As noted in this Wall Street Journal Corruption Currents post, Central European Distribution Corp. (here – one of the world’s largest vodka producers) recently made an FCPA disclosure. In this filing, the company (a Delaware company headquartered in New Jersey) stated as follows.
“It has […] been determined that there has been a breach of the books and records provisions of the Foreign Corrupt Practices Act (FCPA) of the United States and potentially other breaches of the FCPA. It was determined that payments or gifts were made in a foreign jurisdiction in which the Company operates, and that there was a failure to maintain documentation in respect of certain of these payments or gifts adequate to establish whether there was a valid business purpose in making the payments or gifts. Furthermore, our management also identified a material weakness in our internal control over financial reporting regarding the implementation of our policy on compliance with applicable laws as of December 31, 2011. Our conclusion that this deficiency is a material weakness in our internal control over financial reporting is not based on misstatements in our historical consolidated financial statements or our consolidated financial statements as of and for the period ended December 31, 2011, but instead on the determination that we did not design or maintain sufficient policies, procedures, controls, communications or training to deter or prevent the risk of violations of law, including the Foreign Corrupt Practices Act (“FCPA”) of the United States.”
Beam Inc. Investigating Possible FCPA Violations
In other beverage industry news, the Times of India reports (here) that Beam Inc. (here) “has initiated investigations into whistleblower allegations of financial misdemeanours at its India unit.” According to the report, the investigation covers possible violations of Foreign Corrupt Practices Act.
As noted in this previous post, in July 2011 the SEC brought an FCPA enforcement action against beverage company Diageo PLC.
Alba-Alcoa Civil Case Settles
Earlier this week, Alcoa announced (here) that it “entered into a settlement agreement with Aluminium Bahrain B.S.C. (“Alba”) resolving a civil lawsuit that had been pending … since 2008. Without admitting any liability, Alcoa agreed to make a cash payment to Alba of $85 million payable in two installments.”
Alba was represented by Akin Gump which put out this release. The release notes that “the settlement arises out of a claim brought by Alba under the Racketeer Influenced and Corrupt Organizations (RICO) Act against Alcoa, an Alcoa subsidiary and Canadian businessman Victor Dahdaleh alleging a “pattern of corrupt activities by the defendants and officials in Bahrain in order to obtain long-term contract and pricing advantages in the sale of raw materials.” As noted in the release, ‘the case was stayed for nearly four years while the U.S. Department of Justice pursued a criminal investigation under the Foreign Corrupt Practices Act” and the settlement “represents the first time that a foreign-owned corporation has successfully sued a U.S. company in a federal court to recover losses suffered due to allegations of corrupt activity. “
As highlighted in this previous post, Alcoa’s agent (Dahdaleh) has been criminally charged in the U.K.
The DOJ and SEC’s investigation of Alcoa concerning the conduct at issue in the civil lawsuit is ongoing.
In its most recent quarterly filing, Alcoa stated as follows.
“The DOJ’s and the SEC’s investigations are ongoing. Alcoa has been in dialogue with both the DOJ and the SEC and is exploring whether a settlement can be reached. Given the uncertainty regarding whether a settlement can be reached and what the terms of any such settlement would be, Alcoa is unable to estimate a range of reasonably possible loss with regard to any such settlement, However, Alcoa expects the amount of any such settlement would be material in a particular period to Alcoa’s results of operations. If a settlement cannot be reached, Alcoa will proceed to trial with the DOJ and the SEC and under those circumstances is unable to predict an outcome or to estimate a range of reasonably possible loss. There can be no assurance that the final outcome of the government’s investigations would not have a material adverse effect on Alcoa.”
World Bank
The World Bank’s fraud and corruption unit, the Integrity Vice Presidency (INT), recently released its annual report (see here for the full report). This release states as follows. The INT “concluded another strong year in its preventive and investigative efforts, with 83 debarments of wrongdoing firms, new agreements with national law enforcement authorities to expand the impact of INT’s investigations, numerous referrals to law enforcement agencies, and robust preventive efforts to help ensure Bank-financed projects deliver results.”
Survey Says
This past July, FTI Consulting conducted an on-line survey of 571 executives in UK businesses in board-level, senior management and middle management positions. As noted in this release, among the survey findings were the following.
- 40% of UK businesses surveyed think the current economic climate is encouraging risk taking around compliance with the UK Bribery Act
- 27% do not believe the government will prosecute offenders
- 25% of board-level employees surveyed might breach Bribery Act regulations to win business
- 63% of respondents believe the UK Bribery Act eventually will have a positive effect on prospects for UK business
Spot-On
In the aftermath of the Wall Street Journal’s FCPA Inc.: Business of Bribery series (see here), the WSJ published the following letter to the editor from Steve Travis of Mercer Island, WA.
“The Foreign Corrupt Practices Act makes it illegal to offer money or a gift to foreign government officials or employees to gain a business advantage. Yet in the U.S., every business worthy of its name has lobbyists whose sole job in Washington, D.C., is to do exactly that: give money or gifts to our elected officials or employees of our government in a position to steer contracts their way. Does anyone really think that things like flying government officials around on company private jets or putting them up in private homes on vacations don’t come with a quid pro quo? Who is naive enough to think that contributions to election campaigns don’t come with strings attached?”
Spot-on – see here for a prior post (as well as numerous previous posts embedded therein).
*****
A good weekend to all.
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.