Friday Roundup
An invite, ripples, the odd dynamic, and scrutiny alerts and updates. It’s all here in the Friday roundup.
You Are Invited
King & Spalding is pleased to host Professor Mike Koehler for an informal lunch discussion of his recently published book The Foreign Corrupt Practices Act in a New Era. The conversation and related question-and-answer session will be of interest to anyone seeking a candid and comprehensive discussion of legal and policy issues present in this new era of FCPA enforcement.
The event takes place on Thursday, October 2nd at noon at King & Spalding’s office (1700 Pennsylvania Avenue N.W. Washington, D.C.). There is no charge for this event, but pre-registration is required. If you would like to attend, please send your name and contact information to Sylvia Gates at sgates@kslaw.com. For additional information, see here.
Ripples
My recent article “Foreign Corrupt Practices Act Ripples” highlights how settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from FCPA scrutiny or enforcement in this new era.
Regarding those ripples, Canada’s Globe and Mail reports:
“Hewlett-Packard Co., one of the leading technology suppliers to the Canadian government, is facing a possible 10-year ban on selling products and services to Ottawa in the wake of a high-profile U.S. bribery conviction. The recent criminal conviction, involving bribes paid to Russian government officials, marks the first major test of strict new Canadian integrity rules quietly introduced in March by Public Works and Government Services. Under the new regime, companies face an automatic ban on future government contracts if they or any of their affiliates are convicted of a list of various crimes, such as bribery, even if those crimes occurred outside Canada. “The department is reviewing the recent U.S. court decision regarding HP Russia and is examining the impact of this court decision on our current and future business with HP Canada,” confirmed Alyson Queen, communications director for Public Works Minister Diane Finley. The department will conduct its review “as quickly as possible,” Ms. Queen insisted, adding that the government is “committed to doing business with suppliers who respect the law and act with integrity, including affiliates of suppliers.”
The main point of “Foreign Corrupt Practices Ripples” was described above. However, the article also states:
“This Article accepts the fact that FCPA scrutiny and enforcement results in many other ripples in this new era. Yet, throughout this Article many questions are posed regarding the legitimacy of certain ripples. Moreover, while it is beyond the focus of this Article, it must nevertheless be highlighted that because of the many ripples of FCPA enforcement, it is important that FCPA enforcement be subjected to meaningful judicial scrutiny and that enforcement actions represent legitimate instances of provable FCPA violations, not merely settlements entered into for reasons of risk aversion. This would seem like an obvious statement. However, the reality is that the majority of corporate FCPA enforcement actions in this new era are based on aggressive and controversial enforcement theories, yet resolved via non-prosecution and deferred prosecution agreements (NPAs / DPAs) not subjected to any meaningful judicial scrutiny by risk-averse business organizations mindful of the adverse consequences of putting the enforcement agencies to its burden of proof in an adversarial proceeding.”
Perhaps Canadian authorities should review this prior post “HP Enforcement Action – Where to Begin.” The post begins:
“Where to begin? That is the question when analyzing last week’s $108 million Foreign Corrupt Practices Act enforcement action against HP and related entities. (See here). Should the title of this post have been “The FCPA’s Free-For-All Continues”? Should the title have been “HP = Hocus Pocus” (as in look what the enforcement agencies pulled out their hats this time)? Should the title have been “Warning In-House and Compliance Professionals: This Post Will Induce Mental Anguish”? Unable to arrive at the best specific title for this post, I simply picked the generic “Where to Begin?” In short, if the HP enforcement action does not leave you troubled as to various aspects of FCPA enforcement you: (i) may not be well-versed in actual FCPA legal authority; (ii) don’t care about the rule of law; or (iii) somehow derive satisfaction from government required transfers of shareholder money to the U.S. treasury regardless of theory. Least there be any misunderstanding, let me begin this post by stating that the enforcement actions against HP Poland, HP Russia and HP Mexico allege bad conduct by certain individuals – a “small fraction of HP’s global workforce” to use the exact words of the DOJ. As to that “small fraction,” those individuals should be held accountable for their actions by relevant law enforcement authorities. However, as to the actual defendants charged in the enforcement actions – HP Russia, HP Poland and HP Mexico in the DOJ actions – and HP in the SEC administrative proceeding – there are actual legal elements that must be met and there is also prior enforcement agency guidance that ought to be followed. The entire credibility and legitimacy of the DOJ and SEC’s FCPA enforcement programs depend on these two basics points.”
The Odd Dynamic
I have consistently stated (see here for the most recent iteration) that, based on recent judicial decisions, an odd dynamic exists between application of Dodd-Frank’s anti-retaliation provisions and Dodd-Frank’s whistleblower bounty provisions. As noted in the recent post concerning the Second Circuit’s decision in Liu Meng-Lin v. Siemens, courts have held that the former provisions lack extraterritorial effect while acknowledging that a foreign national could receive a bounty under the whistleblower provisions.
The odd dynamic is front-and-center in the SEC’s recent announcement of “an expected award of more than $30 million to a whistleblower who provided key original information that led to a successful SEC enforcement action.” According to the release, “the award will be the largest made by the SEC’s whistleblower program to date and the fourth award to a whistleblower living in a foreign country, demonstrating the program’s international reach.”
In the release, Sean McKessy, Chief of the SEC’s Office of the Whistleblower states:
“This award of more than $30 million shows the international breadth of our whistleblower program as we effectively utilize valuable tips from anyone, anywhere to bring wrongdoers to justice. Whistleblowers from all over the world should feel similarly incentivized to come forward with credible information about potential violations of the U.S. securities laws.”
Regarding the odd dynamic, the SEC’s order states:
“We believe an award payment is appropriate here notwithstanding the existence of certain extraterritorial aspects of Claimant’s application. See generally Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247, 266 (2010) (discussing analytical framework for determining whether an application of a statutory provision that involves certain foreign aspects is an extraterritorial or domestic application of the provision; explaining that it is a domestic application of the provision if the particular aspect that is the “focus of congressional concern” has a sufficient U.S. territorial nexus); European Community v. RJR Nabisco, Inc., F.3d , 2014 WL 1613878, *10 (2d Cir. Apr. 23, 2014) (applying Morrison framework and finding that “[i]f domestic conduct satisfies every essential element to prove a violation of a United States statute that does not apply extraterritorially, that statute is violated even if some further conduct contributing to the violation occurred outside the United States.”). In our view, there is a sufficient U.S. territorial nexus whenever a claimant’s information leads to the successful enforcement of a covered action brought in the United States, concerning violations of the U.S. securities laws, by the Commission, the U.S. regulatory agency with enforcement authority for such violations. When these key territorial connections exist, it makes no difference whether, for example, the claimant was a foreign national, the claimant resides overseas, the information was submitted from overseas, or the misconduct comprising the U.S. securities law violation occurred entirely overseas. We believe this approach best effectuates the clear Congressional purpose underlying the award program, which was to further the effective enforcement of the U.S. securities laws by encouraging individuals with knowledge of violations of these U.S. laws to voluntarily provide that information to the Commission. See S. Rep. No. 111-176 at 110 (2010) (“to motivate those with inside knowledge to come forward and assist the Government to identify and prosecute persons who have violated the securities laws ….”). Finally, although we recognize that the Court of Appeals for the Second Circuit recently held that there was an insufficient territorial nexus for the anti-retaliation protections of Section 21F(h) to apply to a foreign whistleblower who experienced employment retaliation overseas after making certain reports about his foreign employer, Liu v. Siemens, F.3d , 2014 WL 3953672 (2d Cir. Aug. 14, 2014), we do not findthat decision controlling here; the whistleblower award provisions have a different Congressional focus than the anti-retaliation provisions, which are generally focused on preventing retaliatory employment actions and protecting the employment relationship.”
Scrutiny Alerts and Updates
BHP Billiton
In its most recent annual report the company stated:
“As previously disclosed, BHP Billiton received requests for information in August 2009 from the US Securities and Exchange Commission (SEC). Following that request, the Group commenced an internal investigation and disclosed to relevant authorities evidence that it has uncovered regarding possible violations of applicable anticorruption laws involving interactions with government officials. The issues relate primarily to matters in connection with previously terminated exploration and development efforts, as well as hospitality provided as part of the Company’s sponsorship of the 2008 Beijing Olympics. The Group is currently discussing a potential resolution of the matter. As has been publicly reported, the Australian Federal Police has indicated that it has commenced an investigation and the Group continues to fully cooperate with the relevant authorities. In light of the continuing nature of the investigations, it is not appropriate at this stage for BHP Billiton to predict outcomes.”
General Cable Corp.
General Cable Corporation (a Kentucky-based company involved in the development, design, manufacture, marketing and distribution of copper, aluminum and fiber optic wire and cable products and systems for the energy, industrial, specialty, construction and communications markets) recently disclosed:
“We have been reviewing, with the assistance of external counsel, certain commission payments involving sales to customers of our subsidiary in Angola. The review has focused upon payment practices with respect to employees of public utility companies, use of agents in connection with such payment practices, and the manner in which the payments were reflected on our books and records. We have determined at this time that certain employees in our Portugal and Angola subsidiaries directly and indirectly made payments at various times from 2002 through 2013 to officials of Angola government owned public utilities that raise concerns under the FCPA and possibly under the laws of other jurisdictions. We also have been reviewing, with the assistance of external counsel, our use and payment of agents in connection with our Thailand and India operations, which may have implications under the FCPA. We have voluntarily disclosed these matters to the SEC and the United States Department of Justice (“DOJ”) and have provided them with additional information at their request. The SEC and DOJ inquiries into these matters are ongoing. We continue to cooperate with the DOJ and the SEC with respect to these matters. We are implementing a screening process relating to sales agents that we use outside of the United States, including, among other things, a review of the agreements under which they were retained and a risk-based assessment of such agents to determine the scope of due diligence measures to be performed by a third-party investigative firm. However, this screening process may not be effective in preventing future payments or other activities that may raise concerns under the FCPA or other laws. At this time, we are unable to predict the nature of any action that may be taken by the DOJ or SEC or any remedies these agencies may pursue as a result of such actions. Any determination that our operations or activities are not in compliance with existing laws or regulations could result in the imposition of substantial fines, civil and criminal penalties, and equitable remedies, including disgorgement and injunctive relief. Because our review regarding commission payment practices and our use and payment of agents described above is ongoing, we are unable to predict its duration, scope, results, or consequences. Dispositions of these types of matters can result in modifications to business practices and compliance programs, and in some cases the appointment of a monitor to review future business and practices with the objective of effecting compliance with the FCPA and other applicable laws.”
In the first trading day after the disclosure, the company’s stock dropped 6.4% to 17.74.
Embraer-Related
As highlighted in this previous post, Brazil based Embraer (one of the world’s largest manufacturer of commercial jets with shares traded on the New York Stock Exchange) has been under FCPA scrutiny since 2010.
The Wall Street Journal reports:
“Brazilian authorities have filed a criminal action against eight Embraer employees accusing them of bribing officials in the Dominican Republic in return for a $92 million contract to provide the country’s armed forces with attack planes.”
According to the article:
“[The DOJ and SEC] are also investigating the company’s dealings in the Dominican Republic and elsewhere and have provided their Brazilian counterparts with evidence, according to a request last year for legal assistance from Brazilian prosecutors.
[…]
Brazilian prosecutors filed the 31-page complaint in a criminal court in Rio de Janeiro in August, the first step in a criminal prosecution. A spokesman for the Brazilian prosecutors’ office declined to comment on the case.
The complaint alleges that Embraer sales executives agreed to pay a $3.5 million bribe to a retired Dominican Air Force colonel, who then leaned on legislators to approve the deal and a financing agreement between the Dominican Republic and the National Economic and Social Development Bank. The sale was completed and the aircraft were delivered.
The retired colonel, Carlos Piccini Nunez, was serving as the Dominican Republic’s director of special projects for the armed forces in 2008, around the time of the contract negotiations. The contract provided the Dominican Republic with eight Embraer Super Tucanos, turboprop attack support aircraft that have been a darling of air forces in developing countries for their low maintenance and affordability.
[…]
The criminal complaint alleges that an Embraer vice president for sales, Eduardo Munhos de Campos, promised to pay the bribe, and that he was assisted in arranging the payments by Orlando Jose Ferreira Neto, another vice president; Embraer regional directors Acir Luiz de Almeida Padilha Jr., Luiz Eduardo Zorzenon Fumagalli and Ricardo Marcelo Bester ; and managers Albert Phillip Close, Luiz Alberto Lage da Fonseca and Eduardo Augusto Fernandes Fagundes.”
Goldman Sachs
The company was recently the focus of this Wall Street Journal article which began:
“A yearslong probe of Goldman Sachs Group’s ties to Libya’s sovereign-wealth fund is focusing on an internship and other perks allegedly offered by the Wall Street bank to win business from the Gadhafi regime, according to people familiar with the matter. The Securities and Exchange Commission is reviewing the New York-based bank’s decision in June 2008 to hire as an intern the brother of Mustafa Zarti, then deputy chief of the Libyan Investment Authority, the people said. The move came after Goldman entered into more than $1 billion worth of trades with the authority, and just as the firm’s relationship with the Libyan fund had begun to sour. The investigators are also reviewing why the brother, Haitem Zarti, was allowed to remain at the firm for almost a year, long after most Wall Street internships last, the people added.”
AgustaWestland / Finmeccanica Related
The Wall Street Journal goes in-depth into the Italian trial of Giuseppe Orsi, former CEO of AgustaWestland – a unit of Finmeccanica Spa, concerning bribery allegations in India. As highlighted in this previous post, Finmeccanica, which is approximately 30% owned by the Italian government, has ADRs registered with the SEC and AgustaWestland does extensive business in the U.S. (see here), including with the U.S. government.
*****
A good weekend to all.
Friday Roundup
Scrutiny alerts and updates, quotable, and for the reading stack. It’s all here in the Friday Roundup.
Scrutiny Alerts And Updates
Avon
Yesterday, Avon’s stock dropped approximately 22% to $17.50. The company disclosed a drop in third quarter sales and weaker than expected earnings. Avon also disclosed, in pertinent part, the following regarding its long-running FCPA scrutiny:
“As previously reported in our Quarterly Report on Form 10-Q for the period ending June 30, 2013, we made an offer of settlement to the DOJ and the SEC in June 2013 that, among other terms, would have included payment of monetary penalties of approximately $12. Although our offer was rejected by the DOJ and the staff of the SEC, we accrued the amount of our offer in the second quarter of 2013.
In September 2013, the staff of the SEC proposed terms of potential settlement that included monetary penalties of a magnitude significantly greater than our earlier offer. We disagree with the SEC staff’s assumptions and the methodology used in its calculations and believe that monetary penalties at the level proposed by the SEC staff are not warranted. We anticipate that the DOJ also will propose terms of potential settlement, although they have not yet done so and we are unable to predict the timing or terms of any such proposal. If the DOJ’s offer is comparable to the SEC’s offer and if the Company were to enter into settlements with the SEC and the DOJ at such levels, we believe that the Company’s earnings, cash flows, liquidity, financial condition and ongoing business would be materially adversely impacted.
Although we are working to resolve the government investigations through settlement, our discussions are at early stages and at this point we do not know if those efforts will be successful and, if they are, what the timing or terms of any such settlements would be. We expect any such settlements will include civil and/or criminal fines and penalties, and may also include non-monetary remedies, such as oversight requirements and additional remediation and compliance requirements. We may be required to incur significant future costs to comply with the non-monetary terms of any settlements with the SEC and the DOJ. If we are able to reach settlements with the SEC and the DOJ, the Company believes that such settlements are likely to include monetary penalties that would be material to its earnings and cash flows in the relevant fiscal period and could, depending on the amounts of the settlements, materially adversely impact the Company’s liquidity, financial condition and ongoing business.
There can be no assurance that our efforts to reach settlements with the government will be successful. If we do not reach settlements with the SEC and/or the DOJ, we cannot predict the outcome of any subsequent litigation with the government but such litigation could have a material adverse effect on our earnings, cash flow, liquidity, financial condition and ongoing business.>We have not recorded an additional accrual beyond the amount recorded in the second quarter of 2013 because at this time, in light of the early stages of our discussions of possible settlement terms with the government, the magnitude of the difference between our offer and the amount proposed by the SEC and the absence of a proposal from the DOJ, and our inability to predict whether we will be able to reach settlements with the government, we cannot reasonably estimate the amount of additional loss above the amount accrued to date.
Until these matters are resolved, either through settlement or litigation, we expect to continue to incur costs, primarily professional fees and expenses, which may be significant, in connection with the government investigations. Furthermore, under certain circumstances, we may also be required to advance and/or reimburse significant professional fees and expenses to certain current and former Company employees in connection with these matters.”
In certain respects, Avon’s disclosure was similar to its August disclosure (see here for the prior post) in which it stated “we made an offer of settlement to the DOJ and the SEC that, among other terms, included payment of monetary penalties of approximately $12 [million]. The DOJ and the SEC have rejected the terms of our offer.”
The fact that there is a negotiation and back and forth between the SEC and a company concerning an FCPA settlement number is not unusual, what is a bit unusual is that this back and forth is being aired in public via the company’s SEC filings.
Embraer
Previous posts here and here have profiled Embraer’s FCPA scrutiny. In an article titled “Plane Maker Embraer Faces Bribery Inquiries,” the Wall Street Journal reports:
“U.S. and Brazilian authorities are investigating whether aircraft maker Embraer SA bribed officials in the Dominican Republic in return for a $90 million contracts to furnish the country’s armed forces with attack planes.”
According to the article, U.S. authorities say they have “evidence – including bank records and e-mails – that they believe shows that Embraer executives had approved a $3.4 million bribe to a Dominican official with influence over military procurement.”
Mead Johnson
Mead Johnson Nutrition Company recently disclosed as follows.
“The company has initiated an internal investigation of, and is voluntarily complying with a Securities and Exchange Commission request for documents relating to, certain business activities of the company’s local subsidiary in China. The company’s investigation is focused on certain expenditures that were made by the subsidiary in connection with the promotion of the company’s products or may have otherwise been made and that may not have complied with company policies and applicable U.S. and/or local laws. The company has retained outside legal counsel to conduct the investigation, which is being overseen by a committee of independent members of the company’s board of directors. At this time, the company is unable to predict the scope, timing or outcome of this ongoing matter or any regulatory or legal actions that may be commenced related to this matter.”
National Geographic
The on-line publication Vocativ recently published an article “Tut-Tut: Did National Geographic Bribe Egypt’s Famed Indiana Jones?” The article begins as follows.
“This is not your typical story about international bribery. For one thing, it involves mummies. It also involves one of America’s most beloved institutions: National Geographic. Vocativ has learned that the Justice Department has opened a criminal bribery investigation into the prestigious nonprofit. At issue: Nat Geo’s tangled relationship with Dr. Zahi Hawass, a world-famous Indiana Jones–type figure who for years served as the official gatekeeper to Egypt’s glittering antiquities. Beginning in 2001 and continuing for a decade, National Geographic paid the archaeologist between $80,000 and $200,000 a year for his expertise. The payments came at a time when the popularity of mummies and pharaohs was helping transform the 125-year-old explorer society into a juggernaut with multiple glossies, a publishing house and a television channel. But they also came as Hawass was still employed by the Egyptian government to oversee the country’s priceless relics.”
According to the article, Hawass also worked with National Geographic competitor, the Discovery Channel.
Although National Geographic is a non-profit entity, the FCPA’s definition of “domestic concern” is “any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship …”.
Teva Pharmaceuticals
As noted in this previous post, in August the company disclosed that it “received a subpoena … from the SEC to produce documents
with respect to compliance with the FCPA in Latin America.” Earlier this week, Teva disclosed as follows.
“Beginning in 2012, Teva received subpoenas and informal document requests from the SEC and the Department of Justice (“DOJ”) to produce documents with respect to compliance with the Foreign Corrupt Practices Act (the “FCPA”) in certain countries. Teva has provided and will continue to provide documents and other information to the SEC and the DOJ, and is cooperating with the government in their investigations of these matters. Teva is also conducting a voluntary investigation into certain business practices that may have FCPA implications and has engaged independent counsel to assist in its investigation. In the course of its investigation, which is continuing, Teva has identified in Russia, certain Eastern European countries, and certain Latin American countries issues that could potentially rise to the level of FCPA violations and/or violations of local law. Teva has brought these issues to the attention of the SEC and the DOJ. No conclusion can be drawn at this time as to any likely outcomes in these matters.”
JPMorgan
As highlighted in this previous post, in August JPMorgan’s hiring practices in China came under scrutiny.
The company recently disclosed:
“The Firm has received subpoenas and requests for documents from the SEC’s Division of Enforcement regarding, among other things, hiring practices relating to candidates referred by clients, potential clients and government officials, the Firm’s employment of certain former employees in Hong Kong, its business relationships with certain related clients in the Asia Pacific region and its engagement of consultants in the Asia Pacific region. The Firm has also received a request for documents from the U.S. Department of Justice regarding the same referral hiring practices. The Firm is cooperating with these investigations. Separate inquiries on these or similar topics have been made by other authorities, including authorities in other jurisdictions, and the Firm is responding to those inquiries.”
Quotable
From Attorney General Eric Holder at the Arab Forum on Asset Recovery in Morocco.
“As we’ve all seen – and as President Obama has said – “[t]he struggle against corruption is one of the great struggles of our time.” Fortunately […] corruption is no longer widely seen as an accepted cost of doing business. It is no longer tolerated as an unavoidable aspect of government. On the contrary – it is now generally understood that the consequences of corruption are devastating – eroding trust in public and private institutions, undermining confidence in the fairness of free and open markets, siphoning precious resources at a time when they could hardly be more scarce, and all too often breeding contempt for the rule of law.
[…]
This is why, as Attorney General, I’ve consistently worked to ensure that anticorruption remains a top priority for my colleagues at every level of the United States Department of Justice – within as well as beyond our borders.”
A recent article in Corporate Counsel titled “The Perils of Keeping FCPA Infractions Under Wraps” states:
“Charles Duross, the deputy chief of the U.S. Justice Department’s Foreign Corrupt Practices Act Unit, delivered an ominous message Monday to in-house lawyers at the Association of Corporate Counsel’s Annual Meeting in Los Angeles: Failure to report potential bribery is more perilous than ever. Duross, who is based in Washington, D.C., said DOJ is handling a “pretty steady stream of cases,” with every major U.S. attorney’s office investigating alleged violations of the FCPA, which prohibits bribery of foreign officials. “The risk of getting caught . . . is greater today than any point previously,” Duross said. “I think that’s kind of a no-brainer.” Duross said he isn’t naïve about the calculus companies have to perform when deciding whether to report a potential FCPA infraction to the U.S. government. But if a company makes the disclosure on its own, he noted, the Justice Department stands ready to help. DOJ can make deferred-prosecution or non-prosecution agreements with businesses—or even decline to pursue any action against them, he said. “It’s a tough one” for companies, Duross said. “No doubt about it.” Self-reporting can be overrated, according to New York-based Morrison & Foerster partner Carl Loewenson Jr., a co-chairman of the firm’s securities litigation, enforcement, and white-collar defense group who also spoke at the ACC event. Making the disclosures is great for business at the DOJ, as well as law firms and accounting offices, he said. But companies that report almost always get some type of a public charge, he noted. “I think that these days there are too many cases in which too many companies are being too reflexive about self-reporting” to the government, Loewenson said. “In some cases, not in all, you can solve these problems yourself.”
Reading Stack
Several spot-on observations in the most recent issue of the always informative FCPA Update from Debevoise & Plimpton concerning the recent Diebold enforcement action (see here and here for prior posts).
“Although there are significant aggravating factors that might explain imposing $48 million in penalties and disgorgement on a company that voluntarily disclosed what are, unfortunately, common improprieties in China, combined with wholly unrelated commercial bribery in Russia, the size of the financial resolution – apart from the substantial burdens of the monitorship – raises questions about future enforcement of the FCPA, as well as the incentives for companies to self-report.
The first noteworthy aspect of this resolution is the enforcement agencies’ decision to use the books and records and internal controls provisions as a vehicle for obtaining monetary relief penalizing purely commercial bribery (40% of the improper payments at issue). While not entirely novel or outside the theoretical reach of those provisions, were the enforcement agencies routinely to investigate issuers in connection with commercial bribery abroad, the “risk-based” calculus of almost all corporate compliance programs would potentially need to be rebalanced.
Second, the total financial aspect of the resolution was 16 times the total value of alleged improper payments. In describing the improper payments, the enforcement agencies aggregated a number of often small payments over five years. When considered alongside the Ralph Lauren enforcement action from earlier this year, the Diebold enforcement action, and in particular its imposition of a monitor, long-considered one of the most burdensome aspects of FCPA settlements, could call into question one common view of the statements relating to gifts and corrupt intent in the November 2012 DOJ/SEC joint Resource Guide to the U.S. Foreign Corrupt Practices Act: namely, that FCPA covered companies should not “sweat the small stuff.”
[…]
“[T]he Diebold enforcement actions revive the pre-guidance confusion about the government’s enforcement priorities and raise significant questions about the value of voluntary disclosure. The confusion, arising from repeated charges related to relatively small expenditures, including, even, $500 for four pairs of shoes provided as gifts to Chinese officials, was part of the background of frustration with the government’s enforcement of the FCPA that led to publication of the joint DOJ/ SEC Resource Guide. It has been commonly thought that the Resource Guide’s distinctions between “expensive gifts” and “token[s] of esteem or gratitude” signified at least an implicit recognition by U.S. enforcement agencies that compliance resources would be better allocated to topics other than gifts valued at a few hundred dollars, let alone gifts that individually do not exceed $100 in value. But the Diebold case will raise new questions about the government’s enforcement priorities, questions that will only be amplified by the imposition of a monitor, potentially one of the most disruptive, burdensome, and costly components of FCPA settlement tools, and one that had been in declining use for several years.”
An observant article from The Lawyer titled “Round Table on Cross-Border Disputes – Bandwagons Roll.” It states:
“Co-operation [between foreign law enforcement regulators] is good.'” […] More co-operation between regulators when they are trying to address the same issues is welcome.” However, co-operation – while praised for attempting to provide consistency – has its drawbacks. “They all want to impose sanctions for the same conduct.” […] “It’s common now for a company to finish a US Foreign Corrupt Practices Act or UK Bribery Act investigation that has taken three years and generated huge fees, to turn around and see a long line of regulators from, say, China or India with their own legal and political concerns.”
It does not necessarily justify the behavior, but the following article at least puts the behavior in the proper context and highlights why Congress specifically included a facilitation payments exception in the FCPA’s anti-bribery provisions.
“Seventy-five percent of businesses in Vietnam pay bribes to government agencies on their own volition in order to avoid being stuck in red tape, a World Bank specialist says. At an anti-corruption conference held in Hanoi Thursday, Soren Davidsen said that sixty-three percent of firms questioned in a survey said they paid the “unofficial fees” to speed up procedures.”
A useful compliance resource here from the U.S. – China Business Council titled “Best Practices for Managing Compliance in China.”
*****
A good weekend to all,
Friday Roundup
Yet another instance, save the date, scrutiny updates, on point, FCPA Inc. tidbit, and for the reading stack. It’s all here in the Friday roundup.
Yet Another Instance
The instances are so numerous, they are hard to keep track of. In the latest instance of an FCPA enforcement attorney joining a law firm to provide FCPA defense services, earlier this week Paul Hastings announced here as follows.
“Nathaniel Edmonds has joined the firm as a partner in the Global Compliance and Disputes practice, based in Washington, DC. Mr. Edmonds joins from the Department of Justice (DOJ), where he was an Assistant Chief of the Fraud Section, Foreign Corrupt Practices Act Unit in the Criminal Division. At the time of his hire, Mr. Edmonds was one of the longest-tenured FCPA prosecutors. […] In recent years, Mr. Edmonds was responsible for directly supervising up to half of the DOJ’s investigations into transnational bribery. He also drafted portions of the FCPA Resource Guide published in November 2012, which details the contours of the FCPA legal regime, the policy positions underlying the enforcement strategy, and the relevance of past enforcement positions taken by the DOJ and the SEC. During Mr. Edmonds’ tenure, the DOJ has investigated and resolved more cases against corporations and has charged, tried, and convicted more individuals under the FCPA than in any other similar period in history.”
This Blog of Legal Times article stated as follows. “Edmonds said that FCPA investigations and enforcement has increased in recent years and that the practice would likely continue to be robust for attorneys.”
That Edmonds played a supervisory role, as a DOJ enforcement attorney, in helping create the current FCPA enforcement landscape is precisely the reason why I have long argued that it is in the public interest (recognizing the niched nature of both the DOJ and SEC FCPA units) that all FCPA enforcement attorneys should be prohibited, when leaving the government, from providing FCPA defense or compliance services for a five-year time period. For additional reading see this piece I co-authored as well as this prior post among several others.
Indeed, Paul Hastings specifically touted in its release Edmonds’ “connections to U.S. government agencies.”
Save the Date
The Dow Jones Global Compliance Symposium is April 2-3 in Washington, D.C.
Last year, Christopher Matthews at Wall Street Journal Corruption Currents described (here) the panel I participated in as “an FCPA debate for the ages” – “for FCPA geeks, this was Ali v. Foreman and Frazier. A battle royale. A bloodbath.”
On April 2nd I will be participating in a panel titled “The FCPA: Does It Need Further Clarifying” along with Paul McNulty (Baker & McKenzie and former Deputy Attorney General) and David Yawman (Senior Vice President & Chief Compliance and Ethics Officer, PepsiCo, Inc.). The panel is being moderated by Joe Palazzolo of the Wall Street Journal.
Scrutiny Updates
BHP Billiton
As noted in this prior post, in April 2010 BHP Billiton announced it was under FCPA scrutiny. Earlier this week, various media sources reported that BHP Billiton’s FCPA scrutiny has grown. As summarized by this Reuters article.
“The U.S. government is investigating a possibility of corrupt practices by the world’s largest mining company, BHP Billiton, the company confirmed Wednesday after media reports about an inquiry into its sponsorship of the 2008 Beijing Olympics. Fairfax Media in Australia reported that the U.S. Department of Justice and the Australian Federal Police were investigating allegations that BHP Billiton had provided inducements, hospitality and gifts to officials from China and other countries. The U.S. Justice Department told Fairfax, in response to a Freedom of Information Act request, that it was conducting “law enforcement proceedings” involving BHP Billiton, which supplied materials for the gold, silver and bronze medals used in Beijing. The Australian police confirmed that they had been working with their foreign counterparts and local regulators on Australian aspects of the U.S. investigation. BHP Billiton said it had been cooperating with the “relevant authorities,” and in response to media queries it said it believed it had not broken any laws in its Olympics sponsorship. “BHP Billiton is fully committed to operating with integrity and the Group’s policies specifically prohibit engaging in bribery in all its forms,” the company said in an e-mailed statement.”
Embraer
As noted in this prior post, Embraer previously disclosed it was under FCPA scrutiny. Earlier this week, Embraer updated its disclosure and stated as follows.
“We received a subpoena from the SEC in September, 2010, which inquired about certain operations concerning sales of aircraft abroad. In response to this SEC-issued subpoena and associated inquiries into the possibility of non-compliance with the U.S. Foreign Corrupt Practices Act, or FCPA, we retained outside counsel to conduct an internal investigation on transactions carried out in three specific countries. Further, the Company has voluntarily expanded the scope of the internal investigation to include two additional countries and has reported on those matters. The investigation remains ongoing and we, through our outside counsel, continue to cooperate fully with the SEC and U.S. Department of Justice, which are the authorities responsible for reviewing the matter. The Company, with the support of our outside counsel, has concluded that it is still not possible to estimate the duration, scope or results of the internal investigation or government’s review. In the event that the authorities take action against us or the parties enter into an agreement to settle the matter, we may be required to pay substantial fines and/or to incur other sanctions. The Company, based upon the opinion of our outside counsel, believes that, there is no basis for estimating reserves or quantifying any possible contingency.”
On Point
Stuart Altman (Hogan Lovells, and a former Assistant U.S. Attorney in the E.D. of N.Y.) stated as follows in a recent Law360 Q&A.
“Q: What aspects of your practice area are in need of reform and why?
A: The inability of companies and individuals accused of wrongdoing to actually defend their selves. If you ask most white collar criminal defense lawyers they will tell you that they spend most of their time figuring out how to cooperate with the government not defend their clients. Investigations are ultimately focused on reporting to the government instead of building a defense. The government has made it incredibly onerous for a company to fight accusations of wrongdoing. The danger of huge fines, debarment and threats against individual employees all combine to create a huge disincentive to fight even when you believe your client is in the right. I think we need to find a better balance that allows the government to do its job but doesn’t create a climate of coerced surrender.”
William Burck (Quinn Emmanuel, and former Special Counsel and Deputy Counsel to President Bush a well as a former Assistant U.S. Attorney in the S.D. of N.Y.) stated as follows in a recent Law360 Q&A.
“Q: What aspects of your practice area are in need of reform and why?
A: Overcriminalization is a troubling trend in the U.S. Unfortunately, some of what is considered “white collar crime” is really the criminalization of questionable, but not truly fraudulent, business activities or the misuse of criminal process to resolve what should be civil disputes. True fraud and theft should be targeted, of course. No one thinks Bernie Madoff should be spared. But prosecutors sometimes twist poor or disfavored business practices into allegedly criminal misbehavior.”
FCPA Inc.
This Washington Post article states as follows concerning future opportunities for Washington D.C. law firms.
“At most firms, mainstay Washington specialties such as antitrust, health care and intellectual property continued to help drive business. Cybersecurity and Foreign Corrupt Practices Act work — two booming areas for companies — are poised to bring in more legal work for years to come.”
This Am Law Daily article states as follows concerning New York-based law firms.
“Government investigations – especially the LIBOR antitrust investigations and Foreign Corrupt Practices Act and False Claims Act work – are keeping hundreds of fee-earners busy, and New York firms with strong litigation departments are particularly well positioned to benefit.”
For the Reading Stack
In “Policing The Firm,” Daniel Sokol (a leading antitrust authority at the University of Florida Levin College of Law) asks if criminal antitrust enforcement could learn from FCPA enforcement. Sokol argues it can and he explores the lack of corporate monitors in antitrust actions and asks why antitrust remedies do not resemble remedies in other areas of corporate crime, with the routine imposition of monitors, such as the FCPA.
Friday Roundup
ConocoPhillips is hit with an FCPA related shareholder proposal, add Wal-Mart to the list, and more on Embraer … it’s all here in the Friday Roundup.
ConocoPhillips Shareholder Proposal
Last week ConocoPhillips was hit with an FCPA shareholder proposal – see here. In the letter, titled “Shareholder Proposal and Statement for Publication in 2012 Proxy Materials Recommending an Audit of Controls on U.S. Foreign Corrupt Practices Act Violations,” the shareholder – Roger Parsons, a former Conoco employee who runs a website “The Iran-Conoco Affair” (here) – recommends “that the Board commission a forensic audit of ConocoPhillips compliance controls that failed to identify violations of the United States Foreign Corrupt Practices Act of 1977 (“FCPA”) arising from James J. Mulva ‘s peddling influence with the Bush Administration to obtain Executive Order 13477 on behalf of Muammar al-Qadhafi.” Mulva is currently ConocoPhillips Chairman and Chief Executive Officer.
Wal-Mart
Add Wal-Mart to the list of company’s under FCPA scrutiny. In a 10-K filing yesterday, the company disclosed as follows. “During fiscal 2012, the Company began conducting a voluntary internal review of its policies, procedures and internal controls pertaining to its global anti-corruption compliance program. As a result of information obtained during that review and from other sources, the Company has begun an internal investigation into whether certain matters, including permitting, licensing and inspections, were in compliance with the U.S. Foreign Corrupt Practices Act. The Company has engaged outside counsel and other advisors to assist in the review of these matters and has implemented, and is continuing to implement, appropriate remedial measures. The Company has voluntarily disclosed its internal investigation to the U.S. Department of Justice and the Securities and Exchange Commission. We cannot reasonably estimate the potential liability, if any, related to these matters. However, based on the facts currently known,
we do not believe that these matters will have a material adverse effect on our business, financial condition, results of operations or cash flows.”
Given the reference to permits, licenses and inspections in the disclosure, it is useful to review the holding of U.S. v. Kay, the only appellate court decision to directly address payments outside the context of directly securing a foreign government contract. In Kay, the 5th Circuit said that such payments “could” violate the FCPA, but that “there are bound to be circumstances” in which such payments merely increase the profitability of an existing profitable company and thus, presumably does not assist the payer in obtaining or retaining business. The court specifically stated as follows. “If the government is correct that anytime operating costs are reduced the beneficiary of such advantage is assisted in betting or keeping business, the FCPA’s language that expresses the necessary element of assisting in obtaining or retaining business would be unnecessary, and thus surplusage – a conclusion that we are forbidden to reach.”
Embraer
Bloomberg has additional information (here) regarding Embraer’s FCPA scrutiny (discussed in this previous post). The article suggests that the “probe started more than a year ago in Argentina with government-controlled Aerolineas Argentinas SA’s $700 million purchase of 20 E-190 jets in 2009.” The airline has switched between private ownership and government ownership a number of times over the years.
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A good weekend to all.
Senator Grassley Seeks Guidance As To DOJ’s Upcoming FCPA Guidance
As detailed in this prior post, on November 8th Assistant Attorney General Lanny Breuer announced before an FCPA audience that in 2012 the DOJ hopes to “release detailed new guidance on the [FCPA’s] criminal and civil enforcement provisions.”
As previously reported by Christopher Matthews on the Wall Street Journal’s Corruption Currents page, Senator Charles Grassley (R-IA) recently sent (see here) U.S. Attorney General Eric Holder a number of questions for the record related to Holder’s recent testimony before the Senate Judiciary Committee – see here. Included in the questions are several about the DOJ’s upcoming FCPA guidance. The FCPA portion of Senator Grassley’s questions are excerpted below.
“Foreign Corrupt Practices Act Guidance
Assistant Attorney General Lanny Breuer recently announced in a public speech that the Department is preparing, “detailed new guidance on the [Foreign Corrupt Practice Act’s] criminal and civil enforcement provisions” to be released next year. At a hearing on the FCPA back in November 2010 [see here for more], many Senators expressed their concerns with the Department’s enforcement of the statute. Specifically, members raised concerns with the fact that the law includes broad language that is not well defined, and that a lack of clear guidance from the Department in the form of advisory opinions has created an air of uncertainty in how U.S. corporations do business abroad. I welcome this call for new guidance to help ensure that businesses that want to do the right thing, know what the right thing is in the eyes of the Justice Department.
(a) When will the guidance be published?
(b) What form will the guidance take and what steps will be taken to ensure that it is implemented nationally and uniformly? Will the guidance be incorporated into in the U.S. Attorneys’ Manual?
(c) Does the Department intend to solicit the views of interested outside parties as it prepares the guidance, particularly the regulated business community? If so, how?
(d) Who at the Department will be primarily responsible for drafting the guidance?
(e) What will be the Securities and Exchange Commission’s (SEC) role in formulating the guidance? Will the SEC be bound by the guidance? Will the Department enter into a Memorandum of Understanding with the SEC regarding the guidance?
(f) AAG Breuer’s remarks indicate that the guidance address the FCPA’s “enforcement provisions.” Will the guidance offer only the Department’s interpretation of the Act’s enforcement provisions or will the guidance set forth the Department’s enforcement policies? i. Will the guidance include the Department’s interpretations of ambiguous statutory terms such as “foreign official” and “government instrumentality”? ii. Will the guidance clarify when a company may be held liable for the actions of an independent subsidiary? iii. Will the guidance clarify the extent to which one company may be held liable the pre-acquisition or pre-merger conduct of another? iv. Will the guidance include an enforcement safe harbor for gifts and hospitality of a de minimis value provided to foreign officials?
(g) Other Department guidelines, including the Corporate Charging Guidelines, indicate that they may not be relied up on by defendants and do not limit the Department’s litigation prerogatives. Will the same be true of the forthcoming FCPA guidance, or will defendants be able to rely upon this guidance in litigation?”
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In other FCPA-related Capital Hill news, Congressman Mike Pompeo (R-KS) wants to know why Wichita based Hawker-Beechcraft lost out to Embraer in the U.S. Air Force Light Air Support competition. See here. As detailed in this prior post, Embraer recently disclosed an FCPA investigation. In this recent letter to Secretary of Defense Leon Panetta, Pompeo voiced his concern and last week Pompeo reacted as follows to news that Hawker-Beechcraft lost out to Embraer. ““It is vitally important for the Pentagon to clarify this matter, especially in light of allegations that Hawker’s main competitor in the LAS competition, Embraer, is being investigated for violations of the Foreign Corrupt Practices Act.”