Category: Enforcement Agency Speeches

Analyzing The SEC’s Recent FCPA Pharma Speech

In November 2009, then DOJ Assistant Attorney General Lanny Breuer delivered this Foreign Corrupt Practices Act speech at a pharmaceutical industry conference.  In the speech, Breuer warned the audience as follows.

“[C]onsider the possible range of “foreign officials” who are covered by the FCPA: Some are obvious, like health ministry and customs officials of other countries. But some others may not be, such as the doctors, pharmacists, lab technicians and other health professionals who are employed by state-owned facilities. Indeed, it is entirely possible, under certain circumstances and in certain countries, that nearly every aspect of the approval, manufacture, import, export, pricing, sale and marketing of a drug product in a foreign country will involve a “foreign official” within the meaning of the FCPA.”

In the speech, Breuer also talked about “the importance [of] rigorous FCPA compliance polic[ies] that are faithfully enforced” and reminded the audience as follows.

“[A]ny pharmaceutical company that discovers an FCPA violation should seriously consider voluntarily disclosing the violation and cooperating with the Department’s investigation. If you voluntarily disclose an FCPA violation, you will receive meaningful credit for that disclosure. And if you cooperate with the Department’s investigation, you will receive a meaningful benefit for that cooperation—without any request or requirement that you disclose privileged material. Finally, if you remediate the problem and take steps to ensure that it does not recur, you will benefit from that as well.”

Over five years and ten FCPA enforcement actions against pharma/healthcare companies later, Andrew Ceresney (Director of the SEC’s Enforcement Division) delivered a nearly identical speech earlier this week.

The below post excerpts Ceresney’s speech.

When reviewing the speech, you may want to keep the following in mind.

As highlighted in this prior post, the enforcement theory that physicians, lab personnel, etc. are “foreign officials” under the FCPA was first used in 2002 and has since been used in 17 corporate enforcement actions.

Even even though Ceresney’s speech contains several citations, it is telling that the following assertion lacks any citation “doctors, pharmacists, and administrators from public hospitals in foreign countries … are often are classified as foreign officials for purposes of the FCPA.”

There is no citation for this assertion because it is one of the most dubious enforcement theories of this new era of FCPA enforcement and an enforcement theory that finds no support in the FCPA’s extensive legislative history.  (See here for “The Story of the Foreign Corrupt Practices Act“).

Of further note, despite extracting hundreds of millions of dollars from risk averse corporations based on this “foreign official” theory, the DOJ and SEC have never used this enforcement theory to charge any individual.

Another issue to consider.

As highlighted in this recent post, despite the continued foreign scrutiny of the pharma and healthcare industry, the corporate dollars continue to flow to U.S. physicians and other healthcare workers.  It is one of the more glaring double standards when it comes to FCPA enforcement and enforcement of U.S. domestic bribery laws.

With that necessary information, to Ceresney began his speech as follows.

“Pursuing FCPA violations is a critical part of our enforcement efforts.  International bribery has many nefarious impacts, including sapping investor confidence in the legitimacy of a company’s performance, undermining the accuracy of a company’s books and records and the fairness of the competitive marketplace.  Our specialized FCPA unit as well as other parts of the Enforcement Division continue to do remarkable work in this space, bringing significant and impactful cases, often in partnership with our criminal partners.

Now, our FCPA focus obviously covers many industries.  For example, we have conducted a recent sweep in the financial services industry that will yield a number of important cases.  But the pharma industry is one on which we have been particularly focused in recent years.  A few factors combine to make it a high-risk industry for FCPA violations.  Pharmaceutical representatives have regular contact with doctors, pharmacists, and administrators from public hospitals in foreign countries.  Those people often are classified as foreign officials for purposes of the FCPA, and they often decide what products public hospitals or pharmacies will purchase.  This influence over the awarding of contracts is true for virtually every country around the globe.

There have been three types of misconduct that we have seen arise most often in our pharma FCPA cases.  One is “Pay-to-Prescribe”; another is bribes to get drugs on the approved list or formulary; and the third is bribes disguised as charitable contributions.  Let me discuss each of these in turn.

In “Pay-to-Prescribe” cases, we see public official doctors and public hospitals being paid bribes in exchange for prescribing certain medication, or other products such as medical devices.  Some of our cases involve simple cash payments to doctors and other medical officials. But we have also seen some more innovative schemes created for the purposes of rewarding prescribing physicians.  For example, in our 2012 action against Pfizer, subsidiaries in different countries found a variety of illicit ways to compensate doctors. In China, employees invited “high-prescribing doctors” in the Chinese government to club-like meetings that included extensive recreational and entertainment activities to reward doctors’ past product sales or prescriptions.  Pfizer China also created various “point programs” under which government doctors could accumulate points based on the number of Pfizer prescriptions they wrote.  The points were redeemed for gifts ranging from medical books to cell phones, tea sets, and reading glasses. In Croatia, Pfizer employees created a “bonus program” for Croatian doctors who were employed in senior positions in Croatian government health care institutions.  Once a doctor agreed to use Pfizer products, a percentage of the value purchased by a doctor’s institution would be funneled back to the doctor in the form of cash, international travel, or free products.  Each of these schemes violated the FCPA by routing money to foreign officials in exchange for business.

Let me turn to a second form of bribery, which is aimed at getting products on a formulary.  Of course, getting your company’s drugs on formularies is important to success in this industry.  But the FCPA requires that you do this without paying bribes, and we have taken action where companies have crossed that line.  We brought a case against Eli Lilly that included such violations.  There, the company’s subsidiary in Poland made payments totaling $39,000 to a small foundation started by the head of a regional government health authority.  That official, in exchange, placed Lilly drugs on the government reimbursement list.  That action involved a variety of other FCPA violations and Eli Lilly paid $29 million to settle the matter.

The Eli Lilly case brings me to my third point, which concerns bribes disguised as charitable contributions.  As you might know, the FCPA prohibits giving “anything of value” to a foreign official to induce an official action to obtain or retain business, and we take an expansive view of the phrase “anything of value.”  The phrase clearly captures more than just cash bribes, and Eli Lilly is not the only matter where we have brought an action arising out of charitable contributions.

For example, in Stryker, we charged a medical technology company after subsidiaries in five different countries paid bribes in order to obtain or retain business. Stryker’s subsidiary in Greece made a purported donation of nearly $200,000 to a public university to fund a laboratory that was the pet project of a public hospital doctor.  In return, the doctor agreed to provide business to Stryker.  Stryker agreed to pay $13.2 million to settle these and other charges.

Similarly, in Schering-Plough, we brought charges against the company arising out of $76,000 paid by its Polish subsidiary to a charitable foundation.  The head of that foundation was also the director of a governmental body that funded the purchase of pharmaceutical products and that influenced the purchase of those products by other entities, such as hospitals.  In settling our action, Schering-Plough consented to paying a $500,000 penalty.

The lesson is that bribes come in many shapes and sizes, and those made under the guise of charitable giving are of particular risk in the pharmaceutical industry.  So it is critical that we carefully scrutinize a wide range of unfair benefits to foreign officials when assessing compliance with the FCPA – whether it is cash, gifts, travel, entertainment, or charitable contributions.  We will continue to pursue a broad interpretation of the FCPA that addresses bribery in all forms.”

Under the heading “Compliance Program,” Ceresney stated:

“The best way for a company to avoid some of the violations that I have just described is a robust FCPA compliance program.   I can’t emphasize enough the importance of such programs.  This is a message that I think has started to get through in the past 5 years.

The best companies have adopted strong FCPA compliance programs that include compliance personnel, extensive policies and procedures, training, vendor reviews, due diligence on third-party agents, expense controls, escalation of red flags, and internal audits to review compliance.  I encourage you to look to our Resource Guide on the FCPA that we jointly published with the DOJ, to see what some of the hallmarks of an effective compliance program are.  I’ll highlight just a couple.

First, companies should perform risk assessments that take into account a host of factors listed in the guide and then place controls in these risk areas.  The pharmaceutical industry operates in virtually every country, including many high risk countries prone to corruption.  The industry also comes into contact with customs officials and may need perishable medicines and other goods cleared through customs quickly.  They may also come into contact with officials involved in licensing and inspections.  These are just a few examples of risk factors that a risk assessment should be focused on in this particular sector.

A healthy compliance program should also include third-party agent due diligence.  In addition to using third-party agents, many pharmaceutical companies use distributors.  This creates the risk that the distributor will use their margin or spread to create a slush fund of cash that will be used to pay bribes to foreign officials.  Because of this added layer of cash flow, companies frequently improperly account for bribes as legitimate expenses.  To properly combat against these abuses, a compliance program must thoroughly vet its third-party agents to include an understanding of the business rationale for contracting with the agent.  Appropriate expense controls must also be in place to ensure that payments to third-parties are legitimate business expenses and not being used to funnel bribes to foreign officials.”

Under the heading, “Self-Reporting and Cooperation,” Ceresney stated:

“The existence of FCPA compliance programs place companies in the best position to detect FCPA misconduct and allow the opportunity to self-report and cooperate.  There has been a lot of discussion recently about the advisability of self-reporting FCPA misconduct to the SEC.  Let me be clear about my views – I think any company that does the calculus will realize that self-reporting is always in the company’s best interest.  Let me explain why.

Self-reporting from individuals and entities has long been an important part of our enforcement program.  Self-reporting and cooperation allows us to detect and investigate misconduct more quickly than we otherwise could, as companies are often in a position to short circuit our investigations by quickly providing important factual information about misconduct resulting from their own internal investigations.

In addition to the benefits we get from cooperation, however, parties are positioned to also help themselves by aggressively policing their own conduct and reporting misconduct to us.  We recognize that it is important to provide benefits for cooperation to incentivize companies to cooperate.  And we have been focused on making sure that people understand there will be such benefits.  We continue to find ways to enhance our cooperation program to encourage issuers, regulated entities, and individuals to promptly report suspected misconduct.  The Division has a wide spectrum of tools to facilitate and reward meaningful cooperation, from reduced charges and penalties, to non-prosecution or deferred prosecution agreements in instances of outstanding cooperation. For example, we announced our first-ever non-prosecution agreement in an FCPA matter with a company that promptly reported violations and provided real-time, extensive cooperation in our investigation. And just six weeks ago, we entered into a deferred prosecution agreement with another company that self-reported misconduct.

More commonly, we have reflected the cooperation in reduced penalties.  Companies that cooperate can receive smaller penalties than they otherwise would face, and in some cases of extraordinary cooperation, pay significantly less.  One recent FCPA matter in this sector illustrates the considerable benefits that can flow from coming forward and cooperating.  Our joint SEC-DOJ FCPA settlement with Bio-Rad Laboratories for $55 million reflected a substantial reduction in penalties due to the company’s considerable cooperation in our investigation. In addition to self-reporting potential violations, the company provided translations of numerous key documents, produced witnesses from foreign jurisdictions, and undertook extensive remedial actions.  There, the DOJ imposed a criminal fine of only $14 million, which was equivalent to about 40% of the disgorgement amount – a large reduction from the typical ratio of 100% of the disgorgement amount.

In fact, we have recently announced FCPA matters featuring penalties in the range of 10 percent of the disgorgement amount, an even larger discount than the case I just mentioned. And in the Goodyear case we announced last week, we imposed no penalty.  In those cases, the companies received credit for doing things like self-reporting; taking speedy remedial steps; voluntarily making foreign witnesses available for interviews; and sharing real-time investigative findings, timelines, internal summaries, English language translations, and full forensic images with our staff.

The bottom line is that the benefits from cooperation are significant and tangible.  When I was a defense lawyer, I would explain to clients that by the time you become aware of the misconduct, there are only two things that you can do to improve your plight – remediate the misconduct and cooperate in the investigation.  That obviously remains my view today.  And I will add this – when we find the violations on our own, and the company chose not to self-report, the consequences are worse and the opportunity to earn significant credit for cooperation often is lost.

This risk of suffering adverse consequences from a failure to self-report is particularly acute in light of the continued success and expansion of our whistleblower program.  The SEC’s whistleblower program has changed the calculus for companies considering whether to disclose misconduct to us, knowing that a whistleblower is likely to come forward.  Companies that choose not to self-report are thus taking a huge gamble because if we learn of the misconduct through other means, including through a whistleblower, the result will be far worse.”

Friday Roundup

Quotable, on offense, scrutiny alert, to FCPA Inc., and resource alert.  It’s all here in the Friday roundup.

Quotable

This article in The Recorder reports on a recent public event in which Assistant Attorney General Leslie Caldwell spoke.  According to the article:

“Caldwell also said the Criminal Division would cut down on its use of deferred prosecution agreements, which she said had become the ‘default’ means to resolve corporate cases. ‘Deferred prosecution agreements were a bit overused.’ Instead, Caldwell told the audience to expect more declinations from the government, which would let companies, individual targets and the public know when an investigation is being closed without charges.”

Glad to see that Caldwell agrees that DPAs have become a default means to resolve cases and overused –  central themes of my 2010 article “The Facade of FCPA Enforcement” and my 2010 Senate FCPA testimony.

On Offense

This prior post highlighted Canada’s 2013 enforcement action against Griffiths Energy International Inc. (“GEI”) under Canada’s Corruption of Foreign Public Officials Act (“CFPOA”) for allegedly bribing Chad’s Ambassador to Canada, Mahamoud Adam Bechir and his wife Ms. Nouracham Niam.

According to this recent article in the Calgary Sun Bechir and Niam are going on offense.  The article notes:

“The former Chadian ambassador to Canada and his wife have launched a $150-million lawsuit claiming “false” bribery allegations against them have sullied their reputation. Mahamoud Adam Bechir and his spouse, Nouracham Niam, are suing law firm Gowlings Lafleur Henderson LLP, partner Kristine Robidoux and the current corporate owner of Griffiths Energy International (GEI) Inc. In a statement of claim filed in Calgary Court of Queen’s Bench the couple say claims by Griffiths it paid a $2-million bribe to the wife’s company were untrue.”

Scrutiny Alert

Staying north of the border, as noted in this report,

“MagIndustries Corp., a China-backed Canadian potash company, said it has formed a special committee to look into allegations some of its officers and employees have breached the Corruption of Foreign Public Officials Act. Canadian police visited the company’s head office in Toronto with a search warrant on Jan. 22 in connection with the allegation, MagIndustries said Thursday in a statement. “No charges have been laid in connection with this investigation and MagIndustries has no knowledge of any such breach and will be cooperating fully with the authorities,” the company said. MagIndustries, controlled by Evergreen Resources Holdings Ltd. according to data compiled by Bloomberg, is developing the Mengo potash mine in Republic of Congo.”

To FCPA Inc.

It happens so often it is difficult to keep track of, but I try my best.

In the latest example of a DOJ FCPA enforcement attorney departing for FCPA Inc. Ropes & Gray announced that “Ryan Rohlfsen, senior trial attorney at the U.S. Department of Justice’s Criminal Division, Fraud Section” who was as “part of an elite group of federal prosecutors responsible for the global enforcement of the U.S. Foreign Corrupt Practices Act (FCPA)” has joined the firm as a partner.

Resource Alert

My former law firm, Foley & Lardner, recently announced “Foley Global Risk Solutions.”  As stated in the release:

“Foley & Lardner LLP announced today the launch of Foley Global Risk Solutions – a new cost-effective service offering designed to help companies operating overseas comply with the Foreign Corrupt Practices Act (FCPA). Foley GRS is an innovative, web-based service offering that provides businesses with a fully integrated FCPA compliance solution. The product, which relies on cutting-edge technology, will be offered for a fixed annual subscription fee. […] Foley GRS is the first-of-its-kind integrated legal services solution using a technology-based platform that delivers a comprehensive, closed-loop program that includes risk assessments, current and periodically updated policies and procedures, training for employees, regular communications, and most importantly, access to legal advice and counseling on FCPA issues that arise during the course of business operations.”

*****

A good weekend to all.

Friday Roundup

Scrutiny alerts, quotable, and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Alerts

Nortek

Nortek Inc.  recently disclosed:

“As part of our routine internal audit activities, Nortek, Inc. (the “Company” or “we”) discovered certain questionable hospitality, gift and payment practices, and other expenses at the Company’s subsidiary, Linear Electronics (Shenzhen) Co. Ltd. (“Linear China”), which are inconsistent with the Company’s policies and raise concerns under the U.S. Foreign Corrupt Practices Act (“FCPA”) and perhaps under other applicable anti-corruption laws. The Company initiated an internal investigation into these practices and payments with the assistance of outside counsel. On January 7, 2015 and January 8, 2015, respectively, we voluntarily contacted the United States Securities and Exchange Commission (“SEC”) and the United States Department of Justice (“DOJ”) to advise both agencies of our internal investigation. The Company intends to cooperate with any SEC or DOJ investigation into these matters. The Company takes these matters very seriously and is committed to conducting its business in compliance with all applicable laws. Based on information known at this time, we currently believe that the amount of the questionable expenses and payments is not material with respect to the Company’s financial condition or results of operations. However, at this time, we are unable to predict, what, if any, action may be taken by the DOJ or SEC or any penalties or remedial measures these agencies may seek, but intend to cooperate with both agencies. Any determination that our operations or activities are not in compliance with existing laws or regulations could result in the imposition of fines, civil and criminal penalties, and equitable remedies, including disgorgement or injunctive relief. Nortek’s Linear China location manufactures products primarily for our Security and Control Solutions Segment and does not sell products to third parties.”

Sony

Last week’s Friday Roundup highlighted the FCPA scrutiny of Sony and other Hollywood film studies in China.

“Sony Corp.’s entertainment unit investigated its Indian operations for possible legal violations including bidding fraud and kickbacks, according to internal e-mails released by hackers, highlighting challenges the company has faced in the country. Sony enlisted Ernst & Young to look into its businesses in the country and uncovered potential evidence of wrongdoing, according to the e-mails. In one case, investigators found that a joint venture between Sony and Discovery Communications Inc. (DISCA) may have engaged in fraudulent bids, kickbacks and excessive handouts to government officials …”

According to the article, there are various “areas of concern” including: “potential gifts and entertainment of Indian government officials” such as providing tickets to IPL cricket matches to public servants, as well as laptop bags that were requested as gifts for government officials during the Diwali festival.”

“This really shows that Transparency International is not as pure as people think. Transparency International’s own policy forbids accepting money from corrupt companies. Period. Even though the Siemens bribery scandal broke in 2006, the company is still being investigated in more than 20 countries — in Europe, Asia, the Americas, Africa and the Middle East. All over the world, Siemens is still under suspicion.”

In this recent speech, Deputy Assistant Attorney General Sung-Hee Suh spoke “about the Criminal Division’s white-collar criminal enforcement priorities now and in the coming year.” Among other things, Suh stated:  

“The prosecution of individuals—including corporate executives—for criminal wrongdoing continues to be a high priority for the department.  That is not to say that we will be looking to charge individuals to the exclusion of corporations. However, corporations do not act criminally, but for the actions of individuals.  And, the Criminal Division intends to prosecute those individuals, whether they are sitting on a sales desk or in a corporate suite. It is within this framework that we are also seeking to reshape the conversation about corporate cooperation to some extent.  Corporations too often overlook a key consideration that the department has long expressed in our Principles of Federal Prosecution, which guide our prosecutorial decisions:  That is a corporation’s willingness to cooperate in the investigation of its culpable executives. Of course, corporations—like individuals—are not required to cooperate.  A corporation may make a business or strategic decision not to cooperate.  However, if a corporation does elect to cooperate with the department, it should be mindful of the fact that the department does not view voluntary disclosure as true cooperation, if the company avoids identifying the individuals who are criminally responsible for the corporate misconduct. Even the identification of culpable individuals is not true cooperation, if the company intentionally fails to locate and provide facts and evidence at their disposal that implicate those individuals.  The Criminal Division will be looking long and hard at corporations who purport to cooperate, but fail to provide timely and full information about the criminal misconduct of their executives. In the past year, the Criminal Division has demonstrated its continued commitment to the prosecution of individual wrongdoers in the corporate context.  I will highlight a few examples. On the FCPA front, since 2009, we have convicted 50 individuals in FCPA and FCPA-related cases, and resolved criminal cases against 59 companies with penalties and forfeiture of almost $4 billion.  Within the last two years alone, we have charged, resolved by plea, or unsealed cases against 26 individuals, and 14 corporations have resolved FCPA violations with combined penalties and forfeiture of more than $1.6 billion. As just one example, the department unsealed charges against the former co-CEOs and general counsel of PetroTiger Ltd., a BVI oil and gas company with offices in New Jersey, for allegedly paying bribes to an official in Colombia in exchange for assistance in securing approval for an oil services contract worth $39 million. The general counsel and one of the CEOs already pleaded guilty to bribery and fraud charges, and the other former CEO is headed for trial. This case was brought to the attention of the department through voluntary disclosure by PetroTiger, which cooperated with the department’s investigation.  Notably, no charges of any kind were filed against PetroTiger. An example on the flip side is the Alstom case, an FCPA investigation stemming from a widespread scheme involving tens of millions of dollars in bribes spanning the globe, including Indonesia, Saudi Arabia, Egypt, and the Bahamas. When the Criminal Division learned of the misconduct and launched an investigation, Alstom opted not to cooperate at the outset.  What ensued was an extensive multi-tool investigation involving recordings, interviews, subpoenas, MLAT requests, the use of cooperating witnesses, and more. As of today, four individual Alstom executives have been charged; three of them have pleaded guilty; Alstom’s consortium partner, Marubeni, was charged and pleaded guilty; and Alstom pleaded guilty and agreed to pay a record $772 million fine.  And that only accounts for the charges in the United States. As I have said, we want corporations to cooperate, and will provide appropriate incentives.  But, we will not rely exclusively upon corporate cooperation to make our cases against the individual wrongdoers.

[…]

To do these complex, international investigations, we are increasingly coordinating with domestic and foreign regulators and law enforcement counterparts, some of whom are on this panel today. In working with our foreign counterparts, we have developed growing sophistication and experience in a variety of areas, including analyzing foreign data privacy laws and corporations’ claims that overseas documents cannot be provided to investigators in the United States. We are also building and relying upon on our relationships with our foreign counterparts to gather evidence, locate individuals overseas, conduct parallel investigations of similar conduct, and, when appropriate, coordinate the timing and scope of resolutions. Yes, just as we are coordinating our investigations, we are likewise willing to coordinate our resolutions, including accounting for the corporate monetary penalties paid in other jurisdictions when appropriate. This is all to say that you should expect to see these meaningful, multinational investigations and prosecutions of corporations and individuals to continue.”

*****

These pages have frequently highlighted how the root cause of bribery and corruption is often foreign trade barriers and distortions.

Jeremy Douglas (who leads the United Nation’s regional Office on Drugs and Crime for Southeast Asia and the Pacific) was thus spot-on in this recent Q&A.

“Q: How do western companies get themselves into trouble in the region?

A: … What we see in the region is that bureaucracies and government structures tend to be highly personalized. People are ensconced in key positions i.e. government procurement positions, or people in the position to give government contracts, let’s say building a power plant. [These officials] are in powerful positions to ease up administrative procedures and accelerate red tape and issue licenses. So companies can be drawn into scenarios where they are paying facilitation fees or their intermediaries are paying facilitation fees. [Much of] Southeast Asia doesn’t have a lot of the regulatory structure–the checks and balances you have in the [U.S. or Canada] so companies come in and run into very powerful persons in those structures, and they know if they can influence these officials, they can get what they need to win business.”

Reading Stack

“Transparency International pioneered the corruption index in the early 1990s. They rank countries from most corrupt to the least corrupt. And they are based on public perception – perception of business people and experts from outside the country. They come up with these numbers that are attractive to the press. And it has put Transparency International on the map. They are simple minded surveys. But they don’t really mean a lot. The idea of corruption in these surveys is simple bribery — cash changing hands. It’s the proverbial cash in the piano or the freezer. Corruption is reduced to bribery. In fact, today’s most savvy power brokers are engaged in a kind of corruption that is much more subtle and more difficult to detect. Today’s most corrupt players, at least in the West, don’t need this quid pro quo corruption. They are far beyond that. That’s for the little players. That’s for the small fry. That’s a key point of Unaccountable.”

*****

This Op-Ed about Chinese law enforcement (in the corruption space and otherwise) states: “China’s leaders must realize that even the perception that they are targeting foreign businesses disproportionately can create great harm.”  Against this backdrop, is the following fact.  8 of the top 10 FCPA enforcement actions (in terms of settlement amounts) have been against foreign companies and are often based on sparse jurisdictional allegations.

*****

From the Singapore Corrupt Practices Investigation Bureau

“Public Officers Rejecting Bribe Offers

Issues To Consider From The Recent OECD Report

Earlier this week the OECD released a report titled “OECD Foreign Bribery Report – An Analysis of the Crime of Bribery of Foreign Public Officials.”

The Report “endeavours to measure, and to describe, transnational corruption based on data from the 427 foreign bribery cases that have been concluded since the entry into force of the OECD Anti-Bribery Convention in 1999” by the 41 signatory countries to the OECD Convention. From this universe of cases, the Report then attempts to calculate several statistics.

Calculating statistics across 41 countries with different legal regimes, different ways of prosecuting cases, etc. is a monumental task.

It is also a task that yields statistics that are not very reliable or meaningful, particularly given certain of the methodologies and assumptions made in the Report.

For starters, the report itself notes as follows.  “This report is peppered with unknown data, ranging from 2% to 36% depending on the particular data set.  Many of the concluded cases did not contain all the information needed to make a full analysis and were also not publicly available.”

Second, the report “does not examine foreign bribery related offenses such as accounting.”  It is a bit unclear what this means, but if it means that FCPA books and records and internal controls cases only are not included in the dataset, then this is a significant limitation because actual charges in an FCPA enforcement action are often based – not solely on the conduct at issue – but other factors such as voluntary disclosure, cooperation, collateral effects, etc.  In short, several FCPA enforcement which could implicate the FCPA’s anti-bribery provisions do not as a technical matter.

Third, and as noted in footnote 11 of the report, “in the case of the United States, sanctions imposed by the Securities Exchange Commission (US SEC) and Department of Justice (US DOJ) are counted separately.”  Given that U.S. cases comprised approximately 1/4 of the total cases examined, this creative counting method is hugely significant.

Consider just 2013 FCPA enforcement in which there were 9 core corporate enforcement actions (ADM, Bilfinger, Weatheford, Diebold, Total, Ralph Lauren, Parker Drilling, Stryker and Phillips).  Yet if one counts DOJ and SEC actions separately, as did the OECD, notwithstanding the fact that most DOJ and SEC enforcement actions were based on the same core conduct, the number dramatically jumps to 15 corporate enforcement actions in 2013.  In other words and using just one year, one can clearly see how creative FCPA enforcement action counting methods dramatically changes the denominator for every statistic calculated.

One statistic that has generated much media attention from the OECD Report  (see here and here) is the finding that 53% of foreign bribery cases involved corporate management or CEOs.  However, the OECD Report – as noted in footnote 36 – defines “management” to mean senior level management, executives at the board level, directors and lower level management and states that “case data was insufficient to distinguish between these categories.”

To be sure in the FCPA context, certain enforcement actions have involved senior executive conduct and/or board conduct, but the vast majority of FCPA enforcement actions do not involve senior level management and a frequent allegation in such enforcement actions is that no one at the parent company resolving the enforcement action was aware of or participated in the alleged improper conduct.  To the extent there was a management level employee (and “title inflation” surely seems to be used in many FCPA enforcement actions) involved in the alleged improper conduct, the individual was employed by a legal entity (such as foreign subsidiary) separate from the entity actually resolving the enforcement action.

Because the OECD Report was “prepared with the aim of assisting the OECD Working Group on Bribery in International Business Transactions and the G20 Anti-Corruption Working Group in their efforts to combat transnational bribery,” it was imperative that the statistics in the Report be reliable and meaningful.

Based on the above information, you can decide for yourself whether this is the case.

Despite the statistical deficiencies of the OECD Report there are several “preliminary conclusions” in the report worthy of highlighting.

For instance, as to the long timeframes involved in foreign bribery cases, the report states “it is essential that law enforcement authorities undertake efficient and effective investigations to avoid unnecessary delays.”

As to settlements, the predominate vehicle by which foreign bribery cases are resolved, the report states that “settlement procedures should respect the principles of due process, transparency and consistency.”

As to compliance programs, the report states that there is “scope for greater incentivizing preventative anti-bribery compliance programs …”.

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DOJ Assistant Attorney General Leslie Caldwell delivered this speech in connection with the release of the OECD Report.

DOJ And SEC Officials Talk FCPA

In what has become a mid-November tradition, DOJ and SEC officials yesterday gave speeches at a Foreign Corrupt Practices Act conference.

Topics discussed included the following:  individual prosecutions, voluntary disclosure and cooperation, compliance programs, asset recovery, foreign law enforcement cooperation.  (For factual information concerning DOJ and SEC individuals prosecutions see this prior post and as relevant to the issue of “success” – a topic touched upon in both speeches – you might want to read the article “What Percentage of DOJ FCPA Losses is Acceptable?“)

In many respects, yesterday’s DOJ and SEC speeches were very similar to previous speeches delivered by enforcement agency officials in September and October (see here, here, here and here for prior posts).

This post excerpts this speech by Assistant Attorney General Leslie Caldwell and this speech by Andrew Ceresney, Direct of the SEC’s Enforcement Division.

DOJ

Caldwell began her remarks as follows.

“I want to focus my remarks on one of our most important enforcement priorities – our efforts to combat corruption around the world.

At the Criminal Division, we are stepping up our efforts in the battle against corruption, at home and abroad.  Through our Public Integrity Section, which prosecutes corruption cases involving U.S. federal, state, and local officials, we are attacking domestic corruption.

More relevant to this audience, we are also deeply committed to fighting corruption abroad.  Now, more than ever, we are bringing to justice individuals and corporations who use foreign bribery as a way to gain a business advantage.  In part, we are doing this using the tools and methods that have made our past enforcement efforts so successful – FCPA prosecutions and penalties.

But there have been some really big changes in the Justice Department’s FCPA work since I last worked there.  First, thanks to the expertise and knowledge we have acquired over the years, we are now able to investigate FCPA cases much more quickly.  We also are better equipped to prosecute individuals who are actually making corrupt payments, as well as intermediary entities hired to serve as conduits for bribes.

And now we also are prosecuting the bribe takers, using our money laundering and other laws.  And, importantly, we have begun stripping corrupt officials of the proceeds of their corruption involving both bribes and kleptocracy, using both criminal and civil authorities.

The Criminal Division’s FCPA enforcement program and our Kleptocracy Initiative are really two sides of the same anti-corruption coin.  We bring those who pay bribes to justice, no matter how rich and powerful they are.  But by itself, that is not enough.  We also attack corruption at its source – by prosecuting and seizing the assets of the corrupt officials who betray the trust of their people.

Another big change – one that has been building for years but now has really developed momentum – is that we increasingly find ourselves shoulder-to-shoulder with law enforcement and regulatory authorities in other countries.  Every day, more countries join in the battle against transnational bribery. And this includes not just our long-time partners, but countries in all corners of the globe.

Together with our foreign law enforcement and regulatory partners we are taking a truly global approach to rooting out international corruption.  And make no mistake, this international approach has dramatically advanced our efforts to uncover, punish and deter foreign corruption.

Increasingly, we and our counterparts share information about bribery schemes.   We report schemes to one another.  And, where appropriate, we discuss strategy and coordinate our use of investigative techniques, so that we can obtain the best possible results, especially in very high-impact cases.

These efforts are incredibly important. The World Bank estimates that more than $1 trillion is paid every year in bribes, which amounts to about 3 percent of the world economy.  That amount is stunningly wasteful.  No one benefits from corruption other than the corrupt officials.

But corruption is far more insidious and harmful than can be measured numerically.  We all know that when corruption takes hold, the fundamental notion of playing-by-the-rules gets pushed to the side, and individuals, businesses and governments instead begin to operate under a fundamentally unfair – and destabilizing – set of norms.  This undermines confidence in the markets and governments, and destroys the sense of fair play that is absolutely critical for the rule of law to prevail.

In emerging economies, corruption stifles economic development that would lift people out of poverty, improve infrastructure, and better people’s lives.  And the fruits of corruption can prop up autocratic and oppressive rulers even in wealthier countries.

Make no mistake, the effects of foreign corruption are not just felt overseas.  In today’s global economy, the negative effects of foreign corruption inevitably flow back to the United States.  For one, American companies are harmed by global corruption.  They are denied the ability to compete in a fair and transparent marketplace.  Instead of being rewarded for their efficiency, innovation, and honest business practices, U.S. companies suffer at the hands of corrupt governments and lose out to corrupt competitors.

International corruption also presents broader public safety concerns.  Indeed, criminal networks of all kinds, including narcotics traffickers, cyber criminals, terrorists, and human traffickers, often take advantage of countries whose commitment to the rule of law is weakened by corruption of its officials.  And, as we’ve seen in the more extreme cases, thoroughly corrupted regimes have created safe havens for criminals by giving them a secure base from which they can orchestrate their criminal activities.

You have no doubt heard my predecessors speak of the evils of corruption.  It is because of these evils that the fight against international bribery has been, and continues to be, a core priority of the Department of Justice.

Our commitment to the fight against foreign bribery is reflected in our robust enforcement record in this area, which includes charges against corporations and individuals alike from all over the world.  Since 2009, we have convicted more than 50 individuals in FCPA and FCPA-related cases, and resolved criminal cases against more than 50 companies with penalties and forfeiture of approximately $3 billion.  Twenty-five of the cases involving individuals have come since 2013 alone.  And those are just the cases that are now public.  These individuals run the gamut of actors involved in bribery schemes: corporate executives, middlemen, and corrupt officials.”

Caldwell next focused on asset recovery and international cooperation:

“As our enforcement actions demonstrate, we are focusing our attention on bribes of consequence – ones that fundamentally undermine confidence in the markets and governments.  And our record of success in these prosecutions has allowed us to show – rather than just tell – corporate executives that if they participate in a scheme to improperly influence a foreign official, they will personally risk the very real prospect of going to prison.

[…]

Stripping individuals of the proceeds of their conduct – and thus depriving them of the very profits that are driving the corrupt conduct in the first place – is one technique that we are using increasingly in our fight against foreign bribery.  And, we are not just pursuing these corrupt proceeds through criminal actions.

The FCPA Unit’s efforts to eradicate foreign corruption also are assisted by the work of our Kleptocracy Asset Recovery Initiative, through which prosecutors in the Criminal Division’s Asset Forfeiture and Money Laundering Section and Office of International Affairs are pursuing ill gotten riches from corrupt officials using our civil authority. […] [W]e are ready, willing, and able to confiscate the riches of corrupt leaders who drain the resources of their countries for their own benefit.”

[O]ur efforts to hold bribe takers as well as bribe payors accountable for their criminal conduct are greatly aided by our foreign partners.  Transnational bribery is a global problem and an international solution truly is beginning to develop.  Every day, more countries reject the notion that bribery in international business is inevitable and acceptable.  Indeed, in just the last few years several countries have enacted new anti-corruption laws or enhanced existing laws.  Admittedly, the global trend against foreign corruption continues to face many challenges, but the tide has turned and I truly believe that it is now on our side.

This level of collaboration is the product of hard work and strategic coordination, which has allowed us to forge the international partnerships that are essential to fight global corruption.  For example, just a couple of weeks ago, about 200 judges, prosecutors, investigators, and regulators from more than 50 countries, multi-development banks, and international organizations around the world joined prosecutors, investigators, and regulators from the Criminal Division, SEC, and FBI in Washington, D.C., for a week long training course to exchange ideas and best practices on combating foreign corruption.

I had the opportunity to participate in this meeting and saw its value first-hand.  The meeting provided a critical opportunity for the people who fight global corruption in the trenches every day to meet face-to-face, discuss ongoing cases, identify new opportunities to collaborate, and improve intelligence sharing.

The results from this increased international collaboration speak for themselves.”

[…]

[T]hese coordinated global actions sent a powerful message – countries all over the world are now engaged in the fight against foreign bribery and together, we can and will hold to account individuals and companies who engage in corruption, regardless of where they operate or reside.

The increase in international collaboration is not only enhancing our own FCPA enforcement efforts but it is also resulting in anti-corruption enforcement actions by other countries.”

[…]

Continued international collaboration is absolutely critical if we are going to have a meaningful impact on corruption across the globe and we are committed to maintaining – and enhancing – our working relationships with our foreign partners.

By enhancing our coordination with our overseas counterparts, continually improving our already successful methods of investigating and prosecuting FCPA cases, and increasing our efforts to prosecute corrupt officials and recover their ill-gotten gains, we are now, more than ever, making a tangible difference in the fight against foreign bribery.”

Caldwell next shifted to voluntary disclosure and cooperation and stated:

“When I last worked at the department and even over the 10 years that I was in private practice, it seemed that many FCPA investigations were initiated by self-disclosures.  While we of course still welcome self-disclosure, today we are far from reliant on it.

[…]

And in a world of whistleblowers and international cooperation, I expect that will be the case more often than not going forward.  That said, we still encourage and reward self-disclosure and cooperation.

When you detect significant potential criminal conduct at your company, or a company that has retained you, I encourage you to disclose it to the Justice Department – and to do so in a timely manner.  As I am sure you all know, the department’s Principles of Federal Prosecution of Business Organizations provides that prosecutors should consider “the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents” in deciding how to proceed in a corporate investigation.

So, in addition to promptly disclosing the conduct to us, I also encourage you to conduct a thorough internal investigation and to share with us the facts you uncover in that investigation.  We do not expect you to boil the ocean in conducting your investigation but in order to receive full credit for cooperation, we do expect you to conduct a thorough, appropriately tailored investigation of the misconduct.

And we expect you to provide us useful facts in a timely manner.  And that includes, importantly, facts about the individuals responsible for the misconduct, no matter how high their rank may be.

[…]

The sooner you disclose the conduct to us, the more avenues we have to investigate culpable individuals.  And, the more open you are with us about the facts you learned about that conduct during your investigation, the more credit you will receive for cooperation.

But, if you delay notifying us about an executive’s conduct or attempt to whitewash the facts about an individual’s involvement, you risk receiving any credit for your “cooperation.”

This does not mean that we expect you to use law-enforcement style techniques to investigate your employees.  To the contrary, it simply means that when you do an internal investigation, and you choose to cooperate with us, you should understand that we will expect to hear not just what happened, but who did what, when, and where.

We also expect that a truly cooperating company will provide relevant documents in a timely fashion, even if those documents are located overseas.  We recognize that some countries’ laws pose real challenges to data access and transfer of information, but we also know that many do not.

The Criminal Division investigates and prosecutes a large volume of international cases and through these cases, we have developed an understanding of these laws.  We will not give full cooperation credit to companies that hide behind foreign data privacy laws instead of providing overseas documents when they can.  Foreign data privacy laws exist to protect individual privacy, not to shield companies that purport to be cooperating in criminal investigations.

Put simply, cooperation – and the quality and timeliness of that cooperation – matter.  This is a well-established principle that we have applied in criminal cases across the spectrum – from violent and organized crime cases to corporate fraud cases – for decades.

If a company works with us, it not only helps the Department, but it helps itself.

[…]

Fighting corruption is not a choice we have made. It is, increasingly, a global imperative.  Given the critical nature of this mission, we are bringing more resources to bear than ever before – and we will continue doing so.  We have achieved significant successes using our traditional FCPA enforcement tools.  We are building on those successes and continuing to evolve our enforcement efforts.  Especially with the power of so many countries now standing by our side, we are determined to use every lawful means available to hold the perpetrators of corruption to account.”

SEC

Ceresney began his remarks as follows.

“Pursuing such [FCPA] violations remains a critical part of our enforcement efforts, as international bribery has many nefarious impacts, including sapping investor confidence in the legitimacy of a company’s performance and undermining the accuracy of a company’s books and records. Our specialized FCPA unit as well as other parts of the Enforcement Division continue to do remarkable work in this space, bringing significant and impactful cases often in partnership with the DOJ and FBI. […] Looking ahead, I anticipate another productive year of FCPA enforcement, as we have a robust pipeline of investigations across the globe. I thought I would spend my time this morning discussing some areas we will be focusing on in the coming year and beyond, and then, if we have time, I can take some questions.”

Under the heading “Focus on Individuals,” Ceresney stated:

“Let me start with cases against individuals. It is a hot topic of the day, in the face of some significant enforcement actions against entities alone, to ask the question of whether enforcement actions against entities are as impactful as actions against individuals, and whether actions against entities actually deter misconduct.

I always have said that actions against individuals have the largest deterrent impact. Individual accountability is a powerful deterrent because people pay attention and alter their conduct when they personally face potential punishment. And so in the FCPA arena as well as all other areas of our enforcement efforts, we are very focused on attempting to bring cases against individuals.

That is not to say that cases against companies are unimportant — in fact, I think FCPA enforcement is perhaps one of the best examples of how actions against entities can have a tremendous deterrent effect. Our actions against entities have had a tremendous impact in the last 10 years on FCPA compliance. Companies have increased their compliance spending and focus exponentially — the attendance at this conference is but one example of that. And these actions continue to provide significant deterrence and send important messages about areas that companies should be focused on. Every action we bring is scrutinized closely and dissected for information on areas of risk. That is a great dynamic and one we should continue to foster. But individual accountability is critical to FCPA enforcement — and imposing personal consequences on bad actors, including through bars and monetary sanctions, will continue to be a high priority for us.

Now it is important to recognize that FCPA cases against individuals can present some unique challenges for us and we simply are unable to bring cases against individuals in connection with a number of our cases. For example, in many cases we face significant investigative hurdles, including difficulties in gathering specific testimony and documents from overseas that will be admissible at trial. This is one area where we have been working closely with our counterparts in other jurisdictions, to access foreign witnesses, bank statements, and company records. These efforts have been more and more successful as we form strong partnerships with other countries to combat corruption.

When the conduct involves foreign nationals — as it often does — another challenge can be establishing personal jurisdiction over the bad actor. We have had some favorable decisions in this area, but it still remains a challenge in certain cases. Statute of limitations issues also complicate these cases.

Despite these various challenges, we continue to vigorously pursue cases against individuals.”

Under the heading “Importance of FCPA Compliance Programs,” Ceresney stated:

“This is a message that I think has started to get through in the past 5 years. Nothing situates a company better to avoid FCPA issues than a robust FCPA compliance program.

The best companies have adopted strong programs that include compliance personnel, extensive policies and procedures, training, vendor reviews, due diligence on third-party agents, expense controls, escalation of red flags, and internal audits to review compliance. You can look to our Resource Guide on the FCPA that we jointly published with the DOJ, to see what some of the hallmarks of an effective compliance program are. I won’t mention them all because you should be familiar with many that relate to policies, procedures and training. But, I’ll highlight just a few others. Companies should perform risk assessments that take into account a host of factors listed in the guide and then place controls in these risk areas. Companies should have disciplinary measures in place to deter violations and compliance programs should be periodically tested and reviewed to ensure they are keeping pace with the business. Such programs, properly implemented, will also help companies avoid other problems at foreign subsidiaries, like self-dealing, embezzlement and financial fraud.

As part of our settlements, we have on occasion required the retention of a monitor to assist in administering such compliance programs. For those companies that have developed robust programs during the investigation, we have required self-reporting and certifications. But the overwhelming message that one has to take away from our actions is how important such programs are for ensuring compliance.

Of course, it is critical for such programs to be real programs. When I was in private practice, I saw companies that had great paper programs but did not implement them effectively. When the business would push back, they would remove requirements and make exceptions. The best companies would put the compliance program ahead of business interests and allow decisions to be made to ensure compliance with the law, no matter the business consequences. It is that sort of attitude that is the measure of whether such programs will be successful.

As I said, we have seen many companies improving and properly implementing their compliance programs, as the message from our cases over the years has penetrated the legal and compliance community. But there is still more work to be done, particularly for small-to-medium sized companies trying to enter foreign markets to grow their businesses. As those businesses seek to expand and globalize, their compliance functions must keep pace.

[…]

The bottom line is that no responsible company should operate overseas without a comprehensive compliance program to guard against FCPA risk.

One other aspect of compliance programs is the benefit that companies will derive from having them if a problem should arise. I can tell you that the SEC staff will look well on companies that have robust programs and that the existence of such programs will pay dividends should an FCPA issue arise despite the existence of such programs.”

Under the heading “Cooperation,” Ceresney stated:

“Related to the issue of the existence of FCPA compliance programs, I wanted to focus for a moment on self-reporting and cooperation. The existence of FCPA compliance programs place the company in the best position to detect FCPA misconduct. But the question is what a company does once it learns of such misconduct. There has been a lot of discussion recently about the advisability of self-reporting FCPA misconduct to the SEC. Let me be clear about my views — I think any company that does the calculus will realize that self-reporting is always in the company’s best interest. Let me explain why.

Self-reporting from individuals and entities has long been an important part of our enforcement program. Self-reporting and cooperation allows us to detect and investigate misconduct more quickly than we otherwise could, as companies are often in a position to short circuit our investigations by quickly providing important factual information about misconduct resulting from their own internal investigations.

In addition to the benefits we get from cooperation, however, parties are positioned to also help themselves by aggressively policing their own conduct and reporting misconduct to us. We recognize that it is important to provide benefits for cooperation to incentivize companies to cooperate. And we have been focused on making sure that people understand there will be such benefits. We continue to find ways to enhance our cooperation program to encourage issuers, regulated entities, and individuals to promptly report suspected misconduct. The Division has a wide spectrum of tools to facilitate and reward meaningful cooperation, from reduced charges and penalties, to non-prosecution or deferred prosecution agreements in instances of outstanding cooperation.

Last year, for example, we announced our first-ever non-prosecution agreement in an FCPA matter with a company that promptly reported violations and provided real-time, extensive cooperation in our investigation.

More commonly, we have reflected the cooperation in reduced penalties. Companies that cooperate can receive smaller penalties than they otherwise would face, and in some cases of extraordinary cooperation, pay significantly less.

[…]

The bottom line is that the benefits from cooperation are significant and tangible. When I was a defense lawyer, I would explain to clients that by the time you become aware of the misconduct, there are only two things that you can do to improve your plight — remediate the misconduct and cooperate in the investigation. That obviously remains my view today. And I will add this — if we find the violations on our own, and the company chose not to self-report, the consequences will surely be worse and the opportunity to earn significant credit for cooperation may well be lost.

[…]

The SEC’s whistleblower program has changed the calculus for companies considering whether to disclose misconduct to us, knowing that a whistleblower is likely to come forward. Companies that choose not to self-report are thus taking a huge gamble because if we learn of the misconduct through other means, the result will be far worse.”

Under the heading “Items of Value,” Ceresney stated:

“The statute precludes the payment or provision of “anything of value” to a foreign official in order to induce that official to take official action for the purpose of obtaining or retaining business. Obviously, money or property is an item of value. Gifts to foreign officials also easily qualify as items of value.

But we also have successfully brought FCPA cases where other, less traditional, items of value have been given in order to obtain or retain business. For example, in three separate actions, Stryker, Eli Lilly and Schering-Plough, we brought bribery charges against pharmaceutical or medical technology companies that made contributions to charities that were headed by or affiliated with foreign government officials to induce them to direct business to the companies.

We also have charged companies for providing items of value to family members of foreign officials. In Tyson Foods, for example, we charged the company for providing no-show jobs to the spouses of foreign officials who were responsible for certifying the company’s products for export. More recently, in Weatherford, we charged the company for a variety of bribes to foreign officials and their families, including paying for the honeymoon of an official’s daughter and a religious trip by an official and his family that was improperly recorded as a donation.

As these examples make clear, bribes come in many shapes and sizes. So it is critical that we carefully scrutinize a wide range of unfair benefits to foreign officials when assessing compliance with the FCPA — whether it is cash, gifts, travel, entertainment, or employment of the family and friends of foreign officials. We should and will continue to pursue a broad interpretation of the FCPA that precludes bribery in all forms.”

In conclusion, Ceresney stated:

“[T]he Enforcement Division will continue to look for opportunities to enhance our impact with respect to FCPA enforcement. We have made significant progress over the last 10 years but there is still much more we can do. We will continue our efforts to level the playing field for companies doing business abroad and hold corrupt actors accountable when they fail to play by the rules.”