Friday Roundup
A happy holiday to all, scholars program, scrutiny alerts and updates, departing speech, spot-on and inexcusable. It’s all here in the Friday roundup.
Happy Holiday
Readers often encourage me to “share” more about myself and background. I have obliged in part, by going off-topic once a year to share my Ironman triathlon results.
I will oblige once again, particularly since it is March Madness.
Happy Mike Koehler Day!
That’s right, on this day 21 years ago (gosh that is hard to believe) my hometown of Elkhart Lake, Wisconsin retired my #21 basketball jersey and proclaimed it “Mike Koehler Day.” No facilitating payments were necessary. I ended my high school basketball career, and still remain, the third leading scorer in the history of Wisconsin high school basketball (#1 leading scorer in the history of the state that did not play for their dad)! A poorly timed illness ended my high school career without that “one shining moment” I dreamed of, and while I was academic all-conference at the University of South Dakota, my college basketball career was uneventful.
So there you have it, you now know something more about me.
Back to the task at hand.
Scholars Program
Kudos to Trace International for launching a new scholars program. The Trace Scholars Program is aimed at developing exceptional leaders in the field of anti-corruption who are committed to advancing commercial transparency. The TRACE Scholar Program will fully fund, with tuition, lodging and travel, two international LLM students from developing countries to pursue studies related to strategies and tools for increasing transparency and reducing corruption. TRACE Scholars will spend an academic year at one of two universities (the University of Washington School of Law or the University of Maryland Francis King Carey School of Law) followed by a paid summer internship at TRACE headquarters in Annapolis, Maryland.
Scrutiny Alerts and Updates
Och-Ziff Capital Management Group, SL Industries, SciClone Pharmaceuticals, TeliSonera and a clarification regarding Beny Steinmetz.
Och-Ziff Capital Management Group
Och-Ziff Capital Management Group stated in its recent annual report as follows:
“Beginning in 2011, and from time to time thereafter, we have received subpoenas from the SEC and requests for information from the U.S. Department of Justice (the “DOJ”) in connection with an investigation involving the FCPA and related laws. The investigation concerns an investment by a foreign sovereign wealth fund in some of our funds in 2007 and investments by some of our funds, both directly and indirectly, in a number of companies in Africa. At this time, we are unable to determine how the investigation will be resolved and what impact, if any, it will have. An adverse outcome could have a material effect on our business, financial condition or results of operations.”
A day after the company’s annual report, the company’s stock closed down approximately 3.5% and you can rest assured plaintiffs firms will soon be announcing “investigations” and/or filing civil suits. For more see here from Bloomberg.
SL Industries
As noted in this Wall Street Journal Risk & Compliance Journal post has disclosed:
“During 2012, the Company conducted an investigation to determine whether certain employees of SL Xianghe Power Electronics Corporation, SL Shanghai Power Electronics Corporation and SL Shanghai International Trading Corporation, three of the Company’s indirect wholly-owned subsidiaries incorporated and operating exclusively in China, may have improperly provided gifts and entertainment to government officials (the “China Investigation”). The Company had retained outside counsel and forensic accountants to assist in the China Investigation. Based upon the China Investigation, the estimated amounts of such gifts and entertainment were not material to the Company’s financial statements. Such estimates did not take into account the costs to the Company of the China Investigation itself, or any other additional costs.
The China Investigation included determining whether there were any violations of laws, including the U.S. Foreign Corrupt Practices Act (“FCPA”). The Company’s outside counsel contacted the DOJ and the Securities and Exchange Commission (the “SEC”) voluntarily to disclose that the Company was conducting an internal investigation, and agreed to cooperate fully. Additionally, the Company hired outside consultants to provide assistance in implementing a mandatory FCPA compliance program for all of its employees which is now completed by such employees annually. Also, during the first and second quarters of 2013 the Company engaged outside consultants to perform FCPA compliance tests at its operations in China and Mexico, which, going forward, will be performed by the Company annually. On September 26, 2013, the DOJ notified the Company that it had closed its inquiry into this matter without filing criminal charges. The Company has not received an update from the SEC regarding the status of its inquiry. The Company cannot predict at this time whether any action may be taken by the SEC.”
SciClone Pharmaceuticals
SciClone Pharmaceuticals has been under FCPA scrutiny since August 2010 (see here for the prior post). In its most recent annual report, the company disclosed:
“For the year ended December 31, 2013, we determined that a payment of $2.0 million to the government in penalties, fines and/or other remedies is probable. Accordingly, we have recorded $2.0 million of operating expense in our 2013 results of operations to reflect our estimate of a probable loss incurred related to potential penalties, fines and/or other remedies in the ongoing investigations with the SEC and DOJ.”
Once again highlighting that any actual enforcement action fines and penalties are just the tip of the iceberg in terms of a company’s overall financial exposure due to FCPA scrutiny, SciClone also disclosed:
“Additional increases in general and administrative expenses for the year ended December 31, 2013, included higher professional expenses of approximately $5.3 million related to legal matters associated with the ongoing government investigation and our ongoing improvements to our FCPA compliance efforts …”.
TeliaSonera
Various media have reported (see here from the Wall Street Journal for instance) that the DOJ and SEC have opened investigations of Swedish telecommunications company TeliaSonera. According to the reports:
“[The DOJ and SEC] have requested documents relating to the acquisition of an Uzbekistan wireless data license and spectrum frequencies in 2007. The deals were done with a Gibraltar-based holding company with alleged ties to Uzbekistan’s authoritarian regime. The U.S. DOJ and the SEC join several authorities investigating the transactions. The scrutiny was sparked after a Swedish television program in 2012 alleged TeliaSonera may have been involved in corruption when it bought its Uzbeki telecom license.”
Steinmetz
Regarding Beny Steinmetz, the founder of BSG Resources, the 100 Reporters story that identified him as a “target” of a DOJ investigation has been amended as follows.
“After this story was published, the source informed 100Reporters that the source had mischaracterized the letter in question as a “target letter.” Later conversations and further reporting suggested that the letter had instead indicated that Steinmetz was a subject and not a target of the investigation.”
Departing Speech
As highlighted in this February post concerning the announced departure of Mythili Raman as Acting Assistant Attorney, Raman carried forward much of the same rhetoric former Assistant Attorney General Lanny Breuer frequently articulated concerning the DOJ’s FCPA enforcement program. (See here for my article “Lanny Breuer and Foreign Corrupt Practices Act Enforcement).
Like other DOJ FCPA officials before her, Raman frequently highlighted certain enforcement statistics, yet conveniently ignored the most telling enforcement statistic of all – the DOJ’s dismal record when actually put to its burden of proof in FCPA enforcement actions. In short, for a long time the DOJ’s FCPA Unit has had a distorted view of success.
During his last day as head of the Criminal Division, Raman delivered this speech before an FCPA audience and the critique remains the same. Among other things, Raman stated:
“[The DOJ’s] successful foreign bribery prosecutions speaks for itself …”
“These efforts and these successes are the product of the skill, hard work and determination of the talented prosecutors in our Fraud Section’s FCPA Unit, working in tandem with federal prosecutors across the country at many of the 94 U.S. Attorney’s Offices.”
“We have been successful in our efforts to prosecute individuals in part because we are using all of the law enforcement techniques that are at our disposal.”
Spot-On
I’ve written a number of times that trade barriers and distortions are often the root causes of bribery and a reduction in bribery will not be achieved without a reduction in trade barriers and distortions. Few in the anti-bribery space seem to grasp this basic issue, perhaps because it is just easier to pound the pavement for more enforcement or blame everything on those evil corporations.
However, Evelyn Suarez (Williams Mullen) gets it. In this recent piece about the pending Trade Facilitation Agreement (“FTA”), she writes:
“There can be no trade facilitation when border officials solicit bribes and grant favorable treatment to those who pay such bribes. The demand side of corruption has generally been overlooked, and the implementation of TFA provides an excellent and even funded opportunity to address the problem. Thus, measures to ensure public integrity must be adopted along with the trade facilitation measures specified in TFA.”
Spot-on.
Inexcusable
Did you know that NCR Corp. has “paid FCPA penalties in 2014”?
Did you know that Avon has “paid FCPA penalties in 2014?”
Did you know that in 2013 the “U.S. government handed down .. just five FCPA enforcement actions”?
Of course you did not know this, because every one of the above statements are false.
Yet every one of the above statements is included in just one paragraph in this recent Inside Counsel article.
Simply inexcusable, and once again not the media’s finest FCPA moment. (See here, here and here for prior posts).
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A good weekend to all – and good luck with your brackets.
FCPA Readings
If your idea of a good time is cuddling up with an entire law journal volume devoted to the Foreign Corrupt Practices Act, then this post is for you.
Even if that is not your idea of a good time, if you are the least bit interested in the FCPA and its evolution, then you owe it to yourself to get your hands on the Fall 1982 edition of the Syracuse Journal of International Law and Commerce, a symposium volume titled “The Foreign Corrupt Practices Act: Domestic and International Implications.”
This post previously highlighted the speech by Richard Shine (Chief, Multinational Fraud Branch, Criminal Division, U.S. Department of Justice – the name given to the DOJ’s then de facto FCPA Unit) in the volume.
This recent post highlighted the speech by Frederick Wade (Chief Counsel, SEC Enforcement Division) in the volume.
The remainder of this post highlights notable aspects of other articles found in the Fall 1982 edition of the Syracuse Journal of International Law and Commerce.
In “An Overview of the FCPA,” Wallace Timmeny (the former Deputy Director, SEC Division of Enforcement and at the time a lawyer in private practice) rightly identified the foreign policy concerns which motivated Congress to pass the FCPA:
“Concerns were expressed that our government was faced with foreign policy determinations and decisions made by American corporations. In other words, some of our corporations were affecting foreign policy and there was also the overriding concern that the whole idea of foreign payments or corruption in business was really putting an arrow in the bow of the countries that oppose our system.”
For more on this primary motivation of Congress in enacting the FCPA, and how the FCPA was thus not a purely altruistic act, see my article “The Story of the Foreign Corrupt Practices Act.”
In “An Examination of the Accounting Provisions of the FCPA,” Lloyd Feller (the former Associate Director of the SEC’s Division of Market Regulation and at the time a lawyer in private practice) nicely touched upon the FCPA’s books and records and internal controls provisions and how they created much controversy at the time.
“Let me try to put into context the controversy surrounding the accounting provisions. First, it is important to understand that the accounting provisions are part of the Securities Exchange Act of 1934, and apply to all issuers which register securities with the SEC. The provisions apply to all such issuers, whether or not they do business overseas. The Act, as it is applied through the accounting provisions, has absolutely nothing to do with foreign corrupt practices; it has to do with accounting, including the maintenance of books and records, and the establishment and maintenance of a system of internal accounting controls.”
“I think it is important to start with the understanding of how the Act was presented to the corporate community at the time it was passed, because the context in which the words were used and the purpose for which the accounting provisions were intended create the great controversy. It is important to understand that people who never heard of the bribery of foreign officials woke up one day and found that an Act had just been passed which applied to them in very significant ways. This was an Act which they had never heard of, had never thought involved them, had never paid any attention to, and had never understood. They listened to the lawyers and accountants explain it to them and still did not understand.”
In “The SEC Interpretative and Enforcement Program Under the FCPA,” John Sweeny (former Assistant General Counsel of the SEC and at the time a lawyer in private practice) rightly noted:
“The SEC did not actively support the bribery provisions of the Foreign Corrupt Practices Act. Indeed, it’s not entirely clear that they have any interest in prohibiting bribery per se.”
Sweeny also nicely touched upon a prosecutorial common law issue that remains today.
“The corporate community cannot sit back and wait to see how the law develops. Because it makes sound business sense to comply with federal regulatory authorities without a public clamor, corporations must confirm their activity in ways which the agency requires. To do otherwise would mean that the corporations would be risking substantial litigation expenses and adverse publicity.”
In “International Aspects of the Control of Illicit Payments,” Professor Seymour Rubin assessed the then current state of the FCPA.
“The course of events in this particular area has been long, but it has not yielded much in the way of result. Whether the FCPA has yielded a great deal in the way of results, I leave to all of you who have considered the matter. Certainly it has yielded much in the way of instruction to people in various corporations. I am somewhat impressed by the amount of paper which has been produced on this subject. It reminds me again of the old saying to the effect that when the weight of the paper equals the weight of the airplane, the airplane will fly.”
Professor Rubin also rightly identified bribery and corruption as a trade issue and particularly how Senate Resolution 265 sponsored by Senator Ribicoff during the FCPA’s legislative debate was the most promising way to deal with the bribery and corruption problem. For more on Senate Resolution 265, see the Story of the Foreign Corrupt Practices Act (pgs. 982-984).
“[Senator Ribicoff’s proposal – Senate Resolution 265] was more realistic than some of the other proposals. In particular, Senator Ribicoff argued that bribes, as well as similar practices, represent distortions of proper trade practices. Under this premise, the members of the General Agreement on Tariffs and Trade would be the appropriate group to consider the question of illicit payments and bribes that distort the fair competition desirable in the field of international trade. In other words, just as dumping and subsidization distort normal competition, so too does the practice of making illicit payments. This premise served as the basis upon which the issue was to be presented at the GATT conference. But when a special trade representative presented Senator Ribicoff’s proposal before the GATT conference, he was greeted with polite silence. The GATT, in 1979, concluded a multilateral trade negotiation. Among other things, this multilateral trade negotiation dealt with trade-distorting practices such as nontariff barriers, the question of government procurement, dumping codes, and the anti-subsidy or subsidies and countervailing duties. It would seem that the multilateral trade negotiation would have been a legitimate arena in which to discuss the subject, as being one more example of a trade distortion which ought to be regulated.”
“I think if one were to rexamine the idea presented in Senate Resolution 265 and adopt this in the area of trade, one would be addressing the problem of illicit payments in more meaningful and significant terms. When a large contract is lost by an American corporation because somebody else paid a bribe, a trade distortion results. Clearly, if one were really serious about achieving a meaningful agreement in the area of international control of illicit payments, the peg on which to hang it would be trade policy and not morality.”
In “The Foreign Corrupt Practices Act: Implications for the Private Practitioner,” Robert Primoff (a lawyer in private practice) called the FCPA a “prosecutor’s paradise” and observed:
“The target is always guilty of the violation. The government has the option of deciding whether or not to prosecute. For practitioners, however, the situation is intolerable. We must be able to advise our clients as to whether their conduct violates the law, not whether this year’s crop of administrators is likely to enforce a particular alleged violation. That would produce, in effect, a government of men and women rather than a government of law.”
If the Fall 1982 edition of the Syracuse Journal of International Law and Commerce does not completely fill your FCPA belly, you might also want to check out Volume 18, Number 2 of the Northwestern Journal of International Business (Winter 1998).
It is a symposium edition titled “A Review of the Foreign Corrupt Practices Act on Its Twentieth Anniversary: Its Application, Defense and International Aftermath.” The articles are rather pedestrian, but Stanley Sporkin’s (the former Director of the SEC’s Enforcement Division during Congress’s consideration and deliberation of the FCPA) article “The Worldwide Banning of Schmiergeld: A Look at the Foreign Corrupt Practices Act On Its Twenieth Birthday” is worth a read as he provides a first-person account of the origins of the FCPA. [In case you are wondering Schmiergeld is the German word for bribe].
See here for a prior post detailing articles in a 2012 symposium edition of the Ohio State Law Journal “The FCPA At Thirty-Five and Its Impact on Global Business.”
The FCPA And The “Failure To Communicate”
The year was 1982 and the Foreign Corrupt Practices Act was a mere 5 years old. Leading FCPA experts, such as Frederick Wade (Chief Counsel, SEC Enforcement Division) gathered for a symposium at Syracuse University College of Law (See Volume 9, Number 2, Syracuse Journal of International Law and Commerce).
In a speech titled “An Examination of the Provisions and Standards of the FCPA,” Wade lamented the “quality of the public debate” surrounding passage of the FCPA and then-current FCPA issues. He observed:
“[A]t the time the FCPA was being considered in the Congress, and hearings were being held, there was a great reluctance on the part of interested companies and persons to come forward and make their views known. Although this reluctance may be understandable, given the subject matter, there was virtually no opposition to the bill. Few, if any, concerns were expressed in a public form as to how the FCPA might affect overseas operations or how the statute might be interpreted and applied.”
[…]
“[T]here is still great difficulty in getting the corporate sector to come forward and express concerns in a public forum in a way that the Congress can get a handle on them and try to deal with them in a rational way.”
[…]
[I]t is difficult to get a handle on the impact that the statute has had, because most of the experience people have had is related to the government or to the Congress in the form of anonymous anecdotes. People say we have had this type of experience, or this kind of problem, but you have to take our word for it, accept our general description of the circumstances, and agree not to identify the source of the information.”
[…]
“From my perspective, the critics of the FCPA and those in government charged with administering the Act have been talking past each other for four years. I am not sure why this is true. I am sure that there has been a failure to communicate and that we have not advanced the ball to a great degree in terms of coming to grips with the issues. This failure to communicate has profound implications with respect to the ability of the policymaking process to evaluate the issues and make needed changes to the law.”
Wade’s observations remain true 32 years later.
There remains a great reluctance on the part of interested companies and persons to come forward and make their FCPA views known.
If only I could publish the many comments I receive, including from current enforcement agency attorneys, critical of various aspects of FCPA enforcement.
If only leading FCPA practitioners would allow their names to be used in the observations they share with me. For instance, a leading FCPA practitioner recently shared with me the following:
“I think the reality is that the FCPA Bar is, for obvious reasons, very eager to ingratiate itself with, the FCPA Unit in DC. The predictable result is that firms put out flattering articles and updates about the skill and fairness of the enforcers. This hardly results in meaningful discourse, scholarship, or conversation; that said, those who know the most and deal with the FCPA unit the most are also least likely to say in public what they will be happy to share in private over a beer.”
Given the largely opaque nature in which the FCPA is generally “enforced” behind closed doors in Washington, D.C., anecdotes, legend and lore often carry the day.
Persons interested in the FCPA continue to talk past each other.
To be critical of various aspects of FCPA enforcement may give one a label of being anti-FCPA (see here). FCPA enforcement statistics are all-over-the-map (see here). So-called civil society groups and organizations clamor for more enforcement while at the same time: (i) exhibiting a clear lack of knowledge regarding various issues relevant to the FCPA or FCPA enforcement; and (ii) articulating policy positions that not even the pro-enforcement enforcement agencies agree with (see here and here). Major media outlets now have for-profit risk and compliance divisions and thus are hardly objective reporters of FCPA information.
Wade’s observation 32 years ago remains true today:
“This failure to communicate has profound implications with respect to the ability of the policymaking process to evaluate the issues and make needed changes to the law.”
SEC Official – “FCPA Law .. Is Not Well Developed”
“FCPA law … is not well developed.”
It’s an obvious statement that is known and understood by many.
Yet what makes the statement noteworthy is that it was recently made by Andrew Ceresney (Co-Director of the SEC’s Division of Enforcement).
It is thus arguably the most notable – and candid – statement by an FCPA enforcement official in recent years.
This prior post highlighted the recent comments of Deputy Attorney General James Cole before an FCPA audience. This post contains excerpts of Ceresney’s speech at the same event and also provides certain commentary.
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As to the FCPA being a “fundamental part of the SEC’s mission,” Ceresney stated:
“[T]he SEC’s work in the FCPA arena over the last 35 years has been a fundamental part of the SEC’s mission. And the last 10 years have seen an even bigger increase in FCPA enforcement actions. As most of you know, three years ago, we formed a specialized Unit within the Division of Enforcement devoted to investigating potential FCPA violations. Our FCPA Unit has approximately three dozen dedicated attorneys and other professionals nationwide, including two industry experts who are forensic accountants with extensive private sector FCPA experience. Their work in marshaling expertise and developing cases has been remarkable — they and the other specialized units we created have fulfilled the promise of creating true centers of excellence within the Division that serve as resources to everyone within the Division. I always like to say that the purpose of specialized units was to expand the pie of cases in the Division, rather than just eating from the existing pie, and the FCPA unit has certainly done that.”
As to the FCPA not being a fundamental part of the SEC’s mission, see here. As Philip Urofosky (former DOJ Assistant Chief of the Fraud Section) stated in this article, “the SEC should get out of the anti-bribery business.” Indeed, I would call this “granting the wish” because, as noted in my article “The Story of the Foreign Corrupt Practices Act,” the SEC never wanted any part in enforcing the FCPA’s anti-bribery provisions.
As to the global fight against corruption, Ceresney stated:
“The last 10 years also have yielded a sea change in attitudes towards foreign bribery. The groundbreaking cases that we have brought have sent an unmistakable message that most companies have heard loud and clear — obey the FCPA, and ensure that your employees are sensitive to FCPA issues, or face stiff penalties and other consequences. But despite the hard work of the SEC and our sister agencies, far too many companies and individuals still believe that paying a bribe is the best way to win business. And there are still countries where bribes are viewed as a necessary evil. In fact, when I was in private practice, I often was told by business people that bribery was simply a fact of life in certain countries; it was simply accepted as a given. So there is still work to be done to fight corruption globally and there are still messages to be sent.”
As to how the SEC has contributed to a “culture of compliance,” Ceresney stated:
“The extent of the impact that we have had on the culture of FCPA compliance over the last 10 years cannot be overstated. I did a fair amount of FCPA work at Debevoise. Ten years ago, when I first went into private practice, the FCPA was an area in which few lawyers specialized; it certainly was not viewed as a practice area that could employ numerous lawyers. Companies did not have many compliance officers focused on the area; training of employees was minimal; the FCPA was rarely discussed during contract negotiations or focused on with agents or vendors; audits were not focused on FCPA compliance; and due diligence in connection with transactions rarely focused on FCPA issues. There was simply little recognition that such conduct needed attention. Fast forward 10 years and there has been a sea change in focus on these issues. Most companies now have some form of an FCPA compliance program, often with professionals who spend a good chunk of their jobs focused on the FCPA. FCPA training is now a common requirement among multinational companies. Much time is now spent on ensuring that contracts have appropriate provisions on FCPA compliance. FCPA diligence is often done on agents and vendors in advance of retention, and many companies have sophisticated systems for assessing risk to determine the level of diligence that will be done. Issues relating to gifts and other events involving government officials are often escalated. I also have noticed a growing trend of companies hiring separate firms to do compliance due diligence in connection with transactions — a development that signals the importance placed on the FCPA, and the need for specialized counsel to focus on these issues.”
Would it not be sensible to more adequately reward these good faith commitments to FCPA compliance and allow good corporate citizens a better return on their compliance investments? Yes it would, see here for my article “Revisiting an FCPA Compliance Defense.”
As to the difference between FCPA legal authority and non-legal sources of FCPA information, Ceresney stated:
“[L]awyers now heavily scrutinize our FCPA actions to glean any information about our interpretation of the law. Each aspect of our actions is closely scrutinized to extract kernels of guidance and hopefully helps companies identify problems and comply in the future.”
[…]
In addition, this intense interest from companies and defense counsel about our FCPA efforts created a growing need to provide clear, meaningful guidance on how the government interprets and applies the FCPA — a need that culminated in the DOJ/SEC FCPA Resource Guide issued last year. As someone who was in the private sector at the time it was issued, I can attest firsthand that the Guide did a great job of providing a concrete sense of the government’s views. And building off of that success, it is important that we continue to find ways to educate and inform the industry about the limits of permissible conduct — whether it be through more guidance or through enforcement actions — because strong compliance programs that incorporate a company’s internal audit and financial controls at the outset enable companies to catch problems early and remediate quickly.”
[…]
“FCPA law … is not well developed. Companies typically enter settlements in FCPA cases, leading to a paucity of case law.”
As to “international trends,” Ceresney stated:
“Another important trend in the last 10 years has been the immense growth in focus and legislation on corruption issues around the globe, and the tremendous increase in cooperation that we have received from other governments. Although the SEC and DOJ are at the forefront of this global fight against corruption, we cannot do it alone. There are capable and committed law enforcement partners worldwide, and their numbers are steadily growing. Over the past five years, we have experienced a transformation in our ability to get meaningful and timely assistance from our international partners. And through our collaborative efforts, the world is becoming a smaller place for corrupt actors.
[…]
As other countries begin to step up their efforts to combat corruption, it makes our job easier. Countries with strong anti-corruption laws are often great partners to us in combatting corruption. Scrutiny from the local government, in addition to us, will often be a strong deterrent to bribery. More and more, our investigations are conducted in parallel with a foreign government.
Obviously, evidence in many FCPA cases resides in foreign countries and in many instances, it is only with the assistance of local authorities that we are able to obtain evidence necessary for us to prove FCPA violations. We are having greater success working with the international community to receive documents and other types of foreign assistance.
[…]
[E]arlier this year, the SEC, in conjunction with the DOJ and FBI, hosted the first-ever Foreign Bribery and Corruption Training Conference for international law enforcement, which included representatives from over 50 law enforcement and regulatory agencies from 30 different countries. The Conference strengthened relationships among regulators and informed international officials about the latest developments in investigative techniques and multilateral requests for assistance. The more we can foster this sort of international cooperation, the more we can be successful in prosecuting FCPA cases.
I am encouraged by such close collaboration and fully expect the pace and extent of our cooperation with foreign agencies to grow over the coming years. Indeed, only recently, I have been involved in a case in which we are receiving cooperation from a country that has never before provided any meaningful assistance. This sort of progress gives me confidence that the future is even brighter.”
As to the “focus on individuals,” Ceresney stated:
“Another area of focus, and recent progress, has been our efforts to bring FCPA cases against individuals. To better root out corruption, we have ramped up our pursuit not just of companies, but of the individuals responsible for the corporate malfeasance.
A core principle of any strong enforcement program is to pursue culpable individuals wherever possible. After all, companies can only act through their people. Cases against individuals have great deterrent value, as they drive home to individuals the real consequences to them personally that their acts can have. In every case against a company, we ask ourselves whether an action against an individual is appropriate.
FCPA cases against individuals pose unique challenges. For example, we sometimes are unable to reach defendants who are in foreign jurisdictions, and the remedies we can obtain against such individuals are often quite limited, particularly when we cannot enforce judgments in those jurisdictions. Also, even when we can reach defendants, we often have difficulties obtaining foreign evidence and gaining access to overseas witnesses, particularly under circumstances that would allow us to use their testimony at trial. The length of time it takes to investigate these cases, particularly given the frequent need to collect foreign evidence, sometimes presents a statute of limitations issue. These are challenging cases, particularly in proving the culpability of individuals we can reach.
But we are overcoming these challenges through a variety of steps, including expanding the availability and use of Memoranda of Understanding with international financial regulators to obtain bank records, other documents, and testimony; using border watches and other methods of obtaining information from foreign nationals; subpoenaing U.S.-based affiliates of foreign companies; and more aggressively seeking videotaped depositions that we can use at trial if we cannot secure live testimony.
We have been successful in recent years in increasing the number of FCPA actions against individuals. Many of you are familiar with our pending litigation against various executives of Magyar Telekom, Siemens, and Noble. Litigation is ongoing against individuals in all three matters, and these cases have sent an unambiguous message that we will vigorously pursue cases to hold individual accountable for FCPA violations — including executives at the highest rungs of the corporate ladder. In fact, this April, we obtained the second highest penalty ever assessed against an individual in an FCPA case, when one of the Siemens executives agreed to pay $275,000.
[…]
And so despite the investigative headwinds that we often face in FCPA matters, we intend to be more creative and aggressive in pursuing such actions against companies and individuals. I expect that in the coming months, we will be filing more actions against individuals in FCPA cases.”
Fact.
Between 2008 to 2012, 79% of corporate SEC FCPA enforcement actions have not (at least yet) resulted in any SEC charges against company employees. Thus far in 2013 there have been 7 corporate SEC FCPA enforcement actions and none have resulted (at least yet) in any SEC charges against company employees.
As to Ceresney’s statement that “FCPA cases against individuals pose unique challenges,” this is true. Individuals are more likely than issuers to put the SEC to its burden of proof in FCPA enforcement actions and this recent post highlighted the SEC’s track record in such instances.
As to the “importance of cooperation,” Ceresney stated:
“[W]e have been very successful in the FCPA arena in fostering self-reporting and cooperation by companies with our investigations. Institutions and individuals are uniquely positioned to help us and help themselves by aggressively policing their own conduct.
Since launching our Cooperation Program in 2010, the Commission has made it clear that it will reward companies or individuals who cooperate, despite the fact that a violation has occurred. But receiving credit requires timely self-reporting, candor, thoroughness, prompt remediation and a serious commitment to act lawfully in the future.
Some lawyers sometimes ask me what is the incentive to notify us promptly about wrongdoing that you uncover? The answer is simple — if we find the violations on our own, the consequences will surely be worse than if you had self-reported the conduct. Companies must keep in mind that the risk of not coming forward grows by the day as our whistleblower program continues to pick up steam. We are increasingly sourcing our own cases through whistleblower tips — which have come from individuals in nearly 70 different countries — and just last month, we made our largest-ever whistleblower award: over $14 million. Given the high-dollar value of FCPA monetary relief—often in the tens or hundreds of millions of dollars—we expect FCPA violations to become an increasingly fertile ground for Dodd-Frank whistleblowing. In fact, during the last fiscal year we received 149 whistleblower tips related to the FCPA. All of which reinforces the value of reporting misconduct directly to the SEC in the first instance, and then demonstrating extraordinary levels of cooperation thereafter.
We have a wide range of tools available to us to facilitate and reward meaningful cooperation — from reduced charges and penalties, to taking no action at all. We have tried through our actions to be clear about the benefits that companies obtain through cooperation. Two recent examples highlight the importance of and benefits from cooperation.
In April, we entered into a Non-Prosecution Agreement with Ralph Lauren Corporation arising out of FCPA violations — our first-ever NPA in an FCPA case under our Cooperation Program. In that case, Ralph Lauren’s Argentine subsidiary bribed officials to secure the importation of its products in Argentina. Ultimately, we decided an NPA was appropriate due to Ralph Lauren’s prompt reporting of violations on its own initiative; voluntary and expeditious production and translation of documents and production of witnesses; thorough and real-time cooperation with the investigation; and significant remedial measures.
But our cooperation program is not limited to corporations. Just last week, we entered into our first-ever deferred prosecution agreement with an individual. We decided a DPA was appropriate in the matter because the individual contacted government authorities about the misconduct, which involved a hedge fund manager misappropriating investor assets, and provided immediate and complete cooperation with the SEC during our investigation. As a result of the individual’s assistance, we were able to file an emergency action and freeze over $6 million in assets.
As these examples make clear, the benefits of responding appropriately to violations and cooperating fully with the SEC can be substantial. And it is incumbent on us to clearly, and loudly, communicate these rewards because cooperation helps us as well. It enhances our ability to detect misconduct and increases the efficiency and effectiveness of our investigations.
Ultimately, it is important to keep in mind that greater cooperation benefits all market participants. Faster detection helps us minimize investor harm in the short run, while the implementation of preventive measures from cooperation agreements improves the transparency and fluidity of our markets in the long run.”
In conclusion, Ceresney stated:
“[L]et me assure you that we will remain the vigilant cop on the beat when it comes to the FCPA. I am confident that we will remain aggressive and proactive in enforcing the FCPA. And through strong enforcement, we will continue to level the playing field for U.S. companies doing business abroad and hold corrupt actors accountable when they fail to play by the rules. We also recognize, however, that successful enforcement is assisted by cooperation from others. Through rigorous compliance programs and internal controls, companies can identify and eliminate corruption before it takes root. Through greater international collaboration and enforcement, we can gather evidence more easily and expand our reach. And through greater cooperation from companies and individuals in our investigations, we can bring cases faster and ensure fair, transparent, and efficient markets. The U.S. has been a leader in the world’s anticorruption efforts since the passage of the FCPA and with your help we will continue to lead the charge.”
Friday Leftovers
Scrutiny alerts, corruption in China, quotable, and for the reading stack. It’s all here in the Friday leftover version of the roundup.
Scrutiny Alerts
Caribbean News Now reports here as follows.
“A complaint has been filed with the Department of Justice (DOJ) in the United States under the Foreign Corrupt Practices Act (FCPA) in relation to a contract purporting to grant oil exploration rights over some eight million acres of Saint Lucia’s maritime territory. The 46-page complaint, which Caribbean News Now has seen, names Saint Lucia’s prime minister, Dr Kenny Anthony, and RSM Production Company (RSM), a Texas company, along with its president Jack J. Grynberg. Caribbean News Now has also seen a written notification confirming receipt of the document by the DOJ.
[…]
Specifically, the complaint notes that, in or about February 2000, Anthony, as then minister of finance, planning and sustainable development, signed a contract with RSM that purported to grant the company an “Exploration License” in respect of territorial maritime resources belonging to Saint Lucia amounting to 8,726,263 acres. However, under Saint Lucia’s Minerals Vesting Act, all minerals in, on or under any land in Saint Lucia are vested in and controlled by the Crown and only the governor general may grant a licence to prospect for and/or mine such minerals. Further, although the contract provides that RSM shall pay a royalty to “the Government” (as required by section 5 of the Minerals Vesting Act), it goes on to state that the liability of RSM in this respect shall be discharged by paying such royalty to the minister and not the government.”
Reuters reports here as follows.
“The U.S. Justice Department is probing Morgan Stanley for its hiring practices in China as part of an industry-wide investigation by the government into whether banks’ employment of politically connected Chinese breached U.S. bribery laws, according to people familiar with the matter. As part of the industry sweep, the U.S. Securities and Exchange Commission sent letters to Morgan Stanley and other banks, including Goldman Sachs and Citigroup, seeking information about their hiring practices, according to several people familiar with the matter. The SEC has asked the financial services firms to provide information about their hiring of the relatives of government officials in China …”.
This is not a surprising development following the New York Times August story regarding JPMorgan (see here for the prior post).
Corruption in China
The Congressional-Executive Commission on China recently held a roundtable on “Corruption in China Today: Consequences for Governance, Human Rights, and Commercial Rule of Law.” As stated on the Commission’s website:
“Corruption takes many forms in China, from corrupt officials at all levels using their public office for private gain and seizing land for development to corrupt state-owned enterprises gaming the system to their advantage. Corruption also continues to be among the root causes of rights abuses against Chinese citizens. Senior leaders acknowledge that corruption threatens the legitimacy of the Communist Party and contributes to citizen dissatisfaction, and President Xi Jinping has stated that fighting corruption is a high priority. But Chinese authorities continue to crack down on independent and citizen-led efforts to combat corruption. Panelists will discuss corruption among Chinese high-level officials and recent anti-corruption efforts, and explore corruption’s role in human rights violations. Panelists also will examine corruption linked to state-owned and other enterprises and explore the implications for commercial rule of law.”
Among the panelists were Professor Daniel Chow (Ohio State) (see here for his statement). In 2012, I was pleased to play a role, along with Professor Chow and the staff of the Ohio State Law Journal, in organizing “The FCPA at Thirty-Five and Its Impact on Global Business,” a full-day symposium at The Ohio State University Moritz College of Law. (See here).
Quotable
On his Corruption, Crime & Compliance site, Michael Volkov states:
“The idea of legal ‘marketing’ has been diluted in the last few years. As businesses become smarter consumers of legal services, in-house counsel and Chief Compliance Officers are much better at deciphering legal mumbo jumbo. Perhaps the best example of legal marketing as an oxymoron, was the roll-out of the UK Bribery Act. Legal marketing was premised on one idea –fear and fear alone. Client alert after client alert warned companies about the impending doom, the effective date of the UK Bribery Act. Not to pat myself on the back (assuming my arm is long enough), but I wrote that the UK Bribery Act was a real non-event in the world anti-corruption compliance and that it was unlikely to have any real impact. To this day, those words still ring true. After writing the ‘truth’ about the UK Bribery Act, I received a call from the firm’s London partners and was chastised for undermining their entire ‘marketing’ program. (In stark contrast, many clients wrote me and thanked me for my ‘honesty.'”
Spot-on.
Nearly three years ago, I wrote:
“The U.K. Bribery Act … has been the subject of much discussion and much over-hype in my opinion. It has been called the FCPA ‘on steroids’ (here) and if one subscribes to the industry marketing material, you might be left with the impression that the end of the world is near. […] In sum, I don’t see how companies already subject to the FCPA and already thinking about compliance in a pro-active manner, have much to worry about when it comes to the U.K. Bribery Act because of the adequate procedures defense. I will be surprised if U.K. enforcement of the Bribery Act reaches the level of U.S. enforcement of the FCPA …”.
See here for my post the day the U.K. Bribery Act went live in July 2011.
See here for my post “Marketing The FCPA … The FCPA Risks Of … Well, Just About Everything.”
For the Reading Stack
The most recent issue of the always-informative FCPA Update from Debevoise & Plimpton is here. Among other things, the issue summarizes recent remarks of DOJ and SEC officials regarding the FCPA and FCPA enforcement.
*****
A good weekend to all.