A SEC Blast From The Past
This recent post highlighted 1979 comments from the DOJ’s Assistant Attorney General regarding the DOJ’s FCPA enforcement priorities. Today’s post is an SEC blast from the past.
The year was also 1979 and Wallace Timmeny (SEC Deputy Director, Division of Enforcement) authored an article titled “SEC Enforcement of the Foreign Corrupt Practices Act” in the Loyola of Los Angeles International and Comparative Law Review. The purpose of the article was to “discuss legal issues arising from the enforcement” of the FCPA in actions brought by the SEC. The article is an informative read as to the SEC’s early FCPA enforcement actions.
The article is also an interesting reading concerning the author’s description of “vicarious liability under the FCPA” and it states, in pertinent part, as follows.
“The liability of issuers for the acts or failures of foreign or domestic subsidiaries is not clearly specified in section 30A and section 13(b). Section 30A covers the conduct of registered and reporting companies and the conduct of any officer, director, employee, or agent of any such company or any stockholder of such company acting on behalf of the company. Thus, by its terms, section 30A does not refer to subsidiaries whose securities are not registered or which are not required to file reports pursuant to section 15(d). The legislative history of section 30A indicates that the section was not intended to cover the activities of foreign subsidiaries where there was no jurisdictional nexus with the United States and where the issuer of a reporting company had no knowledge of the payment.”
The article concludes as follows.
“As a nation we understand the implications of corrupt practices. Improper or questionable payments undermine our foreign policy and, in fact, place control of foreign policy in the hands of private individuals or companies who do not respond to the electorate. Corrupt practices can topple friendly governments, increase hostility to the United States, and provide ammunition to those who would topple our own system. Shoddy accounting practices foster those problems and result in significant detriment to individual investors, and to the marketplace in general, by undermining investor confidence. The problems leading to the passage of the FCPA have been more than sufficiently illumined in legislative history and in enforcement actions brought by government agencies. Against this background, it is unlikely that the courts will interpret the FCPA narrowly.”
Like the recent post regarding the DOJ blast from the past, Timmeny’s article also recognizes that the primary motivation of Congress in passing the FCPA was foreign policy related. (For more see my article “The Story of the Foreign Corrupt Practices Act“). In this prior post, also regarding the 1979 speech by the DOJ official, I asked as follows.
“Most enforcement actions in this new era involve alleged payments to state-owned or state-controlled enterprises with many attributes of private commercial enterprises, employees of various foreign health care systems such as physicians, or actions based on payments to ministerial or clerical officials concerning mundane foreign licenses, permits or customs issues. Can it truly be said that these enforcement actions concern payments that could lead to the downfall of foreign governments or payments that have significant foreign policy and national security implications?”
Timmeny’s article also predicted that it was “unlikely that the courts will interpret the FCPA narrowly.”
It is believed that the SEC has been put to its ultimate burden of proof in a core FCPA case only four times.
The SEC lost two cases. In SEC v. Eric Mattson and James Harris the court granted the defendants’ motion to dismiss and rejected the SEC “obtain or retain business” enforcement theory. In SEC v. Herbert Steffen, the court granted the defendants’ motion to dismiss and rejected the SEC’s jurisdictional theories.
Two cases remain pending. In SEC v Elek Straub et al. defendants’ pre-trial motion to dismiss was denied. In SEC v. Mark Jackson and James Ruehlen, the court granted defendants’ motion to dismiss the SEC’s claims that sought monetary damages while denying the motion to dismiss as to claims seeking injunctive relief. The dismissal was without prejudice and the SEC has filed amended complaints that have significantly narrowed the case.
A DOJ Blast From The Past
It was November 1979 and the Foreign Corrupt Practices Act was nearly two-years old. Philip Heyman was the DOJ Assistant Attorney General and he gave a speech outlining the DOJ’s FCPA enforcement priorities. Below is an excerpted copy of his speech. (The full speech was published by the American Banker on Nov. 21, 1979).
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“Two English writers several centuries ago took widely different views of bribery. John Gay told us, with a worldly wink, in 1738: ‘Corruption’s not of modern date; it hath been tried in every state.’
Shakespeare agreed the practice was antique, but took a harsher line. Brutus says to Cassius in Julius Caesar: ‘Shall we now contaminate our fingers with base bribes. . .? I had rather be a dog, and bay the moon.’
Two years ago, Congress voted with Shakespeare and decided to keep American business out of the doghouse. The passage of the Foreign Corrupt Practices Act was a signal event. It represented Congress’ determination that competition in overseas markets should be based on the merits — on price and product quality — rather than on questionable payments to foreign political leaders. Its operative principle, if I may quote Shakespeare again, is that ‘corruption wins not more than honesty.’
The Act passed almost unanimously. In a curious reversal of the usual process, most of the open dissent on how to deal with foreign payments has been percolating to the surface since the passage of the Act, rather than in the debate before.
The dissenting voices should be heard out, because there is an element of truth on their side. These dissenters tell us that, just as international relations is an area in which conventional rules of law do not always operate, international trade is also an unusual arena. Almost every company and entrepreneur in modern-day America accepts that bribery of domestic officials is not an allowable tactic. But international trade is said to pose different problems.
For shorthand, the problems might be dubbed ‘economic extortion’ and ‘keeping up with the Joneses.’ Imagine a foreign official in charge of contract evaluation who announces that a 10% commission must be paid to his brother to assure favorable consideration. A company might well feel tempted. No matter how much faith it has in its product, it can’t tell whether the evaluation will be on the merits, or on its willingness to make the payment. What is a company to do about a monopsonist who won’t buy without a kickback?
A second problem is how to keep up with foreign competitors who are not governed by an antibribery statute. An American company seeking a foreign contract may fear that its non-Americans rivals are indulging in corrupt payments and feel pressure to keep up with the Joneses. Congress can’t legislate rules of behavior for most non-American companies and, the dissenters would tell us, it’s unfair to put a one-sided burden on American companies.
Production Threatened
As well as looking at the burden on individual companies, one should consider the overall economic cost, we are told. On the economic side of the scale is the adage that ‘the business of America is business.’ Any disincentive to American exports is an economic cost and can inhibit production, increase unemployment, and worsen our balance of payments, weakening the dollar and fueling inflation. In the context of foreign corrupt payments, surely one interest to be balanced is the need to strengthen the domestic economy by promoting exports.
These voices of dissent have been late in emerging. Even now they don’t venture to openly advocate a repeal of the Foreign Corrupt Practices Act. I have sometimes had a suspicion that the desire for so-called ‘guidelines’ has included a wistful hope that the Act would be cut away quietly through interpretation. But even those asking for guidelines haven’t dared to openly oppose the Act.
The reason for the hanging back is that the foreign corrupt payments issue has another side to it, the side that Congress and this Administration chose. And there is no way to make light of the interests on this side of the scale. First, what is one to make of companies that use corrupt payments in a foreign market where all other competitors are American? The pre-Act Lockheed case was this kind of situation. Corrupt practices were committed by Lockheed in Japan in an attempt to win a contract for wide-bodied jets against two other American manufacturers. In such a market there is no one-sided burden from a law that requires competition on the merits. To the contrary, without such a law, each time any American company makes an illicit payment there is created a one-sided incentive for its American competitors to follow suit, in a race to the bottom. Bribery in such a situation does not win trade for America; it simply carves up the market among domestic rivals. And what is one to say of corrupt practices where a foreign country is making a conscientious attempt to enforce its anticorruption laws and where, so far as one knows, foreign competitors have been acting with restraint?
Economic Extortion
Then too, consider how easy it is to claim ‘economic extortion’ as an excuse for a bribe. Any seller can say that his bribe was the foreign buyer’s idea and that otherwise he would have been excluded from selling in that market. For this reason, among others, Congress concluded that problems of so-called economic extortion should not be a valid defense to bribery. As the Senate Banking Committee concluded, ‘At some point the U.S. company would make a conscious decision whether or not to pay a bribe. That the payment may have been first proposed by the recipient rather than the U.S. company does not alter the corrupt purpose on the part of the person saying the bribe.’ So-called economic extortion is too easy a cover story for voluntary bribers.
Consider also that each time a bribe is paid by an American company, it makes it easier for economic extortion to occur. A foreign official may reason that if one American corporation is willing to come forward with a corrupt payment, then surely most can be made to pay. In such circumstances, it is not surprising that Congress thought the best solution was to cut the problem off at the source and simply forbid such payments.
The antibribery side of the balance also gains strength from the importance of stability in our foreign relations. If an American company bribe is exposed in foreign newspapers, it may cause the downfall of that government. The rise and fall of foreign governments is a matter too serious for private determination. The foreign policy repercussions of overseas bribery are by themselves reason enough to ban the practice.
There is, also, a matter of mortality and of national honor. Bribery of our officials by foreign companies is something we take extremely seriously; the Koreagate investigation is proof of that. Congress has decided that corruption of foreign officials by American companies is an equally serious matter. Foreign countries have as much right as we do to aspire to honest government. And our effectiveness in seeking a multilateral treaty to ban overseas bribery by any country depends at least in part on the lead we take in showing that such practices are unworthy of a Free World competitor.
Those who argue an antibribery statute involves an economic cost to the U.S. may or may not be right. We have only impressionistic evidence. But the Senate Banking Committee heard testimony from then-Secretary of the Treasury Michael Blumenthal, and former Under-secretary of State George Ball, that in their best judgement overseas bribery was an unnecessary weakness.
Mr. Ball concluded that without corrupt practices, ‘for a limited time span some American countries might lose certain business opportunities,’ but noted ‘the example of a number of our most successful enterprises that rigorously reject such practices yet still do enormous business all over the world.’ Secretary Blumenthal testified that ‘paying bribes. . .is simply not necessary for the successful conduct of business here or overseas.”
“Ethically Repugnant”
Within our governmental system, it is the legislative branch which is responsible for striking the major balance among competing interests. With the passage of the Foreign Corrupt Practices Act, Congress struck that balance and did so with virtual unanimity. Congress determined that the United States should assume a position of moral leadership in the world; that bribery was harmful to U.S. foreign policy interests; and that any short-run economic cost was worth tolerating for the good health of our political and economic system. It was a balance the President adopted at the time he signed the Foreign Corrupt Practices Act. President Carter said: ‘I share Congress’ belief that bribery is ethically repugnant and competitively unnecessary. Corrupt practices between corporations and public officials overseas undermine the integrity and stability of governments and harm our relations with other countries. Recent revelations of widespread overseas bribery have eroded public confidence in our business institutions.’
Our country has pretentions of national honor, which have been enacted into law and which no one is prepared to renounce. Any who believe that the Executive Branch might ‘wink’ at violations of the law are misguided. The President has made this very clear to us and to Congress. Any who believe the Foreign Corrupt Practices Act can be scuttled quietly, administratively, do not realize that such hypocrisy would be the most damaging vice.
But there is a legitimate role for the Department of Justice in giving advice about its enforcement intentions under the Act. The interpretive questions arising under the Act depend on subtle judgments of fact and law. We’re dealing with a new Act, where no one has much enforcement experience. It is an Act that presents questions there has never been occasion to address in domestic bribery law — for instance, which officials fall outside the Act because their duties are ‘essentially ministerial’ and whether a foreign corporation becomes a ‘government instrumentality’ when only a minority of shares is owned by the foreign government. And there is a national economic interest in avoiding unnecessary uncertainty that could deter acceptable export practices. President Carter noted in his export policy statement of a year ago the hope that ‘American business will not forego legitimate export opportunities because of uncertainty about the application of this statute,’ and asked the department to provide some form of guidance to the business community.
[…]
Enforcement Priorities
Let me discuss a second form of guidance. In his export policy statement, President Carter asked the Department to provide some information about what are called ‘enforcement priorities in regard to foreign corrupt practices. I should first make crystal clear what that phrase means. An enforcement priority simply says what type of cases we will generally consider the most urgent and egregious, which efforts deserve highest targeting. An enforcement priority does not say what cases we will decline to prosecute; or case-by-case review procedure is the way to ask that. Every nonpriority violation is still fully open to investigation and prosecution.
Enforcement priorities come into play in deciding when to open an investigation, and deciding what, if any, enforcement action is warranted. The Act provides us with a continuum of weapons, including civil injunctive actions, criminal prosecution of a business entity, and, the most serious of all, criminal prosecution of individuals. Where we are presented with a serious violation, this last sanction will be considered appropriate.
We will regard a violation as extremely egregious if any bribes are used in a market where the other competitors turn out to be American. Equally serious is any bribe in a market where, though there are non-American competitors, the only companies indulging in corrupt practices turn out to be American. We intend to be vigorous in pursuing these cases, so that American companies obeying the law are not disadvantaged by wayward cousins.
We intend also to give high priority to situations where a foreign government is making an effort to clean up the competitive arena. In any instance where a foreign government is attempting to prosecute a corrupt official who has received payments from American companies, we will make every effort to coordinate with them and to prosecute the payer of the bribe. We will try also to exchange useful information and encourage cooperation by American witnesses to assist the prosecution of the corrupt official. We currently have executive agreements for mutual assistance in criminal matters with 25 nations, which provide for conditional exchanges of information about specified companies between the cooperating prosecutors. We anticipate that the number of countries with which we have such agreements will continue to grow.
The level of the official being bribed is another factor in choosing priority cases. We will act most swiftly and harshly where a foreign cabinet officer or other official of high rank is involved. The size of a payment and the size of the economic transaction which the payment affects are also of interest. A $1 million bribe to win a $20 million contract will, you can imagine, be closely scrutinized for suitability as a criminal case. Note that amounts which some might view as modest in the United States can be very substantial sums in developing countries.
If a senior management official is involved in a violation, either actively or passively, the chance of criminal prosecution again increases both for the company and individuals. A violation by a lower-level employee will also be high priority where the company has been less than diligent in monitoring employee activities. Pro forma adoption of an antibribery policy will not insulate top management and the company from intense investigation and prosecution if serious controls are lacking. Conversely, where a company has been making good faith efforts to monitor its employees, that will be relevant in our decision how to proceed.
Of course the major criterion for choosing among cases will always in the end be the strength of the available evidence and the chances for obtaining additional needed evidence. By this I mean only to reinforce my note in the beginning that so-called nonpriority cases are still fully open to prosecution. Whenever we have strong evidence of deliberate or persistent violations of the Act, a prosecution can and should be expected.
Finally, let me say a few words about process. To maintain consistency in enforcement policy and to keep close liaison with the Department of State, SEC, and foreign law enforcement agencies, we have concluded that enforcement responsibility under the Act should be substantially centralized. Unlike other law enforcement areas where primary responsibility for prosecution rests with 94 different U.S. Attorneys around the country, most prosecutions under the Foreign Corrupt Practices Act for payment activities will be supervised by the Multinational Fraud Branch in the Criminal Division in Washington.
[…]
The most efficient means of implementing the Foreign Corrupt Practices Act is voluntary compliance by the American business community. I am convinced that the great majority of American businesses are making every effort to assure that their officers, employees and agents do not violate the Act. The new review procedure should assist companies in good faith compliance efforts and maximize the ability of U.S. companies to make use of legitimate export practices.
Compliance with the new Act may not be costless for the United States. But living up to one’s principles rarely is. The principle behind the Act is basic to our society — that competition should be on the merits. In the long run, the Foreign Corrupt Practices Act and the joint effort of business and government to end corruption in international trade will be an achievement of which our country can be proud.”
“We Are Not Going Away … Our Efforts To Fight Foreign Bribery Are More Robust Than Ever”
Yesterday, Acting Assistant Attorney General Mythili Raman spoke at the Global Anti-Corruption Congress in Washington, D.C. (See here for her remarks). Raman focused “on one of the [DOJ’s] most important enforcement priorities” – the DOJ’s “efforts to combat corruption around the world.”
Raman stated, in pertinent part, as follows.
“Corruption corrodes the public trust in countries both rich and poor, and inflicts particular harm on emerging economies. When a developing country’s public officials abuse their power for personal gain, its people suffer. Political institutions lose legitimacy, threatening democratic stability and the rule of law; and people lose hope that they will ever be able to improve their lot. 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.”
“For these reasons, fighting global corruption is, and always will be, a core priority of the Department of Justice. Since 2005, the Department has secured close to three dozen corporate guilty pleas in FCPA cases. And just since 2009, the Department has entered into over 40 corporate resolutions, including nine of the top 10 biggest resolutions ever in terms of penalties, resulting in approximately $2.5 billion in monetary fines. And, perhaps most important, in that same period, we have successfully secured the convictions of over three dozen individuals for engaging in foreign bribery schemes.”
“Our recent string of successful prosecutions of corporate executives is worth highlighting. Those actions show, in concrete terms, that we are not going away – indeed, our efforts to fight foreign bribery are more robust than ever. By redoubling our commitment to bring to justice those individuals who bribe for business, we are sending an unmistakable message to corporate executives around the world – if you engage in corrupt conduct, you should be prepared to face very real consequences, including jail time.”
[…]
” [W]e are now – more than ever – holding individual wrongdoers to account.”
“In addition to our stepped-up prosecutions of individuals, our recent enforcement actions against French oil and gas company Total highlight another important shift in the anti-corruption realm – the development of stronger anti-bribery enforcement programs in foreign countries, the continuing and encouraging rise in cross-border cooperation, and the increasing efforts of our foreign law enforcement partners to hold individual perpetrators accountable. Just this last month, on the same day that the Justice Department and SEC resolved criminal and civil foreign bribery charges with Total, French enforcement authorities requested that Total, Total’s Chairman and Chief Executive Officer, and two additional individuals be referred to the French Criminal Court for violations of French law, including France’s foreign bribery law. The Total case represents the first ever coordinated action by U.S. and French law enforcement in a foreign bribery case; and because of that close collaboration, Total now faces criminal consequences across two continents. This unprecedented, joint action by U.S. and French authorities reflects our renewed commitment to work as closely as we can with our foreign counterparts to stamp out bribery across the globe.”
“Meanwhile, countries around the world are passing new anti-bribery legislation, or revising outdated laws, and more countries are joining international bodies such as the OECD Working Group on Bribery. And each day, more countries are joining the fight. Just in the past few years, Russia and China have outlawed foreign bribery, and India may soon join that list. Earlier this year, Colombia became the 40th party to the OECD Anti-Bribery Convention. Through our increased work on prosecutions with our foreign counterparts and our participation in various multi-lateral fora like the OECD and United Nations, it is safe to say that we are cooperating with foreign law enforcement on foreign bribery cases more closely today than at any time in history.”
“This type of collaboration is absolutely critical if we are going to have a meaningful impact on corruption internationally. As our economies become more interdependent, corruption itself is increasingly transnational. What may be a domestic corruption concern for one country may very well be a foreign bribery concern for another.”
“Of course, the upsurge in foreign enforcement and global collaboration did not happen overnight or by accident. It is, instead, the product of hard work and strategic coordination – including face-to-face engagements that have allowed us to forge the partnerships that are essential to fight global corruption. In February of this year, for example, the Justice Department, SEC, and FBI hosted about 130 judges, prosecutors, investigators, and regulators from more than 30 countries, multi-development banks, and international organizations around the world for a training course to exchange ideas and best practices on combating foreign corruption. This unprecedented meeting provided a critical opportunity to meet our partners, discuss cases, identify new opportunities to collaborate, and improve our intelligence sharing. Needless to say, we were able to advance a number of specific prosecutions through that meeting and, as important, forge new bonds with an entire generation of prosecutors dedicated to combating global corruption.”
“These day-to-day efforts by the Justice Department and our counterparts around the world might not be visible to the public, but the fruits of these efforts are. Many of you have heard, for example, of the Siemens prosecution, which began with dawn raids not by U.S. authorities, but by the Munich Public Prosecutor’s Office. And long before the U.K. Bribery Act was even proposed, we were working together with the U.K.’s Serious Fraud Office to bring cases against U.S. and U.K. companies alike, as well as their executives and agents involved in bribery schemes. Our friends in Canada, meanwhile, have also increased their anti-corruption resources with two Royal Canadian Mounted Police units focused on international corruption, and the results speak for themselves with two major cases being brought against Niko Resources and Griffiths International in the past few years. We have worked with our partners in Thailand on the Gerald and Patricia Green case, involving bribes paid to a Thai official in exchange for a series of government contracts; and in Costa Rica, on the Sapsizian and Alcatel matters, we worked with our partners to prosecute cases involving corrupt payments to Costa Rican government officials, including the payment of bribes to obtain a mobile telephone contract from the state-owned telecommunications authority. All of these prosecutions are a testament to what we can do when we work hand-in-glove with our foreign partners.”
“Another important manifestation of our international collaboration on foreign bribery is the peer-review monitoring system of the OECD Working Group on Bribery, which is considered by Transparency International to be the “gold standard” of monitoring, and has resulted in remarkable improvements in anti-bribery enforcement around the world. This review process is rigorous, and we see our role in this process to be mission critical, as it is one of the best ways to level the playing field for U.S. companies doing business abroad. In fact, just last month, we sent a seasoned foreign bribery prosecutor to Moscow to help lead the Phase 2 review of Russia, and we will be sending another foreign bribery prosecutor to review South Africa, the only country in Africa to be a member of the Working Group on Bribery.”
“But we do more than conduct reviews; we are subject to them, too. In October 2010, we underwent a Working Group review, and one of the recommendations from that report was part of the impetus behind the Justice Department’s and SEC’s Resource Guide to the U.S. Foreign Corrupt Practices Act. The Guide may be the most comprehensive effort ever undertaken by either the Justice Department or the SEC to explain our approach to enforcing a particular statute. And, we have received extremely positive reviews about the Guide from the business and legal communities. In particular, we have heard praise from numerous compliance and ethics officers, who have focused on our Ten Hallmarks of an Effective Compliance Program and have even told us that they are incorporating the Guide into their in-house training programs.”
“All of these achievements are the product of years of work by a talented corps of dedicated and tenacious prosecutors in the Criminal Division’s Fraud Section, who team up with similarly committed prosecutors in United States Attorneys’ Offices throughout the country to enforce the FCPA. Simply put, our global anti-corruption mission is now ingrained in the Criminal Division’s DNA, and the FCPA is now a reality that companies know they must live with and adjust to; and this nation, and the world, are better off for it.”
[…]
“As head of the Criminal Division, I am acutely aware that we have many urgent law enforcement priorities – indeed, every day, our prosecutors work to combat violent crime, financial fraud, cybercrime, and organized crime. Yet, even with all these competing demands, I am here to tell you that fighting global corruption will remain a mainstay of the Criminal Division’s mission. Indeed, with the momentum of so many countries behind us, I am certain that now is the time to enhance, not diminish, our anti-corruption efforts. The fight against global corruption is a critical mission, and one I’m very proud to be part of.”
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A few comments on Raman’s remarks.
“Our recent string of successful prosecutions of corporate executives is worth highlighting.”
As noted in this post from last month regarding a speech Raman delivered in May, the last three times the DOJ has been put to its ultimate burden of proof in FCPA cases, the end results were either acquittals or dismissals, including for prosecutorial misconduct. In the Africa Sting cases, Judge Richard Leon stated as follows. “This appears to be the end of a long and sad chapter in the annals of white collar criminal enforcement. . . . I for one hope this very long, and I’m sure very expensive, ordeal will be a true learning experience for both the [DOJ] and the FBI as they regroup to investigate and prosecute FCPA cases against individuals in the future.” In the John O’Shea case, Judge Lynn Hughes stated as follows: ‘‘The problem here is that the principal witness against Mr. O’Shea . . . knows almost nothing … [ ] The government should have been prepared before they brought the charges to the Grand Jury. . . . You shouldn’t indict people on stuff you can’t prove.’’ In the Lindsey Manufacturing case, Judge Howard Matz stated as follows. “The instances of misconduct were so varied and occurred over such a long time that they add up to an unusual and extreme picture of a prosecution gone badly awry.”
” [W]e are now – more than ever – holding individual wrongdoers to account.”
As noted in the prior post from last month, despite several individual enforcement actions in 2013, the fact remains that since 2008 approximately 75% of DOJ FCPA enforcement actions, have not (at least yet) resulted in any DOJ charges against company employees. Moreover, since NPAs and DPAs were first introduced to the FCPA context in 2004, only 6.5% of corporate DOJ FCPA enforcement actions resolved solely with an NPA or DPA have resulted in related criminal charges of company employees.
Raman referenced the OECD peer-review monitoring system.
As noted in this prior post, the irony of the OECD’s 2010 review of FCPA enforcement was that – while loudly praising the U.S. for its “high level” of enforcement, the OECD review quietly criticized and questioned many of the policies and enforcement theories which yield the “high level” of enforcement.
Friday Roundup
Boondoggle specifics, another DOJ enforcement official to FCPA Inc., scrutiny alert, across the pond, and for the reading stack. It’s all here in the Friday roundup.
Wal-Mart’s FCPA Expenses
Previous posts (here) and (here) have calculated Wal-Mart’s per working day FCPA related professional fees and expenses.
No wonder Wal-Mart’s first quarter professional fees and expenses equal approximately $1.16 million per working day. According to this recent article in India’s Economic Times, concerning just the India portion of Wal-Mart’s investigation:
“So far Greenberg Traurig and KPMG have spent 26,000 hours on consulting and shaping anti-corruption compliance programme for Bharti Walmart, which operates 20 Best Price Modern Wholesale stores in various cities in India. This work has included developing and implementing procedures and providing training to over 1,800 senior business and store level associates in India,” a Bharti Walmart spokesperson said in an e-mail response to ET. “For the past several months, the company has also been using Greenberg Traurig and KPMG to perform due diligence on third party service providers in India.” Currently there are about 20 Greenberg Traurig attorneys stationed in India working on Bharti Walmart’s compliance programme, the spokesperson said.”
Relevant to FCPA investigative expenses, this FCPA Inc. participant marketing pitch caught my eye. Is it really necessary to analyze millions of documents in an FCPA review? Also, since when did FCPA investigations focus on “proving a negative that [the company] did not bribe foreign officials?”
Suleiman to FCPA Inc.
As noted in this recent post, earlier this month Daniel Suleiman (DOJ Deputy Chief of Staff for the Criminal Division) stated in a speech that the DOJ’s FCPA enforcement efforts “are as active today … as we have ever been.”
Earlier this week, Covington & Burling announced (here) that Suleiman would be joining his former boss Lanny Breuer (see here for the prior post concerning Breuer’s jump to FCPA Inc.) at Covington. Suleiman thus becomes the latest in a long-line of former DOJ or SEC FCPA enforcement attorneys to depart for FCPA Inc. The firm stated, in pertinent part, as follows.
“Mr. Suleiman joins the firm’s Washington office as special counsel where he is expected to focus on defending individuals and corporations facing white collar criminal charges, Foreign Corrupt Practices Act investigations and congressional inquiries. […] In his Justice Department role, Mr. Suleiman helped oversee about 600 lawyers and 1,000 employees, and managed an annual budget of approximately $600 million. He provided advice on a wide range of federal law enforcement priorities, with particular focus on Foreign Corrupt Practices Act and financial fraud enforcement.”
In his speech earlier this month, Suleiman rightly observed an issue I have long pointed out that, among other things, warrants a five-year bar on DOJ FCPA enforcement attorneys from providing private sector FCPA services. Suleiman stated as follows. “It is Justice Department policy that no FCPA prosecution can be brought without authorization from the Criminal Division, which distinguishes FCPA prosecutions from most other kinds of federal criminal cases.”
Scrutiny Alert
According to this report by the Organized Crime and Corruption Reporting project, the SEC “has opened an investigation into Swedish multinational Ericsson’s business practices in Romania. The investigation is related to allegations made by a former Ericsson employee that the company used an approved slush-fund to pay off Romanian officials and decision makers to win contracts.”
Ericsson has ADR shares listed on NASDAQ in the United States.
Across the Pond
From thebriberyact.com, a useful of summary (here) of recent remarks by U.K. Serious Fraud Office Director David Green.
Staying in the U.K., a useful summary (here) by Eversheds of the “third conviction for an individual under the Bribery Act 2010.” The case concerns a Chinese national studying in the U.K. who attempted to bribe his professor for a passing grade. As noted in the Eversheds summary, “the UK has yet to see prosecution of a corporate under the [Bribery] Act, so companies are still awaiting judicial interpretation the corporate offence under [section] 7 of the Bribery Act and the Ministry of Justice’s Guidance on ‘adequate procedures’”. [Note the U.K. Bribery Act has domestic bribery provisions as well as “FCPA-like” foreign bribery provisions. The three individual Bribery Act convictions have all been domestic bribery prosecutions].
Reading Stack
Trace International recently released (here) its third annual Global Enforcement Report. The report provides an updated summary of international anti-bribery enforcement trends based on the cases and investigations tracked in the TRACE Compendium, TRACE’s public, online database of transnational corruption cases.
Sound advice from Tim Peterson (a former SEC enforcement attorney) and Robertson Park (a former DOJ enforcement attorney) in this article in Inside Counsel regarding voluntary disclosures.
“Not all potential [FCPA] problems, however, are appropriate for disclosure. After investigation, allegations of misconduct may not result in a determination that illicit activity has occurred. Problematic payments may not be sufficiently material to amount to an FCPA violation (though companies should be aware of different standards for liability under other jurisdictions’ anti-corruption laws; for example, the U.K. Bribery Act of 2010). Prematurely attracting the government’s attention may, as a practical matter, shift the burden to the company to prove the absence of a corruption problem. Enforcement officials may feel the need as a matter of basic human nature to seek some type of resolution to a case where they have invested significant time and effort. Companies need to weigh the potential benefits of cooperation against the significant costs of initiating a potentially unwarranted government investigation.”
From Compliance Week, a useful summary (here) of recent remarks by Chuck Duross (DOJ FCPA Unit Chief) and Kara Brockmeyer (SEC FCPA Unit Chief).
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A good weekend to all.
Friday Roundup
Enforcement agency speeches, “foreign official” delay, and for reading stack. It’s all here in the Friday roundup.
Enforcement Agency Speeches
This prior post detailed comments by Mary Jo White prior to becoming SEC Chairman.
Last week, White spoke before the Investment Company Institute on the general topic of the SEC’s role in an increasingly global financial and regulatory system. She stated as follows (see here) concerning the SEC’s enforcement of the FCPA.
“Of course, misrepresentations and other unlawful actions travel in both directions across borders, which is another reason why our partnership with our regulatory counterparts abroad is so important. Among the most prominent concerns in this regard is bribery by U.S. companies overseas, which not only undermines international markets and governments but also simultaneously undermines the reporting and disclosure integrity of our own markets. Thus, strong and fair enforcement of the Foreign Corrupt Practices Act, which forbids U.S. companies from bribing foreign officials, has been and will continue to be a priority for us. Our first objective is to help companies avoid FCPA violations by educating them. And so our staff along with our colleagues at the Department of Justice recently published a comprehensive Guide to the FCPA to give clear guidance and clear up some myths. Of course, the other side of education is deterrence. Deterrence can mean strong enforcement actions with tough disgorgement and penalties. But it can also mean the tangible benefits that come with cooperation – as demonstrated by the Non-Prosecution Agreement with Ralph Lauren Corporation we announced in April. In this particular case, the corporation’s Argentine subsidiary paid bribes to government and customs officials to improperly secure the importation of their products into the country. The bribes occurred during a period when the U.S. parent company lacked meaningful anti-corruption compliance and control mechanisms over its foreign subsidiary. The misconduct came to light as a result of the company’s efforts to improve internal controls and compliance. And the company immediately reported the problem to the SEC and provided exceptional assistance to our investigation. Successful FCPA cases also increasingly require assistance from foreign law enforcement authorities. That is why we recently partnered with the DOJ and FBI in conducting a foreign bribery training program that provided intensive training to 130 foreign investigators and prosecutors from 30 countries, many on which the SEC staff relies for mutual legal assistance in FCPA cases.”
Yesterday, Daniel Suleiman (DOJ Deputy Chief of Staff for the Criminal Division) spoke at the Minnesota Bar Association’s Annual International Business Law Institute. (See here). Suleiman offered “some views from the U.S. Department of Justice on the topic of anti-corruption enforcement” and “what the Justice Department is doing in the area of criminal enforcement to fight corruption at home and abroad.” He stated, in pertinent part, as follows.
“I think of our anti-corruption efforts as falling into three principal buckets: number one is criminal prosecution; number two is assisting foreign countries to build up their judicial, prosecutorial, and investigative institutions; and number three is the pursuit, through civil actions, of the proceeds of foreign official corruption. I will discuss each of these buckets in turn.
First and foremost, the Criminal Division is a litigating operation. We investigate and prosecute cases. Our corruption prosecutions are of two kinds: we prosecute corruption by domestic officials, and we prosecute foreign bribery offenses under the Foreign Corrupt Practices Act, or FCPA.”
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“[W]e have an incredibly strong team of prosecutors who focus exclusively on enforcing the FCPA. Depending upon how familiar you are with FCPA enforcement, you may know that the Criminal Division is the entity in the United States with primary responsibility for criminal enforcement of the Act. It is Justice Department policy that no FCPA prosecution can be brought without authorization from the Criminal Division, which distinguishes FCPA prosecutions from most other kinds of federal criminal cases. The Securities and Exchange Commission, which is a few blocks up the street from us, has primary responsibility for the Act’s civil enforcement.”
“Foreign bribery enforcement has for a long time been an important aspect of U.S. policy. The FCPA was enacted roughly 35 years ago, around the same time that our Public Integrity Section was created to focus on public corruption prosecutions, and it was the first effort of any nation to specifically criminalize the act of bribing foreign officials. The statute was enacted in the wake of the Watergate scandal, but it took more than 20 years for the Act to become a strong enforcement tool. And, over the past several years, the Justice Department has substantially increased its enforcement of the Act.”
“One important aspect of our FCPA enforcement involves, of course, our corporate resolutions. We have collected billions of dollars in criminal fines and penalties to resolve FCPA investigations against companies doing business abroad, including BizJet International Sales and Support Inc., a Lufthansa subsidiary; Alcatel-Lucent; Johnson & Johnson; and many others.”
“But another, critically important aspect of our enforcement regime involves holding individuals responsible for FCPA offenses. There is no greater deterrent to corporate crime than the prospect of prison time. As many have recognized, if people don’t go to prison, then enforcement can come to be seen as merely the cost of doing business. In the past four years, the Criminal Division’s FCPA Unit has obtained over three dozen criminal convictions of individuals, including of people who have been sentenced to as many as 15 years in prison.”
“We are as active today in this area as we have ever been. In the past month alone, we have announced charges against several key defendants in ongoing, active FCPA investigations. In mid-April, in a case that we are prosecuting with the U.S. Attorney’s Office in Manhattan, we secured the arrest of a defendant in connection with an alleged bribery scheme to secure mining rights in the Republic of Guinea. In a separate case, which we are prosecuting with the U.S. Attorney’s Office in Connecticut, we also secured the arrest last month of a defendant in connection with an alleged bribery scheme to secure power contracts in Indonesia. And just two days ago, together with the U.S. Attorney’s Office in Manhattan, we announced charges against two broker-dealer employees and a senior Venezuelan banking official for engaging in a multi-million dollar bribery scheme.”
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“Finally, I want to tell you about a relatively new Justice Department initiative. About three-and-a-half years ago, Attorney General Holder gave a speech in Qatar, at which he pledged to increase the United States’ commitment to recovering foreign corruption proceeds. Since that time, the Criminal Division has led the charge in developing what we refer to as the Kleptocracy Asset Recovery Initiative.”
“The initiative’s purpose is to identify the proceeds of foreign official corruption – in other words, the spoils – forfeit them through civil actions, and, to the extent possible, repatriate the forfeited funds for the benefit of the people harmed. In most criminal prosecutions, a court can order forfeiture, upon conviction, as part of the defendant’s sentence. Often, however, it may be impractical or impossible to bring a criminal prosecution against a particular person – because that person is immune from prosecution, for example, beyond our jurisdiction, or otherwise unavailable. In these circumstances, we have begun bringing civil forfeiture actions to recover the stolen property.”
“We have brought several Kleptocracy cases in the past couple of years, and forfeited millions of dollars in corrupt proceeds. The most high-profile of our Kleptocracy cases to date involves two civil actions we have brought against approximately $70 million in assets allegedly belonging to a government minister in Equatorial Guinea who is also the son of that country’s president. According to court papers, despite an official government salary of less than $100,000 per year, this minister amassed wealth of over $100 million. Among the items we are seeking to forfeit are nearly $2 million worth of Michael Jackson memorabilia (including the white glove), a Gulfstream G-V jet worth $38.5 million, and a $30 million house in Malibu. These are hard, and hard-fought, cases, but we believe strongly that foreign officials who amass wealth through corruption should not be permitted to use the United States as a haven for their ill-gotten gains.”
“Foreign Official” Delay
Oral argument in the “foreign official” challenge pending in the 11th Circuit – originally scheduled for later this month, has been postponed until the week of October 7th.
This is a historic appeal in that it will be the first instance in which a circuit court directly confronts the enforcement theory that employees of alleged state-owned or state-controlled entities are “foreign officials” under the FCPA (see here for a prior post, including embedded links).
Scrutiny Alerts
For more on Barclay’s scrutiny, on both sides of the Atlantic, see this recent article in Middle East Monitor concerning the bank’s relationship with the Abu Dhabi government, including Sheikh Mansour, the deputy prime minister of the United Arab Emirates.
Samuel Rubenfeld (Wall Street Journal Risk & Compliance Journal) has the latest (here) regarding BSG Resources Ltd. a Guernsey-based company in the news after Frederic Cilins, a French citizen associated with the company, was recently arrested and accused of attempting to obstruct an ongoing investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea. (See here for the prior post). As noted in the WSJ article, BSG recently released this detailed statement concerning its conduct in Guinea.
Reading Stack
Several articles of interest to pass along from last week’s Corporate Crime Reporter conference. This article details comments made by Denis McInerney (DOJ Criminal Division Deputy Assistant Attorney General) regarding non-prosecution and deferred prosecution agreements. This article details comments made by McInerney concerning my suggested two-step reform plan (see here for the prior post) and also details McInerney’s response to my question concerning the definition of a declination. Articles here and here concern corporate monitors.
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Over the years, Bloomberg’s David Glovin has written some excellent articles concerning Viktor Kozney, Frederic Bourke, et al. With Bourke soon to report to prison, Glovin pens another great article here.
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This prior post discussed the NY Times recent “With Bags of Cash, CIA Seeks Influence in Afghanistan” story and how the story put our stark double standards in the headlines once again. More recently, the NY Times reports (here) as follows. “[Afghan President] Karzai said he had called a meeting […] with the CIA’s Kabul station chief. “I told him because of all these rumors in the media, please do not cut all this money, because we really need it,” he said. “We want to continue this sort of assistance, and he promised that they are not going to cut this money.” For more on the situation, including the views of others, see here from Alison Frankel’s On the Case column.
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See here from Josh Goodman (an attorney at the Federal Trade Commission) titled “The Anti-Corruption and Antitrust Connection.”
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A good weekend to all.