Friday Roundup
A week (so far) without a new disclosure, quotable, and from the archives. It is all here in the Friday roundup.
Is It Possible?
Granted the week is not yet over, but thus far this week there has not been a new FCPA disclosure. The past three weeks, I have (somewhat tongue in cheek) noted – what seems like – new FCPA related disclosures every week. See here and here for prior posts.
While not a new FCPA disclosure, Total S.A. did indicate as follows in a recent Form 6-K filing.
“In 2003, the United States Securities and Exchange Commission (SEC) followed by the Department of Justice (DoJ) issued a formal order directing an investigation in connection with the pursuit of business in Iran, by certain oil companies including, among others, TOTAL. The inquiry concerns an agreement concluded by the Company with a consultant concerning a gas field in Iran and aims to verify whether certain payments made under this agreement would have benefited Iranian officials in violation of the Foreign Corrupt Practices Act (FCPA) and the Company’s accounting obligations. Investigations are still pending and the Company is cooperating with the SEC and the DoJ. In 2010, the Company opened talks with U.S. authorities, without any acknowledgement of facts, to consider an out-of-court settlement as it is often the case in this kind of proceeding. Late in 2011, the SEC and the DoJ proposed to TOTAL out-of-court settlements that would close their inquiries, in exchange for TOTAL’s committing to a number of obligations and paying fines. As TOTAL was unable to agree to several substantial elements of the proposal, the Company is continuing discussions with the U.S. authorities. The Company is free not to accept an out-of-court settlement solution, in which case it would be exposed to the risk of prosecution in the United States.”
Quotable
A collection of recent statements by DOJ officials concerning its recent trial setbacks and the future of FCPA enforcement.
See here from Reuters quoting Charles Duross (DOJ FCPA Unit Chief) as saying. “I know there is a lot of commentary out there about what this portends for the FCPA program, the use of certain law enforcement techniques. I would caution everybody not to draw too much from that. In terms of pursuing cases moving forward, I don’t think a lot is going to change.”
See here from Wall Street Journal Corruption Currents quoting Nathaniel Edmonds (DOJ) as saying – “the Department of Justice is going to continue to fight corruption, we’re committed to it, and we’re in it for the long haul.”
See here from the Blog of Legal Times quoting Edmonds as saying – FCPA violations are “not a regulatory offense. It’s a criminal violation. You cannot assume it’s a cost of doing business. People go to jail…it’s not just a regulatory fine.” The Blog of Legal Times also quotes Kara Brockmeyer (SEC FCPA Unit Chief) as saying “you can never stamp out someone who wants to pay a bribe somewhere … but if a company has strong internal controls, they can find the problem and fix it quickly.”
Meanwhile, Brockmeyer’s predecessor, Cheryl Scarboro (who left the SEC for private practice last summer – see here for the prior post) said in this recent Q&A with Trustlaw as follows. “There hasn’t been much litigation in this area and so if a particular area of a statute is open to interpretation, then typically the DOJ or the SEC will interpret it themselves and those are in the settled context.” After referencing the recent foreign official challenges, Scarboro states as follows. “But I think that it is correct (to say) that there is very little guidance as it relates to decided court cases in this area and that it leaves certain key areas open to interpretation.” Scarboro also recently co-authored a Law360 article (here) titled “Mounting Pressure for FCPA Reform.”
From the Archives
It was inappropriate when issued on January 26, 2010. Looking back it perhaps foreshadowed future difficulties. It is the FBI’s press release in the Africa Sting case (see here). It states that the “ruse played out with all the intrigue of a spy novel” and then on January 18, 2010 “we arrested them.” The release closed as follows. “You never know, that individual willing to take a bribe may really be an undercover FBI agent.” For the rest of the story, see this recent story in the Washington Post.
Friday Roundup
Reader mail, an Olympic loophole, this week’s disclosure(s), the SEC speaks, and so do executives … it’s all here in the Friday Roundup.
Reader Mail
At times, even I ask myself why I spend countless hours maintaining a free website. Then I receive an e-mail from a reader such as the one below (the reader encouraged me to share it) and I keep writing.
“I just wanted to thank you for your blog. My son-in-law, [former Africa Sting defendant], was involved in the sting case.
After his arrest we found your website and learned alot from it. We had never heard of the fcpa before all of this happened. Your site was the most informative and easy for nonlawyers to understand. I would check it everyday for updates! It was my lifeline! Thank you again for writing so much about the case. I’m just glad it is over and life can go back to normal.
Sincerely,
[Relative of former Africa Sting defendant]”
Olympic Loophole
A recent article in the Wall Street Journal (A Battle for Mongolia’s Copper Lode – Feb. 22nd) reminded me of a post lost in the unpublished archives.
Last August, Rio Tinto PLC, which manages the Oyu Tolgoi mine in Mongolia, announced (here) that the company “signed an agreement with the Mongolian National Olympic Committee (MNOC) to be a Gold Partner sponsor for the Mongolian National Team competing at the London 2012 Olympic and Paralympic Games.” In the release, Rio Tinto Country Director Mongolia, David Paterson, stated “we are sponsoring the National Olympic Team as part of our long-term commitment to Mongolia and Oyu Tolgoi.” The release further stated as follows. “Rio Tinto’s Olympic sponsorship is just one of many ways the company is contributing to Mongolia’s development. For example, Rio Tinto invests in numerous programmes that assist regional and local communities and young Mongolians in the areas of education and training, local procurement practices and sustainable development.”
An August 2011, Wall Street Journal article discussing Rio Tinto’s sponsorship states that Mongolia “is a key battleground for mining companies, which are vying to extract its rich mineral deposits” and that the Oyu Tolgoi project “is expected to yield 1.2 billion metric tons of copper and 650,000 ounces of gold a year in its first 10 years, as well as silver and other metals.”
For more on Rio Tinto’s involvement at Oyu Tolgoi, see here from the company’s website.
On one level, engaged corporate citizens with a committment to community welfare and development is a good thing and ought to be encouraged.
But, on another level, and FCPA jurisdictional issues aside (although Rio Tinto’s ADR’s are traded on a U.S. exchange), is a company’s sponsorship of a country’s Olympic team any less problematic than a company providing a laptop computer or an expensive bottle of wine to an employee of a state-owned or state-controlled enterprise? What about pre-paid gifts cards (oops, getting ahead of myself, that is coming up next)? Such instances have never been the sole basis for an FCPA enforcement action, but such allegations (or those similar) are frequently included in FCPA enforcement actions suggesting that the enforcement agencies do indeed view such conduct as problematic.
Strange as it may sound, the FCPA’s anti-bribery provisions are only implicated when something of value is provided, directly or indirectly, to a foreign official to influence the official in obtaining or retaining business. The FCPA’s anti-bribery provisions are not implicated when the thing of value is provided to a foreign government itself. Even the DOJ recognizes this. See here for DOJ Opinion Procedure Release 09-01 in which the DOJ states that the proposed course of conduct “fall[s] outside the scope of the FCPA in that the [thing of value] will be provided to the foreign government, as opposed to individual government officials …”.
Is this an FCPA loophole? If so, ought it be closed?
This Week’s Disclosure(s)
Back to those pre-paid gift cards.
On Feb. 16th in this prior post, I commented (somewhat tongue-in-cheek) that every week another company seems to be disclosing FCPA scrutiny. So far two weeks have passed and there have been two new disclosures. This week’s disclosure is from W.W. Grainger Inc. (consistently ranked as one of the “world’s most admired companies” by Forbes). In a recent SEC filing, the company (a broad-line distributor of maintenance, repair and operating supplies and other related products and services) stated as follows.
“The Company is conducting an inquiry into alleged falsification of expense accounts submitted by employees in certain sales offices of Grainger China LLC, a subsidiary of the Company. In the course of the investigation the Company learned that sales employees may have provided prepaid gift cards to certain customers. The extent and value of the gift cards are subject to further inquiry. The Company’s investigation includes determining whether there were any violations of laws, including the U.S. Foreign Corrupt Practices Act. Consequently, on January 24, 2012, the Company contacted the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) to voluntarily disclose that the Company was conducting an internal investigation, and agreed to fully cooperate and update the DOJ and SEC periodically on further developments. The Company has retained outside counsel to assist in its investigation of this matter. Because the investigation is on-going, the Company cannot predict at this time whether any regulatory action may be taken or any other potential consequences may result from this matter.”
Finally on the disclosure front, in August 2011, Brucker Corp. made an FCPA disclosure concerning its Brucker Optics subsidiary in China. Recently, the company further disclosed as follows.
“As previously reported, in 2011 the Audit Committee of our Board of Directors commenced an internal investigation, with the assistance of independent outside counsel and an independent forensic consulting firm, in response to certain anonymous communications received by us alleging improper conduct in connection with the China operations of our Bruker Optics subsidiary. The Audit Committee’s investigation, which included a review of compliance by Bruker Optics and its employees in China and Hong Kong with the requirements of the Foreign Corrupt Practices Act (FCPA) and other applicable laws and
regulations, has been completed. The investigation found evidence indicating that payments were made that improperly benefited employees or agents of government-owned enterprises in China. The investigation also has found evidence that certain employees of Bruker Optics in China and Hong Kong failed to comply with our corporate policies and standards of conduct. As a result, we have taken personnel actions, including the termination of certain individuals. We have also terminated our business relationships with certain third party agents, implemented an enhanced FCPA compliance program, and strengthened the financial controls and oversight at our subsidiaries operating in China and Hong Kong. We have also initiated a review of the China operations of our other subsidiaries, which is being conducted with the assistance of an independent audit firm.
“In the fiscal year ended December 31, 2011, $4.3 million was recorded for legal and other professional services incurred related to the internal investigation of these matters.”
As noted in Brucker’s initial filing, in 2010, the China operations of Bruker Optics accounted for less than 2.5 percent of the Company’s consolidated net sales and less than 1.0 percent of its consolidated total assets.
SEC Speaks
The Subject to Inquiry Blog published by McGuireWoods has this post regarding the recent SEC Speaks event. Regarding anti-corruption enforcement, the post states as follows.
The Commission now has a “cross-border group” charged with ferreting out corruption in corporations that trade on US exchanges, but are headquartered abroad. The group is particularly interested in the accounting policies and financial disclosures of cross-border companies, many of which rely on “small US audit firms.” As a result, the SEC is leaning on audit firms, which the SEC regards as “gatekeepers.” To that end, the SEC issued guidance in 2010 and again in 2012, advising that they conduct risk-based analyses of their overseas clients. According to Kara Brockmeyer, head of the SEC’s FCPA Unit, the SEC has seen a spike in Form 8-K reports of accounting irregularities, as well as a jump in Rule 10A reports. She expects additional 10A reports to flow in through the Office of the Whistleblower.
Brockmeyer noted that the SEC is also devoting significant resources to Foreign Corrupt Practices Act (FCPA) enforcement. The SEC’s FCPA Unit is focusing heavily on international cooperation, teaming with regulators around the world. She highlights the FCPA Unit’s cooperation with Switzerland, Russia, and China, each of which recently enacted anticorruption laws. The FCPA Unit brought 20 FCPA enforcement cases 2011, including 19 against companies and one against an individual. Brockmeyer cautioned, however, that the 2011 numbers should not be seen as a model. Indeed, in 2012 the SEC has already charged 14 individuals with FCPA violations, compared with only five companies charged.
From the Executive’s Mouth
Some excerpts from earnings conference calls that caught my eye.
From Bill Utt (President, CEO and Chairman of KBR Inc.) during a recent call. “I would also like to report that in February KBR successfully concluded our three-year independent corporate monitorship related to KBR’s 2009 plea under the US Foreign Corrupt Practices Act case. Overall, the engagement with our corporate monitor was a positive experience for KBR. We remain committed to consistently doing the right thing every time, and our commitment to compliance is a fundamental part of KBR’s culture. In fact, our compliance programs are paying off in terms of new work as we were recently awarded an international project where our compliance program was a differentiating factor in KBR securing the work.”
From Kevin Royal (Senior VP, CFO of Maxwell Technologies) during a recent call. “Now I would like to provide an update regarding the shareholder derivatives. As we have disclosed in past public filings in 2010, two shareholders had alleged that certain of our past and current officers and directors failed to prevent us from violating the US Foreign Corrupt Practices Act, or FCPA. It is important to note that the Company is only a nominal defendant in this suit. In December 2011 mediation was held and a proposed settlement was reached wherein $3 million would be paid to plaintiff’s counsels, with $2.7 million to be paid by our insurance carrier, and $290,000 would be paid by the Company. In addition, we would be required to insure that certain corporate governance measures are in place and in force. The agreement is subject to among other things, court approval and notice to our shareholders. Without admitting any wrongdoing, the defendants to this suit are willing to enter into this settlement in order to expedite resolution of the matter, and to relieve the defendants and the Company from further financial burden. We are pleased that this suit is near final settlement, and look forward to putting this matter behind us.” [For a recent post on FCPA-related civil litigation titled “A Purpose or Parasitic” – see here].
From Bernard Duroc-Danner (President and CEO of Weatherford International in response to a question about the company’s FCPA inquiry) “Well, there’s not a lot to say about, that I can say, about the DOJ process. To a degree, I think it fell off the screen as it were. For us it moves slowly, that’s all I can tell you. So, I don’t have much of an update that I can tell you. And actually even if I could, I wouldn’t have much of an update period.”
*****
On that note, a good weekend to all.
Potpourri
Neither Admit Nor Deny Headed to Second Circuit
It is not an FCPA enforcement action, but Judge Rakoff’s recent rejection of the SEC’s neither admit nor deny settlement policy in the Citigroup case (see here) is certainly relevant to the SEC’s enforcement of the FCPA. Yesterday, the SEC filed a notice of appeal in the Second Circuit. This will certainly be an issue to watch in the New Year as the SEC’s resolution policy (”hallowed by history, but not by reason” in the words of Judge Rakoff) goes before the Second Circuit. See here for Robert Khuzami’s (Director of the SEC Division of Enforcement) statement on the appeal and here for a recent speech delivered by Khuzami in which he talks, in part, on the SEC’s resolution policy. In yesterday’s statement, Khuzami said that the “new standard adopted by [Judge Rakoff] could in practical terms press the SEC to trial in many more instances ….”. Jesse Eisinger (ProPublica) asks here does the SEC have trialphobia?
SEC Launches FCPA Site
The SEC recently launched, apparently with little fanfare, a specific FCPA site – see here. The site contains a list (and in some cases a summary) of SEC FCPA enforcement actions from 1978 to the present, including (for most actions) links to original source documents. Kudos to the SEC for this FCPA specific site. The DOJ’s FCPA specific site is here. Both of these resources, along with others including two new resources mentioned below, can be found on the “Resource Center” pageof this site.
Big, Bold, and Bizarre
One thing academic publishing is not is fast. Those cite-checking parties and author revisions take time. In any event, before the calendar flips to 2012, I am pleased to share my recent article “Big, Bold, and Bizarre: The Foreign Corrupt Practice Act Enters A New Era” published by the University of Toledo Law Review. The article can be downloaded here and it is, for the most part, a review and analysis of 2010 FCPA enforcement actions and related developments (current as of January 15, 2011). For collectors of FCPA Year in Review pieces, my review and analysis of 2009 FCPA enforcement actions and related developments published by the Indiana Law Review can be downloaded here.
Decision Tree
In this first-of-its-kind FCPA/Travel Act “decision tree,” Perkins Coie Partner and former federal prosecutor T. Markus Funk provides in-house counsel and others in the anti-bribery space with a handy, practical analytical tool for walking through the standard range of foreign (and domestic) bribery issues that may come up. Markus, an FCPA practitioner and who serves as the National Co-Chair of the ABA’s Global Anti-Corruption Task Force, included not only the steps to FCPA liability, but he also integrated the Travel Act’s prohibitions into the comprehensive analysis. This is a very useful one-stop chart for anyone involved in FCPA issues or likely to encounter foreign bribery issues.
FCPA Database
Richard Cassin of FCPA Blog fame, along with his partners at Ethics360, recently launched the FCPA Database – see here. On his FCPA Blog (here) Cassin notes that the FCPA Database is “a unique suite of products designed to aid today’s compliance professionals.” The FCPA Database includes a searchable collection of current anti-corruption legislation from over 130 countries, information regarding anti-money-laundering laws, privacy laws, enforcement agencies, and a directory of more than 2,000 law firms, and about 1,000 law firm memos on anti-corruption enforcement and compliance. I’ve spent some time in the database and feel like the holidays have come a bit early as it is a useful research and learning tool.
Bourke Follow-Up
This previous post discussed the Second Circuit’s opinion this week in the Bourke matter. The post ended by noting that Bourke still had a motion for a new trial pending, but that it was unlikely Judge Scheindin (S.D.N.Y.) would grant that motion. The FCPA Blog reports here that Judge Scheindin denied the motion for a new trial.
Addressing The “Luncheon Law” Nature Of The FCPA
A lawyer once used the phrase “luncheon law” in a conversation with me to describe the FCPA. What did this person mean? That the FCPA contains many vague and ambiguous terms, that there is little FCPA caselaw, and that the enforcement agencies offer little official guidance (as noted in this prior post the DOJ has promised FCPA guidance in 2012). The lawyer observed that in order to learn about the FCPA and FCPA enforcement one has to attend the luncheons during which the enforcement agency officials speak.
The lawyer had a point and the “luncheon law” nature of the FCPA needs to be addressed.
If you have not heard or experienced it yourself, there is a very active FCPA “conference circuit” at which enforcement agency officials (DOJ and SEC) frequently speak. Few of these events are free and open to public. Rather if you want to attend, you will have to pay hundreds, if not a few thousand, dollars. Perhaps if Assistant Attorney General Lanny Breuer is speaking at the FCPA event, you will see a transcript of the remarks, but otherwise generally you will not.
Therein lies the problem and various people have shared with me how this “luncheon law” aspect of the FCPA … well … drives them crazy and makes their jobs advising clients more difficult. In their words, the FCPA has become an area of law where “did you hear this” or “were you there” matters more than anything else.
I was reminded of the “luncheon law” aspect of the FCPA yesterday when an FCPA practitioner e-mailed me asking whether I had seen a transcript of Charles Duross’s (Chief DOJ FCPA Unit) remarks at the recent ACI FCPA Conference in Washington (see here). I had not, but absent a transcript, the practitioner was looking for any reporting of Duross’s comments. Thankfully, I was able to send the practitioner this write up from the FCPAmericas blog and I encourage you to read it as well.
But here is the problem. Should one really have to pay ($2,000+ dollars, the published rate of the ACI conference, not to mention travel expenses) to hear public servants speak about the most important law governing international business transactions?
FCPA events with government speakers happen so often that it is very difficult for the public to assess whether the enforcement agencies are speaking with one voice, whether one enforcement official is contradicting another, and whether the agencies speak with any uniform consistency against the backdrop of often inconsistent enforcement results.
What are some public policy issues raised by the “luncheon law” aspect of the FCPA? For starters, I urge readers to consider, at a minimum, the following questions. Should public servants be allowed to speak at private conferences and events that charge thousands of dollars to attend? Should public servants be used as pawns by corporate conference organizers to boost attendance and thus revenue? Should the enforcement agencies release all speeches, comments and remarks, including answers to questions posed by the audience? Do small to medium size enterprises have the resources to attend such events?
Recently on his Open Air Blog (see here), Howard Sklar used the term “crime” (jokingly) in referring to the lack of attendance at the ABA’s 4th Annual FCPA Institute in which Duross and Charles Cain (SEC – FCPA) spoke. Sklar said, “seriously, what a panel … it covered self-disclosure calculus, the effect of Dodd-Frank, due diligence, and other excellent topics, we even got a couple of pieces of wisdom about declinations.” Sklar ended his post as follows. “I’m not going to tell you what Charles Cain identified as two important elements of a program that influences him toward declining to prosecute. Or what Chuck Duross said about it. You should have been here.”
I disagree. One’s ability to learn a public servant’s view of the law they enforce should not depend on where one lives or one’s budget. Yet because of the “luncheon law” nature of the FCPA this is often the case.
So long as this “luncheon law” aspect of the FCPA continues, consider doing a public service and taking detailed notes anytime an FCPA enforcement official speaks. I have in the past posted such summaries and would be happy to do so in the future.
DOJ Guidance – Better Late Than Never, But Will It Matter?
The FCPA’s 1988 amendments required that the Attorney General, “after consultation with the [the SEC], the Secretary of Commerce, the United States Trade Representative, the Secretary of State, and the Secretary of the Treasury, and after obtaining the views of all interested persons through public notice and comment procedures, shall determine to what extent compliance with [the anti-bribery provisions] would be enhanced and the business community would be assisted by further clarification” of its various provisions. Among other things, Congress requested that the Attorney General consider issuing guidelines as to “general precautionary procedures [companies] may use on a voluntary basis to conform their conduct to the Department of Justice’s present enforcement policy …”.
Following the 1988 Congressional mandate, the DOJ did issue a formal notice inviting all interested persons “to submit their views concerning the extent to which compliance with [the anti-bribery provisions] would be enhanced and the business community assisted by further clarification of the provisions of the anti-bribery provisions through the issuance of guidelines.” However, the DOJ stated that “only 5 responses were received, and 3 of the responses were to the effect that guidelines were unnecessary” and based on this information it declined to issue FCPA compliance guidelines envisioned by Congress. In July 1990, the DOJ stated as follows. “After consideration of the comments received, and after consultation with the appropriate agencies, the Attorney General has determined that no guidelines are necessary…. [C]ompliance with the [anti-bribery provisions] would not be enhanced nor would the business community be assisted by further clarification of these provisions through the issuance of guidelines.”