Friday Roundup
It has been a few weeks since my last Friday Roundup.
As a result this is a souped-up edition.
Is paying an FCPA fine merely a cost of business, are FCPA internal investigations getting just a bit out-of-hand, have you heard that a new cottage industry of FCPA experts has emerged, quit picking on Canada, will Julian Messent (or others) be prosecuted for FCPA violations, Assistant Attorney General Breuer on the Kleptocracy Asset Recovery Initiative, Proclamation 7750 news, and a son who wants to keep the New York condo … it’s all here in the Friday roundup.
Is Paying an FCPA Fine Merely a Cost of Business?
One may wonder, and legitimately so, whether getting caught for violating the FCPA is simply a cost of doing business whereby the company pays a fine and then continues to do business, including with, in many cases, the U.S. government. See here for my post on Siemens – The Year After, here for my post on BAE’s recent $40 million contract with the FBI (note because of the facade of FCPA enforcement, BAE was not charged with violating the FCPA – see here).
Denis McInerney, Chief of the DOJ’s Fraud Section, rejected such an assertion during an October 21st speech before the American Bar Association.
According to Inside U.S. Trade, McInerney “sought to rebut charges that FCPA enforcement relies too heavily on settlement agreements and that it is therefore like a licensing regime under which ‘companies are allowed to bribe, but if caught they have to pay a fee.'” According to Inside U.S. Trade, McInerney said that in the past two years, DOJ has imposed fines of $59 million, $19 million, $365 million, $338 million, $400 million, $376 million, $579 million and $800 million and he “emphasized that the companies paying these penalties are subject to monitoring which can lead to criminal prosecution if new offenses occur.” According to Inside U.S. Trade, McInerney said “I guarantee you that these firms do not view these are mere licensing fees.”
Is This Getting a Bit Out of Hand?
Avon previously disclosed the existence of an internal investigation focused on potential FCPA issues (see here for the prior post).
Here is what the company said in its 10-Q filing (here) yesterday:
“As previously reported, we have engaged outside counsel to conduct an internal investigation and compliance reviews focused on compliance with the Foreign Corrupt Practices Act (“FCPA”) and related U.S. and foreign laws in China and additional countries. The internal investigation, which is being conducted under the oversight of our Audit Committee, began in June 2008. As we reported in October 2008, we voluntarily contacted the United States Securities and Exchange Commission and the United States Department of Justice to advise both agencies of our internal investigation. We are continuing to cooperate with both agencies and inquiries by them, including but not limited to, signing tolling agreements, translating and producing documents and assisting with interviews.
As previously reported in July 2009, in connection with the internal investigation, we commenced compliance reviews regarding the FCPA and related U.S. and foreign laws in additional countries in order to evaluate our compliance efforts. We are conducting these compliance reviews in a number of other countries selected to represent each of the Company’s four other international geographic segments. The internal investigation and compliance reviews are focused on reviewing certain expenses and books and records processes, including, but not limited to, travel, entertainment, gifts, and payments to third−party agents and others, in connection with our business dealings, directly or indirectly, with foreign governments and their employees. The internal investigation and compliance reviews of these matters are ongoing, and we continue to cooperate with both agencies with respect to these matters. At this point we are unable to predict the duration, scope, developments in, results of, or consequences of the internal investigation and compliance reviews.”
Here is what Avon had to say in the fling about its net global expenses:
“The increase in Net Global expenses for both the three and nine months ended September 30, 2010, was primarily attributable to significant professional and related fees associated with the FCPA investigation and compliance reviews described in Note 5 to the consolidated financial statements included herein of approximately $24 (up approximately $17 from the three months ended September 30, 2009) and approximately $72 (up approximately $49 from the nine months ended September 30, 2009), respectively. The increase in Net Global expenses for the nine months ended September 30, 2010 was also due to higher costs associated with global initiatives and costs associated with business acquisitions. Professional and related fees associated with the FCPA investigation and compliance reviews, while difficult to predict, are expected to continue during the course of this investigation.”
Those figures are not mere dollars, but millions of dollars. And, as noted in the disclosure, the expenses are expected to increase.
On a much smaller (yet still meaningful) scale, on August 31st, Orthofix disclosed (here) the existence of an internal investigation relating to FCPA issues focused on its Mexican subsidiaries, an entity that accounts “for approximately one percent of the Company’s consolidated net sales and consolidated total assets.”
Recently, Orthofix provided this update in an 8-K filing (here):
“Operating income in the third quarter of 2010 included the impact of $3.7 million in legal expenses associated with the DOJ investigation of the bone growth stimulation industry and the Company’s internal investigation into its compliance with the Foreign Corrupt Practices Act in its subsidiary in Mexico.”
Newsweek Notices FCPA Inc.
Newsweek recently carried a short blurb (here) titled “Going After Graft.” Among other things, the piece states:
“With prosecutions likely to continue—the FBI has doubled the number of agents tasked to FCPA cases—business is responding in kind. Law firms are competing for top FCPA talent, banks financing international deals are insisting on anti-bribery stipulations in contracts, and a new cottage industry of experts has emerged, offering country-by-country advice on gifts and local laws. In the words of an FBI spokesperson, FCPA are ‘four letters you need to be aware of if you’re doing business in the international marketplace.'”
Quit Picking On Canada
What if, in the U.S., there was no fallback FCPA books and records and internal control charges, there was no voluntary disclosure culture, there were no “overzealous prosecutions,” and there were no prosecutions undertaken as “publicity stunts.”
According to Cyndee Todgham Cherniak (here), FCPA enforcement would likely resemble the sparse enforcement of Canada’s Corruption of Foreign Public Officials Act.
At least that is my take-away from her recent post (here) on the Trade Lawyers Blog.
For more on Canada’s Corruption of Foreign Public Officials Act (see here and here).
Will Julian Messent (Or Others) Be Prosecuted For FCPA Violations?
Earlier this week, the U.K. Serious Fraud Office (SFO) announced (here) that Julian Messent was sentenced to 21 months in prison “after admitting making or authorizing corrupt payments of almost US $2 million to Costan Rican officials in the state insurance company, Instituto Nacional de Seguros (INS) and the national electricity provider Instituto Costarricense de Electricidad.”
Messent, a former director of London-based insurance business PWS International Ltd. (PWS), was the head of the Property (Americas) Divison at PWS in which role “he was responsible for securing and maintaining contracts for reinsurance in the Central and South America regions.”
According to the SFO release, “Messent authorized 41 corrupt payments” “to be paid to Costa Rican officials, their wives and associated companies, as inducements or rewards for assisting in the appointment or retention of PWS as broker of the lucrative reinsurance policy for INS.”
The SFO release also indicates that Messent was ordered to pay £100,000 in compensation to the Republic of Costa Rica. (In the U.S., FCPA fines flow solely into the U.S. Treasury).
Messent was charged under the U.K.’s Prevention of Corruption Act 1906 (see here).
According to this report in the Guardian, “the SFO decided not to prosecute PWS because the firm, which has been sold, had a substantial deficit in its pension fund.”
According to the Guardian, “the covert payments were routed through bank accounts in the names of the wives of the Costa Rican officials and through accounts in Panama and the US, and a travel agency in Florida.”
Under the 78dd-3 prong of the Foreign Corrupt Practices Act, persons other than an issuer or domestic concern (i.e. in this case foreign nationals) can be subject to the FCPA if the improper payments have a U.S. nexus.
Will FCPA prosecutions of Messent (and perhaps others) follow?
Breuer on the Kleptocracy Asset Recovery Initiative
As highlighted in this prior post, in November 2009, Attorney General Eric Holder called asset recovery from corrupt officials a “global imperative” and he announced a “redoubled commitment on behalf of the United States Department of Justice to recover” funds obtained by foreign officials through bribery.
In July 2010, Holder announced (here) the Kleptocracy Asset Recovery Initiative “aimed at combating large-scale foreign official corruption and recovering public funds for their intended – and proper – use: for the people of our nations.” Holder announced that the DOJ is “assembling a team of prosecutors who will focus exclusively on this work and build upon efforts already underway to deter corruption, hold offenders accountable, and protect public resources.”
In a recent keynote address at the Money Laundering Enforcement Conference (here), Assistant Attoney General Lanny Breuer had this to say about the initaitive:
“This Initiative represents a concrete step toward fulfilling that commitment. The Kleptocracy Initiative will involve three key sections in the Criminal Division: the Asset Forfeiture and Money Laundering Section, which will lead it, and the Office of International Affairs and the Fraud Section, which will provide critical support. Once fully implemented, this Initiative will allow the Department to recover assets on behalf of countries victimized by high-level corruption, building on the Justice Department’s already robust enforcement of the Foreign Corrupt Practices Act. Through the Kleptocracy Initiative, the Department will ensure that corrupt leaders cannot seek safe haven in the United States for their stolen wealth. And, if we uncover such wealth, the Justice Department will forfeit and return this stolen money to its rightful owners – the people and governments from whom it was taken.”
In his speech, Breuer also discussed (in a non-FCPA context) how the DOJ wants “companies that uncover illegal conduct to come forward voluntarily.”
Proclamation 7750 News
In 2004, President Bush signed Proclamation 7750 “To Suspend Entry As Immigrants or Nonimmigrants of Persons Engaged In or Benefiting From Corruption” (see here).
Proclamation 7750 basically says the U.S. can suspend entry into the country “of certain persons who have committed, participated in, or are beneficiaries of corruption in the performance of public functions where that corruption has serious adverse effects on international activity” subject to an exception where denying such entry would be “contrary to the interests” of the U.S.
Last year, the New York Times (here) ran an article quoting a former State Department official as saying the State Department(which is responsible for enforcing the proclamation) “seem[s] to lack the backbone to use this prohibition.”
Earlier this month, David Johnson (Assistant Secretary, Bureau International Narcotics and Law Enforcement Affairs, U.S. Department of State) stated at the Third Committee of the 65th Session of the UN General Assembly (see here) as follows:
“The United States continues to broaden its efforts to deny entry into our own country of public officials who receive bribes as well as those who supply them. Corrupt officials are not welcome in the United States.”
Joe Palazzolo (Wall Street Journal – Corruption Currents) followed up with Johnson and noted in a recent article that the “State Department is stepping up its game” in seeking to enforce Proclamation 7750. As Palazzolo reports, it is not hard to “step up the game” when “for a long time, one part-official […] handled 7750 matters.”
Palazzolo reports that the State Department recently hired two new employees and is “processing paperwork for two additional hires, who will focus the majority of their time on 7750 issues.” The article quotes a State Department official as saying, “it is our hope and intention that the new hires will result in greater capacity.”
Son Fights to Keep New York Condo
This prior post discussed the DOJ’s civil forfeiture complaint filed in July against certain U.S. properties “that represent a portion of illegal bribes paid to the former president of Taiwan and his wife.”
Joe Palazzolo (Wall Street Journal – Corruption Currents) recently reported that “the son of former Taiwanese President Chen Shui-bian has quietly hired legal counsel to prevent a Manhattan condominium, which prosecutors say was purchased with bribes, from falling into the hands of the government.”
According to Palazzolo, the son, Chen Chih-chung, has retained Jonathan Harris (see here) to defend against the forfeiture action and Harris is quoted as saying he will be filing a motion to dismiss “shortly.”
*****
A good weekend to all.
Friday Roundup
It has been a few weeks since my last Friday Roundup.
As a result this is a souped-up edition.
Is paying an FCPA fine merely a cost of business, are FCPA internal investigations getting just a bit out-of-hand, have you heard that a new cottage industry of FCPA experts has emerged, quit picking on Canada, will Julian Messent (or others) be prosecuted for FCPA violations, Assistant Attorney General Breuer on the Kleptocracy Asset Recovery Initiative, Proclamation 7750 news, and a son who wants to keep the New York condo … it’s all here in the Friday roundup.
Is Paying an FCPA Fine Merely a Cost of Business?
One may wonder, and legitimately so, whether getting caught for violating the FCPA is simply a cost of doing business whereby the company pays a fine and then continues to do business, including with, in many cases, the U.S. government. See here for my post on Siemens – The Year After, here for my post on BAE’s recent $40 million contract with the FBI (note because of the facade of FCPA enforcement, BAE was not charged with violating the FCPA – see here).
Denis McInerney, Chief of the DOJ’s Fraud Section, rejected such an assertion during an October 21st speech before the American Bar Association.
According to Inside U.S. Trade, McInerney “sought to rebut charges that FCPA enforcement relies too heavily on settlement agreements and that it is therefore like a licensing regime under which ‘companies are allowed to bribe, but if caught they have to pay a fee.'” According to Inside U.S. Trade, McInerney said that in the past two years, DOJ has imposed fines of $59 million, $19 million, $365 million, $338 million, $400 million, $376 million, $579 million and $800 million and he “emphasized that the companies paying these penalties are subject to monitoring which can lead to criminal prosecution if new offenses occur.” According to Inside U.S. Trade, McInerney said “I guarantee you that these firms do not view these are mere licensing fees.”
Is This Getting a Bit Out of Hand?
Avon previously disclosed the existence of an internal investigation focused on potential FCPA issues (see here for the prior post).
Here is what the company said in its 10-Q filing (here) yesterday:
“As previously reported, we have engaged outside counsel to conduct an internal investigation and compliance reviews focused on compliance with the Foreign Corrupt Practices Act (“FCPA”) and related U.S. and foreign laws in China and additional countries. The internal investigation, which is being conducted under the oversight of our Audit Committee, began in June 2008. As we reported in October 2008, we voluntarily contacted the United States Securities and Exchange Commission and the United States Department of Justice to advise both agencies of our internal investigation. We are continuing to cooperate with both agencies and inquiries by them, including but not limited to, signing tolling agreements, translating and producing documents and assisting with interviews.
As previously reported in July 2009, in connection with the internal investigation, we commenced compliance reviews regarding the FCPA and related U.S. and foreign laws in additional countries in order to evaluate our compliance efforts. We are conducting these compliance reviews in a number of other countries selected to represent each of the Company’s four other international geographic segments. The internal investigation and compliance reviews are focused on reviewing certain expenses and books and records processes, including, but not limited to, travel, entertainment, gifts, and payments to third−party agents and others, in connection with our business dealings, directly or indirectly, with foreign governments and their employees. The internal investigation and compliance reviews of these matters are ongoing, and we continue to cooperate with both agencies with respect to these matters. At this point we are unable to predict the duration, scope, developments in, results of, or consequences of the internal investigation and compliance reviews.”
Here is what Avon had to say in the fling about its net global expenses:
“The increase in Net Global expenses for both the three and nine months ended September 30, 2010, was primarily attributable to significant professional and related fees associated with the FCPA investigation and compliance reviews described in Note 5 to the consolidated financial statements included herein of approximately $24 (up approximately $17 from the three months ended September 30, 2009) and approximately $72 (up approximately $49 from the nine months ended September 30, 2009), respectively. The increase in Net Global expenses for the nine months ended September 30, 2010 was also due to higher costs associated with global initiatives and costs associated with business acquisitions. Professional and related fees associated with the FCPA investigation and compliance reviews, while difficult to predict, are expected to continue during the course of this investigation.”
Those figures are not mere dollars, but millions of dollars. And, as noted in the disclosure, the expenses are expected to increase.
On a much smaller (yet still meaningful) scale, on August 31st, Orthofix disclosed (here) the existence of an internal investigation relating to FCPA issues focused on its Mexican subsidiaries, an entity that accounts “for approximately one percent of the Company’s consolidated net sales and consolidated total assets.”
Recently, Orthofix provided this update in an 8-K filing (here):
“Operating income in the third quarter of 2010 included the impact of $3.7 million in legal expenses associated with the DOJ investigation of the bone growth stimulation industry and the Company’s internal investigation into its compliance with the Foreign Corrupt Practices Act in its subsidiary in Mexico.”
Newsweek Notices FCPA Inc.
Newsweek recently carried a short blurb (here) titled “Going After Graft.” Among other things, the piece states:
“With prosecutions likely to continue—the FBI has doubled the number of agents tasked to FCPA cases—business is responding in kind. Law firms are competing for top FCPA talent, banks financing international deals are insisting on anti-bribery stipulations in contracts, and a new cottage industry of experts has emerged, offering country-by-country advice on gifts and local laws. In the words of an FBI spokesperson, FCPA are ‘four letters you need to be aware of if you’re doing business in the international marketplace.'”
Quit Picking On Canada
What if, in the U.S., there was no fallback FCPA books and records and internal control charges, there was no voluntary disclosure culture, there were no “overzealous prosecutions,” and there were no prosecutions undertaken as “publicity stunts.”
According to Cyndee Todgham Cherniak (here), FCPA enforcement would likely resemble the sparse enforcement of Canada’s Corruption of Foreign Public Officials Act.
At least that is my take-away from her recent post (here) on the Trade Lawyers Blog.
For more on Canada’s Corruption of Foreign Public Officials Act (see here and here).
Will Julian Messent (Or Others) Be Prosecuted For FCPA Violations?
Earlier this week, the U.K. Serious Fraud Office (SFO) announced (here) that Julian Messent was sentenced to 21 months in prison “after admitting making or authorizing corrupt payments of almost US $2 million to Costan Rican officials in the state insurance company, Instituto Nacional de Seguros (INS) and the national electricity provider Instituto Costarricense de Electricidad.”
Messent, a former director of London-based insurance business PWS International Ltd. (PWS), was the head of the Property (Americas) Divison at PWS in which role “he was responsible for securing and maintaining contracts for reinsurance in the Central and South America regions.”
According to the SFO release, “Messent authorized 41 corrupt payments” “to be paid to Costa Rican officials, their wives and associated companies, as inducements or rewards for assisting in the appointment or retention of PWS as broker of the lucrative reinsurance policy for INS.”
The SFO release also indicates that Messent was ordered to pay £100,000 in compensation to the Republic of Costa Rica. (In the U.S., FCPA fines flow solely into the U.S. Treasury).
Messent was charged under the U.K.’s Prevention of Corruption Act 1906 (see here).
According to this report in the Guardian, “the SFO decided not to prosecute PWS because the firm, which has been sold, had a substantial deficit in its pension fund.”
According to the Guardian, “the covert payments were routed through bank accounts in the names of the wives of the Costa Rican officials and through accounts in Panama and the US, and a travel agency in Florida.”
Under the 78dd-3 prong of the Foreign Corrupt Practices Act, persons other than an issuer or domestic concern (i.e. in this case foreign nationals) can be subject to the FCPA if the improper payments have a U.S. nexus.
Will FCPA prosecutions of Messent (and perhaps others) follow?
Breuer on the Kleptocracy Asset Recovery Initiative
As highlighted in this prior post, in November 2009, Attorney General Eric Holder called asset recovery from corrupt officials a “global imperative” and he announced a “redoubled commitment on behalf of the United States Department of Justice to recover” funds obtained by foreign officials through bribery.
In July 2010, Holder announced (here) the Kleptocracy Asset Recovery Initiative “aimed at combating large-scale foreign official corruption and recovering public funds for their intended – and proper – use: for the people of our nations.” Holder announced that the DOJ is “assembling a team of prosecutors who will focus exclusively on this work and build upon efforts already underway to deter corruption, hold offenders accountable, and protect public resources.”
In a recent keynote address at the Money Laundering Enforcement Conference (here), Assistant Attoney General Lanny Breuer had this to say about the initaitive:
“This Initiative represents a concrete step toward fulfilling that commitment. The Kleptocracy Initiative will involve three key sections in the Criminal Division: the Asset Forfeiture and Money Laundering Section, which will lead it, and the Office of International Affairs and the Fraud Section, which will provide critical support. Once fully implemented, this Initiative will allow the Department to recover assets on behalf of countries victimized by high-level corruption, building on the Justice Department’s already robust enforcement of the Foreign Corrupt Practices Act. Through the Kleptocracy Initiative, the Department will ensure that corrupt leaders cannot seek safe haven in the United States for their stolen wealth. And, if we uncover such wealth, the Justice Department will forfeit and return this stolen money to its rightful owners – the people and governments from whom it was taken.”
In his speech, Breuer also discussed (in a non-FCPA context) how the DOJ wants “companies that uncover illegal conduct to come forward voluntarily.”
Proclamation 7750 News
In 2004, President Bush signed Proclamation 7750 “To Suspend Entry As Immigrants or Nonimmigrants of Persons Engaged In or Benefiting From Corruption” (see here).
Proclamation 7750 basically says the U.S. can suspend entry into the country “of certain persons who have committed, participated in, or are beneficiaries of corruption in the performance of public functions where that corruption has serious adverse effects on international activity” subject to an exception where denying such entry would be “contrary to the interests” of the U.S.
Last year, the New York Times (here) ran an article quoting a former State Department official as saying the State Department(which is responsible for enforcing the proclamation) “seem[s] to lack the backbone to use this prohibition.”
Earlier this month, David Johnson (Assistant Secretary, Bureau International Narcotics and Law Enforcement Affairs, U.S. Department of State) stated at the Third Committee of the 65th Session of the UN General Assembly (see here) as follows:
“The United States continues to broaden its efforts to deny entry into our own country of public officials who receive bribes as well as those who supply them. Corrupt officials are not welcome in the United States.”
Joe Palazzolo (Wall Street Journal – Corruption Currents) followed up with Johnson and noted in a recent article that the “State Department is stepping up its game” in seeking to enforce Proclamation 7750. As Palazzolo reports, it is not hard to “step up the game” when “for a long time, one part-official […] handled 7750 matters.”
Palazzolo reports that the State Department recently hired two new employees and is “processing paperwork for two additional hires, who will focus the majority of their time on 7750 issues.” The article quotes a State Department official as saying, “it is our hope and intention that the new hires will result in greater capacity.”
Son Fights to Keep New York Condo
This prior post discussed the DOJ’s civil forfeiture complaint filed in July against certain U.S. properties “that represent a portion of illegal bribes paid to the former president of Taiwan and his wife.”
Joe Palazzolo (Wall Street Journal – Corruption Currents) recently reported that “the son of former Taiwanese President Chen Shui-bian has quietly hired legal counsel to prevent a Manhattan condominium, which prosecutors say was purchased with bribes, from falling into the hands of the government.”
According to Palazzolo, the son, Chen Chih-chung, has retained Jonathan Harris (see here) to defend against the forfeiture action and Harris is quoted as saying he will be filing a motion to dismiss “shortly.”
*****
A good weekend to all.
An Immaterial Disclosure?
The securities laws generally require issuers to disclose material facts and events to investors.
What is material?
Technically, there is SEC guidance on the issue (see here).
The issue basically boils down to whether the information would affect the judgment of a reasonable investor in making an investment decision.
As Thierry Olivier Desmet (Assistant Regional Director, FCPA Unit, SEC) explained at the recent World Bribery and Corruption Compliance Forum (here) the concept of materiality itself has two “sub-concepts”: (i) quantitative materiality (something that impacts a company’s financial statements) – Desmet conceded that very few bribes are quantitatively material; and (ii) qualitative materiality a “complicated gray area” to use Desmet’s words. He said that all bribes can be considered qualitatively material because they may “automatically trigger a books and records violation.” Because of this, Desmet said that it is “prudent” for any issuer to approach the SEC with any “suspicion” of bribes “as soon as” the company learns of the improper payment.
It is against this backdrop that issuers frequently disclose immaterial payments which may implicate the FCPA.
Case in point, Sensata Technologies Holding N.V. (“Sensata”) (here), a global industrial technology company that began trading on the New York Exchange in March 2010 (see here).
The company had this to say in its October 22nd 10-Q filing (here):
“An internal investigation has been conducted under the direction of the Audit Committee of the Company’s Board of Directors to determine whether
any laws, including the Foreign Corrupt Practices Act (“FCPA”), may have been violated in connection with a certain business relationship entered into by one of the Company’s operating subsidiaries involving business in China. The Company believes the amount of payments and the business involved was
immaterial. The Company discontinued the specific business relationship and its investigation has not identified any other suspect transactions. The
Company has contacted the United States Department of Justice and the Securities and Exchange Commission to begin the process of making a voluntary disclosure of the possible violations, the investigation, and the initial findings. The Company will cooperate fully with their review. The FCPA (and related statutes and regulations) provides for potential monetary penalties, criminal and civil sanctions, and other remedies. The Company is unable to estimate the potential penalties, if any, that might be assessed and, accordingly, no provision has been made in the accompanying condensed consolidated financial statements.”
Since the disclosure, Sensata’s shares have climbed approximately 1.5%.
However, this has not stopped the new breed “FCPA” plaintiff lawyers from acting.
Yesterday, the Shareholders Foundation announced (here) an investigation on behalf of investors of Sensata concerning “whether certain officer and directors of Sensata […] breached their fiduciary duties and are liable for possibly violating the U.S. Foreign Corrupt Practices Act (“FCPA”).”
Will Dodd-Frank’s Whistleblower Provisions Be Exported?
Meet Markus Funk (here). He is a former DOJ attorney and now a partner at Perkins Coie.
He recently wrote a piece (here) that caught my eye.
It’s about Dodd-Frank’s whistleblower provisions.
You might ask, what isn’t these days!
Funk’s piece however is a bit different because it uses Dodd-Frank’s whistleblower provisions to ask the question – will signatory nations of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (here) incorporate similar provisions into their domestic law to demonstrate commitment to combating bribery?
Interesting question – and more on this below.
First a quick summary of Funk’s piece.
In it, Funk states that “the passage of [Dodd-Frank] signals a significant acceleration of the U.S. government’s already intensified Foreign Corrupt Practices Act enforcement efforts.” He states that by “unveiling” Dodd-Frank’s whistleblower provisions “to the world” “the United States heralds a new phase in its increasingly global anti-bribery enforcement efforts.”
Funk then writes, “as U.S.-led political pressures to enhance national anti-bribery efforts continue to grow, the Dodd-Frank Act’s novel enforcement mechanisms have the potential to attract international imitators.” He further states: “with mounting global pressure (not the least of which originates from the United States) on signatory states to comply with the Anti-Bribery Convention’s requirements, currently under-performing countries will likely be looking for efficient and effective ways to demonstrate their earnest intent to live up to their commitments.” “Given this backdrop,” Funk writes, “the Dodd-Frank’s Act’s new whistleblower provisions may well stand out as an ideal template for others (who are not culturally or otherwise averse to such rewards) to emulate.”
As noted in a prior post (here) Dodd-Frank’s whistleblower provisions are buried deep in the 2,000+ pages of the Dodd-Frank Act. The provisions apply to all securities law violations. It is an open question whether anyone in Congress had the FCPA on their mind when voting for Dodd-Frank, including its whistleblower provisions.
Yet, perhaps because the FCPA bar is such an active group of writers, Dodd-Frank’s whistleblower provisions have come to be reported in some circles as the FCPA whistleblower provisions. After all, the FCPA is indeed part of the Securities and Exchange Act of 1934 so the generic whistleblower provisions are indeed FCPA relevant.
In any event, I wondered why Funk wrote that “the passage of [Dodd-Frank] signals a significant acceleration of the U.S. government’s already intensified Foreign Corrupt Practices Act enforcement efforts” and why he wrote that Dodd-Frank’s generic whistleblower provisions “symbolize the government’s accelerating fight against foreign corruption.”
So I went to the source and posed Funk the following question.
“Why do you believe that a generic securities law provision in a 2,000+ page financial regulatory reform bill is going to prompt other countries to adopt bribery/corruption specific whistleblower provisions?”
Below is Funk’s response, posted with his express permission.
*****
‘My answer to your question comes in parts.
Let me start out with an observation directed towards your question’s basic premise. I do not see why the raw page-count of the Dodd-Frank Act should have any meaningful bearing on whether its whistle blower provisions are (1) generally known and understood, or (2) likely to generate domestic success or foreign imitators.
Pundits, the media, and legal observers have certainly succeeded in swiftly digging through the bill’s 2,000+ pages of text and zeroing in on the tip-generating provisions we are talking about. Their very public analysis, moreover, strips away from the whistleblower bounty provisions any obscurity they may at one point have enjoyed (and, as the widespread attention to the Act signals, most observers do not categorize the novel provisions as unexceptionally “generic”).
Evidence of the recently-enacted whistleblower provisions’ emergent renown is, indeed, plentiful. Do a simple Google search for “Dodd-Frank” and “whistleblower,” and watch the thousands of hits come pouring in. Most foreign-based white collar websites, whether run by governments or lawyers, moreover, contain extensive and nuanced analysis of the Act’s whistleblower provisions. Hardly the reception accorded to an enactment that got lost in the shuffle.
And the whistleblower provisions’ renown is not the only thing that has confounded critics’ expectations; within a few short months, the Act has begun to yield actual real-world results. As recently reported by the Wall Street Journal, the new whistleblower incentives have generated an average of one tip a day (though the quality of the tips, and the country of origin of the tipsters, is admittedly still unknown).
These newly-generated/motivated tipsters, as well as the steady drumbeat of domestic and international corporate clients expressing concern about, and wanting more information on, this particular aspect of the Dodd-Frank Act, at a minimum place significant doubt on the position that the Act’s whistleblower provisions are so deeply buried within the rest of the Act that their effectiveness is nil because nobody knows about them.
Having addressed your foundational criticism of the Dodd-Frank whistleblower provisions, we can now move on to a companion challenge facing our ramped-up transnational anti-bribery efforts (and, for that matter, facing transnational law enforcement efforts generally).
Skeptics of global anti-bribery efforts now point to the much-cited International Bar Association’s recent survey of 642 legal professionals in 95 jurisdictions for proof that even lawyers don’t know about the world’s leading anti-bribery conventions and instruments. The IBA survey revealed that roughly half of the world’s lawyers have never heard of the FCPA. Some 70 percent of those questioned, moreover, knew nothing about the U.K. Bribery Act, and 40 percent are entirely unfamiliar with the Organization for Economic Cooperation and Development (“OECD”) and United Nations anti-corruption conventions. Four in 10 respondents in developed countries such as Denmark, Germany, Canada, and Japan likewise knew of none of these anti-bribery instruments; the result was bumped up to 7 in 10 for New Zealand and Hong Kong lawyers.
Observers hold these results up as conclusive, damning proof that few in the world’s legal community know, or much care, about these internationally celebrated/hyped anti-bribery enactments.
It would be pointless for me to argue against the existence of an unfortunate, long-standing dissonance between international diplomatic proclamations, on the one hand, and tangible results on the ground, on the other. Indeed, I have personally experienced this frustrating phenomenon while working in post-conflict countries for the U.S. State Department, and have also written a book on the International Criminal Court which takes aim at the international community’s “much talk, little action” habit.
But, in the present context, I remain unmoved by the IBA’s headline-grabbing findings. For one, these survey results smack of a high-minded variant of Jay Leno’s “Jaywalking,” in which Leno probes the proverbial “man on the street’s” basic knowledge of topics such as history, politics, and world affairs. The hapless respondents are inevitably revealed to be, or at least portrayed as being, ignorant dolts.
Similarly, the IBA’s survey results stand for little more than the rather unremarkable proposition that the “average” attorney (the survey omits any indication of specialization or areas of the survey-takers’ expertise) is not particularly well-versed on the topic of international anti-bribery instruments. Wish it weren’t so, but does it really matter?
Surveys of similar type could undoubtedly be constructed to reveal lawyers worldwide as wholly unfamiliar with wide swaths of accumulated substantive legal knowledge (anyone interested in taking a pop quiz surveying the examinee’s understanding of patent, human rights, or regulatory law?).
Are the IBA survey takers’ low scores to be read as meaning that global anti-bribery efforts are under-appreciated by lawyers to such an extent that they are rendered irrelevant? Hardly. What actually matters, of course, is whether the key decision-makers active in the anti-bribery fight know about these provisions. They clearly do.
But even if these survey results are meaningful, the “so what?” question remains: do the low scores represent (1) a call to action, or (2) a call to throw in the towel? Even assuming purely for the purpose of argument that throwing in the towel is the more sensible course, this clearly is not what the U.S. Government has in mind. Quite to the contrary.
In one public pronouncement after another, high-ranking Department of Justice, State Department, and Administration officials reaffirm the U.S. Government’s commitment to remain fully engaged in – and, indeed, to significantly ramp up – the global fight against public corruption.
During his May 31, 2010, address to the Organization for Economic Cooperation and Development (OECD) in Paris, for example, Attorney General Eric Holder publicly announced the U.S. Government’s continued support for the Anti-Bribery Convention: “As Attorney General, I have made combating [global] corruption one of the highest priorities of the Department of Justice.” Holder additionally announced the Government’s intent to strengthen global anti-bribery efforts through enhanced transnational collaboration and the sharing of “best practices.” Not coincidentally, in the month following the Attorney General’s speech, the U.S. House passed the Dodd-Frank Act’s conference report of the bill.
Whether through high-minded moral leadership, innovative new initiatives, or more pedestrian, self-interested incentives connected with financial-based trade, aid, and protection, the U.S. has a way of ensuring that its message is heard – heard loud and clear, actually – and acted on. And there is no need to even walk down the increasingly lonely road of American exceptionalism to make this point. Realpolitik will suffice.
Few would dispute that, despite some recent setbacks, the U.S. Government continues on as the dominant force in world affairs. When the U.S. takes action, foreign governments and global businesses take notice.
Well-publicized, enormous fines/disgorgements of corporate wrongdoers collected not only in the U.S., but increasingly also abroad, only further raise awareness, underscoring that the “old way” of doing business is coming to an abrupt end. Even on the enforcement side, good news for corporate criminals is hard to come by.
The proliferation of Mutual Legal Assistance Treaties (MLATs) between the U.S. and other countries, moreover, make extradition and public trial a reality. As USDOJ Criminal Division Assistant Attorney General Lanny Breuer put it during a May 2010 speech: “We are actively working with our foreign counterparts in various areas to ensure that country borders won’t limit our ability to fight fraud . . . . As recently as February, new U.S.- E.U. agreements on mutual legal assistance and extradition went into effect. These agreements offer significant new tools that will streamline cross-border investigations and allow for even greater cooperation with our counterparts abroad.”
The world is clearly growing uncomfortably smaller for corporate criminals. Viewed from this perspective, we are currently experiencing a race to the top, not a race to the bottom.
Available international numbers in fact lend support for the argument that mounting U.S. diplomatic pressure aimed at increasing global anti-corruption efforts is, to some extent at least, achieving its desired result. Transparency International (TI) recently released its “July Progress Report 2010: Enforcement of the OECD Convention on Combating Bribery of Foreign Public Officials.” TI notes that, between 2009 and 2010, the number of signatory countries actively enforcing the Anti-Bribery Convention increased from four to seven (those countries representing some 30 percent of world exports). Furthermore, since the mid-2000s, the number of moderately enforcing countries doubled from 8 to 16.
Although these statistics demonstrate that most signatory countries still have considerable room for improvement towards living up to their anti-bribery commitments, the recent uptick in enforcement signals that domestic and international pressures have not gone unnoticed. The Dodd-Frank Act’s novel way of incentivizing individuals with knowledge to step forth and blow the whistle is readily-understood, and provides a simple way to increase OECD Anti-Bribery Convention compliance. Considering that the U.S. Government is giving every available signal that these pressures will, if anything, only increase, it is reasonable to expect global anti-corruption initiatives and cooperation to trend in the same direction.
To the extent that the innovative Dodd-Frank whistleblower bounty provisions continue to generate substantive tips, and that foreign whistleblowers are appropriately protected, there is no reason to think that other countries will not imitate the provisions in the same way as other effective U.S.-born legal provisions have found new second homes throughout the world.”
The FCPA Mulligan Rule?
The FCPA Opinion Procedure regulations (here) state that issuers and domestic concerns subject to the FCPA may “obtain an opinion of the Attorney General as to whether certain specified, prospective — not hypothetical — conduct conforms with the Department’s present enforcement policy regarding the antibribery provisions of the Foreign Corrupt Practices Act.”
Since 1980, the DOJ has issued 55 FCPA opinion procedure releases (see here and here).
In nearly every instance the DOJ expresses an opinion that it does not intend to take any enforcement action as to the disclosed facts or conduct? If my figures are correct, in 54 of the 55 opinion procedure releases (98%) the DOJ expressed such an opinion. [The only exception would appear to be 98-01 (here)].
Perhaps you already knew this, but recently I learned something that may help explain this 98% no enforcement statistic.
What did I learn?
That often times, when the requestor senses that it will not receive a favorable DOJ opinion, it simply withdraws the request. I confirmed that this practice does indeed occur with a former high-ranking DOJ FCPA official and others.
Call it the FCPA mulligan rule.
Sec. 80.15 of the opinion procedure regulations specifically states that “a request submitted under the foregoing procedure may be withdrawn prior to the time the Attorney General issues an opinion to such request.”
But here is the issue as I see it.
How does the requestor get the sense that it will receive an unfavorable DOJ opinion so that it can withdraw the request before the opinion procedure is publicly released?
After all, Sec. 80.09 of the regulations, titled “no oral opinion,” states: “no oral clearance, release or other statement purporting to limit the enforcement discretion of the Department of Justice may be given.”
This would seen to eliminate DOJ oral communications to the requestor as to DOJ’s initial observations which may then motivate the requestor to withdraw the request.
Sec. 80.8 of the regulations requires that the Attorney General “respond to the request by issuing an opinion …”. So if the initial DOJ observation which then motivates the requestor to withdraw the request is communicated in writing, should the writing be made public in the same fashion as the opinions that are actually released? Would this not add to the mix of information available as to the FCPA?
As long as I am in question mode, let me throw out this question (see here for the prior post) – should DOJ’s declination decisions be made public?
At a recent public event, I asked Charles Duross (DOJ FCPA chief) this question and he said (see here) that it was a “difficult issue.” In a recent video (here – start at the 6 minute mark), William Stuckwisch (DOJ) wondered aloud whether DOJ declination decisions should be made public. Last, but not least, in this recent Q&A with Sue Reisinger of Corporate Counsel Billy Jacobson (a former high-ranking DOJ FCPA official) stated: “The Justice Department could publicize cases anonymously that it has not brought because of the company’s actions.”