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Friday Roundup

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Standard Bank roundup, recent FCPA sentences, scrutiny alert, and for the reading stack.  It’s all here in the Friday roundup.

Standard Bank Roundup

A roundup within the Friday roundup.

The development of the month so far was the U.K. (and related) enforcement action against Standard Bank – a first in two regards.

(i) the first use of Section 7 of the Bribery Act (the so-called failure to prevent bribery offense) in a foreign bribery action; and

(ii) the first use of a deferred prosecution agreement in the U.K..

  • This post highlighted “what” was resolved – an alleged violation of Sec. 7 of the Bribery Act for failure to prevent bribery.
  • This post highlighted “how” the enforcement action was resolved – the U.K.’s first deferred prosecution agreement.
  • This post highlighted the creativity of the SEC in also bringing an enforcement action against Standard Bank.
  • This post highlighted the thoughts of others about the enforcement action.

Recent FCPA Sentences

In 2013 and 2014 the DOJ brought FCPA and related charges against various individuals associated with broker dealer Direct Access Partners in connection with alleged improper payments to Maria Gonzalez (V.P. of Finance / Executive Manager of Finance and Funds Administration at Bandes, an alleged Venezuelan state-owned banking entity that acted as the financial agent of the state to finance economic development projects).

Recently, Tomas Clarke and Ernesto Lujan were sentenced after pleading guilty to FCPA and related offenses.

Lujan was sentenced to two years in prison, followed by three years of supervised release, and consented to a $18.5 million forfeiture “representing the proceeds and property involved in the commission of the offenses alleged.”

Clarke was also sentenced to two years in prison, followed by three years of supervised release, and consented to a $5.8 million forfeiture “representing the proceeds and property involved in the commission of the offenses alleged.”

Previously, Benito Chinea and Joseph DeMeneses were sentenced to four years in prison and consented to $3.6 million and $2.7 million forfeiture.

Scrutiny Alert

Analogic

The company which has been under FCPA scrutiny since 2011 recently disclosed:

“As initially disclosed in our Annual Report on Form 10-K for the fiscal year ended July 31, 2011, we identified certain transactions involving our Danish subsidiary BK Medical ApS, or BK Medical, and certain of its foreign distributors, with respect to which we have raised questions concerning compliance with law, including Danish law and the U.S. Foreign Corrupt Practices Act, and our business policies. These have included transactions in which the distributors paid BK Medical amounts in excess of amounts owed and BK Medical transferred the excess amounts, at the direction of the distributors, to third parties identified by the distributors. We have terminated the employment of certain BK Medical employees and also terminated our relationships with the BK Medical distributors that were involved in the transactions. We have concluded that the transactions identified to date have been properly accounted for in our reported financial statements in all material respects. However, we have been unable to ascertain with certainty the ultimate beneficiaries or the purpose of these transfers. We have voluntarily disclosed this matter to the Danish Government, the U.S. Department of Justice, or DOJ, and the SEC, and are cooperating with inquiries by the Danish Government, the DOJ and the SEC. We believe that the SEC, DOJ, and Danish Government have substantially completed their investigation into the transactions at issue. We are continuing our discussions with the SEC and have commenced discussions with the DOJ and Danish Government concerning a possible resolution of these matters. During the three months ended July 31, 2015, we accrued a $1.6 million charge in connection with a settlement proposal that we made to the SEC, which proposal was rejected by the SEC. In the first quarter of fiscal 2016, the SEC and DOJ made separate settlement proposals that would include payments in the aggregate amount of approximately $15 million. We are uncertain whether the Danish Government will seek to impose sanctions or penalties against us. We further believe that, under Danish law, amounts paid to the SEC and/or the DOJ would be taken into account in determining penalties that may be sought by the Danish Government. There can be no assurance that we will enter into any settlement with the SEC, the DOJ or the Danish Government, and the cost of any settlements or other resolutions of these matters could materially exceed our accruals. During the three months ended October 31, 2015 and 2014, we incurred inquiry-related costs of approximately $0.03 million and $0.8 million, respectively, in connection with this matter.”

Reading Stack

This Law360 article by Gerry Zack (Managing Director in BDO’s global forensics practice) titled “Implicit Bias – the Hidden Investigation Killer” caught my eye.

“Everyone carries a variety of biases around with them on a daily basis. Yet, many people are confident they can set their biases aside when it comes time to perform a workplace investigation, even referring to the final product as an “unbiased investigation.” But science has repeatedly proven that we aren’t nearly as good at setting our biases aside as we’d like to think  …”

The article touches upon affinity bias, confirmation bias, and priming.

Having conducted numerous internal investigations around the world (in the FCPA context and otherwise), I think there is merit to the issues discussed in the article – issues that contribute to the divide between the DOJ and SEC “processing” corporate FCPA internal investigations and the general struggles of the enforcement agencies proving FCPA offenses in the context of an adversarial proceeding.

*****

From outgoing SEC Commissioner Luis Aguilar – “Commissioner Aguilar’s (Hopefully) Helpful Tips for New SEC Commissioners.”

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A good weekend to all.

Guilty Pleas In Broker-Dealer Enforcement Action

This previous post highlighted the May FCPA enforcement action against Tomas Clarke (an Executive Vice President of broker-dealer Direct Access Partners (DAP) who worked out of the company’s Miami office) and Alejandro Hurtardo (a back-office employee of DAP in Miami) in connection with an alleged bribery scheme involving an alleged “foreign official” at Bandes, an alleged Venezuelan state-owned banking entity that acted as the financial agent of the state to finance economic development projects.  As noted here, in June, Ernesto Lujan (a managing partner at DAP and a branch manager of its Miami offices) was also charged in connection with the same alleged bribery scheme.

Last week, the DOJ announced that Lujan, Hurtardo and Clarke pleaded guilty.

Typically FCPA defendants plead guilty to reduced charges compared to the original charging documents, however the above defendants all pleaded guilty (see here, here and here for the plea agreements) to the original six charges:  (i) conspiring to violate the FCPA, to violate the Travel Act, and to commit money laundering; (ii) violating the FCPA; (iii) violating the Travel Act; (iv) committing money laundering; (v) conspiring to obstruct justice; and (vi) conspiring to violate the FCPA.

As noted in the DOJ release, the informations (see here and here) to which the defendants pleaded guilty also included additional allegations concerning another alleged state-owned banking entity in Venezuela.  Specifically, the DOJ alleged that:

“Banfoandes Bank, including its 2009 successor, Banco Bicentenario, was a state-owned and state-controlled economic development bank of the [Republic of Venezuela].  It operated under the direction of the Venezuelan People’s Ministry of Planning and Finance.  Banfoandes acted as a financial agent of the Venezuelan government in order to promote economic and social development by, among other things, offering credit to low-income Venezuelans.  Bandoandes was an ‘agency’ and ‘instrumentality’ of a foreign government, as those terms are used in the FCPA.  […]  [T]he Banfoandes Foreign Official’ served as a vice president of Banfoandes who, among other things, was responsible for some of Banfoandes’s foreign investments.”

As noted in the DOJ release, Lujan and Clarke are scheduled to be sentenced on Feb. 11, 2014 and Hurtardo is scheduled to be sentenced on March 6, 2014.  Given the plea agreements, the sentences are likely to be among the longest FCPA sentences ever imposed.

Friday Roundup

Another individual defendant added to the broker-dealer enforcement action, scrutiny alert, want to open a building in China open to the public?, and additional boondoggle specifics.  It’s all here in the Friday roundup.

Additional Individual Defendant Added to the Broker-Dealer Enforcement Action

This previous post highlighted the SEC examination that led to DOJ and SEC charges (including FCPA charges) against Tomas Clarke (a Direct Access Partners (“DAP”) Executive Vice President who worked out of the company’s Miami office) and Alejandro Hurtado (a back-office employee of DAP in Miami).  The enforcement action is based on alleged improper payments to Maria Gonzalez (V.P. of Finance / Executive Manager of Finance and Funds Administration at Bandes, an alleged Venezuelan state-owned banking entity that acts as the financial agent of the state to finance economic development projects).

Earlier this week, the DOJ announced here that Ernesto Lujana (a managing partner at DAP and a branch manager of its Miami offices) was arrested and charged (see here for the criminal complaint) in connection with the same alleged bribery scheme.   As noted in the DOJ’s release “Lujan was charged with one count each of conspiracy to violate the Foreign Corrupt Practices Act (FCPA), violation of the FCPA, conspiracy to violate the Travel Act and violation of the Travel Act [as well as] conspiracy to commit money laundering and money laundering.

Like in the previous enforcement action, the SEC also brought an enforcement action (see here for the complaint) against Lujana.  In this SEC release, Andrew Calamari (Director of the SEC’s New York Regional Office) stated as follows.  “For a scheme this bold to succeed, it required the sneaky collaboration of several individuals including the head of the Miami office.  Lujan and the others may have believed they were covering their tracks, but the SEC’s exam and enforcement teams unraveled their fraud.”

Scrutiny Alert

The Wall Street Journal reported yesterday in this article that GlaxcoSmithKline “is investigating allegations from an anonymous tipster that it sales staff in China was involved in widespread bribery of doctors to prescribe drugs, in some cases for unauthorized uses, between 2004 and 2010.”

The article reported as follows.  “According to e-mails and other documents reviewed by the Wall Street Journal, the tipster has alleged that Glaxo’s China sales staff provided doctors with speaking fees, cash payments, lavish dinners and all-expenses-paid trips in return for prescribing the drug firm’s products.”  As reported in the WSJ article, a Glaxo spokesman confirmed that the company is investigating the allegations, but that after thoroughly investigating “each and every claim” from the anonymous source, the company “has found no evidence of corruption or bribery in or China business.”

The WSJ article further noted that “in 2010 Glaxo disclosed it had been contacted by the Justice Department and the SEC about its overseas operations as part of a wider FCPA investigation into pharmaceutical industry practices abroad.”

As noted in this prior year in review post,  in 2012 50% of corporate FCPA enforcement actions involved, in whole or in part, foreign health care providers (such as physicians, nurses, mid-wives, lab personnel, etc.).  See here for a prior post on the origins and prominence of this enforcement theory.

Want to Open a Building in China Open to the Public?

This recent article in the South China Morning Post reminded me of the many business barriers (including arcane and complex licensing, certification and inspection requirements) which often funnel companies seeking to do business in a foreign country into an arbitrary world of low-paying civil servants who frequently supplement their meager salaries through payments condoned in the host country.

The article states, in pertinent part, as follows.

“To obtain a fire-safety certificate from a local fire department, a business owner must pass five ‘checkpoints’ in a complicated and lengthy administrative process.  Each checkpoint is guarded by officials in charge of site inspections and reviewing construction blueprints, equipment and contingency plans. Bribes considerably expedite the process that officials might otherwise draw out for weeks, months or years. Bribes range from a few thousand yuan to hundreds of thousands, per official, depending on their rank and the size of the project. But money isn’t everything – some officials must be wined and dined or given luxury cigarettes. Others request the services of prostitutes. […] Salaries of firefighters are quite low – about 3,400 yuan (HK$4,300) a month in Shanghai – and many come from poor or rural families, as the job hazards dissuade many people from joining. […] However, competition for administrative posts within fire departments was fierce, and only those with strong connections or family influence would stand a chance of winning non-frontline jobs where the real money was made.”

Additional Boondoggle Specifics

This recent Friday roundup detailed boondoggle specifics concerning Wal-Mart’s FCPA scrutiny and related investigation.  As noted here, Jeff Gearheart, the executive officer overseeing global compliance for Wal-Mart Stores Inc., told analysts last week that “300 legal and accounting professionals have logged more than 100,000 hours toward FCPA issues.”

*****

A good weekend to all.

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