Friday Roundup
Simply inexcusable, tell us who, an interesting case study, and for the reading stack. It’s all here in the Friday roundup.
Simply Inexcusable
The government holds those subject to the FCPA to high standards. If the proverbial “right hand” in a company doesn’t know what the “left hand” is doing, the government is likely to call that an internal control failure.
Ought not the government be held to the same standard?
What follows is simply inexcusable.
In February 2012, Judge Lynn Hughes (S.D.Tex.) signed this final dismissal of the FCPA enforcement action against John O’Shea. The motion followed Judge Hughes granting O’Shea’s motion for acquittal after the DOJ’s case in chief in the FCPA trial. (See here for the prior post). During the case, Judge Hughes stated, among other things, 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.’’
Following the acquittal and dismissal, O’Shea has attempted to resume a normal life without the specter of criminal charges and possible jail time occupying his mind. It is understandable that O’Shea wants his reputation and “old” life back. But removing the taint of being labeled a criminal law violator by the government has not come easy for O’Shea.
Case in point is the following story.
O’Shea was recently hired by a company and traveled to Canada for a business trip. The trip was uneventful until O’Shea tried to enter Canada. It turns out the relevant government databases were not updated to reflect the disposition of his case – something that happened 14 months ago!
O’Shea indicated that he spent the entire afternoon with officials of the Canadian government to persuade them that he should not be put on the next plane back to the U.S. with U.S. marshals. O’Shea reports that the Canadian official was open-minded enough to visit internet sites suggested by O’Shea (including FCPA Professor) as proof that he was no longer a criminal defendant in the U.S.
After his business trip to Canada, O’Shea also had problems re-entering the U.S. from Canada and could not help but wonder whether someone would be waiting for him upon arrival in Houston. O’Shea reports that thankfully his fears were not realized, but he can not help but wonder what would have happened if his business trip was to some country other than Canada.
In short, the government’s internal control failure was simply inexcusable.
Tell Us Who
In the aftermath of this week’s Ralph Lauren enforcement action (see here for the prior post) alleging payments to Argentine customs officials, the Argentine government wants to know who the customs officials are.
As noted in a Law360 article, “in a letter to U.S. Ambassador to Argentina Vilma Martinez, the head of Argentina’s tax agency, Ricardo Echegaray, said that it was necessary for the Argentine government to have names and more detailed information about the alleged bribery to aid in a newly launched criminal investigation into the matter.” The article further stated as follows. “While seeking the names of Argentine officials implicated in the scheme, Echegaray also put the blame on Ralph Lauren’s customs brokers, who are not government officials, but rather private professionals hired to deal with trade matters. Echegaray likened these brokers’ roles to those of a tax adviser or accountant which companies hire for assistance.”
The question asked by the Argentine official is obviously a legitimate question.
But query whether the DOJ and/or SEC even know who the officials are.
As noted in this previous post concerning the SEC’s briefing in the Jackson and Ruehlen case involving alleged payments to Nigerian customs officials, the SEC argued that the name, titles and exact positions of foreign officials allegedly bribed need not be known in order to state a claim under the FCPAs anti-bribery provisions.
As highlighted in this previous post, in ruling on Jackson and Ruehlen’s motion to dismiss, Judge Keith Ellison (S.D.Tex.) noted in a footnote as follows.
“[T]he Court must disagree with Judge Hughes’s oral statements in a recent criminal FCPA prosecution. [U.S. v. O’Shea] (“You can’t convict a man promising to pay unless you have a particular promise to a particular person for a particular benefit. If you call up the Basurtos and say, look, I’m going to send you 50 grand, bribe somebody, that does not meet the statute.”). This Court holds that asking a third-party to bribe a government official, in order to induce that official to act in one of the proscribed ways detailed in [the FCPA], would meet the statute. The government does not have to “connect the payment to a particular official.”
This post earlier this week regarding Wal-Mart noted that savvy investors should have recognized the NY Times induced “FCPA dip” of the company’s stock as a buying opportunity because the market often overreacts to FCPA issues.
In this post earlier this week regarding Ralph Lauren Corp.’s (RLC) FCPA enforcement action, it was noted that the RLC enforcement action was a rare instance of an issuer not previously disclosing its FCPA scrutiny. Thus, the first instance of public scrutiny appears to have been announcement of the enforcement action on Monday morning. RLC’s stock dipped approximately 2% on the news and closed at $165.93. The “FCPA dip” lasted only a day, as Tuesday the stock rebounded and then some and closed yesterday at $175.38.
Reading Stack
Miller & Chevalier’s seasonal FCPA alerts are always information reads. The firm recently released its FCPA Spring Review 2013.
Is sex as a “thing of value”? See here from Wendy Wysong (Clifford Chance) – with a particular focus on Asia.
Should you be looking for further citations that more FCPA enforcement is good for FCPA Inc., see this recent article in Lawyers Weekly, an Australian publication. The article begins as follows. “A crackdown on foreign bribery has created “a mountain of work” for lawyers, a Jones Day partner has said ahead of a major international anti-corruption conference.”
A good weekend to all.
Philips Resolves First Corporate FCPA Enforcement Action Of The Year
A Netherlands-based company with shares listed on the New York Stock Exchange is the parent of a group of companies including a Polish subsidiary that sells medical equipment to Polish healthcare facilities. Between six and fourteen years ago “in at least 30 transactions” employees of the Polish subsidiary, without any mention of parent company knowledge or approval, “made improper payments to public officials of Polish healthcare facilities to increase the likelihood that public tenders for the sale of medical equipment would be awarded” to the subsidiary.
The end result?
Why of course $4,515,178 to the U.S. treasury.
Recently the SEC issued (here) an administrative cease and desist order against Koninklijke Philips Electronics N.V. (“Philips”). The action is the first corporate FCPA enforcement action of 2013.
The SEC Order states, in pertinent part, as follows.
“This matter concerns violations of the books and records and internal controls provisions of the Foreign Corrupt Practices Act (“FCPA”) by Philips. The violations took place through Philips’s operations in Poland from at least 1999 through 2007. The violations relate to improper payments made by employees of Philips’s Polish subsidiary, Philips Polska sp. z o.o. (“Philips Poland”) to healthcare officials in Poland regarding public tenders proffered by Polish healthcare facilities to purchase medical equipment.”
[…]
“Since at least 1999, Philips has participated in public tenders to sell medical equipment to Polish healthcare facilities. From 1999 through 2007, in at least 30 transactions, employees of Philips Poland made improper payments to public officials of Polish healthcare facilities to increase the likelihood that public tenders for the sale of medical equipment would be awarded to Philips.”
“Representatives of Philips Poland entered into arrangements with officials of various Polish healthcare facilities whereby Philips submitted the technical specifications of its medical equipment to officials drafting the tenders who incorporated the specifications of Philips’ equipment into the contracts. Incorporating the specifications of Philips’ equipment in the tenders’ requirements greatly increased the likelihood that Philips would be awarded the bids.”
“Certain of the healthcare officials involved in the arrangements with Philips also decided whom to award the tenders, and when Philips was awarded the contracts, the officials were paid the improper payments by employees of Philips Poland.”
“The improper payments made by employees of Philips Poland to the Polish healthcare officials usually amounted to 3% to 8% of the contracts’ net value.”
“At times, Philips Poland employees also kept a portion of the improper payments as a “commission.” The Philips Poland employees involved in the improper payments often utilized a third party agent to assist with the improper arrangements and payments to Polish healthcare officials.”
“The improper payments made by employees of Philips Poland to Polish healthcare officials were falsely characterized and accounted for in Philips’s books and records as legitimate expenses. At times those expenses were supported by false documentation created by Philips Poland employees and/or third parties. Philips Poland’s financial statements are consolidated into Philips’ books and records.”
Under the heading “Discovery, Internal Investigation and Self Report,” the Order states as follows.
“Philips became aware of misconduct by Philips Poland employees in August 2007, when Polish officials conducted searches of three of Philips’ offices in Poland and arrested two Philips Poland employees.”
“In response to the search of Philips’ offices and arrests of its employees, Philips conducted an internal audit in 2007. Philips failed to discover the improper payments to Polish healthcare officials in its internal audit, but terminated and disciplined several Philips Poland employees and made substantial changes to Philips Poland’s management and significant revisions to the company’s internal controls.”
“In December 2009, the Prosecutor’s Office in Poznan, Poland, indicted 23 individuals, including three former Philips Poland employees and 16 healthcare officials, for violating laws related to public tenders for the purchase of medical equipment. That indictment described the improper payments discussed in this Order.”
“In response to the Polish authorities’ indictment, Philips conducted an internal investigation. The findings of the investigation supported the allegations of the 2009 indictment and revealed that Philips Poland employees had made unlawful payments to Polish healthcare officials, that its books, records and accounts failed to accurately account for the improper payments and that its internal controls failed to ensure that transactions were properly recorded by Philips in its books and records.”
“In early 2010, Philips self-reported its internal investigation to the staff of the Commission and to the Department of Justice. As the internal investigation progressed, Philips shared the results of the investigation with the staff and undertook significant remedial measures.”
Under the heading “Remedial Measures,” the Order states as follows.
“In response to its internal audit and investigation, Philips terminated and disciplined several Philips Poland employees and installed new management at Philips Poland, as stated above. Philips also retained three law firms and two auditing firms to conduct the investigation and design remedial measures to address weaknesses in its internal controls. Included in changes to internal controls, Philips established strict due diligence procedures related to the retention of third parties, formalized and centralized its contract administration system and enhanced its contract review process, and established a broad-based verification process related to contract payments. In addition, Philips has made significant revisions to its Global Business Principles policies and continually revises the policies to keep them current and relevant. Philips also established and enhanced an anti-corruption training program that includes a certification process and a variety of training applications to ensure broad-based reach and effectiveness.”
Based on the above conduct, the SEC found that Philips violated the FCPA’s books and records and internal control provisions. The Order states as follows.
“Employees of Philips Poland made improper payments to healthcare officials in Poland to increase the likelihood that Philips would be awarded public tenders to sell medical equipment to Polish healthcare facilities. The payments were improperly recorded in Philip’s books and records as legitimate expenses. Philips Poland employees also utilized falsified records to support the false accounting entries. Accordingly, as a result of its misconduct, Philips failed to make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflected its transactions and the disposition of its assets …”
“Philips Poland’s improper payments to healthcare officials in Poland related to at least 30 public tenders over a period of eight years. Philips’s internal controls failed to detect or prevent the improper payments and false recordings of those transactions during that time. As a result, Philips failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions were properly recorded by Philips in its books and records. Philips also failed to implement an FCPA compliance and training program commensurate with the extent of its international operations. Accordingly, Philips violated [the internal control provisions].”
Without admitting or denying the SEC’s findings, Philips consented to entry of the Order prohibiting future FCPA violations and agreed to pay disgorgement of $3,120,597 and prejudgment interest of $1,394,581. The Order further states that Philips “acknowledges that the Commission is not imposing a civil penalty based upon its cooperation in a Commission investigation and related enforcement action.”
A few random comments regarding the Philips FCPA enforcement action.
As noted in the SEC Order, Philips retained “three law firms and two auditing firms to conduct the investigation and design remedial measures.” Wow. There is a reason I call it FCPA Inc. and the business of bribery.
Just what does the SEC mean when it says that Philips failed to implement an FCPA compliance and training program “commensurate with the extent of its international operations.” As noted in this prior post discussing how the November 2012 FCPA Guidance can be used as a useful measuring stick for future enforcement activity, I highlighted the following statements from the Guidance.
“The ‘in reasonable detail’ qualification [of the FCPA’s books and records provisions] was adopted by Congress ‘in light of the concern that such a standard, if unqualified, might connote a degree of exactitude and precision which is unrealistic.’ […] The term ‘reasonable detail’ is defined in the statute as the level of detail that would ‘satisfy prudent officials in the conduct of their own affairs.’ Thus, as Congress noted when it adopted this definition, ‘[t]he concept of reasonableness of necessity contemplates the weighing of a number of relevant factors, including the costs of compliance.’” (Pg. 39)
“Like the ‘reasonable detail’ requirement in the books and records provision, the [FCPA’s internal control provisions] defines ‘reasonable assurances’ as ‘such level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs.’ The Act does not specify a particular set of controls that companies are required to implement. Rather, the internal controls provisions gives companies the flexibility to develop and maintain a system of controls that is appropriate to their particular needs and circumstances.” (Pg. 40)
The Philips enforcement action involved Polish healthcare officials. As noted in this prior post, in 2012, 50% of corporate FCPA enforcement actions involved, in whole or in part, foreign health care providers.
The Philips enforcement action is similar to prior SEC administrative actions against foreign issuers Allianz and Diageo (see here and here for prior posts). As noted in the previous posts, contrary to popular misperception, the FCPA’s anti-bribery provisions apply to foreign issuers only to the extent “mails or any means or instrumentality of interstate commerce” are used in connection with the improper payments. The SEC’s Order in the Philips action does not contain any findings concerning any U.S. nexus in regards to the payments at issue.
Despite the absence of FCPA anti-bribery charges or findings, the SEC still sought a disgorgement remedy. The Philips enforcement action is thus another example of “no-charged bribery disgorgement.” See here for criticism of such actions by various Debevoise & Plimpton attorneys, including Paul Berger (here) a former Associate Director of the SEC Division of Enforcement. The article concluded that “settlements invoking disgorgement but charging no primary anti-bribery violations push the law’s boundaries, as disgorgement is predicated on the common-sense notion that an actual, jurisdictionally-cognizable bribe was paid to procure the revenue identified by the SEC in its complaint.” The article noted that such “no-charged bribery disgorgement settlements appear designed to inflict punishment rather than achieve the goals of equity.”
Because the conduct at issue in the Philips enforcement action occurred between six to fourteen years ago, you may be wondering about statute of limitations issues given the Supreme Court’s recent Gabelli decision. As noted in this prior post, from the perspective of SEC FCPA enforcement against corporations, the Gabelli case is, unfortunately, unlikely to have much impact. Cooperation will continue to be the name of the game and corporations facing FCPA scrutiny will likely continue to waive statute of limitations arguments or otherwise toll statute of limitations as evidence of their cooperation.
A Different Perspective on Breuer’s New Position
The goal of FCPA Professor, as reflected in the Mission Statement, is to foster a forum for critical analysis and discussion of the FCPA (and related topics) among a broad audience, including those who disagree with me on certain issues.
This post last week highlighted former Assistant Attorney General Lanny Breuer’s new job and another recent post highlighted my recent article “Lanny Breuer and Foreign Corrupt Practices Act Enforcement.”
Today’s post is from Thomas Fox who runs the FCPA Compliance and Ethics Blog. After Fox’s perspective, I offer a few concluding remarks.
*****
A Different Perspective on Breuer’s New Position
Thomas Fox
Last week there was much a-buzz in the FCPA world and, indeed, the greater legal community about the move of former Assistant Attorney General, Department of Justice (DOJ) Criminal Division, Lanny Breuer to the law firm Covington & Burling LLP. Several commentators raised questions about Breuer’s move in light of his work as the former No. 2 at the DOJ. The first of these concerns fall into the category of the “revolving door” issue, the second is a more focused criticism.
The Revolving Door
Dennis Kelleher, a former partner at Skadden Arps in Washington, D.C., and current president of the public interest group Better Markets, Inc., was quoted in a Corporate Crime Reporter article titled “Lanny Breuer Back to Covington” that “nothing is more corrosive to the American people’s trust in government than the revolving door where too many officials turn their so-called public service into multi-million dollar riches unimaginable to most Americans.” Further, Kelleher said that “This blatant cashing-in is destroying faith in government and government officials.” Lastly, Keller said that “Lanny Breuer’s spinning through it is only the latest example: “partner at big DC law firm representing corporate clients before the Department, then becomes a senior official at the Department making decisions whether or not to prosecute those same or similar corporate clients, then leaves to go back to private practice representing those same or similar corporate clients with legal issues before, bingo, the Department of Justice”.
Multi-million dollar salaries are not only unimaginable to most Americans; they are also unimaginable to most lawyers. From my experience, the only lawyers who command such earnings are: (1) plaintiff’s lawyers who work on a contingency and receive a percentage of any settlement or judgment as their fee or (2) lawyers who are very, very good at what they do and clients are willing to pay a very high rate for their services because these lawyers are very, very good at what they do. I believe that Breuer falls into category 2.
Breuer had quite a career before he became the No. 2 at the DOJ. Indeed his bio on the Covington and Burling website has the following information.
Prior to his service at the Justice Department, Mr. Breuer co-chaired the firm’s White Collar Defense and Investigations Practice Group. Over nearly 20 years in private practice, Mr. Breuer maintained a wide-ranging practice that included white-collar criminal and complex civil litigation, internal corporate investigations, congressional investigations, and antitrust cartel proceedings.
Representative Matters
- Represented the Special Litigation Committee of the Hewlett Packard Board of Directors.
- Represented the former Minister of Atomic Energy for Russian Presidents Yeltsin and Putin in a case alleging theft of tens of millions of dollars.
- Represented many major corporations before Congress, including a leading Internet company in a hearing concerning its foreign business activities, major pharmaceutical companies targeted in oversight investigations, the Los Alamos National Laboratory in a national security investigation, and a large Wall Street firm in the Enron hearings.
- Represented leading telecommunications investors in a billion-dollar False Claims Act lawsuit.
- Represented former National Security Advisor Samuel Berger in an investigation of documents at the National Archives.
In addition to the above, Breuer was Special Counsel to President Clinton (1997-1999), where he represented President Clinton and the White House staff in the presidential impeachment hearings and trial, independent counsel investigations, a Justice Department task force investigation, and numerous congressional oversight investigations. Breuer was also an Assistant District Attorney in Manhattan from 1985-1989. In other words, Breuer had quite a bit of experience in government and representing companies before the government before he went back to the DOJ in 2009.
What about the claim that Breuer went back to the DOJ, where he worked for four years so he could ‘cash in’ by going back to private practice? Public service is just that – public service. I am reasonably certain that Breuer did not go back into government service for the salary he received at the DOJ. I think his record demonstrates that he is one of the lawyers committed to serving our country in government. To say that anyone would put up with four years of taking all the shots that Breuer took during his tenure at the DOJ, both from Congress and from others, so he could cash in seems to me to be a little far-fetched. From my perspective, to criticize him for leaving and going back to his former firm does not hold merit.
With regards to one of the issues raised by Kelleher regarding whether a partner in a law firm who represents “corporate clients before the Department, then becomes a senior official at the Department making decisions whether or not to prosecute those same or similar corporate clients”, I do not believe that Breuer made any decisions “not to prosecute those same…corporate clients” while he was at the DOJ. Simply put, he would have been conflicted out. What about “similar corporate clients”? That seems to me to stretch the point way too far.
As to his new work in the private sector, what about another question posed by Kelleher, “Isn’t much of his new multi-million dollar pay package due to the high level connections, high-profile and intimate knowledge of the Department of Justice he gained while doing his ‘public service’ at the Department?”
Breuer himself appears to have answered that question directly in an interview with the Wall Street Journal (WSJ) Law Blog, which quoted him as saying, “Certainly, if I’m not ethically barred,” he told Law Blog. “I would certainly represent clients and anticipate representing clients in all different sectors, and I think that’s the majesty of our system.” But the Law Blog noted that, “Under federal ethics rules, Mr. Breuer has to abstain from matters that he was involved in while at the department, and he can’t approach Justice Department officials on behalf of clients during his “cooling off” period.” This means that he cannot work for Covington on any case he handled at the DOJ and must wait two years before facing off with the agency.
What about clients? If I am a corporation under a serious federal investigation, who do I want advice from? I want advice from someone who knows the ropes. Breuer obviously understands the law from a prosecutor’s perspective and that is of great value to a client. In fact, understanding how a prosecutor thinks and will react is one of the most important pieces of information that a client can have because it provides information on how to respond. Breuer was involved with far more than FCPA cases, and, while I do not know all of them, the one that sticks in my mind was when he had to postpone his talk at the 2012 ACI FCPA conference in Washington to attend the announcement of the US government settlement with BP over the Macondo oil spill. Not only did he have a lot on his plate at the DOJ, he has far-ranging experience in a large number of federal matters.
From FCPA Enforcement to FCPA Defense
The FCPA Professor, in a post titled “Former Assistant Attorney General Lanny Breuer Joins FCPA Inc.”, had a more focused criticism that he has consistently articulated, with the following statement. “Breuer’s departure from the DOJ to a private law firm is just the latest example of a high-profile FCPA enforcement attorney joining a law firm to provide FCPA defense services.” The Professor said:
“That Breuer (and other former DOJ FCPA enforcement attorneys who also moved to private practice) played a supervisory role as a DOJ enforcement attorney in helping create the current FCPA enforcement landscape and in setting the “priorities” and the “benchmarks” is precisely the reason why I have long argued that it is in the public interest (recognizing the niched nature of both the DOJ and SEC FCPA units) that all FCPA enforcement attorneys should be prohibited, when leaving the government, from providing FCPA defense or compliance services for a five-year time period.”
This is a more focused criticism. The Professor believes that DOJ lawyers who set FCPA “priorities” and “benchmarks” should be barred for a period of at least five years from providing FCPA compliance or defense services. While I believe that many of the arguments I made in the above Kelleher critique apply to this criticism, I also disagree with the Professor for a couple of other reasons.
First there were many, many voices in the DOJ and Securities and Exchange Commission (SEC) who set priorities and benchmarks for FCPA enforcement while they were in government service. I do not believe that there is anyone person who sets them, the best example of the benchmarks is the DOJ/SEC FCPA Guidance, which I understand was reviewed by several other government departments in addition to the DOJ and SEC.
Nevertheless to say that benchmarks are set, at least in the form of best practices, fails to acknowledge that best practices can evolve. The clearest example of this is the time frames set for post-acquisition integration of a FCPA compliance program by an acquiring company of an acquired entity. In April 2011, the Johnson & Johnson (J&J) Deferred Prosecution Agreement (DPA) had such time frames in its ‘Enhanced Compliance Obligations’. By 2012, these times frames had become minimum best practices. Another example is last year’s Opinion Release 12-01, which found that under certain circumstances, a royal family member is not a foreign government official for FCPA purposes. There are many such situations which make clear that best practices evolve. So even if Breuer had some hand in creating such benchmarks when he was at the DOJ, I do not think that should preclude him from representing clients going forward.
How about ‘priorities’? I have to assume this means priorities in FCPA enforcement. If so this would seem to suggest that Breuer either (1) ramped up FCPA enforcement so that he could get clients from this newly enforcement law or (2) directed enforcement at certain industries or sectors so that he could represent them. As to point 1, I think that, notwithstanding the DOJ’s Press Release on Breuer’s departure that “At the Justice Department, Mr. Breuer increased enforcement of the FCPA, overseeing more than 40 corporate resolutions and eight of the top 10 largest penalties in U.S. history”; these cases were long in the pipeline before Breuer arrived. While I do not know the reason that FCPA enforcement ramped up, it did so long before Breuer arrived at the DOJ. What about direction at certain industries? Here again the way enforcement operates would seem to belie this claim. Most of the FCPA enforcement directed at the energy industry was a result of Panalpina and its related cases. Pharmaceutical cases seem to follow J&J. The aerospace industry has all come after the BAE settlement. To borrow a line from the book and movie “All the President’s Men”, the point is that the DOJ (and SEC) seem to ‘follow the money’.
As you may have ascertained by now, I do not believe that there is a problem in Lanny Breuer going from the DOJ back to his old firm of Covington & Burling. Is $4 million per year salary a huge salary, of course it is. But he has the experience to merit it if clients will pay his hourly rate and for his new duties as Vice Chair of the law firm.
*****
Fox’s post of course demonstrates that Breuer has a plethora of legal skills and experience beyond the FCPA. Thus, my suggested prohibition would not have a material impact on his future career prospects.
Nor would my suggested prohibition affect many people. Here, it is important to recognize the highly centralized nature of FCPA enforcement – per the U.S. attorney manual.
9-47.110 Policy Concerning Criminal Investigations and Prosecutions of the Foreign Corrupt Practices Act states, in pertinent part, as follows.
“No investigation or prosecution of cases involving alleged violations of the antibribery provisions of the Foreign Corrupt Practices Act (FCPA) or of related violations of the FCPA’s record keeping provisions shall be instituted without the express authorization of the Criminal Division. Any information relating to a possible violation of the FCPA should be brought immediately to the attention of the Fraud Section of the Criminal Division. Even when such information is developed during the course of an apparently unrelated investigation, the Fraud Section should be notified immediately.”
Billy Jacobson (former assistant chief of DOJ FCPA enforcement) said it best in this article.
“[T]he FCPA has been recognized and treated as different by the U.S. government since its passage in 1977. […] [The FCPA] is one of just a few, select statutes to be prosecuted centrally from one DOJ office. The over-whelming majority of federal criminal statutes may be brought by each of the country’s U.S. Attorney’s Offices, but FCPA actions may be brought only by the Fraud Section of the Criminal Division within Main Justice.”
In short, per DOJ policy, from a supervisory and discretionary standpoint, very few people control FCPA enforcement. These people largely “enforce” the FCPA behind closed doors in Washington, D.C. via non-prosecution and deferred prosecution agreements in the general absence of judicial scrutiny. This highly-centralized enforcement behind closed doors in the general absence of judical scrutiny further takes place without much caselaw of precedent setting the parameters (something which of course can not be said about many other laws the DOJ enforces such as antitrust, securities fraud, etc.)
It is these unique attributes (most of which are the DOJ’s own making) of FCPA enforcement that warrants special rules. A prohibition on DOJ (or SEC) FCPA enforcement attorneys with supervisory and discretionary authority from providing FCPA defense or compliance services for five years upon leaving government service is a special rule, but one that is in the public interest.
Former Assistant Attorney General Lanny Breuer Joins FCPA Inc.
Yesterday, Covington & Burling announced here that Lanny Breuer (former Assistant Attorney General, DOJ Criminal Division) is returning to his old law firm to become Vice Chair of the firm.
As noted in my recently published article “Lanny Breuer and Foreign Corrupt Practices Act Enforcement,” Breuer’s former DOJ position obviously involved more than just the Foreign Corrupt Practices Act. However, as noted in the article, the substantive law of most interest to Breuer while at DOJ appeared to be the FCPA and by Breuer’s own admission he spoke about the FCPA and related issues “perhaps more than on any other subject and all over the world.” While at the DOJ, Breuer set DOJ FCPA policy, helped create the current enforcement landscape and boldly proclaimed “a new era of FCPA enforcement; and we are here to stay” (see here for the prior post).
Indeed, Covington’s release states that Breuer “established himself as a national leader on a range of federal law enforcement priorities” including the FCPA. The Covington release also largely carries forward the DOJ’s release concerning Breuer’s tenure at the DOJ and states as follows.
“At the Justice Department, Mr. Breuer increased enforcement of the FCPA, overseeing more than 40 corporate resolutions and eight of the top 10 largest penalties in U.S. history. The Criminal Division secured convictions of more than three dozen individuals on overseas corruption-related offenses, a department record. And he collaborated with the Securities and Exchange Commission to publish critical guidance on the government’s anti-corruption enforcement efforts.”
Like the DOJ’s release, and as noted in the above article and in this previous post, the Covington release also omits other relevant information concerning Breuer’s tenure at the DOJ as it relates to FCPA enforcement.
This New York Times article reports that Breuer’s first year Covington salary is “expected” to be “about $4 million.” The article notes that Breuer’s Vice Chair position at Covington was “created … especially for Mr. Breuer, a Washington insider …”.
As noted in this article by the on-line news agency Main Justice, Breuer hopes his white-collar practice will grow following his stint at the DOJ and he expects to have clients in areas such as foreign bribery. This Wall Street Journal article states that Breuer “plans to leverage his government experience with money laundering and FCPA cases into more international work for the firm” and quotes Breuer as follows. “I think I have a pretty good sense of what the department and what the government looks for.”
Indeed, Breuer’s Covington bio states that he “specializes in helping clients navigate [among other things] anti-corruption matters” and that while at the DOJ he “oversaw numerous prosecutions that set new benchmarks across a host of enforcement areas, including anti-corruption …”.
Like Breuer did in this previous New York Times article, he stated as follows regarding concerns of the revolving door. “What people dismissively talk about as the revolving door allows people to be better public servants and private litigants. I believe I was a better assistant attorney general because of my deep experience in the private sector.”
In this Corporate Crime Reporter article concerning Breuer’s new position, Dennis Kelleher (a former partner at Skadden Arps and currently president of the public interest group Better Markets) stated as follows.
“[N]othing is more corrosive to the American people’s trust in government than the revolving door where too many officials turn their so-called public service into multi-million dollar riches unimaginable to most Americans. […] Lanny Breuer’s spinning through it is only the latest example: partner at big DC law firm representing corporate clients before the Department, then becomes a senior official at the Department making decisions whether or not to prosecute those same or similar corporate clients, then leaves to go back to private practice representing those same or similar corporate clients with legal issues before, bingo, the Department of Justice. Isn’t much of his new multi-million dollar pay package due to the high level connections, high-profile and intimate knowledge of the Department of Justice he gained while doing his ‘public service’ at the Department?”
Breuer’s departure from the DOJ to a private law firm is just the latest example of a high-profile FCPA enforcement attorney joining a law firm to provide FCPA defense services. (See this post from two weeks ago for the other recent example; other instances are so numerous, they are hard to keep track of).
That Breuer (and other former DOJ FCPA enforcement attorneys who also moved to private practice) played a supervisory role as a DOJ enforcement attorney in helping create the current FCPA enforcement landscape and in setting the “priorities” and the “benchmarks” is precisely the reason why I have long argued that it is in the public interest (recognizing the niched nature of both the DOJ and SEC FCPA units) that all FCPA enforcement attorneys should be prohibited, when leaving the government, from providing FCPA defense or compliance services for a five-year time period. For additional reading see this piece I co-authored as well as this prior post among several others.
Friday Roundup
Yet another instance, save the date, scrutiny updates, on point, FCPA Inc. tidbit, and for the reading stack. It’s all here in the Friday roundup.
Yet Another Instance
The instances are so numerous, they are hard to keep track of. In the latest instance of an FCPA enforcement attorney joining a law firm to provide FCPA defense services, earlier this week Paul Hastings announced here as follows.
“Nathaniel Edmonds has joined the firm as a partner in the Global Compliance and Disputes practice, based in Washington, DC. Mr. Edmonds joins from the Department of Justice (DOJ), where he was an Assistant Chief of the Fraud Section, Foreign Corrupt Practices Act Unit in the Criminal Division. At the time of his hire, Mr. Edmonds was one of the longest-tenured FCPA prosecutors. […] In recent years, Mr. Edmonds was responsible for directly supervising up to half of the DOJ’s investigations into transnational bribery. He also drafted portions of the FCPA Resource Guide published in November 2012, which details the contours of the FCPA legal regime, the policy positions underlying the enforcement strategy, and the relevance of past enforcement positions taken by the DOJ and the SEC. During Mr. Edmonds’ tenure, the DOJ has investigated and resolved more cases against corporations and has charged, tried, and convicted more individuals under the FCPA than in any other similar period in history.”
This Blog of Legal Times article stated as follows. “Edmonds said that FCPA investigations and enforcement has increased in recent years and that the practice would likely continue to be robust for attorneys.”
That Edmonds played a supervisory role, as a DOJ enforcement attorney, in helping create the current FCPA enforcement landscape is precisely the reason why I have long argued that it is in the public interest (recognizing the niched nature of both the DOJ and SEC FCPA units) that all FCPA enforcement attorneys should be prohibited, when leaving the government, from providing FCPA defense or compliance services for a five-year time period. For additional reading see this piece I co-authored as well as this prior post among several others.
Indeed, Paul Hastings specifically touted in its release Edmonds’ “connections to U.S. government agencies.”
Save the Date
The Dow Jones Global Compliance Symposium is April 2-3 in Washington, D.C.
Last year, Christopher Matthews at Wall Street Journal Corruption Currents described (here) the panel I participated in as “an FCPA debate for the ages” – “for FCPA geeks, this was Ali v. Foreman and Frazier. A battle royale. A bloodbath.”
On April 2nd I will be participating in a panel titled “The FCPA: Does It Need Further Clarifying” along with Paul McNulty (Baker & McKenzie and former Deputy Attorney General) and David Yawman (Senior Vice President & Chief Compliance and Ethics Officer, PepsiCo, Inc.). The panel is being moderated by Joe Palazzolo of the Wall Street Journal.
Scrutiny Updates
BHP Billiton
As noted in this prior post, in April 2010 BHP Billiton announced it was under FCPA scrutiny. Earlier this week, various media sources reported that BHP Billiton’s FCPA scrutiny has grown. As summarized by this Reuters article.
“The U.S. government is investigating a possibility of corrupt practices by the world’s largest mining company, BHP Billiton, the company confirmed Wednesday after media reports about an inquiry into its sponsorship of the 2008 Beijing Olympics. Fairfax Media in Australia reported that the U.S. Department of Justice and the Australian Federal Police were investigating allegations that BHP Billiton had provided inducements, hospitality and gifts to officials from China and other countries. The U.S. Justice Department told Fairfax, in response to a Freedom of Information Act request, that it was conducting “law enforcement proceedings” involving BHP Billiton, which supplied materials for the gold, silver and bronze medals used in Beijing. The Australian police confirmed that they had been working with their foreign counterparts and local regulators on Australian aspects of the U.S. investigation. BHP Billiton said it had been cooperating with the “relevant authorities,” and in response to media queries it said it believed it had not broken any laws in its Olympics sponsorship. “BHP Billiton is fully committed to operating with integrity and the Group’s policies specifically prohibit engaging in bribery in all its forms,” the company said in an e-mailed statement.”
Embraer
As noted in this prior post, Embraer previously disclosed it was under FCPA scrutiny. Earlier this week, Embraer updated its disclosure and stated as follows.
“We received a subpoena from the SEC in September, 2010, which inquired about certain operations concerning sales of aircraft abroad. In response to this SEC-issued subpoena and associated inquiries into the possibility of non-compliance with the U.S. Foreign Corrupt Practices Act, or FCPA, we retained outside counsel to conduct an internal investigation on transactions carried out in three specific countries. Further, the Company has voluntarily expanded the scope of the internal investigation to include two additional countries and has reported on those matters. The investigation remains ongoing and we, through our outside counsel, continue to cooperate fully with the SEC and U.S. Department of Justice, which are the authorities responsible for reviewing the matter. The Company, with the support of our outside counsel, has concluded that it is still not possible to estimate the duration, scope or results of the internal investigation or government’s review. In the event that the authorities take action against us or the parties enter into an agreement to settle the matter, we may be required to pay substantial fines and/or to incur other sanctions. The Company, based upon the opinion of our outside counsel, believes that, there is no basis for estimating reserves or quantifying any possible contingency.”
On Point
Stuart Altman (Hogan Lovells, and a former Assistant U.S. Attorney in the E.D. of N.Y.) stated as follows in a recent Law360 Q&A.
“Q: What aspects of your practice area are in need of reform and why?
A: The inability of companies and individuals accused of wrongdoing to actually defend their selves. If you ask most white collar criminal defense lawyers they will tell you that they spend most of their time figuring out how to cooperate with the government not defend their clients. Investigations are ultimately focused on reporting to the government instead of building a defense. The government has made it incredibly onerous for a company to fight accusations of wrongdoing. The danger of huge fines, debarment and threats against individual employees all combine to create a huge disincentive to fight even when you believe your client is in the right. I think we need to find a better balance that allows the government to do its job but doesn’t create a climate of coerced surrender.”
William Burck (Quinn Emmanuel, and former Special Counsel and Deputy Counsel to President Bush a well as a former Assistant U.S. Attorney in the S.D. of N.Y.) stated as follows in a recent Law360 Q&A.
“Q: What aspects of your practice area are in need of reform and why?
A: Overcriminalization is a troubling trend in the U.S. Unfortunately, some of what is considered “white collar crime” is really the criminalization of questionable, but not truly fraudulent, business activities or the misuse of criminal process to resolve what should be civil disputes. True fraud and theft should be targeted, of course. No one thinks Bernie Madoff should be spared. But prosecutors sometimes twist poor or disfavored business practices into allegedly criminal misbehavior.”
FCPA Inc.
This Washington Post article states as follows concerning future opportunities for Washington D.C. law firms.
“At most firms, mainstay Washington specialties such as antitrust, health care and intellectual property continued to help drive business. Cybersecurity and Foreign Corrupt Practices Act work — two booming areas for companies — are poised to bring in more legal work for years to come.”
This Am Law Daily article states as follows concerning New York-based law firms.
“Government investigations – especially the LIBOR antitrust investigations and Foreign Corrupt Practices Act and False Claims Act work – are keeping hundreds of fee-earners busy, and New York firms with strong litigation departments are particularly well positioned to benefit.”
For the Reading Stack
In “Policing The Firm,” Daniel Sokol (a leading antitrust authority at the University of Florida Levin College of Law) asks if criminal antitrust enforcement could learn from FCPA enforcement. Sokol argues it can and he explores the lack of corporate monitors in antitrust actions and asks why antitrust remedies do not resemble remedies in other areas of corporate crime, with the routine imposition of monitors, such as the FCPA.