Las Vegas Sands Reporting – Not The Media’s Finest FCPA Moment
Las Vegas Sands has been the subject of much FCPA scrutiny since October 2010 when Steven Jacobs (the former President of the company’s Macau operations) filed a civil cause against the company in Nevada State court alleging various causes of action, including facts implicating the Foreign Corrupt Practices Act. (See here for the 2010 post highlighting the action).
This post from September 2012 highlighted various reporting of the Las Vegas Sands (“LVS”) FCPA scrutiny,and that of its CEO Sheldon Adelson, in ProPublica, the Wall Street Journal and the New York Times.
Last Friday, LVS disclosed in an SEC filing, in pertinent part, as follows.
“On February 9, 2011, LVSC received a subpoena from the Securities and Exchange Commission (the “SEC”) requesting that the Company produce documents relating to its compliance with the Foreign Corrupt Practices Act (the “FCPA”). The Company has also been advised by the Department of Justice (the “DOJ”) that it is conducting a similar investigation. It is the Company’s belief that the subpoena may have emanated from the lawsuit filed by Steven C. Jacobs described above. After the Company’s receipt of the subpoena from the SEC on February 9, 2011, the Board of Directors delegated to the Audit Committee, comprised of three independent members of the Board of Directors, the authority to investigate the matters raised in the SEC subpoena and related inquiry of the DOJ. As part of the annual audit of the Company’s financial statements, the Audit Committee advised the Company and its independent accountants that it had reached certain preliminary findings, including that there were likely violations of the books and records and internal controls provisions of the FCPA and that in recent years, the Company has improved its practices with respect to books and records and internal controls.” (emphasis added).
Given the intense prior media coverage of LVS’s FCPA scrutiny, the recent disclosure spread like wild-fire this past weekend. However, the reporting was not the media’s finest FCPA moment.
As is clear from a basic reading of the FCPA, the law has two provisions. The FCPA’s anti-bribery provisions and the books and records and internal control provisions. These later provisions are among the most generic substantive legal provisions one can find and are often implicated in situations that have nothing to do with bribery and corruption.
It is also clear from a basic reading of the LVS’s disclosure that it says “likely violations of the books and records and internal controls provisions.”
Notwithstanding the above, the Wall Steet Journal’s lead paragraph stated as follows.
“Las Vegas Sands Corp. told the Securities and Exchange Commission that an internal review found the casino operator had likely violated the Foreign Corrupt Practices Act, a federal law that bans bribing public officials abroad.”
The New York Times’s lead paragraph stated as follows.
“The Las Vegas Sands Corporation, an international gambling empire controlled by the billionaire Sheldon G. Adelson, has informed the Securities and Exchange Commission that it likely violated a federal law against bribing foreign officials.”
ProPublica’s lead paragraph stated as follows.
“Last week’s admission by Sheldon Adelson’s casino company that it had “likely” violated provisions of the federal law barring U.S. companies from bribing foreign officials raises some intriguing questions.”
The media of course plays an important role in our modern society. However, with that role comes a duty to get things right, particularly so in this day and age when reporting by high-profile media outlets spread like wild-fire on the internet.
The recent reporting of LVS’s latest disclosure (and several other examples could also be cited in the FCPA context) was not the media’s finest FCPA moment.
Thus, LVS was justified in its Sunday press release titled “LVS Fires Back at Misleading and Sensationalistic Reporting of Company’s Most Recent Financial Disclosure” which stated as follows.
“Las Vegas Sands Corp. today fired back at various media headlines and press reports that have suggested that the company violated any of the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA). The company did not report any violations of the anti-bribery provisions of the FCPA and it said news reports stating otherwise, such as the headline in today’s New York Times which described the matter by saying “Casino Says it Likely Cheated,” are both inflammatory and defamatory. The company said it will vigorously defend itself against that type of uninformed and misleading reporting. In the company’s 10-K disclosure filed with the Securities and Exchange Commission(SEC) last Friday it made no such statement and insists no violations of the anti-bribery provisions of the FCPA have occurred. Instead, the company said that in its preliminary findings the company’s Audit Committee had advised that there were “likely violations” of the books and records and internal controls provisions (i.e. “accounting provisions”) of the FCPA. A potential violation of the accounting provisions could range anywhere from a single transaction recorded incorrectly to other errors in the accounting records. Additionally, the company’s independent auditors — who have been auditing the company for more than a decade — issued an unqualified opinion on the financial statements for the year ended December 31, 2012. Those financial statements also included the disclosure that any violations of the accounting provisions have not had a material impact on the financial statements of the company and did not warrant any restatement of its past financial statements.”
Of Note From The Eli Lilly Enforcement Action
This previous post went long and deep as to the Eli Lilly enforcement action from last month. This post continues the analysis by highlighting additional notable issues.
If This Is The Standard, Then Every Issuer Is An FCPA Violater.
This previous post discussed how the SEC’s August 2012 FCPA enforcement action against Oracle diluted FCPA enforcement to a new level.
The SEC’s China allegations against Lilly further dilutes FCPA enforcement. The focus of the allegations is that sales representatives at Lilly-China, between 3-6 years ago, submitted false expense reports for items such as wine, speciality foods, a jade bracelet, meals, visits to bath houses, card games, karaoke bars, door prizes, spa treatments and cigarettes. Because the SEC charged only FCPA books and records and internal controls violations based on these allegations, the identity of the ultimate recipients was not relevant, although the SEC did allege that the ultimate recipients were “government-employed physicians.”
If the SEC’s position is that an issuer violates the FCPA’s books and records and internal controls provisions because some employees, anywhere within its world-wide organization, submit false expense reports for such nominal and inconsequential items, then every issuer has violated and will continue to violate the FCPA.
Once again, the SEC’s charging decisions prove hallow its recent Guidance related rhetoric. (See here for the prior post).
What Is Really Being Accomplished?
Let me state for the record, lest there be any misunderstanding, that I support strong FCPA enforcement as to conduct Congress intended to capture in passing the FCPA, that adheres to fundamental legal principles, and that actually makes a difference in accomplishing the FCPA’s objective. My criticisms and concerns of the DOJ and SEC’s FCPA enforcement has been across a wide spectrum, including that in egregious instances of corporate bribery, the DOJ has been too lenient. See here for my article “The Facade of FCPA Enforcement” and here for my November 2010 Senate testimony.
To be sure, certain things were accomplished by the Lilly enforcement action. $29.4 million was added to the U.S. treasury and FCPA Inc.’s pre-enforcement action professional fees and expenses likely exceeded that amount.
Beyond this, it is an open question whether the Lilly enforcement action really accomplished anything.
For starters, let’s start with the SEC’s mission. As stated on its website, the SEC’s mission is “to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”
How is this mission accomplished by the Poland and Russia allegations in the SEC’s complaint?
The Poland allegations concern approximately $39,000 in payments made by Lilly-Poland approximately 12 years ago to a legitimate and bona fide Polish charitable foundation, albeit one allegedly headed by the Director of a Government Health Fund.
The Russia allegations, the only allegations in the complaint that give rise to FCPA anti-bribery charges, concern the conduct of Lilly-Vostok and its use of various third parties in connection with government pharmaceutical business. There is only one paragraph in the SEC’s complaint concerning specific knowledge of the alleged improper conduct and that paragraph (para. 28 of the complaint) cites a Lilly-Vostok e-mail from 18 years ago and another Lilly-Vostok e-mail from 13 years ago.
The same what is really being accomplished question could also be asked concerning a post-enforcement action requirement imposed on Lilly by the SEC.
The SEC devoted a paragraph of its complaint to “Lilly’s Remedial Measures” and stated as follows.
“Since the time of the conduct noted in this Complaint, Lilly has made improvements to its global anti-corruption compliance program, including: enhancing anticorruption due diligence requirements for relationships with third parties; implementing compliance monitoring and corporate auditing specifically tailored to anti-corruption; enhancing financial controls and governance; and expanding anti-corruption training throughout the organization.”
In other words, per the SEC, over the last approximate decade, Lilly has made extensive enhancements to its FCPA compliance program. Against this backdrop, what is really being accomplished by the requirement that Lilly engage a compliance consultant for a 60 day period?
“Check The Box” Due Diligence?
One of the greater frustrations I experienced during my FCPA practice career was attending meetings with SEC FCPA enforcement attorneys and learning of the alternate world they lived in. In their alternate world, companies – 7 to 10 years ago – were supposed to have current FCPA best practices throughout their organization and the absence of such current best practices was evidence of FCPA books and records and internal control violations.
I was reminded of this alternate world when reading the SEC’s release (here) in connection with the Lilly enforcement action. In it, Kara Novaco Brockmeyer (Chief of the SEC Enforcement Division’s Foreign Corrupt Practices Unit) stated as follows. “Eli Lilly and its subsidiaries possessed a ‘check the box’ mentality when it came to third-party due diligence.”
“Check the Box” due diligence?
The SEC’s allegations concerning due diligence (or lack thereof) focus on the conduct of Lilly-Vostok, a Russian subsidiary, between 1994 through 2005. In other words, 7 to 18 years ago. Even the SEC acknowledged that, as to the relevant third-parties, “Lilly’s due diligence” consisted of “ordering a Dun and Bradstreet report and conducting a search using an internet service to scan publicly available information.” Elsewhere, the SEC acknowledges that Lilly-Vostok “in conjunction with outside counsel” conducted due diligence on various third parties.
Effective due diligence? Probably not – the SEC alleges that certain beneficial owners were not identified and that there was no documentation that certain third parties were capable of performing the engaged services. Due diligence consistent with today’s best practices? Probably not.
Yet to call such due diligence efforts – which took place 7 to 18 years ago – “check the box” is emblematic of the SEC’s alternate reality.
The Double Standard On Display
I have frequently written about the FCPA’s double standard. (See here for all prior posts). The double standard regards the seemingly obvious fact that there is little intellectual or moral consistency between enforcement of the FCPA and enforcement of the U.S. domestic bribery statute (18 USC 201). The double standard is present when a U.S company’s interaction with a “foreign official” is subject to more scrutiny and different standards than its interaction with a U.S. official.
Prior double standard posts (here and here) have explored the frequency in which U.S. business gives to charitable donations favored by influential politicans. No consequences or legal action is taken.
Yet when a U.S. company gives to charitable donation favored by foreign politicians – well that is stuff of bribery and corruption. In addition to the Chudow (Poland) Castle Foundation allegations in the SEC’s Lilly complaint, is the following allegation concerning Russia.
“From 2005 through 2008, Lilly-Vostok made various proposals to government officials in Russia regarding how Lilly-Vostok could donate to or otherwise support various initiatives that were affiliated with public or private institutions headed by the government officials or otherwise important to the government officials. Examples included their personal participation or the participation of people from their institutions in clinical trials and international and regional conferences and the support of charities and educational events associated with the institutes. At times, these proposals to government officials were made in a communication that also included a request for assistance in getting a product reimbursed or purchased by the government. Generally, Lilly-Vostok personnel believed these proposals were proper because of their relevance to public health issues and many of the proposals were reviewed by counsel. Nonetheless, Lilly-Vostok did not have in place internal controls through which such proposals were vetted to ascertain whether Lilly-Vostok was offering something of value to a government official for a purpose of influencing or inducing him or her to assist Lilly-Vostok in obtaining or retaining business.”
No DOJ Involvement
As indicated in the prior Lilly post, the Lilly enforcement action was the latest in a series of FCPA enforcement actions begun in 2011 against pharmaceutical / health care-related companies. All actions (Johnson & Johnson, Smith & Nephew, Biomet, and Pfizer) have been based on the same general set of allegations (things of value to various foreign health care providers for an alleged business purpose). However, the Lilly enforcement action is the only enforcement action with no DOJ involvement. In “The Facade of FCPA Enforcement,” I discuss how the lack of enforcement transparency contributes to the facade of enforcement when the same core set of facts are resolved with materially different results.
A Message For Internal Audit
I have long discussed (see here and here for prior posts and here for a recent interview) the importance of FCPA goggles for internal audit and finance professionals – meaning that internal audit and finance personnel should be specifically trained to approach their specific job functions not only in the traditional way, but also with “FCPA goggles” on. I have noted that it is clear from recent FCPA enforcement actions that the SEC expects much more from non-legal personnel when it comes to FCPA compliance, including the ability to spot FCPA issues and display a high degree of (I’ll call it) intellectual curiosity as to certain issues.
The SEC’s complaint against Lilly contains an emphatic message to the internal audit community. Paragraph 46 of the complaint states, in full, as follows.
“[D]espite an understanding that certain emerging markets were most vulnerable to FCPA violations, Lilly’s audit department, based out of Indianapolis, had no procedures specifically designed to assess the FCPA or bribery risks of sales and purchases. Accordingly, transactions with off-shore entities or with government-affilated entities did not receive specialized or closer review for possible FCPA violations. In assessing these transactions, the auditors relied upon the standard accounting controls which primarily assured the soundness of the paperwork. There was little done to assess whether, despite the existence of facially acceptable paperwork, the surrounding circumstances or terms of a transaction suggested the possibility of an FCPA violation or bribery.”
Friday Roundup
Better late than never, Judge Leon pulls a Judge Rakoff, Edmonds sentenced, it’s official, whistleblower statistics, it ought to stop marketing, China related issues, ICE melted quickly, and a U.K. enforcement action. It’s all here in the Friday roundup.
The Foreign Corrupt Practices Act Under The Microscope
Academic publishing is seldom quick. Yet before the calendar flips into another year, I am pleased to share my article concerning 2011 FCPA enforcement. The abstract of “The Foreign Corrupt Practices Act Under The Microscope” (see here to download) recently published in the University of Pennsylvania Journal of Business Law is as follows. Information in the article is current as of January 16, 2012.
For most of the Foreign Corrupt Practices Act’s history, key decisions concerning its scope and enforcement were made behind closed doors around conference room tables in Washington, D.C. The FCPA took on a life of its own and, in many instances, the statute came to mean whatever the DOJ or SEC could get putative corporate FCPA defendants (mindful of the consequences of actual prosecuted charges) to agree to behind those closed doors. However, as the enforcement agencies continued to push the envelope on enforcement theories and practices, and as the DOJ brought more individual FCPA enforcement actions, including through manufactured sting operations, business entities and individuals alike began to openly fight back. While many FCPA enforcement decisions and procedures remain opaque, 2011 witnessed the most intense year of public scrutiny in the FCPA’s history. This Article (i) provides an overview of 2011 FCPA enforcement and discusses certain problematic enforcement trends, and (ii) highlights how in 2011 the FCPA was subjected to the most meaningful public scrutiny in its history. FCPA enforcement trends and scrutiny demonstrate that as the FCPA nears its thirty-fifth year, basic legal and policy questions remain as to the purpose, scope, and effectiveness of the FCPA.
Start your collection of FCPA Year in Reviews. For my 2011 (short version), see here. For 2010, see here (short version), here (long version). For 2009, see here (long version).
Judge Leon Pulls a Judge Rakoff
My post concerning the SEC’s March 2011 enforcement action against IBM was titled “Questions Abound in IBM Enforcement Action.” (See here). Among the issues I discussed were the following. That in December 2000, IBM resolved an FCPA enforcement action and consented, as part of the settlement, to the entry of an Order that requires IBM to cease and desist from committing or causing any future violation of [the FCPA’s books and records provisions]. I noted that because the March 2011 enforcement action alleged FCPA books and records charges, that IBM was thus in clear violation of the 2000 court order.
The case was assigned to Judge Richard Leon (of Africa Sting fame) and lingered for a long time. This Wall Street Journal Corruption Currents post and this Bloomberg article report that Judge Leon has refused to approve the settlement.
As stated by Bloomberg – “The heart of the dispute is that Leon, who has had the case under review for 22 months, wants reporting on a broader range of possible wrongdoing than the company is willing to turn over. Leon, who spoke loudly and angrily, asked why the regulator would agree to limit such requirements for a company with a history of books-and-records violations. […] “I guess you want that $10 million judgment on your list of achievements this year,” Leon told [the SEC lawyer]. “Well, it’s not going to happen.” He scheduled a hearing for Feb. 4.”
As stated by Wall Street Journal Corruption Current – “Leon also questioned broader SEC settlement policies and warned that he was among “a growing number of district judges who are increasingly concerned” by those policies.”
In not “rubber stamping” the SEC – IBM settlement, Judge Leon pulled a Judge Rakoff. Judge Rakoff of the S.D. of N.Y. has been a frequent focus on this site – see here, here, here and here. See also, the discussion of Judge Rakoff in my 2010 article “The Facade of FCPA Enforcement.”
Edmonds Sentence
This past June, David Edmonds, a defendant in the long-running “Carson” enforcement action involving former employees of Control Components Inc., agreed to plead guilty on the eve of trial to substantially reduced charges. (See here for the prior post). Earlier this week, Judge James Selna sentenced Edmonds to four months in prison and four months of home confinement. (See here for Judge Selna’s sentencing memo). As noted in the DOJ’s sentencing memo (here), the DOJ sought a 14 month prison sentence.
Other defendants previously sentenced in the case are Stuart Carson (4 months in prison followed by 8 months of home detention), Hong Carson (3 years probation to include 6 months of home detention) and Paul Cosgrove (13 months home detention).
It’s Official
Imagine a foreign country in which the president is actively seeking and accepting corporate money to fund inaugural festivities. All sorts of red flags right?
But wait, this describes the United States and President Obama’s upcoming inauguration. As detailed in this prior post, President Obama’s fundraising advisers “have urged the White House to accept corporate donations for his January 2013 inaugural celebration rather than rely exclusively on weary donors who underwrote his $1 billion re-election effort.”
It’s now official. As noted by this recent New York Times article “President Obama’s finance team is offering corporations and other institutions that contribute $1 million exclusive access to an array of inaugural festivities.” As noted in the article, Obama’s finance team is offering four different packages “with differing levels of access depending on the level of contribution.”
Our FCPA enforcement agencies are bringing enforcement actions against companies for conduct that includes providing $600 bottles of wine, Cartier watches, cameras, kitchen appliances, business suits, and executive education classes to individuals employed by foreign companies that are allegedly state-owned or state-controlled. (These are all allegations found in recent FCPA enforcement actions).
But remember, as Assistant Attorney General Lanny Breuer recently declared (see here), “we in the United States are in a unique position to spread the gospel of anti-corruption.”
Whistleblower Statistics
The Dodd-Frank Act enacted in July 2010 contained whistleblower provisions applicable to all securities law violations including the Foreign Corrupt Practices Act. In this prior post from July 2010, I predicted that the new whistleblower provisions would have a negligible impact on FCPA enforcement. As noted in this prior post, my prediction was an outlier (so it seemed) compared to the flurry of law firm client alerts that predicted that the whistleblower provisions would have a significant impact on FCPA enforcement.
So far, there have not been any whistleblower awards in connection with FCPA enforcement actions. Given that enforcement actions (from point of first disclosure to resolution) typically take between 2-4 years, it still may be too early to effectively analyze the impact of the whistleblower provisions on FCPA enforcement.
Whatever your view, I previously noted that the best part of the new whistleblower provisions were that its impact on FCPA enforcement can be monitored and analyzed because the SEC is required to submit annual reports to Congress. Last month, the SEC released (here) its annual report for FY2012.
Of the 3,001 whisteblower tips received by the SEC in FY2012, 3.8% (115) related to the FCPA. As noted in this similar post from last year, in FY2011 (a partial reporting year) 3.9% of the 334 tips received by the SEC related to the FCPA.
It Ought to Stop Marketing
In this previous post titled “It Ought to Stop” I focused on the FCPA conference industry and how conference firms drive attendance to their events by touting the public servants who will speak at the event.
Here is how conference firm C5 touts its upcoming conference in a press release (here).
Ask the U.S. DOJ and U.S. SEC directly how your company can remain compliant
Hear the latest on the newly released FCPA guidance. Along with the U.S. Securities & Exchange Commission’s, Charles E. Cain, the Deputy Chief of the FCPA Unit, Enforcement Division, we will have Matthew S. Queler, from the Criminal Division at the U.S. Department of Justice, presenting comprehensive, insightful and practical details of the U.S. government’s interpretation of the guidance, and highlight recent examples designed to help prevent future violations. Their session at 14:00 on Day 1, will help you navigate the ever evolving markets and recognize the current enforcement trends; giving you the tools to reanalyse risk profiles and minimize areas of exposure. Finally, to top off the hour you will be given an exclusive opportunity to have your FCPA questions answered. The only way to obtain answers directly from the U.S. DOJ and U.S. SEC is to register for this forum!
The event, depending when you register and which package you select, costs between €4341 – €1795.
It ought to stop.
China Related Issues
An occassional topic of discussion on this site is Chinese state-owned enterprises (SOEs) and how such companies are frequently doing business outside its borders, including here in the U.S. (See here, here, and here for prior posts).
Wall Street Journal Columnist Dennis Berman “hit the nail on the head” in his recent column when he noted that one of “the most intriguing business stories of the past month has been taking place in San Francisco, where a group of U.S. developers is planning the biggest real-estate expansion there since the 1906 earthquake. The group—which includes Lennar Corp., Ross Perot Jr. and others —isn’t getting financing from an American bank or pension fund. No, the money, some $1.7 billion of it, is coming from the China Development Bank, a policy arm of the Chinese state. As Berman further notes, a financing contingency is that China Railway Construction Corp. – a state-owned infrastructure builder with roots in the People’s Liberation Army—take part in the projects, which will develop up to 20,000 new homes.
Another occasional topic of discussion on this site is how Chinese companies are listing shares on U.S. exchanges and thus becoming “issuers” for purposes of the FCPA. (See here for a prior post). A core FCPA enforcement action of a Chinese issues has never occurred, but I predict it will some day – diplomatic and foreign policy issues aside. Only now, the universe of potential targets is shrinking. As noted in this recent Wall Street Journal article, several Chinese companies have delisted from U.S. exchanges. The article provides the following information. “At the peak, at year-end 2010, 167 Chinese companies were listed on Nasdaq and 99 on the NYSE. That compares with 84 China-based companies on NYSE and 129 on Nasdaq as of Nov. 30, 2012, according to the exchanges.” For more, see this recent article from the New York Times.
ICE Melted Quickly
This recent post highlighted the cert petition of Instituto Constarricense de Electricidad of Costa Rica (“ICE”) to the Supreme Court related to victim issues in connection with the December 2010 Alcatel-Lucent FCPA enforcement action. After several unsuccessful 11th Circuit appeals, ICE petitioned the Supreme Court to hears it case (see here). The question presented for review is as follows. “Whether a crime victim who is denied rights conferred by the federal Crime Victims’ Rights Act has a right to directly appeal the denial of those rights.”
The ice melted quickly as recently the Supreme Court denied ICE’s petition.
U.K. Enforcement Action
Earlier this week, the U.K. Serious Fraud Office announced (here) charges against former employees of Swift Group (an oil and gas services provider) following “a two-year investigation into allegations of corruption in relation to the tax affairs of Swift Technical Energy Solutions Ltd, a Nigerian subsidiary of the Swift Group of companies.” According to the SFO release, “the value of the bribes alleged to have been paid is approximately£180,000.”
The SFO release notes that Paul Jacobs (the former Chief Financial Officer of Swift), Bharat Sodha (the former Tax Manager of Swift), Nidhi Vyas (the former Financial Controller of Swift), and Trevor Bruce (the former Area Director for Nigeria of Swift) were charged in relation to “bribes to tax officials to avoid, reduce or delay paying tax on behalf of workers placed by Swift. The charges relate to payments said to have been made to agents of the Rivers State Board of Internal Revenue and the Lagos State Board of Internal Revenue, both in Nigeria. The payments were made in 2008 and 2009.”
*****
A happy holiday season to all.
New Position, New Positions
On February 1, 2012 Davis Polk announced (here) that Greg Andres (the former DOJ Deputy Assistant Attorney General, Criminal Division) was leaving government service to join the law firm. The firm’s release noted that Andres, while at the DOJ, “was involved in policy and enforcement issues” relating to the Foreign Corrupt Practices Act. Likewise, on his Davis Polk bio page (here), Andres notes that while at the DOJ he “managed” many of the DOJ’s white collar prosecutions, including the DOJ’s FCPA program, and that he “represented” the DOJ on FCPA issues before Congress.
Indeed, at both the November 2010 Senate FCPA hearing and the June 2011 House FCPA Hearing, Andres was the voice and face of the Department of Justice.
This post highlights how Andres’s new position has resulted in new positions as to several FCPA issues and also highlights the significant public policy issue of former enforcement agency attorneys marketing, in private practice, the reality they helped to create while at the government.
During his Senate testimony (here), Andres encouraged companies to voluntarily disclose conduct that could implicate the FCPA.
Now that he is in private practice, Andres appears to have a different position on voluntary disclosure.
In an interview published by Corporate Crime Reporter on November 19th, Andres stated as follows. “Not every issue that a company uncovers should necessarily be disclosed. Some of it depends on size and scale – hundreds, or thousands or tens of thousands of dollars – it may not rise to the level where you would need to bring it to the Department’s attention.”
During his House testimony (here), Andres stated that an FCPA compliance defense “is a novel and somewhat risky approach, the time is not right to adopt such a compliance defense.”
Now that he is in private practice, Andres appears to have softened his position. The same Corporate Crime Reporter interview included the following Q&A.
Q: You were with the government when the government was saying no compliance defense is necessary. Is that your view now?
A: I don’t know that I would take a specific view on that. I’m certainly aware of what the government’s arguments were in favor [of rejecting such a defense]”
The Corporate Crime Reporter interview also highlights the significant public policy issue of former enforcement agency attorneys marketing, in private practice, the reality they helped to create while at the government.
For instance, in both his written and oral Senate testimony, Andres stated as follows. “The investigation and prosecution of transnational bribery is an important priority for the Department of Justice and we have been hard at work.”
Now in private practice, Andres’s practice appears to be benefitting from the priorities and policy he recently articulated while at the DOJ. The Corporate Crime Reporter interview included the following Q&A.
“Q: What part of your practice is FCPA?
A: At the moment a large part. That remains a large focus of the government’s white collar program. Our practice reflects in part the priorities of the Department of Justice. And clearly the FCPA is one.”
For another instance of a former high-ranking DOJ FCPA official marketing the reality he helped to create, see this prior post.
I have frequently written about the revolving door of FCPA enforcement attorneys into private practice. Some will say, that is just how Washington works. That is hardly a persuasive response.
Given the niched nature of both the DOJ and SEC FCPA units, I have long called for (see here and here) a five year prohibition on FCPA enforcement attorneys and those setting government FCPA policy from providing FCPA defense or compliance services in the private sector.
Related to this issue, a recent study focused on the SEC (here) and examined whether SEC lawyers’ future career prospects influence their enforcement efforts while at the SEC. The study found that lawyers that leave the SEC to join law firms that specialize in defending clients against the SEC are associated with stronger enforcement efforts.
Friday Roundup
A prosecutorial common law defeat, the SEC repeats its prior positions, better but not good, document issues, and recent scrutiny news.
Prosecutorial Common Law Defeat
One of the best guest posts in FCPA Professor history was this 2011 post from Michael Levy in which he described the concept of prosecutorial common law. Prosecutorial common law is all around us. Take a look at the footnotes of the recent FCPA Guidance – most of the “authority” cited for “legal” propositions is DOJ or SEC settlements.
For obvious reasons, prosecutorial common law does not sit well with federal court judges. For instance, in U.S. v. Bodmer, Judge Shira Scheindlin of the Southern District of New York, in rejecting the DOJ’s position that the FCPA’s criminal penalty provisions applied to a foreign national prior to the 1998 FCPA amendments, noted as follows – “the Government’s charging decision, standing alone, does not establish the applicability of the statute.” Likewise as noted in this previous post about the Giffen enforcement action, Judge William Pauley of the Southern District of New York stated that prosecutorial common law “is not the kind or quality of precedent this Court need consider.”
Prosecutorial common law recently suffered a major defeat when the Second Circuit, in a non-FCPA case, rejected (see here for the opinion) a DOJ theory of prosecution concerning off-label promotion of drugs that it has previously used to secure billions (yes that is a “b”) in recent settlements with pharmaceutical companies.
Commenting on this recent development, Levy stated as follows. “It is amazing to me how consistently this pattern seems to repeat but, given the incentives on both sides, I don’t really see any structural solutions that would change it.”
For additional reading, see this client alert from Debevoise & Plimpton, this client alert from Arnold & Porter, and this client alert from Gibson Dunn.
SEC Responds to Magyar Telekom Execs Motion to Dismiss
Given the SEC’s positions in its recent response to Herbert Steffen’s motion to dismiss (see here for the prior post), it comes as little surprise that the SEC is taking the same positions in its response to the motion to dismiss filed by former Magyar Telecom executives Elek Straub, Andras Balogh and Tamas Morvai.
In its response brief (here), the SEC states, in summary form, as follows.
“The defendants move to dismiss the complaint, arguing that (1) the Court lacks personal jurisdiction; (2) the SEC’s claims are time-barred; (3) the complaint fails to allege facts supporting the SEC’s anti-bribery claims; and (4) the complaint fails to allege facts supporting the SEC’s lying to auditors claims. The Court should deny the motion on all four grounds.
First, the defendants are subject to personal jurisdiction because their conduct caused foreseeable consequences in the United States. The complaint alleges that the defendants orchestrated a bribery scheme in Macedonia; that they concealed their bribes through the use of sham contracts and falsified books and records; that they lied to Magyar’s auditors by signing false annual and quarterly certifications; and that their actions caused Magyar to file annual and quarterly reports with the SEC in the United States that misrepresented the company’s financial statements and included false Sarbanes-Oxley certifications.
Second, the complaint was timely filed within the statute of limitations set forth at 28 U.S.C. § 2462. That provision expressly states that the limitations period does not begin to run until the defendants are “found within the United States.” The defendants acknowledge in their brief that they have remained outside of the United States since their commission of this scheme. Thus, the statute of limitations period has not begun to run as to them. In any event, claims for equitable relief are not subject to the limitations period of Section 2462, which by its terms applies only to “penalties.”
Third, the complaint pleads all facts necessary to support every element of every claim against the defendants. The defendants met the “interstate commerce” prong of Exchange Act Section 30A, 15 U.S.C. § 78dd-1, by sending, in furtherance of their bribery scheme, electronic mail messages that were routed through servers located in the United States. Because the use of interstate commerce is a jurisdictional element, the Exchange Act does not require that defendants know, let alone “corruptly” intend, that their messages would reach the United States. The complaint sufficiently identifies the foreign officials whom the defendants bribed; Section 30A does not require that the officials be expressly named. And the complaint sufficiently identifies the specific false statements made by each defendant to Magyar’s auditors and why those statements were material.”
Of particular note as to “foreign official,” the SEC makes the sweeping statement that “there is no requirement under the FCPA or in the case law interpreting it that the SEC’s complaint [needs to] identify bribed foreign officials by name.” The SEC then states in a footnote as follows. “Any such requirement would be completely at odds with the FCPA’s statutory scheme. […] By its very structure, [the anti-bribery provisions were] drafted to prohibit corrupt transactions in which the precise identity of a government official might not be known even to the payor.”
As noted in this previous post, the SEC is asserting the same “foreign official” position in the Mark Jackson / James Ruehlen challenge. Oral arguments are to take place today on that motion in Houston.
It should be noted that in the DOJ’s unsuccessful prosecution of John O’Shea, Judge Hughes stated as follows. “[W]hile the Government does not have to trace a particular dollar to a particular pocket of a particular official, it has to connect the payment to a particular official, that the funds made under his authority to a foreign official, who can be identified in some reasonable way, that is, with no reasonable doubt.” Judge Hughes also stated as follows. “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 [intermediary] and say, look, I’m going to send you 50 grand, bribe somebody, that does not meet the statute.”
Corruption Perception Index
Transparency International (“TI”) recently released its annual Corruption Perceptions Index (“CPI”) (see here). The CPI ranks countries/territories based on how corrupt their public sector is perceived to be and is a composite index drawing on corruption-related data collected by a variety of reputable institutions and reflecting the views of observers from around the world including experts living and working in the countries/territories evaluated.
The top three (very clean) countries in the CPI were Denmark, Finland and New Zealand. The bottom three (highly corrupt) countries were Afghanistan, North Korea and Somalia.
The United States placed 19th on the list of 176 countries. While this is better than last year’s 24th place finish, as noted in this prior post it’s a bit ironic that as the U.S. aggressively expands its Foreign Corrupt Practices Act enforcement theories, the U.S. remains far from the top of the CPI.
Assistant Attorney General Lanny Breuer recently spoke of the U.S. FCPA enforcement effort in religious terms (“we in the United States are in a unique position to spread the gospel of anti-corruption, because there is no country that enforces its anti-bribery laws more vigorously than we do”), yet CPI’s rankings should again cause pause as to our claimed moral superiority.
Document Issues
I am not one to usually highlight FCPA Inc. marketing material, but I thought this video clip from e-discovery firm H5 was instructive as to many of the document issues involved in an FCPA investigation. The enforcement agencies have commented from time to time that FCPA Inc. has a tendency to sometimes over do it in this area, but be that as it may – data collection, data storage, data analysis, etc. are among the reasons why FCPA investigations often soar into the millions.
Recent Scrutiny News
Rolls-Royce
Reuters reports (here) that Rolls-Royce, the world’s second-largest maker of aircraft engines “said the [U.K. Serious Fraud Office] had asked it to conduct an internal inquiry into dealings involving intermediaries in China, Indonesia and other overseas markets.” According to the report, “a source close to the investigation said the allegations relate to events in the “distant past” and Rolls-Royce had told the U.S. Department of Justice about the inquiry.”
As noted in this previous post, in June, Data Systems & Solutions, LLC, a wholly-owned subsidiary of Rolls-Royce Holdings, resolved an FCPA enforcement action.
Barclays
Reuters also reports (here) that a previously disclosed DOJ and SEC “investigation into whether Barclays Plc paid bribes to win a banking license in Saudi Arabia has spread to other banks that operate in the region.”
Net 1
Earlier this week, Net 1 UEPS Technologies Inc. disclosed in an SEC filing (here) as follows.
“On November 30, 2012, we received a letter from the U.S. Department of Justice, Criminal Division (the “DOJ”) informing us that the DOJ and the Federal Bureau of Investigation have begun an investigation into whether Net 1 UEPS Technologies, Inc. and its subsidiaries, including their officers, directors, employees, and agents (collectively, “Net 1”) and other persons and entities possibly affiliated with Net 1 violated provisions of the Foreign Corrupt Practices Act and other U.S. federal criminal laws by engaging in a scheme to make corrupt payments to officials of the Government of South Africa in connection with securing a contract with the South African Social Security Agency to provide social welfare and benefits payments and also engaged in violations of the federal securities laws in connection with statements made by Net 1 in its SEC filings regarding this contract. On the same date, we received a letter from the Division of Enforcement of the Securities and Exchange Commission (the “SEC”) advising us that it is also conducting an investigation concerning our company. The SEC letter states that the investigation is a non-public, fact-finding inquiry.”
In this additional release, the company states as follows.
“These investigations appear to be directed at matters which are similar to those that were the subject of articles which appeared in various South African newspapers after AllPay Consolidated Investment Holdings (Pty) Limited (“AllPay”) instituted legal proceeding in the South African courts to set aside the contract awarded to us in January 2012 by SASSA. AllPay was an unsuccessful bidder for the SASSA contract.”
News of the company’s FCPA scrutiny caused the company’s U.S. listed shares to plunge approximately 58%. This of course caused several plaintiff law firms to announce investigations of their own. See here, here, and here. In the meantime, the company’s shares have risen 46%.
It’s an FCPA world.
*****
A good weekend to all.