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.
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A good weekend to all.
A Q&A On Being A Midwestern FCPA Lawyer
The FCPA bar is mostly concentrated in Washington, D.C. and New York City. Yet outside the beltway and financial center of the country, there are also lawyers with successful practices devoted to the Foreign Corrupt Practices Act and related issues.
One such lawyer is Indianapolis based Trent Sandifur – a partner at Taft Stettinius & Hollister. In this Q&A, Sandifur discusses how he became interested in the FCPA and his Midwest FCPA practice.
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Describe your anti-corruption practice and experience?
I am a partner in the Indianapolis office of Taft Stettinius & Hollister LLP, a law firm of about 350 attorneys with seven offices in Ohio, Indiana, Northern Kentucky, and Arizona. I help lead Taft’s FCPA & International Anti-Corruption practice area and handle the full spectrum of anti-corruption matters – compliance programs, due diligence, training, internal reviews and investigations, and government investigations and enforcement defense. I have worked on anti-corruption matters involving countries throughout Asia, Africa, the Middle East, Latin America, and Europe for clients ranging from individuals to large multinational corporations.
Like most anti-corruption attorneys, my practice has grown substantially over the last few years in response to greater corporate awareness of FCPA and UK Bribery Act risks. Unlike most anti-corruption attorneys, I am an Army JAG Corps major and serve part-time in the Army National Guard. In my military capacity, I have conducted corruption-related investigations and worked on anti-corruption compliance matters in Afghanistan. While there are obvious cultural differences between the corporate world and the Army, my military experience has informed nearly every aspect of my anti-corruption practice at Taft – particularly when it comes to conducting internal investigations, providing training, and managing risk.
How did you become interested in the FCPA?
I first became interested in the FCPA in 1999, while studying in Notre Dame’s London Law Program and clerking in the London office of a US-based firm during my second year of law school. At the time, the FCPA was a seldom-enforced law of limited practical consequence, not the compliance headliner it is today. I was fortunate to be exposed to the FCPA as a law student because of the London Law Program’s internationally-focused coursework and the needs of the clients I was assisting.
After law school, I enrolled in the University of Chicago’s one-year international relations master’s degree program while preparing to start my active duty service obligation in the Army JAG Corps. The University of Chicago is where my interest in the FCPA really took off, which I credit to the influence of Bob Tarun, an adjunct professor at the University of Chicago Law School at the time. Bob is one of the top FCPA attorneys in the country and the author of The FCPA Handbook (if you are an anti-corruption attorney, a copy of this book should be on your desk). I was a student in a small seminar that Bob taught on white collar criminal law in which we discussed the FCPA. Bob’s FCPA insights fascinated me, and I became enthralled with the FCPA because it stood at the intersection of white collar criminal law, international law, international relations, and foreign cultures.
Indianapolis is not known as an FCPA hotbed. What was your path to establishing an FCPA practice?
In the Army JAG Corps I happened to be in the right place at the right time because, a few months after completing initial JAG training and Airborne School, I was assigned to the Department of Justice (“DOJ”). I served three years as one of a few full-time Special Assistant US Attorneys in the Army who investigate and prosecute civilian felonies with an Army connection. My experience with the DOJ put me on a fast track to having an anti-corruption practice because I learned how to investigate and try complex criminal cases. I also gained a deep understanding of the DOJ’s culture and compliance expectations, which is invaluable for any anti-corruption attorney.
Shortly after starting at an Indianapolis firm, I happened to be in the right place at the right time again because we merged into Taft. The merger more than tripled our size, added six offices, greatly increased the number of clients we had with FCPA needs, gave us international reach, and most importantly, provided attorneys with deep FCPA knowledge, skills, and experience. Those attorneys and I became the foundation for Taft’s FCPA & International Anti-Corruption practice area, the growth of which over the last four years has allowed me to focus my practice almost exclusively on anti-corruption law. I understand that Indianapolis and other Midwestern cities, aside from Chicago, are not the historical FCPA hotbeds that places like Washington DC and New York City are, but we have succeeded in building an anti-corruption practice not in spite of our location, but largely because of it.
What advantages and disadvantages do attorneys at regional law firms have compared to attorneys at large multinational law firms and what advice do you have for Midwestern attorneys who want to build an FCPA practice?
Anti-corruption attorneys at regional law firms have several advantages over attorneys at large multinational law firms. With hourly rates that typically are one-third to one-half the hourly rates of large multinational law firms, regional law firm attorneys in the Midwest and other areas of the country with similar law firm overhead costs have an inherent advantage in price. Broadly speaking, anti-corruption attorneys at regional law firms also have an advantage in client service over anti-corruption attorneys at large multinational law firms. The greater agility and flexibility of regional law firms typically allows attorneys to innovate more rapidly in response to constantly-evolving anti-corruption risks than attorneys with large multinational law firms and correspondingly large global bureaucracies.
Anti-corruption attorneys at regional law firms also must address several factors with the potential to become disadvantages. For example, anti-corruption attorneys at large multinational law firms often have broad, national anti-corruption reputations due in large part to the geographic reach of their firms. Therefore, anti-corruption attorneys at regional law firms must ensure that their reputations are equally broad and strong by providing superior services and devoting meaningful time to anti-corruption speaking engagements, writing, and related practice development activities at the national and international level. Large multinational law firms also, by definition, have overseas offices. Regional law firm anti-corruption attorneys must therefore develop strong relationships with foreign law firms (or friendly US-based law firms with overseas offices) to gain assistance with overseas investigations, language issues, local knowledge, etc.
These advantages and potential disadvantages are relevant only to the extent that the quality of anti-corruption services, by far the most important factor in winning anti-corruption work and building a successful anti-corruption practice, is equal between a given regional law firm attorney and large multinational law firm attorney. As recent financial penalties and prison sentences attest, the results of an ineffective anti-corruption compliance program or a shoddy internal anti-corruption investigation that lacks credibility with the government can be disastrous. If regional law firm attorneys fail to develop and provide the highest-quality anti-corruption services, nothing else matters – especially when it comes to “nuclear events” like government investigations. However, if regional law firm attorneys provide top-end anti-corruption services, they put themselves in an excellent position to compete for and win anti-corruption work.
This “large multinational law firm quality with regional law firm prices and service” strategy has helped build Taft’s anti-corruption practice and is a strategy that I am confident would lead to success for other regional law firms in the Midwest. You do not need a 212 or 202 area code to be an outstanding anti-corruption attorney, and I am hopeful that as more regional law firms in the Midwest develop robust anti-corruption practices, a strong Midwestern anti-corruption bar will emerge.
Across The Pond
After focusing on the FCPA guidance for the past few weeks, this post goes across the pond to check in on three U.K. developments.
First Her Majesty’s Crown Prosecution Service Inspectorate, the independent Inspectorate for the U.K. Crown Prosecution Service, recently released (see here) a “Report to the Attorney General On The Inspection of the Serious Fraud Office.” The report focuses mostly on general issues, but readers may be most interested in Chapter 8 dealing with “Asset Recovery and Alternative Resolution.”
Second, the Crown Office (the agency responsible for prosecution of crime in Scotland) recently announced (here) a £5.6 million civil recovery enforcement action against Aberdeen, Scotland based drilling company Abbot Group Limited. According to the release, Abbot “admitted that it had benefited from corrupt payments made in connection with a [2006] contract entered into by one of its overseas subsidiaries and an overseas oil and gas company.” According to the release, “the sum to be paid by Abbot represents the profit made by the company under the contract.” Two things to note. First, the release makes much of the fact that Abbot “self-reported” the conduct at issue. Yet, the release itself states that “the corrupt payments were brought to light in May 2011 following enquiries by an overseas tax authority which resulted in an investigation by a firm of solicitors and a firm of accountants instructed by Abbot itself.” Second, the release notes that the enforcement proceeds “will be invested in the Scottish Government’s hugely successful CashBack for Communities Programme which takes cash from the Proceeds of Crime and invests it in a range of sporting, cultural, community mentoring projects and sports facilities for the benefit of our young people and their communities.”
Third, David Green (Director of the U.K. Serious Fraud Office) recently answered questions before a House of Commons Justice Committee. (See here for the transcript). In his comments, Green: (i) says FCPA / Bribery Act Inc. created unnecessary “spin” regarding the SFO’s recent policy revisions; (ii) discusses the role of the SFO; (iii) makes an apt analogy to early enforcement of the FCPA; and (iv) talks about the prospect of DPAs in the U.K.
Below are excerpts from the Q&A’s that touch upon bribery and corruption issues.
“Q24 Steve Brine: […] I want to ask you about the notes that I have been reading about facilitating payments, business expenditure and corporate self-reporting. What is your intention behind the revision of policies on those three areas? Are they really a radical departure from the previous guidance, or is there a bit of spin there?
David Green: It is not my spin. What you might call the bribery and corruption industry-by which, I suppose, if I was being unkind, I might mean lawyers who make an enormous amount of money out of it, advising corporates-wants to put it that way. In fact, it is not that. What I have done, as you know, is to withdraw policies in relation to bribery and corruption, and they have been replaced with a statement that we are subject to the joint guidance agreed with the Crown Prosecution Service. In other words, all I have done is to remove what is actually a unilateral gloss placed on that joint guidance by my predecessor at the SFO. It was also done in order to comply with the recommendations of the OECD which, as you will know, are about being careful how a self-report is defined.
What I have done most specifically, which certainly excited some-perhaps they are easily excited-is to withdraw the exclusive pledge that the SFO would not prosecute if you self-report. Why did I do that? In my view, it is not something that a responsible prosecutor should be saying, simply because you have no idea what kind of facts or combination of facts you might be presented with when somebody comes through your door with an expensive lawyer. You have no idea, so you cannot cater for it in advance. What you can say, without question, is that the fact of a genuine self-report-by a genuine self-report I mean, in its purest form, telling us something that we did not know already, and the corporate acting proactively to investigate it-must be very significant as a factor in weighing up the public interest limb of the decision to prosecute; that is the code test. That is what I am about. That is why I did that.
There is one other thing. I have said that I wanted to restate the SFO’s role as a crime-fighting agency. In addition, frankly, so far as I am concerned, we are not there to give advice to people. They can get their advice from their lawyers and their other experts, which they have in spades. I am not there, nor are my staff there, to give advice. We are there to investigate and prosecute serious fraud, bribery and corruption.”
[…]
Q26 Steve Brine: […] “Without specifying details, would you give us some indication of how many investigations you are currently undertaking into potential offences under the Act?
David Green: Under the new Act?
Q27 Steve Brine: Yes, because you are also bringing cases under old bribery legislation, are you not? Let us just look at the new Act. It is not retrospective, if I am correct.
David Green: That is exactly right. We are just concerned with stuff after July 2011. It is important to understand that section 2A of the Criminal Justice Act 1988 added a pre-investigation power in relation to bribery and corruption, which enables us basically to look at the facts and assess them, and to see whether there is material that would justify, in law, my launching a full-scale investigation. If I may, for the sake of clarity, I shall call those pre-investigation investigations “projects”.
From recollection, we have seven cases that are in the project phase. What will come of them I cannot tell you; I really do not know, but if we can we will turn them into investigations if we are justified in doing so. We have another half dozen cases that relate to pre-Bribery Act law; again, they are in the same phase.
Understandably, legislators, journalists and, indeed, members of the public may say, “Well, you have this marvellous new Bribery Act. What are you doing about it?” As a kind of private project, I have been looking at the fortunes of the FCPA-the Foreign Corrupt Practices Act of the United States. That was enacted in the late 1970s, and the first prosecution was in 1981. It did not get any teeth, in a really meaningful way, until the penalties were enhanced, and so forth, in the 1990s. I am not saying for a moment that you are going to have to wait 20 years for your first Bribery Act prosecution, but things are in hand and no one would be keener than I would to see a good, solid Bribery Act prosecution. We are working on it.”
[…]
“Q30 Mr Buckland: May I move on to the question of deferred prosecution agreements? I have read very carefully the memorandum and evidence that you have submitted to the Committee, and it is clear that the SFO supports the Government’s proposals to amend the current Crime and Courts Bill and to bring in DPAs. I do not know whether you or your office have troubled yourselves with the potential impact assessment, in terms of financial benefit and whether the SFO directly would receive either a share or the entirety of any receipts from financial settlements pursuant to DPAs.
David Green: As I understand it, all funds from DPAs will go directly to the Treasury, to avoid concerns over conflicts of interest.
Q31 Mr Buckland: So there is no hypothecation. Would it be fair to say that the SFO would have a legitimate expectation that, even though the moneys were not hypothecated, you could end up receiving some additional funding to help deal with the work that you are doing?
David Green: It has always been my view, Mr Buckland, that the SFO is here to stay, but that it needs to prove itself. Assuming that it proves itself-I hope fervently that it does-I would be the first to join any negotiation on an enhanced budget to get us more resources to do more good work. But I would say that, wouldn’t I?
Q32 Mr Buckland: I would expect you to, and I am glad to hear it. Having looked at the impact assessment prepared by the MoJ on DPAs, I was a little concerned. My reading of it is that there was an assumption in the document that there would not be an overall increase in the number of cases dealt with. In other words, there would potentially be a shift from early guilty pleas to DPAs, meaning no overall increase in the number of cases dealt with. Would that be your expectation, or would you hope for something more ambitious?
David Green: I would be far more ambitious. I would expect our case load-including cases dealt with under DPAs-to increase significantly once they kick off. I hope, as I am sure you do, that we will have our first DPA in place in early 2014.
Q33 Mr Buckland: Obviously, public perception is very important. Two aspects of DPAs as currently proposed may cause some concern. The first is having the preliminary hearings in private, as opposed to having all hearings in public. Does the SFO have a view on the reasons for that proposal?
David Green: I do not, as I sit here, have a particular view on that. What I would say is that later on, as the process develops, it does of course become public. Obviously a big difference between our DPAs and the US model is judicial involvement from day one. I would not be happy in expressing a particular view on that. It is something that I would have to think about, but I would be happy to let you know in due course.
Q34 Mr Buckland: I would be very grateful, Mr Green. Thank you. Again, public perception is important. The idea that you are doing some sort of niche job is wholly wrong, I think. The public are genuinely concerned about a culture of impunity that is perceived to have grown up around corporate and serious fraud. Is there a danger, with DPAs, that we could end up with white-collar crime somehow being seen as less serious than other types of crime?
David Green: That is obviously something that I have thought about a lot-indeed, it has troubled me-and I think that the answer is this. It is important that DPAs are seen as just one additional tool in the prosecutor’s toolkit. They are certainly not, in any sense, a universal panacea for corporate misconduct. They will be used in the right circumstances only. An example of what I think would be the right circumstance is where an incoming board chooses to self-report past misconduct by a previous board, which it has unearthed and proactively investigated. That would be just the sort of challenge to be met, in my view, by a DPA. It would certainly not be appropriate if, for instance, the corporate had been set up and used as a vehicle for fraud. That would be quite wrong. Obviously our first principle, as I hope I have made clear, is that serious fraud, bribery and corruption must always be prosecuted where that is possible-always.
Q35 Mr Buckland: Do you see this as having the potential to deal with the common scenario of when a legitimate business becomes dishonest? I am sure that, like me, you have had plenty of experience of that sort of scenario.
David Green: Of course, we would only be dealing with the corporate itself, under a DPA.
Q36 Mr Buckland: Not the individual.
David Green: Indeed. If there was a case against individuals, we would obviously prosecute if we could.
Q37 Mr Buckland: One concern that has been put to me about DPAs is that we have looked to the United States as an example, but that the US has a very big stick in terms of how they-I won’t say aggressively, but certainly robustly-police their free market, and the penalties available under the criminal justice system in the various US states to deal with wrongdoers. Do you think that the British scenario, where the stick is much less potent, is a good parallel to draw with the United States?
David Green: Just as we have adapted the US model for our circumstances, so we have adapted the carrot and stick equation. I have touched on this twice, but I cannot overemphasize the importance of our decision to enhance our intelligence capability. I really mean business on that. At the moment, our intelligence capability-the one I inherited-is really a sort of vetting process. I want to be far more aggressive in our intelligence activities, not to run it ourselves but to buy it in from, say, the City of London police or external agencies, going up to all sorts of exotic intelligence. The intelligence capability being built up-that is the stick. These people may well be found out, and they need to understand that. The carrot, of course, is often said to be certainty. Actually, it is not really certainty, because when they come along to self-report, they are not sure how they are going to end up. What they mean, I think, is finality. In other words, a line will be drawn in the sand under previous corporate misconduct, under certain conditions, and a company can then move on. Having thought about it quite a lot, I think that that is really what a corporate wants.”
The Guidance Press Conference
The Foreign Corrupt Practices Act guidance (here) released yesterday by the DOJ and SEC was a year long effort, no doubt subject to multiple revisions and review, and was highly scripted.
Not so with the press conference yesterday by Assistant Attorney General Lanny Breuer and SEC Enforcement Division Director Robert Khuzami. This post highlights certain of the comments made by Breuer and Khuzami at the press conference and contains a few comments of my own.
Breuer began the conference by noting that the guidance represents the “most comprehensive effort ever [by the DOJ] to explain [its] approach to enforcement as to a particular statute.” He said that the DOJ strives to be “transparent” in this area and wants everyone to “understand why we prosecute cases as vigorously as we do and why we make our charging decisions.”
Khuzami added that the guidance should “clear up some myths about the types of conduct that get prosecuted.”
In response to a question whether the Chamber of Commerce should be satisfied with the guidance, Breuer stated that he called former Attorney General Michael Mukasey [who has lobbied on behalf of the Chamber for FCPA reform) prior to the conference and that the guidance reflects the Chamber’s suggestion for various hypotheticals. Breuer said that “any fair-minded person” should see the guidance as a “substantial step forward in transparency in a very real way.”
Breuer was asked specifically about an FCPA compliance defense and said such a defense would be “dangerous and antithetical to the way [the DOJ] pursues criminal justice cases.” Breuer stated that such a defense “runs the risk of a race to the bottom” and that there “can’t be an absolute defense.”
As to declinations and the inclusion in the guidance of various generic examples of apparent enforcement agency declinations, Breuer stated that the enforcement agencies “tried to provide clarity as to how [they] use [their] discretion” and that the guidance tries to give reader sa “fair sense of how we evaluate the cases.” Khuzami added that the declination “numbers are not really that important” but the principles behind the declinations are and that “companies can mold behavior” based on the declination examples given.
From my perspective, one of the more important statements made during the press conference was when Khuzami and Breuer spoke about how companies should spend compliance dollars.
In reference to the various hypotheticals in the guidance concerning travel and entertainment, Khuzami said that he heard from companies that they were spending compliance dollars to guard against these issues, that companies were spending a huge amount of resources on such issues and that such a focus was taking dollars away from compliance efforts as to high risk activity. Khuzami said that this was an argument he and Breuer have heard and that this argument “makes perfect sense.” Khuzami said that he was “interested in companies spending compliance dollars in the most sensible way” and he hoped that the guidance and the hypotheticals provided would help companies as to where they can “minimize investment and where they can maximize it.” Breuer added that the DOJ wants compliance programs “to address real matters of concern.”
One can interpret Khuzami’s and Breuer’s remarks on this topic as they like, but my interpretation was that they were saying that part of the reason why companies have such a high level of FCPA anxiety is not necessarily because of the FCPA or its enforcement, but rather the marketing and commentary by certain segments of FCPA Inc. If that was their intent and purpose, I agree.
Breuer next was asked whether the guidance will put an end to the Chamber’s concerns surrounding the FCPA and its enforcement. He said that “like with everything in life there is a process” and that the Chamber will probably want ongoing discussions about the FCPA and its enforcement and that the DOJ “welcomes that discussion.” Breuer said that the guidance was likely not “complete closure” as to various concerns regarding FCPA issues. Khuzami added that he “expects further commentary and proposal and expression of dissatisfaction” but that this “is the nature of the business we are in and an important part of the process.”
As to “foreign official” and the lack of a bright-line rule in the guidance, Khuzami said that they declined to draw a bright line because control of an enterprise can occur in different ways and that there are “many indirect ways of ownership and control.” Breuer did say that the guidance acknowledges that it is unlikely that less than 50% control will result in an enterprise being considered an instrumentality, but that there might “specific factors” that may make such an enterprise an instrumentality.
To those who are inclined to believe that the guidance represents anything new, Breuer said that the guidance “does not represent a change in policy” but it “gives others a window and greater guidance” as to the enforcement agencies policies. Khuzami agreed and said that Breuer’s comment was “absolutely right.” Khuzami said that the “real value [of the guidance] is its clarity and transparency” and that the guidance is a unique opportunity “to communicate directly with the regulated community.” He said that this opportunity does not always exist and that companies often receive information that is delivered and deciphered through counsel. Khuzami said that the real “value of the guidance is that [corporate] officials can put this on their desk and read it, understand it directly and not through others.” He said that this is the “great value” of the guidance. I agree and previously stated (here) that the guidance collects in one document information that was previously scattered and that in this way the guidance has substantial value and is easily accessible to anyone.
Breuer was next asked whether the enforcement agencies plan to update the guidance over time or whether it represents a one-time publication. Breuer stated that “for the foreseeable future” the guidance is it. He said that the public needs to be realistic as to the roles the DOJ has and that by devoting time to the guidance prosecutors were not spending time prosecuting cases. Khuzami added that rather than a “second-edition” that the guidance may be clarified over time through speeches or other commentary.
Friday Roundup
Thanks, the “foreign officials” of Medicine Bow, are you sure the company is FCPA-compliant in China, quotable, checking in on Brazil, and an interesting read.
Thanks
Many thanks for making FCPA Professor a part of your day. October readership was an all-time record in the history of FCPA Professor (this site launched in July 2009) and two posts earlier this week “Stop Drinking the Kool-Aid” and “It Ought to Stop” were among the most read posts in FCPA Professor history. As to these posts, I received many positive and supportive comments.
Should you have ideas for how FCPA Professor can be improved, please let me know at fcpaprofessor@gmail.com.
The “Foreign Officials” of Medicine Bow
Given the enforcement agencies’ untethered and boundless views on who is a “foreign official” under the FCPA, one never knows where a “foreign official” will pop up.
Such as Medicine Bow, Wyoming – population 300.
As noted in this recent Wall Street Journal article, “an arm of [China] state-controlled Sinopec Group, also known as China Petrochemical Corp., is planning to build an advanced facility [in Medicine Bow] that will convert coal into gasoline.” According to the article, the project will create approximately 400 full-time jobs when the facility goes into operation.
In this 2010 article, I noted that with foreign government owned sovereign wealth funds making investments around the world (including in U.S. companies) and with SOEs listing public shares on various exchanges and otherwise doing business around the world, there has never been a more critical time for the enforcement agencies to make clear their legal and policy reasoning on “foreign official.”
Far from adding clarity on this issue, the recent “foreign official” trial court decisions (see here and here), as well as the DOJ’s recent “foreign official” reversal (see here), has only muddied the waters.
Are You Sure the Company Is Compliant?
Subject to a few observable exceptions, investors seem to care very little about FCPA scrutiny and enforcement actions. All the more reason the below exchange from the recent Novartis AG earnings conference call caught my eye.
ANDREW BAUM (Citigroup Analyst): One trend would notice with some of you peers is where there is a sudden acceleration in the growth in China, it is often closely followed by scrutiny under the Foreign Corrupt Practices Act. Could you just give us an update on what you’re doing to ensure compliance in Novartis in China, is held in check, so that doesn’t become a risk?
DAVID EPSTEIN (Novartis, Head of Pharmaceuticals): “You asked about compliance. And just — I would just say rest assured our Company does everything that is in the power to be done, on a worldwide basis, to teach our people to be compliant. Both in terms of training and coming from the top and everything else. So I’m quite pleased with where our Chinese business is going. And leave it at that.”
Quotable
The U.K. Independent recently ran (here) a profile of David Green (who became Director of the U.K. Serious Fraud Office this past spring).
Below are some notable Green quotes.
- “I would like the SFO to have a hard-edged, tough reputation. It should be something which is feared. You don’t want to be investigated by the SFO.”
- On the issue of guidance. “I am sceptical of guidance notes. I suspect the motives of those that want absolutely precise guidance, because I suspect they want to wait round the corner and hit you over the head with it, and say, you are acting contrary to your guidance. The criminal law covers an endless multitude of possibilities and possible sets of facts. It is very hard to be specific. On corporate hospitality, it rather depends on the motive and the context and the timing and the value. You can’t just say, Wimbledon tickets are OK. They’ll say that you said, ‘Wimbledon tickets are all right.'”
- On the issue of criminal law enforcement as a funding source. “It is a good source of income, and as a matter of principle I see nothing wrong with prosecutors being in part funded by money taken from criminals. I am all for that.”
Matthew Jacobs, a former DOJ prosecutor who now heads the San Francisco offices of Vinson & Elkins LLP, stated as follows in a recent Law360 article (“FCPA Enforcement Will Stay Robust Beyond Obama’s 2nd Term”): “The Department of Justice has figured out that conducting investigations of corporations is a lucrative business. This is the one area of government activity that actually brings money in rather than shoots money out. We’re talking about literally billions of dollars that the government is able to collect … as long as there’s a budget issue it’s not too cynical to say that … generating revenue is a factor in bringing these cases.”
Matt Kelly at Compliance Week recently stated (here) as follows concerning the DOJ’s promise of upcoming FCPA guidance and the role of Assistant Attorney General Lanny Breuer. “We’d be foolish to ignore the profit motive, too [in addressing the why FCPA guidance now question]: Breuer will be in the private sector again soon enough, representing companies ensnared in FCPA probes. He’ll be able to command quite a premium if he can legitimately say, ‘I know how the Justice Department will interpret its FCPA guidance, because I wrote it. I don’t believe that career advancement is why Breuer is pushing for this guidance, but the fact remains that he stands to reap more money because of it.”
Brazil Developments
If Latin America is an area of your interest and concern, you should be reading the FCPAmericas blog (here) run by Matteson Ellis. This recent post tracks developments of Brazil’s draft bribery bill.
Interesting Read
See here for a write-up of an article examining the differences between a tip and a bribe. From the article. “It is generally considered a good-natured prosocial thing to tip, but bribing is considered to be antisocial and negative. […] Tips and bribes can possess striking similarities that may lead to their positive association. In a sense, both are gifts intended to strengthen social bonds and each is offered in conjunction with advantageous service. One could even argue that the main difference between the two acts is merely the timing of the gift: Tips follow the rendering of a service, whereas bribes precede it.”
*****
A good weekend to all.