Friday Roundup
Fear mongering and the dark empire, FCPA scrutiny of Hamid Karzai’s brother, the DOJ’s kleptocracy unit takes shape, and survey findings … it’s all here in the Friday roundup.
Fear Mongering and the Dark Empire
What does Sharie Brown (here), Chair of DLA Piper’s Foreign Corrupt Practices Act, Anti-Corruption and Corporate Compliance Practice, think about the U.K. Bribery Act, the surge in FCPA Inc., and the revolving door? See here for a recent interview with Corporate Crime Reporter.
A Future Afghanistan Related FCPA Enforcement Action?
A federal grand jury in the Southern District of New York is reportedly hearing evidence against Mahmood Karzai (a dual Afghan and U.S. citizen and the brother of Afghan President Hamid Karzai) including possible evidence that Afghan Investment Co. (incorporated in Virgina until 2010) bribed Afghanistan’s then mining minister to secure a lease on the country’s only cement factory. See Matthew Rosenberg “Grand Jury Investigates Karzai Brother) (Wall Street Journal – Feb. 16th).
If evidence exists that Karzai did indeed violate the FCPA, one can only imagine the political / foreign policy considerations of criminally indicting the brother of the Afghan President. I like to think that the government blindly goes where the evidence leads them, but the BAE and James Giffen enforcement actions suggests that may not always be the case.
To my knowledge, there has never been an FCPA enforcement action involving conduct in Afghanistan.
DOJ Kleptocracy Unit
Joe Palazzolo (Wall Street Journal Corruption Current) recently spoke with several officials involved in the DOJ’s nascent kleptocracy unit. See here for previous discussion and other links regarding the kleptocracy initiative.
Palazzolo reports (here) that the unit will be housed in the DOJ’s Asset Forfeiture and Money Laundering Section and staffed by five lawyers. The FBI’s Asset Forfeiture and Money Laundering Unit will also divert two agents to the new unit. According to the report, “U.S. officials expect that most cases will involve foreign politicians who have left office and are no longer in a position to obstruct investigations.” Palazzolo reports that the unit’s “first major case could be ready in the next month and several more are expected this year.”
Survey Findings
Among the findings in Deloitte and Forbes Insights 4th annual “Look Before You Leap” survey (here) is the following:
“Almost two-thirds (63%) of total survey respondents identified Foreign Corrupt Practices Act (FCPA) and anti-corruption issues that led to an aborted deal or a renegotiation over the past three years. Lack of transparency or unusual payment structures in contracts was cited by one in five and 18% pointed to the use of agents, consultants, distributors, or third parties to obtain or facilitate business.”
The survey results indicate that strategic buyers are more impacted (and perhaps more sensitive to FCPA issues) than financial buyers such as private equity firms and hedge funds.
*****
A good weekend to all.
Friday Roundup
Fear mongering and the dark empire, FCPA scrutiny of Hamid Karzai’s brother, the DOJ’s kleptocracy unit takes shape, and survey findings … it’s all here in the Friday roundup.
Fear Mongering and the Dark Empire
What does Sharie Brown (here), Chair of DLA Piper’s Foreign Corrupt Practices Act, Anti-Corruption and Corporate Compliance Practice, think about the U.K. Bribery Act, the surge in FCPA Inc., and the revolving door? See here for a recent interview with Corporate Crime Reporter.
A Future Afghanistan Related FCPA Enforcement Action?
A federal grand jury in the Southern District of New York is reportedly hearing evidence against Mahmood Karzai (a dual Afghan and U.S. citizen and the brother of Afghan President Hamid Karzai) including possible evidence that Afghan Investment Co. (incorporated in Virgina until 2010) bribed Afghanistan’s then mining minister to secure a lease on the country’s only cement factory. See Matthew Rosenberg “Grand Jury Investigates Karzai Brother) (Wall Street Journal – Feb. 16th).
If evidence exists that Karzai did indeed violate the FCPA, one can only imagine the political / foreign policy considerations of criminally indicting the brother of the Afghan President. I like to think that the government blindly goes where the evidence leads them, but the BAE and James Giffen enforcement actions suggests that may not always be the case.
To my knowledge, there has never been an FCPA enforcement action involving conduct in Afghanistan.
DOJ Kleptocracy Unit
Joe Palazzolo (Wall Street Journal Corruption Current) recently spoke with several officials involved in the DOJ’s nascent kleptocracy unit. See here for previous discussion and other links regarding the kleptocracy initiative.
Palazzolo reports (here) that the unit will be housed in the DOJ’s Asset Forfeiture and Money Laundering Section and staffed by five lawyers. The FBI’s Asset Forfeiture and Money Laundering Unit will also divert two agents to the new unit. According to the report, “U.S. officials expect that most cases will involve foreign politicians who have left office and are no longer in a position to obstruct investigations.” Palazzolo reports that the unit’s “first major case could be ready in the next month and several more are expected this year.”
Survey Findings
Among the findings in Deloitte and Forbes Insights 4th annual “Look Before You Leap” survey (here) is the following:
“Almost two-thirds (63%) of total survey respondents identified Foreign Corrupt Practices Act (FCPA) and anti-corruption issues that led to an aborted deal or a renegotiation over the past three years. Lack of transparency or unusual payment structures in contracts was cited by one in five and 18% pointed to the use of agents, consultants, distributors, or third parties to obtain or facilitate business.”
The survey results indicate that strategic buyers are more impacted (and perhaps more sensitive to FCPA issues) than financial buyers such as private equity firms and hedge funds.
*****
A good weekend to all.
U.K. Developments
A Bribery Act review, high profile departures from the Serious Fraud Office – the agency gearing up to enforce the Bribery Act – but wait, will the Serious Fraud Office even be the agency to enforce the Bribery Act?
Bribery Act
As widely reported last week (see here and here), the U.K. Bribery Act, set for implementation in April 2011, is to undergo a review ordered by Prime Minister David Cameron’s office.
Richard Alderman, Director of the U.K. Serious Fraud Office, stated as follows in an e-mail.
“It is for the UK Government and Parliament to consider implementation of the Bribery Act. The SFO is well placed to provide assistance to any review because of our experience in this area particularly following the many discussions we have had with business and professional advisers in the UK and the US.”
Barry Vitou and Richard Kovalevsky have a good overview of recent events here at briberyact.com.
SFO Departures
The U.K. Serious Fraud Office is gearing up to enforce the Bribery Act, but it has recently lost two senior officials instrumental in Bribery Act preparation and guidance development.
Robert Amaee (SFO Head of Anti-Corruption) is joining Covington & Burling’s London office. See here for Covington’s release which states as follows: “[Amaee’s] leading government role in anti-bribery and anti-money laundering issues will add an important new dimension to our global practice in this critical area of law. We see our clients focusing increasingly on these matters, and Robert will be a tremendous asset to our clients not only in the UK but across all of our offices.”
Charlie Monteith (SFO Head of Assurance) is joining White & Case’s London office. See here for the firm’s release which states as follows: “When it comes into force in April 2011, the UK’s new Bribery Act will change the risk landscape for any company which carries out business in the UK, wherever it’s located … having [Monteith] onboard is going to be an enormous asset to clients in helping them understand and comply with this seismic piece of legislation.”
See here for the Bloomberg article regarding the SFO departures.
Which Agency Will Enforce the Bribery Act?
While the SFO is gearing up to enforce the Bribery Act, efforts are afoot to reorganize how white collar crime is investigated and enforced in the U.K. See here for more.
Interesting, Significant and Bold
Last week I had the pleasure of participating in Securities Docket’s Year in Review webcast (see here for viewing – the FCPA portion begins at about 51 minutes).
For those of you who missed the event, below are my thoughts on four significant events from 2010, three interesting events from 2010, and two bold predictions for 2011.
The FCPA in 2010 was interesting, significant, and bold all at once. Among other things, it was a year in which Assistant Attorney General Lanny Breuer declared a “new era of FCPA enforcement.” (see here).
Significant Events
The Foreign Corrupt Practices Act
If anyone out there still believes that the FCPA is a law that only applies to U.S. companies, you clearly have been living under a rock.
2010 was the year of non-U.S. companies resolving FCPA exposure.
BAE (here)(I am hesitant to call this matter an FCPA enforcement action because it wasn’t, but everyone seems to be doing so), Daimler (here), Technip (here), Eni/Snamprogetti (here), ABB (here), Panalpina (here), and most recently Alcatel-Lucent (more in a future post).
It has been reported that approximately 90% of 2010 FCPA fines and penalties were paid by foreign companies.
I expect this trend to continue – albeit perhaps not at the level seen in 2010. The 4th member of the JV involved in Bonny Island bribery – JGC of Japan – has yet to settle, certain of the medical device and pharma companies that have disclosed FCPA issues are non-U.S. companies, and an emerging trend I see is an increased focus on China-based issuers. For instance, last year, 25% of the IPOs were China based issuers and last month, Rino International (see here) disclosed an FCPA inquiry, the first time I believe a China-based issuer has been the focus of an FCPA inquiry.
Two Tiers of Justice
Under basic rule of law principles, the law is to be equally and consistently applied to all subject to the law, regardless of how big or small the company is and regardless of what type of company is involved.
In a troubling trend, two tiers of justice have emerged from FCPA enforcement.
If the company is a large multinational company, the company will end up paying large fine, but chances are the company will not be charged with FCPA anti-bribery violations.
For instance, the DOJ’s allegations against BAE (see here) included that the company provided various benefits – through U.S. payment mechanisms – to influence Saudi officials through and through other conduct that clearly had a U.S. nexus. Yet, BAE, one of the world’s largest defense contractors, was not charged with any FCPA anti-bribery violation.
Daimler, according to the DOJ (see here), had a corporate culture that tolerated and/or encouraged bribery and its numerous bribery schemes involved various high-ranking executives. Yet, Daimler, was not charged with any FCPA anti-bribery violations.
It’s bribery yet no bribery, and it contributes to what I’ve called the façade of FCPA enforcement (see here).
While certain companies in certain industries appear immune from FCPA anti-bribery charges, in other instances, instances generally involving small companies such as Nexus Technologies (here) or Lindsey Manufacturing (here), the DOJ seems to come out with guns a blazing and criminally indicts the company for violating the FCPA. One can legitimately ask what did these companies do that BAE, Daimler, and some other companies didn’t do?
The two tiers of justice is also present when it comes to individual enforcement actions. As was highlighted in the recent Senate hearing, one odd aspect of the most high-profile, egregious instances of corporate bribery is that, for the most part, no individuals are charged. Yet in cases that can only be called minor in comparison, Nexus Technologies, Lindsey Manufacturing and the Haiti Teleco cases come to mind, the DOJ again seems to come out with guns a blazing and criminally indicts multiple individuals.
Companies that commit bribery on a major scale, involving hundreds of millions dollars, are still able to secure multi-million dollar U.S. government contracts (see here and here). On the other hand, individuals like Charles Jumet are sent to prison for nearly 7 years for making a $200,000 payment to secure a lighthouse and buoy contract and conspiring to violate the same law that major companies are apparently immune from violating. (See here).
DOJ officials frequently talk about the rule of law (here), and the importance of consistency and transparency in charging decisions (here), but these examples raise the issue of whether such principles are followed when it comes to FCPA enforcement.
Is the Facilitating Payments Exception Meaningless?
When Congress passed the FCPA in 1977 and amended it in 1988 it clearly understood and accepted that the statute was not going to cover every conceivable unethical payment made in transacting overseas business. (See here). The legislative history is clear on this point and that is why the FCPA contains an express exception for so-called facilitating or grease payments.
Yet one can legitimately ask whether this exception intended by Congress has any meaning.
In November, a group of companies collectively paid approximately $235 million to settle FCPA enforcement actions principally involving import permits for oil rigs, other customs and duty payments to Nigerian officials, and payments to expedite shipment of product in Nigeria and some other jurisdictions. (See here for a summary of the CustomsGate enforcement actions).
It seems a bit silly when several major companies settle an FCPA enforcement action for this amount of money to ask the question – did the conduct at issue even violate the FCPA, but this question should be asked in connection with the CustomsGate enforcement actions. It is also a question that can legitimately be asked as to several other recent FCPA enforcement actions that involve permits, licenses, certifications and other administrative tasks that have nothing to do with obtaining or retaining government contracts.
The issue as I see it is not whether such payments are ethical, but whether such payments violate the narrow anti-bribery provisions Congress intended and whether, once again, the DOJ and the SEC are actually enforcing the FCPA as Congress intended or whether the FCPA has morphed into a broader corporate ethics statute.
If the FCPA should become a broader corporate ethics statute, let Congress make that decision – not the DOJ or the SEC.
Emergence of a Plaintiff’s Bar
The FCPA, it has been held by some courts, does not contain a private right of action – yet there are other legal avenues available to plaintiffs to hold companies that violate the FCPA accountable. (See here).
Common causes of action include derivative claims against officers and directors, securities fraud claims by investors, RICO claims, unfair competition claims and antitrust claims such as last year when one of Innospec’s competitors sued it in Virginia state court in connection with its recently settled FCPA enforcement action. (See here).
Such causes of action have been pursued before 2010, but 2010 witnessed an explosion in such claims and so-called investigations by plaintiff firms representing investors.
The most noteworthy example is what I called the feeding frenzy surrounding SciClone Pharamaceutials. (See here). Last August, the company simply made an FCPA disclosure – that it was contacted by the SEC and the DOJ in connection with the government’s pharma industry sweep. The company’s stock dropped about 30%. Within weeks about a dozen plaintiff firms announced “investigations” and/or filed securities fraud cases – never mind the company’s stock price regained all that value within about a month.
When a company’s FCPA violations are found to be condoned or encouraged by the board or officers, such plaintiff causes of action would seem to be warranted.
However, these types of FCPA violations are rare – the more typical situation is where, because of respondeant superior, a company faces FCPA exposure because of the actions of a single or small group of employees whose conduct was in violation of the company’s FCPA policies and procedures. In these typical situations, I question what value these so-called “investigations” by plaintiff firms have or what purpose these derivative or securities fraud claims serve.
Interesting Events
Giffen Enforcement Action
When an enforcement action begins with allegations (here) that James Giffen made more than $78 million in unlawful payments to two senior Kazakhstan officials in connection with oil transactions for major American oil companies and abruptly ends with a one-paragraph superceding information (here) charging a misdemeanor tax violation and the company he worked for settling an FCPA enforcement action focused solely on two snowmobiles (here) – I call that interesting.
Even more interesting is that part of Giffen’s defense was that his actions were taken with the knowledge and support of the CIA, the National Security Council, the Department of State and the White House. (See here for a prior post).
A few years ago George Clooney and Matt Damon starred in Syriana (here) a movie about the FCPA.
The Giffen enforcement action presents a superb Hollywood script – it is the most mysterious conclusion to an FCPA enforcement action ever – made even more interesting given that the presiding judge called Giffen a cold war hero and stated that the case should never have been brought in the first place. (See here for the prior post).
Africa Sting Cases
In January 2010, the DOJ arrested 22 defendants – most while attending a gun show in Las Vegas – in connection with a major undercover sting operation in which the government, utilizing an individual who had already pleaded guilty to separate FCPA violations, assisted the government in manufacturing a case involving a fake foreign official from Gabon. (See here, here and here for prior posts).
The defendants (see here) are principally owners or employees of small gun and weapons companies.
I would put this case in the interesting category.
Contrary to media reports and even DOJ statements, it is not the first time undercover tactics were used in connection with an FCPA investigation (see here), but the magnitude and breadth of the tactics were indeed unprecedented.
This case is far from over and the remaining defendants are sure to raise entrapment, among other legal issues, and this will be an interesting case to follow in 2011.
The Africa Sting case has draw the attention of an industry that probably had never thought much about FCPA compliance. Thus, regardless of the ultimate outcome of the case, it has likely resulted in an industry and small enterprises thinking more proactively about FCPA compliance and risk assessment.
Greater Scrutiny and Why Questions
2010 also saw greater scrutiny and why questions about the FCPA, FCPA enforcement and what I have called FCPA Inc.
For the time time in nearly a decade, Congress held hearings (see here) on the FCPA in which some basic why questions were asked.
The U.S. Chamber sponsored a paper (here) titled “Restoring Balance – Proposed Amendments to the FCPA” that was widely covered and, in some circles, railed.
Several members of Congress are legitimately scratching their heads as to why companies that settle fraud, bribery and corruption cases continue to secure lucrative U.S. government contracts and the House passed a bill (here) that seeks to debar companies found to be in violation of the FCPA from receiving U.S. government contracts. Problem is, because of the façade of FCPA enforcement (see here), it will be an impotent bill.
In May 2010, Congressman Towns, chairman of the House Committee on Oversight and Government Reform, sent a letter to Attorney General Holder expressing concern that settlements of civil and criminal cases, including FCPA cases, by the DOJ are being used as a shield to foreclose other appropriate remedies such as suspension and debarment. (See here for the prior post).
And in Spring 2010, Forbes ran a front-page story titled “The Bribery Racket,” an article, notwithstanding some of its flamboyant language, raised several valid and legitimate questions and issues when it comes to FCPA enforcement. (See here for the prior post).
This scrutiny in 2010 raised valid and legitimate public policy questions that hopefully will be picked up on in 2011.
Bold Predictions
After a year in which (1) the largest individual prosecutions involved a fake “foreign official” (2) the most egregious cases of corporate bribery were prosecuted without FCPA anti-bribery charges; and (3) a signature case abruptly ended with a misdeamenor tax violation and a corporate prosecution involving two snowmobiles, I wonder what bold will look like in 2011.
Here are two bold predictions for 2011.
The Dodd-Frank Whistleblower Provisions Will Have a Negligible Impact on FCPA Enforcement
My (what seems) contrarian thoughts are the same as when I first made this post in July.
Enforcement of the U.K. Bribery Act Will Be Disciplined and Measured
The U.K. Bribery Act, already delayed, and with implementation slated for April 2011, has been the subject of much discussion and much over-hype in my opinion.
It has been called the FCPA “on steroids” (here) and if one subscribes to the industry marketing material, you might be left with the impression that the end of the world is near.
True, the Bribery Act is broader than the FCPA. For starters, it is an all-purpose bribery and corruption statute and addresses bribery and corruption in the private sector – not just bribery to “foreign officials” like the FCPA.
True, the Bribery Act has potentially a very broad reach – so does the FCPA.
True, the Bribery Act has no exception for facilitating payments – the FCPA does – although as highlighted above, query whether this exception means anything.
However, the Bribery Act has the “adequate procedures” defense – something the FCPA does not have – but query whether it should.
Thus, while the Bribery Act is indeed more broad than the FCPA, because of this defense, it is at the same time more narrow than the FCPA.
Public statements by U.K. officials suggest that this adequate procedures defense is a meaningful defense. For instance, in September at the World Corruption and Compliance Forum, an event I chaired in London, the U.K. Attorney General (Dominic Grieve) stated (see here) that “any company small or large” that puts into place a system of adequate procedures “has nothing to fear” when an employee or agent “goes off the rails” and makes a bribe payment. Attorney Grieve said that a company should have nothing to fear if it is “walking the walk, and talking the talk” when a rogue employee makes an improper payment. On the other hand, Attorney Grieve stated that that “those who don’t heed the warnings and don’t take the necessary steps have something to fear.” Richard Alderman, the Director of the U.K. Serious Fraud Office, stated in October (see here) as follows. “I have heard some people say that this offence is one of strict liability. I do not agree. No offence will have been committed if there were adequate procedures. I have also heard people say that the fact of bribery might mean that there were inadequate procedures by definition and so the defence can never be made out. Again, I do not agree. In the real world there may be occasional lapses despite adequate procedures rigorously enforced. The issue ultimately for the Judge and jury (and for the SFO in deciding on a prosecution) will be – were those procedures adequate?” As to the adequate procedures defense, Vivian Robinson (General Counsel of the Serious Fraud Office) said in an October webcast (here) that because of the defense “there is every reason to be optimistic that we won’t get as a result of the Act and this particular section a huge expanse in the number of prosecutions of corporates.”
As demonstrated by the Innospec matter (see here), the U.K. courts are playing, and rightfully so, a much greater role than U.S. courts in reviewing bribery and corruption cases. I’ve been told that even if the SFO prosecutes a corporate bribery case with an NPA or DPA, the U.K. courts will still play a meaningful oversight role – a role that is unfortunately not true here in the U.S.
In sum, I don’t see how companies already subject to the FCPA and already thinking about compliance in a pro-active manner, have much to worry about when it comes to the U.K. Bribery Act because of the adequate procedures defense.
I will be surprised if U.K. enforcement of the Bribery Act reaches the level of U.S. enforcement of the FCPA and I will be surprised if the U.K. Bribery Act develops outside of the judicial system as has generally been true with U.S. enforcement of the FCPA.
Friday Roundup
It has been a few weeks since my last Friday Roundup.
As a result this is a souped-up edition.
Is paying an FCPA fine merely a cost of business, are FCPA internal investigations getting just a bit out-of-hand, have you heard that a new cottage industry of FCPA experts has emerged, quit picking on Canada, will Julian Messent (or others) be prosecuted for FCPA violations, Assistant Attorney General Breuer on the Kleptocracy Asset Recovery Initiative, Proclamation 7750 news, and a son who wants to keep the New York condo … it’s all here in the Friday roundup.
Is Paying an FCPA Fine Merely a Cost of Business?
One may wonder, and legitimately so, whether getting caught for violating the FCPA is simply a cost of doing business whereby the company pays a fine and then continues to do business, including with, in many cases, the U.S. government. See here for my post on Siemens – The Year After, here for my post on BAE’s recent $40 million contract with the FBI (note because of the facade of FCPA enforcement, BAE was not charged with violating the FCPA – see here).
Denis McInerney, Chief of the DOJ’s Fraud Section, rejected such an assertion during an October 21st speech before the American Bar Association.
According to Inside U.S. Trade, McInerney “sought to rebut charges that FCPA enforcement relies too heavily on settlement agreements and that it is therefore like a licensing regime under which ‘companies are allowed to bribe, but if caught they have to pay a fee.'” According to Inside U.S. Trade, McInerney said that in the past two years, DOJ has imposed fines of $59 million, $19 million, $365 million, $338 million, $400 million, $376 million, $579 million and $800 million and he “emphasized that the companies paying these penalties are subject to monitoring which can lead to criminal prosecution if new offenses occur.” According to Inside U.S. Trade, McInerney said “I guarantee you that these firms do not view these are mere licensing fees.”
Is This Getting a Bit Out of Hand?
Avon previously disclosed the existence of an internal investigation focused on potential FCPA issues (see here for the prior post).
Here is what the company said in its 10-Q filing (here) yesterday:
“As previously reported, we have engaged outside counsel to conduct an internal investigation and compliance reviews focused on compliance with the Foreign Corrupt Practices Act (“FCPA”) and related U.S. and foreign laws in China and additional countries. The internal investigation, which is being conducted under the oversight of our Audit Committee, began in June 2008. As we reported in October 2008, we voluntarily contacted the United States Securities and Exchange Commission and the United States Department of Justice to advise both agencies of our internal investigation. We are continuing to cooperate with both agencies and inquiries by them, including but not limited to, signing tolling agreements, translating and producing documents and assisting with interviews.
As previously reported in July 2009, in connection with the internal investigation, we commenced compliance reviews regarding the FCPA and related U.S. and foreign laws in additional countries in order to evaluate our compliance efforts. We are conducting these compliance reviews in a number of other countries selected to represent each of the Company’s four other international geographic segments. The internal investigation and compliance reviews are focused on reviewing certain expenses and books and records processes, including, but not limited to, travel, entertainment, gifts, and payments to third−party agents and others, in connection with our business dealings, directly or indirectly, with foreign governments and their employees. The internal investigation and compliance reviews of these matters are ongoing, and we continue to cooperate with both agencies with respect to these matters. At this point we are unable to predict the duration, scope, developments in, results of, or consequences of the internal investigation and compliance reviews.”
Here is what Avon had to say in the fling about its net global expenses:
“The increase in Net Global expenses for both the three and nine months ended September 30, 2010, was primarily attributable to significant professional and related fees associated with the FCPA investigation and compliance reviews described in Note 5 to the consolidated financial statements included herein of approximately $24 (up approximately $17 from the three months ended September 30, 2009) and approximately $72 (up approximately $49 from the nine months ended September 30, 2009), respectively. The increase in Net Global expenses for the nine months ended September 30, 2010 was also due to higher costs associated with global initiatives and costs associated with business acquisitions. Professional and related fees associated with the FCPA investigation and compliance reviews, while difficult to predict, are expected to continue during the course of this investigation.”
Those figures are not mere dollars, but millions of dollars. And, as noted in the disclosure, the expenses are expected to increase.
On a much smaller (yet still meaningful) scale, on August 31st, Orthofix disclosed (here) the existence of an internal investigation relating to FCPA issues focused on its Mexican subsidiaries, an entity that accounts “for approximately one percent of the Company’s consolidated net sales and consolidated total assets.”
Recently, Orthofix provided this update in an 8-K filing (here):
“Operating income in the third quarter of 2010 included the impact of $3.7 million in legal expenses associated with the DOJ investigation of the bone growth stimulation industry and the Company’s internal investigation into its compliance with the Foreign Corrupt Practices Act in its subsidiary in Mexico.”
Newsweek Notices FCPA Inc.
Newsweek recently carried a short blurb (here) titled “Going After Graft.” Among other things, the piece states:
“With prosecutions likely to continue—the FBI has doubled the number of agents tasked to FCPA cases—business is responding in kind. Law firms are competing for top FCPA talent, banks financing international deals are insisting on anti-bribery stipulations in contracts, and a new cottage industry of experts has emerged, offering country-by-country advice on gifts and local laws. In the words of an FBI spokesperson, FCPA are ‘four letters you need to be aware of if you’re doing business in the international marketplace.'”
Quit Picking On Canada
What if, in the U.S., there was no fallback FCPA books and records and internal control charges, there was no voluntary disclosure culture, there were no “overzealous prosecutions,” and there were no prosecutions undertaken as “publicity stunts.”
According to Cyndee Todgham Cherniak (here), FCPA enforcement would likely resemble the sparse enforcement of Canada’s Corruption of Foreign Public Officials Act.
At least that is my take-away from her recent post (here) on the Trade Lawyers Blog.
For more on Canada’s Corruption of Foreign Public Officials Act (see here and here).
Will Julian Messent (Or Others) Be Prosecuted For FCPA Violations?
Earlier this week, the U.K. Serious Fraud Office (SFO) announced (here) that Julian Messent was sentenced to 21 months in prison “after admitting making or authorizing corrupt payments of almost US $2 million to Costan Rican officials in the state insurance company, Instituto Nacional de Seguros (INS) and the national electricity provider Instituto Costarricense de Electricidad.”
Messent, a former director of London-based insurance business PWS International Ltd. (PWS), was the head of the Property (Americas) Divison at PWS in which role “he was responsible for securing and maintaining contracts for reinsurance in the Central and South America regions.”
According to the SFO release, “Messent authorized 41 corrupt payments” “to be paid to Costa Rican officials, their wives and associated companies, as inducements or rewards for assisting in the appointment or retention of PWS as broker of the lucrative reinsurance policy for INS.”
The SFO release also indicates that Messent was ordered to pay £100,000 in compensation to the Republic of Costa Rica. (In the U.S., FCPA fines flow solely into the U.S. Treasury).
Messent was charged under the U.K.’s Prevention of Corruption Act 1906 (see here).
According to this report in the Guardian, “the SFO decided not to prosecute PWS because the firm, which has been sold, had a substantial deficit in its pension fund.”
According to the Guardian, “the covert payments were routed through bank accounts in the names of the wives of the Costa Rican officials and through accounts in Panama and the US, and a travel agency in Florida.”
Under the 78dd-3 prong of the Foreign Corrupt Practices Act, persons other than an issuer or domestic concern (i.e. in this case foreign nationals) can be subject to the FCPA if the improper payments have a U.S. nexus.
Will FCPA prosecutions of Messent (and perhaps others) follow?
Breuer on the Kleptocracy Asset Recovery Initiative
As highlighted in this prior post, in November 2009, Attorney General Eric Holder called asset recovery from corrupt officials a “global imperative” and he announced a “redoubled commitment on behalf of the United States Department of Justice to recover” funds obtained by foreign officials through bribery.
In July 2010, Holder announced (here) the Kleptocracy Asset Recovery Initiative “aimed at combating large-scale foreign official corruption and recovering public funds for their intended – and proper – use: for the people of our nations.” Holder announced that the DOJ is “assembling a team of prosecutors who will focus exclusively on this work and build upon efforts already underway to deter corruption, hold offenders accountable, and protect public resources.”
In a recent keynote address at the Money Laundering Enforcement Conference (here), Assistant Attoney General Lanny Breuer had this to say about the initaitive:
“This Initiative represents a concrete step toward fulfilling that commitment. The Kleptocracy Initiative will involve three key sections in the Criminal Division: the Asset Forfeiture and Money Laundering Section, which will lead it, and the Office of International Affairs and the Fraud Section, which will provide critical support. Once fully implemented, this Initiative will allow the Department to recover assets on behalf of countries victimized by high-level corruption, building on the Justice Department’s already robust enforcement of the Foreign Corrupt Practices Act. Through the Kleptocracy Initiative, the Department will ensure that corrupt leaders cannot seek safe haven in the United States for their stolen wealth. And, if we uncover such wealth, the Justice Department will forfeit and return this stolen money to its rightful owners – the people and governments from whom it was taken.”
In his speech, Breuer also discussed (in a non-FCPA context) how the DOJ wants “companies that uncover illegal conduct to come forward voluntarily.”
Proclamation 7750 News
In 2004, President Bush signed Proclamation 7750 “To Suspend Entry As Immigrants or Nonimmigrants of Persons Engaged In or Benefiting From Corruption” (see here).
Proclamation 7750 basically says the U.S. can suspend entry into the country “of certain persons who have committed, participated in, or are beneficiaries of corruption in the performance of public functions where that corruption has serious adverse effects on international activity” subject to an exception where denying such entry would be “contrary to the interests” of the U.S.
Last year, the New York Times (here) ran an article quoting a former State Department official as saying the State Department(which is responsible for enforcing the proclamation) “seem[s] to lack the backbone to use this prohibition.”
Earlier this month, David Johnson (Assistant Secretary, Bureau International Narcotics and Law Enforcement Affairs, U.S. Department of State) stated at the Third Committee of the 65th Session of the UN General Assembly (see here) as follows:
“The United States continues to broaden its efforts to deny entry into our own country of public officials who receive bribes as well as those who supply them. Corrupt officials are not welcome in the United States.”
Joe Palazzolo (Wall Street Journal – Corruption Currents) followed up with Johnson and noted in a recent article that the “State Department is stepping up its game” in seeking to enforce Proclamation 7750. As Palazzolo reports, it is not hard to “step up the game” when “for a long time, one part-official […] handled 7750 matters.”
Palazzolo reports that the State Department recently hired two new employees and is “processing paperwork for two additional hires, who will focus the majority of their time on 7750 issues.” The article quotes a State Department official as saying, “it is our hope and intention that the new hires will result in greater capacity.”
Son Fights to Keep New York Condo
This prior post discussed the DOJ’s civil forfeiture complaint filed in July against certain U.S. properties “that represent a portion of illegal bribes paid to the former president of Taiwan and his wife.”
Joe Palazzolo (Wall Street Journal – Corruption Currents) recently reported that “the son of former Taiwanese President Chen Shui-bian has quietly hired legal counsel to prevent a Manhattan condominium, which prosecutors say was purchased with bribes, from falling into the hands of the government.”
According to Palazzolo, the son, Chen Chih-chung, has retained Jonathan Harris (see here) to defend against the forfeiture action and Harris is quoted as saying he will be filing a motion to dismiss “shortly.”
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A good weekend to all.