On Being An FCPA Associate … A Q&A With Rohan Virginkar
Meet Rohan Virginkar (here), a 2004 graduate of The George Washington University School of Law, and current associate at Foley & Lardner in Washington D.C.
Virginkar has a wealth of FCPA experience and in this post he describes what it takes to succeed as an FCPA associate.
Develop fact investigation skills, pay attention to detail, be self-sufficient, and develop a firm grasp of the FCPA – all good pointers to students and young associates interested in a Foreign Corrupt Practices Act practice.
It also helps to have a valid passport and to embrace unpredictability because you may be sitting at your desk on Tuesday and be in Beijing on Saturday in the often fast-paced world of FCPA investigations.
Below is my Q&A with Virginkar.
What was your first FCPA related assignment?
My first FCPA case was within the first few months of starting as an associate. I traveled to Mumbai to investigate an allegation that an Indian subsidiary of our US-based client had paid money to a local government official in exchange for his agreeing not to disrupt their business. The allegations were true, and we discovered that a manager at the company had actually handed a duffel bag of currency to the official under the guise of a “donation” to the official’s favorite “charity”. It was a valuable introduction to the FCPA: shakedowns by foreign government officials, “charitable donations” to potentially suspect charities; it had many FCPA red flags all in one case.
What countries have you visited doing FCPA work?
In addition to India on that very first investigation, the matters I’ve had the good fortune of working on have taken me all over: Angola, China, Egypt, Indonesia, Kazakhstan, Kuwait, Lebanon, Nigeria, Qatar, Singapore, Thailand, the United Arab Emirates and Venezuela.
Of those countries, what has been your most memorable experience?
Each country I’ve visited on these matters has been memorable because the people, places and work have always defied expectations and offered nice surprises. That said, having a manager at a Chinese company who we instructed to stop paying kickbacks threaten us by saying that some of the payments were going to the Chinese Triads and that he would have to tell them that “the American lawyers” made him stop paying them is definitely one that sticks in mind.
As you learned more about the FCPA, what surprised you the most?
I’ve perhaps been most surprised by the genuine desire of most people around the world to follow the general goals of the FCPA, even if they don’t always understand the strictures and even when they occasionally get it wrong.
If you could change one thing about the FCPA or FCPA enforcement, what would it be?
I think the underlying goals of the FCPA are just, so there isn’t anything about the law that I would necessarily change. In terms of enforcement, I think the lack of clear judicial guidance on a number of gray areas of the FCPA sometimes makes it difficult to advise clients, who are forced to balance their business interests with a desire to comply with the law. I’d like to see more real case law develop, which is something I’m sure we’ll start to see as more individuals face stiff penalties for violations of the FCPA. The newly passed whistleblower provisions also give me some pause, because companies that have put in the resources to develop effective compliance programs with internal reporting mechanisms may now see that undermined because potential whistleblowers may see a financial incentive to make allegations, when such information may or may not be the basis of an FCPA allegation. However, it is too early at this point to know for sure what the practical effect on both enforcement and compliance will be.
What advice to you have to students or young associates interested in having an FCPA practice?
It’s important for young lawyers to hone their general litigation skills. Internal investigations (particularly when they have international elements) are a different beast from general commercial litigation, but the same skills that make someone a good litigator also form the foundation of being a good investigator. You have to be logical, methodical, with an eye for detail, because you never know what the smoking gun will look like. Being flexible and maintaining a good attitude helps too. You quickly learn that things will rarely go as you plan when working abroad, and many of the technological and other comforts we rely on in our legal practices here in the US are often unavailable when you’re overseas. Additionally, having to navigate the social and cultural norms of the people and places where you’re doing an investigation (and the fact that you’re often operating in an environment where the people you’re investigating may resent you and try to make your life more difficult), can make the mechanics of actually conducting the investigation as complex as the substantive issues you’re investigating. You also won’t regret developing a habit of over-preparing and over-thinking, so that when you and your group face an unexpected issue, you have already considered it, or at least have the foundation to think your way through it. Finally, learn the law backwards and forwards. When I started working in this area, one of the attorneys who mentored me told me that he always kept the statute handy and referred to it often, because the answers he was looking for were usually found inside. In practice, I’ve more often than not found this to be true. At a minimum, having a solid working knowledge of the law and its intricacies helps you communicate with your clients about why you may be offering certain advice or asking them to make certain changes to how they do business.
Friday Roundup
The former DOJ top cop speaks, Senator Feingold joins the debarment discussion, anything is possible, and a House Resolution focused on BP … it’s all here in the Friday roundup.
Mendelsohn Interview
During the period of the FCPA’s resurgence, Mark Mendelsohn was the public face and voice on FCPA issues at the Department of Justice. In April, he announced his departure and now maintains an FCPA private practice at Paul Weiss. (See here and here for more).
See here for Mendeloshn’s recent interview with The Metropolitan Corporate Counsel as he reflects back on his DOJ tenure and other issues.
Senator Feingold Joins The Debarment Discussion
Earlier this week Senator Russ Feingold (D-WI) testified before the Senate Judiciary Subcommittee on Administrative Oversight and the Courts (see here). The hearing was on the topic of “Protecting the Public Interest: Understanding the Threat of Agency Capture.” He began his testimony by stating that a better job needs to be done to ensure that there are no significant conflicts of interest or other inappropriate ties between regulators and the corporations they purport to regulate.”
He then stated:
“I want to raise a concern that a new, more subtle type of agency capture is beginning to emerge as a result of our increasing reliance on government contractors. The Council of the Inspectors General on Integrity and Efficiency recently reported that the total number of suspensions and debarments in FY 2008 was half the total from five years ago, and that suspensions and debarments had been steadily decreasing over the last five years. This is a disturbing statistic, especially when you consider that the number of contract fraud, Foreign Corrupt Practices Act, and other corruption investigations involving contractors is on the rise.”
For more on debarment issues, including an FCPA debarment bill pending in the House see here and here and here.
Is It Possible?
Is it possible to spend $3.2 million on “professional costs” associated with an internal investigation “limited in size and scope” to a branch office that represents approximately one-half of one percent of the company’s annual consolidated revenues?
Apparently it is.
In January I ran this post about Team Inc. and its voluntary disclosure of less than $50,000 in potentially improper payments in its Trinidad branch.
Earlier this week, when disclosing its financial results, the company stated as follows:
“The results of the FCPA investigation were communicated to the SEC and Department of Justice in May 2010 and the Company is awaiting their response. The results of the independent investigation support management’s belief that any possible violations of the FCPA were limited in size and scope. The total professional costs associated with the investigation were approximately $3.2 million.” (emphasis added).
Exhibit A for how even isolated instances of improper conduct under the FCPA in a branch office can be very expensive or Exhibit A for just how out of whack professional costs associated with an FCPA internal investigation and disclosure have become?
It’s your conclusion to make.
BP House Resolution
This recent post discussed Senator Charles Schumer’s (D-NY) request that the Department of Justice investigate BP for FCPA violations.
On July 30, House Resolution 1597 was introduced. Sponsored by Representative Daniel Maffei (D-NY) and co-sponsored by Representatives Christopher Lee (R-NY) and Michael McMahon (D-NY) the resolution (see here) encourages the United Kingdom to “investigate British Petroleum (BP) for foreign corrupt practices.”
The reason?
The same as offered by Senator Schumer – that BP attempted to influence the August 2009 release of Abdel Baset al-Megrahi, the Libyan terrorist convicted of the 1988 bombing of Pan-Am flight 103 that killed 270 people, including 189 Americans.
The resolution states, in part:
“Whereas the Scottish courts released al-Megrahi from prison on August 20, 2009, under the understanding that he was suffering from terminal prostate cancer;
Whereas the Scottish authorities have never clarified why al-Megrahi could not receive humane treatment while still in captivity;
Whereas al-Megrahi seems to have well outlived his original diagnosis;
Whereas it is very troubling that al-Megrahi received a hero’s welcome to his home country of Libya;
Whereas British Petroleum (BP) admitted on July 15, 2010, that a delayed prisoner-transfer between Britain and Libya ‘could have a negative impact’ on BP’s oil negotiations;
Whereas there are allegations that BP inappropriately attempted to affect the Scottish Government’s decision and possibly even the doctor’s diagnosis; and
Whereas al-Megrahi’s release sends an incredibly offensive message to the families that lost loved ones on Pan Am Flight 103: Now, therefore, be it
Resolved, That the House of Representatives encourages the United Kingdom to investigate British Petroleum (BP) for foreign corrupt practices.”
As I asked in my original post – following Schumer’s (and now Maffei’s) lead will a British politician request that the U.K. Serious Fraud Office or the U.S. government investigate a U.S. company because it lobbied its own government officials in connection with a business purpose?
*****
A good weekend to all.
DOJ, SEC Receive FCPA Training
The Department of Justice and the Securities and Exchange Commission enforce the Foreign Corrupt Practices Act.
It is thus a bit strange that the DOJ and SEC are receiving FCPA training.
Yet, piecing together information from two prominent law firm event calendars (see here and here) that is exactly what is occuring today in Washington D.C. at the SEC headquarters.
Described as a “joint FCPA training program” for the DOJ, SEC, and FBI and the “SEC’s FCPA Boot Camp” the speakers appear to include a who’s who of the FCPA defense bar.
What prompted this training session? What is the full agenda of topics? What type of questions will DOJ and SEC personnel ask?
Inquiring minds want to know.
Inquiring minds may also wonder – is it proper for the DOJ and SEC to receive training from lawyers and law firms that are frequent “adversaries” in FCPA enforcement actions?
The event is not included on the SEC’s event calendar (see here), but DC readers may want to show up at the SEC’s headquarters today and say “I’m here for the FCPA training” to see what happens.
If anyone has information or insight as to this event, please leave a comment.
A few other DOJ / SEC items of interest to pass along.
Make Your Voice Heard
According to this release, the SEC is seeking public comment on various sections of the recently enacted Dodd-Frank financial reform package. The SEC will post all submissions on SEC’s Internet Web site. As noted in the release, “members of the public who wish to submit official comments on particular rulemaking initiatives should submit comments during the official comment period that starts with the notice of the initiative published in the Federal Register.” (emphasis added).
To learn more about Section 922’s whistleblower provisons, see here and here. To learn more about Section 1504’s Resource Extraction Issuer Disclosure provisions see here.
The Revolving Door Continues to Revolve
Some of you, I know, think it is no big deal when a DOJ prosector enforces a law one day and then the next day defends clients against enforcement of that same law.
Others of you, I know, think that this is an important public policy issue worthy of discussion.
Whatever your persuasion, it should be noted that yet another DOJ attorney with FCPA responsibilties has left government service for a private law firm to engage in an FCPA practice.
According to this Main Justice story, Steven Fagell, Assistant Attorney General Lanny Breuer’s deputy chief of staff, is leaving the DOJ to return to Covington & Burling LLP (Breuer’s previous employer), the firm he worked at prior to joining the DOJ in January 2009. Main Justice reports that “as a member of the Criminal Division’s senior leadership team, Fagell served as a counselor to Breuer and worked on a broad range of issues including the Financial Fraud Enforcement Task Force and the Foreign Corrupt Practices Act.” According to Tim Hester, Covington’s managing partner, Fagell is expected to work on FCPA matters at the firm (see here).
For other recent movement betweent the DOJ and the FCPA bar see here, here and here.
Year Two … Plus The Friday Roundup
I missed my own anniversary, the anniversary of FCPA Professor that is.
On July 17, 2009, I formally launched FCPA Professor with this Mission Statement.
Approximately 220 posts later, year two has arrived and the mission remains the same.
It is a pleasure to make frequent deliveries to the marketplace of ideas. FCPA Professor is read worldwide by a diverse group of readers and I thank you for making this space a part of your day.
Now for the Friday roundup.
BAE U.K. Settlement Still Pending
BAE’s bribery, yet no bribery U.S. settlement has long been signed, sealed and delivered. See here and here for more. Yet things are taking a bit longer on the other side of the Atlantic according to this report from a U.K. financial website.
According to the report, Serious Fraud Office director Richard Alderman has admitted “that legal challenges by anti-arms campaigners, and the need to get the case’s extensive documentation in order, have seen the conclusion of the bribery investigation put off until autumn at the earliest.”
With the lashing the SFO took in the Innospec enforcement action (see here), the SFO understandably wants to get this one right.
The BAE U.K. settlement is not the only event that has been delayed. As highlighted in this post from earlier week so too is the new U.K. Bribery Act.
Business is Booming
Furthering the notion that anti-bribery and compliance work is an industry in and of itself, the San Jose Business Journal reports in this recent piece that business is booming – and not just among law firms – as the article profiles Deloitte and KPMG.
The article touches upon certain topics highlighted by others, including Nathan Vardi in this Forbes piece, and Steve Pearlstein in this Washington Post piece.
Noble and Nigeria
A recent post (see here) described Nigeria as a challenging market and highlighted a recent report that found that one in three companies reported paying a bribe to Nigerian public officials in undertaking administrative tasks. The post talked about facilitation payments, which are allowed by the FCPA – at least as written, yet highlighted the many FCPA enforcement actions seemingly based on facilitating payments.
Throw a pending enforcement action against Noble Corporation into that mix.
Here is what the company said in its recent 8-K filing:
“In 2007, we began, and voluntarily contacted the SEC and the U.S. Department of Justice (“DOJ”) to advise them of, an internal investigation of the legality under the FCPA and local laws of certain reimbursement payments made by our Nigerian affiliate to customs agents in Nigeria. The SEC and the DOJ have indicated that they believe that violations of the FCPA occurred and will seek civil and/or criminal sanctions against us, including monetary penalties, and may include additional sanctions against us and/or certain of our employees, as well as additional changes to our business practices and compliance programs. We could also face fines or sanctions in relevant foreign jurisdictions.
We consider the matter relating to the Nigeria investigation to be ongoing and cannot predict (a) when it will conclude, (b) whether either the SEC or the DOJ will open its own proceeding to investigate this matter, or (c) if a proceeding is opened, what potential sanctions, penalties or other remedies these agencies may seek. Based on information obtained to date, we believe it is probable that we will pay an amount to settle this matter with the DOJ and SEC. Given that the matter is not finally resolved, we cannot predict with certainty what amount we will pay in civil and criminal fines and penalties; however, as of June 30, 2010, we accrued approximately $5.1 million relating to this ongoing matter. Any of the sanctions as a result of the Nigerian investigation or any other future violation of the FCPA or similar law could have a material adverse effect on our business or financial condition and could damage our reputation and ability to do business, to attract and retain employees and to access capital markets.
Frontier identified certain payments totaling approximately $35,000 made by one of its former agents to Nigeria immigration officials in 2009 and reported this matter to the DOJ as a possible violation of the FCPA. We reviewed this matter as part of our diligence investigation of Frontier. The DOJ has not indicated what, if any, action it may take with respect to such payments, although the DOJ could seek civil and/or criminal sanctions against Frontier. Upon closing the Frontier acquisition, we would be responsible for such sanctions as well as any other sanctions relating to violations of applicable laws by Frontier, except to the extent that they may be covered by indemnities contained in the merger agreement with Frontier. Any such sanctions could have a material adverse effect on our business or financial condition.”
The Financial Reform Bill’s Whistleblower Provisions And The FCPA
Section 1504 (see here for the prior post) of the Dodd-Frank Wall Street Reform and Consumer Protection Act is not the only provision of the “financial reform package” that may impact Foreign Corrupt Practices Act compliance and enforcement.
Sections 922-924 of the Act President Obama is expected to sign soon also has the potential to impact FCPA enforcement.
Why?
Because it creates new whistleblower provisions applicable to all securities laws violations and the FCPA is part of the Securities and Exchange Act of 1934.
This post will cover three topics: an overview of the new whistleblower provisions; some thoughts on whether whistleblower provisions applicable to FCPA enforcement is wise policy; and some thoughts on whether the new whistleblower provisions will impact FCPA enforcement, and if so, to what extent.
Overview
Section 922 amends the Exchange Act by including a new section, 21F, titled “Securities Whistleblower Incentives and Protection.”
Pursuant to the new section:
* any whistleblower (meaning “any individual who provides, or 2 more more individuals acting jointly who provide, information relating to a violation of the securities laws” to the SEC)
* who voluntarily provides original information (meaning information that: (a) “is derived from the independent knowledge or analysis of a whistleblower;” (b) “is not known to the [SEC] from any other source, unless the whistleblower is the original source of the information;” and (c) “is not exclusively derived from an allegation made in a judicial or administrative hearing, in a governmental report, hearing, audit, or investigation, or from the news media, unless the whistleblower is a source of the information”)
* to the SEC that leads “to the successful enforcement” of a “covered judicial or administrative action” (meaning “any judicial or administrative action brought by the [SEC] under the securities laws that results in monetary sanctions exceeding $1,000,000”)
* shall be entitled to an award equal to “not less than 10%” and “not more than 30%” “of what has been collected of the monetary sanctions imposed” in the underlying SEC enforcement action.
Monetary sanctions include “any monies, including penalties, disgorgement, and interest ordered to be paid” by the SEC.
In determining the amount of the award the whistleblower shall receive, the SEC “shall take into consideration: (i) the significance of the information provided by the whisteblower to the success [of the enforcement action]; (ii) the degree of assistance provided by the whistleblower [or the whistleblower’s legal representative] [in the enforcement action]; (iii) “the programmatic interest of the [SEC] in deterring violations of the securities laws by making awards to whistleblowers who provide information that lead to the successful enforcement of such laws; and (iv) such additional relevant factors as the [SEC] may establish by rule or regulation.”
Pursuant to the new whistleblower provisions, a whistleblower may be represented by counsel.
The provisions allow a whistleblower to submit information to the SEC anonymously, however in such a case, the whistleblower “shall be represented by counsel” and the whistleblower’s identity must be disclosed to the SEC before an award is made to such a whistleblower.
Section 922 specifically authorizes a whisteblower to receive an award “regardless of whether any violation of a provision of the securities laws, or a rule or regulation thereunder” underlying the SEC enforcement action “occurred prior to the date of enactment” of the provisions.
As with many whistleblower provisions, Section 922 prohibits employers from directly or indirectly discharging, demoting, suspending, threatening, harassing, or in any other manner discriminating against a whistleblower.
Section 922 also authorizes the SEC to share whistleblower provided information with other U.S. government agencies, including the Attorney General, as well as foreign securities authorities and foreign law enforcement.
In addition to the “original information” limitation discussed above, Section 922 also precludes the following categories of persons from receiving whistleblower awards: (a) various government and law enforcement agency employees; (b) “any whistleblower who is convicted of a criminal violation related to the [enforcement action];” and (c) “any whistleblower who gains the information through the performance of an audit of financial statements required under the securities laws and for whom such submission would be contrary to the requirements of section 10A of the Exchange Act.”
Pursuant to Section 922, the SEC “shall have the authority to issue such rules and regulations as may be necessary or appropriate” to implement the above-described provisions.
Wise Policy As Applied to FCPA Enforcement?
As indicated above, the new whistleblower provisions are applicable to all securities laws violations – not just the FCPA.
While the new provisions may or may not represent needed legislation as applied to non-FCPA securities law violations, I do not believe that the whistleblower provisions represent wise policy as applied to FCPA enforcement.
Why?
Quite simply the FCPA is enforced like no other securities law (at least that I am aware of).
Against the backdrop of little substantive FCPA case law, the FCPA is enforced based largely on government enforcement agency interpretations that have never been accepted by a court. For every FCPA enforcement action alleging conduct that all reasonable minds would agree violates the FCPA, there is seemingly three FCPA enforcement actions alleging conduct that many reasonable minds question whether the conduct even violates the FCPA. Yet, these latter FCPA enforcement actions, notwithstanding the dubious and untested legal theories they are based on, are routinely settled by companies via a resolution vehicle that does not require the company to admit or deny the SEC’s allegations. Quite simply, a settled SEC FCPA enforcement action does not necessarily represent the triumph of the SEC’s legal position over the company’s, but rather reflects a risk-based decision primarily grounded in issues other than facts and the law. It is simply easier and more cost-efficient for a company to settle an SEC FCPA enforcement (notwithstanding whatever dubious and untested legal theory it is based on) than to participate in long, protracted litigation with its principal government regulator. Ask any seasoned FCPA practitioner and, in a candid moment, they will tell you the same thing.
Against this backdrop, is it wise to award a whistleblower 10-30% of the fines, penalties and disgorgement the SEC recovers in an FCPA enforcement action? Is it wise to award a whistleblower in connection with an FCPA enforcement action when the contours of the FCPA largely remain undefined by the courts? It is wise to award a whistleblower when the company, for reasons other than law or fact, does not even mount a legal defense?
I submit that the answer to each of these questions is no.
Impact on FCPA Enforcement?
Much has been written about the whistleblower provisions and the impact on FCPA enforcement – beginning when the provisions were first included in Congressional financial reform bill drafts.
Among other law firms with an FCPA practice or FCPA practitioners writing about the subject, Morgan Lewis stated that the “new law is likely to greatly increase the number of FCPA matters under government investigation” (see here); Fried Frank predicted that the “new whistleblower program may end up playing a key role in identifying and prosecuting violations of the FCPA” (see here); and Richard Cassin on the FCPA Blog guessed that the “bounty program will result in more FCPA cases against corporations” (see here).
I am not so sure and my guess is that the new whistleblower provisions will have a negligible impact on FCPA enforcement.
My reasons?
For starters, the SEC has long had a similar whistleblower program for insider trading. The results? According to a Senate report accompanying the financial reform package, less than $160,000 paid out to five whistleblowers.
In addition, the new whistleblower provisions will only be triggered when a public company issuer is the subject of an FCPA enforcement action. No public company issuer, means no SEC jurisdiction, means no whistleblower awards. There are many more private companies subject to the FCPA than public company issuers and the new whistleblower provisions should not impact this prong of FCPA enforcement which is indeed large. For instance, with a few exceptions, the vast majority of companies indirectly implicated (at least at this point) in the Africa Sting case are all private companies.
Furthermore, and perhaps most important, most FCPA enforcement actions already result from voluntary disclosures. Is the universe of FCPA enforcement actions really going to expand when public company issuers are already largely voluntarily disclosing conduct to the SEC – presumably the same conduct that a whistleblower would disclose?
On this issue, one thing the new whistleblower provisions may do is pit the whistleblower vs. the company in a strange, yet competitive, high-stakes game of “who has the fastest car” to Washington to disclose the conduct. Simply put, if the whistleblower loses, the information he or she discloses will no longer be “original information” and thus no award. If the company loses, the disclosure will no longer be “voluntary” and the hoped for credit under the DOJ’s Principles of Prosecution of Business Organizations and the Sentencing Guidelines will disappear. Against this backdrop, it may be that more conduct will be disclosed that may not even violate the FCPA because the risks of having the “slower car” are to great to pass up. But then again (as detailed in this post) a company voluntarily disclosing conduct that may not even violate the FCPA seems to a norm these days.
If the new whistleblower provisions do indeed have an appreciable impact on FCPA enforcement, the following questions, among others, come to my mind.
Will a law firm with an established FCPA practice start representing whistleblowers on the theory that a contingent fee on a 10-30% cut of an FCPA settlement is more profitable than hourly fee investigations or compliance?
Will a go-to FCPA plaintiffs firm emerge? Which firm/lawyer will it be?
Will the new whistleblower provisions trigger more substantive FCPA case law? How many enforcement actions based on whistleblower information that a company paid for a bottle of wine and opera tickets for an employee of a Chinese state-owned enterprise (ignoring the fact that the company did the same thing for other customers) will it take before a company says – enough of this silliness – will someone please litigate the enforcement agencies “foreign official” interpretation?
Will a “sophisticated” whistleblower with knowledge of the enforcement agencies many dubious and untested legal interpretations use this “gray space” as a point of entry into a much larger potential award on the theory that the “sophisticated” whistleblower is well aware that the enforcement agencies will ask the “where else” question before agreeing to resolve an enforcement action even if the whistleblower is unaware of anything else besides the provided information (which may not even violate the statute) guessing that there is some books or records or internal control issue somewhere in the company that will crop up and raise the award level? (For more on this “where else” question see this prior post).
The new whistleblower provisions provide much to think about and raise the above (and no doubt numerous other) questions.
The best part of the new whistleblower provisions would seem to be that its impact on FCPA enforcement can be monitored and analyzed as Section 922 requires the SEC to submit annual reports to Congress on its whistleblower award program including “the type of cases in which awards were granted.” Section 922 also requires the SEC to “establish a separate office within the [SEC] to administer and enforce” the new whistleblower provisions and requires the SEC Inspector General to conduct a study of the whistleblower provisions.