Category: FCPA Reform

Former DOJ Deputy Attorney General Larry Thompson Calls For FCPA Reform

Larry Thompson (former DOJ Deputy Attorney General, former general counsel for PepsiCo, and currently a professor at the University of Georgia School of Law – see here) participated in last week’s “FCPA At Thirty-Five” symposium at The Ohio State University Moritz College of Law (see here and here for prior posts).

This post summarizes Thompson’s comments at the event regarding FCPA reform.

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Thompson began his comments by noting his experience with the FCPA from various vantage points:  as a lawyer in private practice representing business organizations in FCPA enforcement actions; as the DOJ’s Deputy Attorney General; as the general counsel of a large multinational; and currently as an academic.  Thompson stated that there are things that can be done to make the FCPA more effective and he focused his remarks on M&A issues and an FCPA compliance defense.

As to M&A issues, Thompson noted that it is hard for U.S. companies to pursue legitimate business opportunities abroad when the “Sword of Damocles” hangs over their head because of potential legal liability for the pre-acquisition conduct by the target company.  He called the DOJ’s Halliburton FCPA Opinion Release on M&A issues (see here) “too rigid” and “impractical.”  The end result, according to Thompson, is a limited ability by the acquiring company to conduct pre-acquisition due diligence and thus often missed business opportunities for companies.  More broadly, Thompson suggested that the DOJ’s current approach to FCPA M&A liability is not good for shareholders and harms worldwide efforts to reduce corruption.

Thompson suggested that there should be a defined period – a safe harbor period – in which an acquiring company, post-closing, be allowed to conduct FCPA specific due diligence, report any adverse findings to the DOJ, and implement remedial measures – all without fear of prosecution.  Thompson noted that such a system would go “a long way to instill values around the world to foster the rule of law and make anti-corruption campaigns more effective.”  [Thompson’s call for an M&A safe harbor provision is similar to an FCPA reform proposal from another former DOJ Deputy Attorney General, George Terwilliger, see here and here for prior posts].

As to an FCPA compliance defense, Thompson began by noting that the U.S. Supreme Court has taken steps in recent years to undercut respondeat superior theories of liability.  Thompson noted that this doctrine often “undercuts a corporation’s ability to do the right thing.”  Thompson criticized the DOJ for not adequately recognizing a company’s pre-existing compliance policies and procedures.  In doing so, Thompson invoked the 2003 DOJ memo titled “Principles of Federal Prosecution of Business Organizations” bearing his name – the so-called Thompson Memo (see here) – and stated that when the memo was re-issued in 2008 (see here, the so-called Filip memo currently found in the U.S. Attorneys Manual) it retreated from prior practice and “diminished credit for effective compliance programs.”  Thompson stated that it was “unfortunate that the DOJ has retreated.”

According to Thompson, most companies that learn of improper conduct within its ranks “want to do the right thing,” but are faced with “uncertainty” in making the voluntary disclosure decision because of the DOJ’s current enforcement policies concerning respondeat superior.  Thompson again invoked reference to the “Sword of Damocles” and renewed his call (see here for Thompson’s comments in 2011) for an FCPA compliance defense.  As noted in my forthcoming article, “Revisiting A Foreign Corrupt Practices Act Compliance Defense” (here), Thompson is part of a growing chorus of former DOJ officials who support a compliance defense.

DOJ FCPA Unit Chief Charles Duross At Ohio State’s FCPA Symposium

Today’s post is from James McGrath (McGrath & Grace Ltd. – here) and author of the Internal Investigations Blog (here).

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Last Friday, the Ohio State Law Journal presented a symposium entitled “The FCPA at Thirty-Five and Its Impact on Global Business” at the Moritz College of Law. Though Spring Break was already on for most of the student body and the Ohio State campus was relatively empty, experts, practitioners, and a sizable number of the law school’s students packed the William B. Saxbe Law Auditorium to focus on the FCPA.

While the conference consisted primarily of academic panelists presenting executive summaries of their forthcoming
papers on widely-ranging aspects of the Foreign Corrupt Practices Act, the Law Journal staff did score a coup in securing the DOJ’s Charles Duross, who is the Deputy Chief of its Fraud Section and the head of the DOJ’s FCPA unit.  Duross said he elected to attend the OSU event instead of an OECD conference considering the submission of Russia’s most recent anti-corruption legislation in terms of treaty compliance and the audience’s reception indicated its gratitude.

Affable and self-deprecating, Duross sat on two of four presentation panels and gave what he represented to be his personal opinions on the FCPA and its enforcement.  He asked, therefore, that they not be considered binding upon the Department of Justice.  The concern that a double Wolverine – Duross attended both undergraduate and law school at Michigan – finding himself in Columbus might result in Duross in distress was quickly dismissed. In making his own presentation and addressing ad hoc issues raised throughout the day, he pressed the rightness of the DOJ’s enforcement posture much as one expected.

The substantive Duross presentation on the subject of “The FCPA and Government” consisted of his impressions of five things that have not changed about the DOJ’s approach to FCPA enforcement over the years, five things that have changed in the recent past, and five things to look for in the future.

Five Things That Have Not Changed

From the FCPA’s inception in 1977 to the present, the following are the five constants Duross identified:

FCPA as a constant source of complaints.  These complaints primarily come from the U.S. Chamber of Commerce and are in direct contrast with his experience in talking to compliance officers who see the law as giving them a competitive advantage.  As evidence of this, Duross indicated that a Chief Compliance Office recently told him that his people in the field have used the statute as a shield to explain non-payment of bribes to those demanding them.

Methods of corruption stay the same.  Duross noted that in the 1970s, Lockheed used the Tokyo-based Marubeni Corporation as a middleman in securing sales in Japan and that Marubeni was back in the Bonny Island bribery case.  Duross also indicated that the use of intermediaries to do the dirty work has not changed during the FCPA’s 35 years.

Centralization of enforcement.  Duross noted that although some cases were initiated and prosecuted by individual U.S. Attorney’s at the FCPA’s inception, by and large, the Fraud Section has handled enforcement in the last 20 years.  According to Duross, this has lent a consistency and certainty to the effort and this is an overwhelming positive.

Definitions of “instrumentality” and “anything of value”.  While Duross acknowledged that the meanings of these terms are the subject of debate, they have been consistently construed over the years.  To that point, the definition of “anything of value” has been the same as in the domestic bribery and other criminal statutes, where it is not often complained of or litigated.

Use of agency theory.  Duross stated that this theory of criminal liability has always been used in FCPA enforcement, interpreted in the same way and that agency principles will continue in FCPA enforcement.

Five Things That Have Changed

The five changes seen by Duross are as follows.

Passage of international anti-bribery treaties.  While the U.S was the first nation to pass a foreign bribery statute, the formation of the OECD by treaty has been a prime mover in getting other countries to pass similar laws.  Passage of FCPA-style anti-bribery and anti-corruption laws is a major goal of the accord.  Duross noted that while China and India are not signatories to the convention, Russia is one and its attempt at treaty compliance is now being considered in Paris.

Jurisdictional Changes.  In 1998, Congress amended the FCPA statute to include alternative nationality jurisdiction – as to U.S. companies and citizens the law applies regardless of a U.S. territorial nexus – and jurisdiction over “persons other than issuers or domestic concerns” – including foreign nationals – while they are within the United States.    According to Duross, these changes significantly expanded the scope of the law and the reach of the U.S. government enforcement agencies.

International enforcement cooperation.  Thanks in large part to technological advances such as video conferencing, it is easier for multiple governments around the globe to coordinate investigations and prosecutions.  In addition, data collection and transmission across vast distances and national boundaries has benefitted from the ever-expanding capabilities of successive generations of computers.

Advent of NPAs and DPAs.  While not previously seen, their advent came in 1994 [in a non-FCPA case] when the DOJ and target corporations entered into two of them.  In recent years, the average number of agreements has risen.  According to Duross, increased popularity of NPAs and DPAs mirror the jump in enforcement and attest to the corporate ability to avoid the excessive adverse publicity of trials.

Increase in number of trials.  According to Duross, from 1997 to 2010 there were 18 FCPA defendants who went to trial.  In 2011 alone, there were 17 defendants who went to trial.

Five Things For The Future

In the future, Duross said to look for the following:  more case law; more scholarly analysis of the FCPA; increasingly complex multi-jurisdictional issues (with overlapping efforts by various nations and their agencies, Duross said these issues will most likely be resolved by treaties between the U.S. and those countries);  more international attention (as additional countries join the OECD, the drive to fight foreign bribery and corruption will continue to move forward); more discussion on amending the FCPA (Duross noted that while the U.S. Chamber of Commerce leads the call to amend the law – primarily to posit an affirmative “compliance defense” – the OECD has also suggested changes to the FCPA, such as extending its statute of limitations).

In response to a post-presentation query as to why FCPA enforcement is so hot now, Duross opined that while corruption has always been a problem, things such as the Sarbanes-Oxley reporting requirements and more whistleblower tips have shined additional light on illicit payoffs and other nefarious activities.  According to Duross, technology and interconnectivity make for a smaller, less-isolated world and this translates into more reporting.  In addition, the DOJ follows the trail of evidence wherever it leads, sometimes making for larger, more-publicized results.

Answering a second question as to how the Fraud Unit decides whether to defer enforcement to other nations, Duross indicated that there is no formal protocol and that it is primarily talked through and decided on an individual basis.

As part of an afternoon discussion of “The FCPA’s Impact on Global Business”, Duross seized the opportunity to respond to many issues presented by other panelists.  Noting that he himself had left a large law firm as soon as he had paid off his student loans in order to enter public service and do something bigger, Duross stressed that he is proudly the face of a group that works hard to do the right thing.  Occasionally it makes mistakes, but “not all mistakes are misconduct” – no doubt a reference to the Lindseydismissal.  As to the size of the DOJ’s FCPA unit, Duross stressed the fact that even today there are only 20 lawyers in the entire section.  This makes the job difficult, he said, particularly in light of the resources possessed by enforcement targets and the white collar defense bar.  Nevertheless, he asserted that while he and his people might be outspent, they are “never out-classed and never out-hustled.”   Duross acknowledged that assessment of their work is appropriate and the pride he showed in his people is not only admirable, but indicative of solid leadership.

Nevertheless, to paint the DOJ as the underdog in this fight – as it wields the full investigative and prosecutorial power of the United States government – reminds me of Lou Holtz’s fretful assessments of his team’s chances each week while hunting down a national title at Notre Dame in 1998.  Subpoena and search warrant returns still trump big money and slick lawyers when the facts are bad for investigation targets and defendants.

Why does the FCPA Unit fight so hard?  According to Duross, because  foreign bribery is bad for business.  As Duross analogized, paying bribes to corrupt officials is like dealing with the mob. Companies think that if they can get that first contract by greasing the skids, their superior product or services will get them the next one on merit.  But the first shakedown, Duross asserted, is just that:  the first shakedown.  The sequence repeats itself and grows like a cancer, infecting an entire project, business, or industry.  And as the bribes paid often equal the profit on the underlying job, these payoffs are for naught, according to Duross.

Further and on a larger scale, Duross believes that FCPA violations can be indicative of more widespread corporate problems.  Where overseas corruption is present, there is a good chance that a company has other questionable business practices both at home and abroad.   Therefore, he firmly believes that “compliance is good for business”.

With respect to a “compliance defense” tailored to the FCPA, Duross is against it. Duross believes that while it may properly be part of a larger discussion of vicarious liability and respondeat superior in criminal cases generally, enacting an affirmative defense to any single statute – and the FCPA in particular – would be unwise.  He said that the anecdotal evidence supported his position, stating that no compliance officers at a recent meeting raised their hands in favor of a compliance defense.  How many were attorneys and if any were white collar litigators was not disclosed.  He also stated that no individuals in another forum he recently participated were willing to accept a more extensive U.K. Bribery Act-type statute as a trade off for a compliance defense.

The current trade-off for no compliance defense seems to be accessibility to DOJ decision-makers.  Duross closed his remarks for the day by indicating that if there be a need for FCPA certainty – definitions, defenses, or prosecutorial philosophy – it can certainly be found at his door.  Harkening back to the smallness of the FCPA Unit, Duross noted that it was unusual to be able to come to the same people who have been with the Department for long stints for guidance and answers.

Though well-intentioned, this does not provide real comfort in my opinion.  Though Duross proved very likeable and earnest in his symposium presentations and in a one-on-one conversation afterwards, the notion that bankable advice will always be available from the FCPA Unit because of the quality and professionalism of its current personnel is troubling.  After all, this has always been a nation of laws and not of men.  That being said, one would have to wonder what or whom to rely upon for FCPA guidance – and to what degree of certainty – when Charles Duross no longer heads the FCPA Unit.

[I would like to thank Professor Koehler for the opportunity to write this guest post.  Additionally, I would like to thank the Moritz College of Law at The Ohio State University, the Ohio State Law Journal, Editor-in-Chief Jaci Wilkening, Symposium Editor Katie Linehan, Symposium Faculty Advisor Professor Daniel Chow, and Professor Koehler for putting together an excellent event and for their collective hospitality.]

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Attending an event where a DOJ or SEC FCPA enforcement attorney is speaking?  Consider this an open invite to do a guest post for FCPA Professor.

Friday Roundup

Reader mail, an Olympic loophole, this week’s disclosure(s), the SEC speaks, and so do executives … it’s all here in the Friday Roundup.

Reader Mail

At times, even I ask myself why I spend countless hours maintaining a free website.  Then I receive an e-mail from a reader such as the one below (the reader encouraged me to share it) and I keep writing.

“I just wanted to thank you for your blog.  My son-in-law, [former Africa Sting defendant], was involved in the sting case.
After his arrest we found your website and learned alot from it.  We had never heard of the fcpa before all of this happened.  Your site was the most informative and easy for nonlawyers to understand. I would check it everyday for updates!  It was my lifeline!  Thank you again for writing so much about the case.  I’m just glad it is over and life can go back to normal.

Sincerely,

[Relative of former Africa Sting defendant]”

Olympic Loophole

A recent article in the Wall Street Journal (A Battle for Mongolia’s Copper Lode – Feb. 22nd) reminded me of a post lost in the unpublished archives.

Last August, Rio Tinto PLC, which manages the Oyu Tolgoi mine in Mongolia, announced (here) that the company “signed an agreement with the Mongolian National Olympic Committee (MNOC) to be a Gold Partner sponsor for the Mongolian National Team competing at the London 2012 Olympic and Paralympic Games.”  In the release, Rio Tinto Country Director Mongolia, David Paterson,  stated “we are sponsoring the National Olympic Team as part of our long-term commitment to Mongolia and Oyu Tolgoi.”  The release further stated as follows.  “Rio Tinto’s Olympic sponsorship is just one of many ways the company is contributing to Mongolia’s development. For example, Rio Tinto invests in numerous programmes that assist regional and local communities and young Mongolians in the areas of education and training, local procurement practices and sustainable development.”

An August 2011, Wall Street Journal article discussing Rio Tinto’s sponsorship states that Mongolia “is a key battleground for mining companies, which are vying to extract its rich mineral deposits” and that the Oyu Tolgoi project “is expected to yield 1.2 billion metric tons of copper and 650,000 ounces of gold a year in its first 10 years, as well as silver and other metals.”

For more on Rio Tinto’s involvement at Oyu Tolgoi, see here from the company’s website.

On one level, engaged corporate citizens with a committment to community welfare and development is a good thing and ought to be encouraged.

But, on another level, and FCPA jurisdictional issues aside (although Rio Tinto’s ADR’s are traded on a U.S. exchange), is a company’s sponsorship of a country’s Olympic team any less problematic than a company providing a laptop computer or an expensive bottle of wine to an employee of a state-owned or state-controlled enterprise?  What about pre-paid gifts cards (oops, getting ahead of myself, that is coming up next)?  Such instances have never been the sole basis for an FCPA enforcement action, but such allegations (or those similar) are frequently included in FCPA enforcement actions suggesting that the enforcement agencies do indeed view such conduct as problematic.

Strange as it may sound, the FCPA’s anti-bribery provisions are only implicated when something of value is provided, directly or indirectly, to a foreign official to influence the official in obtaining or retaining business.  The FCPA’s anti-bribery provisions are not implicated when the thing of value is provided to a foreign government itself.  Even the DOJ recognizes this. See here for DOJ Opinion Procedure Release 09-01 in which the DOJ states that the  proposed course of conduct “fall[s] outside the scope of the FCPA in that the  [thing of value] will be provided to the foreign government, as opposed to  individual government officials …”.

Is this an FCPA loophole?  If so, ought it be closed?

This Week’s Disclosure(s)

Back to those pre-paid gift cards.

On Feb. 16th in this prior post, I commented (somewhat tongue-in-cheek) that every week another  company seems to be disclosing FCPA scrutiny.  So far two weeks have passed and there have been two new disclosures.  This week’s disclosure is from W.W. Grainger Inc. (consistently ranked as one of the “world’s most admired companies” by Forbes).  In a recent SEC filing, the company (a broad-line distributor of maintenance, repair and operating supplies and other related products and services) stated as follows.

“The Company is conducting an inquiry into alleged falsification of expense accounts submitted by employees in certain sales offices of Grainger China LLC, a subsidiary of the Company. In the course of the investigation the Company learned that sales employees may have provided prepaid gift cards to certain customers. The extent and value of the gift cards are subject to further inquiry. The Company’s investigation includes determining whether there were any violations of laws, including the U.S. Foreign Corrupt Practices Act. Consequently, on January 24, 2012, the Company contacted the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) to voluntarily disclose that the Company was conducting an internal investigation, and agreed to fully cooperate and update the DOJ and SEC periodically on further developments. The Company has retained outside counsel to assist in its investigation of this matter. Because the investigation is on-going, the Company cannot predict at this time whether any regulatory action may be taken or any other potential consequences may result from this matter.”

Finally on the disclosure front, in August 2011, Brucker Corp. made an FCPA disclosure concerning its Brucker Optics subsidiary in China.  Recently, the company further disclosed as follows.

“As previously reported, in 2011 the Audit Committee of our Board of Directors commenced an internal investigation, with the assistance of independent outside counsel and an independent forensic consulting firm, in response to certain anonymous communications received by us alleging improper conduct in connection with the China operations of our Bruker Optics subsidiary. The Audit Committee’s investigation, which included a review of compliance by Bruker Optics and its employees in China and Hong Kong with the requirements of the Foreign Corrupt Practices Act (FCPA) and other applicable laws and
regulations, has been completed. The investigation found evidence indicating that payments were made that improperly benefited employees or agents of government-owned enterprises in China. The investigation also has found evidence that certain employees of Bruker Optics in China and Hong Kong failed to comply with our corporate policies and standards of conduct. As a result, we have taken personnel actions, including the termination of certain individuals. We have also terminated our business relationships with certain third party agents, implemented an enhanced FCPA compliance program, and strengthened the financial controls and oversight at our subsidiaries operating in China and Hong Kong. We have also initiated a review of the China operations of our other subsidiaries, which is being conducted with the assistance of an independent audit firm.

“In the fiscal year ended December 31, 2011, $4.3 million was recorded for legal and other professional services incurred related to the internal investigation of these matters.”

As noted in Brucker’s initial filing, in 2010, the China operations of Bruker Optics accounted for less than 2.5  percent of the Company’s consolidated net sales and less than 1.0 percent of its  consolidated total assets.

SEC Speaks

The Subject to Inquiry Blog published by McGuireWoods has this post regarding the recent SEC Speaks event.  Regarding anti-corruption enforcement, the post states as follows.

The Commission now has a “cross-border group” charged with ferreting out corruption in corporations that trade on US exchanges, but are headquartered abroad.  The group is particularly interested in the accounting policies and financial disclosures of cross-border companies, many of which rely on “small US audit firms.”  As a result, the SEC is leaning on audit firms, which the SEC regards as “gatekeepers.”  To that end, the SEC issued guidance in 2010 and again in 2012, advising that they conduct risk-based analyses of their overseas clients.  According to Kara Brockmeyer, head of the SEC’s FCPA Unit, the SEC has seen a spike in Form 8-K reports of accounting irregularities, as well as a jump in Rule 10A reports.  She expects additional 10A reports to flow in through the Office of the Whistleblower.

Brockmeyer noted that the SEC is also devoting significant resources to Foreign Corrupt Practices Act (FCPA) enforcement.  The SEC’s FCPA Unit is focusing heavily on international cooperation, teaming with regulators around the world.  She highlights the FCPA Unit’s cooperation with Switzerland, Russia, and China, each of which recently enacted anticorruption laws.  The FCPA Unit brought 20 FCPA enforcement cases 2011, including 19 against companies and one against an individual.  Brockmeyer cautioned, however, that the 2011 numbers should not be seen as a model.  Indeed, in 2012 the SEC has already charged 14 individuals with FCPA violations, compared with only five companies charged.

From the Executive’s Mouth

Some excerpts from earnings conference calls that caught my eye.

From Bill Utt (President, CEO and Chairman of KBR Inc.) during a recent call.  “I would also like to report that in February KBR successfully concluded our three-year independent corporate monitorship related to KBR’s 2009 plea under the US Foreign Corrupt Practices Act case. Overall, the engagement with our corporate monitor was a positive experience for KBR. We remain committed to consistently doing the right thing every time, and our commitment to compliance is a fundamental part of KBR’s culture. In fact, our compliance programs are paying off in terms of new work as we were recently awarded an international project where our compliance program was a differentiating factor in KBR securing the work.”

From Kevin Royal (Senior VP, CFO of Maxwell Technologies) during a recent call.  “Now I would like to provide an update regarding the shareholder derivatives. As we have disclosed in past public filings in 2010, two shareholders had alleged that certain of our past and current officers and directors failed to prevent us from violating the US Foreign Corrupt Practices Act, or FCPA. It is important to note that the Company is only a nominal defendant in this suit. In December 2011 mediation was held and a proposed settlement was reached wherein $3 million would be paid to plaintiff’s counsels, with $2.7 million to be paid by our insurance carrier, and $290,000 would be paid by the Company. In addition, we would be required to insure that certain corporate governance measures are in place and in force. The agreement is subject to among other things, court approval and notice to our shareholders. Without admitting any wrongdoing, the defendants to this suit are willing to enter into this settlement in order to expedite resolution of the matter, and to relieve the defendants and the Company from further financial burden. We are pleased that this suit is near final settlement, and look forward to putting this matter behind us.”  [For a recent post on FCPA-related civil litigation titled “A Purpose or Parasitic” – see here].

From Bernard Duroc-Danner (President and CEO of Weatherford International in response to a question about the company’s FCPA inquiry) “Well, there’s not a lot to say about, that I can say, about the DOJ process. To a degree, I think it fell off the screen as it were.  For us it moves slowly, that’s all I can tell you. So, I don’t have much of an update that I can tell you. And actually even if I could, I wouldn’t have much of an update period.”

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On that note, a good weekend to all.

Friday Roundup

The Chamber and others weigh in on the DOJ’s promised FCPA guidance, a re-run worth watching, the DOJ dismisses its FCPA case against defunct Cinergy Telecommunications, this week’s FCPA disclosure, a World Bank debarment, and reflecting on this “new era” of FCPA enforcement.  It’s all here in a souped-up version of the Friday roundup.

Guidance

The conventional wisdom is that when the DOJ announced in November 2011 (see here for the prior post) that it would be issuing FCPA guidance in 2012, that this stalled introduction of an FCPA reform bill.  The current conversation thus seems to be focused on DOJ’s promised guidance.

This prior post highlighted how Senator Charles Grassley is curious about DOJ’s guidance and this prior post highlighted how Senators Amy Klobuchar and Chris Coons are as well.

Earlier this week, the Chamber of Commerce (and approximately 30 other trade associations or councils ranging from the American Gaming Association, the Financial Services Roundtable, the Poultry Federation, and the West Virginia Bankers Association) sent a letter (here) to Assistant Attorney General Lanny Breuer and SEC Director of Enforcement Robert Khuzami titled “Guidance Concerning the Foreign Corrupt Practices Act.”

The letter begins as follows.  “On behalf of the more than three million businesses and organizations whose interests we represent, we the undersigned organizations, write to request that this guidance address several issues and questions of significant concern to businesses seeking in good faith to comply with the FCPA. Detailed, authoritative guidance on these matters will enhance companies’ compliance with the FCPA by clarifying the “rules of the road” and by mitigating the significant interpretive challenges that companies face when applying the text of the statute to complex real-world circumstances.”

Topics addressed in the letter include:  “definitions of ‘foreign official’ and ‘instrumentality'”; “consideration of compliance programs in enforcement decisions”; “parent-subsidiary liability”; “successor liability”; “de minimis gifts and hospitality”; “mens rea standard for corporate criminal liability”; and “declination issues.”

In this previous post regarding the DOJ’s promised guidance I commented that while a welcome development, DOJ’s promise of FCPA guidance in 2012 will not cure many of the issues that are being debated in good faith during this new era of FCPA enforcement.  Furthermore, I expect DOJ’s guidance to be little more than a compilation in one document of information that is already in the public  domain for those who know where to look.  The Chamber letter similarly states as follows concerning compliance programs.  “If the forthcoming guidance on this issue consists merely of a recitation in summary form of specific corporate compliance programs that have been adopted pursuant to deferred prosecution agreements, non-prosecution agreements or SEC settlements, the marginal utility of such guidance to the cause of FCPA compliance in the business community will be limited.”

Whenever released and whatever it says, the DOJ’s guidance will be merely that – guidance.  What the FCPA needs is not guidance, but limited structural reforms  (such as a compliance defense) as well as a change in DOJ policy (such as  elimination of non-prosecution and deferred prosecution agreements).

A Re-Run Worth Watching

If you missed “The FCPA Compliance: Yes Or No” debate between Howard Sklar and I earlier this week on Securities Docket, here is the audio replay (approximately 70 minutes) along with the presentation slides.  At the end of the presentation participants were asked to vote “yes” or “no” and the vote tally was 68% “yes” 32% “no.”  Many thanks to Bruce Carton at Securities Docket for hosting.

Cinergy Telecommunications

In July 2011, Cinergy Telecommunications was added to the Haiti Teleco enforcement action (see here for the prior post).  In a superceding indictment, the privately-held telecommunications company incorporated in Florida was charged
with one count of conspiracy to violate the FCPA and to commit wire fraud, six counts of FCPA violations, one count of conspiracy to commit money laundering and 19 counts of money laundering.  In addition, Washington Vasconez Cruz (the president of Cinergy) was also charged as was Amadeus Richers (a former director of Cinergy).  As noted in this January post by Samuel Rubenfeld (Wall Street Journal Corruption Currents) in a second superceding indictment Cecilia Zurita (a former vice president of Cinergy as well as Cruz’s wife) was also added to the case.

Earlier this week, the DOJ moved to dismiss (see here) its case against Cinergy.  The motion states as follows.  “The government has recently learned that defendant Cinergy Telecommunications, Inc. is a non-operational entity that effectively exists only on paper for the benefit of two fugitive defendants, Washington Vasconez Cruz and Cecilia Zurita.  For several years, these defendants took actions making it appear as though Cinergy was an on-going operational company.”  The motion states that “defense counsel recently confirmed that Cinergy is in fact now non-operational, has no employees, and has no assets of any real value.”  The motion concludes as follows.  “In light of persuasive information the government has developed that Cinergy no longer exists in any real sense and that it was portrayed as existing at least in part to further fugitive defendants’ litigation strategy, the government in its discretion and under the circumstances presented has elected not to proceed with a trial against Cinergy.”

Joel Hirschhorn (here – Hirschhorn & Bieber P.A.) represents Cinergy as well as certain individual defendants in the case.

This Week’s FCPA Disclosure

In this prior post, I commented (somewhat tongue-in-cheek) that every week another company seems to be disclosing FCPA scrutiny.  So far so good.  This week’s disclosure is from Cobalt International Energy which disclosed as follows in its recent annual report.

“In connection with entering into our RSAs for Blocks 9 and 21 offshore Angola, two Angolan-based E&P companies were assigned as part of the contractor group by the Angolan government. We had not worked with either of these companies in the past, and, therefore, our familiarity with these companies was limited. In the fall of 2010, we were made aware of allegations of a connection between senior Angolan government officials and one of these companies, Nazaki Oil and Gáz, S.A. (“Nazaki”), which is a full paying member of the contractor group. Nazaki has repeatedly denied the allegations in writing. In March 2011, the SEC commenced an informal inquiry into these allegations. To avoid non-overlapping information requests, we voluntarily contacted the U.S. Department of Justice (“DOJ”) with respect to the SEC’s informal request and offered to respond to any requests the DOJ may have. Since such time, we have been complying with all requests from the SEC and DOJ with respect to their inquiry. In November 2011, a formal order of investigation was issued by the SEC related to our operations in Angola. We are fully cooperating with the SEC and DOJ investigations, have conducted an extensive investigation into these allegations and believe that our activities in Angola have complied with all laws, including the FCPA. We cannot provide any assurance regarding the duration, scope, developments in, results of or consequences of these investigations.”

World Bank Debarment

Earlier this week, the World Bank announced (here) “debarment of Alstom Hydro France and Alstom Network Schweiz AG (Switzerland) – in addition to their affiliates – for a period of three years following Alstom’s  acknowledgment of misconduct in relation to a Bank-financed hydropower  project.”  According to the release, “in 2002, Alstom made an improper payment of €110,000, to an entity controlled by a  former senior government official for consultancy services in relation to the  World Bank-financed Zambia Power Rehabilitation Project.”  The release further states as follows. “The  debarment is part of a Negotiated Resolution Agreement between Alstom and the  World Bank which also includes a restitution payment by the two companies  totaling approximately $9.5 million. The debarment can be reduced to 21 months –  with enhanced oversight – if the companies comply with all conditions of the  agreement.”

What to make of the debarment based on conduct 10 years ago is a bit difficult.  This Wall Street Journal Story by Dionne Searcey and David Crawford states as follows.  “There was some confusion about the company’s official response. Early Wednesday, Alstom spokesman Patrick Bessy said Alstom didn’t admit guilt in its settlement with the World Bank. “The World Bank made assumptions which were not proved,” he said, adding that because the matter was so old, “Alstom was unable to find evidence it could present in its own defense so we decided to settle.”  Mr. Bessy said the blacklisting won’t affect Alstom Group, which has had only one project that involved World Bank funding since 2007. He said the company has several other subsidiaries engaged in hydroelectric projects that aren’t affected by the ban and will be eligible for World Bank funding of their projects. In all only about 5% of Alstom sales are in the hydroelectric field, Mr. Bessy said. In a later statement, the company rejected Mr. Bessy’s comments: “Alstom’s general counsel … stated that any comments that were previously made by Alstom are not valid.”

Reflecting On The New Era of FCPA Enforcement

As discussed in this previous post, in November 2010 Assistant Attorney General Lanny Breuer declared as follows.  “We are in a new era of FCPA enforcement’ and we are here to stay.”  Thomas Gorman (Dorsey Whitney) runs the always informative SEC Actions blog – see here.  In this post, titled “The New Era of FCPA Enforcement:  A Time For Reflection” Gorman hit the ball out of the park when he states as follows.

“Perhaps now is a good time to stop and reflect on what the courts and jurors have said about the “new era” of FCPA enforcement. Surely that era should be more than a dazzling array of ever increasing monetary payments by corporations or actions against individuals built on questionable blue collar tactics. Surely it should be more than business organizations spending ever increasing sums to conduct far reaching and perhaps at times unnecessary investigations at huge expense in a effort to win cooperation credit. Surely it should be more than brining increasing numbers of charges against individuals and demanding longer and longer prison terms. Perhaps now is the time to craft meaningful reform to the Act and enforcement policy to ensure clearer guidance and a more balanced application of the statutes to ensure that the laudable goals of the statute in a fair and balanced manner in the future. That would truly be a “new era” of FCPA enforcement.”

For additional reflections on this “new era” of FCPA enforcement, see this piece I published with the ABA Global Anti-Corruption Task Force.

*****

A good weekend to all.

Hail To The Chief