Friday Roundup
Dear Attorney General Holder, U.K. developments not involving News Corp., and Halliburton updates its disclosure … it’s all here in the Friday roundup.
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Senators Klobuchar and Coons Write to Attorney General Holder On FCPA Guidance
As noted in this previous post, in November 2011, Senator Charles Grassley (R-IA) asked Attorney General Holder for detailed information about the DOJ’s promised upcoming FCPA guidance.
Earlier this week, Senators Amy Klobuchar (D-MN) and Chris Coons (D-DE) sent Attorney General Holder this letter regarding the DOJ’s forthcoming FCPA guidance. From my perspective, the most notable paragraph of the letter was as follows. “[I]t has become apparent that too many companies are devoting a disproportionate amount of resources to FCPA compliance and internal investigations. To be clear, it is both necessary and desirable that companies pay adequate attention to compliance efforts, and in certain cases, adequate anti-corruption initiatives may require a significant corporate committment. Over-compliance, however, can have a negative effect on product development, export promotion, and workforce expansion.”
I agree and devoted an entire section of “The Facade of FCPA Enforcement” (see here pages 997-1009) to why the facade of FCPA enforcement matters including the breeding of overcompliance and time-consuming internal investigations. See also here pages 8-9 of my Senate FCPA testimony.
In addition, Senator Klobuchar and Coons encouraged the DOJ “to seek out the participation of U.S. corporate stakeholders when formulating its guidance.” The Senators stated as follows. “Engagement with the stakeholder community ought to occur prior to the release of guidance. In the alternative, guidance should be issued in draft form and finalized after a comment period of sufficient length.”
U.K. Developments
Some recent U.K. developments that do not involve News Corp.
In this release, the U.K. Serious Fraud Office announced that Bruce Hall was charged with corruption offenses based on his alleged receipt of bribes while an employee of Aluminium Bahrain B.S.C. (“Alba”). The charges against Hall relate to previous SFO charges against Victor Dahdaleh, an agent for Alcoa, who allegedly made bribe payments to Alba – see here for the prior post. In recent years, the DOJ has likewise brought non-FCPA charges against bribe recipients. See here for instance.
In this release, the U.K. Serious Fraud Office announced charges against a fourth person in connection with the Innospec enforcement action. (See here for more on the corporate enforcement action). Miltos Papachristos, a former Regional Sales Director for the Asia Pacific Region for Innospec, was charged with “conspiracy to corrupt in that he gave or agreed to give corrupt payments to public officials and other agents of the Government of Indonesia as inducements to secure, or as rewards for having secured, contracts from the Government of Indonesia for the supply of Innospec Ltd products including Tetraethyl Lead.” For more on the other three individuals charged – see here.
Halliburton Updates Disclosure
Yesterday’s post (here) touched upon FCPA disclosures and how it seems like every week there is new disclosure to report.
Halliburton’s disclosure yesterday was not new, but it stated as follows. “We are conducting an internal investigation of certain areas of our operations in Angola, focusing on compliance with certain company policies, including our Code of Business Conduct (COBC), and the FCPA and other applicable laws. In December 2010, we received an anonymous e-mail alleging that certain current and former personnel violated our COBC and the FCPA, principally through the use of an Angolan vendor. The e-mail also alleges conflicts of interest, self-dealing and the failure to act on alleged violations of our COBC and the FCPA. We contacted the DOJ to advise them that we were initiating an internal investigation with the assistance of outside counsel and independent forensic accountants. During the third quarter of 2011, we met with the DOJ and the SEC to brief them on the status of our investigation and provided them documents. We are currently responding to a subpoena from the SEC regarding this matter and are producing all relevant documents. We understand that one of our employees has also received a subpoena from the SEC regarding this matter. We expect to continue to have discussions with the DOJ and the SEC, and we intend to continue to cooperate with their inquiries and requests as they investigate this matter. Because these investigations are at an early stage, we cannot predict their outcome or the consequences thereof.”
In 2009, Halliburton (and related entities) resolved a $579 million DOJ/SEC FCPA enforcement action concerning conduct at Bonny Island, Nigeria. (See here).
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A good weekend to all.
The Sun Rose, A Dog Barked, And A Company Disclosed FCPA Scrutiny
Yesterday, a colleague stopped by my office and commented how it seems like every day the news contains a story about a company subject to FCPA scrutiny. Every day may be a stretch, but a new company every week is probably accurate.
In its Feb. 14th 10-K filing, Goodyear Tire and Rubber Company disclosed as follows.
“In June 2011, an anonymous source reported, through our confidential ethics hotline, that our majority-owned joint venture in
Kenya may have made certain improper payments. In July 2011, an employee of our subsidiary in Angola reported that similar
improper payments may have been made in Angola. Outside counsel and forensic accountants were retained to investigate the
alleged improper payments in Kenya and Angola, including our compliance in those countries with the U.S. Foreign Corrupt
Practices Act. We do not believe that the amount of the payments in question in Kenya and Angola, or any revenue or operating
income related to those payments, are material to our business, results of operations, financial condition or liquidity.
Following our internal investigation, we have implemented, and are continuing to implement, appropriate remedial measures
and have voluntarily disclosed the results of our investigation to the U.S. Department of Justice (“DOJ”) and the Securities and
Exchange Commission (“SEC”), and are cooperating with those agencies in their review of these matters. We are unable to predict the outcome of any review that may be undertaken by the DOJ and SEC.”
In this prior post, I asked why in this era of increased FCPA compliance there seems to be more, not less, FCPA inquiries? Does effective compliance reduce FCPA scrutiny or does effective compliance uncover more potential FCPA issues? Based on Goodyear’s disclosure, it seems that in its case, the later is true, its compliance policies and procedures worked! If so, does this not argue in favor of an FCPA compliance defense? See here for a webcast next Tuesday on this topic.
If every company hired FCPA counsel to do a thorough review of its world-wide operations would – given the enforcement agencies theories of interpretation – 50% of companies find technical FCPA violations? 75%? 95%? If the answer is any one of these numbers, is that evidence of how corrupt business has become or is that evidence of how unhinged FCPA enforcement theories have become?
In other words, what does it say about enforcement of a law if, at any given time, the majority of corporations are on the wrong end of how that law is enforced? After all, according to the FCPA Blog’s most recent corporate disclosure list (here) approximately 80 companies are currently under investigation for FCPA violations. As the FCPA Blog rightly notes “nearly all entries are based on disclosures in SEC filings. That means non-issuers (non-public companies) aren’t included. And perhaps not all issuers have made a disclosure about a pending FCPA investigation, in which case the company may not appear on this list.”
Indeed, today’s Wall Street Journal editorial is titled “Justice’s Bribery Racket.” It begins as follows. “The Justice Department’s creative prosecutions under the Foreign Corrupt Practices Act (FCPA) continue to disintegrate […] The 1977 FCPA was intended to prevent American companies from joining the Third World’s payoff habits. Over the last five years, however, Justice has begun to stretch the law into a far more blunt instrument. Instead of going after clear violations, the vague statute has become a tool to prosecute or threaten legions of companies.” I agree and the issues discussed in the WSJ editorial have been the focus of my writing for years. See here for the “Facade of FCPA Enforcement,” here for “Revisiting A Foreign Corrupt Practices Act Compliance Defense,” here for my Senate FCPA testimony and here for my “foreign official” declaration. [As to the WSJ’s reference to News Corp. “if Justice tries to portray payments made as part of traditional news-gathering as criminal acts, the list of felons won’t stop at the tabloids,” I’ve stated before (here) that News Corp.’s FCPA exposure – and the intense media coverage it has generated – does shine a much needed light on the current era of FCPA enforcement and raises two distinct questions. The first question is whether – given the DOJ and SEC’s current enforcement theories – the News Corp. payments at issue can expose it to FCPA liability and the answer is yes. The second question is whether Congress intended the FCPA to apply to the numerous enforcement actions in this new era that have nothing to do with obtaining or retaining foreign government contracts. This is a valid and legitimate question and the same question could also be asked as to many other current FCPA enforcement theories.]
Goodyear states in its disclosure that it does not believe that the amount of the payments in question or any revenue or operating income related to those payments, are material to its business, results of operations, financial condition or liquidity. Then why disclose? It is perfectly acceptable in a situation like this to promptly implement remedial measures, revise and enhance compliance policies and procedures – all internally without disclosure to the enforcement agencies.
Yet the steady stream of disclosures feed a growing and vibrant FCPA industry where FCPA issues, no matter how limited in scope, often turn into a boondoggle for many involved. Corporate voluntary disclosures are like a rainbow and waiting on the other side is often the pot of gold “where else” question. For more on this dynamic, see this prior post.
Friday Roundup
From the dockets, an FCPA compliance defense – yes or no, hiring a woman closely associated with a foreign official, and a focus on the FCPA’s “red-haired stepchild” – it’s all here in the Friday Roundup.
From the Dockets
Last month when Judge Lynn Hughes dismissed, at the close of the DOJ’s case, the FCPA charges against John Joseph O’Shea (see here for the prior post), it was only a partial victory as O’Shea still faced non-FCPA charges. Complete victory is imminent as yesterday the DOJ filed a motion to dismiss (here) the remaining charges (conspiracy, money laundering and obstruction) against O’Shea.
In July 2011, Patrick Joseph (a former general director for telecommunications at Haiti Teleco and thus a “foreign official” according to the DOJ) was added to the extensive Haiti Teleco case. (See here for the prior post). Because the FCPA does not apply to bribe recipients, the DOJ charged Joseph with a non-FCPA offense: one count of conspiracy to commit money laundering. Earlier this week, Joseph pleaded guilty to the charges (see here). Pursuant to the plea agreement, Joseph agreed to forfeit approximately $956,000. It is clear from the plea agreement that Joseph was likely an early cooperator in the Haiti Teleco case as the plea agreement refers to a June 2009 proffer agreement with the DOJ. Many of the other individual defendants in the Haiti Teleco case were charged in December 2009 (see here). The plea agreement requires Joseph’s continued cooperation and later this month a trial is to begin as to other defendants in the wide-ranging Haiti Teleco case.
FCPA Compliance Defense – Yes or No?
That is the title of a free webcast on February 21st to be hosted by Bruce Carton’s Securities Docket (see here to sign up and for more information). I will be discussing my paper “Revisiting a Foreign Corrupt Practices Act Compliance Defense”and will argue in favor of Congress creating an FCPA compliance defense. On the other side of the issue, Howard Sklar (Senior Counsel, Recommind and a frequent commentator on FCPA issues at, among other places, his Open Air Blog) will argue that Congress should not include a compliance defense to violations of the FCPA.
Former Employee Alleges FCPA Issues at GE
As previously reported by Chris Matthews at Wall Street Journal Corruption Currents (see here) Khaled Asadi (a dual U.S. and Iraqi citizen) who was previously employed by G.E. Energy (USA) LLC (“GE Energy”) as its Country Executive for Iraq, located in Amman, Jordan, has filed a civil complaint (here) in the Southern District of Texas against G.E. Energy. GE Energy is a wholly-owned subsidiary of General Electric Company (“GE”).
The complaint alleges that G.E. harassed, pressured Asadi to vacate his position, and ultimately terminated him after he informed his supervisor and G.E.’s Ombudsperson “regarding potential violations of the Foreign Corrupt Practices Act committed by G.E. during negotiations for a lucractive, multi-year deal with the Iraqi Ministry of Electricity.” The substance of Asadi’s complaint is that “on or about June of 2010 Mr. Asadi was alerted by a source in the Iraqi Government that GE had hired a woman closely associated with the Senior Deputy Minister of Electricty (Iraq) to curry favor with the Ministry while in negotiation for a Sole Source Joint Venture Contract with the Ministry of Electricity. (According to the complaint, the Joint Venture Agreement between GE and the Ministry of Electricity was signed in Baghdad on December 30, 2010 and that the exclusive materials and repairs provision is estimated to be valued at $250,000,000 for the seven year agreement.)
Hiring friends, family members, etc. of a “foreign official” at the request of the ‘foreign official” has been the basis, in part, for previous FCPA enforcement actions – particularly if the hired individual was not qualified for the position, did not engage in any meaningful work, or was paid an unreasonably high salary. For instance, the 2011 FCPA enforcement action against Tyson Foods (see here for the prior post) involved, in part, allegations that a company subsidiary placed the wives of Mexican “foreign officials” on its payroll and provided them with “a salary and benefits, knowing that the wives did not actually perform any
services” for the company.
In the WSJ Corruption Currents article, a GE spokesman stated as follows. “Mr. Asadi’s termination had absolutely nothing to do with any allegations he is making. Regarding our contracts in Iraq, GE followed all requirements and his allegations are false.”
Travel Act Readings
A few informative Travel Act readings to pass along.
In this article from Thomson Reuters News & Insight, Mike Emmick (Sheppard Mullin Richter & Hampton) calls the Travel Act the “FCPA’s red-haired stepchild” and says that in conducting an internal investigation “there are some additional rocks to flip over” before celebrating findings of no payments to “foreign officials.”
In this article from Bloomberg Law Reports, John Rupp and David Fink (Covington & Burling) note that a “move by U.S. authorities to target commercial bribery robustly is a distinct possibility.” The piece discusses the laws that could be used by U.S. authorities to prosecute foreign commercial bribery.”
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A good weekend to all.
Off-Target, On-Target
Off-Target
Ever have one of those situations when you read something multiple times and it still does not make sense?
Earlier this week, CtW Investment Group (here) called on Siemens to end its relationship with the U.S. Chamber of Commerce because the Chamber “has engaged in an expensive campaign to undermine” the FCPA. William Patterson, Executive Director of the CtW Investment Group stated that Siemens “association with the Chamber and its efforts to rollback the FCPA […] undermines the considerable sums Siemens has invested in compliance.” In a letter (here) to Siemens’ President and Chairman of the Supervisory Board, Patterson stated as follows. “The significant investments [Siemens] has undertaken to overhaul its compliance mechanisms and restore its reputation, however, are undermined by Siemens’ continued membership and support of the U.S. Chamber of Commerce, which for the past year has waged an expensive lobbying campaign to weaken the FCPA.”
I have no idea if Siemens, as an organization, is in favor of FCPA reform and/or whether it has specifically contributed to the Chamber’s FCPA reform efforts.
However, let’s assume that Siemens is in favor of an FCPA compliance defense (one of the FCPA reform proposals being considered). How is this position “undermined” by the considerable sums Siemens has invested in compliance? As I note in my forthcoming scholarship “Revisiting an Foreign Corrupt Practices Act Compliance Defense” (see here), even the DOJ recognizes that Siemens has “set a high standard for multi-national companies to follow” and that the company has 600 full-time compliance personnel, its Anti-Corruption Toolkit was designed by industry leaders, and its has 100-plus compliance systems controls in high-risk jurisdictions.
It is precisely because of these above factors that Siemens (and other companies that make similar compliance investments) should be in favor of a FCPA compliance defense!
As Patterson’s letter states, “[T]here is likely no other company in the world today that has recently devoted as many corporate resources to anticorruption compliance than Siemens. […] On the flip side, there is likely no other company in the world that facts as many negative reputational consequences should its compliance efforts fail …”. [Attribution in the letter would have been appropriate, here is what I said in an October 10, 2011 post titled “Siemens and an FCPA Compliance” – “[T]here is likely no other company in the world today that has devoted as many corporate resources, with the assistance of industry experts, to compliance than Siemens. On the flip side, there is likely no other company in the world today that faces as many negative consequences should its compliance efforts fail than Siemens.”]
The letter also states as follows. “In October 2010, ironically the same month the Organization for Economic Cooperation and Development (OECD) published a report praising enforcement of the FCPA, the Chamber released ‘Restoring Balance” a brief criticizing ‘an active FCPA enforcement environment.” As noted in this prior post, while the OECD loudly praised the U.S. for its “high level” of enforcement, the OECD actually criticized and questioned many of the policies and enforcement theories which yield the “high level” of enforcement.
On-Target
The FCPA Blog (here) recently highlighted a 2008 transcript from the Albert Stanley case. In it, Judge Keith Ellison (S.D. Tex.) stated as follows in an exchange with a DOJ attorney: “I know it’s a growth industry, isn’t it, the Foreign Corrupt Practices Act? It’s keeping a lot of white collar lawyers busy; is that fair?”
Also on the FCPA Blog, Jan Handzlik (counsel to Lindsey Manufacturing and Keith Lindsey – see here for the prior post discussing Judge Matz’s order vacating the convictions and dismissing the indictment due to prosecutorial misconduct ) commented (here) on the O’Shea acquittal this week and stated as follows. “It’s much more challenging for the government when defendants persist in asserting their innocence.”
Nathan Vardi writes for Forbes. Among his prior works is “The Bribery Racket” (here) a piece that certainly got people talking. In this new piece titled “The FCPA Fiasco: Pressure Tactics In Corruption Cases Backfiring,” Vardi states as follows. “[T]he last decade the federal government has greatly increased its FCPA enforcement, threatening to bring an indictment against any company that does not cooperate and act harshly if companies don’t voluntarily report any potential sins. This game has been cheered on by lawyers and accountants, even journalists, who benefitted immensely from the expensive internal investigations companies initiate to deal with this new reality.” […] But you can’t have 150 FCPA investigations and dozens of companies essentially admitting to corrupting behavior, resulting in billions of dollars of fines, penalties, and legal and accounting fees, without eventually holding individuals accountable for the alleged violation of U.S. law. And those individuals have much stronger incentives to fight those charges in court, especially now with evidence mounting that the government’s legal argument in many FCPA cases is weak and flawed.”
Finally, in this piece, Miller & Chevalier attorneys Kathryn Atkinson, James Tillen, and Marc Bohn had this to say after noting several recent DOJ FCPA setbacks. “We are also optimistic that the events of 2011 may lead to a healthier level of engagement on substantive issues in the context of settlement-heavy FCPA enforcement. In recent years, not only have most matters been settled, but some have settled with little debate over (or public discussion of) the application of the statutory elements to the facts. In an adversarial system, however, these debates are essential. Each side must be prepared to challenge the other’s view of the facts, and their relevance under the law, and to have its own view challenged as well. When this system breaks down, the substantive dialogue is lost. It is likely the shortage of this substantive dialogue, more than actual ambiguity in the statute itself, that has given rise to recent discussions at conferences, in the media and online, and in Congress expressing frustrations about a lack of clarity in FCPA enforcement. A vigorous exploration of substantive issues in the context of our adversarial system should provide some relief from these frustrations and lead us to more effective and efficient prevention and deterrence.”
I wrote about many of the same issues in 2010 in “The Facade of FCPA Enforcement” (see here).
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A good weekend to all.
Revisiting A Foreign Corrupt Practices Act Compliance Defense
I am pleased to share (see here to download) my recent scholarship “Revisiting A Foreign Corrupt Practices Act Compliance Defense” (Wisconsin Law Review, Forthcoming).
The abstract is as follows.
“[N]o compliance program can ever prevent all criminal activity by a corporation’s employees.” (U.S. Attorneys Manual, Title 9, Chapter 9-28.800 – see here)
“There will always be rogue employees who decide to take matters into their own hands. They are a fact of life.” (Assistant Attorney General Lanny Breuer (Jan. 26, 2011) – see here).
The focus of this article is how best to address this “fact of life” in the context of the Foreign Corrupt Practices Act (“FCPA”). This article asserts that the current FCPA enforcement environment does not adequately recognize a company’s good faith commitment to FCPA compliance and does not provide good corporate citizens a sufficient return on their compliance investments. This article argues in favor of an FCPA compliance defense meaning that a company’s pre-existing compliance policies and procedures, and its good faith efforts to comply with the FCPA, should be relevant as a matter of law when a non-executive employee or agent acts contrary to those policies and procedures and in violation of the FCPA. This article further argues that a compliance defense is best incorporated into the FCPA as an element of a bribery offense, the absence of which the DOJ must establish to charge a substantive bribery offense.
Part I of this article contains a case study to demonstrate the type of conduct that would be covered by an FCPA compliance defense. Contrary to the claims of some, an FCPA compliance defense would not eliminate corporate criminal liability under the FCPA or reward “fig leaf” or “purely paper” compliance programs. A compliance defense would not apply to corrupt business organizations, activity engaged in or condoned by executive officers, or activity by any employee if it occurred in the absence of pre-existing compliance policies and procedures.
Part II of this article places an FCPA compliance defense in the context of the broader issue of corporate criminal liability and acknowledges the work of other scholars and commentators who have called for a general compliance defense to corporate criminal liability. This section channels that work into the specific context of the FCPA and argues that the unique aspects and challenges of complying with the FCPA in the global marketplace warrant a specific FCPA compliance defense.
Part III of this article highlights that an FCPA compliance defense is not a new idea or a novel idea. This section contains an overview of the FCPA legislative history of a compliance defense, most notably the compliance defense passed by the House of Representatives in the 1980’s. The justification and rationale for a compliance defense then pales in comparison to now as most U.S. companies engage in international business during an era of aggressive FCPA enforcement. This section also demonstrates that several countries, like the U.S. that are signatories to the Organization for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the “OECD Convention”), have a compliance-like defense in their domestic laws.
Against this backdrop, Part IV of this article details the DOJ’s institutional opposition to an FCPA compliance defense, yet argues that the DOJ already recognizes a de facto FCPA compliance defense albeit in opaque, inconsistent and unpredictable ways. Thus, an FCPA compliance defense accomplishes, among other things, the policy goal of removing factors relevant to corporate criminal liability from the opaque, inconsistent, and unpredictable world of DOJ decision making towards a more transparent, consistent, and predictable model best accomplished through a compliance defense amendment to the FCPA. This section concludes by highlighting the growing chorus of former DOJ officials who support an FCPA compliance defense and argues that the DOJ’s current opposition to a compliance defense seems grounded less in principle than an attempt to protect its lucrative FCPA enforcement program.
Part V of this article concludes by highlighting certain policy objectives advanced by an FCPA compliance defense. This section argues that an FCPA compliance defense will better incentivize more robust corporate compliance, reduce improper conduct, and thus best advance the FCPA’s objective of reducing bribery. An FCPA compliance defense will also increase public confidence in FCPA enforcement actions and allow the DOJ to better allocate its limited prosecutorial resources to cases involving corrupt business organizations and the individuals who actually engaged in the improper conduct.