“Friday” Roundup
On the brink of trial, statistics of note, the over-hyped U.K. Bribery Act turns 3, say what?, and for the reading stack. It’s all here in a special Thursday edition of the Friday roundup.
On The Brink of Trial
This February 2012 post highlighting the SEC’s enforcement action against Mark Jackson and James Ruehlen (a former and current executive of Noble Corp. respectively) asked – “will the SEC be put to its burden of proof.” Among other things, the post noted that the SEC has never prevailed in an FCPA enforcement action when put to its burden of proof.
With the passage of time, the SEC’s case against the defendants was consistently trimmed as the SEC attempted to meet its burden (see this post as well as here). Among other things, a portion of the SEC’s claims were dismissed or abandoned on statute of limitations grounds and the trial court judge ruled, in an issue of first impression, that the SEC has the burden of negating the FCPA’s facilitation payments exception.
On the brink of the SEC’s first-ever FCPA trial (trial was scheduled to begin next week), the parties have agreed to settle.
Without admitting or denying the SEC’s allegations, Jackson consented to a final judgment permanently restraining and enjoining him from violating the FCPA’s books and records provisions. Jackson was represented by, among others, David Krakoff (Buckley Sandler). In a release, Krakoff stated:
“We are very pleased with today’s settlement. It resolves allegations that have hung over Mr. Jackson for many years without any admission of liability, without any payment of money and without any restriction on Mr. Jackson’s future employment opportunities. Mr. Jackson can now move forward with his life and career.”
Without admitting or denying the SEC’s allegations, Ruehlen consented to a final judgment permanently restraining and enjoining him from aiding and abetting FCPA books and records violations. Ruehlen was represented by, among others, Joseph Warin and Nicola Hanna (Gibson Dunn). In a release, Warin stated:
“We are very pleased with yesterday’s settlement. Mr. Ruehlen is an exemplary and dedicated employee who first brought the allegations to light and fully cooperated with the SEC’s investigation. While we were looking forward to presenting our case to a jury, the settlement of one record-keeping claim – without any admission of liability or wrongdoing, monetary penalty, or restriction on Mr. Ruehlen’s employment – satisfactorily ends the matter and allows Jim to focus his energies on his work for Noble.”
In neither consent is Jackson or Ruehlen required to pay any civil fine.
Score this one as you see fit, but my take is that this case represents yet another SEC failure in an FCPA enforcement action when put to its burden of proof. As the Second Circuit recently recognized, SEC neither admit nor deny settlements are not about the truth, but pragmatism.
Statistics of Note
EY recently released its 13th annual Global Fraud survey (the results were based on interviews with more than 2,700 executives across 59 countries). Statistics of note include the following.
“Despite the aggressive enforcement environment, our research suggests that the percentage of companies that have anti-bribery/anticorruption (ABAC) policies has increased by only 1% over the past two years, and a persistent minority has yet to take even the basic steps toward an effective compliance program. One in five businesses still does not have an ABAC policy. Less than 50% of respondents have attended ABAC training. There has been a reduction in the level of reporting on compliance issues to boards.”
“The survey results show that executives in different roles have a differing view of the level of risk. 27% of chief compliance officers (CCOs) believe bribery and corrupt practices happen widely in their country versus 38% of all respondents — so they appear to have a more optimistic view than their colleagues. 18% of sales and marketing executives believe it is common practice to use bribery to win contracts in their sector versus 12% of all respondents — so they appear to have a more pessimistic view than their colleagues.”
“Additionally, the survey results suggest that compliance efforts may not always be targeting the right risks in the most effective way. Less than a third of businesses are always or very frequently conducting anti-corruption due diligence as part of their mergers and acquisitions process. 45% of organizations are not mitigating risks by introducing a whistleblower hotline. ABAC training is less likely to occur in jurisdictions where there is a higher perceived risk of bribery. Sales and marketing executives are the least likely of all our respondents to be included in risk assessments — despite being exposed to and aware of significant risks. ABAC training, for example, is more likely to be attended by executives in mature markets, where corruption is perceived to be lower, than in higher-risk emerging markets. Of the survey population, 58% of respondents in developed markets had received ABAC training, compared with just 40% in emerging markets.”
Consistent with the observation in this recent post, these survey results again ought to prompt questions whether the current approach to enforcement – as well as enforcement policy – are effective.
Bribery Act Turns 3
The U.K. Bribery Act, a massively over-hyped law when it was being proposed and went live, has turned three. On the day it went live, I offered the following two cents.
“As with any new law, there is likely to be a learning phase for both the enforcement agencies and those subject to the law. That was certainly the case in the U.S. in the years following passage of the FCPA in 1977. Thus, it very well may be the case that there are no enforcement actions for some time (recognizing that it often takes a few years from beginning of an inquiry to resolution of an action). Thus the greatest immediate impact of the Bribery Act is sure to be the compliance ethic it inspires. I expect that the enforcement actions that may develop over time to focus on egregious instances of corporate conduct on which no reasonable minds would disagree. I do not get the sense, based on public comments of the Ministry of Justice and the Serious Fraud Office, that the envelope will be pushed too far in the early years of the Bribery Act.”
Indeed, there has yet to be an “FCPA-like” Bribery Act enforcement action. This troubles Transparency International – see here.
Say What?
Speaking of the Bribery Act, this is from “The Lawyer” regarding corruption allegations at FIFA and the ability of the U.K. Serious Fraud Office to bring an enforcement action against FIFA sponsors.
“Section 7 [of the U.K. Bribery Act] is entitled “Failure of commercial organisations to prevent bribery”. Its reach is as global as the World Cup. The fact that Fifa is a Zurich-based NGO does not mean it’s offside. Similarly for the sponsors so long as some aspect of their business is carried out in the UK. A single sale of an Adidas football boot via a Visa credit card is sufficient for David Green [Director of the SFO] to apply to the courts for search warrants in order to unleash dawn raids on their UK HQs.”
Regarding the italicized portion … say what?
For the Reading Stack
See here for the always informative Debevoise & Plimpton FCPA Update. Regarding the Second Circuit’s recent decision in SEC v. Citigroup, the Update states:
“For companies subject to the SEC’s authority to enforce the FCPA, the Second Circuit’s decision in the Citi matter provides some comfort that a corporate resolution requiring judicial approval, once achieved, should be subject to appropriate deference when it comes before a district court for review. At the same time, however, the decision also reinforces the understanding that resolutions achieved by settlement, even if approved by a court, do not constitute legal precedent.”
An interesting read here from the BBC regarding “contemporary business culture” in China.
“Chinese workplaces are just as political as those anywhere else in the world, some would argue more so because the value placed on outward harmony in Chinese culture drives the rivalry underground. […] The politics in a multinational’s China operation can be especially insidious when there’s a thin layer of western management attempting to operate according to principles which have limited purchase in the Chinese business culture beneath.”
Aboard the “bribery express” – from Eurasianet.
****
A Happy Independence Day to U.S. readers and a good weekend to all.
DOJ’s Knox Follows The Same Tired Script
Department of Justice enforcement officials frequently speak about the Foreign Corrupt Practices Act. However, most of these events are private in which the public has to fork over a couple thousand of dollars to a private company who markets the public officials to drive attendance at the event (see here for the prior post). The end result is that there is seldom the opportunity to analyze FCPA statements by DOJ officials.
That is what makes video clips (here and here) of Jeffrey Knox (DOJ Fraud Section Chief) at a recent CFO Network event sponsored by the Wall Street Journal valuable.
In the video clips, Knox follows the DOJ’s same tired script when it comes to voluntary disclosure and other issues when it comes to the DOJ’s FCPA enforcement program.
Moreover, as highlighted below, Knox’s statements on voluntary disclosure are contradicted by previous statements by former Assistant Attorney General Lanny Breuer – as well as numerous statements by former DOJ FCPA enforcement officials.
Most problematic, Knox’s statements on voluntary disclosure and the source of DOJ corporate FCPA enforcement actions are contradicted by the facts.
In the first video clip, Dennis Berman (Business Editor, WSJ) returns to a topic previously explored by Forbes in 2010 (see here for the “Bribery Racket”) as well as the WSJ in 2012 (see here for “FCPA Inc. and the Business of Bribery”) and calls the relationship between FCPA law firms, companies, and the DOJ a “protection racket all around” and that the “three party relationship might bring some good, but in a way it doesn’t feel like justice, it feels like a business arrangement.”
Knox of course disagreed and stated that it is “just not true” that the DOJ outsources its FCPA investigations to law firms. Knox stated: “we don’t outsource, internal investigations are a tool, an important tool in many cases for us that is used throughout law enforcement, there is nothing exceptional about the FCPA, but we are not relying on it [internal investigations].”
Knox’s statement that the DOJ does not rely on law firm investigations in bringing FCPA enforcement action is contradicted by previous statements by former Assistant Attorney General Lanny Breuer. While at the DOJ, Breuer stated that the DOJ “absolutely need[s] companies through their firms to provide us with their investigations.” (See here).
Moreover, Knox’s statement is contradicted by the facts.
As highlighted here, in 2013, 57% of corporate FCPA enforcement actions were the direct result of voluntary disclosures. As highlighted here, in 2012, 56% of corporate FCPA enforcement actions were the direct result of voluntary disclosures. As highlighted here, in 2011, 73% of corporate FCPA enforcement actions were the direct result of voluntary disclosures.
As to voluntary disclosures, Knox stated that the “earlier that the company engages with us the better position it is going to be in” regarding various aspects of its FCPA scrutiny.
For obvious reasons, the DOJ favors voluntary disclosure as it makes its job easier and is the fuel that feeds its FCPA enforcement program. However, in contrast to Knox’s statement about voluntary disclosure, several former DOJ enforcement officials have questioned the need for FCPA voluntary disclosures in many instances.
Indeed, the former Chief of the DOJ’s Fraud Section stated (obviously after he left that position) as follows.
“It often will not be in a company’s best interest to disclose if, for example, the allegations prove not to be credible or if it is unclear whether the conduct even amounts to a violation of law. Under those circumstances, a disclosure could unnecessarily embroil the company in a lengthy and costly government investigation and result in other repercussions such as triggering civil litigation and harm to a company’s reputation that could otherwise be avoided. It’s a challenging calculus. […] However, the fact that a company doesn’t disclose a problem that ultimately comes to DOJ’s attention is not necessarily going to damage the company’s credibility with DOJ. Regulators recognize that not every allegation should be of interest to them – and, frankly, having counsel that knows when they’ll be interested and when they won’t is really important.”
Similarly, as noted by a former SEC enforcement attorney and a former DOJ enforcement attorney:
“Not all potential [FCPA] problems, however, are appropriate for disclosure. After investigation, allegations of misconduct may not result in a determination that illicit activity has occurred. […] Prematurely attracting the government’s attention may, as a practical matter, shift the burden to the company to prove the absence of a corruption problem. Enforcement officials may feel the need as a matter of basic human nature to seek some type of resolution to a case where they have invested significant time and effort. Companies need to weigh the potential benefits of cooperation against the significant costs of initiating a potentially unwarranted government investigation.”
As evident from the above video clips, Alexandra Wrage (President of Trace International) joined Knox in the discussion of FCPA issues. Wrage rightly shot back at Knox’s voluntary disclosure comments and noted that early voluntary disclosure “is terrifying to companies before they have their arms around the scope of the problem.” Wrage noted that the “idea that a company is going to go in first without knowing the full extent of the problem, I don’t think any general counsel is going to sign off on this.”
In the second video clip, the WSJ’s Berman asks Knox, using various examples of FCPA scrutiny that have resulted in tens or hundreds of millions of dollars in pre-enforcement action professional fees and expenses, “is the cure worst than the disease.”
To his credit, Knox rightly noted that “in some instances companies are spending too much money on investigations.” His statement is similar to the one Chuck Duross (then the DOJ FCPA’s Unit Chief) made at an ABA conference in September 2013. As highlighted here, Duross suggested that often company lawyers are seeking to over do it through a global search of operations for FCPA issues. He discussed a case in which a company and its professional advisors came to a meeting with a global search plan and he said “no, no, no, that is not what I want.” He indicated that the lawyers and other professional advisors in the room “looked unhappy,” but that the general counsel of the company was happy. (For more on this dynamic, see this prior post).
For her part, Wrage agreed with Knox that there is “lots of scare tactics by law firms” when it comes to the FCPA.
One final comment.
During the discussion, Knox stated that there is “massive corruption going on around the world.” Similar to the issues discussed in this recent post, this statement alone ought to cause the enforcement agencies to pause and reflect whether – 37 years after passage of the FCPA – enforcement agency policies and positions (which are frequently modeled by other nations) are most effective in accomplishing the objectives of the FCPA.
Survey Results Should Cause Concern
Senator Frank Church, Senator William Proxmire and Representative Robert Eckhardt were the main Congressional leaders when it came to passage of the Foreign Corrupt Practices Act. None are with us today, but if they were, it would be interesting to hear their reaction to the plethora of FCPA related survey information in the public domain 37 years after passage of the FCPA.
My hunch is that these Congressional leaders would be flabbergasted.
For instance, Kroll and Compliance Week recently released a joint “2014 Anti-Bribery and Corruption Benchmarking Report” (see here to download). The self-reported survey produced 197 responses from a range of industries and respondents were employed by companies with a median worldwide employee headcount of approximately 9.600.
The survey result that most caught my eye is the following: 81% of respondents anticipate the bribery and corruption risks to their company over the next 2-3 years to increase (51%) or remain the same (30%).
This response ought to prompt questions whether the current approach to enforcement – as well as enforcement policy – are effective.
I’ve long maintained that while ad hoc enforcement of alleged bribe payers is an important aspect of reducing bribery and corruption, the singular focus on actual enforcement statistics and the “pound the pavement” for more enforcement mantra of many does little to address the root causes of bribery and corruption in many instances. Foreign trade barriers and distortions are often the root causes of bribery and a reduction in bribery will not be achieved without a reduction in trade barriers and distortions.
Moreover, enforcement policy ought to be focused on creating the best positive incentives. The DOJ and SEC recognized this basic point in the FCPA Guidance, yet recent survey responses also ought to prompt many questions whether current enforcement policy is indeed creating the best positive incentives.
The vast majority of FCPA enforcement actions are based, in whole or in part, on the conduct of various third parties. Yet, the Kroll / Compliance Week survey reports that 58% of respondents said they never train third parties on anti-corruption efforts. (Survey respondents reported an average of 3,868 third parties).
This Grant Thorton General Counsel survey also contained survey results that should cause concern as to the effectiveness of current enforcement policy. According to the survey:
“Even with the movement towards the codification of compliance plans by the DOJ and the SEC over a year ago, only 29% of survey respondents state that they have implemented all of the guidelines, while 47% are “not sufficiently familiar” with the guidelines to reply. Among organizations that have not fully implemented the DOJ and SEC guidelines, 65% responded that a “lack of compliance staff and budgets” was the primary reason.”
Ditto for the recent LRN “2014 Ethics & Compliance Program Effectiveness Report” which found:
“Fewer than half of all programs average at least substantial progress on the critical hallmarks identified in the DOJ/SEC guidance on the Foreign Corrupt Practices Act.”
So what would the best positive incentive be to achieve greater adoption of best practices and thus FCPA compliance?
I have long submitted that an FCPA compliance defense (along the lines outlined in my article “Revisiting a Foreign Corrupt Practices Act Compliance Defense“) is an appropriate answer. So have several former high-ranking DOJ enforcement officials (see here among other posts).
I am not suggesting that an FCPA compliance defense is a panacea, but what I am suggesting and what I hoped to demonstrate in this post is that a compliance defense is the best positive incentive to achieve greater FCPA compliance.
While I can only speculate what various survey responses would be if there was an FCPA compliance defense, I am confident in predicting that more than 42% of companies would train third-parties on anti-corruption efforts, more than 29% of companies would be acting fully consistent with widely accepted best practices, and that more compliance staff and budgets would result.
And I further submit that these would all be good developments as an FCPA compliance defense is not a race to the bottom (as has been suggested) but rather a race to the top.
Friday Roundup
FCPA scrutiny equals a raise, Qualcomm declines to cave, scrutiny alerts, industry specific risks, survey says, gaps in the narrative, a pulse on FCPA Inc., quotable and not quotable, and for the reading stack. It’s all here in the Friday Roundup
FCPA Scrutiny Equals A Raise
There are some things that happen in the FCPA space that cause one to scratch their head.
Such as a company being under FCPA scrutiny paying audit committee members more money because of the time devoted to the FCPA scrutiny. In its recent proxy statement, Wal-Mart disclosed as follows.
“Since November 2011, the Audit Committee has been conducting an internal investigation into, among other things, alleged violations of the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”) and other alleged crimes or misconduct in connection with foreign subsidiaries, and whether prior allegations of such violations and/or misconduct were appropriately handled by Walmart. The Audit Committee and Walmart have engaged outside counsel from a number of law firms and other advisors who are assisting in the ongoing investigation of these matters. This investigation has resulted in a significant increase in the workload of the Audit Committee members since the commencement of this investigation, and during fiscal 2014, the Audit Committee conducted 13 additional meetings related to the investigation and compliance matters, and Audit Committee members received frequent updates via conference calls and other means of communication with outside counsel and other advisors related to the investigation. As it had done in November 2012 in recognition of the significantly increased commitment of time required of the Audit Committee to conduct this investigation, in November 2013, the CNGC (Compensation, Nomination, and Governance Committee) and the Board approved an additional annual fee in the amount of $75,000 payable to each Audit Committee member other than the Audit Committee Chair for fiscal 2014, and an additional annual fee in the amount of $100,000 payable to the Audit Committee Chair for fiscal 2014. These amounts were prorated for directors who served on the Audit Committee during a portion of fiscal 2014. The CNGC determined the amounts of these additional fees based on (1) the CNGC’s and the Board’s review of the significant additional time and effort that had been required of the Audit Committee members during the previous Board term in connection with these matters, which were in addition to the time spent by the Audit Committee with respect to the Audit Committee’s other duties and its regularly scheduled meetings, and (2) the expectation that the Audit Committee members would continue to expend approximately the same amount of time and effort in discharging their responsibilities as Audit Committee members at least through the remainder of fiscal 2014.”
Qualcomm Declines to Cave
Rare are so-called Wells Notices in the FCPA context for the simple reason that few issuers actually publicly push back against the SEC. Thus, the below disclosure by Qualcomm earlier this week stands out:
“Securities and Exchange Commission (SEC) Formal Order of Private Investigation and Department of Justice Investigation : On September 8, 2010, the Company was notified by the SEC’s Los Angeles Regional office of a formal order of private investigation. The Company understands that the investigation arose from a “whistleblower’s” allegations made in December 2009 to the audit committee of the Company’s Board of Directors and to the SEC. In 2010, the audit committee completed an internal review of the allegations with the assistance of independent counsel and independent forensic accountants. This internal review into the whistleblower’s allegations and related accounting practices did not identify any errors in the Company’s financial statements. On January 27, 2012, the Company learned that the U.S. Attorney’s Office for the Southern District of California/Department of Justice (collectively, DOJ) had begun an investigation regarding the Company’s compliance with the Foreign Corrupt Practices Act (FCPA). As previously disclosed, the audit committee conducted an internal review of the Company’s compliance with the FCPA and its related policies and procedures with the assistance of independent counsel and independent forensic accountants. The audit committee has completed this comprehensive review, made findings consistent with the Company’s findings described below and suggested enhancements to the Company’s overall FCPA compliance program. In part as a result of the audit committee’s review, the Company has made and continues to make enhancements to its FCPA compliance program, including implementation of the audit committee’s recommendations.
As previously disclosed, the Company discovered, and as a part of its cooperation with these investigations informed the SEC and the DOJ of, instances in which special hiring consideration, gifts or other benefits (collectively, benefits) were provided to several individuals associated with Chinese state-owned companies or agencies. Based on the facts currently known, the Company believes the aggregate monetary value of the benefits in question to be less than $250,000, excluding employment compensation.
On March 13, 2014, the Company received a Wells Notice from the SEC’s Los Angeles Regional Office indicating that the staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Company for violations of the anti-bribery, books and records and internal control provisions of the FCPA. The bribery allegations relate to benefits offered or provided to individuals associated with Chinese state-owned companies or agencies. The Wells Notice indicated that the recommendation could involve a civil injunctive action and could seek remedies that include disgorgement of profits, the retention of an independent compliance monitor to review the Company’s FCPA policies and procedures, an injunction, civil monetary penalties and prejudgment interest.
A Wells Notice is not a formal allegation or finding by the SEC of wrongdoing or violation of law. Rather, the purpose of a Wells Notice is to give the recipient an opportunity to make a “Wells submission” setting forth reasons why the proposed enforcement action should not be filed and/or bringing additional facts to the SEC’s attention before any decision is made by the SEC as to whether to commence a proceeding. On April 4, 2014, the Company made a Wells submission to the staff of the Los Angeles Regional Office explaining why the Company believes it has not violated the FCPA and therefore enforcement action is not warranted.
The Company is continuing to cooperate with the SEC and the DOJ, but is unable to predict the outcome of their investigations or any action that the SEC may decide to file.”
Needless to say, this instance of FCPA scrutiny will be interesting to follow.
Scrutiny Alerts
Hiring Probes Expand
Reuters reports here:
“U.S. government agencies that have been probing banks’ hiring of children of powerful Chinese officials are expanding existing investigations in other industries across Asia to include hiring practices …The U.S. Justice Department and the Securities and Exchange Commission have been asking global companies in a range of industries including oil and gas, telecommunications and consumer products for information about their hiring practices to determine if they could amount to bribery …”.
For more on JPMorgan’s FCPA scrutiny which got this started, see here. For more on so-called industry sweeps, see here.
Delphi Automotive
Delphi Automotive disclosed in it most recent SEC quarterly filing as follows:
“During the first quarter of 2014, Delphi identified certain potentially improper payments, made by certain manufacturing facility employees in China, that may violate certain provisions of the U.S. Foreign Corrupt Practices Act (the “FCPA”). Under the oversight of Delphi’s Audit Committee of the Board of Directors, Delphi has engaged outside counsel to assist in the review of these matters, and to evaluate existing controls and compliance policies and procedures. This review remains ongoing. Violations of the FCPA could result in criminal and/or civil liabilities and other forms of penalties or sanctions. Delphi has voluntarily disclosed these matters to the U.S. Department of Justice and the SEC, and is cooperating fully with these agencies. Although Delphi does not expect the outcome of this review to have a material adverse impact on the Company, there can be no assurance as to the ultimate outcome of these matters at this time.”
United Technologies
United Technologies disclosed in its most recent SEC quarterly filing as follows:
“Non-Employee Sales Representative Investigation
In December 2013 and January 2014, UTC made voluntary disclosures to the United States Department of Justice, the Securities and Exchange Commission Division of Enforcement and the United Kingdom’s Serious Fraud Office to report the status of its internal investigation regarding a non-employee sales representative retained by United Technologies International Operations, Inc. (UTIO) and International Aero Engines (IAE) for the sale of Pratt & Whitney and IAE engines and aftermarket services, respectively, in China. On April 7, 2014, the SEC notified UTC that it is conducting a formal investigation and issued a subpoena to UTC seeking production of documents related to the disclosures. UTC is cooperating fully with the investigation. Because the investigation is at an early stage, we cannot predict its outcome or the consequences thereof at this time. At the outset of the internal investigation, UTIO and IAE suspended all commission payments to the sales representative, and UTIO and IAE have not resumed making any payments. This led to two claims by the sales representative for unpaid commissions: a civil lawsuit filed
against UTIO and UTC and an arbitration claim against IAE. We are contesting the lawsuit and the arbitration claim. We do not believe that the resolution of the lawsuit or the arbitration will have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.”
Industry Specific Risk
The reasons why companies become the subject of FCPA scrutiny are often unique to the industry the company is in. This is why FCPA compliance is best tailored to a company’s unique risk profile as informed by a risk assessment.
This recent Wall Street Journal Risk & Compliance post from the Dow Jones Global Compliance Symposium is informative in collecting industry insight.
“Technology. Melissa Lea, Chief Global Compliance Officer, SAP AG. Profit margins for distributors are flexible in tech as so much of the cost is related to labor. And that flexibility offers room for partners to try to pad expenses to pay bribes. “Any time you hear about flexibility it opens the door for corruption,” said Ms. Lea, who noted that authorities have recently cracked down on bribery in the technology sector, once thought to be amongst the cleanest industries.
Pharmaceuticals. Rady A. Johnson, Chief Compliance & Risk Officer, Pfizer Inc. Drug companies pay doctors for a variety of consulting services and often invite them to attend events to promote their products. But since it’s these same doctors that prescribe drugs, pharmaceutical companies need to ensure that fancy conferences and payments for services are not cover for bribes. “We can’t do our job without interacting with health care professionals,” Mr. Johnson said. But companies need to ensure those interactions are appropriate and well defined, he said. In 2012, Pfizer agreed to pay more than $60 million to settle investigations into improper payments made to doctors and foreign officials.
Banks. W.C. Turner Herbert, Director of Anti-Corruption, Bank of America Corp. Lately in the banking sector, corruption concerns have centered on hiring the relatives of foreign officials in exchange for business. In the past few years, U.S. authorities have investigated a number of banks over allegations of the practice, including Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. “Its a new area of enforcement without much precedence,” Mr. Herbert said. While hiring well-connected people shouldn’t, by itself, be a red flag, compliance officers need to ensure the selection is done on “merit and the business objectives” of the job, he said. “What draws red flags is if he’s not qualified,” Mr. Herbert said.
Survey Says
In connection with the above-mentioned Dow Jones Global Compliance Symposium, Dow Jones released this “Anti-Corruption Survey Results 2014.” The survey was conducted on-line “among compliance professionals worldwide” and 383 responses “were completed among companies with anti-corruption programs.” It is difficult to assess survey results without knowing the precise questions asked, but the Dow Jones survey does contain some interesting nuggets.
Such as “approximately 30% of companies spend $1 million or more on anti-corruption staff and policies.”
In “Revisiting a Foreign Corrupt Practices Act Compliance Defense,” I suggest 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.
Compliance defense opponents (such as the DOJ) like to point out that such a defense will result in “paper compliance” and “check-a-box” exercises. Such clichés, however, ignore the reality of the situation – this many companies are making substantial investments of time and money in pro-active compliance policies and procedures.
One irony of course is that several former DOJ FCPA enforcement attorneys who have criticized a compliance defense as resulting in “paper compliance” and “check-a-box” exercises now devote a substantial portion of their private practice advising companies on FCPA compliance.
Gaps in the Narrative
You know the narrative.
In 2002, an accounting partnership (Arthur Anderson) was convicted of obstruction of justice for shredding documents related to its audit of Enron. Even though the Supreme Court ultimately tossed the conviction, Arthur Anderson essentially went out of business. Because of this, in the minds of some, the DOJ can’t criminally charge business organizations with crimes and thus the DOJ has crafted alternative resolution vehicles such as non-prosecution and deferred prosecution agreements to avoid the perceived collateral consequences of a criminal indictment or conviction.
Never mind that the narrative is based on a false premise. (See here for the guest post and article by Gabriel Markoff titled “Arthur Anderson and the Myth of the Corporate Death Penalty).
Nevertheless, the narrative persists and is accepted by some as gospel truth.
However, perhaps you have heard that in early April Pacific Gas & Electric Corporation (PG&E – a public company) was criminally charged with multiple violations of the Natural Gas Pipeline Safety Act.
The company’s stock is still trading (in fact it is up since the criminal charges were announced), it is still employing people, and it is still operating its business.
Recognizing the fallacy of the narrative is important for corporate leaders of businesses subject to DOJ scrutiny in the FCPA context or otherwise. Defenses can be mounted and the DOJ can and should be put to its burden of proof more often.
A Pulse on FCPA Inc.
Law360 highlights “Four Practices Areas Generating Big Billable Hours.” As to the FCPA the article notes:
“The Foreign Corrupt Practices Act, which mandates certain accounting transparency requirements and gives the U.S. government the power to pursue businesses that bribe foreign officials, is creating long workdays for attorneys throughout the world. “If Foreign Corrupt Practices Act were a stock, I wish I would have held it,” said William Devaney, co-chair of Venable LLP’s FCPA and anti-corruption practice group. “We’ve seen huge growth in the practice area since 2004, and with the government’s current focus on FCPA, it’s safe to say anti-corruption enforcement will be around for a long time.” After the FCPA was amended in 1998 to include additional anti-bribery provisions, the U.S. government began actively applying the FCPA to not only large companies but also their smaller counterparts. As a result, Devaney says, a lot of midmarket and smaller companies are now coming into the FCPA compliance fold after acknowledging their obligations under the law, resulting in a surge in demand.
And according to Aaron G. Murphy, a partner with Akin Gump Strauss Hauer & Feld LLP, foreign countries passing legislation similar to the FCPA will create an explosion of fraud investigations that begin abroad but later will involve the U.S. Department of Justice. Murphy said the FCPA stood as one of the lone anti-corruption laws in the world for 20 years, then in the mid-1990s, numerous foreign governments adopted similar rules to punish local and international corruption. “No politician has ever been elected on a ‘get softer on corruption’ ticket,” Murphy said. “If anti-corruption laws get modified, they will probably get stronger, not weaker. So we likely won’t see, 20 years from now, attorneys reminiscing about when companies had to deal with corruption laws. This practice area is here to stay.”
That the FCPA practice is here to stay is all the more reason to elevate your FCPA knowledge and practical skills at the FCPA Institute.
The three other practice areas highlighted in the article were: export controls and trade sanctions; civil false claims act; and patent litigation and patent trolls.
Quotable
The White House recently announced that President Obama named Kirkland & Ellis partner W. Neil Eggleston to be White House Counsel (see here). FCPA Professor has highlighted in the past (see here and here) certain of Eggleston’s spot-on comments regarding the FCPA or related issues.
In this interview Eggleston stated: “I worry that [NPAs and DPAs] will become a substitute for a prosecutor deciding – this is not an appropriate case to bring – there is no reason to subject this corporation to corporate criminal liability. In the old days, they would have dropped the case. Now, they have the back up of seeking a deferred or non prosecution agreement, when in fact the case should not have been pursued at all. That’s what I’m worried about – an easy out.”
In another interview, Eggleston was asked “what is an important issue or case relevant to your practice area and why” and stated: “We are beginning to see the development of case law in the FCPA area, which I believe is good for the process. Most of these cases have been settled. When that occurs, defendants have little incentive to refuse to agree to novel Department of Justice theories of prosecution or jurisdiction, so long as the penalty is acceptable. The department then cites its prior settlement as precedent when settling later ones. But no court approved the earlier settlement, and the prior settlement should have no precedential value in favor of the DOJ in later settlements. As the DOJ increases its prosecution of individuals, we will see many more trials, which will give rise to courts, not the DOJ, interpreting the statute.”
Not Quotable
DOJ Deputy Attorney General James Cole was a keynote speaker earlier this week at the Dow Jones Global Compliance Symposium. According to the event agenda, the title was “What the Justice Department Has in Its Sights” and described as follows.
“From foreign bribery to insider trading, the U.S. Department of Justice has been at the forefront of rigorous enforcement that has forced companies to treat compliance seriously. We interview James Cole, deputy attorney general, about where the department is focusing its efforts now.”
I reached out to the DOJ Press Office for a transcript of Mr. Cole’s remarks and was told “we don’t have one.”
It is unfortunate that public officials speak about matters of public interest at private conferences that charge thousands of dollars to attend.
Reading Stack
The FCPA Guidance was sort of interesting to read, but as noted in my article “Grading the FCPA Guidance” it lacks any legal authority or effect. A hat tip to the Tax Law Prof Blog for highlighting a recent U.S. Tax Court decision finding that IRS Guidance is “not binding precedent” nor “substantial authority” for a tax position.
The New York Times here goes in-depth on Dmitry Firtash, the Ukrainian businessman recently criminally charged in connection with an alleged bribery scheme involving Indian licenses (see here for the prior post).
An informative three-part series (here, here and here) by Tom Fox (FCPA Compliance & Ethics Blog) regarding gifts, travel and entertainment.
Miller & Chevalier’s FCPA Spring 2014 Review is here.
Further To The Clustering Phenomenon
Earlier this week, the DOJ announced that two additional individual defendants have been added to the Foreign Corrupt Practices Act (and related) enforcement action against individuals associated with broker dealer Direct Access Partners. (See here for the original May 2013 enforcement action against Jose Hurtado and Tomas Clarke and here for an additional individual, Ernesto Lujan, being added to the enforcement action in June 2013).
Like in the previous enforcement actions, the additional defendants (Benito Chinea and Joseph DeMeneses, the Chief Executive Officer and a managing partner, respectively of Direct Access Partners) were criminally charged in connection with alleged improper payments to Maria Gonzalez (V.P. of Finance / Executive Manager of Finance and Funds Administration at Bandes, an alleged Venezuelan state-owned banking entity that acted as the financial agent of the state to finance economic development projects).
As noted in the DOJ’s release, Chinea and DeMeneses were each charged with one count of conspiracy to violate the FCPA and the Travel Act, five counts of violating the FCPA, and five counts of violating of the Travel Act. Chinea and DeMeneses were also charged with one count of conspiracy to commit money laundering and three counts of money laundering. DeMeneses was further charged with one count of conspiracy to obstruct justice. (See here for the SEC’s announcement of a related enforcement action against Chinea and DeMeneses. Like the SEC’s prior enforcement actions against the other individuals, Chinea and DeMeneses are charged with various securities law violations, but not FCPA offenses as the individuals – while associated with a broker dealer – are not associated with an issuer).
As noted in the DOJ’s release, in August 2013 Lujan, Hurtado and Clarke each pleaded guilty to conspiring to violate the FCPA, to violate the Travel Act and to commit money laundering, as well as substantive counts of these offenses.
The DOJ’s enforcement action against Chinea and DeMeneses is further to the curious clustering phenomenon clearly observable in FCPA enforcement.
As highlighted in this previous post (with statistics calculated through the end of 2013), 53% of the individuals charged by the DOJ with FCPA criminal offenses since 2008 have been in just four cases and 75% of the individuals charged by the DOJ since 2008 have been in just nine cases.
Of further note (and again with statistics calculated through the end of 2013), of the 89 individuals charged by the DOJ with FCPA criminal offenses since 2008, 61 of the individuals (69%) were employees or otherwise affiliated with private business entities (for instance – Haiti Teleco related enforcement actions, Control Components Inc. Latin Node, Nexus Technologies, BizJet, not to mention failed prosecutions against various Africa Sting defendants and individuals associated with Lindsey Manufacturing).
This is a striking statistic given that 48 of the 60 corporate DOJ FCPA enforcement actions since 2008 (80%) (again using statistics calculated through the end of 2013) were against publicly traded corporations. In short, a private entity DOJ FCPA enforcement is approximately three times more likely to have a related DOJ FCPA criminal prosecution of an individual than a public entity DOJ FCPA enforcement action.
Thus far in 2014, the trends have been further magnified. In addition to this week’s action: