News Corp’s Possible Settlement Amount – Not The Media’s Finest Moment
Before Wal-Mart’s FCPA scrutiny dominated the news cycle in April 2012, there was News Corp.
In July 2011, the U.K. Guardian reported that “up to five U.K. police officers were paid between them a total of at least £100,000 in cash from the News of the World” and the next day the Guardian, based on my comments and those of others, made the link between these payments and the Foreign Corrupt Practices Act.
What followed over the next 10 days was the most intense worldwide media coverage of the FCPA in its history. (See here for the prior post detailing News Corp.’s FCPA scrutiny).
Like Wal-Mart’s FCPA scrutiny, News Corp.’s continued FCPA scrutiny continues to generate much media attention and some of it is completely off-base.
For instance, earlier this week on his media and modern life column in the Guardian (see here) Michael Wolff wrote that a possible settlement of FCPA charges by News Corp. “could be as high as $850 million” and “could go as high as billions.”
Anything of course is possible, but Wolff’s reporting (he is also the author of the book “The Man Who Owns the News: Inside the Secret World of Rupert Murdoch”) should have been met with skepticism by anyone knowledgeable about FCPA enforcement.
The largest FCPA settlement in history is the $800 million enforcement action against Siemens in 2008. All of the top FCPA enforcement actions involve foreign procurement. No FCPA enforcement action outside the context of foreign procurement (such as payments to secure foreign licenses, permits, etc.) has topped $100 million.
News Corp.’s FCPA scrutiny is not based on payments in connection with foreign procurement. Given the nature of the allegations against it and the type of company News Corp. is, a record-setting – or even top – FCPA enforcement action is unlikely.
Moreover, even though every company has different disclosure practices, none of the common data-points suggesting an imminent FCPA settlement have been disclosed by News Corp.
Nevertheless, Wolff’s report spread like wild-fire around the internet and among various news organizations and was also carried forward by several websites devoted to the FCPA.
Similar to Las Vegas Sands FCPA reporting in March (see here for the prior post), news of News Corp.’s possible settlement amount was likewise not the media’s finest FCPA moment.
In an analyst call on June 11th, after publication of Wolff’s column, the following exchange occurred between an analyst and Murdoch.
Julie Tanner
Good morning. Julie Tanner with Christian Brothers Investment Services. […] And my question’s related to the settlement with the Department of Justice, if the board could comment on that? And if so, how much is that? […]
Rupert Murdoch
So let me start with your first question. Nice to see you again. I suspect your question is triggered by an article that was published in the Guardian, which is testimony to the fact, the old adage, that those who are talking don’t know, and those who know aren’t talking. The reality is that there is no settlement that’s been arranged with the Department of Justice. There have been no discussions of amounts. There have been no discussions of fines, period. We have an ongoing cooperative relations with the Department of Justice. That is where things stand. […]
Murdoch’s statements to the market are actionable under the securities laws for any material misrepresentation or omission. Thus, those interested in following News Corp.’s FCPA scrutiny should place a greater emphasis on his statements than a media and modern life column.
Friday Roundup
Survey says, an editorial, I’ll second that, and spot-on. It’s all here in the Friday roundup.
Survey Says
The recently issued Kroll / Compliance Week Anti-Bribery and Corruption Benchmarking Report was based on responses from “nearly 300 executives” and “participants hailed from all manner of industry.”
Survey findings of note.
“Was the FCPA Guidance any help? Nearly 53 percent rated the guidance as “a good read, but it didn’t tell me anything new.” Another 23.5 percent deemed it very helpful, 18.8 percent didn’t know, and 4.6 percent said the guidance actually left them more confused.”
Regarding third parties:
- “The average respondent reports that his/her company conducts business with more than 3,500 third parties”
- “Most companies (79 percent) will drop a potential third party even upon rumor of bribery without any hard proof”
- “47 percent of all respondents said they conduct no anti-corruption training with their third parties at all”
Financial Times Editorial on Bribery Act
I was pleased to speak to the Financial Times in connection with its recent Bribery Act editorial. It stated in full as follows.
Government Needs to Clarify Application of Bribery Act
Britain was once considered a laggard in the international battle against corruption. The Bribery Act, which came into force in 2011, was the first overhaul of anti-corruption laws in almost a century. Two years on, the government wants to review it. This is sensible, as new legislation can have unintended consequences. But any review should not result in a weaker law. That would only allow greater scope for graft.
The government is responding to complaints from small and medium-sized businesses that the costs of compliance are too high. In particular, they are worried about the ban on facilitation payments, small amounts paid to officials to expedite services such as visas or customs checks. Businesses argue that Britain holds its companies to a higher standard than other countries – particularly the US, where such payments are not banned. They say this puts them at a disadvantage.
These concerns are understandable, but exaggerated. Facilitation payments have always been illegal in the UK. Yet conflicting signals from the authorities have sown confusion. Moreover, the absence of case law leaves companies in the dark as to how the law will be applied and what defence is valid. This has created a climate in which companies easily fall prey to firms peddling overly-prescriptive and costly advice on compliance.
More can and should be done to clarify the circumstances under which a company will be pursued. This will help to counter the scaremongering that has led some businesses to pass up export opportunities. To be fair, the guidelines already allow some flexibility for smaller businesses. They are not expected to use the same procedures as big multinationals. When choosing an agent to open a new market, for example, it might be sufficient to verify business references, conduct an internet search and refer to the local chamber of commerce or UK embassy, as long as the anti-corruption policy is widely enough disseminated. The government’s duty is to ensure resources are sufficient to meet such requests.
Authorities must also be consistent. Businesses will not respond to demands that breaches be reported if they fear they will be prosecuted for any and all transgressions.
British companies have other competitive advantages to win business with than bribery. Graft is an evil that blights developing economies and the companies which resort to it. The Bribery Act does not need changing. It just needs supporting.
I’ll Second That
Earlier this week in a Wall Street Journal editorial titled “Mum’s the Word About SEC Defeats” Russ Ryan (Partner, King & Spalding and former Assistant Director of the SEC Enforcement Division) stated as follows. “Like other federal agencies, the SEC has long been good at publicizing its initial accusations of wrongdoing – which is fair enough – but not so good at letting the public know when those accusations turn out to be unfounded or an overreach.” As Ryan rightly noted, in this internet age, “SEC publicity is permanent and widely dispersed. The regulator’s accusations can persist indefinitely among the top search-engine results for the names of those accused.”
I’ll second that and have previousy written about the same dynamics Ryan highlights under the heading “Writer’s Cramp at the DOJ.” See prior posts here and here.
Spot On
Colleen Conry (Ropes Gray) stated as follows in a recent Law360 interview.
Q: What aspects of your practice area are in need of reform and why?
A: The government’s attempts to hold foreign companies accountable for having compliance programs that are on par with those we see at companies that are headquartered in the United States are challenging. Foreign companies often lack notice of that expectation and as a result suffer the consequences. Over time, I hope the government will at least consider as one factor the compliance standards that are the norm in the country in which the foreign entity operates.
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A good weekend to all.
Friday Roundup
Boondoggle specifics, another DOJ enforcement official to FCPA Inc., scrutiny alert, across the pond, and for the reading stack. It’s all here in the Friday roundup.
Wal-Mart’s FCPA Expenses
Previous posts (here) and (here) have calculated Wal-Mart’s per working day FCPA related professional fees and expenses.
No wonder Wal-Mart’s first quarter professional fees and expenses equal approximately $1.16 million per working day. According to this recent article in India’s Economic Times, concerning just the India portion of Wal-Mart’s investigation:
“So far Greenberg Traurig and KPMG have spent 26,000 hours on consulting and shaping anti-corruption compliance programme for Bharti Walmart, which operates 20 Best Price Modern Wholesale stores in various cities in India. This work has included developing and implementing procedures and providing training to over 1,800 senior business and store level associates in India,” a Bharti Walmart spokesperson said in an e-mail response to ET. “For the past several months, the company has also been using Greenberg Traurig and KPMG to perform due diligence on third party service providers in India.” Currently there are about 20 Greenberg Traurig attorneys stationed in India working on Bharti Walmart’s compliance programme, the spokesperson said.”
Relevant to FCPA investigative expenses, this FCPA Inc. participant marketing pitch caught my eye. Is it really necessary to analyze millions of documents in an FCPA review? Also, since when did FCPA investigations focus on “proving a negative that [the company] did not bribe foreign officials?”
Suleiman to FCPA Inc.
As noted in this recent post, earlier this month Daniel Suleiman (DOJ Deputy Chief of Staff for the Criminal Division) stated in a speech that the DOJ’s FCPA enforcement efforts “are as active today … as we have ever been.”
Earlier this week, Covington & Burling announced (here) that Suleiman would be joining his former boss Lanny Breuer (see here for the prior post concerning Breuer’s jump to FCPA Inc.) at Covington. Suleiman thus becomes the latest in a long-line of former DOJ or SEC FCPA enforcement attorneys to depart for FCPA Inc. The firm stated, in pertinent part, as follows.
“Mr. Suleiman joins the firm’s Washington office as special counsel where he is expected to focus on defending individuals and corporations facing white collar criminal charges, Foreign Corrupt Practices Act investigations and congressional inquiries. […] In his Justice Department role, Mr. Suleiman helped oversee about 600 lawyers and 1,000 employees, and managed an annual budget of approximately $600 million. He provided advice on a wide range of federal law enforcement priorities, with particular focus on Foreign Corrupt Practices Act and financial fraud enforcement.”
In his speech earlier this month, Suleiman rightly observed an issue I have long pointed out that, among other things, warrants a five-year bar on DOJ FCPA enforcement attorneys from providing private sector FCPA services. Suleiman stated as follows. “It is Justice Department policy that no FCPA prosecution can be brought without authorization from the Criminal Division, which distinguishes FCPA prosecutions from most other kinds of federal criminal cases.”
Scrutiny Alert
According to this report by the Organized Crime and Corruption Reporting project, the SEC “has opened an investigation into Swedish multinational Ericsson’s business practices in Romania. The investigation is related to allegations made by a former Ericsson employee that the company used an approved slush-fund to pay off Romanian officials and decision makers to win contracts.”
Ericsson has ADR shares listed on NASDAQ in the United States.
Across the Pond
From thebriberyact.com, a useful of summary (here) of recent remarks by U.K. Serious Fraud Office Director David Green.
Staying in the U.K., a useful summary (here) by Eversheds of the “third conviction for an individual under the Bribery Act 2010.” The case concerns a Chinese national studying in the U.K. who attempted to bribe his professor for a passing grade. As noted in the Eversheds summary, “the UK has yet to see prosecution of a corporate under the [Bribery] Act, so companies are still awaiting judicial interpretation the corporate offence under [section] 7 of the Bribery Act and the Ministry of Justice’s Guidance on ‘adequate procedures’”. [Note the U.K. Bribery Act has domestic bribery provisions as well as “FCPA-like” foreign bribery provisions. The three individual Bribery Act convictions have all been domestic bribery prosecutions].
Reading Stack
Trace International recently released (here) its third annual Global Enforcement Report. The report provides an updated summary of international anti-bribery enforcement trends based on the cases and investigations tracked in the TRACE Compendium, TRACE’s public, online database of transnational corruption cases.
Sound advice from Tim Peterson (a former SEC enforcement attorney) and Robertson Park (a former DOJ enforcement attorney) in this article in Inside Counsel regarding voluntary disclosures.
“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. Problematic payments may not be sufficiently material to amount to an FCPA violation (though companies should be aware of different standards for liability under other jurisdictions’ anti-corruption laws; for example, the U.K. Bribery Act of 2010). 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.”
From Compliance Week, a useful summary (here) of recent remarks by Chuck Duross (DOJ FCPA Unit Chief) and Kara Brockmeyer (SEC FCPA Unit Chief).
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A good weekend to all.
Marketing The FCPA … The FCPA Risks Of … Well, Just About Everything
It is a common FCPA Inc. marketing device.
Pluck any FCPA-related item from the news and use that news as the hook to write about FCPA compliance services. Profile any recent instance of FCPA scrutiny and use that scrutiny as the hook to write about a supposed new trend and how that new trend of course indicates the need for FCPA compliance services.
It seems as if everything now-a-days is a “sobering reminder,” that there is constant speculation as to which industry “is going to be the next target,” and that every company is warned to ask itself will it be prepared when the “government knocks on the door.”
Previously on his Corruption, Crime & Compliance site (here) Michael Volkov observed as follows.
“The FCPA Paparazzi has done a great disservice to the business community. Call it a complete lack of credibility. Legal marketing has become confused in this day and age – marketing has now been turned into the “Fear Factor,” meaning that lawyers need to scare potential clients into hiring them. That is flat-out wrong. Each week, new client alerts, client warnings and other cries of impending disaster are transmitted through the Internet to businesses. If I were a general counsel, I would have them on “auto delete.” Talk about a waste of time and effort.”
A bit harsh and I don’t know that I would go that far, but marketing of the FCPA is indeed a topic worthy of exploration and this post profiles recent FCPA marketing activity.
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There was a recent FCPA enforcement action against bond traders Tomas Clarke and Alejandro Hurtado (see here for the prior post).
Why of course that was an “unprecedented FCPA wake-up call for U.S. broker dealers” and caused one law firm to ask “has the perfect FCPA storm finally arrived for U.S. financial markets?” The law firm stated that “this case demonstrates that Wall Street is not immune to the concerns and risks of other industries and global companies, large and small” and that “this case may be the catalyst that jump-starts a government FCPA sweep of Wall Street that has been predicted since 2011, but not realized.”
The alert concluded as follows.
“In the event that there was previous uncertainty, U.S. financial markets are now on notice that the FCPA is an obligation and that the U.S. government has reason to ask more questions. It appears worthwhile for companies to be prepared and have their house in order to potentially avoid problems later. There is no excuse now for medium- to small-broker dealers, companies and funds to avoid looking into these matters, as it may end up being a worthwhile endeavor in the end.”
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Another law firm alert focused on the oil and gas industry and concluded as follows.
“Oil and gas companies operate in a dynamic anti-corruption risk landscape. Recent FCPA prosecutions and developments in related U.S. law have added to the burdens and potential traps facing the industry. Developments in foreign law signal additional evolutions in prosecution risk. Moreover, major changes in the oil and gas industry itself could expose businesses to local prosecution under anti-corruption laws in the states where they operate. Oil and gas firms are accordingly advised to develop comprehensive compliance programs specifically tailored to their unique business activities. History is a useful guide, but evolutions in law and the industry itself require careful assessment and regular updates.”
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Another law firm alert began as follows. “No industry is immune from corruption.” It then used two examples of clean-energy companies in the news to launch into the following. “These reports serve as a sobering reminder for companies of the risks and consequences of international corruption and of the importance of implementing compliance programs to reduce the risk that improper conduct will occur in the first instance.”
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A lawyer authored article stated “that the pharmaceutical and medical device industries remain subject to increased anticorruption scrutiny by regulators around the world, largely because of their business models.”
The article further stated as follows.
“The number of global enforcement actions and the size of fines and monetary settlements have increased exponentially in recent years. Coupled with the increasing potential for simultaneous liability under foreign anticorruption laws, companies are at greater risk for devastating financial and reputational consequences.”
“The pharmaceutical and medical device industries remain subject to elevated scrutiny. But as a result many industry players now have in place best-practices anticorruption compliance programs that are tailored to the now well-known and industry-specific risks. There’s no time like the present to make sure that your company’s compliance programs are among those rising to a higher standard.”
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Another law firm alert focused on Hollywood and the film industry. It stated as follows.
“Companies and individuals across the entire film industry could be at risk and should react accordingly. This risk is not limited to major movie studios, as the FCPA applies to a broad range of entities and individuals. Indeed, the recent uptick in FCPA enforcement actions against individuals, including the convictions of two film executives […], suggests that the Government may eventually seek FCPA charges against individuals involved in the alleged illegal activity as well as the companies. In addition to disgorgement, fines, and penalties faced by both individuals and companies, individuals can face lengthy prison sentences for violating the FCPA.”
“Companies can take various steps to ensure that they are prepared if and when the Government comes knocking on their door. While it is always advisable to have a robust and effective FCPA compliance program in place, it is even more important now for companies in the film industry to ensure that their compliance programs are up-to-date and being properly implemented so that they can gain credit if the Government launches an investigation. This is especially true for film companies with dealings in China, as these companies are on the SEC’s radar. To this end, film companies should consider a privileged review of their FCPA compliance programs by outside counsel to ensure that they include all the components that the Government deems necessary, including anti-corruption policies and procedures, training and communication, third-party due diligence, anti-corruption contract clauses, internal accounting controls, auditing of program effectiveness, and response to improper conduct and remedial action.”
“At-risk companies should also consider a privileged internal review by counsel to determine whether any FCPA issues exist and, if so, decide whether to disclose the issues to the Government. While companies can earn cooperation credit for self-disclosing potential violations, the question of whether and what to voluntarily disclose to the Government is a complex decision involving both risks and rewards for the company. Irrespective of whether a disclosure is made, however, launching a preemptive internal review will allow the company to stay ahead of the Government and be best prepared in the event that the Government initiates its own inquiry.”
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Another law firm alert focused on “financial institutions” and stated as follows.
“It is clear from U.S. regulators’ pronouncements and the increase in investigations involving financial institutions that U.S. enforcement authorities will continue to carefully scrutinize financial institutions to evaluate their compliance with the FCPA. Financial institutions are well-advised to devote resources to creating compliance programs designed to address anti-corruption risks, and to providing training to personnel to assure that compliance expectations are understood throughout the organization.”
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Another law firm alert was titled “Agribusiness: The Next Frontier for Enforcement of the Foreign Corrupt Practices Act?”
It began as follows.
“In recent years, the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have aggressively enforced the anti-bribery and accounting provisions of the Foreign Corrupt Practices Act (FCPA), targeting industries as wide-ranging as energy, health care and Hollywood. The results of these efforts have been staggering. With senior government officials indicating that robust enforcement of the FCPA will continue for the foreseeable future, the natural question to ask is: which industry could be the next target for FCPA regulators? If recent events are any clue, it may be the agribusiness industry. In light of this recent development, companies in the agribusiness industry may wish to consider taking some of the steps described below to minimize risks of running afoul of the FCPA or, in the alternative, to maximize their bargaining power when negotiating a settlement with DOJ and the SEC. Given the risks discussed above and the possibility that the agribusiness industry could be a future target of the government’s continued commitment to aggressive enforcement of the FCPA, companies in this industry should consider taking proactive steps to minimize their potential liability, particularly if they have significant overseas business.
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The recent Griffiths Energy International Inc. enforcement action in Canada under Canada’s Corruption of Foreign Public Officials Act (see here for the prior post) was used to market FCPA compliance services as well. A law firm alert stated as follows.
“[The enforcement action] certainly has compliance with the CFPOA at the forefront for those Canadian companies engaged in international business. Importantly, compliance should not end there, as many Canadian companies must also comply with the Foreign Corrupt Practices Act”
The alert concluded as follows.
“Given the use by Canadian companies of U.S. agents and partners in business and the number of Canadian companies listed on US exchanges, the potential for FCPA applicability is quite high. As a result, it is important for any Canadian company that is required to comply with the FCPA to consult with a lawyer who is familiar with the U. S. anti-corruption laws.”
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As noted in this recent post, in-house counsel list the FCPA as the second most “specific regulatory area” seen as a threat.
But is the fear rational?
After all, in any given year there are 10-15 core corporate FCPA enforcement actions. Compare these numbers to the universe of business organizations subject to the FCPA.
Further, as noted in this post, just three unique historical events served as the foundation for 35% of all corporate FCPA enforcement actions between 2007-2011 and resulted in 55% of settlement amounts during that period.
Survey Says
Some recent FCPA-related surveys and notable survey results to share.
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Ernst & Young recently released its 12th Global Fraud Survey. The survey was based on “more than 1,700 interviews … conducted in 43 countries between November 2011 and February 2012. Survey results included the following:
39% of respondents reported that “bribery or corrupt practices occur frequently in their countries”
The following question was asked: “what, if any, of the following do you feel can be justified if they help a business survive an economic downturn.” 30% agreed with “entertainment to win/retain business”; 16% agreed with “personal gifts to win/retain business” and 15% agreed with “cash payments to win/retain business.”
“15% of CFOs surveyed would be willing to make cash payments to win or retain business”
“Only 46% of CFO respondents had attended [anti-bribery/anti-corruption] training”
“16% of CFO respondents do not know that their company can be held liable for the actions of third-party agents.”
McGladrey (a company that provides assurance, tax and consulting services focused on the middle market), in partnership with The Institute of Internal Auditors Research Foundation, recently released this “Global Corruption Law Compliance Report.” The report was based on a survey of 120 executive leaders at middle-market companies across the globe. Participants were asked a variety of bribery and corruption related questions. Survey results included the following.
52% of survey respondents reported dealing with more than 100 foreign business partners on annual basis. 53% of companies with $1 billion or more in annual revenue reported having 50o or more foreign business relationships.
“Only 30% of all survey respondents say their companies always conduct a risk review of existing business relationships and ties to agents in foreign countries.”
“Just 43% of respondents say their companies conduct training at least once a year.” “Slightly more than one-third of all companies in our survey say they offer no compliance training, with the vast majority of those businesses in the under $500 million annual revenue bracket. Still, 24% of companies with over $1 billion in annual revenue also say they don’t provide corruption law compliance training.”
The question was asked, “in the past two years, has your organization experienced one of the following events due to a global corruption related incident. “Dismissal of an employee” – 24% said yes; “potential contract, deal or acquisition restructured” – 10% said yes; “potential contract, deal or acquisition cancelled” – 12% said yes.
“75% of all companies agree that their corruption law-related internal controls need some level of improvement”
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As noted in this previous post concerning the November 2012 FCPA Guidance, the DOJ and SEC recognized in the Guidance that “positive incentives” can drive compliant behavior. However, much of this recent data is consistent with prior data – and all point in the same direction: despite the general increase in FCPA enforcement and despite the incentives currently in place, a meaningful percentage of business organizations are not doing what the enforcement agencies want them to do. The enforcement agencies current incentive – that such compliance policies and procedures can only lessen the impact of legal exposure – is not the right positive incentive. An FCPA compliance defense (see here) is.
Of course, we don’t know what any of the above percentages would be if there was a compliance defense. However, I am confident that many categories would be “better” if there was an FCPA compliance defense. “Better” numbers would mean better compliance, which would likely mean less instances of improper conduct, which would likely mean less bribery, which would mean the objectives of the FCPA are being better achieved.
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This recent Grant Thorton survey of in-house counsel found that “‘regulatory compliance and enforcement’ was considered the second-highest threat to growth – even more threatening than traditional business concerns such as ‘global or domestic competition’ and the ‘lack of customer demand.'” Behind labor law violations, the FCPA was listed as the second most “specific regulatory area” respondents saw as a threat.
The survey was conducted online between January 15, 2013, and March 1, 2013. There were 243 respondents, all of whom were in-house counsel, 44% of whom were general counsel. The respondents were split evenly from among publicly traded and privately held companies,