Inside FCPA Enforcement Statistics
FCPA Inc., it often seems, is obsessed with enforcement statistics. Increasing FCPA enforcement, and the ability to demonstrate it through numbers and graphs, is an effective marketing device for many in the industry. But what happens when enforcement actually decreases? How do you market decreasing FCPA enforcement? As Michael Volkov recently stated (here) on his Corruption, Crime and Compliance site “law firms are wringing their hands wondering how they can ‘scare’ businesses with the latest FCPA enforcement action.” It seems the answer is to speculate as to possible reasons for the decrease and remind your marketing targets of the many cases in the “pipeline.”
The decrease in FCPA enforcement has been a hot topic of late, for instance see here from the FCPA Blog.
Let me share a not-so-secret, secret and that is this. FCPA enforcement 2007-2011 was, to a great extent, the function of just three unique events: (1) publication in 2005 of the so-called Volcker Report on the United Nations Iraq Oil for Food Program which served as a ready-made list of enforcement actions; (2) in 2003 Georges Krammer, a former top official at Technip, shared information with French investigators concerning a $6 billion dollar project at Bonny Island, Nigeria; and (3) several oil and gas companies utilized the services of Panalpina.
These three unique events have resulted in approximately 35% of the core corporate FCPA enforcement actions between 2007-2011.
There have been 14 core corporate enforcement actions focused on Iraq Oil for Food conduct (Chevron, Azko Nobel, El Paso, Novo Nordisk, AGCO, ABB, Innospec, Ingersall-Rand, Textron, York, AB Volvo, Flowserve, General Electric and Fiat). Siemens and Daimler also included Iraq Oil for Food conduct, but such conduct was a minor focus of the overall allegations and thus not included in the above figure. In short, the Iraqi Oil for Food enforcement actions have largely run their course (one of the few remaining inquiries would seem to be Weatherford International where the conduct under investigation includes Iraq Oil for Food conduct). [Note: most of the Iraq Oil for Food enforcement actions involved “only” FCPA books and records and internal control charges given that the kickback payments were to the Iraqi government, not a particular foreign official. Nevertheless such actions are usually included in FCPA enforcement statistics].
There have been 7 core corporate enforcement actions concerning oil and gas companies utilizing the services of Panalpina in Nigeria (Panalpina, Noble, Pride, Shell, Tidewater, Transocean, and Global SantaFe). These actions, all announced in November 2010, largely account for the spike in 2010 corporate FCPA enforcement.
There have been 4 core corporate enforcement actions concerning the so-called TSKJ joint venture in relation to Bonny Island, Nigeria conduct (KBR / Halliburton, Technip, ENI/Snamprogetti, and JGC Corp.) [Throw in the 2012 enforcement action against Marunbeni and the number is 5]. These enforcement actions of course have not been mere garden-variety types; rather Bonny Island enforcement actions have resulted in 4 of the top 6 FCPA enforcement actions of all time.
Add these numbers together and you find that 25 of the 73 core corporate enforcement actions between 2007-2011 were the direct result of just three unique events.
Viewing FCPA enforcement statistics in the abstract is not a very useful exercise. Rather, the more thoughtful way to view such statistics is to understand the root causes leading to the enforcement actions in the first place. When viewed in this way, the not-so-secret, secret is that approximately 35% of FCPA enforcement actions between 2007-2011 were the direct result of just three unique events. These events have largely run their course and I submit this is the biggest reason why enforcement actions in 2012 are not on pace with the past few years.
[Note – as discussed in previous posts, unlike some others, I keep my corporate FCPA statistics using the “core” approach. Thus, for instance, the Siemens enforcement action was 1 ”core” enforcement action even if the DOJ entered into separate agreements with Siemens AG, Siemens Argentina, Siemens Bangladesh, and Siemens Venezuela and even if the SEC separately brought an enforcement action against Siemens AG. I submit that counting Siemens as 5 corporate enforcement actions, as many do, results in misleading FCPA enforcement statistics. Further distorting FCPA enforcement statistics is separately counting related individual enforcement actions. For instance, if one took such an approach in connection with Siemens the end result would be 20 enforcement actions – even though all enforcement actions were based on the same core set of conduct].
Summer Reading Spectacular
Grab your beverage of choice, find some shade, and sit back and enjoy the recent work product of FCPA Inc – plus the recent annual report of the OECD Working Group on Bribery.
Gibson Dunn
Gibson Dunn recently released it 2012 mid-year FCPA update (see here). The update begins as follows. “As the Foreign Corrupt Practices Act turns 35 years old, the spike in enforcement activity that we first observed five years ago appears (at least for the moment) to be leveling off. Nevertheless, numerous developments this year bespeak a statute that is maturing rather than falling into obscurity: the first sustained pattern of trial activity; increasing “private attorney general” enforcement; and serious policy debates between industry, executive, and legislative interests leading up to much-anticipated statutory guidance from government regulators. The first half of 2012 was packed with important FCPA developments.” Thereafter, the update is a buffet of useful information and summaries including recent sentencing activity, a discussion of FCPA-related civil litigation, legislative and policy developments, U.K. developments, and a handy chart containing DOJ and SEC statements on corporate cooperation.
Another Gibson Dunn update you should read concerns NPA and DPAs. The firm recently released (here) its mid-year update on corporate deferred prosecution and non-prosecution agreements. As noted in the update, once again among the most frequent use of such agreements is to resolve FCPA enforcement actions.
Speaking of NPAs and DPAs, Law36o carried an article yesterday titled “DOJ Develops a Taste for Deferred Prosecution Deals.” I liked what Skadden partner John Carroll (here) had to say – that such agreements are a “way for the government to outsource its work and harvest relatively easy settlements” because “the government only has to win the case in the government’s office; it doesn’t have to win in the courtroom.”
Miller Chevalier
Miller & Chevalier recently released its FCPA Summer Review 2012 (see here). The review begins as follows. “‘Expectant’ describes the mood of FCPA practitioners during the first half of 2012. With a slow first half of the year for enforcement releases, and expected developments such as the issuance of the new FCPA Guidance around the corner, the second half of 2012 should be eventful, if not historic, for the 35-year old statute.” Thereafter, the review contains several goodies such as a chart containing known declinations in FCPA investigations 2008 to the present, “comings” and “goings” in the DOJ’s FCPA team, and how a recent district court rulings(discussed in this previous post) appears to have impacted the deferred prosecution agreement in the recent Data Systems enforcement action (see here for the previous post).
Debevoise & Plimpton
Debevoise & Plimpton recently released its periodic FCPA Update (see here). Among other things, the update contains an article on the “current status of the ‘selective waiver’ doctrine, i.e., the notion that a waiver of attorney-client privilege or work-product protection in a submission to the government is not a ‘waiver to all others.'” As the article notes, this is often an issue for counsel to consider in FCPA investigatons when disclosing to the DOJ or SEC.
Sidley Austin
Sidley Austin recently released its anti-corruption quarterly (see here). Although the quarterly did not include a certain FCPA related development from the second quarter, it did contain an informative lead article concerning FCPA joint venture liability.
OECD Annual Report
The OECD Working Group on Bribery recently released its annual report (here). Spectacular it is not. For all the good the OECD does in raising awareness of bribery and its effects and seeking to reduce bribery and corruption around the world, its enforcement statistics remain misleading, incomplete and in some cases inaccurate.
For instance, as noted in this prior post, it is fairly obvious why OECD member countries have varying degrees of enforcement of bribery and corruption offenses. Among other reasons, in most OECD member countries, prosecuting authorities have two choices – to prosecute or not to prosecute – there is no such thing as non-prosecution or deferred prosecution agreements. Moreover, in many OECD member countries there is no such thing as corporate criminal liability – or even if there is – such corporate liability can only be based on the actions of high-ranking executives or officers. This of course is materially different than the U.S. respondeat superior standard in which a business organization can face legal liability based on the actions of any employee to the extent the employee was acting within the scope of his or her duties and to the extent the conduct was intended to benefit, at least in part, the organization.
The OECD’s statistics as to the U.S. are incomplete. Footnotes in the report state that DOJ and SEC enforcement actions “exclusively for violations of the books and records and internal control provisions of the FCPA” are not captured. This misses a meaningful chunk of FCPA enforcement actions as it is common for the DOJ and SEC to structure settlements (so as to avoid collateral consequences or to reward cooperation or both) without charging FCPA anti-bribery violations (such as in Siemens and Daimler).
Moreover, the OECD statistics as to the U.S. are inaccurate in some cases. In a table “Decisions on Foreign Bribery Cases from 1999 to December 2011,” in a column titled number of individuals and legal persons acquitted / found not liable, the report indicates that only 1 individual or legal person has been acquitted or found not liable in a U.S. foreign bribery case. Not true.
*****
A good weekend to all.
Friday Roundup
Credit when credit is due, no fear despite fear based marketing, a further Section 1504 development, and individual prosecutions in Canada, it’s all here in the Friday roundup.
Credit When Credit is Due
In this previous February 2012 post, I called out the DOJ for its deficient and misleading FCPA website in that the website did not inform the public of the DOJ’s setbacks in the Africa Sting cases, the O’Shea case, the Wooh case and the Lindsey Manufacturing cases. I ended the post by saying that the DOJ’s FCPA website ought to be improved and ought to keep citizens informed of all FCPA developments – not just those that cast the DOJ in a favorable light.
I am happy to dole out credit when credit is due and can now report that Wooh’s entry (here), O’Shea’s entry (here), the Lindsey related entry (here) and the numerous Africa Sting related entries have all been updated to reflect the final disposition of those cases.
Few Companies Concerned About the U.K. Bribery Act
Despite marketing campaigns that were often based on fear and overblown rhetoric, one year into the U.K. Bribery Act few companies have changed their compliance programs as a result and even fewer are concerned about an enforcement action being brought against their organization, according to this recent poll by Deloitte Financial Advisory Services. Specifically 24% of respondents answered “yes” to the following question – “in July 2012, one year after the UK Bribery Act enforcement began, will your company have changed its anti-corruption program to comply” and 9% answered “yes” to the following question – “one year after UK Bribery Act enforcement began, is your company concerned about a UK action being brought against your organization.”
That is pretty much what I predicted in this January 3, 2011 post that states as follows – “I don’t see how companies already subject to the FCPA and already thinking about compliance in a pro-active manner, have much to worry about when it comes to the U.K. Bribery Act …”.
Even so, the silly marketing continues as evidenced by this post “Don’t Be Lulled by a Dearth of UK Bribery Act Convictions” which begins as follows. “Be warned that the UK Bribery Act is considered to be the world’s most restrictive and far-reaching anti-corruption law to date. This measure differs in many key aspects from the US Foreign Corrupt Practices Act.”
A Further Section 1504 Development
This recent post provided an update on Section 1504 of Dodd-Frank, the so-called Resource Extraction Issuer Disclosure Provisions, an ill-conceived “miscellaneous provision” tucked into Dodd-Frank at the last minute that will substantially increase compliance costs and headaches for numerous companies that already have extensive FCPA compliance policies and procedures by further requiring disclosure of perfectly legal and legitimate payments to foreign governments.
In a further update, last week several House members wrote to SEC Chairman Mary Schapiro “regarding the status of the long-delayed final rule making.” In the letter, the House members state that the Commission “has had more than enough time to consider and respond to all of the substantive comments from industry, civil society, investors and others” and that the “issue is too serious to allow further delay.”
Canada Prosecutions
Recent media articles (see here from the Globe and Mail and here from the Canadian Press) report that “two former executives of SNC-Lavalin Group Inc. have been charged with corrupting foreign officials” under Canada’s FCPA-like law, the Corruption of Foreign Public Officials Act. Ramesh Shah (a former Vice President) and Mohammad Ismail (a former Director of International Projects) allegedly “offered payment to secure contracts for supervision and construction of the Padma Bridge and an elevated expressway in Dhaka, Bangladesh.”
*****
A good weekend to all.
Friday Roundup
Chevron and others get the front-page treatment, the Aguilar prosecution is officially over as well, some additional FCPA compliance survey data, Wal-Mart civil suits continue to pile up, and Chinese state-owned enterprises continue their global M&A push, it’s all here in the Friday roundup.
Kazakhstan Customs Inquiry
In yesterday’s Wall Street Journal, Christopher Matthews and Joe Palazzolo broke a story (“Oil Giants Launch Bribe Probes”) about an apparent investigation regarding Kazakh customs issues involving members of Karachaganka Petroleum Operating BV (“KPO”) including Chevron Corp. and Eni SpA, as well as a logistics arm of Deutsche Post AG, DHL, which handles freight shipments for the group. (For more on KPO see here). According to tips discussed in the WSJ article, the “KPO joint venture authorized DHL to bribe Kazakh customs officials to ignore paperwork irregularities that could have delayed shipments.” The WSJ article discusses “the difficult choices companies face operating in developing countries” and notes that, according to a knowledgeable source, when KPO logistics officials ordered DHL representatives to “stop payments to customs officials” in March 2011 the “customs inspectors found problems with virtually very KPO shipment” and “nothing was cleared to pass” until DHL resumed the payments.
Payments in connection with foreign customs, licenses, permits and the like have been fertile ground for FCPA enforcement activity, although as noted in this recent post in connection with Wal-Mart’s potential FCPA exposure, it is an open question in many cases whether the conduct at issue is the type of conduct Congress sought to capture in passing the FCPA.
In 2007, Chevron resolved an enforcement action (here) involving Iraqi Oil for Food conduct and in 2010 Eni (and related entities) resolved an enforcement action (see here for the prior post) involving Bonny Island, Nigeria conduct. In addition, as highlighted in this recent post, Eni is also reportedly under investigation concerning its conduct in Libya.
Aguilar Conviction Vacated
This recent post highlighted the official end to the Lindsey Manufacturing prosecution. The prosecution of Angela Maria Gomez Aguilar, who was tried along with the Lindsey defendants, is officially over as well. As noted in this previous post, Aguilar (a purported agent of Lindsey Manufacturing) was granted a judgment of acquittal after the DOJ’s case as to one substantive count of money laundering, but the jury convicted her of one count of money laundering conspiracy. After the conviction, Aguilar negotiated an agreement with the DOJ for a time-served sentence and immediate release from custody. Following Judge Matz’s dismissal of the indictment last December based on numerous instances of prosecutorial misconduct (see here for the prior post), Aguilar obtained an agreement from the DOJ to stipulate to a motion vacating the one count of conviction, an agreement which took effect upon the DOJ’s recent decision not to further pursue its appeal.
As noted in this recent release, Judge Matz this week signed an order vacating Aguilar’s conviction. In the release, Aguilar’s counsel, Stephen Larson (Arent Fox – here) stated as follows. “The government overreached in its efforts to press this case. It is bittersweet whenever a prosecution is terminated for misconduct. Although Ms. Aguilar is greatly relieved by Judge Matz’s decision to end this ordeal, it is tragic that it was permitted to go this far. I am pleased that the Department of Justice has recognized as much by opting not to pursue its appeal in this case.”
Kroll’s 2012 FCPA Benchmarking Report
This post discussed recent FCPA survey data. Add Kroll’s recent FCPA Benchmarking Report (here) to the list.
As noted in the Report, the study was “designed to take the pulse of corporate compliance officers at U.S. based multinationals and to provide benchmarks for the current state of anti-bribery preparedness.”
Survey results that caught my eye include the following.
“Sixty-nine percent of all respondents said their companies were either moderately or highly exposed to bribery risk; this number jumps to 100 percent in the pharmaceutical industry and drops to 46 percent in the financial services industry. […] 85 percent believe [such risk] will increase or stay the same in the future.”
“Fifty-three percent of respondents said their compliance departments have increased their budgets in the last year; 49 percent said they have increased hiring; and 22 percent said they have experienced a centralization of compliance decision-making.”
“The most frequently cited challenges to anti-bribery compliance include the inability to anticipate regulators’ next moves (21 percent) and ensuring that employee training is taken seriously and is used when a risky situation presents itself (20 percent).”
“Seventy-nine percent of respondents characterized their compliance efforts as a strategic advantage in addition to being a strong defensive tactic.”
“[T]he weakest link among survey respondents was how they handled third party relationships. While 99 percent of respondents said they had anti-bribery provisions for employees in their companies’ codes of conduct, that number fell to 73 percent when compliance officers were asked about anti-bribery provisions for third parties. […] The scope of [FCPA risk by using third parties] is exacerbated by the fact that approximately three in four U.S. companies (77 percent) report that they partner with foreign companies to do business abroad. Thirty-seven percent of respondents said they do business with between 100 and 1,000 third parties; 27 percent said they work with between 1,000 and 10,000 third parties; and 17 percent said they work with between 10,000 and 100,000 different third parties. A small number said they worked with more than 100,000 different third parties.”
It’s a third-party world.
The Report was based on responses from “139 senior corporate compliance executives from companies ranging in size from $100 million to over $10 billion in revenues per year” who were interviewed by phone from July 2011 to February 2012. Survey respondents were drawn mainly from four industries: financial services, IT/telecommunications, energy, and pharmaceuticals.
The report was published by Kroll Advisory Solutions (here), a company that assists clients mitigate and respond to risks, including FCPA issues.
Wal-Mart Civil Suits
One of my earliest Wal-Mart posts (here) noted that not only will the DOJ and SEC likely be examining the conduct of Wal-Mart executives, but so too will plaintiff law firms representing shareholders who will likely scour Wal-Mart’s SEC filings and other statements to the market in bringing derivative claims alleging breach of fiduciary duty and potential Section 10(b) claims based on material omissions concerning Wal-Mart Mexico.
Sure enough.
Wal-Mart’s recent quarterly SEC filing stated as follows.
“The Company is a defendant in several recently-filed lawsuits in which the complaints closely track the allegations set forth in a news story that appeared in the New York Times on April 21, 2012. One of these is a securities lawsuit that was filed on May 7, 2012 in the United States District Court for the Middle District of Tennessee, in which the plaintiff alleges various violations of the U.S. Foreign Corrupt Practices Act (the “FCPA”) beginning in 2005, and asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, relating to certain prior disclosures of the Company. The plaintiff seeks to represent a class of shareholders who purchased or acquired stock of the Company between December 8, 2011, and April 20, 2012, and seeks damages and other relief based on allegations that the defendants’ conduct affected the value of such stock. In addition, eleven derivative complaints were filed in April and May 2012, in Delaware and Arkansas, also tracking the allegations of the Times story, and naming various current and former officers and directors as additional defendants. The plaintiffs in the derivative suits (in which the Company is a nominal defendant) allege, among other things, that the defendants who are or were directors or officers of the Company breached their fiduciary duties in connection with oversight of FCPA compliance. While management cannot predict the outcome of these matters, management does not believe the outcome will have a material effect on the Company’s financial condition or results of operations.”
Chinese SOEs
This recent post focused on China SOEs and provided links to data and analysis concerning the ever increasing global push of Chinese SOEs. Yesterday, the Wall Street Journal ran an article titled “China Buys Overseas Assets” that discusses a recent report from A Capital, a private equity firm based in China and Paris (see here for A Capital’s report). As indicated in the article, “China’s overseas investment surged in the first quarter [of 2012] to $21.4 billion as state-owned companies snapped up resource-related assets around the globe.” According to the report, state-owned companies accounted for 98% of all deal value in the first quarter, a new high.
*****
A good weekend to all.
Survey Says
If FCPA and related statistics are your thing, this post is for you as it summarizes two recent surveys – the first by Ernst & Young, the second by Dow Jones.
Ernst & Young
Ernst & Young Fraud Investigation and Dispute Services recently released (here) its 12th Global Fraud Report.
The foreword section of the report states as follows. “Though many companies have intensified their efforts to combat bribery and corruption, especially given the aggressive enforcement environment, our research shows that much remains to be done. Executives, especially those in many mature markets, must overcome a certain degree of institutional fatigue about anti-corruption compliance initiatives. This is especially critical given that this year’s survey shows that tolerance for unethical conduct has increased in the last two years.”
Findings of note from the report include the following.
“Bribery and corruption remain pervasive. On a global basis, 39% of respondents reported that bribery or corrupt practices occur frequently in their countries. The challenge is even greater in rapid-growth markets, where a majority of respondents believe these practices are common.”
Survey respondents were asked – “which of the following can be justified if they help a business survive an economic downturn.” 30% said that “entertainment to win / retain business” can be justified; 15% said that “cash payments to win / retain business” can be justified; and 16% said that “personal gifts to win / retain business” can be justified.
“As many as 42% of respondents had not received training on ABAC (anti-bribery / anti-corruption) policies. Without adequately trained employees, the ability of companies to identify issues or robustly investigate and act on allegations is also likely to be diminished.”
“[D]espite the significant risks and specified demands of regulators [as to third parties], our survey suggests that the corporate response to mitigating third-party risks is still inadequate. Many companies are failing to adopt even the most basic controls to manage their third-party relationships.” “Effective third-party management does not end at the performance of due diligence. Third parties also should be monitored on an ongoing basis, including regular compliance assessments and audits. It is therefore worrying that only 45% of respondents identified audit rights or regular audits of the third party as a process in place to monitor the relationship.”
The report also contains a specific section regarding CFO responses.
Findings of note from this section include the following.
CFO survey respondents were asked – “which of the following can be justified if they help a business survive an economic downturn.” 34% said that “entertainment to win / retain business” can be justified; 15% said that “cash payments to win / retain business” can be justified; and 20% said that “personal gifts to win / retain business” can be justified.
“Only 46% of CFO respondents had attended ABAC training” “16% of CFO respondents do not know that their company can be held liable for the actions of third-party agents.”
As to corporate governance issues, the report states as follows.
“Our survey respondents suggest that not all boards are seen to be doing enough to properly understand the way their company is conducting business. Globally, 52% of c-suite interviewees think that the board needs a more detailed understanding of the business if it is to be an effective safeguard against fraud or corrupt practices.”
As to methodology, the report states as follows. “We interviewed chief financial officers and heads of legal, compliance and internal audit, to get their views of fraud, bribery and corruption risk and how their organizations are mitigating them.” “More than 1,700 interviews were conducted in 43 countries between November 2011 and February 2012.”
Ernest & Young Fraud Investigation and Dispute Services (here) provides, among other things, anti-fraud and corporate compliance services.
I note in “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (here) that amending the FCPA to include a compliance defense will advance certain policy objectives such as better incentivizing more robust corporate compliance, reducing improper conduct, and thus best advancing the FCPA’s objective or reducing bribery. In the article, I cite various survey data and note that despite current incentives to implement robust FCPA policies and procedures (namely the DOJ’s Principles of Prosecution and the Sentencing Guidelines) business organizations are not sufficiently implementing comprehensive FCPA policies and procedures. I argue that these present incentives thus represent “baby carrots” when what is needed to better incentivize more robust FCPA compliance are real “carrots.” An FCPA compliance defense is a real “carrot” that will better incentivize compliance across the business landscape. Organizations with existing FCPA compliance policies and procedures will be incentivized to make existing programs better. Likewise, organizations currently without stand-alone FCPA policies and procedures will be incentivized to spend finite resources to implement FCPA compliance policies and procedures.
An FCPA compliance defense will surely not cause all FCPA survey data to yield 100% outstanding results, but I do think it is reasonable to conclude that an FCPA compliance defense will cause various FCPA survey responses, such as those discussed above from the Ernst & Young report, to yield higher positive results, help reduce improper conduct, and thus best advance the FCPA’s objective of reducing bribery.
Dow Jones
Dow Jones Risk & Compliance recently released (here) its 2012 State of Anti-Corruption Survey.
A finding of note is the following.
“The survey revealed an increase from 2011 in the percentage of companies that have stopped or delayed … entrance or expansion in emerging markets (48% and 47% of those surveyed, respectively) due to concerns about violating regulations.”
As noted in Dow Jones graphical summary, the 48% breaks down as follows (17% stopped; 31% delayed); the 47% breaks down as follows (14% stopped; 33% delayed). As noted in Dow Jones graphical summary, the issue posed was “impact of concern about breaking regulations.” It is unclear from the survey results what is meant by “regulations” – for instance, survey respondents are from North America, Western Europe and Asia-Pacific meaning some respondents are likely to work for companies not subject to the Foreign Corrupt Practices Act.
Previously on the FCPA Blog (here), Professor Andy Spalding responded to the above finding from the Dow Jones survey.
As to methodology, the Dow Jones survey states as follows. “The survey is based on interviews with more than 300 compliance professionals at companies across key industries worldwide.”
Dow Jones Risk & Compliance (here) provides anti-corruption compliance services.