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Friday Roundup

Scrutiny alerts and updates, sunshine, year in review roundups, and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Alerts and Updates

H-P

The company has been under FCPA scrutiny since at least 2010 and recently disclosed, in pertinent part, as follows.

“The U.S. Department of Justice and the SEC have been conducting an investigation into the Russia GPO deal and potential violations of the Foreign Corrupt Practices Act (“FCPA”). These U.S. enforcement agencies, as well as the Polish Central Anti-Corruption Bureau, are also conducting investigations into potential FCPA violations by an employee of Hewlett-Packard Polska Sp. z o.o., an indirect subsidiary of HP, in connection with certain public-sector transactions in Poland. In addition, the same U.S. enforcement agencies are conducting investigations into certain other public-sector transactions in Russia, Poland, the Commonwealth of Independent States, and Mexico, among other countries.  HP is cooperating with these investigating agencies. In addition, HP is in advanced discussions with the U.S. enforcement agencies to resolve their investigations.”

JPMorgan

The New York Times returned – yet again (see here and here for prior NY Times article) – to JPMorgan’s hiring practices in China.  The article states:

“For Wall Street banks enduring slowdowns in the wake of the financial crisis, China was the last great gold rush. As its economy boomed, China’s state-owned enterprises were using banks to raise billions of dollars in stock and debt offerings — yet JPMorgan was falling further behind in capturing that business.  The solution, the executives decided over email, was to embrace the strategy that seemed to work so well for rivals: hire the children of China’s ruling elite.

[…]

In the months and years that followed, emails and other confidential documents show, JPMorgan escalated what it called its “Sons and Daughters” hiring program, adding scores of well-connected employees and tracking how those hires translated into business deals with the Chinese government. The previously unreported emails and documents — copies of which were reviewed by The New York Times — offer a view into JPMorgan’s motivations for ramping up the hiring program, suggesting that competitive pressures drove many of the bank’s decisions that are now under federal investigation.

The references to other banks in the emails also paint for the first time a broad picture of questionable hiring practices by other Wall Street banks doing business in China — some of them hiring the same employees with family connections. Since opening a bribery investigation into JPMorgan this spring, the authorities have expanded the inquiry to include hiring at other big banks. Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs and Morgan Stanley have previously been identified as coming under scrutiny. A sixth bank, UBS, is also facing scrutiny, according to interviews with current and former Wall Street employees.

[…]

The investigation has also had a chilling effect on JPMorgan’s deal-making in China, interviews show. The bank, seeking to build good will with federal authorities, has considered forgoing certain deals in China and abandoned one assignment altogether.”

Once again, the latest NY Times article sparked much commentary.  See here, here and here.

Former Siemens Executives

The Buenos Aires Herald reports:

“Seventeen people, including former managers of the Siemens company, were … accused of paying off officials in order to help win a contract to produce the national identity cards …”.  The decision was made by Federal Judge Ariel Lijo, who decided to indict them for having allegedly committed bribery.”

Regarding the defendants, the article states:

“Twelve people working for Siemens were included in the indictment: Uriel Jonathan Sharef, Ulrich Albert Otto Fritz Bock, Eberhard George Reichert, Luis Rodolfo Schirado, Andrés Ricardo Truppel, Ernst Michael Brechtel, Bernd Regendatz, Ralph Matthias Kleinhempel and José Alberto Ares. Sharef, for instance, was a member of Siemens’ managing board. He also was the first former board member of a Fortune Global 50 company to be indicted under the US Foreign Corrupt Practices Act, as happened in 2011.  Judge Lijo also charged Carlos Francisco Soriano, Miguel Ángel Czysch and José Antonio David as “middlemen” between the company and Menem’s administration to arrange the payment for benefitting the company in the bid. The magistrate also accused Antonio Justo Solsona, Guillermo Andrés Romero, Orlando Salvestrini, Luis Guillermo Cudmani and Federico Rossi Beguy, who allegedly worked for the company competing in the bid against Siemens IT Services and who presumably agreed not to challenge the government’s decision.”

Allegations regarding the Argentine identity card project were included in the 2008 FCPA enforcement action against Siemens (see here) and also served as the basis for 2011 criminal and civil charges against several former Siemens executives, including those recently charged in Argentina (see here for the prior post summarizing the action).

As noted in this previous post, the U.S. charges against the former Siemens executives were brought after the DOJ faced scrutiny (including at the Senate’s 2010 FCPA hearing) for not bringing any individual enforcement action in connection with a bribery scheme “unprecedented in scale and geographic reach” in which there existed at Siemens a “corporate culture in which bribery was tolerated and even rewarded at the highest levels of the company.”

The U.S. criminal charges against former Siemens executives sits on the docket and a recent docket search indicates that there has not been any activity in the case in over two years.

Sunshine

Mark Cuban, who recently prevailed against the SEC in a long-running insider trading enforcement action, says in this Wall Street Journal article that he is “now considering a new venture publicizing SEC transcripts.”  Says Cuban, “I’m going to get as many as I can, and I’ll put it out there.” “Sunshine is the best disinfectant.”

The article further states:

“Mr. Cuban says he isn’t against the SEC as a whole but thinks that the lawyers who work there should be held responsible for their actions. “There’s such a revolving door, and it was run by attorneys with an attorney’s mind-set looking for their next job,” he says. “It’s a résumé builder.” Mr. Cuban says individual lawyers aren’t held accountable because the public is familiar only with the name of the SEC’s chair, Mary Jo White.  “No wonder they say or do whatever they damn well please,” he says. “I’m like, ‘OK, I’m going to start calling them out by name.’  George Canellos, co-director of the SEC’s enforcement division, sent a response to Mr. Cuban’s statements through an SEC spokesperson: “Mr. Cuban’s comments are without merit and uncalled for. Our lawyers acted in the finest traditions of government counsel and entirely appropriately in strongly advocating the position of the government in this matter.”

On a related note, did you know that the FCPA Professor Scribd page contains approximately 250 hard to find FCPA documents, pleadings, briefs, etc.

Year In Review Roundups

From the Wall Street Journal Risk & Compliance Journal page – a “Q&A with Asheesh Goel, Ropes & Gray, on The Year in FCPA

From Trace Blog – “FCPA Corporate Settlements by the Numbers

From Michael Volkov (Corruption, Crime & Compliance) – “The FCPA Person of the Year – The Prosecutor” and “FCPA Predictions for the New Year – 2014

From Thomas Fox (FCPA Compliance and Ethics Blog) – “My Favorite Blog Posts from 2013

Reading Stack

Thomas Fox (FCPA Compliance and Ethics Blog) and Jon Rydberg (Orchid Advisor) are out with a new book here titled “Anti-Bribery Leadership: Practical FCPA and U.K Bribery Act Compliance Concepts for the Corporate Board Member, C-Suite Executive and General Counsel.”

*****

A good weekend to all.

JPMorgan’s Hiring Practices In China Under Scrutiny

Citing a “confidential United States government document,” the New York Times reports that “Federal authorities have opened a bribery investigation into whether JPMorgan Chase hired the children of powerful Chinese officials to help the bank win lucrative business …”.

The Times article states:

“In one instance, the bank hired the son of a former Chinese banking regulator who is now the chairman of the China Everbright Group, a state-controlled financial conglomerate […] After the chairman’s son came on board, JPMorgan secured multiple coveted assignments from the Chinese conglomerate, including advising a subsidiary of the company on a stock offering, records show. The Hong Kong office of JPMorgan also hired the daughter of a Chinese railway official. That official was later detained on accusations of doling out government contracts in exchange for cash bribes, the government document and public records show. The former official’s daughter came to JPMorgan at an opportune time for the New York-based bank: The China Railway Group, a state-controlled construction company that builds railways for the Chinese government, was in the process of selecting JPMorgan to advise on its plans to become a public company, a common move in China for businesses affiliated with the government. With JPMorgan’s help, China Railway raised more than $5 billion when it went public in 2007.”

As the Times article notes, JPMorgan made passing reference to the inquiry in its most recent quarterly filing.  The August 7th filing identified, under the heading “Regulatory Developments” the following.

“A request from the SEC Division of Enforcement seeking information and documents relating to, among other matters, the Firm’s employment of certain former employees in Hong Kong and its business relationships with certain clients.”

The Times article quotes me as follows.

“While the hire of a son or daughter itself is not illegal, red flags would be raised if the person hired was not qualified for the position, or, for example, if a firm never received business before and then lo and behold, the hire brought in business.”

Indeed, there have been Foreign Corrupt Practices Act enforcement actions where the conduct at issue involved the hiring of children or spouses of alleged “foreign officials.”

For instance, in the Tyson Foods enforcement action, part of the FCPA conspiracy alleged was “to place the wives of the [Mexican government] veterinarians on [a subsidiary company’s] payroll, providing them with a salary and benefits, knowing that the wives did not actually perform any services …”.  According to the DOJ, approximately $260,000 “in improper payments were made to the … veterinarians, both indirectly and directly, including through payments to wives of [the] veterinarians.”

In the Daimler enforcement action, the DOJ alleged that the company and its subsidiary in China “employed agents to assist in securing commercial vehicles and Unimog business from Chinese governent customers.”  Also the allegations supporting the FCPA conspiracy charge were:  (i) the company made “a purported commission payment” to “the wife of a Chinese government official at Sinopec” in connection with the sale of commercial vehicles to Sinopec; and (ii) the company made a payment “to a relative of a Chinese government official” associated with the Bureau of Geophysical Prospecting in connection with the sale of commercial vehicles to the entity.

In the Siemens enforcement action, the DOJ alleged that that Siemens Bangladesh “paid $5,000 to the daughter of a Bangladesh Telegraph Telephone Board (BTTB) official ostensibly to work as an ‘engineer’ on the BTTB project, despite the fact that Siemens Bangladesh did not need such an engineer and did not have the budget for the position.”

In the UTStarcom enforcement action, the SEC’s allegations included that the company “provided foreign government customers or their family members with work visas and purportedly hired them to work for [the company] in the U.S., when in reality they did no work for the company.”

In the Paradigm enforcement action, according to the DOJ, “during the same time frame as [a business deal was being discussed with an alleged Mexican “foreign official”], the same [alleged “foreign official”] requested that Paradigm Mexico hire his brother.”  The DOJ stated:  “Paradigm Mexico acquiesced to that demand and hired the decision maker’s brother as a driver. While employed at Paradigm Mexico, the brother did perform some work as a driver.”

Certain other FCPA enforcement actions have also alleged other things of value given to children or spouses of alleged “foreign officials.”

As to a potential cause and effect relationship between JPMorgan’s alleged hiring of children of alleged foreign officials, the article, in addition to the above, also states:

“Before hiring [the son of the chairman of the China Everbright Group], JPMorgan appeared to do little if any business with China Everbright, based on a review of securities filings and news reports. Since then, though, China Everbright has emerged as one of its prized Asian clients.”

“The Ministry of Railways has never hired JPMorgan directly, securities filings and news reports suggest. But those records indicate that the China Railway Group, the construction company whose largest customer is thought to be the Chinese government, hired JPMorgan to take it public in 2007. [The daugher of the former deputy chief engineer of China’s railway ministry] was hired around this time.  […]  About four years later, when [the daughter] was an associate at the bank, JPMorgan won out again. This time, according to media reports, the operator of a high-speed railway from Beijing to Shanghai picked the bank to steer it through its own public offering. That deal fell apart after a 2011 train collision killed 40 people and injured hundreds.”

For additional reading see here from the Wall Street Journal, here from Reuters, here from Fortune, here from the Washington Post, here from the Financial Times and here from The New Yorker (noting “of all the allegations of bribery lodged in recent years against foreign businesses in China  …  [JPMorgan’s scrutiny] is likely to produce dyspepsia in corporate suites in Beijing and Shanghai, where bright, fresh-faced hires are sometimes known less by their credentials than by their parentage”).

On Monday, the first day of trading after the Times article, JPMorgan’s stock closed down 2.7% to $51.83.

SEC Examination Leads To Criminal FCPA Charges Against Bond Traders

It is one of the more unusual origins of a Foreign Corrupt Practices Act enforcement action.

In November 2010, the SEC conducted a periodic examination of Direct Access Partners LLC (“DAP”), a broker-dealer registered with the SEC.  DAP’s Global Markets Group (“DAP Global”) primarily executed fixed income trades for customers in foreign sovereign debt.  One of its customers was Bandes, an alleged Venezuelan state-owned banking entity that acts as the financial agent of the state to finance economic development projects.

According to the DOJ and SEC, the SEC examination lead to the discovery of a “fraud that was staggering in audacity and scope” (see here for the SEC release).  A component of the alleged fraud included payments by Tomas Clarke (a DAP Executive Vice President who worked out of the company’s Miami office) and Alejandro Hurtado (a back-office employee of DAP in Miami) to Maria Gonzalez (V.P. of Finance / Executive Manager of Finance and Funds Administration at Bandes).  According to this DOJ criminal complaint, Gonzalez oversaw Bande’s trading by DAP.

According to the criminal complaint, Clarke, Hurtado and others “directed kickback payments” to Gonzalez “in exchange for Gonzalez steering Bandes business to [DAP] and authorizing Bandes to execute bond trades with [DAP].  According to the complaint, between 2008 and 2010 “Gonzalez received at least $3.6 million in payments through insiders and affiliates of [DAP].  According to the complaint, during this time period, “with Gonzalez both acting as the authorized trading contact in regard to [DAP] and managing the relationship between Bandes and [DAP], Bandes directed substantial business to [DAP] and carried out bond transactions that resulted in [DAP] generating tens of millions of dollars in revenue.”  The criminal complaint alleges various payments made or authorized by Clarke and Hurtado to an account in Switzerland held in the name of Gonzalez and/or a company owned in part by Gonzalez.

Based on the above core set of conduct, the criminal complaint charges Clarke and Hurtado with the following offenses:  conspiracy to violate the FCPA, substantive FCPA violations, conspiracy to violate the Travel Act, substantive Travel Act violations, conspiracy to commit money laundering, and substantive money laundering violations.

Gonzalez, the alleged “foreign official,” was charged with conspiracy to violate the Travel Act, substantive Travel Act violations, conspiracy to commit money laundering, and substantive money laundering violations.  (For other examples of “foreign officials” being criminally charged with non-FCPA offenses in connection with an FCPA enforcement action, see here and here).

In this DOJ release, Acting Assistant Attorney General Mythili Raman stated as follows.  “Today’s announcement is a wake-up call to anyone in the financial services industry who thinks bribery is the way to get ahead.  The defendants in this case allegedly paid huge bribes so that foreign business would flow to their firm.  Their return on investment now comes in the form of criminal charges carrying the prospect of prison time.  We will not stand by while brokers or others try rig the system to line their pockets, and will continue to vigorously enforce the FCPA and money laundering statutes across all industries.”

As noted in the DOJ release, “the government [also] filed a civil forfeiture action … seeking the forfeiture of assets held in a number of bank accounts associated with the scheme, including several bank accounts located in Switzerland.  The forfeiture complaint also seeks the forfeiture of several properties in the Miami area related to Hurtado that were purchased with his proceeds from the scheme.”

The above core conduct also resulted in this SEC civil complaint against Clarke and Hurtado (and others) charging a variety of non-FCPA securities law violations.

Friday Roundup

Motion to dismiss filed in the former Magyar Telekom execs case, a noticeable lack of FCPA charges, checking in on recent disclosures, quotable from the current SEC FCPA Unit Chief, quotable regarding FCPA Inc., what’s up with that investigation, I hear you travel alot, there’s an app for that, counter-points, and for the weekend reading stack.  It’s all here in the Friday roundup.

Motion to Dismiss Filed in SEC Enforcement Action

This previous post highlighted how former Magyar Telekom executives Elek Straub, Andras Balogh and Tamas Morvai planned to challenge the SEC’s charges against them.  Earlier this week, the defendants filed this memorandum in support of their motion to dismiss.

In summary fashion, the memorandum states as follows.

“There are several bases for dismissing the complaint.

 First, this Court lacks personal jurisdiction over the defendants. The complaint alleges conduct by foreign national defendants that occurred wholly outside, and with no nexus to, the United States. Nowhere does the complaint allege that defendants purposefully directed their conduct at the United States. Following constitutional due process principles, the defendants lack the requisite minimum contacts with the forum, and it would be inconsistent with traditional notions of fair play and substantial justice to require them to defend this action in the United States. Indeed, the SEC has acknowledged that its jurisdictional position lacks precedent “on all fours factually” and “may be breaking new ground[.]”

“Second, the SEC’s claims are time-barred […]  There is no doubt that the complaint was filed outside the five-year period. Specifically, the complaint was filed on December 29, 2011, more than five years after all three defendants had left Magyar Telekom, and more than five years after the alleged conduct occurred. Consequently, the five-year period has expired.”

“Third, with regard to the remaining claims, the complaint fails to adequately state the claims alleged. More specifically, the complaint: (i) fails to adequately plead that the defendants corruptly made use of interstate commerce, as is required to state a claim for bribery and the claims stemming from the alleged bribery under the FCPA (books and records and internal controls violations, falsifying books and records, and lying to auditors); (ii) fails to adequately plead that the intended payment recipients were “foreign official[s]” under the FCPA; (iii) fails to allege sufficient facts supporting the aiding and abetting claims; and (iv) fails to meet the heightened pleading requirements under Rule 9, including allegations of individualized culpable conduct by each defendant. The complaint also merely parrots the statutory language and fails to allege that the defendants profited personally from any of the alleged conduct. For all these reasons, the complaint should be dismissed with prejudice.”

As to “foreign official” the motion states that the complaint’s reference to “officials” “government officials” and other vague allegations represent “mere legal conclusions that the recipients were “foreign officials” under the FCPA.  The motion states as follows.  “A legal conclusion couched as a ‘factual allegation’ is insufficient to establish the essential element that the intended recipient be a foreign official.  Repeated references to “government officials” without underlying facts presents nothing ‘more than labels and conclusions’ that constitute ‘a formulaic recitation of the elements of a cause of action.””

Indeed, in my 2010 article “The Facade of FCPA Enforcement” (here) I noted the frequency in which enforcement agency FCPA pleadings “contain little more than uninformative, bare-bones statement of facts replete with legal conclusions.”  I said that the “most common and troubling use of bare-bones, uninformative, legal conclusory statements of facts or allegations is when the enforcement agencies describe the ‘foreign officials’ involved in the alleged conduct giving rising to the FCPA violation.”  In the article, I noted that because there is generally no threat that these bare-boned, uninformative facts or legal conclusions will ever be subject to meaningful judicial scrutiny, that the enforcement agencies get away with such practices.

At least until recently.

Noticeable Lack of FCPA Charges

Numerous FCPA enforcement actions have been based on allegations of payments to foreign customs personnel in connection with customs, license, permit type issues.

Thus, the lack of FCPA charges were noticeable in the DOJ’s recent criminal indictment of APEGO Inc., and various of is employees and agents.  As noted in this recent DOJ Release (N.D. of Georgia), charges were filed alleging conspiracy and twelve counts of importing notebooks and filler paper from China using false  documents.

The indictment (here) includes the following allegations.

“It was further part of the conspiracy that [certain individuals] paid bribes to Taiwanese customs officials on behalf of defendants APEGO and Gung to allow U.S.-bound lined paper products made by the Watanabe Group in China but lacking required country of origin labels, or mislabeled ‘Made in Taiwan,’ to enter Taiwan from China and clear Taiwanese customs.”

Elsewhere, the indictment alleges: (i) that in December 2006 various bribes were paid to Taiwanese customs officials which “allowed defendant APEGO to transship these products from Taiwan to the United States more quickly and less expensively by limiting the need to ‘rework’ the products and cartons (i.e. relable ‘Made in Taiwan’) in Taiwan”; (ii) that in March 2007 when customs officials at a certain Taiwan port no longer accepted bribes, the company arranged for its shipments to be processed through another port in a different part of the country where bribes were paid for the same purpose

Recent Disclosures

Owens-Illinois

Owens-Illinois, Inc. (an Ohio based company that describes itself as the world’s largest glass container manufacturer and preferred partner for many of the world’s leading food and beverage brands) recently disclosed as follows.

“The Company is conducting an internal investigation into conduct in certain of its overseas operations that may have violated the antibribery provisions of the United States Foreign Corrupt Practices Act (FCPA), the FCPA’s books and records and internal controls provisions, the Company’s own internal policies, and various local laws. In October 2012, the Company voluntarily disclosed these matters to the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). The Company intends to cooperate with any investigation by the DOJ and the SEC. The Company is presently unable to predict the duration, scope or result of its internal investigation, of any investigations by the DOJ or the SEC or whether either agency will commence any legal action. The DOJ and the SEC have a broad range of civil and criminal sanctions under the FCPA and other laws and regulations including, but not limited to, injunctive relief, disgorgement, fines, penalties, and modifications to business practices. The Company also could be subject to investigation and sanctions outside the United States. While the Company is currently unable to quantify the impact of any potential sanctions or remedial measures, it does not expect such actions will have a material adverse effect on the Company’s liquidity, results of operations or financial condition.”

Given the recent FCPA scrutiny of the beverage industry (Diageo, Beam Inc., and Central European Distribution Company) one might wonder whether Owens-Illinois’s recent disclosure is connected to those developments.

Barclays

This previous post detailed how Barclays PLC’s relationship with Qatar’s sovereign-wealth fund was under scrutiny by U.K. authorities.

The company recently disclosed (here) as follows.  “Subsequent to reporting the investigations of the Financial Services Authority and Serious Fraud Office in July and August 2012 respectively, Barclays has been informed by the US Department of Justice (DOJ) and US Securities and Exchange Commission (SEC) that they are undertaking an investigation into whether the Group’s relationships with third parties who assist Barclays to win or retain business are compliant with the United States Foreign Corrupt Practices Act. Barclays is investigating and fully co-operating with the DOJ and SEC.”

According to this article in the Wall Street Journal, the focus is “on Barclay’s use of external brokers who facilitated meetings between bank officials and powerful Middle Eastern families.”  The article further notes that “Barclays recently started conducting an internal investigation, with the help of an outside law firm, to figure out whether it or its Middle Eastern introducers might have run afoul” of the FCPA.

Schlumberger

The company recently disclosed as follows.

“In 2007, Schlumberger received an inquiry from the United States Department of Justice (“DOJ”) related to the DOJ’s investigation of whether certain freight forwarding and customs clearance services of Panalpina, Inc., and other companies provided to oil and oilfield service companies, including Schlumberger, violated the Foreign Corrupt Practices Act. In October 2012, Schlumberger was advised by the DOJ that it has closed its inquiry as it relates to Schlumberger.”

For more on the numerous Panalpina-related enforcement actions – what I’ve termed CustomsGate – see here.

The company’s recent disclosure would seem not to address the issues previously the focus of a front-page Wall Street Journal article in October 2010 concerning alleged conduct in Yemen.  (See here for the prior post).

Quotable

In this recent Reuters article, current SEC FCPA Unit Chief Kara Brockmeyer stated as follows.

“I would hate to think the companies view [FCPA] enforcement actions as the cost of doing business.  If we find that out, it will certainly increase the size of the penalty.”

One thing that is becoming increasingly clear in this new era of FCPA enforcement is that investors do appear to view FCPA scrutiny and enforcement actions as a cost of doing business and akin to a regulatory violation.

The Reuters article also stated that there has yet to be a repeat FCPA prosecution.  This is a false statement.  Companies that have resolved more than one FCPA enforcement action over time include: Tyco, ABB, Baker Hughes and General Electric.

Quotable

On his Corruption, Crime & Compliance site (here) Michael Volkov recently 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.”

What’s Up With That Investigation?

One of the many FCPA industry sweeps reportedly underway concerns Hollywood movie industry in China.  (See here for the prior post).  This recent post on the New York Times Media Decoder blog highlights the “powerful gatekeeper of China’s rapidly growing film world, the China Film Group chairman Han Sanping who was recently in the U.S. to receive a China Entertainment Visionary of the Year award, and asks what’s up with the investigation.

I Hear You Travel Alot

My frequent searches for FCPA content often turn up interesting content.  Such as this thread from top-law-schools.com which asks what type of attorneys get to travel the most?  One response was as follows.   “From what I hear, FCPA is the way to go for travel to other countries because you have lots of interviews of foreign employees.”

The FCPA is certainly the reason for the majority of stamps in my passport.

Counter-Points

Alexandra Wrage (President of Trace International) made some observations recently in her Corporate Counsel column (here) about FCPA enforcement in various Presidential administrations.  While interesting to think about, the actual stats have little substantive value.  Instances of FCPA scrutiny tend to last between 2-4 years (and thus straddle administrations) and various instances of FCPA scrutiny (for instance Pfizer) can last approximately 8 years.  Moreover, rather than “aggressively enforce the FCPA,” as the article notes, what the enforcement agencies more often than not actually do (as evidenced by statistics demonstrating which enforcement actions resulted from voluntary disclosures) is process corporate voluntary disclosures.

There’s An App for That

Law firm O’Melveny & Myers announced (here) the “launch of its FCPA app, the first multi-functional mobile application (app) created by a law firm.”  Richard Grime, partner and head of O’Melveny’s FCPA practice stated as follows.  “We understand the complexities our clients and colleagues face in achieving their business goals in the global marketplace, and thus, have created this mobile application as a fast, yet informative, way for them to remain current with the evolving statutes and provisions imposed by the FCPA and other anti-corruption laws.”

Weekend Reading

Sidley & Austin recently released its Anti-Corruption Quarterly (here).  Among other articles is one focused on the new “sheriff in town.”

The article states as follows.

“Investigating potential violations of the FCPA historically has been the purview of the SEC and the DOJ, but recently, Congress has entered the fray. Two House committees, the House Oversight and House Energy committees, recently instituted an independent FCPA investigation of Wal-Mart, after a New York Times article reported on an alleged massive bribery campaign at Wal-Mart’s Mexican affiliate. These House investigations mean that companies now have to consider the possibility of facing a congressional investigation—in addition to investigations by the SEC and the DOJ—when FCPA violations have occurred.”

The article further states as follows.

“Although congressional committees routinely investigate companies, the current congressional investigation into Wal-Mart is the first investigation in the FCPA context and it may signal the beginning of a trend: high-profile companies or companies that are drawn into political fights (often unwillingly) may find themselves the target of a congressional inquiry if their FCPA problems become public. Whatever effect the congressional investigation may have on Wal-Mart, the possibility of such an investigation is a factor that high-profile companies facing FCPA concerns should weigh.”

For more on Wal-Mart’s FCPA scrutiny, see my recent article “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Exposure” (here).

Miller Chevalier also recently released its FCPA Autumn Review – see here.

Morrison Foerster also recently released its End of Summer Round-Up – see here.

This recent Jones Day publication concerning upcoming FCPA Guidance contains the following paragraph that should be read by those who simply label companies that have resolved FCPA enforcement actions or are the subject of FCPA scrutiny as bad or corrupt companies.

“It is the job of a prosecutor to make charging decisions and to decide in the first instance what does and does not violate the law. As prosecutors and enforcement attorneys assess the facts to make charging decisions, they are compelled to view the world, therefore, in binary terms: black and white, right and wrong. As defense counsel, settlement discussions with our counterparts in the DOJ and SEC frequently hinge on which side of the line the conduct sits. Particularly for those of us who served as prosecutors, we acknowledge in these discussions the difficult mission of the enforcement officials to draw and defend lines. The world of business, however, frequently operates in territory that is somewhat grey: a world in which business persons strive to grow the company ethically in situations where the application of the existing rules are not entirely clear. For instance, in the current era of FCPA enforcement, international businesses struggle with their responsibilities to monitor and control the conduct of third parties with whom they do business: distributors and sub-distributors, joint venture partners, dealers, and resellers. Even for companies that are firmly dedicated to compliance with the FCPA, is not always clear when a third party amounts to an agent whose improper conduct might someday be ascribed to the company and its employees. Good and ethical companies struggle, every day, with the concept of defining an agent of the company as opposed to an independent customer who engages in an arm’s-length transaction to purchase the company’s products.”

*****
A good weekend to all.

Potpourri

Retail Industry Sweep

This previous post discussed the Wal-Mart effect, how Wal-Mart is clearly not the only company subject to the FCPA that needs licenses, permits and the like when doing business in Mexico, and that it is likely that Wal-Mart’s potential FCPA exposure has caused sleepless nights for many company executives doing business in Mexico and the general region.

Sure enough.

Aruna Viswanatha reports in this Reuters story that “retailers have been reviewing their international operations in light of a bribery scandal at Wal-Mart’s operations in Mexico that is the subject of investigations by the Justice Department and the Securities and Exchange Commission.”  According to the story, “other retail companies have also since reported to U.S. agencies suspicions of their own potential violations, which in turn has the Justice Department and SEC considering a sweep of the entire industry.”  For more on industry sweeps, see this previous post.

Barclays Dealings With Sovereign-Wealth Funds Scrutinized

The Wall Street Journal reported on Friday (here) that Barclays PLC’s “chief financial officer is under investigation by British authorities related to the bank’s 2008 fundraising activities with Middle Eastern investors.”  According to the story, the “probe is focused at least in part on how Barclays wooed Qatar’s sovereign-wealth fund to pump billions of pounds into the bank as the financial crisis intensified.”  According to this Wall Street Journal article, Barclays previously disclosed “£240 million of payments made to Qatar Holding and Abu Dhabi’s Sheik Mansour Bin Zayed Al Nahyan related to its £7.3 billion capital raise in 2008.”

Barclays has ADRs traded on the New York Stock Exchange and, according to the article, the SEC “is aware of the probe” and will be updated on its progress.  As the article notes, the SEC is currently conducting an expansive investigation of various financial institutions concerning relationships with sovereign-wealth funds.

Halliburton’s Latest Disclosure

Halliburton previously disclosed potential FCPA issues concerning the use of an Angolan vendor.  Last week in this quarterly report, the company provided an update on that investigation as well as new investigations concerning additional conduct in Angola as well as Iraq.  The disclosure states as follows.

“We are conducting internal investigations of certain areas of our operations in Angola and Iraq, focusing on compliance with certain company policies, including our Code of Business Conduct (COBC), and the FCPA and other applicable laws. In December 2010, we received an anonymous e-mail alleging that certain current and former personnel violated our COBC and the FCPA, principally through the use of an Angolan vendor. The e-mail also alleges conflicts of interest, self-dealing, and the failure to act on alleged violations of our COBC and the FCPA. We contacted the DOJ to advise them that we were initiating an internal investigation. Since the third quarter of 2011, we have been participating in meetings with the DOJ and the SEC to brief them on the status of our investigation and have been producing documents to them both voluntarily and as a result of SEC subpoenas to the company and certain of our current and former officers and employees. During the second quarter of 2012, in connection with a meeting with the DOJ and the SEC regarding the above investigation, we advised the DOJ and the SEC that we were initiating unrelated, internal investigations into payments made to a third-party agent relating to certain customs matters in Angola and to third-party agents relating to certain customs and visa matters in Iraq. We expect to continue to have discussions with the DOJ and the SEC regarding the Angola and Iraq matters described above and have indicated that we would further update them as our investigations progress. We have engaged outside counsel and independent forensic accountants to assist us with the investigations. We intend to continue to cooperate with the DOJ’s and the SEC’s inquiries and requests in these investigations. Because these investigations are ongoing, we cannot predict their outcome or the consequences thereof.”

In 2009, Halliburton and related entities settled DOJ and SEC FCPA enforcement actions concerning Bonny Island, Nigeria conduct by agreeing to pay $579 million in combined fines and penalties.  See here and here.  Pursuant to the SEC settlement, Halliburton is permanently enjoined from violating the FCPA’s books and records and internal control provisions.

W.W. Grainger Updates Its Disclosure

This previous post discussed W.W. Grainger’s February disclosure concerning an investigation that sales employees of a China subsidiary may have provided prepaid gift cards to certain customers.  As noted by Chris Matthews in this recent Wall Street Journal Corruption Currents post, the company in a recent SEC filing stated as follows.

“The results of the investigation, which have been submitted to the DOJ and the SEC, did not substantiate initial information suggesting significant use of gift cards for improper purposes. The Company cannot predict at this time whether any regulatory action may be taken or any other potential consequences may result from this matter.”

The Corruption Currents post contains a quote from Grainger spokeswoman as follows.  “We conducted a very thorough investigation, and based on our findings we do not believe this is a material issue.  We have submitted our findings to the DOJ and the SEC and we are in conversations with them regarding the conclusion of this matter.”

Contrary to the Corruption Currents headline “W.W. Grainger’s FCPA Probe Finds No Wrongdoing” the disclosure is qualified by the term “significant” use of gift cards for improper purposes and the quote from the company representative is qualified by the term “material” issue.  Very few FCPA issues in multinational companies rise to the level of quantitative materiality – even if the SEC takes the view that all payments in violation of the FCPA are qualitatively material.

As noted in this previous post concerning Congressional interest in DOJ FCPA declination decisions, the DOJ has stated that it “has declined to prosecute corporate entities in several cases based on particular facts and circumstances presented in those matters” including the following:  “a single employee, and no other employee, was involved in the provision of improper payments; and the improper payments involved minimal funds compared to the overall business revenues.”

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