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Friday Roundup

By on October 10, 2014 in Apple Award, Compliance, Dyncorp, Enforcement Agency Policy, Enforcement Agency Speeches, Finmeccanica, Foreign Law Enforcement Cooperation, GlaxcoSmithKline, Individual Enforcement Action, Plea Bargaining, Sanofi, SEC, Voluntary Disclosure

A tribute, resource alert, bureaucratic brazenness, scrutiny alerts and updates, a bushel, quotable, and for the reading stack. It’s all here in the Friday roundup.

James McGrath

I join Tom Fox (FCPA Compliance and Ethics Blog) in paying tribute to James McGrath.  Owner of his own Ohio-based firm McGrath & Grace and founder and editor of his own Internal Investigations Blog, McGrath was a bear of a man as Fox wrote.  Yet a gentle and kind bear and I will remember Jim for his desire to learn and engage with students.  He was an occasional contributor to FCPA Professor (see here) and his candid wit resulted in this classic post.  I last communicated with Jim a few weeks ago and he was excited to share some new things in his life and I was happy and excited for him.  Moreover, Jim paid me a visit in Southern Illinois this past spring which is no small feat as one has to make a big of effort to get here.  I enjoyed our visit and discussion.

You will be missed Jim, rest in peace.

Resource Alert

The University of Houston Law Center announced:

“[Release of] a searchable database that contains the compliance codes for Fortune 500 companies.  The project was led by Houston attorney Ryan McConnell, an adjunct professor at the University of Houston Law Center. McConnell worked with a team of recent graduates and current students to develop the database, which covers 42 different topics. “The free database allows any company to conduct benchmarking on virtually every compliance area covered in a code of conduct and to spot compliance trends within their industry,” McConnell explained. “In addition to proactively building a program, when compliance failures occur, whether a foreign bribery violation or environmental issue, stakeholders – whether they are shareholders in a lawsuit or criminal investigators – frequently scrutinize the company’s compliance program.  This database provides a powerful tool for anyone to evaluate the strength of a company’s compliance program, including subject matters addressed in the code and the organization’s core values.”

Bureaucratic Brazenness

This recent Wall Street Journal column “The New Bureaucratic Brazenness” caught my eye.

“We’re all used to a certain amount of doublespeak and bureaucratese in government hearings. That’s as old as forever. But in the past year of listening to testimony from government officials, there is something different about the boredom and indifference with which government testifiers skirt, dodge and withhold the truth. They don’t seem furtive or defensive; they are not in the least afraid. They speak always with a certain carefulness—they are lawyered up—but they have no evident fear of looking evasive. They really don’t care what you think of them. They’re running the show and if you don’t like it, too bad.

[…]

Everything sounds like propaganda. That will happen when government becomes too huge, too present and all-encompassing. Everything almost every level of government says now has the terrible, insincere, lying sound of The Official Line, which no one on the inside, or outside, believes.

[…]

We are locked in some loop where the public figure knows what he must pronounce to achieve his agenda, and the public knows what he must pronounce to achieve his agenda, and we all accept what is being said while at the same time everyone sees right through it. The public figure literally says, “Prepare my talking points,” and the public says, “He’s just reading talking points.” It leaves everyone feeling compromised. Public officials gripe they can’t break through the cynicism. They cause the cynicism.”

I sort of feel this way when I hear DOJ and SEC FCPA enforcement attorneys speak.  Do you?

For instance, last year I attended an event very early in tenure of a high-ranking SEC enforcement official.  This person – who came to the SEC from private practice – candidly stated something to the effect that given his very new position he did not yet know what he was supposed to say.

Scrutiny Alerts and Updates

Sanofi

As recently reported in this Wall Street Journal article:

“Sanofi said it has told U.S. authorities about allegations of improper payments to health-care professionals in the Mideast and East Africa, joining a lineup of pharmaceutical companies that have faced similar claims. Among the allegations are that Sanofi employees made improper payments to doctors in Kenya and other East African nations, handing out perks based on whether the doctors prescribed or planned to prescribe Sanofi drugs, according to the firm and e-mails from a tipster The Wall Street Journal viewed. The French pharmaceutical company said it hired New York law firm Weil Gotshal & Manges LLP to look into the claims and the investigation is continuing. “At this stage, it is too early to draw conclusions,” a company spokesman said. “Sanofi takes these allegations seriously.”

[…]

“The Sanofi investigation began after the firm received a series of anonymous allegations that wrongdoing occurred between 2007 and 2012 in parts of the Middle East and East Africa, the company said. One allegation was that employees of subsidiary Sanofi Kenya bribed medical professionals, a claim made via emails sent to Sanofi senior management last October and in March and viewed by the Journal. Sanofi paid for influential medical professionals to attend conferences, many of which were abroad, and gave them cash and gifts at its own events to win business, the emails allege. Copies of letters the tipster said were sent to Sanofi Kenya by medical professionals, as well as what the emails describe as other Sanofi documents, which were also reviewed by the Journal, indicate that doctors would request money from Sanofi Kenya to attend conferences and events and that Sanofi employees would take into account the applicant’s value to Sanofi’s business before deciding whether to sponsor them or not.”

As highlighted in this August 2013 post, Sanofi’s conduct in China has also been under scrutiny.

GSK

As recently reported in this Reuters article:

“GlaxoSmithKline, which was slapped with a record $489 million fine for corruption in China last month, said on Tuesday it was looking into allegations of corruption in the United Arab Emirates. Britain’s biggest pharmaceuticals group confirmed the investigation following allegations of improper payments set out in a whistleblower’s email sent to its top management on Monday. The email, purporting to be from a GSK sales manager in the Gulf state, was seen by Reuters. The company is already investigating alleged bribery in a number of Middle East countries, including Lebanon, Jordan, Syria and Iraq, as well as Poland. “As we have already said, we are undertaking an investigation into our operations in the Middle East following complaints made previously. This investigation continues and these specific claims were already being investigated as part of this process,” a GSK spokesman said.”

DynCorp

The Washington Times reports here

“State Department investigators uncovered evidence that agents working for one of the largest U.S. military contractors paid tens of thousands of dollars in bribes to Pakistani officials to obtain visas and weapons licenses, but records show the government closed the case without punishing DynCorp.

[…]

But investigators closed the case after deciding they couldn’t prove or disprove the company had the “requisite corrupt” intent required to prove a violation of the Foreign Corrupt Practices Act (FCPA), which bars U.S. companies from bribing foreign officials.

“There was no evidence to support the allegations that DynCorp or its employees had specific knowledge of bribes paid Pakistani government officials,” an investigator wrote in a memo closing out the case last year.

Still, investigators concluded there were violations of the FCPA involving both Speed-Flo and Inter-Risk, both of which are based in Islamabad.”

AgustaWestland / Finmeccanica Related

As noted in this Wall Street Journal article:

“An Italian court found Giuseppe Orsi, the former chief executive of defense firm Finmeccanica, not guilty of international corruption, absolving him of the most serious charge he faced in connection with a 560-million-euro contract won in 2010 to supply the Indian government with 12 helicopters. The three judge panel found Mr. Orsi, 68, guilty of falsifying invoices and sentenced him for that crime to two years in prison, a penalty that was immediately suspended. “A nightmare is over for me and my family,” a visibly relieved Mr. Orsi told reporters after the judge had read the verdict. Italian prosecutors had argued that Mr. Orsi, who at the time of the alleged corruption was CEO of Finmeccanica unit AgustaWestland, directed a plan to pay tens of millions of dollars to Indian officials, including the former top officer in the Indian air force, to win the helicopter-supply competition. Mr. Orsi rose to become CEO of Finmeccanica in 2011 and resigned last year when the corruption charges surfaced. The court also absolved Bruno Spagnolini, who followed Mr. Orsi as CEO of AgustaWestland, of corruption while finding him guilty of falsifying invoices. In reading the verdict, the judge said that while prosecutors had proven that fake invoices had been issued, there was no corruption. Prosecutors had argued there was a direct connection between the false invoices and the payment of kickbacks.”

A Bushel

Matthew Fishbein (Debevoise & Plimpton) was awarded an FCPA Professor Apple Award for this this recent article titled “Why Aren’t Individuals Prosecuted for Conduct Companies Admit.”  Fishbein continues with his spot-on observations in this recent Corporate Crime Reporter Q&A.  For additional reading on the same topics see:

“The Facade of FCPA Enforcement“ (2010)

My 2010 Senate FCPA testimony (“The lack of individual prosecutions in the most high-profile egregious instances of corporate bribery causes one to legitimately wonder whether the conduct was engaged in by ghosts. […]  However, a reason no individuals have been charged in [most FCPA] enforcement actions may have more to do with the quality of the corporate enforcement action than any other factor. As previously described, given the prevalence of NPAs and DPAs in the FCPA context and the ease in which DOJ offers these alternative resolution vehicles to companies subject to an FCPA inquiry, companies agree to enter into such resolution vehicles regardless of the DOJ’s legal theories or the existence of valid and legitimate defenses. It is simply easier, more cost efficient, and more certain for a company … to agree to a NPA or DPA than it is to be criminally indicted and mount a valid legal defense – even if the DOJ’s theory of prosecution is questionable …”.

“But Nobody Was Charged” (2011)

“DOJ Prosecution of Individuals – Are Other Factors At Play?” (2011) (2013) (2014)

“Why You Should Be Alarmed by the ADM Enforcement Action” (2014).

Quotable

In this recent speech, SEC Chair Mary Jo White stated:

“In fiscal year 2013, we brought more than 675 enforcement actions and obtained orders for $3.4 billion in total penalties and disgorgement.  We will soon be announcing the results for our 2014 fiscal year, which ended yesterday.  It was another very productive year as those numbers will show. But numbers only tell part of the story. The quality and breadth of actions are really the more meaningful measure of an effective enforcement program. (emphasis added).”

As to international cooperation, White stated:

“International cooperation is essential to the SEC’s enforcement program, and indeed, to all of our enforcement programs.  In today’s global marketplace, fraudulent schemes and other misconduct commonly have cross-border elements, and the need for seamless cooperation among us has never been greater.

The SEC’s investigations and enforcement actions often involve witnesses and evidence in different countries around the world.  And I know that the same is true in your investigations and enforcement cases.

Faced with this simple reality, if we are to continue to conduct these investigations successfully, and prosecute the offenses and wrongdoers to the fullest extent of our laws, broad and effective use of the MMoU, and our bilateral agreements, is more important than ever.

No one knows that better than the SEC.  Virtually every week, I meet with my fellow Commissioners to decide which cases to bring.  Rarely is there a week when one or more of the cases recommended by the enforcement staff does not involve critical international assistance.  In fact, in the last fiscal year, the SEC made more than 900 requests for international assistance and, as a result, we were able to obtain critical evidence that helped us prosecute wrongdoers for a vast array of serious offenses.

In one recent FCPA case, for example, the SEC obtained valuable evidence — bank and other corporate records — from German prosecutors. [HP] And, we received great support from regulators in Australia, Guernsey, Liechtenstein, Norway, Canada, Switzerland, and the United Kingdom in another major FCPA action. [Alcoa].”

From the Houston Chronicle, a Q&A with former Deputy Attorney General – and current FCPA practitioner – George Terwilliger.

Q: How will enforcement of the Foreign Corrupt Practices Act (FCPA) hinder U.S. energy companies from doing business abroad?

A: Notwithstanding all the good things that are happening with energy upstream production in the United States, the real growth opportunities remain overseas. And a lot of them are in places that are ethically challenged at best in terms of their business and legal cultures. Two things cause problems for companies subject to U.S. law.

One, ambiguities are in the law itself. What is a foreign official? What organizations are covered as entities of foreign governments that are state-owned enterprises three times removed?

Then there’s the uncertainty of the parameters of enforcement policy. Why is this case prosecuted and that one isn’t? Why does this case settle for this much money and that one for that much money? There’s not a lot of transparency, and it’s not apparent to the people who work at this all the time exactly where those parameters are.

Q: Why is that a problem?

A: A company subject to U.S. law that is looking at an opportunity overseas looks at what the profitability model is and then they look at the risk inherent in doing business in that environment. The least little thing that comes up in that process — there’s a piece of real estate they want us to use as a staging area that’s owned by the brother-in-law of the cousin of the oil minister — and they look at it and go, “You know what? We’re not going to do that. It’s not worth the risk.”

Q: Are companies passing up business opportunities because of those risks?

A: Yes, that happens. Companies forgo economic opportunities because the uncertainties are perceived to be too great given the potential return on the investment. The objective of the law is to have a corruption-free level playing field. Most American business people I think believe that given a level playing field they can compete very well, particularly with foreign competitors. The problem is when that playing field is knocked out of kilter by the influence of corruption. Perhaps companies from other countries don’t operate under these constraints, then the playing field isn’t level anymore.

Q: What can mitigate those risks and balance the playing field for U.S. companies abroad?

A: For some time I have advocated some kind of corporate amnesty for companies that investigate themselves, fix their problems and disclose them to the government. If companies become aware of corrupt activity, I think given an incentive to report that they would do it. And that will help the government and help the objectives of this program rather than playing a kind of gotcha game.

Q: Are there any incentives now for companies to disclose potential violations?

A: The Securities Exchange Commission and the Justice Department have articulated policies that whatever the penalty should be for some wrongdoing, it will be less if you self-report, cooperate with an investigation and so forth. I don’t think that’s widely believed in the U.S. corporate community. And it’s almost impossible to measure. I have represented companies where we have made voluntary disclosures that have not been prosecuted. And the government has said the reason they are not prosecuting is because of internal investigation and cooperation. So I’m not saying it doesn’t happen. At the end of the day, companies wrestle with the question of, “Is it really worth it?” All the heartache that’s going to flow from a voluntary disclosure, particularly on something that may be marginal as a violation, is it worth what that’s going to cost? In terms of damage to reputation, shareholder issues, management issues with the board and so forth, is that going to be worth it in terms of what a company might get in terms of some forbearance of penalty?

Reading Stack

“It’s as if the FCPA Super Bowl just ended in a tie.”  (See here from Bracewell & Giuliani attorneys Glen Kopp and Kedar Bhatia regarding the Supreme Court recently declining to hear the “foreign official” challenge in U.S. v. Esquenazi).   

A legitimate concern or a bluff?  (See here from The Globe and Mail – “The head of Canadian engineering giant SNC-Lavalin Group Inc. says any move by authorities to charge the company in connection with an extensive bribery scandal would immediately threaten its future and could force it to close down.”).

An interesting video on Bloomberg’s “Market Matters” regarding the DOJ’s approach to prosecuting alleged corporate crime. The FCPA is not specifically discussed, although the issues discussed are FCPA relevant.

From the Economist “The Kings of the Courtroom:  How Prosecutors Came to Dominate the Criminal-Justice System.” (“The prosecutor has more control over life, liberty and reputation than any other person in America,” said Robert Jackson, the attorney-general, in 1940. As the current attorney-general, Eric Holder, prepares to stand down, American prosecutors are more powerful than ever before. Several legal changes have empowered them. The first is the explosion of plea bargaining, where a suspect agrees to plead guilty to a lesser charge if the more serious charges against him are dropped. Plea bargains were unobtainable in the early years of American justice. But today more than 95% of cases end in such deals and thus are never brought to trial.”).

*****

A good weekend to all.

Friday Roundup

By on September 26, 2014 in BHP Billiton, Business Effects, Embraer, Finmeccanica, General Cable Corp., Goldman Sachs, H-P, Whistleblowers

An invite, ripples, the odd dynamic, and scrutiny alerts and updates.  It’s all here in the Friday roundup.

You Are Invited

King & Spalding is pleased to host Professor Mike Koehler for an informal lunch discussion of his recently published book The Foreign Corrupt Practices Act in a New Era. The conversation and related question-and-answer session will be of interest to anyone seeking a candid and comprehensive discussion of legal and policy issues present in this new era of FCPA enforcement.

The event takes place on Thursday, October 2nd at noon at King & Spalding’s office (1700 Pennsylvania Avenue N.W. Washington, D.C.). There is no charge for this event, but pre-registration is required. If you would like to attend, please send your name and contact information to Sylvia Gates at sgates@kslaw.com.  For additional information, see here.

Ripples

My recent article “Foreign Corrupt Practices Act Ripples” highlights how settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from FCPA scrutiny or enforcement in this new era.

Regarding those ripples, Canada’s Globe and Mail reports:

“Hewlett-Packard Co., one of the leading technology suppliers to the Canadian government, is facing a possible 10-year ban on selling products and services to Ottawa in the wake of a high-profile U.S. bribery conviction. The recent criminal conviction, involving bribes paid to Russian government officials, marks the first major test of strict new Canadian integrity rules quietly introduced in March by Public Works and Government Services. Under the new regime, companies face an automatic ban on future government contracts if they or any of their affiliates are convicted of a list of various crimes, such as bribery, even if those crimes occurred outside Canada. “The department is reviewing the recent U.S. court decision regarding HP Russia and is examining the impact of this court decision on our current and future business with HP Canada,” confirmed Alyson Queen, communications director for Public Works Minister Diane Finley. The department will conduct its review “as quickly as possible,” Ms. Queen insisted, adding that the government is “committed to doing business with suppliers who respect the law and act with integrity, including affiliates of suppliers.”

The main point of “Foreign Corrupt Practices Ripples” was described above.  However, the article also states:

“This Article accepts the fact that FCPA scrutiny and enforcement results in many other ripples in this new era. Yet, throughout this Article many questions are posed regarding the legitimacy of certain ripples. Moreover, while it is beyond the focus of this Article, it must nevertheless be highlighted that because of the many ripples of FCPA enforcement, it is important that FCPA enforcement be subjected to meaningful judicial scrutiny and that enforcement actions represent legitimate instances of provable FCPA violations, not merely settlements entered into for reasons of risk aversion. This would seem like an obvious statement. However, the reality is that the majority of corporate FCPA enforcement actions in this new era are based on aggressive and controversial enforcement theories, yet resolved via non-prosecution and deferred prosecution agreements (NPAs / DPAs) not subjected to any meaningful judicial scrutiny by risk-averse business organizations mindful of the adverse consequences of putting the enforcement agencies to its burden of proof in an adversarial proceeding.”

Perhaps Canadian authorities should review this prior post “HP Enforcement Action – Where to Begin.”  The post begins:

“Where to begin? That is the question when analyzing last week’s $108 million Foreign Corrupt Practices Act enforcement action against HP and related entities.  (See here). Should the title of this post have been “The FCPA’s Free-For-All Continues”? Should the title have been “HP = Hocus Pocus” (as in look what the enforcement agencies pulled out their hats this time)? Should the title have been “Warning In-House and Compliance Professionals:  This Post Will Induce Mental Anguish”? Unable to arrive at the best specific title for this post, I simply picked the generic “Where to Begin?” In short, if the HP enforcement action does not leave you troubled as to various aspects of FCPA enforcement you: (i) may not be well-versed in actual FCPA legal authority; (ii) don’t care about the rule of law; or (iii) somehow derive satisfaction from government required transfers of shareholder money to the U.S. treasury regardless of theory. Least there be any misunderstanding, let me begin this post by stating that the enforcement actions against HP Poland, HP Russia and HP Mexico allege bad conduct by certain individuals –  a “small fraction of HP’s global workforce” to use the exact words of the DOJ. As to that “small fraction,” those individuals should be held accountable for their actions by relevant law enforcement authorities. However, as to the actual defendants charged in the enforcement actions – HP Russia, HP Poland and HP Mexico in the DOJ actions – and HP in the SEC administrative proceeding – there are actual legal elements that must be met and there is also prior enforcement agency guidance that ought to be followed.  The entire credibility and legitimacy of the DOJ and SEC’s FCPA enforcement programs depend on these two basics points.”

The Odd Dynamic

I have consistently stated (see here for the most recent iteration) that, based on recent judicial decisions, an odd dynamic exists between application of Dodd-Frank’s anti-retaliation provisions and Dodd-Frank’s whistleblower bounty provisions. As noted in the recent post concerning the Second Circuit’s decision in Liu Meng-Lin v. Siemens, courts have held that the former provisions lack extraterritorial effect while acknowledging that a foreign national could receive a bounty under the whistleblower provisions.

The odd dynamic is front-and-center in the SEC’s recent announcement of “an expected award of more than $30 million to a whistleblower who provided key original information that led to a successful SEC enforcement action.”  According to the release,  “the award will be the largest made by the SEC’s whistleblower program to date and the fourth award to a whistleblower living in a foreign country, demonstrating the program’s international reach.”

In the release, Sean McKessy, Chief of the SEC’s Office of the Whistleblower states:

“This award of more than $30 million shows the international breadth of our whistleblower program as we effectively utilize valuable tips from anyone, anywhere to bring wrongdoers to justice.  Whistleblowers from all over the world should feel similarly incentivized to come forward with credible information about potential violations of the U.S. securities laws.”

Regarding the odd dynamic, the SEC’s order states:

“We believe an award payment is appropriate here notwithstanding the existence of certain extraterritorial aspects of Claimant’s application. See generally Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247, 266 (2010) (discussing analytical framework for determining whether an application of a statutory provision that involves certain foreign aspects is an extraterritorial or domestic application of the provision; explaining that it is a domestic application of the provision if the particular aspect that is the “focus of congressional concern” has a sufficient U.S. territorial nexus); European Community v. RJR Nabisco, Inc., F.3d , 2014 WL 1613878, *10 (2d Cir. Apr. 23, 2014) (applying Morrison framework and finding that “[i]f domestic conduct satisfies every essential element to prove a violation of a United States statute that does not apply extraterritorially, that statute is violated even if some further conduct contributing to the violation occurred outside the United States.”). In our view, there is a sufficient U.S.  territorial nexus whenever a claimant’s information leads to the successful enforcement of a covered action brought in the United States, concerning violations of the U.S. securities laws, by the Commission, the U.S. regulatory agency with enforcement authority for such violations.  When these key territorial connections exist, it makes no difference whether, for example, the claimant was a foreign national, the claimant resides overseas, the information was submitted from overseas, or the misconduct comprising the U.S. securities law violation occurred entirely overseas. We believe this approach best effectuates the clear Congressional purpose underlying the award program, which was to further the effective enforcement of the U.S. securities laws by encouraging individuals with knowledge of violations of these U.S. laws to voluntarily provide that information to the Commission. See S. Rep. No. 111-176 at 110 (2010) (“to motivate those with inside knowledge to come forward and assist the Government to identify and prosecute persons who have violated the securities laws ….”). Finally, although we recognize that the Court of Appeals for the Second Circuit recently held that there was an insufficient territorial nexus for the anti-retaliation protections of Section 21F(h) to apply to a foreign whistleblower who experienced employment retaliation overseas after making certain reports about his foreign employer, Liu v. Siemens, F.3d , 2014 WL 3953672 (2d Cir. Aug. 14, 2014), we do not findthat decision controlling here; the whistleblower award provisions have a different Congressional focus than the anti-retaliation provisions, which are generally focused on preventing retaliatory employment actions and protecting the employment relationship.”

Scrutiny Alerts and Updates

BHP Billiton

In its most recent annual report the company stated:

“As previously disclosed, BHP Billiton received requests for information in August 2009 from the US Securities and Exchange Commission (SEC). Following that request, the Group commenced an internal investigation and disclosed to relevant authorities evidence that it has uncovered regarding possible violations of applicable anticorruption laws involving interactions with government officials. The issues relate primarily to matters in connection with previously terminated exploration and development efforts, as well as hospitality provided as part of the Company’s sponsorship of the 2008 Beijing Olympics. The Group is currently discussing a potential resolution of the matter. As has been publicly reported, the Australian Federal Police has indicated that it has commenced an investigation and the Group continues to fully cooperate with the relevant authorities. In light of the continuing nature of the investigations, it is not appropriate at this stage for BHP Billiton to predict outcomes.”

General Cable Corp.

General Cable Corporation (a Kentucky-based company involved in the development, design, manufacture, marketing and distribution of copper, aluminum and fiber optic wire and cable products and systems for the energy, industrial, specialty, construction and communications markets) recently disclosed:

“We have been reviewing, with the assistance of external counsel, certain commission payments involving sales to customers of our subsidiary in Angola. The review has focused upon payment practices with respect to employees of public utility companies, use of agents in connection with such payment practices, and the manner in which the payments were reflected on our books and records. We have determined at this time that certain employees in our Portugal and Angola subsidiaries directly and indirectly made payments at various times from 2002 through 2013 to officials of Angola government owned public utilities that raise concerns under the FCPA and possibly under the laws of other jurisdictions. We also have been reviewing, with the assistance of external counsel, our use and payment of agents in connection with our Thailand and India operations, which may have implications under the FCPA. We have voluntarily disclosed these matters to the SEC and the United States Department of Justice (“DOJ”) and have provided them with additional information at their request. The SEC and DOJ inquiries into these matters are ongoing. We continue to cooperate with the DOJ and the SEC with respect to these matters. We are implementing a screening process relating to sales agents that we use outside of the United States, including, among other things, a review of the agreements under which they were retained and a risk-based assessment of such agents to determine the scope of due diligence measures to be performed by a third-party investigative firm. However, this screening process may not be effective in preventing future payments or other activities that may raise concerns under the FCPA or other laws. At this time, we are unable to predict the nature of any action that may be taken by the DOJ or SEC or any remedies these agencies may pursue as a result of such actions. Any determination that our operations or activities are not in compliance with existing laws or regulations could result in the imposition of substantial fines, civil and criminal penalties, and equitable remedies, including disgorgement and injunctive relief. Because our review regarding commission payment practices and our use and payment of agents described above is ongoing, we are unable to predict its duration, scope, results, or consequences. Dispositions of these types of matters can result in modifications to business practices and compliance programs, and in some cases the appointment of a monitor to review future business and practices with the objective of effecting compliance with the FCPA and other applicable laws.”

In the first trading day after the disclosure, the company’s stock dropped 6.4% to 17.74.

Embraer-Related

As highlighted in this previous post, Brazil based Embraer (one of  the world’s largest manufacturer of commercial jets with shares traded on the New York Stock Exchange) has been under FCPA scrutiny since 2010.

The Wall Street Journal reports:

“Brazilian authorities have filed a criminal action against eight Embraer employees accusing them of bribing officials in the Dominican Republic in return for a $92 million contract to provide the country’s armed forces with attack planes.”

According to the article:

“[The DOJ and SEC] are also investigating the company’s dealings in the Dominican Republic and elsewhere and have provided their Brazilian counterparts with evidence, according to a request last year for legal assistance from Brazilian prosecutors.

[…]

Brazilian prosecutors filed the 31-page complaint in a criminal court in Rio de Janeiro in August, the first step in a criminal prosecution. A spokesman for the Brazilian prosecutors’ office declined to comment on the case.

The complaint alleges that Embraer sales executives agreed to pay a $3.5 million bribe to a retired Dominican Air Force colonel, who then leaned on legislators to approve the deal and a financing agreement between the Dominican Republic and the National Economic and Social Development Bank. The sale was completed and the aircraft were delivered.

The retired colonel, Carlos Piccini Nunez, was serving as the Dominican Republic’s director of special projects for the armed forces in 2008, around the time of the contract negotiations. The contract provided the Dominican Republic with eight Embraer Super Tucanos, turboprop attack support aircraft that have been a darling of air forces in developing countries for their low maintenance and affordability.

[…]

The criminal complaint alleges that an Embraer vice president for sales, Eduardo Munhos de Campos, promised to pay the bribe, and that he was assisted in arranging the payments by Orlando Jose Ferreira Neto, another vice president; Embraer regional directors Acir Luiz de Almeida Padilha Jr., Luiz Eduardo Zorzenon Fumagalli and Ricardo Marcelo Bester ; and managers Albert Phillip Close, Luiz Alberto Lage da Fonseca and Eduardo Augusto Fernandes Fagundes.”

Goldman Sachs

The company was recently the focus of this Wall Street Journal article which began:

“A yearslong probe of Goldman Sachs Group’s ties to Libya’s sovereign-wealth fund is focusing on an internship and other perks allegedly offered by the Wall Street bank to win business from the Gadhafi regime, according to people familiar with the matter. The Securities and Exchange Commission is reviewing the New York-based bank’s decision in June 2008 to hire as an intern the brother of Mustafa Zarti, then deputy chief of the Libyan Investment Authority, the people said. The move came after Goldman entered into more than $1 billion worth of trades with the authority, and just as the firm’s relationship with the Libyan fund had begun to sour. The investigators are also reviewing why the brother, Haitem Zarti, was allowed to remain at the firm for almost a year, long after most Wall Street internships last, the people added.”

AgustaWestland / Finmeccanica Related

The Wall Street Journal goes in-depth into the Italian trial of Giuseppe Orsi, former CEO of AgustaWestland – a unit of Finmeccanica Spa, concerning bribery allegations in India. As highlighted in this previous post, Finmeccanica, which is approximately 30% owned by the Italian government, has ADRs registered with the SEC and AgustaWestland does extensive business in the U.S. (see here), including with the U.S. government.

*****

A good weekend to all.

Friday Roundup

By on February 15, 2013 in Brookfield Asset Management, Compliance, Compliance Defense, EADS, Enforcement Agency Speeches, ENI, Facilitating Payments, Finmeccanica, Foreign Official, Internal Controls, NCR Corp., Neither Admit or Deny

From the SEC Chairman, Congress is capable, adding to the list, scrutiny alerts, and for the reading stack.  It’s all here in the Friday Roundup.

From the SEC Chairman

SEC Chairman Elisse Walter stated as follows earlier this week (see here) in opening a Foreign Bribery and Corruption Training Conference for law enforcement officials from around the world.

“[W]e have found that corrupt practices by a registered company are generally indicators of larger problems within the business – problems with the potential to harm that business’s shareholder-owners.  Bribery and other corrupt practices may result in accounting fraud and falsified disclosures where shareholders are not getting an accurate picture of a company’s finances in their regulatory filings.  Bribery means losing control of – or deliberately falsifying – books and records.  Often, key executives or board members are kept in the dark, limiting their ability to make informed decisions about the company’s business. Obviously, engaging in corrupt practices means weakening or circumventing internal control mechanisms, leaving a company less able to detect and end not just corruption but other questionable practices. A company that has lost its moral compass is in grave danger of losing its competitive roadmap, as well – while shareholders are kept in the dark.”

Congress Is Capable

Well, at least as to certain issues.

Such as introducing and passing laws that expressly describe state-owned entities (“SOEs”).  In reading my historical account of the FCPA’s legislative history, “The Story of the Foreign Corrupt Practices Act” or my “foreign official” declaration here, you will learn that despite being aware of SOEs, despite exhibiting a capability for drafting a definition that expressly included SOEs in other bills, and despite being provided a more precise way to describe SOEs, Congress chose not to include such definitions or concepts in S. 305, the bill that ultimately became the FCPA in December 1977.

This prior post highlighted Congress’s capability in capturing SOEs in Dodd-Frank Section 1504 and along comes another example which demonstrates that Congress is capable of legislating as to SOEs.  Recently, H.R.491 – the Global Online Freedom Act of 2013 was introduced in the House.  The purpose of the bill is “To prevent United States businesses from cooperating with repressive governments in transforming the Internet into a tool of censorship and surveillance, to fulfill the responsibility of the United States Government to promote freedom of expression on the Internet, to restore public confidence in the integrity of United States businesses, and for other purposes.”

The bill defines “foreign official” as follows.

The term ‘foreign official’ means– (A) any officer or employee of a foreign government or of any department; and (B) any person acting in an official capacity for or on behalf of, or acting under color of law with the knowledge of, any such government or such department, agency, state-owned enterprise, or instrumentality.” (emphasis added).

It is a basic premise of statutory construction that Congress is presumed not to use redundant or superfluous language.  Granted, H.R.491 is not yet law, but let’s assume it becomes law as introduced.   If instrumentality includes SOEs (as the enforcement agencies maintain), then Congress will violate this legislative maxim by using redundant or superfluous language in H.R. 491.

Adding To The List

The Heritage Foundation recently published (here) a speech by Peter Hansen titled “Unleashing the U.S. Investor in Africa: A Critique of U.S. Policy Toward the Continent.”  Hansen critiqued U.S. government thinking about African development, including Ambassador statements that it is important to raise incentives for overly “cautious” U.S. companies to invest in Africa.  Hansen stated that this “mistaken assumption” assumed that “mainstream U.S. companies will be motivated more by the prospect of higher rewards than by the diminishment of risks.”  He noted that this view is not just wrong, but counterproductive and stated as follows.

“The problem with Africa is not a lack of attractive prospects, but rather Africa’s risk profile. With few exceptions, sensible U.S. direct investors (that is, those who run projects, not just take portfolio positions) have steered clear of Africa for the simple reason that Africa’s risks often exceed their risk tolerance. The African market has been left largely to non-Americans, to the unsophisticated seekers of El Dorado, and to a legion of “chancers” who seek sweetheart deals with no money down. The resulting tales of woe coming out of Africa, due largely to poor investment planning or thwarted get-rich-quick schemes, serve wrongly to tarnish Africa’s reputation.  By exclusively raising incentives and failing to reduce risks, Ambassador Carson’s approach simply encourages those already prone to failure, without inspiring broad-spectrum investment by serious U.S. companies. Such bedrock U.S. firms do not need higher incentives. Africa already presents high-return opportunities. What serious U.S. firms need instead is for Africa’s risks to be reduced. Rewards that cannot be obtained are, after all, just mirages. The easiest way for the U.S. government to reduce risks for U.S. investors in Africa is to provide them with legal protection.  The basic legal tools for protecting U.S. investors are double tax treaties (DTTs), often called double tax agreements (DTAs) and bilateral investment treaties (BITs).”

Query whether an FCPA compliance defense should be added to this list?  See here to download my article “Revisiting a Foreign Corrupt Practices Act Compliance Defense.”

Scrutiny Alerts and Updates

This previous post highlighted the scrutiny Brookfield Asset Management (a Toronto based global asset management company with shares traded on the NYSE) was facing in Brazil concerning allegations that its subsidiary paid bribes to win construction permits.  As the Wall Street Journal recently reported (here), Sao Paulo, Brazil prosecutors filed civil charges against the company’s Brazilian subsidiary, two of its top executives and a former employee.  The prosecutor is quoted in the WSJ as saying that “Brookfield has created a high system of bribery in order to obtain approval for its projects quickly and with irregularities.”  A spokesman for the company stated as follows.  “These are unproven allegations made by a former employee.  We don’t believe Brookfield did anything wrong and we are cooperating with authorities.”

This previous post highlighted scrutiny of EADS subsidiary, GPT Special Management Systems in the U.K.  The Financial Times recently reported here that the FBI is also probing corruption allegations against GPT “relating to a contract in Saudi Arabia.”  The article states as follows.  “The FBI has interviewed a witness and taken possession of documents in connection with allegations that GPT bribed Saudi military officials with luxury cars and made £11.5m of unexplained payments – some via the US – to bank accounts in the Cayman Islands.”

This recent Reuters article reports that Italian police arrested the head of defense group Finmeccanica SpA (Giuseppe Orsi) on a warrant alleging that he paid bribes to win an Indian contract.  According to the report, Prosecutors accuse Orsi of paying bribes to intermediaries to secure the sale of 12 helicopters in a 560 million euro ($749 million) deal when he was head of the group’s AgustaWestland unit.  Finmeccanica, which is approximately 30% owned by the Italian government, has ADRs registered with the SEC and AgustaWestland does extensive business in the U.S. (see here), including with the U.S. government.  According to this Wall Street Journal article, Italian prosecutors are also “investigating [Finmeccanica] on suspicion that it engaged in corrupt activities to win various types of contracts in Latin America, Asia, and at home.”

This recent Bloomberg article reports that “Eni SpA Chief Executive Officer Paolo Scaroni is being investigated for alleged corruption in an Italian probe of contracts obtained by its oil services company, Saipem SpA, in Algeria.”  Eni has ADRs registered with the SEC.  In 2010, Eni resolved (see here) an SEC FCPA enforcement action concerning Bonny Island, Nigeria conduct.  In resolving the action, Eni consented to the entry of a court order permanently enjoining it from violating the FCPA’s books and record and internal controls provisions.

NCR Corporation stated in a recent release here, in pertinent part, as follows concerning its FCPA scrutiny.

“Update regarding OFAC and FCPA Investigations

The Company and the Special Committee of the  Company’s Board of Directors have each completed their respective internal investigations regarding the anonymous allegations received from a purported whistleblower regarding certain aspects of the Company’s business practices in China, the Middle East and Africa. The principal allegations relate to the Company’s compliance with the Foreign Corrupt Practices Act (“FCPA”) and federal regulations that prohibit U.S. persons from engaging in certain activities in Syria.

[…]

The Company has made a presentation to the staff of the Securities and Exchange Commission(“SEC”) and the U.S. Department of Justice (“DOJ”) providing the facts known to the Company related to the whistleblower’s FCPA allegations, and advising the government that many of these allegations were unsubstantiated.  The Company’s investigations of the whistleblower’s FCPA allegations identified a few opportunities to strengthen the Company’s comprehensive FCPA compliance program, and      remediation measures were proposed and are being implemented.  As previously disclosed, the Company is responding to a subpoena of the SEC and requests of the DOJ for documents and information related to the FCPA, including matters related to the whistleblower’s FCPA allegations.”

Investigating the purported whistleblower’s allegations has been a costly exercise for NCR.  In a recent earnings conference call, company CFO Bob Fishman stated that the “overall cost” has been approximately $4.8 million.

Reading Stack

See here for the New York Times DealBook writeup of oral arguments in SEC v. Citigroup – an appeal which focuses of Judge Jed Rakoff’s concerns about common SEC settlements terms, including neither admith nor deny.

FCPA enforcement statistics are over-hyped for compliance assessments says Ryan McConnell (Morgan Lewis) in this Corporate Counsel article.  In this Corporate Counsel article, McConnell and his co-author compare 2012 to 2011 numbers in terms of facilitation payments data found in corporate policies.

The three types of employees one encounters when conducting FCPA training – here from Alexandra Wrage (President, Trace International).

If for no other reason, because of the picture associated with this recent post on thebriberyact.com.

*****

A good weekend to all.

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