Rate This – Nielsen Company Accused Of FCPA Violations In Civil Suit, Plus Olympus Under Scrutiny
Approximately 100 companies are publicly known to be the subject of FCPA scrutiny. This figure is likely a conservative estimate given that little is often known of private company FCPA scrutiny until an enforcement action is announced. For instance, other than those involved, who knew that NORDAM Group or Data Systems & Solutions (two companies that recently resolved enforcement actions – see here and here) were the subject of FCPA scrutiny?
Add two more companies to the list: Nielsen Company and Olympus Corp.
Nielsen
It is not the traditional way companies become the subject of the FCPA scrutiny, but then again it is not unheard of for FCPA scrutiny to begin with a civil complaint.
Last week in a lengthy civil complaint (here) filed by New Delhi Television Limited (“NDTV”) in New York State Court, NDTV (which describes itself as India’s first and most respected private broadcaster of news, current affairs and lifestyle television and a pioneer in India’s news television) accused Nielsen and a host of related entities and individuals of “negligence, gross negligence, false representations, prima facie tort and negligence per se (based on violations of the Foreign Corrupt Practices Act and the Dutch Corporate Governance Code).”
The 37th cause of action against Nielsen is for negligence per se arising from violations of the FCPA and the complaint states in full as follows.
“The anti-bribery provisions of the Foreign Corrupt Practices Act … prohibit U.S. companies from giving anything of value, either directly or indirectly, to, inter alia, a foreign politician so as to induce such foreign politician to do or omit to do any act in violation of the lawful duty of such foreign politician; or to secure any improper advantage, or to continue the company’s business. Accordingly, since the formation of TAM [Television Audience Management, an Indian company which is a joint venture between a Nielson entity and others], Nielsen had a duty to comply with the provisions of the FCPA, so as to prevent the rampant corruption that has existed and currently exists within TAM. Nielsen has known or should have known, that politicians directly and indirectly own approximately one-third of the news channels in India; that approximately sixty-percent (60%) of Indian cable operations are owned, directly or indirectly, by politicians or their proxies; and that, at all relevant times, there were high levels of corruption in the Indian television ratings industry and in TAM’s operations. Nonetheless, since the inception of TAM, Nielsen has allowed TAM, using the Nielsen Process and/or Nielsen’s proprietary property and/or Nielsen’s name and logo, to publish corrupt data, which was known to be corrupt, which benefited politicians. Indeed, Nielsen knew or should have known and/or consciously disregarded the fact that the leakage of panel home identities yielded hundreds of millions of dollars for the benefit of several politicians. This has enabled TAM, Nielsen and Kantar [another entity in the joint venture] to maintain its monopoly power in India and/or steady revenues. The failure to stop publication of corrupt data continues to benefit politicians, TAM, Nielsen and Kantar. Since the formation of TAM, Nielsen has had intimate actual knowledge of such violations of the FCPA; knew of several red flags giving rise to an inference of actual knowledge of such violations of the FCPA; was willfully blind to such violations of the FCPA; and consciously avoided such violations of the FCPA. Indeed, Robert Messemer, Chief Global Security Officer for The Nielsen Company, and Paul Donato, Executive Vice President and Chief Research Officer for Nielsen, during the course of their several visits to India commencing January 2012, meetings there as described above, and in the course of investigations during and subsequent to such visits and meetings, had actual knowledge of, and/or consciously disregarded FCPA violations, including, but not limited to, representations made in person to them by the whistleblower whom they personally interviewed on February 28, 2012 …, that, at the very least, one of the parties engaged in obtaining and using highly sensitive identities of panel homes was a television network owned by a well known Indian politician. As a result of Nielsen’s willful disregard of such undeniable corrupt practices, such foreign politicians derived benefits by, inter alia, manipulation and skewing of TAM data in favor of broadcast channels and cable operations owned and/or operated by such local politicians or their proxies, from manipulation of rates based on knowledge of corrupt data and identity of panel homes, and various other means. Nielsen’s complete and utter failure and/or refusal to stop publication of manipulated TAM data has allowed such politicians to continue to benefit from the publication of such data. Thus, benefits were provided to those politicians, and TAM and/or Nielsen continued to enjoy the benefits of, inter alia, continued operations as a monopoly in the Indian market, and steady revenues. Such acts and omissions by Nielsen constitute violations of the FCPA by Nielsen, and, as a result, negligence per se.”
For additional coverage of the complaint, see here from Courthouse News Service, here from the Hollywood Reporter and here from International Business Times.
Olympus
Yesterday, Bloomberg reported (here) that Olympus Corp., the world’s largest maker of endoscopes, uncovered irregularities at a doctor-training program in Brazil that may have violated U.S. law and reported them to the Department of Justice.” According to the article, “at issue in Brazil may be the way the company handled doctors’ expenses for travel, meals or entertainment.” The article quotes company Chairman Yasuyuki Kimoto as saying “we might agree to some sort of violation of the Foreign Corrupt Practices Act in Brazil. We understand DOJ is trying to gather lots of information on us.”
How can Tokyo based Olympus become subject to the FCPA? For starters, the company has Level 1 ADRs traded on the so-called “Pink Sheets.” Also, as noted in the Bloomberg article, the company has a U.S. based subsidiary and if it was involved in the conduct at issue, the DOJ may take the position that the subsidiary was acting as an agent of the parent company. Also, as I suggest in the Bloomberg article, under the dd-3 prong of the FCPA added by the 1998 amendments, any company can be subject to the FCPA’s anti-bribery provisions to the extent “while in the territory of the U.S.” conduct occurs in furtherance of the scheme. As noted in this prior post, the DOJ has asserted expansive theories under dd-3. Notwithstanding the DOJ’s dd-3 setback in the Africa Sting case (also noted in the prior post) it is likely to continue to assert such expansive theories until challenged.
Olympus’s FCPA scrutiny would appear to be based on the untested (and in the minds of many – see here – dubious) enforcement theory that anyone employed by a state-run health care system is a “foreign official” under the FCPA. Several prior enforcement actions, including against medical device companies, (see here for instance) have been based on this theory.
Friday Roundup
Out with the tide, a former DOJ Fraud Section Chief speaks on voluntary disclosure, guidance issues, will candy fall from the pinata, schooled in the FCPA, a Section 1504 development, and “Minegolia.”
Tidewater Derivative Complaint Dismissed
As highlighted in this previous post, in November 2010 Tidewater Inc. was one of several companies to resolve a “CustomsGate” case. The conduct at issue focused on Azeri tax officials and Nigerian temporary import permits and the company resolved DOJ and SEC enforcement actions by agreeing to pay $15.7 million in fines and penalties.
As if on cue in this new era of FCPA enforcement, along came the private plaintiff firms representing shareholders who filed a derivative complaint alleging that officers and members of the Board of Directors of Tidewater breached their fiduciary duties “in that they: (1) knew or recklessly disregarded the fact that employees, representatives, agents and/or contractors were paying, had paid and/or had offered to pay bribes to Azerbaijani and Nigerian government officials to obtain favorable treatment for Tidewater; (2) caused Tidewater to pay bribes and to disguise the bribe payments as legitimate expenses in Tidewater’s books and financial disclosures; and (3) failed to maintain adequate internal controls to ensure compliance with the FCPA and Exchange Act.”
Earlier this week, the case was swept out with the tide as U.S. District Court Judge Jane Triche Milazzo dismissed the complaint – see here for the decision. In short, Judge Milazzo found that “Plaintiff did not adequately plead demand futility.” Judge Milazzo utilized various tests in reaching her decision such as director interest and independence and whether the board could impartially consider the merits of the demand without being influenced by improper considerations.
As to interest, Judge Milazzo stated as follows.
“This Court finds that the Complaint is completely devoid of any allegations of an interested director. There is no allegation that any director appeared on both sides of a transaction or expected to derive a personal financial benefit from it. Nowhere in the Complaint can it be found that any one of the directors, much the less a majority of them, benefitted from the bribes themselves, benefitted from failing to establish and maintain adequate internal controls, benefitted from enforcing policies and programs designed to prevent violations, benefitted from improperly recorded payment of bribes in Tidewater’s books and records or benefitted from inadequately training their employees, agents, representatives and/or contractors with respect to compliance with the FCPA.”
As to alleged director participation or knowledge , Judge Milazzo stated that the “Complaint falls woefully short of pleading facts that are sufficient to show that there was any knowledge or conscious disregard on behalf of the directors.”
As to whether the directors exhibited bad faith sufficient to overcome business judgment rule presumptions, Judge Milazzo stated as follows. “While Plaintiff’s allegations are sufficient to show that Tidewater was evidently violating both the FCPA and the Exchange Act, nowhere in the Complaint do Plaintiff’s allegations meet the specificity to show that the Individual Defendants were acting with the intent to violate these laws. ‘[T]he mere fact that a violation occurred does not demonstrate that the board acted in bad faith. Alleging that ‘upon information and belief’ the ‘Headquarters’ made the decision to avoid tax assessments in violation of the FCPA falls woefully short of the pleading requirements. Nowhere can this Court find who made this decision, how this decision was made or that there was an intent to violate any law. Moreover, the Court finds it significant that Tidewater’s directors voted and voluntarily initiated an FCPA investigation and advised the federal government of their violations before the government even suspected any violations.”
Tyrell on Voluntary Disclosure
You know the talking points. The DOJ wants companies to voluntarily disclose, not ifs, ands or buts about it. It’s interesting though how this becomes less of a black and white issues when individuals leave the DOJ.
In this recent Q&A in The Metropolitan Corporate Counsel, Steven Tyrell (a former DOJ Fraud Section Chief and current partner at Weil Gotshal – here) was asked the following question – “what is the role of voluntary reporting in establishing a good relationship with the regulatory and enforcement authorities?”
He stated as follows.
“In the first instance, if a company has a legal obligation to disclose – for example, government contractors are obliged to disclose fraud – then the analysis begins and ends there. Assuming there is no legal obligation that compels disclosure or no imminent threat of disclosure by an outside party, such as a newspaper, then I typically advise clients to take credible allegations of wrongdoing seriously, look into those allegations in a manner that is appropriate under the circumstances, and assess the nature and extent of the company’s exposure and the pros and cons of disclosure. Then, and only then, should a disclosure be made if it is in the best interest of the company – or, for a public company, if the securities laws require it. Of course, it often will not be in a company’s best interest to disclose if, for example, the allegations prove not to be credible or if it is unclear whether the conduct even amounts to a violation of law. Under those circumstances, a disclosure could unnecessarily embroil the company in a lengthy and costly government investigation and result in other repercussions such as triggering civil litigation and harm to a company’s reputation that could otherwise be avoided. It’s a challenging calculus. I can tell you from past experience that there are companies that have strong reputations for compliance with regulators and others that do not. However, the fact that a company doesn’t disclose a problem that ultimately comes to DOJ’s attention is not necessarily going to damage the company’s credibility with DOJ. Regulators recognize that not every allegation should be of interest to them – and, frankly, having counsel that knows when they’ll be interested and when they won’t is really important.”
Guidance Issues
As highlighted in this previous post, soon after Assistant Attorney General Lanny Breuer announced in November 2011 that FCPA guidance would be forthcoming in 2012, Senator Grassley sought guidance on the guidance and asked Attorney General Holder several follow-up questions for the record. For a copy of Holder’s responses, see here.
In this previous post, among others, I commented that non-binding DOJ guidance is not the best way to accomplish real and meaningful FCPA reform.
Thus, I completely agree with former DOJ Deputy Attorney General George Terwilliger and former DOJ attorney and Senate counsel Matthew Miner (both currently at White & Case, see here and here) when they state as follows in this article.
“The fact that the Justice Department recognizes the need for such guidance underscores the existence of blurry lines and fuzzy standards surrounding the FCPA. US businesses trying to compete successfully in the international commercial arena deserve better. Justice Department ‘guidance’ is neither enough, nor is it properly the role of prosecutors to be definitive interpreters of ambiguities in criminal laws. Congress writes the laws and, as the US Supreme Court has firmly established, has a responsibility to set clear standards for what is permissible and what is not. It should not stand aside in deference to the Justice Department’s plan to craft guidance, especially when that guidance will have no effect in court.”
Yara Fertilizer
It has been said before that anytime a foreign company is the subject of a corruption probe, the U.S. enforcement agencies are like children at a birthday party waiting for some candy to fall from the pinata. Think what you will of the analogy.
The Wall Street Journal recently reported (here) that “Norwegian fertilizer producer Yara International ASA’s chief executive, Jorgen Ole Haslestad, apologized Friday to the company’s employees after an investigation uncovered millions of dollars in ‘unacceptable’ payments in India and Switzerland, as well as ‘unacceptable offers of payments’ in Libya.” According to the article, the “unacceptable offers of payments” in Libya involve “a consultant related to the establishment of the company Libyan Norwegian Fertilizer Co., or Lifeco, in Libya, a joint venture with the Libyan National Oil Corp. and the Libyan Investment Authority.”
As noted on the company’s website here, Yara “has a sponsored Level 1 ADR program for American Depositary Receipts (ADRs), which represent ownership in shares of foreign (non-US) companies that trade on US financial markets.” Whether foreign companies, including those with Level 1 ADR’s can become subject to the FCPA, see this excellent piece “When Does an ADR Program Give U.S. Authorities FCPA Jurisdiction Over a Foreign Issuer?”
Time will tell if the candy falls.
Checking in on Wynn Resorts
Previous posts here, here and here focused on the Wynn-Okada dispute including Wynn’s $135 million charitable contribution to the University of Macau. On that topic, this recent Wall Street Journal article focused on the “web of political ties” between a Macau company paid by Wynn and government officials. Regarding Wynn’s FCPA compliance in expanding in Macau, company CEO Steve Wynn stated as follows. “This whole business of the Foreign Corrupt Practices Act—we were schooled in this.”
Final grade is pending.
Section 1504 Development
Several prior posts, see here for example, discussed Section 1504 of Dodd-Frank, the so-called Resource Extraction Disclosure Provisions and the long delay in SEC final rules. As noted in this Corruption Current post by Samuel Rubenfeld, the SEC recently announced here that on August 22nd, “the Commission will consider whether to adopt rules regarding disclosure and reporting obligations with respect to payments to governments made by resource extraction issuers to implement the requirements of Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
“Minegolia”
There has been only one FCPA enforcement concerning, at least in part, business conduct in Mongolia (see here for the 2009 UTStarcom action). This is hardly surprising, as few companies subject to the FCPA have traditionally engaged in business in the country. However, as noted in this recent Al Jazerra article, Mongolia or “Minegolia” as the country is sometimes called, “is undergoing a rapid transformation, due to its incredible resource wealth in minerals such as coal, copper, and gold.” At the same time, the article notes that “Transparency International placed Mongolia 120th out of 183 nations on its corruption perception index” and that “90 percent of Mongolians believe politicians are benefitting from ‘special arrangements’ with foreign enterprises over mining rights.”
*****
A good weekend to all.
The Latest Disclosures
A Friday focus on disclosures. The SEC asks Oracle – what about that FCPA issue, the SEC takes an interest in Libya, and yet another voluntary disclosure.
Oracle
As noted in this previous post, in September 2011 Joe Palazzolo and Samuel Rubenfeld broke the story in the Wall Street Journal, “U.S. Probes Oracle Dealings,” that “U.S. authorities are investigating whether Oracle Corp., one of the world’s largest software companies by sales, violated federal antibribery laws in its dealings abroad …”. According to the report, “agents in the FBI’s Washington field office and fraud prosecutors in the Justice Department’s Criminal Division are handling a criminal investigation, which has been underway for at least a year.” Palazzolo and Rubenfeld also report that the SEC is also investigating for possible civil violations. According to the report, “the agencies are examining whether Oracle employees or agents acting on the company’s behalf made improper payments in Africa in order to land sales of database and applications software.”
Since then, Oracle’s SEC filings have been silent as to any FCPA inquiry. The SEC wants to know why as demonstrated by this February Q&A between the SEC Division of Corporation Finance and Oracle filed by the company.
SEC: “We also note various news articles indicating that the company has been subject to investigations regarding possible Foreign Corrupt Practices Act violations for more than a year. Please tell us how you considered the guidance in paragraphs 50-3 through 50-5 of ASC 450-20-50 in evaluating the need to disclose these pending matters.”
Oracle Response: “We make a quarterly assessment of legal matters, including the matters referenced in the Staff’s inquiry above, to determine how those matters should be treated in the context of the accounting and disclosure requirements of paragraphs 50-3 through 50-5 of ASC 450-20-50. For those matters referenced above, we evaluated whether it was reasonably possible that a loss or a loss exceeding amounts already recognized may be incurred. We determined that the estimated ranges of additional losses for those matters referenced above, if any, either individually or in the aggregate, would not have a material effect on our consolidated financial position, results of operations or cash flows. Consequently, we believe our disclosures comply with the aforementioned guidance.”
ASC 450-20-50 you ask? ASC 450 is the former FASB 5 standard regarding gain and loss contingencies (i.e. when a company should record, disclose or not disclose certain contingencies).
Libya
Two foreign oil companies with ADRs traded on U.S. exchanges recently disclosed SEC scrutiny concerning conduct in Libya.
In this recent SEC filing, French oil company Total S.A. stated as follows.
“In June 2011, the SEC issued to certain oil companies – including, among others, TOTAL – a formal request for information related to their operations in Libya. TOTAL is cooperating with this non-public investigation.”
See here for a recent prior post concerning Total’s FCPA scrutiny in Iran.
In this recent SEC filing, Italian oil company Eni SpA stated as follows.
“On June 10, 2011 Eni received by the US SEC a formal judicial request of collection and presentation of documents (subpoena) related to Eni’ s activity in Libya from 2008 to 2011. The subpoena is related to an ongoing investigation without further clarifications nor specific alleged violations in connection to “certain illicit payments to Libyan officials” possibly violating the US Foreign Corruption Practice Act. At the end of December 2011, Eni received a request for the collection of further documentation aiming at integrating the subpoena previously received. Eni is fully collaborating with the US SEC.”
For more on the recent Libya disclosures, see here from Samuel Rubenfeld at Wall Street Journal Corruption Currents.
As highlighted in this prior post, in July 2010, Eni was a party in the DOJ/SEC’s Bonny Island Nigeria focused FCPA enforcement action which resulted in $365 million in combined fines and penalties.
Another Voluntary Disclosure
SL Industries (here – a New Jersey based designer, manufacturer and marketer of power electronics, motion control, power protection, and other related products) recently disclosed (here) as follows.
“The Company is conducting an investigation to determine whether certain employees of SL Xianghe Power Electronics Corporation, SL Shanghai Power Electronics Corporation and SL Shanghai International Trading Corporation, three of the Company’s indirect wholly-owned subsidiaries incorporated and operating exclusively in China, may have improperly provided gifts and entertainment to government officials. Based upon the initial investigation, which is ongoing, the preliminary estimate of the amounts of such gifts and entertainment does not appear to be material to the Company’s financial statements. There can be no assurance, however, that after further inquiry the actual amounts will not be in excess of what is currently estimated. Such estimate does not take into account the costs to the Company of the investigation or any other additional costs. The Company’s investigation includes determining whether there were any violations of laws, including the U.S. Foreign Corrupt Practices Act. Consequently, on March 29, 2012, the Company’s outside counsel contacted the DOJ and the SEC voluntarily to disclose that the Company was conducting an internal investigation, and agreed to cooperate fully and update the DOJ and SEC periodically on further developments. The Company has retained outside counsel and forensic accountants to assist in its investigation of this matter. Because the investigation is ongoing, the Company cannot predict at this time whether any regulatory action may be taken or any other adverse consequences may result from this matter.”
According to my tally, the new disclosures discussed above means that in the last six weeks, seven companies have newly disclosed FCPA scrutiny. See here for the prior post “The Sun Rose, a Dog Barked, and a Company Disclosed FCPA Scrutiny.” If SEC filings are your ideal form of pleasure reading, you can hardly wait to see what next week holds.
A good weekend to all.
Next Up – Smith & Nephew
[A new job has been posted to the Jobs Board – see here. Both job seekers and organizations seeking to hire individuals with FCPA or related experience will benefit from a wide selection of job listings, so please spread the word and send the job link to your HR department and professional contacts]
When Johnson & Johnson resolved its $70 million FCPA enforcement action in April 2011 (see here for the prior post) focused on foreign health care providers as “foreign officials”, I said (here) stay tuned for more as several more health care providers as “foreign official” enforcement actions were likely in the pipeline.
On the heels of the DOJ’s likely worst week ever enforcing the FCPA in individual enforcement actions, the DOJ and SEC announced parallel enforcement actions against medical devices maker Smith & Nephew Inc. (“S&N”) and Smith & Nephew plc. (“PLC”). PLC is a U.K. company with ADR shares traded on the New York Stock Exchange and S&N is a wholly-owned subsidiary of PLC headquartered in Memphis, TN.
Total fines and penalties were approximately $22.2 million ($16.8 million against S&N via a DOJ deferred prosecution agreement, and $$5.4 million against PLC via a settled SEC civil complaint).
DOJ
The DOJ enforcement action involved a criminal information (here) against S&N resolved through a deferred prosecution agreement (here).
Criminal Information
The information begins as follows. “Greece has a national healthcare system wherein most Greek hospitals are publily owned and operated. Health care providers who work at publicly-owned hospitals (“HCPs”) are government employees, providing health care services in their officials capacities. Therefore, such HCPs in Greece are “foreign officials” as that term in defined in the FCPA …”.
The conduct at issue focuses on S&N’s and Smith & Nephew Orthopaedics GmbH’s (“GmbH”) (a German company “reporting to S&N) relationship with the entities of the Greek Distributor (an “agent and distributor for S&N and GmbH in Greece”). According to the information, S&N and GmbH sold products to the entities “at a discount to the ‘list’ price and the Greek Distributor would re-selll to Greek HCPs and government hospitals at a profit.” The information also alleges that S&N and GmbH “would cover marketing expenses for [the] Greek Distributor, up to ten percent of sales.”
The information charges one count of conspiracy to violate the FCPA’s anti-bribery provisions and alleges that “the purpose of the conspiracy was to secure lucrative business with hospitals in the Greek public health care system by making and promising to make corrupt payments of money and things of value to publicly-employeed Greek HCPs.” According to the information, “S&N, certain of its executives, employees, and affiliates agreed to sell to [the] Greek Distributor at full list price, then pay the amount of the distributor discount – between 25 and 40 percent of the sales made by [the] Greek Distributor – to an off-shore shell company controlled by [the] Greek Distributor, in order to provide off-the-books funds for [the] Greek Distributor to pay cash incentives and other things of value to publicly-employed Greek HCPs to induce the purchase of S&N products, while concealing the payments.” According to the information, S&N “falsely recorded or otherwise accounted for the payments to the shell companies on its books and records as ‘marketing services’ in order to conceal the true nature of the payments in the consolidated books and records of S&N and GmbH.”
According to the information, “[i]n total, from 1998 to 2008, S&N, and its affiliates and employees, authorized the payment, directly or indirectly, of approximately $9.4 million to [the] Greek Distributor’s shell companies, some or all of which was used to pay cash incentives to publicly-employeed Greek HCPs to induce the purchase of S&N products.”
According to the information, in 1999 “the S&N Chief Financial Officer raised with S&N Legal questions from internal auditors about the payments to the Greek Distributor’s shell companies.” The information states that the Greece Sales Manager (a U.S. citizen based in Memphis who oversaw S&N sales in Greece) met with Legal Advisor (a U.S. citizen based in Memphis who was Senior Corporate Counsel for S&N) “to discuss issues with GmbH’s relationship with [the] Greek Distributor, during which the fact that surgeons in Greece were being paid to use medical devices products was discussed …”. The information states that thereafter, the Legal Advisor “briefed a more senior S&N lawyer on the issue …”.
Based on the allegations in the information and the SEC complaint discussed below, the Greek Distributor seems to be the same distributor/agent at issue in the previous Johnson & Johnson enforcement action.
The S&N information alleges that the “Greek Distributor traveled to Memphis, Tennessee and met with VP International (a U.S. citizen based in Memphis who served as Vice President for International Sales for S&N) and others regarding reductions in Greek government reimbursement rates for S&N products sold by [the] Greek Distributor” and that “during the meeting, [the] Greek Distributor proposed that the discount to [the] Greek Distributor be increased to account for the reimbursement reduction, without any reduction in the ‘marketing’ payments to the Shell Company.” According to the information, the Greek Distributor communicated with VP International and the Greece Sales Manager that his commission could not be reduced because he was “paying cash incentives right after each surgery.” According to the information, “S&N terminated all relationships with [the] Greek Distributor and related entities in June 2008.”
Based on the same core set of conduct, the information also charges one count of FCPA anti-bribery violations and one count of FCPA books and records violations.
DPA
The DOJ’s charges against S&N were resolved via a deferred prosecution agreement. Pursuant to the DPA, S&N admitted, accepted and acknowledged “that it is responsible for the acts of its officers, employees and agent, and wholly-owned subsidiaries.”
The term of the DPA is three years and it states that the DOJ entered into the agreement based on the following factors: (a) S&N investigated and disclosed to the DOJ and SEC the misconduct at issue; (b) S&N reported its findings to the DOJ and SEC; (c) S&N cooperated fully with the DOJ’s and SEC’s investigation; (d) S&N undertook remedial measures, including the implementation of an enhanced compliance program and agreed to undertake further remedial measures; (e)-(f) S&N agreed to continue to cooperate with the DOJ, and with foreign authorities, in any investigation of its directors, officers, employees, agents, consultants, subsidiaries, contractors and subcontractors relating to violations of the FCPA or other corrupt payments; (g) S&N “has cooperated and agreed to continue to cooperate with the DOJ in the DOJ’s investigations of other companies and individuals in connection with business practices overseas in various markets;” and (h) “were the DOJ to initiate a prosecution of S&N and obtain a conviction, instead of entering into this Agreement to defer prosecution, S&N would potentially be subject to exclusion from participation in federal health care programs pursuant to 42 USC 1320a-7(a).”
Pursuant to the DPA, the advisory Sentencing Guidelines range for the conduct at issue was $21 – $42 million. The DPA states as follows. “S&N agrees to pay a monetary penalty in the amount of $16.8 million, a 20 percent reduction off the bottom of the fine range. S&N and the DOJ agree that this fine is appropriate given S&N’s internal investigation, the nature and extent of S&N’s cooperation in this matter, and S&N’s extensive remediation.”
Pursuant to the DPA, S&N agreed to engage an independent compliance monitor “for a period of not less than 18 months” and to provide periodic reports to the DOJ regarding remediation and implementation of the enhanced compliance measures set forth by the monitor as described in an attachment to the DPA. As is customary in FCPA DPA’s, S&N agreed that it shall not make any public statement contradicting its acceptance of responsibility.
See here for the DOJ’s release. The DOJ release states as follows. “The matter is part of an investigation into bribery by medical device companies of physicians employed by government institutions.”
SEC
The SEC’s settled civil complaint (here) against PLC is based on the same core conduct as described above and “concerns violations of the [FCPA] by PLC through its subsidiaries to obtain sales for their medical device business.” In summary fashion, the SEC complaint alleges as follows. “From 1997 to June 2008, two of PLC’s subsidiaries engaged in a scheme with a distributor who made illicit payments to public doctors employed by government hospitals or agencies in Greece.” The complaint further alleges that PLC failed to “have an adequate internal control system in place to detect and prevent the illicit payments” and that PLC “improperly recorded these payments in its accounting books and records.” The complaint specifically alleges that PLC “failed to act on numerous red flags of bribery.” The complaint states as follows. “Among other things, even though PLC was aware that S&N and GmbH were conducting business in Greece and was aware of the heightened risks of the Greek market, PLC did not require proof of services rendered by Company A and B [entities associated with the Greek Distributor]. PLC failed to question the reasons for paying the Greek Distributor for Greek sales to accounts in the names of entities located outside of Greece. PLC failed to conduct due diligence on Company A and Company B. PLC also failed to conduct any audits of the transactions.”
Based on the above allegations, the SEC complaint charges FCPA anti-bribery, books and records and internal controls violations.
As stated in the SEC’s release (here), without admitting or denying the SEC’s allegations, PLC consented to entry of a court order permanently enjoining it from future FCPA violations and ordering it to pay $4,028,000 in disgorgement and $1,398,799 in prejudgment interest.
The SEC’s release states as follows. “The SEC’s investigation into the medical device industry is continuing.” In the release, Kara Brockmeyer (Chief of the SEC’s FCPA Unit) stated as follows. “Smith & Nephew’s subsidiaries chose a path of corruption rather than fair and honest competition. The SEC will continue to hold companies liable as we investigate the medical device industry for this type of illegal behavior.”
In this release, Smith & Nephew stated as follows. “Smith & Nephew and other medical device companies were asked by the SEC and DOJ in late 2007 to look into possible improper payments to government-employed doctors and voluntarily report any issues. Smith & Nephew found and reported evidence of improper payments by a distributor in Greece that had been appointed by Smith & Nephew subsidiaries and was terminated in 2008. The individuals implicated are no longer associated with the Group. In the release, Olivier Bohuon (CEO of Smith & Nephew) states as follows. “We have what I believe to be a world-class compliance programme, having enhanced it significantly since this investigation began in 2007. These legacy issues do not reflect Smith & Nephew today. But they underscore that we must remain vigilant every place we do business and let nothing compromise our
commitment to integrity.”
Paul Gerlach (here – Sidley & Austin, the former Associate Director of the SEC’s Enforcement Division) and Angela Burgess (here – Davis Polk & Wardwell) represented Smith & Nephew.
DOJ Enforcement Of The FCPA – Year In Review
Yesterday, I highlighted various aspects of the SEC’s enforcement of the FCPA in 2011.
In this post, I highlight certain facts and figures from the DOJ’s FCPA enforcement program in 2011.
In 2011, the DOJ brought 11 corporate FCPA enforcement actions (this includes the enforcement action against Cinergy Telecommunications that remains pending).
[In 2010, the DOJ brought 16 corporate FCPA enforcement actions (in addition to the BAE enforcement action that was related to the FCPA, but did not involve FCPA charges and the Lindsey Manufacturing enforcement action that began in 2010 and resulted in the convictions being vacated and the indictment dismissed in 2011 due to prosecutorial misconduct – see here)]
In the 11 corporate DOJ FCPA enforcement actions from 2011, the DOJ collected approximately $355 million in criminal fines. Including the $149 million forfeiture in the Jeffrey Tesler individual enforcement action which resulted in a plea agreement in 2011 (see here), the DOJ’s FCPA enforcement program in 2011 took in approximately $504 million. Approximately $432 million (86%) of the $504 million was in three enforcement actions (JGC Corp., Magyar Telekom / Deutsche Telekom, and Tesler). Approximately $458 million of the $504 million (91%) collected by the DOJ was in enforcement actions against foreign companies (JGC Corp., Magyar Telekom / Deutsche Telekom, Tenaris, and Bridgestone) or foreign nationals (Tesler).
[In 2010, the DOJ collected approximately $870 million in criminal fines in the 16 corporate FCPA enforcement actions ($1.27 billion by including the $400 million BAE enforcement action)].
Tack on the SEC’s collections in 2011 corporate FCPA enforcement actions of approximately $148 million and the overall corporate FCPA fine, penalty and disgorgement amount from 2011 is approximately $503 million – approximately $652 million including Tesler.
[In 2010, corporate fines, penalties and disgorgement in DOJ/SEC enforcement actions was approximately $1.8 billion (including the BAE enforcement action)]
DOJ FCPA enforcement in 2011 was both large (JGC Corp. – $219 million) and small (Comverse Technologies – $1.2 million; Aon – $1.8 million). Three FCPA enforcement actions in 2011 were DOJ only (JGC Corp., Bridgestone, and Cinergy Telecommunications).
In all six corporate FCPA enforcement actions where an analysis was possible, the DOJ agreed to a criminal fine below the minimum range suggested by the sentencing guidelines. In these six actions, the average was approximately 28% below the minimum guidelines range and the distribution range was 55% below the minimum guidelines range (Bridgestone) and 18% below the minimum guidelines range (Magyar Telekom). There were no corporate FCPA enforcement action in 2011 in which the company paid a criminal fine within the guidelines range.
[Note – why are only 6 of the 11 enforcement actions included in the above analysis? 4 corporate enforcement actions involved an NPA and the DOJ does not set forth a guidelines range in the agreement or related documents and 1 enforcement action (Cinergy Telecommunications) remains pending].
[In 2010, the average was approximately 25% below the minimum guidelines range and the distribution range was 55% below the minimum guidelines range (Pride International) and 5% below the minimum guidelines range (Panalpina). The only two corporate FCPA enforcement actions from 2010 where the company paid a criminal fine within the guidelines range were Alliance One (the company voluntarily disclosed and receive a non-prosecution agreement) and Alcatel-Lucent.]
How many corporate FCPA enforcement actions involved related individual prosecutions of company employees by the DOJ (recognizing that such prosecutions may be forthcoming in the future)? Of the 11 corporate DOJ enforcement actions or indictments, 8 of the 11 enforcement actions (73%) have not involved thus far any DOJ prosecutions of company employees. 2011 corporate FCPA enforcement actions that have resulted in criminal charges against company employees are Armor Holdings (Richard Bistrong), Bridgestone (Misao Hioki) and Cinergy Telecommunications (Washington Cruz and Amadeus Richers).
[In 2010, 12 of the 17 corporate FCPA enforcement actions (70%) did not involve, and have not yet involved, DOJ prosecutions of company employees.]
Including Washington Cruz and Amadeus Richers (a German citizen) mentioned above, the DOJ brought 10 individual FCPA enforcement actions in 2011. In December, in connection with the 2008 Siemens enforcement action, the DOJ brought criminal charges against: Uriel Sharef, Herbert Steffen, Andres Truppel, Ulrich Bock, Stephan Signer, Eberhard Reichert, Carlos Sergi and Miguel Czysch. All of these individuals are foreign nationals. Thus, 90% of the DOJ’s individual enforcement actions in 2011 were against foreign nationals. As noted in yesterday’s SEC year in review post, all 12 of the individuals the SEC charged with FCPA violations in 2011 were foreign nationals (in a few cases, dual citizens of a foreign country and the U.S.).
What about non-prosecution and deferred prosecutions vs. old fashioned law enforcement (i.e., if a company committed a crime the DOJ charged it and if the company did not commit a crime the DOJ did not charge it)? In 2011, 9 of the 11 corporate FCPA enforcement actions (82%) were resolved via non-prosecution agreements (Comverse Technologies, Tenaris, Armor Holdings, and Aon) or deferred prosecution agreements (Maxwell Technologies, Tyson Foods, JGC Corp., and Johnson & Johnson). The Magyar Telekom / Deutsche Telekom enforcement action involved both a non-prosecution agreement (Deutsche Telekom) and a deferred prosecution agreement (Magyar Telekom). The two corporate FCPA enforcement from 2011 that involved an indictment or plea to criminal charges were Bridgestone and Cinergy Telecommunications.
[In 2010, 15 of the 16 (94%) corporate FCPA enforcement actions involved NPAs (4) or DPAs (11)].
As Gibson Dunn highlighted in this recent report, FCPA enforcement actions comprised approximately 40% of the DOJ’s 26 NPAs or DPAs in 2011. [In 2010, FCPA enforcement actions comprised approximately 50% of all DOJ NPA or DPA agreements]. Among the criticisms noted in the Gibson Dunn report of NPAs / DPAs is that “from a company’s perspective, the threat of indictment can force a company to agree to a DPA or NPA based on the government’s perception of alleged misconduct even under novel, expansive, or unlitigated theories of liability.”
In yesterday’s SEC year in review post, I noted that 90% of the $148 million the SEC collected in 2011 corporate FCPA enforcement actions was the result of volunatary disclosures or other instances of public disclosure – not original investigations by the SEC.
What does this number look like for DOJ FCPA enforcement actions in 2011? Of the $504 million in criminal fines collected by the DOJ in FCPA enforcement actions, $502 million (99%) appear to be result of voluntary disclosures or other instances of public disclosure such as previous foreign law enforcement investigations. The only exception would appear to be Aon ($1.8 million).
[In 2010, 97% of DOJ criminal fines would appear to fit this description].
This remainder of this post provides an overview of corporate DOJ FCPA enforcement in 2011.
*****
Maxwell Technologies (Jan. 31st)
See here for the prior post.
Charges: FCPA anti-bribery violations and knowingly violating the FCPA’s books and records provisions.
Resolution Vehicle: Criminal information resolved through a DPA (three year term).
Guidelines Range: $10.5 million to $21 million.
Penalty: $8 million (25% below the minimum amount suggested by the guidelines).
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: No.
Tyson Foods (Feb. 10th)
See here for the prior post.
Charges: Conspiracy to violate the FCPA’s anti-bribery and books and records provisions; FCPA anti-bribery and books and records violations.
Resolution Vehicle: Criminal information resolved through a DPA (two year term).
Guidelines Range: $5.04 to $10.08 million.
Penalty: $4 million (approximately 20% below the minimum amount suggested by the guidelines)
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: No.
JGC of Japan (April 6th)
See here for the prior post.
Charges: Conspiracy to violate the FCPA’s anti-bribery provisions and aiding and abetting FCPA anti-bribery violations.
Resolution Vehicle: Criminal charges resolved through a deferred-prosecution agreement – term two years.
Guidelines Range: $312.6 million to $625.2 million
Penalty: $218.8 million (30% below the minimum amount suggested by the guidelines).
Disclosure: Yes, based on a previous foreign law enforcement investigation.
Monitor: Yes.
Individuals Charged: No.
Comverse Technology (April 7th)
See here for the prior post.
Charges: None – although the non-prosecution agreement refers to a “knowing violation of the books and records provisions of the FCPA.”
Resolution Vehicle: non-prosecution agreement – term two years.
Guidelines Range: Not set forth in the NPA.
Penalty: $1.2 million.
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: No.
Johnson & Johnson (April 8th)
See here for the prior post.
Charges: FCPA anti-bribery violations and conspiracy to violate the FCPA’s anti-bribery and books and record provisions.
Resolution Vehicle: Criminal information resolved through a deferred prosecution agreement (three year term).
Guidelines Range: $28.5 million to $57 million.
Penalty: $21.4 million (25% below the minimum amount suggested by the guidelines).
Disclosure: Yes, voluntary disclosure (however Iraq Oil for Food conduct was not voluntarily disclosed).
Monitor: No.
Individuals Charged: None by U.S. authorities (Robert Dougall (a former DePuy executive) previously plead guilty to a U.K. SFO enforcement action – see here).
Tenaris (May 17th)
See here for the prior post.
Charges: None, although the non-prosecution agreement refers to “knowing violations of the FCPA’s anti-bribery and books and records provisions.”
Resolution Vehicle: NPA – term two years.
Guidelines Range: Not set forth in the NPA.
Penalty: $3.5 million.
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: No.
Cinergy Telecommunications (July 12th)
See here for the prior post.
Charges: conspiracy to violate the FCPA and to commit wire fraud; FCPA anti-bribery violations; conspiracy to commit money laundering; and money laundering.
Resolution Vehicle: N/A
Guidelines Range: N/A
Disclosure: No.
Monitor: N/A
Individuals Charged: Yes.
Armor Holdings (July 13th)
See here for the prior post.
Charges: None
Resolution Vehicle: Non-Prosecution Agreement – term two years.
Guidelines Range: Not set forth in the NPA.
Penalty: $10.3 million
Disclosure: Yes, voluntary disclosure.
Monitor: No (although Armor Holdings is now part of BAE and falls under the monitorship in the BAE FCPA-related enforcement action).
Individuals Charged: Yes.
Bridgestone (Sept. 15th)
See here for the prior post.
Charges: Conspiracy to violate the FCPA’s anti-bribery provisions (and conspiracy to violate the Sherman Act).
Resolution Vehicle: Criminal information resolved via a plea agreement.
Guidelines Range: For the FCPA conduct, the guidelines range (see here) was approximately $40 million – $80 million.
Penalty: $28 million (it would appear that approximately 80% of this figure – approximately $22 million was based on the FCPA conduct)
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: Yes.
Aon Corp. (Dec. 20th)
See here for the prior post.
Charges: N/A although the NPA refers to Aon’s knowing violation of the anti-bribery, books and records, and internal controls provisions.
Resolution Vehicle: NPA – term two years.
Guidelines Range: Not set forth in the NPA.
Penalty: $1.8 million.
Disclosure: Aon’s SEC filings stated that ”following inquiries from regulators, the Company commenced an internal review of its compliance with certain U.S. and non-U.S. anti-corruption laws, including the U.S. Foreign Corrupt Practices Act.”
Monitor: No.
Individuals Charged: No.
Magyar Telekom / Deutsche Telekom (Dec. 29th)
See here for the prior post.
Charges: Magyar Telekom – FCPA anti-bribery and books and records charges; Deutsche Telekom – N/A
Resolution Vehicle: Magyar Telekom – DPA – term two years; Deutsche Telekom – NPA – term two years.
Guidelines Range: Magyar Telekom – $72.5 million – $145 million; Deutsche Telekom – not set forth in the NPA.
Penalty: Magyar Telekom – $59.6 million (18% below the minimum Guidelines range); Deutsche Telekom – $4.4 million
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: No.