First Case Under Korea’s Version Of The FCPA Tests The Limits Of Defining “Foreign Official”
This previous guest post discussed “Korea’s FCPA” and a recent case in which a trial court held that the prosecution failed to meet its burden of proof that China Eastern Airlines was a state owned enterprise, and, therefore, that the president of China Eastern’s Korean subsidiary was a foreign public official sufficient to state a claim under the law.
The prosecution appealed the ruling and in this guest post Alston & Bird attorneys Edward Kang and Christopher Lucas discuss the appellate court ruling.
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An appeals court in Korea affirmed a lower court decision to reject a prosecution’s theory of what it means to be a “foreign official” under Korea’s version of the Foreign Corrupt Practices Act, called the Act on Preventing Bribery of Foreign Public Officials (“FBPA”). This was the first case brought by prosecutors under the FBPA with allegations that an executive of a state-controlled company was a “foreign official.” Prosecutors have appealed to the Korean Supreme Court, and the high court’s decision could be an important signal as to how aggressively prosecutors can pursue future cases under the FBPA.
In 2011, Korean prosecutors brought FBPA charges against two individuals – executives at a shipping company and a travel agency – for allegedly bribing the president of the Korean subsidiary of China Eastern Airlines to secure improper business advantages. Prosecutors argued that the Korean president of China Eastern Airlines was a “foreign official” and pointed to documents that allegedly linked the company to the Chinese government.
The lower court acknowledged the evidence suggesting a connection with the Chinese government, but found that prosecutors had not met their burden in proving that the China Eastern executive was a “foreign official” under the FBPA. The Korean prosecutors appealed and directed the appellate court to additional pieces of evidence to support its theory, including the facts that the Chinese government: (1) through a wholly-owned subsidiary, owned more than 50% of China Eastern’s capital; (2) had appointment and dismissal power over China Eastern’s CEO; (3) was in charge of certain business decisions of China Eastern, including mergers and spin-off decisions; and (4) provides China Eastern with large amounts of government subsidies.
Despite that evidence, the appellate court affirmed the lower court’s decision without further elaboration. The case has been appealed to the Korean Supreme Court. We will continue to monitor developments and provide an update once this decision has been announced.
The Korean FBPA defines “foreign official” to include employees of certain state-owned or state-controlled companies. Under Article 2(2)(c) of the FBPA, the term “foreign official” includes:
“[A]n executive or employee of a company in which a foreign government contributed more than 50% of the paid-in-capital or with respect to which a foreign government exercises de facto control over its overall management including major business decisions and the appointment or dismissal of its executives.”
Interestingly, at the same time the Korean Supreme Court wrestles with the limits of defining “foreign official” when it comes to state-owned or controlled companies, the U.S. Court of Appeals for the Eleventh Circuit is currently considering a similar issue in U.S. v. Esquenazi, a case that is slated for oral arguments in October.
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Similar to the issue raised in this recent post concerning Canada’s FCPA-like law, Korea’s FBPA defines the targeted recipient category to include state-owned enterprise (“SOE”) definitions and concepts. As noted in my “foreign official” declaration (which has been cited by the defense in the pending 11th Circuit “foreign official” appeal), despite being aware of state-owned enterprises (SOEs) during the FCPA’s legislative process, despite exhibiting a capability for drafting a foreign official definition that expressly included SOEs in other bills, and despite being provided a more precise way to describe SOEs during the legislative process, Congress chose not to include such definitions or concepts in FCPA.
As noted in this prior post regarding the DOJ’s response brief in the 11th Circuit challenge, among other arguments the DOJ is making is the alarmist argument that “Defendants’ construction of the statute to exclude employees of SOEs … means that the United States is out of compliance with its treaty obligations under the [OECD] Convention.”
Like the U.S., Korea is also a member of the OECD Convention.
[Disclosure – I am providing pro bono expert services to defendants’ counsel relevant to the “foreign official” issue].
Worth Noting From Canada’s First CFPOA Decision
This previous guest post highlighted Canada’s first individual conviction for a bribery offense under the Corruption of Foreign Public Officials Act (“CFPOA”), including the specific facts in the action against Nazir Karigar.
Given the general dearth of Foreign Corrupt Practices Act case law, you ought to have the urge to digest any form of judicial scrutiny of “FCPA-like” cases and the judicial opinion in the Nazir Karigar case makes for an interesting and worthwhile read.
For starters, the judge found that Air India officials were “foreign public officials” under the CFPOA.
This is hardly surprising.
Why?
Because the CFPOA, unlike the FCPA, defines the targeted recipient category, in pertinent part, as follows.
“a person who performs public duties or functions for a foreign state, including a person employed by a board, commission, corporation or other body or authority that is established to perform a duty or function on behalf of the foreign state, or is performing such a duty or function”
As noted in my “foreign official” declaration (which has been cited by the defense in the pending 11th Circuit “foreign official” appeal in the Joel Esquenazi and Carlos Rodriguez action), despite being aware of state-owned enterprises (SOEs) during the FCPA’s legislative process, despite exhibiting a capability for drafting a foreign official definition that expressly included SOEs in other bills, and despite being provided a more precise way to describe SOEs during the legislative process, Congress chose not to include such definitions or concepts in FCPA.
Back to the Karigar decision.
The first take-away point is that the bribery attempt was unsuccessful in that the contract at issue was never awarded. There have been FCPA enforcement actions consistent with this theory as well. (See, among other actions, the 2005 FCPA enforcement action against Monsanto – here and here).
A disputed legal issue in Karigar was whether the prosecution needed to prove that the actual bribes were paid and the specific identity of the foreign public officials allegedly bribed. Summarizing the argument of defense counsel, the opinion states:
“[I]n the submission of counsel for the accused, [counsel argues] that the court cannot know whether any foreign public official was actually offered or received a bribe or other inducement, whether any such official was induced to use his or her position to influence any act or decision and whether any such official had any duties or functions which could be influenced by any such inducement. In short, in the absence of any evidence that a bribe was actually offered or paid to any official, how can the Crown have proven the requisites of the offense charged beyond a reasonable doubt?”
The opinion then states:
“I agree that there was no evidence as to what became of the two payments … after the amounts were transferred from the bank account of Cryptometrics Inc. in New York to the accused’s account in India. It is correct so say that there was no evidence as to what subsequently became of those two sums of money and in particular whether these funds were offered or paid to anyone who qualified as a foreign public official under the Act.”
“The position of the Crown is that no evidence of what actually became of the money is necessary to establish a violation of the CFPOA. The Crown argues that incoate offenses, in particular a conspiracy to pay bribes, as exists here, constitutes a violation of the Act. […]
[…]
“There would appear to be no jurisprudence interpreting the CFPOA. This is the first prosecution under this Act which has proceeded to trial.”
“In any event, I am satisfied that a conspiracy or agreement to bribe foreign public officials is a violation of the Act. The actus reus of this offense is the agreement to pursue an unlawful object. […]
[…]
“I also reject the accused’s submission on a policy basis. In my opinion if the word ‘agrees’ in the Act is restricted to the act of essentially two parties, ‘one to pay the bribe and one to receive the bribe,’ the scope of the Act would be unduly restricted and its objectives defeated. Moreover, to require proof of the offer of or receipt of a bribe and the identity of a particular recipient would require evidence from a foreign jurisdiction, possibly putting foreign nationals at risk and would the legislation difficult if not impossible to enforce and possibly offend international comity.”
If the above sounds familiar to you, it should. Similar issues have been contested in recent FCPA enforcement actions.
In U.S. v. O’Shea, the DOJ alleged that the defendant violated the FCPA by making payments to officials at a Mexican utility allegedly owned or controlled by the Mexican government. The judge granted a motion for acquittal after the DOJ’s evidence. In doing so, and as relevant to the identity of a “foreign official” issue, the judge stated:
“You can’t convict a man promising to pay unless you have a particular promise to a particular person for a particular benefit. If you call up [somebody] and say, look, I’m going to send you 50 grand, bribe somebody, that does not meet the statute.”
However, the notion that the specific identity of a “foreign official” must be proven by the enforcement agencies has been rejected by two other trial courts in individual FCPA enforcement actions. In SEC v. Jackson, the court concluded, in ruling on a pre-trial motion to dismiss, that the “government does not have to connect the payment to a particular official.” The court stated:
“The language of the statute does not appear to require that the identity of the foreign official involved be pled with specificity. […] Nothing in the legislative history of the FCPA suggests that Congress intended to limit the application of [the FCPA] to those cases where the government could show that a defendant knew, either by name or job description, precisely which foreign officials would be receiving the illicit payments he had authorized. […] It would be perverse to read into the statute a requirement that a defendant know precisely which government official, or which level of government official, would be targeted by his agent; a defendant could simply avoid liability by ensuring that his agent never told him which official was being targeted and what precise action the official took in exchange for the bribe.”
Likewise in SEC v. Straub, the court agreed with the above Jackson decision in the context of a pre-trial motion to dismiss and stated that “the language of the [FCPA] does not appear to require that the identity of the foreign official involved be pled with specificity.” The court stated:
“Such a requirement would be at odds with the statutory scheme, which targets actions (such as making an ‘offer’ or ‘promise’) without requiring that the ‘foreign official’ accept the offer or reveal his specific identity to the payer. Indeed, the fact that the FCPA prohibits using ‘any person’ or an intermediary to facilitate the bribe to any ‘foreign official’ or ‘any foreign political party’ suggests that the statute contemplates situations in which the payer knows that a ‘foreign official’ will ultimately receive a bribe but only the intermediary knows the foreign official’s specific identity.”
Another interesting aspect of the Karigar is asking the obvious question – will there be a related FCPA enforcement action(s)?
Karigar was a paid agent for Cryptometrics Canada and acted on behalf of related entities including Cryptometrics USA. According to the opinion, $200,000, was transferred from Cryptometrics USA to Karigar’s bank account in furtherance of the bribery scheme. The opinion further references a relevant letter agreement between Kairgar and the CEO of Cryptometrics USA as well as specific conduct in furtherance of the bribery scheme that took place at Cryptometrics’s office in New York. In addition, the opinion references an additional $650,000 that was transferred from Crytometrics USA’s bank account in furtherance of the scheme.
Moreover, as noted in the opinion, Karigar corresponded with the DOJ regarding the conduct at issue. Specifically, the opinion states “that on August 13, 2007, Karigar – using an alias – “sent an e-mail to the Fraud Section (FCPA) of the U.S. Department of Justice stating that he had information about U.S. citizens paying bribes to foreign officers and inquired about reporting the matter.” The opinion also references two other e-mails Karigar sent to the DOJ.
At The 11th Hour
[This post is part of a periodic series regarding “old” Foreign Corrupt Practices Act enforcement actions]
The 1989 Foreign Corrupt Practices Act enforcement action against advertising agency Young & Rubicam, Inc. (“Y&R”) and its executives Arthur Klein, Thomas Spangenberg and others is one of the more interesting enforcement actions of all-time.
For starters, the enforcement action had an unusual origin. According to media reports, in connection with an unrelated tax fraud case against Robin Moore (the author of the “French Connection” and “The Green Berets”), law enforcement officials confiscated his diaries. Moore was a friend of Jamaican Prime Minister Edward Seaga and the diaries led to the investigation of Y&R and its executives.
The indictment alleges a conspiracy between Y&R, Klein, Spangenberg and others to induce Eric Abrahams and Arnold Foote “in their official capacities with respect to the selection and retention of an advertising agency for the Jamaica Tourist Board” and to induce Abrahams and Foote “to use their influence with the Jamaica Tourist Board to affect and influence the decisions of the Board with respect to the selection and retention of an advertising agency.”
Eric Abrahams is described in the indictment as the Minister of Tourism of the Government of Jamaica and Arnold Foote is described as “a prominent Jamaican citizen with close political ties to the Jamaican Labor Party and to the Administration of Prime Minister Edward Seaga”. As to Foote, the indictment further alleges as follows. “Foote served as executive chairman of Martin’s Travel, an instrumentality of the Government of Jamaica, and he also acted in an official capacity on behalf of the Minister of Tourism and the Jamaica Tourist Board as an advisor to the Government of Jamaica with respect to tourism, advertising and public relations matters, including the selection and retention of an advertising agency for the Jamaica Tourist Board.
According to the indictment, the defendants “would and did arrange for and pay kickbacks” to Foote and through Foote, to Abrahams. The indictment alleges that the “kickbacks and the manner in which they were paid would and did cause the Jamaica Tourist Board to make unnecessary and excessive expenditures for advertising services and deprived the Board of economically material information in its business dealings” with Y&R.
According to the indictment, as part of the conspiracy Robin Moore (described as a well-known author residing in Connecticut who had longstanding ties to the Island of Jamaica and was a close friend of Foote and Jamaican Prime Minister Seaga) and Frederick Sturges (described as a resident of Connecticut and an associate of Moore and Foote) “would and did act as middlemen and ‘go betweens’ for the communication of information and monies between and among the conspirators, and that certain kickback payments would be and were funnelled through bank accounts established and controlled by them.”
According to the indictment, “in order to disguise and conceal their unlawful activities, the conspirators would and did cause Y&R to enter into a contract with Ad Ventures, Ltd. a Cayman Island corporation created for the purposes of funneling kickbacks to Foote and Abrahams and affording Y&R an ostensibly legitimate reason for making such payments.” According to the indictment, various means and devices were used to conceal the unlawful activities including: false statements to government investigators; testifying falsely before the Grand Jury; making some kickback payments in cash and others to a Cayman Islands bank account so as to make the tracing of funds more difficult; and Y&R failed to reflect the kickback payments on reports it filed with the DOJ pursuant to the Foreign Agents Registration Act.
In addition to the conspiracy charge, Y&R, Klein, Spangenberg – along with the “foreign officials” Abrahams and Foote – were also charged with violating RICO. The predicate offenses alleged were multiple violations of the Travel Act.
The indictment further alleged that the defendants sought to buy the silence of various individuals who had threatened to expose the unlawful conduct.
Y&R, Klein and Spangenberg all pleaded not guilty and the case resulted in extensive media coverage. In a statement, Y&R said that the criminal charges were “based on speculation and innuendo and [were] without substance or merit.” A Y&R attorney (Thomas Barr of Cravath, Swaine and Moore) stated at the courthouse as follows. “This is a lawsuit that involves characterization. If you pull the characterization out, you haven’t got anything.” Referring to the labeling of Foote in the indictment as a foreign official, Barr is quoted as follows. “The reality is this. Y&R makes very simple, conventional business arrangements in Jamaica. By calling an advertising man a foreign official the prosecution has converted these charges into one of the most bizarre criminal allegations.”
According to media reports, many were shocked that Klein and Spangenberg were criminally charged. Quotes to the media included the following.
“[Klein] is the straightest guy in the world. I was absolutely shocked at the charges. Of all the people I know in advertising, I don’t know anyone I’d least expect this to happen to.”
“Of all the people I’ve worked with, I’d rank them in the upper 10 percent for their ethical conduct.”
Y&R and Klein moved to dismiss the RICO charge. Among other things, the defendants argued that the FCPA “cannot serve as a basis for a Travel Act violation, nor in turn as a predicate for a RICO violation.” The court denied the motion to dismiss the RICO charge. (See here for the decision).
The defendants also moved to dismiss the conspiracy charge concerning payments to Abrahams on the ground that prosecution of that aspect was time-barred. The defendants argued that “Abrahams ceased to be Jamaica’s Minister of Tourism more than five years prior to the return of the indictment.” The court noted that a conspiracy charge is timely if it alleges the commission of at least one overt act in furtherance of the conspiracy within the applicable five-year statute of limitations and rejected the defendants’ arguments. The court stated as follows.
“Whether Abrahams withdrew from the conspiracy is a question of fact for the jury. Nor does Abrahams’ resignation as Minister of Tourism necessarily end the alleged conspiracy or his participation in it. The indictment charges overt acts committed in furtherance of a single conspiracy from 1984 until 1989. The allegation of overt acts committed within five years meets the requirements of the statute of limitations.”
The defendants also moved for a bill of particulars requesting specific information as to particular allegations including: the facts which supported the allegations that Mr. Foote was a foreign official within the meaning of the FCPA. The court stated that “adequate notice of the manner in which Mr. Foote obtained his status as a foreign official” was provided in the indictment. [See the above description of Foote’s status].
Of further interest from the pre-trial proceedings, the DOJ moved to make an opening statement at trial. The opinion states as follows.
“The government claims that the complexity of this case, both factually and legally, as well as the nature of the evidence to be presented warrant the need for opening statements. First, the government argues that the term ‘foreign official’ as defined in the FCPA has a meaning broader than the ordinary meaning of the phrase. Without categorizing the evidence for the jury, the government claims that the jury might misinterpret the significance of the evidence. This amounts to a request to make a legal argument during opening statement which is precisely what should be avoided in opening statements. Second, the government contends that a substantial portion of its case depends on ‘a complex confluence of circumstantial evidence’ which a jury may not understand if it is not allowed to make an opening statement. However, ‘a mere recitation’ of what evidence is going to be presented does not necessarily ‘help jurors better understand the evidence when it is introduced.’ To go beyond that would risk stepping into the realm of legal argument which is not allowed.”
Shortly before the trial was to begin in February 1990, Y&R pleaded guilty (see here for the plea agreement). Pursuant to the plea agreement, Y&R agreed to pay a $500,000 criminal fine. Although not apparent from the plea agreement, Y&R pleaded guilty to one count of conspiracy to violate the FCPA.
If your only source of FCPA information is the DOJ’s FCPA website, this is where the story stops. But the story does indeed continue.
The company issued the following press release on February 9, 1990.
“Young & Rubicam Inc., announced today that it had reached an agreement with the U.S. Attorney for the District of Connecticut under which the government agreed to drop all RICO charges against the agency that had been brought in indictments on Oct. 6, 1989. The charges were made in connection with the agency’s successful attempts to obtain the advertising account of the Jamaica Tourist Board in 1981.
Further, the government dropped all the indictments charging that the agency was guilty of bribery of Arnold Foote, a Jamaican advertising executive, for the purposes of his bribing the Minister of Tourism, Eric Anthony Abrahams. In addition, all charges against Arthur Klein, an executive vice president of Young & Rubicam, and Thomas Spangenberg, a former senior vice president of the agency were dismissed.
The company, in order to put the case entirely behind it, agreed to plead guilty to conspiring to violate a section of the Foreign Corrupt Practices Act (FCPA) and accepted a fine of $500,000. The section of the Act under which the plea is made has been a controversial part of the law because it requires organizations and people who are placed in positions where criminal activities may be taking place in a “reason to know” relationship with those activities, whether or not they, in fact, did know or if the events did or didn’t occur. This section of the Act is no longer in the statute, having been removed by Congress in 1988. Y&R was charged with events that allegedly took place in 1981 when this portion of the statute was in effect. Ironically, if the case were brought today there would have been no such charge.
A Young & Rubicam spokesperson said, ‘We are particularly pleased that one of Y&R’s finest individuals, Arthur Klein, has been cleared completely of all charges made against him. The failed indictments caused Klein and his family extraordinary grief, and to us this was the worst part of this entire procedure. His complete exoneration is a cause for major celebration around Y&R.
The government no longer claims that the agency won the competition for the account on anything but the merits of its presentation, or that Arnold Foote was a public official, as had been charged. To the best of Y&R’s knowledge, there is no evidence that any monies were given to Abrahams.
For its part, Young & Rubicam did agree that beginning in late 1981, some of its employees did on occasions hear reports of alleged bribery efforts. These rumors alleged that Foote, who had been retained by Y&R to represent the agency in Jamaica, was using money paid to him by the agency to bribe Abrahams. Young & Rubicam itself is not charged with paying bribes. In fact, an investigation by the agency in 1986 could find no evidence to support those rumors, and the government has conducted a four-year investigation, and it has never proved that such bribes occurred. Both of the individuals deny that any bribes were paid. There is now no charge that any Young & Rubicam employee, past or present, knew enough ‘individually’ about these rumors to cause a violation. Thus the agency agreed that because of that knowledge by ‘some’ of its employees it can be construed that it ‘technically’ entered into a “conspiracy.”
The spokesperson stated, ‘In hindsight, we agree that an early investigation should have been carried out sometime during 1982 when these rumors began surfacing. We did complete an investigation in 1986 and discovered no evidence of bribery. The government in its four-year investigation has also not made such a discovery. So, in fact, we would have looked and found nothing. But looking back, we agree that we should have done it in 1982; hence our guilty plea to that violation. ‘In fact we have been pressing since early October for an early decision so that the agency can put the matter behind us and get on with our business. This certainly allows us to do just that.'”
[For on the FCPA’ original knowledge standard applicable to third-party payments, see this prior post.]
As to the “reason to know” standard, media reports quote U.S. Attorney Stanley Twardy as follows. “The ‘reason to know’ plea meant that while no individual within Y&R knew enough to understand that a law was being violated, the cumulative knowledge of the group working on the account, who should have been in touch with each other, would have given the agency the requisite information.”
According to media reports, the DOJ’s case “fell apart” on the eve of trial “when Y&R’s attorneys submitted to the [DOJ] a document that had been subpoenaed two years ago and that made clear, in the words of U.S. Attorney Twardy, “that Arthur Klein was not aware of what was going on.” Twardy further stated that the document “suggested quite strongly that Spangenberg did not have criminal intent.” Twardy further stated: “We got a transcript of a tape of a phone conversation that made it obvious that the accusations against Mr. Klein were totally without merit. Ironically, we’d been trying for two years to get a hold of that tape.” Another media report quoted Twardy as follows. “The transcript of the conversation was extremely exculpatory, meaning it gave evidence that Klein and in turn Spangenberg were not knowledgeable of the illegal aspects of the payments …”.
Checking In
This post checks in on recent developments in two enforcement actions: (i) the FCPA enforcement action against various individuals associated with Alstom; and (ii) the FCPA-related enforcement action against alleged Haitian “foreign official” Jean Duperval currently on appeal to the 11th Circuit.
Alstom-Related Action
Earlier this week, the DOJ announced that Lawrence Hoskins, “a former senior vice president for the Asia region for [Alstom], was charged in the District of Connecticut with conspiring to violate the Foreign Corrupt Practices Act (FCPA) and to launder money, as well as substantive FCPA and money laundering violations.”
The conduct at issue in the Second Superceding Indictment is the same core conduct alleged in original criminal charges filed against Frederic Pierucci and David Rothschild, as well as the conduct alleged in the Superceding Indictment which added William Pomponi to the action. (See here and here for previous posts). That is – alleged payments in connection with the Tarahan coal-fired steam power plant project in Indonesia. In the prior charging documents, Hoskins was generically referred to as Executive A.
As noted in previous posts, Rothschild pleaded guilty to conspiracy to violate the FCPA.
The DOJ further announced in its release earlier this week that Pierucci pleaded guilty to one count of conspiring to violate the FCPA and one count of violating the FCPA. (See here for the plea agreement).
Duperval Action
This previous post detailed the 11th Circuit appeal of Jean Duperval. Duperval was one of the alleged “foreign officials” charged in connection with the Haiti Teleco enforcement actions (see here for a summary and roundup of the entire Haiti Teleco enforcement actions) with non-FCPA offenses and he was found guilty by a jury of various money laundering charges.
As noted in the previous post, in his appeal Duperval argues, among other things, as follows. “The evidence was insufficient to prove beyond a reasonable doubt that Haiti Teleco was a government instrumentality and that Jean Rene Duperval was a foreign official as required to prove that a violation of the Foreign Corrupt Practices Act generated proceeds of a specified unlawful activity – a necessary predicate for the convictions on the money laundering conspiracy and substantive money laundering charges.”
As noted in the previous post, Duperval’s substantive arguments as to “foreign official” largerly mirror the arguments of Joel Esquenazi and Carlos Rodriguez (also criminally charged and convicted in the Haiti Teleco matter) in their historical “foreign official” appeal to the 11th Circuit (see here for links to the briefing).
Among other things, Duperval’s argument includes discussion and several citations to my “foreign official” declaration (see here).
Briefing is now complete in the Duperval appeal.
Not surprisingly, the DOJ’s arguments in connection with “foreign official” largely mirror the arguments it makes in the Esquenazi and Rodriguez appeal. The DOJ is again seeking to exclude my foreign official declaration from the record and its brief states:
“Duperval relies on a 144-page declaration by a proposed defense expert that was filed on behalf of the defendants in Carson. Although Duperval suggests that this Court may take judicial notice of the declaration because it relates to legislative history, the declaration selectively reviews the legislative history and draws inferences in support of a defense motion to dismiss the indictment. As such, it is not necessarily the statement of a disinterested expert, it was not reviewed as a scholarly article, and it was never subject to impeachment in the case below.”
Last week Duperval filed a reply brief, and not surprisingly, the arguments in connection with “foreign official” largely mirror the arguments made by Esquenazi and Rodriguez in their reply brief. As to my “foreign official” declaration, the brief states:
“The government also condemns Duperval’s reference to Professor Michael J. Koehler’s declaration addressing the legislative history of the FCPA, which was filed in United States v. Carson. Aside from the analysis contained in the Koehler declaration, the substance of the declaration is the legislative history of the FCPA. The Court can surely take notice of legislative history, and evaluate the utility and accuracy of Professor Koehler’s declaration for itself. But the Government’s claim that the declaration of a professor filed in another criminal proceeding and under penalty of perjury is somehow of lower status than a law-review article reviewed by law students strains credulity.”
It will be an interesting “foreign official” Fall in the 11th Circuit.
Friday Roundup
Make your voice heard, scrutiny alerts, “foreign official” fun, and for the reading stack. It’s all here in the Friday roundup.
Make Your Voice Heard
Yesterday, the U.K. Serious Fraud Office announced a consultation on “a draft Code of Practice setting out their approach to the use of Deferred Prosecution Agreements (DPAs).” According to the release, the U.K. is seeking “views on eight points covered in the draft Code, including the circumstances when a prosecutor should consider a DPA, the criteria to apply when making this decision, and on the disclosure approach envisaged.”
Make your voice heard, “comments are welcome from interested individuals and organisations” and “the consultation closes on Friday 20 September 2013.” See here for my previous post urging the U.K. to reject DPAs.
Staying in the U.K. this report states as follows. “The UK Serious Fraud Office is actively investigating two cases under the Bribery Act, said Kevin Davis, the SFO’s chief investigating officer. He also revealed that a further six cases which might lead to prosecutions were under investigation.”
Scrutiny Alerts
Medtronic
Let’s say law enforcement sets up a sobriety checkpoint on the highway. A sober driver successfully passes through it. Would we call this an instance of law enforcement “declining” to prosecute the driver for drunk driver?
Of course not, and the same logic should apply in the FCPA context as well.
In June 2008, Medtronic disclosed as follows.
“On September 25, 2007, the Company received a letter from the SEC requesting information relating to any potential violations of the U.S. Foreign Corrupt Practices Act in connection with the sale of medical devices in an unspecified number of foreign countries, including Greece, Poland and Germany. The letter notes that the Company is a significant participant in the medical device industry, and seeks any information concerning certain types of payments made directly or indirectly to government-employed doctors. A number of competitors have publicly disclosed receiving similar letters. On November 16, 2007, the Company received a letter from the Department of Justice requesting any information provided to the SEC. The Company is cooperating with both requests.”
In June 2009, Medtronic disclosed as follows.
“On September 25, 2007, the Company received a letter from the SEC requesting information relating to any potential violations of the U.S. Foreign Corrupt Practices Act in connection with the sale of medical devices in an unspecified number of foreign countries, including Greece, Poland and Germany. Turkey, Italy and Malaysia have since been added to the inquiry. The letter notes that the Company is a significant participant in the medical device industry, and seeks any information concerning certain types of payments made directly or indirectly to government-employed doctors. A number of competitors have publicly disclosed receiving similar letters. On November 16, 2007, the Company received a letter from the Department of Justice requesting any information provided to the SEC. Since that time the SEC and Department of Justice have made additional requests for information from the Company. The Company is cooperating with the requests.”
Earlier this week, Medtronic stated as follows.
“On September 25, 2007 and November 16, 2007, the Company received letters from the U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ), respectively, requesting information relating to any potential violations of the U.S. Foreign Corrupt Practices Act in connection with the sale of medical devices in several non-U.S. countries. A number of competitors have publicly disclosed receiving similar letters. Subsequently, the SEC and DOJ made additional requests for information from the Company. In June 2013, the SEC and the DOJ both informed the Company that they would be closing their investigations without pursuing any enforcement action or charges against the Company.”
The headline on the FCPA Blog read “Medtronic Wins Double Declination.” The headline on the Risk & Compliance Blog of the Wall Street Journal read “Medtronic Says SEC, DOJ Declined to Prosecute for FCPA Violations.”
I just don’t understand it at all. (See here for more).
HLW International / Sweett Group
Architecture firm HLW International LLP and Sweett Group Ltd. (a U.K. based construction company) recently were the subject of a leading Wall Street Journal article titled “Inside U.S. Firm’s Bribery Probe” by Joe Palazzolo and Chris Matthews. The focus of the article concerns the construction of a hospital in Morocco and the alleged promise by a Sweet executive that HLW would get the design contract if it agreed to pay 3.5% of the contract value to “an official inside the United Arab Emirates President’s personal foundation, which was funding the project.”
Charitable donations have been the focus of prior FCPA enforcement actions against Eli Lilly and Schering-Plough as well as the focus of Wynn Resort’s current FCPA scrutiny.
“Foreign Official” Fun
In the Carson “foreign official” challenge, Judge Selna concluded, in denying the defendants’ motion to dismiss (see here), that “the question of
whether state-owned companies qualify as instrumentalities under the FCPA is a question of fact.” Judge Selna stated that “several factors bear on the question of whether a business entity constitutes a government instrumentality” including the following.
- The foreign state’s characterization of the entity and its employees;
- The foreign state’s degree of control over the entity;
- The purpose of the entity’s activities;
- The entity’s obligations and privileges under the foreign state’s law, including whether the entity exercises exclusive or controlling power to administer its designated functions;
- The circumstances surrounding the entity’s creation; and
- The foreign state’s extent of ownership of the entity, including the level of financial support by the state (e.g., subsidies, special tax treatment, and loans).
According to Judge Selna, the above “factors are not exclusive, and no single factor is dispositive.”
According to this recent article in the Wall Street Journal:
“Companies listed on China’s stock exchanges received 85.68 billion yuan ($13.83 billion) in government subsidies last year, up 23% from a year earlier, while corporate profits rose less than 1%, according to a Chinese data provider. The subsidies were equivalent to more than 4% of the companies’ total profits last year, up from around 3% between 2009 and 2011. The subsidies—largely from local authorities but also from the national government—took the form of cheap land, tax rebates, support for loan repayments and straight-up cash. There were a range of reasons, including research and development and support for government environment priorities.”
Reading Stack
The Seventh Edition of the FCPA Handbook from O’Melveny & Myers.
A focus on Southeast Asia in the always informative FCPA Update from Debevoise & Plimpton.
A mini-roundup of Canada’s recent amendments to its Corruption of Foreign Public Officials Act here (Osler), here (Dentons), and here (Fasken Martineau).
*****
A good weekend to all.