Friday Roundup
Motion to dismiss filed in the former Magyar Telekom execs case, a noticeable lack of FCPA charges, checking in on recent disclosures, quotable from the current SEC FCPA Unit Chief, quotable regarding FCPA Inc., what’s up with that investigation, I hear you travel alot, there’s an app for that, counter-points, and for the weekend reading stack. It’s all here in the Friday roundup.
Motion to Dismiss Filed in SEC Enforcement Action
This previous post highlighted how former Magyar Telekom executives Elek Straub, Andras Balogh and Tamas Morvai planned to challenge the SEC’s charges against them. Earlier this week, the defendants filed this memorandum in support of their motion to dismiss.
In summary fashion, the memorandum states as follows.
“There are several bases for dismissing the complaint.
First, this Court lacks personal jurisdiction over the defendants. The complaint alleges conduct by foreign national defendants that occurred wholly outside, and with no nexus to, the United States. Nowhere does the complaint allege that defendants purposefully directed their conduct at the United States. Following constitutional due process principles, the defendants lack the requisite minimum contacts with the forum, and it would be inconsistent with traditional notions of fair play and substantial justice to require them to defend this action in the United States. Indeed, the SEC has acknowledged that its jurisdictional position lacks precedent “on all fours factually” and “may be breaking new ground[.]”
“Second, the SEC’s claims are time-barred […] There is no doubt that the complaint was filed outside the five-year period. Specifically, the complaint was filed on December 29, 2011, more than five years after all three defendants had left Magyar Telekom, and more than five years after the alleged conduct occurred. Consequently, the five-year period has expired.”
“Third, with regard to the remaining claims, the complaint fails to adequately state the claims alleged. More specifically, the complaint: (i) fails to adequately plead that the defendants corruptly made use of interstate commerce, as is required to state a claim for bribery and the claims stemming from the alleged bribery under the FCPA (books and records and internal controls violations, falsifying books and records, and lying to auditors); (ii) fails to adequately plead that the intended payment recipients were “foreign official[s]” under the FCPA; (iii) fails to allege sufficient facts supporting the aiding and abetting claims; and (iv) fails to meet the heightened pleading requirements under Rule 9, including allegations of individualized culpable conduct by each defendant. The complaint also merely parrots the statutory language and fails to allege that the defendants profited personally from any of the alleged conduct. For all these reasons, the complaint should be dismissed with prejudice.”
As to “foreign official” the motion states that the complaint’s reference to “officials” “government officials” and other vague allegations represent “mere legal conclusions that the recipients were “foreign officials” under the FCPA. The motion states as follows. “A legal conclusion couched as a ‘factual allegation’ is insufficient to establish the essential element that the intended recipient be a foreign official. Repeated references to “government officials” without underlying facts presents nothing ‘more than labels and conclusions’ that constitute ‘a formulaic recitation of the elements of a cause of action.””
Indeed, in my 2010 article “The Facade of FCPA Enforcement” (here) I noted the frequency in which enforcement agency FCPA pleadings “contain little more than uninformative, bare-bones statement of facts replete with legal conclusions.” I said that the “most common and troubling use of bare-bones, uninformative, legal conclusory statements of facts or allegations is when the enforcement agencies describe the ‘foreign officials’ involved in the alleged conduct giving rising to the FCPA violation.” In the article, I noted that because there is generally no threat that these bare-boned, uninformative facts or legal conclusions will ever be subject to meaningful judicial scrutiny, that the enforcement agencies get away with such practices.
At least until recently.
Noticeable Lack of FCPA Charges
Numerous FCPA enforcement actions have been based on allegations of payments to foreign customs personnel in connection with customs, license, permit type issues.
Thus, the lack of FCPA charges were noticeable in the DOJ’s recent criminal indictment of APEGO Inc., and various of is employees and agents. As noted in this recent DOJ Release (N.D. of Georgia), charges were filed alleging conspiracy and twelve counts of importing notebooks and filler paper from China using false documents.
The indictment (here) includes the following allegations.
“It was further part of the conspiracy that [certain individuals] paid bribes to Taiwanese customs officials on behalf of defendants APEGO and Gung to allow U.S.-bound lined paper products made by the Watanabe Group in China but lacking required country of origin labels, or mislabeled ‘Made in Taiwan,’ to enter Taiwan from China and clear Taiwanese customs.”
Elsewhere, the indictment alleges: (i) that in December 2006 various bribes were paid to Taiwanese customs officials which “allowed defendant APEGO to transship these products from Taiwan to the United States more quickly and less expensively by limiting the need to ‘rework’ the products and cartons (i.e. relable ‘Made in Taiwan’) in Taiwan”; (ii) that in March 2007 when customs officials at a certain Taiwan port no longer accepted bribes, the company arranged for its shipments to be processed through another port in a different part of the country where bribes were paid for the same purpose
Recent Disclosures
Owens-Illinois
Owens-Illinois, Inc. (an Ohio based company that describes itself as the world’s largest glass container manufacturer and preferred partner for many of the world’s leading food and beverage brands) recently disclosed as follows.
“The Company is conducting an internal investigation into conduct in certain of its overseas operations that may have violated the antibribery provisions of the United States Foreign Corrupt Practices Act (FCPA), the FCPA’s books and records and internal controls provisions, the Company’s own internal policies, and various local laws. In October 2012, the Company voluntarily disclosed these matters to the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). The Company intends to cooperate with any investigation by the DOJ and the SEC. The Company is presently unable to predict the duration, scope or result of its internal investigation, of any investigations by the DOJ or the SEC or whether either agency will commence any legal action. The DOJ and the SEC have a broad range of civil and criminal sanctions under the FCPA and other laws and regulations including, but not limited to, injunctive relief, disgorgement, fines, penalties, and modifications to business practices. The Company also could be subject to investigation and sanctions outside the United States. While the Company is currently unable to quantify the impact of any potential sanctions or remedial measures, it does not expect such actions will have a material adverse effect on the Company’s liquidity, results of operations or financial condition.”
Given the recent FCPA scrutiny of the beverage industry (Diageo, Beam Inc., and Central European Distribution Company) one might wonder whether Owens-Illinois’s recent disclosure is connected to those developments.
Barclays
This previous post detailed how Barclays PLC’s relationship with Qatar’s sovereign-wealth fund was under scrutiny by U.K. authorities.
The company recently disclosed (here) as follows. “Subsequent to reporting the investigations of the Financial Services Authority and Serious Fraud Office in July and August 2012 respectively, Barclays has been informed by the US Department of Justice (DOJ) and US Securities and Exchange Commission (SEC) that they are undertaking an investigation into whether the Group’s relationships with third parties who assist Barclays to win or retain business are compliant with the United States Foreign Corrupt Practices Act. Barclays is investigating and fully co-operating with the DOJ and SEC.”
According to this article in the Wall Street Journal, the focus is “on Barclay’s use of external brokers who facilitated meetings between bank officials and powerful Middle Eastern families.” The article further notes that “Barclays recently started conducting an internal investigation, with the help of an outside law firm, to figure out whether it or its Middle Eastern introducers might have run afoul” of the FCPA.
Schlumberger
The company recently disclosed as follows.
“In 2007, Schlumberger received an inquiry from the United States Department of Justice (“DOJ”) related to the DOJ’s investigation of whether certain freight forwarding and customs clearance services of Panalpina, Inc., and other companies provided to oil and oilfield service companies, including Schlumberger, violated the Foreign Corrupt Practices Act. In October 2012, Schlumberger was advised by the DOJ that it has closed its inquiry as it relates to Schlumberger.”
For more on the numerous Panalpina-related enforcement actions – what I’ve termed CustomsGate – see here.
The company’s recent disclosure would seem not to address the issues previously the focus of a front-page Wall Street Journal article in October 2010 concerning alleged conduct in Yemen. (See here for the prior post).
Quotable
In this recent Reuters article, current SEC FCPA Unit Chief Kara Brockmeyer stated as follows.
“I would hate to think the companies view [FCPA] enforcement actions as the cost of doing business. If we find that out, it will certainly increase the size of the penalty.”
One thing that is becoming increasingly clear in this new era of FCPA enforcement is that investors do appear to view FCPA scrutiny and enforcement actions as a cost of doing business and akin to a regulatory violation.
The Reuters article also stated that there has yet to be a repeat FCPA prosecution. This is a false statement. Companies that have resolved more than one FCPA enforcement action over time include: Tyco, ABB, Baker Hughes and General Electric.
Quotable
On his Corruption, Crime & Compliance site (here) Michael Volkov recently observed as follows.
“The FCPA Paparazzi has done a great disservice to the business community. Call it a complete lack of credibility. Legal marketing has become confused in this day and age – marketing has now been turned into the “Fear Factor,” meaning that lawyers need to scare potential clients into hiring them. That is flat out wrong. Each week, new client alerts, client warnings and other cries of impending disaster are transmitted through the Internet to businesses. If I were a general counsel, I would have them on “auto delete.” Talk about a waste of time and effort.”
What’s Up With That Investigation?
One of the many FCPA industry sweeps reportedly underway concerns Hollywood movie industry in China. (See here for the prior post). This recent post on the New York Times Media Decoder blog highlights the “powerful gatekeeper of China’s rapidly growing film world, the China Film Group chairman Han Sanping who was recently in the U.S. to receive a China Entertainment Visionary of the Year award, and asks what’s up with the investigation.
I Hear You Travel Alot
My frequent searches for FCPA content often turn up interesting content. Such as this thread from top-law-schools.com which asks what type of attorneys get to travel the most? One response was as follows. “From what I hear, FCPA is the way to go for travel to other countries because you have lots of interviews of foreign employees.”
The FCPA is certainly the reason for the majority of stamps in my passport.
Counter-Points
Alexandra Wrage (President of Trace International) made some observations recently in her Corporate Counsel column (here) about FCPA enforcement in various Presidential administrations. While interesting to think about, the actual stats have little substantive value. Instances of FCPA scrutiny tend to last between 2-4 years (and thus straddle administrations) and various instances of FCPA scrutiny (for instance Pfizer) can last approximately 8 years. Moreover, rather than “aggressively enforce the FCPA,” as the article notes, what the enforcement agencies more often than not actually do (as evidenced by statistics demonstrating which enforcement actions resulted from voluntary disclosures) is process corporate voluntary disclosures.
There’s An App for That
Law firm O’Melveny & Myers announced (here) the “launch of its FCPA app, the first multi-functional mobile application (app) created by a law firm.” Richard Grime, partner and head of O’Melveny’s FCPA practice stated as follows. “We understand the complexities our clients and colleagues face in achieving their business goals in the global marketplace, and thus, have created this mobile application as a fast, yet informative, way for them to remain current with the evolving statutes and provisions imposed by the FCPA and other anti-corruption laws.”
Weekend Reading
Sidley & Austin recently released its Anti-Corruption Quarterly (here). Among other articles is one focused on the new “sheriff in town.”
The article states as follows.
“Investigating potential violations of the FCPA historically has been the purview of the SEC and the DOJ, but recently, Congress has entered the fray. Two House committees, the House Oversight and House Energy committees, recently instituted an independent FCPA investigation of Wal-Mart, after a New York Times article reported on an alleged massive bribery campaign at Wal-Mart’s Mexican affiliate. These House investigations mean that companies now have to consider the possibility of facing a congressional investigation—in addition to investigations by the SEC and the DOJ—when FCPA violations have occurred.”
The article further states as follows.
“Although congressional committees routinely investigate companies, the current congressional investigation into Wal-Mart is the first investigation in the FCPA context and it may signal the beginning of a trend: high-profile companies or companies that are drawn into political fights (often unwillingly) may find themselves the target of a congressional inquiry if their FCPA problems become public. Whatever effect the congressional investigation may have on Wal-Mart, the possibility of such an investigation is a factor that high-profile companies facing FCPA concerns should weigh.”
For more on Wal-Mart’s FCPA scrutiny, see my recent article “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Exposure” (here).
Miller Chevalier also recently released its FCPA Autumn Review – see here.
Morrison Foerster also recently released its End of Summer Round-Up – see here.
This recent Jones Day publication concerning upcoming FCPA Guidance contains the following paragraph that should be read by those who simply label companies that have resolved FCPA enforcement actions or are the subject of FCPA scrutiny as bad or corrupt companies.
“It is the job of a prosecutor to make charging decisions and to decide in the first instance what does and does not violate the law. As prosecutors and enforcement attorneys assess the facts to make charging decisions, they are compelled to view the world, therefore, in binary terms: black and white, right and wrong. As defense counsel, settlement discussions with our counterparts in the DOJ and SEC frequently hinge on which side of the line the conduct sits. Particularly for those of us who served as prosecutors, we acknowledge in these discussions the difficult mission of the enforcement officials to draw and defend lines. The world of business, however, frequently operates in territory that is somewhat grey: a world in which business persons strive to grow the company ethically in situations where the application of the existing rules are not entirely clear. For instance, in the current era of FCPA enforcement, international businesses struggle with their responsibilities to monitor and control the conduct of third parties with whom they do business: distributors and sub-distributors, joint venture partners, dealers, and resellers. Even for companies that are firmly dedicated to compliance with the FCPA, is not always clear when a third party amounts to an agent whose improper conduct might someday be ascribed to the company and its employees. Good and ethical companies struggle, every day, with the concept of defining an agent of the company as opposed to an independent customer who engages in an arm’s-length transaction to purchase the company’s products.”
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A good weekend to all.
Friday Roundup
Briefing complete, an isn’t it ironic follow-up, and going for the gold. It’s all here in the Friday roundup.
Briefing Complete In Historic “Foreign Official” Challenge
This previous post highlighted the appeal of Carlos Rodriguez and Joel Esquenazi to the 11th Circuit on a host of issues, including whether the trial court erred as a matter of law in its jury instruction regarding what constitutes an “instrumentality” of a foreign government – and thus who are “foreign officials” under the FCPA. As noted in the post, this is a historic appeal, the first time in the FCPA’s history that “foreign official” will be squarely before an appellate court. This previous post highlighted the DOJ’s response brief.
Yesterday lawyers for Rodriguez and Esquenazi filed reply briefs here and here.
Among other things, Rodriguez’s brief argues as follows. “This Court should reject the Government’s assertion that the OECD Anti-Bribery Convention requires that this Court affirm the jury instruction incorporating the government function interpretation. […] Before the United States adopted the OECD 1997 Convention on Combating Bribery in 1998, the United States had no obligation to prohibit foreign bribery. Thus, the law of nations sheds no light on what Congress intended when it adopted the relevant definition of foreign official in 1977. In 1998, when Congress amended the FCPA in light of the OECD’s Convention, Congress did not add “public enterprise” to the definition of foreign official. This Court should not apply terms from the Convention that Congress chose not to adopt into the FCPA.”
Among other things, Esquenazi’s brief argues that the “government’s untethered definition of instrumentality cannot stand,” “the government engages in a selective and misleading reading of the FCPA’s legislative history,” and that the “government’s vehemence proves too much.” As to the later point, the brief states as follows. “The Government spends a significant part of its brief arguing that its broad (and fatally flawed) definition of “instrumentality” is crystal clear. First, few statutory terms have received such extensive governmental resuscitation efforts. Second, there is a difficult-to-ignore, growing consensus among observers (including two former United States Attorneys General) that the Government is misreading “instrumentality.”
Regarding my “foreign official” declaration (here) that the DOJ is seeking to exclude from the record, the brief states as follows. “The Government protests Esquenazi’s citation 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.”
David Simon (Foley & Lardner – here) leads the appellate team for Rodriguez. Markus Funk (Perkins Coie – here) leads the appellate team for Esquenazi.
Isn’t It Ironic Follow-Up
In this prior post, I asked isn’t it ironic, don’t you think, that while the U.S. is bringing enforcement actions against companies for conduct that includes providing $600 bottles of wine, Cartier watches, cameras, kitchen appliances, business suits, and executive education classes to individuals deemed “foreign officials,” the U.S. has legitimized corporate influence over government in this country? I noted that this uncomfortable truth will be clear on display as the elections unfold.
Sure enough, earlier this week, the Wall Street Journal had a page one article “Movie Mogul’s Starring Role in Raising Funds for Obama” (here) detailing Jeffrey Katzenberg’s extensive political contributions and close ties to President Obama. Hosting a dinner that raised $15 million for President Obama. Check. Writing a $2 million check to jump start a super PAC supporting President Obama. Check. A planned $40,000 per person dinner with President Obama. Check.
The WSJ article notes that “Mr. Katzenberg’s fundraising prowess has earned him access and a role as the informal liaison between Hollywood and the White House, as the industry continues seeking government help against online piracy” among other issues.
If President Obama was a foreign official and expensive wine was served at the dinner, such allegations might very well find their way into an FCPA enforcement action … and have already. If the super PAC was a charitable donation and President Obama a foreign official, such allegations might very well find their way into an FCPA enforcement action … and have already.
Isn’t it ironic don’t you think?
But the irony does not stop there.
As noted in the article, among the access that Katzenberg had was attending a State Department lunch during the recent U.S. visit of China’s presumed future leader Xi Jinping. The lunch occurred in the context of Hollywood’s eagerness to tap into the lucrative Chinese market.
As noted in this previous post, it was widely reported this past spring that the SEC has sent letters of inquiry to several Hollywood studios, including Katzenberg’s DreamWorks Animation, seeking information about potential inappropriate payments and how the companies interact with certain government officials in China.
Isn’t it ironic don’t you think?
Going for the Gold
It’s interesting to witness the lengths FCPA Inc. will go to market its compliance services. After dozens of London Olympic, Bribery Act, FCPA, are you prepared type pieces, up next is the Winter Olympics in Sochi, Russia, and with that a marketing opportunity. This recent law firm piece states as follows. “With the conclusion of the 2012 Summer Olympics in London, the world’s eyes will soon turn to Sochi, the Black Sea resort city in Russia, which will host the 2014 Winter Olympics. In addition to serving as the backdrop for the usual feats of athletic prowess and national pride, the Sochi games may also be fertile ground for prosecutions under the United States’ Foreign Corrupt Practices Act (FCPA). The U.S. government’s actions in this setting will serve as a signal to any company doing business abroad that it must be proactive in ensuring compliance with the FCPA.”
As Above the Law recently observed here, the FCPA “freak-out session is entertaining to watch.”
*****
A good weekend to all.
DOJ’s Recent Opinion Procedure Release Creates Additional “Foreign Official” Confusion
On September 18th, the DOJ issued this FCPA Opinion Procedure Release. Seldom do things go unnoticed these days in the FCPA space, but this post appears to be the first public reporting of the release issued a few weeks ago.
First a summary of the Release which focuses on “foreign official” issues and then some analysis and commentary.
The Requestor was a U.S. lobbying firm who wished to represent the Embassy of a Foreign Country to the United States and the Foreign Country’s Foreign Ministry in its lobbying activities in the United States.
The Release describes as follows. “To facilitate that lobbying representation, the Requestor further wishes to contract with a third party (the “Consulting Company”) to introduce the Requestor to the Foreign Country Embassy, to advise the Requestor on cultural awareness issues in dealing with the Foreign Country’s officials and businesses, to act as the Requestor’s sponsor in the Foreign Country, to help the Requestor establish an office in the Foreign Country, and to identify additional business opportunities for the Requestor in the Foreign Country. One of the partners in the Consulting Company is a member of the royal family of the Foreign Country (the “Royal Family Member”), although he holds no position in the government.”
According to the release, the Consulting Company “is a limited liability company located in both the United States and the Foreign Country” and it has “three partners, one of which is the Royal Family Member.”
As to the Royal Family Member, the release states as follows.
“The Royal Family Member holds no title or position in the government, has no governmental duties or responsibilities, is a member of the royal family through custom and tradition rather than blood relation, and has no benefits or privileges because of his status. The Royal Family Member has held only one governmental position in the Foreign Country: in the late 1990s, he served for less than twelve months in a position overseeing a governmental construction project. Other than this one previous governmental position, the Royal Family Member does not act—and has never acted—in any capacity for, or on behalf of, the Foreign Country, or any department, agency, or instrumentality of the Foreign Country. The Royal Family Member has also never had any role in any public organization. The Royal Family Member’s position in the royal family does not put him in line to ascend to any governmental post.”
As to why the Requestor would engage the Consulting Company and the Royal Family Member in the first place, the release states as follows.
“Any private sector company planning to open an office or operate a business in the Foreign Country is required by law to have local sponsorship. The Royal Family Member has sponsored numerous foreign companies wishing to do business in the Foreign Country. In his work on behalf of these foreign companies, the Royal Family Member interacts in his personal capacity (i.e., not on behalf of the royal family) with government officials of the Foreign Country who are not themselves members of the royal family.”
The release further states as follows. “The Requestor believes that the Royal Family Member’s experience and expertise in matters relating to the Foreign Country are essential to its succesful lobbying efforts on behalf of the Foreign Country Embassy. In addition to these services, the Consulting Company may also work to identify additional business opportunities in the Foreign Country for the Requestor.”
The release notes that under the proposed engagement, the Requestor would pay the Consulting Company 20% of what it receives from the Foreign Country Embassy which the Consulting Company would then split equally “among its three partner, one of whom is the Royal Family Member.”
Based on these circumstances, the DOJ framed the issues as follows: (1) whether the Royal Family Member is a “foreign official” under the FCPA; and (2) whether the Requestor’s proposed engagement with the Consulting Company would result in any enforcement action by the Department.
The DOJ’s opinion “is that the Royal Family Member does not qualify as a foreign official under [the FCPA] so long as the Royal Family Member does not directly or indirectly represent that he is acting on behalf of the royal family or in his capacity as a member of the royal family.” The DOJ further stated as follows. ” [B]ased on the facts as represented by the Requestor, the Requestor’s proposed engagement of the Consulting Company to assist in its potential representation of the Foreign Country Embassy in its U.S. lobbying efforts may go forward without enforcement action. The Department does not opine about any other aspect of the proposed engagement.”
In terms of the DOJ’s “analysis,” the Release states as follows.
“A person’s mere membership in the royal family of the Foreign Country, by itself, does not automatically qualify that person as a ‘foreign official.’ Rather, the question requires a fact-intensive, case-by-case determination that will turn on, among other things, the structure and distribution of power within a country’s government; a royal family’s current and historical legal status and powers; the individual’s position within the royal family; an individual’s present and past positions within the government; the mechanisms by which an individual could come to hold a position with governmental authority or responsibilities (such as, for example, royal succession); the likelihood that an individual would come to hold such a position; an individual’s ability, directly or indirectly, to affect governmental decision-making; and numerous other factors. The Department concludes that the Royal Family Member does not presently qualify as a foreign official.”
In support, the DOJ cites the Carson case as follows. “District court decisions addressing whether a state-owned entity may be an ‘instrumentality’ of a foreign government are also instructive for identifying the characteristics of a ‘foreign official’ under the FCPA. In these cases, courts applied a fact-based analysis that focused on several factors, such as those articulated in United States v. Carson:
• 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).”
The DOJ then states as follows. “[W]hether a member of a royal family is a ‘foreign official’ turns on such factors as (i) how much control or influence the individual has over the levers of governmental power, execution, administration, finances, and the like; (ii) whether a foreign government characterizes an individual or entity as having governmental power; and (iii) whether and under what circumstances an individual (or entity) may act on behalf of, or bind, a government. This inquiry is fact-intensive and no single factor is dispositive.”
The DOJ then states as follows.
“In the Department’s opinion, in light of the representations made by the Requestor recited above, this member of this particular royal family is not a foreign official—so long as he does not directly or indirectly represent that he is acting on behalf of the Royal Family or in his capacity as a member of the Royal Family. As represented by the Requestor, the Royal Family Member presently has no official or unofficial title or role in the Foreign Country’s government, nor does he have any official or unofficial power over any aspect of the Foreign Country’s governmental decision-making process, executive function, administration, finances, or, indeed, any aspect whatsoever of the government, including specifically the direct or indirect power to award the business the Requestor seeks. The Royal Family Member also cannot, by virtue of his membership in the royal family, ascend to a governmental position and has no benefits or privileges because of his status as a Royal Family Member. Further, the Royal Family Member has no relationship—personal, professional, or familial—with the decision-makers in the Foreign Country’s Embassy and the Foreign Country’s government who will decide whether to award the business the Requestor seeks. In light of these representations, the Royal Family Member has no power to affect the Foreign Country government’s award of the engagement the Requestor seeks.”
And now for some analysis and commentary.
The logical import of the DOJ’s opinion is that when a foreign individual “does not directly or indirectly represent that he is acting on behalf” of a foreign government “or in his capacity as a member” of a foreign government, then that individual is not a “foreign official” under the FCPA. The folly of the DOJ’s position is the high likelihood that the vast majority of individuals the DOJ considers to be “foreign officials” under the FCPA (such as employees of alleged state-owned or state-controlled enterprises or employees of certain foreign health care providers) are clueless that they are considered foreign government actors under U.S. enforcement agency interpretations.
Moreover, the DOJ’s conclusion that “a person’s mere membership in the royal family of the Foreign Country, by itself, does not automatically qualify that person as a “foreign official” is difficult to square with the DOJ’s statement in its FCPA Lay-Person’s Guide (here) that “the FCPA applies to payments to any public official, regardless of rank or position. The FCPA focuses on the purpose of the payment instead of the particular duties of the official receiving the payment …”.
The DOJ’s opinion in Release 12-01 however appears to be based entirely on the Royal Family Member’s particular duties or lack thereof.
Moreover, by focusing on the Royal Family Member’s particular duties or lack thereof, the DOJ actually drifts far-away from the Carson factors it cites to support its decision. The Carson factors all focus on the status of the entity employing an alleged “foreign official” without any reference to a specific individuals particular duties or lack thereof. In its recent 11th Circuit “foreign official” brief (here), the DOJ likewise elevates status over duties in assessing whether employees of Haiti Teleco were “foreign officials” under the FCPA.
However, in Release 12-01 the DOJ switches gears and elevates duties above status. In doing so, the DOJ actually goes back to the FCPA’s original definition of “foreign official” which categorically excluded certain bona fide traditional government officials based on their duties. The FCPA’s original definition of “foreign official” stated as follows “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or any person acting in an official capacity for or on behalf of such government or department, agency or instrumentality. Such terms does not include any employee of a foreign government or any department, agency, or instrumentality thereof whose duties are essentially ministerial or clerical.”
In short, the DOJ’s recent Release further adds to existing confusion of a key element of the FCPA.
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The DOJ’s Opinion Procedure Release is also notable given the following sentence. “In declining to take enforcement action, the Department has also considered the steps that the Requestor and the Consulting Company have taken here to comply with the FCPA and other anti-bribery laws.”
In “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (here), I argue that despite DOJ’s institutional opposition to an FCPA compliance defense, the DOJ currently recognizes a de facto compliance defense in a number of ways including its FCPA Opinion Procedure Releases. I highlight that in many FCPA Opinion Procedure Releases, the DOJ recognized a Requestor’s good-faith efforts to comply with the FCPA through pro-active compliance measures designed to reduce liability. I then argue that good-faith efforts to comply with the FCPA through pro-active compliance measures should be recognized as a matter of law and not just when an organization decides to engage in the formal FCPA Opinion Procedure Release Program.
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A final point regarding Opinion Procedure Release 12-01 deserving of attention is the time it took the Requestor to obtain a DOJ opinion. The Requestor submitted the release on February 15, 2012 and it took the DOJ (after requesting supplemental information) until September 18, 2012 to issue its opinion. The DOJ frequently cites the Opinion Procedure Release as a panacea for business concerns regarding FCPA ambiguity (i.e. if business is confused submit to the Opinion Procedure Release program). Seven months may seem like a short time period in government, but in the real-world where business decisions and contracts can be won or lost in a matter of days, it is not practical for a Requestor to wait seven months for a decision. If the DOJ wants its Opinion Procedure Release program to be taken seriously, it must issue more prompt opinions.
The Origins And Prominence Of A Theory
It is one of the more aggressive and dubious FCPA enforcement theories there is. It has never been subjected to judicial scrutiny. It is a relatively new enforcement theory when one considers that the Foreign Corrupt Practices Act was enacted in 1977. It is an enforcement theory that dominates this new era of enforcement and will likely continue to do so in the near future.
It is the enforcement theory that employees (such as physicians, nurses, mid-wives, lab personnel, etc.) of certain foreign health care systems are “foreign officials” under the FCPA.
This post traces the origins and prominence of this theory, contains comments from the former DOJ FCPA enforcement attorney who came up with this theory, and highlights a datapoint relevant to the legitimacy and validity of this theory.
Below is a list of DOJ and/or SEC enforcement actions based on the enforcement theory that employees of certain foreign health care systems are “foreign officials” under the FCPA. (In addition to the below enforcement actions, a minor component of the record-setting 2008 Siemens enforcement action also involved this enforcement theory). Each enforcement action listed below indicates the company involved, the year of the enforcement action, whether it was a DOJ or SEC enforcement action and the “foreign officials” involved as alleged by the DOJ and/or SEC.
Syncor (2002 – DOJ and SEC Enforcement Action)
Physicians employed by hospitals owned by the legal authorities in Taiwan.
Four doctors at government-owned hospitals in Mexico and doctors employed by hospitals owned by foreign government in Belgium, Luxembourg, and France.
Schering-Plough (2002 – SEC Enforcement Action)
Director of the Silesian Health Fund, one of sixteen regional government health authorities in Poland.
Diagnostic Products Corp. (2005 – DOJ Enforcement Action)
Laboratory personnel and doctors employed by hospitals owned by the Chinese government.
Micrus Corp. (2005 – DOJ Enforcement Action)
Physicians at state-owned hospitals in France, Germany, Turkey and Spain.
Immucor (2007 – SEC Enforcement Action)
Director of a public hospital in Italy
AGA Medical (2008 – DOJ Enforcement Action)
Hospitals owned and operated by the Chinese government.
Johnson & Johnson (2011 – DOJ and SEC Enforcement Action)
Health care providers who worked at publicly-owned hospitals in Greece, Poland, and Romania.
Smith & Nephew (2012 – DOJ and SEC Enforcement Action)
Health care providers who worked at publicly-owned hospitals in Greece.
Biomet (2012 – DOJ and SEC Enforcement Action)
Health care providers who worked at publicly-owned hospitals in Argentina, Brazil, and China.
Orthofix (2012 – DOJ and SEC Enforcement Action)
Individuals associated with Instituto Mexicano del Seguro Social, the Mexican government-owned healthcare and social services institution.
Pfizer (2012 – DOJ and SEC Enforcement Action)
Physicians, pharmacologists and senior government officials, who were employed by foreign governments or instrumentalities of foreign governments, including in Bulgaria, Croatia, Kazakhstan, and Russia. Doctors employed by Chinese government healthcare institutions, the Czech government, Italian government healthcare institutions, the government of Serbia, the Indonesian government, and healthcare institutions owned or controlled by the Pakistani government.
As the above list demonstrates, this enforcement theory has been the principal basis for 11 core corporate enforcement actions since it was invented in 2002. This number may not seem large at first blush, but it takes on added meaning when one considers, as noted in this prior post, that approximately 35% of core corporate enforcement actions since 2007 are the direct result of just three events – Iraq Oil for Food, Bonny Island Bribery, and Panalpina related investigations.
As demonstrated by the above list, this enforcement theory dominates FCPA enforcement thus far in 2012 (50% of the 8 core corporate enforcement actions this year have been based on this theory).
As indicated above, the first use of this enforcement theory occurred in the 2002 Syncor enforcement action. Then, Peter Clark headed the DOJ’s FCPA Unit. I asked him via e-mail the origins of this theory, whether it was internally debated, etc.
His e-mail response, published with his permission, was as follows. “There was no debate or dissent – the line prosecutors and I all agreed on the charge. While it may have been the first time a government-employed doctor was described as a government official in charging language, there was nothing novel [in the sense that we were striking out in a direction no one had ever thought of previously] or particularly aggressive about it.”
As indicated above, the most recent use of this enforcement theory was in the Pfizer enforcement action. In a bit of irony, and as noted in this prior post, Clark (currently at Cadwalader – here) served as Pfizer’s defense counsel.
A useful datapoint in examining the legitimacy and validity of this enforcement theory may be found in analyzing the number of criminal charges filed against individuals based on this theory.
Despite extracting nine corporate settlements based on the theory, the DOJ has never charged an individual in connection with this enforcement theory. This is meaningful because individuals, as opposed to business organizations, are more likely to contest DOJ charges and put the DOJ to its burden of proof.
In short, despite Clark’s belief to the contrary, the enforcement theory that various employees of certain foreign health care systems are “foreign officials” is one of the more aggressive and dubious enforcement theories there is. It has never been subjected to judicial scrutiny. It is a relatively new enforcement theory and it is an enforcement theory that dominates this new era of enforcement. It is likely that this enforcement theory will continue to dominate in the future as the pharmaceutical / medical devices industry sweeps are still in its infant stages (in terms of actual enforcement actions).
[As noted in this previous post, in the United States approximately 20% of hospitals are owned by state or local governments (see here). In addition, approximately 150 more medical centers are run by the Veterans Health Administration (see here). Are we calling 20+% of U.S. health-care providers U.S. officials? If not, why not and why the difference? Something to keep in mind when considering the origins and prominence of this theory of enforcement].
A Wide-Ranging Interview
The FCPA Report is an online publication that contains articles on a variety of FCPA topics to assist lawyers in relevant practice areas, in-house counsel, and risk and compliance managers stay ahead of the curve. It launched this June and features thematic sourced and researched by primarily lawyers, as well as contributed articles by experts in the field, interviews with leading figures, and reports on important developments. It is available to subscribers and trial subscribers at www.fcpareport.com.
I was pleased to do a telephone interview with the FCPA Report in mid-August. Today’s post sends you to the wide-ranging Q&A previously published, in two parts, in the FCPA Report and linked to here with permission.
Topics covered in the Q&A include the following: statute of limitations, judicial scrutiny, the duration of FCPA scrutiny, voluntary disclosure, Wal-Mart’s FCPA scrutiny, facilitation payments, obtain or retain business, foreign official, corporate fines, victims issues, a private right of action, FCPA Inc. and the revolving door, the three buckets of FCPA financial exposure and Foreign Corrupt Practices Act reform.