SEC Chairman Schapiro’s FCPA Responses
As noted in this prior post, on June 30th, Senator Mike Crapo (R-ID) sent SEC Chairman Mary Schapiro a letter requesting answers to a number of FCPA related questions. In this September 23rd letter, SEC Chairman Schapiro responds.
Chairman Schapiro begins as follows. “Contuined strong enforcement of the FCPA sends the message that American companies operating abroad will not pay bribes as a ‘cost of doing business.’ The deterrence message of the Commission’s FCPA enforcement program incentivizes companies to self-assess and update their compliance and internal controls – all of which benefits companies’ operations overall and provides greater transparency to investors. While I certainly appreciate and share your concerns about the costs of FCPA compliance in certain circumstances, I believe that the risks to investors and costs to companies posed by outdated or weak FCPA compliance measures are equally significant.”
Compliance Defense?
As to a potential FCPA compliance defense, Chairman Schapiro began by stating a common enforcement agency response … we already consider compliance. She stated as follows. “The Commission, in deciding whether to approve the filing of an FCPA enforcement action against a public company, already considers as one mitigating factor whether the company’s compliance program was reasonably designed and operated in a manner to detect and prevent FCPA violations.” “Similarly,” Chairman Schapiro stated, “companies facing FCPA inquiries can obtain credit for cooperation under the Commission’s new Cooperative Initiative, in which cooperation is defined to include, among other factors, having reasonable internal controls and compliance measures.” Given the above, Chairman Schapiro states that “it seems unnecessary – and even counterproductive – to recognize a formal affirmative defense for having such a program, given that there are at least three significant costs associated with such a defense.”
Chairman Schapiro then identifies the following three issues.
“First, the reasonableness of a compliance program is best measured not by how it exists on paper, but by how it operates in practice. Consequently, the ease with which an employee was able to circumvent anti-corruption controls is some evidence – not sufficient evidence, but some evidence – that internal controls were insufficient. The Commission would not want to be foreclosed from bringing FCPA charges under those circumstances, since holding companies accountable for weak internal controls incentivizes companies to create a robust FCPA compliance environment.”
“Second, providing an affirmative defense for reasonably designed compliance programs could allow companies to retain ill-gotten gains. A company could engage in bribery or other corrupt behavior, obtain a benefit from such conduct (i.e. securing lucrative contracts), and yet not disgorge its ill-gotten gains. Enabling companies to retain proceeds generated from the payment of bribes would disincentivize those companies from adopting rigorous anti-corruption programs.”
“Third, sanctioning corrupt behavior sends a strong message of general deterrence to all similarly situated companies that there is a high financial and reputational cost to be paid if they bribe foreign officials. There is often no substitute for the deterrent impact of financial and reputational sanctions, which prevent improper behavior from becoming ingrained as just another ‘cost of doing business.’ That deterrence message likely would be diluted if such an affirmative defense was adopted.”
“Foreign Official”?
According to Chairman Schapiro, the FCPA “sufficiently defines the term foreign official.” She stated as follows. “Given the various forms of government found around the world, it would be impractical to articulate each of the myriad of ways that one could use to identify a foreign official in particular countries or cultures. In addition, Commission and Department of Justice enforcement actions also provide guidance on the meaning of ‘foreign official’ in various contexts. Finally, companies with a strong compliance culture have policies prohibiting all bribery in order to send a clear corporate message that such practices are not condoned.”
SEC Guidance?
“Both the Commission and the Department of Justice have numerous mechanisms for providing guidance on FCPA matters. Perhaps the most important guidance comes from the enforcement actions that are brought by the Commission and the Department of Justice. The Commission uses it pleadings and accompanying public news releases to highlight and reinforce the key elements of each case. Additionally, senior staff in the Division of Enforcement speak regularly at industry conferences and provide guidance on the FCPA program. “
For a prior post on “prosecutorial common law” – see here.
As relevant to Chairman Schapiro’s “guidance” response, readers may be interested in my “Facade of FCPA Enforcement” article (here) in which I discuss the frequency in which FCPA enforcement actions are resolved based on uninformative, bare-bones statements of facts or allegations or conclusory legal statements; the increasing trend of FCPA enforcement actions resolved based on untested and dubious legal theories, as well as enforcement theories seemingly in direct conflict with FCPA’s statutory provisions; and the opaque nature of FCPA enforcement and how similar enforcement actions, based on the government’s own allegations, are resolved with materially different charges and penalties.
In short, the notion that settled SEC civil complaints or administrative orders (or now SEC NPAs or DPAs or DOJ NPAs or DPAs for that matter) provide meaningful guidance or should serve as FCPA caselaw is absurd. In my Facade article, I detail cases in which the SEC admits that the terms of an SEC settlement “do not necessarily reflect the triumph of one party’s position over the other.” I also highlight statements from former SEC Commissioner and current Standford law professor Joseph Grundfest that, among other things, SEC complaints “typically omit mention of valid defenses and of countervailing facts or mitigating circumstances …”. In the words of Professor Grundfest, the “natural result” of settling an SEC enforcement action “is a one-sided record in which the Commission asserts its version of the facts and the law, and the settling defendants commit not to challenge that rendition.”
On the same general topic, albeit in the DOJ FCPA context, see this recent piece from Michael Volkov “The FCPA & Voluntary Disclosure An Engimatic Threat to Due Process” (“the Justice Department has started to cite as precedent its own decisions respecting the outer reaches of the law”).
Strict Parent Company Liability for Foreign Subsidiary Actions?
Chairman Schapiro’s response states in full as follows. “A U.S. parent company may be liable under the FCPA for bribes paid by its foreign subsidiary in certain circumstances, such as where the parent company had knowledge of the foreign subsidiary’s bribery or where the subsidiary acted as the parent’s agent. ‘Knowledge’ under the FCPA’s anti-bribery provisions encompasses actual knowledge, conscious disregard of, or willful blindness to the subsidiary’s illicit activities. In addition, under agency law, an agent’s knowledge can be imputed to the principal (parent). Accordingly, in the absence of the requisite evidence, the Commission does not charge a U.S. parent company with a violation of the FCPA’s anti-bribery provisions in connection with the foreign subsidiary’s actions. In addition, the Commission may, based on its analysis of the particular facts and circumstances of some cases, charge the foreign subsidiary directly with violation of the FCPA’s anti-bribery provisions while separately charging the parent company with violations of the books and records and internal control provisions of the FCPA. This is because the public company parent typically is responsible for the accuracy of the books and records of its overall operations, including those of its controlled foreign subsidiaries. While the FCPA’s books and records and internal controls provisions do not contain a ‘knowledge’ requirement, the Commission exercises its discretion and flexibility in charging these provisions.”
For previous posts on the issue of strict liability see here and here.
Double-Dip Penalties?
Chairman Schapiro stated as follows. “The Commission and Department of Justice do not obtain duplicative penalties in FCPA cases. Typically, the Commission will obtain monetary sanctions in the form of disgorgement (ill-gotten gains) while the Department of Justice obtains monetary sanctions in the form of penalties. In those rare cases where both the Commission and the Department of Justice obtain penalties, the total penalty assessed against the company is no greater than it would be if either the Commission or DOJ alone obtained the penalty.”
However, DOJ penalties are calculated by reference to the advisory U.S. Sentencing Guidelines where an important factor in determining the ultimate penalty amount is value of the benefit received by the company from the conduct at issue.
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For your viewing pleasure here – an October 5th rountable program sponsored by the Heritage Foundation on corruption, economic growth, and freedom.
For the calendars of Indianapolis area readers see here. A luncheon address – “Compliance in a New Era of FCPA Enforcement” I am giving next Tuesday (Oct. 11th) to the World Trade Club of Indiana. The event, sponsored by Butler University College of Business, begins at 11:30 at the downtown law offices of Baker & Daniels.
From the Dockets
This post details developments as to FCPA or related litigation previously reported.
Haiti Teleco Case
Previous posts (here and here) detailed Joe Esquenazi’s and Carlos Rodriguez’s motion for acquittal or a new trial based on statements made (and then seemingly retracted) by Jean Max Bellerive (Prime Minister of Haiti) concerning the ownership of Haiti Teleco – the entity at the middle of the bribery scheme. In the DOJ’s response (here) to the defendants’ motion, the DOJ argues, among other things, that “the Government did not seek the first Bellerive declaration from the Republic of Haiti, and there is no need for an evidentiary hearing as to when or how the Government obtained it.” As to the second Bellerive declaration, the DOJ stated that “the Government assisted Mr. Bellerive in preparing the declaration” in which Bellerive, as noted in the prior post, stated that the first declaration was strictly for internal purposes and he did not know it was going to be used in criminal legal proceedings in the U.S. or that it was going to be used in support of the argument that Teleco was not part of Public Administration of Haiti.
Substantively, the DOJ argues that the first Bellerive declaration does not “contain newly discovered evidence” because the jury “heard most of” the points addressed in the first Bellerive declaration from Garry Lissade, the DOJ’s expert witness, who testified as to the legal status of Haiti Teleco after “he conducted extensive research, including legal research and interviews, in reaching his conclusions.”
The DOJ’s position in many FCPA enforcement actions concerning state-owned or state-controlled entities seems to be that the ownership structure of the entity at issue should be obvious and easily ascertainable to defendants. If so, why did Lissade (Haiti’s former Minister of Justice) have to “conduct extensive research, including legal research and interviews, in reaching his conclusion” that Teleco was a Haitian public entity?
Africa Sting Case
The second Africa Sting trial involving defendants John Mushriqui, Jeana Mushriqui, R. Patrick Caldwell, Stephen Giordanella, John Godsey, and Marc Morales is set to begin on September 22nd. The second trial will be more narrowly focused than the first Africa Sting trial that resulted in a mistrial (as well as dismissal of certain counts including money laundering conspiracy charges).
Why? Because the DOJ did not oppose defendants’ motion to dismiss the money laundering conspiracy charges. In pre-trial briefing, the DOJ stated as follows. “At the conclusion of the government’s case-in-chief in the first trial, the Court granted a motion for judgment of acquittal on Count Forty-Four of the Superseding Indictment with respect to the defendants in the first trial. The government continues to believe that the Court should not have granted the motion and that Count Forty-Four should have been submitted to the jury. But the government understands the Court’s ruling and will not object to the Defendant’s motion. The government’s position in this filing recognizes the Court’s past ruling, and in no way suggests that the government will not seek to bring similar charges in future cases.”
Siriwan “Foreign Official” Case
A previous post (here) detailed how Juthamas Siriwan and Jittisopa Siriwan (the “foreign officials” in the Green FCPA enforcement action) were fighting back against DOJ criminal charges. As noted in the post, the Siriwans argued as follows. “This is the first judicial challenge to a novel prosecutorial approach the Government recently developed to charge foreign officials allegedly involved in corruption. That approach is aimed at overcoming a fundamental FCPA limitation. The FCPA does not criminalize a foreign public official’s receipt of a bribe. Nor can the Government employ an FCPA conspiracy charge against a foreign public official. Accordingly, these new enforcement initiatives require expansive interpretations [of] “promotion money laundering” [under the Money Laundering Control Act].” The Siriwans further argued as follows. “Congress has extensively amended the FCPA, yet it deliberately has not extended FCPA liability to foreign officials. If the Government wishes to extend U.S. criminal penalties to foreign officials accepting a bribe, it must go back to Congress, rather than employ dubious charging tactics to evade the direct and repeated congressional choice not to apply FCPA criminal liability to such officials.”
In its opposition brief (here) filed last week, the DOJ stated as follows. “Upon analysis of defendants’ arguments, it is quickly evident that, in support of their positions, defendants routinely conflate and confuse multiple statutes, interpret and argue the elements of uncharged statutes, and ignore case law relevant to the statutes actually charged.” Among other things, the DOJ stated as follows. “That foreign officials cannot face liability for FCPA offenses does not give foreign officials a free pass to commit other, entirely separate, crimes.” The DOJ noted that the Siriwans are not charged with accepting a bribe, or conspiring to violate the FCPA, but rather with “the separate, and entirely analytically distinct, crime of international transportation money laundering to promote the Greens’ violation of the FCPA.” The DOJ noted that just because Siriwan “was a foreign official at the time of these offenses, and therefore, not charged under the FCPA does not change the analysis.”
As reported by Samuel Rubenfeld at Wall Street Journal Corruption Currents, a hearing on Siriwans’ motion to dismiss is scheduled for Oct. 20.
Haiti Teleco – From Stunning To Strange
A post earlier this week (see here) highlighted the motion by Carlos Rodriguez and Joel Esquenazi for a judgment of acquittal or a new trial based on Jean Max Bellerive’s (Prime Minister of Haiti) July 26, 2011 signed statement that stated, among other things, that “Teleco has never been and until now is not a state enterprise.”
In a strange turn of events, on August 25th, a day after the motion, the Prime Minister penned a declaration that was filed by the DOJ Tuesday in the case. See here. In the declaration, the Prime Minister said that he did not know his July 26th statement “was going to be used in criminal legal proceedings in the United States or that it was going to be used in support of the argument that […] Teleco was not part of the Public Administration of Haiti.” Referring to his July 26th statement, the Prime Minister said “that document had been signed strictly for internal purposes and to be used in support of the on-going modernization process of Teleco.”
In the statement, the Prime Minister continues as follows. “Even though the facts mentioned in the [July 26th statement] are truthful, now that I know the purpose for which they were used, I wish to explain how they might lead to confusion.” Backtracking from his original statement, the Prime Minister says that his prior statement can be “confusing” because “it omits the fact that, after the initial creation of Teleco and prior to its modernization, it was fully funded and controlled by BRH [Bank of the Republic of Haiti], which is a public entity of the Haitian state.”
Among other things, the Prime Minister states as follows. “… [T]he nomination of the Director General and of the Board members of Teleco has always been done by Decision of the President of the Republic and been countersigned by the Prime Minister and other ministers concerned.” “Prior to the modernization process, Teleco’s income was to be used by BRH for public purposes. Teleco’s debts were also borne by BRH. Teleco does not pay taxes or import duties. Teleco also benefits from a State monopoly authorized for land-line telephone services in Haiti. Prior to its modernization, 97% of Teleco belonged to the Haitian State, which nevertheless controlled it in 100%. These facts are all known to the public and to me.”
Does the Prime Minister of Haiti routinely monitor U.S. legal proceedings or was the origin of the Prime Minister’s August 25th declaration the result of government to government communications? The Prime Minister’s declaration includes this final paragraph. “Finally, the Government of Haiti has always supported and will continue to support the Government of the United States in its efforts to fight against corruption, especially in light of the fact that such actions violate Haitian laws. Haiti has been the victim of such illegal actions that have resulted in loss of revenue for Haiti.”
If the Prime Minister’s original July 26th statement was meant “strictly for internal purposes” how did it surface in the Haiti Teleco FCPA proceedings? As this document indicates, the DOJ’s cover letter of August 10th to defense counsel indicates that the DOJ received the statement “from Mr. Paul Calli in connection with the charges pending against Patrick Joseph.” Calli (here) represents Joseph (a former general director for telecommunications at Haiti Teleco) who was criminally charged in July with conspiracy to commit money laundering in connection with the Haiti Teleco matter. (See here for the prior post).
Stunning Haiti Teleco Development
In early August (see here for the prior post) a federal jury convicted defendants Joel Esquenazi and Carlos Rodriguez “on all counts for their roles in a scheme to pay bribes to Haitian government officials” at Haiti Teleco. Specifically, Esquenazi and Rodriguez, were convicted of one count of conspiracy to violate the FCPA and wire fraud; seven counts of FCPA violations; one count of money laundering conspiracy; and 12 counts of money laundering. The FCPA counts were based on the theory that Haiti Teleco was an “instrumentality” of the Haitian government and that Haiti Teleco employees were thus “foreign officials” under the FCPA.
In a stunning development last week (first reported by Law360), Rodriguez filed a motion (here – joined by Esquenazi) for judgment of acquittal or a new trial based on newly discovered evidence. The reason? Defendants claim that Haiti Teleco was never a state enterprise. The evidence? A declaration (here) by Jean Max Bellerive on behalf of the Haitian Ministry of Justice on the “Legal Status of Teleco,” The declaration asserts, among other things, that “Teleco has never been and until now is not a state enterprise.” The stunner? The declaration is dated July 26, 2011 – ten days before the jury reached its August 5th verdict. According to defendants’ motion, the declaration was not translated into English until August 5th and was provided to defense counsel by the DOJ on August 10th.
A bit of background.
In December 2009, Esquenazi and Rodriquez (among others) were criminally indicted (see here). The DOJ alleged that Teleco was the “Republic of Haiti’s state owned national telecommunications company” and that certain employees of Teleco were thus “foreign officials” under the FCPA.
In November 2010 (see here for the prior post) Esquenazi launched a greenhorn legal challenge to the DOJ’s “foreign official” theory. Among other things, Esquenazi asserted as follows. “[The DOJ’s] definition of ‘foreign official’ is unsupported by the text or the purpose of the FCPA. The FCPA is a public bribery statute which criminalizes improper payments to officials performing a public function. Mere control or partial control or ownership (or partial ownership) of an entity by a foreign government no more makes that entity’s employees ‘foreign officials’ than control of General Motors by the U.S. Department of the Treasury makes all GM employees U.S. officials.” In response, the DOJ argued that the status of Teleco was an issue for the jury and that Esquenazi’s pre-trial motion was premature. (See here for the prior post). Elsewhere in its response the DOJ stated as follows. “As will be demonstrated in the government’s case-in-chief, whether Haiti Teleco was an instrumentality of the Republic of Haiti is not a close case, a fact the defendants likely understand and therefore attempt to raise this issue before the evidence has been presented.”
Within 48 hours of the DOJ’s response, Judge Jose Martinez (S.D. Fla.) denied Esquenazi’s motion in a cursory opinion devoid of substantive analysis. (See here for the prior post). The substance of Judge Martinez’s decision was as follows. “The Court […] finds that the Government has sufficiently alleged that Antoine and Duperval were foreign officials by alleging that these individuals were directors in the state-owned Haiti Teleco. Any factual arguments Defendant has on this point may be addressed at trial.” “The Court also disagrees that Haiti Teleco cannot be an instrumentality under the FCPA’s definition of foreign official. The plain language of this statute and the plain meaning of this term show that as the facts are alleged in the indictment Haiti Teleco could be an instrumentality of the Haitian government.”
According to defendants’ motion last week, at trial the following occured. “On July 25, 2011, the Government called its expert witness, Gary Lissade, to testify regarding Haitian law and his opinion as to whether Haiti Teleco was a State owned public entity/instrumentality of the Republic of Haiti and whether its employees were, therefore, government officials. Although Mr. Lissade was unable to review the bylaws or stock certificates of Haiti Teleco, or find any document establishing Haiti Teleco as a “S.A.M.” entity, he opined that because the Haitian central bank reportedly owned 97 percent of the stock, plus his observations of “[c]ustom and practice” and “the letterhead of Teleco,” that Teleco was a Haitian government entity/instrumentality. Lissade further opined that because he concluded that Teleco was a public entity, all employees of Teleco were government officials or employees even though no law designated government employees at locations such as Teleco as government employees or agents.”
In their motion, defendants’ argue as follows. “In stark contrast to the trial testimony of the Government’s expert, the Minister of Justice and Public Safety of the Republic of Haiti unequivocally stated in the Declaration that Téléco ‘has never been and until now is not a State enterprise.'” As to the timing of the declaration, defendants state as follows. “The Government’s August 10, 2011 letter offered no explanation or reason why it did not and could not have obtained the Declaration or information contained therein during the Grand Jury proceedings, before trial, or before the jury deliberated and rendered its verdict on August 5, 2011.”
The DOJ’s response is due on September 12th and with the DOJ’s prosecutorial conduct already under the microscope in the Lindsey matter (see here) this will be an interesting development to follow.
Bigger picture, I have long wondered what evidence the DOJ presents to the grand jury in securing FCPA indictments based on the theory that an entity is a state-owned or state-controlled enterprise (“SOE”). Related to this, I have also long wondered what amount of due diligence the DOJ engages in to satisfy themselves – in resolving an FCPA enforcement action via a non-prosecution or deferred prosecution agreement – whether an entity is an SOE. Those with insight are encouraged to share.
Guilty Verdict in Haiti Teleco Case
Much of the attention this spring and summer has been on the Africa Sting, Lindsey Manufacturing and Carson cases. Yet an FCPA trial also took place in Miami – part of the massive Haiti Teleco cases (see here for the prior post).
Today, the DOJ announced (here) that a federal jury (after a two week trial) convicted defendants Joel Esquenazi and Carlos Rodriguez “on all counts for their roles in a scheme to pay bribes to Haitian government officials” at Haiti Telecom.
Assistant Attorney General Lanny Breuer stated as follows. “This verdict is another powerful example that bribery of government officials – whether at home or abroad – has serious consequences. In finding the defendants guilty on all charged counts, the jury sent an unmistakable message that paying off foreign officials does not, in fact, pay off.”
According to the DOJ release, Esquenazi and Rodriguez, were convicted of one count of conspiracy to violate the FCPA and wire fraud; seven counts of FCPA violations; one count of money laundering conspiracy; and 12 counts of money laundering.
Sentencing for both defendants currently is scheduled for Oct. 13, 2011.
Previously in the case, Esquenazi challenged the DOJ’s foreign official interpretation (see here for the prior posts) and the DOJ and the defendants also sparred over the “foreign official” jury instructions.
Judge Martinez instructed the jury as follows.
“An ‘instrumentality’ of a foreign government is a means or agency through which a function of the foreign government is accomplished. State-owned or state-controlled companies that provide services to the public may meet this definition. To decide whether [Haiti Telecom] is an instrumentality of the government of Haiti, you may consider factors including but not limited to: (1) whether it provides services to the citizens and inhabitants of Haiti; (2) whether its key officers and directors are government officials or are appointed by government officials; (3) the extent of Haiti’s ownership of Teleco, including whether the Haitian government owns a majority of Teleco’s shares or provides financial support such as subsidies, special tax treatment, loans or revenue from government-mandated fees; (4) Teleco’s obligations and privileges under Haitian law, including whether Teleco exercises exclusive or controlling power to administer its designated functions; and (5) whether Teleco is widely perceived and understood to be performing official or government functions. These factors are not exclusive, and no single factor will determine whether [Teleco] is an instrumentality of a foreign government. In addition, you do not need to find that all the factors listed above weigh in favor of Teleco being an instrumentality in order to find that Teleco is an instrumentality.”
Defendants have a good chance to challenge this instruction on appeal should they so choose.