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Further To JPMorgan Representing A Trifecta Of Off-The-Rails FCPA Enforcement

By on March 27, 2017 in Fang Fang, Federal Reserve, Garth Peterson, Internal Controls, JPMorgan, Timothy Fletcher
Offtherails

This prior post highlighted the recent article “JPMorgan – A Trifecta of Off-The-Rails FCPA Enforcement” (the article can be downloaded here).

A recent Federal Reserve Board enforcement action against Fang Fang (the former Managing Director and head of China Investment Banking at J.P. Morgan Securities (Asia Pacific) Limited (JPMSAP)) and Timothy Fletcher (the former Managing Director and Head of the Junior Resources Management Group at JPMSAP – the group responsible for recruiting, hiring, staffing, and compensation and reviews for junior employees) further highlights how the JPMorgan Foreign Corrupt Practices Act enforcement (see prior posts here and here) represents a trifecta of off-the-rails enforcement and why anyone who values the rule of law should be alarmed.

In addition, this post highlights how the recent Federal Reserve action against Fang and Fletcher was not the first Federal Reserve action against an individual in the FCPA context.

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Rogue Employees Do Exist, Plus A Noticeable Juxtaposition

By on March 4, 2014 in ALSTOM, Compliance Defense, Garth Peterson, Morgan Stanley, Rogue Employees

In the minds of some (see here and here) rogue employees are a myth – a convenient rationalizing for inadequate internal controls and compliance policies and procedures.

The irony of course is that even the DOJ acknowledges the existence and reality of rogue employees.  The U.S. Attorneys’ Manual (9-28.800) states that “no compliance program can ever prevent all criminal activity by a corporation’s employees …” and high-ranking DOJ officials have observed that “there will always be rogue employees who decide to take matters into their own hands.  They are a fact of life.”  As this recent Economist article rightly stated: “fraud by wayward employees, be they high or low, can never be eliminated.”

This post highlights the DOJ’s recent indictment of Asem Elgawhart, the logical relationship this case has to a pending FCPA enforcement action, and how the Elgawhart action further supports the notion that the DOJ’s so-called Morgan Stanley declination was nothing more than a conveniently timed public relations campaign.

Elgawhart Indictment

Elgawhart was employed by Bechtel and was assigned by Bechtel to be the General Manager of Power Generation Engineering and Services Company (PGESCo), a joint venture between Bechtel and Egyptian Electricity Holding Company (the alleged “state-owned and state-controlled electricity company in Egypt”).

According to the DOJ, Elgawhart “used his position and authority as the General Manager of a power generation company to solicit and obtain millions of dollars of kickbacks for his personal benefit from U.S. and foreign power companies that were attempting to secure lucrative contracts to perform power-related services.”

“In total,” the DOJ alleged, “Elgawhart received more than $5 million in kickbacks to help secure more than $2 billion in contracts for the kickback-paying companies, all of which he concealed from his employer, from bidding companies that did not pay kickbacks and from the U.S. Internal Revenue Service.”

Based on these allegations, and as indicated in this DOJ release, Elgawhart was charged in a 8-count indictment with mail and wire fraud, money laundering and various tax offenses.

Bechtel was not criminally charged and there is a good and obvious reason why.  There was no basis to charge Bechtel with any criminal offense.

Indeed, the DOJ alleges that Elgawhart: “defrauded Bechtel,” “concealed material facts from executives at Bechtel,” provided to executives at Bechtel annual Representation Letters containing representations that he “knew to be false,” “concealed and misrepresented material facts to counsel for Bechtel” during interviews, and caused certain evidence to be “deleted and destroyed.”

According to the DOJ, Elgawhart engaged in the above conduct against the following relevant background.

“Bechtel maintained a Code of Business Ethics that imposed on its employees certain standards and duties, including: (a) That employees not misrepresent themselves to anyone; (b) That employees not misuse proprietary, confidential or private information of Bechtel, its customers and suppliers; (c) That employees never give, solicit or accept a gift if that gift may create a payback obligation; and (d) That employees not have a financial interest in an actual or potential supplier, competitor, customer or any other organization that could cause a conflict of interest.

In addition, Bechtel maintained an Ethics and Compliance Policy requiring its employees to fully disclose through a conflict of interest revIew process any activity or transaction that might give rise to a conflict of interest.

During the course of his tenure at Bechtel, Elgawhart acknowledged Bechtel’s policies and agreed to comply with them. In or around 2001, in connection with his continued assignment as General Manager at PGESCo, Elgawhart signed a “Recital of International Employment Conditions” that required Elgawhart to comply with published Bechtel personnel policies and stated that Bechtel could discharge Elgawhart for violations of law, conduct that discredited Bechtel, theft and breach of Bechtel policy.”  [The DOJ also made similar allegations as relevant to PGESCO’s internal controls].

Logical Relationship to Pending FCPA Enforcement Action

Although some have inaccurately described the Elgawhart case as a “Foreign Corrupt Practices Act prosecution,” it is not.  Nevertheless, it is hard not to notice that at the bottom of the DOJ’s release there is reference to the DOJ’s “FCPA enforcement efforts.”

Indeed, there appears to be a logical relationship between the Elgawhart case and a pending FCPA enforcement action.  The Elgawhart indictment specifically alleges that the kickback scheme involved, among other companies, “Power Company A” (a French company engaged in the business of providing power generation and transportation-related services around the world”) including “Power Company A’s subsidiary in Connecticut.”

This is the same exact description of Power Company A (widely known to be Alstom) in the April 2013 FCPA enforcement action against current and former Alstom executives, several of which were employed by Power Company A’s subsidiary in Connecticut.”  (See here for the prior post).

A Noticeable Juxtaposition

As discussed above, Bechtel was not criminally charged in connection with the Elgawhart indictment and there was a good and obvious reason why.  There was no basis to charge Bechtel with any criminal offense.

Similarly, there was no basis to charge Morgan Stanley with any criminal offense in connection with the April 2012 Garth Peterson enforcement action.

Like in the Elgawhart action, in the Peterson action the DOJ alleged as follows as highlighted in this previous post.

  • “Peterson and Chinese Official 1 had a close personal relationship before Peterson joined Morgan Stanley.”
  • A shell company used to facilitate the scheme was owned 47% by Chinese Official 1 and 53% by Peterson and a Canadian Attorney.
  • “Without the knowledge or consent of his superiors at Morgan Stanley, Peterson sought to compensate Chinese Official 1″
  • “Peterson concealed Chinese Official 1’s personal investment [in certain properties] from Morgan Stanley”
  • “Peterson used Morgan Stanley’s past, extensive due diligence [as to certain of the investment properties] to benefit his own interests and to act contrary to Morgan Stanley’s interests.”

Consistent with these allegations, in its press release the DOJ stated:  “Mr. Peterson admitted … that he actively sought to evade Morgan Stanley’s internal controls in an effort to enrich himself and a Chinese government official.”  Moreover, in sentencing Peterson the judge stated that ”it is likely that [Morgan Stanley] would be considered a victim” of Peterson’s conduct.  (See 859 F.Supp.2d 477).

Yet, you all the know the story-line in the Peterson case as it has become part of FCPA religion preached by the DOJ and carried forward at every available opportunity by obedient parishioners.  The DOJ declined to prosecute Morgan Stanley because of its pre-existing compliance policies and procedures!

Most everyone was drinking the Kool-Aid, perhaps because taking a sip from the communal cup was convenient in marketing FCPA compliance services and products.

So why the difference in the DOJ’s public statements regarding Peterson / Morgan Stanley and Elgawhart / Bechtel?

Well, the Peterson enforcement action occurred in April 2012 when FCPA reform (including a corporate compliance defense) was still a hot topic and the DOJ was facing pressure to demonstrate something fair about its FCPA enforcement events.

Indeed, as noted in this previous post which highlighted a Morgan Stanley – Davis Polk webinar (Davis Polk represented Morgan Stanley), Davis Polk stated that part of its advocacy to the DOJ and SEC was that the agencies needed to publicly send a message on compliance and that the Morgan Stanley – Peterson case provided an “ideal case to do so.”  Interestingly, the webinar was moderated by a Davis Polk attorney who called the Morgan Stanley declination “unprecedented and important” and that it was “important and new, it is news that sets precedent.”  This same attorney of course was the Assistant Attorney General (DOJ, Criminal Division) during most of the time period relevant to the enforcement action and is the same person who testified on behalf of the DOJ at the Nov. 2010 Senate FCPA hearing and the June 2011 House FCPA hearing and stated (see here and here for the transcripts of the hearings) that a compliance defense was not necessary because the DOJ already considers compliance efforts when making its enforcement decisions.

In short, the juxtaposition between the DOJ’s statements in connection Peterson / Morgan Stanley and Elgawhart / Bechtel further supports the notion that the DOJ’s so-called Morgan Stanley declination was nothing more than a conveniently timed public relations campaign.

Yet the Kool-Aid continues to be served and enjoyed by many.

Stop Drinking The Kool-Aid

By on November 5, 2012 in Compliance Defense, Garth Peterson, Morgan Stanley

Since April the Department of Justice has been running a Kool-Aid stand and many people have been drinking the Kool-Aid.

The Kool-Aid being served up and consumed is Morgan Stanley’s so-called declination.

As noted in this prior post, in April in resolving an enforcement action against Garth Peterson (a former managing director for Morgan Stanley’s real estate business in China), the DOJ stated as follows concerning Morgan Stanley.

“After considering all the available facts and circumstances, including that Morgan Stanley constructed and maintained a system of internal controls, which provided reasonable assurances that its employees were not bribing government officials, the Department of Justice declined to bring any enforcement action against Morgan Stanley related to Peterson’s conduct.  The company voluntarily disclosed this matter and has cooperated throughout the department’s investigation.”

Since then, Morgan Stanley’s so-called declination has been the talk of the FCPA conference circuit and has been the basis for many FCPA Inc. client alerts and marketing material.   It seems as if many (but not all) have merely carried forward the DOJ’s statement without an ounce of analysis.  (See here for the prior post “Morgan Stanley’s So-Called Declination”).  This recent press release demonstrates that Morgan Stanley’s so-called declination is even being used to peddle compliance products.  In this recent webinar, Morgan Stanley and its counsel, Davis Polk, engaged in what seems like a victory lap celebration.

Since opening up its Kool-Aid stand, the DOJ has been on a marketing blitz as to its “product.”  In this September speech, Assistant Attorney General Lanny Breuer stated as follows.  “Because Morgan Stanley voluntarily disclosed Peterson’s misconduct, fully cooperated with our investigation, and showed us that it maintained a rigorous compliance program, including extensive training of bank employees on the FCPA and other anti-corruption measures, we declined to bring any enforcement action against the institution in connection with Peterson’s conduct.  That is smart, and responsible, enforcement.”

In this October speech, Breuer likewise stated as follows.  “Because Morgan Stanley voluntarily disclosed Peterson’s misconduct, fully cooperated with our investigation and showed us that it maintained a rigorous compliance program, including extensive training of bank employees on the FCPA and other anti-corruption measures, we declined to bring any enforcement action against the institution in connection with Peterson’s conduct. Prosecutors need to be smart about how they use their discretion in the FCPA context, as in every context.  And, as we did in the Peterson case, we always attempt to strike an appropriate balance between vigorous and responsible enforcement.”

An experienced FCPA practitioner, who otherwise holds Breuer in high regard, recently told me that Breuer’s recent speeches on Morgan Stanley’s so-called declination are a “joke.”

I agree and suggest that before anyone speaks or writes another word about Morgan Stanley’s so-called declination, they do something basic and old-fashioned.  Read the original source documents.

The original source documents evidence the following as to Peterson’s involvement in a real estate investment scheme with Chinese Official 1.

According to the DOJ’s information (here) and as noted in this prior post:

  • “Peterson and Chinese Official 1 had a close personal relationship before Peterson joined Morgan Stanley.”
  •  A shell company used to facilitate the scheme was owned 47% by Chinese Official 1 and 53% by Peterson and a Canadian Attorney.
  • “Without the knowledge or consent of his superiors at Morgan Stanley, Peterson sought to compensate Chinese Official 1″
  • “Peterson concealed Chinese Official 1’s personal investment [in certain properties] from Morgan Stanley”
  • “Peterson used Morgan Stanley’s past, extensive due diligence [as to certain of the investment properties] to benefit his own interests and to act contrary to Morgan Stanley’s interests.”

Consistent with these allegations, in the DOJ’s release Breuer himself stated as follows.  “Mr. Peterson admitted … that he actively sought to evade Morgan Stanley’s internal controls in an effort to enrich himself and a Chinese government official.”

Additional original source documents became available in connection with Peterson’s sentencing and shed additional light on information relevant to Morgan Stanley’s so-called declination.  As noted in this prior post, in its sentencing submission, the DOJ stated that Peterson “repeatedly and consistently lied to his Morgan Stanley supervisors and co-workers” concerning the conduct at issue and that  “each of Peterson’s [Morgan Stanley required FCPA certifications] was but another lie that lulled his employer into trusting Peterson.”  In his sentencing submission, Peterson stated as follows concerning the Chinese Official he had a relationship with prior to joining Morgan Stanley.  “The Chinese Official was a close friend of Peterson’s – in many ways a father figure to him – and Peterson helped him in order to repay the help that the Chinese Official had given him through his career.”  Peterson also asserted that his attempt to influence the ”father figure” Chinese Official in the investment project giving rise to the enforcement action was an attempt to recoup an investment for this mother.

In the recent Morgan Stanley – Davis Polk webinar (here), Morgan Stanley’s counsel specifically said that Peterson was acting “for his own benefit” and that Morgan Stanley had the advantage of facts because Peterson had “personal interests in the transactions” at issue and that he acted for “his own benefit” not “Morgan Stanley’s.”

In the webinar, Davis Polk stated that part of its advocacy to the DOJ and SEC was that the agencies needed to publicly send a message on compliance and that the Morgan Stanley – Peterson case provided an “ideal case to do so.”

Interestingly, the webinar was moderated by Davis Polk attorney Greg Andres who called the Morgan Stanley declination “unprecedented and important” and that it was “important and new, it is news that sets precedent.”  Andres is not exactly an impartial observer on this issue.  Prior to recently rejoining Davis Polk, he was the Assistant Attorney General (DOJ, Criminal Division) during most of the time period relevant to the enforcement action and he seemed to be using the webinar to justify the compliance defense views he offered on behalf of the DOJ during the Nov. 2010 Senate FCPA hearing and the June 2011 House FCPA hearing.  (See here and here for the transcripts of the hearings).  In short, Andres testified that a compliance defense is not needed because the DOJ already considers a company’s compliance efforts internally when deciding how to proceed in any particular case.

Morgan Stanley may indeed have being doing the right thing in its compliance program and for that it deserves credit.

However, the DOJ’s use of the Peterson enforcement action (a situation in which an individual acted for his own benefit with a person he had a prior close relationship with to recover his mother’s investment) to champion its policy position that a compliance defense is not needed because it already takes compliance into account is off-base.

The reason Morgan Stanley was not prosecuted for Peterson’s actions is because there was no basis to hold Morgan Stanley liable even under lenient respondeat superior standards.

Should you remain unconvinced, consider what U.S. District Court Judge Jack Weinstein (E.D.N.Y.) noted in the case – “it is likely that [Morgan Stanley] would be considered a victim” of Peterson’s conduct.  (See 859 F.Supp.2d 477).

Stop drinking the Kool-Aid.

Assistant Attorney General Lanny Breuer On …

By on October 24, 2012 in Asset Recovery, Deferred Prosecution Agreements, DOJ, Enforcement Agency Policy, Enforcement Agency Speeches, Garth Peterson, Morgan Stanley, Non-Prosecution Agreement

Yesterday, Assistant Attorney General Lanny Breuer spoke at IBC Legal’s World Bribery & Corruption Compliance Forum in London.  See here for his remarks.  Breuer touched upon a number of topics (but not FCPA guidance as noted by the FCPA Blog here), including the following as excerpted below.

General

“I am asked to speak about efforts in the United States to fight foreign bribery perhaps more than on any other subject, and all over the world.”

“As you may know, no criminal FCPA case can be brought in the United States without the Fraud Section’s authorization.  I have said before that I personally believe our FCPA work is so important.  It helps to level the playing field for U.S. and foreign companies, and motivates corporations to create genuine cultures of compliance.  Moreover, corruption has such negative effects, particular in emerging economies, that we must use every tool at our disposal to fight it.  Not only does corruption corrode the public trust and weaken democratic institutions, but it also creates gaps in government structures that organized criminal groups and terrorist networks can exploit. The FCPA, which has been on the books for approximately 35 years, was the first effort of any nation to specifically criminalize the act of bribing foreign officials.  But only in the last several years has the law become a strong enforcement tool.”

“In recent years, we have witnessed a significant awakening to the problem of corruption around the globe.  Russia, China and India are taking foreign bribery more seriously than ever before; the U.K. has an important new Bribery Act; and, perhaps due in part to United States enforcement efforts, companies and individuals doing business around the world are coming to appreciate that they will be held accountable for the way they conduct business with foreign officials.  In short, the world is moving in one direction only with respect to anti-corruption efforts.  There is still plenty of work to be done.  But we are making progress, and I hope and believe that we will continue to make strides in this area together.”

Asset Recovery

“Criminal enforcement is a critically important aspect of our anti-corruption work.  But, in the Criminal Division, we have also been developing an asset forfeiture initiative – the Kleptocracy Asset Recovery Initiative – that involves civil actions against the proceeds of foreign official corruption.  Attorney General Holder announced the initiative in Uganda in 2010, and my team and I have been building the initiative in the Criminal Division’s Asset Forfeiture and Money Laundering Section since then.  Our theory is simple: Even if we cannot pursue you criminally in the United States – because we lack criminal jurisdiction, for example – corrupt leaders should not be permitted to use the United States as a safe haven for the proceeds of their corrupt activities.  We have recently had our first Kleptocracy Initiative successes.  In July, for example, we announced that we had secured a restraining order against more than $3 million in corruption proceeds related to James Onanefe Ibori, the former governor of the oil-producing Delta State in Nigeria; and, earlier this month, we executed restraints against an additional $4 million in Ibori assets, including the proceeds from the sale of a penthouse unit in the Ritz-Carlton in Washington, D.C.  Ibori was previously convicted here in the United Kingdom on money laundering and fraud charges and sentenced to 13 years in prison.  Another example involves two civil forfeiture complaints we have filed against approximately $70 million in assets allegedly belonging to Teodoro Nguema Obiang Mangue, a government minister for Equatorial Guinea and the son of that country’s president.  According to the complaints, despite an official government salary of less than $100,000 per year, Minister Obiang corruptly amassed wealth of more than $100 million.  Among the items that we are seeking to forfeit are a Gulfstream jet, a mansion in Malibu, Calif., and $1.8 million worth of Michael Jackson memorabilia.”

DPAs / NPAs

“As a result both of increased FCPA enforcement and increased policing of corporate conduct in general, I think that the culture of corporate compliance has improved in recent years.  As I explained in a speech in New York City recently, until roughly 20 years ago, prosecutors in the United States, when they encountered corporate misconduct, were usually faced with a stark choice – either to indict, or walk away.  That began to change in the 1990s, when the government started doing something new:  agreeing to defer prosecution against the corporation in exchange for an admission of wrongdoing; cooperation with the government’s investigation, including against individual employees; payment of monetary penalties; and concrete steps to improve the company’s behavior.  And, over the past decade, deferred prosecution agreements, or DPAs, have become an important part of corporate criminal law enforcement.  I am aware that the U.K. government recently put forth a proposal to introduce DPAs as a way of resolving corporate cases in the U.K.  Based on the United States experience, my sense is that the availability of DPAs here would represent a positive step forward.  In the United States, the increased use of DPAs has meant far greater accountability for corporate wrongdoing.  Whereas prosecutors often declined when their only choice was to indict or walk away, now companies know that avoiding the disaster scenario of an indictment does not mean an escape from accountability.  […]  DPAs and NPAs are appropriate in certain circumstances and, therefore, they can be useful alternatives to criminal indictments.  But they cannot be a substitute for criminal charges.”

Individual Prosecutions

“As I have said repeatedly, the strongest deterrent against corporate wrongdoing is the prospect of prison time.  That is why I have put such a high priority on making sure that individuals are prosecuted when the evidence warrants prosecution.”

Morgan Stanley

“A former managing director of Morgan Stanley, Peterson pleaded guilty to conspiring to evade the bank’s internal FCPA controls and was sentenced to prison in August.  Because Morgan Stanley voluntarily disclosed Peterson’s misconduct, fully cooperated with our investigation and showed us that it maintained a rigorous compliance program, including extensive training of bank employees on the FCPA and other anti-corruption measures, we declined to bring any enforcement action against the institution in connection with Peterson’s conduct.  Prosecutors need to be smart about how they use their discretion in the FCPA context, as in every context.  And, as we did in the Peterson case, we always attempt to strike an appropriate balance between vigorous and responsible enforcement.”

*****

I had the pleasure to Chair the 2010 World Bribery & Corruption Compliance Forum in London.  See here for my opening remarks.

In my remarks I stated as follows regarding NPAs and DPAs.  “Non and deferred prosecution agreements share a common thread – they both remove, whether in whole or in part, an independent judiciary from a critical role in a transparent legal system founded on the rule of law – and that is ensuring that provable facts support each element of the crime alleged and ensuring that resolution specifics are in the public interest.  In his recent Innospec sentencing remarks, Lord Justice Thomas cited a paper – “The Risk of Abusing a Dominant Position” – that notes, among other things, that the newly enacted SFO guidance on“alternative methods to the disposal of criminal investigations by way of negotiated pleas or other resolutions by corporate defendants” may “introduce some unintended risks of abuse.” I share this concern and assert that it is troubling when an area of law largely develops outside of the judicial system via privately negotiated agreements – agreements that corporates often feel compelled to enter into, regardless of facts or legal theories, mindful of the “sticks” the enforcement agencies posses. I support the study Transparency International (“TI”) has called for in its recent “Progress Report on the OECD Convention.”  That report expresses a concern that negotiated settlements could be“questionable deals” between enforcement agencies and companies and it calls for procedures to make settlement terms subject to judicial approval independent from the prosecutor’s office.”

See here for my recent post on Breuer’s unconvincing defense of NPAs and DPAs.

A Focus On Chinese Guanxi

By on August 21, 2012 in China, Cultural Issues, FCPA Sentences, Garth Peterson

The sentencing memos in the Garth Peterson enforcement action provide an interesting back-and-forth between Peterson and the DOJ concerning the issue of cultural context, specifically the concept of Chinese guanxi.

Peterson’s sentencing memo (here) contains a specific section titled “Cultural Context” and stated as follows (redactions in the original).

“Peterson committed an FCPA offense without stepping foot in the United States while working for a Chinese subsidiary of a United States company.  Peterson’s tenuous connection with the United States, despite being a U.S. citizen, makes this case very unusual and makes Chinese cultural considerations relevant.  Peterson admitted at his plea hearing that he helped the Chinese Official to invest personally in a Morgan Stanley investment at a beneficial price and that by misleading Morgan Stanley about this fact with another person, he conspired to violate the FCPA.  The Chinese Official was a close friend of Peterson’s – in many ways a father figure to him – and Peterson helped him in order to repay the help that the Chinese Official had given him through his career.  This type of favor is called ‘guanxi’ in China, a term that describes the exchange of gifts or favors in a professional setting.  Guanxi is the traditional way that business relationships are developed in China.  [Citations Omitted].  Peterson has spent much of his life living in Asia.  He learned Asian cultural traditions, and they are as familiar, if not more familiar to him, than United States cultural traditions.  His childhood friend […] wrote about Peterson’s ‘inexperience with the United States’ and his lack of familiarity with U.S. ‘culture, expectations, and walks of U.S. life.’  […] wrote that Peterson ‘seemed to fit in better on the other side of the Pacific’ and ‘thinks more like an Asian than an American.’  As part of Peterson’s Asian cultural understanding, he learned the Chinese business culture of gift giving, or guanxi.”  […]  We ask the Court to consider … the cultural context of Peterson’s crime when sentencing him.”

The DOJ responded (here) as follows.

“Peterson’s assertion that he gave Chinese Official 1 a $3 million-plus interest in Tower Two [the investment at issue in the enforcement action] as an expression of ‘guanxi’ is also demonstrably false. Peterson says that ‘guanxi’ is ‘a term that describes the exchange of gifts or favors in a professional setting.’  The source upon which Peterson relies, […] describes the parameters of guanxi, which typically involves small tokens: the ‘exchange of gifts, favors, and banquets.’ Here, Peterson stole a $7 million piece of a building and gave a Chinese public official a piece worth more than $3 million. The grant of an ill-gotten, multimillion dollar interest in an apartment building is hardly the type of item one typically exchanges in Chinese culture. Any suggestion to the contrary borders on the offensive. […] Even if Peterson’s […] ‘guanxi’ arguments were based upon a true factual recitation – which they are not – they are legally irrelevant.  […] Corrupting a Chinese official in the course of stealing an interest in a building cannot be dismissed as a symptom of Peterson’s affinity for China or its culture.  If anything, his actions demonstrate quite the opposite.”

In reply (here), Peterson stated as follows.

“The Government argues that Peterson’s inclusion of the Chinese Official was not an expression of ‘guanxi’ because the value of the Chinese Official’s interest was too great to fit within the technical definition of ‘guanxi.’  Whether the term ‘guanxi’ applies misses the point.  Peterson seeks to provide the Court with the full context for his actions, including the cultural and relationship-based motivations for his offense.  Peterson acknowledges that the Chinese culture and Peterson’s own desire to build his relationship with the Chinese Official do not justify his offense.  Cultural context and motivates, however, can be relevant t a defendant’s character for sentencing purposes, and Peterson asks the Court to consider those factors here.”

*****

The DOJ argues that cultural context is legally irrelevant in FCPA enforcement actions.  However, cultural considerations may be one reason for the frequency in which judges sentence below DOJ sentencing recommendations in FCPA cases.  For instance, as noted in this prior post, in sentencing Ousama Naaman, Judge Ellen Huvelle’s (D.D.C.) stated that she has “traveled a lot in this world, and it is very complicated to say that our morality is necessarily that of other peoples.”  She considered the context of Naaman’s conduct (which occurred in Iraq) and refused to make Naaman “the poster” child that the DOJ wanted.

*****

See here for a recent article in Newsweek regarding guanxi and the Foreign Corrupt Practices Act scrutiny of Las Vegas Sands.

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