Friday Roundup
Attend the FCPA Institute, Wal-Mart fires back, up north, the race is on, deserving part 2, quotable, and a revised roundup. It’s all here in the Friday roundup.
FCPA Institute
Join lawyers and other in-house counsel and compliance professionals already registered for the inaugural FCPA Institute July 16-17th in Milwaukee, Wisconsin. The FCPA Institute is a unique two-day learning experience ideal for a diverse group of professionals seeking to elevate their FCPA knowledge and practical skills. FCPA Institute participants will have their knowledge assessed and upon successful completion of a written assessment tool can earn a certificate of completion. In this way, successful completion of the FCPA Institute represents a value-added credential for professional development.
To register see here.
Wal-Mart Fires Back
This recent post highlighted various Wal-Mart shareholder proposals that touched upon FCPA issues. As noted in the post, Institutional Shareholder Services (“ISS”) criticized Wal-Mart’s board for “fail[ing] to make progress in providing meaningful information to shareholders about any specific findings on the FCPA-related investigations and whether executives will be held accountable for related compliance failures.”
Wal-Mart has fired back in this proxy filing which states, in pertinent part:
“The Audit Committee and the Company are following the appropriate protocol for an independent, thorough investigation
As the Company has previously reported, the Audit Committee of the Board is conducting an independent internal investigation into, among other things, alleged violations of the FCPA and alleged misconduct in connection with foreign subsidiaries. Also, as previously reported to shareholders, the Company voluntarily disclosed the Audit Committee’s investigative activity on these matters to the U.S. Department of Justice and the U.S. Securities and Exchange Commission, both of which are conducting their own external investigations of these matters.
We believe that ISS’s recommendation that shareholders vote against the election of Mr. Walton and Mr. Duke because the Board has not disclosed “specific findings” regarding the FCPA-related investigations is at odds with the appropriate conduct of such internal and external investigations. We further believe that ISS’s request for disclosure of “specific findings” with respect to these ongoing investigations is contrary to the best interests of the Company and our shareholders because such a disclosure: (1) could interfere with, or distract from, the ongoing investigations; (2) is impractical, given that no final conclusions or findings have been made; and (3) could adversely impact the Company’s position in any current or future legal proceedings that may relate to these matters.”
As hinted at in the previous post, I agree with Wal-Mart’s position.
Up North
This previous post highlighted Canada’s first individual conviction for a bribery offense under the Corruption of Foreign Public Officials Act (“CFPOA”) including the specific facts in the action against Nazir Karigar. Karigar was recently sentenced to three years in prison.
As noted here from Baker & McKenzie’s Canadian Fraud Law:
“Superior Court Justice Hackland ruled that Karigar “had a leading role in a conspiracy to bribe Air India officials in what was undoubtedly a sophisticated scheme to win a tender for a Canadian based company.” The Court issue[d] the following warning: “Any person who proposes to enter into a sophisticated scheme to bribe foreign public officials to promote the commercial or other interests of a Canadian business abroad must appreciate that they will face a significant sentence of incarceration in a federal penitentiary”.
In his reasons for sentence Justice Hackland stated that “The idea that bribery is simply a cost of doing business in many countries, and should be treated as such by Canadian firms competing for business in those countries, must be disavowed. The need for sentences reflecting principles of general deterrence is clear.”
As noted in this Osler alert:
“The [sentencing] decision noted a number of aggravating factors. First, the bribery conspiracy was sophisticated, carefully planned, and would have involved the payment of millions of dollars in bribes. Second, Mr. Karigar orchestrated a fake bid to create the illusion of competition and used confidential insider information to prepare the bid. Third, Mr. Karigar behaved with “a complete sense of entitlement.” Finally, Mr. Karigar personally conceived and orchestrated the scheme.
Several mitigating factors were also noted. The bribery scheme was unsuccessful. In addition, Mr. Karigar helped to shorten the trial by cooperating in the prosecution. Indeed, it was his exposure of the bribery scheme after a falling out with his co-conspirators, and his inability to secure an immunity agreement, that led to his prosecution. Mr. Karigar’s prior clean record, his 67 years of age and his failing health were also considered mitigating factors.”
For more, see here from Blakes.
The Race is On
This previous post regarding GSK’s scrutiny in China noted that one of the more interesting aspects of the scrutiny will be the enforcement competition between Chinese, U.K., and U.S. authorities. The U.K. has unique double jeopardy provisions and former U.K. Serious Fraud Office Director Richard Alderman has stated (see here):
“Our double jeopardy law looks at the facts in issue in the other jurisdiction and not the precise offence. Our law does not allow someone to be prosecuted here in relation to a set of facts if that person has been in jeopardy of a conviction in relation to those facts in another jurisdiction.”
The race is on as GSK recently disclosed:
“GSK has … been informed by the UK’s Serious Fraud Office (SFO) that it has opened a formal criminal investigation into the Group’s commercial practices. GSK is committed to operating its business to the highest ethical standards and will continue to cooperate fully with the SFO.”
In this release, the SFO states:
“The Director of the SFO has opened a criminal investigation into the commercial practices of GlaxoSmithKline plc and its subsidiaries. Whistleblowers are valuable sources of information to the SFO in its cases. We welcome approaches from anyone with inside information on all our cases including this one …”.
For additional reporting, see here
Deserving Part 2
Earlier this week, the African Development Bank (“AfDB”) announced:
“[T]he conclusion of a Negotiated Resolution Agreement with Snamprogetti Netherlands B.V. following the company’s acceptance of the charge of corrupt practices by affiliated companies in an AfDB-financed project. As part of the Negotiated Resolution Agreement, the Bank’s Integrity and Anti-Corruption Department levied a financial penalty of US $5.7 million against the company.”
The project at issue was once again the Bonny Island, Nigeria project and the recent AfDB action follows a March action (see here for the prior post) in which the AfDB assessed $17 million in financial penalties against other Bonny Island participants – Kellogg Brown & Root, Technip, and JGC Corp.
As highlighted in this previous post, in July 2010 Snamprogetti and related entities resolved a $365 million DOJ/SEC enforcement action involving Bonny Island conduct.
My comment is the same as it was in connection with the March AfDB action against other Bonny Island participants.
Pardon me for interrupting this feel good moment (i.e. a corporation paying money to a development bank), but why is the AfDB deserving of any money from the companies? As noted here, AfDB’s role in the Bonny Island project was relatively minor as numerous banks provided financing in connection with the project. Moreover, as noted here, the AfDB “invested in the oil and gas sector through a USD 100 million loan to NLNG [Nigeria LNG Limited] to finance the expansion of a gas liquefaction plant located on Bonny Island.”
Why is the bank that loaned money to NLNG deserving of anything? Is there any evidence to suggest that the $100 million given to NLNG was not used for its “intended purpose” of building the Bonny Island project?
Quotable
In this recent Wall Street Journal Risk & Compliance Journal Q&A, Kathleen Hamann (a recent departure from the DOJ’s FCPA Unit) states:
“Tell me what companies should take from your time at the Justice Department now that you’re advising them on how to fulfill the requirements of an FCPA compliance program.
The first thing I would say is that companies shouldn’t just be thinking about the FCPA. There’s been such a proliferation of transnational bribery laws and domestic bribery laws that you may not [just] have an FCPA issue. You also have to think about the U.K. Bribery Act, you may have to think about the Corruption of Foreign Public Officials Act in Canada, [among others.]
A lot of the laws in other countries have complete defenses to liability for having a good compliance program in place. Having a good compliance program ahead of time not only helps prevent misconduct, but it also puts the company in a better position if something does go wrong. There are points all the way where a good compliance program and strong remediation can either stop an investigation, or really mitigate the consequences of the investigation, both in terms of the penalty and in terms of the reputational risk the company will take.
[….]
What do you tell companies about self-reporting allegations to the authorities?
I think it’s a much more complicated question than even five years ago. It used to be that you disclose to the Justice Department and the SEC; you deal with them and it’s over. But now: How many different jurisdictions do you need to disclose to? What if it’s a country with no mechanism for voluntary disclosure, or no mechanism to reward voluntary disclosure?
I also think there’s a perception that your only two choices are to voluntarily disclose, lay down and cooperate, and give the department everything it asks for — or fight from day one. Those aren’t the only two options. There are stages of cooperation where you can get full credit, without accepting everything that is said by the government as gospel.
You want to minimize disruption to your business operations , which can be one of the best incentives for voluntary disclosure. The U.S. generally doesn’t do things like seize servers, but others do. It’s incredibly disruptive to business operations to have foreign law enforcement take your in-country server. There has to be a very clearheaded assessment of what jurisdictions are involved, how complicated voluntary disclosure will be and what the genuine benefits and risks are of the disclosure are.”
Revised Roundup
Last week’s roundup collected commentary regarding the 11th Circuit’s recent “foreign official” ruling. The post has been revised to include several additional law firm alerts, etc. and now includes over 25 links.
*****
A good weekend to all.
Friday Roundup
Telling, scrutiny alerts and updates, and query whether. It’s all here in the Friday roundup.
Telling
It is a rather telling indication of the nonsensical nature of criminal law “enforcement” when what is presumed to be a well-intentioned legislator introduces a bill that fails in its intended purpose.
Case in point, Representative John Conyers (D-Michigan) recently introduced the “Corporate Crime Database Act” to require the Attorney General to:
“acquire data, for each calendar year, regarding all administrative, civil, and criminal judicial proceedings initiated or concluded by the Federal Government and State governments against any corporation or corporate official acting in an official capacity involving a felony or misdemeanor charge or any civil charge where potential fines may be $1,000 or more.”
The problem of course, and why the bill fails in its intended purpose, is that a meaningful percentage of DOJ enforcement actions do not result in “judicial proceedings.” Rather, many DOJ enforcement actions are resolved through non-prosecution agreements. Moreover, many of the requirements in the bill hinge on “charges” and NPAs do not involve charges.
(See here and here for similar posts).
Scrutiny Alerts and Updates
GSK
In this week’s GSK news, as reported here:
“GlaxoSmithKline is facing a criminal investigation in Poland for allegedly bribing doctors to promote its lung drug Seretide, adding to problems for a company already accused of corruption in China and Iraq. Poland’s Central Anti-Corruption Bureau, or CBA, said on Monday that 13 people had been charged in connection with the investigation launched by Polish prosecutors. Britain’s biggest drugmaker said one employee had been disciplined following a company probe into the matter and it was co-operating with the Polish authorities. “The investigation found evidence of inappropriate communication in contravention of GSK policy by a single employee. The employee concerned was reprimanded and disciplined as a result,” the drugmaker said in a statement.”
Further, as reported here:
“[GSK] is investigating claims its employees bribed doctors in Jordan and Lebanon by offering perks such as flexible travel arrangements and free samples that doctors could sell on, according to emails reviewed by The Wall Street Journal. […] Glaxo has said it has launched an internal investigation into its operations in the United Arab Emirates, Qatar, Bahrain, Oman, Kuwait, Lebanon, Syria, Jordan and Iraq. […] Glaxo sales representatives allegedly bribed doctors in Jordan to prescribe Glaxo drugs by issuing free samples that the doctors were then allowed to sell on, according to the emails. Glaxo representatives also allegedly permitted Jordanian doctors to bring their spouses on business trips that Glaxo paid for, according to the emails. Doctors were issued with business-class tickets to attend conferences but would exchange them at travel agencies for two economy-class tickets, allowing their spouses or other family members to come along free, a practice local Glaxo employees were aware of, according to the emails. Glaxo said that it is against company policy to allow airplane tickets to be exchanged for tickets of a lower value or refunded. The emails allege Glaxo sales representatives gave doctors in Jordan up to 60 free samples of its vaccine Synflorix, which they then sold on at up to $70 a vial. In Lebanon, Glaxo employees allegedly gave doctors free Synflorix vials as part of an incentive scheme to get them to prescribe the vaccine and not its competitors, another email to company representatives said. In both countries, Glaxo made payments to “key opinion-leader” doctors—influential and leading practitioners in their field—for lectures and other speaking engagements that may not have taken place, the emails allege, in return for them prescribing more Glaxo drugs.”
In response to the above recent media reports, GSK released this statement which states, in pertinent part, as follows.
“GSK can confirm we are investigating allegations regarding the activity of a small number of individuals in our operations in Jordan and Lebanon. We started investigating using internal and external teams as soon as we became aware of these claims. These investigations have not yet concluded. We have zero tolerance for unethical or illegal behaviour. We expect our employees to uphold our high standards and we believe the vast majority do so. GSK welcomes and respects people speaking up where they have concerns and we have a number of channels internally to enable them to do this, including hotlines and online portals. We implement regular training for employees in compliance matters and we continue to improve compliance processes and procedures wherever we see a need. We publicly disclose all cases of misconduct identified in the company. Last year there were 161 violations relating to breaches of our sales and marketing polices, resulting in 48 dismissals and 113 written warnings. These numbers are very similar to those reported by other companies in our sector. We are confident in our processes and controls and that we do not have a systemic issue with unethical behaviour in GSK. However, we recognise there are concerns regarding interactions between pharmaceutical companies and doctors, particularly related to perceptions of conflicts of interest. That’s why we are the first company to have committed to undertake fundamental reforms to our business model to eliminate this concern by stopping payments to doctors to speak about our products, stopping payments to doctors to attend medical conferences and stopping pay for our sales reps being linked to individual sales targets.”
BSG Resources / Beny Steinmetz
Regarding BSG Resources and Beny Steinmetz, as reported here:
“Billionaire Beny Steinmetz approved millions of dollars in payments to a wife of the former president of Guinea as he fought to keep part of the world’s largest iron-ore deposit, a suspect in a U.S. graft investigation said in conversations secretly taped by the FBI. The 109 pages of transcripts were among a cache of evidence posted on a Guinean government website April 9. The transcripts were introduced in the course of an investigation by the West African nation into whether bribery was used to obtain rights to the Simandou deposit. The Federal Bureau of Investigation shared evidence with the Guinean government from its own probe into the circumstances surrounding the award of the licenses, according to the Guinean release. Both Steinmetz and his company BSG Resources Ltd. have denied any wrongdoing by the Guernsey-based company or its employees. BSGR said April 10 it would prove all allegations of bribery and corruption are false.”
Alstom / Marubeni Related
“Indonesia’s main anti-corruption court sentenced a lawmaker to three years’ jail today for accepting bribes from French company Alstom and Japan’s Marubeni in a multimillion-dollar contract. Izedrik Emir Moeis was found guilty of accepting USD 357,000 from the companies to help them secure a USD 118 million joint contract in 2004 to supply and install boilers at a power plant on the island of Sumatra.”
(See here and here for previous posts on the related FCPA enforcement actions).
Query Whether
Given a common theory of FCPA enforcement, query whether hotels in the Middle East are state-owned or state-controlled. Arabianbusiness.com reports:
“Almost 55 percent of hotel suppliers have been asked to offer a monetary bribe by a hotel procurement manager, while 72.6 percent of suppliers know of other supply firms that are using bribes, according to the results of a new industry survey carried out earlier this year. The Hotelier Middle East Supplier Survey 2014, which received 108 responses during January and February of this year, also found 46.8 percent of suppliers believe that corruption, in terms of bribery, is a problem in the region’s hotel supply sector that is negatively impacting business.”
*****
A good weekend to all.
Friday Roundup
It’s a complex world, you ask – I answer, scrutiny alerts and updates, quotable, and for the reading stack. It’s all here in the Friday Roundup.
It’s a Complex World
The world in which we live in is seldom simple and straight-forward. This includes the so-called “fight” against corruption and bribery. Regarding China’s “crackdown” on bribery, the BBC China Blog reports:
“Much has been written about China’s ongoing crackdown on corruption, but now one of the world’s biggest banks has put a price on it. According to a report published by Bank of America Merrill Lynch this week, the Chinese government’s anti-graft campaign could cost the economy more than $100bn this year alone. […] Many of the micro effects of Xi Jingping’s anti-corruption drive have already been well documented of course; a slowdown in the restaurant trade for example, and a big dip in sales of luxury goods. Over the past year or so, in Shanghai’s posh malls and boutique designer shops – once at the centre of the happy merry-go-round of official largesse and gift giving – you’ve almost been able to hear the sound of the weeping and gnashing of teeth. But the BofAML report suggests that the campaign is also having a significant and troubling macroeconomic effect. Since early last year, it says, government bank deposits have been soaring, up almost 30% year on year. Even honest officials, the report suggests, are now so terrified of starting new projects, for fear of being seen as corrupt, that they’re simply keeping public funds in the bank. […] The report’s authors admit their calculations are a “back-of-the-envelope estimate of fiscal contraction”, but even if they are only half right it is an extraordinary amount of money and it highlights some of the challenges facing China’s anti-corruption crusader-in-chief, President Xi Jinping.”
Some-what related to the above topic, as noted in this Washington Times article:
“A key player in Nigeria’s emergence as Africa’s largest economy says U.S. companies are ceding investment opportunities to China and the Obama administration should do more to reverse the trend. “The Obama administration has to focus more on Nigeria, said Prince Adetokunbo Sijuwade, whose family holds royal status in a vital corner of southern Nigeria and is invested heavily in transportation and oil infrastructures. “We feel that we can learn from the U.S. in terms of expertise. […] Prince Sijuwade speculated that several factors may have deterred U.S. investors in recent years, from concerns about government corruption to security. But he argued that allegations of widespread corruption in Nigeria are “overstated.”“Corruption is all over the world,” he said, noting potential U.S. investors’ fears of violating the Justice Department’s anti-corruption laws as an inhibiting factor on Nigerian investment.”
You Ask – I Answer
This op-ed poses the question “what’s driving pharma’s international bribery scandals?”
You ask – I answer.
A dubious and untested enforcement theory + extreme risk aversion because of potential exclusion from government sponsored healthcare programs + other typical reasons for why other companies face FCPA scrutiny, such as employees and third parties acting contrary to a company’s good-faith compliance policies and procedures = several FCPA enforcement actions against pharma and healthcare related companies.
Scrutiny Alerts and Updates
The Wall Street Journal reported earlier this week:
“GlaxoSmithKline PLC is investigating allegations of bribery by employees in the Middle East, according to emails reviewed by The Wall Street Journal, opening a new front for the company as it manages a separate corruption probe in China. A person familiar with Glaxo’s Mideast operations emailed the U.K. drug company late last year and earlier this year to report what the person said were corrupt practices in Iraq, including continuing issues and alleged misconduct dating from last year and 2012. The emails cite behavior similar to Glaxo’s alleged misconduct in China, including alleged bribery of physicians. […] In an email, the person said Glaxo hired 16 government-employed physicians and pharmacists in Iraq as paid sales representatives for the company while they continued to work for the government. A government-employed Iraqi emergency-room physician has prescribed Glaxo products, even when they weren’t in the hospital’s pharmacy and a competitor’s brand was in stock, an email from the person said. Glaxo has been hiring government-employed Iraqi doctors as medical representatives and paying their expenses to attend international conferences, the person alleged in the emails. Glaxo pays other doctors high fees to give lectures in exchange for promoting and prescribing its drugs, the allegations continued. After Glaxo won a contract with the Iraqi Ministry of Health in 2012 to supply the company’s Rotarix vaccine, Glaxo paid for a workshop in Lebanon for Iraqi Ministry of Health officials, the email said. That included paying for a doctor’s family to travel to Lebanon “so it would be a family vacation for him at the hotel.”
As noted in the article, GSK has been under FCPA scrutiny since 2011 and GSK’s scrutiny China was the frequent focus of media attention last summer (see here for the prior post).
Quotable
Russel Ryan (King & Spalding and former high-ranking SEC enforcement attorney) hits a home run with this recent Wall Street Journal editorial titled: “When Regulators Think They Are Prosecutors.” It states, in pertinent part:
“[A]dministrative agencies like the SEC were never intended to become arms of law enforcement. They were created to regulate, not prosecute. […] There are good constitutional reasons why agencies like the SEC were not born with this power to prosecute and punish. Prosecuting private citizens and companies is serious business. It’s a core executive branch function historically entrusted to the attorney general, a “principal Officer” subject to unfettered presidential control under Article II of the Constitution. […] [I]f policy makers insist on transforming the commission and similar agencies into quasi-criminal prosecutors with ever-increasing power to seek harsh punitive sanctions, those agencies should be brought under the stewardship of the attorney general or given cabinet rank with leaders who are removable at the president’s pleasure. Even that wouldn’t cure a second level of constitutional infirmity. Based mostly on precedent established before the SEC had any power to punish, courts have exempted SEC prosecutions from many bedrock due-process protections taken for granted in criminal cases. The presumption of innocence, for example, is largely meaningless because the SEC can win by a mere “preponderance of the evidence” rather than proof beyond reasonable doubt. The right to remain silent is equally hollow because courts let the SEC treat silence as evidence of guilt. For SEC defendants who can’t afford a good lawyer, tough luck, because there’s no right to have counsel appointed at government expense as there would be in a criminal prosecution. And even when the SEC loses after trial, double jeopardy doesn’t prevent it from trying to reverse the verdict or force a retrial, as it would a criminal prosecutor. Dodd-Frank made things even worse by expanding the SEC’s ability to impose draconian financial penalties in administrative proceedings that have lax evidentiary rules, no jury trial, and limited judicial oversight.Basic constitutional safeguards should protect American citizens and businesses whenever a law-enforcement agency seeks to punish them for alleged wrongdoing, even in nominally civil proceedings. It’s time to incorporate those safeguards into an increasingly penal administrative prosecution system that is quickly sliding down a slick and constitutionally hazardous slope.”
For Ryan’s previous guest post on similar issues, see here.
Reading Stack
Certain of the conduct at issue in this week’s FCPA enforcement action against HP and related entities concerned alleged conduct in Poland. This article from a Polish news service looks at what happens “when the dust settles.”
An insightful post on the Trace Blog from a former DOJ FCPA enforcement attorney who oversaw several monitors titled “Five Questions That can Keep Your Monitor From Running Away.” Perhaps the best question though is: are monitors truly needed in many FCPA resolutions? (See here and here for prior posts).
For your viewing enjoyment here, recently indicted Ukrainian businessman Dmytro Firtash (see here) has released a video which insists he is an innocent party caught at the center of a “battlefield for the two biggest global players of Russia and the USA”.
*****
A good weekend to all.
Across The Pond
This post highlights recent developments from the United Kingdom.
Enforcement Action
In an enforcement action similar to the 2009 action against Aon Limited (see here) and the 2011 action against Willis Limited (see here), the U.K. Financial Conduct Authority (a regulator of the financial services industry) recently announced that JLT Specialty Limited (JLTSL – a company that provides insurance broking and risk management services) was fined “over £1.8million for failing to have in place appropriate checks and controls to guard against the risk of bribery or corruption when making payments to overseas third parties.”
According to the FCA release:
“JLTSL was found to have failed to conduct proper due diligence before entering into a relationship with partners in other countries who helped JLTSL secure new business, known as overseas introducers. JLTSL also did not adequately assess the potential risk of new insurance business secured through its existing overseas introducers.
[…]
JLTSL’s failure to manage the risks created by overseas payments, which occurred between 19th February 2009 and 9th May 2012, breached the FCA’s principle on management and control. During this period, JLTSL received almost £20.7 million in gross commission from business provided by overseas introducers, and paid them over £11.7 million in return. Inadequate systems around these payments created an unacceptable risk that overseas introducers could use the payments made by JLTSL for corrupt purposes, including paying bribes to people connected with the insured clients and/or public officials.”
The FCA’s director of enforcement and financial crime stated:
“These failings are unacceptable given JLTSL actually had the checks in place to manage risk, but didn’t use them effectively, despite being warned by the FCA that they needed to up their game. Businesses can be profitable but firms must ensure that they take the necessary steps to control the risks in that business. Bribery and corruption from overseas payments is an issue we expect all firms to do everything they can to tackle. Firms cannot be complacent about their controls – when we take enforcement action we expect the industry to sit up and take notice.”
The FCA release notes that “JLTSL’s penalty was increased because of its failure to respond adequately either to the numerous warnings the FCA had given to the industry generally or to JLTSL specifically.”
Add Another to the Compliance Defense List
What is most striking about many of the opposition pieces written about FCPA reform is that while opponents of FCPA reform warn of a U.S. retreat on bribery and corruption issues should the FCPA be amended, opponents fail to address the fact that an amended FCPA, or revisions to FCPA enforcement policy, would actually align the FCPA with many FCPA-like laws or enforcement policies of peer nations.
For instance, and as discussed in my article “Revisiting a Foreign Corrupt Practices Act Compliance Defense,” many countries have compliance-like defenses in their FCPA-like law.
Add the Isle of Man, a self-governing British Crown Dependency, to the list. Its recent Bribery Act 2013, largely modeled on the U.K. Bribery Act, states:
“(1) A relevant commercial organisation (“C”) is guilty of an offence under this section if a person (“A”) associated with C bribes another person intending —
(a) to obtain or retain business for C; or
(b) to obtain or retain an advantage in the conduct of business for C.
(2) But it is a defence for C to prove that C had in place adequate procedures designed to prevent persons associated with C from undertaking such conduct.”
Scrutiny Alerts and Updates
As noted in this previous post, Rolls-Royce Holdings has long been under scrutiny concerning its business conduct in China, Indonesia, and other markets. The Wall Street Journal reports:
“U.K.’s Serious Fraud Office has opened a formal investigation into concerns that employees of the U.K.-based engineering group may have been involved in bribery and corruption. The maker of engines for aerospace, defense and marine customers said a year ago that it had handed over material to the SFO having previously initiated its own independent review into allegations of malpractice in overseas countries, including China and Indonesia. “We have been informed by the Serious Fraud Office that it has now commenced a formal investigation into these matters,” Rolls-Royce said. Rolls-Royce declined to provide further details on the progress of the investigation. An SFO official confirmed that “a criminal investigation into allegations of bribery at Rolls-Royce” is under way but declined to comment further.”
See here for the related U.K. Serious Fraud Office statement.
As noted in this previous post, in June, Data Systems & Solutions, LLC, a wholly-owned subsidiary of Rolls-Royce Holdings, resolved an FCPA enforcement action.
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Interesting snippets from a recent Financial Times article – “GSK China Probe Flags Up Wider Concerns” – concerning GSK in China.
“[A]cross the healthcare spectrum, from doctors to hospital officials to sales representatives for rival local companies, there is agreement that foreign pharmaceutical groups are not the main culprits of corruption in the Chinese healthcare industry. Local companies are far more profligate with so-called “commissions” to doctors because they are not subject to the kind of scrutiny that foreign companies face under global anti-bribery laws. A medical student in a leading Shanghai hospital says: “The supervising doctor in my department sees as many as 80 patients in a morning, and prescribes as much as Rmb100,000 worth of drugs. She definitely takes commissions from drug companies, but that only affects what she prescribes when there are two similar drugs.” That situation normally arises when both are local generic businesses, industry analysts say. “In China, foreign drug companies are the best boys, but the parents beat them first,” says one industry insider, echoing a sentiment heard frequently from Chinese doctors who say foreign drug companies pay for educational activities that no one else will pay for in China. “Financial flows – both legal and illegal – tied to drug and device sales are funding perhaps 60-80 per cent of total hospital costs,” says George Baeder, an independent drug industry adviser. “Without this funding, the current system would collapse.” Many drug analysts see kickbacks as structural, and therefore hard to eradicate: central and provincial Chinese governments cannot afford to pay doctors a living wage, and many patients cannot afford to pay the true cost of care. Up to now, Beijing has turned a blind eye as pharma companies find ways to subsidise doctor salaries and underwrite their medical education.”
Speaking of GSK, as noted in this New York Times article, the company recently announced that it “will no longer pay doctors to promote its products and will stop tying compensation of sales representatives to the number of prescriptions doctors write.”
Great Speech, But a Major Contradiction
Ben Morgan (SFO – Joint Head of Bribery and Corruption) recently delivered this speech titled “Striking Tigers As Well As Flies: Non-Selective Anti-Corruption Law Enforcement.”
Morgan talked about “the widely accepted premise that the law should apply to everyone, equally, regardless of any external factors such as the identity of an alleged offender, their background, their status, who they know or, if they are a commercial organisation, their size, their share price, their line of business or their financial resources.”
Morgan stated as follows:
“So if we’re being asked to discuss the need to be non-selective in the way we enforce anti-corruption legislation – to treat all potential defendants equally regardless of the external factors I have mentioned – that implies, does it not, that we have a problem in the way we currently enforce anti-corruption law. The implicit accusation we are answering in this session is “you don’t strike Tigers; you only strike flies”. So let’s test that.
First, let’s look at why it might be tempting not to prosecute certain offenders. Well, on the one hand, it might be for practical reasons. Many of our countries have endured difficult financial times recently. In times of austerity and ever decreasing resources, there might be a temptation to avoid prosecuting the really difficult, complex cases that are likely to consume resources. Those kinds of cases where the evidence is scattered all over the globe, where there are lots of witnesses and perhaps where specialist skills are needed. Far easier, surely, to deploy what resources one has into the easier targets, the “low hanging fruit”.
Another reason not to prosecute certain offenders might be for political reasons. Does a situation appear to involve state officials of one’s own country, or of an important ally? Does it concern an issue that those with power would prefer not to be investigated? Or perhaps, in the corporate world, does it involve a company that is of real national significance – a major employer and tax payer?
These are the sorts of situations where it seems to me there is a risk that the Tigers might be treated differently to the Flies. And while they are not to be underestimated, I hope that one thing we can all agree on here is that as a statement of principle, we cannot accept that for any reason the rule of law should be applied differently to some groups than others.”
Morgan’s points are spot-on of course.
However, the irony is that the U.K. government – in the minds of many – contradicted all of these points in its handling of BAE over the past several years. (See here). (So too did the U.S. government – see here and here).
Friday Roundup
That’s just so fringe, where now?, the pulse of FCPA Inc., scrutiny alerts and updates, for the reading stack, and save the date. It’s all here in the Friday Roundup.
That’s Just So Fringe
Many in the anti-corruption space have latched onto developments in other countries and carried forward the torch of reform. Just goggle Anna Hazare’s hunger strike in India or discover the wealth of material written about marches and demonstrations in Brazil prior to Brazil’s bribery laws being amended.
Recently there was a march in Washington D.C., protesting, in part, government corruption. (See here). Why has there not been similar coverage in the anti-corruption space? Where are those who otherwise carried forward the torch of reform? Apparently the reaction is – when it happens here in the U.S. – well, that’s just so fringe.
Where Now?
As DOJ Deputy Assistant Attorney, John Burretta “oversaw the Criminal Division’s Fraud Section, among others, including the Fraud Section’s FCPA Unit.” He also “supervised the preparation of the DOJ and SEC’s Resource Guide to the U.S. Foreign Corrupt Practices Act, issued in November 2012.”
Like most other DOJ policy leaders and FCPA enforcement attorneys with supervisory powers during this new era of FCPA enforcement, Burretta is now in the private sector as he recently joined Cravath as a partner. (See here). According to his Cravath bio, “his practice focuses on investigations and white collar criminal defense, including advising and representing clients in matters related to the FCPA” among other things.
The Pulse of FCPA Inc.
Few FCPA Inc. participants are publicy-traded companies. Thus, it is often difficult to take the pulse of FCPA Inc. other than anecdotal information.
However, one FCPA Inc. participant that is publicly traded is FTI Consulting. The company recently disclosed that revenues for the quarter in its relevant business segment increased nearly 2% compared to the prior year “due to higher services revenues primarily for investigations involving the Foreign Corrupt Practices Act and interest rate setting process concerning the London Interbank Offered Rate (“LIBOR”) …”.
It’s only one company, but with few FCPA Inc. datapoints publicly available, it is a relevant datapoint.
Scrutiny Alerts and Updates
Weatherford
Weatherford International recently disclosed as follows concerning its long-running FCPA scrutiny:
“During the quarter ended June 30, 2013, negotiations related to the oil-for-food and FCPA matters progressed to a point where we recognized a liability for a loss contingency that we believe is probable and for which a reasonable estimate can be made. The Company estimates that the amount of this loss is $153 million and recognized a loss contingency equal to such amount in the quarter ended June 30, 2013. Since our last 10-Q filing, substantial progress in the negotiations was made, and these negotiations have recently concluded. These negotiations have resulted in agreements with representatives of the DOJ and the SEC enforcement staff relating to terms and total payments to be made to government agencies relating to the oil-for-food and FCPA matters subject in each case to final review and approval by the DOJ and SEC Commission as well as judicial approval. The agreements would require total payments to government agencies equal to the $153 million loss contingency that the Company recognized in the quarter ended June 30, 2013. The agreements would also include (1) an agreement under which criminal prosecution for the Company would be deferred for three years and a plea agreement would impose a criminal conviction on one of the Company’s subsidiaries; (2) a requirement to retain, for a period of at least 18 months, an independent monitor responsible to assess the Company’s compliance with the terms of the agreement so as to address and reduce the risk of recurrence of alleged misconduct, after which the Company would continue to evaluate its own compliance program and make periodic reports to the DOJ and SEC; and (3) a requirement to maintain agreed compliance monitoring and reporting systems. If final settlement terms differ from the agreements we have reached with DOJ and SEC representatives or if necessary approvals are not ultimately obtained, we could become subject to injunctive relief, disgorgement, fines, penalties, sanctions or imposed modifications to business practices that could adversely affect our results of operations.”
A $153 million FCPA settlement amount would be 8th largest of all time based on the current top ten settlement list.
Layne Christensen Co.
Layne Christensen Co. recently disclosed as follows concerning its long-running FCPA scrutiny:
“The Company is engaged in discussions with the DOJ and the SEC regarding a potential negotiated resolution of these matters. The Company believes that it is likely that any settlement will include both the payment of a monetary fine and the disgorgement of any improper benefits. In May 2013, the staff of the SEC orally advised the Company that they calculated the estimated benefits to the Company from allegedly improper payments, plus interest thereon, to be approximately $4.8 million, which amount was accrued by the Company as of April 30, 2013. Based on the results of the Company’s internal investigation, an analysis of the resolution of recent and similar FCPA resolutions, the Company currently estimates a potential settlement range for resolving these matters (including the amount of a monetary penalty and the disgorgement of any improper benefits plus and interest) of $10.4 million to $16.0 million. The Company has increased its reserve for the settlement of these matters from $4.8 million to $10.4 million, representing the low end of this range. At this time, we can provide no assurances as to whether the Company will be able to settle for an amount equal to its current reserve or within its estimated settlement range or whether the SEC or DOJ will accept voluntary settlement terms that would be acceptable to the Company. Furthermore, the Company cannot currently assess the potential liability that might be incurred if a settlement is not reached and the government was to litigate the matter. As such, based on the information available at this time, any additional liability related to this matter is not reasonably estimable. The Company will continue to evaluate the amount of its liability pending final resolution of the investigation, and any related settlement discussions with the government; the amount of the actual liability for any fines, penalties, disgorgement or interest that may be recorded in connection with a final settlement could be significantly higher than the liability accrued to date. Other than the indication of the estimated disgorgement amount noted above, the Company has not received any proposed settlement offers from the SEC or DOJ and there can be no assurance that its discussions with the DOJ and SEC will result in a final settlement of any or all of these issues or, if a settlement is reached, the timing of any such settlement or that the terms of any such settlement would not have a material adverse effect on the Company.”
ADM
ADM recently disclosed as follows concerning its long-running FCPA scrutiny.
“The Company has completed its internal review and is engaged in discussions with the DOJ and SEC to resolve this matter. In connection with this review, government agencies could impose civil penalties or criminal fines and/or order that the Company disgorge any profits derived from any contracts involving inappropriate payments. Included in selling, general, and administrative expenses for the nine months ended September 30, 2013 were charges for the Company’s current estimate of potential disgorgement, penalties, and fines that may be paid by the Company in connection with this matter of $54 million. As of September 30, 2013, the estimated loss provision liability of $54 million is included in accrued expenses and other payables in the Company’s consolidated balance sheet. These events have not had, and are not expected to have, a material impact on the Company’s business or financial condition.”
GSK
In my first GSK post over the summer, I posed the question – based on GSK disclosures and public statements – whether GSK is the victim of rogue employee conduct?
According to this U.K. Independent article:
“GlaxoSmithKline, the British drug company at the heart of a bribery investigation in China, is likely to avoid a company-wide charge for allegedly funneling up to £300m in kickbacks to doctors and government officials. Instead, police are likely to charge some of its Chinese executives, according to reports citing legal and industry sources. Such an outcome would see Chinese police drop claims made in September that corruption was co-ordinated at a company level. […] The [Chinese] police investigation into GSK is likely to be concluded around the end of November or in December, said a person with direct knowledge of the probe. The sources noted it was difficult to predict what Chinese authorities would ultimately do. But the most likely legal scenario was that they would charge Chinese GSK executives, said the person with direct knowledge of the investigation and two other sources familiar with the matter. The sources declined to be identified because of the sensitivity of the case. Indeed, the Ministry of Public Security had tried to find evidence tying GSK as a legal entity to the alleged wrongdoing, but it was unlikely authorities would be able to prove its involvement at a corporate level, said the person with direct knowledge of the investigation.” (emphasis added).
Bio-Rad Labs
Bio-Rad recently disclosed that it recorded “an accrued expense of $20 million in connection with the Company’s initial efforts to resolve the previously disclosed investigation of the Company in connection with the United States Foreign Corrupt Practices Act.”
For The Reading Stack
The always informative Miller & Chevalier quarterly update is out. (See here for the Autumn 2012 FCPA Review).
From an article titled “The ‘Mens Rea’ Component Within the Issue of the Over-Federalization of Crime” by John Baker and William Haun in Engage, a Federalist Society publication.
“Designed to prohibit bribery of foreign officials for any business advantage, the [FCPA’s] breadth allows the federal government to hold businesses liable for actions by rogue agents. As former U.S. Attorney General Michael Mukasey and Jones Day partner James Dunlop note, this “adds unnecessary uncertainty and opens businesses to massive, largely unavoidable, liability, with few offsetting benefits.” The statute’s broad language can transgress the intent of Congress. In discussing the example of Wal-Mart, Professor Mike Koehler has shown that Congress had no desire to apply the Act against “grease payments” to clerical employees, but that the backroom nature of FCPA enforcement gives that congressional limitation uncertain relevance. The reluctance of corporations to go to trial minimizes judicial review of the FCPA’s use. As a result, the FCPA investigations have developed a “prosecutorial common law,” allowing the Department of Justice (DOJ) to impose burdensome compliance costs without having to prove in court that criminal activity has actually occurred or is likely to occur. Companies spend millions to “comply” with requirements possessing an unknown reach. In remarks on the FCPA, former U.S. Attorney General Mukasey observed that, given how few FCPA cases actually see a court room, “there is a whole body of law being developed” in prosecutor’s offices through negotiated FCPA settlements with major companies. Even if the settlements are reasonable, as General Mukasey noted, they do not provide any clarity or consistency necessary to “demystify” an ordinary person’s responsibilities under the law. He noted that DOJ and the business community reached an understanding on some aspects of the FCPA. Such agreements, however, should not serve as the functional equivalent of legislation. It is the obligation of Congress to establish clear mens rea requirements for the FCPA and other statutes, not the executive via piecemeal prosecution.”
What’s one takeaway point from the recent Diebold enforcement actions? According to Richard Smith (Norton Rose Fulbright) in this recent Law360 article:
“The Diebold settlements underscore the need for companies to fully evaluate whether voluntary disclosure is in the company’s best interest. Although U.S. authorities may be willing to reward companies for self-disclosing FCPA issues — indeed, the DOJ specifically stated in the DPA that it credited Diebold for making such a disclosure — the positive credit received is not always clear. The ultimate financial and operational burden on a company may, in any given instance, outweigh credit received. Based on previous enforcement action settlements, some companies may have assumed that voluntary disclosure assists the company in avoiding the imposition of a compliance monitor. In light of the Diebold settlements, however, companies assessing the option of self-disclosure must consider the real possibility that doing so may not shield them from the increased costs and scrutiny associated with the retention of independent compliance monitors.”
Save The Date
On December 4th in Washington, D.C., George Washington University Law School is hosting a full-day symposium titled “The International Fight Against Corruption: Are the OECD and UN Conventions Achieving their Objectives?” To learn more about the event, see here.