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Friday Roundup

Roundup2

Scrutiny alerts and updates, asset recovery, Fokker DPA appeal, Holder to private practice, and for the reading stack. It’s all here in the Friday roundup.

Scrutiny Alerts and Updates

Former Yara Executives

Reuters reports:

“A Norwegian court sentenced four former top executives at Yara, the world’s biggest nitrate fertilizer maker, to prison on Tuesday for paying bribes in Libya and India, in one of Norway’s biggest corruption scandals. Prosecutors had accused the men of paying around $8 million in bribes to officials in Indiaand Libya – including to the family of former Libyan leader Muammar Gaddafi’s oil minister and the family of a financial adviser in India’s Ministry of Chemicals and Fertilizers – for the right to establish joint ventures. Former CEO Thorleif Enger got the longest sentence of three years. His lawyer said he would appeal the sentence. Former chief legal officer Kendrick Wallace was sentenced to 2-1/2 years in prison, while former head of upstream activities Tor Holba and former deputy CEO Daniel Clauw were both given two-year jail terms years, court documents showed.”

For more on the underlying Libya investigations, see here.

Cerberus Capital Management

Cerberus Capital Management has been the subject of several recent media articles (see here and here for instance) concerning its purchase of a portfolio of the National Asset Management Agency (Nama) in 2014 in Northern Ireland.  According to reports:

“Northern Irish politicians have called for an investigation after a politican in Dublin alleged that Belfast law firm Tughans had £7m in an account, ‘reportedly earmarked for a Northern Ireland politician’.”

Tughans was engaged as local counsel by Brown Rudnick in connection with its representation of Cerberus. In response to the scrutiny, Brown Rudnick released this statement.

Asset Recovery

The DOJ recently filed this civil forfeiture complaint seeking “£22 million in British pounds (approximately $34 million at current exchange rates) that represent the value of 4,000,000 founders’ shares in Griffiths Energy International Inc. (“Griffiths Energy”), and that are traceable to, and involved in the laundering of, bribe payments made to Chadian diplomats …”.

According to the complaint, Griffiths Energy gave Mahamoud Adam Bechir (“Bechir”), Chad’s ambassador to the United States and Canada from approximately 2004 to 2012, and others “valuable company shares in exchange for Bechir exercising his official influence over the award to the company of lucrative oil development rights in Chad.”

The recent action is the second DOJ civil action filed in connection with the Griffiths Energy matter.  (See here).

See here for the prior post regarding the underlying Canadian enforcement action against Griffiths Energy.

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As highlighted in this Bloomberg article:

“The Justice Department is seeking to seize $300 million claimed to be the proceeds of an international bribery conspiracy involving two Russian phone companies, as the U.S. joins a group of European nations in a telecom corruption probe. The U.S. claims VimpelCom Ltd., part-owned by Russian billionaire Mikhail Fridman, and Mobile TeleSystems OJSC used a web of shell companies and phony consulting contracts to funnel bribes to a close relative of Uzbekistan’s president, Islam Karimov, in exchange for access to that country’s telecommunications market. The assets sought by the U.S., in a complaint filed Monday in Manhattan federal court, are held in Bank of New York Mellon Corp. in Ireland, Luxembourg and Belgium. VimpelCom said in March 2014 that its Amsterdam headquarters had been raided by Dutch prosecutors and that the U.S. Securities and Exchange Commission demanded documents as part of the probe into its business.”

Fokker DPA Appeal

This previous post concerned the pending D.C. Circuit appeal of the DOJ – Fokker Services deferred prosecution agreement. Recently David Debruin (Jenner & Block), the court appointed amicus, filed this brief.

Regarding the following issue: “whether the District Court abused its discretion by denying the parties’ motion to exclude time under the Speedy Trial Act […] which provides for the exclusion of a period of delay pursuant to a deferred prosecution agreement “with the approval of the court.”, the brief states in pertinent part:

“If the Court reaches the merits, it should hold that the District Court had the authority to consider the substantive fairness of the DPA. Under 18 U.S.C. § 3161(h)(2), a DPA requires “approval of the court.” The plain text of this provision grants a district court the discretion to consider the substantive fairness of a DPA before approving it. The parties argue that a district court may reject a DPA only if it concludes that the parties are using the DPA as a pretext for a continuance, but that artificial restriction on judges’ discretion finds no basis in § 3161(h)(2). The legislative history, structure, and purpose of the Speedy Trial Act similarly confirm a district court’s discretion to consider a DPA’s substantive fairness.

Contrary to the parties’ contentions, the District Court’s rejection of the DPA poses no separation-of-powers problem. The District Court’s order does not force the Government to pursue a criminal prosecution. The Government remains free to negotiate a new DPA, try its case, or dismiss the charges. Prosecutorial discretion does not confer upon the Government the right to force a judge to exclude time from the Speedy Trial Act clock for 18 months. A district court order excluding time under the Speedy Trial Act is a judicial act, and separation-ofpowers principles give a judge the authority and the obligation to exercise independent judgment in performing that judicial act. If the Government had wanted to avoid judicial involvement, it should have signed a non-prosecution agreement; by instead choosing to invoke judicial process and filing a motion to exclude time under the Speedy Trial Act, it cannot now characterize the District Court’s denial of that motion as a separation-of-powers violation.

On the merits, the District Court did not abuse its discretion in rejecting the DPA. FSBV willfully violated the U.S. sanctions regime over 1,000 times and repeatedly provided assistance to the Iranian military. Yet under the DPA, as long as it agreed to pay back the revenues it earned and promised not to break the law, it would get off scot-free. The District Court’s conclusion that the DPA was grossly disproportionate to FSBV’s conduct was entirely reasonable.”

Holder to Covington

Recently Covington & Burling announced:

“Former U.S. Attorney General Eric H. Holder, Jr., is returning to Covington as a partner after more than six years of service as the nation’s top law enforcement officer. Mr. Holder will be resident in the firm’s Washington office and focus on complex investigations and litigation matters, including matters that are international in scope and raise significant regulatory enforcement issues and substantial reputational concerns. […] Mr. Holder was a partner at Covington from 2001 until February 2009, when President Obama appointed and the Senate confirmed him as the nation’s 82nd Attorney General.”

Reading Stack

Gibson Dunn’s Mid-Year FCPA Update is here.

Gibson Dunn’s Mid-Year Update on Corporate NPAs and DPAs is here.

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A good weekend to all.

Friday Roundup

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A double standard dandy, scrutiny alerts, when the dust settles, quotable, asset recovery, protection money, and for the reading stack.  It’s all here in the Friday roundup.

Double Standard Dandy

Numerous prior posts have highlighted the double standard between enforcement (or lack thereof) of the U.S. domestic bribery statute (18 USC 201) and the FCPA.  (See here for the double standard tag with approximately 40 posts).

A leading FCPA practitioner sent me the following lead paragraphs in reaction to this recent New York Times article about alleged corruption in connection with state attorney generals offices.

“Media reports this week exposed widespread practices in which U.S.-based issuers have allegedly retained paid lobbyists to wine, dine, and make huge campaign contributions to the chief prosecutors in numerous foreign countries in hopes of obtaining favorable prosecutorial decisions in those countries, often with apparent success.  The DOJ and SEC have immediately launched one of the largest investigations in history to determine whether these activities violated the FCPA, which forbids U.S. companies from giving or promising anything of value to a foreign official in order to gain an improper advantage.  If found guilty, these companies could face multi-million-dollar fines and any implicated executives could face years of incarceration.

Oh wait.  Never mind.  It turns out the chief prosecutors work only for domestic U.S. state governments rather than foreign governments, and thus any tainted decisions would betray U.S. citizens rather than non-citizens living in foreign locations.  Nothing to worry about here after all – just keep moving along, citizens.”

Well said.

Scrutiny Alerts

Qualcomm

Qualcomm’s FCPA scrutiny has been interesting to follow as it represents a rare instance of a company receiving a Wells Notice from the SEC.  In its annual report, the company disclosed:

“Securities and Exchange Commission (SEC) Formal Order of Private Investigation and Department of Justice Investigation : On September 8, 2010, we were notified by the SEC’s Los Angeles Regional office of a formal order of private investigation. We understand that the investigation arose from a “whistleblower’s” allegations made in December 2009 to the audit committee of our Board of Directors and to the SEC. In 2010, the audit committee completed an internal review of the allegations with the assistance of independent counsel and independent forensic accountants. This internal review into the whistleblower’s allegations and related accounting practices did not identify any errors in our financial statements. On January 27, 2012, we learned that the U.S. Attorney’s Office for the Southern District of California/Department of Justice (collectively, DOJ) had begun an investigation regarding our compliance with the Foreign Corrupt Practices Act (FCPA). The audit committee conducted an internal review of our compliance with the FCPA and its related policies and procedures with the assistance of independent counsel and independent forensic accountants. The audit committee has completed this comprehensive review, made findings consistent with our findings described below and suggested enhancements to our overall FCPA compliance program. In part as a result of the audit committee’s review, we have made and continue to make enhancements to our FCPA compliance program, including implementation of the audit committee’s recommendations.

As previously disclosed, we discovered, and as a part of our cooperation with these investigations informed the SEC and the DOJ of, instances in which special hiring consideration, gifts or other benefits (collectively, benefits) were provided to several individuals associated with Chinese state-owned companies or agencies. Based on the facts currently known, we believe the aggregate monetary value of the benefits in question to be less than $250,000, excluding employment compensation.

On March 13, 2014, we received a Wells Notice from the SEC’s Los Angeles Regional Office indicating that the staff has made a preliminary determination to recommend that the SEC file an enforcement action against us for violations of the anti-bribery, books and records and internal control provisions of the FCPA. The bribery allegations relate to benefits offered or provided to individuals associated with Chinese state-owned companies or agencies. The Wells Notice indicated that the recommendation could involve a civil injunctive action and could seek remedies that include disgorgement of profits, the retention of an independent compliance monitor to review our FCPA policies and procedures, an injunction, civil monetary penalties and prejudgment interest.

A Wells Notice is not a formal allegation or finding by the SEC of wrongdoing or violation of law. Rather, the purpose of a Wells Notice is to give the recipient an opportunity to make a “Wells submission” setting forth reasons why the proposed enforcement action should not be filed and/or bringing additional facts to the SEC’s attention before any decision is made by the SEC as to whether to commence a proceeding. On April 4, 2014 and May 29, 2014, we made Wells submissions to the staff of the Los Angeles Regional Office explaining why we believe we have not violated the FCPA and therefore enforcement action is not warranted.

We are continuing to cooperate with the SEC and the DOJ, but are unable to predict the outcome of their investigations or any action that the SEC may decide to file.”

Cobalt International

The other instance of FCPA scrutiny involving an SEC Wells Notice is Cobalt International.  Earlier this week, the company disclosed:

“As previously disclosed, the Company is currently subject to a formal order of investigation issued in 2011 by the SEC related to its operations in Angola. On August 4, 2014, the Company received a Wells Notice from the Staff of the SEC with respect to such investigation. On September 24, 2014, the Company responded to the Wells Notice in the form of a Wells Submission. The Company is unable to predict the outcome of the SEC’s investigation or any action that the SEC may decide to pursue.”

When the Dust Settles

It is always interesting to see what happens when the dust settles from an FCPA enforcement action (see here for the prior post). The recent Bio-Rad enforcement action concerned conduct in, among other places, Vietnam.

According to this source:

“The [Vietnam] Ministry of Health has called on police to investigate an American medical equipment manufacturer that has admitted to bribing Vietnamese officials. Health Minister Nguyen Thi Kim Tien filed a formal request on Wednesday with the Ministry of Public Security that asked investigators to determine whether anyone had accepted kickbacks from Bio-Rad Laboratories, Inc. On the same day, the ministry’s inspectors instructed government hospitals to review any purchases from from Bio-Rad since 2005 and submit a report on the issue by November 15.”

Quotable

Earlier this week, the Supreme Court heard oral argument in Yates v. United States, the case involving a fisherman who was criminally charged with violating the anti-shredding provisions of Sarbanes-Oxley (i.e. “altered, destroyed, mutilated, concealed, covered up, falsified, or made a false entry in a record, document, or tangible object with the intent to impede or obstruct an investigation”) for disposing of some fish.

In this Wall Street Journal op-ed, Bill Shepherd, a partner in Holland & Knight LLP and lead counsel for the National Association of Criminal Defense Lawyers which filed an amicus brief in the Yates case, states:

“[C]reativity in law enforcement should be confined to new strategies for undercover operations, not new, tortured interpretations of laws on the books. […]  Congress is often criticized for overregulating and overcriminalizing. But the Yates case is a dramatic example of executive branch overreaching. Just because a prosecutor can file a charge doesn’t mean it is the right thing to do. Prosecutors everywhere struggle with the burden of teaching new prosecutors how to recognize the appropriate use of their authority. Professional groups like the American Bar Association Criminal Justice Section work to help foster that dialogue. Success among colleagues in prosecutors’ offices is measured, as it should be, by the number of convictions and the length of sentences handed down. But the other part of success—more difficult to measure—is the courage to close unfounded investigations or dismiss cases because they are not supported by the evidence, or don’t match an American sense of justice. The ultimate measure of success is the ability to live, work and raise a family in a safe environment—secure in the knowledge that government will not abuse that power with which we entrust it. This must be our universal goal.”

For coverage of oral argument in the Yates case, see here from the New York Times.

Asset Recovery

Deputy Attorney General James Cole recently delivered this speech at the Third Annual Arab Forum on Asset Recovery.

“Corruption undermines and weakens that which is the basis of modern society – the rule of law.  Corrupt officials who put their personal enrichment before the benefit of their citizenry create unstable countries.  Corruption siphons precious resources away from those in need at a time when such resources could hardly be more scarce and when the world economy could hardly be more vulnerable.  The repercussions of corruption – the hospitals left unbuilt, the roads still unpaved, the medicine undelivered – undermine the integrity of democratic institutions, creating gaps in government structures that organized criminal groups exploit.  And as we have seen time and again, countries plagued with corruption become breeding grounds and havens for other criminals and terrorist groups who threaten global security.”

[…]

“To underscore the U.S.’s commitment to asset recovery, Attorney General Holder established a Kleptocracy Initiative in the Department of Justice.  The Kleptocracy Team includes dedicated prosecutors working to forfeit corruption proceeds and, whenever we can, return those proceeds to benefit the people harmed by the corruption.  The Kleptocracy prosecutors are soon to be paired with a dedicated Kleptocracy squad of FBI agents and analysts, and this squad will enhance the capacity of the United States to respond rapidly in investigating and locating corruption proceeds.

The Kleptocracy Initiative seeks to deliver on our responsibility to protect the integrity of the U.S. financial system and its institutions from the destructive influence of corruption proceeds and to deny kleptocrats safe haven to hide and enjoy their ill-gotten gains.”

Speaking of asset recovery, the DOJ announced that it filed a civil forfeiture complaint seeking the forfeiture of $106,488.31 in allegedly laundered funds traceable to a $2 million bribe payment made by a Canadian energy company to Chad’s former Ambassador to the United States and Canada and his wife.

According to the release:

“From 2004 to 2012, Mahamoud Adam Bechir, 49, served as Chad’s Ambassador to the United States and Canada.  According to the forfeiture complaint, Bechir agreed to use his position to influence the award of oil development rights in Chad in exchange for $2 million and other valuable interests from Griffiths Energy International Inc., a Canadian company.  In order to conceal the bribe, Bechir and his wife, Nouracham Niam, 44, allegedly entered into a series of agreements with Griffiths Energy that provided for the payment of a $2 million “consulting fee” if the company secured the oil rights in Chad.  After securing these oil rights in February 2011, Griffiths Energy allegedly transferred $2 million to an account located in Washington, D.C. held by a shell company created by Niam.  In 2013, Griffiths Energy pleaded guilty in Canadian court to bribing Bechir. The complaint further alleges that, after commingling the bribe payment with other funds and laundering these funds through U.S. bank accounts and real property, Bechir transferred $1,474,517 of the criminal proceeds traceable to the bribe payment to his account in South Africa, where he is now serving Chad’s Ambassador to South Africa.  The current action seeks forfeiture of $106,488.31, which is the current balance of Bechir’s accounts in South Africa.  Those funds have been seized pursuant to the complaint unsealed today.  The Department of Justice is also seeking additional assets from Bechir and Niam.”

See here for the prior post highlighting the Canadian enforcement action against Griffiths Energy and pondering whether there would be a U.S. enforcement action.

Protection Money
Is paying “protection money” to tribal leaders in Egypt an FCPA issue?  (See here from National Geographic).
“No US firm will speak publicly of the measures they take to avoid open appeasement of Bedouin claims, but in private conversations, employees of American and European oil giants have spoken of hiring tribesmen for non-existent or unnecessary jobs. Usually they’re listed as security guards or dump truck drivers ferrying sand and gravel, but they seldom turn up to except to collect their monthly salaries. This arrangement has afforded most energy firms a largely hassle-free hand to work in the vast, poorly policed expanses that flank the Nile river.”
Reading Stack
Professor Brandon Garrett’s – “Too Big to Jail: How Prosecutors Compromise with Corporations.”
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A good weekend to all.

Will The DOJ Also Bring An Enforcement Action Against Griffiths Energy?

Last month, in an event widely reported, Canadian authorities brought an enforcement action against Griffiths Energy International Inc. (“GEI”) under Canada’s Corruption of Foreign Public Officials Act (“CFPOA”)

This post summarizes that enforcement action, including allegations in the Statement of Facts concerning conduct in the U.S. that would seem to provide a basis for the U.S. Department of Justice to also bring a Foreign Corrupt Practices Act (“FCPA”) enforcement action against GEI.

Indeed, in GEI’s press release announcing resolution of the CFPOA matter, the company stated that it voluntarily disclosed the conduct at issue to both Canadian and U.S. authorities in November 2011 and specifically noted as follows.  “Since its voluntary disclosure Griffiths Energy has been cooperating and working with the Royal Canadian Mounted Police, the Public Prosecution Service of Canada (“PPSC”) and the U.S. Department of Justice to bring the matter to a close.”

Given that the above release was unclear as to whether the DOJ investigation is active or closed, I asked GEI this precise question, and the response from the company’s external public relations advisor last week was as follows.  “Griffiths Energy’s management is not available to comment.”  That answer would seem to suggest that the DOJ investigation is not closed.

The Statement of Facts in the CFPOA matter (see here) focuses on GEI’s efforts to obtain a production sharing contract (“PSC”) with the African nation of Chad to provide GEI with the exclusive right to explore and develop oil and gas reserves and resources in the Borogop and Doseo blocks in southern Chad.  In sum, GEI agreed that it “directly agreed to provide, and indirectly provided, improper benefits to a Chadian public official in order to further the business objectives of GEI and its subsidiaries.”  The public official is Chad’s Ambassador to Canada, Mahamoud Adam Bechir (the “Ambassador”), and by extension his wife Ms. Nouracham Niam.  Because Chad had no embassy located in Canada, the Ambassador resided in Washington D.C.

The Statement of Facts highlights a number of attempts by GEI to obtain the blocks in Chad as well as various consulting agreements designed to facilitate that process.   The first consulting agreement in August 2009 was signed by GEI and the Ambassador, on behalf of a Maryland-based entity wholly-owned by the Ambassador, and it provided for a $2 million fee payable to the entity if “GEI was awarded the Doseo and Borogop blocks on or before December 31, 2009.”  According to the Statement of Facts, “the services to be provided under the consulting agreement by the consultant were generally described as providing advisory, logistics, operational other assistance with respect to implementing GEI’s oil and gas projects in Chad.”

The Statement of Facts indicates however that “GEI’s outside legal counsel advised … that the Ambassador was a government official and that GEI could not make an offer or give an advantage or do anything directly or indirectly with him.  The agreement was terminated and no payments were made by GEI pursuant to this agreement.”

However, a second consulting agreement, “with identical terms” was entered into in September 2009 between GEI and a Nevada entity wholly-owned by the Ambassador’ wife.  According to the Statement of Facts, “a subscription agreement associated with the grant of 1,600,000 founders shares in GEI” to the Ambassador’s wife was also entered into and accompanied by a Western Union payment for the share price.  The Statement of Facts also indicates that “two other individuals” nominated by the Ambassador’s wife also were given the opportunity to purchase founders shares.  These individuals included the wife of the Deputy Chief of the Chadian Embassy in Washington D.C.

The Statement of Facts next discuss a meeting in Washington D.C. arranged by the Ambassador’s wife between “high-level officials from both GEI and the Government of Chad” to sign a memorandum of understanding (MOU) in relation to the blocks.  The MOU was not signed at this meeting, but was shortly thereafter.  During a change in Chad’s government, a final production sharing agreement was delayed, and a new MOU was signed in November 2010.  According to the Statement of Facts, in January 2011, “GEI engaged new external legal counsel and transferred PSC-related documents for review” and GEI “also instructed new external legal counsel to either extend or redo the original consulting agreement” referenced above.  In mid-January 2011, the renewed consulting agreement was signed by GEI and the Ambassador’s wife.

Thereafter, “GEI and its outside legal advisors then travelled to Chad to complete the negotiations for the PSC” and on January 19, 2011, the PSC was signed.  Shortly thereafter, the $2 million payment from GEI to the Maryland entity wholly-owned by the Ambassador’s wife was made and deposited in the entity’s bank account in Washington D.C.

However, the Statement of Facts noted that even though the payments were made to persuade the “Ambassador to exercise his influence to assist GEI entering Chad,” no “influence was actually realized.”

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GEI is a privately-held Canadian company and as such the FCPA’s dd-3 prong could apply if (in the words of the FCPA) GEI “or any officer, director, employee, or agent … while in the territory of the United States, corruptly [made] use of the mails or any means or instrumentality of interstate commerce or to do any other act in furtherance of” the payment scheme.

It is also interesting to note the relevance of the two “domestic concerns” (in the words of the FCPA) – namely the Maryland entity and Nevada entity – in the conduct at issue.

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Returning to the CFPOA action, this is only the third instance Canadian authorities have brought corporate charges under the CFPOA.  (See this prior post with an analysis of the Nikko Resources enforcement action and general reference to the Hydro Kleen enforcement action).  The Statement of Facts provide a useful description by the Canadian authorities of facts and circumstances they considered when arriving at the ultimate fine amount of $9 million (plus the 15% victim fine surcharge) for a total amount of $10.35 million.

Under the heading “Full and Extensive Cooperation with Authorities” the Statement of Facts indicates as follows.

  • An entirely new management team was hired within GEI between July 2011 and August 2011 and six new independent directors were appointed to GEI’s board.  “No current member of GEI’s management team or board of directors was involved with or knowledgeable about the consulting agreements that are issue in this case.”
  • GEI’s current board and management learned of the consulting agreements “in the course of conducting due diligence in anticipation of its initial public offering which was to take place prior to Dec. 31, 2011.  “Immediately” thereafter, a Special Committee comprised entirely of the independent members of GEI’s board was created and engaged outside legal counsel and forensic accounting experts.
  • GEI “disclosed the existence of the issues [and the results of its internal investigation] to representatives of the Public Prosecution Service of Canada” as well as “enforcement authorities in the U.S.”
  • “Hard costs paid to GEI’ legal and accounting advisors on the internal investigation currently stand at CAD $5.0 million.
  • “GEI made the further decision to withdraw its IPO, causing GEI to write off approximately CAD $1.8 million in sunk pre-IPO expenses” and “causing GEI to incur significantly higher costs of capital through private placements in order to be able to continue its operations.”

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As to GEI’s “current development and exploration activities in Chad” see this recent company release.

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