Will The SEC Be Put To Its Burden Of Proof In The Jackson And Ruehlen Enforcement Action?
As discussed in this previous post, in November 2010, Noble Corporation was one of several companies to resolve FCPA enforcement actions in what I called CustomsGate – enforcement actions largely focused on alleged payments to Nigerian customs officials to receive various permits. The Noble enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $8.2 million ($2.6 million criminal fine via a non-prosecution agreement; $5.6 million in disgorgement and interest via a SEC complaint).
As noted in the previous post, in the Noble Corporation enforcement action it was stated, not once but twice, that the payments at issue “would not constitute facilitation payments for routine governmental actions within the meaning of the FCPA.” I noted then that one can reasonably conclude that if the DOJ felt the need to express such a statement twice, that the FCPA’s facilitating payment exception should probably be on the minds of many in connection with the CustomsGate enforcement actions.
Against the backdrop of recent and well-deserved scrutiny of the DOJ’s FCPA enforcement program, the SEC reminds us all that it too can enforce the FCPA. [As an aside, Professor Barbara Black (University of Cincinnati College of Law) recently released her forthcoming scholarship – see here – “The SEC and the Foreign Corrupt Practices Act: Fighting Global Corruption is Not Part of the SEC’s Mission].
Last Friday, the SEC announced here charges against “three oil services executives with violating the FCPA by participating in a bribery scheme to obtain illicit permits for oil rigs in Nigeria in order to retain business under lucrative drilling contracts.”
In this complaint filed in the S.D. of Texas, the SEC charged Mark Jackson (former Noble Corporation CEO) and James Ruehlen (current Director and Division Manager of Noble’s subsidiary in Nigeria) based on the same core set of facts relevant to the prior corporate enforcement action – namely that Noble and its wholly-owned subsidiary (Noble-Nigeria) “authorized its customs agent to pay bribes” on the companies behalf “to Nigerian government officials to influence or induce them to (1) favorably process false paperwork, (2) grant temporary import permits (TIPs) based on the false paperwork, and (3) favorably exercise or abuse their discretion in granting extensions to these illicit TIPs.”
The complaint (a meaty 46 pages) next states, in summary fashion, as follows.
“Defendants approved payment of the bribes. Defendant Ruehlen also assisted the customs agent in preparing false documents, processed the customs agent’s invoices for the bribes, and signed the checks reimbursing the customs agent for the bribes he paid to Nigerian government officials. Defendants acted in this way to obtain TIPs and TIP extensions and retain business under drilling contracts in Nigeria. As a consequence, Defendants violated the anti-bribery provisions [of the FCPA.] Defendants also took steps to circumvent Noble’s internal controls and to falsely record these bribes as legitimate operating expenses on Noble’s books. Defendant Jackson failed to implement internal accounting controls to prevent the bribery and false recording of the bribes. As a consequence, Defendants violated the records falsification and internal control provisions of the Exchange Act and aided and abetted Noble’s violations of the books and records and internal control provisions [of the FCPA]. Defendant Jackson misled Noble’s auditors about the bribes and signed certifications required by the Sarbanes-Oxley Act of 2002 falsely stating that he had created and maintained effective internal controls, and that there were no internal control weaknesses, fraud or FCPA violations. As a consequence, Jackson violated Rules 13b2-2 and 13a-14 of the Exchange Act. During the violations, Jackson was Noble’s Chief Financial Officer, Chief Operating Officer, and ultimately President and Chief Executive Officer, and Chairman of the Board of Directors. Jackson directly or indirectly controlled Noble, Defendant Ruehlen, and others, and therefore is liable as a control person under Section 20(a) of the Exchange Act for all of their violations.”
[For previous Section 20(a) control person (or similar) FCPA enforcement actions – see here and here.]
Unlike the vast majority of FCPA defendants (corporate and individual) charged in an SEC enforcement action, Jackson and Ruehlen appear poised to launch a defense.
Jackson’s lawyer, David Krakoff (here – BuckleySandler) stated as follows. “We unequivocally deny the SEC’s baseless allegations. Mr. Jackson will vigorously defend himself in court where the evidence will show what the SEC already knows, that at all times Mr. Jackson acted in good faith at Noble. He looks forward to clearing his good name in this proceeding.”
Ruehlen’s lawyer F. Joseph Warin (here – Gibson Dunn & Crutcher) told the Wall Street Journal that his client was the one who initially raised concerns about the payments and that Ruehlen “fully cooperated throughout the investigation and always acted in an ethical and transparent manner.” Warin stated that “the claims against Mr. Ruehlen are wrong and they will be proven so at trial.”
This will be most interesting to follow as the SEC is rarely put to its burden of proof in FCPA enforcement actions (or any of its actions for that matter). This is due to the SEC’s long-standing policy of allowing defendants to settle SEC complaints without admitting or denying the SEC’s allegations. For recent judicial scrutiny of this settlement device, see this prior post.
The last time the SEC is believed to have been put to its burden of proof in an FCPA enforcement action was in the Eric Mattson and James Harris enforcement action also filed in the S.D. of Texas. Like the Jackson and Ruehlen enforcement action, the Mattson and Harris enforcement action involved conduct outside the context of foreign government procurement. As detailed in this Memorandum and Order, the SEC had its FCPA anti-bribery charges dismissed in that case. The case involved alleged goodwill payments to an Indonesian tax official for a reduction in a tax assessment. The SEC claimed that the FCPA’s unambiguous language plainly encompassed the goodwill payment and the issue before the Court was whether the plain language of the FCPA prohibited goodwill payments for the purpose of reducing a tax assessment. When Mattson and Harris was decided, the S.D. of Texas in U.S. v. Kay case had already dismissed that case finding that the plain language of the FCPA does not prohibit goodwill payments to foreign government officials to reduce a tax obligation. The SEC attempted to distinguish the trial court’s Kay ruling by arguing that in the civil enforcement context, the Court should interpret the FCPA’s language more liberally than in criminal cases. The Court rejected the SEC’s arguments and followed the trial court’s analysis in Kay that the payments at issue to the Indonesian tax official did not violate the FCPA because it did not help Mattson’s and Harris’s employer (Baker Hughes) “obtain or retain business.”
Of course, the 5th Circuit overturned the Kay trial court ruling and held that making payments to a “foreign official” to lower
taxes and custom duties in a foreign country can provide an unfair advantage to the payer over competitors and thereby assist the payer in obtaining and retaining business. However, the Kay court emphatically stated that not all such payments to a “foreign official” outside the context of directly securing a foreign government contract violate the FCPA; it merely held that such payments “could” violate the FCPA. The 5th Circuit then listed several hypothetical examples of how a reduction in custom and tax liabilities could assist a company in obtaining or retaining business in a foreign country. On the other hand, the court also recognized that “there are bound to be circumstances” in which a custom or tax reduction merely increases the profitability of an existing profitable company and thus, presumably, does not assist the payer in obtaining or retaining business. The court specifically stated: “[i]f the government is correct that anytime operating costs are reduced the beneficiary of such advantage is assisted in getting or keeping business, the FCPA’s language that expresses the necessary element of assisting in obtaining or retaining business would be unnecessary, and thus surplusage – a conclusion that we are forbidden to reach.”
The point of this extended discussion in the context of Jackson and Ruehlen is two-fold: (1) that the SEC has already lost a non-government procurement FCPA case in the S.D. of Texas; and (2) even with the 5th Circuit precedent in Kay, and even taking the SEC’s allegations as true, payments in connection with TIPs would seem to be only to increase the profitability of an existing profitable company and thus – following the logic of the Fifth Circuit – fall outside of the FCPA’s anti-bribery provisions.
It will be interesting to see how this plays out should the SEC’s FCPA anti-bribery charges be fully litigated in the Jackson and Ruehlen enforcement action.
As noted in the SEC’s release last week, the Noble executive enforcement action also involved a separate complaint (here) against Thomas O’Rourke (the former controller and head of internal audit at Noble). The complaint alleged that O’Rourke: (1) aided and abetted Noble’s violations of the FCPA anti-bribery provisions, books and records and internal controls provisions; and (2) directly violated the FCPA’s internal controls provisions and false records provisions of the Exchange Act.
Under the heading “defendants’ violations” the SEC alleged, among other things, that O’Rourke: (1) “understood that Noble-Nigeria had used false paperwork to obtain TIPs, and that Noble-Nigeria paid its customs agent for ‘special handling charges’ that were passed through to Nigerian officials; (2) “knew that the ‘special handling charges’ were entered into Noble-Nigeria’s books as legitimate operating expenses, and he knew or was reckless in not knowing that those entries were improper”; (3) “knowingly allowed TIP-related payments to government officials to be improperly accounted for as legitimate operating expenses.
Like the vast majority of FCPA defendants in SEC enforcement actions, O’Rourke chose to settle the SEC’s complaint without admitting or denying the SEC allegations. According to the SEC release, O’Rourke consented to entry of a court order requiring him to pay a $35,000 civil penalty and permanently enjoining him from future violations.
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Last week I participated in a discussion with Howard Sklar regarding a potential FCPA compliance defense (see here for the webcast.) In the aftermath of the SEC’s charges against the Noble executives, Sklar penned a Forbes blog (here) and stated as follows. “One example Mike brings to prove his point [that the FCPA should be amended to include a compliance defense] is the Panalpina line of cases, including Noble. I don’t think he’ll be able to use the Noble case as an example after today. These complaints are against the CEO (who formerly held the CFO spot) and the country leader for Nigeria. Plus, there’s Thomas O’Rourke. Thomas O’Rourke was Noble’s Director of Internal Audit, Controller, and VP of Internal Audit.”
Nice try Howard, but you are off-target.
Sklar is correct that I discuss the Noble Corp. enforcement action (and other related CustomsGate enforcement actions) in my “Revisiting a Foreign Corrupt Practices Act Compliance Defense” article (see here at pgs. 9-12 ). However, that discussion is focused on specific reasons warranting an FCPA compliance defense, including that in many markets, companies subject to the FCPA must navigate challenging environments replete with barriers and other conditions that serve as breeding grounds for payments implicating (at least in the eyes of the enforcement agencies) the FCPA.
In discussing harassment bribes, I then talk about the notoriously corrupt Nigerian Customs Service (“NSC”) and how business interactions with NSC officials have been the basis for several FCPA enforcement actions including the coordinated enforcement actions from November 2010 involving Noble Corp. and others. Anticipating the counter-argument that the FCPA does not need a compliance defense due to the harassment bribery conditions many companies face in foreign markets because the FCPA already contains a facilitating payments exception, I then stated that so long as the DOJ refuses to recognize a facilitating payments exception to the FCPA, that Congressional intent on the facilitating payments issue is best advanced through an FCPA compliance defense in which a company can assert, as a matter of law, that its pre-existing FCPA policies and procedures sought to prevent such payments in foreign markets.
In short, I was using the Noble Corporation enforcement action in connection with a discussion of facilitating payments, not using that particular enforcement action to support an FCPA compliance defense because it somehow was based on low-level employee conduct. Indeed, in the DOJ’s non-prosecution agreement (here) which I discussed in this previous post, “Senior Executive,” “Executive A” and “Executive B” are all specifically mentioned as participating in the alleged improper conduct and an FCPA compliance defense would not apply to corporate conduct engaged in by executive officers.
The point of the Noble Corp. reference in my article was that the company should not have been the subject of an FCPA enforcement action based on the alleged conduct because Congress intended to exempt such payments from the FCPA’s anti-bribery provisions (regardless of who made, directed, or authorized the payments).
Friday Roundup
The Chamber and others weigh in on the DOJ’s promised FCPA guidance, a re-run worth watching, the DOJ dismisses its FCPA case against defunct Cinergy Telecommunications, this week’s FCPA disclosure, a World Bank debarment, and reflecting on this “new era” of FCPA enforcement. It’s all here in a souped-up version of the Friday roundup.
Guidance
The conventional wisdom is that when the DOJ announced in November 2011 (see here for the prior post) that it would be issuing FCPA guidance in 2012, that this stalled introduction of an FCPA reform bill. The current conversation thus seems to be focused on DOJ’s promised guidance.
This prior post highlighted how Senator Charles Grassley is curious about DOJ’s guidance and this prior post highlighted how Senators Amy Klobuchar and Chris Coons are as well.
Earlier this week, the Chamber of Commerce (and approximately 30 other trade associations or councils ranging from the American Gaming Association, the Financial Services Roundtable, the Poultry Federation, and the West Virginia Bankers Association) sent a letter (here) to Assistant Attorney General Lanny Breuer and SEC Director of Enforcement Robert Khuzami titled “Guidance Concerning the Foreign Corrupt Practices Act.”
The letter begins as follows. “On behalf of the more than three million businesses and organizations whose interests we represent, we the undersigned organizations, write to request that this guidance address several issues and questions of significant concern to businesses seeking in good faith to comply with the FCPA. Detailed, authoritative guidance on these matters will enhance companies’ compliance with the FCPA by clarifying the “rules of the road” and by mitigating the significant interpretive challenges that companies face when applying the text of the statute to complex real-world circumstances.”
Topics addressed in the letter include: “definitions of ‘foreign official’ and ‘instrumentality'”; “consideration of compliance programs in enforcement decisions”; “parent-subsidiary liability”; “successor liability”; “de minimis gifts and hospitality”; “mens rea standard for corporate criminal liability”; and “declination issues.”
In this previous post regarding the DOJ’s promised guidance I commented that while a welcome development, DOJ’s promise of FCPA guidance in 2012 will not cure many of the issues that are being debated in good faith during this new era of FCPA enforcement. Furthermore, I expect DOJ’s guidance to be little more than a compilation in one document of information that is already in the public domain for those who know where to look. The Chamber letter similarly states as follows concerning compliance programs. “If the forthcoming guidance on this issue consists merely of a recitation in summary form of specific corporate compliance programs that have been adopted pursuant to deferred prosecution agreements, non-prosecution agreements or SEC settlements, the marginal utility of such guidance to the cause of FCPA compliance in the business community will be limited.”
Whenever released and whatever it says, the DOJ’s guidance will be merely that – guidance. What the FCPA needs is not guidance, but limited structural reforms (such as a compliance defense) as well as a change in DOJ policy (such as elimination of non-prosecution and deferred prosecution agreements).
A Re-Run Worth Watching
If you missed “The FCPA Compliance: Yes Or No” debate between Howard Sklar and I earlier this week on Securities Docket, here is the audio replay (approximately 70 minutes) along with the presentation slides. At the end of the presentation participants were asked to vote “yes” or “no” and the vote tally was 68% “yes” 32% “no.” Many thanks to Bruce Carton at Securities Docket for hosting.
Cinergy Telecommunications
In July 2011, Cinergy Telecommunications was added to the Haiti Teleco enforcement action (see here for the prior post). In a superceding indictment, the privately-held telecommunications company incorporated in Florida was charged
with one count of conspiracy to violate the FCPA and to commit wire fraud, six counts of FCPA violations, one count of conspiracy to commit money laundering and 19 counts of money laundering. In addition, Washington Vasconez Cruz (the president of Cinergy) was also charged as was Amadeus Richers (a former director of Cinergy). As noted in this January post by Samuel Rubenfeld (Wall Street Journal Corruption Currents) in a second superceding indictment Cecilia Zurita (a former vice president of Cinergy as well as Cruz’s wife) was also added to the case.
Earlier this week, the DOJ moved to dismiss (see here) its case against Cinergy. The motion states as follows. “The government has recently learned that defendant Cinergy Telecommunications, Inc. is a non-operational entity that effectively exists only on paper for the benefit of two fugitive defendants, Washington Vasconez Cruz and Cecilia Zurita. For several years, these defendants took actions making it appear as though Cinergy was an on-going operational company.” The motion states that “defense counsel recently confirmed that Cinergy is in fact now non-operational, has no employees, and has no assets of any real value.” The motion concludes as follows. “In light of persuasive information the government has developed that Cinergy no longer exists in any real sense and that it was portrayed as existing at least in part to further fugitive defendants’ litigation strategy, the government in its discretion and under the circumstances presented has elected not to proceed with a trial against Cinergy.”
Joel Hirschhorn (here – Hirschhorn & Bieber P.A.) represents Cinergy as well as certain individual defendants in the case.
This Week’s FCPA Disclosure
In this prior post, I commented (somewhat tongue-in-cheek) that every week another company seems to be disclosing FCPA scrutiny. So far so good. This week’s disclosure is from Cobalt International Energy which disclosed as follows in its recent annual report.
“In connection with entering into our RSAs for Blocks 9 and 21 offshore Angola, two Angolan-based E&P companies were assigned as part of the contractor group by the Angolan government. We had not worked with either of these companies in the past, and, therefore, our familiarity with these companies was limited. In the fall of 2010, we were made aware of allegations of a connection between senior Angolan government officials and one of these companies, Nazaki Oil and Gáz, S.A. (“Nazaki”), which is a full paying member of the contractor group. Nazaki has repeatedly denied the allegations in writing. In March 2011, the SEC commenced an informal inquiry into these allegations. To avoid non-overlapping information requests, we voluntarily contacted the U.S. Department of Justice (“DOJ”) with respect to the SEC’s informal request and offered to respond to any requests the DOJ may have. Since such time, we have been complying with all requests from the SEC and DOJ with respect to their inquiry. In November 2011, a formal order of investigation was issued by the SEC related to our operations in Angola. We are fully cooperating with the SEC and DOJ investigations, have conducted an extensive investigation into these allegations and believe that our activities in Angola have complied with all laws, including the FCPA. We cannot provide any assurance regarding the duration, scope, developments in, results of or consequences of these investigations.”
World Bank Debarment
Earlier this week, the World Bank announced (here) “debarment of Alstom Hydro France and Alstom Network Schweiz AG (Switzerland) – in addition to their affiliates – for a period of three years following Alstom’s acknowledgment of misconduct in relation to a Bank-financed hydropower project.” According to the release, “in 2002, Alstom made an improper payment of €110,000, to an entity controlled by a former senior government official for consultancy services in relation to the World Bank-financed Zambia Power Rehabilitation Project.” The release further states as follows. “The debarment is part of a Negotiated Resolution Agreement between Alstom and the World Bank which also includes a restitution payment by the two companies totaling approximately $9.5 million. The debarment can be reduced to 21 months – with enhanced oversight – if the companies comply with all conditions of the agreement.”
What to make of the debarment based on conduct 10 years ago is a bit difficult. This Wall Street Journal Story by Dionne Searcey and David Crawford states as follows. “There was some confusion about the company’s official response. Early Wednesday, Alstom spokesman Patrick Bessy said Alstom didn’t admit guilt in its settlement with the World Bank. “The World Bank made assumptions which were not proved,” he said, adding that because the matter was so old, “Alstom was unable to find evidence it could present in its own defense so we decided to settle.” Mr. Bessy said the blacklisting won’t affect Alstom Group, which has had only one project that involved World Bank funding since 2007. He said the company has several other subsidiaries engaged in hydroelectric projects that aren’t affected by the ban and will be eligible for World Bank funding of their projects. In all only about 5% of Alstom sales are in the hydroelectric field, Mr. Bessy said. In a later statement, the company rejected Mr. Bessy’s comments: “Alstom’s general counsel … stated that any comments that were previously made by Alstom are not valid.”
Reflecting On The New Era of FCPA Enforcement
As discussed in this previous post, in November 2010 Assistant Attorney General Lanny Breuer declared as follows. “We are in a new era of FCPA enforcement’ and we are here to stay.” Thomas Gorman (Dorsey Whitney) runs the always informative SEC Actions blog – see here. In this post, titled “The New Era of FCPA Enforcement: A Time For Reflection” Gorman hit the ball out of the park when he states as follows.
“Perhaps now is a good time to stop and reflect on what the courts and jurors have said about the “new era” of FCPA enforcement. Surely that era should be more than a dazzling array of ever increasing monetary payments by corporations or actions against individuals built on questionable blue collar tactics. Surely it should be more than business organizations spending ever increasing sums to conduct far reaching and perhaps at times unnecessary investigations at huge expense in a effort to win cooperation credit. Surely it should be more than brining increasing numbers of charges against individuals and demanding longer and longer prison terms. Perhaps now is the time to craft meaningful reform to the Act and enforcement policy to ensure clearer guidance and a more balanced application of the statutes to ensure that the laudable goals of the statute in a fair and balanced manner in the future. That would truly be a “new era” of FCPA enforcement.”
For additional reflections on this “new era” of FCPA enforcement, see this piece I published with the ABA Global Anti-Corruption Task Force.
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A good weekend to all.
Writer’s Cramp At The DOJ?
This is the second time I have written about this issue (see here for the first). This time, the examples are more numerous and more significant.
The DOJ has stated (here) that its FCPA website (here) includes documents related to more than 140 FCPA prosecutions including “charging documents, plea agreements, deferred prosecution and non-prosecution agreements, press releases,and relevant pleadings and orders.” To be sure, the DOJ has a nice (and much improved upon) FCPA website. However, as demonstrated below, if one’s objective is to be informed of all FCPA developments (not just those that cast the DOJ in a favorable light), there are a number of websites, this one included, that highlight such developments, but the DOJ’s website is not one of them.
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In January 2010, the DOJ issued this release announcing the Africa Sting charges and it also held a press conference to discuss the charges. In July 2011, Judge Richard Leon declared a mistrial in the first Africa Sting case (see here for the prior post). However, there was no DOJ press release announcing this development and if your only source of information was the DOJ’s FCPA website you would not know that this development occured because there is no mention of it.
In 2007 Si Chan Wooh, an employee of SSI International, a wholly-owned subsidiary of Schnitzer Steel, was criminally charged (see here). The DOJ issued a release (here) anouncing the charges and related guilty plea. However last year, as reported in this Wall Street Journal Corruption Currents story, “the Justice Department informed Wooh’s counsel that a Federal Bureau of Investigation agent assigned to the investigation of Schnitzer and its employees had written a letter to high-ranking prosecutor in Washington saying Wooh should not have been charged in connection with the case.” In October 2011, in this filing the DOJ moved to dismiss the case “out of prosecutorial discretion in the interests of justice and the efficient use of government resources.” There was no DOJ press release announcing this development and if your only source of information was the DOJ’s website you would not know that this development occured because there is no mention of it.
In May 2011, the DOJ issued this same day release when Lindsey Manufacturing and its executives Keith Lindsey and Steve Lee were found guilty of FCPA offenses after a jury trial. However, in November 2011, Judge Howard Matz vacated the FCPA convictions of Lindsey Manufacturing and its executives and dismissed the indictment (see here for the prior post). Again nothing from the DOJ, no press release, and no mention of this development on its website.
In December 2011, during the second Africa Sting case, Judge Richard Leon, at the close of the DOJ’s case, dismissed a conspiracy charge as to all defendants (see here for the prior post). Because this was the only charge Stephen Giordanella faced, he was exonerated. However, if your only source of FCPA knowledge was the DOJ’s website, you would not know this because there is nothing there as to this development.
In November 2009, the DOJ issued this release when John Jospeh O’Shea was arrested and charged with FCPA and related offenses. However, on January 16th, Judge Lynn Hughes, after the DOJ’s case, dismissed the FCPA charges against O’Shea (see here for the prior post). However, if your only source of FCPA knowledge was the DOJ’s website, you would not know this because the DOJ did not issue a release and there is nothing on its website regarding this development. [Someone was staffing the DOJ press office at this time because approximately 18 hours later, the DOJ announced (here) a $55 million FCPA enforcement action against Marubeni Corporation of Japan.]
Returning to the second Africa Sting trial, earlier this week, Patrick Caldwell and John Godsey were found not guilty by the jury (see here for the prior post). The next day, Judge Leon declared a mistrial as the remaining defendants – John Mushriqui, Jeana Mushriqui and Marc Morales (see here for the prior post). Again, nothing from the DOJ as to these developments.
President Obama has championed transparency and open government. In this release, President Obama stated as follows. “Transparency promotes accountability and provides information for citizens about what their Government is doing. Information maintained by the Federal Government is a national asset. My Administration will take appropriate action, consistent with law and policy, to disclose information rapidly in forms that the public can readily find and use.”
Consistent with President Obama’s directive, the DOJ’s website ought to be improved and ought to keep citizens informed of all FCPA developments – not just those that cast the DOJ in a favorable light.
DOJ Enforcement Of The FCPA – Year In Review
Yesterday, I highlighted various aspects of the SEC’s enforcement of the FCPA in 2011.
In this post, I highlight certain facts and figures from the DOJ’s FCPA enforcement program in 2011.
In 2011, the DOJ brought 11 corporate FCPA enforcement actions (this includes the enforcement action against Cinergy Telecommunications that remains pending).
[In 2010, the DOJ brought 16 corporate FCPA enforcement actions (in addition to the BAE enforcement action that was related to the FCPA, but did not involve FCPA charges and the Lindsey Manufacturing enforcement action that began in 2010 and resulted in the convictions being vacated and the indictment dismissed in 2011 due to prosecutorial misconduct – see here)]
In the 11 corporate DOJ FCPA enforcement actions from 2011, the DOJ collected approximately $355 million in criminal fines. Including the $149 million forfeiture in the Jeffrey Tesler individual enforcement action which resulted in a plea agreement in 2011 (see here), the DOJ’s FCPA enforcement program in 2011 took in approximately $504 million. Approximately $432 million (86%) of the $504 million was in three enforcement actions (JGC Corp., Magyar Telekom / Deutsche Telekom, and Tesler). Approximately $458 million of the $504 million (91%) collected by the DOJ was in enforcement actions against foreign companies (JGC Corp., Magyar Telekom / Deutsche Telekom, Tenaris, and Bridgestone) or foreign nationals (Tesler).
[In 2010, the DOJ collected approximately $870 million in criminal fines in the 16 corporate FCPA enforcement actions ($1.27 billion by including the $400 million BAE enforcement action)].
Tack on the SEC’s collections in 2011 corporate FCPA enforcement actions of approximately $148 million and the overall corporate FCPA fine, penalty and disgorgement amount from 2011 is approximately $503 million – approximately $652 million including Tesler.
[In 2010, corporate fines, penalties and disgorgement in DOJ/SEC enforcement actions was approximately $1.8 billion (including the BAE enforcement action)]
DOJ FCPA enforcement in 2011 was both large (JGC Corp. – $219 million) and small (Comverse Technologies – $1.2 million; Aon – $1.8 million). Three FCPA enforcement actions in 2011 were DOJ only (JGC Corp., Bridgestone, and Cinergy Telecommunications).
In all six corporate FCPA enforcement actions where an analysis was possible, the DOJ agreed to a criminal fine below the minimum range suggested by the sentencing guidelines. In these six actions, the average was approximately 28% below the minimum guidelines range and the distribution range was 55% below the minimum guidelines range (Bridgestone) and 18% below the minimum guidelines range (Magyar Telekom). There were no corporate FCPA enforcement action in 2011 in which the company paid a criminal fine within the guidelines range.
[Note – why are only 6 of the 11 enforcement actions included in the above analysis? 4 corporate enforcement actions involved an NPA and the DOJ does not set forth a guidelines range in the agreement or related documents and 1 enforcement action (Cinergy Telecommunications) remains pending].
[In 2010, the average was approximately 25% below the minimum guidelines range and the distribution range was 55% below the minimum guidelines range (Pride International) and 5% below the minimum guidelines range (Panalpina). The only two corporate FCPA enforcement actions from 2010 where the company paid a criminal fine within the guidelines range were Alliance One (the company voluntarily disclosed and receive a non-prosecution agreement) and Alcatel-Lucent.]
How many corporate FCPA enforcement actions involved related individual prosecutions of company employees by the DOJ (recognizing that such prosecutions may be forthcoming in the future)? Of the 11 corporate DOJ enforcement actions or indictments, 8 of the 11 enforcement actions (73%) have not involved thus far any DOJ prosecutions of company employees. 2011 corporate FCPA enforcement actions that have resulted in criminal charges against company employees are Armor Holdings (Richard Bistrong), Bridgestone (Misao Hioki) and Cinergy Telecommunications (Washington Cruz and Amadeus Richers).
[In 2010, 12 of the 17 corporate FCPA enforcement actions (70%) did not involve, and have not yet involved, DOJ prosecutions of company employees.]
Including Washington Cruz and Amadeus Richers (a German citizen) mentioned above, the DOJ brought 10 individual FCPA enforcement actions in 2011. In December, in connection with the 2008 Siemens enforcement action, the DOJ brought criminal charges against: Uriel Sharef, Herbert Steffen, Andres Truppel, Ulrich Bock, Stephan Signer, Eberhard Reichert, Carlos Sergi and Miguel Czysch. All of these individuals are foreign nationals. Thus, 90% of the DOJ’s individual enforcement actions in 2011 were against foreign nationals. As noted in yesterday’s SEC year in review post, all 12 of the individuals the SEC charged with FCPA violations in 2011 were foreign nationals (in a few cases, dual citizens of a foreign country and the U.S.).
What about non-prosecution and deferred prosecutions vs. old fashioned law enforcement (i.e., if a company committed a crime the DOJ charged it and if the company did not commit a crime the DOJ did not charge it)? In 2011, 9 of the 11 corporate FCPA enforcement actions (82%) were resolved via non-prosecution agreements (Comverse Technologies, Tenaris, Armor Holdings, and Aon) or deferred prosecution agreements (Maxwell Technologies, Tyson Foods, JGC Corp., and Johnson & Johnson). The Magyar Telekom / Deutsche Telekom enforcement action involved both a non-prosecution agreement (Deutsche Telekom) and a deferred prosecution agreement (Magyar Telekom). The two corporate FCPA enforcement from 2011 that involved an indictment or plea to criminal charges were Bridgestone and Cinergy Telecommunications.
[In 2010, 15 of the 16 (94%) corporate FCPA enforcement actions involved NPAs (4) or DPAs (11)].
As Gibson Dunn highlighted in this recent report, FCPA enforcement actions comprised approximately 40% of the DOJ’s 26 NPAs or DPAs in 2011. [In 2010, FCPA enforcement actions comprised approximately 50% of all DOJ NPA or DPA agreements]. Among the criticisms noted in the Gibson Dunn report of NPAs / DPAs is that “from a company’s perspective, the threat of indictment can force a company to agree to a DPA or NPA based on the government’s perception of alleged misconduct even under novel, expansive, or unlitigated theories of liability.”
In yesterday’s SEC year in review post, I noted that 90% of the $148 million the SEC collected in 2011 corporate FCPA enforcement actions was the result of volunatary disclosures or other instances of public disclosure – not original investigations by the SEC.
What does this number look like for DOJ FCPA enforcement actions in 2011? Of the $504 million in criminal fines collected by the DOJ in FCPA enforcement actions, $502 million (99%) appear to be result of voluntary disclosures or other instances of public disclosure such as previous foreign law enforcement investigations. The only exception would appear to be Aon ($1.8 million).
[In 2010, 97% of DOJ criminal fines would appear to fit this description].
This remainder of this post provides an overview of corporate DOJ FCPA enforcement in 2011.
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Maxwell Technologies (Jan. 31st)
See here for the prior post.
Charges: FCPA anti-bribery violations and knowingly violating the FCPA’s books and records provisions.
Resolution Vehicle: Criminal information resolved through a DPA (three year term).
Guidelines Range: $10.5 million to $21 million.
Penalty: $8 million (25% below the minimum amount suggested by the guidelines).
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: No.
Tyson Foods (Feb. 10th)
See here for the prior post.
Charges: Conspiracy to violate the FCPA’s anti-bribery and books and records provisions; FCPA anti-bribery and books and records violations.
Resolution Vehicle: Criminal information resolved through a DPA (two year term).
Guidelines Range: $5.04 to $10.08 million.
Penalty: $4 million (approximately 20% below the minimum amount suggested by the guidelines)
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: No.
JGC of Japan (April 6th)
See here for the prior post.
Charges: Conspiracy to violate the FCPA’s anti-bribery provisions and aiding and abetting FCPA anti-bribery violations.
Resolution Vehicle: Criminal charges resolved through a deferred-prosecution agreement – term two years.
Guidelines Range: $312.6 million to $625.2 million
Penalty: $218.8 million (30% below the minimum amount suggested by the guidelines).
Disclosure: Yes, based on a previous foreign law enforcement investigation.
Monitor: Yes.
Individuals Charged: No.
Comverse Technology (April 7th)
See here for the prior post.
Charges: None – although the non-prosecution agreement refers to a “knowing violation of the books and records provisions of the FCPA.”
Resolution Vehicle: non-prosecution agreement – term two years.
Guidelines Range: Not set forth in the NPA.
Penalty: $1.2 million.
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: No.
Johnson & Johnson (April 8th)
See here for the prior post.
Charges: FCPA anti-bribery violations and conspiracy to violate the FCPA’s anti-bribery and books and record provisions.
Resolution Vehicle: Criminal information resolved through a deferred prosecution agreement (three year term).
Guidelines Range: $28.5 million to $57 million.
Penalty: $21.4 million (25% below the minimum amount suggested by the guidelines).
Disclosure: Yes, voluntary disclosure (however Iraq Oil for Food conduct was not voluntarily disclosed).
Monitor: No.
Individuals Charged: None by U.S. authorities (Robert Dougall (a former DePuy executive) previously plead guilty to a U.K. SFO enforcement action – see here).
Tenaris (May 17th)
See here for the prior post.
Charges: None, although the non-prosecution agreement refers to “knowing violations of the FCPA’s anti-bribery and books and records provisions.”
Resolution Vehicle: NPA – term two years.
Guidelines Range: Not set forth in the NPA.
Penalty: $3.5 million.
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: No.
Cinergy Telecommunications (July 12th)
See here for the prior post.
Charges: conspiracy to violate the FCPA and to commit wire fraud; FCPA anti-bribery violations; conspiracy to commit money laundering; and money laundering.
Resolution Vehicle: N/A
Guidelines Range: N/A
Disclosure: No.
Monitor: N/A
Individuals Charged: Yes.
Armor Holdings (July 13th)
See here for the prior post.
Charges: None
Resolution Vehicle: Non-Prosecution Agreement – term two years.
Guidelines Range: Not set forth in the NPA.
Penalty: $10.3 million
Disclosure: Yes, voluntary disclosure.
Monitor: No (although Armor Holdings is now part of BAE and falls under the monitorship in the BAE FCPA-related enforcement action).
Individuals Charged: Yes.
Bridgestone (Sept. 15th)
See here for the prior post.
Charges: Conspiracy to violate the FCPA’s anti-bribery provisions (and conspiracy to violate the Sherman Act).
Resolution Vehicle: Criminal information resolved via a plea agreement.
Guidelines Range: For the FCPA conduct, the guidelines range (see here) was approximately $40 million – $80 million.
Penalty: $28 million (it would appear that approximately 80% of this figure – approximately $22 million was based on the FCPA conduct)
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: Yes.
Aon Corp. (Dec. 20th)
See here for the prior post.
Charges: N/A although the NPA refers to Aon’s knowing violation of the anti-bribery, books and records, and internal controls provisions.
Resolution Vehicle: NPA – term two years.
Guidelines Range: Not set forth in the NPA.
Penalty: $1.8 million.
Disclosure: Aon’s SEC filings stated that ”following inquiries from regulators, the Company commenced an internal review of its compliance with certain U.S. and non-U.S. anti-corruption laws, including the U.S. Foreign Corrupt Practices Act.”
Monitor: No.
Individuals Charged: No.
Magyar Telekom / Deutsche Telekom (Dec. 29th)
See here for the prior post.
Charges: Magyar Telekom – FCPA anti-bribery and books and records charges; Deutsche Telekom – N/A
Resolution Vehicle: Magyar Telekom – DPA – term two years; Deutsche Telekom – NPA – term two years.
Guidelines Range: Magyar Telekom – $72.5 million – $145 million; Deutsche Telekom – not set forth in the NPA.
Penalty: Magyar Telekom – $59.6 million (18% below the minimum Guidelines range); Deutsche Telekom – $4.4 million
Disclosure: Yes, voluntary disclosure.
Monitor: No.
Individuals Charged: No.
SEC Enforcement Of The FCPA – Year In Review
FCPA enforcement, it is not just about the DOJ. Granted, its sticks are less sharp than the DOJ’s, but the SEC also claims a significant piece of the FCPA enforcement pie (query whether it should – but that is a subject for another day).
Today’s post is a Year in Review of SEC FCPA Enforcement. (See here for a similar post for 2010). Stay tuned for a similar post on the DOJ’s Enforcement of the FCPA in 2011.
In 2011, the SEC collected approximately $148 million in 13 corporate FCPA enforcement actions. By comparison, in 2010 the SEC brought in approximately $530 million in 19 corporate FCPA enforcement actions. SEC FCPA enforcement in 2011 was both small (Ball Corp. – $300,000) and large (Johnson & Johnson – $48.6).
Five corporate FCPA enforcement actions from 2011 were SEC only (IBM, Ball Corp., Rockwell Automation, Diageo, and Watts Water Technologies). Of the 13 corporate enforcement actions, only 5 (Armor Holdings, Johnson & Johnson, Tyson Foods, Maxwell Technologies, and Magyar Telekom / Deutsche Telekom) included FCPA anti-bribery charges. In other words 8 SEC FCPA enforcement actions charged FCPA books and records and internal controls only yet in those enforcement actions the SEC collected approximately $51 million in disgorgement and prejudgment interest. This is noteworthy because many question, and rightfully so, whether disgorgement is an appropriate remedy in cases that do not charge FCPA anti-bribery violations. See here for a prior post.
Of the $148 million the SEC collected in 2011 corporate FCPA enforcement actions, approximately $80 million (54%) were in two enforcement actions (Johnson & Johnson and Magyar Telekom / Deutsche Telekom). Of the $148 million, approximately $53 million (36%) were in enforcement actions against foreign issuers (Tenaris, Diageo, and Magyar Telekom / Deutsche Telekom).
The $148 million further breaks down as follows: $9.6 million in civil penalties; $138.4 in disgorgement and prejudgment interest. Thus 94% of SEC FCPA enforcement settlement amounts in 2011 consisted of disgorgement and prejudgment interest. This figure last year was 96%. If one tries to analyze why some SEC FCPA enforcement actions include a civil penalty, disgorgement and prejudgment interest (Watts Water Technologies, Diageo, Armor Holdings, Rockwell Automation, IBM), whereas other enforcement actions include only disgorgement and prejudgment interest (Comverse Technologies, Johnson & Johnson, Tenaris, Tyson Foods, Maxwell Technologies, Aon, Magyar Telekom / Deutsche Telekom), whereas other enforcement actions include only a civil penalty (Ball Corp.), good luck and please enlighten us all with your insight.
Other notable developments from corporate SEC FCPA enforcement in 2011 include use of the first alternative resolution vehicle (a DPA) against Tenaris (see here for the prior post) and four enforcement actions resolved via administrative proceedings (Ball Corp., Rockwell Automation, Diageo, and Watts Water Technologies). As noted in this previous guest post, a provision in Dodd-Frank granted the SEC broad authority to impose civil monetary penalties in administrative proceedings.
Another significant development in 2011, albeit not FCPA specific, was the much needed scrutiny on the SEC’s neither admit nor deny settlement policy – a policy relevant to SEC FCPA enforcement actions. See here for the prior post. This will remain an issue to watch in 2012 as neither admit nor deny heads to the Second Circuit.
In recent years, the DOJ has been the subject of well deserved criticism for the lack of individual prosecutions in many corporate FCPA enforcement actions. The same criticism can also be made of the SEC’s FCPA enforcement program. The SEC, at a minimum, has jurisdiction over the employees of companies settling an FCPA enforcement action and can, as demonstrated by certain FCPA enforcement actions, pursue civil FCPA anti-bribery charges, civil FCPA books and records and internal control charges, as well as other related civil charges.
However, in just 2 of the 13 (15%) corporate SEC FCPA enforcement actions in 2011 did the SEC charge individuals (Lessen Chang (Watts Water Technologies) and Elek Straub, Andras Balogh, and Tamas Morvai (Magyar Telekom)) despite allegations in other enforcement actions that employees, including in certain cases senior management, were engaged in the improper conduct at issue. Last year, the SEC charged individuals in only 3 of the 19 corporate enforcement actions (15%).
In 2011, the SEC did charge 1 individual (Paul Jennings – see here) in connection with the 2010 Innospec enforcement action as well as 7 individuals (Uriel Sharef, Herbert Steffen, Andres Truppel, Ulrich Bock, Stephan Signer, Carlos Sergi and Bernd Regendantz – see here) in connection with the 2008 Siemens enforcement action. It is interesting to note that all 12 of the individuals the SEC charged with FCPA violations in 2011 were foreign nationals (in a few cases, dual citizens of a foreign country and the U.S.).
Of the 13 corporate SEC FCPA enforcement actions in 2011, 12 enforcement actions (92%) were the result of corporate voluntary disclosures or previous foreign law enforcement investigations. The only exception is the Aon enforcement which, as noted in this prior post, “following inquiries from regulators, the Company commenced an internal review of its compliance with certain U.S. and non-U.S. anti-corruption laws, including the U.S. Foreign Corrupt Practices Act.” Stated in terms of the approximate $148 million the SEC collected in the 13 corporate FCPA enforcement actions in 2011, $133.5 million (90%) was the result of such disclosures. As noted in last year’s SEC Year in Review post, in 2010, 97% of the SEC’s intake in FCPA enforcement actions was the result of voluntarily or otherwise publicly disclosed information and not the result of original investigation by either the SEC.
This remainder of this post provides an overview of corporate SEC FCPA enforcement in 2011.
*****
Magyar Telekom / Deutsche Telekom (Dec. 29th)
See here for the prior post.
Charges: Settled civil complaint charging FCPA anti-bribery and books and records and internal controls violations.
Settlement: $31.2 million in disgorgement and pre-judgement interest.
Disclosure: Yes, voluntary disclosure.
Individuals Charged: Yes.
Related DOJ Enforcement Action: Yes.
Aon Corp. (Dec. 20th)
See here for the prior post.
Charges: Settled civil complaint charging FCPA books and records and internal controls violations.
Settlement: Approximately $14.5 million (disgorgement of $11,416,814 and prejudgment interest of $3,128,206).
Disclosure: Aon’s SEC filings stated that ”following inquiries from regulators, the Company commenced an internal review of its compliance with certain U.S. and non-U.S. anti-corruption laws, including the U.S. Foreign Corrupt Practices Act.”
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Watts Water Technologies (Oct. 13th)
See here for the prior post.
Charges: None. Administrative cease and desist order finding violations of the FCPA’s books and records and internal control provisions.
Settlement: $3.8 million ($2.8 million in disgorgement, $820,000 in prejudgment interest and a $200,000 civil monetary penalty).
Disclosure: Yes, voluntary disclosure.
Individuals Charged: Yes.
Related DOJ Enforcement Action: No.
Diageo (July 27th)
See here for the prior post.
Charges: None. Administrative cease and desist order finding violations of the FCPA’s books and records and internal control provisions.
Settlement: Approximately $16.4 million (approximately $11.3 million in disgorgement, approximately $1.2 million in prejudgement interest; and a $3 million civil penalty).
Disclosure: Yes, voluntary disclosure and/or based on previous foreign law enforcement investigation.
Individuals Charged: No.
Related DOJ Enforcement Action: No.
Armor Holdings (July 13th)
See here for the prior post.
Charges: Settled civil complaint charging FCPA anti-bribery, books and records and internal controls violations.
Settlement: Approximately $5.7 million (approximately $1.5 million in disgorgement; $458,000 in prejudgment interest; and a $3.7 million civil penalty)
Disclosure: Yes, voluntary disclosure.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Comverse Technologies (April 7th)
See here for the prior post.
Charges: Settled civil complaint charging FCPA books and records and internal control violations.
Settlement: Approximately $1.6 million (approximately $1.2 million in disgorgement and approximately $360,000 in prejudgment interest).
Disclosure: Yes, voluntary disclosure.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Johnson & Johnson (April 8th)
See here for the prior post.
Charges: Settled civil complaint charging FCPA anti-bribery violations and FCPA books and records and internal controls violations.
Settlement: Approximately $48.6 million (approximately $38.2 million in disgorgement and $10.4 million in prejudgment interest).
Disclosure: Yes, voluntary disclosure (however the Iraq Oil for Food conduct was not voluntarily disclosed).
Related DOJ Enforcement Action. Yes.
Rockwell Automation (April 7th)
See here for the prior post.
Charges: None. Administrative cease and desist order finding violations of the FCPA’s books and records and internal control provisions.
Settlement: Approximately $2.7 million (approximately $1.7 million in disgorgement; approximately $590,000 in prejudgment interest; and a $400,000 civil penalty).
Disclosure: Yes, voluntary disclosure.
Individuals Charged: No.
Related DOJ Enforcement Action: No.
Tenaris (May. 17th)
See here for the prior post.
Charges: None – resolved via a deferred prosecution agreement – term two years.
Settlement: $5.4 million in disgorgement and prejudgment interest.
Disclosure: Yes, voluntary disclosure.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Ball Corporation (March 24th)
See here for the prior post.
Charges: None. Administrative cease and desist proceeding finding FCPA books and records and internal controls violations.
Settlement: $300,000 penalty.
Disclosure: Yes, voluntary disclosure.
Individuals Charged: No.
Related DOJ Enforcement Action: No.
IBM Corporation (March 18th)
See here for the prior post.
Charges: Settled civil complaint charging FCPA books and records and internal controls violations.
Settlement: $10 million ($5.3 million in disgorgement, $2.7 million in prejudgment interest, and a $2 million civil penalty).
Disclosure: Yes, the action is reportedly the result of a prior South Korean government investigation.
Individuals Charged: No.
Related DOJ Enforcement Action: No.
Tyson Foods (Feb. 10th)
See here for the prior post.
Charges: Settled civil complaint charging FCPA anti-bribery violations and books and records and internal control violations.
Settlement: $1.2 million in disgorgement and prejudgment interest.
Disclosure: Yes, voluntary disclosure.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Maxwell Technologies (Jan. 31st)
See here for the prior post.
Charges: Settled civil complaint charging: FCPA anti-bribery, books and records and internal controls violations; and Section 13 disclosure violations.
Settlement: Approximately $6.3 million (approximately $5.6 million in disgorgement and $700,000 in prejudgment interest)
Disclosure: Yes, voluntary disclosure.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.