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What Others Are Saying About the “Foreign Official” Cert Petition

From this Law360 article.

Rita Glavin, a partner at Seward & Kissel who previously served as head of the DOJ’s criminal division, called [the cert petition] “tremendously significant.”  “The definition of what constitutes a foreign official has been expanding into the abyss,” Glavin said. “That’s a real problem for companies. Instrumentality pretty much becomes whatever the DOJ says it is.” Glavin compared the expansion of the foreign official provision to that of the “honest services fraud” statute — a provision that served for years as a blunt legal instrument in public corruption cases but was curtailed in the Supreme Court’s 2010 decision in Skilling v. United States. “The government was pushing that statute in cases where people could not have comfort as to where the line was drawn and conduct crossed into criminality,” Glavin said. “The Supreme Court finally put a stop to it.”

Morgan Lewis & Bockius partner George Terwilliger, who served as a top Justice Department official under presidents Ronald Reagan and George H.W. Bush, noted that companies have spent large sums of money policing activities that fall into a legal gray area under the FCPA. He said a ruling on the instrumentality language would provide helpful guidance. “To have a statute of this scope and geographical reach, where some of the key terms remain subject to legitimate debate among legal experts, is unconscionable,” said Terwilliger, who co-chairs Morgan Lewis’ white collar litigation and government investigations practice. “It’s not an appropriate way to administer the law.”

Larry Urgenson, a partner at Mayer Brown, … called [last week’s] petition “a useful landmark” for FCPA attorneys. He previously served in several leadership positions at the DOJ, including as acting deputy assistant attorney general and chief of the FCPA unit.  “It is very important in terms of whether the government is properly executing its prosecutorial powers to the right subjects and the right targets,” Urgenson said.

From this Global Investigations Review article:

Steven Michaels at Debevoise & Plimpton in New York said the petition involves issues which the current Supreme Court Justices are potentially keen to examine. “The Justices may find this case attractive, as they would hear arguments about statutory interpretation and whether the standard set forth by the Eleventh Circuit improperly encourage over-reaching by the government,” he said. “The Supreme Court likes to see criminal liability based on precision and clarity, and given the uncertainty in the law governing FCPA enforcement they may be willing to hear this case.” FCPA cases are also rarely litigated, Michaels said. This may encourage the court to grant the petition, as the court may have to wait a long time before the issue is litigated again in a court of appeals. The Supreme Court typically expects to see a split between US appeals courts before it hears a case, but such a split is also unlikely to occur soon.

John Chesley at Gibson Dunn & Crutcher in Washington, DC said the lack of a circuit split is “the main uphill battle” the petitioners will have to fight. “The lack of clarity in the FCPA’s definition of instrumentality could get the justices interested, especially Justice Antonin Scalia who has written extensively in this area, but the petitioners will nevertheless have a hard time overcoming the court’s preference for only acting when there is a split.” Chesley said the Esquenazi decision was controversial, as the Eleventh Circuit’s complex, multi-factored test for determining whether a company is a government instrumentality makes it difficult to determine whether the recipient of an alleged bribe is a foreign official. “There’s certainly a lot of concern about vagueness,” he said. “For example, one of the factors in the Esquenazi test revolves around whether companies are perceived as government entities in their home jurisdiction. How do you advise a client on that?”

Jessie Liu at Jenner & Block in Washington, DC, said Supreme Court guidance on instrumentality would be “fantastic”, but also said such guidance is unlikely in the near future. “The Eleventh Circuit’s reasoning was pretty robust,” she said. “We would probably need to see another appeals court go the opposite way for the Supreme Court to get involved, but there’s a good chance the Eleventh Circuit’s reasoning will dissuade future litigants from fighting the issue.”

Wal-Mart’s Pre-Enforcement Action Professional Fees and Expenses

In its August 14th second quarter earnings call, Wal-Mart disclosed:

“FCPA and compliance-related costs were approximately $43 million, which represented approximately $31 million for the ongoing inquires and investigations and roughly $12 million related to our global compliance program and organizational enhancements.”

Doing the math, that is approximately $662,000 in FCPA-related expenses per working day.

Over the past approximate two years, I have tracked Wal-Mart’s quarterly disclosed pre-enforcement action professional fees and expenses. While some pundits have ridiculed me for doing so, such figures are notable because, as has been noted in prior posts and in my article “Foreign Corrupt Practices Act Ripples,” settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.  Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.

While $662,000 per working day remains eye-popping, Wal-Mart’s recent figure suggests that the company’s pre-enforcement action professional fees and expenses have crested as the figures for the past three quarters were approximately $855,000, $1.1 million and $1.3 million per working day.

In the aggregate, Wal-Mart’s disclosed pre-enforcement professional fees and expenses are as follows.

FY 2013 = $157 million.

FY 2014 = $282 million.

FY 2015 (first two quarters) = $96 million.

Scrutiny Alerts and Updates

Layne Christensen Company

Layne Christensen Company has been under FCPA scrutiny since 2010 concerning conduct in Africa (see here for the prior post).  As noted in this November 2013 post, the company disclosed that it was “engaged in discussions with the DOJ and the SEC regarding a potential negotiated resolution” of the matter.

However, last week the company issued this release stating:

“The DOJ has decided to not file any charges against the Company in connection with the previously disclosed investigation into potential violations of the FCPA.  The DOJ has notified Layne that it considers the matter closed.

As previously reported by Layne, in connection with updating its FCPA policy, questions were raised internally in September 2010 about, among other things, the legality of certain payments by Layne to agents and other third parties interacting with government officials in certain countries in Africa.  The audit committee of the board of directors engaged outside counsel to conduct an internal investigation to review these payments with assistance from outside accounting firms.  Layne has been consistent and forthcoming in providing voluntary disclosure to the DOJ and the SEC regarding the results of the investigation, and has cooperated fully with those agencies in connection with their review of the matter.  The parallel investigation by the SEC remains open and the Company is actively engaged in settlement discussions with the SEC to resolve this matter.

Layne had previously accrued a reserve of $10.4 million for the settlement of the investigations. Based on the decision by the DOJ, the Company will reduce the accrual related to this investigation by approximately $5.3 million, which will be reflected in Layne’s results of operations for the second fiscal quarter ended July 31, 2014.

David A.B. Brown, President & CEO, commented, “We are very pleased to conclude the DOJ investigation without any charges being brought against Layne and we hope to settle the SEC investigation in the near future. From the very beginning, we have maintained a position of full disclosure and complete cooperation with the authorities and have worked diligently to implement remedial measures to enhance our internal controls and compliance efforts. Based on conversations with the DOJ, we understand that our voluntary disclosure, cooperation and remediation efforts have been recognized and appreciated by the staff of the DOJ and that the resolution of the investigation reflects these matters.”

Qualcomm

As noted in this previous post, in April 2014 Qualcomm disclosed:

“As previously disclosed, the Company discovered, and as a part of its 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, the Company believes the aggregate monetary value of the benefits in question to be less than $250,000, excluding employment compensation.

On March 13, 2014, the Company 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 the Company 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.

[…]

On April 4, 2014, the Company made a Wells submission to the staff of the Los Angeles Regional Office explaining why the Company believes it has not violated the FCPA and therefore enforcement action is not warranted.”

Is this recent New York Times article the reason for Qualcomm’s FCPA scrutiny?  The article states that “an adviser to a Chinese government antitrust committee has been dismissed, accused of accepting payments from Qualcomm, an American technology company under investigation in China on suspicion of antitrust violations.”  According to the article, Qualcomm “had made ‘large payments’ to Zhang Xinzhu, an economist at the Chinese Academy of Social Sciences, while he also was an adviser on an antimonopoly committee under the State Council, China’s cabinet.”  As noted in this Reuters article, Qualcomm said “it had no direct financial links with an antitrust expert sacked from a government advisory post after state media reported he had received payments from the firm.”

Derwick Associates / ProEnergy Services

This August 2013 post predicted FCPA scrutiny for Derwick Associates based on a civil RICO lawsuit filed alleging conduct in Venezuela.

Sure enough.  This recent Wall Street Journal article reports:

“The U.S. Department of Justice and the Manhattan district attorney’s office are probing Derwick Associates … a company awarded hundreds of millions of dollars in contracts in little more than a year to build power plants in Venezuela, shortly after the country’s power grid began to sputter in 2009.  […]  ProEnergy Services, a Sedalia, Mo.-based engineering, procurement and construction company that sold dozens of turbines to Derwick and helped build the plants, is also under investigation …”.

Cubist Pharmaceuticals

This previous post highlighted the FCPA scrutiny of Optimer Pharmaceuticals.  The company has since been acquired by Cubist Pharmaceutical which recently disclosed as follows.

Optimer U.S. Governmental Investigations

We are continuing to cooperate with the investigations by the SEC and the U.S. Department of Justice in their review of potential violations by Optimer of certain applicable laws, which occurred prior to our acquisition of Optimer. The investigations relate to an attempted share grant by Optimer and certain related matters in 2011, including a potentially improper payment to a research laboratory involving an individual associated with the share grant, that may have violated certain applicable laws, including the Foreign Corrupt Practices Act (FCPA). Optimer had already taken remedial steps in response to its internal investigation of these matters; nonetheless, these events could result in lawsuits being filed against us or Optimer and certain of Optimer’s former employees and directors, or certain of our employees. Such persons could also be the subject of criminal or civil enforcement proceedings and we may be required to indemnify such persons for any costs or losses incurred in connection with such proceedings. We cannot predict the ultimate resolution of these matters, whether we or such persons will be charged with violations of applicable civil or criminal laws, or whether the scope of the investigations will be extended to new issues. We also cannot predict what potential penalties or other remedies, if any, the authorities may seek against us, any of our employees, or any of Optimer’s former employees and directors, or what the collateral consequences may be of any such government actions. We do not have any amounts accrued related to potential penalties or other remedies related to these matters as of June 30, 2014, and cannot estimate a reasonably possible range of loss. In the event any such lawsuit is filed or enforcement proceeding is initiated, we could be subject to a variety of risks and uncertainties that could have material adverse effects on our business, results of operations and financial condition.”

Quotable

Returning to a theme previously explored in the “The Bribery Racket” (Forbes) and “FCPA Inc. and the Business of Bribery” (Wall Street Journal), not to mention my own article “The Facade of FCPA Enforcement,” Robert Amsterdam writes in this Forbes piece titled “When Anti-Corruption Becomes Corrupted,” as follows.

“Like many laws born out of politics, anti-corruption has become alarmingly mired in ambiguity, abuse, and misapplication. In the United Kingdom, the introduction of the Bribery Act, in conjunction with the U.S. Foreign Corrupt Practices Act (FCPA), means that now essentially the globe is covered with a bundle of vague principles and unfettered prosecutorial discretions that leaves multinational businesses dangerously exposed. Not only are the laws vague, but they are accompanied by incredible powers on behalf of prosecutors, who can issue orders to freeze assets, cripple business operations, harass employees, and destroy reputations, all before you’ve even had a chance to defend yourself in court. This ambiguity is heightened by the outsourcing of prosecutorial responsibilities to white collar criminal “defense” lawyers, who have embraced emerging regimes of “self reporting,” placing the onus on corporate decisions to avoid the stigma of criminal charges, requiring them to inform on themselves or their own senior employees, often in the absence of any substance.

[…]

[P]art of the problem is the proliferation of Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs), which entail the company surrendering its rights to defense and admitting to a series of accusations that are not subjected to exhaustive judicial scrutiny.

[…]

Many big law firms now feature celebrity prosecutors who formerly worked in enforcement, so they see their new job as a continuation of their old job, specializing in negotiating NDAs and DPAs.

In several cases that we are familiar with, the self-reporting doctrine has ended up causing much more damage than benefit. Particularly with respect to non-public companies, a better strategy would be to fight against any untrue or exaggerated accusation, uphold basic rights to defense, take internal measures to address any issues, but above all else, refuse to be bullied into a position of confessing to actions that the company has not committed or destroying the careers and personal lives of a handful of executives to serve as the sacrifice to save the company.

We do fear that if this trend of prosecutorial hubris is not checked, we may face a very dangerous future. The potential consequences of these laws, which include lengthy periods of incarceration, could morph beyond big business and impact other areas of society, where the accused are always guilty, where rights to defense do not exist, and dirty deals replace due process.

The philosophy of self reporting, impacting as it does the lives and reputations of executives in major corporations, requires a dramatic rethink. We must carefully examine the incentives driving prosecutors and how they choose their targets, review sentencing guidelines in both the United States and United Kingdom, and reinforce the core values of the presumption of innocence and due process in order to effectively address genuine issues of corruption practices abroad while sparing compliant businesses from the burden of unnecessary harassment.”

In-House Position

Avon Products, Inc., is looking for an attorney to join the Ethics & Compliance team.

The Regional Legal & Compliance Counsel (RLCC), Latam, reports to the Regional Ethics & Compliance Director for compliance matters and V.P. & General Counsel, Legal, Ethics & Compliance, Latam for legal matters.  The position resides in Miami.  The RLCC plays an active role in the execution of the Global Ethics & Compliance program and provides legal support to the region.  The Company’s Ethics & Compliance program seeks to minimize exposure of corporate and regulatory risks through company guidance and controls.  Working with Legal Department colleagues, especially the legal leadership and Compliance Counsels in the markets and the Regional Compliance Director, the RLCC counsels on compliance-related questions, implementation and execution of policies and procedures, with a particular focus on the anti-corruption policy, as well as assists with the design and implementation of compliance enhancements, as necessary.  The RLCC may spend appreciable time implementing anti-corruption policy controls, such as those concerning third party engagements, gift giving, and donations, thereby facilitating legitimate commercial activities while mitigating risk exposure.

Interested candidates may send their CV directly to Gregory Bates (Director, Ethics & Compliance, Latam) (gregory.bates@avon.com)  and should also apply via the http://www.avoncompany.com/aboutavon/careers/index.html.

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.

Kansas, Africa, FCPA

Kansas, Africa, Foreign Corrupt Practices Act. It’s likely you probably never saw these words in the same sentence.

That is until earlier this month when Kansas based Layne Christensen (here), “a world leader in non-oil field contract drilling and manufacturing” disclosed in its December 8th 10-Q filing (here) as follows.

“In connection with the Company updating its Foreign Corrupt Practices Act (“FCPA”) policy, questions were raised internally in late September 2010 about, among other things, the legality of certain payments by the Company to customs clearing agents in connection with importing equipment into the Democratic Republic of Congo (“DRC”) and other countries in Africa. The Audit Committee of the Board of Directors has engaged outside counsel to conduct an internal investigation to review these and other payments with assistance from an outside accounting firm. Although the internal investigation is ongoing, based on the results to date, the Company currently believes the amount of such questionable payments is not material with respect to the Company’s results of operations or its financial statements.”

Elsewhere, the filing states as follows.

“The Company has contacted the Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”) to inform them of this matter and intends to cooperate fully with these governmental authorities. At this stage of the internal investigation, the Company is unable to predict whether the SEC and DOJ will open separate investigations of this matter, or any potential remedies or actions these agencies may pursue. Although the Company has had a long-standing published policy requiring compliance with the FCPA and broadly prohibiting any improper payments by the Company to foreign or U.S. officials, the Company has adopted additional policies and procedures to enhance compliance with the FCPA and related books and records requirements. Further measures may be required once the investigation is concluded. Although the internal investigation is ongoing and no conclusions have yet been reached, based on the results to date, the Company currently believes the amount of such questionable payments is not material with respect to the Company’s results of operations or its financial statements. The Company has concluded that it is premature for it to make any financial reserve for any potential liabilities that may result from these activities given the status of the internal investigation. Additional potential FCPA violations or violations of other laws or regulations may be uncovered through the investigation.”

Among other things, the filing notes that “if it is determined that a violation of the FCPA has occurred, such violation may give rise to an event of default under the agreements governing our debt instruments.”

According to its website (here), Layne Christensen has offices in Tanzania, Congo, Zambia and Mali. According to Layne Christensen’s 2010 annual report (here) the company’s mineral exploration division ” relies heavily on mining activity in Africa where 29% of total division revenues were generated for fiscal 2010.”

As I noted in this 2007 article, mining companies are increasingly doing business in countries where corruption and bribery are endemic thereby increasing FCPA risk exposure. Indeed, as stated in Layne Christensen’s annual report, “as mineral resources in developed countries are exhausted and new discoveries begin to slow, mining companies have focused attention on underdeveloped nations as an important source of future production.”

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