Hail To The Chief
Today is Presidents’ Day.
This post highlights the role of Gerald Ford, Jimmy Carter, Ronald Reagan, and William Clinton in enactment and subsequent development of the FCPA.
Ford
After watching Congress investigate and hold hearings on the foreign payments problem for approximately nine months, in March 1976 President Ford issued a “Memorandum Establishing the Task Force on Questionable Corporate Payments Abroad” (see here).
The great debate at this time was whether the foreign payments problem should be addressed through a disclosure regime or through a criminalization regime. The Ford Administration favored the former and in June 1976, Ford released “Remarks Announcing New Initiatives for the Task Force on Questionable Corporate Payments Abroad.” (see here). As noted in the remarks, Ford directed the task force “to prepare legislation that would require corporate disclosure of all payments made with the intention of influencing foreign government officials.”
Certain bills were introduced in Congress consistent with Ford’s vision and in August 1976 Ford issued “Foreign Payments Disclosure – Message From the President of the United States Urging Enactment of Proposed Legislation to Require the Disclosure of Payments to Foreign Officials.” (see here).
Neither Ford’s proposal, or any other, was enacted by Congress prior to the 1976 elections in which Ford was defeated by Jimmy Carter.
Carter
Unlike the Ford Administration, the Carter administration favored the criminalization regime that was under consideration in the prior Congress and a movement that soon picked up speed when Congress reconvened in January 1977.
Certain members of the Carter administration testified at Congressional hearings throughout 1977 in favor of the criminalization regime and in December 1977, S. 305 (the Foreign Corrupt Practices Act of 1977 and the Domestic and
Foreign Investment Improved Disclosure Act of 1977) was presented to President Carter.
On December 20, 1977, President Carter signed S. 305 into law – see here for his signing statement.
Reagan
As noted in this previous post, President Reagan’s administration very soon sought decriminalization of foreign payments subject to the FCPA. During the Reagan administration (1981-1989), numerous efforts were made in Congress to amend the FCPA. Soon after the FCPA was enacted, it was widely recognized that the FCPA had addressed a serious problem, but that the statute created much uncertainty and was, in the minds of many, unworkable.
Among other things, the FCPA antibribery provisions enacted in 1977 contained a broad knowledge standard (“reason to know”) applicable to indirect payments to “foreign officials”; (ii) did not contain any affirmative defenses; and (iii) did not contain an express facilitating payments exception. Beginning in 1980, various bills were introduced – either as stand alone bills or specific titles to omnibus trade and export bills – that sought to amend the FCPA. This legislative process took eight years.
In August 1988, President Reagan signed H.R. 4848 the Omnibus Trade and Competitiveness Act of 1988. Title V, Subtitle A, Part I of the Act was titled “Foreign Corrupt Practices Act Amendments.” President Reagan’s signing statement does not refer to the FCPA amendments buried in the omnibus trade bill. Among the amendments were a revised knowledge standard applicable to indirect payments and the creation of affirmative defenses and an express facilitating payment exception.
Clinton
In November 1998, President Clinton signed S. 2375, the “International Anti-Bribery and Fair Competition Act of 1998.” Among other things, the Act amended the FCPA by (i) creating a new class of persons subject to the FCPA – “any person” not an issuer or domestic concern to the extent such person’s bribery scheme has a U.S. nexus; and (ii) creating a new alternative nationality jurisdiction test for U.S. issuers and domestic concerns.
See here for President Clinton’s signing statement.
An FCPA reform debate has been active for over a year. Most recently, Chris Matthews (Wall Street Journal Corruption Currents) reports (here) that “big tobacco has waded into the ongoing push to amend the Foreign Corrupt Practices Act” and that “Altria Group, the parent company of Philip Morris USA, has retained a lobbyist to represent the company’s interest in the FCPA.” In August 2010, tobacco companies Alliance One International and Universal Corporation resolved similar FCPA enforcement actions (see here for the prior post). Matthews also reports that “several other companies have lobbied on the FCPA, including FedEx Corp. and the Chubb Corp., a property insurer.”
As the FCPA reform debate unfolds, will President Obama play a role in FCPA history?
Aon – Was It “Close To The Line”?
“The [DOJ] focuses its enforcement actions where the allegations of criminal conduct are clear, egregious and fall squarely within the FCPA.”
“… No one has raised a single example of a prosecution or enforcement action which was remotely close to the line.”
“The DOJ is not prosecuting companies where the entity engaged in something less than willful criminal conduct.”
The above statements were made by Greg Andres (DOJ) at the June 2011 House FCPA hearing. See here for the prior post on the hearing. As discussed in this prior post, in certain respects Andres has been the DOJ’s voice on FCPA enforcement and reform issues (he also testified on behalf of the DOJ at the November 2010 Senate FCPA Hearing). Yesterday, Peter Lattman of the New York Times reported here that Andres is set to join Davis Polk & Wardwell.
*****
In December 2011, Aon Corporation resolved an FCPA enforcement action (see here for the prior post). The DOJ component of the enforcement action involved a $1.8 million fine via a non-prosecution agreement. The NPA (here) stated that the DOJ would not criminally prosecute Aon Corporation or its subsidiaries for any crimes “related to Aon’s knowing violation of the anti-bribery, books and records, and internal control provisions of the FCPA … arising from and related to the making of improper payments to government officials in Costa Rica in order to assist Aon in obtaining and retaining business …”.
The conduct at issue involved Aon Limited (a subsidiary of Aon Corporation based in and organized under the laws of the U.K.) and focused on Costa Rica. There is no fact, suggestion or implication in the NPA that Aon knew of, participated in, or authorized the conduct at issue. The only factual mention of Aon in the NPA is that Aon Limited “reported financially through a series of intermediary entities into its U.S.-based issuer parent, Aon Corporation” and elsewhere that “the books and records of Aon Limited were consolidated into those of Aon Corporation.”
Aon Limited’s conduct focused on its relationship with Costa Rica’s state-owned insurance company (INS) and a training and education fund (established by a company Aon Limited acquired in 1997 from its brokerage commissions) to sponsor training and education trips for INS officials. Aon Limited also contributed to the fund by allocating a portion of its brokerage commissions to the fund. According to the NPA, Aon Limited also managed a second training account that was funded by premiums paid by INS.
The NPA states that Aon Limited used these funds to pay for third-party services during education and training trips and that “these services often included travel related expenses, such as airfare and hotel accommodations, as well as conference fees, meals, and other related expenses for INS officials and their relatives.”
The NPA states that many of these trips included a business-related component, but that “a significant portion of the funds expended on the trips were used for the personal benefit of the officials and their wives.” The NPA further states that a “substantial number of the trips” were in connection with conferences and seminars, but in tourist destinations.
That, in terms of a general summary, is what the DOJ’s FCPA enforcement action against Aon Corporation was all about.
Was it close to the line?
During the June 2011 House FCPA Hearing, Representative John Conyers (D-MI) asked for examples of overcriminalization of the FCPA.” A summer reading list for Representative Conyers was discussed here and the Aon Corporation enforcement action ought to be included as well.
Healthcare Providers, Telecom (And Other SOE) Employees, Veterinarians, And Liquor Store Employees – The “Foreign Officials” Of 2011
A “foreign official.” Without one, there can be no FCPA anti-bribery violation (civil or criminal). Who were the “foreign officials” of 2011 (at least from an enforcement perspective – recognizing of course that the meaning of this key FCPA element is the subject of much on-going dispute).
This post, describes the “foreign officials” from 2011 corporate FCPA enforcement actions. There were 16 core corporate enforcement actions in 2011. Of the 16 enforcement actions, 13 (81%) involved, in whole or in part, employees of alleged state-owned or state-controlled enterprises or entities (“SOEs”). These enterprises and entities ranged from manufacturing companies, oil and gas companies, telecommunications companies, health-care entities, engineering firms / design institutes, liquor stores, and insurance companies.
In 2010, 60% of corporate FCPA enforcement actions involved, in whole or in part, employees of alleged SOEs (see here at pages 108-119). In 2009, 66% of corporate FCPA enforcement actions involved, in whole or in part, employees of alleged SOEs (see here at pages 410-44).
As to whether Congress intended employees of SOEs to be “foreign officials” under the FCPA, see here for my “foreign official” declaration in the Carson case and this prior post which includes links to all judicial decisions on this key FCPA element.
Not only did SOE employees comprise the bulk of “foreign officials” in 2011, but so too did individuals with apparent ministerial or clerical duties (see Tyson Foods, IBM, Ball Corp., and Diageo).
As noted in the 2010 “foreign official” post (here), this is noteworthy for the following reason.
The FCPA’s original definition of “foreign official” was as follows. “… any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or any person acting in an official capacity for or on behalf of such government or department, agency or instrumentality. Such terms do not include any employee of a foreign government or any department, agency, or instrumentality thereof whose duties are essentially ministerial or clerical.”
This last sentence was the FCPA’s original (albeit indirect) facilitating payment or grease exception. The relevant House Report states in pertinent part as follows: “… a gratuity paid to a customs official to speed the processing of a customs document would not be reached by this bill. Nor would it reach payments made to secure permits, licenses, or the expeditious performance of similar duties of an essentially ministerial or clerical nature which must be performed in any event.”
When Congress amended the FCPA in 1988 it, among other things, amended the definition of foreign official by removing this indirect facilitating payment exception from the “foreign official” definition by creating a stand-alone facilitating payment exception currently found in the statute.
The relevant House Report indicates that Congress did not seek to disturb Congress’s original intent. “The policy adopted by Congress in 1977 remains valid, in terms of both U.S. law enforcement and foreign relations considerations. Any prohibition under U.S. law against this type of petty corruption would be exceedingly difficult to enforce, not only by U.S. prosecutors but by company officials themselves. Thus while such payments should not be condoned, they may appropriately be excluded from the reach of the FCPA. U.S. enforcement resources should be devoted to activities have much greater impact on foreign policy.”
In sum, of the 16 corporate FCPA enforcement actions from 1011, 15 (94%) involved, in whole or in part, SOE employees and/or “foreign officials” with apparent ministerial or clerical duties. The one exception is Armor Holdings which involved payments to a United Nations procurement official, an employee of a “public international organization” a term inserted into the FCPA’s “foreign official” definition by way of the 1998 amendments.
The remainder of this post describes (as per DOJ/SEC allegations) the “foreign officials” of 2011. As is apparent from the specific descriptions below, in certain instances the enforcement agencies describe the “foreign official” with reasonable specificity; in other instances with virtually no specificity.
[Note: certain of the enforcement actions below technically only involved FCPA books and records and internal control charges. As most readers know, actual charges in most FCPA enforcement actions hinge on voluntary disclosure, cooperation, collateral consequences, and other non-legal issues. Thus, even if an FCPA enforcement action is resolved without FCPA anti-bribery charges, the actions remain very much about the “foreign officials” involved. As I’ve said before, if an employee of a U.S. company consistently entertains his brother-in-law in the corporate suite and seeks reimbursement for “client entertainment” you will not be reading about this FCPA books and records and internal controls enforcement action]
Maxwell Technologies
DOJ
“Pinggao Group Co. Ltd. (formerly Pingdingshan High Voltage Switchgear Works (“Pinggao Group”) was a state-owned manufacturer of electric-utility infrastructure in Henan Province China.”
“New Northeast Electric Shenygan HV Switchgear Co. Ltd. (“Shenygang HV”) was a state-owned manufacturer of electric-utility infrastructure in Liaoning Province China.”
“Xi-an XD High Voltage Apparatus Co., Ltd. a/k/a Xi-an Shinky High Voltage Electric Co. Ltd. (“Xi-an XD”) was a state-owned manufacturer of electric utility infrastructure in Shaanxi Province China.”
“… payments conveyed to officials of foreign governments employed by state-owned entities, including Pinggao Group, Shenyang HV, and Xi-an XD …”
SEC
Presumably the same as above, although the SEC complaint merely refers to “officials at state-owned entities in China.”
Tyson Foods
DOJ
“The Government of Mexico administers an inspection program, Tipo Inspeccion Federal (“TIF”), for meat-processing facilities. […]. The inspection program at each facility is supervised by an on-site veterinarian who is a government employee (“TIF veterinarian”) paid by the state, who ensures that all exports are in conformity with Mexican health and safety laws. Therefore, TIF veterinarians are foreign officials as defined by the FCPA …”.
“Wives of the TIF veterinarians.”
SEC
Same as above.
IBM
SEC
“government officials in South Korea and China”
“the foreign government officials involved worked for sixteen South Korean government entities (“SKGE”)”; “Chief Operations for the Electronic Operations Division of SKGE 1”; “manager of the government controlled SKGE 2”; “SKGE 3’s Director of Planning”; “SKGE 4 was a state-owned agency of the South Korea government – an employee of SKGE 4 responsible for reviewing personal computer procurement bids”; “Director of SKGE 5’s information technology department”; “government officials of SKGE 6”; “key decision makers at ten other SKGE’s;”
“Chinese government officials”; employees of “government-owned or controlled customers in China”
Ball Corp.
SEC
“employees of the Argentine government to secure the importation of prohibited use machinery and the exportation of raw materials at reduced tariffs” “government customs officials”
JGC Corp.
DOJ
“The Nigerian National Petroleum Corporation (“NNPC”) was a Nigerian government-owned company charged with development of Nigeria’s oil and gas wealth and regulation of the country’s oil and gas industry. NNPC was a shareholder in certain joint ventures with multinational oil companies. NNPC was an entity and instrumentality of the Government of Nigeria and its officers and employees were ‘foreign officials’ within the meaning of the FCPA.”
“Nigeria LNG Limited (“NLNG”) was created by the Nigerian government to develop the Bonny Island Project and was the entity that awarded the related […] contracts. The largest shareholder of NLNG was NNPC, which owned 40% of NLNG. The other owners of NLNG were multinational oil companies. Through the NLNG board members appointed by NNPC, among other means, the Nigerian government exercised control over NLNG, including but not limited to the ability to block the award of […] contracts. NLNG was an entity and instrumentality of the Government of Nigeria and its officers and employees were ‘foreign officials’ within the meaning of the FCPA.”
Bribes to “officials of the executive branch of the Government of Nigeria, officials of NNPC, officials of NLNG, and others.”
Comverse Technologies
DOJ
“Individuals connected to OTE, including employees of OTE’s subsidiaries Cosmote, Cosmofon, and Cosmorom, in order to obtain purchase orders from those companies for Comverse Ltd. products and services, resulting in approximately $1.25 million in adjusted operating income;” OTE is “Hellenic Telecommunications Organization S.A. – a telecommunications provider controlled and partially owned by the Greek Government – the Greek Government was OTE’s largest single shareholder and maintained an interest in over one-third of OTE’s issued share capital.”
As detailed in this prior post, during the relevant time period, the Greek Government owned between 33-38% of OTE, thus establishing a new foreign official “limbo low.”
SEC
Same as above
Johnson & Johnson
DOJ
“Greece has a national healthcare system wherein most Greek hospitals are publicly owned and operated. Health care providers who work at publicly-owned hospitals (“HCPs”) are government employees, providing health care services in their official capacities. Therefore, such HCPs in Greece are “foreign officials” as that term is defined in the FCPA.”
“Poland has a national healthcare system. Most Polish hospitals are owned and operated by the government and most Polish HCPs [health care providers] are government employees providing health care services in their official capacities. Therefore, most HCPs in Poland are “foreign officials” as defined by the FCPA.”
“The national healthcare system in Romania is almost entirely state-run. The healthcare system is funded by the National Health Care Insurance Fund (“CNAS”), to which employers and employees make mandatory contributions. Most Romanian hospitals are owned and operated by the government and most HCPs in Romania are government employees. Therefore, most HCPs in Romania are “foreign officials” as defined by the FCPA.”
SEC
Same as above.
Tenaris
DOJ
Employees of OJSC O’ztashqineftgaz (“OAO”) “a wholly owned subsidiary of Uzbekneftegaz, the state holding company of Uzbekistan’s oil and gas industry.”
Employees of Uzbekekspertiza JSC, “an Uzbekistani government agency.”
SEC
Same as above.
Rockwell Automation
SEC
Employees of Chinese Design Institutes “which were typically state-owned enterprises that provided design engineering and technical integration services that can influence contract awards by end-user state-owned customers” and employees of “other state-owned companies.”
Armor Holdings
DOJ
“Procurement official of the United Nations”
SEC
Same as above.
Cinergy Telecommunications
DOJ
“Telecommunications D’Haiti (“Haiti Teleco”) was the Republic of Haiti’s state-owned national telecommunications company. Haiti Teleco was the only provider of non-celluar telephone service to and from Haiti. […] Patrick Joseph was the Director General of Haiti Teleco. […] During his tenure at Haiti Teleco, Patrick Joseph was a ‘foreign official’ as that term is defined in the FCPA.” “Jean Rene Duperval was the Director of International Relations of Haiti Teleco. […] During his tenure at Haiti Teleco, Duperval was a ‘foreign official’ as that term is defined in the FCPA.” “Official VJ was the Governor of the Banque de la Republique d’Haiti (“Bank of Haiti”), the state-owned and state-controlled central bank of Haiti. […] During his tenure at the Bank of Haiti, Official VJ was a ‘foreign official’ as that term is defined in the FCPA.”
For previous posts on Haiti Teleco, see here, here and here.
Bridgestone Corp.
DOJ
“Foreign government officials in Latin America and elsewhere;” “employees of state-owned entities in Mexico and other Latin American countries;” employee at Petroleos Mexicanos (“PEMEX”).
Diageo
SEC
“Various government officials in India, Thailand, and South Korea”
“Hundreds of Indian officials responsible for purchasing or authorizing the sale of beverages”; “employees of government liquor stores in and around New Delhi”; “government employees of the Indian military’s Canteen Stores Department”; “government officials in the North Region of India and in the State of Assam for the purpose of securing label registrations”; “Excise officials to secure import permits and other administrative approvals.”
A “Thai government and political party official”; “At various times the Thai Official served as Deputy Secretary to the Prime Minister, Advisor to the Deputy Prime Minister, and Advisor to the Ministry of Agriculture and Cooperatives. The Thai Official also served on a committee of the ruling Thai Rak Thai political party, and as a member and/or advisor to several state-owned or state-controlled industrial and utility boards.”
South Korean “customs official”; “other South Korean government officials”; “South Korean military officials”
Watts Water Technologies
SEC
Employees of certain Chinese state-owned design institutes.
Aon
DOJ
“government officials in Costa Rica”; employees of “Instituto Nacional De Deguros (“INS”), Costa Rica’s state-owned insurance company”
SEC
Same as above. In addition, officials from an “Egyptian government-owned company, the Egyptian Armament Authority (“EAA”), and its U.S. arm, the Egyptian Procurement Office (“EPO”); “Vietnam Airlines, a Vietnamese government-owned entity”; “BP Migas and Pertamina, two Indonesia state-owned entities in the oil and gas industry”; “Myanmar Airways and Myanmar Insurance, two government-owned entities”; “Biman Bangladesh Airways and Sudharan Bima Corporation, two government-owned entities”; “the son of a former high-ranking government official in Bangladesh with several important political connections”
Magyar Telekom / Deutsche Telekom
DOJ
“Telekom Crne Gore A.D., n/k/a “Crnogorski Telekom,” (“TCG”) and its mobile company subsidiary were, respectively, the Montenegrin state-owned fixed line and cellular telecommunications companies. […] Before Magyar Telekom acquired TCG, it was controlled by the Government of Montenegro. Accordingly, employees of TCG were ‘foreign officials’ within the meaning of the FCPA.”
“Macedonian Political Party A and Macedonian Political Party B were political parties in the Macedonian governing coalition during 2005, among other times. Each party represented a traditional ethic group in Macedonia. As such, Macedonian Political Party A and Macedonian Political Party B were each a “foreign political party” within the meaning of the FCPA.” “Macedonian Official #1 was a high-ranking government official with responsibility related to telecommunications laws and regulations […] and a leader of Macedonian Political Party A. As such, Macedonian Official #1 was a “foreign official” and an official of a foreign political party within the meaning of the FCPA.” “Macedonian Official #2 was a high-ranking government official with responsibility for telecommunications laws and regulations […] and a leader of Macedonian Political Party B. As such, Macedonian Official #2 was a “foreign official” and an official of a foreign political party within the meaning of the FCPA.”
SEC
Same as above.
“We Are Going To Be Drafting A Bill,” But When Will It Be Introduced?
On June 14, 2011, the House Judiciary Committee (Subcommittee on Crime, Terrorism, and Homeland Security) held an FCPA hearing. (See here for the prior post, here for the hearing transcript). During the hearing, Chairman James Sensenbrenner (R-WI) firmly stated “we are going to be drafting a [FCPA reform] bill.”
The force in which the statement was made (as well as the general tone of the hearing) gave the impression that a reform bill would soon follow the hearing. However, over six months has passed and the much anticipated reform bill has not been introduced.
Reasons for the delay could be many. Some have speculated (see here) that the DOJ’s November announcement of FCPA guidance in 2012 (see here for the prior post) stalled the FCPA reform bill on the theory that Congress is willing to let the DOJ issue its guidance before introducing a reform bill.
If that is the reason for delay of the FCPA reform bill, DOJ guidance is unlikely to quiet the growing chorus advocating for FCPA reform. As I observed in this prior post, DOJ’s promise of FCPA guidance in 2012 will not cure many of the issues that are being debated during this new era of FCPA enforcement. DOJ’s guidance is likely 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. Moreover, 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).
Whenever an FCPA reform bill is introduced, and whatever its specifics provisions, FCPA reform in 2012 is far from a sure thing. The topic is a political hot potato, particularly during an election season, and history instructs that substantive FCPA reform can drag on for many years.
Happy Birthday!
I was born in 1977. Yet for most of my life, nobody cared or talked much about me. However, about eight years ago, my caretakers suggested that I change my look (get a new haircut, change my wardrobe, those sort of things). Boy did that help.
In some circles at least, I am now the most popular person in town. Indeed, I recently read (see here) that I am one of the top legal concerns of general counsel. There are now numerous seminars and training sessions about me. In fact an entire industry of lawyers, accountants, and other business and compliance professionals have sprung up devoted to just me! I even hear (see here) you can now buy insurance to protect against the high costs of investigating whether I am relevant. I even hear there are a few websites devoted to me. As you can see, it is a good time to be me.
Lawyers travel to the far reaches of the globe just to determine if I am relevant. Corporations publicly disclose potential dates with me. and lawyers run to Washington D.C. (my birthplace) to tell my caretakers how relevant I am (when I may not be relevant at all).
Yet, I am relevant. What could be more relevant that being the reason for some individuals eating breakfast this morning in federal prison?
Who am I?
Why of course I am the FCPA and today is my 34rd birthday!
There is much that happened during my 33rd year. I gained brothers and sisters around the world and my closest sibling, after a long gestation period, was finally born – he is both taller than me, yet at the same time shorter than me. I didn’t expect to receive worldwide media attention this past summer, but I guess when I am mentioned in the same sentence as a media company owned by a politically divisive figure, well, that just sort of happens. I continue, in some instances, to be misapplied and misunderstood, but at least this past year some of that misapplication was by individuals in black robes. In the past, I didn’t have many dates with those black robes people. This past year, other people didn’t like it when my caretakers made up a scheme so that I would be relevant. My parents never intended me to be an all-purpose corporate ethics statute, but that is what I am becoming. Speaking of the parents, they continue to examine my application and have suggested reforming me. Who knows, next year at this time I may look and feel a bit different.
*****
On December 19, 1977, the FCPA was enacted. On December 20, 1977, President Carter signed the FCPA into law.
Hosting an FCPA birthday party?
Here is the signing statement to read just before the candles are placed on the cake. After cake, instead of a game of “pin the cash-filled suitcase on the foreign official” how about a discussion as to whether the enacting Congress and President Carter would recognize certain enforcement theories which have become a hallmark of current enforcement environment. After that, if guests remain, how about an FCPA reform discussion, this is sure to liven the party.