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Dun & Bradstreet Resolves $9.2 Million Enforcement Action Based On Conduct Of Two Indirect Chinese Subsidiaries From 6-12 Years Ago


As highlighted in this prior post, over six years ago Dun & Bradstreet (a leading source of commercial information and insight on businesses) announced that it was under Foreign Corrupt Practices Act scrutiny concerning conduct in China.

Yesterday, the SEC (Snails-Pace Enforcement Commission) announced that D&B agreed to resolve an FCPA enforcement action by paying approximately $9.2 million to “arising from improper payments made by two Chinese subsidiaries.”

This administrative order states, in summary fashion:

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Friday Roundup

The problem with NPAs and DPAs, how does your product go to market in China, media coverage in China, victory, scrutiny alerts and updates, and for the reading stack.  It’s all here in the Friday roundup.

The Problem With NPAs and DPAs

I’ve long called for the abolition of NPAs and DPAs in the FCPA context as part of a two-pronged reform approach (see here among other posts).  As highlighted here among other posts, NPAs and DPAs are problematic across a wide spectrum and the agreements often contain meaningless or senseless language.

This recent Wall Street Journal Law Blog post titled “5 Things Companies Agree to But Can’t Deliver On in DPAs” is a worthy read. It begins:

“FCPA lawyers have a love-hate relationship with deferred-prosecution agreements,” said Laurence Urgenson, a partner at Mayer Brown. “We need them to get around the collateral consequences of prosecutions…but there is language in the agreements that drives us crazy.” Mr. Urgenson said the agreements originated with settlements prosecutors would reach with individuals, often children, placing certain requirements on them as a condition for the charges eventually being dropped. But many of those requirements make no sense in a settlement with a company; Mr. Urgenson picked out some of his favorites.”

How Does Your Product Go To Market In China?

Returning to issues discussed in this 2011 post and this 2011 post, this recent article in Food Navigator – Asia (not my typical source of FCPA material) states as follows concerning practices in China:

“One currently emerging trend is how companies are apparently becoming more comfortable to talk openly about measures they are taking to avoid gaining approvals and still move their products to market.  Indeed, four companies outlined to us the agreements they had made with Chinese distributors to deliver their products to locations near to China and then leave the local partners to navigate their movement into the People’s Republic.  Most likely, this would be done in cahoots with ministry officials in deals that would involve sweeteners and other transactions.  ‘Once we’ve delivered the product, it isn’t our problem what our partner decides to do with it,’ an executive at a U.S.-based multinational told us in Hong Kong.  ‘It’s not the cost of approvals that concerns us, it’s the time,” a mid-market manufacturer, also from the U.S., told us.  “It is important for us that we hit China right now.’  Not all the companies we talked to about this were from America, but the fact that two were was surprising.  This is not least because business practices there are governed by the FCPA …  […]  What is surprising to us is not the fact that these practices exist at all, it is how U.S. businesses in particular have now become comfortable enough to openly brief the press about their part in this trend.”

That makes two of us that are surprised!

Media Coverage in China

This prior 2012 post titled “All the News That Fit? To Print” highlighted the practice of paying journalists for media coverage in China.  Related to the general issue is this recent New York Times article which describes how “journalists who worked for a business news website under investigation in Shanghai have described a scheme of extorting Chinese companies, which were pressed to pay in return for the production of flattering articles or the burying of damaging ones.”


In this prior post I exposed how the DOJ and SEC literally re-wrote the FCPA statute in the November 2012 issued FCPA Guidance. The post highlighted the difference – even a first year law student would be expected to see – between what the FCPA actually says and the version of the FCPA in the Guidance.

Set forth below is the text of the FCPA regarding the “obtain or retain business” element.

   ”anything of value to

         any foreign official for purposes of

(A) (i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (iii) securing any improper advantage; or

(B) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality,

         in order to assist such issuer in obtaining or retaining business for or with, or directing business to, any person;

Set forth below is how the text of the FCPA was [originally] portrayed in the FCPA Guidance.

   “anything of value to

         any foreign official for purposes of

(A) (i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (iii) securing any improper advantage; or

(B) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in order to assist such issuer in obtaining or retaining business for or with, or directing business to, any person;

Recently, I received an interesting e-mail from a reader who was confused by my prior post because the FCPA Guidance does not portray the FCPA as suggested in my original post.  The reader was right!  That’s because the DOJ/SEC changed the version of the FCPA originally set forth in the Guidance to its proper form.  To prove that the original FCPA Guidance literally re-wrote the FCPA, here is the version of the FCPA that originally appeared in the FCPA Guidance which relevant portions highlighted.

Subtle yes, but sometimes victory occurs in the shadows.

Scrutiny Alerts and Updates

HP Russia

Related to the April 2014 DOJ enforcement action against HP related entities (see here for the prior post), the DOJ announced yesterday that HP Russia formally pleaded guilty.

As stated in the DOJ release

“In a brazen violation of the FCPA, Hewlett Packard’s Russia subsidiary used millions of dollars in bribes from a secret slush fund to secure a lucrative government contract,” said Principal Deputy Assistant Attorney General Marshall Miller.  “Even more troubling was that the government contract up for sale was with Russia’s top prosecutor’s office.   Tech companies, like all companies, must compete on a level playing field, not resort to secret books and sham transactions to hide millions of dollars in bribes.  The Criminal Division has been at the forefront of this fight because when corruption takes hold overseas, American companies and the rule of law are harmed.  Today’s conviction and sentencing are important steps in our ongoing efforts to hold accountable those who corrupt the international marketplace.”

“Today’s conviction and sentence of HP Russia demonstrates that the United States Attorney’s Office is dedicated to aggressively prosecuting all forms of corporate fraud that touch our district, wherever they may occur,” said U.S. Attorney Melinda Haag.  “HP’s cooperation during the investigation is what we expect of major corporate leaders facing the challenges of doing business around the world.”

“For more than a decade HP Russia business executives participated in an elaborate scheme that involved paying bribes to government officials in exchange for large contracts,” said Assistant Director in Charge of the FBI’s Washington Field Office Andrew McCabe. “There is no place for bribery in any business model or corporate culture.  Along with the Department of Justice, the IRS and international law enforcement partners, the FBI is committed to investigating corrupt backroom deals that threaten our global commerce.”

Image Sensing Systems

Earlier this week, the company issued the following release:

“Image Sensing Systems, Inc. today announced that the DOJ has closed its inquiry into the Company in connection with the previously disclosed investigation of potential violations of the FCPA citing the Company’s voluntary disclosure, thorough investigation, cooperation and voluntary enhancements to its compliance program.  The SEC earlier notified the Company that it had closed its investigation under the FCPA without recommending enforcement action. Kris Tufto, Image Sensing Systems chief executive officer, commented, “We are very pleased to conclude the DOJ and SEC investigations without further action.  From the very beginning, we have voluntarily cooperated with the authorities and have worked diligently to implement measures to enhance our internal controls and compliance efforts. We understand that those efforts have been recognized and that the resolution of the investigation reflects this cooperation.”  As previously reported by Image Sensing Systems, it had learned in early 2013 that Polish authorities were conducting an investigation into alleged violations of Polish law by two employees of Image Sensing Systems Europe Limited SP.Z.O.O., its Polish subsidiary, who had been charged with criminal violations of certain laws related to a project in Poland. A special subcommittee of the audit committee of the board of directors immediately engaged outside counsel to conduct an internal investigation.  Image Sensing Systems voluntarily disclosed the matter to the DOJ and the SEC, and it has cooperated fully with those agencies in connection with their review.”


Regarding the previously announced U.K. criminal charges against Alstom (see here for the prior post), the U.K. Serious Fraud Office recently released this charge sheet detailing the charges in connection with alleged conduct in India, Poland and Tunisia.

Reading Stack

A very interesting read from the New York TimesForeign Powers By Influence at Think Tanks.”  The article begins as follows.

“More than a dozen prominent Washington research groups have received tens of millions of dollars from foreign governments in recent years while pushing United States government officials to adopt policies that often reflect the donors’ priorities, an investigation by The New York Times has found. The money is increasingly transforming the once-staid think-tank world into a muscular arm of foreign governments’ lobbying in Washington.”

Forbes asks – is it “silly season” in China?  What is perhaps silly is the advice highlighted in the article to negotiate the regulatory minefield:

“[B]uild a network. ‘Involve some powerful local Chinese partners in some peripheral areas in order to build a political foundation. I don’t necessarily recommend an overall partnership, since they would be better off with a well-placed approach in specific areas. Have a partnership in marketing or R&D and develop a perception that you are working closely with Chinese firms, but in reality you will not give away anything that is sensitive.”

This is probably only going to increase a company’s risk because of the FCPA’s third-party payment provisions.


A good weekend to all.


Friday Roundup

Elevate your FCPA knowledge and practical skills, FCPA ripples, origins of PetroTiger’s FCPA scrutiny, news flash, and for the reading stack.  It’s all here in the Friday Roundup.

Elevate Your FCPA Knowledge and Practical Skills

Join lawyers and other in-house counsel and compliance professionals from around the country – indeed the world –  already registered for the inaugural FCPA Institute July 16-17th in Milwaukee, Wisconsin.  The FCPA Institute is a unique two-day learning experience ideal for a diverse group of professionals seeking to elevate their FCPA knowledge and practical skills.  FCPA Institute participants will have their knowledge assessed and upon successful completion of a written assessment tool can earn a certificate of completion. In this way, successful completion of the FCPA Institute represents a value-added credential for professional development.

To register see here.

FCPA Ripples

An obvious reason to comply with the Foreign Corrupt Practices Act is that non-compliance can expose a company to a criminal or civil FCPA enforcement action by the Department of Justice and/or the Securities and Exchange Commission.   However, settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from FCPA scrutiny or enforcement in this new era.

I will be discussing this issue and others during a free webinar on June 17th titled “The Ripple Effect:  Understanding Financial and Business Consequences of FCPA Scrutiny and Enforcement.”  The webinar is hosted by Hiperos and you can register here.

Origins of PetroTiger’s FCPA Scrutiny

An interesting article here from Wall Street Journal Risk & Compliance Journal regarding the origins of the FCPA enforcement action against various PetroTiger executives.   The article highlights the $85 million private equity investment of Alberta Investment Management Corp.’s (“Aimco”) in PetroTiger in the hopes of greater returns in an emerging market.

Although the article suggests that the alleged improper conduct was discovered by Aimco, the article states:

“In hindsight, despite extensive due diligence prior to the investment, [an Aimco representative] says he should have taken a harder look at company expenses immediately after the purchase. Had he reviewed every invoice in the months following the investment, [an Aimco representatives] says Aimco would likely have discovered the issue sooner. ‘PetroTiger didn’t have the controls of a bigger company and we should have been more sensitive to the higher risk’ [an Aimco representative] said.”

Perhaps not a clear parallel to U.S. v. Bourke, but it is hard not to think of Bourke while reading the article.  As highlighted here, in Bourke the Second Circuit held that Bourke enabled himself to participate in a bribery scheme without acquiring actual knowledge of the specific conduct at issue and that such conscious avoidance, even if supported primarily by circumstantial evidence, is sufficient to warrant an FCPA-related charges.

As noted in the prior post, the message to international investors should be clear: if a potential investment results in sleepless nights and fear of asking specific direct questions because of the answers you might receive, there is probably better uses for your money.

News Flash

The media is often quick to pounce on instances of FCPA scrutiny involving companies.  Many of the articles seem to advance the “good companies don’t bribe period” fallacy (see here for the prior post).

I am glad that the media now recognizes that it is not that simple.  This recent article in the Press Gazette concerning recent comments by the BBC’s legal chief caught my eye.

In the article, the individual states as follows:

“In the newsgathering sense, what this means [complying with bribery and corruption laws] is that it can be very difficult to operate in many parts of the world.

“If you’re a reporter, for example, in a place like Kenya, you turn up at the border, you have got all your visas, you try to get to Somalia, and a border official says to you ‘Well, I am terribly sorry, you can’t bring your camera – you have one of two options, you can either go back to Nairobi and that’ll take three days, to get another pass which you urgently need, or perhaps I might be able to help you if you give me 25 dollars’.

“What is the reporter supposed to do?

“Around the world people in newsgathering are being put in a position where they are being asked to make quite difficult decisions.”

My interest in the above article was mostly a result of this prior post concerning News Corp.’s scrutiny and the suggestion by some that because the commodity of news organizations is information, and because that commodity is processed into news, that somehow the First Amendment or some perceived public interest insulates news organizations from bribery and corruption scrutiny.

Making improper payments to secure a commodity (whether it is oil or information) should be treated the same.   As to any perceived public interest, sure there is a public interest in the news, but then again there is also a public interest in having oil and gas or a public interest (as relevant to the pharmaceutical industry) of providing medicine and other medical devices to those who need them.

Reading Stack

This Reuters article regarding the escalating criminal fines against banks notes:

“In the past two years the U.S. Justice Department has said it’s broken records on penalties for corporate misconduct at least seven times, including three times this year alone.”

“The numbers are going up because they can,” one former prosecutor said.”

 Some lawyers representing major banks said they viewed the escalating penalties as essentially exploiting defendants who usually don’t fight back in court. “Lots of sophisticated observers view these as extortion at this point,” said one bank lawyer.”

For a discussion of similar issues in FCPA enforcement actions, see here for the prior post.


A good weekend to all.

Wall Street Journal Goes On Offense

It is not everyday FCPA details are dissected on the editorial page of a major newspaper. But then again, it is not everyday that the parent company of a major newspaper is embroiled in a major scandal that has an FCPA element to it.

Yesterday, in a lengthy and wide-ranging editorial (here), the Wall Street Journal had this to say about the FCPA implications of the News Corp. scandal.

“The political mob has been quick to call for a criminal probe into whether News Corp. executives violated the U.S. Foreign Corrupt Practices Act with payments to British security or government officials in return for information used in news stories. Attorney General Eric Holder quickly obliged last week, without so much as a fare-thee-well to the First Amendment.”

“The foreign-bribery law has historically been enforced against companies attempting to obtain or retain government business. But U.S. officials have been attempting to extend their enforcement to include any payments that have nothing to do with foreign government procurement. This includes a case against a company that paid Haitian customs officials to let its goods pass through its notoriously inefficient docks, and the drug company Schering-Plough for contributions to a charitable foundation in Poland.”

“Applying this standard to British tabloids could turn payments made as part of traditional news-gathering into criminal acts. The Wall Street Journal doesn’t pay sources for information, but the practice is common elsewhere in the press, including in the U.S.”

With the WSJ now suggesting that payments to police officers are “part of traditional news-gathering” – at least in certain countries – and it suggesting that paying sources for information is “common,” it may be possible that the next FCPA industry sweep will be of the media industry. Previous industry sweeps have included the oil and gas industry, a current sweep of the pharmaceutical / medical device industry that has been active for some time, and a recently initiated sweep of the financial services industry.

The remainder of this post details the two FCPA enforcement actions referenced in the WSJ’s editorial.

For starters, the WSJ is correct when its stated as follows. “The foreign-bribery law has historically been enforced against companies attempting to obtain or retain government business. But U.S. officials have been attempting to extend their enforcement to include any payments that have nothing to do with foreign government procurement.”

During the FCPA’s first 20 years, every FCPA enforcement action concerned allegations that payments to a “foreign official” assisted the payor in “obtaining or retaining business” with a foreign government or alleged foreign government “department, agency, or instrumentality.”

FCPA enforcement then changed – most notably with the U.S. v. Kay prosecution.

U.S. v. Kay

In 2001, David Kay and Douglas Murphy (the “Defendants”), the president and vice president of Houston-based American Rice, Inc. (“ARI”), were criminally indicted. The indictment charged FCPA anti-bribery violations and alleged that the defendants made improper payments to Haitian “foreign officials” for the purpose of reducing customs duties and sales taxes owed by ARI to the Haitian government.

The indictment, while specific as to other items, merely tracked the FCPA’s “obtain or retain business” language and did not specifically allege how the alleged payments assisted ARI in obtaining or retaining business in Haiti or what business was obtained or retained. “In other words, the indictment recite[d] no facts that could demonstrate an actual or intended cause-and-effect nexus between reduced taxes and obtaining identified business or retaining identified business opportunities.”

The trial court granted Defendants’ motion to dismiss the indictment and held, as a matter of law based on the FCPA’s legislative history, that the alleged payments were not payments made to “obtain or retain business” and thus did not fall within the scope of the FCPA’s anti-bribery provisions. The DOJ appealed the decision and one issue on appeal was whether payments to “foreign officials” to obtain favorable tax and customs treatment can come within the scope of the FCPA’s anti-bribery provisions.

The Fifth Circuit, like the trial court, concluded that the FCPA’s “obtain or retain business” element was ambiguous and it thus analyzed the FCPA’s legislative history. The Fifth Circuit focused specifically on the U.S. Senate’s 1977 sponsored bill and the SEC report on which the Senate’s proposal was based. According to the court, the SEC report “exhibited concern about a wide range of questionable payments [including those at issue in Kay] that were resulting in millions of dollars being recorded falsely in corporate books and records.” Although the Fifth Circuit recognized that the Senate’s proposal did not expressly cover payments that seek to influence the administration of tax laws or seek a favorable tax treatment, the Senate, in the words of the court, “was mindful of bribes that influence legislative or regulatory actions, and those that maintain established business opportunities.” In short, the Fifth Circuit was convinced that Congress intended to prohibit a range of payments wider than those that only directly influence the acquisition or retention of government contracts or similar arrangements. The Fifth Circuit 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. The court concluded that there was “little difference” between these type of payments and traditional FCPA violations in which a company makes payments to a “foreign official” to influence or induce the official to award a government contract.

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. According to the court, the key question of whether Defendants’ alleged payments constituted an FCPA violation depended on whether the payments were intended to lower ARI’s costs of doing business in Haiti enough to assist ARI in obtaining or retaining business in Haiti. The court 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.”

Despite the equivocal nature of the Kay holding, the decision clearly energized the enforcement agencies and post-Kay there has been an explosion in FCPA enforcement actions where the alleged improper payments have nothing to do with obtaining or retaining foreign government business. Many of these enforcement actions are profiled in my article “The Façade of FCPA Enforcement” (here at pages 971-976). None of these enforcement actions were challenged or subjected to meaningful judicial scrutiny and the Kay decision remains the only caselaw on the FCPA’s key “obtain or retain business” element.

For original source documents related to the Kay enforcement action see here.


The other FCPA enforcement action referenced by the WSJ is the 2004 enforcement action against Schering-Plough. Notably this was only an SEC civil enforcement action and only charged FCPA books and records and internal control violations.

The SEC civil complaint (here) alleged that Schering-Plough violated the FCPA when its wholly-owned Polish subsidiary (“S-P Poland”) improperly recorded a bona fide charitable donation to a Polish foundation where the founder/president of the foundation was also the director of a government health fund (the “Director”) that provided money to hospitals throughout Poland for the purchase of pharmaceutical products. According to the SEC, “during thc period in which the payments were being made to the foundation, S-P Poland’s sales two of its oncology products, increased disproportionately compared with sales of those products in other regions of Poland.” As is typical in SEC FCPA enforcement actions, there was no meaningful judicial scrutiny of this action and the company settled the charges without admitting or denying the SEC’s allegations.

News Corp And The FCPA

On July 7th the U.K. Guardian reported (here) that “up to five [U.K. police] officers were paid between them a total of at least £100,000 in cash from the News of the World.” The next day, Dominic Rushe and Jill Treanor of the U.K. Guardian made the link (see here) between these payments and the Foreign Corrupt Practices Act.

What followed over the next 10 days was the most intense worldwide media coverage of the FCPA in its nearly 35 year history.

Last Wednesday, in a development seldom – if ever – seen in the FCPA context, Senator Barbara Boxer (D-CA) and John Rockefeller (D-WV) wrote Attorney General Eric Holder and SEC Chairman Mary Schapiro (see here) requesting “that the U.S. Department of Justice and the Securities and Exchange Commission investigate whether News Corporation, a U.S.-based corporation, has violated United States law – specifically the Foreign Corrupt Practices Act of 1977.” Separately, Senator Frank Lautenberg (D-NJ) wrote Holder and Schapiro (see here). Senator Lautenberg stated as follows. “The limited information already reported in this case raises serious questions about the legality of the conduct of News Corporation and its subsidiaries under the FCPA. Further investigation may reveal that current reports only scratch the surface of the problem at News Corporation. Accordingly, I am requesting that DOJ and the SEC examine these circumstances and determine whether U.S. laws have been violated.”

Public interest groups (see here for one example) also began demanding an FCPA inquiry into the News of the World scandal.

Soon thereafter, it was reported that the FBI (an agency that investigates allegations of criminal violations of the FCPA under the supervision of the Fraud Section of the DOJ Criminal Division) opened an investigation of News Corp. Among others, Congressmen John Conyers “applaud[ed] Attorney General Eric Holder’s announcement that the Justice Department has opened a formal investigation into allegations that News Corp. may have violated both federal wiretapping statutes and the Foreign Corrupt Practices Act.” (See here).

The News Corp. scandal is wide in scope potentially implicating several laws both here in the U.S. and the U.K. This post focuses on News Corp.’s potential FCPA exposure.

Can the FCPA apply to News Corp. even if the improper conduct took place outside of the U.S.?

Yes. News Corp. is a U.S. company and as such the FCPA has extraterritorial application meaning it can face FCPA liability even if the conduct at issue takes places entirely outside of the U.S. Indeed, in most FCPA enforcement actions the conduct at issue takes place outside of the U.S. Further, it is very common in FCPA enforcement actions for parent companies to be held legally responsible for the acts of subsidiary employees on the theory that such employees acted as “agents” of the parent company and that the parent company ultimately derived the financial benefit from the improper conduct at issue.

Indeed, even News Corp.’s FCPA policies and procedures (here) states as follows. “The Foreign Corrupt Practices Act (FCPA) is a U.S. law that forbids bribery of foreign (meaning non-U.S.) government officials, whether elected or appointed, even if the bribe takes place outside the United States. Because News Corporation is a U.S. corporation, the FCPA may apply to all Company employees everywhere in the world, regardless of their nationality or where they reside or do business.”

Why do the London police payments implicate the FCPA’s anti-bribery provisions?

As a general matter, the FCPA’s anti-bribery provisions prohibit the payment of money or anything of value to a “foreign official” to “obtain or retain business.” London police officers are “foreign officials” under the FCPA. For instance, in this 2006 FCPA enforcement action the DOJ asserted that an Iraqi police officer was a “foreign official” under the FCPA.

As to “obtain or retain business,” for most of its history FCPA enforcement actions focused on payments to “foreign officials” to “obtain or retain business” with a foreign government. However, during the past decade, the DOJ has brought numerous FCPA enforcement actions premised on payments to customs officials, tax officials, immigration officials and the like where the payments have nothing to do with “obtaining or retaining business” with a foreign government. Rather, the payments were alleged to have assisted the payor in “obtaining or retaining” business in the general sense.

The leading court decision on this issue is U.S. v. Kay. 359 F.3d 738, 740 (5th Cir. 2004). As further explained in this piece (pages 917-921), in Kay, a U.S. circuit court (one step below the U.S. Supreme Court) concluded that 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. The court concluded that there was “little difference” between these type of payments and traditional FCPA violations in which a company makes payments to a “foreign official” to influence or induce the official to award a government contract. Even so, the court 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 court 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.

Despite Kay’s equivocal holding, there has been a significant increase in FCPA enforcement actions since the decision concerning payments to “foreign officials” that better position the payor to “obtain or retain business” in the general sense. (See for instance the “CustomsGate” category under the Search page of this site).

Thus, payments to London police officers that allowed News of the World to obtain non-public information to write sensational news stories – and thus sell more newspapers – would seem to fit the type of FCPA enforcement common post-Kay. Given that News Corp. is a media company and its product is information, such payments are similar to an oil and gas company making payments to a “foreign official” to obtain non-public information concerning the location of oil and gas deposits.

What about the FCPA’s books and records and internal control provisions?

In addition to its anti-bribery provisions, the FCPA also contains books and records and internal control provisions applicable to U.S. listed companies such as News Corp. The books and records provision requires that “issuers” (the statutory term for U.S. listed companies) “make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer.” The internal controls provision require that “issuers” “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that:” among other things, “transactions are executed in accordance with management’s general or specific authorization;” “access to assets is permitted only in accordance with management’s general or specific authorization;” and “transactions are recorded as necessary to permit a preparation of financial statements in conformity with generally accepted accounting principles … and to maintain accountability for assets.”

These provisions, despite being part of the FCPA, are generic in scope. Thus, if other payments part of News Corp.’s wide-ranging scandal – such as “hush” settlement payments to phone hacking victims are misrecorded on the company’s books and records, such entries would provide the basis for independent FCPA books and records violations – even if such conduct does not directly implicate the FCPA’s anti-bribery provisions. As to the London police payments, such payments, if not recorded accurately on the company’s books and records, would of course also give rise to an independent FCPA books and records violation. Both the DOJ and the SEC (which also has FCPA jurisdiction over U.S. listed companies) frequently hold parent companies liable for the books and records violations of subsidiaries on the theory that subsidiary books and records are consolidated with the parent company’s books and records for purposes of financial reporting.

As to the FCPA’s internal control provisions, the enforcement agencies often take the rather simplistic position that because the payments were made or because corporate expenses were not accurately recorded, the company did not have effective internal controls.

If News Corp. faces FCPA liability does that mean that executive officers will as well?

Not necessarily. Under U.S. legal principles, a corporate entity such as News Corp. can face legal liability based on the conduct of any employee or agent to the extent the employee or agent was acting within the scope of their authority and the conduct was intended to benefit, at least in part, the organization. Many FCPA enforcement actions against corporate entities result from the improper conduct of low to mid-ranking employees in the absence of any allegation that executive officers or board members knew about the conduct at issue or participated in the conduct at issue. Thus, just because News Corp. may face FCPA liability under these principles does not necessarily mean that executive officers will as well.

As to individuals (whether high-ranking executives or otherwise) there needs to be some evidence of culpable conduct – which in the FCPA criminal context – often means participating in the improper conduct, authorizing the improper conduct, or knowing of the improper conduct but failing to put a stop to it.

Will U.S. authorities defer to British authorities in investigating the London police payments?

Some have suggested that U.S. authorities are unlikely to bring an enforcement action because the U.K. has strong anti-corruption laws and is capable of handling this matter domestically. I disagree. The U.K. Bribery Act went live on July 1st, but it only covers conduct that occurs after that date. Prior to the Bribery Act, the U.K. had a hodgepodge of antiquated bribery and corruption statutes. However, the problem with those statutes is they required a “controlling mind” of the corporate to be involved in the conduct at issue in order to prosecute the entity. The weakness of these pre-Bribery Act laws was clearly evident in the U.K. BAE enforcement action from 2010. As the Serious Fraud Office stated in court papers “a serious evidential difficulty had been identified in respect of potential corruption charges, namely the difficulty of proving the involvement of a ‘controlling mind’ in the offending.” Thus, if there is no evidence of “controlling minds” being involved in the London police payments, pre-Bribery Act laws will be insufficient to bring bribery charges as occurred in the BAE matter. This evidentiary difficulty is one of the reasons the U.K. passed the Bribery Act.

U.S. enforcement agencies have a good relationship with their U.K. counterparts and cooperation between the agencies is likely to occur, but there is little reason to believe that the U.S. will stand down and not bring an enforcement action if that is what the evidence warrants. In fact, there have been several FCPA enforcement actions concerning U.K. business entities, based on conduct occurring in the U.K.,and/or involving U.K. citizens. See here for the 2010 FCPA enforcement action relating to Innospec, here for the FCPA enforcement action concerning employees of Pacific Consolidated Industries and here for the FCPA enforcement action against U.K. citizen Jeffrey Tesler.

What is likely to happen next?

There are multiple reasons why News Corp. will cooperate, if it is not already, in the DOJ’s FCPA investigation. The DOJ has substantial discretion (some would argue too much) in resolving corporate criminal matters. Under the DOJ’s Principles of Prosecution of Business Organizations (see here), one of the factors DOJ will consider in deciding how to resolve any potential action is the company’s cooperation. Cooperation in the FCPA context often means conducting an internal, independent review of the conduct at issue and sharing the results, witness statements, key documents, etc. with the enforcement agencies on a near real-time basis. Cooperation is also a mitigating factor under the advisory U.S. Sentencing Guidelines which provide a monetary penalty range for all FCPA criminal actions.

How long is this FCPA gray cloud likely to hang over News Corp?

Likely for a few years. It is typical for an FCPA enforcement inquiry to begin based on a certain set of limited and discrete facts – here the London police payments. However, before the enforcement agencies (DOJ or SEC) will agree to resolve an FCPA matter, it is typical for the agencies to ask the “where else” question. In other words, the question will be – if News Corp. employees (broadly speaking) made the London police payments, did other News Corp. employees around the world make similar payments to “foreign officials” to “obtain or retain business.” To answer this question, and because News Corp. is likely in cooperation mode and because the company has an incentive to learn this information itself, News Corp. will likely conduct a targeted world-wide review of its operations. Such a review takes time and often costs tens of millions of dollars in professional fees and expenses. Because of these dynamics, it is typical for FCPA scrutiny – from the point of investigation to the point of enforcement action – to last between 2-4 years.

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