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These Are Interesting Times

The Daimler deferred prosecution agreement has trickled out (see here).

Attachment D of the DPA concerns the Independent Corporate Monitor and states “in consultation with the Department, Daimler has proposed and the Department has approved Louis J. Freeh to serve as the Monitor.”

Louis J. Freeh (here) is the Former Director of the FBI (1993-2001). He currently is a principal of Freeh Group International (see here). Other principals in the Freeh Group include Stanley Sporkin, an individual who has held various positions during his distinguished career including Director of Enforcement at the SEC, and General Counsel to the CIA.

Freeh represented Saudi Prince Bandar, an individual at the center of the DOJ’s bribery, yet no bribery enforcement action against BAE. (See here for an extended PBS Frontline interview of Freeh).

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Stay tuned for an extensive post “Dissecting Daimler.” The amount of material in this case is now up 228 pages!

Monitors

Most FCPA enforcement actions against companies are resolved through a non-prosecution or deferred prosecution agreement (NPA’s / DPA’s).

Many NPA’s / DPA’s require the company to engage a compliance monitor for a set time period (generally 2-4 years).

Although monitors are not the “rage” they used to be a few years ago, recent FCPA enforcement actions against Control Components, Inc., KBR/Halliburton, and Siemens have included some form of a compliance monitor.

In a recent speech to an FCPA audience, Assistant AG Breuer (see here) indicated that:

“In appropriate cases, [DOJ] will also continue to insist on a corporate monitor, mindful that monitors can be costly and disruptive to a business, and are not necessary in every case. That said, corporate monitors continue to play a crucial role and responsibility in ensuring the proper implementation of effective compliance measures and in deterring and detecting future violations.”

Those interested in corporate monitors (whether in the FCPA context or otherwise) will want to review a recent report on monitors from the Government Accountability Office. (see here).

Among other interesting numbers are the following:

Since 1993 through September 2009, DOJ has entered into 152 NPA’s or DPA’s.

Of the 152 agreements, 48 required the appointment of a compliance monitor.

What does it take to become a monitor? A DOJ background certainly doesn’t hurt. GAO found that of the 48 NPA’s or DPA’s that required the appointment of a monitor, 42 different individuals were selected. Of those 42, 23 (approximately 55%) were former DOJ officials, something many find controversial in that a prior DOJ position could affect the monitor’s independence and impartiality.

Although the GAO report does not specifically discuss (or identify) the monitors in FCPA enforcement actions, a May 2008 DOJ letter to the House Judiciary Committee (see here) does list corporate entities along with the monitor appointed. To my knowledge, the following were FCPA enforcement actions: Aibel Group/Vetco Ltd., Baker Hughes, Ingersoll Rand, InVision Technologies, Micrus, Monsanto, Paradigm, Schnitzer Steel, Statoil, and York.

To see what one of those “FCPA monitors” has to say (here) is the excerpt from the Corporate Crime Reporter interview.

Another FCPA Speech

Last week it was the Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum (see here), this week the audience for Assistant Attorney General Lanny Breuer was ACI’s National Forum on the FCPA

The ACI conference (see here) is a signature event for the FCPA bar and FCPA compliance community. Breuer participated in past ACI events as a private FCPA practitioner at Covington & Burling and yesterday he gave the keynote luncheon address.

The link to the speech on the DOJ website is inactive, but the speech is embedded in this piece from the WSJ Law Blog (see here).

The speech covers a wide range of topics and will be of interest to all FCPA practitioners and others interested in following FCPA developments.

Here are a few highlights:

On individual prosecutions – “…we tried more individuals for FCPA violations than in any prior year. And we indicted more individuals than ever before. That is no accident. In fact, prosecution of individuals is a cornerstone of our enforcement strategy. […] Put simply, the prospect of significant prison sentences for individuals should make clear to every corporate executive, every board member, and every sales agent that we will seek to hold you personally accountable for FCPA violations.”

On how the DOJ learns of FCPA issues – “Although many of these cases come to us through voluntary disclosures, which we certainly encourage and will appropriately reward, I want to be clear: the majority of our cases do not come from voluntary disclosures. They are the result of pro-active investigations, whistle blower tips, newspaper stories, referrals from our law enforcement counterparts in foreign countries, and our Embassy personnel abroad, among other sources.”

On resolving corporate FCPA matters – “…despite rumors to the contrary, we do also decline prosecution in appropriate cases. […] With regard to corporate cases, the Department will continue to pursue guilty pleas or, if necessary, indictments against corporations – when the criminal conduct is egregious, pervasive and systemic, or when the corporation fails to implement compliance reforms, changes to its corporate culture, and undertake other measures designed to prevent a recurrence of the criminal conduct. We also recognize that there will be situations in which guilty pleas or criminal charges are not appropriate. Now, we may have good-faith disagreements about when those circumstances present themselves, but we do not take our task lightly. We are mindful of direct impact on the company itself, as well as the numerous collateral consequences that often flow from these charging decisions. We are sophisticated attorneys, and we understand the challenges and complexities involved in doing business around the globe.”

On corporate monitors – “In appropriate cases, we will also continue to insist on a corporate monitor, mindful that monitors can be costly and disruptive to a business, and are not necessary in every case. That said, corporate monitors continue to play a crucial role and responsibility in ensuring the proper implementation of effective compliance measures and in deterring and detecting future violations.”

On whether to make a voluntary disclosure – this is a “sometimes difficult question” […] a question I grappled with as a defense lawyer. I strongly urge any corporation that discovers an FCPA violation to seriously consider making a voluntary disclosure and always to cooperate with the Department. The Sentencing Guidelines and the Principles of Federal Prosecution of Business Organizations obviously encourage such conduct, and the Department has repeatedly stated that a company will receive meaningful credit for that disclosure and that cooperation. […] I can assure you that the Department’s commitment to meaningfully reward voluntary disclosures and full and complete cooperation will continue to be honored in both letter and spirit. I am committed to no less.”

On the road ahead – “In addition to holding culpable individuals accountable and meaningfully rewarding voluntary disclosures and genuine cooperation, we will continue to focus our attention on areas and on industries where we can have the biggest impact in reducing foreign corruption.” Breuer then discusses the pharma industry in particular.

On asset forfeiture and recovery – “We will seek forfeiture in all appropriate cases going forward. […] We will be taking advantage of the expertise of both the Fraud Section and our Asset Forfeiture and Money Laundering Section to forfeit and recover the proceeds of foreign corruption offenses.” Breuer’s comments on this topic largely shadow the recent comments of Attorney General Holder (see here).

On enhanced resources – “As I imagine most of you have heard, in 2007 the FBI created a squad with agents dedicated to investigating potential FCPA violations. The squad has been growing in size and in expertise over the past two years. In addition, we have begun discussions with the Internal Revenue Service’s Criminal Investigation Division about partnering with us on FCPA cases around the country. Finally, we are now pursuing strategic partnerships with certain U.S. Attorney’s Offices throughout the United States where there are a concentration of FCPA investigations.”

On Mark Mendelsohn’s rumored departure as DOJ Deputy Chief – FCPA – “… as we look to the future, we will be building on the extraordinary efforts and success of our Deputy Chief over the FCPA area, my friend Mark Mendelsohn, who is beginning to explore options for the next phase of his career. Mark has been an exceptional public servant and a visionary steward of the FCPA Program. Regardless of where Mark chooses to go, we will miss him greatly.”

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Last week, I questioned Breuer’s characterization of the Jefferson verdict in his pharma address (see here). In that address he said as follows:

“In the past few months, we have the completed the trials of the Greens in California, of Mr. Bourke in New York and of former Congressman William Jefferson in Virginia. In each of these cases, individuals were found guilty of FCPA violations and face jail time.”

Yesterday, Breuer correctly noted, as to the Jefferson case, as follows: Jefferson “was convicted of a conspiracy of which one object was to violate the FCPA by bribing former high-ranking Nigerian government officials.”

Baker Hughes – BJ Services Merger

The press (see here among other places) is reporting that Baker Hughes has agreed to buy BJ Services in a $5.5 billion cash and stock deal.

Both companies should be familiar to FCPA followers and there are many FCPA issues present in this announced merger.

For starters, a bit of background.

In 2007, Baker Hughes settled parallel DOJ and SEC FCPA enforcement actions concerning business conduct in Kazakhstan, Nigeria, Angola, Indonesia, Russia, and Uzbekistan. (See here for the DOJ release and related materials, see here for the SEC release and related materials). Combined fines and penalties were a then FCPA-record $44 million.

In 2004, BJ Services consented to entry of an SEC cease-and-desist order finding that it violated the FCPA’s anti-bribery, books and records, and internal control provisions in connection with the business conduct of its wholly-owned Argentinean subsidiary. (See here for the SEC order).

In addition, in its 2008 Annual Report (filed in November 2008 see here) BJ Services indicated (at pgs. 69-70) that it voluntarily disclosed to the DOJ/SEC the results of an internal investigation concerning problematic business conduct in the Asia-Pacific region that could implicate the FCPA. To my knowledge, no enforcement action has yet resulted from this disclosure.

At a minimum, the following FCPA issues are present in the Baker Hughes / BJ Services announced merger.

Baker Hughes settled the 2007 FCPA enforcement action by agreeing to a deferred prosecution agreement (see here). Pursuant to Paragraph 8 of the DPA, Baker Hughes agreed to engage an independent monitor to review the company’s compliance with the FCPA for a period of three years. Thus, per the DPA, Baker Hughes is still under an FCPA monitor – an individual who no doubt has been busy or soon will be busy in ensuring that Baker Hughes properly integrates BJ Services into Baker Hughes’ existing FCPA compliance policies and procedures.

What about the issue of Baker Hughes purchasing a company with disclosed, yet apparently unresolved, FCPA issues? This is one area where the DOJ has offered up substantive guidance to acquiring companies and the following DOJ Opinion Procedure Releases are relevant (in whole or in part): 08-02 (see here), 08-01 (see here), 04-02 (see here), and 03-01 (see here). For additional reading (see here).

I like to tell my students that the business law issues we cover in class are not merely historical, but rather are issues that companies deal with on a daily basis. For all you FCPA students out there, the Baker Hughes – BJ Services merger announcement provides a good real-world “issue-spotting” exam.

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