NCR Corp. Archives - FCPA Professor

Friday Roundup

By Mike Koehler on August 7, 2015 in Alexion Pharmaceuticals, Flowserve Corp., Guidance, NCR Corp., Och-Ziff Capital Management, Olympus, Orthofix International, Repeat Offenders, Vantage Drilling

Nominate, scrutiny alerts and updates, and is it asking too much for the enforcement agencies to get the law right. It’s all here in the Friday roundup.

Nominate

As highlighted here, last month marked the six year anniversary of FCPA Professor. If FCPA Professor adds value to your practice or business or otherwise enlightens your day and causes you to contemplate the issues in a more sophisticated way, please consider nominating FCPA Professor for the ABA’s Top Legal Blog contest.

Scrutiny Alerts and Updates

Olympus

As highlighted in this prior post, Japan-based Olympus has been under FCPA scrutiny since at least August 2012 in connection with alleged relationships with physicians in Brazil. According to this company document the company recently recorded ¥2.4 billion (approximately $19 million) “based on progress in discussions with U.S. DOJ with regard to Foreign Corrupt Practices Act.”

This “Notice of Recognition of Extraordinary Loss Due to the Investigation by the U.S. Department of Justice Against Subsidiaries Relating to the Foreign Corrupt Practices Act” states:

“Olympus Corporation hereby announces that Olympus Latin America, Inc. (“OLA”), an indirect U.S. subsidiary of ours, and Olympus Optical do Brasil, Ltda. (“OBL”), a Brazilian subsidiary of OLA, have been under investigation by the U.S. Department of Justice (the “DOJ”) relating to the Foreign Corrupt Practices Act concerning their medical business, and that we have recognized an extraordinary loss in connection with such investigation for the first quarter of the fiscal year ending March 2016.

Background of this matter. In October 2011, Olympus Corporation of the Americas (“OCA”), a U.S. subsidiary of ours and the parent company of OLA, self-reported to the DOJ potential issues concerning OLA’s and OBL’s medical businesses in 2011 or earlier. OCA is currently continuing discussions with the DOJ towards a resolution, but in view of the progress at the present time, we have recorded an extraordinary loss of approximately 2,421 million yen as a provision.

Future outlook. In connection with this matter, we have recognized an extraordinary loss of approximately 2,421 million yen for the first quarter of the fiscal year ending March 2016, the results of which we are announcing today. However, there is no change to the consolidated earnings forecast due to this matter. We will promptly disclose developments concerning this matter.”

Orthofix International

As noted in this previous post, in July 2012 Orthofix International resolved a DOJ/SEC FCPA enforcement action concerning alleged conduct by a Mexican subsidiary. In resolving that action, the company agreed to a three year deferred prosecution agreement. During the term of the DPA, Orthofix disclosed that it was “investigating allegations involving potential improper payments with respect to our subsidiary in Brazil.”

Recently, the DOJ and Orthofix filed a Joint Status Report with the court stating:

“The DPA was scheduled to expire on July 17, 2015. The Department and Orthofix agreed on June 15, 2015, however, to extend the Term of the DPA for an additional two months in order to give the Department additional time to (1) evaluate Orthofix’s compliance with the internal controls and compliance undertakings in the DPA and (2) further investigate potentially improper conduct the company disclosed during the term of the DPA. The Department and Orthofix agree that this two-month extension extends all of the terms of the DPA and does not waive, or in any way prejudice, any of the Department’s rights under the DPA.

The DPA’s expiration date has thus been extended to September 17, 2015. The Department intends to complete its evaluation and further investigation in August 2015, and will notify the Court and Orthofix of its proposed course of action shortly thereafter.”

Och-Ziff Capital Management

The company has been under FCPA scrutiny since 2011 concerning various activities in Africa. Recently the Wall Street Journal went in-depth in this article titled “U.S. Probes Och-Ziff’s Mugabe Tie.” According to the article:

“U.S. authorities are investigating whether Och-Ziff Capital Management Group LLC knew that part of a $150 million investment in a small African miner would wind up in the hands of Zimbabwe President Robert Mugabe’s government, according to people familiar with the probe. Och-Ziff last year disclosed that a broader Justice Department and Securities and Exchange Commission investigation is examining the $47 billion New York hedge fund’s business in Africa under the Foreign Corrupt Practices Act. The act bars firms doing business in the U.S. from giving money or items of value to foreign officials for business, either directly or through intermediaries. The publicly traded hedge-fund firm is in talks to settle the probe into its ties to a network of investors and deal makers that it worked with on business from Libya to South Africa, according to people familiar with the investigation. Och-Ziff and others have poured hundreds of millions of dollars into mining operations in the past decade as commodities prices soared. In Zimbabwe, U.S. authorities are examining Och-Ziff’s connection to a $100 million payment to Mr. Mugabe’s government in early 2008, the people said. The investigation into Och-Ziff’s ties to the payment, which was made through the African mining company it invested in, Central African Mining & Exploration Co., or Camec, hasn’t been previously disclosed. Camec at the time described the payment as a loan. Och-Ziff has denied that it knew some of the money would end up with the Zimbabwe government. Human-rights groups said the funds were used to carry out a violent crackdown on the opposition during a tough election Mr. Mugabe ultimately won in 2008. U.S. investigators are scrutinizing a March 2008 trip to Zimbabwe taken by Och-Ziff’s Africa director at the time, Vanja Baros,according to people familiar with the investigation. The people said Mr. Baros met several people involved in channeling the money to the Mugabe government, includingBilly Rautenbach, a Zimbabwean businessman with close ties to the dictator.”

Vantage Drilling

The company recently disclosed:

“In July 2015, we became aware of media reports that our agent utilized in the contracting of the Titanium Explorer drillship has entered into a plea arrangement with the Brazilian authorities in connection with the agent’s role in obtaining bribes on behalf of former Petrobras executives. We have since confirmed that our agent, who has represented multiple international companies in their contracts with Petrobras, has entered into such discussions and provided evidence to the Brazilian authorities of an alleged bribery scheme between the former Petrobras executives and a former director of Vantage. The former director, Mr. Su, was the sole owner of the company that owned the Titanium Explorer at the time the alleged bribe was paid. We have not been contacted by any governmental authority in connection with these allegations. However, we voluntarily contacted the SEC and the Department of Justice (the “DOJ”) to advise them of these recent developments. We continue to investigate the matter, but as of now, our internal and independent investigations have found no evidence of wrongdoing by our employees or participation in any manner with the inappropriate acts alleged to have been conducted by the agent.

We cannot predict whether any governmental authority will seek to investigate this matter, or if a proceeding were opened, the scope or ultimate outcome of any such investigation. If the SEC or DOJ determines that we have violated the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”), or if any governmental authority determines that we have violated applicable anti-bribery laws, they could seek civil and criminal sanctions, including monetary penalties, against us, as well as changes to our business practices and compliance programs, any of which could have a material adverse effect on our business and financial condition.

On August 21, 2012, we filed a lawsuit against Mr. Su, a former member of our Board of Directors and the owner of F3 Capital, our largest shareholder, asserting breach of fiduciary duties, fraud, fraudulent inducement and negligent misrepresentation, and unjust enrichment based on Mr. Su’s conduct in his dealings with the Company both immediately prior to, and during his tenure as one of our directors. On June 20, 2014, we received notice that Mr. Su had filed a countersuit against the Company and certain of the Company’s current and former officers and directors. The countersuit alleges fraud, breach of fiduciary duty, negligent misrepresentation, tortious interference with contract, and unjust enrichment and seeks indemnification from us with respect to the matters that are the basis of our lawsuit.”

NCR

As highlighted in this August 2012 post, NCR disclosed:

“NCR has received anonymous allegations from a purported whistleblower regarding certain aspects of the Company’s business practices in China, the Middle East and Africa, including allegations which, if true, might constitute violations of the Foreign Corrupt Practices Act. NCR has certain concerns about the motivation of the purported whistleblower and the accuracy of the allegations it received, some of which appear to be untrue. NCR takes all allegations of this sort seriously and promptly retained experienced outside counsel and began an internal investigation that is ongoing.”

Recently the company disclosed:

“With respect to the FCPA, the Company made a presentation to the staff of the Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) providing the facts known to the Company related to the whistleblower’s FCPA allegations, and advising the government that many of these allegations were unsubstantiated. The Company responded to subpoenas of the SEC and to requests of the DOJ for documents and information related to the FCPA, including matters related to the whistleblower’s FCPA allegations. The Company’s investigations of the whistleblower’s FCPA allegations identified a few opportunities to strengthen the Company’s comprehensive FCPA compliance program, and the Company continues to evaluate and enhance its compliance program as appropriate.

With respect to the DOJ, the Company responded to its most recent requests for documents in 2014. With respect to the SEC, on June 22, 2015, the SEC staff notified the Company that it did not intend to recommend an enforcement action against the Company with respect to these matters.”

To some, this represents a “declination.” To more sophisticated observers this appears to represent unfounded whistleblower allegations.

Alexion Pharmaceuticals

The company recently disclosed:

“[W]e received a subpoena in connection with an investigation by the Enforcement Division of the SEC requesting information related to our grant-making activities and compliance with the Foreign Corrupt Practices Act in various countries. The SEC also seeks information related to Alexion’s recalls of specific lots of Soliris and related securities disclosures. Alexion is cooperating with the SEC’s investigation, which is in its early stages. At this time, Alexion is unable to predict the duration, scope or outcome of the SEC investigation. Any determination that our operations or activities are not, or were not, in compliance with existing United States or foreign laws or regulations, including by the SEC pursuant to its investigation of our compliance with the FCPA and other matters, could result in the imposition of a broad range of civil and criminal sanctions against Alexion and certain of our directors, officers and/or employees, including injunctive relief, disgorgement, substantial fines or penalties, imprisonment, interruptions of business, debarment from government contracts, loss of supplier, vendor or other third-party relationships, termination of necessary licenses and permits, and other legal or equitable sanctions. Other internal or government investigations or legal or regulatory proceedings, including lawsuits brought by private litigants, may also follow as a consequence. Violations of these laws may result in criminal or civil sanctions, which could disrupt our business and result in a material adverse effect on its reputation, business, results of operations or financial condition. Cooperating with and responding to the SEC in connection with its investigation of our FCPA practices and other matters, as well as responding to any future U.S. or foreign governmental investigation or whistleblower lawsuit, could result in substantial expenses, and could divert management’s attention from other business concerns and could have a material adverse effect on our business and financial condition and growth prospects.”

Flowserve

In 2008 Flowserve Corp. and related entities resolved a DOJ and SEC FCPA enforcement action related to the United Nations Oil for Food Program. In resolving the enforcement action, Flowserve agreed to pay $10.5 million in combined fines and penalties and agreed to a permanent “obey the law” injunction. (see here and here).

Recently, Flowserve disclosed:

“As previously disclosed in our 2014 Annual Report, we terminated an employee of an overseas subsidiary after uncovering actions that violated our Code of Business Conduct and may have violated the Foreign Corrupt Practices Act. We have completed our internal investigation into the matter, self-reported the potential violation to the United States Department of Justice (the “DOJ”) and the SEC, and are continuing to cooperate with the DOJ and SEC. We recently received a subpoena from the SEC requesting additional information and documentation related to the matter and are in the process of responding. We currently believe that this matter will not have a material adverse financial impact on the Company, but there can be no assurance that the Company will not be subjected to monetary penalties and additional costs.”

Is It Asking Too Much?

Practitioners recently snuffed out some subtle changes to the November 2012 FCPA Guidance issued by the DOJ and SEC.

The changes make the FCPA Guidance consistent with … well the law.

Is it asking too much for the enforcement agencies to get the law right? After all, it took the FCPA enforcement agencies over a year to write the pamphlet style FCPA Guidance.

But then again, the law has seemingly never been the FCPA enforcement agencies’ strong suit when all they have to do in the vast majority of situations is convince themselves of their legal interpretations.

The recent changes are not the biggest flub in the original FCPA Guidance.

As highlighted in this prior post, in the original guidance the enforcement agencies literally rewrote the FCPA statute. Only after being called out, did the Guidance change. (See here for the prior post).

To learn about other selective information, half-truths, and information that is demonstratively false in the FCPA Guidance see “Grading the Foreign Corrupt Practices Act Guidance.”

*****

A good weekend to all.

Friday Roundup

By Mike Koehler on February 15, 2013 in Brookfield Asset Management, Compliance, Compliance Defense, EADS, Enforcement Agency Speeches, ENI, Facilitating Payments, Finmeccanica, Foreign Official, Internal Controls, NCR Corp., Neither Admit or Deny

From the SEC Chairman, Congress is capable, adding to the list, scrutiny alerts, and for the reading stack. It’s all here in the Friday Roundup.

From the SEC Chairman

SEC Chairman Elisse Walter stated as follows earlier this week (see here) in opening a Foreign Bribery and Corruption Training Conference for law enforcement officials from around the world.

“[W]e have found that corrupt practices by a registered company are generally indicators of larger problems within the business – problems with the potential to harm that business’s shareholder-owners. Bribery and other corrupt practices may result in accounting fraud and falsified disclosures where shareholders are not getting an accurate picture of a company’s finances in their regulatory filings. Bribery means losing control of – or deliberately falsifying – books and records. Often, key executives or board members are kept in the dark, limiting their ability to make informed decisions about the company’s business. Obviously, engaging in corrupt practices means weakening or circumventing internal control mechanisms, leaving a company less able to detect and end not just corruption but other questionable practices. A company that has lost its moral compass is in grave danger of losing its competitive roadmap, as well – while shareholders are kept in the dark.”

Congress Is Capable

Well, at least as to certain issues.

Such as introducing and passing laws that expressly describe state-owned entities (“SOEs”). In reading my historical account of the FCPA’s legislative history, “The Story of the Foreign Corrupt Practices Act” or my “foreign official” declaration here, you will learn that despite being aware of SOEs, despite exhibiting a capability for drafting a definition that expressly included SOEs in other bills, and despite being provided a more precise way to describe SOEs, Congress chose not to include such definitions or concepts in S. 305, the bill that ultimately became the FCPA in December 1977.

This prior post highlighted Congress’s capability in capturing SOEs in Dodd-Frank Section 1504 and along comes another example which demonstrates that Congress is capable of legislating as to SOEs. Recently, H.R.491 – the Global Online Freedom Act of 2013 was introduced in the House. The purpose of the bill is “To prevent United States businesses from cooperating with repressive governments in transforming the Internet into a tool of censorship and surveillance, to fulfill the responsibility of the United States Government to promote freedom of expression on the Internet, to restore public confidence in the integrity of United States businesses, and for other purposes.”

The bill defines “foreign official” as follows.

The term ‘foreign official’ means– (A) any officer or employee of a foreign government or of any department; and (B) any person acting in an official capacity for or on behalf of, or acting under color of law with the knowledge of, any such government or such department, agency, state-owned enterprise, or instrumentality.” (emphasis added).

It is a basic premise of statutory construction that Congress is presumed not to use redundant or superfluous language. Granted, H.R.491 is not yet law, but let’s assume it becomes law as introduced. If instrumentality includes SOEs (as the enforcement agencies maintain), then Congress will violate this legislative maxim by using redundant or superfluous language in H.R. 491.

Adding To The List

The Heritage Foundation recently published (here) a speech by Peter Hansen titled “Unleashing the U.S. Investor in Africa: A Critique of U.S. Policy Toward the Continent.” Hansen critiqued U.S. government thinking about African development, including Ambassador statements that it is important to raise incentives for overly “cautious” U.S. companies to invest in Africa. Hansen stated that this “mistaken assumption” assumed that “mainstream U.S. companies will be motivated more by the prospect of higher rewards than by the diminishment of risks.” He noted that this view is not just wrong, but counterproductive and stated as follows.

“The problem with Africa is not a lack of attractive prospects, but rather Africa’s risk profile. With few exceptions, sensible U.S. direct investors (that is, those who run projects, not just take portfolio positions) have steered clear of Africa for the simple reason that Africa’s risks often exceed their risk tolerance. The African market has been left largely to non-Americans, to the unsophisticated seekers of El Dorado, and to a legion of “chancers” who seek sweetheart deals with no money down. The resulting tales of woe coming out of Africa, due largely to poor investment planning or thwarted get-rich-quick schemes, serve wrongly to tarnish Africa’s reputation. By exclusively raising incentives and failing to reduce risks, Ambassador Carson’s approach simply encourages those already prone to failure, without inspiring broad-spectrum investment by serious U.S. companies. Such bedrock U.S. firms do not need higher incentives. Africa already presents high-return opportunities. What serious U.S. firms need instead is for Africa’s risks to be reduced. Rewards that cannot be obtained are, after all, just mirages. The easiest way for the U.S. government to reduce risks for U.S. investors in Africa is to provide them with legal protection. The basic legal tools for protecting U.S. investors are double tax treaties (DTTs), often called double tax agreements (DTAs) and bilateral investment treaties (BITs).”

Query whether an FCPA compliance defense should be added to this list? See here to download my article “Revisiting a Foreign Corrupt Practices Act Compliance Defense.”

Scrutiny Alerts and Updates

This previous post highlighted the scrutiny Brookfield Asset Management (a Toronto based global asset management company with shares traded on the NYSE) was facing in Brazil concerning allegations that its subsidiary paid bribes to win construction permits. As the Wall Street Journal recently reported (here), Sao Paulo, Brazil prosecutors filed civil charges against the company’s Brazilian subsidiary, two of its top executives and a former employee. The prosecutor is quoted in the WSJ as saying that “Brookfield has created a high system of bribery in order to obtain approval for its projects quickly and with irregularities.” A spokesman for the company stated as follows. “These are unproven allegations made by a former employee. We don’t believe Brookfield did anything wrong and we are cooperating with authorities.”

This previous post highlighted scrutiny of EADS subsidiary, GPT Special Management Systems in the U.K. The Financial Times recently reported here that the FBI is also probing corruption allegations against GPT “relating to a contract in Saudi Arabia.” The article states as follows. “The FBI has interviewed a witness and taken possession of documents in connection with allegations that GPT bribed Saudi military officials with luxury cars and made £11.5m of unexplained payments – some via the US – to bank accounts in the Cayman Islands.”

This recent Reuters article reports that Italian police arrested the head of defense group Finmeccanica SpA (Giuseppe Orsi) on a warrant alleging that he paid bribes to win an Indian contract. According to the report, Prosecutors accuse Orsi of paying bribes to intermediaries to secure the sale of 12 helicopters in a 560 million euro ($749 million) deal when he was head of the group’s AgustaWestland unit. Finmeccanica, which is approximately 30% owned by the Italian government, has ADRs registered with the SEC and AgustaWestland does extensive business in the U.S. (see here), including with the U.S. government. According to this Wall Street Journal article, Italian prosecutors are also “investigating [Finmeccanica] on suspicion that it engaged in corrupt activities to win various types of contracts in Latin America, Asia, and at home.”

This recent Bloomberg article reports that “Eni SpA Chief Executive Officer Paolo Scaroni is being investigated for alleged corruption in an Italian probe of contracts obtained by its oil services company, Saipem SpA, in Algeria.” Eni has ADRs registered with the SEC. In 2010, Eni resolved (see here) an SEC FCPA enforcement action concerning Bonny Island, Nigeria conduct. In resolving the action, Eni consented to the entry of a court order permanently enjoining it from violating the FCPA’s books and record and internal controls provisions.

NCR Corporation stated in a recent release here, in pertinent part, as follows concerning its FCPA scrutiny.

“Update regarding OFAC and FCPA Investigations

The Company and the Special Committee of the Company’s Board of Directors have each completed their respective internal investigations regarding the anonymous allegations received from a purported whistleblower regarding certain aspects of the Company’s business practices in China, the Middle East and Africa. The principal allegations relate to the Company’s compliance with the Foreign Corrupt Practices Act (“FCPA”) and federal regulations that prohibit U.S. persons from engaging in certain activities in Syria.

[…]

The Company has made a presentation to the staff of the Securities and Exchange Commission(“SEC”) and the U.S. Department of Justice (“DOJ”) providing the facts known to the Company related to the whistleblower’s FCPA allegations, and advising the government that many of these allegations were unsubstantiated. The Company’s investigations of the whistleblower’s FCPA allegations identified a few opportunities to strengthen the Company’s comprehensive FCPA compliance program, and remediation measures were proposed and are being implemented. As previously disclosed, the Company is responding to a subpoena of the SEC and requests of the DOJ for documents and information related to the FCPA, including matters related to the whistleblower’s FCPA allegations.”

Investigating the purported whistleblower’s allegations has been a costly exercise for NCR. In a recent earnings conference call, company CFO Bob Fishman stated that the “overall cost” has been approximately $4.8 million.

Reading Stack

See here for the New York Times DealBook writeup of oral arguments in SEC v. Citigroup – an appeal which focuses of Judge Jed Rakoff’s concerns about common SEC settlements terms, including neither admith nor deny.

FCPA enforcement statistics are over-hyped for compliance assessments says Ryan McConnell (Morgan Lewis) in this Corporate Counsel article. In this Corporate Counsel article, McConnell and his co-author compare 2012 to 2011 numbers in terms of facilitation payments data found in corporate policies.

The three types of employees one encounters when conducting FCPA training – here from Alexandra Wrage (President, Trace International).

If for no other reason, because of the picture associated with this recent post on thebriberyact.com.

*****

A good weekend to all.

Friday Roundup

By Mike Koehler on August 24, 2012 in Africa Sting, Allied Defense Group, Blackwater, Business Effects, Congressional Activity, Declination Decisions, Deferred Prosecution Agreements, Expro International, FCPA Investigative Costs, Merger Issues, NCR Corp., Non-Prosecution Agreement, Orthofix International, Pfizer, Related Civil Litigation, Smith and Wesson, Victims, Wal-Mart

The sting may be over but it effects are not, Orthofix information unsealed, checking in on Wal-Mart, a pipeline report, a safe assumption, and the alternative reality. It’s all here in the Friday roundup.

Stung By The Sting

The manufactured Africa Sting case may be over, but it effects are still being felt.

Allied Defense Group (“ADG”) employed Mark Frederick Morales, one of the individuals charged in the case. The company stated in its recent quarterly filing (here) as follows.

“In February and March, 2012, the DOJ dismissed charges against all individuals indicted in the FCPA sting operation, including the former employee of MECAR USA. Since this time, the Company’s FCPA counsel has had several discussions with the DOJ and SEC regarding the agencies’ respective inquiries. Based upon these discussions, it appears likely that resolution of these inquiries will involve a payment by the Company to at least one of these government agencies in connection with at least one transaction involving the former employee of Mecar USA. At this point, the amount of this payment is undeterminable.”

As noted in this previous post, in January 2010, ADG agreed to be acquired by Chemring Group PLC.

Another publicly traded company that employed an Africa Sting defendant, Amaro Goncalves, is Smith & Wesson. The company disclosed in its most recent quarterly filing (here) as follows.

“On February 21, 2012, the DOJ filed a motion to dismiss with prejudice the indictments of the remaining defendants who are pending trial, including our former Vice President-Sales, International & U.S. Law Enforcement. On February 24, 2012, the district court granted the motion to dismiss. We cannot predict, however, when the investigation will be completed or its final outcome. There could be additional indictments of our company, our officers, or our employees. If the DOJ determines that we violated FCPA laws, we may face sanctions, including significant civil and criminal penalties. In addition, we could be prevented from bidding on domestic military and government contracts and could risk debarment by the U.S. Department of State. We also face increased legal expenses and could see an increase in the cost of doing international business. We could also see private civil litigation arising as a result of the outcome of the investigation. In addition, responding to the investigation may divert the time and attention of our management from normal business operations. Regardless of the outcome of the investigation, the publicity surrounding the investigation and the potential risks associated with the investigation could negatively impact the perception of our company by investors, customers, and others.”

Even though the individual Africa Sting cases are over, the case provided a point of entry into several companies and an entire industry and its effects are still being felt as demonstrated by the above disclosures.

Orthofix

This previous post discussed the July enforcement action against Orthofix International. As noted in the post, the specifics of the DOJ’s allegations were not known as the information against Orthofix was filed under seal. The information (here) was recently unsealed. In summary fashion, the DOJ alleged as follows under the heading “corrupt conduct.” “From [2003 through March 2010], with the knowledge of Orthofix Executive A [a citizen of Peru and legal permanent resident in the U.S. who was a senior manager of Orthofix Inc. (an indirectly wholly owned subsidiary) and responsible for sales operations in Latin America], Promeca [an entity incorporated and headquartered in Mexico and an indirectly wholly owned subsidiary of Orthofix International] and its employees paid approximately $300,000 to Mexican officials, in return for agreements with IMSS and its hospitals to purchase millions of dollars in Orthofix International products.”

IMSS is a social service agency of the Mexican government that provided public services to Mexican workers and their families and the Mexican Officials identified in the information are as follows.

Mexican Official 1 – a deputy administrator of Magdelena de las Salinas (a hospital in Mexico City that IMSS owned and controlled)

Mexican Official 2 – the purchasing director of Magdelena de las Salinas

Mexican Official 3 – the purchasing director of Lomas Verdes (a hospital in the State of Mexico that IMSS owned and controlled)

Mexican Official 4 – a sub-director of IMSS

According to the information, “Executive A knew of the payments and things of value [provided to the Mexican Officials] but failed to stop the scheme or report the scheme to Orthofix Interntional or Orthofix’s Inc.’s compliance department.”

Under the heading “Internal Controls” the information alleges, among other things, as follows. “Orthofix International,which grew its direct distribution footprint in part by purchasing existing companies, often in high-risk markets, failed to engage in any serious form of corruption-related diligence before it purchased Promeca. Although Orthofix International promulgated its own anti-corruption policy, that policy was neither translated into Spanish nor implemented at Promeca. Orthofix International failed to provide any FCPA-related traning to many of its personnel, including Executive A. Orthofix also failed to train Promeca personnel for years on the FCPA, to test regularly or audit particular transactions, or to ensure that subsidiary maintained controls sufficient to detect, deter or prevent illicit payments to government officials.”

The information charges one count of violating the FCPA’s internal control provisions.

Checking In On Wal-Mart

During the media feeding frenzy after the New York Times Wal-Mart article (see here for the prior post), I had the pleasure to appear on Eliot Spitzer’s Viewpoint program on Current TV. At the end of the segment, after the substantive issues were discussed, Spitzer offered that he has several contacts in the FCPA bar and that, regardless of the substantive issues involved in Wal-Mart’s FCPA scrutiny or the ultimate outcome, lots of lawyers were poised to make lots of money.

Spitzer of course was right.

During its second quarter earnings call (see here for the transcript) Wal-Mart executives stated as follows. “Within core corporate, we incurred approximately $34 million in expenses related to third-party advisors reviewing matters involving the Foreign Corrupt Practices Act and we expect these expenses to continue through the rest of the year.” Later in the call, the following was said. “We also expect to incur approximately $35 to $40 million in expenses for the review of matters relating to the Foreign Corrupt Practices Act during each of the remaining quarters for this fiscal year.”

In other news, on the civil litigation front, as noted in this Reuters article “an Indiana union pension fund that owns shares in Wal-Mart Stores Inc has sued the company to gain access to thousands of internal documents related to allegations that a Wal-Mart subsidiary bribed Mexican government officials.” According to the report, the lawsuit, filed in Delaware’s Chancery Court, alleges the “company had made a ‘woefully deficient’ production of documents following an earlier out-of-court demand and that hat documents were produced were ‘so heavily redacted,’ or blacked out, they were nearly worthless.”

Turning to Capital Hill, several prior posts have chronicled efforts by Representative Elijah Cummings and Henry Waxman to conduct a shadow investigation of Wal-Mart in the aftermath of the New York Times article (see here for the previous post). As indicated in this recent press release and this recent letter the lawmakers are growing impatient. In pertinent part, the letter to Wal-Mart CEO Michael Duke stated as follows.

“We are writing to give you a final opportunity to respond to our requests for information about allegations that your company violated the Foreign Corrupt Practices Act. Although you have stated on multiple occasions that you intend to cooperate with our investigation, you have failed to provide the documents we requested, and you continue to deny us access to key witnesses. Your actions are preventing us from assessing the thoroughness of your internal investigation and from identifying potential remedial actions.

During the course of our investigation, we have learned that Wal-Mart’s concerns about potential violations of the Foreign Corrupt Practices Act are not limited to operations in Mexico, but are global in nature. Your outside counsel informed us that, before allegations of bribery in Mexico became public, Wal-Mart retained attorneys to conduct a broad review of the company’s anti-corruption policies. This review identified five “first tier” countries “where risk was the greatest.” Wal-Mart then conducted a worldwide assessment of the company’s anti-corruption policies, culminating in a series of recommendations and policy changes based on those findings.

In addition, we have obtained internal company documents, including internal audit reports, from other sources suggesting that Wal-Mart may have had compliance issues relating not only to bribery, but also to “questionable financial behavior” including tax evasion and money laundering in Mexico.”

Pipeline Report

Add NCR Corporation and Expro International to the list of companies under FCPA scrutiny.

NCR

Global technology company NCR Corp. recently disclosed here as follows.

“NCR has received anonymous allegations from a purported whistleblower regarding certain aspects of the Company’s business practices in China, the Middle East and Africa, including allegations which, if true, might constitute violations of the Foreign Corrupt Practices Act. NCR has certain concerns about the motivation of the purported whistleblower and the accuracy of the allegations it received, some of which appear to be untrue. NCR takes all allegations of this sort seriously and promptly retained experienced outside counsel and began an internal investigation that is ongoing. NCR does not comment on ongoing internal investigations. Certain of the allegations relate to NCR’s business in Syria. NCR has ceased operations in Syria, which were commercially insignificant, notified the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) of potential apparent violations and is taking other measures consistent with OFAC guidelines.”

Based on the disclosure, an analyst downgraded NCR stock (see here) causing shares to drop approximately 10%.

Expro

As reported in this Wall Street Journal Corruption Currents post, Expro International (an oil field management company owned by a Goldman Sachs-backed private equity consortium) “is re-investigating claims that its employees paid bribes in Kazakhstan.” The report states as follows. “Expro International and the consortium, Umbrellastream, received allegations from an anonymous tipster in May that two of Expro’s former operations coordinators in Western Kazakhstan oversaw and approved bribes to customs officials there from 2006 until summer 2009, according to an email reviewed by Corruption Currents. The alleged bribes were paid to clear Expro’s equipment through customs to avoid costly delays, the tipster said. The allegations have sparked an internal investigation by Expro’s lawyers at Gibson, Dunn & Crutcher LLP into the claims, according to another email. But it appears the investigation is not the first time Expro has scrutinized its operations in Kazakhstan.”

Add a few, but take one off.

As noted in this recent Friday roundup, Academi, Inc., formerly known as Xe Services, formerly known as Blackwater recently resolved a non-FCPA case and the DPA specifically stated that the agreement “does not apply to the Foreign Corrupt Practices Act investigation independently under investigation by the DOJ.” As noted in this previous post, Blackwater has been under investigation for FCPA violations in Iraq and as noted in this previous post, its FCPA scrutiny in Iraq inspired Representative Peter Welch to introduce H.R. 5366, the “Overseas Contractor Reform Act,” an impotent debarment bill that passed the House in September 2010 (see here).

However, as on-line news agency Main Justice reports here, reference to the FCPA investigation in the recent DPA appears to have been a drafting error. Citing a July 19th letter to the company, Main Justice reports that the DOJ has closed its “foreign bribery inquiry” of the company. Main Justice cites the following portion of the declination letter. “[The DOJ has closed its inquiry] based on a number of factors, including but not limited to, the investigation undertaken by Academi and the steps taken by the company to enhance its anti-corruption compliance program.”

A Safe Assumption

This previous post regarding the recent Pfizer enforcement action raised the following question(s).

Does anyone truly believe that the only reason Chinese doctors prescribed Pfizer products was because under the “point programs” the physician would receive a tea set? Does anyone truly believe that the only reason Czech doctors prescribed Pfizer products was because the company sponsored educational weekend took place at an Austrian ski resort? Does anyone truly believe that the only reason Pakistani doctors offered Wyeth nutritional products to new mothers was because the company provided office equipment to the physicians?

The questions were asked in the context of disgorgement remedies, but can also be asked in the context of product safety. One can safely assume that if the enforcement agencies had any evidence to suggest that the products at issue jeopardized public safety, the enforcement agencies would have alleged such facts, as they occasionally do in FCPA enforcement actions (see Innospec for instance).

The absence of such allegations make this recent article by Online Pharmacy Safety foolishly speculative. The article states as follows.

“[The conduct at issue in the enforcement action] puts the safety of consumers at risk. If large companies are able to bribe their way to getting more business, and anticipate government officials to turn a blind eye, the wrong products could be getting into the hands of consumers worldwide. The Pfizer products approved by foreign governments and prescribed by doctors may not have been the best product available, which could endanger consumers. Doctors put selfishness at the expense of patients, and the company was putting profits ahead of its public safety.”

Alternative Reality

Harvey Silverglate (author of Three Felonies a Day: How the Feds Target the Innocent) hit the ball out of the park with this recent Wall Street Jouranl op-ed. Referring to the recent Gibson Guitar Lacey Act enforcement action and how the resolution documents muzzle the company (as is typical in FCPA NPAs and DPAs), Silverglate wrote as follows.

“Through these and myriad other techniques, federal investigator and prosecutors create an alternative reality that favors their own institutional interests, regardless of the truth or of justce. All citizens and companies become subject to the Justice Department’s essentially unfettered power. Remedying this problem cannot be left to the victims of this governmental extortion, because their risks are too high if they fight; nor will their lawyers likely blow the whistle, since the bar makes a tidy living by playing the game. It is up to the rest of civil society to let the Justice Department emperor know that we see he is not wearing clothes.”

*****

A good weekend to all.

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