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Friday Roundup

By 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 on January 25, 2013 in China, Double Standard, Facilitating Payments, Neither Admit or Deny, United Kingdom

The latest double standard installment, a Rocky Mountain Rakoff, interesting tidbits, save the date, and just in case you were wondering.  It’s all here in the Friday roundup.

Double Standard

A pharmaceutical company faces pending government restraints that could negatively affect its business.  The company turns to its lobbyists that include the former chiefs of staff to various current government officials on a key government committee.  Also, in recent years the company indirectly gave thousands of dollars to the current government officials and otherwise made large donations to groups favored by the current government officials.  The government officials insert a paragraph into a massive spending bill that, while not specifically mentioning the company, strongly favors one of the company’s drugs.  The effect of the paragraph in the bill gives the company two additional years to sell the drug without government price controls.

Having read the recent Eli Lilly FCPA enforcement action (see here for the prior post) and otherwise being an astute FCPA observer, your FCPA antennas are going off.

But wait.

The government officials were not “foreign officials” – they were U.S. government officials!

See here for the recent New York Times story on Amgen’s courting of various members of the Senate Finance Committee.

Scrap those internal investigation plans, forget about voluntary disclosure, and slim chance there will be an enforcement action. Nobody said our system was perfect, but that is just how the system works some will say.

But why should corporate interaction with a “foreign official” be subject to greater scrutiny and different standards of enforcement than corporate interaction with a U.S. official? After all, there is a U.S. domestic bribery statute (18 USC 201) with elements very similar to the FCPA.  Why do we reflexively label a “foreign official” who receives “things of value” from private business interests as corrupt, yet generally turn a blind eye when it happens here at home?

As you contemplate these questions, just remember, as soon to be former Assistant Attorney General Lanny Breuer recently declared (see here), “we in the United States are in a unique position to spread the gospel of anti-corruption.”

For numerous prior posts concerning the double standard, see here.

A Rocky Mountain Rakoff

We celebrate Mary Jo White’s appointment to be the next Chair of the SEC by focusing on yet another federal court judge calling into question the SEC’s signature neither admit nor deny settlement policy.  For more on that policy and how it contributes to a facade of enforcement, see numerous prior posts here, here, here, and here – focusing mostly on Judge Jed Rakoff’s (S.D.N.Y.) disdain of the policy.

In August 2012, the SEC brought a complaint (see here) against Colorado-based Bridge Premium Finance LLC and certain of its executives for allegedly perpetrating a Ponzi scheme.  The SEC and defendants agreed to resolve the matter and, as typical and as is frequently the case in SEC FCPA matters, the defendants did so without admitting or denying the SEC’s allegations.

Enter U.S. Senior District Court Judge John Kane (D. Co.) who pulled a Rocky Mountain Rakoff.  In a January 17th order, Judge Kane stated as follows.

“I refuse to approve penalties against a defendant who remains defiantly mute as to the veracity of the allegations against him. A defendant’s options in this regard are binary: he may admit the allegation or he may go to trial. I also object to the language in the consents and the proposed final judgments whereby the defendants waive their rights to the entry of findings of fact and conclusions of law pursuant to FRCP 52 and their rights to appeal. These findings are important to inform the public and the appellate courts. I will not endorse any final judgments including such provisions.”

Returning to Judge Rakoff, you may recall (see here for the prior post) that his disdain for the SEC’s settlement policy is currently before the Second Circuit in SEC v. Citigroup.  As Professor Barbara Black notes on her Securities Law Prof blog, oral arguments on the merits is scheduled for February 8th.

Interesting Tidbits

Alexandra Wrage (President of Trace International) writes in a recent Forbes column (here) as follows.

“Whether they’re stating it expressly or acting on it quietly, governments are using corporations as their primary tool to reduce international bribery.   They alarm companies with vast fines and terrify individuals with substantial prison sentences with the hope of ending the payment of bribes because they cannot, in most cases, do much of anything about those demanding them.   This is not inappropriate.  Companies are regulated, subject to laws and answerable to shareholders.  The worst offenders demanding bribes, on the other hand, do so with impunity, hiding behind sovereign immunity and, often, their own, complicit local law enforcement.  Abacha.  Suharto. Marcos.  Duvalier.  It’s a longstanding tradition, still thriving in many countries today.  US and some European law enforcement agencies have been extraordinarily successful, with fines in the United States now counted in the billions of dollars and other jurisdictions promising to catch up soon.   While these efforts have done more than anything else to reduce bribery, they have yet to convince us that companies are both the sole source and solution of all international corruption — and that’s insupportable.  […]  The simple reality is that there are just some things that companies can’t do about corruption.”

Spot-on.

Wrage’s comments remind me a similar spot-on observation made during the middle of the FCPA’s legislative history.  See here for the prior post regarding Milton Gwirtzman’s dandy article published by the New York Times Magazine in October 1975 in which he observes as follows – “it would be unwise, as well as unfair, simply to write off bribery abroad to corporate lust – it is a symbol of far deeper issues …”.

As to those deeper issues, an issue I frequently write about is why do FCPA violations occur?  Do companies subject to the law have bribery as a business strategy?  Or do companies subject to the law encounter difficult and opaque business conditions abroad?  To be sure, FCPA enforcement actions have been based on both scenarios, but my opinion (as well as that of the former chief of the DOJ’s FCPA unit – see here for his previous guest post) is that the later scenario is the more common reason for FCPA exposure.

For instance, a recent post on the China Law Blog by Dan Harris (here) begins as follows.

“Got a call the other day from an American company wanting to sell its food products into China. And fast.  The problem this company is facing is that one cannot “just” sell food into China immediately.  To sell food legally into China, Foreign companies must first pass certification before China’s General Administration of Quality Supervision, Inspection and Quarantine, better known as AQSIQ.  The food company told me that its research had revealed that it typically takes around a year to secure this certification, but that someone in China was promising they could do it in “around six to eight weeks.”

Also on the list of FCPA exposure risks, I would add various trade distortions and barriers, such as central government procurement policies.  For this reason, I found this recent Sidley & Austin alert interesting.  It concern a new China “regulation that subjects certain high-value medical devices to a centralized procurement regime.”

Save the Date

D.C. area readers may be interested in a February 12th event hosted by American University Washington College of Law and presented by the American University International Law Review.  Titled “Bribes Without Borders:  The Challenges of Fighting Corruption in the Global Context,” the symposium will feature panels of academics, practitioners, and civil society representatives and will touch upon a variety of bribery and corruption topics including the FCPA.  I will be participating on an afternoon panel and will be speaking on FCPA enforcement and the rule of law.  Robert Leventhal (Director, Anti-Corruption and Governance Initiatives, U.S. State Department) will deliver a keynote luncheon address.  The symposium is free, but registration is requested.

Just in Case

Just in case you were wondering about the U.K. SFO’s position on facilitation payments (see here for a prior post), the Bribery Library site shines light on a December 6, 2012 “to whom it may concern” letter (here) from SFO Director David Green in which he states that “facilitation payments are illegal under the Bribery Act 2010 regardless of their size or frequency.”

You can now head into the weekend confident in your knowledge of the U.K.’s position.

*****

A good weekend to all.

Checking In On Neither Admit Nor Deny

By on September 5, 2012 in Enforcement Agency Policy, Neither Admit or Deny, SEC

This previous post discussed the Second Circuit’s March 2012 procedural decision regarding the SEC’s neither admit nor deny settlement policy in the context of SEC v. Citigroup and Judge Jed Rakoff’s (S.D.N.Y.) rejection of the proposed consent order.  Although not an FCPA case, as noted in various previous posts, the SEC’s neither admit nor deny settlement policy is very much at issue in most FCPA enforcement actions and contributes to what I have called the “facade” of FCPA enforcement (see here).

As noted in the prior post, the Second Circuit’s decision did not squarely address the merits of the SEC’s settlement policy, rather the issue before the Court was whether to stay the district court proceedings pending a merits based review of the issues.  The Second Circuit’s merits based review is forthcoming and the court is scheduled to hear arguments later this month.  This post highlights the brief filed on behalf of Judge Rakoff and the brief of amici curie securities law scholars filed by Professor Barbara Black (here – Univ. of Cincinnati College of Law).

Rakoff Brief

Among other things, the brief states as follows.

“[The SEC and Citigroup] essentially contend that this Court should force the district court to rubber-stamp their agreement simply because ‘it reflects an agreement reached in arm’s-length negotiations between experienced, capable counsel after meaningful [though undisclosed] discovery’ and has been determined by the SEC to serve ‘the public interest.’  Their argument ignores the well-settled law that federal judges have a responsibility to make an independent determination as to whether a federal agency’s proposed consent judgment is fair, adequate, and reasonable, and – in the view of a number of courts – in the public interest.”

Elsewhere, the brief states as follows.

“The law is clear that a federal judge has a responsibility to independently determine whether a proposed consent judgment satisfies well established standards of being fair, adequate, reasonable, and in the public interest. The deference due the SEC in considering a proposed consent judgment cannot and does not eliminate that responsibility, nor does the fact that the parties have agreed to the terms of a proposed court order require the judge to sign off on that order without inquiry into whether it meets those standards. In making that inquiry, depending on the particulars of the case before it, a federal judge has every right to seek an evidentiary basis where necessary to determine whether the proposed settlement conforms to the established standards.”

As to whether SEC complaints settled under the neither admit nor deny practice represent or show anything, the brief states as follows.

“The SEC contends that the allegations in its complaint that are not admitted or denied would suffice to constitute the requisite ‘showing’ but as the district court noted at the hearing, ‘people bring law suits all the time making all sorts of allegations, some of which are proved, some of which are unproved and the unproved ones are no better than rumor and gossip.’ This obvious reality is illustrated by the fact that in 2011 the SEC lost 25% of the cases that it tried in district courts.”

The brief also argues that the SEC’s and Citgroup’s position threatens the constitutional independence of the federal judiciary.  The brief states as follows.

“Finally, it would be remiss not to note that the position taken by the parties here threatens the constitutional independence of the federal judiciary. As the district court stated, it needed to ‘exercise a modicum of independent judgment’ in evaluating the proposed consent judgment because ‘[a]nything less would not only violate the constitutional doctrine of separation of powers but would undermine the independence that is the indispensable attribute of the federal judiciary.’ […]  Although the district court cannot interfere with the SEC’s responsibility to execute the securities laws, appellants give short shrift to the careful balance of authority inherent in the principles of separation of powers.  Depriving the district court of its capacity to reach a sound and reasoned judgment regarding the propriety of a proposed consent judgment and the imposition of injunctive relief would undermine the judiciary’s independence and thereby threaten the constitutional balance of power. […]  The SEC’s and Citigroup’s concept of deference – in which courts would be effectively reduced to potted plants – would surely undermine the independence of the federal judiciary.”

Amicus Brief

The brief begins, in pertinent part, as follows.

“As scholars who study the SEC, we have concerns about the agency’s practice of settling enforcement actions alleging serious fraud without any acknowledgement of facts, on the basis of a pro forma “obey the law” injunction, a commitment to undertake modest remedial measures and insubstantial financial penalties. The prevalence of this practice is precisely why federal district courts must have discretion, when reviewing consent judgments between a government agency and a private party that include an injunction, to take into account the public interest.”  The brief states that “the requirement of judicial review serves as an independent check on settlements that may meet the needs of the settling parties, but do not serve the public interest because they neither inform the public of the truth of the allegations nor deter future violations.”

The brief states as follows concerning the SEC’s neither admit nor deny settlement practice.  “The prevalence of this practice invites cynicism.  Both parties get what they want.  The SEC has an opportunity to promote it success, and Citigroup can put the matter behind it and treat the settlement as a ‘cost of doing business.’  The matter is swept under the carpet, and the public is left to wonder what really happened.  […]  The SEC’s position effectively leaves no place for judicial review.  ‘Trust us!’ says the SEC.”

The brief further states as follows.

“It also concerns us that the SEC measures success to a large extent by the number of actions brought. The SEC Chairman and the SEC Director of Enforcement frequently point with pride to the number of enforcement actions filed. For example, Director Khuzami recently testified before a Congressional committee: “… the SEC‟s enforcement program is achieving significant results. During FY 2011, the Commission filed 735 enforcement actions – more than the SEC has ever filed in a single year.”  Statements like these bear an unfortunate resemblance to a sheriff’s carving notches on his gun to prove his toughness. The agency’s emphasis on numbers reinforces the concern that the agency has incentives to settle on terms that may not be consistent with the public interest.”

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