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Development Down Under

If you have any interest in the issue of facilitating payments or Australia’s “FCPA-like” law you will want to read this document recently released by the Australia Attorney-General’s Department, Criminal Justice Division.

The document states as follows.  “In September 2011, the Australian Government announced the commitment of $700,000 to develop and implement Australia’s first National Anti-Corruption Plan.  A key objective of the Plan is to strengthen Australia’s existing governance arrangements by developing a whole-of-government policy on anti-corruption.  The Plan will bring the relevant agencies together under a cohesive framework and strengthen the Government’s capacity to identify and address corruption risks.” 

Australia’s “FCPA-like” law (Division 70 of the Criminal Code Act 1995) currently states that a person is guilty of an offense of bribing a foreign public official if:  “the person provides a benefit to another person, offers or promises to provide a benefit to another person, or causes a benefit to be provided, offered or promised to another person AND the benefit is not legitimately due to the other person AND step 1 was carried out with the intention of influencing a foreign public official (who may or may not be the recipient of the benefit) in the exercise of the official’s duties, in order to obtain or retain business or obtain or retain a business advantage which is not legitimately due.”  Under the law, “two defenses are provided for the foreign bribery offense: (i) that the benefit was permitted or required by written law and (ii) that it was a ‘facilitating payment.'”

As relevant to the foreign bribery offense, the Australian government is reviewing “the treatment of facilitation payments under Australian law;” “the factors that influence whether a benefit is ‘legitimately due’ to the recipient;” and “the current requirement to identify a particular foreign public official in order to establish an offence.”

As to facilitating payments, the document states as follows under the heading “international approaches.”  “The United States’ Foreign Corrupt Practices Act, on which the Australian law was modelled, includes a similar exemption to the offense of foreign bribery for facilitation payments. The United States Government has stated that it does not condone facilitation payments. The OECD has recommended that the United States review its policy.  The United Kingdom’s Bribery Act, which came into force on 1 July 2011, prohibits facilitation payments.”  The document also states as follows.  “The international movement towards criminalizing facilitating payments is demonstrated by the recent amendments to both UK and US bribery legislation.”   This statement is clearly wrong, there have been no recent amendments to the FCPA, although I agree with what seems to be the implication that the current FCPA enforcement agencies do not recognize the facilitating payments exception Congress put into the law.

The document states that the “government is considering whether to remove the defense of facilitating payments by repealing” that relevant section of the law.

Another issue the Australian government is reviewing is whether a particular foreign official must be identified in order to establish a bribery offense.  This same issue was disputed in both the Nexus Technologies and Africa Sting enforcement actions. 

As to this issue, the document states as follows.  “Under subsection 70.2 of the Criminal Code it is an offense to offer or provide an undue benefit to a person with the intention of influencing a public official in the course of their duties, in order to obtain business or an undue business advantage.  In some circumstances, it will be possible to establish that a bribe has been offered or provided to a person to induce a Government agency to grant business or an undue business advantage but it may be difficult to identify the specific official who will be influenced. For example, it may be possible to prove a person offered or provided a bribe to an agency in charge of granting public infrastructure contracts, but not possible to identify whether the payment is destined for the official directly responsible for granting contracts or another official who will direct their staff to grant a certain contract.  The Government therefore is considering whether to amend legislation so that, when proving that a benefit was offered or provided with an intention to influence a foreign public official, it is not necessary to prove an intention to influence a particular foreign public official.”

The Australian government is inviting submissions as to the above (and other issues) by December 15th.

Is There A Difference?

In September 2010, during the sentencing of Nam Quoc Nguyen, one of the Nexus Technology defendants (see here for the post on the sentences), the DOJ called to the witness stand the former U.S. commercial attache from Vietnam who was asked to testify as to the “seriousness of the offense as it impacts Vietnam.” (See here for relevant portions of the sentencing transcript).

While in Vietnam, the commercial attache oversaw a staff of about ten in delivering services to American companies to help them grow their exports and he managed an advocacy portfolio in Vietnam to assist U.S. companies in selling directly to the Vietnam government. The individual testified that his group “constantly advise[d] companies on strategies to enter the market, to bid on government contract, to win business.”

The former commercial attache described Vietnam as a “corrupt country” and the DOJ presumably expected the individual to stay on message as to how corruption in Vietnam is not a victimless crime and to describe who suffers from corruption in Vietnam. He did that.

But the individual drifted it seemed in his testimony and said, “I make no bones about it. It’s very difficult to do business in Vietnam. It’s not very transparent but American companies are making money and there are a number of strategies that companies can follow.”

The individual was asked “is it possible to do business in Vietnam without paying bribes.” He answered “it is.”

One of the strategies he discussed was the following.

“Often it [obtaining Vietnamese government business] may require a personal visit by the Ambassador or another high-ranking official to a government official or an official of a state-run enterprise. It could take the form of a letter from a high-ranking U.S. government official to another official in the Vietnamese government or state-owned enterprise.” (See pg. 68).

The individual then specifically talked about a $180 million commercial satellite contract Lockheed Martin was awarded by Vietnam Post and Telematics Group (a “major state-owned enterprise”). See here for Lockheed’s press release.

According to the individual’s testimony, Lockheed (he described the company as “one of our clients”) “was in a competitive position to provide $180 million commercial satellite to one of the major state-owned enterprises, Vietnam Post and Telematics Group, VNPT.”

At this point, even the judge asked the DOJ attorney, “what does this have to do with what you said you were calling this witness to tell us about?”

After an exchange between the judge and the DOJ attorney, the individual finished by saying. “The bottom line is, we have been able to help companies work through. In this particular case, a European country was offering payment with regards to winning the bid but the intervention of the Ambassador with the Chairman of VNPT and the Minister of Information Communications, was a critical element to help the company win the business, and they have stated as such.”

According to this October 2010 article, Lockheed is among the “biggest corporate campaign contributors in U.S. politics.”

Is there a difference between (a) when a company (or its employees) gives something of value to a foreign official to obtain or retain business with a foreign government; and (b) when a company (or its employees) gives something of value to U.S. political parties or candidates, or spends millions lobbying the U.S. government, and then the U.S. government assists the company obtain or retain business with a foreign government?

What about those U.S. diplomats that act as “marketing agents” for U.S. companies such as Boeing as recently profiled by the New York Times (here).

What Will Happen To Lindsey Manufacturing Co.?

The common way for a company to resolve an FCPA enforcement action is via a non-prosecution or deferred prosecution agreement. If the conduct is egregious, yet the company is cooperating, the company will generally plead guilty via a criminal information.

A criminal indictment of a company is rare. According to my records, it has not happened since September 2008.

It happened yesterday.

As noted in this DOJ release, “Lindsey Manufacturing Company (here), an Azusa, Calif., company and two of its executives (Keith E. Lindsey, 65 and Steve Lee, 60) were indicted today for their alleged roles in a conspiracy to pay bribes to Mexican government officials at the Comisión Federal de Electricidad (CFE), a state-owned utility company …”. Lindsey Manufacturing Co., Lindsey, and Lee each were charged in an eight-count superseding indictment with conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and FCPA violations

Given the allegations in the recent Enrique Faustino Aguilar Noriega and Angela Maria Gomez Aguilar indictments (see here for the prior post) this is hardly a surprising development.

What is surprising is that Lindsey Manufacturing was criminally indicted. Previous media reports indicated that Lindsey Manufacturing was “cooperating with authorities and wasn’t aware that its contracts were being used for bribes” according Lindsey attorney Jan Handzlik (here). According to this report, “attorneys for Lindsey and Lee said their clients had no knowledge of improper payments.”

What will happen to Lindsey Manufacturing, a company that has previously secured U.S. Department of Energy contracts?

The conventional wisdom is this post-Arthur Anderson world is that NPAs and DPAs are necessary because a company will fail when it is criminally indicted.

The last company criminally indicted for violating the FCPA was Nexus Technologies Inc. (see here).

It does not exist today (see here).

The OECD Report – Initial Observations

Yesterday, the OECD released its much anticipated “Phase 3” report (here) on the U.S. implementation and enforcement of the “Convention of Combating Bribery of Foreign Public Officials in International Business Transactions.” In other words, the OECD Report (“Report”) comments on U.S. enforcement of the FCPA, a statute which (at least in theory) is supposed to model the OECD Convention.

As noted in this OECD release:

“The Working Group commended the United States for its engagement with the private sector, substantial enforcement, and commitment from the highest levels of the U.S. Government. In addition to the recommendation on facilitation payments, it also made recommendations that include the following on ways to improve U.S. enforcement:

– Consolidating publicly available information on the application of the FCPA, including the affirmative defence for reasonable and bona fide expenses;

– To increase transparency, making public, where appropriate, more information on the use of Non-Prosecution Agreements (NPAs) and Deferred Prosecution Agreements (DPAs) in specific cases; and

– Ensure that the overall limitation period applicable to the foreign bribery offence is sufficient to allow adequate investigation and prosecution.

The Working Group also highlighted good practices developed within the U.S. legal and policy framework that helped it achieve such a high level of enforcement, including the creation of specialised enforcement units dedicated to foreign bribery, and the use of plea agreements, DPAs and NPAs and the appointment of corporate monitors. These efforts have also encouraged the establishment of robust compliance programmes and measures among companies subject to U.S. anti-bribery law. The Working Group also welcomed the United States’ efforts to encourage close co-operation between the United States and foreign authorities.”

The Report is perhaps the single largest collection of FCPA related information and statistics ever in one document. This post will be the first of several posts in the coming days on the information and views contained in the Report.

This post highlights the “Executive Summary,” “Introduction” and “Recent Trends in Investigation and Prosecuting FCPA Violations” sections of Report. In addition, this post discusses specific sections of the Report dealing with the FCPA’s “obtain or retain business” and “foreign official” elements as well as the use of NPAs or DPAs to resolve FCPA matters.

Before turning to the Report’s Executive Summary, let me provide one of my own. [For ease of reading, my observations in this post are in italics].

There is no question that the U.S. is a world leader in enforcing its domestic foreign bribery statute (the FCPA) and the Report rightfully commends the U.S. for this. However, quantity does not always mean quality and U.S. enforcement of the FCPA is not without criticism and questions, including in the Report. One would hardly realize this if all one did was read this joint statement of the Departments of Justice, Commerce and State, and the Securities and Exchange Commission issued yesterday in connection with the Report’s release.

But the criticisms and questions are in the Report and the Report contains this contradiction: while loudly praising the U.S. for its “high level” of enforcement, the Report quitely criticizes and questions many of the policies and enforcement theories which yield the “high level” of enforcement. For instance, the Report notes that the FCPA’s language “does not specifically convey” that cases concerning “an operating license or permit to operate a business, or a reduction in tax or import duty” are in violation of the statute. Yet, many FCPA enforcement actions are based on this theory. Further, the Report notes that “due to an absence of explicit language in the definition of foreign official” it is an open question whether employees of so-called state-owned or state controlled enterprises are “foreign officials” under the FCPA. Yet, numerous FCPA enforcement actions are based on this theory. The Report notes that the increase in NPAs and DPAs “are one of the reasons for the impressive FCPA enforcement record in the U.S.” yet also notes that these agreements are subject to little or no judicial scrutiny.

Perhaps the message for other OECD member nations reading the Report is this – enforce your domestic bribery law in questionable ways, seemingly inconsistent with the intent of the legislature in passing the law, and figure out a way to resolve the enforcement actions without judicial scrutiny. If so, perhaps your nation will one day be praised in an OECD Report for its “high level” of enforcement activity.

The “Executive Summary” of the Report states, among things:

That, since Phase 2 (see here and here) “U.S. enforcement has increased steadily and resulted in increasingly significant prison sentences, monetary penalties and disgorgement. Increased enforcement was enabled by the good practices developed within the U.S. legal and policy framework, including the dedication of resources to specialised units in the Department of Justice (DOJ), the Federal Bureau of Investigation (FBI) and the Securities and Exchange Commission (SEC).”


“The U.S. has investigated and prosecuted cases involving various business sectors and various modes of bribing foreign public officials. In addition, it has been conducting proactive investigations, using information from a variety of sources and innovative methods like plea agreements (PAs), Deferred Prosecution Agreements (DPAs), Non-Prosecution Agreements (NPAs), and the appointment of corporate monitors. Vigorous enforcement and record penalties, alongside increased private sector engagement, has encouraged the establishment of robust compliance programmes and measures, particularly in large companies, which are verified by the accounting and auditing profession and monitored by senior management. Less is known of the effect increased FCPA enforcement has had on small- to medium-sized enterprises (SMEs), which is an issue shared by all Parties to the Convention.”

“Ways in which implementation of the Convention could be made more effective have also been identified. For instance, the Working Group recommends that the U.S., in its periodic review of its policies and approach on facilitation payments, consider the views of the private sector and civil society… The evaluation also recommended the consolidation and summarisation of publicly available information on the application of the FCPA, including information regarding the affirmative defence for reasonable and bona fide expenses. This could be especially useful for SMEs. Similarly, given that the U.S. authorities are increasingly enforcing the FCPA by using DPAs and NPAs, the Working Group believes that transparency and public awareness of these measures could be enhanced if the U.S. made public, where appropriate, more detailed reasons on issues such as why a particular type of agreement is used, the choice of an agreement‘s terms and duration, and how a company has met the agreement‘s terms. The Working Group also recommends that the U.S. ensure that the overall limitation period applicable to the foreign bribery offence is sufficient to allow adequate investigation and prosecution.”

The Introduction to the Report, under the heading “Cases involving the bribery of foreign public officials,” states:

“The United States has investigated and prosecuted the most foreign bribery cases among the Parties to the Anti-Bribery Convention. From 1998 to 16 September 2010, 50 individuals and 28 companies have been criminally convicted of foreign bribery, while 69 individuals and companies have been held civilly liable for foreign bribery. In addition, 26 companies have been sanctioned (without being convicted) for foreign bribery under non-prosecution agreements (NPAs) and deferred prosecution agreements (DPAs). Sanctions have also been imposed for accounting misconduct and money laundering related to foreign bribery.”

“These cases have resulted in increasingly significant penalties. From 1998 to 2003, the maximum monetary sanctions levelled against a company in an FCPA case were USD 2.5 million. Since then, 23 companies have received monetary sanctions in excess of USD 10 million. In one case, monetary sanctions totalling USD 800 million were ordered against a single company. In 2010, an 87-month sentence was imposed against an individual in an FCPA case. Since 2004, over USD 1 billion in foreign bribery proceeds have been recovered through disgorgement actions. The SEC also obtains civil penalties in addition to DOJ criminal fines. In the first 9 months of 2010 alone, the SEC obtained over USD 404 million in disgorgement, interest and civil penalties from thirteen companies and eight individuals. Representatives of the private sector told the evaluators that these increasingly heavy sanctions combined with the increased number of prosecutions against companies and individuals have significantly raised the FCPA‘s profile. They are also felt to be the main reason why many companies have taken steps to improve their anti-bribery measures, internal controls, books and records, and compliance systems.”

[Note – the above referenced 87-month sentence of Charles Jumet is misleading. Elsewhere in the Report it states: “In a recent case, a defendant was sentenced to 87 months in prison for FCPA violations.” Fact check – Jumet pleaded guilty to two counts – conspiracy to violate the FCPA and making false statements to federal agents. The false statements portion of his sentence was 20 months. Thus, Jumet’s “FCPA” sentence was 60 months – not 87 months]

“These cases come to the authorities‘ attention through a myriad of means. A significant number (but not the majority) of investigations result from voluntary self-reporting by companies. Other sources include corporate securities filings; suspicious activity reports from financial institutions; the media, including keyword searches of the Internet; whistleblowers, employees, customers, competitors, and agents; qui tam and civil complaints; referral from other U.S. government agencies, including overseas embassies; international financial institutions such as the World Bank; reports through a “hotline” email address and website; and information from foreign states, including requests for mutual legal assistance (MLA). A recent case resulted from an undercover sting operation. Investigations also originate from research and traditional law enforcement operations to determine where corruption may exist. The U.S. utilizes statistics that it compiles and information obtained in prior and current FCPA cases to identify trends and patterns of behaviour that warrant investigation. The U.S. also conducts industry sweeps, which are targeted investigations focusing on a particular industry or market. The U.S. believes that the use of such proactive tools keeps its regulators ahead of trends and allows them to combat corruption in a timely fashion. The U.S. did not provide statistics on the sources of investigations, due to the need to protect investigative sources and methods, but confirms that no one source accounted for a majority.”

“These FCPA enforcement figures are expected to increase in the near future. Presently, the United States has more than 150 criminal and 80 civil ongoing FCPA investigations. [a footnote states “many are parallel criminal and civil investigations of the same alleged conduct”] The U.S. authorities recently announced new initiatives including investigations of specific industries (“targeted sweeps” or “industry-wide sweeps”) and an increased emphasis of prosecuting natural persons in addition to companies. These efforts will likely lead to more prosecutions and convictions.”

Under the heading “Recent trends in investigating and prosecuting FCPA violations,” the Report states, among other things, as follows:

“Allegations of FCPA violations come from a variety of sources. This part of the report canvasses a few of the most important sources. According to the DOJ, voluntary disclosures are the source of a significant proportion of investigations, although not the majority.”


“… companies consider it in their interest to be co-operative, and seem willing to settle more often than not when they have voluntarily disclosed. While some companies self-report violations of the FCPA, some companies do not. Representatives of companies in the extractive industry explained that it is very common for a company to uncover one discrete violation of the FCPA and voluntarily disclose it, following which the DOJ or SEC asks the company to look further to see if the conduct is pervasive and occurring in other places. In some cases, the conduct is pervasive and is fully investigated by the DOJ and SEC. In other cases, the conduct is limited in scope and no additional violations are uncovered. Some companies may find this very cumbersome and expensive, and try to settle the case without a full investigation. However, the DOJ and SEC advise that they require companies to complete their investigations before finalising settlement discussions.”


“Proactive investigative steps by the DOJ and SEC, such as industry-wide sweeps, can also produce information that leads to enforcement actions. In November 2009, an industry-wide investigation into the pharmaceutical industry was announced by Assistant Attorney General, Lanny Breuer. An investigation into the medical device industry has also been discussed publicly. The Oil-for-Food cases involved a sweep of companies that paid kickbacks to the Iraqi Government during the United Nations Oil-for-Food Programme. The sweep was very effective and more than fifteen companies have been charged to date.”

“Such investigations may be commenced by sending “sweep letters” requesting co-operation from industry members on a voluntary basis. If a company chooses to not respond to such a letter, the DOJ and SEC consider whether a subpoena should be issued to compel the production of relevant documents and the testimony of individuals. Recently, the SEC announced that it will be conducting more industry-wide sweeps. Investigations of this kind enable the DOJ and SEC to develop specialised expertise identifying illegal conduct and conducting prosecutions involving various industries. In addition, due to the cross-connections between various members of the same industry, an investigation into one company can produce leads about other companies, including those in the supply-chain.”

“More traditional sources of allegations also continue to be useful, such as anonymous whistleblower reports. Such reports are often received from current and former employees, competitors, and others, and are analysed by the FBI to ensure their veracity. The DOJ provides a “hotline” to report anonymously directly to the FCPA Unit. The SEC also has a hotline and a detailed process for analysing tips, complaints and reports of FCPA violations.”


“[Mutual Legal Assistance] requests from foreign jurisdictions also provide a basis for allegations, although to a lesser extent than other sources.”

“United States embassy staff are also important sources of information about FCPA violations. The DOJ cited examples of full-blown investigations that were launched due to information provided by an embassy and referrals from State Department and Commercial Services branches. In one of these investigations, the embassy stayed involved throughout.”

As to Dodd-Frank’s whistleblower provisions, the Report states:

“The U.S. authorities believe that in light of this new legislation, reporting violations of the FCPA is likely to increase.”

FCPA Elements

Among other elements, the Report discusses the “obtain or retain business” and “foreign official” elements of the FCPA.

“Obtain or Retain Business”

The Report states:

“One important aspect of the foreign bribery offence in the FCPA is different from the description of the offence in Article 1 of the Convention. Under the FCPA, the bribery of a foreign public official must be committed in order to assist the briber “in obtaining or retaining business for or with, or directing business to, any person‘ (known as the “business nexus test‘). In Article 1 of the Convention, the corresponding formulation is: “in order to obtain or retain business or other improper advantage in the conduct of international business.”

“Thus, unlike Article 1 of the Convention, the FCPA language does not specifically convey that the case is covered where the purpose of the bribe is to obtain or retain other improper advantage in the conduct of international business, such as obtaining an operating license or permit to operate a business, or a reduction in tax or import duty. In other words, the FCPA language might be read to only address bribes for the purpose of obtaining or retaining business per se. Reference is made to “improper advantage” elsewhere in the FCPA, but in a different context – i.e., the offences in the FCPA inter alia cover the case where the purpose of a bribe to a foreign public official is to secure “any improper advantage…in order to assist such [person/issuer/domestic concern] in obtaining or retaining business for or with, or directing business to, any person‘.”

“However, it has been the position of the United States Government throughout that the FCPA formulation is very broadly interpreted and covers in practice the kinds of advantages required to be covered by the Convention. The evaluation team notes that this position has been largely confirmed by jurisprudence, in the 2007 decision of the United States Court of Appeals in United States v. Kay.”

“In U.S. v. Kay, the Court of Appeals held that a payment to customs officials to reduce import duties on rice falls within the parameters of the “business nexus” test because when Congress enacted the FCPA it was concerned about: (1.) Bribery that leads to discrete business contract arrangements; and (2.) Payments that even indirectly assist in obtaining business or maintaining existing business operations in a foreign country. The Court of Appeals also stated that:

…bribes paid to foreign officials in consideration for unlawful evasion of customs duties and sales taxes could fall within the purview of the FCPA‘s proscription. We hasten to add, however, that this conduct does not automatically constitute a violation of the FCPA: It must be shown that the bribery was intended to produce an effect – here through tax savings – that would “assist in obtaining or retaining business”.”

“The decision of the Court of Appeals in U.S. v. Kay is therefore helpful, in that it clarifies that payments to, for instance, reduce import duty “could” satisfy the “business nexus test”. The United States has also successfully enforced the FCPA in cases involving similar advantages, such as payments to customs officials to import goods and materials (Helmerich & Payne; and Natures Sunshine), and payments to tax officials to reduce tax obligations, and to judicial officials for favourable treatment in pending litigation (Willbros Group). On the other hand, the clarification by the Court of Appeals leaves open the possibility that there might be cases where a bribe to a foreign public official to facilitate international business does not violate the FCPA, although it does meet the test of “other improper advantage in the conduct of international business” in Article 1 of the Convention.”

For more on U.S. v. Kay (see here and here).

The Report’s discussion of the “obtain or retain business” is noteworthy.


Because on the one hand, the Report praises the U.S.’s high level of FCPA enforcement, yet on the other hand, the Report candidly acknowledges that “the FCPA language might be read to only address bribes for the purpose of obtaining or retaining business per se.” Connecting the dots, the Report seems to suggest that the numerous FCPA enforcement actions premised on improper payments to secure foreign licenses, permits, etc. may not even be FCPA violations.

In my forthcoming article “The Facade of FCPA Enforcement” to be published soon in the Georgetown Journal of International Law, I highlight the increase in FCPA enforcement actions where the improper payments are alleged not to obtain or retain any particular business, but rather, involve customs duties and tax payments, or payments alleged to have assisted the payer in securing foreign government licenses, permits, and certifications.

I must also take issue with the sentence in the Report that suggests when the DOJ enters into a NPA (such as in Helmerich & Payne) or DPA that this is evidence of the U.S. “successfully enforcing the FCPA.” This is one of the many reasons why the “facade of FCPA enforcement” matters – because it fosters the absurd notion that privately negotiated settlements, subject to little or no judicial scrutiny, entered into in the context of the enforcement agencies possessing substantial “carrots” and “sticks” should serve as de facto case law or otherwise represent “successful” enforcement of the FCPA.

“Foreign Official”

As to the definition of “foreign official,” the Report states:

“Due to an absence of explicit language in the definition of “foreign official” in the FCPA, two questions arise concerning the scope of the definition: (1.) Whether, in compliance with the Convention, it covers a person holding a judicial office of a foreign country‘; and (2.) Whether it covers a person exercising a public function for a foreign country, including for a…public enterprise‘ (i.e. a state-owned or controlled enterprise).”

Readers know that this second question is a frequent topic on these pages and deservingly so. It is no small matter. As I highlight in this recent article in the Indiana Law Review (here), this dubious interpretation of the “foreign official” element was at the core of 66% of 2009 FCPA enforcement actions against business entities as well as numerous individuals. And that was just in 2009. Several pre-2009 enforcement actions as well were based on the theory that employees of state-owned or state-controlled enterprises are “foreign officials” under the FCPA.

So again, on the one hand the Report praises the U.S.’s high level of FCPA enforcement, yet on the other hand, the Report openly questions the definition of “foreign official” that was used in a significant percentage of recent FCPA enforcement actions.

The Report then contains a discussion of the Nexus Technologies case and advances the DOJ’s curious assertion that resolution of this matter (see here) validates its interpretation that employees of so-called state-owned or state-controlled enterprises are “foreign officials” under the FCPA.

The Report states:

“Since Phase 2, there have been positive legal developments regarding the second question on the bribery of employees of state-owned or controlled enterprises, in U.S. v. Nam Quoc Nguyen, et al. (E.D. Pa., September 4, 2008), in which the District Court recently held in favour of the United States Government in a case involving allegations that the defendants bribed employees of a foreign state-owned company. The defendants argued that the definition of “foreign official” in the FCPA does not include employees of state-owned enterprises, because in order for an organisation to be considered an “agency or instrumentality” of a foreign government, it must serve a “purely public purpose”. The United States Government, citing the legislative history of the FCPA, responded by arguing that “public purpose” is only one of the many factors in determining that an organisation is an “agency or instrumentality” of a foreign government, and that Congress expressly intended to include employees of state-owned enterprises in the definition of “foreign official”.”

As I highlighted in this prior post, in its briefing in the Nexus case the DOJ specifically urged the judge, on a number of occassions, not to consider the defendant’s substantive “foreign official” argument because they were premature. The following are snippets from the DOJ’s brief: (i) “the Court need not address any of these faulty arguments at this time:” (ii) “although styled as a motion to dismiss, Defendants’ submission is instead a premature request for a ruling on the sufficiency of the Government’s evidence before any of that evidence has been presented. These arguments, which are premature at best, will be moot after presentation of the Government’s case.” (iii) “because Defendants’ arguments turn entirely on issues of fact, they are premature.”

Continuing on this issue, the Report states:

“Although the Court ruled in favour of the United States, it did not issue a written opinion, and the defendants did not file an appeal. In addition, District Court opinions are not binding on higher courts or courts of other U.S. jurisdictions. The DOJ informed the evaluators that this means the Government interpretation could be disputed again. However, the DOJ believes the argument would fail again given the FCPA‘s legislative history, and because numerous cases have been brought by the DOJ and SEC in which the definition of “foreign official” has been broadly interpreted.” This last sentence has a footnote which states: “For instance Willbros Group involved the bribery of foreign judicial officials, Siemens AG involved payments to various persons from state-owned companies, and Diagnostic Products, involved payments to doctors of state-owned hospitals. The United States explains that in each of these cases, pursuant to Federal Rule of Criminal Procedure 11, a court had to determine whether all the elements of the offence have been proven including that the receiving individual was a foreign public official.”

On this issue, the Report concludes with this “commentary”

“The evaluators welcome positive legal developments concerning the application of the definition of ‘foreign official’ in the FCPA to members of the judiciary and employees of state-owned or controlled enterprises.”

In the “Recommendations” section, the Report notes that the “Working Group will follow up the issues below, as the case-law continues to develop, to examine: […] whether amendments are required to the FCPA to supplement or clarify the existing language defining the elements of the offense of foreign bribery with regard to […] (ii) the scope of the definition of a ‘foreign public official,’ in particular with respect to […] the directors, officers, and employees of state-controlled enterprises or instrumentalties.”


The Report states:

“Due to their increasing importance in law enforcement actions by the DOJ, the evaluators sought information about the deterrent effect of DPAs and NPAs. The evaluators were also conscious that the SEC intends to also begin using DPAs and NPAs to encourage companies and individuals to co-operate with SEC investigators.”

“It seems quite clear that the use of these agreements is one of the reasons for the impressive FCPA enforcement record in the U.S. However, their actual deterrent effect has not been quantified; although the DOJ hears anecdotally from companies that their use has made FCPA compliance high priority.”

The Report states:

“DPAs are technically subject to judicial review and approval, but most judges do not appear to scrutinise DPAs. Unlike a DPA, an NPA does not involve the court.”

“Although DPAs and NPAs have existed since 1993, their use has grown dramatically in recent years. Since 2004, the annual average number of DPAs and NPAs entered into by the DOJ has grown from less than 5 to over 20 and a high of 38 in 2007. In FCPA cases, DPAs and NPAs were not used until 2004. Since then, they have been used in 30 out of 39 concluded criminal enforcement actions against companies.”

“Explanations for this phenomenon vary. The dramatic increase occurred shortly after the prosecution and collapse of the accounting firm Arthur Andersen which led to thousands of jobs lost. Avoiding such collateral consequences of prosecution is generally cited as why DPAs and NPAs are used. In FCPA cases, factors such as the protection of employees and shareholders also play a role, according to U.S authorities. The U.S. authorities also believe that companies often prefer to resolve matters through DPAs and NPAs in lieu of going to court and undergoing a potentially lengthy process and resulting press scrutiny. As well, the DPAs and NPAs in FCPA cases generally cite factors such as the defendants‘ co-operation and self-reporting of the crime as the reasons for the agreement. These agreements are thus used as an incentive for voluntary disclosure and co-operation. The U.S. authorities also use DPAs and NPAs to resolve cases quickly. Finally, FCPA cases usually involve obtaining evidence from foreign countries, which can be time-consuming and unsuccessful. DPAs and NPAs can be used to secure a company‘s co-operation and obtain overseas evidence where the MLA process is cumbersome or unavailable.”

“In January 2010, the SEC announced that it would begin using co-operation agreements, DPAs and NPAs in FCPA cases. A co-operation agreement is similar to a plea agreement in criminal proceedings. An individual or company must provide substantial assistance to an SEC investigation and co-operate fully and truthfully. In return, the SEC Enforcement Division agrees to make certain recommendations to the Commission, such as the individual or company should receive credit for co-operating. DPAs and NPAs require the company or individual to co-operate fully and truthfully, and to agree to comply with prohibitions and/or undertakings. DPAs also require the company or individual to admit to or not contest certain alleged facts. NPAs are available only in “limited and appropriate circumstances”. All three types of agreements require the company or individual to agree to toll the statute of limitations. The SEC has not yet used one of these agreements, given that the policy to use them was adopted only recently.”

In the “commentary section” the Report states:

“The evaluators note that PAs, DPAs, NPAs and the appointment of corporate monitors are an innovative method for resolving cases, and has evolved into an important feature of the U.S. criminal justice system, which has helped to enable a high level of enforcement activity. These measures have been used extensively in FCPA cases, especially in recent years. Guidance exists on the use of these agreements. Some private sector representatives would like more guidance but the U.S authorities disagree.”

“A useful compromise may be for the DOJ and the SEC, where appropriate, to make public in each case in which a DPA or NPA is used, more detailed reasons on the choice of a particular type of agreement, and the choice of the agreement’s terms and duration; and the basis for imposing monitors. The DOJ already does so for PAs through sentencing memoranda. Greater transparency on these issues would add accountability and enhance public confidence in the DOJ’s and SEC’s enforcement of the FCPA. Making public this information would also raise awareness of how these agreements enhance foreign bribery enforcement efforts.”

As to “recommendations” the Report states:

“Regarding the use of NPAs and DPAs, the Working Group recommends that the United States:

a. Make public any information about the impact of NPAs and DPAs on deterring the bribery of foreign public officials [..]; and

b. Where appropriate, make public in each case in which a DPA or NPA is used, more detailed reasons on the choice of a particular type of agreement; the choice of the agreement‘s terms and duration; and the basis for imposing monitors […]”.

As noted in the OECD release:

“The United States will make an oral follow-up report on its actions to implement certain key recommendations of the Working Group after one year. The United States will further submit a written report to the Working Group within two years, which will be the basis of a publicly available evaluation by the Working Group of the United States’ implementation of the recommendations.”

Stay tuned for more.

Judge (Again) Significantly Rejects DOJ’s Recommendations In Sentencing Nexus Defendants

As noted in this DOJ release, last week several defendants in the Nexus Technologies enforcement action (see here for prior posts) were sentenced. Because many media sources merely regurgitate DOJ releases in such instances, this post may be the first you’ll learn that the sentencing judge in the Nexus matter significantly rejected the DOJ’s sentencing recommendations.

For instance, and as described more fully below, the DOJ sought a 14-17 year sentence for lead defendant Nam Nguyen, but the judge sentenced him to 16 months (plus 2 years of supervised release).

Further, the DOJ sought multi-year sentences for two defendants, but the judge sentenced them to probation.

The DOJ’s sentencing memoranda (see here for the 79 pages of collective material) provide an interesting read and clearly demonstrate the growing divide between how the DOJ views FCPA defendants and how judges view such defendants at sentencing. For instance, Judge Shira Scheindin stated at Frederic Bourke’s sentencing (see here) “after years of supervising this case, it’s still not entirely clear to me whether Mr. Bourke is a victim or a crook or a little bit of both.”

The DOJ stated in Nam Nguyen’s sentencing memo that its recommendation (168-210 months) should be accepted “to promote general deterrence” and that conduct such as Nguyen’s “will hardly be deterred by sending the message that the consequences of such conduct is at worst several months of imprisonment.”

Yet, the judge still sentenced Nam Nguyen to 16 months (plus 2 years of supervised release).

Also of note is that the DOJ criticized Nam Nguyen for “subjectively” looking at the “history of FCPA sentencing, focusing on the statistical outlier of the case U.S. v. Green … but ignoring the more common cases of significant prison time” such as “Charles Jumet, who paid less than 1/3 of what Nguyen paid in bribes, but received 87 months’ imprisonment.”

Let me assert that it is the DOJ who is “subjectively” looking at the “history of FCPA sentencing” and that Jumet is the “statistical outlier” – not sentences such as of the Greens.

Indeed, it is very common for FCPA defendants to be sentenced to prison terms measured in days and months, not years.

Consider the following recent sentences:

Greens – 6 months (August 2010)

Frederic Bourke – 366 days (November 2009)

Jim Bob Brown – 366 days (January 2010)

Jason Edward Steph – 15 months (January 2010)

The below post provides an overview of the Nexus sentences as well as the DOJ’s sentencing memos.

Nam Nguyen

Sentence: 16 months, 2 years of supervised release

DOJ Recommendation: 168-210 months

In its sentencing memorandum, the DOJ stated that Nguyen “paid bribes to multiple Vietnamese government officials in exchange for contracts for his business” and that “Nguyen literally offered a bribe on every single contract bid over a period of more than nine years …”.

DOJ sought a four-level sentencing enhancement “because the offense involved a public official in a high-level decision-making or sensitive position.” Specifically, the DOJ asserted that Nguyen paid bribes to “Nguyen Van Tan, who was the Managing Director of T&T Co. Ltd. … the procurement arm of Vietnam’s Ministry of Public Safety.”

Other items of interest from the DOJ’s sentencing memorandum.

In a footnote, the DOJ asserts that “the court has ruled in favor of the government” on the “foreign official” issue briefed in the case. However, as noted in this prior post, the DOJ specifically argued throughout its brief that a court decision as to this issue was premature. What actually happened is that the judge denied the defendants’ motion to dismiss without comment or analysis. The DOJ stated in the same footnote that because Nguyen’s counsel discussed the “foreign official” issue in his sentencing memorandum, that this “raises serious questions as to whether or not he has actually accepted responsibility for his crimes.”

The DOJ memo contains “Exhibit A” – a chart detailing the “Sentences of Natural Persons Who Pleaded Guilty to FCPA Violations Since 2001.”

The chart is misleading.

Nowhere in the chart does it indicate, nor in the brief referencing the chart is it noted, that the sentences are not just for FCPA violations, but, in many cases, sentences based on other violations of law as well.

For instance, in the longest sentence on the DOJ’s chart – Charles Jumet (87 months) nowhere is it noted that the “FCPA” portion of the sentence was actually lower. Jumet pleaded guilty to two counts – conspiracy to violate the FCPA and making false statements to federal agents. The false statements portion of his sentence was 20 months. Thus, Jumet’s “FCPA” sentence was 60 months – not 87 months as suggested by the DOJ’s chart.

An Nguyen

Sentence: 9 months, 3 years of supervised release (notwithstanding that, per the DOJ’s sentencing memorandum, Nguyen was on probation at the time of his offense)

DOJ Recommendation: 87-108 months

In its sentencing memorandum the DOJ stated that Nguyen “paid bribes to multiple Vietnamese government officials in exchange for contracts for his family’s business.” Elsewhere in the memo, the DOJ states that “Nguyen’s bribery was particularly egregious.” In connection with its decision not to seek a sentencing enhancement for an offense involving a public official in a high-level decision-making or sensitive position, the DOJ noted that “Nguyen was unaware of the nature, position, or role of the specific officials who received the bribe payments.”

Kim Nguyen

Sentence: 2 years probation

DOJ Recommendation: 70-87 months (even after the DOJ’s downward departure recommendation)

The DOJ requested a Section 5K1.1 downward departure. The DOJ noted that “even though Kim Nguyen did not begin providing information to the government until shortly before trial” this information nevertheless “appeared to play a role in her siblings’ decisions to plead guilty.” The DOJ noted that “Nguyen met with the government on approximately two occasions to explain the business practices and financial records of Nexus Technologies” and “explained various entries in the Nexus books which allowed the government accurately to calculate the total amount of bribes paid by the defendants …”

In its sentencing memo, the DOJ stated that “Nguyen played a critical role in this conspiracy, as she was the person responsible for handling the finances and maintaining the books and records of Nexus.” The DOJ stated that Nguyen “funneled the bribe payments to an off-shore company controlled by Nexus, which then forwarded the bribe payments to the Vietnamese officers, and it was Kim Nguyen who falsified the associated wire-transfer documents to cover their tracks.” The DOJ further asserted that e-mail correspondence “makes it very clear that Kim Nguyen knew exactly what she was doing, and why.” As with An Nguyen, the DOJ did not seek a sentencing enhancement for Kim Nguyen and noted that “Kim Nguyen was unaware of the nature, position, or role of the specific officials who received the bribe payments.”

Joseph Lukas

Sentence: 2 years probation

DOJ Recommendation: 37-46 months (even after the DOJ’s downward departure recommendation)

The DOJ requested a Section 5K1.1 downward departure. The DOJ noted that Lukas “met with the government on approximately seven separate occasions over the course of approximately 1.5 years and explained everything he knew about his co-defendants, their criminal conduct, their personal histories, and their business records.” According to the DOJ, “Lukas also created spreadsheets of information for the government, voluntarily turned over his computer for government analysis, and spent hours upon hours poring through documents in order to explain the business practices of Nexus Technologies and the Nguyen siblings.”

In its sentencing memorandum, the DOJ stated that “Lukas helped Nexus Technologies pay bribes to multiple Vietnamese government officials in exchange for contracts.” According to the DOJ, “Lukas was responsible for vendor relations and negotiations in the United States (which included identifying vendors who could supply the requested goods at low enough prices to allow the bribe payments.)”.


As to the Greens’ sentence, the DOJ noted in footnote 8 of Nam Nguyen’s sentencing memo that the “DOJ is considering appealing the sentence in that case.”

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