Category: Nigeria

An FCPA Enforcement Action That Led To A Supreme Court Decision

[This post is part of a periodic series regarding “old” FCPA enforcement actions]

The first Foreign Corrupt Practices Act enforcement action to involve business conduct in Nigeria was a 1985 enforcement action against W.S. Kirkpatrick, Inc. (a privately held New Jersey avionics supply firm) and Harry Carpenter (Chairman and CEO of the company).

The criminal informations filed against the company (here) and Carpenter (here) alleged one count of violating the FCPA’s anti-bribery provisions and contains the same concise allegation.

“On or about December 21, 1982 … W.S. Kirkpatrick, Inc. … used a means and instrumentality of interstate commerce, that is, a Western Union international telex from Fairfield, New Jersey, to New York, New York, to order Standard Chartered Bank of New York to pay $580,973 to the Bank of New York for the account of Bank of Commerce and Credit International in Luxembourg corruptly in furtherance of an offer, payment, promise to pay and authorization of the payment of money to: (a) a person, that is Benson ‘Tunde’ Akindale through two companies, Deriks and Los, Panamanian bearer share corporations, while having reason to believe that a portion of such money would be offered, given, or promised, directly or indirectly to foreign officials, Nigerian Air Force officers, the Party of Nigeria, the Minister of Nigeria and other government defense personnel for the purpose of influencing the acts and decisions of such foreign officials and others in their official capacity and inducing them to use their influence within the Government of Nigeria in order to obtain a contract for flight training equipment for W.S. Kirkpatrick, Inc.”

An offer of proof filed in Carpenter’s case contains the following additional information.

Carpenter learned of the opportunity to sell various equipment to the Nigerian Air Force and he “believed Kirkpatrick needed an agent in Nigeria to assist in negotiating and obtaining the contract.”  “On recommendation of two British businessmen, Carpenter contracted a London solicitor, who in turn put him in touch with Benson ‘Tunde’ Akindele, a Nigerian national.”  According to the offer of proof, “Akindele offered to assist Kirkpatrick by serving as its local agent in Nigeria.  Carpenter negotiated an agreement with Akindele which provided that Kirkpatrick would pay a commission equal to twenty percent of the contracted price of [the equipment] to two Panamanian bearer share corporations, which were set up, and controlled by Akindele to receive payments from Kirkpatrick.”

W.S. Kirkpatrick Inc. pleaded guilty and was fined $75,000 (see here) and Carpenter pleaded guilty, was sentenced to three years probation and ordered to pay a $10,000 fine (see here).  Noted white collar criminal defense attorney Theodore Wells (here) represented Carpenter.

See here for the DOJ’s release which notes that the contract at issue was worth $10.8 million.

After the DOJ enforcement action, Environmental Tectonics Corporation (“ETC” –  an unsuccessful bidder for certain of the Nigerian contracts which first brought the problematic conduct to the attention of the Nigerian Air Force and the U.S. Embassy) brought a civil action against W.S. Kirkpatrick, Carpenter, Akindele and others seeking damages under the Racketeer Influenced and Corrupt Organizations Act, the Robinson-Patman Act and the New Jersey Anti-Racketeering Act.

The defendants moved to dismiss the complaint on the ground that the action was barred by the act of state doctrine.  The district court granted the motion and concluded that the act of state doctrine applies “if the inquiry presented for judicial determination includes the motivation of a sovereign act which would result in embarrassment to the sovereign or constitute interference in the conduct of foreign policy of the United States.”  See 659 F.Supp. 1381.    The court held that ETC’s suit had to be dismissed because, in order to prevail, it would have to show that “the defendants or certain or them intended to wrongfully influence the decision to award the Nigerian Contract by payment of a bribe, that the Government of Nigeria, its officials or other representatives knew of the offered consideration for awarding the Nigerian Contract to Kirkpatrick, that the bribe was actually received or anticipated and that ‘but for’ the payment or anticipation of the payment of the bribe, ETC would have been awarded the Nigerian Contract.”

The Third Circuit reversed finding that application of the act of state doctrine was unwarranted given the facts of the case.  In particular, the Third Circuit found persuasive a letter to the district court by the State Department legal adviser which stated that a judicial inquiry into the purpose behind the act of a foreign sovereign would not produce the ‘unique embarrassment, and the particular interference with the conduct of foreign affairs that may result from the judicial determination that a foreign sovereign’s acts are invalid.”

Defendants then appealed to the Supreme Court which agreed to hear the case.

In 1990, Justice Scalia authored the opinion of a unanimous Supreme Court.  See 493 U.S. 400.  The opinion begins as follows.  “In this case, we must decide whether the act of state doctrine bars a court in the United States from entertaining a cause of action that does not rest upon the asserted invalidity of an official act of a foreign sovereign, but that does require imputing to foreign officials an unlawful motivation (the obtaining of bribes) in the performance of such an official act.”

The Court concluded that the “factual predicate for application of the act of state doctrine does not exist” because nothing in the case required the Court to declare invalid the official act of a foreign sovereign.  The Court reasoned that “neither the claim nor any asserted defense requires a determination that Nigeria’s contract with Kirkpatrick International was, or was not, effective,” that ETC “was not trying to undo or disregard the governmental action,” but rather that ETC was only trying to “obtain damages from private parties who had procured” the contract.

In short, the Court stated that the act of state doctrine “has no application to the present case because the validity of no foreign sovereign act is at issue.”

Friday Roundup

Add a few to the list, take a few off, a word on guest posts, take a deep breath, whose fault is it, once again nobody was charged.  It’s all here in the Friday roundup.

Add Another

Most companies bury FCPA disclosures deep in SEC filings.  Not so with Nordion Inc. (here – a Canadian based health sciences company with shares traded in the U.S).  It took the open and direct route by issuing a release (here) specifically devoted to the topic.  The release states as follows.

“[The company] disclosed that it is conducting an internal inquiry and investigation of a foreign supplier and related parties focusing on compliance with the Canadian Corruption of Foreign Public Officials Act (CFPOA) and the U.S. Foreign Corrupt Practices Act (FCPA). Through the Company’s own internal review as part of its CFPOA compliance program, Nordion discovered potential compliance irregularities. As a result, the Company recently commenced an internal investigation of the possible compliance issues.  These issues relate to potential improper payments and other related financial irregularities in connection with the supply of materials and services to the Company.  The investigation is being conducted by outside legal counsel and external forensic and accounting firms who are experts in such compliance. These external advisors are reporting regularly to a special Committee of the Board constituted to deal with this matter.  Nordion has voluntarily contacted the regulatory and enforcement authorities, including the Canadian and U.S. Department of Justice, the Royal Canadian Mounted Police (RCMP), the U.S. Securities and Exchange Commission (SEC) and the Public Prosecution Service of Canada, to provide details of the matter and advise that an internal investigation is underway. The internal investigation is in its early stages and the Company’s external advisors have met with these authorities and will continue to provide reports to them as the investigation progresses.Nordion is committed to the highest standards of integrity and diligence in its business dealings and to the ethical and legally compliant business conduct by its employees, representatives and suppliers. The Company reviews its compliance programs on a regular basis to assess and align them with emerging trends and business practices.  Corrupt or fraudulent business conduct is in direct conflict with the Company’s Global Business Practice Standards and corporate policies. The Company will continue to investigate this matter and cooperate with regulatory and enforcement authorities with a view to an expedient resolution.”

By my estimation, in the past four months, approximately twenty companies have become subject to FCPA scrutiny (whether through disclosures or FCPA-related civil complaints).  In addition, industry sweeps as to the Hollywood movie industry and retail industry have reportedly been launched.  See here for a prior post titled “The Sun Rose, A Dog Barked, and a Company Disclosed FCPA Scrutiny.”

Academi, Inc., formerly known as Xe Services, formerly known as Blackwater was also in the news this week.  As noted in this FBI release, pursuant to a deferred prosecution agreement (here) the company admitted to certain facts and agreed to a $7.5 million fine in connection with certain export controls and firearms law violations.  As noted in the release, the DPA “also acknowledges and references a $42 million settlement between the company and the Department of State as part of a settlement of violations of the Arms Export Control Act and the International Trafficking in Arms Regulations.”  As noted in this previous post, Blackwater has been under investigation for FCPA violations in Iraq (and Sudan as noted in the FBI release).  The above DPA specifically states however that “this agreement does not apply to the Foreign Corrupt Practices Act investigation independently under investigation by the DOJ.”  As noted in this previous post, Blackwater’s 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).

There are also developments to report on the other side of the Atlantic as the U.K. Serious Fraud Office announced hereas follows.  “The Director of the Serious Fraud Office has decided to open a criminal investigation into allegations concerning GPT and aspects of the conduct of their business in the Kingdom of Saudi Arabia.”  As noted in this Bloomberg piece, GPT is a unit of European Aeronautic Defence & Space Co. (EADS), and the investigation involved suspected payments to win a telecommunications deal with Saudi Arabia’s royal family.  The Financial Times stated that the “Serious Fraud Office’s criminal inquiry is a step-change for the agency  after it said in March that it was happy with an internal investigation the company was conducting.”

Although he is no longer in Congress, former Representative Todd Tiahrt is probably delighted by this news.  See here for the prior post.

Take a Few Off

Huntsman Corporation recently disclosed as follows in a SEC filing (here).

“During the third quarter of 2010, we completed an internal investigation of the operations of Petro Araldite Pvt. Ltd. (“PAPL”), our majority owned joint venture in India. PAPL manufactures base liquid resins, base solid resins and formulated products in India. The investigation initially focused on allegations of illegal disposal of hazardous waste and waste water discharge and related reporting irregularities. Based upon preliminary findings, the investigation was expanded to include a review of the production and off-book sales of certain products and waste products. The investigation included the legality under Indian law and U.S. law, including the U.S. Foreign Corrupt Practices Act, of certain payments made by employees of the joint venture to government officials in India. Records at the facility covering nine months in 2009 and early 2010 show that less than $11,000 in payments were made to officials for that period; in addition, payments in unknown amounts may have been made by individuals from the facility in previous years.  […] Also in May 2010, we voluntarily contacted the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”) to advise them of our investigation and that we intend to cooperate fully with each of them. We met with the SEC and the DOJ in October 2010 to discuss this matter and we continue to cooperate with these agencies. Steps have been taken to halt all known illegal or improper activity, including the termination of employment of management employees as appropriate. In May 2012, the SEC and DOJ notified us that they would not recommend any enforcement action be taken against our Company in this matter.”

Since August 2010 (see here for the prior post), I have proposed that when a company voluntarily discloses an FCPA internal investigation to the DOJ and the SEC, and when the DOJ and/or SEC decline enforcement, the DOJ and/or the SEC should publicly state, in a thorough and transparent manner, the facts the company disclosed to the agencies and why the agencies declined enforcement on those facts.

In the meantime, we can only speculate as to why the enforcement agencies did not bring an enforcement action against Hunstman.  Of note, in the DOJ’s written declination responses after the June 2011 House hearing (see here), the DOJ stated that it has declined matters when, among other circumstances, “the improper payments involved minimal funds compared to the overall business revenue.”

As noted in this previous post, in April Hercules Offshore disclosed as follows.  “On April 4, 2011, the Company received a subpoena issued by the Securities and Exchange Commission (“SEC”) requesting the delivery of certain documents to the SEC in connection with its investigation into possible violations of the securities laws, including possible violations of the Foreign Corrupt Practices Act (“FCPA”) in certain international jurisdictions where the Company conducts operations. The Company was also notified by the Department of Justice (“DOJ”) on April 5, 2011, that certain of the Company’s activities were under review by the DOJ. On April 24, 2012, the Company received a letter from the DOJ notifying the Company that the DOJ has closed its inquiry into the Company regarding possible violations of the FCPA and does not intend to pursue enforcement action against the Company. The DOJ indicated that its decision to close the matter was based on, among other factors, the thorough investigation conducted by the Company’s special counsel and the Company’s compliance program. The Company, through the Audit Committee of the Board of Directors, intends to continue to cooperate with the SEC in its investigation. At this time, it is not possible to predict the outcome of the SEC’s investigation, the expenses the Company will incur associated with this matter, or the impact on the price of the Company’s common stock or other securities as a result of this investigation.”

Earlier this week, the company updated its disclosure as follows.  “On August 7, 2012, Hercules Offshore, Inc. (the “Company”) received a letter from the Securities and Exchange Commission (“SEC”) notifying the Company that the SEC staff has completed its investigation into the Company regarding possible violations of the Foreign Corrupt Practices Act (“FCPA”) and does not intend to pursue enforcement action against the Company. As previously disclosed, the Company was notified by the SEC and the Department of Justice (“DOJ”) in April 2011, that certain of the Company’s activities were under review by the SEC and DOJ with respect to possible violations of the FCPA in certain international jurisdictions where the Company conducts operations. The Company previously disclosed that it received a letter from the DOJ on April 24, 2012, notifying the Company that the DOJ has closed its inquiry into the Company regarding possible violations of the FCPA and does not intend to pursue enforcement action against the Company. The DOJ noted that it terminated its investigation ‘…based on a number of factors, including, but not limited to, the thorough investigation undertaken by Hercules and the steps that Hercules has taken in the past and continues to take to enhance its compliance program, including efforts to ensure compliance with the FCPA.’ As a result of the termination by the SEC and the prior termination by the DOJ, there are no open FCPA investigations against the Company.”

As evident from the disclosures, unlike Huntsman, the FCPA scrutiny of Hercules was not based on a voluntary disclosure, but inquiries from the SEC and DOJ.  Whether this represents a declination or a dud is the question.

Guest Posts

Part of the mission of FCPA Professor is to facilitate a forum for discussion and analysis of FCPA and related issues among FCPA practitioners, business and compliance professionals, scholars and students, and other interested persons.  Given this mission, I frequently publish guest posts (see here for approximately 60 such posts).  In publishing guest posts, it should not be assumed in all cases that I agree in whole or in part with the content of such posts.  Rather, providing the forum for delivery into the marketplace of ideas is what I hope to facilitate and I encourage all who want to make their voice heard on the issues to consider submitting a guest post.

A Deep Breath

The FCPA is a unique statute, with unique and difficult to manage risks.

Nevertheless , it was refreshing to see this piece by Pamela Marple (Chabourne & Park – here) in the NACD Director Advisory titled “The FCPA: A New Bear in the Woods?”  Marple begins as follows.  “Over the past five years, the Foreign Corrupt Practices Act has solidified itself as an industry brimming with expert forums, company departments and substantial news coverage.  Is this statute really the bear in the woods some say it is?”  Marple states as follows.  “The existence of the FCPA industry (and professionals who are available to conduct internal investigations at a high price) does not mean that this reaction is what is always required. What is required first and foremost is reasonable judgment exercised by directors and professionals who seek both compliance and solutions—without assuming a bear is present at every turn.”

As I previously commented (here) to Corporate Board Member, corporate directors need to keep a proper perspective.  There’s a whole industry out there that’s trying to sell the steroids version of FCPA compliance.  But directors should not get their undies in a bundle over this.  This is an issue, just like any other risk area, that directors need to have on their radar screen.  Corporate directors should not panic when it comes to FCPA compliance.

Whose Fault is It?

Do FCPA violations occur because companies subject to the law go into foreign markets intent on engaging in bribery or because the companies are confronted by corrupt foreign officials seeking to line their own pockets?

Circumstances vary of course, but this recent article in the African Globe includes comments from human rights lawyer and Senior Advocate of Nigeria Femi Falana who focused on the former.  The article stated as follows.   “In order to cover up the involvement of western governments and corporations in the promotion of corruption, terrorism and drug abuse in Africa, the impression is often created by top public officials of some foreign governments that Africans are the most corrupt people in the world,” Falana observed noting that only last week, the US Secretary of State, Mrs. Hillary Clinton, kicked off her 11-day tour of some African states in Senegal by condemning corruption in Africa and urging African leaders to fight it in order to get good governance in the continent. He said it was also the kernel of President Barack Obama’s message to Africans when he made a brief stopover in Ghana three years ago. “While we do not condone corruption, it is high time the Obama administration was told to stop blaming the victims of grand corruption promoted and fuelled by western countries led by Switzerland, France, United Kingdom and United States,” Falana said.”

Nobody Was Charged

A recent New York Times article (here) once again raises the issue of why few corporate fraud enforcement actions result in individual charges.  The article states as follows.  “The Justice Department has collected $8.6 billion over the last three years, more than in any similar period in history, but relatively few prosecutions of individuals have come from the biggest settlements.”

A reason?

In the FCPA context, I submit and stated during my 2010 Senate testimony (here), involves the quality of the corporate enforcement action.  Given the prevalence of NPAs and DPAs in the FCPA context and the ease in which DOJ offers these alternative resolution vehicles to companies subject to an FCPA inquiry, companies often agree to enter into such resolution vehicles regardless of the DOJ’s legal theories or the existence of valid and legitimate defenses. It is simply easier, more cost efficient, and more certain for a company to agree to a NPA or DPA than it is to be criminally indicted and mount a valid legal defense  even if the DOJ theory of prosecution is questionable.  (See here for my scholarship “The Facade of FCPA Enforcement).  Individuals, on the other hand, face a deprivation of personal liberty, and are more likely to force the DOJ  to satisfy its high burden of proof as to all FCPA elements.

A telling statistic?

As noted in this prior post, since alternative resolution vehicles were first used in the FCPA context (December 2004) there have been 61 “core” corporate DOJ FCPA enforcement actions.  47 of the 61  ”core” corporate DOJ FCPA enforcement actions (77%)  have been resolved via an NPA (19 instances) or a DPA (28 instances).  In these 47 “core” corporate DOJ FCPA enforcement actions, only 7 enforcement actions (15%) have resulted in any individual FCPA criminal charges against company employees. In other words, when the DOJ resolves an FCPA enforcement action via a NPA or DPA, there is only a 15% likelihood that individual criminal charges will be filed against any company employee or those affiliated with the company. [Note: the above statistics were calculated in Sept. 2011]

For previous posts on this very same issue see here.

*****

A good weekend to all.

Will The SEC Be Put To Its Burden Of Proof In The Jackson And Ruehlen Enforcement Action?

As discussed in this previous post, in November 2010, Noble Corporation was one of several companies to resolve FCPA enforcement actions in what I called CustomsGate – enforcement actions largely focused on alleged payments to Nigerian customs officials to receive various permits.  The Noble enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $8.2 million ($2.6 million criminal fine via a non-prosecution agreement; $5.6 million in disgorgement and interest via a SEC complaint).

As noted in the previous post, in the Noble Corporation enforcement action it was stated, not once but twice, that the payments at issue “would not constitute facilitation payments for routine governmental actions within the meaning of the FCPA.”  I noted then that one can reasonably conclude that if the DOJ felt the need to express such a statement twice, that the FCPA’s facilitating payment exception should probably be on the minds of many in connection with the CustomsGate enforcement  actions.

Against the backdrop of recent and well-deserved scrutiny of the DOJ’s FCPA enforcement program, the SEC reminds us all that it too can enforce the FCPA.  [As an aside, Professor Barbara Black (University of Cincinnati College of Law) recently released her forthcoming scholarship – see here – “The SEC and the Foreign Corrupt Practices Act:  Fighting Global Corruption is Not Part of the SEC’s Mission].

Last Friday, the SEC announced here charges against “three oil services executives with violating the FCPA by participating in a bribery scheme to obtain illicit permits for oil rigs in Nigeria in order to retain business under lucrative drilling contracts.”

In this complaint filed in the S.D. of Texas, the SEC charged Mark Jackson (former Noble Corporation CEO) and James Ruehlen (current Director and Division Manager of Noble’s subsidiary in Nigeria) based on the same core set of facts relevant to the prior corporate enforcement action – namely that Noble and its wholly-owned subsidiary (Noble-Nigeria) “authorized its customs agent to pay bribes” on the companies behalf “to Nigerian government officials to influence or induce them to (1) favorably process false paperwork, (2) grant temporary import permits (TIPs) based on the false paperwork, and (3) favorably exercise or abuse their discretion in granting extensions to these illicit TIPs.”

The complaint (a meaty 46 pages) next states, in summary fashion, as follows.

“Defendants approved payment of the bribes.  Defendant Ruehlen also assisted the customs agent in preparing false documents, processed the customs agent’s invoices for the bribes, and signed the checks reimbursing the customs agent for the bribes he paid to Nigerian government officials.  Defendants acted in this way to obtain TIPs and TIP extensions and retain business under drilling contracts in Nigeria.  As a consequence, Defendants violated the anti-bribery provisions [of the FCPA.]  Defendants also took steps to circumvent Noble’s internal controls and to falsely record these bribes as legitimate operating expenses on Noble’s books.  Defendant Jackson failed to implement internal accounting controls to prevent the bribery and false recording of the bribes.  As a consequence, Defendants violated the records falsification and internal control provisions of the Exchange Act and aided and abetted Noble’s violations of the books and records and internal control provisions [of the FCPA].  Defendant Jackson misled Noble’s auditors about the bribes and signed certifications required by the Sarbanes-Oxley Act of 2002 falsely stating that he had created and maintained effective internal controls, and that there were no internal control weaknesses, fraud or FCPA violations.  As a consequence, Jackson violated Rules 13b2-2 and 13a-14 of the Exchange Act.  During the violations, Jackson was Noble’s Chief Financial Officer, Chief Operating Officer, and ultimately President and Chief Executive Officer, and Chairman of the Board of Directors.  Jackson directly or indirectly controlled Noble, Defendant Ruehlen, and others, and therefore is liable as a control person under Section 20(a) of the Exchange Act for all of their violations.”

[For previous Section 20(a) control person (or similar) FCPA enforcement actions – see here and here.]

Unlike the vast majority of FCPA defendants (corporate and individual) charged in an SEC enforcement action, Jackson and Ruehlen appear poised to launch a defense.

Jackson’s lawyer, David Krakoff (here – BuckleySandler) stated as follows.  “We unequivocally deny the SEC’s baseless allegations. Mr. Jackson will vigorously defend himself in court where the evidence will show what the SEC already knows, that at all times Mr. Jackson acted in good faith at Noble. He looks forward to clearing his good name in this proceeding.”

Ruehlen’s lawyer F. Joseph Warin (here – Gibson Dunn & Crutcher) told the Wall Street Journal  that his client was the one who initially raised concerns about the payments and that Ruehlen “fully cooperated throughout the investigation and always acted in an ethical and transparent manner.”  Warin stated that “the claims against Mr. Ruehlen are wrong and they will be proven so at trial.”

This will be most interesting to follow as the SEC is rarely put to its burden of proof in FCPA enforcement actions (or any of its actions for that matter).  This is due to the SEC’s long-standing policy of allowing defendants to settle SEC complaints without admitting or denying the SEC’s allegations.  For recent judicial scrutiny of this settlement device, see this prior post.

The last time the SEC is believed to have been put to its burden of proof in an FCPA enforcement action was in the Eric Mattson and James Harris enforcement action also filed in the S.D. of Texas.  Like the Jackson and Ruehlen enforcement action, the Mattson and Harris enforcement action involved conduct outside the context of foreign government procurement.  As detailed in this Memorandum and Order, the SEC had its FCPA anti-bribery charges dismissed in that case.  The case involved alleged goodwill payments to an Indonesian tax official for a reduction in a tax assessment.  The SEC claimed that the FCPA’s unambiguous language plainly encompassed the goodwill payment and the issue before the Court was whether the plain language of the FCPA prohibited goodwill payments for the purpose of reducing a tax assessment.  When Mattson and Harris was decided, the S.D. of Texas in U.S. v. Kay case had already dismissed that case finding that the plain language of the FCPA does not prohibit goodwill payments to foreign government officials to reduce a tax obligation.  The SEC attempted to distinguish the trial court’s Kay ruling by arguing that in the civil enforcement context, the Court should interpret the FCPA’s language more liberally than in criminal cases.  The Court rejected the SEC’s arguments and followed the trial court’s analysis in Kay that the payments at issue to the Indonesian tax official did not violate the FCPA because it did not help Mattson’s and Harris’s employer (Baker Hughes) “obtain or retain business.”

Of course, the 5th Circuit overturned the Kay trial court ruling and held that making payments to a “foreign official” to lower
taxes and custom duties in a foreign country can provide an unfair advantage to the payer over competitors and thereby assist the payer in obtaining and retaining business.  However, the Kay court emphatically stated that not all such payments to a “foreign official” outside the context of directly securing a foreign government contract violate the FCPA; it merely held that such payments “could” violate the FCPA. The 5th Circuit then listed several hypothetical examples of how a reduction in custom and tax liabilities could assist a company in obtaining or retaining business in a foreign country. On the other hand, the court also recognized that “there are bound to be circumstances” in which a custom or tax reduction merely increases the profitability of an existing profitable company and thus, presumably, does not assist the payer in obtaining or retaining business.  The court specifically stated:  “[i]f the government is correct that anytime operating costs are reduced the beneficiary of such advantage is assisted in getting or keeping business, the FCPA’s language that expresses the necessary element of assisting in obtaining or retaining business would be unnecessary, and thus surplusage – a conclusion that we are forbidden to reach.”

The point of this extended discussion in the context of Jackson and Ruehlen is two-fold:  (1) that the SEC has already lost a non-government procurement FCPA case in the S.D. of Texas; and (2) even with the 5th Circuit precedent in Kay, and even taking the SEC’s allegations as true, payments in connection with TIPs would seem to be only to increase the profitability of an existing profitable company and thus – following the logic of the Fifth Circuit – fall outside of the FCPA’s anti-bribery provisions.

It will be interesting to see how this plays out should the SEC’s FCPA anti-bribery charges be fully litigated in the Jackson and Ruehlen enforcement action.

As noted in the SEC’s release last week, the Noble executive enforcement action also involved a separate complaint (here) against Thomas O’Rourke (the former controller and head of internal audit at Noble).  The complaint alleged that O’Rourke: (1) aided and abetted Noble’s violations of the FCPA anti-bribery provisions, books and records and internal controls provisions; and (2) directly violated the FCPA’s internal controls provisions and false records provisions of the Exchange Act.

Under the heading “defendants’ violations” the SEC alleged, among other things, that O’Rourke: (1) “understood that Noble-Nigeria had used false paperwork to obtain TIPs, and that Noble-Nigeria paid its customs agent for ‘special handling charges’ that were passed through to Nigerian officials; (2) “knew that the ‘special handling charges’ were entered into Noble-Nigeria’s books as legitimate operating expenses, and he knew or was reckless in not knowing that those entries were improper”;  (3) “knowingly allowed TIP-related payments to government officials to be improperly accounted for as legitimate operating expenses.

Like the vast majority of FCPA defendants in SEC enforcement actions, O’Rourke chose to settle the SEC’s complaint without admitting or denying the SEC allegations.  According to the SEC release, O’Rourke consented to entry of a court order requiring him to pay a $35,000 civil penalty and permanently enjoining him from future violations.

*****

Last week I participated in a discussion with Howard Sklar regarding a potential FCPA compliance defense (see here for the webcast.)  In the aftermath of the SEC’s charges against the Noble executives, Sklar penned a Forbes blog (here) and stated as follows.  “One example Mike brings to prove his point [that the FCPA should be amended to include a compliance defense] is the Panalpina line of cases, including Noble.  I don’t think he’ll be able to use the Noble case as an example after today.  These complaints are against the CEO (who formerly held the CFO spot) and the country leader for Nigeria.  Plus, there’s Thomas O’Rourke. Thomas O’Rourke was Noble’s Director of Internal Audit, Controller, and VP of Internal Audit.”

Nice try Howard, but you are off-target.

Sklar is correct that I discuss the Noble Corp. enforcement action (and other related CustomsGate enforcement actions) in my “Revisiting a Foreign Corrupt Practices Act Compliance Defense” article (see here at pgs. 9-12 ).  However, that discussion is focused on specific reasons warranting an FCPA compliance defense, including that in many markets, companies subject to the FCPA must navigate challenging environments replete with barriers and other conditions that serve as breeding grounds for payments implicating (at least in the eyes of the enforcement agencies) the FCPA.

In discussing harassment bribes, I then talk about the notoriously corrupt Nigerian Customs Service (“NSC”) and how business interactions with NSC officials have been the basis for several FCPA enforcement actions including the coordinated enforcement actions from November 2010 involving Noble Corp. and others.  Anticipating the counter-argument that the FCPA does not need a compliance defense due to the harassment bribery conditions many companies face in foreign markets because the FCPA already contains a facilitating payments exception, I then stated that so long as the DOJ refuses to recognize a facilitating payments exception to the FCPA, that Congressional intent on the facilitating payments issue is best advanced through an FCPA compliance defense in which a company can assert, as a matter of law, that its pre-existing FCPA policies and procedures sought to prevent such payments in foreign markets.

In short, I was using the Noble Corporation enforcement action in connection with a discussion of facilitating payments, not using that particular enforcement action to support an FCPA compliance defense because it somehow was based on low-level employee conduct.  Indeed, in the DOJ’s non-prosecution agreement (here) which I discussed in this previous post, “Senior Executive,” “Executive A” and “Executive B” are all specifically mentioned as participating in the alleged improper conduct and an FCPA compliance defense would not apply to corporate conduct engaged in by executive officers.

The point of the Noble Corp. reference in my article was that the company should not have been the subject of an FCPA enforcement action based on the alleged conduct because Congress intended to exempt such payments from the FCPA’s anti-bribery provisions (regardless of who made, directed, or authorized the payments).

U.S. Bonny Island Bribery Bounty Grows

Few question the U.S. foreign bribery surplus, but it should be asked:  is the US Treasury the best place for fines and penalties when a foreign company bribes a foreign official?

In April 2011, JGC Corp. of Japan formally joined the Bonny Island (Nigeria) bribery club – see here for the prior post.  Some predicted this was the end of the Bonny Island enforcement actions, but I ended the post as follows.  “This may not be the last we hear of Bonny Island bribery. Consulting Company B (based in Japan) was a key participant in the bribery scheme. Does anyone know anything about Consulting Company B and whether it might be next to resolve its Bonny Island exposure? If so, please share.”

Yesterday, the DOJ shared as it announced (here) that Marubeni Corporation (a Japanese trading company headquartered in Tokyo) resolved an FCPA enforcement action  by agreeing to pay a $54.6 million criminal penalty.

As the DOJ trumpets in the headline of its release, the U.S. Bonny Island bribery intake now stands at $1.7 billion.  Previous enforcement actions were brought against the four TSKJ joint venture partners:  Kellogg Brown & Root LLC / Halliburton Co. / KBR Inc.  ($579 million in combined DOJ/SEC fines and penalties); Technip S.A. ($338 million in combined DOJ/SEC fines and penalties); Snamprogetti Netherlands BV / ENI S.p.A. ($365 million in combined DOJ/SEC fines and penalties); and JGC Corp. of Japan ($219 million in DOJ fines). In addition, as the DOJ notes in its release, is Jeffrey Tesler’s $149 million forfeiture, Wojciech Chodan’s $700,000 forfeiture, and Albert Jack Stanley’s guilty plea.

This post summarizes the Marubeni enforcement action, the first FCPA enforcement action of 2012.

The DOJ enforcement action involved a criminal information (here) against Marubeni Corporation resolved through a deferred prosecution agreement (here)

Criminal Information

Friday Roundup

The SEC’s annual whistleblower report, a new FCPA map, taking FCPA reform too far, confessions of an FCPA “Mendelhead,” is too much FCPA training a bad thing, and Nigeria’s sovereign wealth fund … it’s all here in the Friday roundup.

SEC Whistleblower Report

The Dodd-Frank Act enacted in July 2010 contained whistleblower provisions applicable to all securities law violations including the Foreign Corrupt Practices Act.  In this prior post from July 2010, I predicted that the new whistleblower provisions would have a negligible impact on FCPA enforcement.  As noted in this prior post, my prediction was an outlier (so it seemed) compared to the flurry of law firm client alerts that predicted that the whistleblower provisions would have a significant impact on FCPA enforcement.

Whatever your view, I noted that the best part of the new whistleblower provisions were that its impact on FCPA enforcement can be monitored and analyzed because the SEC is required to submit annual reports to Congress.  Recently the SEC released (here) its annual report for FY2011.  However as noted by the SEC, “because the Final Rules [implementing the whistleblower program] became effective August 12, 2011, only 7 weeks of whistleblower tip data is available for fiscal year 2011.”

Appendix A to the report lists by subject matter “the 334 whistleblower tips received from August 12, 2011 through September 30, 2011.”   However, the SEC noted as follows.  “Of course, the Commission also receive [Tips, Complaints, and Referrals (“TCRs”] from individuals who do not wish or are not eligible to be considered for an award under the whistleblower program.  The data in this report is limited to those TCR’s that include the required whistleblower declaration and does not reflect all TCRs received by the Commission during the fiscal year.”

As the SEC notes “as a result of the relatively recent launch of the program and the small sample size, it is to early to identify any specific trends or conclusions from the data collected to data.”

In any event, a chart titled “Whistleblower Tips by Allegation Type” in the SEC report shows that 3.9% of the 334 tips involve the FCPA.  The SEC report is also an informative read as to the SEC’s implementation of the whistleblower award program and how it processes whistleblower tips.

The SEC whistleblower report from FY2010 is here.

FCPA Map

The Mintz Group (an international investigative services firm that specializes in FCPA and integrity due-diligence that also assists corporate counsel and outside counsel with investigations related to potential or alleged FCPA violations) recently released here a dandy interactive map allowing users to scroll over countries and learn of FCPA violations in those countries, as well as industry specific FCPA data.

Taking FCPA Reform Too Far

Writing recently at the Cato Institute’s blog (see here), Walter Olson commented “the Foreign Corrupt Practices Act:  clarification is not enough.”  Olson stated as follows.  “The Foreign Corrupt Practices Act, enacted in 1977 and the subject of a high-profile federal enforcement campaign in recent years, is a feel-good piece of overcriminalization that oversteps the proper bounds of federal lawmaking in at least four distinct ways, any of which should have prevented its passage. It is extraterritorial, purporting to punish overseas misdeeds which deprive no Americans of liberty or property and whose punishment is better left in the hands of authorities elsewhere. It is vicarious, inflicting massive liability on businesses and unknowing higher-ups over the actions of rogue local subsidiaries, salespeople and facilitators. It is punitive, menacing its targets with twenty-year prison terms and inflicting huge penalties over less-than-huge misbehavior. And finally, it is vague, leaving companies to guess at the proper line between tolerated payments (e.g., gratuities to speed up visa and license issuance in developing countries) and improper “bribes,” and even such basic questions as who counts as “official.” In the face of a mounting outcry from the business community, the Obama administration has now finally conceded that there is some validity to this last point, and Criminal Division chief Lanny Breuer says the Department of Justice will develop guidelines to provide greater clarity as to what it believes the law does and does not forbid. Better than nothing, but why not consider the case for wider reform or even repeal?”

Similarly, Scott Greenfield who runs the blog Simple Justice (see here) stated as follows.  “At its core, the FCPA is our government’s way of pretending to be the mean old school marm, telling all the nasty children of the world how to behave.  If it doesn’t appeal to the school marm’s sensibilities, then it’s a crime, and demands a hard smack across the knuckles.  A very expensive hard smack. […]   We may hate corporations, but we need them, and we need them to be productive around the globe.  To tie them down because of vague, child-like notions of fairness that conflict with cultural norms everywhere else is just foolish and counterproductive. Surviving and competing in foreign cultures isn’t wrong, and it shouldn’t be a crime. The FCPA has got to go.”

I respectfully disagree.  While I agree that the FCPA ought to be reformed in certain respects and while FCPA enforcement has become unhinged, I do believe, as I have stated on several occasions including in my November 2010 Senate testimony (here), that the FCPA is a fundamentally sound statute that was passed by Congress for a specific valid and legitimate reason.

Confessions Of An FCPA “Mendelhead”

In response to my recent “luncheon law” post (see here), Howard Sklar (who previously ran anti-corruption compliance for Hewlett-Packard Co.) wrote on his Open Air Blog (here) as follows.  “I used to go to these conferences with the expressed purpose of ‘reading the DOJ tea leaves for this season.’  The ‘used to’ in that sentence is important, but we’ll get to that in a minute. Because ‘reading the tea leaves’ was a crucial part of my risk assessment process. That’s a pitiful state of affairs, but there you are. During that period, several years ago, there really wasn’t anywhere else to go. I would reach out to fellow in-house practitioners and benchmark all the time, and I’d follow Mark Mendelsohn around like a puppy looking for scraps. It was a little sad, really. I know I’m a bit of a geek, and I know Mark Mendelsohn ain’t the Grateful Dead. But there I was, an FCPA Mendelhead.”

Over-Training?

Greg Esslinger (Senior Managing Director at FTI Consulting) recently posted (here) an interesting article on the ABA’s Global Anti-Corruption Task Force website.  Titled “Anti-Corruption Compliance:  Are Employees Becoming ‘Over-Trained’?”  Esslinger writes as follows.  “In response [to this new era of enforcement], companies have begun to provide more and more accessible (read: web-based) anti-corruption and related regulatory training programs.  Predictably, a panoply of vendors have surfaced offering state-of-the-art customizable online training modules, complete with scenarios, live actors, knowledge checks and certifications.  Online compliance training has now become a cottage industry serving a wide array of organizations faced with the daunting task of communicating a Western regulatory concept to tens of thousands of employees across multiple languages, cultures and jurisdictions – again, under the watchful eye of various enforcement bodies.”  In the piece, Esslinger asks “whether repeated online and other mass training will over time actually have the unintended effect of desensitizing employees to, rather than making them more aware and cautious of, bribery and other corrupt activity.”

Training occurs in a variety of legal and non-legal contexts and if anyone is aware of social-science / behavioral research relevant to an “over-training” phenomena please share.

Nigeria Sovereign Wealth Fund

With certain companies reportedly under the FCPA microscope for dealings with sovereign wealth funds (see here for a prior post), its hard not to have the FCPA radars go off when reading this recent article by Azam Ahmed in the New York Times concerning Nigeria’s new sovereign wealth fund.  The article states as follows.  “In an effort to preserve and increase its oil revenue, the country recently established a so-called sovereign wealth fund, following the path of many resource-rich countries. Now, Wall Street titans like Goldman Sachs, Morgan Stanley and JPMorgan Chase are courting top government officials, aiming to grab a piece of a portfolio that could eventually be worth tens of billions of dollars.”  The article further states as follows.  “To grab a piece of the lucrative business, big banks and asset managers have tirelessly cultivated relationships with governments worldwide and added teams dedicated to sovereign wealth funds. In recent months, bankers, lawyers and consultants flew to the Nigerian capital of Abuja to pitch officials on their services. The government chose JPMorgan Chase as one of its advisers on the structuring of the fund.”

*****

A good weekend to all.