Add some to the list, take a few off, future settlement, continuing to seemingly “boil the ocean,” and monitor costs.
This time of year is heavy on annual reports and other corporate disclosures and this post rounds up various scrutiny alerts and updates.
Albemarle Corp.
The North Carolina based chemical company recently disclosed:
In 2012, Orthofix International N.V. (“Orthofix”), a limited liability orthopedic medical device company formed under the law of Netherlands Antilles with administrative offices in Lewisville, Texas and common stock traded on Nasdaq, resolved a $7.4 million Foreign Corrupt Practices Act enforcement action ($2.2 million via a DOJ deferred prosecution agreement, and $5.2 million via a settled SEC civil complaint) based primarily on the conduct of its wholly-owned Mexican subsidiary.
In an enforcement action that was expected (see here for the August 2016 post highlighting how Orthofix International was poised to join the FCPA repeat offender club), the SEC announced yesterday that the company agreed to pay $6 million in disgorgement and penalties to settle FCPA books and records and internal controls findings “when its subsidiary in Brazil schemed to use high discounts and make improper payments through third-party commercial representatives and distributors to induce doctors under government employment to use Orthofix’s products.”
This is the second instance in the past week of a company resolving a second FCPA enforcement action in the span of approximately five years (see here for the prior post regarding Zimmer Biomet).
The recent article “Measuring the Impact of NPAs and DPAs on FCPA Enforcement” highlights that part of the DOJ’s rhetoric surrounding such alternative resolution vehicles is that such agreements “have had a truly transformative effect on particular companies and, more generally, on corporate culture across the globe” and that “the result has been, unequivocally, far greater accountability for corporate wrongdoing — and a sea change in corporate compliance efforts.”
However, as highlighted in the article the DOJ’s policy justification for NPAs and DPAs rings hollow as there is no data to suggest that resolving alleged instances of corporate criminal liability through NPAs or DPAs achieves any meaningful deterrence.
As further highlighted in the article through reference to specific companies, despite the DOJ’s statement that companies resolving enforcement actions through NPAs or DPAs have “undergone dramatic changes,” several companies that resolved FCPA enforcement actions through alternative resolution vehicles have subsequently resolved additional FCPA enforcement actions or become the subject of additional FCPA scrutiny.
Recent posts here and here have chronicled how Biomet (a company that resolved a prior FCPA enforcement via a DPA) is soon to join the inauspicious “FCPA Repeat Offender” club and this post highlights how Orthofix International (another company that resolved a prior FCPA enforcement action via a DPA) is also poised to join the club.
Scrutiny alerts and updates, reinstated, and for the reading stack. It’s all here in the Friday Roundup.
Scrutiny Alerts and Updates
Och-Ziff
The company recently disclosed the following regarding its long-standing FCPA scrutiny.
“As previously disclosed, since 2011, we have been investigated by the SEC and the DOJ concerning possible violations of the FCPA and other laws. While we are unable to predict the full scope, duration or outcome of the SEC and DOJ investigations, based on discussions with the SEC and DOJ, we believe that the government will pursue civil and criminal sanctions. We are in discussions with the SEC and DOJ concerning resolution of these matters. We accrued $200.0 million in the first quarter of 2016 in connection with the disclosed investigations and recorded an additional charge of $214.3 million in connection with the disclosed investigations for the second quarter of 2016. The probable estimated loss, which totals $414.3 million, may be subject to change based on the terms of any final settlement with the SEC and DOJ relating to those matters.”
Nominate, scrutiny alerts and updates, and is it asking too much for the enforcement agencies to get the law right. It’s all here in the Friday roundup.
Nominate
As highlighted here, last month marked the six year anniversary of FCPA Professor. If FCPA Professor adds value to your practice or business or otherwise enlightens your day and causes you to contemplate the issues in a more sophisticated way, please consider nominating FCPA Professor for the ABA’s Top Legal Blog contest.
Scrutiny Alerts and Updates
Olympus
As highlighted in this prior post, Japan-based Olympus has been under FCPA scrutiny since at least August 2012 in connection with alleged relationships with physicians in Brazil. According to this company document the company recently recorded ¥2.4 billion (approximately $19 million) “based on progress in discussions with U.S. DOJ with regard to Foreign Corrupt Practices Act.”
This “Notice of Recognition of Extraordinary Loss Due to the Investigation by the U.S. Department of Justice Against Subsidiaries Relating to the Foreign Corrupt Practices Act” states:
“Olympus Corporation hereby announces that Olympus Latin America, Inc. (“OLA”), an indirect U.S. subsidiary of ours, and Olympus Optical do Brasil, Ltda. (“OBL”), a Brazilian subsidiary of OLA, have been under investigation by the U.S. Department of Justice (the “DOJ”) relating to the Foreign Corrupt Practices Act concerning their medical business, and that we have recognized an extraordinary loss in connection with such investigation for the first quarter of the fiscal year ending March 2016.
Background of this matter. In October 2011, Olympus Corporation of the Americas (“OCA”), a U.S. subsidiary of ours and the parent company of OLA, self-reported to the DOJ potential issues concerning OLA’s and OBL’s medical businesses in 2011 or earlier. OCA is currently continuing discussions with the DOJ towards a resolution, but in view of the progress at the present time, we have recorded an extraordinary loss of approximately 2,421 million yen as a provision.
Future outlook. In connection with this matter, we have recognized an extraordinary loss of approximately 2,421 million yen for the first quarter of the fiscal year ending March 2016, the results of which we are announcing today. However, there is no change to the consolidated earnings forecast due to this matter. We will promptly disclose developments concerning this matter.”
Orthofix International
As noted in this previous post, in July 2012 Orthofix International resolved a DOJ/SEC FCPA enforcement action concerning alleged conduct by a Mexican subsidiary. In resolving that action, the company agreed to a three year deferred prosecution agreement. During the term of the DPA, Orthofix disclosed that it was “investigating allegations involving potential improper payments with respect to our subsidiary in Brazil.”
Recently, the DOJ and Orthofix filed a Joint Status Report with the court stating:
“The DPA was scheduled to expire on July 17, 2015. The Department and Orthofix agreed on June 15, 2015, however, to extend the Term of the DPA for an additional two months in order to give the Department additional time to (1) evaluate Orthofix’s compliance with the internal controls and compliance undertakings in the DPA and (2) further investigate potentially improper conduct the company disclosed during the term of the DPA. The Department and Orthofix agree that this two-month extension extends all of the terms of the DPA and does not waive, or in any way prejudice, any of the Department’s rights under the DPA.
The DPA’s expiration date has thus been extended to September 17, 2015. The Department intends to complete its evaluation and further investigation in August 2015, and will notify the Court and Orthofix of its proposed course of action shortly thereafter.”
Och-Ziff Capital Management
The company has been under FCPA scrutiny since 2011 concerning various activities in Africa. Recently the Wall Street Journal went in-depth in this article titled “U.S. Probes Och-Ziff’s Mugabe Tie.” According to the article:
“U.S. authorities are investigating whether Och-Ziff Capital Management Group LLC knew that part of a $150 million investment in a small African miner would wind up in the hands of Zimbabwe President Robert Mugabe’s government, according to people familiar with the probe. Och-Ziff last year disclosed that a broader Justice Department and Securities and Exchange Commission investigation is examining the $47 billion New York hedge fund’s business in Africa under the Foreign Corrupt Practices Act. The act bars firms doing business in the U.S. from giving money or items of value to foreign officials for business, either directly or through intermediaries. The publicly traded hedge-fund firm is in talks to settle the probe into its ties to a network of investors and deal makers that it worked with on business from Libya to South Africa, according to people familiar with the investigation. Och-Ziff and others have poured hundreds of millions of dollars into mining operations in the past decade as commodities prices soared. In Zimbabwe, U.S. authorities are examining Och-Ziff’s connection to a $100 million payment to Mr. Mugabe’s government in early 2008, the people said. The investigation into Och-Ziff’s ties to the payment, which was made through the African mining company it invested in, Central African Mining & Exploration Co., or Camec, hasn’t been previously disclosed. Camec at the time described the payment as a loan. Och-Ziff has denied that it knew some of the money would end up with the Zimbabwe government. Human-rights groups said the funds were used to carry out a violent crackdown on the opposition during a tough election Mr. Mugabe ultimately won in 2008. U.S. investigators are scrutinizing a March 2008 trip to Zimbabwe taken by Och-Ziff’s Africa director at the time, Vanja Baros,according to people familiar with the investigation. The people said Mr. Baros met several people involved in channeling the money to the Mugabe government, includingBilly Rautenbach, a Zimbabwean businessman with close ties to the dictator.”
Vantage Drilling
The company recently disclosed:
“In July 2015, we became aware of media reports that our agent utilized in the contracting of the Titanium Explorer drillship has entered into a plea arrangement with the Brazilian authorities in connection with the agent’s role in obtaining bribes on behalf of former Petrobras executives. We have since confirmed that our agent, who has represented multiple international companies in their contracts with Petrobras, has entered into such discussions and provided evidence to the Brazilian authorities of an alleged bribery scheme between the former Petrobras executives and a former director of Vantage. The former director, Mr. Su, was the sole owner of the company that owned the Titanium Explorer at the time the alleged bribe was paid. We have not been contacted by any governmental authority in connection with these allegations. However, we voluntarily contacted the SEC and the Department of Justice (the “DOJ”) to advise them of these recent developments. We continue to investigate the matter, but as of now, our internal and independent investigations have found no evidence of wrongdoing by our employees or participation in any manner with the inappropriate acts alleged to have been conducted by the agent.
We cannot predict whether any governmental authority will seek to investigate this matter, or if a proceeding were opened, the scope or ultimate outcome of any such investigation. If the SEC or DOJ determines that we have violated the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”), or if any governmental authority determines that we have violated applicable anti-bribery laws, they could seek civil and criminal sanctions, including monetary penalties, against us, as well as changes to our business practices and compliance programs, any of which could have a material adverse effect on our business and financial condition.
On August 21, 2012, we filed a lawsuit against Mr. Su, a former member of our Board of Directors and the owner of F3 Capital, our largest shareholder, asserting breach of fiduciary duties, fraud, fraudulent inducement and negligent misrepresentation, and unjust enrichment based on Mr. Su’s conduct in his dealings with the Company both immediately prior to, and during his tenure as one of our directors. On June 20, 2014, we received notice that Mr. Su had filed a countersuit against the Company and certain of the Company’s current and former officers and directors. The countersuit alleges fraud, breach of fiduciary duty, negligent misrepresentation, tortious interference with contract, and unjust enrichment and seeks indemnification from us with respect to the matters that are the basis of our lawsuit.”
NCR
As highlighted in this August 2012 post, NCR disclosed:
“NCR has received anonymous allegations from a purported whistleblower regarding certain aspects of the Company’s business practices in China, the Middle East and Africa, including allegations which, if true, might constitute violations of the Foreign Corrupt Practices Act. NCR has certain concerns about the motivation of the purported whistleblower and the accuracy of the allegations it received, some of which appear to be untrue. NCR takes all allegations of this sort seriously and promptly retained experienced outside counsel and began an internal investigation that is ongoing.”
Recently the company disclosed:
“With respect to the FCPA, the Company made a presentation to the staff of the Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) providing the facts known to the Company related to the whistleblower’s FCPA allegations, and advising the government that many of these allegations were unsubstantiated. The Company responded to subpoenas of the SEC and to requests of the DOJ for documents and information related to the FCPA, including matters related to the whistleblower’s FCPA allegations. The Company’s investigations of the whistleblower’s FCPA allegations identified a few opportunities to strengthen the Company’s comprehensive FCPA compliance program, and the Company continues to evaluate and enhance its compliance program as appropriate.With respect to the DOJ, the Company responded to its most recent requests for documents in 2014. With respect to the SEC, on June 22, 2015, the SEC staff notified the Company that it did not intend to recommend an enforcement action against the Company with respect to these matters.”
To some, this represents a “declination.” To more sophisticated observers this appears to represent unfounded whistleblower allegations.
Alexion Pharmaceuticals
The company recently disclosed:
“[W]e received a subpoena in connection with an investigation by the Enforcement Division of the SEC requesting information related to our grant-making activities and compliance with the Foreign Corrupt Practices Act in various countries. The SEC also seeks information related to Alexion’s recalls of specific lots of Soliris and related securities disclosures. Alexion is cooperating with the SEC’s investigation, which is in its early stages. At this time, Alexion is unable to predict the duration, scope or outcome of the SEC investigation. Any determination that our operations or activities are not, or were not, in compliance with existing United States or foreign laws or regulations, including by the SEC pursuant to its investigation of our compliance with the FCPA and other matters, could result in the imposition of a broad range of civil and criminal sanctions against Alexion and certain of our directors, officers and/or employees, including injunctive relief, disgorgement, substantial fines or penalties, imprisonment, interruptions of business, debarment from government contracts, loss of supplier, vendor or other third-party relationships, termination of necessary licenses and permits, and other legal or equitable sanctions. Other internal or government investigations or legal or regulatory proceedings, including lawsuits brought by private litigants, may also follow as a consequence. Violations of these laws may result in criminal or civil sanctions, which could disrupt our business and result in a material adverse effect on its reputation, business, results of operations or financial condition. Cooperating with and responding to the SEC in connection with its investigation of our FCPA practices and other matters, as well as responding to any future U.S. or foreign governmental investigation or whistleblower lawsuit, could result in substantial expenses, and could divert management’s attention from other business concerns and could have a material adverse effect on our business and financial condition and growth prospects.”
Flowserve
In 2008 Flowserve Corp. and related entities resolved a DOJ and SEC FCPA enforcement action related to the United Nations Oil for Food Program. In resolving the enforcement action, Flowserve agreed to pay $10.5 million in combined fines and penalties and agreed to a permanent “obey the law” injunction. (see here and here).
Recently, Flowserve disclosed:
“As previously disclosed in our 2014 Annual Report, we terminated an employee of an overseas subsidiary after uncovering actions that violated our Code of Business Conduct and may have violated the Foreign Corrupt Practices Act. We have completed our internal investigation into the matter, self-reported the potential violation to the United States Department of Justice (the “DOJ”) and the SEC, and are continuing to cooperate with the DOJ and SEC. We recently received a subpoena from the SEC requesting additional information and documentation related to the matter and are in the process of responding. We currently believe that this matter will not have a material adverse financial impact on the Company, but there can be no assurance that the Company will not be subjected to monetary penalties and additional costs.”
Is It Asking Too Much?
Practitioners recently snuffed out some subtle changes to the November 2012 FCPA Guidance issued by the DOJ and SEC.
The changes make the FCPA Guidance consistent with … well the law.
Is it asking too much for the enforcement agencies to get the law right? After all, it took the FCPA enforcement agencies over a year to write the pamphlet style FCPA Guidance.
But then again, the law has seemingly never been the FCPA enforcement agencies’ strong suit when all they have to do in the vast majority of situations is convince themselves of their legal interpretations.
The recent changes are not the biggest flub in the original FCPA Guidance.
As highlighted in this prior post, in the original guidance the enforcement agencies literally rewrote the FCPA statute. Only after being called out, did the Guidance change. (See here for the prior post).
To learn about other selective information, half-truths, and information that is demonstratively false in the FCPA Guidance see “Grading the Foreign Corrupt Practices Act Guidance.”
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A good weekend to all.
