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Friday Roundup

It has been a few weeks since my last Friday Roundup.

As a result this is a souped-up edition.

Is paying an FCPA fine merely a cost of business, are FCPA internal investigations getting just a bit out-of-hand, have you heard that a new cottage industry of FCPA experts has emerged, quit picking on Canada, will Julian Messent (or others) be prosecuted for FCPA violations, Assistant Attorney General Breuer on the Kleptocracy Asset Recovery Initiative, Proclamation 7750 news, and a son who wants to keep the New York condo … it’s all here in the Friday roundup.

Is Paying an FCPA Fine Merely a Cost of Business?

One may wonder, and legitimately so, whether getting caught for violating the FCPA is simply a cost of doing business whereby the company pays a fine and then continues to do business, including with, in many cases, the U.S. government. See here for my post on Siemens – The Year After, here for my post on BAE’s recent $40 million contract with the FBI (note because of the facade of FCPA enforcement, BAE was not charged with violating the FCPA – see here).

Denis McInerney, Chief of the DOJ’s Fraud Section, rejected such an assertion during an October 21st speech before the American Bar Association.

According to Inside U.S. Trade, McInerney “sought to rebut charges that FCPA enforcement relies too heavily on settlement agreements and that it is therefore like a licensing regime under which ‘companies are allowed to bribe, but if caught they have to pay a fee.'” According to Inside U.S. Trade, McInerney said that in the past two years, DOJ has imposed fines of $59 million, $19 million, $365 million, $338 million, $400 million, $376 million, $579 million and $800 million and he “emphasized that the companies paying these penalties are subject to monitoring which can lead to criminal prosecution if new offenses occur.” According to Inside U.S. Trade, McInerney said “I guarantee you that these firms do not view these are mere licensing fees.”

Is This Getting a Bit Out of Hand?

Avon previously disclosed the existence of an internal investigation focused on potential FCPA issues (see here for the prior post).

Here is what the company said in its 10-Q filing (here) yesterday:

“As previously reported, we have engaged outside counsel to conduct an internal investigation and compliance reviews focused on compliance with the Foreign Corrupt Practices Act (“FCPA”) and related U.S. and foreign laws in China and additional countries. The internal investigation, which is being conducted under the oversight of our Audit Committee, began in June 2008. As we reported in October 2008, we voluntarily contacted the United States Securities and Exchange Commission and the United States Department of Justice to advise both agencies of our internal investigation. We are continuing to cooperate with both agencies and inquiries by them, including but not limited to, signing tolling agreements, translating and producing documents and assisting with interviews.

As previously reported in July 2009, in connection with the internal investigation, we commenced compliance reviews regarding the FCPA and related U.S. and foreign laws in additional countries in order to evaluate our compliance efforts. We are conducting these compliance reviews in a number of other countries selected to represent each of the Company’s four other international geographic segments. The internal investigation and compliance reviews are focused on reviewing certain expenses and books and records processes, including, but not limited to, travel, entertainment, gifts, and payments to third−party agents and others, in connection with our business dealings, directly or indirectly, with foreign governments and their employees. The internal investigation and compliance reviews of these matters are ongoing, and we continue to cooperate with both agencies with respect to these matters. At this point we are unable to predict the duration, scope, developments in, results of, or consequences of the internal investigation and compliance reviews.”

Here is what Avon had to say in the fling about its net global expenses:

“The increase in Net Global expenses for both the three and nine months ended September 30, 2010, was primarily attributable to significant professional and related fees associated with the FCPA investigation and compliance reviews described in Note 5 to the consolidated financial statements included herein of approximately $24 (up approximately $17 from the three months ended September 30, 2009) and approximately $72 (up approximately $49 from the nine months ended September 30, 2009), respectively. The increase in Net Global expenses for the nine months ended September 30, 2010 was also due to higher costs associated with global initiatives and costs associated with business acquisitions. Professional and related fees associated with the FCPA investigation and compliance reviews, while difficult to predict, are expected to continue during the course of this investigation.”

Those figures are not mere dollars, but millions of dollars. And, as noted in the disclosure, the expenses are expected to increase.

On a much smaller (yet still meaningful) scale, on August 31st, Orthofix disclosed (here) the existence of an internal investigation relating to FCPA issues focused on its Mexican subsidiaries, an entity that accounts “for approximately one percent of the Company’s consolidated net sales and consolidated total assets.”

Recently, Orthofix provided this update in an 8-K filing (here):

“Operating income in the third quarter of 2010 included the impact of $3.7 million in legal expenses associated with the DOJ investigation of the bone growth stimulation industry and the Company’s internal investigation into its compliance with the Foreign Corrupt Practices Act in its subsidiary in Mexico.”

Newsweek Notices FCPA Inc.

Newsweek recently carried a short blurb (here) titled “Going After Graft.” Among other things, the piece states:

“With prosecutions likely to continue—the FBI has doubled the number of agents tasked to FCPA cases—business is responding in kind. Law firms are competing for top FCPA talent, banks financing international deals are insisting on anti-bribery stipulations in contracts, and a new cottage industry of experts has emerged, offering country-by-country advice on gifts and local laws. In the words of an FBI spokesperson, FCPA are ‘four letters you need to be aware of if you’re doing business in the international marketplace.'”

Quit Picking On Canada

What if, in the U.S., there was no fallback FCPA books and records and internal control charges, there was no voluntary disclosure culture, there were no “overzealous prosecutions,” and there were no prosecutions undertaken as “publicity stunts.”

According to Cyndee Todgham Cherniak (here), FCPA enforcement would likely resemble the sparse enforcement of Canada’s Corruption of Foreign Public Officials Act.

At least that is my take-away from her recent post (here) on the Trade Lawyers Blog.

For more on Canada’s Corruption of Foreign Public Officials Act (see here and here).

Will Julian Messent (Or Others) Be Prosecuted For FCPA Violations?

Earlier this week, the U.K. Serious Fraud Office (SFO) announced (here) that Julian Messent was sentenced to 21 months in prison “after admitting making or authorizing corrupt payments of almost US $2 million to Costan Rican officials in the state insurance company, Instituto Nacional de Seguros (INS) and the national electricity provider Instituto Costarricense de Electricidad.”

Messent, a former director of London-based insurance business PWS International Ltd. (PWS), was the head of the Property (Americas) Divison at PWS in which role “he was responsible for securing and maintaining contracts for reinsurance in the Central and South America regions.”

According to the SFO release, “Messent authorized 41 corrupt payments” “to be paid to Costa Rican officials, their wives and associated companies, as inducements or rewards for assisting in the appointment or retention of PWS as broker of the lucrative reinsurance policy for INS.”

The SFO release also indicates that Messent was ordered to pay £100,000 in compensation to the Republic of Costa Rica. (In the U.S., FCPA fines flow solely into the U.S. Treasury).

Messent was charged under the U.K.’s Prevention of Corruption Act 1906 (see here).

According to this report in the Guardian, “the SFO decided not to prosecute PWS because the firm, which has been sold, had a substantial deficit in its pension fund.”

According to the Guardian, “the covert payments were routed through bank accounts in the names of the wives of the Costa Rican officials and through accounts in Panama and the US, and a travel agency in Florida.”

Under the 78dd-3 prong of the Foreign Corrupt Practices Act, persons other than an issuer or domestic concern (i.e. in this case foreign nationals) can be subject to the FCPA if the improper payments have a U.S. nexus.

Will FCPA prosecutions of Messent (and perhaps others) follow?

Breuer on the Kleptocracy Asset Recovery Initiative

As highlighted in this prior post, in November 2009, Attorney General Eric Holder called asset recovery from corrupt officials a “global imperative” and he announced a “redoubled commitment on behalf of the United States Department of Justice to recover” funds obtained by foreign officials through bribery.

In July 2010, Holder announced (here) the Kleptocracy Asset Recovery Initiative “aimed at combating large-scale foreign official corruption and recovering public funds for their intended – and proper – use: for the people of our nations.” Holder announced that the DOJ is “assembling a team of prosecutors who will focus exclusively on this work and build upon efforts already underway to deter corruption, hold offenders accountable, and protect public resources.”

In a recent keynote address at the Money Laundering Enforcement Conference (here), Assistant Attoney General Lanny Breuer had this to say about the initaitive:

“This Initiative represents a concrete step toward fulfilling that commitment. The Kleptocracy Initiative will involve three key sections in the Criminal Division: the Asset Forfeiture and Money Laundering Section, which will lead it, and the Office of International Affairs and the Fraud Section, which will provide critical support. Once fully implemented, this Initiative will allow the Department to recover assets on behalf of countries victimized by high-level corruption, building on the Justice Department’s already robust enforcement of the Foreign Corrupt Practices Act. Through the Kleptocracy Initiative, the Department will ensure that corrupt leaders cannot seek safe haven in the United States for their stolen wealth. And, if we uncover such wealth, the Justice Department will forfeit and return this stolen money to its rightful owners – the people and governments from whom it was taken.”

In his speech, Breuer also discussed (in a non-FCPA context) how the DOJ wants “companies that uncover illegal conduct to come forward voluntarily.”

Proclamation 7750 News

In 2004, President Bush signed Proclamation 7750 “To Suspend Entry As Immigrants or Nonimmigrants of Persons Engaged In or Benefiting From Corruption” (see here).

Proclamation 7750 basically says the U.S. can suspend entry into the country “of certain persons who have committed, participated in, or are beneficiaries of corruption in the performance of public functions where that corruption has serious adverse effects on international activity” subject to an exception where denying such entry would be “contrary to the interests” of the U.S.

Last year, the New York Times (here) ran an article quoting a former State Department official as saying the State Department(which is responsible for enforcing the proclamation) “seem[s] to lack the backbone to use this prohibition.”

Earlier this month, David Johnson (Assistant Secretary, Bureau International Narcotics and Law Enforcement Affairs, U.S. Department of State) stated at the Third Committee of the 65th Session of the UN General Assembly (see here) as follows:

“The United States continues to broaden its efforts to deny entry into our own country of public officials who receive bribes as well as those who supply them. Corrupt officials are not welcome in the United States.”

Joe Palazzolo (Wall Street Journal – Corruption Currents) followed up with Johnson and noted in a recent article that the “State Department is stepping up its game” in seeking to enforce Proclamation 7750. As Palazzolo reports, it is not hard to “step up the game” when “for a long time, one part-official […] handled 7750 matters.”

Palazzolo reports that the State Department recently hired two new employees and is “processing paperwork for two additional hires, who will focus the majority of their time on 7750 issues.” The article quotes a State Department official as saying, “it is our hope and intention that the new hires will result in greater capacity.”

Son Fights to Keep New York Condo

This prior post discussed the DOJ’s civil forfeiture complaint filed in July against certain U.S. properties “that represent a portion of illegal bribes paid to the former president of Taiwan and his wife.”

Joe Palazzolo (Wall Street Journal – Corruption Currents) recently reported that “the son of former Taiwanese President Chen Shui-bian has quietly hired legal counsel to prevent a Manhattan condominium, which prosecutors say was purchased with bribes, from falling into the hands of the government.”

According to Palazzolo, the son, Chen Chih-chung, has retained Jonathan Harris (see here) to defend against the forfeiture action and Harris is quoted as saying he will be filing a motion to dismiss “shortly.”

*****

A good weekend to all.

Friday Roundup

The DOJ appears not interested in Anadarko’s allegations and more disclosure news … its all here in the Friday roundup.

DOJ Appears Not Interested in Anadarko’s Allegations

The Jubilee field is located off the coast of Ghana.

Participants in the West Cape Three Points Block include: Kosmos Energy LLC; Anadarko Petroleum Corporation; Tullow Oil PLC; Ghana National Petroleum Corporation; E.O. Group Ltd.; and Sabre Oil and Gas Limited.

Anadarko (here) apparently reported Kosmos (here) to U.S. authorities for possible violations of the FCPA “in connection with securing licensing and exploration and production agreements.”

Anadarko apparently made similar allegations against EO Group.

Apparently, the DOJ is not interested – according to this Bloomberg article by David Wethe and and Jason McClure.

The article, which cites to a May 12 letter from the DOJ to Kosmos and June 2 letter from the DOJ to EO Group, states that the DOJ does not intend to “take any enforcement action” or pursue charges against either company and that the DOJ closed its inquiry into the matter.

According to the article, “Ghana is pressing ahead with its own criminal inquiry into alleged corruption in the development of the field.”

Disclosure News

From Orthofix International N.V.’s Form 8-K filed August 31 (see here):

“During a recent internal management review of Promeca S.A. DE C.V. (“Promeca”), one of its Mexican subsidiaries, the Company received allegations of improper payments, allegedly made by certain of Promeca’s local employees in Mexico, to employees of a Mexican governmental health care entity. The Company has engaged Hogan Lovells US LLP and Deloitte Financial Advisory Services LLP to conduct an internal investigation focusing on compliance with the Foreign Corrupt Practices Act (“FCPA”) and voluntarily contacted the U.S. Securities and Exchange Commission and the United States Department of Justice to advise both agencies that an internal investigation is underway. During 2009, Promeca accounted for approximately one percent of the Company’s consolidated net sales and consolidated total assets. The internal investigation is in its early stages and no conclusions can be drawn at this time as to its outcome; however, the FCPA and related statutes and regulations provide for potential criminal and civil sanctions in connection with FCPA violations, including criminal fines, civil penalties, and disgorgement of past profits.”

From Diageo PLC’s 2010 Preliminary Results Release, dated August 26th (see here)

“SEC investigation: As previously reported, Diageo Korea and several of its current and former employees have been subject to investigations by Korean authorities regarding various regulatory and control matters. Convictions for improper payments to a Korean customs official have been handed down against two former Diageo Korea employees, and a former and two current Diageo Korea employees have been convicted on various counts of tax evasion. Diageo had previously voluntarily reported the allegations relating to the convictions for improper payments to the US Department of Justice and the US Securities and Exchange Commission (SEC). The SEC has commenced an investigation into these and other matters, and Diageo is in the process of responding to the regulators‟ enquiries regarding activities in Korea, Thailand, India and elsewhere. Diageo‟s own internal investigation in Korea, Thailand, India and elsewhere remains ongoing. The US Foreign Corrupt Practices Act (FCPA) and related statutes and regulations provide for potential monetary penalties, criminal sanctions and may result in some cases in debarment from doing business with governmental entities in connection with FCPA violations. Diageo is unable to quantify meaningfully the possible loss or range of loss to which these matters may give rise.”

*****

A good Labor Day weekend to all.

Friday Roundup

The DOJ appears not interested in Anadarko’s allegations and more disclosure news … its all here in the Friday roundup.

DOJ Appears Not Interested in Anadarko’s Allegations

The Jubilee field is located off the coast of Ghana.

Participants in the West Cape Three Points Block include: Kosmos Energy LLC; Anadarko Petroleum Corporation; Tullow Oil PLC; Ghana National Petroleum Corporation; E.O. Group Ltd.; and Sabre Oil and Gas Limited.

Anadarko (here) apparently reported Kosmos (here) to U.S. authorities for possible violations of the FCPA “in connection with securing licensing and exploration and production agreements.”

Anadarko apparently made similar allegations against EO Group.

Apparently, the DOJ is not interested – according to this Bloomberg article by David Wethe and and Jason McClure.

The article, which cites to a May 12 letter from the DOJ to Kosmos and June 2 letter from the DOJ to EO Group, states that the DOJ does not intend to “take any enforcement action” or pursue charges against either company and that the DOJ closed its inquiry into the matter.

According to the article, “Ghana is pressing ahead with its own criminal inquiry into alleged corruption in the development of the field.”

Disclosure News

From Orthofix International N.V.’s Form 8-K filed August 31 (see here):

“During a recent internal management review of Promeca S.A. DE C.V. (“Promeca”), one of its Mexican subsidiaries, the Company received allegations of improper payments, allegedly made by certain of Promeca’s local employees in Mexico, to employees of a Mexican governmental health care entity. The Company has engaged Hogan Lovells US LLP and Deloitte Financial Advisory Services LLP to conduct an internal investigation focusing on compliance with the Foreign Corrupt Practices Act (“FCPA”) and voluntarily contacted the U.S. Securities and Exchange Commission and the United States Department of Justice to advise both agencies that an internal investigation is underway. During 2009, Promeca accounted for approximately one percent of the Company’s consolidated net sales and consolidated total assets. The internal investigation is in its early stages and no conclusions can be drawn at this time as to its outcome; however, the FCPA and related statutes and regulations provide for potential criminal and civil sanctions in connection with FCPA violations, including criminal fines, civil penalties, and disgorgement of past profits.”

From Diageo PLC’s 2010 Preliminary Results Release, dated August 26th (see here)

“SEC investigation: As previously reported, Diageo Korea and several of its current and former employees have been subject to investigations by Korean authorities regarding various regulatory and control matters. Convictions for improper payments to a Korean customs official have been handed down against two former Diageo Korea employees, and a former and two current Diageo Korea employees have been convicted on various counts of tax evasion. Diageo had previously voluntarily reported the allegations relating to the convictions for improper payments to the US Department of Justice and the US Securities and Exchange Commission (SEC). The SEC has commenced an investigation into these and other matters, and Diageo is in the process of responding to the regulators‟ enquiries regarding activities in Korea, Thailand, India and elsewhere. Diageo‟s own internal investigation in Korea, Thailand, India and elsewhere remains ongoing. The US Foreign Corrupt Practices Act (FCPA) and related statutes and regulations provide for potential monetary penalties, criminal sanctions and may result in some cases in debarment from doing business with governmental entities in connection with FCPA violations. Diageo is unable to quantify meaningfully the possible loss or range of loss to which these matters may give rise.”

*****

A good Labor Day weekend to all.

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