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.
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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).
Wynn’s Boardroom Battle Royale
[There are two posts today]
Rarely does a company issue a press release accusing a director of Foreign Corrupt Practices Act violations. But then again, rarely does a director file a lawsuit against the company alleging facts that could implicate the FCPA, which then sets into motion an SEC inquiry.
Welcome to Wynn Resorts boardroom battle royale.
As indicated in this prior post, in January, Wynn boardmember Kazuo Okada filed a civil lawsuit in Nevada alleging facts which could implicate the FCPA – a $135 million Wynn donation to the University of Macau. As noted in the post, last week Wynn announced that the SEC has launched an inquiry requesting information relating to the donation, other donations made by the company and the company’s “casino or concession gaming licenses or renewals in Macau.”
Yesterday, in a Sunday press release (here), Wynn announced that its “Compliance Committee has concluded a year-long investigation after receiving an independent report detailing numerous apparent violations of the U.S. Foreign Corrupt Practices Act (FCPA) by Aruze USA, Inc. [see here], its parent company Universal Entertainment Corporation [see here] and its principal shareholder, Kazuo Okada.”
Okada’s bio on Wynn’s website (here) states as follows. “Mr. Okada founded Universal Lease Co. Ltd., which became Aruze Corp. in 1998, a company listed on the Japanese Association of Securities Dealers Automated Quotation Securities Exchange. In November 2009, Aruze Corp. changed its name to Universal Entertainment Corporation. Universal Entertainment Corporation a Japanese manufacturer of pachislot and pachinko machines, amusement machines, and video games for domestic sales. In 1983, Mr. Okada also founded Universal Distributing Nevada, Inc., which changed its name to Aruze Gaming America, Inc. in 2005. Aruze Gaming America, Inc. is a manufacturer and distributor of gaming machines and devices in the United States and is expanding its sales business in Asia, Australia and South Africa. Mr. Okada currently serves as director and Chairman of the board of Universal Entertainment Corporation, as director, President, Secretary and Treasurer of Aruze USA, Inc., which is a wholly owned subsidiary of Universal Entertainment Corporation, and as director, President, Secretary and Treasurer of Aruze Gaming America, Inc.”
In yesterday’s release, Wynn further stated as follows. “The Compliance Committee, chaired by former Nevada Governor Robert Miller, engaged several investigators, including Freeh, Sporkin and Sullivan, LLP, led by Louis J. Freeh, the former Director of the U.S. Federal Bureau of Investigation, which conducted a thorough independent investigation. Freeh’s investigators uncovered and documented more than three dozen instances over a three-year period in which Mr. Okada and his associates engaged in improper activities for their own benefit in apparent violation of U.S. anti-corruption laws and gross disregard for the Company’s Code of Conduct. These troubling discoveries include cash payments and gifts totaling approximately$110,000 to foreign gaming regulators. “Mr. Okada and his associates and companies appear to have engaged in a longstanding practice of making payments and gifts to his two chief gaming regulators at the Philippines Amusement and Gaming Corporation (PAGCOR), who directly oversee and regulated Mr. Okada’s Provisional Licensing Agreement to operate in that country,” according to the Freeh Report. The report further stated that Mr. Okada and his associates have “consciously taken active measures to conceal both the nature and amount of these payments.””
Based on the Freeh Report, the Wynn releases states as follows. “The Board has requested that Mr. Okada resign as a Director of Wynn Resorts. The Company will immediately inform the Board of Directors of its Hong Kong listed subsidiary, Wynn Macau, Limited, of its actions and will recommend that Mr. Okada be removed from the Wynn Macau Board.” […] “The Freeh Report is the culmination of a year-long investigation by the Compliance Committee based on increasing concerns the Board had relating to the activities of Mr. Okada and Aruze USA, Inc. in the Philippines and statements made by Mr. Okada to Wynn Resorts’ Directors that gifts to regulators are permissible in Asia. Mr. Okada is the only Director of Wynn Resorts who has continued to refuse to sign the Company’s Code of Conduct or participate in mandatory Foreign Corrupt Practices Act training for Directors.”
To learn more, see here from Reuters.
Healthcare Providers, Telecom (And Other SOE) Employees, Veterinarians, And Liquor Store Employees – The “Foreign Officials” Of 2011
A “foreign official.” Without one, there can be no FCPA anti-bribery violation (civil or criminal). Who were the “foreign officials” of 2011 (at least from an enforcement perspective – recognizing of course that the meaning of this key FCPA element is the subject of much on-going dispute).
This post, describes the “foreign officials” from 2011 corporate FCPA enforcement actions. There were 16 core corporate enforcement actions in 2011. Of the 16 enforcement actions, 13 (81%) involved, in whole or in part, employees of alleged state-owned or state-controlled enterprises or entities (“SOEs”). These enterprises and entities ranged from manufacturing companies, oil and gas companies, telecommunications companies, health-care entities, engineering firms / design institutes, liquor stores, and insurance companies.
In 2010, 60% of corporate FCPA enforcement actions involved, in whole or in part, employees of alleged SOEs (see here at pages 108-119). In 2009, 66% of corporate FCPA enforcement actions involved, in whole or in part, employees of alleged SOEs (see here at pages 410-44).
As to whether Congress intended employees of SOEs to be “foreign officials” under the FCPA, see here for my “foreign official” declaration in the Carson case and this prior post which includes links to all judicial decisions on this key FCPA element.
Not only did SOE employees comprise the bulk of “foreign officials” in 2011, but so too did individuals with apparent ministerial or clerical duties (see Tyson Foods, IBM, Ball Corp., and Diageo).
As noted in the 2010 “foreign official” post (here), this is noteworthy for the following reason.
The FCPA’s original definition of “foreign official” was as follows. “… any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or any person acting in an official capacity for or on behalf of such government or department, agency or instrumentality. Such terms do not include any employee of a foreign government or any department, agency, or instrumentality thereof whose duties are essentially ministerial or clerical.”
This last sentence was the FCPA’s original (albeit indirect) facilitating payment or grease exception. The relevant House Report states in pertinent part as follows: “… a gratuity paid to a customs official to speed the processing of a customs document would not be reached by this bill. Nor would it reach payments made to secure permits, licenses, or the expeditious performance of similar duties of an essentially ministerial or clerical nature which must be performed in any event.”
When Congress amended the FCPA in 1988 it, among other things, amended the definition of foreign official by removing this indirect facilitating payment exception from the “foreign official” definition by creating a stand-alone facilitating payment exception currently found in the statute.
The relevant House Report indicates that Congress did not seek to disturb Congress’s original intent. “The policy adopted by Congress in 1977 remains valid, in terms of both U.S. law enforcement and foreign relations considerations. Any prohibition under U.S. law against this type of petty corruption would be exceedingly difficult to enforce, not only by U.S. prosecutors but by company officials themselves. Thus while such payments should not be condoned, they may appropriately be excluded from the reach of the FCPA. U.S. enforcement resources should be devoted to activities have much greater impact on foreign policy.”
In sum, of the 16 corporate FCPA enforcement actions from 1011, 15 (94%) involved, in whole or in part, SOE employees and/or “foreign officials” with apparent ministerial or clerical duties. The one exception is Armor Holdings which involved payments to a United Nations procurement official, an employee of a “public international organization” a term inserted into the FCPA’s “foreign official” definition by way of the 1998 amendments.
The remainder of this post describes (as per DOJ/SEC allegations) the “foreign officials” of 2011. As is apparent from the specific descriptions below, in certain instances the enforcement agencies describe the “foreign official” with reasonable specificity; in other instances with virtually no specificity.
[Note: certain of the enforcement actions below technically only involved FCPA books and records and internal control charges. As most readers know, actual charges in most FCPA enforcement actions hinge on voluntary disclosure, cooperation, collateral consequences, and other non-legal issues. Thus, even if an FCPA enforcement action is resolved without FCPA anti-bribery charges, the actions remain very much about the “foreign officials” involved. As I’ve said before, if an employee of a U.S. company consistently entertains his brother-in-law in the corporate suite and seeks reimbursement for “client entertainment” you will not be reading about this FCPA books and records and internal controls enforcement action]
Maxwell Technologies
DOJ
“Pinggao Group Co. Ltd. (formerly Pingdingshan High Voltage Switchgear Works (“Pinggao Group”) was a state-owned manufacturer of electric-utility infrastructure in Henan Province China.”
“New Northeast Electric Shenygan HV Switchgear Co. Ltd. (“Shenygang HV”) was a state-owned manufacturer of electric-utility infrastructure in Liaoning Province China.”
“Xi-an XD High Voltage Apparatus Co., Ltd. a/k/a Xi-an Shinky High Voltage Electric Co. Ltd. (“Xi-an XD”) was a state-owned manufacturer of electric utility infrastructure in Shaanxi Province China.”
“… payments conveyed to officials of foreign governments employed by state-owned entities, including Pinggao Group, Shenyang HV, and Xi-an XD …”
SEC
Presumably the same as above, although the SEC complaint merely refers to “officials at state-owned entities in China.”
Tyson Foods
DOJ
“The Government of Mexico administers an inspection program, Tipo Inspeccion Federal (“TIF”), for meat-processing facilities. […]. The inspection program at each facility is supervised by an on-site veterinarian who is a government employee (“TIF veterinarian”) paid by the state, who ensures that all exports are in conformity with Mexican health and safety laws. Therefore, TIF veterinarians are foreign officials as defined by the FCPA …”.
“Wives of the TIF veterinarians.”
SEC
Same as above.
IBM
SEC
“government officials in South Korea and China”
“the foreign government officials involved worked for sixteen South Korean government entities (“SKGE”)”; “Chief Operations for the Electronic Operations Division of SKGE 1”; “manager of the government controlled SKGE 2”; “SKGE 3’s Director of Planning”; “SKGE 4 was a state-owned agency of the South Korea government – an employee of SKGE 4 responsible for reviewing personal computer procurement bids”; “Director of SKGE 5’s information technology department”; “government officials of SKGE 6”; “key decision makers at ten other SKGE’s;”
“Chinese government officials”; employees of “government-owned or controlled customers in China”
Ball Corp.
SEC
“employees of the Argentine government to secure the importation of prohibited use machinery and the exportation of raw materials at reduced tariffs” “government customs officials”
JGC Corp.
DOJ
“The Nigerian National Petroleum Corporation (“NNPC”) was a Nigerian government-owned company charged with development of Nigeria’s oil and gas wealth and regulation of the country’s oil and gas industry. NNPC was a shareholder in certain joint ventures with multinational oil companies. NNPC was an entity and instrumentality of the Government of Nigeria and its officers and employees were ‘foreign officials’ within the meaning of the FCPA.”
“Nigeria LNG Limited (“NLNG”) was created by the Nigerian government to develop the Bonny Island Project and was the entity that awarded the related […] contracts. The largest shareholder of NLNG was NNPC, which owned 40% of NLNG. The other owners of NLNG were multinational oil companies. Through the NLNG board members appointed by NNPC, among other means, the Nigerian government exercised control over NLNG, including but not limited to the ability to block the award of […] contracts. NLNG was an entity and instrumentality of the Government of Nigeria and its officers and employees were ‘foreign officials’ within the meaning of the FCPA.”
Bribes to “officials of the executive branch of the Government of Nigeria, officials of NNPC, officials of NLNG, and others.”
Comverse Technologies
DOJ
“Individuals connected to OTE, including employees of OTE’s subsidiaries Cosmote, Cosmofon, and Cosmorom, in order to obtain purchase orders from those companies for Comverse Ltd. products and services, resulting in approximately $1.25 million in adjusted operating income;” OTE is “Hellenic Telecommunications Organization S.A. – a telecommunications provider controlled and partially owned by the Greek Government – the Greek Government was OTE’s largest single shareholder and maintained an interest in over one-third of OTE’s issued share capital.”
As detailed in this prior post, during the relevant time period, the Greek Government owned between 33-38% of OTE, thus establishing a new foreign official “limbo low.”
SEC
Same as above
Johnson & Johnson
DOJ
“Greece has a national healthcare system wherein most Greek hospitals are publicly owned and operated. Health care providers who work at publicly-owned hospitals (“HCPs”) are government employees, providing health care services in their official capacities. Therefore, such HCPs in Greece are “foreign officials” as that term is defined in the FCPA.”
“Poland has a national healthcare system. Most Polish hospitals are owned and operated by the government and most Polish HCPs [health care providers] are government employees providing health care services in their official capacities. Therefore, most HCPs in Poland are “foreign officials” as defined by the FCPA.”
“The national healthcare system in Romania is almost entirely state-run. The healthcare system is funded by the National Health Care Insurance Fund (“CNAS”), to which employers and employees make mandatory contributions. Most Romanian hospitals are owned and operated by the government and most HCPs in Romania are government employees. Therefore, most HCPs in Romania are “foreign officials” as defined by the FCPA.”
SEC
Same as above.
Tenaris
DOJ
Employees of OJSC O’ztashqineftgaz (“OAO”) “a wholly owned subsidiary of Uzbekneftegaz, the state holding company of Uzbekistan’s oil and gas industry.”
Employees of Uzbekekspertiza JSC, “an Uzbekistani government agency.”
SEC
Same as above.
Rockwell Automation
SEC
Employees of Chinese Design Institutes “which were typically state-owned enterprises that provided design engineering and technical integration services that can influence contract awards by end-user state-owned customers” and employees of “other state-owned companies.”
Armor Holdings
DOJ
“Procurement official of the United Nations”
SEC
Same as above.
Cinergy Telecommunications
DOJ
“Telecommunications D’Haiti (“Haiti Teleco”) was the Republic of Haiti’s state-owned national telecommunications company. Haiti Teleco was the only provider of non-celluar telephone service to and from Haiti. […] Patrick Joseph was the Director General of Haiti Teleco. […] During his tenure at Haiti Teleco, Patrick Joseph was a ‘foreign official’ as that term is defined in the FCPA.” “Jean Rene Duperval was the Director of International Relations of Haiti Teleco. […] During his tenure at Haiti Teleco, Duperval was a ‘foreign official’ as that term is defined in the FCPA.” “Official VJ was the Governor of the Banque de la Republique d’Haiti (“Bank of Haiti”), the state-owned and state-controlled central bank of Haiti. […] During his tenure at the Bank of Haiti, Official VJ was a ‘foreign official’ as that term is defined in the FCPA.”
For previous posts on Haiti Teleco, see here, here and here.
Bridgestone Corp.
DOJ
“Foreign government officials in Latin America and elsewhere;” “employees of state-owned entities in Mexico and other Latin American countries;” employee at Petroleos Mexicanos (“PEMEX”).
Diageo
SEC
“Various government officials in India, Thailand, and South Korea”
“Hundreds of Indian officials responsible for purchasing or authorizing the sale of beverages”; “employees of government liquor stores in and around New Delhi”; “government employees of the Indian military’s Canteen Stores Department”; “government officials in the North Region of India and in the State of Assam for the purpose of securing label registrations”; “Excise officials to secure import permits and other administrative approvals.”
A “Thai government and political party official”; “At various times the Thai Official served as Deputy Secretary to the Prime Minister, Advisor to the Deputy Prime Minister, and Advisor to the Ministry of Agriculture and Cooperatives. The Thai Official also served on a committee of the ruling Thai Rak Thai political party, and as a member and/or advisor to several state-owned or state-controlled industrial and utility boards.”
South Korean “customs official”; “other South Korean government officials”; “South Korean military officials”
Watts Water Technologies
SEC
Employees of certain Chinese state-owned design institutes.
Aon
DOJ
“government officials in Costa Rica”; employees of “Instituto Nacional De Deguros (“INS”), Costa Rica’s state-owned insurance company”
SEC
Same as above. In addition, officials from an “Egyptian government-owned company, the Egyptian Armament Authority (“EAA”), and its U.S. arm, the Egyptian Procurement Office (“EPO”); “Vietnam Airlines, a Vietnamese government-owned entity”; “BP Migas and Pertamina, two Indonesia state-owned entities in the oil and gas industry”; “Myanmar Airways and Myanmar Insurance, two government-owned entities”; “Biman Bangladesh Airways and Sudharan Bima Corporation, two government-owned entities”; “the son of a former high-ranking government official in Bangladesh with several important political connections”
Magyar Telekom / Deutsche Telekom
DOJ
“Telekom Crne Gore A.D., n/k/a “Crnogorski Telekom,” (“TCG”) and its mobile company subsidiary were, respectively, the Montenegrin state-owned fixed line and cellular telecommunications companies. […] Before Magyar Telekom acquired TCG, it was controlled by the Government of Montenegro. Accordingly, employees of TCG were ‘foreign officials’ within the meaning of the FCPA.”
“Macedonian Political Party A and Macedonian Political Party B were political parties in the Macedonian governing coalition during 2005, among other times. Each party represented a traditional ethic group in Macedonia. As such, Macedonian Political Party A and Macedonian Political Party B were each a “foreign political party” within the meaning of the FCPA.” “Macedonian Official #1 was a high-ranking government official with responsibility related to telecommunications laws and regulations […] and a leader of Macedonian Political Party A. As such, Macedonian Official #1 was a “foreign official” and an official of a foreign political party within the meaning of the FCPA.” “Macedonian Official #2 was a high-ranking government official with responsibility for telecommunications laws and regulations […] and a leader of Macedonian Political Party B. As such, Macedonian Official #2 was a “foreign official” and an official of a foreign political party within the meaning of the FCPA.”
SEC
Same as above.
Friday Roundup
ConocoPhillips is hit with an FCPA related shareholder proposal, add Wal-Mart to the list, and more on Embraer … it’s all here in the Friday Roundup.
ConocoPhillips Shareholder Proposal
Last week ConocoPhillips was hit with an FCPA shareholder proposal – see here. In the letter, titled “Shareholder Proposal and Statement for Publication in 2012 Proxy Materials Recommending an Audit of Controls on U.S. Foreign Corrupt Practices Act Violations,” the shareholder – Roger Parsons, a former Conoco employee who runs a website “The Iran-Conoco Affair” (here) – recommends “that the Board commission a forensic audit of ConocoPhillips compliance controls that failed to identify violations of the United States Foreign Corrupt Practices Act of 1977 (“FCPA”) arising from James J. Mulva ‘s peddling influence with the Bush Administration to obtain Executive Order 13477 on behalf of Muammar al-Qadhafi.” Mulva is currently ConocoPhillips Chairman and Chief Executive Officer.
Wal-Mart
Add Wal-Mart to the list of company’s under FCPA scrutiny. In a 10-K filing yesterday, the company disclosed as follows. “During fiscal 2012, the Company began conducting a voluntary internal review of its policies, procedures and internal controls pertaining to its global anti-corruption compliance program. As a result of information obtained during that review and from other sources, the Company has begun an internal investigation into whether certain matters, including permitting, licensing and inspections, were in compliance with the U.S. Foreign Corrupt Practices Act. The Company has engaged outside counsel and other advisors to assist in the review of these matters and has implemented, and is continuing to implement, appropriate remedial measures. The Company has voluntarily disclosed its internal investigation to the U.S. Department of Justice and the Securities and Exchange Commission. We cannot reasonably estimate the potential liability, if any, related to these matters. However, based on the facts currently known,
we do not believe that these matters will have a material adverse effect on our business, financial condition, results of operations or cash flows.”
Given the reference to permits, licenses and inspections in the disclosure, it is useful to review the holding of U.S. v. Kay, the only appellate court decision to directly address payments outside the context of directly securing a foreign government contract. In Kay, the 5th Circuit said that such payments “could” violate the FCPA, but that “there are bound to be circumstances” in which such payments merely increase the profitability of an existing profitable company and thus, presumably does not assist the payer in obtaining or retaining business. The court specifically stated as follows. “If the government is correct that anytime operating costs are reduced the beneficiary of such advantage is assisted in betting 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.”
Embraer
Bloomberg has additional information (here) regarding Embraer’s FCPA scrutiny (discussed in this previous post). The article suggests that the “probe started more than a year ago in Argentina with government-controlled Aerolineas Argentinas SA’s $700 million purchase of 20 E-190 jets in 2009.” The airline has switched between private ownership and government ownership a number of times over the years.
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A good weekend to all.
The FCPA And South Asia
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Yesterday, I had the pleasure to participate in the South Asia Legal Studies conference at the University of Wisconsin Law School. I participated in a panel moderated by Andy Spalding (here – Visiting Assistant Professor at Chicago-Kent College of Law) titled “Corruption in South Asia: The Role of Law and Legal Institutions.”
The focus of my remarks addressed the following question: are U.S. companies (or other multinational companies subject to the FCPA) doing business in South Asia intent on engaging in bribery or are such companies doing business in South Asia confronted by conditions not of their own making (the later comment inspired by Joseph Covington’s recent observation regarding a potential FCPA compliance defense – see here).
I noted, as evidenced by recent FCPA enforcement activity in India, Bangladesh, and Pakistan, that the latter seems to be true. South Asia is plagued by harassment bribes. For instance, according to the 2010 Transparency International Global Corruption Barometer – here – 54% of Indian households paid a bribe in a 12 month period to receive basic services. As noted in this previous post, Kaushik Basu (India’s Chief Economic Advisor) recently stated that “harassment bribery is widespread in India and it plays a large role in breeding inefficiency and has a corrosive effect on civil society.” This 2010 National Public Radio piece noted that “getting things done without hassles [in India] requires a bribe.” The piece observed as follows. India is “famous for paperwork, tangled bureaucracy and the courts are slow. So, often it just makes economic sense to shrug and pay the money. Because when you bribe someone, they can become like your own personal Ganesh, the god who is the remover of obstacles.”
FCPA enforcement in South Asia has almost exclusively focused on harassment bribes, payments made by companies, nearly always with the assistance of local agents, consultants, and brokers, simply to get things done and remove obstacles. For instance, the Diageo enforcement action concerned, in part, payments in India in connection with product label registration and securing favorable product placement and promotion. The Wabtec enforcement action concerned payments in India in connection with the scheduling of pre-shipping product inspections, issuance of product delivery certificates and tax audits. The Dow enforcement action concerned payments in India in connection with registering products. The Avery Dennison enforcement action concerned, in part, payments in Pakistan in connection with obtaining bonded zone licenses and to overlook bonded zone regulatory violations. The Baker Hughes enforcement action concerned, in part, payments in India in connection with shipping permits.
Are the above FCPA enforcement actions the best way to address harassment bribes in South Asia and other parts of the world?