Summer Reading Spectacular
Grab your beverage of choice, find some shade, and sit back and enjoy the recent work product of FCPA Inc – plus the recent annual report of the OECD Working Group on Bribery.
Gibson Dunn
Gibson Dunn recently released it 2012 mid-year FCPA update (see here). The update begins as follows. “As the Foreign Corrupt Practices Act turns 35 years old, the spike in enforcement activity that we first observed five years ago appears (at least for the moment) to be leveling off. Nevertheless, numerous developments this year bespeak a statute that is maturing rather than falling into obscurity: the first sustained pattern of trial activity; increasing “private attorney general” enforcement; and serious policy debates between industry, executive, and legislative interests leading up to much-anticipated statutory guidance from government regulators. The first half of 2012 was packed with important FCPA developments.” Thereafter, the update is a buffet of useful information and summaries including recent sentencing activity, a discussion of FCPA-related civil litigation, legislative and policy developments, U.K. developments, and a handy chart containing DOJ and SEC statements on corporate cooperation.
Another Gibson Dunn update you should read concerns NPA and DPAs. The firm recently released (here) its mid-year update on corporate deferred prosecution and non-prosecution agreements. As noted in the update, once again among the most frequent use of such agreements is to resolve FCPA enforcement actions.
Speaking of NPAs and DPAs, Law36o carried an article yesterday titled “DOJ Develops a Taste for Deferred Prosecution Deals.” I liked what Skadden partner John Carroll (here) had to say – that such agreements are a “way for the government to outsource its work and harvest relatively easy settlements” because “the government only has to win the case in the government’s office; it doesn’t have to win in the courtroom.”
Miller Chevalier
Miller & Chevalier recently released its FCPA Summer Review 2012 (see here). The review begins as follows. “‘Expectant’ describes the mood of FCPA practitioners during the first half of 2012. With a slow first half of the year for enforcement releases, and expected developments such as the issuance of the new FCPA Guidance around the corner, the second half of 2012 should be eventful, if not historic, for the 35-year old statute.” Thereafter, the review contains several goodies such as a chart containing known declinations in FCPA investigations 2008 to the present, “comings” and “goings” in the DOJ’s FCPA team, and how a recent district court rulings(discussed in this previous post) appears to have impacted the deferred prosecution agreement in the recent Data Systems enforcement action (see here for the previous post).
Debevoise & Plimpton
Debevoise & Plimpton recently released its periodic FCPA Update (see here). Among other things, the update contains an article on the “current status of the ‘selective waiver’ doctrine, i.e., the notion that a waiver of attorney-client privilege or work-product protection in a submission to the government is not a ‘waiver to all others.'” As the article notes, this is often an issue for counsel to consider in FCPA investigatons when disclosing to the DOJ or SEC.
Sidley Austin
Sidley Austin recently released its anti-corruption quarterly (see here). Although the quarterly did not include a certain FCPA related development from the second quarter, it did contain an informative lead article concerning FCPA joint venture liability.
OECD Annual Report
The OECD Working Group on Bribery recently released its annual report (here). Spectacular it is not. For all the good the OECD does in raising awareness of bribery and its effects and seeking to reduce bribery and corruption around the world, its enforcement statistics remain misleading, incomplete and in some cases inaccurate.
For instance, as noted in this prior post, it is fairly obvious why OECD member countries have varying degrees of enforcement of bribery and corruption offenses. Among other reasons, in most OECD member countries, prosecuting authorities have two choices – to prosecute or not to prosecute – there is no such thing as non-prosecution or deferred prosecution agreements. Moreover, in many OECD member countries there is no such thing as corporate criminal liability – or even if there is – such corporate liability can only be based on the actions of high-ranking executives or officers. This of course is materially different than the U.S. respondeat superior standard in which a business organization can face legal liability based on the actions of any employee to the extent the employee was acting within the scope of his or her duties and to the extent the conduct was intended to benefit, at least in part, the organization.
The OECD’s statistics as to the U.S. are incomplete. Footnotes in the report state that DOJ and SEC enforcement actions “exclusively for violations of the books and records and internal control provisions of the FCPA” are not captured. This misses a meaningful chunk of FCPA enforcement actions as it is common for the DOJ and SEC to structure settlements (so as to avoid collateral consequences or to reward cooperation or both) without charging FCPA anti-bribery violations (such as in Siemens and Daimler).
Moreover, the OECD statistics as to the U.S. are inaccurate in some cases. In a table “Decisions on Foreign Bribery Cases from 1999 to December 2011,” in a column titled number of individuals and legal persons acquitted / found not liable, the report indicates that only 1 individual or legal person has been acquitted or found not liable in a U.S. foreign bribery case. Not true.
*****
A good weekend to all.
Friday Roundup
Out with the tide, a former DOJ Fraud Section Chief speaks on voluntary disclosure, guidance issues, will candy fall from the pinata, schooled in the FCPA, a Section 1504 development, and “Minegolia.”
Tidewater Derivative Complaint Dismissed
As highlighted in this previous post, in November 2010 Tidewater Inc. was one of several companies to resolve a “CustomsGate” case. The conduct at issue focused on Azeri tax officials and Nigerian temporary import permits and the company resolved DOJ and SEC enforcement actions by agreeing to pay $15.7 million in fines and penalties.
As if on cue in this new era of FCPA enforcement, along came the private plaintiff firms representing shareholders who filed a derivative complaint alleging that officers and members of the Board of Directors of Tidewater breached their fiduciary duties “in that they: (1) knew or recklessly disregarded the fact that employees, representatives, agents and/or contractors were paying, had paid and/or had offered to pay bribes to Azerbaijani and Nigerian government officials to obtain favorable treatment for Tidewater; (2) caused Tidewater to pay bribes and to disguise the bribe payments as legitimate expenses in Tidewater’s books and financial disclosures; and (3) failed to maintain adequate internal controls to ensure compliance with the FCPA and Exchange Act.”
Earlier this week, the case was swept out with the tide as U.S. District Court Judge Jane Triche Milazzo dismissed the complaint – see here for the decision. In short, Judge Milazzo found that “Plaintiff did not adequately plead demand futility.” Judge Milazzo utilized various tests in reaching her decision such as director interest and independence and whether the board could impartially consider the merits of the demand without being influenced by improper considerations.
As to interest, Judge Milazzo stated as follows.
“This Court finds that the Complaint is completely devoid of any allegations of an interested director. There is no allegation that any director appeared on both sides of a transaction or expected to derive a personal financial benefit from it. Nowhere in the Complaint can it be found that any one of the directors, much the less a majority of them, benefitted from the bribes themselves, benefitted from failing to establish and maintain adequate internal controls, benefitted from enforcing policies and programs designed to prevent violations, benefitted from improperly recorded payment of bribes in Tidewater’s books and records or benefitted from inadequately training their employees, agents, representatives and/or contractors with respect to compliance with the FCPA.”
As to alleged director participation or knowledge , Judge Milazzo stated that the “Complaint falls woefully short of pleading facts that are sufficient to show that there was any knowledge or conscious disregard on behalf of the directors.”
As to whether the directors exhibited bad faith sufficient to overcome business judgment rule presumptions, Judge Milazzo stated as follows. “While Plaintiff’s allegations are sufficient to show that Tidewater was evidently violating both the FCPA and the Exchange Act, nowhere in the Complaint do Plaintiff’s allegations meet the specificity to show that the Individual Defendants were acting with the intent to violate these laws. ‘[T]he mere fact that a violation occurred does not demonstrate that the board acted in bad faith. Alleging that ‘upon information and belief’ the ‘Headquarters’ made the decision to avoid tax assessments in violation of the FCPA falls woefully short of the pleading requirements. Nowhere can this Court find who made this decision, how this decision was made or that there was an intent to violate any law. Moreover, the Court finds it significant that Tidewater’s directors voted and voluntarily initiated an FCPA investigation and advised the federal government of their violations before the government even suspected any violations.”
Tyrell on Voluntary Disclosure
You know the talking points. The DOJ wants companies to voluntarily disclose, not ifs, ands or buts about it. It’s interesting though how this becomes less of a black and white issues when individuals leave the DOJ.
In this recent Q&A in The Metropolitan Corporate Counsel, Steven Tyrell (a former DOJ Fraud Section Chief and current partner at Weil Gotshal – here) was asked the following question – “what is the role of voluntary reporting in establishing a good relationship with the regulatory and enforcement authorities?”
He stated as follows.
“In the first instance, if a company has a legal obligation to disclose – for example, government contractors are obliged to disclose fraud – then the analysis begins and ends there. Assuming there is no legal obligation that compels disclosure or no imminent threat of disclosure by an outside party, such as a newspaper, then I typically advise clients to take credible allegations of wrongdoing seriously, look into those allegations in a manner that is appropriate under the circumstances, and assess the nature and extent of the company’s exposure and the pros and cons of disclosure. Then, and only then, should a disclosure be made if it is in the best interest of the company – or, for a public company, if the securities laws require it. Of course, it often will not be in a company’s best interest to disclose if, for example, the allegations prove not to be credible or if it is unclear whether the conduct even amounts to a violation of law. Under those circumstances, a disclosure could unnecessarily embroil the company in a lengthy and costly government investigation and result in other repercussions such as triggering civil litigation and harm to a company’s reputation that could otherwise be avoided. It’s a challenging calculus. I can tell you from past experience that there are companies that have strong reputations for compliance with regulators and others that do not. However, the fact that a company doesn’t disclose a problem that ultimately comes to DOJ’s attention is not necessarily going to damage the company’s credibility with DOJ. Regulators recognize that not every allegation should be of interest to them – and, frankly, having counsel that knows when they’ll be interested and when they won’t is really important.”
Guidance Issues
As highlighted in this previous post, soon after Assistant Attorney General Lanny Breuer announced in November 2011 that FCPA guidance would be forthcoming in 2012, Senator Grassley sought guidance on the guidance and asked Attorney General Holder several follow-up questions for the record. For a copy of Holder’s responses, see here.
In this previous post, among others, I commented that non-binding DOJ guidance is not the best way to accomplish real and meaningful FCPA reform.
Thus, I completely agree with former DOJ Deputy Attorney General George Terwilliger and former DOJ attorney and Senate counsel Matthew Miner (both currently at White & Case, see here and here) when they state as follows in this article.
“The fact that the Justice Department recognizes the need for such guidance underscores the existence of blurry lines and fuzzy standards surrounding the FCPA. US businesses trying to compete successfully in the international commercial arena deserve better. Justice Department ‘guidance’ is neither enough, nor is it properly the role of prosecutors to be definitive interpreters of ambiguities in criminal laws. Congress writes the laws and, as the US Supreme Court has firmly established, has a responsibility to set clear standards for what is permissible and what is not. It should not stand aside in deference to the Justice Department’s plan to craft guidance, especially when that guidance will have no effect in court.”
Yara Fertilizer
It has been said before that anytime a foreign company is the subject of a corruption probe, the U.S. enforcement agencies are like children at a birthday party waiting for some candy to fall from the pinata. Think what you will of the analogy.
The Wall Street Journal recently reported (here) that “Norwegian fertilizer producer Yara International ASA’s chief executive, Jorgen Ole Haslestad, apologized Friday to the company’s employees after an investigation uncovered millions of dollars in ‘unacceptable’ payments in India and Switzerland, as well as ‘unacceptable offers of payments’ in Libya.” According to the article, the “unacceptable offers of payments” in Libya involve “a consultant related to the establishment of the company Libyan Norwegian Fertilizer Co., or Lifeco, in Libya, a joint venture with the Libyan National Oil Corp. and the Libyan Investment Authority.”
As noted on the company’s website here, Yara “has a sponsored Level 1 ADR program for American Depositary Receipts (ADRs), which represent ownership in shares of foreign (non-US) companies that trade on US financial markets.” Whether foreign companies, including those with Level 1 ADR’s can become subject to the FCPA, see this excellent piece “When Does an ADR Program Give U.S. Authorities FCPA Jurisdiction Over a Foreign Issuer?”
Time will tell if the candy falls.
Checking in on Wynn Resorts
Previous posts here, here and here focused on the Wynn-Okada dispute including Wynn’s $135 million charitable contribution to the University of Macau. On that topic, this recent Wall Street Journal article focused on the “web of political ties” between a Macau company paid by Wynn and government officials. Regarding Wynn’s FCPA compliance in expanding in Macau, company CEO Steve Wynn stated as follows. “This whole business of the Foreign Corrupt Practices Act—we were schooled in this.”
Final grade is pending.
Section 1504 Development
Several prior posts, see here for example, discussed Section 1504 of Dodd-Frank, the so-called Resource Extraction Disclosure Provisions and the long delay in SEC final rules. As noted in this Corruption Current post by Samuel Rubenfeld, the SEC recently announced here that on August 22nd, “the Commission will consider whether to adopt rules regarding disclosure and reporting obligations with respect to payments to governments made by resource extraction issuers to implement the requirements of Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
“Minegolia”
There has been only one FCPA enforcement concerning, at least in part, business conduct in Mongolia (see here for the 2009 UTStarcom action). This is hardly surprising, as few companies subject to the FCPA have traditionally engaged in business in the country. However, as noted in this recent Al Jazerra article, Mongolia or “Minegolia” as the country is sometimes called, “is undergoing a rapid transformation, due to its incredible resource wealth in minerals such as coal, copper, and gold.” At the same time, the article notes that “Transparency International placed Mongolia 120th out of 183 nations on its corruption perception index” and that “90 percent of Mongolians believe politicians are benefitting from ‘special arrangements’ with foreign enterprises over mining rights.”
*****
A good weekend to all.
Friday Roundup
Checking in on Wal-Mart, an enforcement action that flew under the radar from beginning to end, a guilty plea in the U.K., and is sex a thing of value? It’s all here in the Friday roundup.
Wal-Mart
Various reports this week reported on the expansion of Wal-Mart’s FCPA probe. As many readers know, this is hardly surprising as most FCPA inquiries result in the “where else” question as indicated in this prior guest post. Even if the enforcement agencies do not actually ask the “where else” question, a company knows it will eventually be asked and will thus likely conduct a broader review of certain other FCPA high-risk jurisdictions not part of the original inquiry on its own initiative and to demonstrate to the enforcement agencies its committment to compliance and its cooperation.
This June 12th letter from Elijah Cummings (D-MD, Ranking Member, House Committee on Oversight and Government Reform) and Henry Waxman (D-CA, Ranking Member, House Committee on Energy and Commerce) to Wal-Mart CEO Michael Dukes references that Wal-Mart’s review has expanded beyond Mexico to also include Brazil, China, South Africa and India. Indeed, the letter references that Wal-Mart is “conducting a worldwide assessment of the company’s anti-corruption policies” something Wal-Mart indicated it was already doing. In short, Wal-Mart’s FCPA inquiry is following a typical path.
In the letter, Cummings and Waxman again express disappointment as to Wal-Mart’s cooperation in their own Congressional probe. For more on Cummings and Waxman’s interest in Wal-Mart, see this prior post (and links therein).
Meanwhile on the civil litigation front, a 12th lawsuit has been filed in the wake of April’s New York Times story. As noted in this release from the New York City Comptroller, New York City Pension Funds filed a shareholder derivative action in the Delaware Chancery Court alleging “that Wal-Mart’s officers and directors breached their fiduciary duty to the company and its shareholders by failing to properly handle credible claims of the bribery allegations and attempting to cover up details of the scandal.”
Under the Radar
This post from March 2011 highlighted how criminal charges against Manual Salvoch flew under the radar in that the DOJ did not issue a press release announcing the charges and the enforcement action appeared to escape coverage elsewhere. Salvoch is the former CFO of LatiNode and was charged in connection with payments to Hondutel (see here – according to the charging documents a state-owned telecommunications company in Honduras responsible for providing telecommunications services in Honduras). The Hondutel payments also resulted in criminal charges against Jorge Granados (the founder and former CEO and Chairman of the Board of LatiNode), Manuel Caceres (a former Vice President of Business Development) and Juan Vasquez (a former senior commercial executive).
This prior post highlights the sentences of Granados, Caceres and Vasquez.
Last week, Salvoch was sentenced by Judge Paul Huck (S.D. of Florida) t0 10 months in prison and 3 years of supervised release. Just like the beginning, the end of the Salvoch enforcement action also flew under the radar.
The final sentencing scorecard in the LatiNode individual prosecutions is thus as follows.
Granados – 46 months
Caceres – 23 months
Vasequez – 3 years probation
Salvoch – 10 months.
U.K. Plea
Previous posts (here and here) discussed charges on both sides of the Atlantic against Paul Jennings, the former CEO of Innospec. Earlier this week, the U.K. Serious Fraud Office announced (here) that Jennings pleaded guilty to the following charges: “Two allegations of conspiracy to corrupt in that he gave or agreed to give corrupt payments to public officials and other agents of the Government of Indonesia (between 14 February 2002 and 31 December 2008) and Iraq (between 1 January 2003 and 31 January 2008) as inducements to secure, or as rewards for having secured, contracts from that Government for the supply of its products including Tetraethyl Lead by Innospec.”
As noted in this previous post, in March 2010, Innospec resolved enforcement actions on both sides of the Atlantic based on the same core set of facts.
Thing of Value?
At its core, the FCPA’s anti-bribery provisions require “anything of value” to a “foreign official” to “obtain or retain business.”
This recent Reuters story concerning an employee of Oracle’s business unit in Singapore has a “foreign official” (the former head of the city-state’s anti-narcotics agency) and the article describes that the thing of value was provided to the “foreign official” as “an inducement to help further the firm’s business interest.”
The thing of value?
Sex.
Can sex be a thing of value under the FCPA’s anti-bribery provisions? I guess it depends, it’s a factual issue.
On that note, a good weekend to all.
Friday Roundup
Chevron and others get the front-page treatment, the Aguilar prosecution is officially over as well, some additional FCPA compliance survey data, Wal-Mart civil suits continue to pile up, and Chinese state-owned enterprises continue their global M&A push, it’s all here in the Friday roundup.
Kazakhstan Customs Inquiry
In yesterday’s Wall Street Journal, Christopher Matthews and Joe Palazzolo broke a story (“Oil Giants Launch Bribe Probes”) about an apparent investigation regarding Kazakh customs issues involving members of Karachaganka Petroleum Operating BV (“KPO”) including Chevron Corp. and Eni SpA, as well as a logistics arm of Deutsche Post AG, DHL, which handles freight shipments for the group. (For more on KPO see here). According to tips discussed in the WSJ article, the “KPO joint venture authorized DHL to bribe Kazakh customs officials to ignore paperwork irregularities that could have delayed shipments.” The WSJ article discusses “the difficult choices companies face operating in developing countries” and notes that, according to a knowledgeable source, when KPO logistics officials ordered DHL representatives to “stop payments to customs officials” in March 2011 the “customs inspectors found problems with virtually very KPO shipment” and “nothing was cleared to pass” until DHL resumed the payments.
Payments in connection with foreign customs, licenses, permits and the like have been fertile ground for FCPA enforcement activity, although as noted in this recent post in connection with Wal-Mart’s potential FCPA exposure, it is an open question in many cases whether the conduct at issue is the type of conduct Congress sought to capture in passing the FCPA.
In 2007, Chevron resolved an enforcement action (here) involving Iraqi Oil for Food conduct and in 2010 Eni (and related entities) resolved an enforcement action (see here for the prior post) involving Bonny Island, Nigeria conduct. In addition, as highlighted in this recent post, Eni is also reportedly under investigation concerning its conduct in Libya.
Aguilar Conviction Vacated
This recent post highlighted the official end to the Lindsey Manufacturing prosecution. The prosecution of Angela Maria Gomez Aguilar, who was tried along with the Lindsey defendants, is officially over as well. As noted in this previous post, Aguilar (a purported agent of Lindsey Manufacturing) was granted a judgment of acquittal after the DOJ’s case as to one substantive count of money laundering, but the jury convicted her of one count of money laundering conspiracy. After the conviction, Aguilar negotiated an agreement with the DOJ for a time-served sentence and immediate release from custody. Following Judge Matz’s dismissal of the indictment last December based on numerous instances of prosecutorial misconduct (see here for the prior post), Aguilar obtained an agreement from the DOJ to stipulate to a motion vacating the one count of conviction, an agreement which took effect upon the DOJ’s recent decision not to further pursue its appeal.
As noted in this recent release, Judge Matz this week signed an order vacating Aguilar’s conviction. In the release, Aguilar’s counsel, Stephen Larson (Arent Fox – here) stated as follows. “The government overreached in its efforts to press this case. It is bittersweet whenever a prosecution is terminated for misconduct. Although Ms. Aguilar is greatly relieved by Judge Matz’s decision to end this ordeal, it is tragic that it was permitted to go this far. I am pleased that the Department of Justice has recognized as much by opting not to pursue its appeal in this case.”
Kroll’s 2012 FCPA Benchmarking Report
This post discussed recent FCPA survey data. Add Kroll’s recent FCPA Benchmarking Report (here) to the list.
As noted in the Report, the study was “designed to take the pulse of corporate compliance officers at U.S. based multinationals and to provide benchmarks for the current state of anti-bribery preparedness.”
Survey results that caught my eye include the following.
“Sixty-nine percent of all respondents said their companies were either moderately or highly exposed to bribery risk; this number jumps to 100 percent in the pharmaceutical industry and drops to 46 percent in the financial services industry. […] 85 percent believe [such risk] will increase or stay the same in the future.”
“Fifty-three percent of respondents said their compliance departments have increased their budgets in the last year; 49 percent said they have increased hiring; and 22 percent said they have experienced a centralization of compliance decision-making.”
“The most frequently cited challenges to anti-bribery compliance include the inability to anticipate regulators’ next moves (21 percent) and ensuring that employee training is taken seriously and is used when a risky situation presents itself (20 percent).”
“Seventy-nine percent of respondents characterized their compliance efforts as a strategic advantage in addition to being a strong defensive tactic.”
“[T]he weakest link among survey respondents was how they handled third party relationships. While 99 percent of respondents said they had anti-bribery provisions for employees in their companies’ codes of conduct, that number fell to 73 percent when compliance officers were asked about anti-bribery provisions for third parties. […] The scope of [FCPA risk by using third parties] is exacerbated by the fact that approximately three in four U.S. companies (77 percent) report that they partner with foreign companies to do business abroad. Thirty-seven percent of respondents said they do business with between 100 and 1,000 third parties; 27 percent said they work with between 1,000 and 10,000 third parties; and 17 percent said they work with between 10,000 and 100,000 different third parties. A small number said they worked with more than 100,000 different third parties.”
It’s a third-party world.
The Report was based on responses from “139 senior corporate compliance executives from companies ranging in size from $100 million to over $10 billion in revenues per year” who were interviewed by phone from July 2011 to February 2012. Survey respondents were drawn mainly from four industries: financial services, IT/telecommunications, energy, and pharmaceuticals.
The report was published by Kroll Advisory Solutions (here), a company that assists clients mitigate and respond to risks, including FCPA issues.
Wal-Mart Civil Suits
One of my earliest Wal-Mart posts (here) noted that not only will the DOJ and SEC likely be examining the conduct of Wal-Mart executives, but so too will plaintiff law firms representing shareholders who will likely scour Wal-Mart’s SEC filings and other statements to the market in bringing derivative claims alleging breach of fiduciary duty and potential Section 10(b) claims based on material omissions concerning Wal-Mart Mexico.
Sure enough.
Wal-Mart’s recent quarterly SEC filing stated as follows.
“The Company is a defendant in several recently-filed lawsuits in which the complaints closely track the allegations set forth in a news story that appeared in the New York Times on April 21, 2012. One of these is a securities lawsuit that was filed on May 7, 2012 in the United States District Court for the Middle District of Tennessee, in which the plaintiff alleges various violations of the U.S. Foreign Corrupt Practices Act (the “FCPA”) beginning in 2005, and asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, relating to certain prior disclosures of the Company. The plaintiff seeks to represent a class of shareholders who purchased or acquired stock of the Company between December 8, 2011, and April 20, 2012, and seeks damages and other relief based on allegations that the defendants’ conduct affected the value of such stock. In addition, eleven derivative complaints were filed in April and May 2012, in Delaware and Arkansas, also tracking the allegations of the Times story, and naming various current and former officers and directors as additional defendants. The plaintiffs in the derivative suits (in which the Company is a nominal defendant) allege, among other things, that the defendants who are or were directors or officers of the Company breached their fiduciary duties in connection with oversight of FCPA compliance. While management cannot predict the outcome of these matters, management does not believe the outcome will have a material effect on the Company’s financial condition or results of operations.”
Chinese SOEs
This recent post focused on China SOEs and provided links to data and analysis concerning the ever increasing global push of Chinese SOEs. Yesterday, the Wall Street Journal ran an article titled “China Buys Overseas Assets” that discusses a recent report from A Capital, a private equity firm based in China and Paris (see here for A Capital’s report). As indicated in the article, “China’s overseas investment surged in the first quarter [of 2012] to $21.4 billion as state-owned companies snapped up resource-related assets around the globe.” According to the report, state-owned companies accounted for 98% of all deal value in the first quarter, a new high.
*****
A good weekend to all.
Friday Roundup
From the campaign stump, Wal-Mart civil suits start to pour in – plus a comment regarding statute of limitations, where should the money go, don’t believe the hype, and for the weekend reading stack. It’s all here in the Friday roundup.
From The Stump
Zein Obagi (here – a fiscally conservative Democratic candidate for California’s new 33rd Congressional District) earlier this week posted a letter (here) he sent to U.S. Senator Dianne Feinstein (D-CA). Titled “Keeping California Companies Competing Abroad Competitive” the letter begins as follows. “I am writing to ask you to show our party’s understanding of international trade by updating and clarifying the Foreign Corrupt Practices Act. As you know Senator, both sides of the aisle have put forth efforts to clarify the FCPA, to assist in its enforcement and also keep America competitive with foreign nations’ trade practices.” In the letter, Obagi states that “California businesses expend enormous resources with insufficient assurances that they will not run afoul of the FCPA.”
Kudos to Obagi for the courage to tackle the politically sensitive issue of reforming the FCPA. His letter reminds us of an issue lost in the FCPA reform debate – that certain aspects of FCPA reform share bipartisan support. See here for the transcript of the Senate’s 2010 FCPA hearing (particularly statements from Democratic Senators Amy Klobuchar and Chris Coons) and here for the transcript of the House’s 2011 FCPA hearing (particularly statements from Democrat Representative John Conyers).
Wal-Mart Civil Suits Begin to Pour In
One of my earlier Wal-Mart posts (here) noted that not only will the DOJ and SEC likely be examining the conduct of Wal-Mart executives, but so too will plaintiff law firms representing shareholders who will likely scour Wal-Mart’s SEC filings and other statements to the market in bringing derivative claims alleging breach of fiduciary duty and potential Section 10(b) claims based on material omissions concerning Wal-Mart Mexico. On this score, shareholders are likely to allege, among other things, that Wal-Mart’s officers and directors demonstrated conscious disregard for fiduciary duties by failing to act diligently in the face of known facts suggesting a duty to act.
Approximately ten days later the civil suits are starting to pour in. See here (New York Times) and here (Los Angeles Times) for the derivative lawsuit brought by the California State Teachers’ Retirement System, the country’s second-largest public pension fund, the California State Teachers’ Retirement System, against current and former board members and executives of Wal-Mart Stores Inc., accusing them of using bribery and corruption to gain authorization from Mexican government officials to build new stores.
The complaint (here) generally tracks the New York Times article (see here for a prior summary), but also includes allegations suggesting potential insider trading. The complaint alleges as follows. “[T]he trading records of defendants [H. Lee Scott Jr.] and [Eduardo] Castro-Wright show that both of these defendants began selling millions of dollars worth of Wal- Mart shares in the months after The New York Times first contacted the Company regarding possible FCPA infractions by Wal-Mex in December 2011. Scott and Castro-Wright were divesting their shares in Wal-Mart in apparent anticipation of the publication of The New York Times exposé and the corresponding stock drop that would undoubtedly occur, and did occur. On the three trading days after The New York Times’ April 21, 2012 exposé, Wal-Mart stock dropped eight percent, wiping out all of its gains in 2012. Scott and Castro-Wright sold uncharacteristically large amounts of stock while in possession of the materially adverse nonpublic information that the Company was exposed to undisclosed liability for massive FCPA penalties and other contingences relating to the bribes and cover-up …”.
In addition, yesterday Gilman Law LLP announced here a derivative lawsuit filed in the United States District Court for the Western District of Arkansas against Wal-Mart. According to the release, the “complaint alleges the Directors of Wal-Mart breached their fiduciary duties by violating the Foreign Corrupt Practices Act and engaging in a six-year-long cover-up of a massive bribery scheme concerning Wal-Mart’s expansion in Mexico.”
Wal-Mart Statute of Limitations
In recent days, there has been much talk about the FCPA’s statute of limitations (5 years) and how the limitations period can generally be extended through conspiracy charges. All correct observations as to a fundamental black-letter law concept. Except in corporate FCPA inquiries, one can generally toss aside fundamental black-letter law concepts because they simply do not matter.
Sure, Wal-Mart (or any other company subject to FCPA scrutiny) can talk about statute of limitations around conference room tables behind closed doors in Washington D.C., but to truly challenge the DOJ on this issue (as all others) first requires that the company be criminally indicated, something few corporate leaders are willing to let happen. Cooperation is the name of the game in corporate FCPA inquiries and to assert statute of limitations issues is not cooperating. Given the “carrots” and “sticks” relevant to resolving FCPA enforcement actions (to learn more about these “carrots” and “sticks” please read ”The Facade of FCPA Enforcement” – here), one of first steps during a corporate disclosure of FCPA issues (one that Wal-Mart made in December 2011) is to enter into a tolling agreement or to waive any statute of limitations defenses.
As evidence, dig into the details of most FCPA enforcement actions and one quickly discovers that the conduct at issue is old – in some cases very old. The 2012 Biomet enforcement action (see here for the prior post) concerns conduct going back to 2000; the 2012 Smith & Nephew enforcement action (see here for the prior post) concerns conduct going back to 1998; and the 2012 Marubeni enforcement action (see here for the prior post) concerns conduct going back to 1995 (17 years ago) with the last act alleged occurring in 2004.
For a similar post on fundamental black letter law concepts in FCPA enforcement actions, see this prior post “Does DOJ Expect FCPA Counsel to Roll Over and Play Dead?”
Don’t Believe the Hype
Writing at the Huffington Post (here), Professor Brandon Garrett (here – University of Virginia School of Law) says “Don’t Believe the Hype on Corporate Bribery.” Professor Garrett notes that “at first, foreign bribery prosecutions may seem big and brash and the farthest thing from a wrist-slap” but he cautions that many FCPA enforcement actions “can be smaller than they appear.”
I frequently am put in the “the DOJ is too aggressive in enforcing the FCPA” camp and in many respects that is true. However, I have also frequently stated (see here for my Facade of FCPA Enforcement article, here for my Senate testimony and here and here for prior posts as to the same Siemens and BizJet enforcement actions Professor Garrett references) that in egregious instances of corporate bribery that legitimately satisfy the elements of an FCPA anti-bribery violation involving high-level executives and/or board participation the DOJ’s aggressive rhetoric does not match the reality of the enforcement action.
See this prior post for discussion of Professor Garrett’s article “Globalized Corporate Prosecutions.”
Where Should the Money Go
This prior post discussed the recent letter by Socio-Economic Rights and Accountability Project (“SERAP”) (a non-governmental civil society organization in Nigeria) to SEC Enforcement Division Director Robert Khuzami (with a copy to Assistant Attorney General Lanny Breuer and Deputy Chief, Fraud Section Charles Duross) regarding “FCPA civil penalty and disgorgement proceeds that companies agree to pay to resolve US Foreign Corrupt Practices Act investigations.”
The specific SERAP proposal is as follows. “…[A]fter, and ony after, public notice of an FCPA settlement agreement, the victim foreign government entity and any applicant NGO would have 60 days to file a request that the Enforcement Division pay some or all of the agreed payment proceeds to or for the benefit of the victim government entity or to a home country-based or US based NGO that would present a proposal [to] spend the proceeds for public purposes (e.g. on public health programs) in the country of the victim entity. Thereafter, the Enforcement Division would have 60 days to act upon the request, favorably or not in its discretion; in this context the Enforcement Division should provide a brief statement of its reasons for its decisions. In reaching its decisions the Enforcement Division would have the inherent authority to consult with Executive Branch agencies of the US government.
Recently the SEC responded to the letter (see here). The SEC thanked SERAP for its ‘thoughtful submission” and stated that it will “give appropriate consideration” to its suggestions while also noting as follows. “Although the macro effects of corruption can be ascribed generally, the framework of our securities laws requires a proximate connection to the harm caused by a particular violation. The question of identifying investors or other parties that suffer cognizable harm in connection with the securities law violation(s) at issue in a given enforcement matter is driven by the facts and circumstances of that particular case.”
For more, including my views, see here from Trustlaw.
Others are also thinking about the issue of where FCPA enforcement proceeds should go. In this draft paper titled “Reforming the Foreign Corrupt Practices Act to Reduce Rent Seeking and Better Deter Transnational Bribery,” Matthew Turk argues as follows: “(1) the SEC should cease retaining profits disgorged by corporate defendants; (2) disgorgements should be transferred to the Host country where the bribe took place, conditional on the Host government’s cooperation with the FCPA investigation; and (3) if cooperation is not forthcoming, disgorgement proceeds should be transferred to the OECD Working Group, an international organization designed to facilitate the enforcement of an important anti-bribery treaty.” According to Turk, “Reforming disgorgement practices in the manner suggested here would not constitute a legalistic attempt to ratchet the total level of anti-corruption enforcement up or down in a particular direction. Instead it would re-allocate the proceeds from FCPA enforcement on a global scale so as to properly align the incentives of the parties involved and provide greater access to the information required for effective enforcement.”
Weekend Reading Stack
I recommend this recent Q&A in Metropolitan Counsel with Homer Moyer (Miller & Chevalier) a “Dean” of the FCPA. Might as well make it a Homer Moyer weekend – see here for a prior Q&A post on this site with Moyer.