Friday Roundup
Telling, scrutiny alerts and updates, and query whether. It’s all here in the Friday roundup.
Telling
It is a rather telling indication of the nonsensical nature of criminal law “enforcement” when what is presumed to be a well-intentioned legislator introduces a bill that fails in its intended purpose.
Case in point, Representative John Conyers (D-Michigan) recently introduced the “Corporate Crime Database Act” to require the Attorney General to:
“acquire data, for each calendar year, regarding all administrative, civil, and criminal judicial proceedings initiated or concluded by the Federal Government and State governments against any corporation or corporate official acting in an official capacity involving a felony or misdemeanor charge or any civil charge where potential fines may be $1,000 or more.”
The problem of course, and why the bill fails in its intended purpose, is that a meaningful percentage of DOJ enforcement actions do not result in “judicial proceedings.” Rather, many DOJ enforcement actions are resolved through non-prosecution agreements. Moreover, many of the requirements in the bill hinge on “charges” and NPAs do not involve charges.
(See here and here for similar posts).
Scrutiny Alerts and Updates
GSK
In this week’s GSK news, as reported here:
“GlaxoSmithKline is facing a criminal investigation in Poland for allegedly bribing doctors to promote its lung drug Seretide, adding to problems for a company already accused of corruption in China and Iraq. Poland’s Central Anti-Corruption Bureau, or CBA, said on Monday that 13 people had been charged in connection with the investigation launched by Polish prosecutors. Britain’s biggest drugmaker said one employee had been disciplined following a company probe into the matter and it was co-operating with the Polish authorities. “The investigation found evidence of inappropriate communication in contravention of GSK policy by a single employee. The employee concerned was reprimanded and disciplined as a result,” the drugmaker said in a statement.”
Further, as reported here:
“[GSK] is investigating claims its employees bribed doctors in Jordan and Lebanon by offering perks such as flexible travel arrangements and free samples that doctors could sell on, according to emails reviewed by The Wall Street Journal. […] Glaxo has said it has launched an internal investigation into its operations in the United Arab Emirates, Qatar, Bahrain, Oman, Kuwait, Lebanon, Syria, Jordan and Iraq. […] Glaxo sales representatives allegedly bribed doctors in Jordan to prescribe Glaxo drugs by issuing free samples that the doctors were then allowed to sell on, according to the emails. Glaxo representatives also allegedly permitted Jordanian doctors to bring their spouses on business trips that Glaxo paid for, according to the emails. Doctors were issued with business-class tickets to attend conferences but would exchange them at travel agencies for two economy-class tickets, allowing their spouses or other family members to come along free, a practice local Glaxo employees were aware of, according to the emails. Glaxo said that it is against company policy to allow airplane tickets to be exchanged for tickets of a lower value or refunded. The emails allege Glaxo sales representatives gave doctors in Jordan up to 60 free samples of its vaccine Synflorix, which they then sold on at up to $70 a vial. In Lebanon, Glaxo employees allegedly gave doctors free Synflorix vials as part of an incentive scheme to get them to prescribe the vaccine and not its competitors, another email to company representatives said. In both countries, Glaxo made payments to “key opinion-leader” doctors—influential and leading practitioners in their field—for lectures and other speaking engagements that may not have taken place, the emails allege, in return for them prescribing more Glaxo drugs.”
In response to the above recent media reports, GSK released this statement which states, in pertinent part, as follows.
“GSK can confirm we are investigating allegations regarding the activity of a small number of individuals in our operations in Jordan and Lebanon. We started investigating using internal and external teams as soon as we became aware of these claims. These investigations have not yet concluded. We have zero tolerance for unethical or illegal behaviour. We expect our employees to uphold our high standards and we believe the vast majority do so. GSK welcomes and respects people speaking up where they have concerns and we have a number of channels internally to enable them to do this, including hotlines and online portals. We implement regular training for employees in compliance matters and we continue to improve compliance processes and procedures wherever we see a need. We publicly disclose all cases of misconduct identified in the company. Last year there were 161 violations relating to breaches of our sales and marketing polices, resulting in 48 dismissals and 113 written warnings. These numbers are very similar to those reported by other companies in our sector. We are confident in our processes and controls and that we do not have a systemic issue with unethical behaviour in GSK. However, we recognise there are concerns regarding interactions between pharmaceutical companies and doctors, particularly related to perceptions of conflicts of interest. That’s why we are the first company to have committed to undertake fundamental reforms to our business model to eliminate this concern by stopping payments to doctors to speak about our products, stopping payments to doctors to attend medical conferences and stopping pay for our sales reps being linked to individual sales targets.”
BSG Resources / Beny Steinmetz
Regarding BSG Resources and Beny Steinmetz, as reported here:
“Billionaire Beny Steinmetz approved millions of dollars in payments to a wife of the former president of Guinea as he fought to keep part of the world’s largest iron-ore deposit, a suspect in a U.S. graft investigation said in conversations secretly taped by the FBI. The 109 pages of transcripts were among a cache of evidence posted on a Guinean government website April 9. The transcripts were introduced in the course of an investigation by the West African nation into whether bribery was used to obtain rights to the Simandou deposit. The Federal Bureau of Investigation shared evidence with the Guinean government from its own probe into the circumstances surrounding the award of the licenses, according to the Guinean release. Both Steinmetz and his company BSG Resources Ltd. have denied any wrongdoing by the Guernsey-based company or its employees. BSGR said April 10 it would prove all allegations of bribery and corruption are false.”
Alstom / Marubeni Related
“Indonesia’s main anti-corruption court sentenced a lawmaker to three years’ jail today for accepting bribes from French company Alstom and Japan’s Marubeni in a multimillion-dollar contract. Izedrik Emir Moeis was found guilty of accepting USD 357,000 from the companies to help them secure a USD 118 million joint contract in 2004 to supply and install boilers at a power plant on the island of Sumatra.”
(See here and here for previous posts on the related FCPA enforcement actions).
Query Whether
Given a common theory of FCPA enforcement, query whether hotels in the Middle East are state-owned or state-controlled. Arabianbusiness.com reports:
“Almost 55 percent of hotel suppliers have been asked to offer a monetary bribe by a hotel procurement manager, while 72.6 percent of suppliers know of other supply firms that are using bribes, according to the results of a new industry survey carried out earlier this year. The Hotelier Middle East Supplier Survey 2014, which received 108 responses during January and February of this year, also found 46.8 percent of suppliers believe that corruption, in terms of bribery, is a problem in the region’s hotel supply sector that is negatively impacting business.”
*****
A good weekend to all.
Friday Roundup
It’s a complex world, you ask – I answer, scrutiny alerts and updates, quotable, and for the reading stack. It’s all here in the Friday Roundup.
It’s a Complex World
The world in which we live in is seldom simple and straight-forward. This includes the so-called “fight” against corruption and bribery. Regarding China’s “crackdown” on bribery, the BBC China Blog reports:
“Much has been written about China’s ongoing crackdown on corruption, but now one of the world’s biggest banks has put a price on it. According to a report published by Bank of America Merrill Lynch this week, the Chinese government’s anti-graft campaign could cost the economy more than $100bn this year alone. […] Many of the micro effects of Xi Jingping’s anti-corruption drive have already been well documented of course; a slowdown in the restaurant trade for example, and a big dip in sales of luxury goods. Over the past year or so, in Shanghai’s posh malls and boutique designer shops – once at the centre of the happy merry-go-round of official largesse and gift giving – you’ve almost been able to hear the sound of the weeping and gnashing of teeth. But the BofAML report suggests that the campaign is also having a significant and troubling macroeconomic effect. Since early last year, it says, government bank deposits have been soaring, up almost 30% year on year. Even honest officials, the report suggests, are now so terrified of starting new projects, for fear of being seen as corrupt, that they’re simply keeping public funds in the bank. […] The report’s authors admit their calculations are a “back-of-the-envelope estimate of fiscal contraction”, but even if they are only half right it is an extraordinary amount of money and it highlights some of the challenges facing China’s anti-corruption crusader-in-chief, President Xi Jinping.”
Some-what related to the above topic, as noted in this Washington Times article:
“A key player in Nigeria’s emergence as Africa’s largest economy says U.S. companies are ceding investment opportunities to China and the Obama administration should do more to reverse the trend. “The Obama administration has to focus more on Nigeria, said Prince Adetokunbo Sijuwade, whose family holds royal status in a vital corner of southern Nigeria and is invested heavily in transportation and oil infrastructures. “We feel that we can learn from the U.S. in terms of expertise. […] Prince Sijuwade speculated that several factors may have deterred U.S. investors in recent years, from concerns about government corruption to security. But he argued that allegations of widespread corruption in Nigeria are “overstated.”“Corruption is all over the world,” he said, noting potential U.S. investors’ fears of violating the Justice Department’s anti-corruption laws as an inhibiting factor on Nigerian investment.”
You Ask – I Answer
This op-ed poses the question “what’s driving pharma’s international bribery scandals?”
You ask – I answer.
A dubious and untested enforcement theory + extreme risk aversion because of potential exclusion from government sponsored healthcare programs + other typical reasons for why other companies face FCPA scrutiny, such as employees and third parties acting contrary to a company’s good-faith compliance policies and procedures = several FCPA enforcement actions against pharma and healthcare related companies.
Scrutiny Alerts and Updates
The Wall Street Journal reported earlier this week:
“GlaxoSmithKline PLC is investigating allegations of bribery by employees in the Middle East, according to emails reviewed by The Wall Street Journal, opening a new front for the company as it manages a separate corruption probe in China. A person familiar with Glaxo’s Mideast operations emailed the U.K. drug company late last year and earlier this year to report what the person said were corrupt practices in Iraq, including continuing issues and alleged misconduct dating from last year and 2012. The emails cite behavior similar to Glaxo’s alleged misconduct in China, including alleged bribery of physicians. […] In an email, the person said Glaxo hired 16 government-employed physicians and pharmacists in Iraq as paid sales representatives for the company while they continued to work for the government. A government-employed Iraqi emergency-room physician has prescribed Glaxo products, even when they weren’t in the hospital’s pharmacy and a competitor’s brand was in stock, an email from the person said. Glaxo has been hiring government-employed Iraqi doctors as medical representatives and paying their expenses to attend international conferences, the person alleged in the emails. Glaxo pays other doctors high fees to give lectures in exchange for promoting and prescribing its drugs, the allegations continued. After Glaxo won a contract with the Iraqi Ministry of Health in 2012 to supply the company’s Rotarix vaccine, Glaxo paid for a workshop in Lebanon for Iraqi Ministry of Health officials, the email said. That included paying for a doctor’s family to travel to Lebanon “so it would be a family vacation for him at the hotel.”
As noted in the article, GSK has been under FCPA scrutiny since 2011 and GSK’s scrutiny China was the frequent focus of media attention last summer (see here for the prior post).
Quotable
Russel Ryan (King & Spalding and former high-ranking SEC enforcement attorney) hits a home run with this recent Wall Street Journal editorial titled: “When Regulators Think They Are Prosecutors.” It states, in pertinent part:
“[A]dministrative agencies like the SEC were never intended to become arms of law enforcement. They were created to regulate, not prosecute. […] There are good constitutional reasons why agencies like the SEC were not born with this power to prosecute and punish. Prosecuting private citizens and companies is serious business. It’s a core executive branch function historically entrusted to the attorney general, a “principal Officer” subject to unfettered presidential control under Article II of the Constitution. […] [I]f policy makers insist on transforming the commission and similar agencies into quasi-criminal prosecutors with ever-increasing power to seek harsh punitive sanctions, those agencies should be brought under the stewardship of the attorney general or given cabinet rank with leaders who are removable at the president’s pleasure. Even that wouldn’t cure a second level of constitutional infirmity. Based mostly on precedent established before the SEC had any power to punish, courts have exempted SEC prosecutions from many bedrock due-process protections taken for granted in criminal cases. The presumption of innocence, for example, is largely meaningless because the SEC can win by a mere “preponderance of the evidence” rather than proof beyond reasonable doubt. The right to remain silent is equally hollow because courts let the SEC treat silence as evidence of guilt. For SEC defendants who can’t afford a good lawyer, tough luck, because there’s no right to have counsel appointed at government expense as there would be in a criminal prosecution. And even when the SEC loses after trial, double jeopardy doesn’t prevent it from trying to reverse the verdict or force a retrial, as it would a criminal prosecutor. Dodd-Frank made things even worse by expanding the SEC’s ability to impose draconian financial penalties in administrative proceedings that have lax evidentiary rules, no jury trial, and limited judicial oversight.Basic constitutional safeguards should protect American citizens and businesses whenever a law-enforcement agency seeks to punish them for alleged wrongdoing, even in nominally civil proceedings. It’s time to incorporate those safeguards into an increasingly penal administrative prosecution system that is quickly sliding down a slick and constitutionally hazardous slope.”
For Ryan’s previous guest post on similar issues, see here.
Reading Stack
Certain of the conduct at issue in this week’s FCPA enforcement action against HP and related entities concerned alleged conduct in Poland. This article from a Polish news service looks at what happens “when the dust settles.”
An insightful post on the Trace Blog from a former DOJ FCPA enforcement attorney who oversaw several monitors titled “Five Questions That can Keep Your Monitor From Running Away.” Perhaps the best question though is: are monitors truly needed in many FCPA resolutions? (See here and here for prior posts).
For your viewing enjoyment here, recently indicted Ukrainian businessman Dmytro Firtash (see here) has released a video which insists he is an innocent party caught at the center of a “battlefield for the two biggest global players of Russia and the USA”.
*****
A good weekend to all.
Friday Roundup
Scrutiny alerts and updates, sunshine, year in review roundups, and for the reading stack. It’s all here in the Friday roundup.
Scrutiny Alerts and Updates
H-P
The company has been under FCPA scrutiny since at least 2010 and recently disclosed, in pertinent part, as follows.
“The U.S. Department of Justice and the SEC have been conducting an investigation into the Russia GPO deal and potential violations of the Foreign Corrupt Practices Act (“FCPA”). These U.S. enforcement agencies, as well as the Polish Central Anti-Corruption Bureau, are also conducting investigations into potential FCPA violations by an employee of Hewlett-Packard Polska Sp. z o.o., an indirect subsidiary of HP, in connection with certain public-sector transactions in Poland. In addition, the same U.S. enforcement agencies are conducting investigations into certain other public-sector transactions in Russia, Poland, the Commonwealth of Independent States, and Mexico, among other countries. HP is cooperating with these investigating agencies. In addition, HP is in advanced discussions with the U.S. enforcement agencies to resolve their investigations.”
JPMorgan
The New York Times returned – yet again (see here and here for prior NY Times article) – to JPMorgan’s hiring practices in China. The article states:
“For Wall Street banks enduring slowdowns in the wake of the financial crisis, China was the last great gold rush. As its economy boomed, China’s state-owned enterprises were using banks to raise billions of dollars in stock and debt offerings — yet JPMorgan was falling further behind in capturing that business. The solution, the executives decided over email, was to embrace the strategy that seemed to work so well for rivals: hire the children of China’s ruling elite.
[…]
In the months and years that followed, emails and other confidential documents show, JPMorgan escalated what it called its “Sons and Daughters” hiring program, adding scores of well-connected employees and tracking how those hires translated into business deals with the Chinese government. The previously unreported emails and documents — copies of which were reviewed by The New York Times — offer a view into JPMorgan’s motivations for ramping up the hiring program, suggesting that competitive pressures drove many of the bank’s decisions that are now under federal investigation.
The references to other banks in the emails also paint for the first time a broad picture of questionable hiring practices by other Wall Street banks doing business in China — some of them hiring the same employees with family connections. Since opening a bribery investigation into JPMorgan this spring, the authorities have expanded the inquiry to include hiring at other big banks. Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs and Morgan Stanley have previously been identified as coming under scrutiny. A sixth bank, UBS, is also facing scrutiny, according to interviews with current and former Wall Street employees.
[…]
The investigation has also had a chilling effect on JPMorgan’s deal-making in China, interviews show. The bank, seeking to build good will with federal authorities, has considered forgoing certain deals in China and abandoned one assignment altogether.”
Once again, the latest NY Times article sparked much commentary. See here, here and here.
Former Siemens Executives
The Buenos Aires Herald reports:
“Seventeen people, including former managers of the Siemens company, were … accused of paying off officials in order to help win a contract to produce the national identity cards …”. The decision was made by Federal Judge Ariel Lijo, who decided to indict them for having allegedly committed bribery.”
Regarding the defendants, the article states:
“Twelve people working for Siemens were included in the indictment: Uriel Jonathan Sharef, Ulrich Albert Otto Fritz Bock, Eberhard George Reichert, Luis Rodolfo Schirado, Andrés Ricardo Truppel, Ernst Michael Brechtel, Bernd Regendatz, Ralph Matthias Kleinhempel and José Alberto Ares. Sharef, for instance, was a member of Siemens’ managing board. He also was the first former board member of a Fortune Global 50 company to be indicted under the US Foreign Corrupt Practices Act, as happened in 2011. Judge Lijo also charged Carlos Francisco Soriano, Miguel Ángel Czysch and José Antonio David as “middlemen” between the company and Menem’s administration to arrange the payment for benefitting the company in the bid. The magistrate also accused Antonio Justo Solsona, Guillermo Andrés Romero, Orlando Salvestrini, Luis Guillermo Cudmani and Federico Rossi Beguy, who allegedly worked for the company competing in the bid against Siemens IT Services and who presumably agreed not to challenge the government’s decision.”
Allegations regarding the Argentine identity card project were included in the 2008 FCPA enforcement action against Siemens (see here) and also served as the basis for 2011 criminal and civil charges against several former Siemens executives, including those recently charged in Argentina (see here for the prior post summarizing the action).
As noted in this previous post, the U.S. charges against the former Siemens executives were brought after the DOJ faced scrutiny (including at the Senate’s 2010 FCPA hearing) for not bringing any individual enforcement action in connection with a bribery scheme “unprecedented in scale and geographic reach” in which there existed at Siemens a “corporate culture in which bribery was tolerated and even rewarded at the highest levels of the company.”
The U.S. criminal charges against former Siemens executives sits on the docket and a recent docket search indicates that there has not been any activity in the case in over two years.
Sunshine
Mark Cuban, who recently prevailed against the SEC in a long-running insider trading enforcement action, says in this Wall Street Journal article that he is “now considering a new venture publicizing SEC transcripts.” Says Cuban, “I’m going to get as many as I can, and I’ll put it out there.” “Sunshine is the best disinfectant.”
The article further states:
“Mr. Cuban says he isn’t against the SEC as a whole but thinks that the lawyers who work there should be held responsible for their actions. “There’s such a revolving door, and it was run by attorneys with an attorney’s mind-set looking for their next job,” he says. “It’s a résumé builder.” Mr. Cuban says individual lawyers aren’t held accountable because the public is familiar only with the name of the SEC’s chair, Mary Jo White. “No wonder they say or do whatever they damn well please,” he says. “I’m like, ‘OK, I’m going to start calling them out by name.’ George Canellos, co-director of the SEC’s enforcement division, sent a response to Mr. Cuban’s statements through an SEC spokesperson: “Mr. Cuban’s comments are without merit and uncalled for. Our lawyers acted in the finest traditions of government counsel and entirely appropriately in strongly advocating the position of the government in this matter.”
On a related note, did you know that the FCPA Professor Scribd page contains approximately 250 hard to find FCPA documents, pleadings, briefs, etc.
Year In Review Roundups
From the Wall Street Journal Risk & Compliance Journal page – a “Q&A with Asheesh Goel, Ropes & Gray, on The Year in FCPA“
From Trace Blog – “FCPA Corporate Settlements by the Numbers“
From Michael Volkov (Corruption, Crime & Compliance) – “The FCPA Person of the Year – The Prosecutor” and “FCPA Predictions for the New Year – 2014“
From Thomas Fox (FCPA Compliance and Ethics Blog) – “My Favorite Blog Posts from 2013“
Reading Stack
Thomas Fox (FCPA Compliance and Ethics Blog) and Jon Rydberg (Orchid Advisor) are out with a new book here titled “Anti-Bribery Leadership: Practical FCPA and U.K Bribery Act Compliance Concepts for the Corporate Board Member, C-Suite Executive and General Counsel.”
*****
A good weekend to all.
Friday Roundup
Scrutiny alerts and updates, quotable, and for the reading stack. It’s all here in the Friday Roundup.
Scrutiny Alerts And Updates
Avon
Yesterday, Avon’s stock dropped approximately 22% to $17.50. The company disclosed a drop in third quarter sales and weaker than expected earnings. Avon also disclosed, in pertinent part, the following regarding its long-running FCPA scrutiny:
“As previously reported in our Quarterly Report on Form 10-Q for the period ending June 30, 2013, we made an offer of settlement to the DOJ and the SEC in June 2013 that, among other terms, would have included payment of monetary penalties of approximately $12. Although our offer was rejected by the DOJ and the staff of the SEC, we accrued the amount of our offer in the second quarter of 2013.
In September 2013, the staff of the SEC proposed terms of potential settlement that included monetary penalties of a magnitude significantly greater than our earlier offer. We disagree with the SEC staff’s assumptions and the methodology used in its calculations and believe that monetary penalties at the level proposed by the SEC staff are not warranted. We anticipate that the DOJ also will propose terms of potential settlement, although they have not yet done so and we are unable to predict the timing or terms of any such proposal. If the DOJ’s offer is comparable to the SEC’s offer and if the Company were to enter into settlements with the SEC and the DOJ at such levels, we believe that the Company’s earnings, cash flows, liquidity, financial condition and ongoing business would be materially adversely impacted.
Although we are working to resolve the government investigations through settlement, our discussions are at early stages and at this point we do not know if those efforts will be successful and, if they are, what the timing or terms of any such settlements would be. We expect any such settlements will include civil and/or criminal fines and penalties, and may also include non-monetary remedies, such as oversight requirements and additional remediation and compliance requirements. We may be required to incur significant future costs to comply with the non-monetary terms of any settlements with the SEC and the DOJ. If we are able to reach settlements with the SEC and the DOJ, the Company believes that such settlements are likely to include monetary penalties that would be material to its earnings and cash flows in the relevant fiscal period and could, depending on the amounts of the settlements, materially adversely impact the Company’s liquidity, financial condition and ongoing business.
There can be no assurance that our efforts to reach settlements with the government will be successful. If we do not reach settlements with the SEC and/or the DOJ, we cannot predict the outcome of any subsequent litigation with the government but such litigation could have a material adverse effect on our earnings, cash flow, liquidity, financial condition and ongoing business.>We have not recorded an additional accrual beyond the amount recorded in the second quarter of 2013 because at this time, in light of the early stages of our discussions of possible settlement terms with the government, the magnitude of the difference between our offer and the amount proposed by the SEC and the absence of a proposal from the DOJ, and our inability to predict whether we will be able to reach settlements with the government, we cannot reasonably estimate the amount of additional loss above the amount accrued to date.
Until these matters are resolved, either through settlement or litigation, we expect to continue to incur costs, primarily professional fees and expenses, which may be significant, in connection with the government investigations. Furthermore, under certain circumstances, we may also be required to advance and/or reimburse significant professional fees and expenses to certain current and former Company employees in connection with these matters.”
In certain respects, Avon’s disclosure was similar to its August disclosure (see here for the prior post) in which it stated “we made an offer of settlement to the DOJ and the SEC that, among other terms, included payment of monetary penalties of approximately $12 [million]. The DOJ and the SEC have rejected the terms of our offer.”
The fact that there is a negotiation and back and forth between the SEC and a company concerning an FCPA settlement number is not unusual, what is a bit unusual is that this back and forth is being aired in public via the company’s SEC filings.
Embraer
Previous posts here and here have profiled Embraer’s FCPA scrutiny. In an article titled “Plane Maker Embraer Faces Bribery Inquiries,” the Wall Street Journal reports:
“U.S. and Brazilian authorities are investigating whether aircraft maker Embraer SA bribed officials in the Dominican Republic in return for a $90 million contracts to furnish the country’s armed forces with attack planes.”
According to the article, U.S. authorities say they have “evidence – including bank records and e-mails – that they believe shows that Embraer executives had approved a $3.4 million bribe to a Dominican official with influence over military procurement.”
Mead Johnson
Mead Johnson Nutrition Company recently disclosed as follows.
“The company has initiated an internal investigation of, and is voluntarily complying with a Securities and Exchange Commission request for documents relating to, certain business activities of the company’s local subsidiary in China. The company’s investigation is focused on certain expenditures that were made by the subsidiary in connection with the promotion of the company’s products or may have otherwise been made and that may not have complied with company policies and applicable U.S. and/or local laws. The company has retained outside legal counsel to conduct the investigation, which is being overseen by a committee of independent members of the company’s board of directors. At this time, the company is unable to predict the scope, timing or outcome of this ongoing matter or any regulatory or legal actions that may be commenced related to this matter.”
National Geographic
The on-line publication Vocativ recently published an article “Tut-Tut: Did National Geographic Bribe Egypt’s Famed Indiana Jones?” The article begins as follows.
“This is not your typical story about international bribery. For one thing, it involves mummies. It also involves one of America’s most beloved institutions: National Geographic. Vocativ has learned that the Justice Department has opened a criminal bribery investigation into the prestigious nonprofit. At issue: Nat Geo’s tangled relationship with Dr. Zahi Hawass, a world-famous Indiana Jones–type figure who for years served as the official gatekeeper to Egypt’s glittering antiquities. Beginning in 2001 and continuing for a decade, National Geographic paid the archaeologist between $80,000 and $200,000 a year for his expertise. The payments came at a time when the popularity of mummies and pharaohs was helping transform the 125-year-old explorer society into a juggernaut with multiple glossies, a publishing house and a television channel. But they also came as Hawass was still employed by the Egyptian government to oversee the country’s priceless relics.”
According to the article, Hawass also worked with National Geographic competitor, the Discovery Channel.
Although National Geographic is a non-profit entity, the FCPA’s definition of “domestic concern” is “any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship …”.
Teva Pharmaceuticals
As noted in this previous post, in August the company disclosed that it “received a subpoena … from the SEC to produce documents
with respect to compliance with the FCPA in Latin America.” Earlier this week, Teva disclosed as follows.
“Beginning in 2012, Teva received subpoenas and informal document requests from the SEC and the Department of Justice (“DOJ”) to produce documents with respect to compliance with the Foreign Corrupt Practices Act (the “FCPA”) in certain countries. Teva has provided and will continue to provide documents and other information to the SEC and the DOJ, and is cooperating with the government in their investigations of these matters. Teva is also conducting a voluntary investigation into certain business practices that may have FCPA implications and has engaged independent counsel to assist in its investigation. In the course of its investigation, which is continuing, Teva has identified in Russia, certain Eastern European countries, and certain Latin American countries issues that could potentially rise to the level of FCPA violations and/or violations of local law. Teva has brought these issues to the attention of the SEC and the DOJ. No conclusion can be drawn at this time as to any likely outcomes in these matters.”
JPMorgan
As highlighted in this previous post, in August JPMorgan’s hiring practices in China came under scrutiny.
The company recently disclosed:
“The Firm has received subpoenas and requests for documents from the SEC’s Division of Enforcement regarding, among other things, hiring practices relating to candidates referred by clients, potential clients and government officials, the Firm’s employment of certain former employees in Hong Kong, its business relationships with certain related clients in the Asia Pacific region and its engagement of consultants in the Asia Pacific region. The Firm has also received a request for documents from the U.S. Department of Justice regarding the same referral hiring practices. The Firm is cooperating with these investigations. Separate inquiries on these or similar topics have been made by other authorities, including authorities in other jurisdictions, and the Firm is responding to those inquiries.”
Quotable
From Attorney General Eric Holder at the Arab Forum on Asset Recovery in Morocco.
“As we’ve all seen – and as President Obama has said – “[t]he struggle against corruption is one of the great struggles of our time.” Fortunately […] corruption is no longer widely seen as an accepted cost of doing business. It is no longer tolerated as an unavoidable aspect of government. On the contrary – it is now generally understood that the consequences of corruption are devastating – eroding trust in public and private institutions, undermining confidence in the fairness of free and open markets, siphoning precious resources at a time when they could hardly be more scarce, and all too often breeding contempt for the rule of law.
[…]
This is why, as Attorney General, I’ve consistently worked to ensure that anticorruption remains a top priority for my colleagues at every level of the United States Department of Justice – within as well as beyond our borders.”
A recent article in Corporate Counsel titled “The Perils of Keeping FCPA Infractions Under Wraps” states:
“Charles Duross, the deputy chief of the U.S. Justice Department’s Foreign Corrupt Practices Act Unit, delivered an ominous message Monday to in-house lawyers at the Association of Corporate Counsel’s Annual Meeting in Los Angeles: Failure to report potential bribery is more perilous than ever. Duross, who is based in Washington, D.C., said DOJ is handling a “pretty steady stream of cases,” with every major U.S. attorney’s office investigating alleged violations of the FCPA, which prohibits bribery of foreign officials. “The risk of getting caught . . . is greater today than any point previously,” Duross said. “I think that’s kind of a no-brainer.” Duross said he isn’t naïve about the calculus companies have to perform when deciding whether to report a potential FCPA infraction to the U.S. government. But if a company makes the disclosure on its own, he noted, the Justice Department stands ready to help. DOJ can make deferred-prosecution or non-prosecution agreements with businesses—or even decline to pursue any action against them, he said. “It’s a tough one” for companies, Duross said. “No doubt about it.” Self-reporting can be overrated, according to New York-based Morrison & Foerster partner Carl Loewenson Jr., a co-chairman of the firm’s securities litigation, enforcement, and white-collar defense group who also spoke at the ACC event. Making the disclosures is great for business at the DOJ, as well as law firms and accounting offices, he said. But companies that report almost always get some type of a public charge, he noted. “I think that these days there are too many cases in which too many companies are being too reflexive about self-reporting” to the government, Loewenson said. “In some cases, not in all, you can solve these problems yourself.”
Reading Stack
Several spot-on observations in the most recent issue of the always informative FCPA Update from Debevoise & Plimpton concerning the recent Diebold enforcement action (see here and here for prior posts).
“Although there are significant aggravating factors that might explain imposing $48 million in penalties and disgorgement on a company that voluntarily disclosed what are, unfortunately, common improprieties in China, combined with wholly unrelated commercial bribery in Russia, the size of the financial resolution – apart from the substantial burdens of the monitorship – raises questions about future enforcement of the FCPA, as well as the incentives for companies to self-report.
The first noteworthy aspect of this resolution is the enforcement agencies’ decision to use the books and records and internal controls provisions as a vehicle for obtaining monetary relief penalizing purely commercial bribery (40% of the improper payments at issue). While not entirely novel or outside the theoretical reach of those provisions, were the enforcement agencies routinely to investigate issuers in connection with commercial bribery abroad, the “risk-based” calculus of almost all corporate compliance programs would potentially need to be rebalanced.
Second, the total financial aspect of the resolution was 16 times the total value of alleged improper payments. In describing the improper payments, the enforcement agencies aggregated a number of often small payments over five years. When considered alongside the Ralph Lauren enforcement action from earlier this year, the Diebold enforcement action, and in particular its imposition of a monitor, long-considered one of the most burdensome aspects of FCPA settlements, could call into question one common view of the statements relating to gifts and corrupt intent in the November 2012 DOJ/SEC joint Resource Guide to the U.S. Foreign Corrupt Practices Act: namely, that FCPA covered companies should not “sweat the small stuff.”
[…]
“[T]he Diebold enforcement actions revive the pre-guidance confusion about the government’s enforcement priorities and raise significant questions about the value of voluntary disclosure. The confusion, arising from repeated charges related to relatively small expenditures, including, even, $500 for four pairs of shoes provided as gifts to Chinese officials, was part of the background of frustration with the government’s enforcement of the FCPA that led to publication of the joint DOJ/ SEC Resource Guide. It has been commonly thought that the Resource Guide’s distinctions between “expensive gifts” and “token[s] of esteem or gratitude” signified at least an implicit recognition by U.S. enforcement agencies that compliance resources would be better allocated to topics other than gifts valued at a few hundred dollars, let alone gifts that individually do not exceed $100 in value. But the Diebold case will raise new questions about the government’s enforcement priorities, questions that will only be amplified by the imposition of a monitor, potentially one of the most disruptive, burdensome, and costly components of FCPA settlement tools, and one that had been in declining use for several years.”
An observant article from The Lawyer titled “Round Table on Cross-Border Disputes – Bandwagons Roll.” It states:
“Co-operation [between foreign law enforcement regulators] is good.'” […] More co-operation between regulators when they are trying to address the same issues is welcome.” However, co-operation – while praised for attempting to provide consistency – has its drawbacks. “They all want to impose sanctions for the same conduct.” […] “It’s common now for a company to finish a US Foreign Corrupt Practices Act or UK Bribery Act investigation that has taken three years and generated huge fees, to turn around and see a long line of regulators from, say, China or India with their own legal and political concerns.”
It does not necessarily justify the behavior, but the following article at least puts the behavior in the proper context and highlights why Congress specifically included a facilitation payments exception in the FCPA’s anti-bribery provisions.
“Seventy-five percent of businesses in Vietnam pay bribes to government agencies on their own volition in order to avoid being stuck in red tape, a World Bank specialist says. At an anti-corruption conference held in Hanoi Thursday, Soren Davidsen said that sixty-three percent of firms questioned in a survey said they paid the “unofficial fees” to speed up procedures.”
A useful compliance resource here from the U.S. – China Business Council titled “Best Practices for Managing Compliance in China.”
*****
A good weekend to all,
Of Note From The Diebold Enforcement Action
Yesterday’s post (here) went long and deep as to the Diebold enforcement action. Today’s post continues the analysis by highlighting additional notable issues.
Prior China Investigation
It is merely one paragraph in the SEC’s complaint, but it may be perhaps the most notable issue in the Diebold enforcement action (an action based primarily on excessive travel and entertainment payments by subsidiaries – the bulk of which occurred in China). Para. 28 of the SEC’s complaint states:
“Other executives at Diebold were on notice of potential corruption issues at Diebold China. In 2007, a regional government agency in China, the Chengdu Administration of Industry & Commerce (“CDAIC”), opened an investigation involving, among other issues, leisure trips and gifts Diebold China had provided to bank officials. Company executives in China and the U.S. learned of the investigation after a Diebold field office in Chengdu was raided by authorities. Executives A and B took the lead in responding to the investigation. Diebold was able to settle the matter with no corruption charges filed, by paying CDAIC an administrative penalty of 600,000 RMB (approximately $80,000) for business registration violations. Despite being on notice of potential corruption issues at Diebold China, Diebold failed to effectively investigate and remediate these problems.”
In short, the bulk of the conduct at issue in the $48 million Diebold enforcement action was previously investigated by a foreign law enforcement agency and was resolved without corruption charges.
Repeat Offender
As noted in yesterday’s post, in resolving the SEC enforcement action, Diebold agreed to a permanent injunction prohibiting future FCPA violations.
As noted in this prior post, in July 2010 Diebold previously agreed to a permanent injunction prohibiting future FCPA books and records and internal controls violations in a “non-FCPA FCPA enforcement action.”
In other words, Diebold is a repeat FCPA offender (at least as to books and records and internal controls provisions). As noted in yesterday’s post, this was the reason why the enforcement agencies imposed a compliance monitor on Diebold notwithstanding its voluntary disclosure and cooperation.
The Diebold action once again raises the issue of whether SEC permanent injunctions represent meaningless settlement language. (See here and here for prior posts).
Rogue?
Notwithstanding the fact that Diebold is a repeat offender, a separate question ought to be asked – was the Diebold enforcement action the result of rogue employees?
According to its website, Diebold employs 16,000 employees with representation in more than 90 countries worldwide. The enforcement action primarily focuses on the conduct of two employees – Executive A and Executive B. The SEC’s complaint specifically states that these executives received FCPA training in 2007, yet still continued their alleged improper practices. In addition, the SEC specifically states that the “executives took further steps to hide the leisure nature of [the problematic] trips including, on at least one occasion, providing false information to the company’s auditors in China.”
Is it fair for Diebold shareholders to pay $48 million to resolve an enforcement action (let alone many millions more in pre and post enforcement action professional fees and expenses) based on conduct allegedly engaged in primarily by .0001% of its employees, employees who were trained on the FCPA, and employees who took steps to conceal their activity from others in the company?
Typical Chronology
Diebold’s FCPA scrutiny followed a typical pattern as set forth below.
As noted in this prior post, in July 2010, the company voluntarily disclosed to the DOJ and SEC conduct it learned of “while conducting due diligence in connection with a potential acquisition in Russia.”
This original source of scrutiny caused the company to conduct an internal review of its “global FCPA compliance” which resulted, as noted in this prior post, in the company thereafter disclosing as follows. “In the fourth quarter of 2010, the Company identified certain transactions within its Asia Pacific operation over the past several years which may also potentially implicate the FCPA.”
As noted in this prior post, in August 2013, the company disclosed as follows.
“The company has agreed in principle with the DOJ and the SEC to the terms of a proposed settlement of their inquiries, which terms remain subject to final approval by all parties. These proposed settlement terms include combined payments to the U.S. government of approximately $48.0 million in disgorgement, penalties and prejudgment interest, and the appointment of an independent compliance monitor for a minimum period of 18 months.”
In short, the time period from first instance of public disclosure to actual settlement was approximately 3.25 years. The time period from disclosure of a settlement in principle to actual settlement was approximately 3 months.