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Friday Roundup


Funny headline, just plain silly, new SEC FCPA Unit Chief, parallel, scrutiny alerts and updates, company continues to “boil the ocean,” and ISO 37001 related. It’s all here in the Friday Roundup.

Funny Headline

This Global Investigations Review post contains the headline “Former FCPA Unit Chiefs Defend the ‘Revolving Door’”.

That’s funny. I suppose if I moved from a government enforcement attorney position to a multimillion dollar position in FCPA Inc. defending companies against the enforcement climate I helped create, I might defend the practice as well.

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Fear-Based FCPA Marketing


As is his occasional style, Mike Volkov began this post on his Corruption Crime & Compliance blog with a rant:

“Akin to politics (to a smaller degree), there is a fair amount of disinformation, some call it bloviating, put out by the FCPA Paparazzi. Some of this disinformation is motivated by immature attempts to “market” legal services; other sources of disinformation carry a readily apparent bias, one way or the other, and usually are supported by self-citations to one’s own “scholarship” to prove their points.”

When ranting, one can at least be a bit more specific and perhaps provide supporting links so that readers can decide for themselves the veracity of the assertions.

In any event, it was a bit ironic that a few days after the above rant a post was published on Corruption Crime & Compliance titled “Doing Business in China Should be “Scary.

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Friday Roundup


From the dockets, you gotta be kidding me, it’s a numbers game, former DOJ FCPA Unit Chief Duross on …, scrutiny updates, a foreign official teaser, a bracket of a different kind, and an event notice. It’s all here in the Friday Roundup.

From The Dockets

Two developments in DOJ FCPA individual actions.

One the DOJ apparently wants you to do know about because it issued a press release, the other apparently not because there was no press release.

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Rogue Employees Do Exist, Plus A Noticeable Juxtaposition

In the minds of some (see here and here) rogue employees are a myth – a convenient rationalizing for inadequate internal controls and compliance policies and procedures.

The irony of course is that even the DOJ acknowledges the existence and reality of rogue employees.  The U.S. Attorneys’ Manual (9-28.800) states that “no compliance program can ever prevent all criminal activity by a corporation’s employees …” and high-ranking DOJ officials have observed that “there will always be rogue employees who decide to take matters into their own hands.  They are a fact of life.”  As this recent Economist article rightly stated: “fraud by wayward employees, be they high or low, can never be eliminated.”

This post highlights the DOJ’s recent indictment of Asem Elgawhart, the logical relationship this case has to a pending FCPA enforcement action, and how the Elgawhart action further supports the notion that the DOJ’s so-called Morgan Stanley declination was nothing more than a conveniently timed public relations campaign.

Elgawhart Indictment

Elgawhart was employed by Bechtel and was assigned by Bechtel to be the General Manager of Power Generation Engineering and Services Company (PGESCo), a joint venture between Bechtel and Egyptian Electricity Holding Company (the alleged “state-owned and state-controlled electricity company in Egypt”).

According to the DOJ, Elgawhart “used his position and authority as the General Manager of a power generation company to solicit and obtain millions of dollars of kickbacks for his personal benefit from U.S. and foreign power companies that were attempting to secure lucrative contracts to perform power-related services.”

“In total,” the DOJ alleged, “Elgawhart received more than $5 million in kickbacks to help secure more than $2 billion in contracts for the kickback-paying companies, all of which he concealed from his employer, from bidding companies that did not pay kickbacks and from the U.S. Internal Revenue Service.”

Based on these allegations, and as indicated in this DOJ release, Elgawhart was charged in a 8-count indictment with mail and wire fraud, money laundering and various tax offenses.

Bechtel was not criminally charged and there is a good and obvious reason why.  There was no basis to charge Bechtel with any criminal offense.

Indeed, the DOJ alleges that Elgawhart: “defrauded Bechtel,” “concealed material facts from executives at Bechtel,” provided to executives at Bechtel annual Representation Letters containing representations that he “knew to be false,” “concealed and misrepresented material facts to counsel for Bechtel” during interviews, and caused certain evidence to be “deleted and destroyed.”

According to the DOJ, Elgawhart engaged in the above conduct against the following relevant background.

“Bechtel maintained a Code of Business Ethics that imposed on its employees certain standards and duties, including: (a) That employees not misrepresent themselves to anyone; (b) That employees not misuse proprietary, confidential or private information of Bechtel, its customers and suppliers; (c) That employees never give, solicit or accept a gift if that gift may create a payback obligation; and (d) That employees not have a financial interest in an actual or potential supplier, competitor, customer or any other organization that could cause a conflict of interest.

In addition, Bechtel maintained an Ethics and Compliance Policy requiring its employees to fully disclose through a conflict of interest revIew process any activity or transaction that might give rise to a conflict of interest.

During the course of his tenure at Bechtel, Elgawhart acknowledged Bechtel’s policies and agreed to comply with them. In or around 2001, in connection with his continued assignment as General Manager at PGESCo, Elgawhart signed a “Recital of International Employment Conditions” that required Elgawhart to comply with published Bechtel personnel policies and stated that Bechtel could discharge Elgawhart for violations of law, conduct that discredited Bechtel, theft and breach of Bechtel policy.”  [The DOJ also made similar allegations as relevant to PGESCO’s internal controls].

Logical Relationship to Pending FCPA Enforcement Action

Although some have inaccurately described the Elgawhart case as a “Foreign Corrupt Practices Act prosecution,” it is not.  Nevertheless, it is hard not to notice that at the bottom of the DOJ’s release there is reference to the DOJ’s “FCPA enforcement efforts.”

Indeed, there appears to be a logical relationship between the Elgawhart case and a pending FCPA enforcement action.  The Elgawhart indictment specifically alleges that the kickback scheme involved, among other companies, “Power Company A” (a French company engaged in the business of providing power generation and transportation-related services around the world”) including “Power Company A’s subsidiary in Connecticut.”

This is the same exact description of Power Company A (widely known to be Alstom) in the April 2013 FCPA enforcement action against current and former Alstom executives, several of which were employed by Power Company A’s subsidiary in Connecticut.”  (See here for the prior post).

A Noticeable Juxtaposition

As discussed above, Bechtel was not criminally charged in connection with the Elgawhart indictment and there was a good and obvious reason why.  There was no basis to charge Bechtel with any criminal offense.

Similarly, there was no basis to charge Morgan Stanley with any criminal offense in connection with the April 2012 Garth Peterson enforcement action.

Like in the Elgawhart action, in the Peterson action the DOJ alleged as follows as highlighted in this previous post.

  • “Peterson and Chinese Official 1 had a close personal relationship before Peterson joined Morgan Stanley.”
  • A shell company used to facilitate the scheme was owned 47% by Chinese Official 1 and 53% by Peterson and a Canadian Attorney.
  • “Without the knowledge or consent of his superiors at Morgan Stanley, Peterson sought to compensate Chinese Official 1″
  • “Peterson concealed Chinese Official 1’s personal investment [in certain properties] from Morgan Stanley”
  • “Peterson used Morgan Stanley’s past, extensive due diligence [as to certain of the investment properties] to benefit his own interests and to act contrary to Morgan Stanley’s interests.”

Consistent with these allegations, in its press release the DOJ stated:  “Mr. Peterson admitted … that he actively sought to evade Morgan Stanley’s internal controls in an effort to enrich himself and a Chinese government official.”  Moreover, in sentencing Peterson the judge stated that ”it is likely that [Morgan Stanley] would be considered a victim” of Peterson’s conduct.  (See 859 F.Supp.2d 477).

Yet, you all the know the story-line in the Peterson case as it has become part of FCPA religion preached by the DOJ and carried forward at every available opportunity by obedient parishioners.  The DOJ declined to prosecute Morgan Stanley because of its pre-existing compliance policies and procedures!

Most everyone was drinking the Kool-Aid, perhaps because taking a sip from the communal cup was convenient in marketing FCPA compliance services and products.

So why the difference in the DOJ’s public statements regarding Peterson / Morgan Stanley and Elgawhart / Bechtel?

Well, the Peterson enforcement action occurred in April 2012 when FCPA reform (including a corporate compliance defense) was still a hot topic and the DOJ was facing pressure to demonstrate something fair about its FCPA enforcement events.

Indeed, as noted in this previous post which highlighted a Morgan Stanley – Davis Polk webinar (Davis Polk represented Morgan Stanley), Davis Polk stated that part of its advocacy to the DOJ and SEC was that the agencies needed to publicly send a message on compliance and that the Morgan Stanley – Peterson case provided an “ideal case to do so.”  Interestingly, the webinar was moderated by a Davis Polk attorney who called the Morgan Stanley declination “unprecedented and important” and that it was “important and new, it is news that sets precedent.”  This same attorney of course was the Assistant Attorney General (DOJ, Criminal Division) during most of the time period relevant to the enforcement action and is the same person who testified on behalf of the DOJ at the Nov. 2010 Senate FCPA hearing and the June 2011 House FCPA hearing and stated (see here and here for the transcripts of the hearings) that a compliance defense was not necessary because the DOJ already considers compliance efforts when making its enforcement decisions.

In short, the juxtaposition between the DOJ’s statements in connection Peterson / Morgan Stanley and Elgawhart / Bechtel further supports the notion that the DOJ’s so-called Morgan Stanley declination was nothing more than a conveniently timed public relations campaign.

Yet the Kool-Aid continues to be served and enjoyed by many.

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).


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.

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