Reasonable
I recently discovered the awesomeness of word clouds. A word cloud is a graphical representation of word frequency in a source text. Word clouds can be a fun and informative learning device. The word cloud for the FCPA’s anti-bribery provisions is here and the word cloud for the FCPA’s books and records and internal control provisions is here. (Both word clouds – as well as future FCPA-related word clouds I create – can be found on the Resources tab of this website).
A quick glance at the FCPA books and records and internal controls word cloud demonstrates that the term “reasonable” is the most prominent term in these provisions. Yet, reviewing SEC FCPA enforcement actions you would hardly know as the agency seems to have, in many cases, converted the books and records and internal control provisions into strict liability provisions. See here for a prior post and for an extended discussion see here – “The Facade of FCPA Enforcement” (pages 976-981). Common verbiage in SEC FCPA enforcement actions includes generic statements that the parent company issuer failed to implement effective internal controls or that problematic payments in distant subsidiary books and records were consolidated with the issuer’s for purposes of financial reporting and that therefore the parent company issuer is liability.
The dominance of “reasonable’ in the FCPA books and records and internal control provisions, as demonstrated by the word cloud, is a good opportunity to revisit this prior post which details comments by Harold Williams (Chairman of the SEC) in 1981 as to the then infant FCPA. Terming his statements as official Commission policy, Williams stated as follows.
“The Act does not mandate any particular kind of internal controls system. The test is whether a system, taken as a whole, reasonably meets the statute’s specified objectives. ‘Reasonableness,’ a familiar legal concept, depends on an evaluation of all the facts and circumstances.” […] “Private sector decisions implementing these statutory objectives are business decisions. And, reasonable business decisions should be afforded deference. This means that the issuer need not always select the best or the most effective control measure. However, the one selected must be reasonable under all the circumstances.”
As to the “degree of exactitude” Williams stated as follows. “I turn first to the question of whether the Act’s text or purpose mandates that business records and controls conform to a standard of absolute exactitude or that a company’s control system meet some absolute ideal. The answer is ‘no.’ Both of the Act’s accounting provisions, it should be noted are modified by the key term ‘reasonable.’ […] In essence, therefore, the Act does provide a de minimus exemption, though not in absolute quantitative terms.” Williams further stated as follows. “Reasonableness, as a standard, allows flexibility in responding to particular facts and circumstances. Inherent in this concept is a toleration of deviations from the absolute. One measure of the reasonableness of a system relates to whether the expected benefits from improving it would be significantly greater than the anticipated costs of doing so. Thousands of dollars ordinarily should not be spent conserving hundreds. Further, not every procedure which may be individually cost-justifiable need be implemented; the Act allows a range of reasonable judgments.”
In a sign of just how much FCPA enforcement has changed, Williams stated as follows in his speech. “If a violation was committed by a low level employee, without the knowledge of top management, with an adequate system of internal control, and with appropriate corrective action taken by the issuer, we do not believe that any action against the company would be called for.”
In another sign of just how much FCPA enforcement has changed, William stated as follows. “… [D]epending on the
circumstances, intentional circumventions of a company’s system of records and of accounting controls by a low-level employee would not always be considered violations of the Act by the issuer. No system of adequate records and controls – no matter how effectively devised or conscientiously applied – could be expected to prevent all mistaken and improper transactions and disposition of assets. Given human nature, regardless of the adequacy of the system, a bookkeeper may still erroneously post entries, an overzealous agent may make unauthorized payments, or an unscrupulous employee may falsify records for his own purposes. The Act recognizes each of these limitations. Neither its text and legislative history nor its purposes suggest that occasional, inadvertent errors were the kind of problem that Congress sought to remedy in passing the Act. No rational federal interest in punishing insignificant mistakes has been articulated. And, the Act’s accounting provisions do not require a company or its senior officials to be the guarantors of all conduct of company employees.”
In concluding this portion of his speech, Williams stated as follows. “The test of a company’s internal control system is not whether occasional failings can occur. Those will happen in the most ideally managed company. But, an adequate system of internal controls means that, when such breaches do arise, they will be isolated rather than systemic, and they will be subject to a reasonable likelihood of being uncovered in a timely manner and then remedied promptly. Barring, of course, the participation or complicity of senior company officials in the deed, when discovery and correction expeditiously follow, no failing in the company’s internal accounting system would have existed. To the contrary, routine discovery and correction would evidence its effectiveness.”
As to the SEC’s enforcement policy, Williams concluded his remarks as follows. “The genius – and challenge – of [the FCPA’s accounting provisions] , it should be remembered, is their reliance on private sector decisionmaking – rather than specific federal edicts – to address an area of public concern. The Act’s eventual success or failure will, therefore, depend primarily upon business’s response. The Commission’s obligation, in turn, is to provide a regulatory environment in which the private sector can address these issues meaningfully and creatively. In this regard, we must encourage public companies to develop innovative records and control systems, to modify and improve them as circumstances change, and to correct recordkeeping errors when they occur without a chilling fear of penalty or inference that a violation of the Act is involved.”
The above comments by Williams are even more significant when one considers that the FCPA Williams was speaking about in 1981 did not contain the good faith compliance provisions added to the FCPA’s books and records and internal control provisions in 1988.
Those provisions currently state as follows.
“Where an issuer […] holds 50 per centum or less of the voting power with respect to a domestic or foreign firm, the [FCPA’s books and records and internal control provisions] require only that the issuer proceed in good faith to use its influence, to the extent reasonable under the issuer’s circumstances, to cause such domestic or foreign firm to devise and maintain a system of internal accounting controls consistent with [the provisions]. Such circumstances include the relative degree of the issuer’s ownership of the domestic or foreign firm and the laws and practices governing the business operations of the country in which such firm is located. An issuer which demonstrates good faith efforts to use such influence shall be conclusively presumed to have complied with the requirements of [the provisions].
In short, the FCPA’s books and records and internal control provisions focus on reasonable. Are the SEC’s enforcement theories as to these provisions reasonable?
Friday Roundup
Reader mail, an Olympic loophole, this week’s disclosure(s), the SEC speaks, and so do executives … it’s all here in the Friday Roundup.
Reader Mail
At times, even I ask myself why I spend countless hours maintaining a free website. Then I receive an e-mail from a reader such as the one below (the reader encouraged me to share it) and I keep writing.
“I just wanted to thank you for your blog. My son-in-law, [former Africa Sting defendant], was involved in the sting case.
After his arrest we found your website and learned alot from it. We had never heard of the fcpa before all of this happened. Your site was the most informative and easy for nonlawyers to understand. I would check it everyday for updates! It was my lifeline! Thank you again for writing so much about the case. I’m just glad it is over and life can go back to normal.
Sincerely,
[Relative of former Africa Sting defendant]”
Olympic Loophole
A recent article in the Wall Street Journal (A Battle for Mongolia’s Copper Lode – Feb. 22nd) reminded me of a post lost in the unpublished archives.
Last August, Rio Tinto PLC, which manages the Oyu Tolgoi mine in Mongolia, announced (here) that the company “signed an agreement with the Mongolian National Olympic Committee (MNOC) to be a Gold Partner sponsor for the Mongolian National Team competing at the London 2012 Olympic and Paralympic Games.” In the release, Rio Tinto Country Director Mongolia, David Paterson, stated “we are sponsoring the National Olympic Team as part of our long-term commitment to Mongolia and Oyu Tolgoi.” The release further stated as follows. “Rio Tinto’s Olympic sponsorship is just one of many ways the company is contributing to Mongolia’s development. For example, Rio Tinto invests in numerous programmes that assist regional and local communities and young Mongolians in the areas of education and training, local procurement practices and sustainable development.”
An August 2011, Wall Street Journal article discussing Rio Tinto’s sponsorship states that Mongolia “is a key battleground for mining companies, which are vying to extract its rich mineral deposits” and that the Oyu Tolgoi project “is expected to yield 1.2 billion metric tons of copper and 650,000 ounces of gold a year in its first 10 years, as well as silver and other metals.”
For more on Rio Tinto’s involvement at Oyu Tolgoi, see here from the company’s website.
On one level, engaged corporate citizens with a committment to community welfare and development is a good thing and ought to be encouraged.
But, on another level, and FCPA jurisdictional issues aside (although Rio Tinto’s ADR’s are traded on a U.S. exchange), is a company’s sponsorship of a country’s Olympic team any less problematic than a company providing a laptop computer or an expensive bottle of wine to an employee of a state-owned or state-controlled enterprise? What about pre-paid gifts cards (oops, getting ahead of myself, that is coming up next)? Such instances have never been the sole basis for an FCPA enforcement action, but such allegations (or those similar) are frequently included in FCPA enforcement actions suggesting that the enforcement agencies do indeed view such conduct as problematic.
Strange as it may sound, the FCPA’s anti-bribery provisions are only implicated when something of value is provided, directly or indirectly, to a foreign official to influence the official in obtaining or retaining business. The FCPA’s anti-bribery provisions are not implicated when the thing of value is provided to a foreign government itself. Even the DOJ recognizes this. See here for DOJ Opinion Procedure Release 09-01 in which the DOJ states that the proposed course of conduct “fall[s] outside the scope of the FCPA in that the [thing of value] will be provided to the foreign government, as opposed to individual government officials …”.
Is this an FCPA loophole? If so, ought it be closed?
This Week’s Disclosure(s)
Back to those pre-paid gift cards.
On Feb. 16th in this prior post, I commented (somewhat tongue-in-cheek) that every week another company seems to be disclosing FCPA scrutiny. So far two weeks have passed and there have been two new disclosures. This week’s disclosure is from W.W. Grainger Inc. (consistently ranked as one of the “world’s most admired companies” by Forbes). In a recent SEC filing, the company (a broad-line distributor of maintenance, repair and operating supplies and other related products and services) stated as follows.
“The Company is conducting an inquiry into alleged falsification of expense accounts submitted by employees in certain sales offices of Grainger China LLC, a subsidiary of the Company. In the course of the investigation the Company learned that sales employees may have provided prepaid gift cards to certain customers. The extent and value of the gift cards are subject to further inquiry. The Company’s investigation includes determining whether there were any violations of laws, including the U.S. Foreign Corrupt Practices Act. Consequently, on January 24, 2012, the Company contacted the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) to voluntarily disclose that the Company was conducting an internal investigation, and agreed to fully cooperate and update the DOJ and SEC periodically on further developments. The Company has retained outside counsel to assist in its investigation of this matter. Because the investigation is on-going, the Company cannot predict at this time whether any regulatory action may be taken or any other potential consequences may result from this matter.”
Finally on the disclosure front, in August 2011, Brucker Corp. made an FCPA disclosure concerning its Brucker Optics subsidiary in China. Recently, the company further disclosed as follows.
“As previously reported, in 2011 the Audit Committee of our Board of Directors commenced an internal investigation, with the assistance of independent outside counsel and an independent forensic consulting firm, in response to certain anonymous communications received by us alleging improper conduct in connection with the China operations of our Bruker Optics subsidiary. The Audit Committee’s investigation, which included a review of compliance by Bruker Optics and its employees in China and Hong Kong with the requirements of the Foreign Corrupt Practices Act (FCPA) and other applicable laws and
regulations, has been completed. The investigation found evidence indicating that payments were made that improperly benefited employees or agents of government-owned enterprises in China. The investigation also has found evidence that certain employees of Bruker Optics in China and Hong Kong failed to comply with our corporate policies and standards of conduct. As a result, we have taken personnel actions, including the termination of certain individuals. We have also terminated our business relationships with certain third party agents, implemented an enhanced FCPA compliance program, and strengthened the financial controls and oversight at our subsidiaries operating in China and Hong Kong. We have also initiated a review of the China operations of our other subsidiaries, which is being conducted with the assistance of an independent audit firm.
“In the fiscal year ended December 31, 2011, $4.3 million was recorded for legal and other professional services incurred related to the internal investigation of these matters.”
As noted in Brucker’s initial filing, in 2010, the China operations of Bruker Optics accounted for less than 2.5 percent of the Company’s consolidated net sales and less than 1.0 percent of its consolidated total assets.
SEC Speaks
The Subject to Inquiry Blog published by McGuireWoods has this post regarding the recent SEC Speaks event. Regarding anti-corruption enforcement, the post states as follows.
The Commission now has a “cross-border group” charged with ferreting out corruption in corporations that trade on US exchanges, but are headquartered abroad. The group is particularly interested in the accounting policies and financial disclosures of cross-border companies, many of which rely on “small US audit firms.” As a result, the SEC is leaning on audit firms, which the SEC regards as “gatekeepers.” To that end, the SEC issued guidance in 2010 and again in 2012, advising that they conduct risk-based analyses of their overseas clients. According to Kara Brockmeyer, head of the SEC’s FCPA Unit, the SEC has seen a spike in Form 8-K reports of accounting irregularities, as well as a jump in Rule 10A reports. She expects additional 10A reports to flow in through the Office of the Whistleblower.
Brockmeyer noted that the SEC is also devoting significant resources to Foreign Corrupt Practices Act (FCPA) enforcement. The SEC’s FCPA Unit is focusing heavily on international cooperation, teaming with regulators around the world. She highlights the FCPA Unit’s cooperation with Switzerland, Russia, and China, each of which recently enacted anticorruption laws. The FCPA Unit brought 20 FCPA enforcement cases 2011, including 19 against companies and one against an individual. Brockmeyer cautioned, however, that the 2011 numbers should not be seen as a model. Indeed, in 2012 the SEC has already charged 14 individuals with FCPA violations, compared with only five companies charged.
From the Executive’s Mouth
Some excerpts from earnings conference calls that caught my eye.
From Bill Utt (President, CEO and Chairman of KBR Inc.) during a recent call. “I would also like to report that in February KBR successfully concluded our three-year independent corporate monitorship related to KBR’s 2009 plea under the US Foreign Corrupt Practices Act case. Overall, the engagement with our corporate monitor was a positive experience for KBR. We remain committed to consistently doing the right thing every time, and our commitment to compliance is a fundamental part of KBR’s culture. In fact, our compliance programs are paying off in terms of new work as we were recently awarded an international project where our compliance program was a differentiating factor in KBR securing the work.”
From Kevin Royal (Senior VP, CFO of Maxwell Technologies) during a recent call. “Now I would like to provide an update regarding the shareholder derivatives. As we have disclosed in past public filings in 2010, two shareholders had alleged that certain of our past and current officers and directors failed to prevent us from violating the US Foreign Corrupt Practices Act, or FCPA. It is important to note that the Company is only a nominal defendant in this suit. In December 2011 mediation was held and a proposed settlement was reached wherein $3 million would be paid to plaintiff’s counsels, with $2.7 million to be paid by our insurance carrier, and $290,000 would be paid by the Company. In addition, we would be required to insure that certain corporate governance measures are in place and in force. The agreement is subject to among other things, court approval and notice to our shareholders. Without admitting any wrongdoing, the defendants to this suit are willing to enter into this settlement in order to expedite resolution of the matter, and to relieve the defendants and the Company from further financial burden. We are pleased that this suit is near final settlement, and look forward to putting this matter behind us.” [For a recent post on FCPA-related civil litigation titled “A Purpose or Parasitic” – see here].
From Bernard Duroc-Danner (President and CEO of Weatherford International in response to a question about the company’s FCPA inquiry) “Well, there’s not a lot to say about, that I can say, about the DOJ process. To a degree, I think it fell off the screen as it were. For us it moves slowly, that’s all I can tell you. So, I don’t have much of an update that I can tell you. And actually even if I could, I wouldn’t have much of an update period.”
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On that note, a good weekend to all.
SEC Enforcement Of The FCPA – Year In Review
FCPA enforcement, it is not just about the DOJ. Granted, its sticks are less sharp than the DOJ’s, but the SEC also claims a significant piece of the FCPA enforcement pie (query whether it should – but that is a subject for another day).
Today’s post is a Year in Review of SEC FCPA Enforcement. (See here for a similar post for 2010). Stay tuned for a similar post on the DOJ’s Enforcement of the FCPA in 2011.
In 2011, the SEC collected approximately $148 million in 13 corporate FCPA enforcement actions. By comparison, in 2010 the SEC brought in approximately $530 million in 19 corporate FCPA enforcement actions. SEC FCPA enforcement in 2011 was both small (Ball Corp. – $300,000) and large (Johnson & Johnson – $48.6).
Five corporate FCPA enforcement actions from 2011 were SEC only (IBM, Ball Corp., Rockwell Automation, Diageo, and Watts Water Technologies). Of the 13 corporate enforcement actions, only 5 (Armor Holdings, Johnson & Johnson, Tyson Foods, Maxwell Technologies, and Magyar Telekom / Deutsche Telekom) included FCPA anti-bribery charges. In other words 8 SEC FCPA enforcement actions charged FCPA books and records and internal controls only yet in those enforcement actions the SEC collected approximately $51 million in disgorgement and prejudgment interest. This is noteworthy because many question, and rightfully so, whether disgorgement is an appropriate remedy in cases that do not charge FCPA anti-bribery violations. See here for a prior post.
Of the $148 million the SEC collected in 2011 corporate FCPA enforcement actions, approximately $80 million (54%) were in two enforcement actions (Johnson & Johnson and Magyar Telekom / Deutsche Telekom). Of the $148 million, approximately $53 million (36%) were in enforcement actions against foreign issuers (Tenaris, Diageo, and Magyar Telekom / Deutsche Telekom).
The $148 million further breaks down as follows: $9.6 million in civil penalties; $138.4 in disgorgement and prejudgment interest. Thus 94% of SEC FCPA enforcement settlement amounts in 2011 consisted of disgorgement and prejudgment interest. This figure last year was 96%. If one tries to analyze why some SEC FCPA enforcement actions include a civil penalty, disgorgement and prejudgment interest (Watts Water Technologies, Diageo, Armor Holdings, Rockwell Automation, IBM), whereas other enforcement actions include only disgorgement and prejudgment interest (Comverse Technologies, Johnson & Johnson, Tenaris, Tyson Foods, Maxwell Technologies, Aon, Magyar Telekom / Deutsche Telekom), whereas other enforcement actions include only a civil penalty (Ball Corp.), good luck and please enlighten us all with your insight.
Other notable developments from corporate SEC FCPA enforcement in 2011 include use of the first alternative resolution vehicle (a DPA) against Tenaris (see here for the prior post) and four enforcement actions resolved via administrative proceedings (Ball Corp., Rockwell Automation, Diageo, and Watts Water Technologies). As noted in this previous guest post, a provision in Dodd-Frank granted the SEC broad authority to impose civil monetary penalties in administrative proceedings.
Another significant development in 2011, albeit not FCPA specific, was the much needed scrutiny on the SEC’s neither admit nor deny settlement policy – a policy relevant to SEC FCPA enforcement actions. See here for the prior post. This will remain an issue to watch in 2012 as neither admit nor deny heads to the Second Circuit.
In recent years, the DOJ has been the subject of well deserved criticism for the lack of individual prosecutions in many corporate FCPA enforcement actions. The same criticism can also be made of the SEC’s FCPA enforcement program. The SEC, at a minimum, has jurisdiction over the employees of companies settling an FCPA enforcement action and can, as demonstrated by certain FCPA enforcement actions, pursue civil FCPA anti-bribery charges, civil FCPA books and records and internal control charges, as well as other related civil charges.
However, in just 2 of the 13 (15%) corporate SEC FCPA enforcement actions in 2011 did the SEC charge individuals (Lessen Chang (Watts Water Technologies) and Elek Straub, Andras Balogh, and Tamas Morvai (Magyar Telekom)) despite allegations in other enforcement actions that employees, including in certain cases senior management, were engaged in the improper conduct at issue. Last year, the SEC charged individuals in only 3 of the 19 corporate enforcement actions (15%).
In 2011, the SEC did charge 1 individual (Paul Jennings – see here) in connection with the 2010 Innospec enforcement action as well as 7 individuals (Uriel Sharef, Herbert Steffen, Andres Truppel, Ulrich Bock, Stephan Signer, Carlos Sergi and Bernd Regendantz – see here) in connection with the 2008 Siemens enforcement action. It is interesting to note that all 12 of the individuals the SEC charged with FCPA violations in 2011 were foreign nationals (in a few cases, dual citizens of a foreign country and the U.S.).
Of the 13 corporate SEC FCPA enforcement actions in 2011, 12 enforcement actions (92%) were the result of corporate voluntary disclosures or previous foreign law enforcement investigations. The only exception is the Aon enforcement which, as noted in this prior post, “following inquiries from regulators, the Company commenced an internal review of its compliance with certain U.S. and non-U.S. anti-corruption laws, including the U.S. Foreign Corrupt Practices Act.” Stated in terms of the approximate $148 million the SEC collected in the 13 corporate FCPA enforcement actions in 2011, $133.5 million (90%) was the result of such disclosures. As noted in last year’s SEC Year in Review post, in 2010, 97% of the SEC’s intake in FCPA enforcement actions was the result of voluntarily or otherwise publicly disclosed information and not the result of original investigation by either the SEC.
This remainder of this post provides an overview of corporate SEC FCPA enforcement in 2011.
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Magyar Telekom / Deutsche Telekom (Dec. 29th)
See here for the prior post.
Charges: Settled civil complaint charging FCPA anti-bribery and books and records and internal controls violations.
Settlement: $31.2 million in disgorgement and pre-judgement interest.
Disclosure: Yes, voluntary disclosure.
Individuals Charged: Yes.
Related DOJ Enforcement Action: Yes.
Aon Corp. (Dec. 20th)
See here for the prior post.
Charges: Settled civil complaint charging FCPA books and records and internal controls violations.
Settlement: Approximately $14.5 million (disgorgement of $11,416,814 and prejudgment interest of $3,128,206).
Disclosure: Aon’s SEC filings stated that ”following inquiries from regulators, the Company commenced an internal review of its compliance with certain U.S. and non-U.S. anti-corruption laws, including the U.S. Foreign Corrupt Practices Act.”
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Watts Water Technologies (Oct. 13th)
See here for the prior post.
Charges: None. Administrative cease and desist order finding violations of the FCPA’s books and records and internal control provisions.
Settlement: $3.8 million ($2.8 million in disgorgement, $820,000 in prejudgment interest and a $200,000 civil monetary penalty).
Disclosure: Yes, voluntary disclosure.
Individuals Charged: Yes.
Related DOJ Enforcement Action: No.
Diageo (July 27th)
See here for the prior post.
Charges: None. Administrative cease and desist order finding violations of the FCPA’s books and records and internal control provisions.
Settlement: Approximately $16.4 million (approximately $11.3 million in disgorgement, approximately $1.2 million in prejudgement interest; and a $3 million civil penalty).
Disclosure: Yes, voluntary disclosure and/or based on previous foreign law enforcement investigation.
Individuals Charged: No.
Related DOJ Enforcement Action: No.
Armor Holdings (July 13th)
See here for the prior post.
Charges: Settled civil complaint charging FCPA anti-bribery, books and records and internal controls violations.
Settlement: Approximately $5.7 million (approximately $1.5 million in disgorgement; $458,000 in prejudgment interest; and a $3.7 million civil penalty)
Disclosure: Yes, voluntary disclosure.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Comverse Technologies (April 7th)
See here for the prior post.
Charges: Settled civil complaint charging FCPA books and records and internal control violations.
Settlement: Approximately $1.6 million (approximately $1.2 million in disgorgement and approximately $360,000 in prejudgment interest).
Disclosure: Yes, voluntary disclosure.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Johnson & Johnson (April 8th)
See here for the prior post.
Charges: Settled civil complaint charging FCPA anti-bribery violations and FCPA books and records and internal controls violations.
Settlement: Approximately $48.6 million (approximately $38.2 million in disgorgement and $10.4 million in prejudgment interest).
Disclosure: Yes, voluntary disclosure (however the Iraq Oil for Food conduct was not voluntarily disclosed).
Related DOJ Enforcement Action. Yes.
Rockwell Automation (April 7th)
See here for the prior post.
Charges: None. Administrative cease and desist order finding violations of the FCPA’s books and records and internal control provisions.
Settlement: Approximately $2.7 million (approximately $1.7 million in disgorgement; approximately $590,000 in prejudgment interest; and a $400,000 civil penalty).
Disclosure: Yes, voluntary disclosure.
Individuals Charged: No.
Related DOJ Enforcement Action: No.
Tenaris (May. 17th)
See here for the prior post.
Charges: None – resolved via a deferred prosecution agreement – term two years.
Settlement: $5.4 million in disgorgement and prejudgment interest.
Disclosure: Yes, voluntary disclosure.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Ball Corporation (March 24th)
See here for the prior post.
Charges: None. Administrative cease and desist proceeding finding FCPA books and records and internal controls violations.
Settlement: $300,000 penalty.
Disclosure: Yes, voluntary disclosure.
Individuals Charged: No.
Related DOJ Enforcement Action: No.
IBM Corporation (March 18th)
See here for the prior post.
Charges: Settled civil complaint charging FCPA books and records and internal controls violations.
Settlement: $10 million ($5.3 million in disgorgement, $2.7 million in prejudgment interest, and a $2 million civil penalty).
Disclosure: Yes, the action is reportedly the result of a prior South Korean government investigation.
Individuals Charged: No.
Related DOJ Enforcement Action: No.
Tyson Foods (Feb. 10th)
See here for the prior post.
Charges: Settled civil complaint charging FCPA anti-bribery violations and books and records and internal control violations.
Settlement: $1.2 million in disgorgement and prejudgment interest.
Disclosure: Yes, voluntary disclosure.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Maxwell Technologies (Jan. 31st)
See here for the prior post.
Charges: Settled civil complaint charging: FCPA anti-bribery, books and records and internal controls violations; and Section 13 disclosure violations.
Settlement: Approximately $6.3 million (approximately $5.6 million in disgorgement and $700,000 in prejudgment interest)
Disclosure: Yes, voluntary disclosure.
Individuals Charged: No.
Related DOJ Enforcement Action: Yes.
Potpourri
Neither Admit Nor Deny Headed to Second Circuit
It is not an FCPA enforcement action, but Judge Rakoff’s recent rejection of the SEC’s neither admit nor deny settlement policy in the Citigroup case (see here) is certainly relevant to the SEC’s enforcement of the FCPA. Yesterday, the SEC filed a notice of appeal in the Second Circuit. This will certainly be an issue to watch in the New Year as the SEC’s resolution policy (”hallowed by history, but not by reason” in the words of Judge Rakoff) goes before the Second Circuit. See here for Robert Khuzami’s (Director of the SEC Division of Enforcement) statement on the appeal and here for a recent speech delivered by Khuzami in which he talks, in part, on the SEC’s resolution policy. In yesterday’s statement, Khuzami said that the “new standard adopted by [Judge Rakoff] could in practical terms press the SEC to trial in many more instances ….”. Jesse Eisinger (ProPublica) asks here does the SEC have trialphobia?
SEC Launches FCPA Site
The SEC recently launched, apparently with little fanfare, a specific FCPA site – see here. The site contains a list (and in some cases a summary) of SEC FCPA enforcement actions from 1978 to the present, including (for most actions) links to original source documents. Kudos to the SEC for this FCPA specific site. The DOJ’s FCPA specific site is here. Both of these resources, along with others including two new resources mentioned below, can be found on the “Resource Center” pageof this site.
Big, Bold, and Bizarre
One thing academic publishing is not is fast. Those cite-checking parties and author revisions take time. In any event, before the calendar flips to 2012, I am pleased to share my recent article “Big, Bold, and Bizarre: The Foreign Corrupt Practice Act Enters A New Era” published by the University of Toledo Law Review. The article can be downloaded here and it is, for the most part, a review and analysis of 2010 FCPA enforcement actions and related developments (current as of January 15, 2011). For collectors of FCPA Year in Review pieces, my review and analysis of 2009 FCPA enforcement actions and related developments published by the Indiana Law Review can be downloaded here.
Decision Tree
In this first-of-its-kind FCPA/Travel Act “decision tree,” Perkins Coie Partner and former federal prosecutor T. Markus Funk provides in-house counsel and others in the anti-bribery space with a handy, practical analytical tool for walking through the standard range of foreign (and domestic) bribery issues that may come up. Markus, an FCPA practitioner and who serves as the National Co-Chair of the ABA’s Global Anti-Corruption Task Force, included not only the steps to FCPA liability, but he also integrated the Travel Act’s prohibitions into the comprehensive analysis. This is a very useful one-stop chart for anyone involved in FCPA issues or likely to encounter foreign bribery issues.
FCPA Database
Richard Cassin of FCPA Blog fame, along with his partners at Ethics360, recently launched the FCPA Database – see here. On his FCPA Blog (here) Cassin notes that the FCPA Database is “a unique suite of products designed to aid today’s compliance professionals.” The FCPA Database includes a searchable collection of current anti-corruption legislation from over 130 countries, information regarding anti-money-laundering laws, privacy laws, enforcement agencies, and a directory of more than 2,000 law firms, and about 1,000 law firm memos on anti-corruption enforcement and compliance. I’ve spent some time in the database and feel like the holidays have come a bit early as it is a useful research and learning tool.
Bourke Follow-Up
This previous post discussed the Second Circuit’s opinion this week in the Bourke matter. The post ended by noting that Bourke still had a motion for a new trial pending, but that it was unlikely Judge Scheindin (S.D.N.Y.) would grant that motion. The FCPA Blog reports here that Judge Scheindin denied the motion for a new trial.
Judge Rakoff Strikes Again
Previous posts (here and here) discussed the SEC v. Citigroup enforcement action assigned to Judge Rakoff (S.D.N.Y.). Although not an FCPA enforcement action, at issue is the same SEC resolution policy at issue in many SEC FCPA enforcement actions; namely, the SEC’s policy of allowing defendants to resolve an action without admitting or denying the allegations.
In prior cases, Judge Rakoff has said that this policy contributes to a “facade of enforcement” (SEC v. Bank of America) and is a “stew of confusion and hypocrisy unworthy of such a proud agency as the SEC.” (SEC v. Vitesse Semiconductor – see here for the prior post.
Last week, Judge Rakoff, in denying the SEC-Citigroup settlement, again had pointed words as to the SEC settlement device typically used in FCPA enforcement actions. The order (here) stated as follows. ” … [A] court,while giving substantial deference to the views of an administrative body vested with authority over a particular area, must still exercise a modicum of independent judgment in determining whether the requested deployment of its injunctive powers will serve, or disserve, the public interest. Anything less would not only violate the constitutional doctrine of separation of powers but would undermine the independence that is the indispensable attribute of the federal judiciary.”
Judge Rakoff stated that even after giving substantial deference to the views of the SEC, the court must still “be satisfied that it is not being used as a tool to enforce an agreement that is unfair, unreasonable, inadequate, or in contravention of the public interest.” Applying these standards, Judge Rakoff concluded, “regretfully” that the proposed consent judgment was “neither fair, nor reasonable, nor adequate, nor in the public interest.”
Judge Rakoff then stated as follows. “Purely private parties can settle a case without ever agreeing on the facts, for all that is required is that a plaintiff dismiss his complaint. But when a public agency asks a court to become its partner in enforcement by imposing wide-ranging injunctive remedies on a defendant, enforced by the formidable judicial power of contempt, the court, and the public, need some knowledge of what the underlying facts are: for otherwise, the court becomes a mere handmaiden to a settlement privately negotiated on the basis of unknown facts, while the public is deprived of ever knowing the truth in a matter of obvious public importance.”
Judge Rakoff called the SEC’s long-standing resolution policy “hallowed by history, but not by reason” and stated that the policy “deprives the Court of even the most minimal assurance that the substantial injunctive relief it is being asked to impose has any basis in fact.”
Elsewhere, Judge Rakoff stated as follows. “As for common experience, a consent judgment that does not involve any admissions and that results in only very modest penalties is just as frequently viewed, particularly in the business community, as a cost of doing business imposed by having to maintain a working relationship with a regulatory agency, rather than as any indication of where the real truth lies.” Judge Rakoff noted that the “policy of accepting settlements without any admissions serves various narrow interests of the parties” and that from the limited information before the court it is hard to discern what the SEC “is getting from this settlement other than a quick headline.”
Judge Rakoff then says that the “point, however, is not that certain narrow interests of the parties might not be served by the Consent Judgment, but rather that the parties’ successful resolution of their competing interests cannot be automatically equated with the public interest, especially in the absence of a factual base on which to assess whether the resolution was fair, adequate, and reasonable.”
Judge Rakoff’s order concludes as follows. “It is not reasonable, because how can it ever be reasonable to impose substantial relief on the basis of mere allegations? It is not fair, because, despite Citigroup’s nominal consent, the potential for abuse in imposing penalties on the basis of facts that are neither proven nor acknowledged is patent. It is not adequate, because, in the absence of any facts, the Court lacks a framework for determining adequacy. And, most obviously, the proposed Consent Judgment does not serve the public interest, because it asks the Court to employ its power and assert its authority when it does not know the facts. An application of judicial power that does not rest on facts is worse than mindless, it is inherently dangerous. The injunctive power of the judiciary is not a free-roving remedy to be invoked at the whim of a regulatory agency, even with the consent of the regulated. If its deployment does not rest on facts – cold, hard, solid facts, established either by admissions or by trials – it serves no lawful or moral purpose and is simply an engine of oppression.”
Judge Rakoff stated that the “SEC, of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if it fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency’s contrivances.”
Judge Rakoff directed the parties to be ready to try the case on July 16, 2012.
In a statement (here), Robert Khuzami (Director of the SEC’s Division of Enforcement) states as follows. “The court’s criticism that the settlement does not require an ‘admission’ to wrongful conduct disregards the fact that obtaining disgorgement, monetary penalties, and mandatory business reforms may significantly outweigh the absence of an admission when that relief is obtained promptly and without the risks, delay, and resources required at trial. It also ignores decades of established practice throughout federal agencies and decisions of the federal courts. Refusing an otherwise advantageous settlement solely because of the absence of an admission also would divert resources away from the investigation of other frauds and the recovery of losses suffered by other investors not before the court. The settlement provisions cited by the court have been included in settlements repeatedly approved for good reason by federal courts across the country — including district courts in New York in cases involving similar misconduct.”
As I noted when first covering Judge Rakoff’s involvement in the SEC v. Citigroup enforcement action, one of the most exciting things that could happen in terms of SEC FCPA enforcement is for a future case to be assigned to Judge Rakoff. However, that is unlikely to happen any time soon as few SEC FCPA enforcement actions are filed in the S.D.N.Y. Most SEC FCPA enforcement actions are filed in the U.S. District Court for the District of Columbia and judges in that district would be wise to follow Judge Rakoff’s lead in analyzing the policy implications of the SEC’s neither admit nor deny settlement policy.