“FCPA Sanctions: Too Big To Debar?”
Debarment (or lack thereof) is a periodic topic on this site.
Previously, I covered “Siemens … The Year After” (here), a post that highlighted in the year after resolution of the Siemens record-setting December 2008 FCPA matter, the U.S. government continued to do substantial business with the company it charged with engaging in a pattern of bribery “unprecedented in scale and geographic scope.”
In September 2010, I highlighted (here) the FBI’s $40 million contract with BAE – months after the FBI participated in resolution of the $400 million FCPA related enforcement action against the company.
In my November 2010 testimony (here) before the U.S. Senate, I stated as follows. “In order for the DOJ’s deterrence message to be completely heard and understood egregious instances of corporate bribery that legitimately satisfy the elements of an FCPA anti-bribery violation involving high-level executives and/or board participation should be followed with debarment proceedings against the offender.”
This testimony prompted then Senator Arlen Specter (who chaired the hearing) to ask me several follow-up questions for the record relating to debarment. (See here for the Q&A’s). Senator Christopher Coons (who also participated in the November 2010 hearing) also asked debarment follow-up questions of the DOJ.
As highlighted last week (here), the DOJ is opposed to a “mandatory, conduct-based, debarment remedy for companies that engage in egregious bribery.” As noted in the prior post, the DOJ’s responses seemed anchored in self-interest in that such a remedy would lessen its FCPA caseload, would make its job more difficult, and would take away it flexibility and leverage and resolving FCPA enforcement actions.
Enter Dru Stevenson (Professor of Law, South Texas College of Law – here and a past contributor to the site) and Nick Wagoner (a law student at South Texas College of Law).
Stevenson and Wagoner recently released a yet to be published article titled “FCPA Sanctions: Too Big to Debar?” (See here).
The authors (who can be reached at dstevenson@stcl.edu and nicholas.wagoner@gmail.com) provide this article summary.
“Despite the dramatic escalation in corporate fines and imprisonment imposed under the FCPA in recent years, a particularly lethal sanction for combating foreign corruption remains unused—suspension or debarment of prosecuted entities from future contracts with the U.S. Many of the firms caught bribing foreign officials have extensive contracts with a number of domestic federal agencies; meaning debarment may be a particularly devastating penalty both for the government contractor and the agency it transacts business with.
This begs the question: are certain private contractors too big to debar? As this Article demonstrates, it appears so. Certain federal agencies have become highly dependent on a handful of private firms responsible for satisfying the vast majority of government contracts. Because of the potential “collateral consequences” that may result from the collapse of a debarred contractor, these firms have enjoyed bailouts from agency officials who refuse to sanction corrupt practices through suspension or debarment. If ridding foreign markets of corruption truly is a top priority of the U.S., it seems both unfair and imprudent for federal agencies to continue awarding lucrative, multibillion-dollar contracts to firms recently prosecuted for fraudulently obtaining such contracts overseas.
This situation leads to the jaded viewpoint that paying fines when caught bribing foreign officials has “simply become a cost of doing business.” To help illuminate these concerns and lend support to the thesis, this Article examines the third largest FCPA-related enforcement actions to date: the BAE Systems case. On March 1, 2010, BAE Systems paid approximately $400 million in fines for its corrupt practices abroad. In the 365 days that followed however, BAE was awarded U.S. contracts in excess of $58 billion dollars. The U.S.’s refusal to debar BAE because of the risk of “collateral consequences” provides a case study of the benefits and drawbacks to deterring foreign corruption through suspension and debarment. This Article concludes that the U.S. must begin to diversify its portfolio of federal contractors so that prosecutors may leverage the legitimate threat of suspension and debarment to more effectively deter foreign corruption.”
Senate Hearing Follow-Up
On November 30, 2010, the Subcommittee on Crime and Drugs of the Senate Judiciary Committee held a hearing “Examining Enforcement of the Foreign Corrupt Practices Act.” (See here).
During the hearing, Senator Specter asked if I “would be willing to give [the committee] a hand” as to certain issues.
Shortly after the hearing, I received and responsed to five follow-up questions from Senator Specter for the hearing record. The questions related to the Siemens and BAE enforcement actions; debarment issues; and what I termed “bribery, yet no bribery” in my “Facade of FCPA Enforcement” article and my prepared statement. (see here and here).
With the permission of the Senate Judiciary Committee, I provide the responses here.
Siemens Related News
Today is the two year anniversary of the Siemens FCPA enforcement action, the largest ever in terms of fines and penalties – $800 million in the U.S. For last year’s post on the one year anniversary see here.
This post discusses recent Siemens related news.
First, a recent Spiegel Online article about continued U.S. interest in individual prosecutions.
Second, and on a much different topic, Siemens’ recent funding of various anti-corruption programs and initiatives pursuant to its World Bank settlement.
Individual Prosecutions
It probably is not the best time to be a former Siemens employee or executive somehow connected with the conduct at issue in 2008 FCPA enforcement action – the largest ever in terms of fines and penalties. Among other things, a November 30th Congressional hearing (here) was devoted (at least in part) to the issue of why no Siemens employees or executives have been charged in connection with the FCPA enforcement action (see here and here),
On this issue, Spiegel Online (here) is reporting that “US authorities are now investigating” former Siemens CEO Heinrich von Pierer, and “other top managers” in connection with the bribery scandal.
The December 9th article states that “a few weeks ago, officials with the U.S. Justice Department and the Securities and Exchange Commission questioned the current supervisory board chairman, Gerhard Cromme, as well as former auditors from the era of large-scale corruption.” According to the article, U.S. investigators “were due to return to Germany this week.”
Spiegel reports that U.S. investigators are specifically interested in “Pierer and Uriel Sharef, the former head of the power plant division, who was also in charge of the company’s South American business” and “Siemens projects in Argentina, Venezuela and Colombia.”
The Siemens enforcement action did include related enforcement actions against Siemens S.A. (Argentina) and Siemens S.A. (Venezuela).
In the Argentina matter (here), the DOJ alleged that Siemens entities made over $31 million in corrupt payments in exchange for favorable business treatment in connection with various government infrastructure projects, including a national identity card project, in Argentina.
In the Venezuela matter (here), the DOJ alleged that Siemens entities made over $18 million in corrupt payments in exchange for favorable business treatment in connection with two major mass transit projects in Venezuela.
The Spiegel article documents Senator Arlen Specter’s May 2010 exchange with Assistant Attorney General Lanny Breuer about the Siemens matter (see here), but does not mention the above referenced Congressional chaired by Senator Specter.
Doing Good, After Doing Bad
In July 2009, after resolution of the U.S. FCPA enforcement action, Siemens and the World Bank agreed to a settlement (see here) in connection with “corruption in a project in Russia involving a Siemens subsidiary.” The settlement included “a commitment by Siemens to pay $100 million over the next 15 years to support anti-corruption work.”
Last week, Siemens announced (here) the first wave of funding. As noted in the release, $40 million will be distributed to more than 30 initiatives in over 20 countries. (For a list of projects see here).
The release states as follows:
“Projects that will be supported by this initial tranche include assisting the Brazilian organization Instituto Ethos in ensuring the transparent award of the infrastructure contracts for the Football World Cup 2014 and the Olympic Games 2016 in Brazil. In Europe, the newly founded International Anti-Corruption Academy is receiving funding for research and teaching. This Vienna-based international organization was set up to train anti-corruption experts from all over the world.
Other initiatives will be supported in the following countries: Angola, Brazil, China, Egypt, Hungary, India, Indonesia, Italy, Mexico, Nigeria, the Philippines, Russia, the Slovak Republic, South Africa, the Czech Republic, the U.S. and Vietnam and various Middle Eastern states.”
This & That
A bit of catch up with today’s post which discusses the recent sentence of Juan Diaz in the continuing Haiti Teleco saga (including an interesting post-enforcement action twist) and a DOJ release that flew under the radar.
Juan Diaz
Juan Diaz was recently sentenced to 57 months in prison after previously pleading guilty to a one-count information charging him with conspiracy to violate the Foreign Corrupt Practices Act and money laundering. (See here for the DOJ release). As noted in the release, Diaz was also ordered to: (i) serve three years of supervised release following his prison term; (ii) pay $73,824 in restitution; and (iii) forfeit $1,028,851.
In May 2009, (see here) Diaz pleaded guilty for his role in an improper payment scheme involving employees of Haiti Teleco, an alleged state-owned national telecommunications company. In the DOJ’s view, that would make the Director of International Relations and the General Director of Haiti Teleco, persons Diaz and others allegedly bribed, Haitian “foreign officials” under the FCPA.
The interesting twist is this.
If Diaz bribed these same employees today, he would be bribing (presumably in the DOJ’s view) not Haitian “foreign officials” but Vietnamese “foreign officials.”
Why?
Because in May, Viettel, a telecommunications company run by Vietnam’s military, purchased a 60% stake in Haiti Teleco. (See here).
The 57 month sentence Diaz received is similar to the 60 month FCPA sentence Charles Jumet received in April (see here). Jumet was sentenced to 87 months after pleading guilty to a two-count criminal information charging conspiracy to violate the FCPA and making false statements to federal agents. The false statements portion of the sentence was 20 months.
Civil Forfeiture Action Against Properties Owned by Former President of Taiwan
In July, the DOJ issued a release (see here) about a civil forfeiture complaint it filed against certain U.S. properties “that represent a portion of illegal bribes paid to the former president of Taiwan and his wife.”
With Attorney General Eric Holder’s recent announcement of the Kleptocracy Asset Recovery Initiative (see here), the release should be of interest to those who follow this initiative and the general issue of asset recovery.
Bribe recipients can not be prosecuted under the Foreign Corrupt Practices Act, but U.S. based assets (or other assets that flow through U.S. financial institutions) of bribe recipients can be subject to U.S. legal proceedings under other laws.
As noted in this post from November 2009, Attorney General Holder has called asset recovery a “global imperative” and announced a “redoubled commitment on behalf of the United States Department of Justice to recover” funds obtained by foreign officials through bribery.
The prior post discussed the January 2009 civil forfeiture action the DOJ filed in the aftermath of the Siemens enforcement action against bank accounts located in Singapore in the names of Zulfikar Ali, Fazel Selim, and ZASZ Trading and Consulting Pte Ltd. (“ZASZ”) (see here). According to the DOJ’s complaint (see here), these accounts were used by Siemens and another company to bribe foreign officials in violation of the FCPA, specifically Arafat Rahman (“Koko”), the son of former Bangladeshi Prime Minister Khaleda Zia. The DOJ alleges that the illicit funds in these accounts flowed through U.S. financial institutions thereby subjecting them to U.S. jurisdiction.
Similarly, in January 2010, the DOJ unsealed a criminal indictment against Juthamas Siriwan and Jittisopa Siriwan, the foreign official bribe recipient of the Green’s improper payments and her daughter. See here. Among other things, the indictment seeks forfeiture of approximately $1.7 million.
Thus, the DOJ’s July announcement that it is pursuing U.S. based assets of the former president of Taiwan and his wife very much continues a trend.
According to the DOJ release:
“The former president and his wife were convicted in Taiwan on Sept. 11, 2009, for bribery, embezzlement and money laundering. They are currently sentenced to 20 years in prison. Their convictions were upheld on appeal and are now pending before the Supreme Court in Taiwan. […] The former president and his wife are also currently under indictment in Taiwan for additional alleged acts of graft and money laundering.”
Director John Morton of U.S. Immigration and Customs Enforcement (ICE) stated that the enforcement action “serves as a warning to those corrupt foreign officials who abuse their power for personal financial gain and then attempt to place those funds in the U.S. financial system” and that “ICE’s Homeland Security Investigations agents will continue to work with our law enforcement partners both here and abroad to investigate and prosecute those involved in such illicit activities and hold corrupt foreign officials accountable by denying them the enjoyment of their ill ?gotten gains.”
What appears to make this recent civil forfeiture action different than the previously filed Siemens-related forfeiture action and the previously filed Siriwan enforcement action is that the bribe payor may be beyond the reach of the FCPA.
According to the DOJ release, the entity paying the bribes to the president of Taiwan and his wife was Yuanta Securities Co. Ltd. (YSC). The release notes that YSC “was attempting to increase its ownership share of Fuhwa Financial Holding Company Limited” and that “YSC paid a bribe of 200 million New Taiwan dollars, or approximately $6 million U.S. dollars, […] to ensure that the authorities on Taiwan would not interfere with its acquisition of additional shares and to attempt to establish a relationship with the head of the authorities on Taiwan.”
Neither YSC (here), nor its parent company, Yuanta Financial Holdings, appear to be U.S. issuers. Under 78dd-3 of the FCPA, foreign companies can be subject to the FCPA’s jurisdiction. However, this prong of the FCPA requires a U.S. nexus. A quick scan of the forfeiture complaint does not suggest a U.S. nexus in terms of making the bribe payments – although the complaint clearly does allege a U.S. nexus once the payments were received and used by the former president of Taiwan and his wife.
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Curious as to what happened in the above referenced Siemens-related enforcement action? In April 2010, U.S. District Court Judge John Bates granted the DOJ’s motion for default judgment and judgment of forfeiture against the subject properties.
What’s happening in the Siriwan enforcement action? According to the docket, nothing since the indictment was unsealed in January 2010.
Six Months For The Greens … Plus The Friday Roundup
In September 2009, Gerald and Patricia Green were found guilty by a federal jury of substantive FCPA violations, conspiracy to violate the FCPA, and other charges. According to the DOJ release (see here) the Los Angeles-area film executives were found guilty of engaging in “sophisticated bribery scheme that enabled the defendants to obtain a series of Thai government contracts, including valuable contracts to manage and operate Thailand’s yearly film festival.”
As noted in the DOJ release:
“The conspiracy and FCPA charges each carry a maximum penalty of five years in prison, and each of the money laundering counts carries a maximum penalty of up to 20years in prison. The false subscription of a U.S. income tax return carries a maximum penalty of three years in prison and a fine of not more than $100,000.”
Sentencing was originally set for December 17, 2009, was delayed several times, and, at one point, was removed from the calendar altogether (see here).
U.S. District Court Judge George Wu of the Central District of California reportedly wanted to learn more about other FCPA sentences as well as Mr. Green’s health issues.
The DOJ requested a 10 year sentence for both Gerald and Patricia Green.
The DOJ stated that the “court must decline defendants’ remarkable invitation to join the wholesale speculation of FCPA ‘pundits’ as to whether corporate settlements are ‘shielding’ to corporate executives from punishment.”
In closing, the DOJ urged the court to “disregard defendants’ efforts to obscure the landscape of FCPA sentencing, which generally reflects significant prison terms for convicted individuals.”
According to this report, Judge Wu yesterday sentenced the Greens, before a packed courtroom, to six months in prison, followed by three years probation (six months of which must be served as home confinement).
According to the report, Judge Wu “also set a restitution figure of $250,000” but “if the Greens, who have had their accounts frozen and assets seized since being arrested in 2007, can prove that none of the $1.8 million they paid in bribes to Thai officials can be recovered, then they will only have to pay $3,000 in restitution.”
Does the “landscape of FCPA sentencing” truly reflect “significant prison terms” as stated by the DOJ?
True, any prison term is significant for a defendant and his/her family and friends.
But with a top sentence of 60 months (Charles Jumet – see here), the 366 day sentence for Frederic Bourke in November 2009 (see here), the 15 month sentence for Jason Edward Steph and the 366 day sentence for Jim Bob Brown both in January 2010 (see here) and now the 6 month sentence for the Greens – is this yet another instance in which DOJ’s FCPA rhetoric does not match reality?
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H-P news that does not involve its former CEO, what others are saying about the Giffen Gaffe, SciClone’s stock drop, and Siemens $1 billion customer … it’s all here in the Friday roundup.
H-P Inquiry Escalates
According to a story in today’s Wall Street Journal by David Crawford, the DOJ “has asked Hewlett-Packard Co. to provide a trove of internal records as part of an international investigation into allegations that H-P executives paid bribes in Russia, according to people familiar with the investigations.”
According to the story, the DOJ request “came after German prosecutors complained H-P had refused to provide them with all of the records they requested” and after “H-P initially argued that the German request for bookkeeping records, some of which are five years old, imposed an ‘undue hardship’ on the company.”
The article indicates that the DOJ “asked H-P to comply voluntarily with the request and hasn’t subpoenaed the records” and that “H-P has yet to provide some records” but is “cooperating with the investigations.” According to H-P, the investigation
“involves people that have largely left the company and matters that happened as much as seven years ago.”
What Others Are Saying About Giffen
It’s been one week since the Giffen Gaffe (see here).
Here is what others are saying about the enforcement action that began with charges that James Giffen made “more than $78 million in unlawful payments to two senior officials of the Republic of Kazakhstan in connection with six separate oil transactions”, yet ended with a misdemeanor tax violation against Giffen and an FCPA anti-bribery charge against a functionally defunct entity (The Mercator Corporation -in which Giffen was the principal shareholder, board chairman, and chief executive officer) focused merely on two snowmobiles.
Scott Horton, writing at Harper’s Magazine (see here) noted that “[t]he outcome is a huge embarrassment to federal prosecutors, who had invested a decade in resources in the effort to convict Giffen of FCPA and related violations.”
Horton, who has been following the case for years, highlighted how the “case has been the focus of political manipulation concerns for years” and closed with this paragraph:
“Kazakhs have long claimed that their government’s strategy of resolving the Giffen case by using the right levers with the American administration–a process that led them to hire former attorneys general and high-profile retired prosecutors, private investigators, and public-relations experts–would be successful. The outcome in the Giffen case appears to ratify that view. The notion of an independent, politically insulated criminal-justice administration in America has just taken another severe hit.”
Steve LeVine, author of The Oil and The Glory page at Foreign Policy, noted (here) that the Giffen resolution is “a considerable comedown for the federal government” and that Giffen’s lawyer “understood correctly that he could set up a collision between the Justice Department and the CIA in which the latter would probably prevail.”
The FCPA and Stock Price
What affect, if any, does an FCPA disclosure or resolution have on a company’s stock price?
It’s an issue I’ve explored before (see here) and best I can tell the evidence is inconclusive and the answer is – it depends.
In the case of a company that does business almost exclusively in China disclosing an FCPA inquiry focused on China, the answer is that disclosure of the FCPA inquiry matters – and quite a bit.
On Monday, SciClone Pharmaceuticals Inc., a Delaware company based in California, disclosed in a 10-Q filing (here) as follows:
“On August 5, 2010 SciClone was contacted by the SEC and advised that the SEC has initiated a formal, non-public investigation of SciClone. In connection with this investigation, the SEC issued a subpoena to SciClone requesting a variety of documents and other information. The subpoena requests documents relating to a range of matters including interactions with regulators and government-owned entities in China, activities relating to sales in China and documents relating to certain company financial and other disclosures. On August 6, 2010, the Company received a letter from the DOJ indicating that the DOJ was investigating Foreign Corrupt Practices Act issues in the pharmaceutical industry generally, and had received information about the Company’s practices suggesting possible violations.”
SciClone’s business is focused primarily on China with 90+% of its revenue derived from China sales. Thus, it is not surprising that an FCPA inquiry focused on China had a material impact on the company’s stock price.
As noted in this Reuters story, news of the FCPA inquiry sent SciClone’s shares, at one point, down 41% to a 52 week low.
Siemens $1 Billion Customer
In December 2008, Siemens agreed to pay $800 million in combined U.S. fines and penalties to settle FCPA charges for a pattern of bribery the DOJ termed “unprecedented in scale and geographic scope.” According to the DOJ, for much of Siemens’ operations around the world, “bribery was nothing less than standard operating procedure.”
The Siemens enforcement action remains the largest FCPA settlement ever (even though Siemens itself was not charged with FCPA anti-bribery violations).
On the one year anniversary of the Siemens enforcement action, I ran a post – Siemens – The Year After (see here) which highlighted how the U.S. government continues to do substantial business with the company it charged with engaging in a pattern of bribery “unprecedented in scale and geographic scope.”
This U.S. government business has helped Siemens outperform its competitors in a difficult recessionary environment and much of the company’s recent success is the direct result of government stimulus programs around the world.
Using Recovery.gov (a U.S. government website designed “to allow taxpayers to see precisely what entities receive Recovery money ..”), I highlighted how several Siemens’ business units have been awarded several dozen contracts funded by U.S. taxpayer stimulus dollars.
It is against this backdrop that Paul Glader’s recent piece in the Wall Street Journal “Siemens Seeks More U.S Orders” caught my eye.
According to the article, Siemens Corp. (the U.S. division of Siemens) currently brings in about $1 billion a year from the U.S. government, a figure the division hopes to double by 2015.
Eric Spiegel, chief executive of Siemens Corp., is quoted in the article as saying: “[o]ne of the beauties of the federal-government spending is it didn’t drop off during the recession.”
To that, I’ll add that one of the unfortunate beauties of engaging in bribery the U.S. government terms “unprecedented in scale and geographic scope” is no slow down in U.S. government contracts in the immediate aftermath of the enforcement action.
It’s one of the FCPA greatest headscratchers – FCPA violaters are and remain some of the U.S. government’s biggest suppliers and contracting partners.
As I’ve noted in numerous prior posts, efforts are underway to try to change this. See here, here and here.
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A good weekend to all.