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Words Matter As The First Circuit Concludes That The FCPA Is Not A “Rule Or Regulation” Of The SEC

By on July 18, 2022 in Smith and Wesson, Whistleblowers
wordsmatter

Recently, the First Circuit concluded that the Foreign Corrupt Practices Act is not “a rule or regulation” of the SEC as that term is used in Section 1514A of Sarbanes-Oxley (a whistleblower protection provision).

In terms of background, Earl Donald Baker was an employee of Smith & Wesson (“S&W”) who was terminated. Thereafter, Baker filed a complaint against S&W asserting that S&W retaliated against him for reporting illegal conduct by S&W employees. He asserted, among other things, a claim under Section 1514A of Sarbanes-Oxley and alleged that the purported misconduct that he reported to S&W’s human resources and general counsel was that management employees received large bribes and provided improper preferential treatment to a vendor.

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Friday Roundup

By on August 1, 2014 in ALSTOM, Facilitating Payments, FCPA Inc., SEC, Serious Fraud Office, Smith and Wesson, United Kingdom, Wynn Resorts

When the dust settles, scrutiny alerts and updates, quotable and for the reading stack.  It’s all here in the Friday roundup.

When the Dust Settles

Given the ease in which information now flows and the world-wide interest in corruption and bribery, FCPA enforcement actions are read around the world.  It is thus not surprising that when the dust settles on the U.S. FCPA enforcement action, many are left wondering … who are those “foreign officials”?

Most recent case in point concerns this week’s FCPA enforcement action against Smith & Wesson which involved alleged conduct in Indonesia, among other countries.  According to the SEC:

“In 2009, Smith & Wesson attempted to win a contract to sell firearms to a Indonesian police department by making improper payments to its third party agent in Indonesia, who indicated that part of the payment would be provided to the Indonesian police officials under the guise of legitimate firearm lab testing costs. On several occasions, Smith & Wesson’s third-party agent indicated that the Indonesian police expected Smith & Wesson to pay them additional amounts above the actual cost of testing the guns as an inducement to enter the contract. The agent later notified Smith & Wesson’s Regional Director of International Sales that the price of “testing” the guns had risen further. Smith & Wesson’s Vice President of International Sales and its Regional Director of International Sales authorized and made the inflated payment, but a deal was never consummated.”

As noted in this Jakarta Post article:

“The Indonesian Corruption Watch (ICW) has called for an investigation into an alleged attempt by US gunmaker Smith & Wesson to bribe officials at the National Police.  […] In response to the SEC [action], ICW legal researcher Donal Fariz urged the Corruption Eradication Commission (KPK) to look into the scandal.  The National Police may face a conflict of interest by handling the case. So, it is better to entrust the investigation with the KPK. The KPK needs to ask for the detailed report [from the SEC] on the police officials who were involved in the scandal,” he said on Wednesday in a telephone interview”

Nominate

If FCPA Professor adds value to your practice or business or otherwise enlightens your day and causes you to contemplate the issues in a more sophisticated way, please consider nominating FCPA Professor for the ABA Journal’s Blawg 100 list (see here).

Scrutiny Alerts and Updates

Bloomberg reports here:

“British prosecutors told several former employees of Alstom SA that they’ll be charged as part of its prosecution of the French train-maker, according to two people with knowledge of the situation.The prosecutor contacted the individuals yesterday to offer to start plea discussions, the people said, asking not to be identified because the correspondence isn’t public. Some may appear with the company at a London court on Sept. 9, according to the people. The U.K. Serious Fraud Office charged Alstom’s U.K. subsidiary with corruption and conspiracy to corrupt yesterday following a five-year investigation. The company was charged in relation to transport projects in India, Poland and Tunisia, the agency said. The SFO contacted at least five individuals about two months ago inviting them for plea discussions, people with knowledge of the matter said in June. The SFO then decided to postpone the talks until it decided whether to prosecute Alstom.”

Bloomberg reports here:

“Wynn Resorts said it has been contacted by Macau’s anti-corruption agency regarding the company’s land purchase for its new resort-casino on the Cotai Strip. “We are working cooperatively with” the city’s Commission Against Corruption, the Las Vegas-based company said in an e-mailed reply to questions yesterday. The Macau Business newspaper reported July 11 that the agency is investigating why Wynn Resorts was made to pay 400 million patacas ($50 million) for the land rights, citing Commission Chief Fong Man Chon.  Wynn Resorts had to buy the rights from certain mainlanders, though the Land Public Works and Transport Bureau said it wasn’t aware of their involvement, according to the Macau Business report.”

As highlighted in this February 2012 e-mail, Wynn Resorts was under FCPA scrutiny for its $135 million donation to the University of Macau. See here for an update based on the company’s disclosures.

Quotable

Thomas Baxter (Executive Vice President and General Counsel of the Federal Reserve Bank of New York) stated, in pertinent part, as follows in a recent speech:

“[T]here is one part of the FCPA that makes me uncomfortable.  The FCPA’s bribery prohibition, and the compliance officers in the audience will know this well, contains a narrow exception for “facilitating or expediting payments” made in furtherance of routine governmental action.  […]  The real mischief is what this exception might do to an organizational value system.  When an organizational policy allows some types of official corruption (and we have come up with candy coated names for this, like facilitation or expediting payments), this diminishes the efficacy of compliance rules that are directed toward stopping official corruption.  Again, the best compliance cultures are formed when the rules and the organizational value system are in perfect harmony.  So, for U.S. chartered institutions, perhaps this is a place where your organizational value system should go beyond black-letter U.S. law.  If you tolerate a little corruption, watch out!”

I generally agree and as highlighted in this recent post when it comes to employee FCPA training, companies should consider omitting reference to the FCPA’s facilitating payments exception and affirmative defenses.  The Global Anti-Bribery Course I have developed in partnership with Emtrain best assists companies in reducing their overall risk exposure by omitting reference to the FCPA’s facilitating payments exception and affirmative defenses in rank-and-file employee training.

To learn more about the course, see here.

To read what others are saying about the course, see here.

Michael Volkov at the Corruption, Crime & Compliance site often tells-it-like-it-is and this post begins as follows.

“The Internet is littered with FCPA Mid-Year Assessments and reports on enforcement activity and so-called trends and developments. Talk about making mountains out of molehills. Some of the reports are excellent; others are rehashes filled with “analysis” that are intended to promote FCPA fear marketing.”

Reading Stack

This recent article in the Corporate Law & Accountability Report details comments made by SEC FCPA Unit Chief Kara Brockmeyer.  In the article Brockmeyer talks about:

  • SEC administrative proceedings;
  • the 11th Circuit’s recent “foreign official” decision; the recent conclusion of the SEC’s enforcement action against Mark Jackson and James Ruehlen which she called “a very good settlement for us”;
  • the origins of SEC FCPA inquiries; and
  • holistic compliance and typical risk areas.

Issues To Consider From The Smith & Wesson Action

By on July 30, 2014 in Business Effects, DOJ, Double Standard, Smith and Wesson

This post highlights various issues to consider from this week’s Smith & Wesson Foreign Corrupt Practices Act enforcement action.

Should There Be a Difference?

If the U.S. government uses public taxpayer money to offer or pay a foreign government to induce the government to purchase military and law enforcement products, we construct programs around it and call it “Foreign Military Financing,” “Foreign Military Sales,” etc.

Yet, if a company offers or pays private shareholder money to a representative of a foreign government to induce the government to purchase military and law enforcement programs, the U.S. government calls it bribery.

Should there be a difference?

Either Enforce the FCPA or Don’t

The Department of Justice should either enforce the FCPA or not enforce the FCPA.  Period.  End of story.

The current system in which the DOJ makes opaque, arbitrary, non-reviewable discretionary decisions behind closed doors is contrary to the rule of law.

In the Smith & Wesson action, the SEC alleged that FCPA “violations took place from 2007 through early 2010, when a senior employee and other employees and representatives of Smith & Wesson made, authorized, and offered to make improper payments and/or to provide gifts to foreign officials in an attempt to win contracts to sell firearm products to foreign military and law enforcement departments.”  The culpable individuals were identified as Smith & Wesson’s Vice President of International Sales and its Regional Director of International Sales and the improper conduct concerned business practices in several countries (Pakistan, Indonesia, Turkey, Nepal and Bangladesh).

It’s not every SEC FCPA enforcement action that alleges a multi-year scheme in a number of countries involving a V.P. of International Sales and a Regional Director of International Sales under circumstances in which the company did not voluntarily disclose.

Nevertheless, as previously reported in June, Smith & Wesson disclosed that “the DOJ declined to pursue any FCPA charges against us and closed its investigation.”

Why did the DOJ “decline” to pursue FCPA charges against Smith & Wesson, yet Ralph Lauren (voluntary disclosure of conduct in one country involving one employee of an indirect subsidiary in which the company cooperated) receive a NPA?

Why did the DOJ “decline” to pursue FCPA charges against Smith & Wesson, yet Data Systems & Solutions (conduct in one country involving one employee in which the company cooperated) receive a DPA?

Numerous other examples could be cited as well, but let’s call a spade a spade.  The DOJ’s FCPA enforcement program is not always based on the rule of law, but often opaque, arbitrary, non-reviewable discretionary decisions made behind closed doors.

For instance, as highlighted in this prior post, last September the-then Chief of the DOJ’s FCPA Unit stated at an ABA conference that a large company (he did not provide the company’s name – other than it would be recognizable to the audience) was a “serial reporter” of FCPA issues to the DOJ’s FCPA Unit.  The FCPA Unit Chief said that this company has a “good compliance program and system” in place and does “robust” internal investigations when issues arise.  The FCPA Unit Chief further stated that he and his unit have a “relationship of trust” with this company and its counsel and that “frankly, most of the time” the issue is “not a particularly large issue.”  According to FCPA Unit Chief, this company remediates the issue and then it “goes on its way.”

The following quote (albeit from a different era) is most appropriate:

“We [practitioners] must be able to advise our clients as to whether their conduct violates the law, not whether this year’s crop of administrators is likely to enforce a particular alleged violation.  That would produce, in effect, a government of men and women rather than a government of law.”

There are reasons why the DOJ’s FCPA enforcement program is not as credible as it could and should be and is viewed by many as arbitrary.  The circumstances surrounding Smith & Wesson contribute to these reasons.

Ripples

In my recent article, “Foreign Corrupt Practices Act Ripples,” I highlight how settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from FCPA scrutiny or enforcement in this new era.

Smith & Wesson is another instructive example of this dynamic (a dynamic that escapes many who write about the FCPA and try to argue that “bribery pays” by measuring settlements amounts vs. bribe payments or business allegedly obtained or retained).

The “Ripples” article talks about the “three buckets of FCPA financial exposure” as follows.

  • Bucket #1 = pre-enforcement action professional fees and expenses
  • Bucket #2 = enforcement action settlement amount
  • Bucket #3 = post-enforcement action professional fees and expenses

In the Smith & Wesson action we know bucket #2 (approximately $2 million).

To my knowledge, Smith & Wesson (like many companies) has not disclosed bucket #1, but it is safe to assume that bucket #1 far exceeded bucket #2, likely by a ratio of at least 2-3 to 1.

As indicated in the earlier post summarizing the SEC’s enforcement action, per the SEC’s order Smith & Wesson has review and reporting obligations to the SEC for a two-year period.  Again, it is safe to assume that bucket #3 will exceed bucket #2.

And then of course there are a variety of negative business consequences that often flow from FCPA scrutiny or enforcement as highlighted in the “Ripples” article.  For instance, in the Smith & Wesson action, the SEC stated, among other things, as follows regarding the company’s “remedial measures” – the company terminated its entire international sales staff; terminated pending international sales transactions; and re-evaluated the markets in which it sought international sales.  Again, it is safe to assume that the financial costs and consequences of these measures far exceeded bucket #2.

Stung By The Sting – Smith & Wesson Resolves FCPA Scrutiny That Originated With The Africa Sting

By on July 29, 2014 in 2014 Enforcement Actions, Africa Sting, Amaro Goncalves, Bangladesh, Indonesia, Internal Controls, Military and Law Enforcement Products Industry, Nepal, Pakistan, SEC Enforcement Action, Smith and Wesson, Turkey

In January 2010 when highlighting the manufactured Africa Sting enforcement action, I predicted that the public company employing one of the defendants was likely going to be the subject of Foreign Corrupt Practices Act scrutiny not only based on the alleged conduct in the Africa Sting case, but also other conduct as well because the indicted individual was the “Vice President−Sales, International & U.S. Law Enforcement” for the company.  That company, it soon was learned, was Smith & Wesson and indeed in July 2010 Smith & Wesson disclosed its FCPA scrutiny (see here).

In an instructive example of a dynamic I highlight in my recent article “Foreign Corrupt Practices Act Ripples” (that is every instance of FCPA scrutiny has a point of entry – in other words, a set of facts that give rise to the scrutiny in the first place – and this point of entry is often the beginning of a long and expensive journey for the company under scrutiny as the company – to answer the frequently asked “where else” question and to demonstrate its cooperation – will conduct a world-wide review of its operations), yesterday the SEC announced this administrative FCPA enforcement action against Smith & Wesson.

The conduct has nothing to do with the manufactured (and failed) Africa Sting case, but does involve Smith & Wesson’s former Vice President of International Sales and another individual referred to as the Regional Director of International Sales.  The SEC states in summary fashion as follows.

“This matter concerns violations of the anti-bribery,books and records and internal controls provisions of the Foreign Corrupt Practices Act (“FCPA”) by Smith & Wesson. The violations took place from 2007 through early 2010, when a senior employee and other employees and representatives of Smith & Wesson made, authorized, and offered to make improper payments  and/or to provide gifts to foreign officials in an attempt to win contracts to sell firearm products to foreign military and law enforcement departments. During this period, Smith & Wesson’s international business was in its developing stages and accounted for approximately 10% of the company’s revenues. Smith & Wesson’s employees and representatives engaged in a systemic pattern of making, authorizing and offering bribes while seeking to expand the company’s overseas business.

The bribe payments were inaccurately recorded in Smith & Wesson’s books and records as legitimate sales commissions or other business expenses. Despite its push to make sales in new and high risk markets overseas, Smith & Wesson failed to establish an appropriate compliance program or devise and maintain an adequate system of internal accounting controls, which allowed the repeated improper offers and payments to continue undetected for years.”

According to the SEC:

“Smith & Wesson does not have any international subsidiaries and conducts its international business directly and through brokering agents. Much of Smith & Wesson’s international business involves the sale of firearms to foreign law enforcement and  military departments.  […] From 2007 through early 2010, as Smith & Wesson sought to break into international markets and increase sales, certain of the company’s employees and representatives engaged in a pervasive practice of making, authorizing and offering improper payments to foreign government officials as a means of obtaining or retaining international business. Although only one of the contracts was fulfilled before the unlawful activity was identified, company employees made or authorized the making of improper payments in connection with multiple ongoing or contemplated international sales.”

The SEC’s order contains factual allegations regarding the following countries: Pakistan, Indonesia, Turkey, Nepal and Bangladesh.

As to Pakistan, the SEC order states:

“In 2008, for example, Smith & Wesson retained a third-party agent in Pakistan to assist the company in obtaining a deal to sell firearms to a Pakistani police department. Even after the agent notified the company that he would be providing guns valued in excess of $11,000 to Pakistani police officials in order to obtain the deal, and that he would be making additional cash payments to the officials, the company authorized the agent to proceed with the deal. Smith & Wesson’s Vice President of International Sales and its Regional Director of International Sales authorized the sale of the guns to the agent to be used as improper gifts and authorized payment of the commissions to the agent, while knowing or consciously disregarding the fact that the agent would be providing the guns and part of his commissions to Pakistani officials as an inducement for them to award the tender to the company. Smith & Wesson ultimately sold 548 pistols to the Pakistani police for $210,980 and profited from the corrupt deal in the amount of $107,852.”

As to Indonesia, the SEC order states:

“In 2009, Smith & Wesson attempted to win a contract to sell firearms to a Indonesian police department by making improper payments to its third party agent in Indonesia, who indicated that part of the payment would be provided to the Indonesian police officials under the guise of legitimate firearm lab testing costs. On several occasions, Smith & Wesson’s third-party agent indicated that the Indonesian police expected Smith & Wesson to pay them additional amounts above the actual cost of testing the guns as an inducement to enter the contract. The agent later notified Smith & Wesson’s Regional Director of International Sales that the price of “testing” the guns had risen further. Smith & Wesson’s Vice President of International Sales and its Regional Director of International Sales authorized and made the inflated payment, but a deal was never consummated.”

As to Turkey, Nepal and Bangladesh, the SEC order states:

Similarly, Smith &Wesson made improper payments in 2009 to its third party agent in Turkey, who indicated that part of the payments would be provided to Turkish officials in an attempt to secure two deals in Turkey for sale of handcuffs to Turkish police and firearms to the Turkish military. Neither of these interactions resulted in the shipment of products, as Smith & Wesson was unsuccessful bidding for the first deal, while the latter deal was ultimately canceled. Similarly, Smith & Wesson authorized improper payments to third party agents who indicated that parts of these payments would be provided to foreign officials in Nepal and Bangladesh in unsuccessful attempts to secure sales contracts in those countries. Although these contemplated deals in Nepal and Bangladesh were never consummated in each case, the company had obtained or attempted to obtain the contract by using third party agents as a conduit for improper payments to government officials.”

The SEC’s order then states:

“Despite making it a high priority to grow sales in new and high risk markets overseas, the company failed to design and implement a system of internal controls or an appropriate FCPA compliance program reasonably designed to address the increased risks of its new business model. The company did not perform any anti-corruption risk assessment and conducted virtually no due diligence of its third-party agents regardless of the perceived level of corruption in the country in which Smith & Wesson was seeking to do business. Smith & Wesson  failed to devise adequate policies and procedures for commission payments, the use of samples for test and evaluation, gifts, and commission advances. The Vice President of International Sales had almost complete authority to conduct the company’s international business, including the sole ability to approve most commissions. Smith & Wesson’s FCPA policies and procedures, and its FCPA-related training and supervision also were inadequate. As a result of these compliance and internal controls failures, Smith & Wesson’s Vice President of International Sales and the Regional Director of International Sales were able to cause the company to pay and/or authorize improper payments in numerous countries around the globe for a period of several years.”

Under the headline “Remedial Measures,” the SEC order states:

“Smith & Wesson took prompt action to remediate its immediate FCPA issues, including: conducting an internal investigation, terminating its entire international sales staff; terminating pending international sales transactions; and re-evaluating the markets in which it sought international sales. In addition, Smith & Wesson implemented a series of significant measures to improve its internal controls and compliance processes, including: implementing new internal audit procedures to identify FCPA issues; creating more robust controls on payments, gifts, and other transactions in connection with international business activity; enhancing its FCPA compliance policies and procedures; and creating a Business Ethics and Compliance Committee.”

Based on the above findings, the SEC found that Smith & Wesson violated the FCPA’s anti-bribery provisions, books and records provisions and internal controls provisions.  As to the later, the SEC order states:

“Smith & Wesson failed to devise and maintain sufficient internal controls with respect to its international sales operations. While the company had a basic corporate policy prohibiting the payment of bribes, it failed to implement a reasonable system of controls to effectuate that policy. For example, Smith & Wesson failed to devise adequate policies and procedures with regard to commission payments, the use of samples for test and evaluation, gifts, and commission advances. Further, Smith & Wesson’s FCPA policies and procedures, and its FCPA-related training and supervision were inadequate.”

As highlighted in the SEC’s order, Smith & Wesson agreed to “report to the Commission staff on the status of [its] remediation and implementation of compliance measures at six-month to twelve-month intervals during a two-year term.” In addition, Smith & Wesson agreed to conduct an initial review – and two follow-up reviews – “setting forth a complete description of its remediation efforts to date, its proposals reasonably designed to improve the policies and procedures of Respondent for ensuring compliance with the FCPA and other applicable anticorruption laws, and the parameters of the subsequent reviews.”

In the SEC order, Smith & Wesson was ordered to cease and desist from future FCPA violations and agreed to pay $2,034,892 …  including $107,852 in disgorgement, $21,040 in prejudgment interest, and a civil monetary penalty of $1,906,000.”  In resolving its FCPA scrutiny, Smith & Wesson did not admit nor deny the SEC’s findings.

In this SEC release, Kara Brockmeyer (Chief of the SEC’s FCPA Unit) stated:

“This is a wake-up call for small and medium-size businesses that want to enter into high-risk markets and expand their international sales. When a company makes the strategic decision to sell its products overseas, it must ensure that the right internal controls are in place and operating.”

In this release, Smith & Wesson President and CEO James Debney stated:

“We are pleased to have concluded this matter with the SECand believe that the settlement we have agreed upon is in the best interests of Smith & Wesson and its shareholders.  Today’s announcement brings to conclusion a legacy issue for our company that commenced more than four years ago, and we are pleased to now finally put this matter behind us.”

John Pappalardo (Greenberg Traurig) represented Smith & Wesson.

Smith & Wesson’s stock price was down approximately .7% on the day of the SEC’s announcement of the enforcement action.

Friday Roundup

By on June 20, 2014 in Barrick Gold Corp., Dennis Kerrison, FedEx, Fine / Penalty Issues, Innospec, Miltiades Papachristos, Sentencing Guidelines, Serious Fraud Office, Smith and Wesson, United Kingdom

Scrutiny alerts, across the pond, for the reading stack, and congrats.  It’s all here in the Friday Roundup.

Scrutiny Alerts And Updates

FedEx

The Wall Street Journal reports here:

“FedEx Corp. told U.S. authorities that it received allegations that its Kenya operation paid bribes to government officials, according to a statement the company issued to The Wall Street Journal. The shipping company has told the U.S. Department of Justice and Securities and Exchange Commission about the allegations it potentially violated the Foreign Corrupt Practices Act, the statement said. FedEx also said it is investigating the allegations, and has “not found anything to substantiate the allegations.” The anonymous person contacted the firm through email in December 2013 with allegations of bribery in Kenya, according to an email reviewed by the Journal. […] FedEx told the Journal it approached the SEC and DOJ “shortly after” receiving the December allegations, but didn’t say when specifically it went to authorities. The firm also said it has brought in a U.S. law firm and an external audit team in East Africa as a part of its investigation. The person alleged that FedEx’s Kenya operation bribed government officials in the country between 2010 and 2013, according to the email. FedEx operates through a so-called nominated service contractor in Kenya and other countries in the region, according to the allegations and the company’s website. The alleged bribes went to customs officials to clear shipments without inspection, as well as to government vehicle inspectors and others, the person alleged, according to the email.  The person also wrote that the same notification would go to the DOJ and SEC, according to the email …  FedEx said in its statement that it has been “engaged in a cooperative dialogue with both agencies” since it approached them about the allegations.”

Barrick Gold

Barrick Gold Corp. (a Toronto-based company with shares traded on the New York Stock Exchange) and African Barrick Gold (and entity Barrick Gold holds an approximate 65% ownership interest in) were the focus of this recent Wall Street Journal article.  The article states, in pertinent part:

“As part of a process to buy land near [a Tanzania] mine starting last year, African Barrick paid more than $400,000 in cash mostly to Tanzanian government officials and consultants responsible for valuing the land, according to company invoices and copies of checks reviewed by The Wall Street Journal. An anonymous person said the payments were bribes to officials in position to influence African Barrick’s business interests, according to an email sent to the company last year and reviewed by the Journal. The person didn’t describe any quid pro quo behind the payments. African Barrick and Toronto-based Barrick Gold said payments they made weren’t bribes and were legitimate payments for expenses and allowances tied to an agreement with the Tanzanian government.”

In response to the WSJ article, African Barrick Gold released this statement.

Smith & Wesson

The company disclosed in its most recent annual report:.

“On January 19, 2010, the DOJ unsealed indictments of 22 individuals from the law enforcement and military equipment industries, one of whom [Amaro Goncalves] was our former Vice President-Sales, International & U.S. Law Enforcement. We were not charged in the indictment. We also were served with a Grand Jury subpoena for the production of documents. Since that time, the DOJ has been conducting an investigation to determine whether we have violated the FCPA and we have continued to cooperate fully with the DOJ in this matter. On February 21, 2012, the DOJ filed a motion to dismiss with prejudice the indictments of the remaining defendants who are pending trial, including our former Vice President-Sales, International & U.S. Law Enforcement. On February 24, 2012, the district court granted the motion to dismiss. Following extensive investigation and evaluation, the DOJ declined to pursue any FCPA charges against us and closed its investigation. The DOJ has noted our “thorough cooperation” in correspondence to the company.

In May 2010, we received a letter from the staff of the SEC giving notice that the SEC was conducting a non-public, fact-finding inquiry to determine whether there have been any violations of the federal securities laws. It appears this civil inquiry was triggered in part by the DOJ investigation into potential FCPA violations. We have always taken, and continue to take seriously, our obligation as an industry leader to foster a responsible and ethical culture, which includes adherence to laws and industry regulations in the United States and abroad. We are cooperating fully with the SEC in this matter and have undertaken a comprehensive review of company policies and procedures. We are in the final stages of discussions with the SEC staff that have brought us close to a resolution. Any future agreement is subject to final review and approval by the SEC Commissioners. Based upon the status of current discussions, we have estimated and accrued an expense of approximately $2.0 million in fiscal 2014.”

Across The Pond

Earlier this week, the U.K. Serious Fraud Office announced:

“[That a jury convicted] Dennis Kerrison and Miltiades Papachristos of conspiracy to commit corruption, following an investigation conducted by the Serious Fraud Office.  The convictions of Mr Kerrison, a former CEO of Associated Octel Corporation (subsequently renamed Innospec Limited) and Dr Papachristos, former Regional Sales Director for the Asia Pacific region, complete the SFO’s six year investigation into Innospec, which led to two other individuals and Innospec entering guilty pleas.

Innospec itself pleaded guilty in March 2010 to bribing state officials in Indonesia and was fined $12.7 million. The bribes were intended to secure, or serve as rewards for having secured, contracts from the Government of Indonesia for the supply of Innospec products including Tetraethyl Lead, also known as TEL, a highly dangerous organo-lead compound that was created as an octane booster to be added to engine fuel. Leaded fuel, i.e. fuel that contains TEL, was banned in the UK in 2000 due to links between the compound and severe neurological damage.”

As noted in the SFO release, the Kerrison and Papachristos matter was the “first contested overseas corruption case brought by the SFO concerning the bribery of foreign public officials.”

As further noted in the SFO release:

“Another former Innospec CEO, Paul Jennings, pleaded guilty in June 2012 to two charges of conspiracy to commit corruption and a further charge of conspiracy to commit corruption in July 2012. David Turner, former Innospec Sales and Marketing Director pleaded guilty to three charges of conspiracy to commit corruption in January 2012.”

The Innospec enforcement action also had a U.S. prong involving both the company and individuals (see here, here, and here for prior posts).

For The Reading Stack

An informative read here from Trevor McFadden (Baker & McKenzie) titled “The U.S. Sentencing Guidelines in FCPA Matters:  Understanding the True Impact on Settlement Discussions.”

Congrats

Congrats to Thomas Fox for his 1,000th post on the FCPA Compliance and Ethics Blog.  I second many of the big-picture observations he makes.  Over the years, Tom has become a good friend and trusted colleague and his “long strange trip” (as he puts it) is a testament that out of adversity can come opportunity.

*****

A good weekend to all.

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