Friday Roundup
Looking for talent … got talent, the DOJ is sued, the Corruption Perceptions Index, a pulse on FCPA Inc., and for the reading stack. It’s all here in the Friday roundup.
Looking for Talent … Got Talent
If your firm or organization is looking for either a summer associate or full-time lawyer with a solid Foreign Corrupt Practices Act foundation, please e-mail me at fcpaprofessor@gmail.com. This past semester, twenty Southern Illinois University law students completed a semester long class on the FCPA, FCPA enforcement and FCPA compliance.
Learning objectives for the class included: (i) developing a comprehensive understanding of the FCPA’s anti-bribery provisions and books and records and internal controls provisions; (ii) analyzing legal, ethical and policy issues associated with FCPA enforcement; (iii) understanding the FCPA’s long tentacles and how actual FCPA enforcement actions brought by the DOJ and/or SEC are often just one consequence of FCPA scrutiny; and (iv) gaining practical FCPA compliance skills including the ability to conduct an FCPA risk assessment and develop FCPA compliance policies.
I am confident in saying that few, if any, law students in America have as solid a foundation in the FCPA and FCPA compliance as these students. I encourage you to give them an opportunity.
The DOJ Is Sued
University of Virginia Law Professor Brandon Garrett and Reference Librarian Jon Ashley maintain the excellent Federal Organizational Prosecution Agreements website which contains hundreds of federal organizational prosecution agreements such as non-prosecution and deferred prosecution agreements … at least those in the public domain.
Recently Ashley filed this lawsuit against the DOJ under the Freedom of Information Act seeking release of a certain non-prosecution agreement. The complaint asserts:
“Plaintiff is statutorily entitled to the disclosure of [the] non-prosecution agreement and [the DOJ] has improperly withheld the requested records in violation of the law and in opposition to the strong public interest in understanding the judicial system and why admitted wrongdoers are not criminally prosecuted.”
While lacking knowledge as to the specifics of the complaint, I applaud the lawsuit for seeking to shine a light on DOJ enforcement practices.
As noted in this prior post, the 2012 FCPA Guidance highlighted secret FCPA enforcement. While I did not file a formal Freedom of Information Act request, I sought on several occasions to seek information from the DOJ regarding its secret FCPA enforcement practices. In each instance, my requests were ignored.
Corruption Perceptions Index
Transparency International (“TI”) recently released its annual Corruption Perceptions Index (“CPI”) (see here).
The CPI ranks countries/territories based on how corrupt their public sector is perceived to be and is a composite index drawing on corruption-related data collected by a variety of institutions and reflecting the views of observers from around the world including those living and working in the countries/territories evaluated.
The top four (very clean) countries in the CPI were Denmark, New Zealand, Finland and Sweden. The bottom four (highly corrupt) countries were Somalia, North Korea, Afghanistan, and Sudan.
The United States placed 19th on the list of 177 countries.
The DOJ has spoken in religious terms regarding its FCPA enforcement actions as former Assistant Attorney General Lanny Breuer stated “we in the United States are in a unique position to spread the gospel of anti-corruption, because there is no country that enforces its anti-bribery laws more vigorously than we do.”
Yet, it remains a bit ironic that as the U.S. aggressively expands its Foreign Corrupt Practices Act enforcement practice and theories, the U.S. remains far from the top of the CPI. The latest CPI should again cause us to pause as to our claimed exceptionalism and moral superiority on this topic. For instance, see this prior post “We Really Ought to Pause and Reflect.”
See the “Double Standard” subject matter tag for more.
Pulse of FCPA Inc.
What is one reason Wal-Mart is spending in excess of $1 million per working day on its FCPA issues? Because, in many instances corporate FCPA scrutiny has turned into a full employment act for FCPA Inc.
Reuters recently reported here that Wal-Mart “is paying for lawyers to represent more than 30 of its executives involved in a foreign corruption investigation, according to people familiar with the matter, an unusually high number that shows the depth of the federal probe.” The article states:
“In recent months, the U.S. government has brought in a number of senior Wal-Mart executives for questioning, including officials from corporate headquarters in Bentonville, Arkansas, the sources said. The move, along with widespread publicity about the probe, appears to have prompted executives to seek their own legal representation. The sources declined to name the executives who have submitted to interviews.”
As noted in this recent Friday roundup, there are few relevant data points associated with the pulse of FCPA Inc. Much information is anecdotal, including the following from Legal Search Consultants Major, Lindsey & Africa in its Asia Legal Market, Semi-Annual Report.
“FCPA practices continue to grow with firms continuing to relocate specialists from their US offices to Asia. This is reflective of an effort to meet the unrelenting demand in investigations work. There seem to be few certainties in Asia, but one is that FCPA business will not be diminishing anytime soon.”
Reading Stack
An informative post recently on the FCPAmericas site titled “Conducting Effective FCPA Training in Latin America.” The eight pointers discussed are true regardless of which region FCPA compliance is focused.
A little dickey bird whispers to thebriberyact.com here regarding U.K. DPAs and Bribery Act prosecutions.
For the resources stack, the OECD, the U.N. Office on Drugs and Crime, and the World Bank recently released here the “Anti-Corruption Ethics and Compliance Handbook for Business.” It states:
“The handbook is not intended to create new standards or represent any form of legally binding requirement for businesses. It has been developed to serve as a useful, practical tool for companies seeking compliance advice in one, easy-to-reference publication. The handbook is divided into three sections. The first section provides an overview of the international anti-corruption framework, within which companies conducting international business must operate. The second section provides a brief introduction to how companies can assess their risk in order to begin developing an effective anti-corruption ethics and compliance programme. The third and most significant section brings together the major business guidance instruments. A comparison of these instruments reveals that they all largely include the same basic anti-corruption ethics and compliance elements. These elements are further illustrated using real-life, anonymised case studies provided by companies. Finally, the handbook includes as an annex a quick-reference table providing a cross-comparison of all the major business guidance instruments referenced in this handbook.”
*****
A good weekend to all.
The Anti-Corruption Role Of Global Banks
Note: Professor Juliet Sorensen (Northwestern University School of Law) and Northwestern Law students Akane Tsuruta and Jessica Dwinell are attending the Fifth Conference of the State Parties (CoSP) to the United Nations Convention against Corruption in Panama City, Panama. See here for a live feed of the States Parties’ discussions.
This post regarding the proceedings is by Akane Tsuruta.
*****
Once a man walked into Barclays with $8 million in cash. The bank called law enforcement, the man was arrested, and the money was returned to the government from which it was corruptly obtained. That’s an easy case.
Yesterday, the British Bankers’ Association presented on how banks can deal with harder cases, specifically when Politically Exposed Persons (PEPs), or high profile public officials, try to bank in the UK. The heart of the recommendation was enhanced due diligence and monitoring.
Banks will conduct enhanced due diligence on PEPs seeking their services based on several indicators of the risk of corruption, though there may be different levels of due diligence. Banks may consider the PEP’s country and culture; for example, the attitude toward corruption Transparency International’s Corruption Perceptions Index, and whether the country has signed the UNCAC. Banks may examine the nature of the PEP’s public position: the degree of power and if the PEP is involved in areas or industries that are particularly vulnerable to corruption. Banks may also read media stories and reports of misconduct to assess the PEP’s reputation.
After this screening, the bank may turn away the customer or may continue to monitor the PEP’s transactions to look for red flags of corruption (banking in cash, for example, or mixing personal and business funds). PEP transactions are profiled by reference to peer PEPs in order to detect anomalous transactions. Banks will also watch for “trigger events” in the news that indicate corrupt dealings.
If the bank suspects a PEP of banking with ill-gotten gains, the bank will report the PEP to law enforcement. In fact, if a bank turns someone away based on this risk assessment, Stephen Foster, Director of Anti-Money Laundering at Barclays Financial Crime Compliance, explained that UK law requires the bank to notify the authorities. The bank will then try to return the money to the country in cooperation with law enforcement and the country’s government.
Banks undertake this enhanced risk assessment, due diligence, and monitoring for their own benefit, too, said Susan Wright, HSBC Group Head of FCC External Relations, HSBC Holdings. Banks must manage their “reputational risk,” or the risk that they will be seen as a place that allows illicit funds. As Foster emphasized, “We don’t want criminal money in our bank. We don’t want corrupt funds.”
But there are other factors to consider, such as to whom to return the funds, the best level of risk, and the effect on economic development. It may not always clear whether or to whom to return ill-gotten funds. What happens when a new government comes into power, and asks for the return of funds on behalf of its country? How do you know who has the authority to act on behalf of the central bank? Furthermore, banks must balance the obligation to close their vaults to corrupt funds while retaining PEP clients who are “genuinely wealthy.” This balance may affect economic development. For instance, legitimate enterprises in corrupt countries may be deemed too risky to bank in the UK, which would hinder growth in countries that need it.
Ultimately, the Director of Financial Crime (Sanctions and Bribery) of the British Bankers’ Association, Justine Walker, emphasized the need for banks to have proportionality between crime control, customers, and development.
The 100th Edition Of The Friday Roundup
Scrutiny alerts and updates, a first, blunt, and quotable. It’s all here in this – the 100th edition – of the Friday roundup.
[I hope the Friday roundup is a value added end to your work week. The Friday roundup alone represents several hours of work by highlighting recent FCPA and related news and developments not otherwise covered Monday – Thursday on FCPA Professor. Ask yourself: do you get your FCPA from FCPA Professor? If the answer is yes, you can help support this free website here]
Scrutiny Alerts and Updates
Wal-Mart
During its third quarter earnings call yesterday, Wal-Mart disclosed $69 million in “FCPA and compliance related expenses” in the quarter. According to the company “approximately $43.0 million of these expenses represented costs incurred for the ongoing inquiries and investigations and approximately $26.0 million is related to our global compliance program and organizational enhancements.”
Doing the math, $69 million in the third quarter is approximately $1.06 million per working day. As noted here, the figure for Q2 was approximately $1.26 million per working day and as noted here the figure for Q1 was approximately $1.16 million per working day. For more on Wal-Mart’s pre-enforcement action professional fees and expenses, see this prior post.
For the fourth quarter, Wal-Mart estimated $75 – $80 million in expenses related to FCPA matters.
JPMorgan
The NY Times returns (here) to the JPMorgan story it first reported in August (see here for the prior post). The article states:
“To promote its standing in China, JPMorgan Chase turned to a seemingly obscure consulting firm [Fullmark Consultants] run by a 32-year-old executive named Lily Chang. Ms. Chang’s firm, which received a $75,000-a-month contract from JPMorgan, appeared to have only two employees. And on the surface, Ms. Chang lacked the influence and public name recognition needed to unlock business for the bank. But what was known to JPMorgan executives in Hong Kong, and some executives at other major companies, was that “Lily Chang” was not her real name. It was an alias for Wen Ruchun, the only daughter of Wen Jiabao, who at the time was China’s prime minister, with oversight of the economy and its financial institutions.
[…]
Now, United States authorities are scrutinizing JPMorgan’s ties to Ms. Wen, whose alias was government approved, as part of a wider bribery investigation into whether the bank swapped contracts and jobs for business deals with state-owned Chinese companies, according to the documents and interviews. The bank, which is cooperating with the inquiries and conducting its own internal review, has not been accused of any wrongdoing. The investigation began with an examination of the bank’s decision to hire the daughter of a Chinese railway official and the son of a former banking regulator who is now the chairman of a state-controlled financial conglomerate.
[…]
Executives at JPMorgan’s headquarters in New York did not appear to be involved in retaining Fullmark, a decision that seemed to have fallen to executives in Hong Kong. And the documents reviewed by The Times do not identify a concrete link between the bank’s decision to hire children of Chinese officials and its ability to secure coveted business deals, a connection that authorities would probably need to demonstrate that the bank violated anti-bribery laws.”
Park-Ohio Holdings Corp.
The diversified manufacturing services and products holding company (here) disclosed as follows in a recent quarterly filing:
“In August 2013, the Company received a subpoena from the staff of the SEC in connection with the staff’s investigation of a third party. At that time, the Company also learned that the Department of Justice (DOJ) is conducting a criminal investigation of the third party. In connection with responding to the staff’s subpoena, the Company disclosed to the staff of the SEC that, in November 2007, the third party participated in a payment on behalf of the Company to a foreign tax official that implicates the Foreign Corrupt Practices Act (FCPA). The Board of Directors of the Company has formed a special committee to review the Company’s transactions with the third party and to make any recommendations to the Board of Directors with respect thereto. The Company intends to cooperate fully with the SEC and the DOJ in connection with their investigations of the third party and with the SEC in light of the Company’s disclosure. The Company is unable to predict the outcome or impact of the special committee’s investigation or the length, scope or results of the SEC’s review or the impact, if any, on its results of operations.”
Wynn Resorts
This previous Friday roundup highlighted the company’s disclosure that the SEC has ended its investigation of the company concerning a $135 million donation to the University of Macau. In this recent filing, Wynn states as follows concerning a related DOJ investigation.
“[The DOJ] has been conducting a criminal investigation into Wynn Resorts’ donation to the University of Macau […]. Wynn Resorts has not received any target letter or subpoena in connection with such an investigation. Wynn Resorts intends to cooperate fully with the government in response to any inquiry related to the donation to the University of Macau.”
SEC’s First Individual DPA
When the SEC announced in January 2010 (see here for the prior post) a series of measures, including non-prosecution and deferred prosecution agreements, “to further strengthen its enforcement program by encouraging greater cooperation from individuals and companies in the agency’s investigations and enforcement actions,” I called the development a blow to those who prefer government law enforcement agencies to enforce a law in an open, transparent matter and in the context of an adversary proceeding. Not that there was much judicial scrutiny of SEC enforcement prior to January 2010 (largely on account of the SEC’s then neither admit nor deny settlement policy), but the new measures, I noted, would lead to even less judicial scrutiny.
Earlier this week, the SEC announced “a [five year] deferred prosecution agreement with a former hedge fund administrator who helped the agency take action against a hedge fund manager who stole investor assets.” According to the SEC, the DPA – outside the context of the FCPA – is the SEC’s “first with an individual” and the SEC’s release further states:
“Deferred prosecution agreements (DPAs) encourage individuals and companies to provide the SEC with forthcoming information about misconduct and assist with a subsequent investigation. In return, the SEC refrains from prosecuting cooperators for their own violations if they comply with certain undertakings.”
Obviously the above statement is an opinion statement, not a factual statement.
As highlighted in this prior post, the FCPA Guidance indicated that the DOJ has in the past used non-public non-prosecution against individuals in the FCPA context. Despite claims by the DOJ that its FCPA enforcement program is transparent, my attempts to learn more about these secret FCPA NPA’s with individuals was unsuccessful.
Blunt
DOJ FCPA enforcement attorneys have publicly stated that among the many ways they learn of conduct which could implicate the FCPA is by reading the newspaper.
If so, this recent article in the Miami Herald may generate some interest. In the article concerning the satellite telephone business in Cuba, a “Miami Man” states that “he installs each system in Cuba for $3,500 to $4,200 — cash paid in South Florida, with part of the mark up going to bribes on the island. The costs are usually paid by U.S. relatives of the recipients.”
Quotable
From a recent poll regarding corruption in Africa: “corruption is a national sport every day at the direction of customs officials” (see here).
An extensive interview with U.K. Serious Fraud Director David Green (“DG”) in Fraud Magazine (“FM”) in which he discusses: corporate criminal liability, facilitation payments, Bribery Act Inc., voluntary disclosure and DPAs. Relevant excerpts include:
FM: What current changes, if any, to the legal system and or legislation would make the SFO more efficient?
DG: To our effectiveness and our reach, I would very much like the test for corporate criminal liability to be looked at again. As you know, in this country, it is extremely difficult to convict a company of an offence because the prosecution has to show that the controlling minds of the company — somebody at the board level — were complicit in the criminality you are trying to prove. I think that bar is too high, and is a very unrealistic test — not least because I think anyone will agree that if you’re looking into allegations of corporate misconduct spookily the e-mail trail tends to dry up at a fairly junior level. Where it can be shown that the company had really profited from the criminality of its employees then I think there is a sound case for expanding the ambit of section 7 of the U.K. Bribery Act. Section 7 creates the corporate offence of ‘failing to prevent bribery or corruption by an agent or employee’ with a statutory defence that they took all reasonable precautions. Now why can’t that be extended to cover fraud and offences of dishonesty so the offence would be failing to prevent fraud or offenses of dishonesty by members of your staff? It seems to me absolutely right that a corporation should have criminal liability for that when it has profited from it. Why should a company which has, in the way I’ve explained, been complicit in criminality just throw a few people over the side and sail bravely on? Why shouldn’t it have its ears clipped and marked as a company that has had dishonest employees and benefitted from it? Another argument is: Well you’d just be punishing a company for negligence. I would say it would be a pretty high degree of negligence when a company acts in that way and benefits from the dishonesty of its employees.
FM: Doesn’t the Bribery Act prejudice British business in that is a bit too harsh in relation to facilitation payments and hospitality payments?
DG: First of all, I don’t buy this argument that complying with the law is going to hold business back. Secondly, facilitation payments have always been illegal. However, it is a question of the public interest as to whether or not they are prosecuted. What would be a common facilitation payment? A 20-pound note and a bottle of whisky to some [maritime] pilot to take your ship from somewhere to somewhere else in a single payment; the SFO wouldn’t be interested in that. [Maritime pilots will guide ships into ports for hire.] But if it was a course of conduct over a number of years, then, of course, that becomes not just a very small insignificant little bribe but actually a regular payment over time to ensure that you get that business.
FM: What do you say about those medium to small companies who have ignored the preventative measures required by the Bribery Act?
DG: Well, it’s always difficult, isn’t it? On the one hand, I am very conscious that since the enactment of the act there has grown up a Bribery Act industry in London populated by a lot of American and British lawyers, accountants and so-called experts. I even came across a firm the other day that actually offers certificates to companies saying that they are compliant, and I suppose if the company were to land in court they would try to produce this certificate to say, “We can’t be prosecuted because we’ve got a certificate.” The effect of this is that these so-called experts have scared the pants off of medium and small enterprises. It is really a question of getting some sensible, reasonably priced legal advice to discern their risk areas and put in place basic safeguards. But the idea that the Serious Fraud Office is going after a ticket to Wimbledon or a bottle of Champagne is, and always has been, utter nonsense. If, on the other hand, we saw a situation in which the entire board and their spouses of a major corporation were put up in London for a week and then given tickets for the men’s finals at Wimbledon with a couple of banquets before, during and afterwards, then that would be very worrying. Throw in first-class airfare and that would become extremely worrying. But the key to all this in relation to bribery investigations and whether or not we are interested in them has to do with value and importance but also timing, the motive and the effect of it — was it done at a time when some enormously important decision was going down with a view to influencing it? This is fairly common sense; we use a reasonable approach.
FM: Will companies that self-report escape criminal proceedings?
DG: My predecessor had guidance on self-reporting, in which though it did not say it in so many words, was a very clear implication that if you self-reported as a company you would not be prosecuted, and there would be a civil disposal of what you had done. I disagree with that absolutely and fundamentally as a matter of principle because no prosecutor can ever give guarantees in advance. We have no idea what set of facts are going to come in through the door next. So, we have returned to the old guidance, which has always been there; we will apply the Code for the Crown Prosecutors. In other words, in each situation we would see if there’s enough evidence to prosecute. If there is, we consider if it’s in the public interest to prosecute this company. Now if a company were to come in and say, “Look, we have discovered this misconduct. We have conducted a full investigation; here are the results. We are willing for you to investigate it as you wish. We’ve gotten rid of all the people involved in this, we will hand over any illegal profits obtained as a result of this crime.” In such circumstances, one does struggle to think how it would be in the public interest to prosecute such a company. But it is a question of principle here. If you start — and I feel very strongly about this — if you start blurring the boundaries between what people involved in the criminal justice system do then it’s a dangerous path to follow. Prosecutors shouldn’t be doing deals or making offers in advance and defenders shouldn’t be too familiar with prosecutors. We need to stay where we are and within our own divisions. That’s my view.
FM: Could the deferred prosecution arrangement (DPA) be seen as a type of deal?
DG: Well, I think if you looked at the American model of DPAs you might think it could be described as a deal. We’ve adapted it for use in this country to have judicial involvement and scrutiny from the very beginning. The reason for that is to preserve the principle we have in this country, which they don’t have in the States, that sentencing is a matter for the judge. It’s not a matter for some cozy deal between prosecutor and defence. If we believe a case is appropriate for a DPA we would go before a judge and say, “Judge, these are the charges which we would be minded to bring against these people. However, we think for these reasons it’s an appropriate case for a DPA. Do you agree?” Now if the judge says, “No, I don’t I think this is a suitable case for a DPA,” we’ll carry on prosecuting. So, it is a transparent process. Ultimately, if a DPA did go ahead there would be a statement of facts read in court. Nothing would be hushed up. You can’t really go wrong if you’re transparent. Things go wrong in the criminal justice system if anything appears to be opaque. You lose public confidence and you lose the confidence of the people involved.
Professor Ellen Podgor states, in pertinent part, in this New York Times opinion piece:
“If we intend to punish people, shouldn’t we reasonably expect that they knew their actions were crimes? […] The accumulation of laws and rules has made it harder to assure that individuals who are punished understood that they were breaking the law. When the law is clear, and an individual deliberately transgresses the law, punishment serves an important purpose. Attributing criminality to business-related activities is not always so easy. The line between criminal activities and acceptable business judgments can be fuzzy. The conduct may not have a long biblical history of being offensive, and there may be no posted signs. […] In the corporate or financial world, multiple individuals may have a finger in a business decision — and some may be unaware that one has breached the law. Add to this ambiguity in both the law and the corporate world that business-related decisions are often made by individuals who find themselves placed in a forest of regulations and criminal statutes with varying interpretations that even legal scholars can’t agree upon. Overcriminalization presents unique issues in the white collar and business arena. There are thousands of criminal statutes scattered throughout the federal code, and there are thousands of regulations with accompanying criminal penalties. The prosecutor’s toolbox also includes overly broad statutes like RICO, mail fraud, wire fraud and offenses like making false statements. The bottom line is that the government’s power to indict has few restrictions, and overcriminalization provides federal prosecutors with super powers that they can easily abuse. Congress’s continuous and haphazard adding of criminal statutes and regulations is making it more difficult to assure that individuals who are punished truly understand that they are breaking the law.”
*****
A good weekend to all.
Across The Pond
Posts last week largely focused on two Foreign Corrupt Practices Act enforcement actions (see here, here and here).
This post goes across the pond to check in on three U.K. developments.
First, a recent Serious Fraud Office (“SFO”) pre-Bribery Act enforcement action against Smith & Ouzman Ltd. and related individuals, second recent speeches by SFO officials, and third the start of criminal trials against various former top-level executives of News Corp.’s News of the World publication.
SFO Flexes Its Pre-Bribery Act Muscle
The U.K. Bribery Act went live on July 1, 2011 and its provisions are forward looking only (this is the most obvious reason why there has yet been a FCPA-like Bribery Act enforcement). However, the SFO recently flexed its muscles in an enforcement action concerning conduct pre-dating the Bribery Act.
Last week, the SFO announced that “Smith & Ouzman Limited [a U.K. based printing company specialising in security documents such as ballot papers], two of its directors, an employee and one agent have been charged by the Serious Fraud Office with offences of corruptly agreeing to make payments totaling nearly half a million pounds, contrary to section 1 Prevention of Corruption Act 1906.”
According to the SFO release:
“The individuals, all British nationals, are:
Chris Smith – the former Chairman of Smith and Ouzman Limited
Nick Smith – the Sales and Marketing Director of Smith and Ouzman Limited
Tim Forrester – the International Sales Manager for Smith and Ouzman Limited
Abdirahman Omar – an agent for Smith and Ouzman Limited
The alleged offences are said to have taken place between November 2006 and December 2010 and relate to transactions in Mauritania, Ghana, Somaliland and Kenya.”
SFO Director David Green On Self-Reporting
This October 2012 post highlighted an SFO release detailing “revised policies” concerning, among other things, corporate self-reporting.
Last week, SFO Director released this statement concerning self-reporting.
“It is now a year since I changed the published SFO guidance on self-reporting by corporates. The guidance I inherited contained an implied presumption that self-reported misconduct would be dealt with by civil settlement rather than prosecution. I took the view that no prosecutor should appear to offer such a guarantee in advance. As a prosecutor, you can never anticipate what set of facts and conduct might be next in through the door. I took the guidance back to the historic position agreed with the Director of Public Prosecutions: that we would apply the full code test for crown prosecutors to self-reported criminality. In other words, we ask (after our own investigation): is there sufficient evidence to prosecute, and if so, is a prosecution in the public interest? The SFO’s message is carefully expressed and nuanced. Assume the evidential sufficiency test is passed. If a company made a genuine self-report to us (that is, told us something we did not already know and did so in an open- handed, unspun way), in circumstances where they were willing to cooperate in a full investigation and to take steps to prevent recurrence, then in those circumstances it is difficult to see that the public interest would require a prosecution of the corporate. Some parts of the blogosphere seem to have difficulty with this, writing that it means self-reporters will be prosecuted. It means no such thing.”
As to Green’s comment about the blogosphere, the prior post stated. “For the most part, although much ink is likely to be spilled by FCPA Inc. / Bribery Act Inc. in the coming days, the SFO’s “revised policies” are a yawner.”
Back to Green’s statement.
“Some corporate lawyers complain that the new approach (actually, the principled, established approach) creates “uncertainty”. I disagree: and I think that when they say “certainty” it is code for “guarantee”. For the avoidance of doubt, the SFO continues to receive self-reports, and I anticipate the numbers will only rise as Deferred Prosecution Agreements (DPAs) bed in next year. So why should a company self-report instances of suspected criminal misconduct to the SFO?
(i) A self-report at the very least mitigates the chances of a corporate being prosecuted. It opens up the possibility of civil recovery or a DPA; (ii) There is the moral and reputational imperative: it is the right thing to do and it demonstrates that the corporate is serious about behaving ethically; (iii) If the corporate chooses to bury the misconduct rather than self-report, the risk of discovery is unquantifiable. There are so many potential channels leading to exposure: whistle-blowers; disgruntled counterparties; cheated competing companies; other Criminal Justice agencies in the UK; overseas agencies in communication with SFO; and the SFO’s own developing intelligence capability, to name but a few;(iv) If criminality is buried and then discovered by any of the above routes, the penalty paid by the corporate in terms of shareholder outrage, counterparty and competitor distrust, reputational damage, regulatory action and possible prosecution, is surely disproportionate; (v) Last but not least, burying such information is likely to involve criminal offences related to money laundering under sections 327-9 of the Proceeds of Crime Act.
There are, I suggest, very powerful arguments in favour of self-reporting. Once the decision to self-report has been made by the corporate, then the question of timing arises. Common sense suggests that an initial report of suspected criminality should be made to the SFO as soon as it is discovered. This surely protects the company against the SFO finding out by other means whilst the company investigates further. The corporate can then investigate in depth and report back to the SFO. The SFO will carry out its own assessment with possible use of S2A powers (in the case of bribery), and, if justified, the opening of a criminal investigation and the exercise of S2 powers. One argument I have heard against self-reporting is that the SFO does not prosecute corporates, because it is said to be too difficult in our jurisdiction. Certainly I am used to unfavourable comparisons being made of the SFO with US prosecutors in this area of activity. The reason is simple: a US prosecutor uses the respondeat superior principle: a corporate is vicariously liable for the acts of its managers and employees.”
There is another simple reason for the disparity between U.S. and U.K. “prosecutions” for bribery and corruption offenses. Simply put, the U.S. has the option of a non-prosecution or deferred prosecution agreement. At present, the U.K. does not have these options, although it is close to utilizing DPAs. As even the OECD has observed (see here) “it seems quite clear that [NPAs and DPAs] is one of the reasons for the impressive FCPA enforcement record in the U.S.” I’ve long viewed the U.K.’s desire to use DPAs as a public relations tactic to catch up in the enforcement competition game (see here).
Back to Green’s statement.
“In English law, the test for corporate criminal liability requires proof that the “controlling mind” of the company (ie, board level senior management) was complicit in the relevant criminality. Absent emails, or a cooperating witness, that is never an easy thing to show. An answer to this would be to extend the principle contained in S7 of the Bribery Act 2010, which creates the corporate offence of a company failing to prevent bribery by its employees, with a statutory defence of adequate procedures. The reach of the section could easily be extended to cover not just bribery but acts of fraud by employees.
I have heard objections to such a change:- (a) That this would be punishing mere corporate negligence (to which I say, it would be about improving bad corporate culture). (b) That prosecution of the corporate adds nothing to the prosecution of the guilty individuals (I am not proposing that a corporate should face prosecution in every case- far from it. But there will be cases where it is right and just that failure to prevent certain types of conduct should result in the corporate being marked with a criminal conviction). (c) That it would simply punish the shareholders (shareholders, particularly large institutional shareholders, should be vigilant about where they invest and how the corporate in which they invest behaves).
I would argue that prosecution of a corporate would be appropriate where, for example, the company profited from fraud by its employees; where a particular illegal practice was common and tolerated in a particular sector; where deterrence was needed in a sector; or where a company has brought in a compliance regime but senior management had failed to ensure enforcement of that regime. Such a change would also cure a problem inherent in the DPA regime. If prosecution of a corporate is currently difficult, why should a corporate agree to enter a DPA at all? DPA’s represent a very useful addition to the prosecutors’ toolbox for use in appropriate circumstances. They avoid the collateral damage caused by a full blown prosecution of a corporate. They are not a panacea. But the problem I have highlighted (which admittedly will not necessarily arise in every case) needs to be addressed. I think it comes to this: if the public interest demands more corporate prosecutions, then this change would help make that happen.”
In a separate speech before the World Bribery and Corruption Compliance Forum in London, Alun Milford (General Counsel of the SFO) touched upon many of the same issues Green discussed.
Among other things, Milford talked about the “Bribery Act industry” and I took note of Milford’s following statement given my often expressed view that an FCPA compliance defense can better incentivize corporate conduct and further advance the objectives of the FCPA. Milford stated that “the Bribery Act [which contains an adequate procedures defense] has led to a significant amount of work in developing stronger, more ethical corporate cultures.”
Former News Corp. Exec Trials
In July 2011, worldwide media attention was focused on News Corp (see here).
The conduct at issue had many prongs, including various privacy issues. One prong concerned allegations that News Corp’s News of the World publication paid up to five U.K. police officers to obtain information that better allowed it to write juicy stories. Thus began News Corp.’s FCPA-like scrutiny and since then the original point of inquiry has – as is typical – expanded to include other conduct.
As to the alleged U.K. payments at issue, focus turned to the old “who knew what and when did they know it” question. Several individuals associated with News of the World were criminally charged, including for conduct implicating the alleged bribery prong of News Corp’s scrutiny.
Two individual charged were Rebekah Brooks, the former editor of News of the World and Andy Coulson, another former News of the World editor. The criminal trial of these individuals, along with others, began this week in London.
What happens in these trials concerning the bribery offenses will not determine the outcome of any potential News Corp. FCPA enforcement action. But you can bet that the DOJ and SEC will be interested in the ultimate outcome. In short, if there is a judicial finding that Brooks and/or Coulson or other high-level executives in London authorized or otherwise knew of the alleged improper payments, this will likely be a factor in how the DOJ and SEC ultimately resolve any potential enforcement action and how News Corp.’s overall culpability score may be calculated under the advisory Sentencing Guidelines.
For more on the trials and individuals involved see here, here, here and here.
Friday Roundup
Make your voice heard, scrutiny alerts, “foreign official” fun, and for the reading stack. It’s all here in the Friday roundup.
Make Your Voice Heard
Yesterday, the U.K. Serious Fraud Office announced a consultation on “a draft Code of Practice setting out their approach to the use of Deferred Prosecution Agreements (DPAs).” According to the release, the U.K. is seeking “views on eight points covered in the draft Code, including the circumstances when a prosecutor should consider a DPA, the criteria to apply when making this decision, and on the disclosure approach envisaged.”
Make your voice heard, “comments are welcome from interested individuals and organisations” and “the consultation closes on Friday 20 September 2013.” See here for my previous post urging the U.K. to reject DPAs.
Staying in the U.K. this report states as follows. “The UK Serious Fraud Office is actively investigating two cases under the Bribery Act, said Kevin Davis, the SFO’s chief investigating officer. He also revealed that a further six cases which might lead to prosecutions were under investigation.”
Scrutiny Alerts
Medtronic
Let’s say law enforcement sets up a sobriety checkpoint on the highway. A sober driver successfully passes through it. Would we call this an instance of law enforcement “declining” to prosecute the driver for drunk driver?
Of course not, and the same logic should apply in the FCPA context as well.
In June 2008, Medtronic disclosed as follows.
“On September 25, 2007, the Company received a letter from the SEC requesting information relating to any potential violations of the U.S. Foreign Corrupt Practices Act in connection with the sale of medical devices in an unspecified number of foreign countries, including Greece, Poland and Germany. The letter notes that the Company is a significant participant in the medical device industry, and seeks any information concerning certain types of payments made directly or indirectly to government-employed doctors. A number of competitors have publicly disclosed receiving similar letters. On November 16, 2007, the Company received a letter from the Department of Justice requesting any information provided to the SEC. The Company is cooperating with both requests.”
In June 2009, Medtronic disclosed as follows.
“On September 25, 2007, the Company received a letter from the SEC requesting information relating to any potential violations of the U.S. Foreign Corrupt Practices Act in connection with the sale of medical devices in an unspecified number of foreign countries, including Greece, Poland and Germany. Turkey, Italy and Malaysia have since been added to the inquiry. The letter notes that the Company is a significant participant in the medical device industry, and seeks any information concerning certain types of payments made directly or indirectly to government-employed doctors. A number of competitors have publicly disclosed receiving similar letters. On November 16, 2007, the Company received a letter from the Department of Justice requesting any information provided to the SEC. Since that time the SEC and Department of Justice have made additional requests for information from the Company. The Company is cooperating with the requests.”
Earlier this week, Medtronic stated as follows.
“On September 25, 2007 and November 16, 2007, the Company received letters from the U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ), respectively, requesting information relating to any potential violations of the U.S. Foreign Corrupt Practices Act in connection with the sale of medical devices in several non-U.S. countries. A number of competitors have publicly disclosed receiving similar letters. Subsequently, the SEC and DOJ made additional requests for information from the Company. In June 2013, the SEC and the DOJ both informed the Company that they would be closing their investigations without pursuing any enforcement action or charges against the Company.”
The headline on the FCPA Blog read “Medtronic Wins Double Declination.” The headline on the Risk & Compliance Blog of the Wall Street Journal read “Medtronic Says SEC, DOJ Declined to Prosecute for FCPA Violations.”
I just don’t understand it at all. (See here for more).
HLW International / Sweett Group
Architecture firm HLW International LLP and Sweett Group Ltd. (a U.K. based construction company) recently were the subject of a leading Wall Street Journal article titled “Inside U.S. Firm’s Bribery Probe” by Joe Palazzolo and Chris Matthews. The focus of the article concerns the construction of a hospital in Morocco and the alleged promise by a Sweet executive that HLW would get the design contract if it agreed to pay 3.5% of the contract value to “an official inside the United Arab Emirates President’s personal foundation, which was funding the project.”
Charitable donations have been the focus of prior FCPA enforcement actions against Eli Lilly and Schering-Plough as well as the focus of Wynn Resort’s current FCPA scrutiny.
“Foreign Official” Fun
In the Carson “foreign official” challenge, Judge Selna concluded, in denying the defendants’ motion to dismiss (see here), that “the question of
whether state-owned companies qualify as instrumentalities under the FCPA is a question of fact.” Judge Selna stated that “several factors bear on the question of whether a business entity constitutes a government instrumentality” including the following.
- The foreign state’s characterization of the entity and its employees;
- The foreign state’s degree of control over the entity;
- The purpose of the entity’s activities;
- The entity’s obligations and privileges under the foreign state’s law, including whether the entity exercises exclusive or controlling power to administer its designated functions;
- The circumstances surrounding the entity’s creation; and
- The foreign state’s extent of ownership of the entity, including the level of financial support by the state (e.g., subsidies, special tax treatment, and loans).
According to Judge Selna, the above “factors are not exclusive, and no single factor is dispositive.”
According to this recent article in the Wall Street Journal:
“Companies listed on China’s stock exchanges received 85.68 billion yuan ($13.83 billion) in government subsidies last year, up 23% from a year earlier, while corporate profits rose less than 1%, according to a Chinese data provider. The subsidies were equivalent to more than 4% of the companies’ total profits last year, up from around 3% between 2009 and 2011. The subsidies—largely from local authorities but also from the national government—took the form of cheap land, tax rebates, support for loan repayments and straight-up cash. There were a range of reasons, including research and development and support for government environment priorities.”
Reading Stack
The Seventh Edition of the FCPA Handbook from O’Melveny & Myers.
A focus on Southeast Asia in the always informative FCPA Update from Debevoise & Plimpton.
A mini-roundup of Canada’s recent amendments to its Corruption of Foreign Public Officials Act here (Osler), here (Dentons), and here (Fasken Martineau).
*****
A good weekend to all.