Friday Roundup
Well represented, scrutiny alerts / updates, and a timetable. It’s all here in the Friday roundup.
Well Represented
Companies that have resolved FCPA enforcement actions or have been otherwise the subject of FCPA scrutiny are well represented in Ethisphere’s recent World’s Most Ethical Companies list.
I point this out not to argue that Ethisphere’s methodology if flawed, but to demonstrate, consistent with this prior post, that just because a company resolves an FCPA enforcement action does not therefore mean that the company is a bad or unethical company. To the contrary, many FCPA enforcement actions involve companies, such as those on World’s Most Ethical Companies list, that have pre-existing FCPA compliance policies and procedures, yet because of respondeat superior, face legal exposure based on the conduct of a small group of individuals.
Companies appearing on the list that have recently resolved FCPA enforcement actions, or have otherwise been the subject of FCPA scrutiny, are: ABB, Deere & Company, Dun & Bradstreet, General Electric, Rockwell Automation, and Sempra Energy.
Scrutiny Alerts / Updates
Optimer Pharmaceuticals
Christopher Matthews (Wall Street Journal – Corruption Currents) reported earlier this week (here) that Optimer Pharmaceuticals is “investigating whether an attempted grant of stock options to the company’s co-founder violated the FCPA. According to the company’s recent earnings call transcript, the conduct under investigation relates to an “attempted grant in September of 2011 to Dr. Michael Chang of 1.5 million technical shares of Optimer Biotechnology, Inc. (“OBI”) as well as “a potentially improper $300,000 payment in July 2011 to a research laboratory involving an individual who was also associated with the OBI share grant.” The company has disclosed the results of its preliminary investigation to the DOJ and SEC.
As noted in this previous post, business interests or equity interests have previously been a basis for FCPA scrutiny and FCPA enforcement actions.
Tesco Corporation
Tesco (a Houston based oil services company) disclosed in a recent SEC filing as follows.
“On December 26, 2012, we received a request by the staff of the United States Securities and Exchange Commission (“SEC”) that the Company take steps to preserve and retain five categories of documents relating to commercial agents who perform services for the corporate group in a foreign jurisdiction, the Company’s general use of commercial agents in that jurisdiction, and compliance with the Foreign Corrupt Practices Act. This request stated that it “should not be construed as an indication by the Commission, or its staff, that any violations of law have occurred; nor should it be considered an adverse reflection upon any person, entity, or security.” We have, under the advice and through independent external legal counsel, cooperated with and have provided the SEC staff with specific information which it has requested. External legal counsel for the Company has been advised by the SEC staff that no formal order of investigation has been issued. The outcome of the SEC’s review and any future financial impact resulting from this matter are indeterminable at this time.”
Bio-Rad
Bio-Rad Laboratories Inc., a company that previously disclosed FCPA scrutiny, disclosed earlier this week (see here) that it would be unable to file its annual report for the year ended December 31, 2012 prior to the filing deadline. The SEC filing states, in pertinent part, as follows.
“Bio-Rad is unable to file its Annual Report on Form 10-K for the year ended December 31, 2012 (the “Form 10-K”) prior to the filing deadline because the Company has not finalized its assessment of the effectiveness of its internal control over financial reporting due in part to recently raised issues and has not finalized an accrual for royalties payable by the Company as of December 31, 2012 under certain patent licenses from a third party. As previously reported, the Company has implemented enhancements to its internal control over financial reporting and is continuing to evaluate and improve its internal controls, including processes and procedures relating to the Company’s compliance with the U.S. Foreign Corrupt Practices Act (“FCPA”). The Company is currently in the process of finalizing its assessment of the effectiveness of its internal control over financial reporting as of December 31, 2012 and will be unable to file the Form 10-K until the Company completes this assessment. “
Brookfield Asset Management
Prior posts here and here discussed the scrutiny of Brookfield Asset Management for conduct in Brazil. Today, the Wall Street Journal reported (here) that the “SEC is looking into allegations that a Brazilian unit” of the company “paid bribes to win construction permits.” According to the article, “a member of the SEC’s enforcement division is scheduled to interview a former executive in the Sao Paulo unit of Brookfield who made the allegations.” According to the article “the allegations include that Brookfield employee hired an armored truck to deliver cash to two city officials to speed the permits.”
Timetable
Via thebriberyact.com, a timetable for DPAs becoming real in the U.K. This is unfortunate, as discussed in this prior post.
*****
A good weekend to all.
Friday Roundup
The latest double standard installment, a Rocky Mountain Rakoff, interesting tidbits, save the date, and just in case you were wondering. It’s all here in the Friday roundup.
Double Standard
A pharmaceutical company faces pending government restraints that could negatively affect its business. The company turns to its lobbyists that include the former chiefs of staff to various current government officials on a key government committee. Also, in recent years the company indirectly gave thousands of dollars to the current government officials and otherwise made large donations to groups favored by the current government officials. The government officials insert a paragraph into a massive spending bill that, while not specifically mentioning the company, strongly favors one of the company’s drugs. The effect of the paragraph in the bill gives the company two additional years to sell the drug without government price controls.
Having read the recent Eli Lilly FCPA enforcement action (see here for the prior post) and otherwise being an astute FCPA observer, your FCPA antennas are going off.
But wait.
The government officials were not “foreign officials” – they were U.S. government officials!
See here for the recent New York Times story on Amgen’s courting of various members of the Senate Finance Committee.
Scrap those internal investigation plans, forget about voluntary disclosure, and slim chance there will be an enforcement action. Nobody said our system was perfect, but that is just how the system works some will say.
But why should corporate interaction with a “foreign official” be subject to greater scrutiny and different standards of enforcement than corporate interaction with a U.S. official? After all, there is a U.S. domestic bribery statute (18 USC 201) with elements very similar to the FCPA. Why do we reflexively label a “foreign official” who receives “things of value” from private business interests as corrupt, yet generally turn a blind eye when it happens here at home?
As you contemplate these questions, just remember, as soon to be former Assistant Attorney General Lanny Breuer recently declared (see here), “we in the United States are in a unique position to spread the gospel of anti-corruption.”
For numerous prior posts concerning the double standard, see here.
A Rocky Mountain Rakoff
We celebrate Mary Jo White’s appointment to be the next Chair of the SEC by focusing on yet another federal court judge calling into question the SEC’s signature neither admit nor deny settlement policy. For more on that policy and how it contributes to a facade of enforcement, see numerous prior posts here, here, here, and here – focusing mostly on Judge Jed Rakoff’s (S.D.N.Y.) disdain of the policy.
In August 2012, the SEC brought a complaint (see here) against Colorado-based Bridge Premium Finance LLC and certain of its executives for allegedly perpetrating a Ponzi scheme. The SEC and defendants agreed to resolve the matter and, as typical and as is frequently the case in SEC FCPA matters, the defendants did so without admitting or denying the SEC’s allegations.
Enter U.S. Senior District Court Judge John Kane (D. Co.) who pulled a Rocky Mountain Rakoff. In a January 17th order, Judge Kane stated as follows.
“I refuse to approve penalties against a defendant who remains defiantly mute as to the veracity of the allegations against him. A defendant’s options in this regard are binary: he may admit the allegation or he may go to trial. I also object to the language in the consents and the proposed final judgments whereby the defendants waive their rights to the entry of findings of fact and conclusions of law pursuant to FRCP 52 and their rights to appeal. These findings are important to inform the public and the appellate courts. I will not endorse any final judgments including such provisions.”
Returning to Judge Rakoff, you may recall (see here for the prior post) that his disdain for the SEC’s settlement policy is currently before the Second Circuit in SEC v. Citigroup. As Professor Barbara Black notes on her Securities Law Prof blog, oral arguments on the merits is scheduled for February 8th.
Interesting Tidbits
Alexandra Wrage (President of Trace International) writes in a recent Forbes column (here) as follows.
“Whether they’re stating it expressly or acting on it quietly, governments are using corporations as their primary tool to reduce international bribery. They alarm companies with vast fines and terrify individuals with substantial prison sentences with the hope of ending the payment of bribes because they cannot, in most cases, do much of anything about those demanding them. This is not inappropriate. Companies are regulated, subject to laws and answerable to shareholders. The worst offenders demanding bribes, on the other hand, do so with impunity, hiding behind sovereign immunity and, often, their own, complicit local law enforcement. Abacha. Suharto. Marcos. Duvalier. It’s a longstanding tradition, still thriving in many countries today. US and some European law enforcement agencies have been extraordinarily successful, with fines in the United States now counted in the billions of dollars and other jurisdictions promising to catch up soon. While these efforts have done more than anything else to reduce bribery, they have yet to convince us that companies are both the sole source and solution of all international corruption — and that’s insupportable. […] The simple reality is that there are just some things that companies can’t do about corruption.”
Spot-on.
Wrage’s comments remind me a similar spot-on observation made during the middle of the FCPA’s legislative history. See here for the prior post regarding Milton Gwirtzman’s dandy article published by the New York Times Magazine in October 1975 in which he observes as follows – “it would be unwise, as well as unfair, simply to write off bribery abroad to corporate lust – it is a symbol of far deeper issues …”.
As to those deeper issues, an issue I frequently write about is why do FCPA violations occur? Do companies subject to the law have bribery as a business strategy? Or do companies subject to the law encounter difficult and opaque business conditions abroad? To be sure, FCPA enforcement actions have been based on both scenarios, but my opinion (as well as that of the former chief of the DOJ’s FCPA unit – see here for his previous guest post) is that the later scenario is the more common reason for FCPA exposure.
For instance, a recent post on the China Law Blog by Dan Harris (here) begins as follows.
“Got a call the other day from an American company wanting to sell its food products into China. And fast. The problem this company is facing is that one cannot “just” sell food into China immediately. To sell food legally into China, Foreign companies must first pass certification before China’s General Administration of Quality Supervision, Inspection and Quarantine, better known as AQSIQ. The food company told me that its research had revealed that it typically takes around a year to secure this certification, but that someone in China was promising they could do it in “around six to eight weeks.”
Also on the list of FCPA exposure risks, I would add various trade distortions and barriers, such as central government procurement policies. For this reason, I found this recent Sidley & Austin alert interesting. It concern a new China “regulation that subjects certain high-value medical devices to a centralized procurement regime.”
Save the Date
D.C. area readers may be interested in a February 12th event hosted by American University Washington College of Law and presented by the American University International Law Review. Titled “Bribes Without Borders: The Challenges of Fighting Corruption in the Global Context,” the symposium will feature panels of academics, practitioners, and civil society representatives and will touch upon a variety of bribery and corruption topics including the FCPA. I will be participating on an afternoon panel and will be speaking on FCPA enforcement and the rule of law. Robert Leventhal (Director, Anti-Corruption and Governance Initiatives, U.S. State Department) will deliver a keynote luncheon address. The symposium is free, but registration is requested.
Just in Case
Just in case you were wondering about the U.K. SFO’s position on facilitation payments (see here for a prior post), the Bribery Library site shines light on a December 6, 2012 “to whom it may concern” letter (here) from SFO Director David Green in which he states that “facilitation payments are illegal under the Bribery Act 2010 regardless of their size or frequency.”
You can now head into the weekend confident in your knowledge of the U.K.’s position.
*****
A good weekend to all.
Friday Roundup
Better late than never, Judge Leon pulls a Judge Rakoff, Edmonds sentenced, it’s official, whistleblower statistics, it ought to stop marketing, China related issues, ICE melted quickly, and a U.K. enforcement action. It’s all here in the Friday roundup.
The Foreign Corrupt Practices Act Under The Microscope
Academic publishing is seldom quick. Yet before the calendar flips into another year, I am pleased to share my article concerning 2011 FCPA enforcement. The abstract of “The Foreign Corrupt Practices Act Under The Microscope” (see here to download) recently published in the University of Pennsylvania Journal of Business Law is as follows. Information in the article is current as of January 16, 2012.
For most of the Foreign Corrupt Practices Act’s history, key decisions concerning its scope and enforcement were made behind closed doors around conference room tables in Washington, D.C. The FCPA took on a life of its own and, in many instances, the statute came to mean whatever the DOJ or SEC could get putative corporate FCPA defendants (mindful of the consequences of actual prosecuted charges) to agree to behind those closed doors. However, as the enforcement agencies continued to push the envelope on enforcement theories and practices, and as the DOJ brought more individual FCPA enforcement actions, including through manufactured sting operations, business entities and individuals alike began to openly fight back. While many FCPA enforcement decisions and procedures remain opaque, 2011 witnessed the most intense year of public scrutiny in the FCPA’s history. This Article (i) provides an overview of 2011 FCPA enforcement and discusses certain problematic enforcement trends, and (ii) highlights how in 2011 the FCPA was subjected to the most meaningful public scrutiny in its history. FCPA enforcement trends and scrutiny demonstrate that as the FCPA nears its thirty-fifth year, basic legal and policy questions remain as to the purpose, scope, and effectiveness of the FCPA.
Start your collection of FCPA Year in Reviews. For my 2011 (short version), see here. For 2010, see here (short version), here (long version). For 2009, see here (long version).
Judge Leon Pulls a Judge Rakoff
My post concerning the SEC’s March 2011 enforcement action against IBM was titled “Questions Abound in IBM Enforcement Action.” (See here). Among the issues I discussed were the following. That in December 2000, IBM resolved an FCPA enforcement action and consented, as part of the settlement, to the entry of an Order that requires IBM to cease and desist from committing or causing any future violation of [the FCPA’s books and records provisions]. I noted that because the March 2011 enforcement action alleged FCPA books and records charges, that IBM was thus in clear violation of the 2000 court order.
The case was assigned to Judge Richard Leon (of Africa Sting fame) and lingered for a long time. This Wall Street Journal Corruption Currents post and this Bloomberg article report that Judge Leon has refused to approve the settlement.
As stated by Bloomberg – “The heart of the dispute is that Leon, who has had the case under review for 22 months, wants reporting on a broader range of possible wrongdoing than the company is willing to turn over. Leon, who spoke loudly and angrily, asked why the regulator would agree to limit such requirements for a company with a history of books-and-records violations. […] “I guess you want that $10 million judgment on your list of achievements this year,” Leon told [the SEC lawyer]. “Well, it’s not going to happen.” He scheduled a hearing for Feb. 4.”
As stated by Wall Street Journal Corruption Current – “Leon also questioned broader SEC settlement policies and warned that he was among “a growing number of district judges who are increasingly concerned” by those policies.”
In not “rubber stamping” the SEC – IBM settlement, Judge Leon pulled a Judge Rakoff. Judge Rakoff of the S.D. of N.Y. has been a frequent focus on this site – see here, here, here and here. See also, the discussion of Judge Rakoff in my 2010 article “The Facade of FCPA Enforcement.”
Edmonds Sentence
This past June, David Edmonds, a defendant in the long-running “Carson” enforcement action involving former employees of Control Components Inc., agreed to plead guilty on the eve of trial to substantially reduced charges. (See here for the prior post). Earlier this week, Judge James Selna sentenced Edmonds to four months in prison and four months of home confinement. (See here for Judge Selna’s sentencing memo). As noted in the DOJ’s sentencing memo (here), the DOJ sought a 14 month prison sentence.
Other defendants previously sentenced in the case are Stuart Carson (4 months in prison followed by 8 months of home detention), Hong Carson (3 years probation to include 6 months of home detention) and Paul Cosgrove (13 months home detention).
It’s Official
Imagine a foreign country in which the president is actively seeking and accepting corporate money to fund inaugural festivities. All sorts of red flags right?
But wait, this describes the United States and President Obama’s upcoming inauguration. As detailed in this prior post, President Obama’s fundraising advisers “have urged the White House to accept corporate donations for his January 2013 inaugural celebration rather than rely exclusively on weary donors who underwrote his $1 billion re-election effort.”
It’s now official. As noted by this recent New York Times article “President Obama’s finance team is offering corporations and other institutions that contribute $1 million exclusive access to an array of inaugural festivities.” As noted in the article, Obama’s finance team is offering four different packages “with differing levels of access depending on the level of contribution.”
Our FCPA enforcement agencies are bringing enforcement actions against companies for conduct that includes providing $600 bottles of wine, Cartier watches, cameras, kitchen appliances, business suits, and executive education classes to individuals employed by foreign companies that are allegedly state-owned or state-controlled. (These are all allegations found in recent FCPA enforcement actions).
But remember, as Assistant Attorney General Lanny Breuer recently declared (see here), “we in the United States are in a unique position to spread the gospel of anti-corruption.”
Whistleblower Statistics
The Dodd-Frank Act enacted in July 2010 contained whistleblower provisions applicable to all securities law violations including the Foreign Corrupt Practices Act. In this prior post from July 2010, I predicted that the new whistleblower provisions would have a negligible impact on FCPA enforcement. As noted in this prior post, my prediction was an outlier (so it seemed) compared to the flurry of law firm client alerts that predicted that the whistleblower provisions would have a significant impact on FCPA enforcement.
So far, there have not been any whistleblower awards in connection with FCPA enforcement actions. Given that enforcement actions (from point of first disclosure to resolution) typically take between 2-4 years, it still may be too early to effectively analyze the impact of the whistleblower provisions on FCPA enforcement.
Whatever your view, I previously noted that the best part of the new whistleblower provisions were that its impact on FCPA enforcement can be monitored and analyzed because the SEC is required to submit annual reports to Congress. Last month, the SEC released (here) its annual report for FY2012.
Of the 3,001 whisteblower tips received by the SEC in FY2012, 3.8% (115) related to the FCPA. As noted in this similar post from last year, in FY2011 (a partial reporting year) 3.9% of the 334 tips received by the SEC related to the FCPA.
It Ought to Stop Marketing
In this previous post titled “It Ought to Stop” I focused on the FCPA conference industry and how conference firms drive attendance to their events by touting the public servants who will speak at the event.
Here is how conference firm C5 touts its upcoming conference in a press release (here).
Ask the U.S. DOJ and U.S. SEC directly how your company can remain compliant
Hear the latest on the newly released FCPA guidance. Along with the U.S. Securities & Exchange Commission’s, Charles E. Cain, the Deputy Chief of the FCPA Unit, Enforcement Division, we will have Matthew S. Queler, from the Criminal Division at the U.S. Department of Justice, presenting comprehensive, insightful and practical details of the U.S. government’s interpretation of the guidance, and highlight recent examples designed to help prevent future violations. Their session at 14:00 on Day 1, will help you navigate the ever evolving markets and recognize the current enforcement trends; giving you the tools to reanalyse risk profiles and minimize areas of exposure. Finally, to top off the hour you will be given an exclusive opportunity to have your FCPA questions answered. The only way to obtain answers directly from the U.S. DOJ and U.S. SEC is to register for this forum!
The event, depending when you register and which package you select, costs between €4341 – €1795.
It ought to stop.
China Related Issues
An occassional topic of discussion on this site is Chinese state-owned enterprises (SOEs) and how such companies are frequently doing business outside its borders, including here in the U.S. (See here, here, and here for prior posts).
Wall Street Journal Columnist Dennis Berman “hit the nail on the head” in his recent column when he noted that one of “the most intriguing business stories of the past month has been taking place in San Francisco, where a group of U.S. developers is planning the biggest real-estate expansion there since the 1906 earthquake. The group—which includes Lennar Corp., Ross Perot Jr. and others —isn’t getting financing from an American bank or pension fund. No, the money, some $1.7 billion of it, is coming from the China Development Bank, a policy arm of the Chinese state. As Berman further notes, a financing contingency is that China Railway Construction Corp. – a state-owned infrastructure builder with roots in the People’s Liberation Army—take part in the projects, which will develop up to 20,000 new homes.
Another occasional topic of discussion on this site is how Chinese companies are listing shares on U.S. exchanges and thus becoming “issuers” for purposes of the FCPA. (See here for a prior post). A core FCPA enforcement action of a Chinese issues has never occurred, but I predict it will some day – diplomatic and foreign policy issues aside. Only now, the universe of potential targets is shrinking. As noted in this recent Wall Street Journal article, several Chinese companies have delisted from U.S. exchanges. The article provides the following information. “At the peak, at year-end 2010, 167 Chinese companies were listed on Nasdaq and 99 on the NYSE. That compares with 84 China-based companies on NYSE and 129 on Nasdaq as of Nov. 30, 2012, according to the exchanges.” For more, see this recent article from the New York Times.
ICE Melted Quickly
This recent post highlighted the cert petition of Instituto Constarricense de Electricidad of Costa Rica (“ICE”) to the Supreme Court related to victim issues in connection with the December 2010 Alcatel-Lucent FCPA enforcement action. After several unsuccessful 11th Circuit appeals, ICE petitioned the Supreme Court to hears it case (see here). The question presented for review is as follows. “Whether a crime victim who is denied rights conferred by the federal Crime Victims’ Rights Act has a right to directly appeal the denial of those rights.”
The ice melted quickly as recently the Supreme Court denied ICE’s petition.
U.K. Enforcement Action
Earlier this week, the U.K. Serious Fraud Office announced (here) charges against former employees of Swift Group (an oil and gas services provider) following “a two-year investigation into allegations of corruption in relation to the tax affairs of Swift Technical Energy Solutions Ltd, a Nigerian subsidiary of the Swift Group of companies.” According to the SFO release, “the value of the bribes alleged to have been paid is approximately£180,000.”
The SFO release notes that Paul Jacobs (the former Chief Financial Officer of Swift), Bharat Sodha (the former Tax Manager of Swift), Nidhi Vyas (the former Financial Controller of Swift), and Trevor Bruce (the former Area Director for Nigeria of Swift) were charged in relation to “bribes to tax officials to avoid, reduce or delay paying tax on behalf of workers placed by Swift. The charges relate to payments said to have been made to agents of the Rivers State Board of Internal Revenue and the Lagos State Board of Internal Revenue, both in Nigeria. The payments were made in 2008 and 2009.”
*****
A happy holiday season to all.
Across The Pond
After focusing on the FCPA guidance for the past few weeks, this post goes across the pond to check in on three U.K. developments.
First Her Majesty’s Crown Prosecution Service Inspectorate, the independent Inspectorate for the U.K. Crown Prosecution Service, recently released (see here) a “Report to the Attorney General On The Inspection of the Serious Fraud Office.” The report focuses mostly on general issues, but readers may be most interested in Chapter 8 dealing with “Asset Recovery and Alternative Resolution.”
Second, the Crown Office (the agency responsible for prosecution of crime in Scotland) recently announced (here) a £5.6 million civil recovery enforcement action against Aberdeen, Scotland based drilling company Abbot Group Limited. According to the release, Abbot “admitted that it had benefited from corrupt payments made in connection with a [2006] contract entered into by one of its overseas subsidiaries and an overseas oil and gas company.” According to the release, “the sum to be paid by Abbot represents the profit made by the company under the contract.” Two things to note. First, the release makes much of the fact that Abbot “self-reported” the conduct at issue. Yet, the release itself states that “the corrupt payments were brought to light in May 2011 following enquiries by an overseas tax authority which resulted in an investigation by a firm of solicitors and a firm of accountants instructed by Abbot itself.” Second, the release notes that the enforcement proceeds “will be invested in the Scottish Government’s hugely successful CashBack for Communities Programme which takes cash from the Proceeds of Crime and invests it in a range of sporting, cultural, community mentoring projects and sports facilities for the benefit of our young people and their communities.”
Third, David Green (Director of the U.K. Serious Fraud Office) recently answered questions before a House of Commons Justice Committee. (See here for the transcript). In his comments, Green: (i) says FCPA / Bribery Act Inc. created unnecessary “spin” regarding the SFO’s recent policy revisions; (ii) discusses the role of the SFO; (iii) makes an apt analogy to early enforcement of the FCPA; and (iv) talks about the prospect of DPAs in the U.K.
Below are excerpts from the Q&A’s that touch upon bribery and corruption issues.
“Q24 Steve Brine: […] I want to ask you about the notes that I have been reading about facilitating payments, business expenditure and corporate self-reporting. What is your intention behind the revision of policies on those three areas? Are they really a radical departure from the previous guidance, or is there a bit of spin there?
David Green: It is not my spin. What you might call the bribery and corruption industry-by which, I suppose, if I was being unkind, I might mean lawyers who make an enormous amount of money out of it, advising corporates-wants to put it that way. In fact, it is not that. What I have done, as you know, is to withdraw policies in relation to bribery and corruption, and they have been replaced with a statement that we are subject to the joint guidance agreed with the Crown Prosecution Service. In other words, all I have done is to remove what is actually a unilateral gloss placed on that joint guidance by my predecessor at the SFO. It was also done in order to comply with the recommendations of the OECD which, as you will know, are about being careful how a self-report is defined.
What I have done most specifically, which certainly excited some-perhaps they are easily excited-is to withdraw the exclusive pledge that the SFO would not prosecute if you self-report. Why did I do that? In my view, it is not something that a responsible prosecutor should be saying, simply because you have no idea what kind of facts or combination of facts you might be presented with when somebody comes through your door with an expensive lawyer. You have no idea, so you cannot cater for it in advance. What you can say, without question, is that the fact of a genuine self-report-by a genuine self-report I mean, in its purest form, telling us something that we did not know already, and the corporate acting proactively to investigate it-must be very significant as a factor in weighing up the public interest limb of the decision to prosecute; that is the code test. That is what I am about. That is why I did that.
There is one other thing. I have said that I wanted to restate the SFO’s role as a crime-fighting agency. In addition, frankly, so far as I am concerned, we are not there to give advice to people. They can get their advice from their lawyers and their other experts, which they have in spades. I am not there, nor are my staff there, to give advice. We are there to investigate and prosecute serious fraud, bribery and corruption.”
[…]
Q26 Steve Brine: […] “Without specifying details, would you give us some indication of how many investigations you are currently undertaking into potential offences under the Act?
David Green: Under the new Act?
Q27 Steve Brine: Yes, because you are also bringing cases under old bribery legislation, are you not? Let us just look at the new Act. It is not retrospective, if I am correct.
David Green: That is exactly right. We are just concerned with stuff after July 2011. It is important to understand that section 2A of the Criminal Justice Act 1988 added a pre-investigation power in relation to bribery and corruption, which enables us basically to look at the facts and assess them, and to see whether there is material that would justify, in law, my launching a full-scale investigation. If I may, for the sake of clarity, I shall call those pre-investigation investigations “projects”.
From recollection, we have seven cases that are in the project phase. What will come of them I cannot tell you; I really do not know, but if we can we will turn them into investigations if we are justified in doing so. We have another half dozen cases that relate to pre-Bribery Act law; again, they are in the same phase.
Understandably, legislators, journalists and, indeed, members of the public may say, “Well, you have this marvellous new Bribery Act. What are you doing about it?” As a kind of private project, I have been looking at the fortunes of the FCPA-the Foreign Corrupt Practices Act of the United States. That was enacted in the late 1970s, and the first prosecution was in 1981. It did not get any teeth, in a really meaningful way, until the penalties were enhanced, and so forth, in the 1990s. I am not saying for a moment that you are going to have to wait 20 years for your first Bribery Act prosecution, but things are in hand and no one would be keener than I would to see a good, solid Bribery Act prosecution. We are working on it.”
[…]
“Q30 Mr Buckland: May I move on to the question of deferred prosecution agreements? I have read very carefully the memorandum and evidence that you have submitted to the Committee, and it is clear that the SFO supports the Government’s proposals to amend the current Crime and Courts Bill and to bring in DPAs. I do not know whether you or your office have troubled yourselves with the potential impact assessment, in terms of financial benefit and whether the SFO directly would receive either a share or the entirety of any receipts from financial settlements pursuant to DPAs.
David Green: As I understand it, all funds from DPAs will go directly to the Treasury, to avoid concerns over conflicts of interest.
Q31 Mr Buckland: So there is no hypothecation. Would it be fair to say that the SFO would have a legitimate expectation that, even though the moneys were not hypothecated, you could end up receiving some additional funding to help deal with the work that you are doing?
David Green: It has always been my view, Mr Buckland, that the SFO is here to stay, but that it needs to prove itself. Assuming that it proves itself-I hope fervently that it does-I would be the first to join any negotiation on an enhanced budget to get us more resources to do more good work. But I would say that, wouldn’t I?
Q32 Mr Buckland: I would expect you to, and I am glad to hear it. Having looked at the impact assessment prepared by the MoJ on DPAs, I was a little concerned. My reading of it is that there was an assumption in the document that there would not be an overall increase in the number of cases dealt with. In other words, there would potentially be a shift from early guilty pleas to DPAs, meaning no overall increase in the number of cases dealt with. Would that be your expectation, or would you hope for something more ambitious?
David Green: I would be far more ambitious. I would expect our case load-including cases dealt with under DPAs-to increase significantly once they kick off. I hope, as I am sure you do, that we will have our first DPA in place in early 2014.
Q33 Mr Buckland: Obviously, public perception is very important. Two aspects of DPAs as currently proposed may cause some concern. The first is having the preliminary hearings in private, as opposed to having all hearings in public. Does the SFO have a view on the reasons for that proposal?
David Green: I do not, as I sit here, have a particular view on that. What I would say is that later on, as the process develops, it does of course become public. Obviously a big difference between our DPAs and the US model is judicial involvement from day one. I would not be happy in expressing a particular view on that. It is something that I would have to think about, but I would be happy to let you know in due course.
Q34 Mr Buckland: I would be very grateful, Mr Green. Thank you. Again, public perception is important. The idea that you are doing some sort of niche job is wholly wrong, I think. The public are genuinely concerned about a culture of impunity that is perceived to have grown up around corporate and serious fraud. Is there a danger, with DPAs, that we could end up with white-collar crime somehow being seen as less serious than other types of crime?
David Green: That is obviously something that I have thought about a lot-indeed, it has troubled me-and I think that the answer is this. It is important that DPAs are seen as just one additional tool in the prosecutor’s toolkit. They are certainly not, in any sense, a universal panacea for corporate misconduct. They will be used in the right circumstances only. An example of what I think would be the right circumstance is where an incoming board chooses to self-report past misconduct by a previous board, which it has unearthed and proactively investigated. That would be just the sort of challenge to be met, in my view, by a DPA. It would certainly not be appropriate if, for instance, the corporate had been set up and used as a vehicle for fraud. That would be quite wrong. Obviously our first principle, as I hope I have made clear, is that serious fraud, bribery and corruption must always be prosecuted where that is possible-always.
Q35 Mr Buckland: Do you see this as having the potential to deal with the common scenario of when a legitimate business becomes dishonest? I am sure that, like me, you have had plenty of experience of that sort of scenario.
David Green: Of course, we would only be dealing with the corporate itself, under a DPA.
Q36 Mr Buckland: Not the individual.
David Green: Indeed. If there was a case against individuals, we would obviously prosecute if we could.
Q37 Mr Buckland: One concern that has been put to me about DPAs is that we have looked to the United States as an example, but that the US has a very big stick in terms of how they-I won’t say aggressively, but certainly robustly-police their free market, and the penalties available under the criminal justice system in the various US states to deal with wrongdoers. Do you think that the British scenario, where the stick is much less potent, is a good parallel to draw with the United States?
David Green: Just as we have adapted the US model for our circumstances, so we have adapted the carrot and stick equation. I have touched on this twice, but I cannot overemphasize the importance of our decision to enhance our intelligence capability. I really mean business on that. At the moment, our intelligence capability-the one I inherited-is really a sort of vetting process. I want to be far more aggressive in our intelligence activities, not to run it ourselves but to buy it in from, say, the City of London police or external agencies, going up to all sorts of exotic intelligence. The intelligence capability being built up-that is the stick. These people may well be found out, and they need to understand that. The carrot, of course, is often said to be certainty. Actually, it is not really certainty, because when they come along to self-report, they are not sure how they are going to end up. What they mean, I think, is finality. In other words, a line will be drawn in the sand under previous corporate misconduct, under certain conditions, and a company can then move on. Having thought about it quite a lot, I think that that is really what a corporate wants.”
Will U.K. DPA’s Make A Difference?
Today’s post is from Kathleen Harris (a London based partner at Arnold & Porter). Prior to joining Arnold & Porter, Harris served (2008-2011) as Head of Fraud Business Group and Head of Policy at the U.K. Serious Fraud Office. In the post, Harris discusses the U.K.’s push towards deferred prosecution agreements. For more on this topic see this recent post (as well as prior posts mentioned therein).
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Will U.K. DPA’s Make A Difference?
Kathleen Harris
Deferred Prosecution Agreements (“DPAs”) and Non-Prosecution Agreements are used to great effect by the Department of Justice in the United States whereas they are not currently available as an enforcement tool in the UK. On 23 October 2012 the UK’s Ministry of Justice (MoJ) announced (here) that it will legislate to introduce DPAs in England and Wales. Clearly, the UK authorities wish to emulate the successful use of this enforcement tool across the Atlantic. However the model of DPA proposed for introduction in the UK is very different to the US prototype and there is a question mark as to whether they will prove to be as effective here as they are in the US..
Under the MoJ’s proposal , UK DPAs will only be available to organizations (commercial or otherwise) which are alleged to have committed economic crime, in particular fraud, bribery (specifically offences under the Bribery Act 2010), and money laundering. They will not be available to individuals at all, nor will they be available to organizations which are alleged to have been involved in non-economic crime. In the same way as the US, UK DPAs will entail a voluntary agreement with a prosecutor whereby, in return for complying with a range of conditions, the prosecutor will defer a criminal prosecution and if, at the end of the deferral period, the prosecutor is satisfied that the conditions have been fulfilled, there will be no prosecution.
However, the MoJ has consciously distanced itself from US DPAs on a number of key points, notably in relation to the level of judicial involvement and transparency. The MoJ stated as follows.
“Although the US model has been in use for over 20 years, in its current form it would not be suitable for the constitutional arrangements and legal traditions in England and Wales … the Government remains of the view that the US model offers a good example of the effective use of a voluntary agreement approach, albeit in a very different legislative context. However, our proposals will ensure a greater level of judicial involvement and transparency throughout the DPA process in order to command public confidence.”
With regard to the level of judicial involvement, the MoJ states that “under our plans, the judiciary will play a vital independent role in this process to ensure that DPAs are properly scrutinised, transparent and in the interests of justice. They will be empowered to block them if they do not agree that they are an appropriate response to the organisation’s wrongdoing.”
With regard to the level of transparency, the MoJ states that “there will be public scrutiny of the process – the public will know what wrongdoing has taken place and the sanctions for it, including any penalty that has been paid. The final hearing will be held in open court and the final agreement will be published by the prosecutor.”
The arguments for greater judicial oversight of the DPA regime in the UK than is the case in the US have been well rehearsed but whilst it is open to judges to set aside the agreement reached between company and prosecutor and to alter its terms, there will be understandable reluctance on the part of corporates to embark upon a course of action with such an uncertain outcome. This uncertainty will deter self reporting and self investigation, both of which are required if UK prosecutors are to tackle economic crime as effectively as their US counterparts.
Greater transparency is to be welcomed. It is a valid criticism of the Civil Recovery Orders obtained by the Serious Fraud Office against corporates in recent years, that there is little or no information disclosed to allow the public to understand the offending conduct that gave rise to the criminal property made subject to the order. This undermines faith in the justice system. In the US a lack of transparency and an absence of checks on prosecutorial discretion has led to recent judicial criticism of the operation of the DPA regime. Transparency ensures that all those with an interest in the matter, and especially victims, can see that the outcome is just and fair
It may be that the guidance that has been promised by the MoJ to accompany the proposed UK legislation will help to clarify areas of uncertainty and allow corporates, practitioners, and the wider public to understand how the decision making process will work. In particular the guidance should encourage transparent settlements and ensure victims are compensated. However, justice requires each case to be decided on its own facts and no guidance can anticipate all relevant factors. Accordingly, decisions will require the judicious application of prosecutorial discretion and in reality may lead to more challenges against the use of this discretion if sufficient safeguards are not in place to protect against potentially overzealous decision making to ensure large financial penalties. The wider the scope of such discretionary decision making the greater the uncertainty and the lesser the transparency.
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This prior post titled “It Ought to Stop” discusses various aspects of the FCPA conference business. The Corporate Crime Reporter (here) picks up the issues as well and discusses how the press is largely being shut out from the FCPA conference later this week in Washington, D.C., including as to several panels in which public servant DOJ and SEC officials are speaking.