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Where Should The Money Go?

It is a thorny question with no easy answer.  Where should the money go when a company resolves an FCPA enforcement action?  It was addressed last year in connection with the Alcatel-Lucent enforcement action.  (See here, and here for prior posts).  Two recent events raise the issue again.

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Earlier this month, it was announced (here) that the U.K. “Serious Fraud Office, the Government of Tanzania, BAE Systems and the Department for International Development (DFID) … signed a Memorandum of Understanding enabling the payment of £29.5 million [$47 million USD] plus accrued interest to be paid by BAE Systems for educational projects in Tanzania.”  As noted in the release, “textbooks will be purchased for all 16,000 primary schools in the country and as a result 8.3 million children will benefit” in subjects such as Kiswahli, English, Maths and Science.  The release further notes that funds will also be used to “provide all 175,000 primary school teachers with teachers’ guides, syllabi and syllabi guides to help improve their teaching skills” as well as the purchase of desks.  In the release, SFO Director Richard Alderman stated as follows.  “This agreement is a first for the SFO which piloted it through the UK legal system. It provides a satisfactory outcome for all concerned but most of all for the Tanzanian people and I am personally delighted that SFO staff were able to achieve this.”

In this release, BAE stated as follows.  “We are glad to finally be able to make the payment to the Government of Tanzania and bring this matter to a close. We are grateful to DFID for their work in agreeing the Memorandum of Understanding with the Government of Tanzania.”  The BAE release states that the “payment follows the settlement agreed between BAE Systems and the SFO.”  For a prior post on the settlement, see here.

To be sure, BAE’s payment to Tanzania, and the role of the SFO in brokering the payment, feels good.  What is not to like about children receiving textbooks?

However, the feel good nature of this most recent BAE development should not mask the significant problems with the BAE enforcement action (on both sides of the Atlantic).  As noted in this prior post, even the U.K. judge who accepted the SFO-BAE plea agreement called it “loosely and hastily drafted” and said the fine he levied reflected that he couldn’t “sentence for an offense which the prosecution failed to charge.”

And let’s not forgot how this story began.  In 2004, the SFO began investigating whether BAE made bribe payments to secure Saudi fighter jet contracts. However, in late 2006, the SFO was forced to halt its investigation under pressure from the U.K. government, which cited national security concerns should the investigation go forward.  However, because BAE also allegedly made bribe payments in numerous other countries to secure business, the SFO, under a new Director, revived its  investigation of BAE, at least as to non-Saudi issues, including whether the  company paid bribes to secure contracts in various European and African countries. After settlement talks stalled – the conventional wisdom is that BAE was unwilling to plead guilty to bribery related offenses given the collateral effect of the mandatory European Union debarment provisions – the SFO pressed ahead with the case.  In late January 2010, the SFO issued a release (here) stating that Count Mensdorff, a former BAE agent, was criminally charged with “conspiracy to corrupt” and for “conspiring with others to give or agree to give corrupt payments […] to officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc.” Then, in early February 2010, the SFO announced (here) its long-awaited resolution of the BAE matter. Despite allegations of wide-spread bribery on a global scale, and despite BAE’s agent being criminally indicted a few days earlier in connection with bribe payments in “certain Eastern and Central European countries” (presumably on evidence that such payments did indeed occur), the SFO resolution related solely to the company’s failure “to keep reasonable and accurate accounting records in relation to its activities in Tanzania.”  Most dramatic, and in a strange turn of events, the SFO announced that it had withdrawn the criminal charges filed days earlier against Count Mensdorff. The same release also noted that “[t]his decision brings to an end the SFO’s investigations into BAE’s defense contracts.”  For more on “BAE – Inside the SFO”, see this prior post.

In any event, at least some children in Tanzania received some textbooks from BAE as a result.

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As previously highlighted on the FCPA Blog (here), Socio-Economic Rights and Accountability Project (“SERAP”) (a non-governmental civil society organization in Nigeria) recently wrote a letter (here) to SEC Enforcement Division Director Robert Khuzami (with a copy to Assistant Attorney General Lanny Breuer and Deputy Chief, Fraud Section Charles Duross)  regarding “FCPA civil penalty and disgorgement proceeds that companies agree to pay to resolve US Foreign Corrupt Practices Act investigations.”  As the letter notes, “currently such proceeds, once paid, are retained by the U.S. government.”

In summary, the SERAP letter requests “that the Enforcement Division establish a case-by-case policy or process that would enable foreign governmental entities that have been victims of corruptly-procured contracts to apply for, subject to appropriate anti-corruption safeguards, some or all of the civil penalty and disgorgement proceeds that would eventually be paid by companies alleged to have violated the U.S. Foreign Corrupt Practices Act.”  SERAP also suggests that “civil society groups in the home country, or U.S. non-profit organizations serving that country, be eligible within a short time-period to apply for such proceeds as well, or instead, for use for ‘public benefits projects’ in the affected foreign country, again subject to anti-corruption safeguards.”

The SERAP letter notes, among other things, as follows.  “… Many citizens in a country where such bribery has occurred might consider FCPA civil penalties and disgorgement payments imposed by the US, and then kept by the US, as in fact representing funds that rightfully ‘belong’ to the victim.”

Stating that “corruptly procured contracts ‘cost’ the victim at least 10 percent extra” the SERAP letter says that “this figure ought to be a presumed measure of possible funds available for third-party application in the context of a civil FCPA settlement, particularly since the Enforcement Division typically settles an investigation before extensive evidence of damages, as opposed to liability, is placed in the public realm.”

The specific SERAP proposal is as follows.  “…[A]fter, and ony after, public notice of an FCPA settlement agreement, the victim foreign government entity and any applicant NGO would have 60 days to file a request that the Enforcement Division pay some or all of the agreed payment proceeds to or for the benefit of the victim government entity or to a home country-based or US based NGO that would present a proposal [to] spend the proceeds for public purposes (e.g. on public health programs) in the country of the victim entity.  Thereafter, the Enforcement Division would have 60 days to act upon the request, favorably or not in its discretion; in this context the Enforcement Division should provide a brief statement of its reasons for its decisions.  In reaching its decisions the Enforcement Division would have the inherent authority to consult with Executive Branch agencies of the US government.

The SERAP letter raises some interesting issues regarding alleged victims of FCPA enforcement actions.  The SERAP letter also raises some interesting questions, including the following.

If the SEC would be required to relinquish a certain portion of money recovered in an FCPA enforcement action, what impact would this have on FCPA enforcement?  Would the SEC be less aggressive in bringing enforcement actions or perhaps more aggressive because more enforcement actions would be needed to sustain the current FCPA “revenue stream”?  For instance, 10% of SEC FCPA “revenue” in 2011 was approximately $15 million, in 2010 approximately $53 million.

The SERAP proposal appears to assume that all FCPA enforcement actions involve foreign government procurement.  This is not the case.  Approximately 50% of recent  FCPA enforcement actions (i.e. in the past five years) do not involve foreign government procurement, but rather issues relating to foreign taxes, customs duties, or foreign licenses, permits, certifications and the like.  Is the victim analysis the same in these FCPA enforcement actions compared to foreign government procurement enforcement actions?

Are individuals or organizations located in the country giving rise to the FCPA enforcement action really the most direct victims of the conduct at issue?  In the procurement context, what about a competitor who may have lost out on the foreign business because it was unwilling to make an improper payment?  With victim issues attracting new attention, should an FCPA private right of action receive new attention?

Last, but certainly not least, companies settling SEC FCPA enforcement actions are allowed to settle without admitting or denying the SEC’s allegations.  Even the SEC itself has stated that this settlement device often leads to settlements that “do not necessarily reflect the triumph of one party’s position over the other.”  Given this dynamic, would SERAP’s proposal lead to undeserved “windfalls” for civil society organizations?  [In this prior post, I asked the same question as to Dodd-Frank Act whistleblowers.]

ICE Appeal Receives Chilly Reception At 11th Circuit

It is one of the FCPA’s most bizarre issues.

If bribery is not a victimless crime, then why do Foreign Corrupt Practices Act fines and penalties simply go directly into the U.S. Treasury? Why are there no efforts to identify the victims of FCPA violations and to compensate those victims?

As detailed in this prior post, in May Instituto Constarricense de Electricidad (“ICE”) of Costa Rica petitioned “for protection of its rights as a victim” of Alcatel-Lucent’s bribery scheme. (See here for a prior analysis of the December 2010 enforcement action).

In early June, Judge Marcia Cooke (Southern District of Florida) denied ICE’s petition.

On June 15th, ICE filed this petition in the 11th Circuit for a writ of mandamus “directing the District Court to recognize ICE is a ‘crime victim’ under the Crime Victims’ Rights Act of [Alcatel-Lucent’s] crimes and to afford it all rights the CVRA guarantees to crime victims, including restitution.”

The two issues presented on appeal were: (i) whether the district court erred by denying ICE victim status under the CVRA; and (ii) whether the district court erred in denying ICE restitution.

Last Friday, in a short 3-page decision (here), the 11th Circuit denied ICE’s petition.

After noting the clearly erroneous standard of review, the 11th Circuit held that “the district court did not clearly err in finding that [ICE] actually functioned as the offenders’ coconspirator” and that the district court did not “err in finding that ICE failed to establish that it was directly and proximately harmed by the offenders’ criminal conduct.”

The petition for victim status was factually difficult from the start and it is not surprising that ICE did not prevail. Yet, the ICE petition did succeed in raising the victim issue and causing those interested in bribery and corruption issues to ponder the valid and legitimate question of victims a bit more closely.

Is ICE A Victim? And An Open Question!

“Bribery is not a victimless crime.”

It is a common sentence in DOJ FCPA talking points (see here for instance).

If bribery is not a victimless crime, then why do FCPA fines and penalties simply go directly into the U.S. Treasury? Why are there no efforts to identify the victims of FCPA violations and to compensate those victims? Bigger picture, who are the victims when FCPA violations occur?

Alexandra Wrage, President of Trace, observed in this piece that “compensating the victims of corruption is a hot new topic” and that “restitution to victims is hard not to like.” However, as Wrage noted, “the U.S. Department of Justice does not attempt to compensate victims of bribery.”

The topic has never been hotter.

Instituto Constarricense de Electricidad (“ICE”) of Costa Rica recently petitioned a Court (see here and here) “for protection of its rights as a victim” of Alcatel-Lucent’s bribey scheme.

In December 2010, it was announced that Alcatel-Lucent and certain subsidiaries agreed to resolve a wide-ranging FCPA enforcement action involving both a DOJ and SEC component. Total settlement amount was approximately $137.4 million ($92 million criminal fine via DOJ plea agreements and a deferred prosecution agreement; $45.4 million in disgorgement via a SEC settled complaint). (See here for the prior post). In addition to Costa Rica, the conduct at issue also involved conduct in at least eight other countries.

ICE also objected to the plea agreements and deferred prosecution agreement agreed to between the DOJ and Alcatel-Lucent to resolve the enforcement action. Among other things, ICE argued that the agreements “are inconsistent with the interests of justice, with the public’s interests, and with public policy.”

This post summarizes ICE’s arguments, as well as the arguments of the DOJ and Alcatel-Lucent in opposition filings earlier this week.

Finally, this post identifies an open question (as least as to the Costa Rica conduct at issue in the enforcement action) that ought to give Judge Marcia Cooke (Southern District of Florida) pause during the June 1st hearing.

ICE is petitioning the Court “for protection of its rights as a victim of the Alcatel-Lucent Defendants and for appropriate sanctions resulting from the [DOJ’s] failure to protect those rights…”.

Even though ICE acknowledges that “three disloyal and corrupt Directors and two disloyal and corrupt employees” were the recipients of Alcatel-Lucent’s bribe payments, ICE nevertheless claims it is a victim because the “corrupt activities” of Alcatel-Lucent has caused the company “massive losses” and caused “ICE catastrophic harm.”

ICE argued that “it is universally recognized, in a scheme for bribery, that an entity whose employees accept improper benefits to affect corporate decisions is a victim.” ICE states that “the notion that acceptance of bribes by five of ICE’s more than 16,500 employees, managers, and directors necessarily renders ICE an active participant in Alcatel’s admitted bribery scheme is nonsense.”

As noted in this media report, Judge Cooke allowed ICE to argue that it should be considered a corruption victim and thus receive restitution. However, Judge Cooke reportedly stated that ICE “would not be at the top of the hit parade.”

Earlier this week, both the DOJ and Alcatel filed opposition briefs to ICE’s request for victim status and restitution.

In its response (here), the DOJ argued that “under the facts and circumstances in the instant matter, which reflect profound and pervasive corruption at the highest levels of ICE, the government does not believe it is appropriate to consider ICE a victim in these cases.”

Elsewhere, the DOJ stated that “it does not follow tht the state-owned entity at which corruption was so pervasive in the tender process should now be permitted status as a victim or awarded restitution under the facts and circumstances in these cases.”

The DOJ then reviewed “facts and circumstances” that has “led the government to conclude that not just the corrupt ICE officials are to blame for the corruption that existed at ICE, but ICE itself as an organization is also responsible.” (emphasis in original).

The DOJ stated as follows. “In short, ICE as an organization appears to have had a deeply ingrained culture of corruption. First, it appears clear that corruption at ICE existed for many years – if not decades – according to [a DOJ cooperator who previously plead guilty]. Second, this corrupt conduct did not just involve some low-level employees. Here, nearly half of the Board of Directors of ICE received bribes in just this case alone. It is hard to conceive of a component of a business organization more in control of and responsible for an organization than the board of directors, which in this case appears to have been profoundly corrupt. Third, the corruption at ICE as an organization was pervasive in the tender process.” (emphasis in original).

In a separate section of its brief, the DOJ argued that “while the government does not believe ICE is a victim under the facts and circumstances present here, the Court need not decide this issue to dispose of this matter” because “regardless of whether ICE is a victim, this Court, the U.S. Probation Office, and the government have afforded ICE the rights of a crime victim contained in the Crime Victims’ Rights Act.”

The DOJ’s brief was authored by Charles Duross (DOJ FCPA Unit Chief) and Andrew Gentin (Fraud Section Trial Attorney from D.C.).

In a separate DOJ brief (here) filed in support of the proposed plea agreements and DPA, the DOJ argued that the resolutions “reflect the seriousness of the conduct, promotes respect for the law, and provides for just punishment for the offenses committed.” The DOJ argued that even if ICE is considered a victim, it does not have “veto power over prosecutorial decisions, strategies, or tactics” and that “it is unclear what standing, if any, ICE has to object to the DPA.”

In its response brief (here) the Alcatel entities [represented by Martin Weinstein and Robert Meyer of Willkie Farr & Gallagher – see here and here – and Jon Sale of Sale & Weintraub] argued as follows. “ICE’s Motion for restitution should be denied for two independent reasons. First, ICE is not entitled to restitution because it was a participant in the conduct underlying the offense to which Defendants will be pleading guilty. […] Second, the Court should reject ICE’s Motion because a determination of restitution would unduly complicate and prolong the sentencing process. [Note – although not separately highlighted above, a similar argument was made by the DOJ in its brief]. Alcatel argued that “just as Alcatel is responsible, ICE itself is responsible for the ICE-Alcatel bribery scheme because its top management, including several members of its board of directors and senior officers, actively participated in the bribery.”

Compensating the victims of bribery is a valid and legitimate issue, even if the ICE petition presents an unusual situation in that bribe recipients were officers, directors, or employees of the entity claiming victim status. I am not sure where criminal fines should go when a French company bribes Costa Rican “foreign officials,” but I am pretty sure than the answer should not be 100% to the U.S. Treasury.

Judge Cooke will hold a hearing on the issue on June 1st.

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But wait, were those even Costa Rican “foreign officials” Alcatel-Lucent bribed?
And now to the open question and an issue Judge Cooke ought to probe closely during the June 1st hearing.

According to the applicable DOJ plea agreement (here) “Instituto Costarricense de Electricidad S.A. (“ICE”) was a wholly state-owned telecommunications authority in Costa Rica responsible for awarding and administering public tenders for telecommunications contracts. ICE was governed by a seven-member board of directors that evaluated and approved, on behalf of the government of Costa Rica, all bid proposals submitted by telecommunications companies. The Board of Directors was led by an Executive President, who was appointed by the President of Costa Rica. The other members of the Board of Directors were appointed by the President of Costa Rica and the Costa Rican governing cabinet. Accordingly, officers, directors and employees of ICE were ‘foreign officials’ within the meaning of the FCPA …”.

Nonsense says ICE.

In its brief, under a heading titled “ICE is an autonomous entity with an independent board of directors and management”, ICE stated as follows. “ICE is an autonomous legal entity responsible for providing electrical power and telecommunications services in Costa Rica. The organizational statute and subsequent decrees provides for the absolute autonomy of ICE. This includes a seven-member, independent Board of Directors appointed by the Costa Rican Government who serve six-year terms. They cannot be removed absent malfeasance. These Directors include engineers, accountants, and lawyers with distinct areas of expertise. None of the Directors are affiliated with the Costa Rican Government. The Board of Directors appoints and oversees the management and operation of ICE in a manner similar to other large corporations.”

Based on ICE’s self-description, it would not seem to be a FCPA victim because a crime never took place because the elements of an FCPA violation – namely the existence of a “foreign official” was absent. [Note – Alcatel-Lucent was not charged with FCPA anti-bribery violations, yet the relevant subsidiary was charged with conspiracy to violate the FCPA’s anti-bribery provisions and a conspiracy charge requires the existence of a “foreign official”].

As the DOJ has stated in the recent “foreign official” challenges, “for a court to accept a plea of guilty a district court must have a basis to believe that a crime has been committed.”

Judge Cooke ought to do just that on June 1st given that stark differences in DOJ’s description of ICE and ICE’s description of itself.

A Q&A With Homer Moyer

In running a site called “FCPA Professor” it is only appropriate to touch base with a “Dean” on occasion.

I do so in this post with Homer Moyer, a “dean” of the FCPA bar. Moyer, a partner with Miller & Chevalier (see here) addresses a variety of topics in this Q&A – from evolution of the FCPA and FCPA enforcement to voluntary disclosure and investigative fees. Moyer closes out the Q&A with a few FCPA reform proposals of his own.

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Your government experience prior to law practice was with the Commerce Department, not the DOJ or SEC as is typical of many FCPA enforcement lawyers. How has your Commerce Department experience informed your FCPA practice?

I was at the Commerce Department when the FCPA was enacted, and I chaired an inter-agency group on FCPA issues. Of greater value to my later FCPA practice, however, was having served as general counsel of the Department that deals most directly with corporate issues and that both promotes and regulates American businesses. Also of great value were the experiences of having litigated cases as both a prosecutor and defense counsel. Perhaps most important, however, is having now seen hundreds of different FCPA issues for dozens of different clients.

Working on FCPA cases at the SEC or DOJ provides prosecutors with unique experience, but not the opportunity to counsel and represent corporate clients, manage complex legal issues for them, or help them devise and implement innovative compliance programs.

Describe your first FCPA matter or case? What were the issues? What were your client’s concerns?

One of my early cases, some 20 years ago, presented a host of issues that had not yet become commonplace. The case I have in mind involved potential vicarious liability for the acts of a third party, a third party who claimed that the work it did for a U.S. company created a “constructive partnership” that entitled it to share the company’s profits, questions of whether to consult voluntarily with DOJ, an industry with which DOJ was not yet well-acquainted, innovative compliance enhancements, related civil litigation, and forged evidence presented to a court.

That matter ended well, but it presented issues of first impression and foreshadowed how complicated FCPA cases could be.

The FCPA has evolved much since your first case. From your perspective, has this evolution been positive? Any negative aspects of this evolution? How has this evolution affected your practice and your clients?

The evolution of FCPA enforcement has unquestionably brought more and more attention to the issue of official corruption and has had an indisputable impact on corporate behavior, or the “supply side” of the bribery equation. In addition, it has done something that unilateral U.S. laws rarely do, namely, led to a far-reaching change and consensus in the international legal landscape, as now reflected in international anti-corruption conventions to which more than 150 countries have become signatories.

Despite two sets of amendments, the FCPA itself has changed relatively little since it was adopted in 1977. Its “evolution” has primarily been through a steady escalation in enforcement — the number and variety of enforcement actions, expansive interpretations of key provisions, the size and variety of penalties, the frequency of voluntary disclosures, and a steady rise in the levels of sophistication the government looks for in independent investigations, due diligence processes, and compliance programs.

Has this evolution been positive or negative? Few people would now dispute that corruption and bribery of foreign officials imposes staggering economic and social costs, frequently on countries that can afford it least. The question then becomes whether FCPA enforcement has made a positive difference in reducing or eliminating corruption. It probably has, but more relevant today is the continuing pervasiveness of official corruption and the daunting challenges to controlling it on a global basis.

With respect to the FCPA itself, complaints that it has created an “uneven playing field” have been somewhat undercut by aggressive FCPA enforcement against non-U.S. companies, by new international anti-corruption conventions, and by the beginnings of genuine enforcement in some other countries. And the lament that few FCPA cases are adjudicated in court does not distinguish FCPA enforcement from the enforcement patterns of many other regulatory laws. The infrequency of judicial review may occasionally embolden the government to overreach, but it has rarely resulted in abusive prosecutions.

In terms of our own practice, the increase in enforcement has plainly caused clients to be far more focused on anti-corruption issues than was once the case. This has certainly caused Miller & Chevalier’s long-standing FCPA practice to grow dramatically. It also appears to have created something of a traffic jam of newly minted “FCPA lawyers.”

Your point “that few FCPA cases are adjudicated in court does not distinguish FCPA enforcement from the enforcement patterns of many other regulatory laws” is a very valid point. However, isn’t a key difference though that other laws have benefited from several dozen circuit court opinions and perhaps a few Supreme Court decisions, such that the parameters of the law are at least set by someone other than the enforcement agencies? [Granted, 2011 will likely see several trial court decisions as to certain FCPA elements, but the FCPA is still a law that is lacking much meaningful precedential case law.]

One has to take the view — and I certainly do — that independent judicial review is a good thing — a critical part of our legal system and important to preserving the rule of law. Judicial review, or the prospect of judicial review, can help prevent regulatory or enforcement excesses. In some regulatory programs — environmental statutes come to mind — the level of judicial review is robust. And we are beginning to see more judicial review in FCPA cases involving individual defendants.

At the same time, some regulatory areas have been subject to as little, or even less, judicial scrutiny than the FCPA. Statutory restrictions on judicial review and judicial deference to agency interpretations of regulations having “national security” ramifications effectively reduce judicial oversight. One can look long and hard for good case law on the regulations enforced by the Office of Foreign Assets Controls (“OFAC”) or on export controls rules under the ITAR (International Traffic in Arms Regulations), each of which has seen regulatory overreaching and little accountability. One recent Federal Circuit Court opinion referred to the discretion reserved by the Executive Branch combined with the lack of clarity in the ITAR as something that would be expected of a totalitarian regime, not the United States Government.

In the end, however, the amount of judicial review is determined by the private sector. Clients are, of course, free to challenge FCPA enforcement actions, although historically corporate clients have tended to favor settlement as a preferable route. Moreover, recent FCPA court decisions reflect that courts will not necessarily interpret laws differently from enforcement agencies. Nonetheless, both corporate and individual defendants are free to challenge agency interpretations of the laws they enforce, and I and many other counsel would undoubtedly be available to help.

When President Obama, high-ranking DOJ officials and others in government talk about corruption and bribery, they talk about the bridge that crumbles because the contractor was selected based on a bribe payment or other similar scenarios. However, very few FCPA enforcement actions fit this scenario, rather the alleged violator is generally viewed as an industry leader that sells the best products for the best prices. Do you agree that a divide exists between such government or civil society statements and typical FCPA enforcement action scenarios? If so, how do we bridge this divide?

Bribery of foreign officials is, in the first instance, typically designed to overcome market forces and to distort competition, not to ensure the purchase of the best products at the best price. Whether or not a bridge is the best metaphor, FCPA violations reflect illicit payments that are made to enrich corrupt officials and that shift that cost to consumers and taxpayers. The consistent scenario in FCPA enforcement actions is that an alleged violator, or someone acting on its behalf, did, in fact, pay bribes, often egregious ones.

The most significant “divide” today is the uneven enforcement among signatories to anti-corruption conventions. Whereas the 1980s saw an industry push to repeal or relax the FCPA on the grounds that it was creating a competitive disadvantage for American companies, the more common complaint today is that other countries must consistently and meaningfully enforce their own anti-corruption laws to assure that the proverbial playing field is level.

Many calls to roll back the FCPA are now anomalous, as they would put the United States out of compliance with international conventions that the FCPA inspired and that the United States fought hard to achieve. They also run counter to the anti-corruption momentum of the last 20 years and would effectively legalize some practices that are coming to be universally condemned, if not yet universally punished.

I find that most U.S. multinational corporations would be delighted to compete on the merits. Indeed, some companies are affirmatively using integrity in the marketplace to gain a competitive advantage. Many have voluntarily prohibited “facilitating payments,” even though they are permissible under the FCPA. It is also interesting to note that Siemens, after paying record-shattering FCPA fines and taking aggressive steps to transform its entire corporate culture, has been posting record profits.

What is your reaction to this statement from a recent high-ranking DOJ official – ““the government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore.” Do you believe that FCPA enforcement has become a government cash cow? FCPA enforcement fines and penalties simply go into the U.S. Treasury. Are there better places for this money accepting the notion that bribery results in victims?

FCPA fines probably don’t rise to the level of a governmental “cash cow.” In fiscal terms, they are of no real moment. The government unfortunately needs some much bigger revenue cows.

I do believe, however, that law enforcement penalties should be a consequence of, not a reason for, enforcing criminal laws. And although penalties have risen, I do not have the sense that revenue production has been a driver of FCPA enforcement.

Your interesting question about whether penalties might be used to compensate the “victims” of corruption is a favorite in developing countries. It highlights the difficulties of tracing, seizing, and repatriating funds that corrupt officials have stolen from their countries. Even where recovery of funds is possible, assuring that they are then used to benefit the citizens who were cheated by official corruption is a challenge. That is, however, the right use of repatriated funds.

Because countries that have been cheated by their own rulers have rarely been able to recover the stolen funds, some have asked whether they should be compensated with funds collected as penalties in anti-corruption enforcement actions. This would be a break from past law enforcement patterns, and the idea appears not to have gained significant traction. The strongest case for making that break probably relates to funds collected as disgorgement of profits rather than pure fines. Indeed, one could argue that it would be more just for the bounties that whistleblowers can now earn under the Dodd-Frank law to go not to whistleblowers, but rather to the countries affected for the benefit of the victims of corruption.

Your response speaks of corrupt “officials,” “official corruption” and “rulers.” Yet, the vast majority of FCPA enforcement actions involve no such individual – rather the alleged recipient of the bribe is an employee of an alleged state-owned or state-controlled enterprise. In these cases, would not the most direct victim be the competitor who lost the contract or did not have the opportunity to bid. Are you in favor of an FCPA private right of action?

In most FCPA violations, there is more than one victim. Competitors can certainly be victims. So can government agencies or instrumentalities that are procuring goods or services. Even where there is an admitted bribe, however, determining which competitors may have been “victims” would undoubtedly be a messy and imperfect process. And allegations of improper payments are far more common than proof of improper payments, as any practitioner knows, and the complications of trying to identify victims and allocate compensation among everyone claiming status as a victim might make us long for the days when the principal issues were simply the ones you have asked about here.

What percentage of internal investigations you have worked on in the past 3-5 years that ended with a conclusion that the company violated the FCPA resulted in a voluntary disclosure? Same question for investigations you worked on during the time period 1995-2005? Why the difference?

Although we have clients who, after weighing all the relevant factors, have elected not to disclose, the percentage of matters that result in voluntary disclosures has plainly been rising. The reasons include changes in the sentencing guidelines, the enactment of Sarbanes-Oxley, greater Audit Committee oversight of investigations, the campaign by enforcement agencies to assure companies that voluntary disclosure and cooperation will result in “tangible benefits,” and the gradually spreading view that this is true, if not numerically predictable.

With Avon’s recent disclosure that it has spent over $100 million in professional fees and expenses in connection with an FCPA inquiry and other similar disclosures (albeit perhaps not as dramatic) have professional fees and expenses (law firm, accounting firm, etc.) associated with FCPA internal investigations gotten out of control?

I have to confess to being stunned at some of the reported costs of investigations. To be sure, the costs of investigations have risen with increased emphasis on electronic documents and the insistence that investigations must be independent, thorough, and knowledgeable.

Accepting those requirements, the cost-effectiveness of an investigation can be significantly improved by developing a careful work plan, utilizing a firm with experienced FCPA lawyers at all levels of seniority, tailoring the type of investigation to the type of issue, and making informed and reasonable judgments about when to stop an investigation and focus on remediation. In my experience, it is often possible to have a reasoned and productive dialogue with enforcement agencies about the scope and extent of investigations.

FCPA reform proposals are floating around and are reportedly being considered by certain members of Congress. In your view what reform proposals have merit and what issues are at the top of Homer Moyer’s FCPA reform list?

I find some of the calls for statutory reform less than compelling. Proposals to change the statute in ways that would be inconsistent with international conventions to which the U.S. is committed are unlikely to be successful, in my view, and could well open the door to other “reforms” that advocates for change might dislike, such as eliminating the exception for facilitating payments.

To be sure, in enforcing the FCPA, the government tries to overreach from time to time — exercising anti-bribery jurisdiction over foreign subsidiaries and aggressive applications of dd-3 jurisdictional on the grounds that some step in the process took place “in the territory of the United States” come to mind as occasional examples. When enforcement agencies overreach, they should be challenged.

My dream list of “reforms” might read something like the following:

• Internal DOJ guidance that voluntarily disclosed matters must normally be resolved by the Department within 90 days after completion of an internal investigation; that agencies should make public their calculations of credit for voluntary disclosure and coordination; and that the Department will publish sanitized summaries of its declinations.

• An amendment to tweak the whistle-blower provision of Dodd-Frank to relieve the SEC of the conundrum of implementing the statute consistent with its terms but in a manner that does not undercut effective corporate compliance programs;

• An agreement among prosecutors that in the case of parallel investigations by more than one country, private parties may request state-to-state consultations (as called for by the OECD convention), and the consulting states should assure that investigations are coordinated and penalties made complementary so that companies do not face redundant penalties or unnecessarily overlapping investigations.

• Insistence by the OECD that OECD membership for China, Russia, and India must include accession to the Anti-Corruption Convention, accelerated peer review, and possible reconsideration of OECD membership if implementation and enforcement of anti-corruption laws prove to be insufficient.

• Multilateral reform measures designed to minimize current legal impediments to identifying and seizing funds stolen by corrupt officials and to facilitate repatriation of such funds.

Snamprogetti The Latest to Join The Bonny Island Bribery Club

Last week (see here and here), it was French company Technip that admitted to bribing Nigerian foreign officials with the end result being $338 million paid into the United States treasury.

This week its a Dutch company and its former Italian parent company that admitted to bribing Nigerian foreign officials with the end result being an additional $365 million paid into the United States treasury.

As indicated in this DOJ release: “Snamprogetti Netherlands B.V., (Snamprogetti) has agreed to pay a $240 million criminal penalty to resolve charges related to the Foreign Corrupt Practices Act (FCPA) for its participation in a decade-long scheme to bribe Nigerian government officials to obtain engineering, procurement and construction contracts” to build liquefied natural gas facilities on Bonny Island, Nigeria.”

According to the release, the DOJ “filed a deferred prosecution agreement [DPA] and a criminal information today against Snamprogetti [a Dutch corporation headquartered in Amsterdam, The Netherlands, which was a wholly owned subsidiary of Snamprogetti S.p.A., an Italian company headquartered in Milan, Italy] charging Snamprogetti with one count of conspiracy and one count of aiding and abetting violations of the FCPA.” The release further states that pursuant to the two-year DPA “Snamprogetti, its current parent company, Saipem S.p.A., and its former parent company, ENI S.p.A. (ENI), agreed to ensure that their compliance programs satisfied certain standards and to cooperate with the department in ongoing investigations.”

In addition, the release notes that:

“Today, Snamprogetti and ENI also reached a settlement of a related civil complaint filed by the U.S. Securities and Exchange Commission (SEC), charging Snamprogetti with violating the FCPA’s anti-bribery provisions, falsifying books and records, and circumventing internal controls and charging ENI with violating the FCPA’s books and records and internal controls provisions. As part of that settlement, Snamprogetti and ENI agreed jointly to pay $125 million in disgorgement of profits relating to those violations.”

For a copy of the SEC release and complaint (see here and here).

Stay tuned for analysis of the DOJ deferred prosecution agreement, criminal information, and SEC complaint.

In the meantime, some questions to ponder.

For those scoring at home, the current U.S. treasury deposit slip, because a joint venture largely comprised of foreign companies bribed Nigerian officials, stands at $1.28 billion given the related February 2009 enforcement action against Kellogg Brown & Root entities as well as Halliburton Company – an enforcement action that was settled for $579 million in combined fines and penalties.

Bribery and corruption, the conventional wisdom goes, is not a victimless crime. Accordingly, the Bonny Island bribery scheme resulted in victims. Surely those victims were not U.S. taxpayers, but the U.S. Treasury is where the entire $1.28 billion has gone.

The Bonny Island bribery scheme, which now stands as the largest collective FCPA enforcement action in history, begs the question – where should the fines and penalties resulting from an FCPA enforcement action go? Solely to U.S. taxpayers? To the “victims” of the alleged crime? If to the “victims” who are the “victims” and how best does one get the money to the “victims?” Are the enforcement agencies willing to sacrifice portions of their current FCPA cash cow? (see here for more).

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