Whistleblowers – Page 14

Re-Scripting The Bourke Case

Frederic Bourke, “another whistleblower put in prison by the Obama administration.”

So begins this recent lengthy depiction of the Bourke case on Democracy Now. Over the course of the approximate 45 minute video, the viewer is lead to believe that it has been a miscarriage of justice that Bourke is currently in a minimum security prison after being found guilty of, among other charges, conspiring to violate the FCPA.

Yes, I agree (as highlighted in this prior post) that the Bourke case is arguably the most complex and convoluted case in Foreign Corrupt Practices Act history.

Yes, the presiding judge in the Bourke trial – Judge Shira Scheindlin (S.D.N.Y.) – did reject the DOJ’s 10 year sentencing recommendation in sentencing Bourke to 366 days in prison.

Yes, Judge Scheindlin did comment at the sentencing hearing that – “after years of supervising this case, it’s still not entirely clear to me whether Mr. Bourke is a victim or a crook or a little bit of both.” This comment did not exactly leave one with warm fuzzy feelings regarding the case.

However, the facts and enforcement theories at issue in Bourke have also received the most judicial scrutiny in the history of the FCPA – something seemingly glossed over in the lengthy Democracy Now video.

There was extensive pre-trial motion activity resulting in several written decisions by the S.D. of N.Y. as well as the Second Circuit (see 493 F.Supp.2d 693, 541 F.3d 166, and 582 F.Supp.2d 535), reconsideration of pre-trial rulings (see 2008 WL 5329960), and a written decision denying Bourke’s request for a judgment of acquittal (see 638 F.Supp. 2d 348).

In July 2009, Bourke was found guilty after a six week trial by a federal jury of conspiracy to violate the FCPA, among other charges. There was a post-trial reconsideration of the motion to deny a judgment of acquittal (664 F.Supp.2d 369).

From there, Bourke’s case went to the Second Circuit and the primary issue on appeal was Bourke’s knowledge of the alleged bribery scheme in connection with the privatization of Azerbaijan’s alleged state oil company. The issues on appeal were dissected in prior posts here and here.

In December 2011, the Second Circuit affirmed Bourke’s conviction of conspiring to violate the FCPA, among other charges. (see here for the prior post). In pertinent part, the court held that Bourke enabled himself to participate in a bribery scheme without acquiring actual knowledge of the specific conduct at issue and that such conscious avoidance, even if supported primarily by circumstantial evidence, is sufficient to warrant an FCPA-related charges.

Specifically, the Second Circuit stated:

“While the government’s primary theory at trial was that he had actual knowledge of the bribery scheme, there is ample evidence to support a conviction based on the alternate theory of conscious avoidance. The testimony at trial demonstrated that Bourke was aware of how pervasive corruption was in Azerbaijan generally. Bourke knew of Kozeny’s reputation as the “Pirate of Prague.” Bourke created the American advisory companies to shield himself and other American investors from potential liability from payments made in violation of FCPA, and joined the boards of the American companies instead of joining the Oily Rock board. In so doing, Bourke enabled himself to participate in the investment without acquiring actual knowledge of Oily Rock’s undertakings. The strongest evidence demonstrating that Bourke willfully avoided learning whether corrupt payments were made came from tape recordings of a May 18, 1999 phone conference with Bourke, fellow investor Friedman and their attorneys, during which Bourke voiced concerns about whether Kozeny and company were paying bribes. […] Finally, Bourke’s attorney testified that he advised Bourke that if Bourke thought there might be bribes paid, Bourke could not just look the other way. Taken together, a rational juror could conclude that Bourke deliberately avoided confirming his suspicions that Kozeny and his cohorts may be paying bribes.”

With the Second Circuit appeal pending, Bourke filed motions requesting a new trial based on the theory that a key prosecution witness offered false testimony. The motion was denied.

As noted in this prior post, Bourke then appealed this denial to the Second Circuit. The Second Circuit affirmed the trial court decision and rejected Bourke’s request for a new trial. In short, the Second Circuit concluded that Bourke failed to present newly discovered evidence or that the key trial witness in fact committed perjury.

As highlighted in this prior post, Bourke then petitioned the Supreme Court to hear his case. In April 2013, the Supreme Court declined to hear Bourke’s appeal.

The Democracy Now program glossed over the extensive judicial scrutiny of the facts and enforcement theories at issue in Bourke in an attempt to re-script the Bourke case as “another whistleblower put in prison by the Obama administration.”

Once again, not the media’s finest FCPA moment. (See here and here for prior posts on the same subject).

In short, I agree with the DOJ statement (included at the very end of the approximate 45 minute video) which stated:

“After three years of Mr. Bourke’s trying to overturn a jury’s verdict of guilty, his two unsuccessful appeals to the Court of Appeals, and a denial of review by the U.S. Supreme Court, there is not much left say, other than that Mr. Bourke has had every opportunity in numerous forums to make every argument he chose to make, and every challenge to his conviction has been rejected.”

The Odd Dynamic Persists

When Congress passes a law with various provisions which apply generically to any securities law violations without thinking through, on a micro level, the intersection of such provisions, odd dynamics can result.

That was my observation in this 2012 post concerning Khaled Asadi v. GE Energy, a whistleblower case brought under Dodd-Frank’s Anti-Retaliation Provision alleging underlying conduct that could implicate the Foreign Corrupt Practices Act. The trial court held (subsequently affirmed on appeal – see 720 F.3d 620) that a foreign national could not avail themselves of protection under the Anti-Retaliation Provision because the provision does not apply extraterritorially. I noted it was an odd result, because that same foreign national could be awarded a whistleblower bounty under Dodd-Frank.

As highlighted in this previous post, a similar case was brought in early 2013 by Meng-Lin Liu, a former compliance officer for Siemens AG in China.

Yesterday, Judge William Pauley (S.D.N.Y.) dimissed the complaint brought under the Anti-Retaliation Provision of Dodd-Frank. Adopting the reasoning in the Asadi case, Judge Pauley concluded that “there is simply no indication that Congress intended the Anti-Retaliation Provision to apply extraterritorially.” Judge Pauley noted that Liu’s complaint (brought by a Taiwanese resident against a German corporation for acts concerning its Chinese subsidiary relating to alleged corruption in China and North Korea), “must be dismissed” “because the Anti-Retaliation Provision does not apply overseas.”

For more on the decision, see here from Reuters, here from Wall Street Journal Risk and Compliance.

As to the odd dynamic framed above, Judge Pauley stated:

“The issue is not whether persons located abroad can be ‘whistleblowers’ and thus eligible for whistleblower awards, but whether the Anti-Retailiation Provision’s protections extend to overseas whistleblowers. The fact that a person outside the United States may be a “whistleblower” under Dodd-Frank does not compel the conclusion that he is protected by the Anti-Retaliation Provision.”

In short, the odd dynamic persists.

Assuming the truth of Liu’s factual allegations, the DOJ and/or SEC could bring an FCPA action (at least books and records and internal controls charges) against Siemens regardless of whether the payment scheme had a U.S. neuxs, Liu could qualify for a Dodd-Frank whistleblower bounty if an SEC enforcement action was brought, but Liu can not qualify for protection under the Anti-Retaliation Provision for blowing the whistle on the allegations.

The Work Of A Monitor And Checking In On Siemens

The 2008 Foreign Corrupt Practices Act enforcement action against Siemens remains the largest in FCPA history in terms of resolution amount – $800 million ($450 million DOJ, $350 million SEC). The DOJ stated in this release that “for much of its operations across the globe, bribery was nothing less than standard operating procedure for Siemens.” The SEC stated in the release that the “pattern of bribery by Siemens was unprecedented in scale and geographic reach” and the “corruption involved more than $1.4 billion in bribes to government officials in Asia, Africa, Europe, the Middle East and the Americas.”

Not surprisingly, given the nature and extent of the conduct at issue, as part of its plea agreement (here), Siemens was required to engage a corporate monitor for a three year period.

Time passes quickly, and on December 18, 2012, the DOJ filed this “Notice Regarding Corporate Monitorship” notifying the court that Siemens has “satisfied its obligations under the plea agreement with respect to the corporate compliance monitor engaged by the company.”

This post details the monitor’s work and then highlights the difficulties of anti-corruption compliance in a large, multinational company.

The Work of a Monitor

The recent DOJ filing details the work of the monitor and states as follows.

“In accordance with the plea agreement, the Monitor conducted an initial review and three subsequent reviews of Siemens’s anti-corruption compliance program, and documented the Monitor’s findings and recommendations in four annual reports dated October 5, 2009, October 13, 2010, October 7, 2011, and October 12, 2012. Over the course of those four years, the Monitor conducted on-site or remote reviews of Siemens’ activities in 20 countries; conducted limited or issue-specific reviews in or relating to an additional 19 countries; reviewed over 51,000 documents totaling more than 973,000 pages in 11 languages; conducted interviews of or meetings with over 2,300 Siemens employees; observed over 180 regularly scheduled company events; and spent the equivalent of over 3,000 auditor days conducting financial studies and testing.

During that time, the Monitor made a total of 152 recommendations in over a dozen topic areas, such as third-party risks, financial controls, and compliance policies and training that, pursuant to the plea agreement, were “reasonably designed to improve the effectiveness of Siemens’ program for ensuring compliance with the anti-corruption laws.” Without objection, Siemens AG adopted and implemented all 152 recommendations. Thereafter, the Monitor confirmed that all of the recommendations had been fully implemented.

Those recommendations and the other remedial measures and internal control improvements undertaken by Siemens have included enhanced policies and a revised code of conduct directed at prohibiting corruption; additional and more frequent training for employees, agents, and business partners on the enhanced anti-corruption policies and procedures; additional staffing and resources dedicated to coordinating and overseeing the implementation and enforcement of the anti-corruption program; improved hotline for reporting potential violations of the code of conduct; improved accounting system controls designed to ensure the maintenance of accurate books and records; and improved due diligence and review processes for agreements with agents and business partners, including an express clause related to anti-corruption.

Pursuant to the terms of the plea agreement, the Monitor has met with representatives from the government and the SEC on an annual basis to review the findings and recommendations in the Monitor’s annual reports. In accordance with the terms of the plea agreement, the Monitor certified on October 13, 2010, October 7, 2011, and October 12, 2012, that “Siemens’ compliance program is reasonably designed and implemented to detect and prevent violations within Siemens of anti-corruption laws . . . .”

Based on the monitor’s work, the filing then states as follows.

“[T]he government concludes that Siemens AG has satisfied its obligations under the plea agreement with respect to the corporate compliance monitorship. The government has conferred with the staff of the SEC and the staff of the SEC concludes that Siemens AG has also complied with the terms of the Final Judgment in the civil action with respect to the corporate compliance monitorship.”

As highlighted in my article “Revisiting an FCPA Compliance Defense” (here), even before the Siemens monitor began its work, Siemens had – in the words of the DOJ – “already implemented substantial compliance changes” and was setting “a high standard for multi-nationals to follow.” According to the DOJ, Siemens’ total external costs for this pre-monitor remediation exceeded $150 million. Although Siemens has not, to my knowledge, disclosed its costs associated with its post-enforcement action monitor, one can safely assume that the monitor costs easily exceeded this $150 million figure and perhaps reached as high as the $800 million amount announced on enforcement action day.

I noted in my Compliance Defense article that “there is likely no other company in the world today … that has devoted as many corporate resources towards compliance” and that “likewise, there is likely no other company in the world today .. that faces as many negative consequences should its compliance efforts fail.”

Difficulties of Anti-Corruption Compliance

The discussion of Siemens in my article, and here, demonstrates that not even a company that has “set a high standard for multi-national companies to follow” (again, in the words of the DOJ) can insulate itself from FCPA and related exposure.

This fact (and a fact I submit makes a compelling case for an FCPA compliance defense as outlined in my article) is clear from a review of Siemens most recent annual report (here), filed with the SEC on Nov. 28, 2012. The filing contains a separate section titled “public corruption proceedings.” To be sure, the section lists various proceedings that pre-date 2008 and that may have been indicative of the corporate culture at Siemens that gave rise to the 2008 FCPA enforcement action in the first place. However, certain proceedings in listed in the filing are post 2008, including the following.

“As previously reported, in May 2011 Siemens AG voluntarily reported a case of attempted public corruption in connection with a project in Kuwait in calendar 2010 to the U.S. Department of Justice, the SEC, and the Munich public prosecutor. The Munich public prosecutor discontinued the investigations, which related to certain former employees, but imposed conditions on them. Siemens is cooperating with the U.S. authorities in their ongoing investigations.”

“As previously reported, in July 2011 the Munich public prosecutor notified Siemens AG of an investigation against an employee in connection with payments to a supplier related to the oil and gas business in Central Asia from calendar 2000 to 2009. Siemens is cooperating with the public prosecutor.”

Add to this list a Dodd-Frank whistleblower retaliation complaint (here) recently filed against Siemens in federal court by Meng-Lin Liu, a former compliance officer for Siemens AG in China. As highlighted by this Reuters report, Liu alleges that Siemens fired him after he tried to expose a kickback scheme involving medical equipment sales to hospitals in China.

In pertinent part, the complaint alleges as follows.

“Shortly after he started at [Siemens China Ltd. (SLC)] in March 2008, Liu began encountering and confronting a culture within Siemens’ Chinese healthcare business of evading and circumventing the anti-corruption due diligence systems and controls required by the FCPA and Siemens’ 2008 Plea Agreement.”

” … Liu consistently objected to and tried to remedy systemic evasion of Siemens’ due diligence systems in circumstances where there were major ‘red flags’ indicating extremely high risks of corruption. Ultimately, Liu uncovered incontrovertible evidence that Siemens was submitting inflated bids for many of the multi-million-dollar medical diagnostic and scanning equipment sales it made to public hospitals in China, and then selling the equipment at substantially lower prices to intermediaries designated by the hospital’s procurement officials. In other words, Liu discovered that Siemens itself was complicit in a scheme whereby the end-user hospitals paid amounts to third-party intermediaries that were between 20% and 130% higher than the price Siemens received for the equipment, which was resold by these intermediaries to the end-user hospital at the original Siemens’ inflated bid price. This had all the hallmarks of a classic bribery or ‘kickback’ scheme and there was no legitimate explanation for the huge price differential that existed between prices at which Siemens sold the equipment and the prices paid by the end-user hospitals.”

“Within a week of presenting this evidence to SLC’s CFO for Healthcare, Liu was summarily removed from his position as Compliance Officer, instructed not to report to the office for the remaining four months of his employment contract and given ‘early notice’ that his contract would not be renewed upon its expiration. Four months later his employment was terminated.”

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.

Decision In GE Whistleblower Case Creates An Odd Dynamic

As noted in this prior post, in February Khaled Asadi (previously employed by G.E. Energy (USA) LLC (“GE Energy”) as its Country Executive for Iraq, located in Amman, Jordan) filed a civil complaint (here) in the Southern District of Texas against G.E. Energy. GE Energy is a wholly-owned subsidiary of General Electric Company (“GE”).

The complaint alleged that G.E. harassed and pressured Asadi to vacate his position, and ultimately terminated him after he informed his supervisor and G.E.’s Ombudsperson “regarding potential violations of the Foreign Corrupt Practices Act committed by G.E. during negotiations for a lucrative, multi-year deal with the Iraqi Ministry of Electricity.” The substance of Asadi’s complaint was that “on or about June of 2010 Mr. Asadi was alerted by a source in the Iraqi Government that GE had hired a woman closely associated with the Senior Deputy Minister of Electricity (Iraq) to curry favor with the Ministry while in negotiation for a Sole Source Joint Venture Contract with the Ministry of Electricity. (According to the complaint, the Joint Venture Agreement between GE and the Ministry of Electricity was signed in Baghdad on December 30, 2010 and the exclusive materials and repairs provision was estimated to be valued at $250,000,000 for the seven year agreement.)

Asaid asserted a claim for whistleblower retaliation under Dodd-Frank which created a private cause of action for whistleblowers subject to retaliatory discharge and permits relief including reinstatement and back pay for a whistleblower who prevails in federal court.

Recently, U.S. District Court Judge Nancy Atlas granted GE’s motion to dismiss Asadi’s amended complaint (see here for the memorandum and order). In short, Judge Atlas noted that the definition of “whistleblower” under Dodd-Frank is an individual who provides information “to the SEC” and that because Asadi did not claim to report GE’s alleged FCPA violations to the SEC, but rather to his supervisor and to GE’s ombudsperson, Asadi “does not fit within Dodd-Frank’s definition of a whistleblower.”

As to Asadi’s claim that he could still qualify as a whistleblower “even if he did not make a report directly to the SEC … because his disclosures were ‘required’ or ‘protected’ under SOX and the FCPA,” Judge Atlas did not reach the issue of whether he could qualify as a whistleblower on these grounds because his “claims fails on other grounds.” Specifically, Judge Atlas found, relying on the Supreme Court’s 2010 decision in Morrison v. National Australia Bank Ltd., that “the language of the Dodd-Frank Anti-Retaliation Provision is silent regarding whether it applies extraterritorially” and that therefore there is a “presumption that the Provision does not govern conduct outside the United States.” Judge Atlas then concluded that Dodd-Frank’s Anti-Retaliation Provision does not extend to or protect Asadi’s extraterritorial whistleblowing activity.

In dicta, Judge Atlas noted that Asadi argued that because the FCPA “is clearly intended to apply extraterritorially, the [Anti-Retaliation] Provision also must extraterritorially.” However, Judge Atlas stated that “because the facts alleged by Asadi do not fit within the Anti-Retailation Provision, the Court need not, and does not, address Asadi’s argument that the FCPA extends the territorial reach of the Provision.” Nevertheless, Judge Atlas did note that “although Asadi has alleged that his internal disclosures at GE pertained to bribery of foreign officials, he has cited the Court to no provision of the FCPA that ‘protects’ or ‘requires’ his internal report of the alleged bribery.”

For more on Judge Atlas’s decision, see here from Reuters.

Although not a case of precedent, if the reasoning of Asadi is followed by other courts, the odd result could be that Dodd-Frank’s Anti-Retailiation Provisions do not apply extraterritorially, even though foreign nationals can potentially be awarded whistleblower bounties under the law. I guess this is what can happen when Congress passes provisions which apply generically to any securities law violations without thinking through, on a micro level, the intersection of such provisions.