A Focus On Australia
Today’s post is from Robert Wyld (Partner, Johnson Winter & Slattery – here). Wyld is the Australia Expert for FCPA Professor. Jasmine Forde (Senior Associate, Johnson Winter & Slattery) also contributed to this post.
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A FOCUS ON AUSTRALIA
For many years, bribery and corruption in Australia has taken a back seat to profitable enterprise. It was all considered a bit too foreign and something Australian companies simply did not do. All of a sudden, that changed in 2006 when the Australian Wheat Board (AWB) wheat sales to Iraq, corrupting the UN Oil-for-Food program, blazed across Australia’s public awareness. Since then, the media has treated us to a never-ending procession of allegations and sagas involving companies of the stature of Rio Tinto (with the corruption prosecution and imprisonment of former Rio Tinto executive Stern Hu in China), BHP and its now abandoned bauxite mining ventures in Cambodia, Leighton Holdings in the Middle East and as a standout, subsidiaries of Australia’s central bank, the Reserve Bank of Australia, engaged in potentially illegal conduct to secure lucrative polymer banknote printing contracts.
So what has been happening over the last few years? In short, a much more focused awareness of the risks that foreign corruption brings to corporations and individual liability and a legislative push to increase investigative powers and penalties to deter errant behaviour.
Legislative Developments Post AWB Wheat Saga in 2005
In 2007, the Australian government tightened up the weaknesses in Australian foreign corruption laws highlighted by the Cole Inquiry and AWB’s conduct. (The Cole Inquiry was a Royal Commission headed by a retired appellate Judge, The Hon Terence RH Cole AO, RFD, QC, who investigated AWB’s conduct and who formed the opinion that the company and various senior executives may have committed criminal and/or civil offences in connection with their wheat sales to Iraq under the UN Oil-For-Food Program.) Those involved:
- ensuring the foreign law defence to bribery was reflected in a written foreign law; and
- criminalising conduct in contravention of United Nations’ sanctions.
Between 2007 and 2010, the Australian Government established a Taskforce to investigate whether any of the identified AWB executives should be prosecuted. The Australian Federal Police (AFP), as the Australian federal investigative policy agency responsible for investigating contraventions of Australian laws, ultimately abandoned any criminal prosecution due to insufficient evidence to warrant a criminal case. The Australian Securities and Investments Commission (ASIC), the Australian corporate regulator, commenced civil penalty proceedings against 6 former AWB directors and officers alleging breach by those persons of their common law and/or statutory duties in connection with the AWB wheat sales and the payment of monies to Iraq and to third parties. The individuals are defending the cases, although in June 2012, both the former AWB Managing Director Andrew Lindberg and the CFO, Paul Ingolby, agreed to a settlement with ASIC and their penalties will be imposed by the Victorian Supreme Court in the future.
In 2010, primarily as a result of increasing focus on Australia’s inadequate penalties by the OECD and Transparency International, the Australian Government revised the applicable penalties for foreign corrupt offences. Those penalties were now set, for conduct post February 2010, as follows:
- for an individual – imprisonment for up to 10 years, a fine of up to 10,000 penalty units (one penalty unit being AU$110, with the maximum fine, AU$1,100,000) or both; and
- for a corporation – a fine being up to the greatest of 100,000 penalty units (or AU$11,000,000), 3 times the value of the benefit obtained directly or indirectly from the conduct or if the benefit cannot be determined, 10% of the corporation’s annual turnover during the period of 12 months ending at the end of the month in which the offending conduct occurred.
Section 70.2(6) of the Criminal Code defines “annual turnover” to be the sum of the value of all supplies that the corporation or any related corporation has made or are likely to make during the 12 month period subject to limited statutory exceptions.
These penalties are similar to the penalty regime which applies to the criminalisation of Australia’s cartel or anti-trust offences. It remains to be seen how they will be applied to a foreign bribery prosecution by an Australian Court.
In 2011, the Australian Government published a Consultation Paper reviewing a number of aspects of Australia’s foreign bribery laws. In particular, the Paper asked:
- whether facilitation payments should remain as a defence to foreign bribery; and
- whether a particular foreign official had to be identified in respect of which the alleged bribe was either paid, offered or promised to be paid.
It is unclear which way the Government will go, but the authors understand that the Government has received conflicting views on both abolishing and retaining the defence.
In April 2012, the Crimes Legislation Amendment (Powers and Offences) Act 2012 amended the Australian Crime Commission Act (ACC Act) to enable Australian statutory and secretive crime agency, the Australian Crime Commission (ACC) to share information with corporations for a ‘permissible purpose’. Features of this new regime include the following:
- section 59AB of the ACC Act enables the CEO of the ACC to disclose information to a prescribed body corporate, but only in circumstances where it would not prejudice the safety, or the fair trial, of a person who has been charged with an offence;
- the ACC can impose conditions on the body corporate to ensure that the information is not used, and further disclosed, in a way that might prejudice the reputation of a person; and
- the overriding purpose of the amendments is to facilitate cooperation between the private sector and the ACC to enable the ACC to combat serious and organised crime, which includes foreign bribery and corruption.
Aside from the privacy issues in connection with the use and disclosure of information, there are a number of practical challenges that arise, and present obvious risks, for a corporation in circumstances where one of its employees is the subject of an ACC investigation and subsequent disclosure, which include:
- whether the information should be disclosed in the first place just to the corporation CEO, Chairman, or a wider group including General Counsel and, if applicable, any Head of Security;
- if a person directly or indirectly makes a record of the information or discloses it to another person (other than for a specified purpose), that person has committed an offence with a potential penalty of up to 12 months’ imprisonment;
- care must be taken to manage the storage of material constituting the disclosed information;
- whether and if so, how the disclosed information interacts with a corporation’s continuous disclosure obligations to the market; and
- whether the corporation should conduct its own internal investigation and if so, the impact that may have on any external official (or covert) investigation.
It remains to be seen how the ACC will handle this new power. It is hoped that the ACC will adopt a sensible and flexible approach, ensuring that any disclosure is undertaken co-operatively with a relevant corporation and the corporation is informed of whether any internal investigation may or may not impact on an official investigation.
Prosecutions
Since Australia criminalised foreign bribery in December 1999, until July 2011, there had been but a few investigations, no prosecutions and no convictions.
In July 2011, the Commonwealth Director of Public Prosecutions (CDPP) laid the first criminal charges against Securency International Pty Ltd and Note Printing Australia Pty Ltd, two subsidiaries of the Reserve Bank of Australia and various individuals, alleged to be involved in corrupt conduct to secure valuable polymer banknote printing contracts. Allegations suggested the Central Bank subsidiaries used foreign agents or intermediaries in various countries to pay or offer to pay bribes to foreign officials to secure the contracts to replace national paper currency with polymer (plastic) banknotes. These proceedings are continuing and are subject to suppression orders by the Courts in Victoria hearing the charges.
The AFP has a number of current referrals involving potential foreign bribing. Whether prosecutions occur in the future remains to be seen.
Current issues under review in Australia
The current anti-bribery regime in Australia still has many practical difficulties which are of concern, particularly in terms of advising and educating corporations on compliance with local and international laws.
The main issues of concern are:
1 Regulatory Body
The AFP investigates foreign bribery. Any prosecution is conducted by the (CDPP).
There is no one identified organisation or agency which can be approached if a corporation wishes to self-report a potential offence. While a potential offence can be reported to the AFP, the present structure simply requires the AFP to investigate and then determine if a brief should be presented to the CDPP. It is only the CDPP who is authorised to offer any inducement to a potential defendant to cooperate.
A regulator modelled on the US DOJ or UK SFO would be better positioned to educate, enforce, facilitate and provide guidance to corporations. Presently, that does not exist in Australia.
2 Facilitation Payments
This is regarded as one of the biggest risk areas. There is confusion in understanding any real distinction between a facilitation payment and a bribe, particularly in relation to hospitality, travel and education allowances. There is very little guidance regarding when these are acceptable commercial relationship activities and when they are considered to be a bribe. This is exacerbated by virtue of the fact that there are differences in the foreign bribery laws around the world where the US permit facilitation payments and offer official “guidance opinions’ while in the UK, facilitation payments do not exist.
The authors consider that facilitation payments should be abolished but until that time, the best advice is to look to the UK Bribery Act as the ‘gold standard’ and as far as possible, ban them from within your organisation.
3 Awareness of Foreign Bribery and Training
Awareness of the foreign bribery regimes outside of Australian Stock Exchange listed corporations is patchy at best. There is a great need for corporations to continually educate their employees and third party service providers so that they can put in place robust procedure and processes. Whilst some global companies now insist on anti-corruption clauses being included in contractual arrangements, it is by no means standard practice.
One need only look to the features of the recent investigation into Morgan Stanley in the US and the non-prosecution of the company in light of the rogue conduct of Mr Petersen in Chinese real estate speculation, to understand what a corporation must be able to demonstrate if it is to satisfy a regulator that it did all it could, in the circumstances, to prevent foreign bribery.
4 Lack of Prosecutions
To date, there has been no judicial enforcement in Australia which has had the effect of sending a message to the market that non-compliance is not an option.
The first prosecution under the legislation has taken 12 years and is still ongoing. The lack of prosecutions in Australia is not likely to be because Australian companies are compliant; rather, the better explanation appears to be that corporations:
(a) are simply not recording facilitation payments in accordance with the law (to do so would essentially be a self- admission with no protection and/or may expose relevant individuals to prosecution if the country they are dealing with does not allow for such payments);
(b) are failing to self-report any potential foreign bribery;
(c) are prepared to take a risk against prosecution, given the inherent complexity and cost associated with foreign bribery investigations; and
(d) accept that such controversial payments (either as a bribe or a facilitation payment) are simply the reality of doing business in some ‘risky’ jurisdictions.
5 Whistleblower Protection
Arguably, it is not considered culturally acceptable in Australia to ‘dob’ in a friend or colleague. However, recent research pioneered by Professor AJ Brown from Griffith University Queensland in conjunction with the University of Melbourne, suggests that over 80% of his sample considered it was more important to support whistleblowers for revealing serious wrongdoing than to punish them. The overall findings, released on 6 June 2012 (see www.newsroommelbourne.edu), suggest Australia is not a country where hostility to whistle blowers is the norm.
Currently, there is no incentive to be a whistleblower; monetary or otherwise and indeed, there can be severe, even criminal sanctions applied to certain individuals (Commonwealth employees) who blow the whistle. There is a need for legislative reform around whistleblower protection as the Australian Public Interest Disclosure Bill presently being considered by the Australian Parliament offers limited protection.
Case Law Of Note
Last week, the DOJ got dinged on both coasts in criminal appeals. Although neither case involved the FCPA, the reasoning of the courts touch upon issues relevant to the recent “foreign official” challenges. For more on those challenges, the DOJ and defense positions, and the trial court rulings, see here, here, here and here (as well as the embedded links in those posts).
In addition to discussing the two cases with similarities to “foreign official” challenges, this post also discusses a decision from the U.S. District Court in the Middle District of Tennessee that is believed to be the first decision concerning the intersection of D0dd-Frank’s whistleblower provisions and the FCPA.
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In U.S. v. David Nosal, the Ninth Circuit, sitting en banc, affirmed a lower court dismissal of criminal charges under the Computer Fraud and Abuse Act (“CFAA”) filed against David Nosal who used to work for Korn/Ferry, an executive search firm. (See here for the decision). The issue before the court was how broadly to read the CFAA, particularly its provisions which defines “exceeds authorized access” as “to access a computer with authorization and to use such access to obtain or alter information in the computer that the accesser is not entitled so to obtain or alter.”
Without getting into the specific facts of the case here, the court stated that “the government’s interpretation would transform the CFAA from an anti-hacking statute into an expansive misappropriation statute” and that “if Congress meant to expand the scope of criminal liability to everyone who uses a computer in violation of computer use restrictions … we would expect it to use language better suited to that purpose.” In a footnote, the court noted that Congress did just that in other federal statutes where the key terms were broader.
Thereafter, the court stated as follows. “The government’s construction of the statute would expand its scope far beyond computer hacking to criminalize any unauthorized use of information obtained from a computer. This would make criminals of large groups of people who would have little reason to suspect they are committing a federal crime. While ignorance of the law is no excuse, we can properly be skeptical as to whether Congress, in 1984, meant to criminalize conduct beyond that which is inherently wrongful, such as breaking into a computer.”
The DOJ urged the court to consider the CFAA’s legislative history and pointed to an earlier version of the statute that was more favorable to its position. However, the court stated that “that language was removed and replaced by the current phrase and definition” (emphasis in original).
The court then stated as follows. “The government assures us that, whatever the scope of the CFAA, it won’t prosecute minor violations. But we shouldn’t have to live at the mercy of our local prosecutor. […] And it’s not clear we can trust the government when a tempting target comes along.” (citations omitted, emphasis in original).
In conclusion, the court stated as follows. “We need not decide today whether Congress could base criminal liability on violations of a company or website’s computer use restrictions. Instead, we hold that the phrase ‘exceeds authorized access’ in the CFAA does not extend to violations of use restrictions. If Congress wants to incorporate misappropriation liability into the CFAA, it must speak more clearly. The rule of lenity requires penal laws to construed strictly. When choice has to be made between two readings of what conduct Congress has made a crime, it is appropriate, before we choose the harsher alternative, to require that Congress should have spoken in language that is clear and definite.” (citations omitted, emphasis in original).
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In U.S. v. Sergey Aleynikov, the Second Circuit reversed the criminal conviction of Sergey Aleynikov, a former computer programmer employed by Goldman Sach who was found guilty by a jury of violating the National Stolen Property Act (“NSPA”) and the Economic Espionage Act of 1996 (“EEA”). As noted in the opinion (here), Aleynikov argued on appeal that his conduct did not constitute an offense under either statute – namely that the source code at issue was not a “stolen good” within the meaning of the NSPA and that the source code was not “related to or included in a product that is produced for or placed in interstate or foreign commerce” within the meaning of the EEA.
Without getting in to the specific facts of the case here, the Second Circuit began its discussion by noting that “Aleynikov’s challenge requires us to determine the scope of the two federal statutes” and that “federal crimes are solely creatures of statute.” The court stated that “due respect for the prerogatives of Congress in defining federal crimes prompts restraint in this area, where we typically find a narrow interpretation appropriate” and held that Aleynikov’s conduct did not constitute an offense under either the NSPA or the EEA.
As to the EEA, and of note, the Court looked to the statute’s legislative history and found that a key provision did not appear in various draft of the bill and that therefore the words of the final bill that was enacted into law “were deliberately chosen.” As to the DOJ’s argument that the EEA had a broad sweep, the Court stated that one would expect to see such wording in the statute. Citing a prior Supreme Court decision, the Court stated as follows. “And ‘when choice has to be made between two readings of what conduct Congress has made a crime, it is appropriate, before we choose the harsher alternative, to require that Congress should have spoken in language that is clear and definite.”
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Recently, Judge Aleta Trauger (M.D. Tenn.) issued a decision (here) in Nollner v. Southern Baptist Convention Inc. that is believed to be the first judicial decision concerning the intersection of D0dd-Frank’s whistleblower provisions and the FCPA.
The basic facts are as follows. Ron and Beverly Nollner responded to a job post by The International Mission Board of the Southern Baptist Convention Inc. (“IMB”) (a wholly-owned subsidiary of Southern Baptist Convention Inc.) to perform missionary related work on the church’s behalf in New Delhi, India – specifically to manage construction of a new office building. After accepting the positions and arriving in New Delhi, the Nollners allege that the “situation was not what had been promised.” Among other things, the Nollners allege that they “became aware of a host of troubling information” including that “the contractor and architect were paying bribes to local Indian officials with money furnished by the defendants for that purpose.” The Nollners alleged that “Mr. Nolnner reported his grave concerns about potential bribery to the defendants’ employees, [but] that they seemed unbothered, if not complicit.” Thereafter, two of Mr. Nollner’s superiors allegedly asked him to resign and when he refused he was terminated.
Among other things, the Nollners brought a retaliatory discharge claim under Dodd-Frank claiming that they were terminated for, among other things, reporting and/or refusing to participate in bribes and other illegal payments. As to the Dodd-Frank claim, the Nollners allege that its whistleblower anti-retaliation provisions protected them against retaliation for reporting the defendants’ violations of the FCPA.
The court began by noting that Dodd-Frank “only protects [an] employee against retaliation if the federal violation falls within the SEC’s jurisdiction.” The court then stated that “the jurisdiction of the SEC with respect to FCPA violations is limited only to civil actions to enforce violations by issuers, but does not encompass FCPA violations by domestic concerns, which are subject to exclusive DOJ enforcement.” (emphasis in original). The court then stated as follows. “Here, because the defendants are not issuers, only the DOJ – not the SEC – has jurisdiction over them with respect to FCPA violations.” Accordingly, the court held, even assuming the allegations to be true, that the “Nollners may not maintain [Dodd-Frank] retaliation claims premised on their reporting of potential FCPA violations by the defendants.”
In addition, the court stated that the “FCPA does not itself protect whistleblowers; it contains no anti-retaliation provisions and affords no private cause of action” (relying on Lamb v. Philip Morris, Inc. 915 F.2d 1024 (6th Circ. 1990)). The court stated that “it falls on Congress to protect individual FCPA whistleblowers who are not otherwise protected from retaliation under state or federal law for disclosing FCPA violations.”
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In regards to the reference in Nollner that the jurisdiction of the SEC with respect to FCPA violations is limited only to civil actions to enforce violations by issuers, this is generally true, although in recent years the SEC has brought FCPA enforcement actions against non-issuers (see here for the Panalpina enforcement action and here for the Snamprogetti enforcement action).
Friday Roundup
From the dockets, an FCPA compliance defense – yes or no, hiring a woman closely associated with a foreign official, and a focus on the FCPA’s “red-haired stepchild” – it’s all here in the Friday Roundup.
From the Dockets
Last month when Judge Lynn Hughes dismissed, at the close of the DOJ’s case, the FCPA charges against John Joseph O’Shea (see here for the prior post), it was only a partial victory as O’Shea still faced non-FCPA charges. Complete victory is imminent as yesterday the DOJ filed a motion to dismiss (here) the remaining charges (conspiracy, money laundering and obstruction) against O’Shea.
In July 2011, Patrick Joseph (a former general director for telecommunications at Haiti Teleco and thus a “foreign official” according to the DOJ) was added to the extensive Haiti Teleco case. (See here for the prior post). Because the FCPA does not apply to bribe recipients, the DOJ charged Joseph with a non-FCPA offense: one count of conspiracy to commit money laundering. Earlier this week, Joseph pleaded guilty to the charges (see here). Pursuant to the plea agreement, Joseph agreed to forfeit approximately $956,000. It is clear from the plea agreement that Joseph was likely an early cooperator in the Haiti Teleco case as the plea agreement refers to a June 2009 proffer agreement with the DOJ. Many of the other individual defendants in the Haiti Teleco case were charged in December 2009 (see here). The plea agreement requires Joseph’s continued cooperation and later this month a trial is to begin as to other defendants in the wide-ranging Haiti Teleco case.
FCPA Compliance Defense – Yes or No?
That is the title of a free webcast on February 21st to be hosted by Bruce Carton’s Securities Docket (see here to sign up and for more information). I will be discussing my paper “Revisiting a Foreign Corrupt Practices Act Compliance Defense”and will argue in favor of Congress creating an FCPA compliance defense. On the other side of the issue, Howard Sklar (Senior Counsel, Recommind and a frequent commentator on FCPA issues at, among other places, his Open Air Blog) will argue that Congress should not include a compliance defense to violations of the FCPA.
Former Employee Alleges FCPA Issues at GE
As previously reported by Chris Matthews at Wall Street Journal Corruption Currents (see here) Khaled Asadi (a dual U.S. and Iraqi citizen) who was previously employed by G.E. Energy (USA) LLC (“GE Energy”) as its Country Executive for Iraq, located in Amman, Jordan, has 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 alleges that G.E. harassed, 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 lucractive, multi-year deal with the Iraqi Ministry of Electricity.” The substance of Asadi’s complaint is 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 Electricty (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 that the exclusive materials and repairs provision is estimated to be valued at $250,000,000 for the seven year agreement.)
Hiring friends, family members, etc. of a “foreign official” at the request of the ‘foreign official” has been the basis, in part, for previous FCPA enforcement actions – particularly if the hired individual was not qualified for the position, did not engage in any meaningful work, or was paid an unreasonably high salary. For instance, the 2011 FCPA enforcement action against Tyson Foods (see here for the prior post) involved, in part, allegations that a company subsidiary placed the wives of Mexican “foreign officials” on its payroll and provided them with “a salary and benefits, knowing that the wives did not actually perform any
services” for the company.
In the WSJ Corruption Currents article, a GE spokesman stated as follows. “Mr. Asadi’s termination had absolutely nothing to do with any allegations he is making. Regarding our contracts in Iraq, GE followed all requirements and his allegations are false.”
Travel Act Readings
A few informative Travel Act readings to pass along.
In this article from Thomson Reuters News & Insight, Mike Emmick (Sheppard Mullin Richter & Hampton) calls the Travel Act the “FCPA’s red-haired stepchild” and says that in conducting an internal investigation “there are some additional rocks to flip over” before celebrating findings of no payments to “foreign officials.”
In this article from Bloomberg Law Reports, John Rupp and David Fink (Covington & Burling) note that a “move by U.S. authorities to target commercial bribery robustly is a distinct possibility.” The piece discusses the laws that could be used by U.S. authorities to prosecute foreign commercial bribery.”
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A good weekend to all.
Friday Roundup
The SEC’s annual whistleblower report, a new FCPA map, taking FCPA reform too far, confessions of an FCPA “Mendelhead,” is too much FCPA training a bad thing, and Nigeria’s sovereign wealth fund … it’s all here in the Friday roundup.
SEC Whistleblower Report
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.
Whatever your view, I 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. Recently the SEC released (here) its annual report for FY2011. However as noted by the SEC, “because the Final Rules [implementing the whistleblower program] became effective August 12, 2011, only 7 weeks of whistleblower tip data is available for fiscal year 2011.”
Appendix A to the report lists by subject matter “the 334 whistleblower tips received from August 12, 2011 through September 30, 2011.” However, the SEC noted as follows. “Of course, the Commission also receive [Tips, Complaints, and Referrals (“TCRs”] from individuals who do not wish or are not eligible to be considered for an award under the whistleblower program. The data in this report is limited to those TCR’s that include the required whistleblower declaration and does not reflect all TCRs received by the Commission during the fiscal year.”
As the SEC notes “as a result of the relatively recent launch of the program and the small sample size, it is to early to identify any specific trends or conclusions from the data collected to data.”
In any event, a chart titled “Whistleblower Tips by Allegation Type” in the SEC report shows that 3.9% of the 334 tips involve the FCPA. The SEC report is also an informative read as to the SEC’s implementation of the whistleblower award program and how it processes whistleblower tips.
The SEC whistleblower report from FY2010 is here.
FCPA Map
The Mintz Group (an international investigative services firm that specializes in FCPA and integrity due-diligence that also assists corporate counsel and outside counsel with investigations related to potential or alleged FCPA violations) recently released here a dandy interactive map allowing users to scroll over countries and learn of FCPA violations in those countries, as well as industry specific FCPA data.
Taking FCPA Reform Too Far
Writing recently at the Cato Institute’s blog (see here), Walter Olson commented “the Foreign Corrupt Practices Act: clarification is not enough.” Olson stated as follows. “The Foreign Corrupt Practices Act, enacted in 1977 and the subject of a high-profile federal enforcement campaign in recent years, is a feel-good piece of overcriminalization that oversteps the proper bounds of federal lawmaking in at least four distinct ways, any of which should have prevented its passage. It is extraterritorial, purporting to punish overseas misdeeds which deprive no Americans of liberty or property and whose punishment is better left in the hands of authorities elsewhere. It is vicarious, inflicting massive liability on businesses and unknowing higher-ups over the actions of rogue local subsidiaries, salespeople and facilitators. It is punitive, menacing its targets with twenty-year prison terms and inflicting huge penalties over less-than-huge misbehavior. And finally, it is vague, leaving companies to guess at the proper line between tolerated payments (e.g., gratuities to speed up visa and license issuance in developing countries) and improper “bribes,” and even such basic questions as who counts as “official.” In the face of a mounting outcry from the business community, the Obama administration has now finally conceded that there is some validity to this last point, and Criminal Division chief Lanny Breuer says the Department of Justice will develop guidelines to provide greater clarity as to what it believes the law does and does not forbid. Better than nothing, but why not consider the case for wider reform or even repeal?”
Similarly, Scott Greenfield who runs the blog Simple Justice (see here) stated as follows. “At its core, the FCPA is our government’s way of pretending to be the mean old school marm, telling all the nasty children of the world how to behave. If it doesn’t appeal to the school marm’s sensibilities, then it’s a crime, and demands a hard smack across the knuckles. A very expensive hard smack. […] We may hate corporations, but we need them, and we need them to be productive around the globe. To tie them down because of vague, child-like notions of fairness that conflict with cultural norms everywhere else is just foolish and counterproductive. Surviving and competing in foreign cultures isn’t wrong, and it shouldn’t be a crime. The FCPA has got to go.”
I respectfully disagree. While I agree that the FCPA ought to be reformed in certain respects and while FCPA enforcement has become unhinged, I do believe, as I have stated on several occasions including in my November 2010 Senate testimony (here), that the FCPA is a fundamentally sound statute that was passed by Congress for a specific valid and legitimate reason.
Confessions Of An FCPA “Mendelhead”
In response to my recent “luncheon law” post (see here), Howard Sklar (who previously ran anti-corruption compliance for Hewlett-Packard Co.) wrote on his Open Air Blog (here) as follows. “I used to go to these conferences with the expressed purpose of ‘reading the DOJ tea leaves for this season.’ The ‘used to’ in that sentence is important, but we’ll get to that in a minute. Because ‘reading the tea leaves’ was a crucial part of my risk assessment process. That’s a pitiful state of affairs, but there you are. During that period, several years ago, there really wasn’t anywhere else to go. I would reach out to fellow in-house practitioners and benchmark all the time, and I’d follow Mark Mendelsohn around like a puppy looking for scraps. It was a little sad, really. I know I’m a bit of a geek, and I know Mark Mendelsohn ain’t the Grateful Dead. But there I was, an FCPA Mendelhead.”
Over-Training?
Greg Esslinger (Senior Managing Director at FTI Consulting) recently posted (here) an interesting article on the ABA’s Global Anti-Corruption Task Force website. Titled “Anti-Corruption Compliance: Are Employees Becoming ‘Over-Trained’?” Esslinger writes as follows. “In response [to this new era of enforcement], companies have begun to provide more and more accessible (read: web-based) anti-corruption and related regulatory training programs. Predictably, a panoply of vendors have surfaced offering state-of-the-art customizable online training modules, complete with scenarios, live actors, knowledge checks and certifications. Online compliance training has now become a cottage industry serving a wide array of organizations faced with the daunting task of communicating a Western regulatory concept to tens of thousands of employees across multiple languages, cultures and jurisdictions – again, under the watchful eye of various enforcement bodies.” In the piece, Esslinger asks “whether repeated online and other mass training will over time actually have the unintended effect of desensitizing employees to, rather than making them more aware and cautious of, bribery and other corrupt activity.”
Training occurs in a variety of legal and non-legal contexts and if anyone is aware of social-science / behavioral research relevant to an “over-training” phenomena please share.
Nigeria Sovereign Wealth Fund
With certain companies reportedly under the FCPA microscope for dealings with sovereign wealth funds (see here for a prior post), its hard not to have the FCPA radars go off when reading this recent article by Azam Ahmed in the New York Times concerning Nigeria’s new sovereign wealth fund. The article states as follows. “In an effort to preserve and increase its oil revenue, the country recently established a so-called sovereign wealth fund, following the path of many resource-rich countries. Now, Wall Street titans like Goldman Sachs, Morgan Stanley and JPMorgan Chase are courting top government officials, aiming to grab a piece of a portfolio that could eventually be worth tens of billions of dollars.” The article further states as follows. “To grab a piece of the lucrative business, big banks and asset managers have tirelessly cultivated relationships with governments worldwide and added teams dedicated to sovereign wealth funds. In recent months, bankers, lawyers and consultants flew to the Nigerian capital of Abuja to pitch officials on their services. The government chose JPMorgan Chase as one of its advisers on the structuring of the fund.”
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A good weekend to all.
Whistleblower Developments
Some whistleblower developments on both sides of the Atlantic to pass along.
U.K.
The U.K. Serious Fraud Office recently issued this release to launch “SFO Confidential” – a live on-line resource “for concerned individuals to help expose situations that might deserve a closer look.” Richard Alderman, Director of the SFO, stated as follows. “I want people to come forward and tell us if they think there is fraud or corruption going on in their workplace. Company executives, staff, professional advisors, business associates of various kinds or trade competitors can talk to us in confidence. I have set up a special team to make the SFO readily accessible to whistleblowers, with trained staff sympathetic in dealing with any anxieties people might have about coming forward. I want whistleblowers to feel comfortable about it and use SFO Confidential to help flush out fraud.”
As Bryan Cave attorneys note in this alert, unlike the recently enacted Dodd-Frank Act whistleblower provisions that provide monetary incentives to whistleblowers, “SFO Confidential appeals instead to the individual’s civic duty and/or self interest in preventing fraud and corruption (for example, promising to “level the commercial playingfield” where a competitor is gaining business unfairly through fraud or corruption).”
Perhaps sensing a marketing opportunity, Field Fisher & Waterhouse (here) stated as follows. “The SFO’s implementation of a whistleblowing hotline may worry companies who have experienced corruption issues in the past. The hotline clearly increases the risk of issues being highlighted anonymously by disgruntled employees or competitors. The introduction of the hotline comes 4 months after the date that the Bribery Act 2010 came into force. Under this Act, commercial organisations can be held liable for bribes paid by those acting on their behalf, even if the bribe is paid outside the UK. A business which implements “adequate procedures” to prevent bribery has a complete defence to this kind of charge under the Act. The hotline also comes at a time of increased enforcement by the Serious Fraud Office. During the course of last week the SFO announced two new prosecutions for corruption.”
U.S.
Martin Weinstein and Robert Meyer (Willkie Farr & Gallagher) report here on the recently introduced Whistleblower Improvement Act of 2011 (“H.R. 2483”) (see here). Among other changes the legislation would make to the recently enacted Dodd-Frank whistleblower provisions are the following according to Weinstein and Meyer: “It would revise the award eligibility standards to require whistleblowers who are reporting their employer’s possible violations of federal securities laws to internally report such misconduct prior to reporting to the SEC;” “It would render the whistleblower award discretionary as opposed to mandatory, and eliminates the 10% minimum award requirement;” and “It would mandate that the SEC inform an entity targeted for an investigation initiated by a whistleblower tip before commencing an enforcement action.”
In conclusion, the authors state as follows. “This legislation reflects the recommendations of some practitioners within the antibribery community. In particular, many commentators have advocated that Congress adopt a requirement that whistleblowers internally report misconduct prior to any disclosure to the SEC. Although it remains to be seen whether this legislation will be enacted, the debate as to how to effectively structure and implement a robust whistleblower program is certain to continue. Irrespective of the outcome of this debate, the new SEC whistleblower program likely will put additional pressure on legal and compliance systems to readily identify and respond to possible violations of the securities laws.”