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An Examination Of Foreign Corrupt Practices Act Issues

By on July 29, 2013 in FCPA Scholarship, Year in Review 2012

I am pleased to share my new article “An Examination of Foreign Corrupt Practices Act Issues” recently published as the lead article in an FCPA specific volume of the Richmond Journal of Global Law & Business.  The article highlights DOJ and SEC enforcement statistics from 2012, identifies the top FCPA issues from 2012, and examines substantively insignificant events that become top stories in 2012 simply because they occurred.

The article can be downloaded here.

“An Examination of Foreign Corrupt Practices Act Issues” is the latest in my series of FCPA annual reviews.

For 2011, see here.

For 2010, see here.

For 2009, see here.

Put them all together and you will have an extensive collection of FCPA statistics, trends, and analysis over time.

Friday Roundup

By on February 1, 2013 in Books and Records, Carson, Double Standard, IBM, Internal Investigation Issues, James Ruehlen, Lobbying, Mark Jackson, Paul Cosgrove, Repeat Offenders, Restitution, SEC, Tyco, Victims, Year in Review 2012

The SEC files an amended complaint, Judge Leon strikes again, a provocative press release, a focus on lobbying and for the reading stack.  It’s all here in the Friday roundup.

SEC Files Amended Complaint in Jackson / Ruehlen Matter

As highlighted in this prior post, this past December Judge Keith Ellison (S.D. Tex.) issued a lengthy 61 page decision (here) in SEC v. Mark Jackson and James Ruehlen.  In short, Judge Ellison granted Defendants’ motion to dismiss the SEC’s claims that seek monetary damages while denying the motion to dismiss as to claims seeking injunctive relief.  Even though Judge Ellison granted the motion as to SEC monetary damage claims, the dismissal was without prejudice meaning that the SEC was allowed to file an amended complaint.  As explained in the prior post, Judge Ellison’s decision was based on statute of limitations grounds (specifically that the SEC failed to plead any facts to support an inference that it acted diligently in bringing the complaint) as well as the SEC’s failure to adequately plead discretionary functions relevant to the FCPA’s facilitation payments exception.

Last week, the SEC filed its amended complaint (here).  The most noticeable difference in the amended complaint, based on my brief review of the 58 page document, appears to be several allegations regarding Nigerian law, including the Customs & Excise Management Act.

Judge Leon Strikes Again

This prior post generally discussed Judge Richard Leon’s rejection of the SEC v. IBM FCPA settlement, a case that still lingers on the docket.

As noted in this Main Justice story and this Wall Street Journal story, Judge Leon has struck again.  According to the reports, yesterday Judge Leon conducted a scheduled hearing in SEC – Tyco FCPA case in chambers, much to the dismay of media assembled in open court.

As noted in this prior post, in September 2012, the DOJ and SEC announced an FCPA enforcement against Tyco International Ltd. and a subsidiary company.  Total fines and penalties in the enforcement action were approximately $26.8 million (approximately $13.7 million in the DOJ enforcement action and approximately $13.1 million in the SEC enforcement action).  As noted in this SEC release, Tyco consented to a final judgment that orders the company to pay approximately $10.5 million in disgorgement and approximately $2.6 million in prejudgment interest.  Tyco also agreed to be permanently enjoined from violating the FCPA.

Although both the IBM and Tyco enforcement actions involve the SEC’s neither admit nor deny settlement language, this would not seem to be the key thread between these two enforcement actions that is drawing the ire of Judge Leon.  Rather as explained in this post summarizing the IBM enforcement action and this post highlighting various notable features of the Tyco action, both companies are repeat FCPA violators.  In resolving the “original” FCPA enforcement actions – IBM in 2000 and Tyco in 2006 – both companies agreed to permanent injunctions prohibiting future FCPA violations.

This prior post titled “Meaningless Settlement Language” detailed Judge Jed Rakoff’s discussion of so-called “obey the law” injunctions in SEC v. Citigroup and this prior guest post discussed an Eleventh Circuit decision last year vacating a SEC “obey the law” injunction.

A Provocative Press Release

The law firm Bienert, Miller & Katzman (“BMK”) represented Paul Cosgrove (a former executive of Control Components Inc.) in the so-called Carson enforcement actions.  The Carson action involved a notable “foreign official” challenge and as highlighted in previous posts here, here, and here, after Judge Selna issued a pro-defendant jury instruction, the DOJ soon thereafter offered the remaining defendants (Stuart Carson, Hong Carson, David Edmonds, and Cosgrove) plea agreements which the defendants accepted.  As to those plea agreements, I ended each post by saying – the conclusions are yours to reach.  In Fall 2012, the defendants were sentenced as follows:  S. Carson (four months in prison), H. Carson (three years probation), Edmonds (four months in prison) and Cosgrove (15 months of home detention).  See this prior post regarding Carson sentencing issues.

In a January 17th press release (here), BMK stated as follows.

“BMK and counsel for three other defendants … conducted a worldwide investigation and developed evidence suggesting the government’s evidence was incomplete, the court documents indicate.  Ultimately,  most companies bought CCI valves because they were the best in the world (not because of bribes); most of the supposed “public officials” denied receiving any bribes; and, in most cases, the alleged improper payments were never actually made, according to court records.

Further, through an aggressive litigation and motion strategy, counsel were able to obtain jury instructions that highlighted the government’s heavy burden of proof at trial.  For example, the trial court agreed with defense counsel that the government was obligated to prove defendants’ knew they were dealing with “foreign officials,” something that would have been extremely difficult for the government to prove.  The supposed bribery recipients worked for companies that appeared to operate like private companies in the United States, making it very unlikely that the defendants realized they were dealing with “government officials.”

BMK and other defense counsel  raised several other issues that brought the government’s ability to obtain a conviction, or defend an appeal, into serious doubt.  These motions called into question whether the alleged bribe recipients were even “public officials” as intended by the FCPA; whether the Travel Act even applied to the case; and, whether defendants were entitled to millions of pages of documents that had been withheld from them by CCI, their former employer.  Each of these issues likely would have been decided for the first time on an appeal in this case.”

[Full disclosure – I was an engaged expert in the Carson cases, filed a “foreign official” declaration in connection with the motion to dismiss, and was disclosed as a testifying expert for the trial]

Lobbying

In my double-standard series (here), I have highlighted various aspects of lobbying here in the U.S.  The beginning of the recent opinion in U.S. v. Ring (D.C. Circuit) is an interesting read.  In pertinent part, it states as follows (internal citations omitted).

“Lobbying has been integral to the American political system since its very inception.  […] As some have put it more cynically, lobbyists have besieged the U.S. government for as long as it has had lobbies.” […]  By 2008, the year Ring was indicted, corporations, unions, and other organizations employed more than 14,000 registered Washington lobbyists and spent more than $3 billion lobbying Congress and federal agencies. […] 

The interaction between lobbyists and public officials produces important benefits for our representative form of government. Lobbyists serve as a line of communication between citizens and their representatives, safeguard minority interests, and help ensure that elected officials have the information necessary to evaluate proposed legislation. Indeed, Senator Robert Byrd once suggested that Congress “could not adequately consider [its] workload without them.” […]

In order to more effectively communicate their clients’ policy goals, lobbyists often seek to cultivate personal relationships with public officials. This involves not only making campaign contributions, but sometimes also hosting events or providing gifts of value such as drinks, meals, and tickets to sporting events and concerts. Such practices have a long and storied history of use—and misuse. During the very First Congress, Pennsylvania Senator William Maclay complained that “New York merchants employed ‘treats, dinners, attentions’ to delay passage of a tariff bill.” […] Sixty years later, lobbyists working to pass a bill that would benefit munitions magnate Samuel Colt “stage[d] lavish entertainments for wavering senators.” […] Then, in the 1870s, congressmen came to rely on railroad lobbyists for free travel. […]. Indeed, one railroad tycoon complained that he was “averag[ing] six letters per day from Senators and Members of Congress asking for passes over the road.”

Reading Stack

Some dandy articles/essays to pass along regarding the FCPA books and records provisions, victim issues and criminal procedure.

FCPA Books and Records Provisions

Michael Schachter (Willkie Farr & Gallagher and a former Assistant United States Attorney in the Southern District of New York, where he focused on criminal prosecution of securities fraud and was a member of the Securities and Commodities Fraud Task Force) recently authored an article concerning the FCPA’s books and records provisions.  Titled “Defending an FCPA Books and Records Violation” and published in the New York Law Journal, the article begins as follows.

“In recent years, the books and records provisions of the [FCPA] have taken on new life, as both the [DOJ and SEC] have announced their intention to bring more charges, especially against individuals, for violation of this section of the FCPA.  A review of recent enforcement actions reveals that the Justice Department and the SEC consider the books and records requirement violated whenever corrupt payments are made to a foreign official and recorded in a corporation’s books as anything other than a ‘bribe,’ including, but not limited to, such things as commissions, social payments, or after sales service fees.  This article proposes that the books and records provision is, in fact, narrower than the Justice Department and the SEC interpretations suggest, and argues that both agencies may be using the provision to punish behavior falling outside the FCPA’s reach.”

Spot on.  See prior posts here and here.  See here for a word cloud of the FCPA’s books and records and internal control provisions.

Corporate Employer’s As Victims

The title of Professor Peter Henning’s recent White Collar Crime Watch post in the New York Times DealBook was “How Can Companies Sue Defendants in Insider Trading Cases?”  The post concerned the Mandatory Victims Restitution Act and Professor Henning writes that it “has been interpreted to allow companies that incur costs in cooperating with the government to seek repayment of their expenses from defendants” and the “statute requires a court to order the reimbursement to victims of ‘other expenses incurred during participation in the investigation or prosecution of the offense.'”

The parallels to a company incurring expenses in connection with FCPA investigations based on employee conduct is obvious.

Yet, Professor Henning writes as follows.

“[T]he crucial word in the Mandatory Victims Restitution Act is “incurred,” and there isn’t a consensus among federal courts over what expenses are covered.  Companies want it to include all costs related to any part of the case, including dealing with the S.E.C. even though it can only pursue a civil enforcement case. Defendants take a much narrower view, arguing that mandatory restitution covers only expenses arising as direct result of the criminal prosecution by the Justice Department.

Ham Sandwich Nation

Glenn Reynolds (University of Tennessee College of Law) recently published an essay titled “Ham Sandwich Nation: Due Process When Everything is a Crime” (see here to download).  The essay does not mention the FCPA, yet it is very much applicable to the FCPA.  In just the past year, approximately 25 individuals criminally indicted by the DOJ have put the DOJ to its burden of proof and ultimately prevailed.  Ham Sandwich Nation would also seem applicable given the extensive use of NPAs and DPAs in the FCPA context.  The thesis of the essay is spot on.  Reynolds write as follows.

“Though people suspected of a crime have extensive due process rights in dealing with the police, and people charged with a crime have even more extensive due process rights in courts, the actual decision whether or not to charge a person with a crime is almost completely unconstrained.  Yet, because of overcharging and plea bargains, that decision is probably the single most important event in the chain of criminal procedure.”

Year In Review

The Year in Review version of Debevoise & Plimpton’s always informative and comprehensive FCPA Update is here.   Among the many topics discussed in the FCPA Update is the notion that many FCPA enforcement actions are based on very old conduct and the following observation.  “Targets of enforcement actions also run the risk that regulators – whether consciously or not – apply current expectations of appropriate compliance measures and effective internal controls mechanisms when evaluating the adequacy of procedures that existed at times when less rigorous standards may have commonly been considered acceptable.”  For my similar previous observation, see this prior post.

*****

A good weekend to all.

Year In Review Roundups

By on January 11, 2013 in Year in Review 2012

Previous posts this week (here, here, and here) provided various facts and figures from 2012 FCPA enforcement, including separate figures for SEC enforcement and DOJ enforcement of the FCPA.  Viewing FCPA enforcement this way is useful and informative given that the DOJ and SEC are separate law enforcement agencies and different issues arise in DOJ and SEC FCPA enforcement actions.

Viewing FCPA enforcement in the aggregate is of course also useful and informative and this post begins by aggregating the previous DOJ and SEC FCPA enforcement facts and figures from 2012. After providing various aggregate facts and figures, this post concludes with a roundup of other year in reviews.

2012 FCPA Enforcement Facts and Figures

In 2012, there were 12 unique corporate FCPA enforcement actions. 5 of these enforcement actions (Smith & Nephew, Biomet, Orthofix, Pfizer, and Tyco) involved both a DOJ and SEC component, 4 of these enforcement actions (Marubeni, BizJet/Lufthansa, Data Systems & Solutions, and NORDAM Group) involved only a DOJ component, and 3 of these enforcement actions (Oracle, Allianz, and Eli Lilly) involved only an SEC component.

Fine/Penalty/Settlement Amounts

Total DOJ and SEC fine/penalty/settlement amounts in these enforcement actions was approximately $260 million. The average fine/penalty amount in the 12 corporate FCPA enforcement actions was approximately $21.7 million, the median was approximately $17.3 million. Two enforcement actions (Pfizer and Marubeni) represented 44% of the $260 million amount. The range of enforcement actions was, on the high end, $60.1 million (Pfizer), and on the low end, $2 million (Oracle and NORDAM Group).

6 of the 12 enforcement actions (50%) were, in whole or in part, against pharmaceutical or other health care related companies (Smith & Nephew, Biomet, Orthofix, Pfizer, Tyco, and Eli Lilly). These 6 enforcement actions represented 65% of the $260 million amount.

Below is a summary of total DOJ and SEC fine/penalty/settlement amounts 2010-2012.

2010 – $1.4 billion

2011 – $652 million (this figure includes the $149 million Jeffrey Tesler forfeiture).

2012 – $260 million.

Although year-to-year enforcement statistics, and the arbitrary cutoffs they entail, may be of marginal value as many non-substantive factors can influence the timing of an FCPA enforcement action, the undeniable fact is that from an FCPA enforcement fine/penalty/settlement amount perspective, FCPA enforcement has declined, and rather dramatically, over the past two years.

Industry participants have offered various reasons for the decline in FCPA enforcement including (see below) that “vast government resources [were] being poured into the comprehensive FCPA Resource Guide released in November.” The notion that a pamphlet style document (with 35 pages of introductory material, blank pages, and a table of contents; 30 pages of the FCPA statue itself and footnotes; and 20 pages of summaries of previously issued guidelines) and a document that – in the words of the enforcement agencies “does not represent a change in policy” – is a reason for the decline in FCPA enforcement is, in all due respect, just plain silly.

Rather, as I have statistically demonstrated (see here for the prior post from July when FCPA Inc. was beginning to comment on the decline in FCPA enforcement) FCPA enforcement 2007-2011 was, to a great extent, the function of just three unique events: (1) publication in 2005 of the so-called Volcker Report on the United Nations Iraq Oil for Food Program which served as a ready-made list of enforcement actions; (2) in 2003 Georges Krammer, a former top official at Technip, shared information with French investigators concerning a $6 billion dollar project at Bonny Island, Nigeria; and (3) several oil and gas companies utilized the services of Panalpina.

As noted in the prior post, these three unique events have resulted in approximately 35% of the core corporate FCPA enforcement actions between 2007-2011. Moreover, from a fine/penalty/settlement amount perspective, the Bonny Island Bribery cases represent 4 of the top 6 FCPA enforcement actions of all-time (see here for the FCPA Blog’s Top 10 list).

These three unique events have largely run their course and I submit this is the biggest reason why FCPA enforcement in 2011 and 2012 declined from the record setting 2010 enforcement year.

Corporate vs. Individual Enforcement Actions

As noted in the previous SEC and DOJ year in review posts, 0% of 2012 corporate FCPA enforcement actions have, at present, resulted in any related DOJ or SEC charges against company employees.

Voluntary Disclosure

Of the 12 corporate enforcement actions from 2012

6 enforcement actions (BizJet/Lufthansa, Orthofix, NORDAM Group, Pfizer, Tyco, and Oracle) or 50% were the result of corporate voluntary disclosures

3 enforcement actions (Smith & Nephew, Biomet, and Eli Lilly) or 25% appear to have been based on corporate disclosures following an industry sweep (a sweep that may have been prompted by Johnson & Johnson’s voluntary disclosure – see here for the prior post)

2 enforcement actions (Data Systems & Solutions and Allianz) or 17% appear to have been based on inquiries initiated by the enforcement agencies.

1 enforcement action (Marubeni – like the other Bonny Island bribery cases) or 8% was the result of a previous foreign law enforcement investigation

If your idea of a fantastic Friday is reading additional FCPA year in review information, you are in luck!

Shearman & Sterling

In late December, Shearman & Sterling FCPA attorneys Philip Urofsky and Danforth Newcomb released (here) their always stellar “Recent Trends and Patterns in the Enforcement of the Foreign Corrupt Practices Act.”  The authors discussion of parent/subsidiary liability stands out.  In pertinent part, it states as follows.

“We have previously expressed concern about the SEC’s stretching to holding parent companies liable under the FCPA’s anti-bribery provisions for corrupt payments by their subsidiaries, as opposed to the more clearly applicable books-and-records provisions, when the facts alleged in its pleadings do not establish any authorization, direction, or control of the subsidiaries’ conduct.  […] In the [FCPA Guidance], the government asserted that a parent company may be liable for a subsidiary’s conduct in two ways: (i) where the “parent . . . participated sufficiently in the activity to be directly liable for the conduct,” or (ii) “under traditional agency principles.” The [Guidance] stands by the notion that the “fundamental characteristic of agency is control”—”including the parent’s knowledge and direction of the subsidiary’s actions, both generally and in the context of the specific transaction.” Thus, the government seems to be saying that it will first determine whether the subsidiary is an agent of the parent, focusing not only on the formal relationship but also on the practical realities of how the parent and subsidiary actually interact, and then apply “traditional principles of respondeat superior” to hold the parent liable for the acts of the subsidiary, whether or not specifically authorized, directed, or controlled by the parent. This would, in our view, be a significant departure from existing practice and indeed from generally applicable corporate principles.”

Regarding the Watts Water Technologies – Sidley Austin malpractice case (see here and here for prior posts), the Shearman & Sterling report states as follows.  “[The case] was dismissed after the parties filed a joint stipulation of dismissal, which gives no explanation as to why the suit was terminated.”

Gibson Dunn

In early January, Gibson Dunn released its 2012 Year-End FCPA Update (here).  It begins, in dramatic fashion, as follows.

“The whispers have begun. By comparison to the blistering pace set in recent years, FCPA prosecutions were down in 2012 (though still far higher than in any of the first 30 of the statute’s 35-year existence). Does this portend the end of the FCPA Era–left on the cutting room floor of the Sequester? Can U.S. companies relax their vigilance? Not according to Lanny A. Breuer, Assistant Attorney General for DOJ’s Criminal Division, who recently commented that “robust FCPA enforcement has become part of the fabric of the Justice Department” and a “reality that companies know they must live with and adjust to”–a reality from which “there is no turning back.”  We agree. The relative downtick in 2012 FCPA enforcement is a slight blip in the landscape, attributable to, among other things, vast government resources being poured into the comprehensive FCPA Resource Guide released in November–the signature FCPA development of 2012–and multiple, team-intensive trial and pre-trial trench warfare being waged by both DOJ and the SEC in numerous venues across the country. This is a marathon, not a sprint, and as the statute celebrates its 35th birthday, both DOJ and the SEC appear to have hit their stride.”

Of note from the Gibson Dunn report is an informative chart summarizing “the corporate compliance monitoring obligations imposed by DOJ and/or the SEC in 2012.”

Gibson Dunn also released (here) its always informative “Year-End Update on Corporate Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs).”  The update states as follows.  “The headline for 2012 is both the near-record pace of DOJ DPAs and NPAs and the eye-popping $9.0 billion dollars in monetary amounts obtained by the U.S. government related to settlements involving a DPA or NPA.”

Of the 35 NPAs or DPAs the DOJ entered into in 2012, 8 (23%) were in FCPA enforcement actions.  In 2011, approximately 40% of DOJ NPAs or DPAs were in FCPA enforcement actions and in 2010, approximately 50% of DOJ NPAs or DPAs were in FCPA enforcement actions.  The lower percentage in 2012 would seem largely a function of the number of trade sanctions / export controls / money laundering enforcement actions resolved with NPAs or DPAs in 2012, particularly against financial institutions.

Other

On his Corruption, Crime & Compliance Blog (here) Michael Volkov serves up his typically candid and blunt opinions (this is a compliment in case you are wondering) and states as follows regarding FCPA enforcement in 2012. “[T]he fact is that FCPA enforcement has been slowing down …  2012 was an FCPA bust.  I am sure we will see plenty of client alerts with highlights of an aggressive enforcement year, but let’s be honest – 2010 was the best year DOJ had in FCPA enforcement.  As they say in the wine business, 2011 and 2012 were not good years.”  As to Morgan Stanley’s so-called “declination” which made several lists for a top story in 2012, Volkov states as follows.  “Contrary to many commentators, I have never thought the Morgan Stanley case was as significant as others have written.  It is a case which is limited by its facts to the actions of a “rogue” employee.  But precedent is precedent, and sometimes it can morph into something stronger.  DOJ and the SEC have set a precedent and the FCPA bar will quickly cite it in any circumstance they can when trying to secure a declination.”

I guess this goes to show how a herd mentality has impacted the nature and quality of certain FCPA information (i.e. if enough people say x, x must be true).

On his FCPA Compliance and Ethics blog, Tox Fox served up his Top 10 Enforcement Actions of 2012 (here) and the compliance lessons from those actions and on his FCPA Blog (here), Richard Cassin served up his Top 5 FCPA Stories of 2012.

Happy reading and a good weekend to all.

From SOE Employees To Health Care Providers – The “Foreign Officials” Of 2012

By on January 10, 2013 in Foreign Official, Healthcare Providers As Foreign Officials, Year in Review 2012

A “foreign official.”

Without one, there can be no FCPA anti-bribery violation (civil or criminal).  Who were the “foreign officials” of 2012 (at least from an enforcement perspective – recognizing of course that the meaning of this key FCPA element is the subject of much on-going dispute including a historic appellate court challenge – see here for links to the briefing).

This post, describes the “foreign officials” from 2012 corporate DOJ and SEC FCPA enforcement actions.

There were 12 core corporate enforcement actions in 2012.  Of the 12 enforcement actions, 5 (42%) involved, in whole or in part, employees of alleged state-owned or state-controlled entities (“SOEs”).  These entities ranged from oil and gas companies, nuclear power plants, and airlines.  In 2011, 81% of corporate enforcement actions involved, in whole or in part, employees of alleged SOEs (see here at pages 29-41).  In 2010, 60% of corporate FCPA enforcement actions involved, in whole or in part, employees of alleged SOEs (see here at pages 108-119).  In 2009, 66% of corporate FCPA enforcement actions involved, in whole or in part, employees of alleged SOEs (see here at pages 410-44).  As to whether Congress intended employees of SOEs to be “foreign officials” under the FCPA, see here for my “foreign official” declaration.

Even though 42% of 2012 corporate enforcement actions involved, in whole or in part, employees of alleged SOEs, the bigger “foreign official” story from 2012 was the number of enforcement actions based, in whole or in part, on the enforcement theory that various foreign health care providers (such as physicians, nurses, mid-wives, lab personnel, etc.) are “foreign officials” under the FCPA.  Of the 12 corporate enforcement actions in 2012, 6 (50%) involved, in whole or in part, foreign health care providers.  See here for a prior post on the origins and prominence of this enforcement theory.

Combining enforcement actions that involved, in whole or in part, SOE employees with enforcement actions that involved, in whole or in part, foreign health care providers, the result is 10 of 12 enforcement actions (83%).  The two exceptions are BizJet/Lufthansa and perhaps Oracle (although the SEC’s allegations as to “foreign officials” are general and vague).

The remainder of this post describes (as per DOJ/SEC allegations) the “foreign officials” of 2012.  As is apparent from the specific descriptions below, in certain instances the enforcement agencies describe the “foreign official” with reasonable specificity; in other instances with virtually no specificity.

[Note:  certain of the enforcement actions below technically only involved FCPA books and records and internal control charges.  As most readers know, actual charges in most FCPA enforcement actions hinge on voluntary disclosure, cooperation, collateral consequences, and other non-legal issues.  Thus, even if an FCPA enforcement action is resolved without FCPA anti-bribery charges, the actions remain very much about the “foreign officials” involved.  As I’ve said before, if an employee of a U.S. company consistently entertains his brother-in-law in the corporate suite and seeks reimbursement for “client entertainment” you will not be reading about this FCPA books and records and internal controls enforcement action]

Marubeni

DOJ

As in prior Bonny Island bribery enforcement actions, the “foreign officials”  were Nigeria LNG Limited (“NLNG”) officers and employees,  NLNG is majority owned by multinational oil companies and Nigerian National Petroleum Corporation (“NNPC”) owns 49% of NLNG and “through the NLNG board members appointed by NNPC, among other means, the Nigerian government exercised control over NLNG, including but not limited to the ability to block the award of EPC contracts.”  In addition, the Marubeni enforcement action (like the prior enforcement actions) generically refer to the other Nigerian government officials.

Smith & Nephew

DOJ

“Greece has a national healthcare system wherein most Greek hospitals are publicly owned and operated.  Health care providers who work at publicly-owned hospitals (“HCPs”) are government employees, providing health care services in their officials capacities.  Therefore, such HCPs in Greece are “foreign officials” as that term in defined in the FCPA …”.

SEC

“Greece has a national health care system wherein most Greek hospitals are publicly-owned and operated.  Healthcare providers, including doctors, who work at publicly-owned hospitals are government employees, providing healthcare services in their official capacities. The public doctors in Greece are “foreign officials” as that term is defined in the FCPA”

BizJet / Lufthansa

DOJ

Foreign government customers, including the Mexican Federal Police, the Mexican President’s Fleet [the air fleet for the President of Mexico], Sinaola [the air fleet for the Governor of the Mexican State of Sinaloa], the Panama Aviation Authority, and other customers

The foreign officials are identified as follows:  Official 1 – “a Captain in the Mexican Federal Police,”  Official 2 – “a Colonel in the Mexican President’s Fleet,” Official 3 – “a Captain in the Mexican President’s Fleet,” Official 4 – “employed by the Mexican President’s Fleet,” Official 5 – “a Director of Air Services at Sinaloa,” and Official 6 – “a chief mechanic at the Panama Aviation Authority.”

Biomet

DOJ

“Argentina has a public healthcare system wherein approximately half of hospitals are publicly owned and operated.  Health care providers (“HCPs”) who work in the public sector are government employees, providing health care services in their official capacities.  Therefore, such HCPs in Argentina are ‘foreign officials’ as that term is defined in the FCPA.”  “Brazil has a socialized public healthcare system that provides universal health care to all Brazilian citizens, and the majority of hospitals are publicly-controlled.  HCPs who work in the public sector are government employees, providing health care services in their official capacities.  Therefore, such HCPs in Brazil are ‘foreign officials’ as that term is defined in the FCPA.”  “China has a national healthcare system wherein most Chinese hospitals are publicly owned and operated.  HCPs who work at publicly-owned hospitals are government employees, providing health care services in their official capacities.”

SEC

“public doctors employed by public hospitals and agencies in Argentina, Brazil, and China”

Data Systems and Solutions

DOJ

Ignalina Nuclear Power Plant (“INPP”) is described as a “state-owned nuclear power plant in Lithuania and an ‘agency’ and ‘instrumentality’ of a foreign government

The INPP employees are described as follows.  Official 1 (the Deputy Head of the Instrumentation & Controls Department at INPP with influence over the award of contracts); Official 2 (the Head of Instrumentation & Controls Department at INPP with influence over the award of contracts); Official 3 (the Director General at INPP with influence over the award of contracts); Official 4 (the Head of International Projects Department at INPP with influence over the award of contracts); and Official A (the lead software engineer at INPP with influence over the award of contracts).

Orthofix

DOJ

“Instituto Mexicano del Seguro Social (“IMSS”) was a social-service agency of the Mexican government that provided public services to Mexican workers and their families. IMSS was created in 1943 by order of the Mexican president, who continued to select IMSS’s head, and subsequent changes to IMSS programs were made by acts of Mexico’s legislature. IMSS provided health care services to tens of millions of people, including workers, their families, and pensioners, at hospitals that IMSS owned and operated throughout Mexico. Mexico’s government funded IMSS through taxation and compulsory contributions.”

“Mexican Official 1 – a deputy administrator of Magdelena de las Salinas (a hospital in Mexico City that IMSS owned and controlled)”

“Mexican Official 2 – the purchasing director of Magdelena de las Salinas”

“Mexican Official 3  – the purchasing director of Lomas Verdes (a hospital in the State of Mexico that IMSS owned and controlled)”

“Mexican Official 4 – a sub-director of IMSS”

SEC

“IMSS hospital employees”  [IMSS, the Mexican government-0wned medical care and social services provider], “certain IMSS officials”

NORDAM Group

DOJ

NPA refers to “customers in China including state-owned and -controlled entities, including airlines created, controlled, and exclusively owned by the People’s Republic of China.”

Pfizer

DOJ

“The manufacture, registration, distribution, sale, and prescription of pharmaceuticals were highly-regulated activities throughout the world. While there were multinational regulatory schemes, it was typical that each country established its own regulatory structure at a local, regional, and/or national level. These regulatory structures generally required the registration of pharmaceuticals and regulated labeling and advertising. Additionally, in certain countries, the government established lists of pharmaceuticals. that were approved for government reimbursement or otherwise determined those pharmaceuticals that might be purchased by government institutions. Moreover, countries often regulated the interactions between pharmaceutical companies and hospitals, pharmacies, and healthcare professionals. In those countries with national healthcare system, hospitals, clinics, and pharmacies were generally agencies or instrumentalities of foreign governments, and, thus, many of the healthcare professionals employed by these agencies and instrumentalities were foreign officials within the meaning of the FCPA.”

Croatian Official (a citizen of the Republic of Croatia who held official positions on government committees in Croatia and had influence over decisions concerning the registration and reimbursement of Pfizer products marketed and sold in the country).

Russian Official 1 (a citizen of the Russian Federation who was a medical doctor employed by a public hospital who had influence over the Russian government’s purchase and prescription of Pfizer products marketed and sold in the country).

Russian Official 2 (a citizen of the Russian Federation who was a high-ranking government official who held official positions on government committees in Russia and had influence over decisions concerning the reimbursement of Pfizer products marketed and sold in the country).

Russian Official 3 (a citizen of the Russian Federation who had influence over decisions concerning the treatment algorithms involving Pfizer products marketed and sold in the country).

In addition to the above “foreign officials,” the information refers to “numerous [other] government officials, including physicians, pharmacologists and senior government officials, who were employed by foreign governments or instrumentalities of foreign governments, including in Bulgaria, Croatia, Kazakhstan, and Russia.”

SEC

“foreign officials, including doctors and other healthcare professionals employed by foreign governments” in Bulgaria, China, Croatia, Czech Republic, Italy, Kazakhstan, Russia, and Serbia.

 “foreign officials, including doctors and other healthcare professionals employed by foreign governments” in Indonesia, Pakistan, China, and Saudi Arabia.

Tyco

DOJ

The information alleges: that Saudi Aramco (“Aramco”) was a Saudi Arabian oil and gas company that was wholly-owned, controlled, and managed by the government, and an ”agency” and “instrumentality” of a foreign government; that Emirates National Oil Company (“ENOC”) was a state-owned entity in Dubai and an “agency” and “instrumentality” of a foreign government; that Vopak Horizon Fujairah (“Vopak”) was a subsidiary of ENOC based in the U.A.E. and an “agency” and “instrumentality” of a foreign government; and that the National Iranian Gas Company (“NIGC”) was a state-owned entity in Iran and an “agency” and “instrumentality” of a foreign government.

“employees of end-customers in Saudi Arabia, the U.A.E., and Iran, including to employees at Aramco, ENOC, Vopak, and NIGC”

General references to payments customers, including government customers, in China, India, Thailand, Laos, Indonesia, Bosnia, Croatia, Serbia, Slovenia, Slovakia, Iran, Saudia Arabia, Libya, Syria, the United Arab Emirates, Mauritania, Congo, Niger, Madagascar, and Turkey.

“designers at design institutes owned or controlled by the Chinese government”

“publicly-employed healthcare professionals” in China

“a former employee of Banjarmasin provincial level public water company (PDAM) [Indonesia] and two payments to the project manager for PDAM Banjarmasin in connection with the Banjarmasin Project”, employees of PLN [a state-owned electricity company in Indonesia],

“employees of a public utility owned by the Government of Vietnam”

“a security officer employed by a government-owned mining company in Mauritania”

publicly employed health care providers in Saudi Arabia

SEC

Similar to the DOJ’s allegations above.  In addition, the SEC complaint alleges the following additional “foreign officials”

an employee of an instrumentality of the Turkish government

an employee of a government-controlled entity in Malaysia

representatives of a company majority-owned by the Egyptian government

public health care providers in Poland

Oracle

SEC

General reference in the complaint to “Indian government end-users,” Indian “government customers” and a contract with India’s Ministry of Information Technology and Communication

Allianz

SEC

“employees of state-owned entities in Indonesia”

Eli Lilly

SEC

Chinese  “government-employed physicians”

“government health officials in a Brazilian state”

payments to “a small charitable foundation that was founded and administered by the head of one of the regional [Poland] government health authorities”

Russia “government officials or others with influence in the government,”  “the Cypriot entities were owned by an individual associated with the distributor controlled by the member of the upper house of Russia Parliament,” “the beneficial owner of [the relevant] entity was the General Director of the government-owned distributor.”

DOJ Enforcement Of The FCPA – Year In Review

By on January 9, 2013 in DOJ, DOJ Enforcement Action, Year in Review 2012

Yesterday’s post (here) highlighted facts and figures from the SEC’s enforcement of the FCPA in 2012.

In this post, I highlight facts and figures from the DOJ’s FCPA enforcement program in 2012.  (See here for a similar post from 2011 and here from 2010).

In 2012, the DOJ brought 9 corporate FCPA enforcement actions. By comparison, in 2011 the DOJ brought 11 corporate enforcement actions and in 2010, the DOJ brought 18 corporate enforcement actions (including the FCPA-related enforcement action against BAE).

Fine Amounts

In the 9 corporate FCPA enforcement actions from 2012, the DOJ collected approximately $142 million in criminal fines.  By comparison, in 2011, the DOJ collected approximately $355 million in corporate criminal fines ($504 million including the $149 million forfeiture in the Jeffrey Tesler individual enforcement action) and in 2010, the DOJ collected approximately $870 million ($1.27 billion including the $400 million FCPA-related enforcement action against BAE).

DOJ FCPA enforcement in 2012 ranged from $54.6 million in criminal fines (Marubeni Corp.) to $2 million in criminal fines (NORDAM Group).  Four FCPA enforcement actions in 2012 were DOJ only (Marubeni, BizJet/Lufthansa, Data System and Solution, and NORDAM Group).

Of the $142 million the DOJ collected in 2012 corporate FCPA enforcement actions, approximately $55 million (38%) was in one enforcement action (Marubeni).  Of the $142 million, approximately $65 million (46%) were in enforcement actions against pharmaceutical or other health care related companies.  All of these enforcement actions were based, in whole or in part, on the enforcement theory that employees of various foreign health care systems (such as physicians, nurses, mid-wives, lab personnel, etc.) are “foreign officials” under the FCPA.  See this prior post which traced the origins and prominence of this enforcement theory.

In 5 of the 7 corporate FCPA enforcement actions where an analysis was possible, the DOJ agreed to a criminal fine below the minimum range suggested by the sentencing guidelines.  In these 5 actions, the average was approximately 27% below the minimum guidelines range and the distribution range was 34% below the minimum guidelines range (Pfizer ) to 20% below the minimum guidelines range (Biomet and Smith & Nephew).  In 2 corporate FCPA enforcement action in 2012 (Orthofix and Marubeni) the company paid a criminal fine within the guidelines range – in both cases the minimum amount suggested by the guidelines.

[Note – why are only 7 of the 9 corporate enforcement actions included in the above analysis? 2 corporate enforcement actions involved an NPA and the DOJ  did not set forth a guidelines range in the agreement or related documents]

By way of comparison, in 2011 the average DOJ criminal fine in an FCPA enforcement action was approximately 28% below the minimum guidelines range and the distribution range was 55% below the minimum guidelines range to 18% below the minimum guidelines range.  In 2010, the average was approximately 25% below the minimum guidelines range and the distribution range was 55% below the minimum guidelines range and 5% below the minimum guidelines range.

Corporate vs. Individual Prosecutions

How many corporate FCPA enforcement actions in 2012 have involved related individual prosecutions of company employees by the DOJ (recognizing that such prosecutions may be forthcoming in the future)?  Of the 9 corporate DOJ enforcement actions in 2012, 0 (0%) have involved any related DOJ prosecutions of company employees.  In 2011, 27% of corporate DOJ enforcement actions involved related DOJ prosecutions of company employees and in 2010, 30% of corporate DOJ enforcement actions involved related DOJ prosecutions of company employees.  In short, since 2010 approximately 22% of corporate DOJ enforcement actions have involved related DOJ prosecutions of company employees.

NPAs / DPAs

What about non-prosecution and deferred prosecution agreements vs. old fashioned law enforcement (i.e., if a company committed a crime the DOJ charged it and if the company did not commit a crime the DOJ did not charge it)?  In 2012, 100% of corporate DOJ enforcement actions involved either an NPA (Nordam Group) or a DPA (Marubeni, Smith & Nephew, Biomet, Data Systems and Solution, Orthofix, Pfizer).  [Note, the BizJet/Lufthansa enforcement action involved both an NPA (Lufthansa) and a DPA (BizJet).  Note, the Tyco enforcement action involved a plea agreement as to a subsidiary and an NPA with Tyco.]  In 2011, 82% of corporate DOJ enforcement actions were resolved via an NPA or DPA and in 2010, 94% of corporate DOJ enforcement actions were resolved via such agreements.  In short, since 2010, 92% of corporate DOJ enforcement actions have been resolved via NPAs or DPAs.

Voluntary Disclosures

Of the 9 corporate DOJ FCPA enforcement actions in 2012, 5 enforcement actions (56%) (Tyco, Pfizer, NORDAM Group, Orthofix, and BizJet) were the result of corporate voluntary disclosures.  2 enforcement actions (22%) (Smith & Nephew and Biomet) appear to have been based on corporate disclosures following an industry sweep (a sweep that may have been prompted by Johnson & Johnson’s voluntary disclosure – see here for the prior post).  1 enforcement action (Marubeni) was based on a previous foreign law enforcement investigation and 1 enforcement action (Data Systems and Solutions) appears to have been based on a DOJ subpoena.

Monitors

Of the 9 corporate DOJ FCPA enforcement actions in 2012, 3 enforcement actions (33%) (Biomet, Smith & Nephew, and Marubeni) involved a monitor.  The monitor term ranged from 18 months (Biomet and Smith & Nephew) to 2 years (Marubeni).

This remainder of this post provides an overview of corporate DOJ FCPA enforcement in 2012.

Tyco International (September 24th)

See here for the prior post.

Charges:  Tyco Valves & Controls Middle East Inc. – conspiracy to violate the FCPA’s anti-bribery provisions, Tyco International – none.

Resolution Vehicle: Criminal information against Tyco Valves & Controls Middle East Inc. resolved through a plea agreement and a non-prosecution agreement (three year term) as to Tyco International.

Guidelines Range:  As to Tyco Valves & Controls $2.1 million – $4.2 million.  As to Tyco International, not set forth in the NPA.

Penalty:  Tyco agreed to pay a $13.68 million penalty (the $2.1 million penalty Tyco Valves & Controls agreed to pay pursuant to the plea agreement is included in this figure).

Disclosure:  Voluntary disclosure.

Monitor: No.

Individuals Charged: No.

Pfizer (August 7th)

See here for the prior post.

Charges:  Conspiracy to violate the FCPA’s anti-bribery and books and records provisions and a substantive FCPA anti-bribery violation.

Resolution Vehicle: Criminal information against Pfizer HCP resolved through a deferred prosecution agreement (two year term).

Guidelines Range: $22.8 – $45.6 million.

Penalty: $15 million (34% below the minimum amount suggested by the Guidelines).

Disclosure: Voluntary disclosure.

Monitor: No.

Individuals Charged: No.

NORDAM Group (July 17th)

See here for the prior post.

Charges: None.

Resolution Vehicle: Non-prosecution agreement (three year term).

Guidelines Range: Not set forth in the NPA.

Penalty: $2 million.

Disclosure: Voluntary disclosure.

Monitor: No.

Individuals Charged: No.

Orthofix International (July 10th)

See here for the prior post.

Charges: FCPA internal controls violation.

Resolution Vehicle: Criminal information resolved through a deferred prosecution agreement (three year term).

Guidelines Range: $2.22 – $4.44 million.

Penalty: $2.2 million.

Disclosure: Voluntary disclosure.

Monitor: No.

Individuals Charged: No.

Data Systems & Solutions (June 18th)

See here for the prior post.

Charges:  Conspiracy to violate the FCPA’s anti-bribery provisions and one substantive FCPA anti-bribery violation.

Resolution Vehicle: Criminal information resolved via a DPA (term 2 years).

Guidelines Range: $12.6 – $25.2 million

Penalty: $8.8 million (30% below the minimum amount suggested by the Guidelines).

Disclosure: DPA states as follows:  “following the receipt of subpoenas in connection with the government’s investigation, DS&S initiated an internal investigation and provided real-time reports and updates of its investigation into the conduct described in the Information”

Monitor: No.

Individuals Charged: No.

Biomet (March 26th)

See here for the prior post.

Charges:  Conspiracy to violate the FCPA, three substantive FCPA anti-bribery violations, and FCPA books and records violation.

Resolution Vehicle: Criminal information resolved via a DPA (term 3 years).

Guidelines Range: $21.6 – $43.2 million.

Penalty: $17.3 million (20% below the minimum amount suggested by the Guidelines).

Disclosure: Industry sweep inquiry followed by disclosure of misconduct at issue, including a portion of which that was voluntarily disclosed.

Monitor: Yes (18 month term).

Individuals Charged: No.

BizJet International  / Lufthansa Technik (March 14th)

See here for the prior post.

Charges: BizJet – conspiracy to violate the FCPA; Lufthansa – no charges.

Resolution Vehicle:  BizJet – criminal information resolved via a DPA (term 3 years); Lufthansa – NPA (term 3 years).

Guidelines Range:  $17.1 – $34.2 million.

Penalty: $11.8 million (30% below the minimum amount suggested by the Guidelines).

Disclosure: Voluntary disclosure.

Monitor: No.

Individuals Charged: No.

Smith & Nephew (Feb. 6th)

See here for the prior post.

Charges: Conspiracy to violate the FCPA, FCPA’s anti-bribery violation, and FCPA books and records violation.

Resolution Vehicle: Criminal information resolved via a DPA (term 3 years).

Guidelines Range: $21 – $42 million.

Penalty: $16.8 million (20% below the minimum amount suggested by the Guidelines).

Disclosure: Industry sweep inquiry followed by disclosure of misconduct at issue.

Monitor: Yes (term 18 months).

Individuals Charged: No.

Marubeni (Jan. 17th)

See here for the prior post.

Charges: Conspiracy to violate the FCPA, and aiding and abetting FCPA anti-bribery violations.

Resolution Vehicle: Criminal information resolved via DPA (term 2 years).

Guidelines Range: $54.6 – $109.2 million.

Penalty: $54.6 million.

Disclosure: Enforcement action based on a previous foreign law enforcement investigation.

Monitor: Yes (2 year term).

Individuals Charged: No.

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