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Friday Roundup

Ask yourself, the true measure of success is, statute of limitations decision of note, and more on JPMorgan.  It’s all here in the Friday roundup.

Ask Yourself

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The True Measure of Success Is …

As numerous sources have reported (for instance see here [2] from Reuters and here [3] from the Telegraph), the U.K. Serious Fraud Office’s prosecution of Victor Dahdaleh for allegedly paying millions in bribes to former managers of Aluminium Bahrain has collapsed.

The SFO provided the following statement to the court.

“At the commencement of this trial, the Serious Fraud Office was of the view that there was a realistic prospect of conviction in this case and that furthermore, the evidence in this case was strong.  Two things, in particular, have happened which have led to the prospect of conviction deteriorating in this case.  The first of those is that Bruce Hall, a conspirator and significant witness for the SFO significantly changed his evidence from that contained in his witness statement. Secondly, we have the unwillingness of two witnesses to face cross-examination. That impacts both on the fairness of the trial as well as the prospects of conviction.  Since last Thursday, yet further contact has taken place with Akin Gump, the lawyers for Aluminium Bahrain, or “Alba”, to secure the attendance of these two American witnesses, Mark MacDougall and Randy Teslik who are both partners in that firm. As you will see from the correspondence, they have attempted to place limits on the extent to which they can be cross-examined.  The Serious Fraud Office does not believe it would be appropriate to attempt to persuade the court to agree to such limits nor, given your comments last week, that they should appear via video-link.  The Defence have raised issues questioning Akins Gump’s role in the provision of assistance to the Serious Fraud Office both as to what their motives may have been in the dissemination of material and assistance as to witnesses who could provide relevant information, this in the context, as accepted by the defence, of the Serious Fraud Office acting in good faith. The attendance of the two American witnesses would have allowed this aspect of the case to be ventilated before the jury. Their refusal to attend creates a situation where it is clear that the trial process cannot remedy the position and we accept unfairness now exists for the Defence.  In seeking to secure the attendance of these two witnesses – who have previously attended court on every other occasion when their attendance has been required – the Serious Fraud Office has taken every available step, including a direct telephone conversation between the Director of the Serious Fraud Office and the chair of Akin Gump.  Not every unfairness necessarily leads to trials being discontinued, particularly where there is other evidence and taking into account the public interest in pursuing serious crime. After careful consideration of all of the circumstances of the case the Serious Fraud Office has concluded that there is no longer a realistic prospect of conviction in this case and accordingly we offer no evidence.”

For an additional SFO statement, see here [4].

While I have no unique insight into the facts and circumstances relevant to the Dahdaleh case and the SFO’s decision to abandon it, this much I know.

Success in enforcing a law, whether in the corporate context or individual context, is best measured – not by instances in which an enforcement agency in position of various “carrots” and “sticks” is able to procure a settlement – but by instances in which an enforcement agency is actually put to its burden of proof in an adversarial proceeding.

Statute of Limitations Decision of Note

Speaking of that measure of success, earlier this week the Second Circuit Court of Appeals rejected the DOJ’s statute of limitations theory in U.S. v. Grimm.

The case – outside the FCPA context – involved employees of General Electric Company who allegedly engaged in a multi-year scheme to fix below-market rates on interest paid by GE to municipalities.  The defendants were tried and convicted of violating the general federal conspiracy statute (18 USC 371).  The defendants appealed their convictions on the ground that the indictment was barred by the statute of limitations.  The trial court held that the statute of limitations continued to run during the period when GE paid the (depressed) interest to municipalities, and that the interest payments could constitute overt acts.

On appeal, the defendants argued that such interest payments cannot serve as overt acts because the routine payments were scheduled to continue for years (if not decades) after the contract was awarded and after all concerted conduct had ended.

The Second Circuit concluded that those payments do not constitute overt acts in furtherance of the conspiracy.  In so holding, the court rejected the DOJ’s position that a conspiracy continues so long as a stream of anticipated payments contains an element of profit.  The court stated, “but that proves too much” – “a conspiracy to corrupt the rent payable on a 99-year ground lease would, under the government’s theory, prolong the overt acts until long after any conspirator or co-conspirator was left to profit, or to plot.”

Not that statute of limitations have much practical impact on corporate FCPA enforcement actions given the “carrots” and “sticks” relevant to resolving an action, but if they did, it is easy to see relevance to the FCPA context as certain alleged bribe payments could be made to secure a contract – such as a production sharing agreement or similar – that has a revenue stream of serial payments over a number of years.

More on JPMorgan

The NY Times returned (here [5]) to the JPMorgan story it first reported in August (see here [6] and here [7] for prior posts) regarding the company’s hiring practices in China.  The article states:

“Federal authorities have obtained confidential documents that shed new light on JPMorgan Chase’s decision to hire the children of China’s ruling elite, securing emails that show how the bank linked one prominent hire to “existing and potential business opportunities” from a Chinese government-run company.  The documents, which also include spreadsheets that list the bank’s “track record” for converting hires into business deals, offer the most detailed account yet of JPMorgan’s “Sons and Daughters” hiring program, which has been at the center of a federal bribery investigation for months. The spreadsheets and emails — recently submitted by JPMorgan to authorities — illuminate how the bank created the program to prevent questionable hiring practices but ultimately viewed it as a gateway to doing business with state-owned companies in China, which commonly issue stock with the help of Wall Street banks.

[…]

“There is no indication that executives at JPMorgan’s headquarters in New York were aware of the hiring practices described in the documents. And authorities might ultimately conclude that the bank’s hiring, while aggressive, did not cross a legal line.”

Once again (see here [8] and here [9] for prior posts), the latest JPMorgan article spawned much commentary touching upon double standard issues.  For multimedia content, see here [10] from the Daily Ticker.

In this [11] Huffington Post column, former Labor Secretary Robert Reich states:

“But let’s get real. How different is bribing China’s “princelings,” as they’re called there, from Wall Street’s ongoing program of hiring departing U.S. Treasury officials, presumably in order to grease the wheels of official Washington?

[…]

Or, for that matter, how different is what JP Morgan did in China from Wall Street’s habit of hiring the children of powerful American politicians?

[…]

And how much worse is JP Morgan’s putative offense in China than the torrent of money JP Morgan and every other major Wall Street bank is pouring into the campaign coffers of American politicians — making the Street one of the major backers of Democrats as well as Republicans?”

Reich concludes by asking:

“The Foreign Corrupt Practices Act is important, and JP Morgan should be nailed for bribing Chinese officials. But, if you’ll pardon me for asking, why isn’t there a Domestic Corrupt Practices Act?”

Well, Mr. Reich, there is a domestic corrupt practices act – it is called 18 U.S.C. 201, but as I’ve highlighted for years there is a double standard (see the 25 separate posts under the subject matter heading double standard [12]).

But why should corporate interaction with a “foreign official” be subject to greater scrutiny and different standards of enforcement than corporate interaction with a U.S. official? After all, 18 U.S.C. 201 has elements very similar to the FCPA.  Why do we reflexively label a “foreign official” who receives “things of value” from private business interests as corrupt, yet generally turn a blind eye when it happens here at home?

*****

A good weekend to all.