Cisco’s discreet blog post, McDonald’s receives the “princeling” treatment, Avon update, further to the free-for-all, more candy, and for the reading stack. It’s all here in the Friday roundup.
Cisco’s Discreet Disclosure
There is not much that slips through the cracks when it comes to the FCPA space.
However, this December 23, 2013 Cisco blog post by a Vice President for Compliance Services under the discreet heading “The Importance of Ethics in Global Business” has not otherwise been reported. The post states, after noting that “for the sixth time in as many years, the Ethisphere Institute honored Cisco by naming us to its list of the “World’s Most Ethical Companies,” as follows:
“Recently, at the request of the Securities and Exchange Commission and the US Department of Justice, Cisco began an investigation into our business activities and discounting practices in Russia and other Commonwealth of Independent States in response to a communication those agencies had received. We are cooperating with the agencies and will fully share the results of our investigation with them. Despite the extensive investigation that we have undertaken thus far, we have found no basis to believe that Cisco’s activities are in violation of any law, and indeed the information we were provided does not allege wrongdoing by any of Cisco’s executive management. While this investigation is ongoing, we do not expect the outcome to have any material adverse effect on our business or operations.”
For a prior post concerning companies that have resolved FCPA enforcement actions or have otherwise been under FCPA scrutiny while at the same general time earning “world’s most ethical” company status see here.
The word of the last six months would seem to be “princeling.” In “princeling” updates:
This Wall Street Journal article “Vietnam Gets Its First McDonald’s” states:
“McDonald’s chose Henry Nguyen, a Vietnamese-American investor and the son-in-law of Vietnamese Prime Minister Nguyen Tan Dung, as its main franchise partner in the country.”
This Quartz article “McDonald’s Partnered with a Vietnamese Princeling” notes:
“Partnering up with a well-connected member of one of Vietnam’s most prominent political families has raised remarkably few eyebrows for McDonald’s—especially given the growing scandal in China over investment banks that have done much the same thing.”
Among other things, the article notes:
“Nguyen, who also heads Vietnam’s Pizza Hut franchise business, worked hard for a decade to convince McDonald’s he was the right person for the partnership, he told Reuters last year. A McDonald’s spokeswoman said then, “His marriage did not preclude him for participating in what was a very competitive selection process.”
Avon has been under FCPA scrutiny since 2008 and disclosed yesterday as follows.
“The Company recorded an aggregate accrual related to the previously disclosed government Foreign Corrupt Practices Act (“FCPA”) investigations of $89 million, or $0.20 per diluted share, within operating profit, of which $12 million was recorded in the second quarter. Based on the status of the Company’s current settlement negotiations with the DOJ and the staff of the SEC, including the level of monetary penalties being discussed, an additional $77 million was recorded in the fourth quarter, and the Company estimates the aggregate amount of any potential settlements with the government could exceed this accrual by up to approximately $43 million. There can be no assurance that the Company’s efforts to reach settlements with the government will be successful or, if they are, what the timing or terms of such settlements will be.”
“As you saw in our press release this morning, we’ve continued our discussions with that SEC and DOJ and we’ve made significant progress. Based on the status of our recent discussions, we believe that a reasonable range for settlement with both agencies would be $89 million to $132 million. Our discussions with the government are ongoing and differences remain, but the team is working hard in an effort to bring these matters to a close.”
In my recent article “Why You Should Be Alarmed by the ADM FCPA Enforcement Action,” I noted that with increasing frequency in this new era of FCPA enforcement, it appears that the Department of Justice and the Securities and Exchange Commission have
transformed FCPA enforcement into a free-for-all in which any conduct the enforcement agencies find objectionable is fair game to extract a multimillion-dollar settlement from a risk-averse corporation. In this post regarding the recent Alcoa enforcement action I noted that it was hard to square the enforcement action (the fourth largest FCPA enforcement action of all-time in terms of a settlement amount) when the alleged consultant at the center of the alleged bribery scheme was criminally charged by another law enforcement agency, put the law enforcement agency to its burden of proof at trial, and the law enforcement agency dismissed
the case because there was no ”realistic prospect of conviction.”
Further to the free-for-all, Wiley Rein attorneys Gregory Williams, Ralph Caccia and Richard Smith write here as follows.
“[I]t is remarkable that such a large monetary sanction was imposed when the criminal charges brought by the U.K. Serious Fraud Office against the consultant central to the alleged bribery scheme were dismissed on the grounds that there was no “realistic prospect of conviction.” Perhaps most striking, however, is the theory of parent corporate liability that the settlement reflects. Although there is no allegation that an Alcoa official participated in, or knew of, the improper payments made by its subsidiaries, the government held the parent corporation liable for FCPA anti-bribery violations under purported “agency” principles. Alcoa serves as an important marker in what appears to be a steady progression toward a strict liability FCPA regime.
Such an enforcement approach appears to abrogate basic tenets of corporate liability. A parent company is not liable for the acts of its subsidiary except when the companies disregard corporate formalities (alter ego theory) or when the subsidiary acts as the agent of the parent for a specific purpose. For the latter, the parent is required to control the particular activity in question. The government’s new agency theory of enforcement represents an aggressive expansion of corporate liability, with significant the implications for parent companies both in terms of the compliance and potentially liability.”
For additional reading, see this recent post (“Dig into certain corporate Foreign Corrupt Practices Act enforcement actions and it would appear that legal liability seems to hop, skip, and jump around a multinational company. This of course would be inconceivable in other areas, such as contract liability, tort liability, etc. absent an “alter ego” / “piercing the veil” analysis for the simple reason that is what the black letter law commands”).
Previous posts here and here have dispensed FCPA candy (that is year in reviews). You can be tardy for the party, but still be included in the fun and set forth below are three additional worthwhile reads.
“This [recent] decrease [in corporate FCPA enforcement actions] appears to be the result of proactive internal investigations and remediation by U.S. companies that recognize the importance of retaining external resources to investigate FCPA issues in light of the substantial fines levied by the government over recent years.”
That’s a nice way to spin it, but the better answer by far is to have a proper perspective on FCPA statistics and to realize that 35% of all corporate FCPA enforcement actions in recent years and 55% of the settlement amounts were the direct result of just three unique events.
Kudos for the following statement regarding so-called “declinations.”
“[W]hile these corporate disclosures are frequently referred to generically as “declinations,” that term seems to encompass not only genuine declinations where the government exercises discretion to decline prosecution of an otherwise chargeable offense, but also cases where the government decides not to prosecute because it has found insufficient evidence of FCPA violations or faces insurmountable legal hurdles in bringing a case.”
Once again, be warned – the divergent enforcement statistics are likely to make you dizzy at times and as to certain issues. [Given the increase in FCPA Inc. statistical information and the growing interest in empirical FCPA-related research, I again highlight the need for an FCPA lingua franca (see here for the prior post), including adoption of the “core” approach to FCPA enforcement statistics (see here for the prior post), an approach endorsed by even the DOJ (see here), as well as commonly used by others outside the FCPA context (see here)]
For the Reading Stack
From the Washington Post, a look at New Jersey Governor Chris Christie and the rise and controversy of non-prosecution and deferred prosecution agreements.
In this recent NY Times Dealbook article, “S.E.C.’s Losing Streak in Court Puts Agency in Spotlight,” Professor Peter Henning (a former SEC enforcement official) begins as follows.
“Every litigator says that trials are messy affairs because no one can predict how they will play out. After a string of recent unfavorable verdicts in fraud cases, the Securities and Exchange Commission may, too, be concerned with that trend. The S.E.C. is a bit like the New York Yankees, because every defeat is magnified, so we should be careful not to read too much into the anecdotal evidence as garnered by the results of a few recent trials. Most cases filed by the agency are settled, garnering only modest publicity, so the effectiveness of its enforcement program is not tied solely to its wins in the courtroom.”
For more on the SEC’s recent losses, see here from Marc Fagel and Mary Kay Dunning (Gibson Dunn).
“One likely consequence [of the SEC’s recent losses] may be an increase in the number of enforcement matters filed as administrative cease-and-desist proceedings rather than as federal district court actions.”
Spot-on observation, but again a sorry state of affairs in that a way for the SEC to avoid litigated losses when put to its burden of proof is to avoid the judicial system altogether.
A recent survey from AlixPartners conducted in November 2013. (The survey group consisted of executives at companies based in North America, Europe, the Middle East, and Asia that have annual revenues of $150 million or more). “The survey also found that although some companies have expanded the scope of their reviews of their foreign subsidiaries, one-third said they have not done that. Less than half (43%) of respondents said they regularly conduct due diligence on third-party agents.” (See here for the prior post “It’s More Like Bronze Dust.”).