Guilty plea in FCPA obstruction case, SEC trims a pending case, across the pond, turnabout is fair play, and for the reading stack. It’s all here in the Friday roundup.
Cilins Pleads Guilty
Earlier this week, the DOJ announced that Frederic Cilins pleaded guilty “to obstructing a federal criminal investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea.” The DOJ release further states:
“Cilins pleaded guilty to a one-count superseding information …, which alleges that Cilins agreed to pay money to induce a witness to destroy, or provide to him for destruction, documents sought by the FBI. According to the superseding information, those documents related to allegations concerning the payment of bribes to obtain mining concessions in the Simandou region of the Republic of Guinea.”
Cilins was originally charged in April 2013 (see this prior post for a summary of the criminal complaint) and there was much activity leading up to Cilins’s March 31st trial date. For instance, on February 18th the DOJ filed a superseding indictment and on March 4th Cilins filed this motion to dismiss. In pertinent part, the motion stated:
“For almost a year, the government has proceeded against Mr. Cilins under the theory that he criminally obstructed an investigation conducted by a federal grand jury in the Southern District of New York and the Federal Bureau of Investigation, after he first learned of that investigation in the spring of 2013. Now, on the eve of trial, the government has charged Mr. Cilins with conspiracy to commit criminal obstruction. The supposed conspiracy began in 2012, when, as the government admits, he had no intent to obstruct an American investigation—indeed, well before any such investigation had even been contemplated. The charge is instead based on a radical new theory: that Mr. Cilins interfered with a Guinean civil licensing investigation, which somehow amounts to a violation of U.S. obstruction law under 18 U.S.C. § 1519.
The government’s unprecedented and breathtaking attempt to federalize protection for investigations spread far and wide throughout the world has no basis in the text of the obstruction statute itself and no support in the case law. It also runs up against the well-established presumption that, absent strong evidence to the contrary, Congress did not intend to give federal statutes extraterritorial reach. Not only does § 1519 contain no textual evidence that Congress meant to give the law a worldwide sweep, the statute’s legislative history also confirms the obvious: that Congress wrote a federal obstruction statute in order to criminalize intentional interference with American investigations. The government’s new conspiracy count is fatally defective and must be dismissed.”
Cilins has been widely reported to be linked to Guernsey-based BSG Resources Ltd. As reported here from 100 Reporters:
“The U.S. Justice Department has formally notified the Franco-Israeli billionaire Beny Steinmetz [the founder of BSG Resources] that he is the target of a federal probe of allegations of bribery in the Republic of Guinea, according to a source with knowledge of the matter. The disclosure places Steinmetz … personally at the center of a broad-based multinational corruption investigation involving some of the largest remaining untapped iron ore deposits in the world. […] According to the source, who spoke on condition of anonymity, attorneys for Steinmetz have received a so-called “target letter” from federal prosecutors investigating allegations that Steinmetz’s mining company offered millions of dollars in bribes to win and keep the multi-billion dollar concession first awarded by the Guinean government in 2008. The letter went to Steinmetz’s lawyers in January, the source said.”
For additional coverage of Cilins’s plea, see here from Reuters (noting that the plea agreement does not require any cooperation with the government’s investigation) and here from Bloomberg.
SEC Trims a Pending Case
This recent post highlighted how the SEC has never prevailed in an FCPA enforcement action when put to its ultimate burden of proof.
Against this backdrop, it is notable, as reported by the Wall Street Journal here and citing an SEC official, that the SEC is dropping its claims that former Magyar Telekom executives Elek Straub, Andras Balogh and Tomas Morval bribed Montenegro officials. (The SEC’s claims that the former executives bribed Macedonian officials remains active).
See this prior post summarizing the SEC’s original 2011 complaint.
Across the Pond
More from the U.K. trial of former News Corp. executive Rebekah Brooks. From the Guardian:
“Rebekah Brooks has admitted rubber stamping payments to military sources while she was editor at the Sun at the Old Bailey phone hacking trial. Brooks also admitted on Monday that she did not question whether the source of a series of stories that came from a reporter’s “ace military source” was a public official who could not be paid without the law being broken. Crown prosecutor Andrew Edis, QC, quizzed her about a series of emails from the reporter requesting tens of thousands of pounds for his military source. She responded to one request for payment in under a minute and to another within two minutes, the phone hacking trial heard. “You really were just acting as a rubber stamp weren’t you,” Edis asked. Brooks replied: “Yes.”
As noted in previous posts here and here:
“What happens in these trials concerning the bribery offenses will not determine the outcome of any potential News Corp. FCPA enforcement action. But you can bet that the DOJ and SEC will be interested in the ultimate outcome. In short, if there is a judicial finding that Brooks and/or Coulson or other high-level executives in London authorized or otherwise knew of the alleged improper payments, this will likely be a factor in how the DOJ and SEC ultimately resolve any potential enforcement action and how News Corp.’s overall culpability score may be calculated under the advisory Sentencing Guidelines.”
Turnabout Is Fair Play
Last week’s Friday Roundup (here) highlighted how Senator Harry Reid (D-NV) called out Koch Industries on the Senate floor and accused the company of violating the FCPA. The previous post noted that it was not just executives or companies that support Republican causes that have come under FCPA scrutiny (several Democratic examples could be cited as well).
Indeed, that is just what the Washington Examiner did in this article which states as follows.
“Senate Majority Leader Harry Reid, D-Nev., has received campaign contributions from people and political action committees linked to multiple companies suspected of violating the Foreign Corrupt Practices Act. […] [R]ecords reveal that Reid has accepted campaign money from individuals and political action committees associated with 10 companies linked to FCPA investigations. The contributions total $515,100 between 2009 and 2013.”
The inference from both Senator Reid’s initial volley and the Washington Examiner report would seem to be that companies that resolve FCPA enforcement actions or companies under FCPA scrutiny are bad or unethical companies and that politicians who accept support from such companies are thus tainted as well.
Such an inference is naive in the extreme.
Yes, certain FCPA enforcement actions are based on allegations that executive management or the board was involved in or condoned the improper conduct at issue. However, this type of FCPA enforcement action is not typical.
A typical FCPA enforcement action involves allegations that a small group of people (or perhaps even a single individual) within a subsidiary or business unit of a business organization engaged in conduct in violation of the FCPA. Yet because of respondeat superior principles, the company is exposed to FCPA liability even if the employee’s conduct is contrary to the company’s pre-existing FCPA policies and procedures.
Also relevant to the question of whether companies that resolve FCPA enforcement actions are “bad” or “unethical” is the fact that most FCPA enforcement actions are based on the conduct of third-parties under the FCPA’s third-party payment provisions. Further, certain FCPA enforcement actions are based on successor liability theories whereby an acquiring company is held liable for the acquired company’s FCPA liability.
Finally, given the resolution vehicles typically used to resolve an FCPA enforcement – such as non-prosecution and deferred prosecution agreements – companies subject to FCPA scrutiny often decide it is quicker, more cost efficient, and more certain to agree to such a resolution vehicle than engage in long-protracted litigation with the DOJ or SEC. These resolution vehicles do not require the company to plead guilty to anything (or typically admit the allegations in the SEC context), are not subject to meaningful judicial scrutiny, and do not necessarily represent the triumph of one party’s legal position over the other. Rather resolution via such a vehicle often reflects a risk-based decision often grounded in issues other than facts or the law. Indeed, a former high-ranking DOJ FCPA enforcement official has stated that given the availability of such alternative resolution vehicles, “it is tempting for the [DOJ], or the SEC since it too now has these options available, to seek to resolve cases through DPAs or NPAs that don’t actually constitute violations of the law.”
Last, but certainly not least, many corporate FCPA enforcement actions concern conduct that allegedly took place 5, 7, 10 or even 15 years ago.
Reading Stack
An informative read from Catherine Palmer and Daiske Yoshida (Latham & Watkins) titled “Deemed Public Officials: A Potential Risk For U.S. Companies in Japan.” The article states:
“Deemed public officials are officers and employees of entities that are not government owned but serve public functions. This concept is somewhat analogous to state-owned enterprises, but rather than being government owned/controlled entities that participate in commercial activities, these are commercial entities that play quasi-government roles. […] The statutes that authorized the establishment of these companies stipulate that their officers and employees are “deemed to be an employee engaged in public service” for the purposes of the Penal Code of Japan.”
Another informative read from Wendy Wysong (Clifford Chance) titled “Why, Whether, and When the FCPA Matters in Capital Market Transactions: The Asian Perspective.” The article, in part, covers the FCPA’s tricky “issuer” concept and explores FCPA liability in Rule 144A and Regulation S offerings.
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A good weekend to all.
