- FCPA Professor - https://fcpaprofessor.com -

Friday Roundup

Root causes, a mere $855,000 per working day, “bad in law,” scrutiny alert, and for the reading stack.  It’s all here in the Friday roundup.

Root Causes

Understanding the root causes of FCPA enforcement actions can help inform pro-active FCPA compliance policies and procedures.  Moreover, recognizing the fallacy of “good companies don’t bribe [1]” can help set realistic expectations in terms of what FCPA compliance policies and procedures can and can not accomplish.

I will be talking about both topics during a free webinar “Understanding the Root Causes of FCPA Scrutiny and Enforcement” on Thursday, May 22nd at 2 p.m. (EDT).  The webinar is hosted by Hiperos [2] and you can register here [3].

Wal-Mart’s Pre-Enforcement Action Professional Fees and Expenses

Over the past 1.5 years I have tracked Wal-Mart’s disclosed pre-enforcement action professional fees and expenses.

While some pundits have ridiculed me [4] for doing so, such figures are notable because, as has been noted in prior posts, settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.

Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.

In its 1Q FY2015 earnings conference call [5] yesterday, Wal-Mart disclosed:

“FCPA and compliance-related expenses for the quarter were approximately $53 million. Approximately $34 million of these  expenses represented costs incurred for the ongoing inquiries and  investigations, and approximately $19 million was related to our global  compliance program and organizational enhancements.”

Doing the math, this equates to approximately $855,000 per working day.

While eye-popping, this recent figure suggests that Wal-Mart’s pre-enforcement action professional fees and expenses may have crested as the figures for the past two quarters were approximately $1.1 and $1.3 million per working day.

That pre-enforcement action professional fees and expenses are typically the most expensive aspect of FCPA scrutiny is a fact.  However it must nevertheless be asked – once again – whether FCPA scrutiny has turned into a boondoggle for many involved.

Is Wal-Mart’s conduct for which it is under scrutiny in violation of the FCPA?  Does it even matter?  See my article “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Exposure [6].”

“Bad in Law”

In 2007, the SEC brought this [7] FCPA enforcement action against Dow Chemical.  The enforcement action was based on allegations that Dow’s “fifth-tier foreign subsidiary” in India, DE-Nocil Crop Protection Ltd. (“DE-Nocil”), made “approximately $39,700 in improper payments to an official in India’s Central Insecticides Board to expedite the registration of three DE-Nocil products.”

It is always interesting to see what happens when the “dust settles” (see here [8] for the prior post).

India’s Hindustan Times reports here [9] as follows.

“As the Central Bureau of Investigation (CBI) did not attach evidence with the supplementary chargesheet against De-Nocil Crop Protection (presently Dow Agro Sciences India, a subsidiary of Dow Chemical of the US) and Agro Pack, the CBI special court, Haryana, at Panchkula, has discharged the companies in a case of bribing an Indian official to get their products registered. On December 30, 2011, the CBI had filed the supplementary charge sheet but attached no oral or documentary evidence. On Wednesday (May 7), special judge, CBI, Haryana, Rakesh Yadav ruled that being not supported by evidence, the supplementary chargesheet was “bad in law” and so the court could not take cognizance of it.  The accused companies no longer have to face trial.”

Query whether this end result is a function of the nature and quality of the India investigation or the nature and quality of SEC neither admit nor deny FCPA enforcement actions.

Scrutiny Alert

In case you missed April’s Buzzfeed report [10] on Cisco’s alleged conduct in Russia, Reuters reports [11] as follows.

“In a series of audits in 2009, Cisco Systems Inc. found that much of the business between resellers of its products and a Russian state-owned telecommunications company, Svyazinvest, could not be verified because it was either “misrepresented” or documents were withheld by the resellers, according to an executive summary of the audits reviewed by Reuters. The June 2009 report on the audits, other internal Cisco documents, and interviews with two sources familiar with the situation, raise questions about whether the company knew what was happening to telecom equipment sales going through its resellers in Russia, as well as whether discounts were passed on to customers as planned.”

For the Reading Stack

An interesting Q&A [12] in Mothers Jones with Ken Silverstein regarding his new book “The Secret World of Oil” and the alleged use of so-called “fixers.”  Note:  the FCPA’s anti-bribery provisions prohibit not only direct payments to “foreign officials” to obtain or retain business, but also indirect payments through various third parties.  Thus, the use of “fixers” if true, is not a way to avoid the FCPA.  Moreover, if Silverstein’s allegations are true, the U.S. government is perhaps ignoring (or not caring) about certain alleged conduct.  Further note:  the Q&A is not completely accurate concerning the James Giffen matter.

*****

A good weekend to all.