Harder pleads guilty, scrutiny alerts and updates, when the dust settles, visual proof, and golf. It’s all here in the Friday roundup.
Harder Pleads Guilty
As highlighted in this post, in January 2015 the DOJ announced a Foreign Corrupt Practices Act enforcement action against Dmitrij Harder for allegedly bribing an official with the European Bank for Reconstruction and Development. Harder is a Russian national, naturalized German citizen and permanent resident of the U.S. and the former owner and President of Chestnut Consulting Group Inc. and Chestnut Consulting Group Co. both based in Pennsylvania.
The enforcement action was notable in that it invoked the rarely used “public international organization” prong of the FCPA’s “foreign official” definition.
As highlighted in this prior post, in March 2016, in an unsurprising development given the procedural posture of the motion, Judge Paul Diamond (E.D. Pa.) denied Harder’s motion to dismiss. The decision is believed to be the first judicial decision in FCPA history construing the rarely implicated “public international organization” prong of the FCPA’s “foreign official” definition.
Earlier this week the DOJ announced that Harder (who was originally charged with one count of conspiracy to violate the FCPA and Travel Act, five counts of violating the FCPA, five counts of violating the Travel Act, one count of conspiracy to commit international money laundering, and two counts of money laundering) pleaded guilty to two counts of violating the FCPA. According to the DOJ release, sentencing is scheduled for July 21, 2016.
According to this media report:
“Citing concern that he might flee the country, U.S. District Judge Paul S. Diamond denied a joint request from government lawyers and Harder’s defense to allow him to remain out on bail until his sentencing date.
“Your client has repeatedly lied to the government, he phonied up a paper trail after he got caught, and he bribed an official with millions of dollars,” the judge told Stephen LaCheen, a lawyer for Harder. “You have presented nothing to suggest – now that he is facing a significant prison term – that he is not a flight risk.”
Harder, who holds a master’s degree in economics from the Moscow Aviation Institute, has lived in America since 2001 with his wife, a psychologist for a U.S. Department of Homeland Security terrorism research center, and three children.”
Scrutiny Alerts and Updates
Sociedad Quimica y Minera de Chile S.A., a Chile-based mining company with shares traded on the NYSE, recently disclosed:
Shearman & Sterling and Ad-Hoc Committee
On February 26, 2015, SQM’s Board of Directors resolved to establish an ad-hoc committee of the Board of Directors (the “ad-hoc Committee”) authorized to conduct an internal investigation relating to the issues that were the subject of the SII and Public Prosecutor investigations and to retain such independent external advice as it deemed appropriate.
The ad-hoc Committee engaged its own lawyers from Chile and the U.S. and forensic accountants from the U.S. to assist with its internal review. The U.S. lawyers retained by the ad-hoc Committee were principally charged with reviewing the relevant facts and analyzing those facts against the requirements of the U.S. Foreign Corrupt Practices Act (“FCPA”). The factual findings of the ad-hoc Committee, however, were ultimately shared with Chilean as well as U.S. authorties.
On December 15, 2015, the ad-hoc Committee presented its findings to the Board of Directors. In addition to presenting a discussion of the facts surrounding the payments at issue, the ad-hoc Committee concluded that, for purposes of the U.S. Foreign Corrupt Practices Act:
(a) payments were identified that had been authorized by SQM’s former CEO for which the Company did not find sufficient supporting documentation;
(b) no evidence was identified that demonstrates that the payments were made in order to induce a public official to act or refrain from acting in order to assist SQM in obtaining economic benefits;
(c) regarding the cost center managed by SQM’s former CEO, it was concluded that the Company’s books did not accurately reflect transactions that have been questioned, notwithstanding the fact that, based on the amounts involved, these transactions were deemed quantitatively immaterial in comparison to SQM’s equity, revenues, expenses or earnings within the reported period; and
(d) SQM’s internal controls were not sufficient to supervise the expenses made by the cost center managed by SQM’s former CEO and that the Company trusted Patricio Contesse G. to make proper use of the resources.
Following the presentation by the ad-hoc Committee of its findings to the Board of Directors, the Company voluntarily shared the findings of the ad-Hoc Committee investigation with authorities in Chile and the U.S. (including the SEC and the U.S. Department of Justice (“DOJ”)), and it has cooperated with requests for additional documents and information from these authorities regarding the internal investigation discussed above.”
The company recently disclosed:
We occasionally identify or are apprised of information or allegations that certain employees, affiliates, agents or associated persons may have engaged in unlawful conduct for which we might be held responsible. We are conducting an investigation, with the assistance of outside counsel, relating to certain business activities of the Company and its affiliates and contractors in countries outside the United States. The investigation includes a review of compliance with the requirements of the U.S. Foreign Corrupt Practices Act and other applicable laws and regulations. The Company is working with the U.S. Securities and Exchange Commission and the U.S. Department of Justice with respect to the investigation. In March 2016, the Company entered into a one-year agreement with the U.S. Securities and Exchange Commission tolling the statute of limitations relating to the investigation, and recently entered into a similar agreement with the U.S. Department of Justice. As of the filing of these financial statements, we cannot predict the outcome of these matters.”
Reference in the above disclosure to statute of limitations is further evidence that this bedrock legal principle has little practical impact in corporate FCPA inquiries. Rather, cooperation is often the name of the game and to demonstrate cooperation many companies do what Newmont has done – agree to toll the statute of limitations or to waive statute of limitation defenses entirely.
The U.K. based oil and gas company (with ADRs registered with the SEC) was just one of several companies mentioned in the recent Unaoil media reports (see here for the prior post).
The company recently disclosed:
“Petrofac Initiates Board Review
Petrofac confirms that an internal investigation is underway into media reports alleging a breach of the Group’s Code of Conduct. We take any allegations of activities that may contravene our strict anti-bribery and corruption standards very seriously.
Whilst to date we have not identified any evidence of wrongdoing, we have appointed Freshfields Bruckhaus Deringer and KPMG LLP to assist us in conducting a full investigation, the findings of which will be reported directly to the Petrofac Limited Board. We aspire to the highest standards of ethical behaviour and we are determined to investigate these allegations to the fullest extent possible.”
This June 2015 post was titled “The FIFA-Related Action Is Not An FCPA Enforcement Action – But Could Potentially Lead to Exposure for Certain Companies.”
Not surprisingly, as the Wall Street Journal reports:
“A sprawling U.S. corruption investigation into international soccer increasingly is focusing on the role multinational sponsors, broadcasters and banks may have played in facilitating alleged soccer corruption, according to people familiar with the investigation.
In some instances, federal prosecutors are investigating the companies themselves for potential wrongdoing, the people said. In others, it remains unclear if the companies are the focus or if prosecutors are just seeking cooperation.
The companies conducting investigations include, Nike Inc., AT&T’s DirecTV, 21st Century Fox, KPMG, Citibank, HSBC Holdings PLC, Standard Chartered PLC, Credit Suisse, UBS Group, J.P. Morgan Chase & Co. and Julius Baer Group according to public filings and people familiar with the matter.”
The WSJ article states:
“In order to make an case against a broadcaster or sponsor, prosecutors would need to prove the companies knew they were overpaying for contracts because of built-in bribes. That is difficult to prove, some of the people said, because there are few comparisons to value contracts for major soccer tournaments.”
Point in fact, that is not required under the FCPA’s books and records and internal controls provisions.
When the Dust Settles
As highlighted here, in February 2016 PTC, Inc. resolved a DOJ/SEC enforcement action focused on alleged improper travel and entertainment provided to alleged Chinese ‘foreign officials” by agreeing to pay $28 million. Returning to an issue originally highlighted in this 2010 post, it is always interesting to see what happens “when the dust settles” from the U.S. enforcement action.
In this regard, PTC recently disclosed:
“On March 2, 2016, the China Administration for Industry and Commerce (“China AIC”) initiated an investigation at our China subsidiary related to the China FCPA Matter described above, but not necessarily limited to the China FCPA Matter. The China AIC is authorized to issue fines and assess other civil penalties. We are unable to predict the outcome of this matter, which could include fines or other sanctions that could be material and could adversely affect our financial condition or results of operations.”
The recent article “A Common Language to Remedy Distorted Foreign Corrupt Practices Act Enforcement Statistics” provides visual proof for the need of an FCPA common language. As noted in the article, various FCPA Inc. participants use creative counting methods to make FCPA enforcement appear more robust than it is.
It was noted in the article that much FCPA “media” reporting is actually done by FCPA Inc. participants themselves in search of convenient hooks to sell their own FCPA-related compliance products or services. One company mentioned was Thomson Reuters.
Looking for visual proof of the above dynamics, see this recent infographic by “Risk Management Solutions from Thomson Reuters.”
This recent Fortune article, “China No Longer Considers Golf a Corruption Hazard” caught my eye.
It notes that Discipline Inspection and Supervision News, the newspaper of China’s anti-corruption agency, recently said that “since [golf] is only a sport, there is no right or wrong about playing golf.”
Tell that to the U.S. FCPA enforcement agencies as the following corporate enforcement actions included allegations about golf: Qualcomm, Daimler and Weatherford.
And of course, who can forget the recent “golf in the morning and beer drinking in the evening” SciClone FCPA enforcement action.
A good weekend to all.