Positive feedback, guilty plea, scrutiny alerts and updates, an instrumentality with mouse ears?, rant alert, quotable, and for the reading stack. It’s all here in the Friday roundup.
In running FCPA Professor for nearly seven years, I often feel like the captain of a ship in a wide, vast ocean. My metrics tell me people are reading, but feedback tends to be sparse. I take this as a good sign given that negative feedback is more likely to occur than positive feedback.
Thus, I appreciated much positive feedback in connection with the recent post “Denied by the DOJ.”
Among other things, the post was the focus of this post “Is the FCPA Unit Really Interested in “Transparency?” on the always candid Grand Jury Target blog. In pertinent part, the post states:
“DOJ’s continued refusal to engage with Prof. Koehler makes you wonder a few things. Do DOJ officials want only to talk to reporters who will ask basic questions about enforcement of the FCPA? Do DOJ officials not want to face the questions of an educated, experienced blogger who has, at times, criticized DOJ’s decisions to prosecute under the FCPA and whose posts highlight DOJ’s unsuccessful prosecutions?
I’m sure FCPA Professor will keep up the good fight. If nothing else, he remains hopeful that Daniel Kahn may engage with him.
Hey, DOJ, give Prof. Koehler a call.”
Other recent posts that generated much positive feedback include “Compliance 2.0 – A (Mostly) Meaningless Buzzword” and “Why Do Anti-Corruption Programs Fail? Look in the Mirror Mr. Bistrong.”
Yesterday, the DOJ announced, in connection with its wide-ranging enforcement action involving various individuals accused of bribing PDVSA (Venezuelan) officials, that Roberto Rincon pleaded guilty to a criminal information charging him with one count of conspiracy to violate the FCPA, one count of violating the FCPA and one count of making false statements on his 2010 federal income tax return.
As noted in the release:
“Rincon is the sixth individual to plead guilty as part of a larger, ongoing investigation by the U.S. government into bribery at PDVSA. [Abraham] Shiera previously pleaded guilty … to one count of conspiracy to violate the FCPA and commit wire fraud and one count of violating the FCPA and is scheduled to be sentenced on Sept. 30, 2016. In March 2016, Judge Miller also unsealed charges against four other individuals charged in connection with the ongoing investigation, including three foreign officials. The foreign officials admitted that while employed by PDVSA or its wholly owned subsidiaries or affiliates, they accepted bribes from Rincon and Shiera in exchange for taking certain actions to assist companies owned by Rincon and Shiera in winning energy contracts with PDVSA. The foreign officials also conspired with Rincon and Shiera to launder the proceeds of the bribery scheme, they admitted. As part of their plea agreements, Rincon, Shiera and the other defendants all agreed to forfeit proceeds from their criminal activity.”
Scrutiny Alerts and Updates
Earlier this week, Frank’s International N.V. (a Netherlands based company with shares traded on the NYSE) disclosed:
“The Company is conducting an internal investigation of the operations of certain of its foreign subsidiaries in West Africa including possible violations of the U.S. Foreign Corrupt Practices Act, the Company’s policies and other applicable laws. In June 2016, the Company voluntarily disclosed the existence of its extensive internal review to the U.S. Securities and Exchange Commission and the United States Department of Justice. It is the Company’s intent to fully cooperate with these agencies and any other applicable authorities in connection with any further investigation that may be conducted in this matter. While the Company’s review does not indicate that there has been any material impact on the Company’s previously filed financial statements, the Company continues to collect information and is unable to predict the ultimate resolution of these matters with these agencies. The Company’s board and management are committed to continuously enhancing the Company’s internal controls that support improved compliance and transparency throughout its global operations.”
As highlighted in this prior post, the Swedish telecom company with shares traded on Nasdaq has been the subject of FCPA scrutiny since 2013 concerning its business practices in Romania. According to this report, the company is also “being investigated by U.S. authorities over possible corruption related to its business in China.”
The company released this statement which states in full:
“In March 2013, Ericsson received a voluntary request from US Authorities to answer a number of questions relating to Ericsson’s operations, something we have also confirmed to media in 2013. Ericsson cooperates with US Authorities to answer these and additional questions.
While we strive to at all times conduct our business in compliance with applicable laws, matters do arise from time to time as a result of the global nature of our business.
We will not provide any detailed comments on the request as such, but can say that it relates to Ericsson’s anti-corruption program and questions related to the Foreign Corrupt Practices Act. Ericsson cooperates with US Authorities and works diligently to answer the questions.
As a listed company, we always follow the requirements to publically disclose any information about events that would have a material impact on the company or its finances. Should such materiality arise, Ericsson will disclose information in accordance with regulatory requirements.”
Two days later, the company released this statement which states in pertinent part:
“Greek authorities have, for a period of time, conducted investigations into arms deals in the Greek defense sector. One investigation involves an agreement in which Ericsson Microwave Systems delivered an airborne radar system to Greece. The contract was signed in 1999. The company reports incidents of corruption annually as part of its Sustainability and Corporate Responsibility disclosures. Ericsson commented publicly on this case more than two years ago, including in conjunction with its Annual General Meeting.
Ericsson Microwave Systems was sold by Ericsson in 2006. Company records, agreements and documentations were handed over as part of the sale.
Recently, as part of the ongoing investigation, seven current and former Ericsson employees have been served with summons in preliminary investigation proceedings by a Greek prosecutor involving allegations of possible corruption.
Ericsson has not been contacted by any authority in this matter.”
Earlier this Spring, a series of articles published by Fairfax Media and the Huffington Post shined a light on Unaoil, a company based in Monaco and incorporated in the British Virgin Islands. The media outlets termed the stories “the biggest leak of confidential files in the history of the oil industry” and asserted that Unaoil, through the movement of money through U.S. bank accounts and other means bribed, various government officials in numerous countries on behalf of its various corporate clients.
This week, Unaoil released this statement which reads in full:
“Unaoil has instructed its lawyers to commence legal action against Fairfax Media and its partners in relation to the malicious and damaging allegations negligently published by these media organisations and repeated by other media organisations globally.
In the months following the publication of sensationalist allegations against Unaoil by Fairfax Media and its partners, Unaoil, its directors as well as its staff, have sustained unprecedented reputational and financial damage.
Unaoil estimates its damages to be over $100m and intends to hold Fairfax Media and its partners to account for their irresponsible and injurious reporting.
Unaoil is also filing a criminal complaint with law enforcement in Monaco in relation to the theft of company data and awaits the outcome of the investigation.
Since the exposure in the press of a criminal conspiracy to extort the company, Unaoil has continued to receive serious and personally threatening communications from persons seeking to unlawfully damage Unaoil and its operations.”
As highlighted here, Goldman Sachs has been under FCPA scrutiny since 2011 (no that is not a typo) for its business dealings with Libya’s Investment Authority (LIA).
The dealings are also the subject of a related civil trial between Goldman and LIA that begin in London earlier this week. As highlighted here by the Wall Street Journal:
“Libyan fund officials first met executives from the U.S. bank in November 2006, court documents presented by the Libyan fund show. The fund presented an investment opportunity that was “one of the largest I’ve ever seen,” a Goldman executive wrote. “We are all over them.”
Goldman banker Youssef Kabbaj “was quickly embedded within the nascent institution” and became close to the Libyan management team, lawyers for the Libyan fund wrote. Within Goldman, he was encouraged to “stay a lot” in Tripoli, the lawyers wrote, citing Goldman correspondence. Mr. Kabbaj is no longer at Goldman.
“It’s important you stay super close to the client on a daily basis. Teach them, train them, dine them,” one executive wrote to Mr. Kabbaj, the documents show. Another told him that, “This is a once in a career opportunity.”
In 2008, Mr. Kabbaj helped arrange an internship at the bank for the younger brother of Mustafa Zarti, an executive at the Libyan fund. Mr. Kabbaj texted Mustafa Zarti on April 17, 2008, with the “good news” that the internship had been arranged. In the following days, Mr. Zarti committed to the largest four disputed trades with Goldman, involving payments of more than $828 million.
During a visit to Dubai in early 2008 with Mr. Zarti’s younger brother, Mr. Kabbaj paid $600 for “a pair of prostitutes to entertain them both,” according to the documents submitted by the Libyans.
Mr. Kabbaj said in an interview that he didn’t pay or arrange for prostitutes for Mr. Zarti’s younger brother or any official of the Libyan fund. He said that Goldman partners signed off on all his expenses for the Libyan fund. Mr. Kabbaj declined to comment on whether he paid for a prostitute for himself.
The Libyan fund describes the internship that Goldman offered as “bespoke and highly-coveted.” The internship started on June 23, 2008, and was initially due to last three months. It was extended a number of times.
Goldman says the internship isn’t important. “We do not believe the internship influenced in any way the LIA’s decision to enter into the trades,” the representative for the bank said.
See here and here for recent “internship” FCPA enforcement actions.
The company recently disclosed the following regarding its long-standing FCPA scrutiny:
“In June 2013, the Company self-reported to the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) alleged Foreign Corrupt Practices Act (FCPA) violations related to its Building Efficiency marine business in China dating back to 2007. These allegations were isolated to the Company’s marine business in China which had annual sales ranging from $20 million to $50 million during this period. The Company, under the oversight of its Audit Committee and Board of Directors, proactively initiated an investigation into this matter with the assistance of external legal counsel and external forensic accountants. In connection with this investigation, the Company has made and continues to evaluate certain enhancements to its FCPA compliance program. The Company continues to fully cooperate with the SEC and the DOJ, including engaging in discussions regarding the resolution of the matter, which are ongoing. The Company does not anticipate any material adverse effect on its business or financial condition as a result of this matter.”
An “Instrumentality” With Mouse Ears?
The Shanghai Disney Resort opened yesterday. According to this Wall Street Journal article, “Disney owns 43% of Shanghai Disney Resort, with the majority controlled by the local government’s Shanghai Shendi Group Co.”
According to this New York Times article, the Chinese government has “influence over everything from the price of admission to the types of rides at the park.”
Does this make Shanghai Disney Resort an “instrumentality” of the Chinese government under the two-factor “control” and “function” test articulated in U.S. v. Esquenazi for whether an entity will be an “instrumentality” of a foreign government such that its employees will be deemed “foreign officials” under the FCPA?
The latest rant from Michael Volkov (Corporate Crime & Compliance Blog):
“More troubling [than recent commentary about the Yates Memo that “reflects a lack of understanding of how prosecutors work”] is the twisting of legal analysis to favor a pre-determined bias or conclusion, either for or against the Justice Department. The field of legal commentary no longer has the discipline to provide careful analysis of important trends and issues. Instead, what we see coming out in the Internet is headlines in an attempt to gain a marketing advantage with little attention paid to critical legal thinking and review.”
Interesting given that “Doing Business in China Should be “Scary” was a recent post on the Corporate Crime & Compliance Blog.
As previously suggested here, when ranting one can at least be a bit more specific and perhaps provide supporting links so that readers can decide for themselves the veracity of the assertions.
In this Corporate Crime Reporter interview, John Nassikas (Arnold & Porter and a former DOJ prosecutor) states as follows regarding the Yates Memo.
“I actually am not viewing Yates as a tectonic shift in Justice Department practice or defense response,” Nassikas said. “For years, in representing companies and individuals, both in house counsel and outside counsel have had to look carefully to decide — has someone internally done something clearly wrong, what should we do about that person, should we keep them on, should we lawyer them up, should we have a coordinated joint defense that tries to protect both the company and the individual? I don’t see that changing much.”
“My sense is that there is an awful lot of talk about Yates. There were political reasons that pushed the Yates Memo into creation. It derived from the financial crisis and the lack of results in pursuing individual financial executives while they were getting multi-billion dollar settlements from bank after bank and hedge fund after hedge fund, year after year.”
“My sense is that there is more of a political reason for that memo, but substantively the effect — I have not seen it change much. […]
“I don’t think Yates in five years is going to be considered as all that influential.”
See here for the September 2015 post titled “The Yates Memo.”
For the Reading Stack
For your listening enjoyment, 5 songs about compliance.
I have long called for abolition of non-prosecution and deferred prosecution agreements in the FCPA context. (See previous posts here, here, here, and here for instance). In short, and as noted in the prior posts, use of NPAs and DPAs to resolve alleged corporate criminal liability in the FCPA context present two distinct, yet equally problematic public policy issues as well as other issues. (See “The Facade of FCPA Enforcement“).
As noted in this previous post, in 2012 the Center for Legal Policy Research at the Manhattan Institute released this dandy report titled “The Shadow Regulatory State: The Rise of Deferred Prosecution Agreements.”
This was followed by another dandy report in 2014 titled “The Shadow Lengthens: The Continuing Threat of Regulation by Prosecution.”
Recently the Manhattan Institute released another dandy report titled “Justice Out of the Shadows: Federal Deferred Prosecution Agreements and the Political Order.” The executive summary states, in pertinent part:
“DPAs and NPAs raise serious legal and policy issues. By examining four cases, this report focuses on the kinds of issues that regularly arise:
1. National sovereignty. The DOJ regularly polices activities by foreign corporations, with little apparent regard for the foreign-policy implications of its efforts.
2. Free speech. DPAs and NPAs often require companies to agree to statements of facts and include “non-contradiction clauses” that restrict corporate speech, including in civil litigation.
3. Deputizing private businesses to undertake law-enforcement activities. The DOJ uses the threat of prosecution to enlist corporations to police misconduct— even that of third-party contractors and vendors—without clear statutory authorization.
4. Lack of judicial oversight and transparency. NPAs lack any judicial oversight and DPAs’ judicial review is limited to enforcing the procedural terms of the Speedy Trial Act, which means that the DOJ’s actions are essentially unilateral.”
A good weekend to all.