A focus on the numbers, scrutiny alerts and updates, legal extortion?, and who said shareholder meetings are dull. It’s all here in the Friday roundup.
A Focus on the Numbers
Earlier this week, the SEC announced its FY2016 enforcement results and how it filed 868 enforcement actions, a “new single year high for SEC enforcement actions.” As noted in this Wall Street Journal article, this “marks the third year in a row the 82-year old agency has filed the most cases in its history.”
I like what Thomas Sporkin said about the numbers.
“The mark of success might actually be better reflected by those case numbers going down. The hope would be that Wall Street responded to years of aggressive enforcement by becoming more compliant with securities laws.”
The SEC’s release contained the following about the FCPA:
- Filed significant FCPA actions against PTC Inc. and two of its Chinese subsidiaries; LAN Airlines and its CEO; Anheuser-Busch InBev; Qualcomm Incorporated; Las Vegas Sands Corp.; AstraZeneca PLC; and GlaxoSmithKline plc.
- Announced non-prosecution agreements with two unrelated companies who both self-reported misconduct and cooperated extensively with the SEC.
Scrutiny Alerts and Updates
As highlighted here, in 2010 Grifols (a Spanish company with shares traded on a U.S. exchange) disclosed FCPA scrutiny in the midst of a merger with Talecris (a U.S.-based biotherapeutics products company). According to the disclosure:
“Talecris is conducting an internal investigation into potential violations of the FCPA that it became aware of during the conduct of an unrelated review. The FCPA investigation is being conducted by outside counsel under the direction of a special committee of the Talecris Board of Directors. The investigation into certain possibly improper payments to individuals and entities made after Talecris’ formation initially focused on payments made in connection with sales in certain Eastern European and Middle Eastern countries, primarily Belarus, Russia and Iran, but Talecris is also reviewing sales practices in Brazil, China, Georgia, Turkey and other countries as deemed appropriate. In July 2009, Talecris voluntarily contacted the U.S. Department of Justice, which is referred to as the DOJ, to advise them of the investigation and to offer its cooperation in any investigation that they want to conduct or they want Talecris to conduct.”
In its most recent annual report, filed with the SEC, in April 2016, the company disclosed:
“We are continuing an internal investigation into potential violations of the FCPA by Talecris relating to events prior to the Talecris acquisition. The FCPA investigation is being conducted by outside counsel under the direction of the Board. In July 2009, Talecris voluntarily contacted the DOJ to advise it that it was conducting an internal investigation into potential violations of the FCPA. The investigation into possible improper payments to individuals and entities made after Talecris’ formation initially focused on payments made in connection with sales in certain Central and Eastern European countries, specifically Belarus and Russia, although trading practices in Brazil, China, Georgia, Iran and Turkey are also being investigated, in addition to other countries as deemed appropriate. As a result of this investigation, shipments to some of these countries have been suspended while we put additional safeguards in place. In some cases, safeguards involved terminating consultants and suspending relations with or terminating distributors in countries under investigation as circumstances warranted. In addition, as a consequence of the investigation, an agreement with a Turkish distributor was terminated giving rise to an arbitration between the parties that has now concluded. Grifols has now identified a new distributor in Turkey for the distribution of its products. In November 2012, we were notified by the DOJ that the proceedings would be closed, without prejudice to the fact that they could be re-opened in the future should new information arise. We are continuing an in depth review of potential irregular practices. In 2013, there was a criminal lawsuit initiated in Naples, Italy against five of our employees, including the former general director. In 2014, Italian courts withdrew all claims, except for minor charges against two non-management employees. The Company has finalized the internal investigations opened in Italy and in November 2015 a meeting took place with the DOJ to report on the conclusions derived from the investigations. Although this proceeding is still under legal dispute, and the DOJ’s final decision is still pending, after the meeting held in November 2015 we consider it is remote that this proceeding will affect our financial statements.”
Grifols recently disclosed:
“On 29 September 2016, the United States Department of Justice notified Grifols that the Department has closed its inquiry into Grifols, concerning possible violations of the U.S. Foreign Corrupt Practices Act. In its notice of declination to prosecute, the Department acknowledged the full cooperation of Grifols in the investigation.”
The Brazil based airline manufacturer with shares traded on a U.S. exchange that has been under FCPA scrutiny since 2011 recently announced:
“to its shareholders and the market that it is seeking to finalize final agreements with the U.S. Department of Justice and the U.S. Securities and Exchange Commission for the settlement of the allegations of criminal and civil violations of the U.S. Foreign Corrupt Practices Act. In addition, the Company is seeking to finalize final agreements with the Brazilian Federal Public Prosecutor’s Office (Ministério Público Federal) and the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários) for the settlement of the allegations of non-compliance with certain Brazilian laws. We expect that the final agreements, if they are finalized, will be consistent with our prior disclosure made on July 29, 2016.”
See here for the prior post highlighting the July 2016 disclosure.
The Brazil based chemical company with shares traded on a U.S. exchange recently announced to its “shareholders and the market that, within the process of the independent internal investigation that began in March 2015, it has started discussions with the U.S. Department of Justice – DoJ and the U.S. Securities and Exchange Commission – SEC, that the Company hopes will lead to formal settlement negotiations and the resolution of the allegations of misconduct. In addition to the conversations with DoJ and SEC, the Company intends to start simultaneous discussions in Brazil with the same purpose.”
Soma Oil and Gas
“The U.K. Serious Fraud Office told Soma Oil & Gas Holdings Ltd. in August it had found “insufficient evidence of criminality” in its probe of possible illegal payments to Somali officials, according to a letter cited in a London court judgment. The letter from the SFO was referenced in a ruling handed down Wednesday after Soma asked a court to force the agency to end its bribery investigation into the company. The application was refused at a hearing in August. The letter was one of the main reasons Soma said the prosecutor should be made to end the probe. “I can confirm that based on the information available to us at present, there is currently insufficient evidence of criminality on the part of your client in relation to the ‘capacity building payments’ issue to found any realistic prospect of conviction,” the SFO said in its Aug. 16 letter to Soma. “However, as you know, there are other strands to the investigation which are continuing.” The SFO announced it was investigating Soma in August 2015 for possible illegal payments to Somali officials under a capacity-building program with the country’s Petroleum Ministry. Soma, which is headed by former U.K. Conservative Party leader Michael Howard, paid about $700,000 to the Somali government as part of the program that allowed it to explore the region for oil and gas.”
The “declination crowd” (that is, those who espouse a broad meaning of the term declination and thus overuse the term) should take notice. Some government inquiries regarding bribery are closed because there is “insufficient evidence.” That’s not a declination, that is what the law commands.
As reported in this Reuters article:
“Europe should challenge the United States over its increasingly aggressive use of extraterritorial laws that have cost European companies – especially banks – billions in fines and other settlements, a French parliamentary report said. Still reeling from the $9 billion (7.31 billion pounds) fine its biggest bank, BNP Paribas, had to pay U.S. authorities over violations of American sanctions against other countries, the French government has criticised in recent years what it considers the over-reach of the U.S. legal system. Paris’s main objections centre on the U.S. Department of Justice’s broad interpretation of what it considers its jurisdiction. This sphere of influence can include transactions between non-Americans outside the U.S. where the U.S. dollar currency is involved. It can also cover deals and other actions taking place via the Internet using U.S. computer servers. “We consider that today’s situation amounts to abusive use of American law,” Karine Berger, a lawmaker from the ruling Socialist party told Reuters in an interview, calling the practices akin to “extortion”. “We ask France and Europe to let it be known to the United States that we will no longer accept this type of behaviour.” In a non-binding investigative report last week, lawmakers from both the Socialist party and opposition conservatives said U.S. law appeared to be more punitive towards foreign firms than domestic ones. Although foreign firms accounted for only 30 percent of investigations opened by U.S. authorities between 1977 and 2014 under its anti-foreign bribery law, 67 percent of the amount levied in fines came from foreign companies, the report said.”
This 2014 post discusses (using facts and figures relevant at the time) why most of the top FCPA enforcement actions involve foreign companies after a similar report in the New York Times (see here).
Regarding the above article, technically the complained-about enforcement actions are not extraterritorial, but rather expansive interpretations of territorial jurisdiction. Call it “de facto extraterritoriality.”
Who Said Shareholder Meetings Are Dull?
Shareholder meetings are usually dull affairs, but not when a shareholder goes on a rant that includes speculative claims about FCPA violations. See here for the Time Warner shareholder meeting and accusations involving George Clooney.
Ironically, Clooney has appeared in not just one, but two, movies related to the FCPA. Syriana and Money Monster.
A good weekend to all.