Scrutiny alerts and updates, overstating, and for the reading stack. It’s all here in the Friday roundup.
Scrutiny Alerts and Updates
As highlighted in this previous post, German healthcare firm Fresenius Medical Care AG (a company with shares traded on the NYSE) has been under FCPA scrutiny since 2012 (no that is not a typo). As highlighted in this previous post, earlier this year the company disclosed:
“The Company has recorded a charge of €200 M in the accompanying financial statements. The charge is based on ongoing settlement negotiations that would avoid litigation between the Company and the government agencies and represents an estimate from a range of potential outcomes estimated from current discussions. The charge encompasses government agencies claims for profit disgorgement, as well as accruals for fines or penalties, certain legal expenses and other related costs or asset impairments.”
Recently the company disclosed:
“We have also increased the provision for the FCPA related charge by EUR 75 million (not tax effected). This increase reflects an understanding with the U.S. Government on the financial aspects of a potential settlement and an update of ongoing legal costs to reach closure. However, significant non-financial matters are still under discussion and must be resolved to the company’s satisfaction for a settlement to occur.”
Ericsson, a Sweden-based telecom company with shares trades on a U.S. exchange recently disclosed:
“SEC and DOJ inquiries
As previously disclosed, Ericsson has been voluntarily cooperating since 2013 with an investigation by the United States Securities and Exchange Commission (SEC) and, since 2015, with an investigation by the United States Department of Justice (DOJ) into Ericsson’s compliance with the U.S. Foreign Corrupt Practices Act (FCPA). While Ericsson cannot comment in detail the Company can provide the following update on the process. The Company has identified facts that are relevant to the investigations. These facts have been shared with the authorities by the Company. The Company continues to cooperate with the SEC and the DOJ and is engaged in discussions with them to find a resolution. While the length of these discussions cannot be determined, based on the facts that the Company has shared with the authorities, it believes that the resolution of these matters will likely result in monetary and other measures, the magnitude of which cannot be estimated currently but may be material. Potential future cash outflows are currently not capable of being reliably estimated. Accordingly, no provisions have been recorded for such potential exposure. Ericsson continuously seeks to strengthen its ethics and compliance program with risk-relevant policies, processes and tools for preventing, detecting and remediating non-compliance. These efforts have been further reinforced in recent years. In addition, in 2016 the Board hired an independent compliance advisory firm to assist the Company and the Board on compliance related matters. Their recommendations are currently being implemented. Recent improvement efforts focused on the following areas: people and culture (including tone from the top, senior leadership vetting, disciplinary processes, and training), third party engagements (including resources, policies, controls and processes), compliance and investigation capabilities (including resources, policies, governance, processes and tools), and internal control capabilities (including resources, governance, processes and tools). The Company is committed to having a robust and fit-for-purpose compliance program and is continuously looking to improve on ways to better manage its compliance risks throughout the Company with due effort and attention.”
As noted here, Ericsson has dismissed 50 employees since the company began an investigation in 2013.
In a recent investor conference call, Börje Ekholm (President and CEO of Ericsson) stated:
“So an update on the SEC and DOJ investigations. We have been voluntarily cooperating with the authorities, with SEC since 2013 and DOJ since 2015, in their investigation into compliance on the Foreign Corrupt Practices Act. And just to say that, that includes, of course, corruption, as the name suggests, but it’s also books and records, internal controls. So it’s a broader definition of FCPA.
We continue to cooperate with the authorities, but the reason why we’re here is that we have also seen now, when we do our own investigation and fact-finding, that we have breaches on our Code of Business Ethics. And therefore, we have reported that to the authorities and that’s been part of the investigation. So we don’t know how these discussions will go, how long they will take. But we do think it’s likely that based on the facts that we’re sharing, that we will have some measures taken, would be monitoring, could be other as well. It’s unfortunate, I know that. You have probably a lot of questions, but we today cannot assess the magnitude. And that’s also the reason why you don’t see us take a provision today against that. This is also an ongoing matter, so it’s very hard for us to comment on details in the investigation, and we will not do that, so also, that is unfortunate, but that’s where we are. We felt we needed to share this with all of you anyway in order to be as open as we can.
Of course, for us, ethics and compliance are very critical. It’s not only what business we win, it’s actually how we win. And we need to win based on our own merits and have that integrity in the way we operate. As a matter of fact, ethics and compliance, that’s not a new thing here at Ericsson. It started really more than a decade ago. So 2004, we put a Code of Business Ethics in place. And since then, we’ve gradually improved our ethics and compliance program.
Over the last 2 years, as you can see here, we have accelerated improvements. So for example, we brought in an external consultant in the end of 2016 that have advised management and the board and reviewed our historical compliance program and suggested improvements, changes that we need to do in order to be stronger. That’s what we’re working on, so we’re continuously implementing these activities. And they include a couple of areas. It includes, of course, culture and people, but it also includes third-party engagements. It includes investigations and the whole compliance program. But it also includes, of course, control mechanism, how to make sure that we are in compliance. So you see us take a lot of activities here; they’re critical in order for us to be world class also on the ethics and compliance.”
Some of the recent commentary on the DOJ’s new monitor policy (see here for the prior post) really overstates the extent which corporate monitors are imposed in FCPA enforcement actions. For instance, this Forbes column written by a lawyer states:
“Since about the early 2000s, corporate monitors have become a go-to weapon for the Justice Department in its battle against business crime. […] The government’s use of monitors has grown virtually unchecked for the past two decades in the wake of the financial crisis and increased enforcement of laws such as the Foreign Corrupt Practices Act.”
This law firm alert states:
“In recent years, the appointment of a compliance monitor has been one of the most common features of corporate resolutions, particularly in the context of negotiated resolutions concerning violations of the Foreign Corrupt Practices Act and anti-money laundering laws.”
Fact check time. As highlighted in this prior post, since 2016 the DOJ has resolved 29 corporate enforcement actions and only 11 (38%) have required a formal compliance monitor. Moreover, the majority of these monitors (7 out of 11 – approximately 65%) were in enforcement actions involving foreign companies (SQM, Teva, Odebrecht/Braskem, LAN/Latam Airlines, Vimpelcom and Panasonic). In short, in recent years it has become very rare for a U.S. company resolving an FCPA enforcement action to have a compliance monitor imposed.
Foreign issuers of course are subject to the FCPA. One form such issuers are required to file with the SEC is Form 6-K and this Latham & Watkins publication pretty much covers everything you might need to know about Form 6-K’s.
An informative read here from Jenner & Block attorneys about the DOJ’s new “Justice Manual” formally known as the U.S. Attorneys Manual.
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