About time, scrutiny updates, ripple, for the record, just saying, and for the reading and listening stack. It’s all here in the Friday roundup.
After dinging companies for nearly 40 years for internal controls and risk management failures, the SEC names its first chief risk officer.
As highlighted in this prior post, if the SEC were an issuer there would be many books and records and internal controls issues within the organization.
“SAP has received communications and whistleblower information alleging conduct that may violate anti-bribery laws in South Africa, the United States (including the U.S. Foreign Corrupt Practices Act (FCPA)), and other countries. The Legal Compliance and Integrity Office of SAP is conducting investigations with the assistance of an external law firm and voluntarily advised local authorities in South Africa as well as the U.S. Securities and Exchange Commission (U.S. SEC) and the U.S. Department of Justice (U.S. DOJ). The investigations and dialogue with the local authorities and the U.S. SEC and U.S. DOJ are ongoing. SAP is cooperating with both the external law firm engaged for the investigations and the authorities.
The alleged conduct may result in monetary penalties or other sanctions under the FCPA and/or other anti-bribery laws. In addition, SAP’s ability to conduct business in certain jurisdictions could be negatively impacted. The comprehensive and exhaustive investigations and the corresponding remediation activities are still ongoing, and considering the complexity of individual factors and the large number of open questions, it is impossible at this point in time to assess the risks or financial impact.
SAP has implemented substantial enhancements to its anti-corruption compliance program, including additional policy changes and more robust internal controls. SAP has appointed new management in some business units and has increased its compliance staff. Moreover, SAP has banned the use of commissioned business development partners as well as certain sales commission agents in high-risk markets and has undertaken a systematic review of all relationships with state-owned entities and institutions in Africa. We remain fully committed to compliance with all U.S., German, EU, and South African laws, as well as the laws and regulations in every jurisdiction in which SAP operates.”
The company became the subject of FCPA scrutiny in summer 2018 and recently disclosed in its annual report:
“The Group’s businesses in Nigeria, Venezuela and the Democratic Republic of the Congo (”DRC”) are currently under investigation by the United States (“US”) Department of Justice (“DoJ”) with respect to non-compliance with the US Foreign Corrupt Practices Act (“FCPA”) and Anti-money laundering (“AML”) regulations from 2007 to present.
Glencore’s activities in Nigeria within this period are limited primarily to oil offtake agreements.
Its activities in Venezuela over the period which is subject to the investigation cover certain oil offtake contracts with the Venezuelan national oil company, Petróleos de Venezuela (“PDVSA”).
Glencore is currently one of a number of defendants in a court case brought by the PDVSA Litigation Trust. The group holds significant investments in copper and cobalt operations in the DRC through Katanga Mining Limited (“Katanga”) and Mutanda Mining SPRL (“Mutanda”), initially acquired in 2007. In 2017, the group increased its stake in these entities, ending any shareholder relationships with a former shareholder, who became a Specially Designated National (“SDN”) subject to US sanctions in the latter half of 2016. The Group continues to honour legally binding royalty agreements with an associated company of the former shareholder.
Each of these jurisdictions are considered high risk political environments resulting in a higher risk of non-compliance with the US FCPA and AML legislation.
On receipt of the subpoena, the Glencore plc Board of Directors reconstituted the existing Investigations Committee (the “Committee”) to assess the implications of the investigation and to oversee the Company’s response to the DoJ’s investigation. This Committee has engaged external independent legal counsel in the US to lead the investigation, who has in turn appointed forensic accountants to assist in the investigation.
There is a risk that a material provision will be required to settle the DoJ investigation which is not recorded in the current year’s financial statements. As at 31 December 2018, the company has disclosed a contingent liability under IAS 37: Provisions, Contingent Liabilities and Contingent Assets that the timing of the completion of the investigations, the outcome and the subsequent discussions with the authorities are uncertain.
At present, it is not possible to reliably estimate the timing or amount of any potential settlement or fines, which could be material.”
As sure as the sun rises in the east and dogs bark, in the aftermath of the FCPA and related enforcement action against individuals associated with Goldman Sachs (see here and here for prior posts) certain shareholders have filed this derivative complaint against various officers and directors alleging various breaches of fiduciary duty. As alleged in the complaint: “this shareholder derivative action … arises from Goldman’s destructive business culture which, according to a recent federal indictment, prioritized the consummation of deals ahead of the proper operation of its compliance functions.”
For the Record
This opinion piece in an Indian publication states:
“One important aspect of American policy, i.e. “financial imperialism” cannot be overlooked. Often it has been imposing its preferences in overseas jurisdictions through the extra-territoriality of its unilateral sanctions and on the pretext of battling against corporate graft under the Foreign Corrupt Practices Act.”
That’s fine if someone wants to have that opinion. However, for the record the FCPA anti-bribery provisions, as applied to foreign actors, are not extraterritorial. Depending on whether a foreign actor falls under the dd-1 or dd-3 prong of the FCPA, there is (generally speaking) a U.S. nexus required.
Much is being written up north regarding SNC-Lavalin’s long-standing scrutiny and allegations of political interference (see here) including this article with the headline “Zero convictions despite 7 years and millions spent on SNC investigation, prosecution.”
That headline could be used in connection with many instances of FCPA scrutiny.
Regarding the allegations of political interference, see this recent article from the Wall Street Journal.
“A political firestorm surrounding Canadian Prime Minister Justin Trudeau became more damaging Wednesday, as his ex-justice minister accused his top aides of repeatedly pressuring her to drop the prosecution of a global engineering and construction firm.
The testimony delivered by Jody Wilson-Raybould to a parliamentary committee offered the most detailed version yet of events fueling a scandal that risks upending Mr. Trudeau’s re-election effort later this year. She said that between September and December, she and her staff had roughly 10 phone calls and 10 meetings about the matter involving SNC-Lavalin Group Inc. with Mr. Trudeau’s senior aides and other government officials, including staff from the finance minister’s office.
“I experienced a consistent and sustained effort by many people within the government to seek to politically interfere in the exercise of prosecutorial discretion,” Ms. Wilson-Raybould said.”
This Financial Times article criticizes U.K. prosecutors for dropping inquiries into individuals associated with Rolls Royce. However, charging an individual with a crime is an awesome power the government possesses. It changes the lives of real people, their real family, and their real reputation. Prosecutors should be applauded (not criticized) when exercising restraint and not bringing charges because there is insufficient evidence for a realistic prospect of conviction.
This FCPA Blog post seems to suggest that there is value in having short simple compliance codes such as “dress appropriately” or “don’t pay bribes.”
However, in the PTC enforcement action, among the internal control dings the company received from the SEC was the following:
“PTC’s Code of Ethics and Anti-Bribery policies for the provision of business entertainment were vague (i.e., stating that employees should use “good taste” and consider the “customary business standards in the community” when providing business entertainment) and not risk-based to China.”
Reading and Listening Stack
The most recent edition of the always informative FCPA Update from Debevoise & Plimpton is here<
This recent Bribe, Swindle or Steal podcast specific compliance challenges in Asia including weddings, funerals and hong bao envelopes for the Lunar New Year. It’s an interesting listen, but I kept returning to the same thought: business folks in the U.S. go to weddings and funerals associated with clients all the time and otherwise exchange gifts around the holidays with clients.
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