Sentenced, just saying, scrutiny alerts and updates, fallout, and what’s the difference? It’s all here in the Friday roundup.
As highlighted in this prior post, earlier this year Frank James Lyon (the owner of Lyon Associates Inc. – a privately held engineering and consulting company headquartered in Hawaii) pleaded guilty to violating the Foreign Corrupt Practices Act (based on things of value provided to officials in the Federated States of Micronesia) as well as paying bribes to an agent of an organization receiving federal funds (based on things of value provided to officials with a Hawaii governmental agency – State Agency).
As highlighted in this DOJ release, Lyon was recently sentenced to 30 months in prison.
Just Saying …
“But the Justice Department under President Trump has favored deferred and non-prosecution agreements rather than guilty pleas. The penalties imposed have been relatively small over the past two years, compared with those seen at the end of the Obama administration.”
The Justice Department under President Obama also favored DPAs and NPAs rather than guilty pleas. In fact, in 2016 the Obama Justice Department invented yet another alternative way to resolve FCPA enforcement actions called “declinations with disgorgement.”
In terms of FCPA enforcement, measured in terms of the number of core corporate actions, 2018 was the third most active year for enforcement in FCPA history. Moreover, if 2019 FCPA enforcement ended today, 2019 would already be the 5th largest in FCPA history in terms of settlement amounts.
Scrutiny Alerts and Updates
Internet Gold – Golden Lines Ltd.
The company is an Israel-based holding company whose principal asset is a majority stake in B Communications Ltd. (“BCOM” or “B Communications”), a subsidiary that owns 26.34% of Bezeq Ltd., the leading communication group in Israel.
Recently the company disclosed:
“The Israeli Police and the Israel Securities Authority, or the ISA, have recommended indictments of several former Bezeq … executives. Our Audit Committee engaged outside U.S. counsel to conduct an assessment of our internal controls and, as applicable, those of Bezeq in connection with the preparation of our financial statements to determine whether there have been any violations of the U.S. Foreign Corrupt Practices Act or any other laws. We incurred expenses in connection with such assessment and we may also incur substantial fines, civil or criminal sanctions, including fines and sanctions against our directors and officers, or third-party claims if any of our officers are directors are held liable under criminal laws and regulations. The Israeli law system might be insufficient to defend us and preserve our rights. We could also be subjected to risks to our reputation and regulatory action on account of any unethical acts by any of our employees, directors or other related individuals. These criminal developments have also added complexity to our corporate compliance regime. The Investigation may adversely affect the market price of our ordinary shares and could have a material adverse effect on our business, financial condition and results of operations.
The Bezeq Group does not have complete information about the investigations, their content, the material and evidence in the possession of the statutory authorities on this matter. Furthermore, in view of the provisions of Israeli law and concern of obstructing the investigation, at this stage Bezeq must refrain from conducting any checks relating to matters that arose in the course of those investigations. This limits Bezeq’s ability to operate, including in connection with performing audit activity and reviews for the purpose of publishing Bezeq’s reports, as further described below. The lack of information and uncertainty have also led to our auditors issuing a “qualified opinion” on our financial statements because of the inability to obtain sufficient supporting evidence as to the effect, if any, of the investigations’ proceedings on the consolidated financial statements. Our auditors also issued a “disclaimer of opinion” on our internal controls based on their inability to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the effectiveness of Bezeq’s internal controls.
While all the former directors of our company and the directors and executives of Bezeq who were allegedly involved in criminal actions are no longer associated with us or the Bezeq Group, the companies in the Bezeq Group may be indirectly implicated in the alleged criminal behavior.
In March 2019, we were informed that the U.S. Securities and Exchange Commission had issued a Formal Order of Private Investigation with respect to our company. The Formal Order authorizes an investigation of possible violations of the Foreign Corrupt Practices Act with respect to the facts uncovered in the criminal investigations in Israel.”
This ProPublica piece goes in-depth into McKinsey’s activities in Mongolia and how the company allegedly “signed a consulting agreement with a government entity even as the government adviser who brought McKinsey into the project also landed a piece of the same contract for his own private company.”
In the article, McKinsey’s lawyer Chuck Duross (who used to head the DOJ’s FCPA Unit) stated:
“With the enhanced policies McKinsey has today, I do think McKinsey would have taken a different approach to diligence. But that doesn’t mean, at the end of the day, that because there are red flags or risks related to a particular partner, that the conduct itself was corrupt or improper or a violation of the FCPA.”
In its recent annual report, Walmart disclosed in pertinent part:
“As previously disclosed, the Company is under investigation by the DOJ and the SEC regarding possible violations of the FCPA. The Company has been cooperating with the agencies and discussions have been ongoing regarding the resolution of these matters. These discussions have progressed to a point that, in fiscal 2018, the Company reasonably estimated a probable loss and recorded an aggregate accrual of $283 million with respect to these matters (the “Accrual”). As the discussions are continuing, there can be no assurance as to the timing or the terms of the final resolution of these matters.”
In its proxy statement, Walmart stated:
“Each Outside Director who attends in person a Board meeting held at a location that requires intercontinental travel from his or her residence is paid an additional $4,000 meeting attendance fee. Also, each member of the Audit Committee received an additional fee during fiscal 2019 for his or her time spent with respect to the Audit Committee’s oversight of the company’s internal investigation related to the Foreign Corrupt Practices Act and other investigatory matters. This work significantly increases the workload of Audit Committee members related to communication with internal counsel, outside counsel and other advisors. To recognize this additional time commitment, during fiscal 2019, the Audit Committee Chair received an additional fee of $90,000, and the other members of the Audit Committee received an additional fee of $45,000.”
In this post, the FCPA Blog claims that Walmart began “last year” the practice of paying audit committee members more because of the workload created by the company’s ongoing investigation.
This is a false statement.
As highlighted in this FCPA Professor post, Walmart has disclosed in its proxy statement since at least 2014 increased pay for audit committee members because of the company’s FCPA scrutiny.
The company has resolved an FCPA enforcement not just once, but twice (see here), and recently disclosed:
“In March 2019, the Company received a document request from the United States Department of Justice (the “DOJ”) related to certain of the Company’s operations in Iraq and its dealings with Unaoil Limited and its affiliates. The Company is cooperating with the DOJ in connection with this request and any related matters. In addition, the Company has agreed to toll any statute of limitations in connection with the matters subject to the DOJ’s document request until December 2019.”
The company has been under FCPA scrutiny since 2013 (see here) and recently disclosed:
“From time to time, we receive inquiries from authorities in the U.S. and elsewhere and reports from employees and others about our business activities outside the U.S. and our compliance with Anti-Corruption Laws. Specifically, we have been cooperating with authorities in the U.S. in connection with reports concerning our compliance with the Foreign Corrupt Practices Act in various countries. Most countries in which we operate also have competition laws that prohibit competitors from colluding or otherwise attempting to reduce competition between themselves. While we devote substantial resources to our global compliance programs and have implemented policies, training, and internal controls designed to reduce the risk of corrupt payments and collusive activity, our employees, vendors, or agents may violate our policies. Our failure to comply with Anti-Corruption Laws or competition laws could result in significant fines and penalties, criminal sanctions against us, our officers, or our employees, prohibitions on the conduct of our business, and damage to our reputation.”
As highlighted in prior posts here and here, in November 2016 JPMorgan resolved a $202.6 million FCPA enforcement action based on its alleged improper hiring and internship practices that the U.S. government labeled bribery and corruption.
According to this Wall Street Journal article:
“Hong Kong authorities charged a former executive at JPMorgan Chase with bribery, adding to the fallout from the bank’s controversial “Sons and Daughters” hiring program in Asia. The city’s antigraft agency said Catherine Leung Kar-cheung, a former vice chairwoman of JPMorgan’s Asia-Pacific investment banking business, bribed the chairman of a logistics company by offering to employ his son at the bank. The Independent Commission Against Corruption said Ms. Leung made two employment offers in connection with an initial public offering of the logistics company, which it didn’t name. The offers, it said, were made between 2010 and 2011. The agency said Ms. Leung has been released on bail and is due in court on May 20.”
What’s The Difference?
As highlighted in this prior post, the chief judge in the S.D.N.Y. recently stated in an opinion that she was “deeply troubled” by the DOJ’s outsourcing of an internal investigation.
As highlighted in this recent Law360 article:
“Federal officials sought … to draw a line between making requests of a company’s lawyers and directing a company’s internal investigation, days after a judge found the government had essentially outsourced its investigation into a Deutsche Bank trader to the bank’s lawyers at Paul Weiss. At an event in Manhattan, Christopher Cestaro, a supervisor in the U.S. Department of Justice’s Foreign Corrupt Practices Unit, spoke at some length on how the government views companies’ internal investigations, insisting that prosecutors “don’t direct” them. “Companies often do choose to conduct an internal investigation,” Cestaro said. “At the department, we do seek to get the benefits of that investigation. There is no reason that if the company is learning of facts or identifying evidence that we shouldn’t get the benefits of that. But what we don’t do is we don’t direct it.”
The analogy is sort of like this.
A parent has a tremendous amount of authority and discretion over the toddler child. The parent requests that the toddler goes to her room. But kind in mind, the parent was not directing the toddler go to her room.
Strategies For Minimizing Risk Under The FCPA
A compliance guide with issue-spotting scenarios, skills exercises and model answers. "This book is a prime example of why corporate compliance professionals and practitioners alike continue to listen to Professor Koehler."