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Friday Roundup

Roundup

A quite September, to FCPA Inc., Ng commentary, and discontinued.

It’s all here in the Friday roundup.

Quiet September

As highlighted in this prior post, September has historically been a very active month for FCPA enforcement as the SEC’s fiscal year ends on September 30th.

While the SEC did announce the WPP enforcement action on September 24th (see here and here for prior posts), for the second consecutive year, September FCPA enforcement was below historical norms.

To FCPA Inc.

Davis Polk recently announced that Daniel Kahn (most recently Acting Deputy Assistant Attorney General in the DOJ’s Criminal Division and prior to that Chief of the DOJ’s Fraud Section and Chief of the DOJ’s FCPA Unit) is joining the firm as a partner and “will focus on representing clients in criminal and regulatory investigations, as well as in civil and criminal trials.”

As stated in the release:

“As Chief of the FCPA Unit from 2016 to 2019, Mr. Kahn managed all FCPA and FCPA-related investigations, prosecutions and resolutions in the Department of Justice, which included cases involving every major industry sector and geographic region. He led the substantial expansion of coordination and cooperation with foreign authorities in international corruption probes, working with authorities from countries around the globe, overseeing more than a dozen coordinated resolutions and routinely representing the United States before global anti-corruption bodies. These complex multi-national investigations often involved coordination with the U.S. Securities and Exchange Commission, the Commodity Futures Trading Commission, the Federal Reserve Board and multilateral development banks, among other regulators. Mr. Kahn also supervised and oversaw the selection of approximately 20 FCPA monitors during his tenure as Unit Chief, and oversaw the revisions and updates to A Resource Guide to the U.S. Foreign Corrupt Practices Act.”

Regarding the general issue of DOJ or SEC FCPA enforcement attorneys leaving government services for lucrative positions with FCPA Inc. to provide defense and compliance services to business organizations subject to the enforcement climate they helped create, for over a decade these pages have called for restrictions when DOJ / SEC FCPA enforcement attorneys with supervisory and discretionary authority leave the government for private practice careers devoted to the FCPA. (See hereherehere and here among other posts).

Indeed, the legitimacy and credibility of the DOJ and SEC’s entire FCPA enforcement programs hinge on this policy proposal being adopted.

Ng Matter

As highlighted in this recent post, FCPA defendant Roger Ng’s motion to dismiss was recently denied and the judge stated – in a rare substantive decision regarding the internal control provisions, that the provisions can be implicated even in transactions in which an issuer does not use its own assets to pay an alleged bribe.

In the most recent edition of the always informative FCPA Update, Debevoise attorneys state:

“A few items stand out as takeaways and matters to watch as Ng’s case heads towards trial.

• Internal Controls Are Not Limited to Preventing Direct Payments of Bribes From an Issuer’s Assets. The Ng Court dealt with the defendant’s argument that the internal controls provision applies only to improper payments made directly from an issuer’s assets by highlighting that the relevant transaction or use of assets was Goldman’s purchase of 1MDB bonds. Just because Ng did not conspire to circumvent Goldman’s controls to access the specific funds used to make improper payments did not render the internal controls provision inapplicable. Ng’s alleged conspiracy to circumvent internal controls by concealing Low’s involvement from “the groups at [Goldman] that enforce its internal accounting controls” in a way that enabled his participation to continue and Goldman to obtain the 1MDB bond offerings was deemed a sufficient link between controls-circumvention and use of company assets to go to the jury – and to stave off vagueness arguments. Such a broad interpretation means that the provision applies not only to payments from company assets for bribes (direct or through a third party), but also to circumvention of controls tied to any transaction, which could presumably be satisfied by any business purpose that is the object of an FCPA case.

• They’re Accounting Controls if a Jury Says So. In an Order citing heavily from what the Court called “the leading case on the internal accounting controls provision – and the main authority cited by the parties,” the Court noted that the question as to whether “controls” are internal “accounting” controls is for the jury to decide. Because “there are no specific standards by which to evaluate the sufficiency of controls” and “any evaluation is inevitably a highly subjective process in which knowledgeable individuals can arrive at totally different conclusions[,] [a]ny ruling . . . with respect to the applicability of .  . . the internal accounting control provision[] should be strictly limited to the facts of each case.” Leaving the determination in the hands of jurors exposes third party onboarding processes, hiring questionnaires, vendor risk management workflows, and other policies and procedures put in place by compliance or legal departments that may be arguably “accounting related” to possible categorization as internal accounting controls. The Order itself paints the controls as “the groups at [Goldman] that enforce its internal accounting controls,” meaning that any circumvention of these fact dependent controls (or control personnel) made in connection with a broadly defined transaction can potentially be viewed as a violation.

• Books and Records vs. Internal Controls. By calling out Ng’s conflation of the books and records and internal controls provisions, the Court emphasized the important point that circumventing internal controls does not require any falsification of books and records. The Court noted that the focus of the internal controls provision “is not on actual entries into the books and records” but on “management control;” the provision is “primarily designed to give statutory content to an aspect of management stewardship responsibility, that of providing shareholders with reasonable assurances that the business is adequately controlled” – and “should not be analyzed solely from [the] point of view” of being “supportive of accuracy and reliability in the auditor’s review and financial disclosure process.”15 With respect to the boundaries of internal accounting controls, the Court’s view appears to be that any circumvention of any company “control” that may thwart management’s wishes may be sufficient.

Conclusion

The Court’s ruling in Ng serves as a cautionary tale regarding how broadly the FCPA’s internal controls provision can potentially be interpreted, setting a high bar for challenges to FCPA charges on a motion to dismiss. The government appears to charge individual defendants with conspiracy to violate internal controls much less frequently than conspiracy to violate the FCPA’s anti-bribery provisions or to commit money laundering, but Ng’s case may be a harbinger of more such charges where defendants conspire to bypass broadly-defined, fact-dependent internal controls in the course of pursuing transactions for the company or use of company assets.”

Discontinued 

For years, these pages have highlighted the World Bank’s annual “Ease of Doing Business” rankings as it ranked countries based on factors such as the ease of starting a business, obtaining permits, and otherwise dealing with regulatory officials.

However, the World Bank recently announced

“Trust in the research of the World Bank Group is vital. World Bank Group research informs the actions of policymakers, helps countries make better-informed decisions, and allows stakeholders to measure economic and social improvements more accurately. Such research has also been a valuable tool for the private sector, civil society, academia, journalists, and others, broadening understanding of global issues.

After data irregularities on Doing Business 2018 and 2020 were reported internally in June 2020, World Bank management paused the next Doing Business report and initiated a series of reviews and audits of the report and its methodology. In addition, because the internal reports raised ethical matters, including the conduct of former Board officials as well as current and/or former Bank staff, management reported the allegations to the Bank’s appropriate internal accountability mechanisms.

After reviewing all the information available to date on Doing Business, including the findings of past reviews, audits, and the report the Bank released … on behalf of the Board of Executive Directors, World Bank Group management has taken the decision to discontinue the Doing Business report. The World Bank Group remains firmly committed to advancing the role of the private sector in development and providing support to governments to design the regulatory environment that supports this. Going forward, we will be working on a new approach to assessing the business and investment climate. We are deeply grateful to the efforts of the many staff members who have worked diligently to advance the business climate agenda, and we look forward to harnessing their energies and abilities in new ways.”

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