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Friday Roundup

Shining a light on monitor reports, the Wal-Mart effect, when the dust settles, and Alberto Gonzalez joins the club, it’s all here in the Friday roundup.

Shining A Light on Monitor Reports

As Willkie Farr & Gallagher notes in this recent client alert, although the imposition of compliance monitors in FCPA enforcement actions is less frequent than it used to be, “companies that do receive monitors must now be concerned that their reports may be publicly disclosed.”  This is due to a recent decision (here) in SEC v. American International Group. Inc. (D.D.C.) in which Judge Gladys Kessler granted journalist Sue Reisigner’s Motion for Leave to Intervene and for Access to Monitor’s Reports.

In 2004, the SEC filed a complaint against AIG alleging violations of the federal securities laws.  Under the terms of the settlement consent order, AIG, among other things, agreed to retain an independent consultant, selected by the Fraud Section of the DOJ and acceptable to the SEC to review various AIG transactions.  At the conclusion of the consultant’s review, the consultant was required  to provide copies of reports of his or her findings to the SEC and DOJ.  Thereafter, the SEC and AIG filed a joint motion for clarification stating that it was not the intent of the parties that information provided by AIG to the independent consultant be disseminated or available to anyone outside of the entities identified in the consent order.  The court granted the motion.

Enter Sue Reisinger who filed Freedom of Information Act requests requesting disclosure of the consultant reports.  Her requests were denied citing the court’s order restricting dissemination of the reports.  Thereafter, Reisinger filed a Motion to Intervene and for Access to Monitor’s Reports.  The SEC and AIG filed a joint opposition.  Reisinger argued that “the Court should order the SEC to make the IC Reports publicly available on two grounds:  (1) a First Amendment right to access to judicial proceedings and (2) a common law right of access to judicial records.

As to the second issue, the key issues were whether the IC reports are a “judicial record” and if so, competing interests in publicity and secrecy.  Judge Kessler concluded that the IC reports “are relevant to the judicial function and therefore are properly considered judicial records.”  Judge Kessler stated as follows.  “The Reports may provide information leading the SEC to return to this Court to secure further relief.  In other words, the Consent Order empowers the Court to retain jurisdiction for the purposes of enforcing the Consent Order, including compliance with the IC Reports.”  In addition, Judge Kessler concluded that “the central role the IC Reports play in the operation of the Consent Order makes them precisely the kind of documents that must be open to the public in order for the federal courts ‘to have a measure of accountability and for the public to have confidence in the administration of justice.'”  As to the balancing of interests, Judge Kessler stated that the public’s interest in favor of disclosure of the IC Reports “is overwhelming” and that “there is no question that the public interest far outweighs AIG’s or the SEC’s interest in confidentiality …”.

As to the first issue, Judge Kessler concluded that there is no First Amendment right of access to the IC Reports because the SEC “brought a civil, not criminal, action against AIG” and “Reisinger has not even attempted to make the requisite showing that ‘such access has historically been available.”   As the Willkie client alert notes however, given that Judge Kessler’s analysis as to this first issue focused on the civil nature of the proceedings, it leaves “the door open for an additional argument that the First Amendment would mandate public disclosure of corporate monitor reports in the context of a criminal settlement.”

As to monitors, Professor Brandon Garrett (University of Virginia Law School) and the Corporate Crime Reporter are seeking information on certain corporate monitors in the FCPA context and otherwise – see here.

The Wal-Mart Effect

Wal-Mart is clearly not the only company subject to the FCPA that needs licenses, permits and the like when doing business in Mexico.  It is likely that Wal-Mart’s potential FCPA exposure has caused sleepless nights for many company executives doing business in Mexico and the general region.

The FCPA is also on the minds of investors of other companies doing business in Mexico – such as Kimco Realty Corporation (here).

In a recent earnings call, a UBS analyst asked the following question.  “I hate to even ask this question. But I’m wondering if you have any comments on the Wal-Mart allegations down in Mexico and if Kimco had conducted any reviews, maybe not so much of your local Mexico employees. Maybe my concern is more toward JV partners to make sure that they’re operating to the same high ethical standards that Kimco has already operated toward.”

David Henry (Kimco Realty Corporation – Vice Chairman, President, CEO) answered as follows.  “Obviously, we anticipated this question, so permit me to be very, very specific in a response, and I’d like to make the following points.  One, the extent of what we know about the Wal-Mart actions is what we read in the New York Times article, the same way you did. We are not aware of any Wal-Mart improprieties with respect to any of our Mexican properties or any of our Mexican operating partners. The acquisitions and development of the Wal-Mart projects in our portfolio occurred in 2005 or later, and this is a year after the activities that were described in the article occurred.  With respect to all of our Wal-Mart projects, the developer obtained the building permit, not Wal-Mart. We employ a third-party consultant to oversee the construction process. There’s a construction manager in many cases right on site that reviews and approves every payment we make on these development projects. We also have our own Kimco employees provide asset management and oversee the project construction and approve the individual payments. As part of our normal operating procedures, all of our local Mexican development partners execute letters certifying to us they are not aware of any kind of improper payments. We have a very comprehensive FCPA policy, foreign corrupt practices act policy, at Kimco that includes extensive training for all of our employees that are directly or indirectly involved with any international projects. The training includes members of senior management and our Board are taken through this training on an annual basis.  And then I just have to zoom up to the highest level. From the very beginning, when we went to both Canada and Mexico and then South America, we really tried to set the right tone because we’ve always emphasized that we are a public company and as a public company we adhere to the highest ethical standards and we expect that all of our local operating partners to also meet those standards. So that gives you the highest level of flavor I can give you at this point.”

When the Dust Settles

In 2010, Daimler (and certain of its subsidiaries) resolved a wide-ranging FCPA enforcement – see here for the prior post.

As to conduct in Russia, the DOJ also filed a two count criminal information against DaimlerChrysler Automotive Russia SAO (“DCAR”), a “Moscow-based, wholly-owned subsidiary of Daimler” that “sold Daimler spare parts, assisted with the sale of vehicles from various Daimler divisions in Germany, including in particular its overseas sales division (“DCOS”), to government customers in [Russia], and also imported Daimler passenger and commercial vehicles into Russia for sale to customers and distributors.”

The charged conduct focused on Daimler’s, DCAR’s and DCOS’s relationships with: “the Russian Ministry of Internal Affairs (“MVD”) a department and agency of the Russian government principally responsible for police, militia, immigration and other functions” including supervising the “Russian traffic police; “the Special Purpose Garage (“SPG”) an ‘instrumenality’ of the Russian government” whose employees were “foreign officials” under the FCPA; “Machinoimport a Russian government-owned and controlled purchasing agent for the City of Moscow,” an “instrumentality of the Russian government” whose employees were “foreign officials” under the FCPA; and “Dorinvest a Russian government-owned and controlled purchasing agent for the City of Moscow,” an “instrumentality of the Russian government” whose employees were “foreign officials” under the FCPA.

The information charged that “Daimler, through DCAR, made improper payments at the request of Russian government officials or their designess in order to secure business from Russian government customers.”  Among other things, the information charges that: “between 2000 and 2005″ Daimler’s sale of vehicles to Russian government customers was approximately “€64,660,000″ and that “in connection with these vehicle sales, DCAR and Daimler made over €3 million in improper payments to Russian government officials employed at their Russian governmental customers, their designess, or to third-party shell companies that provided no legitimate services to Daimler or DCAR with the understanding that the funds would be passed on, in whole or in part, to Russian government officials.”

In this recent article, The Moscow Times reports that Russian “investigators have reportedly dropped inquiries against military officials and employees of four companies implicated in a 2010 corruption case involving kickbacks for state purchases of Mercedes automobiles.”

For more on the dynamic of what I’ve called “when the dust settles” – see this prior post.

Alberto Gonzalez Joins the Club

What club you ask?

The former Attorney General who has taken a great interest in the FCPA club.  Former Attorney General Michael Mukasey’s FCPA reform activities are well known, this prior post discussed a recent FCPA speech by former Attorney General John Ashcroft, and in this recent article in Corporate Counsel, Gonzalez and his co-authors forecast the future of FCPA enforcement.


A good weekend to all.

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