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Friday Roundup

A focus on entertainment and calling out FCPA / Bribery Act Inc. and a recent disclosure from a company that is part of FCPA history.  It’s all here in the (slimmer than normal) Friday roundup.

Recent Comments From The Director of the U.K. SFO

The previously mentioned here recent comments made by David Green (Director of the U.K. Serious Fraud Office) in a Daily Mail article (here) that “mainstream corporate entertaining” is of little concern to the SFO.  Green states in the article as follows.  “We are not  interested in that sort of case. We are interested in hearing that a large company has mysteriously come second in bidding for a big contract. The sort of  bribery we would be investigating would not be tickets to Wimbledon or bottles of champagne. We are not the ‘serious champagne office.'”

The same can not always be said of the DOJ or SEC.  Although such seemingly minor corporate entertainment expenditures have never been the sole focus of an enforcement action, several enforcement actions have included such allegations. For instance, the UTStarcom enforcement action (see here for the prior post) contained allegations about a $600 bottle of wine.  The Data Systems and Solutions enforcement action (see here for the prior post) contained allegations regarding a Cartier watch.  The IBM enforcement action (see here for the prior post) contained allegations about a camera.  The RAE Systems enforcement actions (see here for the prior post) contained allegations about kitchen appliances, business suits, and high-priced liquor.  Numerous other examples abound.  One must assume that the enforcement agencies included such allegations in the resolution documents for a reason, not just to fill up paper.

Alexandra Wrage (President of Trace International) noted the U.K. / U.S.  irony in this recent piece for Corporate Counsel.   “[W]hereas the U.S. law permits these expenditures [facilitation payments and reasonable entertainment expenses], within reason, and then enforces when companies overstep, the U.K. prohibits them, but assures the public that they won’t be prosecuted.”

Green’s comments to the Daily Mail were also notable for his calling out of FCPA (or as the case may be Bribery Act) Inc.  The Daily Mail article notes as follows.  “[Green] criticised American law firms that had taken  advantage of the uncertainty. ‘It is in their interest to focus attention on the  Bribery Act. They put up talking heads and arrange conferences. It is a huge  industry.’”  Green’s comments are similar to those noted in this prior post by Kenneth Clark (the U.K.’s anti-corruption champion) who stated, in the House of Commons, leading up to the Bribery Act as follows.   “I hope to put out very clear guidance [regarding the Bribery Act] to save [businesses] from the fears that are sometimes aroused by the compliance industry, the consultants and lawyers who will, of course, try to persuade companies that millions of pounds must be spent on new systems that, in my opinion, no honest firm will require to comply with the Act.”

Harris Corp.

As previously noted in this Wall Street Journal Corruption Currents post, Harris Corporation disclosed as follows in its recent annual report.

“[I]n April 4, 2011, we completed the acquisition of Carefx and thereby also acquired its subsidiaries, including in China (“Carefx China”). The consolidated revenue of the Carefx China operations for fiscal 2012 was approximately $1.4 million, or less than 0.1% of our consolidated revenue. In connection with our integration activities and the subsequent audit of the financials of the Carefx China operations, we became aware that certain entertainment, travel and other expenses in connection with the Carefx China operations may have been incurred or recorded improperly. In response, with the concurrence of our Audit Committee, we initiated an internal investigation, with the assistance of outside legal counsel, to determine whether violations of the FCPA potentially occurred. In the course of our investigation, we learned that certain employees of the Carefx China operations had provided pre-paid gift cards and other gifts and payments to certain customers and potential customers. Although our investigation is not complete, we have already taken remedial actions related to the Carefx China operations, including changes to internal control procedures, termination of the gift-giving practice, additional compliance training and termination of the employment of certain individuals. The preliminary results of the investigation have been disclosed to our Audit Committee, Board of Directors and auditors, and we have also contacted the U.S. Department of Justice and the SEC to voluntarily disclose that we are conducting the investigation and to advise that it is our intent to fully cooperate with any investigation that they may conduct with respect to this matter. We cannot predict at this time any regulatory action that may be taken with respect to this matter or any other potential consequences that may result. However, based on the information available to date, we do not believe that this matter will have a material adverse effect on our financial condition, results of operations or cash flows.”

As noted in this previous post, Harris Corp. is part of FCPA history.  It is believed to be the first, and to this day only, publicly traded company to have put the DOJ to its burden of proof at trial.  As noted in the post, Harris Corp. prevailed in the enforcement action (1990-1991).  I noted in the previous post as follows.  If non-prosecution and deferred prosecution agreements existed in 1990, would Harris have resolved the enforcement action via such a resolution vehicle? Likely yes. Yet Harris and the individual defendants all prevailed at trial.

If the conduct Harris recently disclosed gives rise to an enforcement action, will Harris likewise this time around put the DOJ to its burden of proof?  Even if it has valid legal and factual defenses, not a chance.  NPAs and DPAs exist today and resolving FCPA inquiries is often more about cost-beneft / risk-reward, than law and facts.


A good weekend to all.

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