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Inside An FCPA Inquiry

In case you missed it, the Foreign Corrupt Practices Act made another appearance on the Wall Street Journal’s editorial page earlier this week.  In a column about the “Return of ‘Honest Services’ Fraud” the column states as follows.  “Prosecutors are also expanding the reach of older statutes to cover behavior that businesses have long believed to be legal. Take the Foreign Corrupt Practices Act, whose vague definition of foreign official has ballooned to include nearly everyone in a foreign country, whether or not the individuals control government procurement.”

On to today’s post.

How long do FCPA inquiries last?  How does the government learn of FCPA issues in the first place?  What specifically does company cooperation include?   What can turn the course of an investigation?  How many countries are included in a review?  How many witnesses?  What about senior management?  What about agents?

Answers to these questions can be found in the DOJ’s “Memorandum in Support of the Proposed Plea Agreements and Deferred Prosecution Agreement” (here) filed on May 23rd in response to the ICE Victim petition (see here for the prior post).  The December 2010 Alcatel-Lucent enforcement action (see here for the prior post) is a top-ten enforcement action of all time in terms of fine and penalty amount, thus what is set forth below may not be a typical case, but interesting nevertheless to see how expansive FCPA inquiries can become.

Portions of the DOJ’s brief are excerpted below.

The Government’s Investigation and the Company’s Cooperation

“The investigation that gave rise to the instant case began in the fall of 2004.  In late September 2004, press reports surfaced in Costa Rica alleging that a consultant of Alcatel had bribed Costa Rican officials.  In early October 2004, the Fraud Section of the Criminal Division of the Department of Justice and the SEC made inquiries of Alcatel, and Alcatel through its counsel agreed to cooperate with the government’s investigations. Between October 2004 and November 2006, Alcatel and its outside counsel conducted an internal investigation, which was slow, plagued with problems, and was non-responsive to many repeated inquiries by the government.”

“In late 2006, however, two significant events occurred that changed the course of the investigation.  First, on November 0, 2006, a former Alcatel CIT executive, Christian Sapsizian, was detained on a material witness warrant during a layover at the Miami International Airport.  […]  Sapsizian agreed to plead guilty in early 2007, and he began cooperating against his former employer.”

“Second, in December 2006, Alcatel and Lucent Technologies merged.  Following this merger, the leadership of the combined new entity, Alcatel-Lucent, changed, and the company changed outside counsel.  In the ensuing three years, at the request of the government, the new company undertook a ‘Global Review’ to evaluate its relationship with agents, interactions with government officials, and gifts, travel and entertainment provided in countries around the world.  Through this process, Alcatel-Lucent discovered it had serious problems.  It uncovered improper payments, inaccurate books and records, and violations of its internal controls on a number of continents, and the new management embraced the need to fully investigate the corrupt conduct.  In the end, the new company of Alcatel-Lucent conducted a credible investigation, dramatically improved its compliance program, embraced a culture of compliance at the highest levels within the company, and made significant remediation efforts, which are detailed below.  In particular, Alcatel-Lucent and its outside counsel conducted investigations of 34 countries around the world to uncover potential misconduct.  The internal investigation examined Alcatel-Lucent’s agent and consultant approval, review, and termination processes, the activities of a number of terminated agents, and the knowledge and involvement of senior management in any potential wrongdoing.  This effort was closely coordinated with the government.  At the same time, Alcatel-Lucent has cooperated with investigations conducted by government authorities in other countries regarding the matters that have been under investigation by the government in the United States.”

“After Alcatel-Lucent retained new outside counsel, substantially larger resources were used to complete – and in some instances re-do – the internal investigation.  Alcatel-Lucent’s investigation was subsequently expanded a number of times.  For example, the ‘Global Review’ mentioned above was expanded to ten countries.  Later in 2007, the investigation expanded again when the government requested that Alcatel-Lucent conduct a detailed investigation into the company’s conduct in Nigeria and any country for which Sapsizian had responsibility or in which he had dealings, which amount to a total of 17 additional countries.  Alcatel-Lucent and its outside counsel presented a series of reports on their findings with respect to each country.”

“Separately, Alcatel-Lucent voluntarily undertook a lengthy review of its agent and consultant approval process in 2007.  As part of this review, Alcatel-Lucent retained an independent investigative firm to review all of Alcatel-Lucent’s 300 then-existing agents and consultants.  Based on reports from the investigative firm, Alcatel-Lucent decided to terminate certain agents immediately and to cease working with other agents in the future.  Alcatel-Lucent also undertook a detailed Terminated Agents Review to review the activities of 11 former agents for evidence of potential bribery or other wrongdoing.  Alcatel-Lucent reported to the government on its findings related to these agents …”.

“Additionally, in June 2008, Alcatel-Lucent commenced a review of its Board of Directors’ and other senior management’s knowledge of, and involvement in, any of the wrongdoing.  As part of this review, interviews were conducted of 26 individuals who were either current high-ranking members of Alcatel-Lucent’s management, former high-ranking members of Alcatel’s management, or were in a position to provide information relevant to the review.  Alcatel-Lucent and its counsel also reviewed documents collected from these individuals.  Alcatel-Lucent and its counsel reported to the government on their findings regarding the Senior Management Review in March 2009.”

Overall, Alcatel-Lucent’s outside counsel interviewed over 330 witnesses as part of these investigations, collected data from 201 individuals, and reviewed over 2 million documents, of which over 200,000 documents were produced to the government.”


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