- FCPA Professor - https://fcpaprofessor.com -

Mid-Year FCPA Report

This post highlights Foreign Corrupt Practices Act enforcement and related developments at the mid-point of 2016.

In doing so, this post contains several FCPA enforcement statistics. When publishing yearly FCPA enforcement statistics, I remind readers that any statistic with an arbitrary cutoff date is of marginal value. This reminder is even more important when interpreting mid-year 2016 FCPA statistics.

Another reminder, once again various FCPA Inc. participants are engaging in haphazard and creative counting methods that distort FCPA statistics. (See here [1] for the article “A Common Language to Remedy Distorted FCPA Enforcement Statistics”).

For instance, the otherwise solid “Recent Trends and Patterns in FCPA Enforcement [2]” by Shearman & Sterling states: “Among the highlights thus far from 2016 were: Twelve corporate enforcement actions with total sanctions of $920.8 million, due in large part to the sanctions levied against VimpelCom, already makes 2016 the third highest year in corporate FCPA sanctions on record.” This inflates the amount of U.S. government recovery in FCPA enforcement actions thus far in 2016 by approximately $397 million. Similarly, this [3] recent FCPA Blog post titled “FCPA Enforcement Report for Q2 2016” includes 7 individual actions by the SEC that did not include any FCPA violations and notably are not even listed on the SEC’s FCPA website [4]. If FCPA enforcement statistics are to mean anything, such statistics should only include enforcement actions that charge or reference FCPA violations.

In short, thus far in 2016 there have been 12 core corporate FCPA enforcement actions. Total U.S. government recovery in these actions has been approximately $523 million (after accounting for various credits and deductions in the VimpelCom action). The VimpelCom enforcement action ($397.5 million) comprises approximately 75% of this figure.

This post breaks down FCPA enforcement into the following categories: DOJ (corporate); DOJ (individual); SEC (corporate); and SEC (individual). Thereafter, this post highlights other FCPA developments or items of interest thus far in 2016.

DOJ Enforcement (Corporate)

The DOJ has brought 4 corporate FCPA enforcement actions in 2016. DOJ recovery in these actions was approximately $270 million (after accounting for various credits and deductions in the VimpelCom action). The VimpelCom enforcement action ($230 million) accounts for 85% of the DOJ’s recovery. None of these enforcement actions have resulted (at least yet) in any related DOJ individual FCPA enforcement actions.

The four corporate DOJ enforcement actions all involved an NPA (2) or a DPA (2). (Note the VimpelCom enforcement action involved both a DPA and plea).

PTC Entities (February 16th)

See here [5] and here [6] for prior posts

Charges:  None

Resolution Vehicle:  NPA against the following PTC entities: Parametric Technology (Shanghai) Software Co. Ltd. and Parametric Technology (Hong Kong) Limited

Guidelines Range:  Not set forth in the NPA

Penalty:  $14.5 million

Origin: The NPA states: “Although the Companies, through their parent corporation PTC Inc., reported to the Office in 2011 certain misconduct identified through a then-ongoing internal investigation, they did not voluntarily disclose relevant facts known to PTC Inc. at the time of the initial disclosure until the Office uncovered salient facts regarding the Companies’ responsibility for the improper travel and entertainment expenditures at issue independently and brought them to the Companies’ attention, after which the Companies disclosed information that they had learned as part of an earlier internal investigation”

Monitor:  No

Individuals Charged:  No

Vimpelcom (February 18th)

See here [7], here [8], and here [9] for prior posts

Charges:  Unitel LLC – conspiracy to violate the FCPA’s anti-bribery provisions; VimpelCom Ltd – conspiracy to violate the FCPA’s anti-bribery and books and records provisions and a separate count of violating the FCPA’s internal controls provisions.

Resolution Vehicle:  Unitel – plea agreement; VimpelCom – DPA

Guidelines Range:  Unitel – $732 million to $1.46 billion; VimpelCom – $836 million to $1.67 billion

Penalty:  $460.3 million (reduced to $230.1 million after accounting for various credits and deductions)

Origin:  Unclear from the resolution documents

Monitor:  Yes

Individuals Charged:  No

Olympus Latin America (March 1st)

See here [10] and here [11] for prior posts

Charges:  Conspiracy to violate the FCPA’s anti-bribery provisions and violating the FCPA’s anti-bribery provisions

Resolution Vehicle:  DPA

Guidelines Range:  $28.5 million – $57 million

Penalty:  $22.8 million

Origin: Unclear from the resolution documents

Monitor:  Yes

Individuals Charged:  No

BK Medical (Analogic) (June 21st)

See here [12] and here [13] for prior posts

Charges:  None

Resolution Vehicle:  NPA against BK Medical (Analogic’s Danish subsidiary)

Guidelines Range:  Not set forth in the NPA although the NPA does state: “the Company received an aggregate discount of 30% off the bottom of the U.S. Sentencing Guidelines fine range.”

Penalty:  $3.4 million

Origin: Voluntary Disclosure

Monitor:  No

Individuals Charged:  No

DOJ Enforcement (Individual)

The DOJ announced one individual FCPA enforcement action. In connection with a 2015 individual FCPA enforcement action involving Venezuela’s state-owned and state-controlled energy company, Petroleos de Venezuela S.A. (see here [14]) the DOJ unsealed additional charges against Moises Abraham Millan Escobar (Millan), a former employee of Abraham Shiera, an individual previously charged in 2015.

SEC Enforcement (Corporate)

The SEC has brought 11 corporate FCPA enforcement actions in 2016. SEC recovery in these actions was approximately $253 million (after accounting for various credits and deductions in the VimpelCom action). Of the 11 corporate enforcement actions, 8 were resolved via administrative cease and desist orders and 2 were resolved via NPAs. Of the 11 corporate enforcement actions, 4 enforcement actions have also resulted in related individual charges.

SAP (February 1st)

See here [15] and here [16] for prior posts

Charges:  None.  Administrative cease and desist order finding violations of FCPA’s books and records and internal controls provisions.

Settlement:  Approximately $3.9 million (disgorgement of $3.7 million and prejudgment interest of $188,896)

Origin:  The SEC’s order states “when SAP learned of the conduct as a result of the SEC’s inquiry, SAP conducted a thorough internal investigation and extensively cooperated with the SEC’s investigation …”

Individuals Charged: Yes – in August 2015 Vicente Garcia (a former head of Latin American sales for SAP) resolved a parallel DOJ / SEC FCPA enforcement action based on the same conduct (see here [17] for the prior post).

Related DOJ Enforcement Action: No

SciClone Pharmaceuticals (February 4th)

See here [18] and here [19] for prior posts

Charges:  None.  Administrative cease and desist order finding violations of FCPA’s anti-bribery provisions, books and records and internal controls provisions.

Settlement:  $12.8 million ($9,426,000 in disgorgement, prejudgment interest of $900,000 as well as a $2.5 million civil penalty)

Origin:  SEC subpoena

Individuals Charged: No

Related DOJ Enforcement Action: No

PTC (February 16th)

See here [5] and here [6] for prior posts

Charges:  None.  Administrative cease and desist order finding violations of FCPA’s anti-bribery provisions, books and records and internal controls provisions

Settlement:  $13.7 million ($11.9 million in disgorgement and $1.8 in prejudgment interest)

Origin:  The SEC’s order states: “PTC only discovered the improper payments to or for the benefit of Chinese government officials in 2011, while investigating complaints concerning a senior PTC-China salesperson. Upon learning this information, PTC, with the oversight of the Audit Committee of the Board of Directors, engaged independent counsel and an independent forensic consulting firm to undertake an investigation. PTC voluntarily self-reported the results of its internal investigation to the Commission and responded to information requests from the Commission staff. PTC did not, however, uncover or disclose the full scope and extent of PTC-China’s FCPA issues until 2014.”

Individuals Charged: Yes

Related DOJ Enforcement Action: Yes

VimpelCom (February 18th)

See here [7], here [8], and here [9] for prior posts

Charges:  Settled civil complaint charging violations of the FCPA’s anti-bribery provisions, books and records provisions, and internal controls provisions

Settlement: $167.5 million in disgorgement (after accounting for various credits and deductions)

Origin:  Unclear from the resolution documents

Individuals Charged: No

Related DOJ Enforcement Action: Yes

Qualcomm (March 1)

See here [20] and here [21] for prior posts

Charges:  None. Administrative cease and desist order finding violations of the FCPA’s anti-bribery, books and records and internal controls provisions

Settlement: $7.5 million civil penalty

Origin:  Qualcomm’s FCPA scrutiny was, at least partially, related to September 2010 formal order of private investigation from the SEC that arose from a “whistleblower’s” allegations made in December 2009 to the audit committee of the Company’s  Board of Directors and to the SEC. As Qualcomm previously disclosed, “the audit committee completed an internal review of the allegations with the assistance of independent counsel and independent forensic accountants. This internal review into the whistleblower’s allegations and related accounting practices did not identify any errors in the Company’s financial statements.” More directly related to the FCPA scrutiny, according to Qualcomm’s previous disclosure: “On January 27, 2012, the Company learned that the U.S. Attorney’s Office for the Southern District of California/DOJ has begun a preliminary investigation regarding the Company’s compliance with the Foreign Corrupt Practices Act (FCPA), a topic about which the SEC is also inquiring.”

Individuals Charged: No

Related DOJ Enforcement Action: No

Nordion (March 3)

See here [22] and here [23]for prior posts

Charges:  None. Administrative cease and desist order finding violations of the FCPA’s books and records and internal controls provisions

Settlement: $375,000 civil penalty

Origin:  Voluntary disclosure

Individuals Charged: Yes

Related DOJ Enforcement Action: No

Novartis (March 23)

See here [24] and here [25] for prior posts

Charges:  None.  Administrative cease and desist order finding violations of FCPA’s books and records and internal controls provisions.

Settlement:  $25 million ($23 million in disgorgement and prejudgment interest and a $2 million penalty)

Origin:  The resolution documents state: “n connection with the SEC Staff s investigation and in response to media reports concerning a competitor in August 2013, Novartis instituted an expansive review of its relationships in China with travel and event planning vendors”

Individuals Charged: No

Related DOJ Enforcement Action: No

Las Vegas Sands (April 7th)

See here [26] and here [27] for prior posts

Charges:  None.  Administrative cease and desist order finding violations of FCPA’s books and records and internal controls provisions.

Settlement:  $9 million civil penalty

Origin:  The SEC’s order states “In connection with the investigation by the Staff, the LVSC Audit Committee retained outside counsel to conduct an internal investigation.”

Individuals Charged: No

Related DOJ Enforcement Action: No

Nortek (June 7th)

See here [28] and here [29] for prior posts

Charges:  None.  NPA references ““possible violations of the books and records and internal accounting controls provisions of the FCPA.”

Settlement:  Approximately $322,000 in disgorgement and prejudgment interest

Origin:  Voluntary disclosure.

Individuals Charged: No

Related DOJ Enforcement Action: No. The DOJ released a so-called “declination letter” involving the company. See here [30] for the post titled “Nortek / Akamai – Don’t Believe the Hype, Rather Ask What Viable Criminal Charges Did the DOJ Actually Decline?”

Akamai Technologies (June 7th)

See here [31] and here [29] for prior posts

Charges:  None.  NPA references ““possible violations of the books and records and internal accounting controls provisions of the FCPA.”

Settlement:  Approximately $672,000 in disgorgement and prejudgment interest

Origin: Voluntary disclosure

Individuals Charged: No.

Related DOJ Enforcement Action: No. The DOJ released a so-called “declination letter” involving the company. See here [30] for the post titled “Nortek / Akamai – Don’t Believe the Hype, Rather Ask What Viable Criminal Charges Did the DOJ Actually Decline?”

Analogic (June 21st)

See here [12] and here [13] for prior posts

Charges:  None.  Administrative cease and desist order finding violations of FCPA’s books and records and internal controls provisions.

Settlement: Approximately $11.5 million in disgorgement and prejudgment interest

Origin:  Voluntary disclosure

Individuals Charged: Yes. Based on the same conduct the SEC also announced that “Lars Frost, BK Medical’s former Chief Financial Officer, agreed to pay a $20,000 civil penalty to settle charges that he knowingly circumvented the internal controls in place at BK Medical and falsified its books and records.”

Related DOJ Enforcement Action: Yes

SEC Enforcement (Individual)

The SEC has brought FCPA enforcement actions against four individuals thus far in 2016.

In connection with the Nordion enforcement action, the SEC also found that Mikhail Gourevitch (a dual Canadian and Israeli citizen who was fired years ago by Nordion) violated the FCPA’s anti-bribery, books and records, and internal controls provisions. Without admitting or denying the SEC’s findings, Gourevitch agreed to pay disgorgement of $100,000, prejudgment interest of $12,950, and a $66,000 civil penalty.

In connection with the PTC enforcement action, the SEC also alleged in a DPA that Yu Kai Yuan (a Chinese citizen who resides in Shanghai and a former employee of the PTC China entities) caused violations of the FCPA’s books and records and internal controls provisions. Without admitting or denying the SEC’s allegations, Yuan agreed to refrain from violating the securities laws and agreed to a so-called “muzzle clause.”

As highlighted in this prior post [32], the SEC found in an administrative cease and desist order that Ignacio Cueto Plaza, the current CEO of LAN airlines, caused books and records and internal controls violations by LAN, that Cueto also knowingly circumvented or knowingly failed to implement a system of internal accounting controls or knowingly falsified book, record or account, and that Cueto also violated falsified or cause to be falsified, a book, record, or account.  Without admitting or denying the SEC’s findings, Cueto agreed to cease and desist from future legal violations and agreed to pay a $75,000 civil penalty.

In connection with the Analogic enforcement action, the SEC also announced that “Lars Frost, BK Medical’s former Chief Financial Officer, agreed to pay a $20,000 civil penalty to settle charges that he knowingly circumvented the internal controls in place at BK Medical and falsified its books and records.”

Other Developments or Items of Interest

As highlighted in this post [33], the Supreme Court unanimously rejected the “government’s boundless interpretation of the federal bribery statute” in U.S. v. McDonnell (the former Virginia governor’s appeal of criminal charges related to the acceptance of $175,000 in loans, gifts, and other benefits from a businessman). Although outside the FCPA context, the case is relevant to FCPA enforcement because of the Court’s narrow interpretation of “official action” (a term that also appears in the FCPA).  This post [34] highlights other recent Supreme Court decisions to similarly rebuke enforcement theories relevant to FCPA enforcement. Finally, this post [35] analyzes what if the Supreme Court had accepted cert in the 2014 “foreign official” challenge (“Esquenazi“). As discussed in the post, even though the Supreme Court denied cert, the Supreme Court has recently heard several cases concerning aggressive theories of federal criminal prosecution and implicating the same general statutory interpretation issues at issue in Esquenazi. In each of the analogous decisions, the Supreme Court (often by wide margins) rejected the DOJ’s statutory interpretation and if the Supreme Court had accepted cert in Esquenazi it is probable that the Supreme Court would have overturned the convictions.

DOJ policy justifications for NPAs and DPAs were undermined on both ends of the spectrum. For nearly a decade, the DOJ has implicitly asserted that NPAs and DPAs were needed to avert the “Arthur Andersen effect” ((i.e. that criminal charges alone, and certainly criminal convictions, could be the death sentence of a business organization). Although the theory has long been debunked, this post [36] declares the death of the “Arthur Andersen effect” as FedEx successfully beat back DOJ criminal charges. As discussed in the post, fighting back against what a company perceives to be aggressive and overzealous DOJ theories is an acceptable and viable option and if more companies did what FedEx did the current FCPA enforcement landscape would look much different. On the other end of the NPA and DPA policy spectrum, the DOJ has long maintained that such resolution vehicles  “have had a truly transformative effect on particular companies” and that “the result has been, unequivocally, far greater accountability for corporate wrongdoing — and a sea change in corporate compliance efforts.” However, as highlighted in this post [37], the DOJ determined that Biomet (a company which resolved an FCPA enforcement action in 2012 by agreeing to pay $22.8 million) breached its DPA. Thus, Biomet joined a list of other companies that have resolved FCPA enforcement actions through alternative resolution vehicles to have subsequently resolved additional FCPA enforcement actions or become the subject of additional FCPA scrutiny.

Disgorgement was in the news. As highlighted in this post [38] the IRS concluded that disgorgement paid in an FCPA enforcement action is not deductible because the “payment was primarily punitive.” In the second disgorgement development, the 11th Circuit concluded that disgorgement is subject to a five-year statute of limitations. As discussed in this post [39], the decision undermines the government’s assertion in the FCPA Guidance that a five-year statute of limitations “does not prevent SEC from seeking equitable remedies, such as an injunction or the disgorgement of ill-gotten gains, for conduct pre-dating the five-year period.”

As highlighted in this post [40], DOJ Deputy Attorney General Sally Yates again defended the so-called “Yates Memo.” However, the Yates Memo continues to be met with substantial criticism. For instance, as highlighted in this post [41] former Deputy AG Larry Thompson blasted various DOJ policies.

As highlighted here [42], in April the DOJ issued a policy document titled “The Fraud Section’s FCPA Enforcement Plan and Guidance.” The document outlined various steps in the DOJ’s “enhanced FCPA enforcement strategy” including a “pilot program” intended to “encourage companies to disclose FCPA misconduct to permit the prosecution of individuals whose criminal wrongdoing might otherwise never be uncovered or disclosed to law enforcement.”

As highlighted in this post [50], in what is believed to be a first, a federal court judge construed the the rarely implicated “public international organization” prong of the FCPA’s “foreign official” definition.