The day after Labor Day has always seemed like a second New Year.
In that spirit, let’s kick off the “new year” by reviewing what has happened thus far in 2016 in the Foreign Corrupt Practices Act space.
Before doing so, if history is any guide September is likely to be an active month. Historically, DOJ and SEC enforcement officials have hit the speaking circuit in September and September has also tended to be an active month for FCPA enforcement as the SEC’s fiscal year ends on September 30th.
Indeed, as demonstrated in this post regarding the timing of FCPA enforcement actions, there is likely much that will happen before year-end. When it does happen, you can rest assure that FCPA Professor will provide the most timely and comprehensive coverage available.
There were three enforcement actions in August.
As highlighted in this post, Key Energy resolved an SEC administrative action finding that certain employees of an indirect Mexico subsidiary “abused their privileges, approving suspect arrangements with and payments to consultants and gifts to Mexican government officials at Pemex, and concealing these arrangements and payments from Key Energy.” Without admitting or denying the SEC’s findings, Key Energy agreed to pay $5 million in disgorgement. This post highlights additional issues to consider from the Key enforcement action and this post highlights that, whereas the SEC found that Key Energy “failed to implement and maintain sufficient internal controls,” a federal court judge found that the company’s “FCPA controls were adequate.”
As highlighted in this post, a DOJ criminal complaint was unsealed charging Samuel Mebiame, a Gabonese national connected to Och-Ziff, with conspiracy to violate the FCPA’s anti-bribery provisions.
As highlighted in this post, U.K. based AstraZeneca resolved an SEC administrative order finding that approximately six to ten years ago individuals at its Chinese and Russian subsidiaries provided various things of value to physicians in those countries. Without admitting or denying the SEC’s findings, AstraZeneca agreed to pay approximately $5.5 million in disgorgement, prejudgment interest and a civil penalty.
Other Developments or Items of Interest
In resolving the record-setting Siemens FCPA enforcement, the DOJ complimented Siemens on its remedial measures, stating that the company “set a high standard for multi-national companies to follow.” Yet as highlighted in this post, in a recent filing in a case seeking release of the Siemens monitor report, the DOJ advances a laughable position. That position – as articulated by the DOJ in seeking to block release of the monitor report – is that “disclosure of confidential information about Siemens’ compliance programs would provide a free roadmap as to what works in international commerce without violating the FCPA and other anti-corruption laws, what activities to avoid, how build an effective compliance program and system of internal controls, etc.”
There were two enforcement actions in July.
According to the SEC, “several members” of Johnson Controls indirect Chinese subsidiary “colluded with each other and circumvented and manipulated JCI’s internal and financial controls …”. The end result, as highlighted in this post, was an SEC administrative order in which the SEC found that Johnson Controls (JCI) violated the books and records and internal controls provisions of theFCPA. Without admitting or denying the SEC’s findings, JCI agreed to pay approximately $14.4 million. On the same day as the SEC enforcement action, the DOJ released a so-called “declination” letter to JCI’s counsel stating that it has closed its inquiry “concerning possible violation of the FCPA … despite the bribery by employees of JCI’s subsidiary in China.” However, this post poses the salient question – based on the information in the the public domain just what viable criminal charges did the DOJ actually decline? The answer appears to be none. This post highlights additional issues to consider from the JCI enforcement action and this post blows the whistle on certain JCI and related “declination” commentary.
As highlighted in this post, the DOJ and SEC returned to the same conduct from the SEC’s February 2016 enforcement action against Ignacio Cueto Plaza (the Chilean CEO of Santiago, Chile based LAN Airlines) in bringing parallel FCPA enforcement actions against LAN. In short, the end result of an old labor dispute between a Chilean airline and Argentine workers is approximately $22 million flowing into the U.S. Treasury because LAN has shares that are traded on a U.S. exchange. This post highlights the many additional issues to consider from the enforcement action.
Other Developments or Items of Interest
In connection with FCPA scrutiny, opportunistic plaintiffs’ counsel often bring derivative actions alleging that board members and other executives breached their fiduciary duties owed to the company and shareholders. Such claims are rarely successful. Indeed, as highlighted in this post, the Eighth Circuit recently affirmed dismissal of derivative claims brought by Wal-Mart shareholders and as highlighted in this post, the Ninth Circuit recently affirmed dismissal of derivative claims brought by Wynn Resort shareholders.
As highlighted in this post, the U.K. Serious Fraud Office announced its second DPA against an unnamed company apparently in the steel industry (according to the SFO, due to ongoing legal proceedings the name of the company and its U.S. parent company were disclosed). As highlighted in the post, the U.K.’s second DPA was much different than the U.K. first use of a DPA in the December 2015 Standard Bank enforcement action.
There were three enforcement actions in June.
Nortek / Akamai
As highlighted in this post, Nortek agreed to an SEC non-prosecution agreement to resolve “possible violations of the books and records and internal controls provisions” based on the conduct of an indirect Chinese subsidiary. Pursuant to the NPA, Nortek agreed to pay approximately $322,000 in disgorgement and prejudgment interest. As highlighted in this post, Akamai Technologies also agreed to an SEC non-prosecution agreement to also resolve “possible violations of the books and records and internal controls provisions” based on the conduct of a Chinese subsidiary. Pursuant to the NPA, Akamai agreed to pay approximately $672,000 in disgorgement and prejudgment interest. The Nortek and Akamai enforcement actions were announced by the SEC on the same day and in the same press release. Simultaneously, the DOJ released two so-called “declination” letters involving the same two companies. However, this post poses the salient question – based on the information in the the public domain just what viable criminal charges did the DOJ actually decline? The answer appears to be none. As highlighted in this post, certain commentators stated that Nortek and Akamai benefited from voluntary disclosure and received excellent results. However, this is pure speculation. In any enforcement action originating from a voluntary disclosure we know what we know and we don’t know what we don’t know. What we don’t know is what would have happened if Nortek and Akamai did not disclose its internal findings of possible FCPA issues to the SEC and DOJ. This post highlights additional issues to consider from the Nortek and Akamai enforcement actions.
As highlighted in this post, the DOJ and SEC announced a parallel FCPA enforcement action against medical device manufacturer Analogic Corp. and BK Medical ApS (Analogic’s Danish subsidiary) in which the entities agreed to pay approximately $14.9 million. The conduct at issue involved alleged improper payments by BK Medical, primarily in Russia through distributors, and the government alleged that BK Medical took various steps to conceal its conduct from Analogic. In connection with the same administrative order, 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. This post highlights additional issues to consider from the enforcement action.
Other Developments or Items of Interest
DOJ policy justifications for NPAs and DPAs were undermined on both ends of the spectrum in June. 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 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, 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.
As highlighted in this post, the Supreme Court unanimously rejected the “government’s boundless interpretation of the federal bribery statute” in U.S. v. McDonnell (the former Virginia governor’sappeal 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 highlights other recent Supreme Court decisions to similarly rebuke enforcement theories relevant to FCPA enforcement. Finally, this post 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.
There was no FCPA enforcement activity in May.
Other Developments or Items of Interest
Disgorgement was in the news in May. As highlighted in this post the IRS concluded that disgorgement paid in anFCPA enforcement action is not deductible because the “payment was primarily punitive.” In the second disgorgement development in May, the 11th Circuit concluded that disgorgement is subject to a five-year statute of limitations. As discussed in this post, 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, 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 former Deputy AG Larry Thompson blasted various DOJ policies.
Staying with the DOJ, this post discusses desired attributes for the next DOJ FCPA Unit Chief including business chops, being a student of the FCPA, and various commitments.
With the presidential election coming into clearer focus in May, this post highlighted Donald Trump’s previous comment that the FCPA is a “horrible law and it should be changed” while also discussing how Trump likely conflated the issues. This post invites readers to consider whether Hillary Clinton has a corruption perception problem.
Finally, this guest post highlights recent provides a status update on the latest anti-corruption developments in France including issues that arise from a draft law and this post contains a Q&A regarding the article “A Common Language to Remedy Distorted FCPA Enforcement Statistics.”
Las Vegas Sands
The Foreign Corrupt Practices Act has always been a law much broader than its name suggests. In addition to anti-bribery provisions, the FCPA also contains more generic books and records and internal controls provisions. While there are a few sentences in the SEC’s Las Vegas Sands (LVS) administrative order that touch upon issues relevant to the anti-bribery provisions, the enforcement action was on balance a pure books and records and internal controls action. Among other things, the SEC found that LVS lacked supporting documentation or appropriate authorization concerning the company’s involvement with a Chinese basketball team, the purchase of a building, a high-speed ferry service, and other aspects of its casino business in Macau. As highlighted in this post, LVS agreed to pay $9 million to resolve the action and this post highlights additional issues to consider.
Other Developments or Items of Interest
As highlighted here, on April 5th the DOJ issued a policy document titled “The Fraud Section’s FCPAEnforcement Plan and Guidance.” The document outlined various steps in the DOJ’s “enhanced FCPAenforcement strategy” including a “pilot program” intended to “encourage companies to disclose FCPAmisconduct to permit the prosecution of individuals whose criminal wrongdoing might otherwise never be uncovered or disclosed to law enforcement.”
- This post sets forth in a Q&A format what you need to know about the pilot program.
- This post highlights the obvious logical gap in the pilot program.
- This post, titled “FCPA Insanity” highlights how the main thrust of the “pilot program” (that is to encourage voluntary disclosure) is nothing new.
- This post highlights, through the DOJ’s own numbers, how the pilot program is also nothing new in terms of substance.
- This post highlights that the general thrust of practitioner comments is a “thumbs down” for the DOJ’slatest effort to encourage voluntary disclosure with some of the most pointed criticisms coming from former high-ranking DOJ FCPA officials.
- This post discusses that a supreme irony of the pilot program is that it bears the signature of Andrew Weissmann (Chief of the DOJ’s Fraud Section), who in recent years has been a vocal critic of the DOJ’sFCPA enforcement program, and suggests that Weissmann should have listened to his former self.
- Finally, this post highlights various reasons why the corporate community should take the pilot program with a grain of salt.
As highlighted in this post, the D.C. Circuit concluded in U.S. v. Fokker Services (a case outside the FCPA context) that a trial court judge should have been a potted plant because trial court judges lack authority to reject DOJ DPAs.
This post commends Jonathan Rusch (Senior V.P. and Head of Anti-Bribery & Corruption Governance at Wells Fargo) for doing something few in-house counsel would ever think of doing – penning an open letter to the DOJ for how it can do its job better.
Like February, March was also an active month for FCPA enforcement.
As highlighted in this post, after publicly pushing back against the SEC, Qualcomm caved by agreeing to pay $7.5 million in an SEC enforcement action concerning alleged improper hiring and other practices in China. This post highlights additional issues to consider from the enforcement action.
Olympus Latin America
As highlighted in this post, Olympus Latin America agreed to pay $22.8 Million in a DOJ enforcement action – the latest to allege that certain health care professionals are “foreign officials.” This post highlights additional issues to consider from the enforcement action.
As highlighted in this post, just when you think you’ve seen it all, along comes the $375,000 Nordion (Canada) SEC enforcement action based on the conduct of one employee who concealed his conduct from his employer. This post highlights additional issues to consider from the enforcement action.
As highlighted in this post, Novartis coughed up $25 million to resolve an SEC FCPA enforcement action based on alleged conduct by indirect Chinese subsidiaries. This post highlights additional issues to consider from the enforcement action and this post highlights how days after the enforcement action Novartis again came under scrutiny for alleged improper conduct in a different country.
Other Items of Interest
This post is a must read for anyone interested in learning how FCPA enforcement statistics are often distorted.
As highlighted in this post, 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.
As highlighted in this post, despite much talk about the importance of transparency, the DOJ continues to block public release of the Siemens’ monitor report, a condition of settlement from the still record-setting $800 million FCPA enforcement action against Siemens in 2008.
February may be the shortest month of the year, but there was lots of FCPA enforcement activity.
2016 FCPA enforcement began with an SEC enforcement action against SAP. As highlighted here, the enforcement action was based on the same Panama conduct from the parallel 2015 SEC enforcement action against Vicente Garcia (a former head of Latin American sales for SAP). Without admitting or denying the SEC’s findings in an administrative order, SAP agreed to pay approximately $3.9 million. This post highlights several significant (and alarming) issues from the enforcement action.
As highlighted in this post, SciClone Pharmaceuticals resolved its long-standing (since 2010) FCPA scrutiny. Without admitting or denying the SEC’s findings in an administrative order, SciClone agreed to pay $12.8 million based on findings that its Chinese subsidiary provided things of value (such as weekend trips, foreign language classes, “golf in the morning and beer drinking in the evening,” and travel to the Grand Canyon and Disneyland) to healthcare professionals employed by state-owned hospitals in China. This post highlights additional issues to consider from the enforcement action.
As highlighted in this post, the current CEO of LAN Airlines (Chilean citizen Ignacio Cueto Plaza) resolved an SEC enforcement action based on a payment he authorized 10 years ago in connection with a labor dispute in Argentina. 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. The post highlights how the Cueto enforcement action was noteworthy in at least five respects.
As highlighted in this post, PTC Inc. and related entities paid $28 Million in yet another FCPA enforcement action involving travel and entertainment provided to alleged Chinese “foreign officials.” The enforcement action focused on travel to PTC’s facilities in the U.S. that morphed to include non-business leisure travel to places such as New York, Las Vegas, Honolulu and included activities such as guided tours, golfing and other leisure activities. In addition, the foreign subsidiaries provided gifts (such as iPods, gift cards, wine and clothing) ranging from $50 to $600 to the alleged “foreign officials.” The enforcement action involved: (i) a DOJ non-prosecution agreement against Parametric Technology (Shanghai) Software Co. Ltd. and Parametric Technology (Hong Kong) Limited in which the Companies agreed to a criminal penalty of $14,540,000; (ii) an SEC administrative order against PTC Inc. which the company agreed to resolve through a payment of approximately $13.7 million; and (iii) an SEC DPA against Yu Kai Yuan (a Chinese citizen who resides in Shanghai and a former employee of the PTC China entities) in what the SEC called “its first DPA with an individual in an FCPA case.” This post highlights additional issues to consider from the enforcement action.
As highlighted here and here, VimpelCom and a related entity resolved a parallel DOJ and SEC enforcement action that netted $397.5 in U.S. settlement amounts. The enforcement action focused on an Uzbekistan bribery scheme and the resolution documents contain numerous allegations about VimpelCom executive officers as well as various VimpelCom corporate committees that were engaged in the improper conduct. The allegations in the VimpelCom action are egregious and paint a picture of a culture of corruption at VimpelCom with high-level executives seeking legal cover at nearly every turn to facilitate the alleged bribery scheme. The enforcement action involved: (i) a DOJ criminal information against Unitel LLC (an entity headquartered and incorporated in Uzbekistan) resolved via a guilty plea; (ii) a DOJ criminal information against VimpelCom (a Bermuda company that was headquartered in Moscow, Russia until 2010 when it moved its headquarters to Amsterdam, the Netherlands and which has shares traded on NASDAQ and previously the New York Stock Exchange) resolved via a deferred prosecution agreement; and (iii) settled SEC civil complaint against VimpelCom. This post highlights additional issues to consider from the enforcement action.
Other Items of Interest
This post highlights the “alter ego” theories advanced by the SEC in the above SciClone and PTC enforcement actions.
This post contains a Q&A on the uncomfortable truths and double standards of U.S. bribery enforcement.
There was no enforcement activity in January.
Other Items of Interest
This post asks “why does the SEC even have an FCPA unit?”
Perhaps you’ve noticed the emergence of the term “compliance 2.0″ in the Foreign Corrupt Practices Act space and beyond? This post asserts that “compliance 2.0” is mostly a meaningless buzzword.