September 17th, 2014

DOJ’s Empty Rhetoric On Individual FCPA Prosecutions Continues

This previous post highlighted the empty rhetoric of a formter DOJ Criminal Division Chief regarding individual FCPA prosecutions.

A change in leadership at the DOJ Criminal Division has not brought about a change in the rhetoric.

As noted in this Reuters FCPA article, current Chief of the Criminal Division Leslie Caldwell stated:

“Certainly…there has been an increased emphasis on, let’s get some individuals.”

“It’s very important for us to hold accountable individuals who engage in criminal misconduct in white-collar (cases), as we do in every other kind of crime.”

Once again, the rhetoric is empty.

Sure the DOJ can point to a few core actions in which the DOJ has “clustered” multiple defendants into one action to achieve notable individual prosecution numbers.  The April 2014 action against six individuals allegedly involved in a conspiracy to obtain Indian mining licenses is a good example as was the “clustering phenomenon” in the enforcement action against five individuals associated with Direct Access Partners.   As highlighted in this previous post (with statistics calculated through the end of 2013), 53% of the individuals charged by the DOJ with FCPA criminal offenses since 2008 have been in just four cases and 75% of the individuals charged by the DOJ since 2008 have been in just nine cases.

In the vast majority of corporate FCPA enforcement actions (based presumably on the conduct of real individuals not ghosts as I indicated in my 2010 Senate FCPA testimony), the talk of individual prosecutions is nothing more than empty rhetoric.  Indeed, as highlighted in this previous post (with statistics calculated through the end of 2013) since 2008 approximately 75% of corporate FCPA enforcement have not (at least yet) resulted in any DOJ charges against company employees.

Consider the below chart with the 20 most recent corporate FCPA enforcement actions.  Only one has resulted (at least yet) in any DOJ charges against company employees.

Corporate Action

Related Prosecution of Company Employees

 

HP

No

Marubeni

No

Alcoa

No

ADM

No

Bilfinger

No

Weatherford

No

Diebold

No

Total

No

Ralph Lauren

No

Parker Drilling

No

Tyco

No

Pfizer

No

Nordam Group

No

Orthofix

No

Data Systems & Solutions

No

Biomet

No

BizJet / Lufthansa

Yes

Smith & Nephew

No

Marubeni

No

Magyar / Deutsche Telekom

No

The DOJ has long recognized that an FCPA enforcement program based solely on corporate fines is not effective and does not adequately deter future FCPA violations. For instance, in 1986 the DOJ Deputy Assistant Attorney General stated:

“If the risk of conduct in violation of the [FCPA] becomes merely monetary, the fine will simply become a cost of doing business, payable only upon being caught and in many instances, it will be only a fraction of the profit acquired from the corrupt activity. Absent the threat of incarceration, there may no longer be any compelling need to resist the urge to acquire business in any way possible.”

In 2010, the DOJ Deputy Chief of the Fraud Section likewise stated that a corporate fine-only FCPA enforcement program allows companies to calculate FCPA settlements as the cost of doing business.   In this new era, the DOJ has consistently stated that prosecution of individuals is a “cornerstone” of its FCPA enforcement strategy and in a 2012 speech the Assistant Attorney General stated: “If you look at the FCPA over the past 4 years, you’ll see we really have been vigorous about holding individuals accountable.” Add Caldwell’s recent statements to this long line of empty rhetoric.

Despite the rhetoric, the actual statistics demonstrate that FCPA enforcement is largely corporate enforcement only.

Posted by Mike Koehler at 12:03 am. Post Categories: DOJEnforcement Agency SpeechesFCPA StatisticsIndividual Enforcement Action




September 16th, 2014

Amicus Brief Filed Urging The Supreme Court To Hear “Foreign Official” Challenge

This previous post highlighted the petition for certiorari filed in the Supreme Court requesting the Court hear U.S. v. Esquenazi (the recent 11th Circuit decision of first impression in which the court concluded that certain state-owned or state-controlled enterprises  (SOEs) can be “instrumentalities” of a foreign government such that employees of SOEs can be “foreign officials” under the FCPA).

Last week, the Washington Legal Foundation and the Independence Institute joined to file this amicus brief in support of Petitioners as to Question 1 of the Petition (the “foreign official” issue).

Under the heading “Summary of Argument,” the brief states as follows.

“This case presents an issue of exceptional importance to the business community. Although the FCPA was adopted nearly 40 years ago, the statute has  been the subject of remarkably few court decisions. The result is that there is very little definitive guidance regarding the statute’s meaning that can assist businesses in avoiding criminal violations, yet they are urgently in need of such guidance in light of the significant increase in FCPA enforcement activity during the past decade.

The issue raised by this case—who are the “foreign officials” to whom the FCPA restricts payments?—is the single greatest source of confusion regarding the scope of the FCPA. Until the Eleventh Circuit ruled in this case, no federal appeals court had addressed that issue. Moreover, amici are unaware of any other cases in the appellate pipeline that raise the issue. The reason for the dearth of cases is readily apparent. Although federal prosecutors have initiated numerous FCPA proceedings in recent years, every large business entity against which a proceeding was initiated has entered into a settlement agreement. In light of the huge negative consequences that would befall any company that contested and lost an FCPA case, businesses are categorically unwilling to challenge in court government assertions that payments it made violated the FCPA. Given the absence of any case law, review is urgently needed to provide the business community with concrete guidance regarding the FCPA’s definition of a “foreign official” (and the subsidiary term “instrumentality”). In the absence of such guidance from this Court, businesses will have to navigate these unsettled waters with only the negligible guidance provided by the decision below—with very little likelihood that other appeals courts will weigh in any time soon. The Eleventh Circuit’s guidance is thin indeed; by stating explicitly that its list of relevant factors is non-exclusive, the appeals court leaves American businesses to guess at when a corporation whose controlling shareholder is a foreign government will be deemed an “instrumentality” of that government for FCPA purposes.

Review is also warranted because the court below has adopted a definition of “instrumentality” that is far broader than anything set forth in the FCPA. The Eleventh Circuit’s definition is inconsistent with the language of § 78dd-2(h)(2)(A) as well as the overall structure of the FCPA. In particular, because the word “instrumentality” appears in conjunction with the  words “department” and “agency,” the maxim noscitur a sociis (a word is known by the company it keeps) calls into doubt the Eleventh Circuit’s decision to include entities within the definition of “instrumentality” that bear little resemblance to the common understanding of a government “department” or “agency.”

The appeals court’s definition is also inconsistent with Congress’s and this Court’s use of the term “instrumentality” in other contexts. In particular, the Court has never used that term in conjunction with a corporation that was not created by the government itself and where the government merely acted in a manner consistent with its (temporary) role as a majority shareholder.

The appeals court’s decision is particularly problematic because it arises in a criminal law context in which an individual’s good-faith disagreement with a prosecutor’s interpretation of a statutory term can (and did here) result in imposition of a lengthy prison term.  The Eleventh Circuit conceded that the word “instrumentality” is capable of multiple meanings. It adopted an extremely broad definition of the term, and at the same time it heightened potential uncertainty by insisting that whether a particular entity is an “instrumentality” of a foreign government is a question of fact to be determined by the jury. Indeed, the universal response among defense lawyers was that the decision left the issue even more muddled than it had been previously. The U.S. Department of Justice has declined to exercise the full extent of its authority to provide safe-harbor guidance that would reduce the level of uncertainty. As a result, the competitiveness of American businesses in overseas markets suffers when companies refrain from engaging in legal activities out of a fear that they might expose themselves to FCPA liability. Review is warranted to resolve that constitutionally intolerable level of uncertainty.

The United States has waived its right to respond to the Petition, perhaps in an effort to signal to the Court that the issues raised are unimportant and thus that review should be denied. The United States cannot in good faith assert that the issues raised herein are not of paramount importance. The principal question raised by the Petition (who qualifies as a “foreign official” for purposes of FCPA payment restrictions?) is at issue in a significant number of the numerous recent FCPA investigations, yet this is the first occasion the question has reached the appellate level, and there is little likelihood that the question will again reach this Court in the foreseeable future. At the very least, the United States ought to be directed to file a response and  explain why it believes that the case is unworthy of the Court’s attention.”

 

Posted by Mike Koehler at 12:03 am. Post Categories: Carlos RodriguezFCPA AppealsForeign OfficialJoel Esquenazi




September 15th, 2014

What Others Are Saying About The FCPA Institute

FCPA InstituteA diverse group of professionals from around the world recently elevated their Foreign Corrupt Practices Act knowledge and skills by attending the inaugural FCPA Institute.

The FCPA Institute is a unique two-day learning experience that is materially different than other FCPA conferences.

At a typical FCPA conference, participants are a face in the crowd and information is conveyed in a disjointed fashion by dozens of speakers appearing on multiple panels with little opportunity for actual engagement by participants.

However, at the FCPA Institute information is presented in an integrated and cohesive manner by an expert instructor with FCPA practice and teaching experience.  Moreover, the FCPA Institute promotes active engagement by participants through issue-spotting video exercises, skills exercises, small-group discussions and the sharing of real-world practices and experiences. To best facilitate the unique learning experience that the FCPA Institute represents, attendance at each FCPA Institute is capped at 30 participants.

FCPA Institute participants have their knowledge assessed and can earn a certificate of completion upon passing a written assessment tool.  In this way, successful completion of the FCPA Institute represents a value-added credential for professional development for a diverse group of professionals such as in-house and outside counsel; finance, accounting and auditing professionals; and other compliance professionals seeking sophisticated knowledge and enhanced skills relevant to the FCPA.

You can elevate your FCPA knowledge and practical skills by attending the next FCPA Institute in Miami, Florida on January 12-13, 2015.  Space is limited and you can register here.

Set forth below is what participants at the inaugural FCPA Institute had to say about their experience.

  • “Unlike other FCPA conferences where one leaves with a spinning head and unanswered questions, I left the FCPA Institute with a firm understanding of the nuts and bolts of the FCPA, the ability to spot issues, and knowledge of where resources can be found that offer guidance in resolving an issue.  The limited class size of the FCPA Institute ensured that all questions were answered and the interactive discussion among other compliance professionals was fantastic.”  (Rob Foster, In-House Counsel, Oil and Gas Company)
  • “The FCPA Institute was a professionally enriching experience and substantially increased my understanding of the FCPA and its enforcement. Professor Koehler’s extensive insight and practical experience lends a unique view to analyzing enforcement actions and learning compliance best practices. I highly recommend the FCPA Institute to practitioners from all career stages.” (Sherbir Panag, MZM Legal, Mumbia, India)
  • “The FCPA Institute was a valuable course; well worth the investment.  The 2 day session course was well structured; led by a renowned expert, and I was very pleased with the small class size which allowed for dynamic discussions by the course participants of successes and challenges in complying with the requirements of the FCPA in today’s complex business environment.” (Global Compliance Executive, CPA, CIA for Manufacturing Company)
  • “The FCPA Institute provided an in-depth look into the various forces that have shaped, and that are shaping, FCPA enforcement.  The diverse group of participants provided unique insight into how, at a practical level, various professionals evaluate risk and deal with FCPA issues on a day-to-day basis.  The small group setting, the interactive nature of the event, and the skills assessment test all set the FCPA Institute apart from other FCPA conferences or panel-based events.” (John Turlais, Foley & Lardner)
Posted by Mike Koehler at 12:04 am. Post Categories: Uncategorized




September 12th, 2014

Friday Roundup

The problem with NPAs and DPAs, how does your product go to market in China, media coverage in China, victory, scrutiny alerts and updates, and for the reading stack.  It’s all here in the Friday roundup.

The Problem With NPAs and DPAs

I’ve long called for the abolition of NPAs and DPAs in the FCPA context as part of a two-pronged reform approach (see here among other posts).  As highlighted here among other posts, NPAs and DPAs are problematic across a wide spectrum and the agreements often contain meaningless or senseless language.

This recent Wall Street Journal Law Blog post titled “5 Things Companies Agree to But Can’t Deliver On in DPAs” is a worthy read. It begins:

“FCPA lawyers have a love-hate relationship with deferred-prosecution agreements,” said Laurence Urgenson, a partner at Mayer Brown. “We need them to get around the collateral consequences of prosecutions…but there is language in the agreements that drives us crazy.” Mr. Urgenson said the agreements originated with settlements prosecutors would reach with individuals, often children, placing certain requirements on them as a condition for the charges eventually being dropped. But many of those requirements make no sense in a settlement with a company; Mr. Urgenson picked out some of his favorites.”

How Does Your Product Go To Market In China?

Returning to issues discussed in this 2011 post and this 2011 post, this recent article in Food Navigator – Asia (not my typical source of FCPA material) states as follows concerning practices in China:

“One currently emerging trend is how companies are apparently becoming more comfortable to talk openly about measures they are taking to avoid gaining approvals and still move their products to market.  Indeed, four companies outlined to us the agreements they had made with Chinese distributors to deliver their products to locations near to China and then leave the local partners to navigate their movement into the People’s Republic.  Most likely, this would be done in cahoots with ministry officials in deals that would involve sweeteners and other transactions.  ’Once we’ve delivered the product, it isn’t our problem what our partner decides to do with it,’ an executive at a U.S.-based multinational told us in Hong Kong.  ’It’s not the cost of approvals that concerns us, it’s the time,” a mid-market manufacturer, also from the U.S., told us.  ”It is important for us that we hit China right now.’  Not all the companies we talked to about this were from America, but the fact that two were was surprising.  This is not least because business practices there are governed by the FCPA …  [...]  What is surprising to us is not the fact that these practices exist at all, it is how U.S. businesses in particular have now become comfortable enough to openly brief the press about their part in this trend.”

That makes two of us that are surprised!

Media Coverage in China

This prior 2012 post titled “All the News That Fit? To Print” highlighted the practice of paying journalists for media coverage in China.  Related to the general issue is this recent New York Times article which describes how “journalists who worked for a business news website under investigation in Shanghai have described a scheme of extorting Chinese companies, which were pressed to pay in return for the production of flattering articles or the burying of damaging ones.”

Victory

In this prior post I exposed how the DOJ and SEC literally re-wrote the FCPA statute in the November 2012 issued FCPA Guidance. The post highlighted the difference – even a first year law student would be expected to see – between what the FCPA actually says and the version of the FCPA in the Guidance.

Set forth below is the text of the FCPA regarding the “obtain or retain business” element.

   ”anything of value to

         any foreign official for purposes of

(A) (i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (iii) securing any improper advantage; or

(B) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality,

         in order to assist such issuer in obtaining or retaining business for or with, or directing business to, any person;

Set forth below is how the text of the FCPA was [originally] portrayed in the FCPA Guidance.

   “anything of value to

         any foreign official for purposes of

(A) (i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (iii) securing any improper advantage; or

(B) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in order to assist such issuer in obtaining or retaining business for or with, or directing business to, any person;

Recently, I received an interesting e-mail from a reader who was confused by my prior post because the FCPA Guidance does not portray the FCPA as suggested in my original post.  The reader was right!  That’s because the DOJ/SEC changed the version of the FCPA originally set forth in the Guidance to its proper form.  To prove that the original FCPA Guidance literally re-wrote the FCPA, here is the version of the FCPA that originally appeared in the FCPA Guidance which relevant portions highlighted.

Subtle yes, but sometimes victory occurs in the shadows.

Scrutiny Alerts and Updates

HP Russia

Related to the April 2014 DOJ enforcement action against HP related entities (see here for the prior post), the DOJ announced yesterday that HP Russia formally pleaded guilty.

As stated in the DOJ release

“In a brazen violation of the FCPA, Hewlett Packard’s Russia subsidiary used millions of dollars in bribes from a secret slush fund to secure a lucrative government contract,” said Principal Deputy Assistant Attorney General Marshall Miller.  “Even more troubling was that the government contract up for sale was with Russia’s top prosecutor’s office.   Tech companies, like all companies, must compete on a level playing field, not resort to secret books and sham transactions to hide millions of dollars in bribes.  The Criminal Division has been at the forefront of this fight because when corruption takes hold overseas, American companies and the rule of law are harmed.  Today’s conviction and sentencing are important steps in our ongoing efforts to hold accountable those who corrupt the international marketplace.”

“Today’s conviction and sentence of HP Russia demonstrates that the United States Attorney’s Office is dedicated to aggressively prosecuting all forms of corporate fraud that touch our district, wherever they may occur,” said U.S. Attorney Melinda Haag.  “HP’s cooperation during the investigation is what we expect of major corporate leaders facing the challenges of doing business around the world.”

“For more than a decade HP Russia business executives participated in an elaborate scheme that involved paying bribes to government officials in exchange for large contracts,” said Assistant Director in Charge of the FBI’s Washington Field Office Andrew McCabe. “There is no place for bribery in any business model or corporate culture.  Along with the Department of Justice, the IRS and international law enforcement partners, the FBI is committed to investigating corrupt backroom deals that threaten our global commerce.”

Image Sensing Systems

Earlier this week, the company issued the following release:

“Image Sensing Systems, Inc. today announced that the DOJ has closed its inquiry into the Company in connection with the previously disclosed investigation of potential violations of the FCPA citing the Company’s voluntary disclosure, thorough investigation, cooperation and voluntary enhancements to its compliance program.  The SEC earlier notified the Company that it had closed its investigation under the FCPA without recommending enforcement action. Kris Tufto, Image Sensing Systems chief executive officer, commented, “We are very pleased to conclude the DOJ and SEC investigations without further action.  From the very beginning, we have voluntarily cooperated with the authorities and have worked diligently to implement measures to enhance our internal controls and compliance efforts. We understand that those efforts have been recognized and that the resolution of the investigation reflects this cooperation.”  As previously reported by Image Sensing Systems, it had learned in early 2013 that Polish authorities were conducting an investigation into alleged violations of Polish law by two employees of Image Sensing Systems Europe Limited SP.Z.O.O., its Polish subsidiary, who had been charged with criminal violations of certain laws related to a project in Poland. A special subcommittee of the audit committee of the board of directors immediately engaged outside counsel to conduct an internal investigation.  Image Sensing Systems voluntarily disclosed the matter to the DOJ and the SEC, and it has cooperated fully with those agencies in connection with their review.”

Alstom

Regarding the previously announced U.K. criminal charges against Alstom (see here for the prior post), the U.K. Serious Fraud Office recently released this charge sheet detailing the charges in connection with alleged conduct in India, Poland and Tunisia.

Reading Stack

A very interesting read from the New York TimesForeign Powers By Influence at Think Tanks.”  The article begins as follows.

“More than a dozen prominent Washington research groups have received tens of millions of dollars from foreign governments in recent years while pushing United States government officials to adopt policies that often reflect the donors’ priorities, an investigation by The New York Times has found. The money is increasingly transforming the once-staid think-tank world into a muscular arm of foreign governments’ lobbying in Washington.”

Forbes asks – is it “silly season” in China?  What is perhaps silly is the advice highlighted in the article to negotiate the regulatory minefield:

“[B]uild a network. ‘Involve some powerful local Chinese partners in some peripheral areas in order to build a political foundation. I don’t necessarily recommend an overall partnership, since they would be better off with a well-placed approach in specific areas. Have a partnership in marketing or R&D and develop a perception that you are working closely with Chinese firms, but in reality you will not give away anything that is sensitive.”

This is probably only going to increase a company’s risk because of the FCPA’s third-party payment provisions.

*****

A good weekend to all.

 





September 11th, 2014

When The Government Does Not Pay

Reading the news with FCPA goggles on is an occupational hazard.

So it was when reading this recent Wall Street Journal concerning the dysfunctional Venezuelan government and the impact on air travel in the country.  According to the article”the cash-strapped government [is] holding back on releasing $3.8 billion in airline-ticket revenue because of strict currency controls,” and because of this, international airlines “have slashed service to Venezuela by half since January, adding another layer of frustration to daily life” in Venezuela.  The article further states that “despite several months of talks over the money Venezuela owes to airlines, little progress has been made” and that “about two-thirds of the 24 airlines that are affected, including those with the most money tied up in Venezuela, haven’t reached a payment agreement with the state.”  The article adds that those airlines “that have reached deals lack guarantees that the funds will be released.”

The question is posed:  can Foreign Corrupt Practices Act issues arise if a company makes payments to a foreign official who refuses, in the absence of such payments, to release funds legitimately owed to the company?

Your mind is probably wondering through the statutory elements.

Corrupt intent.

Congress tells us in the FCPA’s legislative history that “the word ‘corruptly’ connotes and evil motive or purpose.” How can seeking what one is legally entitled to receive evil?

Obtain or retain business.

In U.S. v. Kay, the 5th Circuit did conclude that payments outside the context of foreign government procurement “could” violate the FCPA, but only if payments were intended to lower a company’s cost of doing business enough to assist the company in “obtaining or retaining” business.  Specifically, the court stated:

“If the government is correct that anytime operating costs are reduced the beneficiary of such advantage is assisted in getting or keeping business, the FCPA’s language that expresses the necessary element of assisting in obtaining business would be unnecessary, and thus surplusage – a conclusion we are forbidden to reach.”

Thus, how can seeking what one is legally entitled to receive satisfy the “obtain or retain business” element?

Facilitating payments.

The FCPA expressly excludes from the anti-bribery provisions payments made “to expedite or to secure the performance of a routine government action by a foreign official.”

How can seeking what one is legally entitled to receive not fit within the exception for “secur[ing] the performance of a routine government action”?

Despite the above legal authority, there have been at least three – what can only be called dubious – FCPA enforcement actions based on companies or individuals seeking what they are legally entitled to receive.

In 2013, the DOJ and SEC extracted $54 million from Archer Daniels Midland Co. and related entities.  As explained in the article “Why You Should Be Alarmed by the ADM FCPA Enforcement Action,” the principal feature of the enforcement action was that ADM and its shareholders were victims of a corrupt Ukraine government which refused to release value-added tax refunds legitimately owed to the company.  In the words of the DOJ, “the Ukrainian government did not have the money to pay VAT refunds that it owed to companies that sold Ukrainian goods outside of Ukraine.”  Likewise, the SEC acknowledged that the “Ukrainian government determined to delay paying the VAT refunds owed or did not make any refunds payments at all.”

Prior to the ADM action, there was a 2010 SEC action against Joe Summers concerning conduct in Venezuela.  The title of this previous post was “Paying to Secure Receivables Is Now Bribery?” and it began as follows.

“Attention to companies (and employees) operating around the world. If you are party to a contract, and a mid-level employee at the entity receiving services under the contract holds up payment of money the company is legitimately entitled to receive, but the mid-level employee requests payment in order to release the funds, and you make the requested payment, you are violating the Foreign Corrupt Practices Act.”

As highlighted in the previous post, part of the SEC’s allegations included the following.

“Following widespread strikes and civil unrest in Venezuela in late 2002, Pride [...] and other companies performing work for PDVSA (PDVSA is the Venezuela state-owned oil company) had difficulty collecting outstanding receivables from PDVSA. By early 2003, Pride [...] had significant unpaid receivables for services that it had provided to PDVSA. In or around March or April 2003, Pride [...] received information that a mid-level PDVSA accounts payable employee was holding up the payment of funds owed to Pride [...] and wanted a payment of approximately $30,000 in order to release the funds due. In or around March or April 2003, Summers authorized a payment of approximately $30,000 to a third party, believing that all or a portion of the funds would be offered or given by the third party to an employee of PDVSA for purposes of securing an improper advantage in receiving payment from PDVSA. Shortly thereafter, in or around April 2003, Pride [...] received overdue payments from PDVSA for work that Pride [...] had performed.”

A third example of an FCPA enforcement action being based on a dysfunctional government not paying a company money it was legitimately owed was highlighted in this previous titled “One of the More Dubious FCPA Enforcement Actions of All-Time” concerning a 1994 DOJ enforcement action against Vitusa Corporation and its President Denny Herzberg.

As highlighted in the previous post, the DOJ alleged that Vitusa (a New Jersey corporation engaged in the business of selling commodities and other goods) “entered into a lawful contract to sell milk powder to the Government of the Dominican Republic.”

The DOJ then alleged as follows.

“Although Vitusa delivered the milk powder to the Government of the Dominican Republic, the Dominican government did not pay Vitusa promptly for the milk powder received and, in fact, maintained an outstanding balance due for an extended period of time.  Vitusa, therefore, made various efforts to collect the outstanding balance due, including contacting officials of the United States and Dominican Governments to obtain their assistance in securing payment in full.”

According to the DOJ, “during the pendency of the contract, Servio Tulio Mancebo (a citizen of the Dominican Republic) communicated to Herzberg a demand made by a foreign official [a senior official of the Government of the Dominican Republic] which called for the payment of a ‘service fee’ to that official in return for the official using that official’s influence to obtain the balance due to Vitusa for the milk powder contract from the Dominican Government.” According to the DOJ, “Herzberg agreed to Mancebo’s proposal that Vitusa would pay a ‘service fee’ indirectly to the foreign official.”  Thereafter, the DOJ alleged that the Government of the Dominican Republic made payment of $63,905.12 to Vitusa on the contract, but that following Herzberg’s instruction, “Mancebo retained $20,000 from that payment.” According to the DOJ, Vitusa and Herberg knew “that all or a portion of the money would be given to the foreign official for the purpose of inducing the official to use that official’s position and influence with the Government of the Dominican Republic in order to obtain and retain business, that is, full payment of the balance due for Vitusa’s prior sale of milk powder to the Government of the Dominican Republic.” Based on the above allegations, the DOJ charged Vitusa with violating the FCPA’s anti-bribery provisions.

In recent years, it has become popular to talk about the “victims” of FCPA enforcement actions and feel good proposals have even been made suggesting that “victims” (you know, the citizens of country x  which served as the locus of an FCPA enforcement action) are deserving of compensation from the FCPA settlement amount.

As the above examples highlight however, sometimes the “victims” of FCPA enforcement actions are the companies or related individuals resolving the actions because they were legitimately owed money by a dysfunctional government that refused to pay.

Posted by Mike Koehler at 12:04 am. Post Categories: Non-Payment of Legal ObligationsVictims