September 2nd, 2014

When Worlds Collide: How International Arbitration Deals With Corruption

Today’s post is from Paul Cohen (Perkins Coie).

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Regular readers of FCPA Professor can be forgiven for wondering what role anti-corruption laws could possibly play in international arbitration.  The two fields seem, at first blush, to have as much in common as toxic torts law has with trusts and estates.

The reality, however, is that international arbitration practitioners constantly grapple with allegations of bribery and corruption.  If arbitrators resolving these issues get them wrong from time to time, that may be because the FCPA/anti-corruption bar and the great-and-good of the international arbitration world rarely mix.  Indeed, they prefer to treat each other, in Stephen Jay Gould’s phrase about science and religion, as non-overlapping magisteria.

As one of the small number of practitioners with one foot in each field, I’ve tried from time to time to expound on the state of anti-bribery law to my arbitration colleagues.  I’m grateful to Professor Koehler for the invitation to do the reverse here.

International arbitration is a form of dispute resolution between parties from different jurisdictions.  Arbitrators appointed by the parties, rather than courts, decide the issues. Thanks to a 1958 treaty on the recognition of arbitrators’ decisions (the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, aka the New York Convention) to which 150 nations subscribe, it is easier to enforce those decisions, known as “awards,” worldwide than it is to have a foreign court judgment recognized and domesticated.  That accounts in large part for international arbitration’s popularity.

Then there is the additional fact that other dispute resolution options prove unpalatable to one of the parties.  In contracts between an American entity and one from, say, one of the BRIC countries, the American entity is unlikely to accept the neutrality or efficacy of the counterparty’s home court for the purpose of dispute resolution.

By the same token, the counterparty will often reject a US court jurisdiction clause, coming as it does with the prospect of extensive discovery, expense, and potentially a jury trial.

These disputes between private parties pursuant to contracts with arbitration clauses come under the rubric of international commercial arbitration.  These arbitrations are often non-public, so information about them is often incomplete.

There is a second, and increasingly frequent, species of arbitration that occurs pursuant to trade and investment treaties between nations.  Under these treaties, a private party from one country that invests in the territory of another can arbitrate directly against the other country – no sovereign immunity – if it can allege that the other country violated pertinent terms of the treaty.

To take a (stereo)typical example: if an American oil company invests billions of dollars in oil exploration in Country X, and Country X’s government then nationalizes the oil industry, the American company may have a claim against Country X for expropriation of its assets.  This kind of arbitration is known, intuitively enough, as investment treaty arbitration.

Because these arbitrations involve sovereign nations (and often large, publicly-traded companies), their proceedings and conclusions are better-known and better-publicized.

What does all this have to do with corruption? Increasingly often, one party or another alleges that bribery of some kind played a part in the underlying transaction on which the arbitration turns.  Perhaps that should not come as a huge surprise: a plurality of arbitrations involve energy and mineral resources in places that would be considered the usual suspects in any corruption survey.

Moreover, with the number of arbitrations on a steady upswing and allegations of corruption showing no sign of abating, look for more opportunities for these two traditionally distinct fields to overlap and interact.

These issues first appeared in arbitration more than half a century ago.  At the time, “consulting” agreements with third parties – the kind we warn clients today are red flags in international business transactions – were commonplace for companies seeking to do business with sovereigns and state-owned entities.  Occasionally, parties to these agreements decided that they would renege on their arrangements with the “consultants.”  They then found themselves in arbitration for breach of contract.

In one such dispute, an engineer with close connections to Argentina’s Peron regime brought arbitration against a British electrical manufacturer looking to sell equipment to Argentine power plants.  It was self-evident that the agreement between the engineer and the electrical manufacturer was effectively a vehicle to funnel corrupt payments to Argentine decision-makers.

The arbitrator hearing the case rejected the claim.  He stated:

“[T]here exists a general principle of law recognised by civilised nations that contracts which seriously violate bonos mores [good morals] or international public policy are invalid or at least unenforceable and that they cannot be sanctioned by courts or arbitrators [...] [P]arties who ally themselves in an enterprise of the present nature must realise that they have forfeited any right to ask for assistance of the machinery of justice (national courts or arbitral tribunals) in settling their disputes.”

Note that this decision came in 1963, fully 14 years before the enactment of the FCPA.  Bribing foreign officials was not yet a crime in the US or elsewhere, but that did not make contracts for which the very purpose was corrupt enforceable.

Several arbitral decisions followed in similar vein.  All of them dealt with the issue of whether arbitrators could enforce contracts that effectively rewarded a party for funneling bribes to foreign officials.  All of them agreed that they could not.

This left open a separate question: what happened when parties arbitrated in a case where there may have been corruption in the original transaction?  For example, going back to our original hypothetical about an American oil company in Country X: if it transpired that the oil company had secured a concession to drill for oil through a bribe two decades earlier, how might this affect the arbitrators’ consideration of the oil company’s expropriation claim?

The answer seems to be that arbitrators will acknowledge that the contract itself is legitimate, despite having been procured by bribery, but that they will not award any damages to a party involved in the bribery.  But because of the reasons arbitrations arise in the first place, the practical effect of this distinction is that sometimes states and state entities get a free pass when they misbehave.

That is what happened in the case of Siemens and Argentina.  Siemens had won $200 million in an investment treaty arbitration after a tribunal adjudged that Argentina had expropriated Siemens’ assets in that country.  That was in early 2007.  As every FCPA practitioner knows, Siemens subsequently admitted to having engaged in large-scale bribery of foreign officials, including in Argentina.  Siemens discontinued efforts to enforce the arbitral award. Argentina effectively walked away $200 million better-off.

The other (in)famous example involves the Government of Kenya in an arbitration against the World Duty Free company.

World Duty Free had contracted to build a duty free outlet at the Nairobi Airport.  The company was implicated in a fraud involving the President’s re-election campaign.  The Kenyan Government froze World Duty Free’s assets and transferred its shares to a different owner.  World Duty Free later proved that the fraud allegations had been false, but by then the damage had been done.

The company brought an arbitration against Kenya pursuant to the contract Kenya had signed with it to build the duty free facility.  During the arbitration proceedings, it came to light that World Duty Free’s principal had made a “personal donation” to the President of Kenya, consisting of $2 million cash in a suitcase, at the time that the parties were negotiating the contract.

The tribunal concluded that it could not award any damages to World Duty Free under the circumstances.  As a legal matter, that was probably an easy call; as a moral question, it is much more nuanced.  The Kenyan government escaped liability for a wrongful taking; it did so by invoking a transaction in which its own President solicited and received a $2 million bribe (for which, naturally, he was never prosecuted).

The circumstances of the World Duty Free case were unusual: the principal admitted that he had made the “personal donation” to the President of Kenya (although, laughably, he said he did not consider the “donation” to be a bribe); the proverbial suitcase full of cash really was a suitcase full of cash.  This was the territory of truth being stranger than fiction.

In other cases, an allegation of bribery is much harder to prove.  Arbitrators, devoid of subpoena power and without the sanction of criminal prosecution, have been loath to investigate allegations, and likewise leery of concluding that bribes have occurred.  In one arbitration, EDF v. Romania, a Tribunal opined:

“[C]orruption must be proven and is notoriously difficult to prove, since, typically, there is little or no physical evidence. The seriousness of the accusation of corruption in the present case, considering that it involves officials at the highest level of the Romanian Government at the time, demands clear and convincing evidence. There is general consensus among international tribunals and commentators regarding the need for a high standard of proof of corruption.”

Some commentators and practitioners have countered that the “clear and convincing evidence” standard has no place in an arbitration, where criminal or punitive sanctions will not be applied.  Others have suggested that the burden shift to the party alleged to have been involved in corruption once the accusing party has made a prima facie case that something illegal occurred.  Since international arbitrations are not bound by precedent, it is unlikely that there will be consensus on how to approach these allegations.

We have yet to see large investigations arising out of corruption allegations first made in an arbitration.  As noted above, arbitrators are reluctant to read any duty or power to compel investigations in their mandate to decide a case.  Companies implicated in corruption allegations have likewise been slow to conduct independent investigations of any such allegations when they arise in arbitrations.  This may be due to the fact that such independent investigations are relatively recent phenomena outside the United States.

Nonetheless, as the tide of arbitrations shows no sign of waning, and as corruption investigations by non-US regulators gather strength, expect to receive calls from your arbitration colleagues in the future.

Posted by Mike Koehler at 12:03 am. Post Categories: Arbitration IssuesGuest Posts




August 29th, 2014

Friday Roundup

Some reading material to keep you occupied and engaged over the three-day holiday weekend.

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This recent Wall Street Journal article is about China’s recent antitrust crackdown, but the same could perhaps be said about China’s recent corruption crackdown against foreign multinationals doing business in China.

“The fact that regulators are going after allegedly dubious practices by multinationals isn’t what bothers trade officials at Western embassies in Beijing, even if they suspect that the probes sometimes have the effect of strengthening Chinese state-owned competitors.

What concerns them the most is the heavy-handed way that investigations are being pursued—and highly charged media coverage that makes for a troubling atmosphere for Western companies.

Foreign executives have learned two early lessons from the antitrust probes. First, the law provides little refuge. The message that the National Development and Reform Commission, the government agency that sets pricing rules, delivers in private to multinationals at the outset of a price-fixing investigation is not to bring in their foreign lawyers, according to numerous accounts by foreign executives, diplomats and lawyers themselves.

The second lesson is connected to the first: Resistance is futile. There’s scant need for lawyers when companies face a choice of either bowing to demands for quick remedies or becoming involved in a protracted wrangle with regulators in what is still a state-dominated economy. In almost every antitrust case launched so far, foreign companies have capitulated without a fight.

Voluntary price cuts of up to 20% are the norm, accompanied by board-level expressions of remorse and promises to do better.

And these cuts are offered at the very outset of investigations—and, sometimes, to get ahead of them. Chrysler described its abrupt decision to slash car-part prices as a “proactive response” to the price-fixing probe as it got under way. These price-fixing investigations have been accompanied by heated nationalistic rhetoric in the state media with antiforeign overtones. Taking down multinationals a peg plays well among the large sections of the public that view them as arrogant.”

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The always informative Debevoise & Plimption FCPA Update is particularly stellar this month.  It contains articles about the recent Wal-Mart – investor dispute in the Delaware Supreme Court as well as the recent settlement in SEC v. Jackson & Ruehlen.

Wal-Mart Delaware Action

The Wal-Mart Delaware action remains in my mind much to do about little at least as to the monumental corporate governance issues some had hoped for.

Nevertheless, the FCPA Update makes several valid points about the decision.

“In the wake of Wal-Mart, stockholders in future cases are likely to raise questions about the ways in which investigations have been conducted to see whether those questions also provide a “colorable basis” for seeking a broad range of investigative records. Companies that conduct investigations, therefore, will want to structure the investigation from the outset in a way that limits the ability of shareholders to assert that it was done improperly or otherwise may give rise to any legitimate shareholder concern. This, in turn, will place a premium on early decisions about who should conduct the review, who should supervise the review and the scope of the inquiry. Those decisions, which are generally made before any review has been conducted and based upon limited information, are sure to get close scrutiny from stockholders and should be undertaken with the utmost deliberation and care.”

SEC v. Jackson & Ruehlen

This previous post highlighted the recent settlement in SEC v. Jackson & Ruehlen and noted that the SEC, a law enforcement agency with merely a civil burden of proof, was never able to carry its burden and this was among other reasons why the SEC’s case against Jackson and Ruehlen failed – and yes – this is the only reasonable conclusion to be drawn from the settlement.

The FCPA Update states:

“In the realm of FCPA enforcement, where the vast majority of cases are settled before the filing and litigation of formal  charges, it is often hard to compare the outcomes of early and eve-of-trial or post-trial settlements in any meaningful way. The Noble case, however, provides  a rare opportunity to engage in such a comparison, not only because it was litigated by the SEC farther than almost any other FCPA case has been, but also because it involved both pre-and post-litigation settlements for individual defendants based on charges arising out of the same series of events.

In February 2012, the U.S. Securities and Exchange Commission (“SEC”) charged three executives of Noble Corporation with violating various provisions of the FCPA and related laws in the course of their interactions with public officials in Nigeria’s energy sector. One of these defendants, Thomas O’Rourke, promptly settled with the SEC, accepting permanent injunctions against future violations as to every count on which he was charged, and agreeing to pay a $35,000 civil penalty.

The remaining individual defendants, Mark Jackson and James Ruehlen, decided to litigate. On July 2, 2014 – less than a week before trial was to start and after more than two years of litigation – the SEC settled with these two defendants. Although Jackson and Ruehlen agreed to be enjoined from future violations of the books and records provision of the FCPA, the settlements in their matters were notable in that the vast majority of the charges in the initial complaint, including the bribery charges, were conspicuously absent from the settlements, and no monetary penalties were imposed.

Although the Noble case offers just one data point, the outcomes for the three defendants raise important questions about both the difficulties of litigating these types of cases for the SEC and the potential advantages of declining pre-trial settlement for would-be defendants. In addition, the SEC’s litigation strategy in these cases highlights some possible problems with the expansive interpretation of the FCPA that the SEC and the Department of Justice (“DOJ”) have advanced in recent FCPA cases. These problems, highlighted in the District Court’s refusal to accept the SEC’s interpretation on certain key issues, such as the scope of the facilitation payments exception, as well as the concrete impact of the U.S. Supreme Court’s Gabelli decision (133 S. Ct. 1216 (2013)) in gutting large portions of the SEC’s claims for penalty relief, will doubtless affect future litigation, as well as the “market” for SEC (and in certain respects, DOJ) settlements for years to come. But at the same time, the SEC’s losses on these key issues, which drove the favorable settlements with Jackson and Ruehlen, could well incentivize the SEC to dig deeper, and earlier, for the evidence needed to sustain its burdens in FCPA matters.”

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The Economist states – in a general article not specific to the FCPA – that “the [U.S.] legal system has become an extortion racket.” According to the article,

“[J]ustice should not be based on extortion behind closed doors. The increasing criminalisation of corporate behaviour in America is bad for the rule of law and for capitalism.  [...] Perhaps the most destructive part of it all is the secrecy and opacity. The public never finds out the full facts of the case, nor discovers which specific people—with souls and bodies—were to blame. Since the cases never go to court, precedent is not established, so it is unclear what exactly is illegal. That enables future shakedowns, but hurts the rule of law and imposes enormous costs.”

In the FCPA context, see here for my 2010 article “The Facade of FCPA Enforcement.

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A series of informative posts here, here, here and here from Thomas Fox (FCPA Compliance and Ethics Blog) regarding risk assessment.

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A good weekend to all.

Posted by Mike Koehler at 12:03 am. Post Categories: ChinaComplianceInternal Investigation IssuesJames RuehlenMark JacksonWal-Mart




August 28th, 2014

A “Look In The Mirror” Moment

Last month, WikiLeaks announced:

“WikiLeaks release[d] an unprecedented Australian censorship order concerning a multi-million dollar corruption case explicitly naming the current and past heads of state of Indonesia, Malaysia and Vietnam, their relatives and other senior officials. The super-injunction invokes “national security” grounds to prevent reporting about the case, by anyone, in order to “prevent damage to Australia’s international relations”. The court-issued gag order follows the secret 19 June 2014 indictment of seven senior executives from subsidiaries of Australia’s central bank, the Reserve Bank of Australia (RBA). The case concerns allegations of multi-million dollar inducements made by agents of the RBA subsidiaries Securency and Note Printing Australia in order to secure contracts for the supply of Australian-style polymer bank notes to the governments of Malaysia, Indonesia, Vietnam and other countries.

The suppression order lists 17 individuals, including “any current or former Prime Minister of Malaysia”, “Truong Tan San, currently President of Vietnam”, “Susilo Bambang Yudhoyono (also known as SBY), currently President of Indonesia (since 2004)”, “Megawati Sukarnoputri (also known as Mega), a former President of Indonesia (2001–2004) and current leader of the PDI-P political party” and 14 other senior officials and relatives from those countries, who specifically may not be named in connection with the corruption investigation.”

For more on the WikiLeaks release, see here.

Coverage of the development was not surprisingly negative.  For instance, this Global Investigations Review article stated that the revealed suppression order “undermines Australia’s attempts to bring enforcement of foreign bribery cases up to international standards.”

To which I say … wait a minute, let’s look in the mirror shall we.

For starters, the Australian case was actually filed in court and the order was issued by a judge.  This simple sentence is more than one can say about the vast majority of corporate FCPA enforcement actions that are resolved via non-prosecution agreements or deferred prosecution agreements in the absence of any meaningful judicial scrutiny.  Add to this, the SEC’s increased use of administrative actions in the FCPA context, and the initial take-away point is that the Australian case – even at its earliest stages – involves a court – something that can not be said in the majority of corporate FCPA enforcement actions.

Moreover, are many FCPA enforcement actions actually transparent?

Can one truly say that the BAE enforcement action and charging decisions (see here, here and here) were transparent and the true facts and circumstances known to the public?

Can one truly say that the public knows the real story behind the James Giffen enforcement action (see here and here)?

In 2003, Giffen was criminally charged with “making more than $78 million in unlawful payments to two senior officials of the Republic of Kazakhstan in connection with six separate oil transactions, in which various American oil companies acquired valuable oil and gas rights in Kazakhstan.”

However, Giffen’s defense was that his actions were made with the knowledge and support of the CIA, the National Security Council, the Department of State and the White House. The DOJ did not dispute that Giffen had frequent contacts with senior U.S. intelligence officials or that he used his ties within the Kazakh government to assist the United States. With the court’s approval, Giffen sought discovery from the government to support his public authority defense and much of the delay in the case was due to the government’s resistance to such discovery and who was actually entitled to see such discovery.

In 2010, the enforcement action took a sudden and mysterious turn when Giffen agreed to plead guilty to a one-paragraph superseding indictment charging a misdemeanor tax violation.  The enforcement action ended with the presiding judge imposing no jail time on Giffen and stating that he was a Cold War hero and that the enforcement action should have never been brought in the first place.

Giffen presumably prevailed over the DOJ not because of the facts or the law, but because he possessed significant leverage over the government in that he asserted his actions were taken with the knowledge and support of the highest levels of the U.S. government.  A Foreign Policy columnist noted that Giffen’s legal team “understood correctly that he could set up a collision between the DOJ and the CIA in which the latter would probably prevail.” Likewise, a Harpers columnist noted that the Giffen enforcement action had “been the focus of political manipulation concern for years” and that the end of the case seemed to ratify that view and “the notion of an independent, politically insulated criminal-justice administration in America [took] another severe hit.”

In short, think what you want about the above-mentioned Australia development.

However, when doing so look in the mirror to realize that U.S. enforcement of the FCPA is, in certain cases, even more troubling.

Posted by Mike Koehler at 12:03 am. Post Categories: AustraliaGiffen




August 27th, 2014

An FCPA Enforcement Action With Many Interesting Wrinkles

[This post is part of a periodic series regarding "old" FCPA enforcement actions]

The 1998 Foreign Corrupt Practices Act enforcement action against Saybolt Inc., Saybolt North America Inc. and related individuals had many interesting wrinkles:  a unique origin; a rare FCPA trial; a fugitive still living openly in his native land; and case law in a related civil claim.

As to the unique origin, Saybolt Inc. was a U.S. company whose primary business was conducting quantitative and qualitative testing of bulk commodities, such as oil, gasoline, and other petrochemicals, as well as grains, vegetable oils and other commodities.  The Environmental Protection Agency, Criminal Investigation Division (“EPA-CID”) was investigating the company for allegedly submitting false statements to the EPA about the oxygen content of reformulated gasoline blended in accordance with the requirements of the Clean Air Act.  The investigation was initiated by reports of data falsification at Saybolt’s Massachusetts facility.

During the course of the investigation EPA-CID interviewed Steven Dunlop (the general manager for Latin American operations for Saybolt) who provided the following information.

During a trip to Panama in 1994, Dunlop was advised of new business opportunities that were being offered to Saybolt Panama through the Panamanian Ministry of Commerce and Industries.  Specifically, the DOJ’s criminal complaint alleged that Hugo Tovar (the General Director of the Hydrocarbon Directorate, a division of the Ministry of Commerce and Industries) and Audo Escudero (the Sub-Director of the Hydrocarbon Directorate), offered to Saybolt Panama an opportunity to: (1) receive a substantial reduction in Saybolt Panama’s tax payments to the government of Panama; (2) obtain lucrative new contracts from the government of Panama; and (3) secure a more permanent facility for Saybolt Panama’s operations on highly coveted land near the Panama Canal.  According to the criminal complaint, this parcel of land was coveted because Saybolt Panama “only had a tenuous legal claim on its existing facility” and as a result its operations were continually at risk.

The complaint details various communications between Dunlop and David Mead (the President and CEO of Saybolt) in which Dunlop informed Mead of a $50,000 “fee” that would be needed to accomplish the above opportunities.

The complaint details a 1995 board of directors meeting at Saybolt during which discussion concerned the “$50,000 payoff demanded by the Panamanian officials with whom Saybolt was negotiating.  According to the complaint, present at this meeting were Board members Frerik Pluimers and Philippe Schreiber as well as Mead and Saybolt’s Chief Financial Officer Robert Petoia.  According to the complaint, Dunlop received instructions from Mead that he was to “take the necessary steps to ensure that the $50,000 was paid to the Panamanian officials in order to secure the deal” and that Schreiber was to be his primary contact on all issues concerning the Panamanian transaction.

According to the complaint, “in the minutes leading up to the time he was scheduled to leave his house for the airport” to travel to Panama,” Dunlop had a telephone conversation with Schreiber who advised him “that the action [he] was about to take would constitute a violation of the FCPA.”

According to the complaint, while in Panama Dunlop “learned that the Saybolt funds needed to make” the payment had not yet been received and that Dunlop then tried to contact Mead.  According to the complaint, Mead sent Dunlop an e-mail which stated: “Per telecon undersigned and capo grande Holanda the back-up software can be supplied from the Netherlands.  As previously agreed, you to detail directly to NL attn FP.” According to the complaint, “capo grande Holanda” was a reference to Pluimers (the President of the Dutch holding company that controlled Saybolt, Inc.” and the “back-up software” was a reference to the $50,000 payment.”

The complaint alleged that the funds never arrived in Panama and that Dunlop was receiving pressure from the Panamanian officials “to make the $50,000 payment prior to the upcoming Christmas holidays.”  According to the complaint, Mead told Dunlop on a telephone call to make the $50,000 payment using funds that were in the operating account of Saybolt Panama.

According to the complaint, the $50,000 in cash was obtained by laundering a check through a local construction company and that a “sack full of currency” was handed over to Escudero at a bar in Panama City by the individual who was serving as Saybolt Panama’s liaison with Escudero.  Further, according to the complaint, “shortly after this payment was made, the Ministry of Commerce and Industries and other necessary government agencies acted favorably on Saybolt’s proposal.”

In April 1998, the DOJ filed this indictment against Mead (a citizen of the U.K. and resident of the U.S. and Pluimers (a national and resident of the Netherlands) based on the above conduct.  The indictment charged Mead and Pluimers with conspiracy to violate the FCPA’s anti-bribery provisions and the Travel Act, two substantive violations of the FCPA, and two substantive violations of the Travel Act.

According to the indictment, the purposes and objectives of the conspiracy were:

  • To obtain contracts for Saybolt de Panama and its affiliates to perform import control and inventory inspections for the Ministry of Hydrocarbons, and the Ministry of Commerce and Industries, both departments of the Government of the Republic of Panama;
  • To obtain and to expedite tax benefits for Saybolt de Panama and its affiliates from the Government of the Republic of Panama, including exemptions from import taxes on materials and equipment and reductions in annual profit taxes;
  • To obtain from an agency of the Government of the Republic of Panama a secure and commercially attractive operating location for an inspection facility in Panama; and
  • To “lock out” Saybolt’s competitors by retaining possession and control of Saybolt de Panama’s existing location in Panama.

In September 1998, the DOJ filed this superseding indictment substantially similar to the first and including the same charges.

Mead moved to strike the indictment of allegations that he violated the FCPA and for dismissal of the indictment for failure to state an offense under the Travel Act, and for a Bill of Particulars.   In a one page order, U.S. District Court Judge Ann Thompson denied the motions. Dunlop was given full immunity as was the American attorney present at the board meeting and involved in several conversations with Pluimers, Mead, and Dunlop concerning the alleged payments.

Mead argued that the FCPA only prohibited payments to assist a domestic concern in obtaining and retaining business” and he used Saybolt’s rather complex corporate structure to argue that the business sought to be obtained or retained was for a different Saybolt entity, not a domestic concern.  In his motion, Mead stated “because the government ignores the corporate legal structure and does violence to the FCPA by attempting to end-run congressional policy, the Court must justifiably refuse.”  Elsewhere, the motion stated:

“Whether the government labels foreign corporations as ‘agents of a domestic concern’ or members of an ‘unincorporated organization,’ the government still may not manipulate the Act’s broad language to end-run this congressional policy (of deliberately excluding both foreign subsidiaries and non-subsidiary foreign corporations from FCPA liability).”

The motion also argued that the indictment was devoid of any allegation that Mead acted “willfully” (i.e. with the specific intent to violate the law) because he followed the legal advice of counsel in making the alleged payments.

In response, the DOJ stated that the indictment “describes in detail how Mead – himself a U.S. resident, and also the President of one U.S. corporation (Saybolt Inc.), Executive Vice-President of a second U.S. corporation (Saybolt North America Inc.), and Chief Executive Officer of an unincorporated association (Saybolt Western Hemisphere) – and others decided to send a Saybolt Inc. employee to Panama City, Panama, to oversee the payment of a $50,000 bride, which they believed would be provided to high level government officials, in exchange for favorable treatment of Saybolt’s business interests in Panama.  The Indictment charges that Mead gave the order to go forward with the bribe and it details the contents of the e-mail message that Mead sent from his office in New Jersey to the Saybolt employee in Panama City.”

At trial, Mead argued that the Government failed to meet its burden of proof and that he acted in good faith belief that the payment to the Panamanian officials was lawful.  The relevant jury instructions stated as follows.

“If the evidence shows you that the defendant actually believed that the transaction was legal, he cannot be convicted.  Nor can he be convicted for being stupid or negligent or mistaken.  More is required than that.  But a defendant’s knowledge of a fact may be inferred from “willful blindness” to the knowledge or information indicating there was a high probability that there was something forbidden or illegal about the contemplated transaction and payment.  It is the jury’s function to determine whether or not the defendant deliberately closed his eyes to the inferences and the conclusions to be drawn from the evidence here.”

According to this docket sheet, Mead’s trial occurred in October 1998 and he was found guilty of all charges.  According to the docket, Mead was sentenced to four months imprisonment, to be followed by four months of home confinement, to be followed by three years of supervised release.  According to the docket, he was also ordered to pay a $20,000 criminal fine. After sentencing, US Attorney Donald Stern of Boston, stated: ”This sentence puts American executives on notice there will be a price to pay, far more than the monetary cost of the birbe, when they buy off foreign officials.”  For additional reading on Mead’s case, see this transcript of an in-depth CNN story about Mead that aired in 1999.

What about Pluimers?

As indicated by this docket sheet, there has been no substantive activity in the case since 1999 and Pluimers remains a fugitive – albeit living openly in his native Netherlands.  According to this 2011 New York Times article citing a Wikileaks cable, “Pluimers simply has too much influence with high-ranking Dutch officials to be handed over to U.S. authorities.”

What about Saybolt?

In August 1998, the DOJ the filed two separate criminal informations against Saybolt Inc. and its parent corporation Saybolt North American Inc. The first information charged Saybolt with conspiracy and wire fraud related to the company’s “two year conspiracy to submit false statements to the EPA about results of lab analyses. The second information charged Saybolt and Saybolt North America with conspiracy to violate the FCPA and one substantive charge of violating the FCPA.

As noted in this plea agreement, Saybolt agreed to plead guilty to all charges in the informations and agreed to pay a total fine of $4.9 million allocated as follows:  $3.4 million for the data falsification violations and $1.5 million for the FCPA violation. Saybolt also agreed to a five year term of probation.

The conduct at issue in the Saybolt and related enforcement actions also spawned a related civil malpractice action alleging erroneous legal advice by counsel regarding the above-described payments to Panamanian officials.  In Stichting v. Schreiber, 327 F.3d 173 (2d Cir. 2003), the Second Circuit analyzed whether a company, in pleading guilty to FCPA anti-bribery violations, acknowledged acting with intent thus undermining its claims that the erroneous legal advice was the basis for its legal exposure.

The court stated:

“Knowledge by a defendant that it is violating the FCPA – that it is committing all the elements of an FCPA violation – is not itself an element of the FCPA crime.  Federal statutes in which the defendant’s knowledge that he or she is violating the statute is an element of the violation are rare; the FCPA is plainly not such a statute.”

The court also stated concerning “corruptly” in the FCPA:

“It signifies, in addition to the element of ‘general intent’ present in most criminal statutes, a bad or wrongful purpose and an intent to influence a foreign official to misuse his official position.  But there is nothing in that word or anything else in the FCPA that indicates that the government must establish that the defendant in fact knew that his conduct violated the FCPA to be guilty of such a violation.”





August 26th, 2014

The B20 Is Focused On The Right Topic, But It Is Unlikely That There Will Be Meaningful Action

Earlier this summer, the B20 Anti-Corruption Working Group released this report detailing various policy recommendations to combating corruption.

As highlighted on its website, the Business 20 (B20) is a forum through which the private sector produces policy recommendations for the annual meeting of the Group of 20 (G20) leaders.   The G20 is a forum for international economic cooperation and decision-making, with members from 19 countries plus the European Union.

Unlike certain other groups active in the anti-bribery space who seemingly take the singular position that bribery and corruption would be eliminated if only those evil corporations would stop victimizing and exploiting marginalized actors, the recent B20 report contains a refreshing and holistic view of the issue – not surprising given that it members have real-world experience with the issue.

The overall recommendation from the B20 is stated as follows.  ”The business community is united in its view that combating corruption, both supply and demand, requires a coordinated effort across governments to harmonize regulation, incentivize corporate responsibility, and enable consistent enforcement.”

I’ve long maintained that trade barriers and distortions are often the root causes of bribery and a reduction in bribery will not be achieved without a reduction in trade barriers and distortions.

On this score, the B20 report is spot-on as it states:

“Corruption remains a significant barrier to trade, particularly where border and customs facilities are hindered by red tape, pervasive corruption, inadequate infrastructure and low levels of security.  Business calls on G20 leaders to remove supply chain barriers through targeted infrastructure build, streamlined border administration, including reduction of corruption in customs clearance, and domestic regulatory reform.”

As rightly noted in the B20 report, “trade negotiations can provide an opportunity to support” harmonization of anti-corruption approaches.

Although the B20 report is focused on the right things, I am pessimistic that actual, substantive action will be taken by the G20 as to its recommendations.

The reason is simple.

Trade agreements and trade policy are used by all governments as “carrots” and “sticks” to accomplish selfish domestic goals whether political, economic or national security.

That is fine on one level, but so long as this dynamic persists, a reduction in bribery will not be fully achieved because trade barriers and distortions are often the root causes of bribery.

Posted by Mike Koehler at 12:03 am. Post Categories: Trade Barriers and Distortions