November 25th, 2015


TurkeyThe following FCPA enforcement actions have involved (in whole or in part) alleged business conduct in Turkey.

Smith & Wesson (2014)

In July 2014, Smith & Wesson agreed to resolve an SEC administrative order finding violations of the FCPA’s anti-bribery provisions, books and records provisions and internal controls provisions. The SEC’s findings included business conduct in Pakistan, Indonesia, Turkey, Nepal and Bangladesh.

As to Turkey, the SEC’s order states: “Similarly, Smith &Wesson made improper payments in 2009 to its third party agent in Turkey, who indicated that part of the payments would be provided to Turkish officials in an attempt to secure two deals in Turkey for sale of handcuffs to Turkish police and firearms to the Turkish military. Neither of these interactions resulted in the shipment of products, as Smith & Wesson was unsuccessful bidding for the first deal, while the latter deal was ultimately canceled.”

Without admitting or denying the SEC’s findings, Smith & Wesson agreed to pay approximately $2.0 million. (See here).

Tyco International (2012)

In September 2012, Tyco International agreed to resolve a wide-ranging DOJ/SEC enforcement action regarding alleged conduct in the following countries: China, India, Thailand, Laos, Indonesia, Bosnia, Croatia, Serbia, Slovenia, Slovakia, Iran, Saudia Arabia, Libya, Syria, the United Arab Emirates, Mauritania, Congo, Niger, Madagascar, and Turkey.

As to Turkey, the enforcement action stated as follows.  The products of a division of an indirect subsidiary of Tyco “were sold through a sales representative to government entities in Turkey.  The sales representatives sold the SigInt equipment in Turkey at an approximately twelve to forty percent mark-up over the price at which he purchased the equipment from M/A-Com and also received a commission on one of the sales.  The sales representative transferred part of his commission and part of his mark-up to a government official in Turkey to obtain orders.  In connection with these improper transactions, M/A-Com earned approximately $71,770 in gross proft.” The SEC’s complaint cites an internal e-mail which stated:  “hell, everyone knows you have to bribe somebody to do business in Turkey.”

Total fines and penalties in the enforcement action were approximately $26.8 million (approximately $13.7 million in the DOJ enforcement action and approximately $13.1 million in the SEC enforcement action). (See here).

Daimler AG (2010)

In March 2010, Damiler AG agreed to settle a wide-ranging FCPA enforcement action alleging that “between 1998 and January 2008, Daimler made hundreds of improper payments worth tens of milions of dollars to foreign officials in at least 22 countries – including China, Croatia, Egypt, Greece, Hungary, Indonesia, Iraq, Ivory Coast, Latvia, Nigeria, Russia, Serbia and Montenegro, Thailand, Turkey, Turkmenistan, Uzbekistan, Vietnam, and others – to assist in securing contracts with government customers for the purchase of Daimler vehicles valued at hundreds of milions of dollars.”

As to Turkey, the criminal information (here) charges that Daimler’s Corporate Audit Department “discovered three binders located in a safe at MB Turk’s [a Daimler subsidiary in Turkey] offices in Istabul” that, along with other evidence, demonstrated that “MB Turk made approximately €6.05 million in payments to third parties in connection with vehicle export transactions that involved the sale of vehicles to non-Turkish government customers in North Korea, Latvia, Bulgaria, Libya, Romania, Russia, Saudi Arabia, Yemen, and other countries in deals with revenues of approximately €95 million.” According to the information, at least €3.88 million of the €6.05 million comprised of “improper payments and gifts [...] paid to foreign government officials or to third parties with the understanding that the payments and gifts would be passed on, in whole or in part, to foreign government officials to assist in securing the sale of Daimler vehicles to government customers.”

Daimler agreed to pay $185 million in combined DOJ and SEC fines and penalties (see here).

York International Corp. (2007)

In October 2007, York International Corporation (York), a global provider of heating, ventilation, air conditioning, and refrigeration products and services, agreed to pay approximately $22 million in combined fines and penalties to settle DOJ and SEC enforcement actions principally relating to improper payments made by various subsidiaries to the Iraqi government under the United Nations Oil-for-Food Program. The enforcement action also involved certain other improper payments made in connection with government projects in Bahrain, Egypt, India, Turkey and the United Arab Emirates. (see here).

Delta & Pine Land Co. (2007)

In July 2007, the SEC announced a settled FCPA enforcement action against Delta & Pine Land Company, a Mississippi-based cottonseed company, and its subsidiary, Turk Deltapine, Inc. According to the SEC, between 2001 – 2006, Turk Deltapine made payments of approximately $43,000 to officials of the Turkish Ministry of Agricultural and Rural Affairs in order to obtain various governmental reports and certifications that were necessary for Turk Deltapine to obtain, retain and operate its business in Turkey. Per the complaint, the improper payments were discovered by Delta & Pine, but instead of halting the payments, the payments continued via a third party supplier and pursuant to an inflated invoice scheme. Based on the above conduct, Delta & Pine and Turk Deltapine jointly agreed to pay a $300,000 civil penalty and engage an independent compliance consultant. (see here and here).

Micrus Corp. (2005)

In March 2005, Micrus Corporation, a privately-held California medical device manufacturer, agreed to a two year non-prosecution agreement with the DOJ to resolve its FCPA liability in connection with over $100,000 in payments (disguised in the company’s books and records as stock options, honorariums and commissions) to physicians employed at publicly owned and operated hospitals in France, Turkey, Spain, and Germany.(see here) and here)


Thanks for reading, safe travels, and may your turkey be golden brown!

Posted by Mike Koehler at 12:04 am. Post Categories: Turkey

November 24th, 2015

Yates On The Yates Memo

YatesAs highlighted in this prior post, in September DOJ Deputy Attorney General Sally Yates delivered this speech and released this memo titled “Individual Accountability for Corporate Wrongdoing” (hereafter the “Yates Memo”).  (See here for the video of the speech).

While many viewed the Yates Memo as articulating new DOJ policy, in many respects it did not.

Last week, Yates delivered this speech that elaborated on certain points in the Yates memo and announced that the Yates Memo has been incorporated into the U.S. Attorney’s Manual (USAM). Some are viewing this as another “new” development, but that too is misguided as the USAM has always been the final resting place for DOJ policy memos such as the previous Holder, Thompson, McNulty and Filip memos.

The remainder of this post excerpts portions of Yates’s speech that are likely to be of most interest to FCPA practitioners.

“A little more than two months ago, we issued a new policy designed to ensure that individual accountability is at the heart of our corporate enforcement strategy.  In announcing the policy, we emphasized the importance of holding accountable the individuals who commit corporate wrongs for reasons that are fairly obvious – crime is crime and lawbreakers must be held responsible regardless of whether they violate the law on the street corner or in the corner office.  We also know that in the white-collar context, one of the most effective ways to ensure this accountability and to deter future misconduct is by pursuing not just corporate entities, but also the individuals through which these corporations act.  And so our policy set forth six ways the Justice Department is changing how it does business to ensure that our attorneys and agents make the best possible cases against those individuals.


[N]ow that a couple of months have passed, I thought it would be helpful to expand a bit on what we are trying to accomplish and how we’re implementing the policy.

Before rolling out the memo in September, a team of senior DOJ attorneys spent months examining the issue – a project that began under former Attorney General Holder and continued under Attorney General Lynch. I’d like to think that the final product reflected the values that were instilled in these senior DOJ attorneys – and instilled in me – during our long careers at the Justice Department. I joined the U.S. Attorney’s office in Atlanta in 1989 and I’ve been with the department ever since. I spent a significant portion of my career handling white-collar prosecutions, as a line Assistant United States Attorney (AUSA), as the supervisor of our white-collar unit, as a U.S. Attorney and now as Deputy Attorney General. I know how challenging these cases can be and I’ve seen how extraordinarily hard our Department of Justice attorneys work to make them happen. That’s part of the reason we decided to adjust our approach. Everyone at the Justice Department wants to hold wrongdoers accountable, all the more so when those wrongdoers use corporations to lie, cheat and steal. But the barriers to a successful white-collar prosecution can be substantial. We needed to clear away some of those barriers and make sure that the department’s own priorities and resources were fully aligned so we could conduct our investigations more effectively and bring the best cases possible.

I’d like to talk a bit about how we’ve implemented the policy into the everyday work of our attorneys.  Today, we’re taking a big step forward on that front by issuing revisions to the United States Attorney’s Manual, or the USAM.

As I’m sure many of you know, the USAM is one of the most important documents within the Justice Department community.  It is a handbook that contains guidance on everything from initiating an investigation to closing a case and it serves as the foundation for many of the key decisions that DOJ attorneys make during their work.  It applies to everyone in the department, regardless of whether they’re an assistant U.S. Attorney out in the field or a trial attorney in Washington.  I know I consulted it regularly during my years as a prosecutor.

We don’t revise the USAM all that often and, when we do, it’s for something important.  We change the USAM when we want to make clear that a particular policy is at the heart of what all Department of Justice attorneys do and when we want to make sure that certain principles are embedded in the culture of our institution.  We also make these revisions as a way of telling the world about our priorities and our values, so that others know what to expect when the Justice Department comes knocking.

The first set of revisions involve the section of the USAM that addresses criminal cases – specifically, corporate criminal cases.  Technically, the chapter is called the “Principles of Federal Prosecution of Business Organizations,” but most of you know it as simply the “Filip factors.”

Today we are updating the Filip factors and the written guidance that accompanies these factors, to highlight some important principles from the September policy.  The revised factors now emphasize the primacy in any corporate case of holding individual wrongdoers accountable and list a variety of steps that prosecutors are expected to take to maximize the opportunity to achieve that goal.  And we are adding language that codifies a number of internal reporting and approval requirements, which are designed to ensure consistency across the Justice Department and allow us to keep track of how these policies are being implemented.

An important component of the individual accountability policy and the new revisions to the factors involves corporate cooperation.  This seems to be the policy shift that has attracted the most attention.  The new rule in the revised factors is exactly how I laid it out two months ago:  if a company wants credit for cooperating – any credit at all – it must provide all non-privileged information about individual wrongdoing.  Companies seeking cooperation credit are expected to do investigations that are timely, appropriately thorough and independent and  report to the government all relevant facts about all individuals involved, no matter where they fall in the corporate hierarchy.

I would note that this concept — that corporate cooperation includes giving all non-privileged information about the conduct of individuals –  is nothing new.  It was in the Filip factors long before this most recent policy shift and it is a point has been repeatedly emphasized by department officials, particularly Leslie Caldwell, our terrific Assistant Attorney General of the Criminal Division.

What is new is the consequence of not doing it.  In the past, cooperation credit was a sliding scale of sorts and companies could still receive at least some credit for cooperation, even if they failed to fully disclose all facts about individuals.  That’s changed now.  As the policy makes clear, providing complete information about individuals’ involvement in wrongdoing is a threshold hurdle that must be crossed before we’ll consider any cooperation credit.

Some have claimed that this new cooperation policy will result in unnecessarily broad, costly and time-consuming internal investigations.  But when we announced the policy, we made clear that we were not intending for companies to embark on a years-long, multimillion dollar investigation every time a company learns of misconduct.  We made clear at the time that we expect investigations to be tailored to the scope of the wrongdoing.  We expect cooperating companies to make their best effort to determine the facts with the goal of identifying the individuals involved.  As we said previously, if there is any question about the scope of what’s required, you should do what many defense attorneys do now – pick up the phone and discuss is with the prosecutor.

Others have opined that a company that does not have access to all the facts will be at a disadvantage, despite their best efforts to do a thorough and timely investigation.  As the corporate entity, the presumption will be that you have access to the evidence.  But if there are instances where you do not, or you are legally prohibited from handing it over, then you need to raise these issues with the prosecutor.

Additionally, there is nothing in the new policy that requires companies to waive attorney-client privilege or in any way rolls back the protections that were built into the prior factors.  The policy specifically provides that it requires only that companies turn over all relevant non-privileged information and our revisions to the USAM – which left the sections on the attorney-client privilege intact – underscore that point.

But let’s be clear about what exactly the attorney-client privilege means.  As we all know, legal advice is privileged.  Facts are not.  If a law firm interviews a corporate employee during an investigation, the notes and memos generated from that interview may be protected, at least in part, by attorney-client privilege or as attorney work product.  The corporation need not produce the protected material in order to receive cooperation credit and prosecutors will not request it.  But to earn cooperation credit, the corporation does need to produce all relevant facts –including the facts learned through those interviews—unless identical information has already been provided.  We will respect the privilege, but we will also expect companies to respect its boundaries and not to wrongly exploit its legitimate purpose by using it to shield non-privileged information from investigators.

Some have theorized that our new policy will have a chilling effect on employees’ willingness to cooperate in their companies’ internal investigations, thus limiting our ability to find out what really happened.  I will acknowledge that our focus on culpable individuals may make some employees nervous.  Some may have reason to be nervous.  But to the extent that there’s a tension between the interests of the company and the interests of individuals in an internal investigation, that dynamic is nothing new.  This tension is reflected in the admonition that corporate counsel give employees that they represent the company not the employee and that the company may provide to the government any information that the employee provides.  So these new cooperation rules simply emphasize — for the benefit of companies and prosecutors – the importance of identifying individual wrongdoers in any corporate case.

Understand that we’re not asking companies to pin a scarlet letter on their employees or provide us with prosecutable cases against them in order to get the benefits of cooperation.  Cooperation does not require a company to characterize anyone as “culpable.”  Cooperation does require that a company provide us with all facts about the all individuals involved.

Two last points on the subject of cooperation.  First, timing, as always, is of the essence.  A company should come in as early as it possibly can, even if it doesn’t quite have all the facts yet. The new USAM language makes plain that a company won’t be disqualified from receiving cooperation credit simply because it didn’t have all the facts lined up on the first day it began talking with us.  Rather, under those circumstances, we expect that cooperating companies will simply continue to turn over the information to the prosecutor as they receive it.

Second, one of the changes made to the USAM today separates what used to be a single factor that covered both a corporation’s voluntary disclosure and its willingness to cooperate into two separate factors – one focused solely on the company’s timely and voluntary disclosure and the second on its cooperation.   We made this change to emphasize that while the concepts of voluntary disclosure and cooperation are related, they are distinct factors to be given separate consideration in charging decisions.  In recognition of the significant value early reporting holds for us, prompt voluntary disclosure by a company will be treated as an independent factor weighing in the company’s favor.


We make all of these changes recognizing challenges that they may present.  Some have speculated that the new policy may mean that fewer companies cooperate with the government because of some perception that the new standard is too difficult to meet.  I suppose that may happen, but I’m not convinced.  I have a hard time imagining that it will truly be in a company’s best interest to forego the substantial benefits accorded for cooperation solely to avoid having to provide all the facts about individual conduct.  That would seem to be a particularly difficult call for the board of directors of a publicly traded company given the fiduciary duty to the shareholders.  But if fewer companies cooperate and our corporate settlements are reduced, we’re okay with that.   I will repeat a point I made when we announced this policy:  our mission is not to recover the largest amount of money from the greatest number of corporations; our job is to seek accountability from those who break our laws and victimize our citizens.

Here in the audience, we have more than lawyers and bankers; we also have one of the most important constituencies in our efforts to combat corporate misconduct:  compliance professionals.  You are a crucial partner in the fight against white-collar crime.  At DOJ, we don’t want to go after the corporate wrongdoers simply as an end unto itself; we want to decrease the amount of corporate wrongdoing that happens in the first place.  We want to restore and help protect the corporate culture of responsibility. That’s only possible with strong compliance programs—and with rigorous internal controls that help companies self-assess and self-correct.  It is in our mutual interest to ensure that we root out misconduct, promote fairness and demonstrate that no one is above the law.

At the Justice Department, our ability to do our jobs effectively depends on the public’s confidence in the institutions we represent.  The public must believe what I have always known to be true; that we will aggressively pursue wrongdoing in all its forms, no matter who the wrongdoer may be.  That means that we must continue to demonstrate that our criminal justice system operates fairly and applies equally and is designed not only to punish misconduct but also to try to stop it from happening again.”

Posted by Mike Koehler at 12:03 am. Post Categories: DOJEnforcement Agency PolicyEnforcement Agency Speeches

November 23rd, 2015

FCPA “Tips” Continue To Be A Minor Component Of The SEC’s Whistleblower Program

whistleThe Dodd-Frank Act enacted in July 2010 contained whistleblower provisions applicable to all securities law violations including the Foreign Corrupt Practices Act.

In this prior post from July 2010, I predicted that the new whistleblower provisions would have a negligible impact on FCPA enforcement.  As noted in this prior post, my prediction was an outlier (so it seemed) compared to the flurry of law firm client alerts that predicted that the whistleblower provisions would have a significant impact on FCPA enforcement.  So anxious was FCPA Inc. for a marketing opportunity to sell its compliance services, some even called the generic whistleblower provision the FCPA’s “new” whistleblower provisions.

So far, there has not been any reported whistleblower award in connection with an FCPA enforcement action.  Given that enforcement actions (from point of first disclosure to resolution) typically take between 2-4 years, it still may be too early to effectively analyze the impact of the whistleblower provisions on FCPA enforcement.

Whatever your view on how the whistleblower provisions may impact FCPA enforcement, it was previously noted that the best part of the whistleblower provisions were that its impact on FCPA enforcement can be monitored and analyzed because the SEC is required to submit annual reports to Congress.

Recently, the SEC released (here) its annual report for FY2015 and of the 3,923 whistleblower tips received by the SEC in FY2015, 4.7% (186) related to the FCPA.

As noted in this similar post from last year, of the 3,620 whistleblower tips received by the SEC in FY2014, 4.4% (159) related to the FCPA. As noted in this similar post from two years ago, of the 3,238 whistleblower tips received by the SEC in FY2013, 4.6% (149) related to the FCPA.  As noted in this similar post from three years ago, of the 3,001 whistleblower tips received by the SEC in FY2012, 3.8% (115) related to the FCPA.  In FY2011 (a partial reporting year)  3.9% of the 334 tips received by the SEC related to the FCPA.

In short, FCPA “tips” have consistently constituted only a minor component of the SEC’s whistleblower program.

Yes, in the future there will be a whistleblower award made in the context of an FCPA enforcement action.  Yes, there will be much ink spilled on this occasion and wild predictions about this “new trend.”

Yet, I stand by my prediction – now 5.5 years old, that Dodd-Frank’s whistleblower provisions will have a negligible impact on FCPA enforcement.

Posted by Mike Koehler at 12:04 am. Post Categories: Whistleblowers

November 20th, 2015

Friday Roundup

Roundup2Checking in on Wal-Mart’s professional fees and expenses, still pouting, scrutiny alerts and updates, and for the reading stack.  It’s all here in the Friday roundup.

Wal-Mart’s Professional Fees and Expenses

In its recent 3Q FY2016 earnings call Wal-Mart stated:

“FCPA and compliance related costs were approximately $30 million, comprised of $22 million for ongoing inquiries and investigations, and $8 million for our global compliance program and organizational enhancements.”

Doing the math, Wal-Mart’s 3Q FCPA and compliance-related costs is approximately $470,000 per working day.

Over the past approximate four years, I have tracked Wal-Mart’s quarterly disclosed pre-enforcement action professional fees and expenses. While some pundits have ridiculed me for doing so, such figures are notable because, as has been noted in prior posts and in my article “Foreign Corrupt Practices Act Ripples,” settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.  Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.

While $470,000 per working day remains eye-popping, Wal-Mart’s recent figure suggests that the company’s pre-enforcement action professional fees and expenses have crested as the figures for the past eight quarters have been approximately $470,000, $516,000, $563,000, $640,000, $662,000, $855,000, $1.1 million and $1.3 million per working day.

In the aggregate, Wal-Mart’s disclosed pre-enforcement professional fees and expenses are as follows.

FY 2013 = $157 million.

FY 2014 = $282 million.

FY 2015  = $173 million.

FY 2016 = $93 million (through the first three quarters).

Still Pouting 

This prior post discussed why SNC-Lavalin should be grateful about various aspects of Canada’s legal system (compared to the U.S.) and not pout. Namely, that Canada does not offer deferred prosecution agreements and enforcement authorities must actually prove cases to prevail.

As noted here, with a new government in Ottawa, SNC-Lavalin’s new CEO continues the pout.

“SNC-Lavalin Group Inc.’s CEO wants the new federal government to allow companies to settle corporate corruption cases — as what happens in the United States and United Kingdom — so that Canadian firms can remain competitive. In his first speech since taking control of Canada’s largest engineering company last month, Neil Bruce said federal corruption charges laid against a few of SNC-Lavalin’s legal entities unfairly point the finger at 40,000 employees who did nothing wrong. Instead, Canada should allow corporate settlements outside the court system so that SNC-Lavalin and other Canadian businesses are not at a disadvantage when competing against rival firms in other G7 countries, Bruce said.


The company has said it will plead not guilty to the charges but is willing to pay a fine for the alleged transgressions of former employees.”

Scrutiny Alerts and Updates

Affinia Group

As noted in this May 2015 post, Affinia Group (a North Carolina based company involved in design, manufacture, distribution and marketing of industrial grade products and services, including extensive offerings of aftermarket parts for automotive and heavy-duty vehicles) has been under FCPA scrutiny and the company disclosed:

“As previously disclosed, the Company conducted a review of certain allegations arising in connection with business operations involving its subsidiaries in Poland and Ukraine. The allegations raised issues involving potential improper payments in connection with governmental approvals, permits, or other regulatory areas and possible conflicts of interest. The Company’s review was supervised by the Audit Committee of Affinia’s Board of Directors and conducted with the assistance of outside professionals. Affinia voluntarily self-reported on these matters to the U.S. Department of Justice and the U.S. Securities and Exchange Commission and cooperated fully with the U.S. government.  The U.S. Department of Justice has advised that it has decided to decline to prosecute the Company in this matter.”

Several companies have been under scrutiny based on alleged improper relationships with Petrobras.  Three such companies: Ensco, Transocean, and Vantage Group recently  made disclosures.


The company recently disclosed:

“Pride International, Inc. (“Pride”), a company we acquired in 2011, commenced drilling operations in Brazil during 2001 and, in 2008, entered into a drilling contract with Petrobras for DS-5, a rig Pride had ordered from a shipyard in South Korea.

Beginning in 2006, Pride conducted periodic compliance reviews of its business with Petrobras, and, after the acquisition, Ensco conducted similar compliance reviews, the most recent of which commenced in early 2015 after media reports were released regarding ongoing investigations of various kickback and bribery schemes in Brazil involving Petrobras.

While conducting our compliance review, we became aware of an internal audit report by Petrobras alleging irregularities in relation to DS-5 – specifically, that Petrobras overpaid under the drilling contract. We believe this allegation is inaccurate, as publicly available data show that the contract’s compensation terms were in line with other contracts signed by Petrobras and other customers with our competitors during the same timeframe (late 2007 and early 2008). We provided this information to Petrobras in June 2015. We continue to operate DS-5 under its existing contract. In addition, all our other rigs contracted to Petrobras – ENSCO 6001, 6002, 6003 and 6004 – continue to work under their contracts.

Upon learning of the Petrobras internal audit report, our Audit Committee appointed independent counsel to lead an investigation into the alleged irregularities. Subsequently, the internal audit report and the alleged irregularities were referenced in Brazilian court documents connected to the prosecution of former Petrobras directors and employees as well as certain other third parties, including a former marketing consultant who provided services to Pride in connection with DS-5. The former marketing consultant entered into a plea agreement with the Brazil authorities. This plea agreement was referenced in a Brazilian court proceeding relating to a project for a competitor having no connection to us. This court proceeding document states that another court action would be made public in due course with respect to DS-5; to date no further proceedings relating to DS-5 have been released.

Independent counsel, under the direction of our Audit Committee, has substantially completed the investigation of these allegations by reviewing and analyzing available documents and correspondence and interviewing current and former employees involved in the contracting of DS-5 as well as the former marketing consultant.

To date, our Audit Committee has found no evidence that Pride or Ensco or any of their current or former employees were aware of or involved in any wrongdoing, and our Audit Committee has found no evidence linking Ensco or Pride to any illegal acts committed by our former marketing consultant. Although the investigation is substantially complete, we cannot predict whether any new or additional allegations will be made and what impact those allegations will have on the timing or conclusions of the investigation. Our Audit Committee will examine any new or additional allegations and the facts and circumstances surrounding them. To date, we have not been contacted by Brazil authorities, and no authority has alleged wrongdoing by Pride or Ensco or any of their current or former employees. In June and July 2015, we voluntarily contacted the SEC and the U.S. Department of Justice (“DOJ”), respectively, to advise them of this matter and our Audit Committee’s independent investigation, and we provided them an update on the investigation in September 2015. We cannot predict whether any governmental authority will seek to investigate this matter, or if a proceeding were opened, the scope or ultimate outcome of any such investigation. If the SEC or DOJ determines that violations of the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”) have occurred, or if any governmental authority determines that we have violated applicable anti-bribery laws, they could seek civil and criminal sanctions, including monetary penalties, against us, as well as changes to our business practices and compliance programs, any of which could have a material adverse effect on our business and financial condition.”

As highlighted in this previous post, in 2010 Pride International resolved a $56 million FCPA enforcement action based on alleged conduct in Nigeria, India, Mexico, Venezuela and other countries.


The company recently disclosed:

“We are currently investigating allegations made by a former Petrobras employee relating to the award of a drilling services contract to us. These allegations were made public through an investigation being conducted by Brazilian authorities in response to allegations of corrupt practices involving Petrobras business. To date, we have not identified any wrongdoing by any of our employees or agents in connection with our business in Brazil. We will continue to investigate these types of allegations and, if contacted, will cooperate with governmental authorities. Through the process of monitoring and proactive investigation, we strive to ensure no violation of our policies, code of integrity or law has, or will, occur; however, there can be no assurance as to the outcome of these matters.”

As highlighted in this previous post, in 2010 Transocean resolved a $20.7 million FCPA enforcement action based on alleged conduct in Nigeria.

Vantage Drilling

The company recently disclosed:

“In July 2015, we became aware of media reports that the Brazilian agent that we used in the contracting of the Titanium Explorer drillship, Mr. Padilha, had entered into a plea arrangement with the Brazilian authorities in connection with his role in obtaining bribes for former Petrobras executives.  Mr. Padilha, who simultaneously has represented several international companies in their contracts with Petrobras, provided evidence to the Brazilian prosecutors of an alleged bribery scheme between former Petrobras executives and Mr. Su, a former member of our Board of Directors and a significant shareholder.  Mr. Su was the sole owner of the company that owned the Titanium Explorer at the time the alleged bribe was paid.  At the same time we learned of Mr. Padilha’s plea agreement, we voluntarily contacted the SEC and the DOJ to advise them of these recent developments. We subsequently terminated his advisory contract with us.  Our internal and independent investigations, which are still ongoing, to date have found no evidence of wrongdoing by our employees or participation in any manner with the inappropriate acts alleged to have been conducted by Mr. Padilha.

We cannot predict whether any governmental authority will seek to investigate this matter, or if a proceeding were opened, the scope or ultimate outcome of any such investigation. If the SEC or DOJ determines that we have violated the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”), or if any governmental authority determines that we have violated applicable anti-bribery laws, they could seek civil and criminal sanctions, including monetary penalties, against us, as well as changes to our business practices and compliance programs, any of which could have a material adverse effect on our business and financial condition.”

Reading Stack

“The (Unintended) Consequences of the Yates Memo” here from Kurt Wolfe (Allen & Overy).

“The Yates Memo’s Chilling Effect on FCPA Self-Disclosure” here from Alison Tanchyk and Melissa Coates (Morgan, Lewis & Bockius). “Ironically, the unintended consequence [of the Yates Memo] may be fewer companies opting to self-disclose FCPA concerns, leading to fewer individual corruption prosecutions.”


A good weekend to all.

Posted by Mike Koehler at 12:03 am. Post Categories: Affinia GroupEnscoInvestigative FeesSNC LavalinTransoceanVantage DrillingWal-Mart

November 19th, 2015

Little New Information Of Significance In SEC Director Ceresney’s FCPA Speech

CeresneyYesterday’s post highlighted Assistant Attorney General Leslie Caldwell’s recent speech before a Foreign Corrupt Practices Act audience.

Today’s post provides equal time to Andrew Ceresney’s (Director of the SEC’s Enforcement Division) FCPA speech to the same audience.

To those well-versed on prior SEC FCPA policy speeches, there was little new information of significance in Ceresney’s speech (and you can assess this for yourself by visiting this subject matter tag which highlights every SEC FCPA policy speech in the public domain over the last several years). Indeed, significant portions of Ceresney’s speech were near carbon copies of prior speeches he delivered at the same event one year ago and two years ago (see here and here for prior posts).

[From a LinkedIn comment: "I agree with your assessment of Director Ceresney's speech. In fact the majority of the attendees who were present during the luncheon speech felt the same way. And judging from his presentation, he was hardly enthused about the speech. Basically, it was just read off paper word for word not even looking up. But you also have to put his speech in the proper context. It was something designed to take up the slack time between the main meal and waiting for the dessert to come out."]

The only new item in Ceresney’s speech was the following statement: “the Enforcement Division has determined that going forward, a company must self-report misconduct in order to be eligible for the Division to recommend a DPA or NPA to the Commission in an FCPA case.”

As a practical matter, this statement is not very significant as the SEC has only used NPAs or DPAs three time since the SEC authorized their use in 2010. Moreover, the SEC has handled voluntary disclosure in the FCPA context in several different ways.  In certain instances, civil complaints are filed in connection with voluntary disclosures; in other instances, administrative cease and desist orders are used in connection with voluntary disclosures; and in other instances  - as noted by Ceresney – NPAs and DPAs are used in connection with voluntary disclosures.

Prior to excerpting Ceresney’s speech, a few observations about the individual prosecution and BHP Billiton portions of the speech.

Individual Proseuctions

Ceresney stated:

“Outside the FCPA context in particular, over the last five years, 80% of the SEC’s enforcement actions (excluding follow-on administrative proceedings and delinquent filings) have involved charges against individuals.  This focus on individuals also applies to FCPA cases.”

Ceresney did not provide statistics for individual prosecutions in connection with corporate SEC enforcement actions so I will. As noted in prior posts here and here, since 2008 83% of SEC corporate FCPA enforcement actions have not resulted in any SEC charges against company employees.

No doubt in recognition of these FCPA specific statistics, Ceresney attempted to articulate why FCPA enforcement actions against individuals “present formidable challenges.” However, most of the factors listed are also present in corporate FCPA enforcement actions. There is however a key difference.  In the FCPA’s history, it is not believed that the SEC has ever had to prove a case against an issuer whereas individuals are more likely to, and have, put the SEC’s to burden of proof and the SEC has never satisfied its ultimate burden of proof against an individual when this happens.

BNY Mellon / Anything of Value

Similar to his speech last year at the same event, Ceresney devoted a material portion of his remarks to an FCPA element that is seldom the focus of much discussion:  anything of value.   In the words of Ceresney “enforcing the FCPA to its fullest extent.”

Ceresney provided a list of questions regarding less tangible things of value that will be of value to compliance practitioners.

In connection with this portion of his speech, Ceresney defended the SEC’s enforcement action against BNY Mellon which focused on the company’s internship practices. He called criticism of the enforcement action “unfounded.”

However, Ceresney failed to address many of the other criticisms of the enforcement action not necessarily connected to the anything of value element such as corrupt intent, obtain or retain business, and other statutory issues. (See here).

The remainder of this post excerpts Ceresney’s speech.

“Pursuing violations of the FCPA remains a critical part of the SEC’s enforcement efforts.  The SEC has taken a lead role in combatting corruption worldwide, enforcing the FCPA vigorously against issuers and individuals within its jurisdiction and working with foreign partners to enhance their anticorruption efforts.

The Division of Enforcement – including its specialized FCPA Unit, as well as other members of the staff – continues to be very active holding wrongdoers accountable for FCPA violations.  The Commission’s enforcement efforts over the last ten years, along with those of our partners at the DOJ and FBI, have resulted in a sea change in enhancing the focus on FCPA compliance issues.


I thought I would spend some time this afternoon discussing a few issues that are important to the SEC’s FCPA program: self-reporting and cooperation; holding individuals accountable for FCPA violations; cooperation with foreign regulators; and ongoing efforts to ensure that the FCPA is enforced to its fullest extent.

The Importance of Self-Reporting and Cooperation

I want to start with the importance of self-reporting and cooperation in FCPA cases.  The Commission launched its formal cooperation program a little more than five years ago, and as I have explained in other contexts, it has been a great success overall.  Even before that formal cooperation program was implemented, the SEC was rewarding cooperation in FCPA matters, and it has continued to do so under the more formal program.  In the last fiscal year alone, the Commission gave significant credit for cooperation in more than half a dozen cases.  These included the settlement with Layne Christensen, which included a significantly reduced penalty of 10% of the disgorgement amount; a settlement with PBSJ, where we entered into a deferred prosecution agreement and the penalty was a small fraction of disgorgement; and a settlement with Goodyear, which was the first case where the Commission agreed not seek any penalty in recognition of the company’s significant cooperation.  These cases should send the message loud and clear that the SEC will reward self-reporting and cooperation with significant benefits.  Companies should understand that the benefits of cooperating with the SEC are significant and tangible.

Let me spend a moment on self-reporting because that is an issue that has attracted lots of attention in recent years.  Self-reporting is critical to the success of SEC’s cooperation program.  Self-reporting allows the Enforcement staff to discover misconduct more quickly and reliably than otherwise would be possible.  In certain cases, particularly when misconduct occurs overseas, companies may be in a better position to quickly investigate misconduct and the information provided by companies as part of their self-reporting often gives a significant head start on our investigations.

Self-reporting also is a valuable tool for parties who want to maximize the benefits available for cooperation.  As the cases I just mentioned make clear, there are significant benefits available to companies who self-report violations and cooperate fully with our investigations.  Benefits range from reduced charges and penalties, to deferred prosecution or non-prosecution agreements – known as DPAs or NPAs – in instances of outstanding cooperation, or in certain instances when the violations are minimal, no charges.

However, beyond these benefits, which are the carrot, there is also a stick that should further incentivize self-reporting.  Companies that make a decision not to self-report misconduct take the chance that the Enforcement Division will learn of this misconduct through other means.  The SEC’s whistleblower program has created real incentives for people to report wrongdoing to us.  If the Enforcement Division finds the violations through its own investigation or from a whistleblower, the consequences to the company will likely be worse and the opportunity to earn additional cooperation credit may well be lost.  As I’ve said before, when discussing our cooperation program in general and specifically in the FCPA context, companies are gambling if they fail to self-report FCPA misconduct to us.

Given the importance of self-reporting to our FCPA investigations, the Enforcement Division continues to looks for ways to encourage self-reporting of violations through our cooperation program.  Towards that end, the Enforcement Division has determined that going forward, a company must self-report misconduct in order to be eligible for the Division to recommend a DPA or NPA to the Commission in an FCPA case.  I am hopeful that this condition on the decision to recommend a DPA or NPA will further incentivize firms to promptly report FCPA misconduct to the SEC and further emphasize the benefits that come with self-reporting and cooperation.

It is important to note here that while the Division will require a company to self-report in order to be eligible for a DPA or NPA, self-reporting alone is not enough.  Determinations of how much credit to give an entity for cooperation, including whether to take the extraordinary step of entering into a DPA or NPA, are made by evaluating the broad factors set out by the Commission in the Seaboard report. In addition to self-reporting, these factors include a corporation’s self-policing, remediation, and cooperation. While DPAs and NPAs are valuable tools, they reflect a significant level of cooperation and have been a relatively limited part of Commission enforcement practice.  I think this is appropriate and should continue to be the case.  But the Division will not even consider this step if a company fails to self-report.

Requiring a company to self-report potential FCPA violations in order to be eligible for a DPA or NPA is consistent with the SEC’s practice since the introduction of our formal cooperation program in 2010.  In each FCPA case where the SEC entered into a DPA or NPA, the company involved self-reported the violations, and then provided significant cooperation throughout the investigation.

The most recent example is the DPA the Commission entered into with PBSJ Corporation earlier this year.  In that case, the Commission charged a former officer of the Florida engineering and construction firm with violating the FCPA by offering and authorizing bribes and employment to foreign officials to secure Qatari government contracts. The Commission determined that a DPA with the company was appropriate.  PBSJ self-reported the violations to the SEC, took immediate steps to end the misconduct, and fully cooperated with the investigation, including voluntarily making foreign witnesses available for interviews and providing factual chronologies, timelines, internal summaries, and full forensic images to the SEC.  Under the DPA, PBSJ agreed to pay more than $3 million in disgorgement and prejudgment interest and a penalty of $375,000 – approximately 10% of the disgorgement level – and to comply with certain undertakings.

Similarly, in 2013 the Commission entered into its first ever FCPA NPA with Ralph Lauren Corporation in connection with bribes paid by a subsidiary to government officials in Argentina.  In determining to enter a NPA with the company, the Commission recognized the company’s prompt self-reporting of the violation – within two weeks of discovering the illegal payments – and its extraordinary cooperation with the SEC’s investigation, which included voluntarily and expeditiously producing relevant documents, providing translations of foreign-language documents, providing witness interview summaries from its internal investigation, making overseas witnesses available, and bringing witnesses to the U.S.  The Commission also took into account significant remedial measures undertaken by Ralph Lauren.  Under the NPA, the company paid more than $700,000 in disgorgement and pre-judgment interest.

Finally, self-reporting was a key consideration leading to the DPA with Tenaris, S.A., in 2011, which was the SEC’s first DPA since the introduction of the cooperation program.  The agreement with Tenaris involved allegations that the global manufacturer of steel pipe products made almost $5 million on contracts obtained through bribes of Uzbekistan government officials during a bidding process to supply pipelines for transporting oil and natural gas. The Commission determined that a DPA with Tenaris was appropriate.  The company immediately reported the violations to the SEC, conducted a thorough internal investigation, fully cooperated with the investigation, and implemented significant remediation efforts.  Under the DPA, Tenaris paid $5.4 million in disgorgement and prejudgment interest and agreed to enhance its compliance practices.  Tenaris paid no penalty.

I hope that by highlighting the benefits of cooperation and detailing the efforts companies took to self-report and cooperate, the Enforcement Division can help provide a blueprint for companies regarding what kind of cooperation and remediation efforts are required to maximize the benefits of the SEC’s cooperation program.

Focus on Individual Liability

The next area I want to talk about today is our focus on individual liability.  Holding individuals accountable for their wrongdoing is critical to effective deterrence and, therefore, the Division considers individual liability in every case.  Outside the FCPA context in particular, over the last five years, 80% of the SEC’s enforcement actions (excluding follow-on administrative proceedings and delinquent filings) have involved charges against individuals.  This focus on individuals also applies to FCPA cases.  When we are able to recommend a case against individuals for FCPA violations, we do so.

However, it is also true that FCPA cases often present formidable challenges to establishing individual liability.  In most FCPA cases, the individuals most directly involved in the wrongdoing are foreign nationals who live outside the United States.  As a result, it is often difficult to establish personal jurisdiction over potential wrongdoers, particularly if they are employees of the foreign subsidiary rather than the parent issuer.  In addition, most of the witnesses and documents are located overseas, which presents evidentiary challenges.  The cases are very time-consuming and resource-intensive to litigate, and if the wrongdoer is a foreign national with no assets or ties to the U.S., recoveries may be limited.  Finally, given the evidentiary challenges and complexity of FCPA investigations, the statute of limitations also complicates these cases.  The statute of limitations applicable to Commission actions is not tolled when foreign evidence requests are outstanding.

However, where the Division’s investigations find sufficient evidence to bring charges and establish personal jurisdiction, the Commission brings those cases.  Over twenty percent of the SEC’s FCPA cases this past year were brought against individuals, sometimes in conjunction with a case against the issuer, and sometimes before or after the issuer case was brought.  In the PBSJ case I discussed earlier, while the Commission entered into a DPA with the company, it charged the former PBSJ officer who orchestrated the scheme with violating the anti-bribery provisions of the FCPA.  As set out in the SEC’s order, the officer offered to funnel funds to a local company owned and controlled by a foreign official in order to secure two multi-million Qatari government contracts for PBSJ and also offered employment to a second foreign official in return for assistance as the bribery scheme began to unravel. The officer agreed to settle the charges and pay a significant penalty.

In August, the Commission brought charges against a former executive at a worldwide software manufacturer for violating the FCPA by bribing Panamanian government officials through an intermediary to procure software license sales.  As set out in the SEC’s order, the executive orchestrated a scheme to pay bribes to one government official and promised to pay two others in order to obtain four contracts to sell software to the Panamanian government.  The executive, who lives in Miami, agreed to settle the charges and disgorge all of his ill-gotten gains.

And earlier this fiscal year, the SEC charged two former employees in the Dubai office of a U.S.-based defense contractor with violating the FCPA by providing government officials in Saudi Arabia with improper benefits to help secure business for the company.  The individual employees settled the charges and each agreed to pay a significant penalty.

The Commission is committed to holding individuals accountable and I expect you will continue to see more FCPA cases against individuals.

Effective Coordination with International Regulators and Law Enforcement

One of the reasons we’ve been able to achieve such success in our FCPA cases over the past few years – both against companies and individuals – is the Division’s effective coordination with international regulators and law enforcement.  In today’s globalized marketplace, the SEC’s ability to protect investors and maintain fair and efficient markets is often dependent on Enforcement’s ability to investigate misconduct that takes place, at least in part, abroad.  This is especially true with FCPA investigations, which routinely rely on evidence obtained from foreign jurisdictions, and often are conducted in parallel with foreign governments.

Over the past five years, the Enforcement Division has experienced a transformation in the ability to get meaningful and timely assistance from international partners.  Enforcement has greatly expanded its efforts to obtain evidence of potential wrongdoing from around the globe with the assistance of the SEC’s Office of International Affairs and continues to strengthen our partnerships with other countries.  There has also been an important trend of significant growth in focus and legislation on corruption issues worldwide over the last few years.  The result has been a tremendous increase in cooperation from other governments and better access to evidence in foreign countries.

This increased coordination helps the SEC successfully conclude significant enforcement actions.  For example, assistance from foreign authorities was critical to the Commission’s recent case against Hitachi.  The investigation was greatly assisted by the African Development Bank and the South African Financial Services Board.  And the resulting case charged Hitachi with violating the FCPA by inaccurately recording improper payments to a front company for the African National Congress – the ruling party in South Africa – in connection with contracts to build two power plants.  The company agreed to settle the charges and pay a $19 million penalty for its FCPA violations.

In April of this year, the SEC also charged FLIR Systems, Inc. for violating the FCPA by financing what an employee termed a “world tour” of personal travel for government officials in the Middle East who played key roles in decisions to purchase products from FLIR. The Commission’s order found that FLIR earned more than $7 million in profits from sales influenced by the improper travel and gifts.  We received valuable assistance in our investigation from the United Arab Emirates Securities and Commodities Authority.  To settle the matter, FLIR agreed to pay more than $9.5 million in disgorgement and penalties and report its FCPA compliance efforts to the agency for the next two years.  In the BHP Billiton matter I mentioned earlier, the Division received assistance from the Australian Federal Police.

These are just three recent examples of the Division’s success in working with the international community to receive documents and other types of foreign assistance.  I fully expect the pace and extent of foreign agencies’ cooperation in the FCPA space to grow over the coming years as the Division continues to forge new relationships abroad and strengthen those we already have.

Enforcing the FCPA Statute to its Fullest Extent

Finally, I thought I would say a few words about the Commission’s efforts to enforce the FCPA to the fullest extent of the statute.  As this audience surely knows, the statute precludes the payment or provision of “anything of value” to a foreign official in order to induce that official to take official action or obtain an improper advantage for the purpose of obtaining or retaining business.

And of course “anything” of value is, on its face, a broad term.  Obviously, cash payments count.  Similarly, tangible gifts to foreign officials undoubtedly qualify as things of value.  But the Commission has also successfully brought FCPA cases where other, less traditional, items of value have been given in order to influence foreign officials.  For example, last year, I discussed a series of cases in which the Commission brought bribery charges against companies that made contributions to charities that were affiliated with foreign government officials, provided no-show jobs to the spouse of a foreign official, or paid for the honeymoon of a foreign official’s daughter, all to induce those officials to direct business to the companies.  Each of these benefits qualifies as something of value under the FCPA statute.

The SEC’s recent case against BNY Mellon, its first FCPA case against a financial institution, also illustrates this approach.  The Commission’s case charged that the firm violated the FCPA by providing valuable student internships to family members of foreign government officials affiliated with a Middle Eastern sovereign wealth fund.

Some have expressed concern about these cases, arguing that it is difficult to draw a clear line between what constitutes a violation and what does not, in cases involving less traditional items of value.  In my view, these concerns are unfounded.  The line between what is acceptable and what constitutes a violation of the law is in the same place it always has been:  when something of value – which can include a gift, donation, favor, or hiring decision – is given or taken with intent to influence the foreign official in his or her official actions or obtain an improper advantage.  While this analysis is dependent on the facts and circumstances of each particular case, it is the same analysis companies routinely conduct when considering how their employees interact with government officials in the course of business. The relevant questions include:

  • Was the gift, donation, favor, or hiring asked for by the foreign official?
  • Did the company official believe that the gift, donation, favor, or hiring would advance their business interests and help them obtain particular business, or at least obtain an improper advantage with the foreign official?
  • Was the gift, donation, favor, or hiring consistent with company policy and practice?
  • Were the company’s normal procedures followed in connection with the gift, donation, favor, or hiring?
  • Would the gift, donation, favor, or hiring have been made if there were no potential business benefit?

In the BNY Mellon case for example, the Commission’s order described the following facts.  The sovereign wealth fund officials explicitly and repeatedly requested the internships and the BNY Mellon employees viewed providing the internships as important to keeping the sovereign wealth fund’s business and potentially obtaining new business.  Indeed, one BNY Mellon employee stated that failure to provide the internships would “potentially jeopardize our mandate” with the sovereign fund and another stated that providing the internship was “the only way” to increase BNY Mellon’s share of business from the sovereign funds’ European office. In addition, the bank did not evaluate or hire the officials’ relatives through its internship program, which had stringent standards, including a minimum grade point average, relevant prior work experience, and multiple rounds of interviews.  In fact, the family members hired did not meet the basic entrance standards for any established BNY Mellon internship program, did not have the requisite academic or professional credentials, and were not even required to interview before being offered the positions.

Under these circumstances, I would suggest that there was ample basis for viewing the internships as something of value to the foreign officials who requested them for their relatives, and for concluding that they were given in an attempt to influence the foreign officials in connection with the performance of their official duties or to obtain an improper advantage from the foreign officials.

As I’ve said before, bribes come in many shapes and sizes.  And in my view, the FCPA is properly read to cover providing valuable favors to a foreign official, as well as providing cash, tangible gifts, travel or entertainment.


To sum up, the Enforcement Division is committed to aggressively pursuing violations of the FCPA by entities and individuals.  We will continue to use our cooperation program and to coordinate with international regulators and law enforcement to do so more effectively.  It is my hope that we can continue to build on the solid foundation we have created for FCPA compliance in the coming years.”