July 2nd, 2015

What You Need To Know From Q2

Q2This post provides a summary of Foreign Corrupt Practices Act enforcement activity and related events from the second quarter of 2015. (See here for a similar post from Q1).

DOJ Enforcement (Corporate)

There was one DOJ corporate FCPA enforcement in the second quarter.  DOJ recovery is this enforcement action was $7.1 million. Year-to-date, the DOJ has brought one corporate enforcement action.  DOJ recovery in this enforcement action was $7.1 million.

IAP Worldwide Services Inc.  (June 16th)

See here for the prior post

Charges:  Not applicable.

Resolution Vehicle:  NPA

Guidelines Range:  None set forth in the NPA.

Penalty:  $7.1 million.

Disclosure:  Unclear, the NPA makes no mention of voluntary disclosure or other potential origins of the action.

Monitor:  No

Individuals Charged:  Yes

DOJ Enforcement (Individual)

In the second quarter, the DOJ brought one individual enforcement action against James Rama in connection with the IAP Worldwide Services Action.

Year-to-date, the DOJ has brought two individual FCPA enforcement action.  As highlighted here, in the first quarter the DOJ announced criminal charges against Dmitrij Harder, the former owner and President of Chestnut Consulting Group Inc. for allegedly bribing an official with the European Bank for Reconstruction and Development.

SEC Enforcement (Corporate)

The SEC brought two corporate FCPA enforcement actions via administrative orders in the second quarter.  SEC recovery in these enforcement actions was approximately $34.5 million.

Year-to-date, the SEC has brought four corporate enforcement actions, all via administrative orders.  SEC recovery in these enforcement actions has been approximately $54.1 million.

BHP Billiton (May 20)

See here, here and here for prior posts.

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

Settlement:  $25 million civil penalty.

Disclosure:   The company disclosed that it received information requests from the SEC in August 2009.

Individuals Charged:  No

Related DOJ Enforcement Action:  No.

FLIR Systems (April 8th)

See here and here for prior posts.

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

Settlement:  Approximately $9.5 million (disgorgement of $7,534,000, prejudgment interest of $970,584 and a penalty of $1 million).

Disclosure:   Voluntary disclosure.

Individuals Charged:  Yes in November 2014 (see here for the prior post).

Related DOJ Enforcement Action:  No.

SEC Enforcement (Individual)

The SEC did not bring any FCPA charges against individuals in the second quarter.

Year-to-date there has been one FCPA enforcement action against an individual.  In connection with the PBSJ enforcement action, Walid Hatoum (a former executive of PBS&J International, Inc.) agreed, without admitting or denying the SEC’s findings, to resolve an administrative action finding violations of the FCPA’s anti-bribery, books and records, and internal controls provisions. Hatoum agreed to pay a $50,000 civil penalty.

Other Developments or Items of Interest

As highlighted here, Assistant Attorney General Leslie Caldwell delivered a speech in which she stated that although the DOJ expects “internal investigations to be thorough,” the DOJ does “not expect companies to aimlessly boil the ocean.”  In the same speech, Caldwell spoke about the “Criminal Division’s efforts to increase transparency in its corporate prosecutions” and this post analyzes DOJ transparency in the FCPA context. In other respects, as highlighted herehere and here, the second quarter was an active month for speeches by DOJ and SEC enforcement officials regarding the FCPA and related topics. In particular, the war of words continued as to blame for exorbitant pre-enforcement action professional fees and expenses.

As highlighted here, in a foreign bribery case in the same general sphere of the FCPA, a federal court judge benchslapped the DOJ and stated that he had never seen more of a “misguided prosecution.”

As highlighted here, in a civil defamation case in the aftermath of an FCPA enforcement action the Texas Supreme Court held that providing an internal investigation report to the DOJ was “absolutely privileged” under the defamation laws.  The case was closely followed by the corporate community given its potential impact on conducting internal investigations and cooperating with government enforcement agencies.

For the first time since its trial court debacles in 2011 and 2012, the DOJ was put to its burden of proof in an individual FCPA enforcement action. As highlighted hereU.S. v. Joseph Sigelman was in the early stages of trial when the DOJ’s star witness (an individual who previously pleaded guilty to the same core conduct and was cooperating with the DOJ in the hopes of achieving a lower sentence) ran into some problems on the witness stand.  In short, the witness acknowledged giving false testimony during the trial prompting federal court judge Joseph Irenas (D.N.J.) to ask the witness “did you have a hallucination?” The trial adjourned as the DOJ contemplated what to do next and shortly thereafter the DOJ effectively pulled its case against Sigelman when it offered the defendant a plea agreement to substantially reduced charges. As highlighted here, Judge Irenas refused to sentence Sigelman to any jail time and in doing so blasted the DOJ (see here).  As highlighted here, U.S. v. Sigelman was just the latest DOJ FCPA trial court debacle.

Posted by Mike Koehler at 12:03 am. Post Categories: Year in Review 2015




July 1st, 2015

Silly DOJ Press Release Belies Government’s Failure in Joseph Sigelman FCPA Prosecution

Laurel and HardyToday’s post is from Paul Calli and Chas Short of Calli Law LLC.

*****

As readers of FCPA Professor well know ( see herehere and here for prior posts), in mid-June, the FCPA prosecution of Joseph Sigelman came to an abrupt halt after DOJ’s star witness admitted to giving false testimony on the stand. The case ended in a plea to one conspiracy count and a sentence of probation.  DOJ nonetheless issued a press release crowing as though this were a prosecution victory.

Make no mistake: this is a loss for the government and a win for Mr. Sigelman.

Trial had gone badly for the government. The government’s star witness lied on the stand and admitted to it, prompting the trial judge to ask, “Did you have a hallucination?” The FBI agent (the only other witness who had testified) admitted that the alleged Colombian “foreign official” at the center of the government’s case was allowed to travel from the United States to Colombia without facing arrest. It was a debacle, as many of the government’s prior FCPA prosecutions have been.

DOJ nonetheless issued a press release trumpeting Mr. Sigelman’s plea and the pending related cases.  The press release, and the government’s decision to spin an embarrassing loss, is silly.

By contrast, Mr. Sigelman’s defense team issued their own press release, which actually discussed the events at trial, and is well worth reading.

The government’s approach is even sillier when its collapse at trial is compared to the pomposity in its initial press release (still on the DOJ’s website). When the complaint was unsealed back in early 2014, DOJ’s press release ‘warned,’ “[W]e are not going away.”

This type of overheated press release rhetoric is not new for DOJ, unfortunately. When the Government made arrests in its FCPA Gabon “sting” case, then-Assistant Attorney General Lanny Breuer stated, “[T]hese actions are a turning point.” And he quipped at a press conference, “This is one case where what happens in Vegas didn’t stay in Vegas.” It turns out that the turning point was trial: that case ended in a complete victory for the accused individuals.

Government exaggeration is not limited to FCPA cases of course. Back in 2013, U.S. District Judge Richard Sullivan mockingly read a press release from the United States Attorney’s Office for the Southern District of New York at a conference on white collar crime. Judge Sullivan commented that the press release “sounds like the theme from Mighty Mouse,” and said that the release “seems to be designed for tabloid consumption.” The press release in the government’s failed prosecution of Mr. Sigelman is part of a trend.

But it’s not just that the DOJ release is silly.

It is also offensive to the spirit of justice. The release is written as though all the things that went badly at trial for DOJ never happened. It fails to mention the lies of the cooperator whom the government had decided to embrace. In doing so, it is a clear demonstration that the DOJ press office does not exist to inform the public, but to serve as the propaganda arm of DOJ.

Moreover, consider this: if a publicly traded company issued a press release that contained a material omission, the company may be the subject of criminal prosecution. The release in the Sigelman prosecution unapologetically embraces selective disclosure and deliberate omissions. If we accept the premise that the DOJ ought to do justice (as opposed to simply trying to win), then the DOJ ought to have a duty to keep the public informed about all aspects of its enforcement program.

Just because DOJ alleges it, doesn’t mean it’s true. Reciting it again in a press release doesn’t mean it’s true. Finally, just because the DOJ secures a plea agreement does not necessarily represent a success.  Stated differently, if it smells like a loss, looks like a loss and everyone who followed the case knows it is a loss, it is still a loss.

So why has the DOJ struggled when put to its burden in individual enforcement actions while racking up numerous corporate enforcement actions?

It is one thing for the DOJ to process a corporate voluntary disclosure of an investigation conducted by mid-level associates at FCPA, Inc. As Judge Irenas commented to the DOJ at Mr. Sigelman’s sentencing, “You had PetroTiger through the investigation done by Sidley & Austin, basically dumped – dumped the case in your lap.”

It’s another thing entirely for the DOJ to actually prove up its case against an adversary.

The DOJ’s track record in FCPA cases when held to its burden of proof is poor.  Conversely, the defense’s track record is excellent.

The lesson to be drawn from Sigelman, despite the DOJ’s silly press release, is the reminder that trial is the great equalizer.

Posted by Mike Koehler at 12:02 am. Post Categories: DOJGuest PostsJoseph Sigelman




June 30th, 2015

Is Incentive-Based Compensation A Scapegoat?

ScapegoatEveryday, real business people interact with real foreign officials in the context of real business conditions.

The vast majority of these interactions do not result in Foreign Corrupt Practices Act violations.

It is only when these real people are ethically compromised that FCPA violations occur.

Examining how and why these real people were ethically compromised is interesting to ponder.

In recent months Richard Bistrong (an individual who pleaded guilty to one count of conspiracy to violate the FCPA and spent fourteen months in federal prison) has suggested that incentive-based compensation for international sales, marketing, and business development teams “create[] incentives that foster corruption.”  

Bistrong further wrote:

“There will be no shortage of sales, marketing and business development employees, with lucrative incentive compensation packages, who are going to want to push the envelope on finding a way to deliver sales success over compliance to a sales manager.  In an unstable procurement environment, where purchases are sporadic, unpredictable, yet financially significant, a sales person knows that if he or she misses a major procurement, it may or may not come back in the sales and bonus cycle.

Thus, when confronted with a corrupt transaction, the sales person may think, “I have a lot on the line here personally, this purchase won’t happen again for another year, at least, so what does my sales manager want, compliance or sales?”

Bistrong has a perspective on FCPA violations that many people do not have.

However, I find the suggestion that incentive-based compensation is to blame, at least in part, for FCPA violations to be a scapegoat.

Such a suggestion fails to recognize that millions of individuals are working today subject to incentive-based compensation structures yet will not be ethically compromised to violate their employers compliance policies or engage in criminal activity.

That a few will does not mean that the incentive-based compensation in which they work is to blame.

*****

As a courtesy, I reached out to Bistrong to comment on the above post.

He writes:

“Compensation should never be used as a scapegoat, attempt to blame, or in any way to deflect the responsibility for unethical and illegal conduct onto other individuals or business components.  The question I ask, is if compliance professionals are focusing upon incentive structures as an “unspoken” organizational message and to insure that they do not conflict with the promotion of anti-bribery compliance programs.  If perhaps they do, especially where they are indexed to personal performance in low integrity regions, then perhaps a realignment  provides an opportunity to demonstrate to front-line teams that compensation and compliance all point to the promotion and fostering of ethical conduct. Incentive compensation is a proven positive driver for business development. In the context of anti-bribery compliance, from my perspective, it requires an additional level of scrutiny to insure that it does not send a conflicting message (as opposed to a scapegoat) to front-line teams.”
Posted by Mike Koehler at 12:03 am. Post Categories: ComplianceIncentive-based compensation




June 29th, 2015

Q&A On Various Aspects Of The Current FCPA Enforcement Landscape

Q&AThe Association of Certified Financial Crime Specialists (ACFCS) is a worldwide organization for private and public sector professionals who work in diverse financial crime disciplines.

I recently had the pleasure to engage with ACFCS’s audience in this Q&A on various aspects of the current FCPA enforcement landscape.

The substantive portions of the interview are set forth below.

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What is the biggest challenge facing FCPA enforcement?

The biggest challenge is how to enforce the FCPA consistent with commonly accepted rule of law principles.  In this so-called new era of FCPA enforcement, the DOJ and SEC largely occupy the role of prosecutor, judge and jury all at the same time given that most FCPA enforcement actions are resolved in the absence of meaningful judicial scrutiny.  In the rare instances when DOJ and SEC enforcement theories are subjected to judicial scrutiny, the enforcement agencies have an overall losing record when put to its burden of proof.  In short, in a legal system based on the rule of law, quality of enforcement matters more than quantity of enforcement, however most observers of the FCPA seemed to be focused on the later rather than the former.

Is there any low hanging fruit the government has not applied FCPA to? Who should they be going after?

Effective law enforcement requires the prosecution of culpable individuals.  The DOJ and SEC recognize this.  However, the fact remains most FCPA enforcement is corporate only.  Approximately 75% of DOJ corporate FCPA enforcement actions lack related charges against company employees and approximately 80% of SEC corporate FCPA enforcement actions lack related charges against company employees.  One response to this wide gap might be:  “why was nobody charged?”  I submit that the more appropriate response is:  do corporate enforcement actions resolved via NPAs / DPAs or administrative settlements always represent provable FCPA violations.  In my opinion the answer is no.

Why can’t they go after these cases that they should be?

If the DOJ and SEC would prosecute more individuals, enforcement agency theories would likely be subjected to greater judicial scrutiny and the enforcement agencies, as is often the case, would likely lose.  So instead of exposing its aggressive enforcement theories to judicial scrutiny and perhaps losing the leverage of the theory against business organizations, the enforcement agencies exercise their leverage against risk-averse business organizations to secure settlements.  For more information about this dynamic, see my article “The Facade of FCPA Enforcement.” This article was written in 2010 and the troubling facade has only increased since then.

Are there any other countries that the US could look to as an example of effective anti-corruption enforcement?

There are approximately 40 other nations that have FCPA-like laws.  However, comparative enforcement statistics are practically meaningless because it is like comparing apples to oranges for at least two reasons.

First, the U.S. is rare in having so-called respondent superior liability in which a business organization can face criminal or civil liability based on the conduct of any employee or agent to the extent the conduct was within the employee or agent’s scope of employment/agency and was intended, at least in part, to benefit the business organization. In contrast, most other countries with FCPA-like laws either: (i) do not recognize legal person liability; or (ii) if they do only allow such liability to the extent conduct was engaged in by so-called ‘‘controlling minds’’ of the business organization such as board members or executive officers. Against this backdrop, it is not surprising that the country with the most lenient form of business organization liability—the U.S.—has the most enforcement actions.

Second, the U.S. is rare in resolving alleged FCPA violations via NPAs, DPAs or administrative actions.  In contrast, in nearly every other country with FCPA-like laws law enforcement agencies must do something that may be considered old-fashioned by current U.S. standards—and that is prove actual legal violations to someone other than itself.

Why is it hard to prove bribery? What makes it a nebulous type of crime?

I don’t think that proving bribery is any more difficult than proving any other crime.  Indeed, a federal court judge recently blasted DOJ rhetoric about this very issue.

When the DOJ marshals the full resources of the government against a person (whether that person is a “legal person” such as a corporation or “natural person” like you and me) it should be difficult, it should not be easy.  This is what our “founding fathers” specifically contemplated as a necessary bulwark against a tyrannical government.

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




June 26th, 2015

Friday Roundup

Roundup2World’s most ethical FCPA violators, scrutiny alerts and updates, and shareholder meeting action.  It’s all here in the Friday roundup.

World’s Most Ethical FCPA Violators

This 2011 post coined the term “World’s Most Ethical FCPA Violators” (that is, companies recognized on Ethisphere’s World’s Most Ethical Companies list, yet also companies that have resolved FCPA enforcement actions and/or been the subject of FCPA scrutiny).

Highlighting this dynamic is not a dig at Ethisphere’s methodology or the companies themselves.

Rather, it is further to the point of how easy it can be for a multi-national company to become the subject of FCPA scrutiny as well as debunking the fallacy of “good companies don’t bribe period” (see here for the prior post).

The 2015 version of the “World’s Most Ethical Companies” list contains several companies that have resolved FCPA enforcement actions and/or been the subject of FCPA scrutiny in recent years.

By my estimation, the companies are as follows: 3M Company, ABB Group, CBRE Group, Cisco, Deere & Co., Dun & Bradstreet, Fluor, GE, Microsoft, Rockwell Automation, Schnitzer Steel, and Sempra Energy.

Scrutiny Alerts and Updates

Barry Keller, etc.

The Wall Street Journal went in-depth in this article about a pending FCPA investigation.  In pertinent part, the article states:

“A widening U.S. bribery probe involving Russian uranium has reached from Moscow to a company in the heart of America’s Rust Belt.

U.S. authorities are investigating whether an executive in Bremen, Ohio—a rural community with about 1,500 residents roughly 40 miles southeast of Columbus—bribed Russian energy officials to win his company millions of dollars in contracts to supply shipping containers for uranium, according to people familiar with the matter.

People familiar with the investigation identified that company as Westerman Cos., which was acquired by Worthington Industries Inc. in 2012 and now operates as Worthington Cylinders. Court records refer to the company as Cylinder Corporation A and identify its location as Bremen.

[...]

Authorities suspect that the Westerman executive, who became part of a long-running criminal probe, paid Russian officials tens of thousands of dollars in bribes between 2011 and 2013, court documents say.

People familiar with the investigation say the man, identified by the documents as “Executive A” or “Barry,” is Barry Keller, a Bremen native who has spent more than three decades at Westerman, working his way up from the shop floor to senior management.

Mr. Keller couldn’t be reached for comment. Neither he nor the company has been charged with any crime.

Worthington, through a spokeswoman, declined to comment on Mr. Keller.

“We first learned of [the investigation] in November, and we are fully cooperating with the Justice Department,” said Worthington Industries general counsel Dale Brinkman.He said the company hasn’t heard from federal investigators since January.

Mr. Brinkman stressed that Westerman’s ties with the Russians began before Worthington acquired it. “When we became aware of this [investigation], we quit selling to them,” he added.”

Gold Fields

In September 2013 (see here for the prior post), South African company Gold Fields Limited was the subject of a South African newspaper article which then prompted the company with ADRs listed on a U.S. exchange to disclose:

“Gold Fields Limited has been informed that it is the subject of a regulatory investigation in the United States by the US Securities and Exchange Commission relating to the Black Economic Empowerment transaction associated with the granting of the mining license for its South Deep operation. Given the early stage of this investigation, it is not possible to estimate reliably what effect, the outcome this investigation, any regulatory findings and any related developments may have on the Company.”

Recently Gold Fields disclosed:

“[The company] been informed by the Foreign Corrupt Practices Act Unit of the United States Securities Exchange Commission (the Commission) that it has concluded its investigation in connection with the Black Economic Empowerment (BEE) transaction related to South Deep and, based on the information available to them, will not recommend to the Commission that enforcement action be taken against Gold Fields.”

According to the “declination” crowd, this is another example of a “declination.”  This Compliance Week article went so far as to suggest that Gold Fields “dodged” FCPA charges.

Both assertions are off-target for the same reason it would be off-target to say that a sober driver who passes through a field sobriety test “dodged” drug driving charges or that law enforcement “declined” to prosecute the driver for drunk driving.

Compass Group

The U.K. catering company with ADRs listed on a U.S. exchange was recently the focus of this U.K. Guardian article.  According to the article:

“An international subsidiary of Compass Group, the British catering giant … paid bribes to government officials in Kazakhstan, documents seen by the Guardian reveal.

The unit’s agents made “facilitation payments” to customs officers in the former Soviet republic for an unspecified period up to 2011, internal Compass papers show, with the transactions originating in the same international division that was separately accused of bribing a UN official to win contracts.

The company paid £40m to settle civil litigation in the UN case in 2006, without admitting legal liability.

The new allegations are detailed in documents that relate to an employment tribunal claim brought by a former finance director of a Compass subsidiary in Kazakhstan. Karim Pabani says he was sacked after blowing the whistle on corruption, but Compass is fighting the claim.”

Shareholder Meeting Action

Corporate shareholder meetings are often boring affairs.  (See here for a recent Wall Street Journal article).

This is until a shareholder stands up and goes on an uninformed FCPA rant.

As noted in this article:

“The annual meeting of Time Warner shareholders in Atlanta on Friday somehow managed not to be soul-drainingly boring for a few minutes, when an unhinged female shareholder launched into a lengthy rant about George Clooney and his wife, attorney Amal Alamuddin.

“I have a compensation question … How much have we paid George Clooney for ‘Gravity’ and ‘Argo?’” the shareholder asked Time Warner chairman and CEO Jeff Bewkes, before unspooling a scatter-shot jeremiad with xenophobic overtones.

“How much money went to Amal Alamuddin, a foreign fiancée and spouse? To her family, to Lebanon, to the mayor of Rome to officiate at the wedding? To Arab contractors to renovate his home in London? Are there violations of the Foreign Corrupt Practices Act?””

*****

A good weekend to all.