November 24th, 2014

Potpourri

Wal-Mart Related

Here is what Wal-Mart said in its recent 3Q FY 2015 earnings call.

“FCPA and compliance-related costs were approximately $41 million, which represents approximately $30 million for the ongoing inquiries and investigations and approximately $11 million for our global compliance program and organizational enhancements. Last year, FCPA and compliance-related costs were $69 million for the third quarter.  Through the third quarter of this year, we have spent $137 million on FCPA  and compliance-related costs, versus our guidance of between $200 and  $240 million. We expect to be near the low end of the guidance for the full  year.”

Doing the math, that is approximately $640,000 in FCPA-related expenses per working day.

Over the past approximate two 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 $640,000 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 four quarters have been approximately $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 (first three quarters) = $137 million.

*****

Another ripple of FCPA scrutiny and enforcement highlighted in “Foreign Corrupt Practices Act Ripples” is shareholder litigation in connection with FCPA scrutiny.

On that score, plaintiffs firm Robbins Geller Rudman & Dowd LLP recently sued the SEC in federal court seeking certain documents in the SEC’s possession concerning Wal-Mart’s FCPA scrutiny.  In the complaint, Robbins Geller alleges that the SEC has improperly denied its Freedom of Information Act document requests.  The complaint alleges that the SEC’s reliance on a FOIA exemption concerning documents “compiled for law enforcement purposes” does not apply because the documents sought “were provided by and retained by Walmart, the subject of the SEC investigation, and therefore not “compiled for law enforcement purposes.”

*****

India’s Economic Times reports:

“The Indian arm of American retail giant Walmart has terminated a mid-level manager amid investigations into alleged violations of U.S. anti-bribery laws in the country. Two years ago, when the company was known as Bharti Wal-Mart, it had sacked its chief financial officer and the entire legal team in connection with the same probe. The mid-level manager, who received a termination notice last week, is also required to be available for questioning by the U.S. Department of Justice in the next five years.”

Petrobras

Petrobras, an oil and gas company in Brazil, has been the focus of much recent news.

Recently, the Financial Times reported that the DOJ and SEC have opened investigations into the company and reported that “U.S. authorities are looking into whether Petrobras or its employees, middlemen, or contractors, violated the FCPA.”  It was reported that there is also an open investigation in Brazil and the Financial Times noted that “prosecutors in Brazil allege that Petrobras and its contractors overinflated the cost of capital expenditure projects and acquisitions by hundreds of millions of dollars and paid part of the proceeds to politicians from the ruling Workers’ Party coalition.”  According to the Financial Times, the “ruling coalition politicians received 3 percent of all contracts.”

The apparent FCPA scrutiny of Petrobras is interesting on many levels.

For starters, certain FCPA enforcement actions have involved Petrobras employees – not as a payor of alleged improper payments – but as the recipient of alleged improper payments.  The enforcement theory of course is that the company making the alleged improper payments violated the FCPA’s anti-bribery provisions because Petrobras was an alleged “instrumentality” of the Brazilian government and thus Petrobras employees were “foreign officials” under the FCPA.

On the flip side of course is the fact that Petrobras has ADRs listed on a U.S. exchange and thus would be considered by the enforcement agencies to be an “issuer” subject to the FCPA.

In short, the enforcement theory that employees of SOEs are “foreign officials” results in an interesting paradox of sorts should there be an FCPA enforcement action against Petrobras as Petrobras employees would have been on “both sides” of the FCPA – an occurrence that has likely never happened before.  Taking the enforcement theory to its logical conclusion also means that the U.S. government is apparently investigating whether the Brazilian government has engaged in corruption.  A host of legal and policy issues would seem to arise.

Another interesting issue to ponder from Petrobras’s apparent FCPA scrutiny is whether any alleged improper payments by Petrobras – either directly or indirectly through others – to Brazilian officials would truly represent payments to ‘foreign officials.”

As highlighted in this prior post concerning the first FCPA enforcement action against a foreign issuer (albeit not charging violations of the anti-bribery provisions), according to a knowledgeable source at the SEC at the time, there was a belief that there were no “foreign” officials involved because Montedison, an Italian company, allegedly bribed Italian officials.

This dynamic has not been present in other foreign issuer FCPA enforcement actions (for instance Siemens did not allegedly bribe German “officials,” Technip did not allegedly bribe French “officials”, etc.) but would be present in any FCPA enforcement action against Petrobras.

Regarding the potential FCPA scrutiny of Petrobras, it appears that the subject of inquiry concerns potential payments made by third parties on behalf of Petrobras or at least with the knowledge of Petrobras employees.  As I indicated to the Wall Street Journal in this story:

“The vast majority of FCPA enforcement actions are indeed based upon indirect payments. If Petrobras paid an inflated amount to a contractor, the questions will be why, were they aware it was inflated, and what steps did they take to remedy the situation, or did they just accept the inflated amount with an inkling or suspicion that it would go somewhere else?”

More recently, the story continues to evolve and as highlighted in this recent Wall Street Journal article:

“Federal police [in Brazil last week] arrested 18 people, including Renato Duque, former director of engineering and services at Petrobras. Authorities allege he and others were part of a bribery and money-laundering scheme that has siphoned hundreds of millions of dollars from the state-owned oil firm into the pockets of employees, contractors and politicians. Police also served dozens of search warrants and raided the offices of 11 companies they suspect of participating in a scam. The companies, which include Brazilian multinationals Odebrecht SA, Camargo Corrêa SA, Construtora OAS SA and others, are suspected of colluding to inflate the costs of work performed for Petrobras. Prosecutors allege some of the resulting profits were funneled to Petrobras executives and high-level politicians, including some members of the president’s ruling Workers’ Party, a charge the party has repeatedly denied.”

As a result of the controversy swirling about the company, Petrobras recently announced that it was “unable to release its third quarter 2014 financial statements at this time.”

In short, the apparent FCPA scrutiny of Petrobras raises several interesting issues worthy of pondering.  Should there be an enforcement action against the company for violating the FCPA’s anti-bribery provisions, it would be historic for the reasons discussed above.

Whistleblower Statistics

The 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 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, I previously noted that the best part of the new 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 FY2014.

Of the 3620 whistleblower tips received by the SEC in FY2014, 4.4% (159) related to the FCPA. As noted in this similar post from last year, 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 2012, 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.

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 4.5 years old, that Dodd-Frank’s whistleblower provisions will have a negligible impact on FCPA enforcement.

Posted by Mike Koehler at 12:03 am. Post Categories: Investigative FeesPetrobrasRelated Civil LitigationWal-MartWhistleblowers




November 21st, 2014

Sigelman Challenges DOJ’s “Foreign Official” Interpretation And Application

EcopetrolIn January 2014, the DOJ announced FCPA and related charges against former executives of PetroTiger Ltd., a British Virgin Islands oil and gas company with operations in Colombia and offices in New Jersey, “for their alleged participation in a scheme to pay bribes to foreign government officials in violation of the FCPA, to defraud PetroTiger, and to launder proceeds of those crimes.” The individuals charged were former co-CEOs of PetroTiger Joseph Sigelman and Knut Hammarskjold, and former general counsel Gregory Weisman.

As detailed in this prior post, the alleged foreign official was “an official at Ecopetrol [who] had influence over the approval and award of contracts by Ecopetrol.”  Ecopetrol was alleged to be “the state-owned and state-controlled petroleum company in Colombia.”

Unlike his co-defendants Hammarskjold and Weisman who previously pleaded guilty, Sigelman is challenging various aspects of the DOJ’s case, including its interpretation and application of the “foreign official” element.

The introduction of this October 29th motion to dismiss states (internal citations omitted) as follows:

“The indictment alleges that Joseph Sigelman violated the FCPA by authorizing a set of payments in 2010 to David Duran, who the Government claims was an employee of a Colombian corporation called Ecopetrol S.A. (Ecopetrol). Sigelman can be liable only if Duran was a “foreign official,” a term defined to include “any officer or employee of a foreign government or any . . . agency, or instrumentality thereof.” To be an “agency” or “instrumentality,” an entity must perform a governmental function.

The indictment is correct that Ecopetrol used to fit this description. Colombia created Ecopetrol in 1951 to be the official state body in charge of regulating the nation’s hydrocarbon resources. At the same time, Ecopetrol held a mandate to explore and extract oil and gas to sell in the open market. For decades, it carried out these dual functions, albeit lethargically. Being a government regulator stifled Ecopetrol’s ability to compete with private oil-and-gas companies. Its access to credit markets was limited. The Colombian government’s budget, rather than business judgment, guided decisionmaking.

Colombia grew fed up with the lack of commercial success. So in 2003, it split Ecopetrol in two. All of Ecopetrol’s regulatory and other governmental functions as well as its public interest mandate were assigned to a new state entity, the National Hydrocarbon Agency. Once divested of its government authority and functions, Ecopetrol became solely a commercial enterprise, its exclusive mission being to thrive in the highly competitive energy market. To further this mission and encourage Ecopetrol to be more competitive, Colombia amended its laws to treat Ecopetrol like Chevron, ExxonMobil, Royal Dutch Shell, or any other private oil-and-gas company. Ecopetrol became a corporation with shares of stock that could trade on public markets. It lost its privileged access to Colombian oil fields and stopped receiving any special benefits from the Colombian government, such as subsidies, dispensations, and tax exemptions. It became subject to private commercial law. Thus, Colombia’s Commercial Code (which applies to private companies) rather than Colombia’s General Contract Law for the Public Administration (which applies to public establishments) would govern Ecopetrol’s contracts. The labor code applicable to private companies would regulate Ecopetrol’s relations with its employees.

In short, as of 2010, when the events in this case took place, Ecopetrol was, as a matter of Colombian law, an ordinary market participant bereft of any governmental function. As the Government conceded in United States v. Esquenazi, an entity devoid of a governmental function is not an “agency” or “instrumentality” of a foreign government under the FCPA, regardless of whether a foreign government owns a majority of the stock of that entity.2 So even if the factual allegations in the indictment were true, the payments to David Duran would, as a matter of law, not violate the FCPA because they were not made to a “foreign official.” Thus, the FCPA charges must be dismissed.

Any contrary interpretation that stretches the definition of “foreign official” to cover employees of entities that exercise no public function, like Duran, would render the FCPA void for vagueness as applied to Sigelman. Nowhere in the statute’s provisions is there fair notice that it is unlawful to authorize payments to an employee of a corporation that does not perform any governmental functions. Permitting the Government to use the FCPA—a statute whose purpose is to penalize and discourage corruption of government officials—to prosecute payments made to employees of corporations with no governmental functions would leave charging decisions to the whims and personal views of prosecutors, with no reasonable foundation in the words of the statute or the intent of Congress. Thus, if the Government’s reading of the statute is correct, the charges against Sigelman under the FCPAmust also be dismissed on vagueness grounds.

Accordingly, Sigelman respectfully requests dismissal of all charges against him under the FCPA: namely, Counts Two, Three, and Four in their entirety, plus the portions of Counts One and Five alleging that Sigelman conspired to violate, and conspired to transfer money with the intent to violate, the FCPA. Sigelman further requests that this Court hold a hearing on issues of Colombian law pursuant to Federal Rule of Criminal Procedure 26.1.”

Sigeman’s motion is supported by an expert declaration from Carlos Gustavo Arrieta Padilla who, among other previous positions, was the Attorney Inspector General of Colombia and a Justice of the State Council  (the Colombian Supreme Court for administrative and certain constitutional matters).

Sigelman is represented by Patrick Egan (Fox Rothschild) and William Burck (Quinn Emanuel).

In this November 12th opposition memorandum, the DOJ states under the heading “Introduction” as follows.

“Defendant’s latest motion seeks the dismissal of counts corresponding to the FCPA charges in this case. Defendant claims that although the Government included well-pled allegations in the Indictment that the bribe recipient was a “foreign official,” as that term is defined in the FCPA, and was employed by an “instrumentality,” as that term is defined in the FCPA, the Court should look to facts outside the Indictment – including, among other things, a 22-page declaration by an individual who Defendant deems an “expert” – to remove this issue from the purview of the jury and dismiss the counts pretrial. Defendant is incorrect. As every single other court which has addressed this very issue has concluded, this is an issue of fact for the jury to decide after the presentation of all of the evidence. Indeed, the Government intends to submit substantial evidence at trial to establish beyond a reasonable doubt that the bribe recipient was a foreign official under the FCPA.

Moreover, and also as every other court to confront this very issue has found, the FCPA is not unconstitutionally vague as applied to Defendant. Importantly, the FCPA requires the Government to prove that Defendant acted corruptly and willfully, which is wholly inconsistent with the notion that Defendant did not have fair notice.

Defendant’s most recent motion to dismiss should be denied.”

In its brief, the DOJ states, in pertinent part, that “some of the facts about Ecopetrol that the Government may rely on at trial, and that clearly demonstrate that Ecopetrol is an “instrumentality” under the FCPA, include:

Ecopetrol was created by the government of Colombia;

The Colombian government is required to maintain at least an 80% interest in Ecopetrol, and during the relevant time period Ecopetrol was 89.9% owned by the Colombian government;

The Colombian government has the ability to select a majority of Ecopetrol’s board of directors, and during the relevant time period the board of directors included the Minister of Mines and Energy, the Minister of Finance, and the Director of the National Planning Agency;

The Colombian government has the right and ability to “undertake projects which may not be in [Ecopetrol’s] best interest” but are instead in the government’s interest;

Ecopetrol “reserve[s] the right to plead sovereign immunity under the United States Foreign Sovereign Immunities Act of 1976 with respect to actions brought against [it] under United States federal securities laws or any state securities laws” by any of Ecopetrol’s minority shareholders;

Ecopetrol prepares its “financial statements in accordance with Colombian Government Entity GAAP”;

Before Ecopetrol “can issue any debt in the international and local capital markets or incur any other type of indebtedness, the Government [of Colombia], through the Ministry of Finance and Public Credit, must authorize the issuance of such debt and [Ecopetrol] must register external debt with the Colombian Central Bank”;

The Colombian government “may require [Ecopetrol’s] Board of Directors to declare dividends in an amount that result in [Ecopetrol] having to reduce [its] capital expenditures thereby negatively affecting [its] prospects, results of operations and financial condition”;

Prior to 2004, any oil company wishing to engage in oil-related services in Colombia had to enter into an agreement with Ecopetrol. Ecopetrol remains, to this day, “as counterparty to the contracts which [it] signed prior to January 1, 2004” which include the Mansarovar contract. “The contracts on which [Ecopetrol is] the counterparty all have clauses which provide, at [Ecopetrol’s] sole option, for extensions. If [Ecopetrol] do[es] not extend the contracts, the right to exploit the hydrocarbon reserves which are the subject of the contract revert to [Ecopetrol], and [Ecopetrol] ha[s] the right to exploit them for an indefinite period at no additional cost to [Ecopetrol].” For example, as recently as June 2010 (in the middle of the charged FCPA conspiracy), “the ‘Santiago de las Atalayas Contract’, one of the most important exploration and production contracts due to its amount of crude oil and natural gas reserves, terminated and the right to exploit the hydrocarbon reserves subject to this Contract reverted back to [Ecopetrol].”; and

Employees of Ecopetrol, to this day, are treated as public officials for purposes of Colombia’s public corruption laws, and in fact have been prosecuted for such actions in recent years.”

As stated in the DOJ’s brief, “these are not attributes of a private commercial enterprise – they are the attributes of a foreign government instrumentality.”

In this November 14th reply letter to the court, Sigelman’s lawyers write.

“The validity of the government’s FCPA charges rests upon its assertion that Ecopetrol was an “instrumentality.”  It is undisputed that performing a governmental function is a sine qua non of being an “instrumentality” under the FCPA.  Yet nowhere in the indictment or its 28 pages of briefing responsive to Mr. Sigelman’s instant motion does the United States identify any Colombian governmental function performed by Ecopetrol in 2010.”

For more on “foreign official” issues, see my “foreign official” declaration and my amicus brief in the recent cert petition to the Supreme Court in U.S. v. Esquenazi (a petition the court denied).

Posted by Mike Koehler at 12:03 am. Post Categories: Foreign OfficialJoseph Sigelman




November 20th, 2014

DOJ And SEC Officials Talk FCPA

Speaking8In what has become a mid-November tradition, DOJ and SEC officials yesterday gave speeches at a Foreign Corrupt Practices Act conference.

Topics discussed included the following:  individual prosecutions, voluntary disclosure and cooperation, compliance programs, asset recovery, foreign law enforcement cooperation.  (For factual information concerning DOJ and SEC individuals prosecutions see this prior post and as relevant to the issue of “success” – a topic touched upon in both speeches – you might want to read the article ”What Percentage of DOJ FCPA Losses is Acceptable?“)

In many respects, yesterday’s DOJ and SEC speeches were very similar to previous speeches delivered by enforcement agency officials in September and October (see here, herehere and here for prior posts).

This post excerpts this speech by Assistant Attorney General Leslie Caldwell and this speech by Andrew Ceresney, Direct of the SEC’s Enforcement Division.

DOJ

Caldwell began her remarks as follows.

“I want to focus my remarks on one of our most important enforcement priorities – our efforts to combat corruption around the world.

At the Criminal Division, we are stepping up our efforts in the battle against corruption, at home and abroad.  Through our Public Integrity Section, which prosecutes corruption cases involving U.S. federal, state, and local officials, we are attacking domestic corruption.

More relevant to this audience, we are also deeply committed to fighting corruption abroad.  Now, more than ever, we are bringing to justice individuals and corporations who use foreign bribery as a way to gain a business advantage.  In part, we are doing this using the tools and methods that have made our past enforcement efforts so successful – FCPA prosecutions and penalties.

But there have been some really big changes in the Justice Department’s FCPA work since I last worked there.  First, thanks to the expertise and knowledge we have acquired over the years, we are now able to investigate FCPA cases much more quickly.  We also are better equipped to prosecute individuals who are actually making corrupt payments, as well as intermediary entities hired to serve as conduits for bribes.

And now we also are prosecuting the bribe takers, using our money laundering and other laws.  And, importantly, we have begun stripping corrupt officials of the proceeds of their corruption involving both bribes and kleptocracy, using both criminal and civil authorities.

The Criminal Division’s FCPA enforcement program and our Kleptocracy Initiative are really two sides of the same anti-corruption coin.  We bring those who pay bribes to justice, no matter how rich and powerful they are.  But by itself, that is not enough.  We also attack corruption at its source – by prosecuting and seizing the assets of the corrupt officials who betray the trust of their people.

Another big change – one that has been building for years but now has really developed momentum – is that we increasingly find ourselves shoulder-to-shoulder with law enforcement and regulatory authorities in other countries.  Every day, more countries join in the battle against transnational bribery. And this includes not just our long-time partners, but countries in all corners of the globe.

Together with our foreign law enforcement and regulatory partners we are taking a truly global approach to rooting out international corruption.  And make no mistake, this international approach has dramatically advanced our efforts to uncover, punish and deter foreign corruption.

Increasingly, we and our counterparts share information about bribery schemes.   We report schemes to one another.  And, where appropriate, we discuss strategy and coordinate our use of investigative techniques, so that we can obtain the best possible results, especially in very high-impact cases.

These efforts are incredibly important. The World Bank estimates that more than $1 trillion is paid every year in bribes, which amounts to about 3 percent of the world economy.  That amount is stunningly wasteful.  No one benefits from corruption other than the corrupt officials.

But corruption is far more insidious and harmful than can be measured numerically.  We all know that when corruption takes hold, the fundamental notion of playing-by-the-rules gets pushed to the side, and individuals, businesses and governments instead begin to operate under a fundamentally unfair – and destabilizing – set of norms.  This undermines confidence in the markets and governments, and destroys the sense of fair play that is absolutely critical for the rule of law to prevail.

In emerging economies, corruption stifles economic development that would lift people out of poverty, improve infrastructure, and better people’s lives.  And the fruits of corruption can prop up autocratic and oppressive rulers even in wealthier countries.

Make no mistake, the effects of foreign corruption are not just felt overseas.  In today’s global economy, the negative effects of foreign corruption inevitably flow back to the United States.  For one, American companies are harmed by global corruption.  They are denied the ability to compete in a fair and transparent marketplace.  Instead of being rewarded for their efficiency, innovation, and honest business practices, U.S. companies suffer at the hands of corrupt governments and lose out to corrupt competitors.

International corruption also presents broader public safety concerns.  Indeed, criminal networks of all kinds, including narcotics traffickers, cyber criminals, terrorists, and human traffickers, often take advantage of countries whose commitment to the rule of law is weakened by corruption of its officials.  And, as we’ve seen in the more extreme cases, thoroughly corrupted regimes have created safe havens for criminals by giving them a secure base from which they can orchestrate their criminal activities.

You have no doubt heard my predecessors speak of the evils of corruption.  It is because of these evils that the fight against international bribery has been, and continues to be, a core priority of the Department of Justice.

Our commitment to the fight against foreign bribery is reflected in our robust enforcement record in this area, which includes charges against corporations and individuals alike from all over the world.  Since 2009, we have convicted more than 50 individuals in FCPA and FCPA-related cases, and resolved criminal cases against more than 50 companies with penalties and forfeiture of approximately $3 billion.  Twenty-five of the cases involving individuals have come since 2013 alone.  And those are just the cases that are now public.  These individuals run the gamut of actors involved in bribery schemes: corporate executives, middlemen, and corrupt officials.”

Caldwell next focused on asset recovery and international cooperation:

“As our enforcement actions demonstrate, we are focusing our attention on bribes of consequence – ones that fundamentally undermine confidence in the markets and governments.  And our record of success in these prosecutions has allowed us to show – rather than just tell – corporate executives that if they participate in a scheme to improperly influence a foreign official, they will personally risk the very real prospect of going to prison.

[...]

Stripping individuals of the proceeds of their conduct – and thus depriving them of the very profits that are driving the corrupt conduct in the first place – is one technique that we are using increasingly in our fight against foreign bribery.  And, we are not just pursuing these corrupt proceeds through criminal actions.

The FCPA Unit’s efforts to eradicate foreign corruption also are assisted by the work of our Kleptocracy Asset Recovery Initiative, through which prosecutors in the Criminal Division’s Asset Forfeiture and Money Laundering Section and Office of International Affairs are pursuing ill gotten riches from corrupt officials using our civil authority. [...] [W]e are ready, willing, and able to confiscate the riches of corrupt leaders who drain the resources of their countries for their own benefit.”

[O]ur efforts to hold bribe takers as well as bribe payors accountable for their criminal conduct are greatly aided by our foreign partners.  Transnational bribery is a global problem and an international solution truly is beginning to develop.  Every day, more countries reject the notion that bribery in international business is inevitable and acceptable.  Indeed, in just the last few years several countries have enacted new anti-corruption laws or enhanced existing laws.  Admittedly, the global trend against foreign corruption continues to face many challenges, but the tide has turned and I truly believe that it is now on our side.

This level of collaboration is the product of hard work and strategic coordination, which has allowed us to forge the international partnerships that are essential to fight global corruption.  For example, just a couple of weeks ago, about 200 judges, prosecutors, investigators, and regulators from more than 50 countries, multi-development banks, and international organizations around the world joined prosecutors, investigators, and regulators from the Criminal Division, SEC, and FBI in Washington, D.C., for a week long training course to exchange ideas and best practices on combating foreign corruption.

I had the opportunity to participate in this meeting and saw its value first-hand.  The meeting provided a critical opportunity for the people who fight global corruption in the trenches every day to meet face-to-face, discuss ongoing cases, identify new opportunities to collaborate, and improve intelligence sharing.

The results from this increased international collaboration speak for themselves.”

[...]

[T]hese coordinated global actions sent a powerful message – countries all over the world are now engaged in the fight against foreign bribery and together, we can and will hold to account individuals and companies who engage in corruption, regardless of where they operate or reside.

The increase in international collaboration is not only enhancing our own FCPA enforcement efforts but it is also resulting in anti-corruption enforcement actions by other countries.”

[...]

Continued international collaboration is absolutely critical if we are going to have a meaningful impact on corruption across the globe and we are committed to maintaining – and enhancing – our working relationships with our foreign partners.

By enhancing our coordination with our overseas counterparts, continually improving our already successful methods of investigating and prosecuting FCPA cases, and increasing our efforts to prosecute corrupt officials and recover their ill-gotten gains, we are now, more than ever, making a tangible difference in the fight against foreign bribery.”

Caldwell next shifted to voluntary disclosure and cooperation and stated:

“When I last worked at the department and even over the 10 years that I was in private practice, it seemed that many FCPA investigations were initiated by self-disclosures.  While we of course still welcome self-disclosure, today we are far from reliant on it.

[...]

And in a world of whistleblowers and international cooperation, I expect that will be the case more often than not going forward.  That said, we still encourage and reward self-disclosure and cooperation.

When you detect significant potential criminal conduct at your company, or a company that has retained you, I encourage you to disclose it to the Justice Department – and to do so in a timely manner.  As I am sure you all know, the department’s Principles of Federal Prosecution of Business Organizations provides that prosecutors should consider “the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents” in deciding how to proceed in a corporate investigation.

So, in addition to promptly disclosing the conduct to us, I also encourage you to conduct a thorough internal investigation and to share with us the facts you uncover in that investigation.  We do not expect you to boil the ocean in conducting your investigation but in order to receive full credit for cooperation, we do expect you to conduct a thorough, appropriately tailored investigation of the misconduct.

And we expect you to provide us useful facts in a timely manner.  And that includes, importantly, facts about the individuals responsible for the misconduct, no matter how high their rank may be.

[...]

The sooner you disclose the conduct to us, the more avenues we have to investigate culpable individuals.  And, the more open you are with us about the facts you learned about that conduct during your investigation, the more credit you will receive for cooperation.

But, if you delay notifying us about an executive’s conduct or attempt to whitewash the facts about an individual’s involvement, you risk receiving any credit for your “cooperation.”

This does not mean that we expect you to use law-enforcement style techniques to investigate your employees.  To the contrary, it simply means that when you do an internal investigation, and you choose to cooperate with us, you should understand that we will expect to hear not just what happened, but who did what, when, and where.

We also expect that a truly cooperating company will provide relevant documents in a timely fashion, even if those documents are located overseas.  We recognize that some countries’ laws pose real challenges to data access and transfer of information, but we also know that many do not.

The Criminal Division investigates and prosecutes a large volume of international cases and through these cases, we have developed an understanding of these laws.  We will not give full cooperation credit to companies that hide behind foreign data privacy laws instead of providing overseas documents when they can.  Foreign data privacy laws exist to protect individual privacy, not to shield companies that purport to be cooperating in criminal investigations.

Put simply, cooperation – and the quality and timeliness of that cooperation – matter.  This is a well-established principle that we have applied in criminal cases across the spectrum – from violent and organized crime cases to corporate fraud cases – for decades.

If a company works with us, it not only helps the Department, but it helps itself.

[...]

Fighting corruption is not a choice we have made. It is, increasingly, a global imperative.  Given the critical nature of this mission, we are bringing more resources to bear than ever before – and we will continue doing so.  We have achieved significant successes using our traditional FCPA enforcement tools.  We are building on those successes and continuing to evolve our enforcement efforts.  Especially with the power of so many countries now standing by our side, we are determined to use every lawful means available to hold the perpetrators of corruption to account.”

SEC

Ceresney began his remarks as follows.

“Pursuing such [FCPA] violations remains a critical part of our enforcement efforts, as international bribery has many nefarious impacts, including sapping investor confidence in the legitimacy of a company’s performance and undermining the accuracy of a company’s books and records. Our specialized FCPA unit as well as other parts of the Enforcement Division continue to do remarkable work in this space, bringing significant and impactful cases often in partnership with the DOJ and FBI. [...] Looking ahead, I anticipate another productive year of FCPA enforcement, as we have a robust pipeline of investigations across the globe. I thought I would spend my time this morning discussing some areas we will be focusing on in the coming year and beyond, and then, if we have time, I can take some questions.”

Under the heading “Focus on Individuals,” Ceresney stated:

“Let me start with cases against individuals. It is a hot topic of the day, in the face of some significant enforcement actions against entities alone, to ask the question of whether enforcement actions against entities are as impactful as actions against individuals, and whether actions against entities actually deter misconduct.

I always have said that actions against individuals have the largest deterrent impact. Individual accountability is a powerful deterrent because people pay attention and alter their conduct when they personally face potential punishment. And so in the FCPA arena as well as all other areas of our enforcement efforts, we are very focused on attempting to bring cases against individuals.

That is not to say that cases against companies are unimportant — in fact, I think FCPA enforcement is perhaps one of the best examples of how actions against entities can have a tremendous deterrent effect. Our actions against entities have had a tremendous impact in the last 10 years on FCPA compliance. Companies have increased their compliance spending and focus exponentially — the attendance at this conference is but one example of that. And these actions continue to provide significant deterrence and send important messages about areas that companies should be focused on. Every action we bring is scrutinized closely and dissected for information on areas of risk. That is a great dynamic and one we should continue to foster. But individual accountability is critical to FCPA enforcement — and imposing personal consequences on bad actors, including through bars and monetary sanctions, will continue to be a high priority for us.

Now it is important to recognize that FCPA cases against individuals can present some unique challenges for us and we simply are unable to bring cases against individuals in connection with a number of our cases. For example, in many cases we face significant investigative hurdles, including difficulties in gathering specific testimony and documents from overseas that will be admissible at trial. This is one area where we have been working closely with our counterparts in other jurisdictions, to access foreign witnesses, bank statements, and company records. These efforts have been more and more successful as we form strong partnerships with other countries to combat corruption.

When the conduct involves foreign nationals — as it often does — another challenge can be establishing personal jurisdiction over the bad actor. We have had some favorable decisions in this area, but it still remains a challenge in certain cases. Statute of limitations issues also complicate these cases.

Despite these various challenges, we continue to vigorously pursue cases against individuals.”

Under the heading “Importance of FCPA Compliance Programs,” Ceresney stated:

“This is a message that I think has started to get through in the past 5 years. Nothing situates a company better to avoid FCPA issues than a robust FCPA compliance program.

The best companies have adopted strong programs that include compliance personnel, extensive policies and procedures, training, vendor reviews, due diligence on third-party agents, expense controls, escalation of red flags, and internal audits to review compliance. You can look to our Resource Guide on the FCPA that we jointly published with the DOJ, to see what some of the hallmarks of an effective compliance program are. I won’t mention them all because you should be familiar with many that relate to policies, procedures and training. But, I’ll highlight just a few others. Companies should perform risk assessments that take into account a host of factors listed in the guide and then place controls in these risk areas. Companies should have disciplinary measures in place to deter violations and compliance programs should be periodically tested and reviewed to ensure they are keeping pace with the business. Such programs, properly implemented, will also help companies avoid other problems at foreign subsidiaries, like self-dealing, embezzlement and financial fraud.

As part of our settlements, we have on occasion required the retention of a monitor to assist in administering such compliance programs. For those companies that have developed robust programs during the investigation, we have required self-reporting and certifications. But the overwhelming message that one has to take away from our actions is how important such programs are for ensuring compliance.

Of course, it is critical for such programs to be real programs. When I was in private practice, I saw companies that had great paper programs but did not implement them effectively. When the business would push back, they would remove requirements and make exceptions. The best companies would put the compliance program ahead of business interests and allow decisions to be made to ensure compliance with the law, no matter the business consequences. It is that sort of attitude that is the measure of whether such programs will be successful.

As I said, we have seen many companies improving and properly implementing their compliance programs, as the message from our cases over the years has penetrated the legal and compliance community. But there is still more work to be done, particularly for small-to-medium sized companies trying to enter foreign markets to grow their businesses. As those businesses seek to expand and globalize, their compliance functions must keep pace.

[...]

The bottom line is that no responsible company should operate overseas without a comprehensive compliance program to guard against FCPA risk.

One other aspect of compliance programs is the benefit that companies will derive from having them if a problem should arise. I can tell you that the SEC staff will look well on companies that have robust programs and that the existence of such programs will pay dividends should an FCPA issue arise despite the existence of such programs.”

Under the heading “Cooperation,” Ceresney stated:

“Related to the issue of the existence of FCPA compliance programs, I wanted to focus for a moment on self-reporting and cooperation. The existence of FCPA compliance programs place the company in the best position to detect FCPA misconduct. But the question is what a company does once it learns of such misconduct. There has been a lot of discussion recently about the advisability of self-reporting FCPA misconduct to the SEC. Let me be clear about my views — I think any company that does the calculus will realize that self-reporting is always in the company’s best interest. Let me explain why.

Self-reporting from individuals and entities has long been an important part of our enforcement program. Self-reporting and cooperation allows us to detect and investigate misconduct more quickly than we otherwise could, as companies are often in a position to short circuit our investigations by quickly providing important factual information about misconduct resulting from their own internal investigations.

In addition to the benefits we get from cooperation, however, parties are positioned to also help themselves by aggressively policing their own conduct and reporting misconduct to us. We recognize that it is important to provide benefits for cooperation to incentivize companies to cooperate. And we have been focused on making sure that people understand there will be such benefits. We continue to find ways to enhance our cooperation program to encourage issuers, regulated entities, and individuals to promptly report suspected misconduct. The Division has a wide spectrum of tools to facilitate and reward meaningful cooperation, from reduced charges and penalties, to non-prosecution or deferred prosecution agreements in instances of outstanding cooperation.

Last year, for example, we announced our first-ever non-prosecution agreement in an FCPA matter with a company that promptly reported violations and provided real-time, extensive cooperation in our investigation.

More commonly, we have reflected the cooperation in reduced penalties. Companies that cooperate can receive smaller penalties than they otherwise would face, and in some cases of extraordinary cooperation, pay significantly less.

[...]

The bottom line is that the benefits from cooperation are significant and tangible. When I was a defense lawyer, I would explain to clients that by the time you become aware of the misconduct, there are only two things that you can do to improve your plight — remediate the misconduct and cooperate in the investigation. That obviously remains my view today. And I will add this — if we find the violations on our own, and the company chose not to self-report, the consequences will surely be worse and the opportunity to earn significant credit for cooperation may well be lost.

[...]

The SEC’s whistleblower program has changed the calculus for companies considering whether to disclose misconduct to us, knowing that a whistleblower is likely to come forward. Companies that choose not to self-report are thus taking a huge gamble because if we learn of the misconduct through other means, the result will be far worse.”

Under the heading “Items of Value,” Ceresney stated:

“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 for the purpose of obtaining or retaining business. Obviously, money or property is an item of value. Gifts to foreign officials also easily qualify as items of value.

But we also have successfully brought FCPA cases where other, less traditional, items of value have been given in order to obtain or retain business. For example, in three separate actions, Stryker, Eli Lilly and Schering-Plough, we brought bribery charges against pharmaceutical or medical technology companies that made contributions to charities that were headed by or affiliated with foreign government officials to induce them to direct business to the companies.

We also have charged companies for providing items of value to family members of foreign officials. In Tyson Foods, for example, we charged the company for providing no-show jobs to the spouses of foreign officials who were responsible for certifying the company’s products for export. More recently, in Weatherford, we charged the company for a variety of bribes to foreign officials and their families, including paying for the honeymoon of an official’s daughter and a religious trip by an official and his family that was improperly recorded as a donation.

As these examples make clear, bribes come in many shapes and sizes. So it is critical that we carefully scrutinize a wide range of unfair benefits to foreign officials when assessing compliance with the FCPA — whether it is cash, gifts, travel, entertainment, or employment of the family and friends of foreign officials. We should and will continue to pursue a broad interpretation of the FCPA that precludes bribery in all forms.”

In conclusion, Ceresney stated:

“[T]he Enforcement Division will continue to look for opportunities to enhance our impact with respect to FCPA enforcement. We have made significant progress over the last 10 years but there is still much more we can do. We will continue our efforts to level the playing field for companies doing business abroad and hold corrupt actors accountable when they fail to play by the rules.”





November 19th, 2014

Actionable Intelligence On The Risk Of Bribery Internationally

Today’s post is from Alexandra Wrage (President of TRACE International).

*****

Compliance officers and in-house counsel for multi-national companies are well aware of the risks and consequences of bribery schemes. What to do about it is the challenging part. Companies have long relied on Transparency International’s authoritative country-by country corruption risk ratings to prioritize their limited resources. But knowing what specific steps are necessary to mitigate your risks is not something that can be gleaned from an overall country risk rating.  Because two countries with the same overall risk rating can present very different types of corruption risk, the ratings alone don’t provide actionable intelligence. A compliance officer needs to know how corruption in a particular country will confront their business. Last week, another tool in the compliance and risk assessment arsenal was launched to meet this need: the TRACE Matrix.

We at TRACE have long heard the laments from compliance officers and general counsel that they need the actionable information that would come from more granular country risk ratings.  One general counsel noted after looking at other indices, “once you get past the first 30 – 40 countries, all those lower countries start to look the same. If you are comparing Angola to Romania, the ranking isn’t useful, but if you are able to give guidance as to what types of corruption you might see, that would be extremely helpful.”

Enforcement officials have also recognized the limitations of country level risk ratings. “Multinational companies need additional tools beyond those currently available to more effectively measure country risk.”  Charles Duross, Partner at Morrison & Foerster LLP and the former deputy chief in the fraud section in the criminal division of the U.S. Department of Justice.

And so, working in collaboration with RAND Corporation, TRACE set out to develop an actionable business bribery index for the compliance community.  This project involved more than a year of research and benchmarking.  We asked companies what features they would like to see in a business bribery index and asked them to identify information that would assist their assessment of business bribery risk.   As part of our research, we also conducted interviews with regulators and enforcement officials to understand their views of country risk assessments.

The resulting TRACE Matrix provides not only a country level risk-rating but also four different domain risk ratings and nine different sub-domains of risk.  Although the TRACE Matrix can be used to rank countries by their composite scores, it is also possible to view the results for specific risk factors included in the composite score to identify what drives the overall score. This allows firms to identify not only where a country falls in terms of overall business bribery risk, but also to use the domain and subdomain scores to tailor compliance practices further.   For example, if the business is one that has to have many interactions across many government offices, then a country with a high risk in this domain would be of particular concern.

In the 1990s, Transparency International gave the world the Corruption Perception Index (CPI). TI gets great credit for raising awareness of this issue and putting countries on notice that levels of corruption were being monitored.  The CPI is a valuable instrument for addressing overall levels of perceived corruption in a particular country.  It combines numerous surveys about perceived levels of corruption across government functions:  judiciary, health, education, etc. These country level ratings are informative, but they also obscure important and actionable differences among countries with similar ratings. The business community’s needs are more specific.

The World Bank’s Worldwide Governance Indicators also aggregates corruption-related data, but as the Governance and Social Development Resource Centre states, “the main use of the indicators by international organization [sic] and donors is to incentivize developing nations to improve their governance and to improve the allocation of aid.”   Another valuable tool, this alone does not meet the needs of the business community.

Companies that use existing indices to measure threats associated with business corruption risk developing either overly aggressive or inadequate compliance and due diligence procedures. They need more nuanced data to tailor their compliance processes appropriately.

So, after hearing from the business community for years that a tailored tool to gauge levels of commercial bribery was needed we set out to explore just what should be measured.   Most respondents cited “touches” with the government as the most important indicator for commercial bribery.   In a great assessment of ports in Nigeria, the Maritime Anti-Corruption Network (MACN) determined that 142 signatures were needed to clear cargo in the port of Lagos.  That’s a powerful indicator of the likelihood of a bribe demand.

At the same time, as one participant noted, the compliance community needs “something that is more targeted, more precise than the CPI, [but] the more complicated it gets, the less likely people will be to use it.”

And so, leveraging our own experience and tapping our stakeholders all over the world, we identified four domains relevant to companies

(1)   business interactions with government,

(2)   anti-bribery laws and enforcement,

(3)   government transparency and civil service, and

(4)   capacity for civil society oversight.

RAND further refined this by including nine sub-domains. For example, when it came to business interactions with government, the Matrix addresses the nature of contact with local governments, expectations of paying bribes and regulatory burdens. Likewise, in examining capacity for civil society oversight, the Matrix addresses the quality and freedom of media, as well as human capital and social development.

Ultimately, by offering a clear, actionable snapshot of the risk of commercial bribery in a country, the TRACE Matrix should help multinational companies make better decisions about foreign investments, bolster compliance and reduce the likelihood of violating anti-bribery laws.  No approach is perfect and we expect a lot of debate about the weighting of the data and about scores or rankings that people find surprising. But we hope it will provide a practical and effective tool to help assess bribery risk and thereby enable in-house counsel and compliance professionals to allocate their limited resources with more confidence.

Alexandra Wrage is the president of TRACE International, a nonprofit antibribery compliance organization offering practical tools and services to multinational companies, including the TRACE Matrix. 

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




November 18th, 2014

“World Tour” For Saudi Officials Results In Individual SEC FCPA Enforcement Action

World TourYesterday, for the first time since April 2012, the SEC brought a Foreign Corrupt Practices Act enforcement action against an individual.  Like the previous five SEC corporate FCPA enforcement actions in 2014, the enforcement action was brought via the SEC’s administrative process.

The enforcement action was against Stephen Timms and Yasser Ramahi, individuals who worked in sales at FLIR Systems Inc., (an Oregon-based company that produces thermal imaging, night vision, and infrared cameras and sensor systems).

The enforcement action is similar to previous FCPA enforcement actions against Lucent Technologies and UTStarcom in that the action focused on certain bona fide business travel that morphed into excessive travel and entertainment of foreign officials.

In summary fashion, the SEC’s order states:

“During 2009, Stephen Timms and Yasser Ramahi arranged expensive travel, entertainment, and personal items for foreign government officials in the Kingdom of Saudi Arabia in order to influence the officials to obtain new business for their employer, FLIR Systems, Inc. and to retain existing business for FLIR with the Saudi  Arabia Ministry of Interior (the “MOI”). Timms and Ramahi subsequently provided false explanations for the gifts to FLIR and attempted to conceal the gifts’ true value by submitting false documentation to the company.”

In the order Timms is described as follows.

“Stephen Timms … is a United States citizen who resides in Thailand. FLIR hired Timms in November 2001. He was promoted to Middle East Business Development Director for FLIR’S Government Systems division in September 2007. Timms was the head of FLIR’s Middle East office in Dubai during the relevant time period, and was one of the company executives responsible for obtaining business for FLIR’s Government Systems division from the MOI.”

Ramahi, a United States citizen who resides in the United Arab Emirates, is described as follows.

“Ramahi was hired by FLIR in late 2005 and worked in business development in Dubai. During the relevant period, Ramahi’s manager was Timms, the head of FLIR’s Middle East office.”

Under the heading “FLIR’s Business with the Saudi Ministry of Interior,” the order states:

“In November 2008, FLIR entered into a contract with the MOI to sell thermal binoculars for approximately $12.9 million. Ramahi and Timms were the primary sales employees responsible for the contract on behalf of FLIR. In the contract, FLIR agreed to conduct a “Factory Acceptance Test,” attended by MOI officials, prior to delivery of the binoculars to Saudi Arabia. The Factory Acceptance Test was a key condition to the fulfillment of the contract. FLIR anticipated that a successful delivery of the binoculars, along with the creation of a FLIR service center, would lead to an additional order in 2009 or 2010.

At the same time, Ramahi and Timms were also involved in FLIR’s negotiations to sell security cameras to the MOI. In May 2009, FLIR signed an agreement for the integration of its cameras into another company’s products for use by the MOI. The contract was valued at approximately $17.4 million and FLIR hoped to win additional future business with the MOI under this agreement.”

Under the heading “World Tour” for Saudi Officials” the order states:

“In February 2009, Ramahi and Timms began preparing for the Factory Acceptance Test, which was scheduled to occur in July 2009 in Billerica, Massachusetts. Timms requested the names of the MOI officials who would attend the test so that travel arrangements could be made for them by FLIR’s travel agent in Dubai, UAE. Timms subsequently contacted the United States Embassy in Riyadh, Saudi Arabia, for assistance to obtain visas for the MOI officials to attend the Factory Acceptance Test.

Ramahi and Timms then sent MOI officials on what Timms later referred to as a “world tour” before and after the Factory Acceptance Test. Among the MOI officials for whom Ramahi and Timms provided the “world tour” were the head of the  MOI’s technical committee and a senior engineer on the committee, who played a key role  in the decision to award FLIR the business.

In June 2009, Ramahi made arrangements for himself and MOI officials to travel from Riyadh to Casablanca, where they would stay for several nights at FLIR’s expense. The MOI officials then traveled to Paris with FLIR’s third-party agent, where they would also stay for several nights at a luxury hotel, also paid for by FLIR. Ramahi met the MOI officials and FLIR’s third-party agent in Boston for the equipment inspection at FLIR’s nearby facilities. On the way back from Boston, Ramahi traveled with most of the MOI officials to Dubai and arranged airfare and hotel accommodations for one MOI official to travel to Beirut before returning to Riyadh, all at FLIR’s expense. Timms received the travel itinerary ahead of the officials’ departure on the “world tour.”

The trip proceeded as planned. In total, the MOI officials traveled for 20 nights on their “world tour,” with airfare and hotel accommodations paid for by FLIR. In addition, while the MOI officials were in Boston, Ramahi and the third-party agent also took the MOI officials on a weekend trip to New York City at FLIR’s expense. There was no business purpose for the stops outside of Boston.

While in the Boston area, the MOI officials spent a single 5-hour day at FLIR’s Boston facility completing the equipment inspection. The agenda for their remaining 7 days in Boston included just three other 1-2 hour visits to FLIR’s Boston facility, some additional meetings with FLIR personnel at their hotel, and other leisure activities, all at FLIR’s expense.

Timms approved expenses incurred by Ramahi and the MOI officials in connection with the extended travel, and Timms’ manager approved the expenses for the air travel provided to the MOI officials in connection with their “world tour.” FLIR’s  finance department processed and paid the approved air expenses the next day.”

Under the heading “Expensive Watches for Saudi Officials,” the order states:

“In March 2009, while Ramahi was present, Timms provided expensive gifts to five MOI officials. At Timms’ and Ramahi’s instruction, in February 2009, FLIR’s third-party agent purchased five watches in Riyadh, paying approximately 26,000  Saudi Riyal (about U.S. $7,000).

In mid-March 2009, Ramahi and Timms traveled to Saudi Arabia for a nine-day business trip to discuss several business opportunities with MOI officials. According to Timms’ expense report, the purpose of the trip was to meet with MOI officials regarding FLIR’s efforts to sell its security cameras. During the trip, Timms, with Ramahi’s knowledge, gave the five watches to MOI officials. Ramahi and Timmsbelieved the MOI officials to be important to sales of both the binoculars and the security cameras. The MOI officials who received the watches included two of the MOI officials who subsequently went on the “world tour” travel.

Within weeks of his visit to Saudi Arabia, Timms submitted an expense report to FLIR for reimbursement of the watches. At the time of his submittal, Timms confirmed that each watch cost $1,425 and was for “Executive Gifts.” Shortly thereafter, Timms identified the names of the MOI officials who received the watches. The reimbursement was approved by Timms’ manager and paid out to Timms.”

Under the heading “The Cover Up,” the order states:

“In July 2009, in connection with an unrelated review of expenses in the Dubai office, FLIR’s finance department flagged Timms’ reimbursement request for the watches. In response to their questions, Timms claimed that he had made a mistake and falsely stated that the expense report should have reflected a total of 7,000 Saudi Riyal(about $1,900) rather than $7,000 as submitted.

At his supervisors’ request, Ramahi secured a second, fabricated invoice reflecting that the watches cost 7,000 Saudi Riyal, which Timms submitted to FLIRfinance in August 2009. Ramahi also told FLIR investigators that the watches were each purchased for approximately 1,300-1,400 Saudi Riyal (approximately $377) by FLIR’s third-party agent.

In September 2009, the FLIR finance department attempted to contact FLIR’s third-party agent. In e-mail correspondence, the FLIR finance department asked the agent a series of questions about the watches. Unknown to the finance department, Timms drafted responses to the questions on behalf of the agent. At Timms’ direction, the agent maintained the false cover story: that the watches cost a total of 7,000 Saudi Riyal, not U.S. $7,000.

In July 2009, Ramahi and Timms claimed that the MOI’s luxury travel and “world tour” had been a mistake. They told the FLIR finance department that the MOI had used FLIR’s travel agent in Dubai to book their own travel and that it had been mistakenly charged to FLIR. They promised to send an invoice to the MOI to pay for the“world tour” travel. Instead, however, Ramahi and Timms used FLIR’s agent to give the appearance that that the MOI paid for their travel. Timms also oversaw the preparation of false and misleading documentation of the MOI travel expenses that was submitted to FLIR’s finance department. For example, Timms obtained an invoice from the Dubai travel agency showing direct flights from Boston to Riyadh—a route not taken by the MOI officials on their “world tour.” Timms submitted the false invoice to FLIR finance as the “corrected” travel documentation.”

Under the heading, “FLIR’s FCPA-Related Policies and Training,” the order states:

“At all relevant times, FLIR had in place a code of conduct which prohibited FLIR employees from violating the FCPA. The policy required employees to record information “accurately and honestly” in FLIR’s books and records, with “no materiality requirement or threshold for a violation.”

Both Ramahi and Timms received training on their obligations under the FCPA and FLIR’s policy prior to the provision of expensive gifts of travel, entertainment, and personal items to the MOI. On or around May 13, 2007 and on or around December 2, 2008, Timms completed FLIR’s two-part FCPA-specific online training courses, including courses focused on “Understanding the Law” and “Dealing with Third Parties.” Ramahi only completed part one of the two-part series in May 2007. The training course completed by both Ramahi and Timms, entitled “Understanding the Law,” gave examples of prohibited gifts under the FCPA and specifically identified gifts of luxury watches, vacations and side trips during official business travel.”

As stated in the order:

“Respondents violated [the FCPA's anti-bribery provisions] by corruptly providing expensive gifts of travel, entertainment, and personal items to the MOI officials to retain and obtain business for FLIR. Respondents also violated Section 13(b)(5) of the Exchange Act, and Rule 13b2-1 thereunder, by knowingly circumventing FLIR’s existing policies and controls, placing a fabricated invoice for the watches into FLIR’s books and records and falsifying FLIR’s records regarding the MOI officials’ extended personal travel paid by FLIR. As a result of this same conduct, Respondents caused FLIR’s books and records to be not accurately maintained in violation of [the books and records provisions of the FCPA].”

As noted in the SEC’s order and release, “without admitting or denying the findings, Timms and Ramahi consented to the entry of the order and agreed to pay financial penalties of $50,000 and $20,000 respectively.”

In the SEC’s release, Andrew Ceresney (Director of the SEC’s Enforcement Division) states:

“This case shows we will pursue employees of public companies who think it is acceptable to buy foreign officials’ loyalty with lavish gifts and travel. By making illegal payments and causing them to be recorded improperly, employees expose not only their firms but also themselves to an enforcement action.”

According to media reports, Timms is represented by Solomon Wisenberg (Nelson Mullins) an Ramahi is represented by Lisa Prager (Schulte Roth & Zabel).

According to the SEC’s release, “the SEC’s investigation is continuing.”  As relevant to any potential FCPA enforcement action against FLIR, the SEC’s order states under the heading “FLIR Profits from Sales to the Saudi Ministry of Interior” as follows.

“Following the equipment inspection in Boston, the MOI gave its permission for FLIR to ship the thermal binoculars. The MOI later placed an order for additional binoculars for an approximate price of $1.2 million. In total, FLIR received payments from the MOI for the binoculars that exceeded $10 million.

From September 2009 through August 2012, FLIR also shipped the security cameras and related accessories to the MOI. FLIR received payments for the cameras exceeding $18 million. FLIR subsequently submitted a bid to sell additional security cameras to the MOI. The bid expired before the contract was awarded by the MOI.”

Based on a review of FLIR’s SEC filings, it does not appear that the company has disclosed any FCPA scrutiny.