Archive for the ‘Africa Sting’ Category

New Article Examines Overcriminalization, Plea Bargaining, And The FCPA Africa Sting Case

Tuesday, July 8th, 2014

A guest post today from my Southern Illinois University School of Law colleague Lucian Dervan.  Professor Dervan is a widely recognized expert on plea bargaining and has, among other things, testified before Congress on such issues.

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I greatly appreciate the opportunity to guest post on Professor Koehler’s FCPA Professor site.  In my post today, I will focus on my discussion of overcriminalization, plea bargaining, and the Africa Sting case in a new article just posted to SSRN – “The Quest for Finality: Five Stories of White Collar Criminal Prosecution,” 4 Wake Forest Journal of Law & Policy 91 (2014) (available here).

In an article I authored a few years ago for the George Mason Journal of Law, Economics, and Policy (available here), I discussed the growth of overcriminalization in the United States and the impact of broad and vague statutes on white collar criminal enforcement.  In particular, I argued that there is a symbiotic relationship between overcriminalization and plea bargaining because each of these important legal concepts relies on the other to flourish.

As I wrote in that article:

To illustrate the co-dependent nature of plea bargaining and overcriminalization, consider what it would mean if there were no plea bargaining. Novel legal theories and overly-broad statutes would no longer be tools merely for posturing during charge and sentence bargaining, but would have to be defended and affirmed both morally and legally at trial. Further, the significant costs of prosecuting individuals with creative, tenuous, and technical charges would not be an abstract possibility used in determining how great of an incentive to offer a defendant in return for pleading guilty. Instead, these costs would be a real consideration in determining whether justice is being served by bringing a prosecution at all.

Similarly, consider the significant ramifications that would follow should there no longer be overcriminalization. The law would be refined and clear regarding conduct for which criminal liability may attach. Individual benefits, political pressure, and notoriety would not incentivize the invention of novel legal theories upon which to base liability where none otherwise exists, despite the already expansive size of the United States criminal code. Further, novel legal theories and overly-broad statutes would not be used to create staggering sentencing differentials that coerce defendants, even innocent ones, to falsely confess in return for leniency.

In the Over-Criminalization 2.0 article, I went on to focus on the Computer Associates prosecution.  In the Computer Associates case, the government requested the company retain outside counsel to perform an internal investigation regarding allegations of accounting improprieties.  During that internal investigation, several employees allegedly lied to investigating counsel.  The government later brought obstruction of justice charges against those employees.  In the indictment, the government argued that the defendants “knew, and in fact intended, that the company’s law firm would present these false justifications to the United States Attorney’s Office, the SEC and the FBI so as to obstruct and impeded (sic) the government investigations.”

This broad and creative application of an obstruction of justice statute (18 U.S.C. § 1512(c)(2)) led to widespread concern from various sectors of the legal community.  In particular, much unease was expressed about the impact of this charging decision on the role of privately retained investigating counsel.  Had the government deputized law firms?  Embracing similar concerns, including concerns about the impact of this case on the attorney-client privilege, the defendants challenged the government’s theory of the case.  Unfortunately, the district court dismissed the motion without specifically addressing the core issues of concern.  While the stage appeared set for an important review of this charging theory by the United States Court of Appeals for the Second Circuit, no such review ever took place.  As is so common today, the opportunity to examine the broad application of a vague statute was lost to the power of plea bargaining.  Instead of proceeding to the appellate court, all of the defendants pleaded guilty and the corporation entered into a deferred prosecution agreement.  Once again, the symbiotic relationship between overcriminalization and plea bargaining had prevented a true judicial review of this case.

In my new article, The Quest for Finality, I found similar issues in the FCPA Africa Sting case.  As readers of FCPA Professor will recall, the Africa Sting case involved an undercover FCPA operation targeting the defense sector.  As occurred in the Computer Associates case, the government used creative legal theories to build key aspects of its case.  Unlike the Computer Associates case, however, not all of the defendants pleaded guilty.  Therefore, the broad application of vague criminal statutes was tested and the results were very favorable for the defense.

In September 2011, a number of the Africa Sting defendants who had resisted the government’s offers of leniency in return for pleas of guilt went on trial.  Almost immediately, the government’s case began to fall apart under the weight of judicial scrutiny.  At one point, Judge Richard Leon stated, “I read all sixteen indictments, and I didn’t see it. I have zero sense that there was an omnibus grand conspiracy.”  Despite these words of caution, the government continued to pursue the conspiracy charges, the same conspiracy charges to which other defendants had already pleaded guilty.  Finally, after giving the government ample opportunity to make its case, Judge Leon dismissed the conspiracy counts in the middle of the trial.  Eventually, when the trial concluded, the case ended without a single conviction on the remaining counts.

In February 2012, the government asked Judge Leon to dismiss the charges against the remaining defendants awaiting trial in the Africa Sting matter.  As discussed on FCPA Professor at the time (see here), Judge Leon granted the motion and stated:

“This appears to be the end of a long and sad chapter in the annals of white-collar criminal enforcement. Unlike takedown day in Las Vegas, however, there will be no front page story in the New York Times or the Post for that matter tomorrow reflecting the government’s decision today to move to dismiss the charges against the remaining defendants in this case. Funny isn’t it what sells newspapers.
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Two years ago, at the very outset of this case I expressed more than my fair share of concerns on the record regarding the way this case has been charged and was being prosecuted. Later, during the two trials that I presided over I specifically commented again on the record regarding the government’s very, very aggressive conspiracy theory that was pushing its already generous elasticity to its outer limits. Of course, in the second trial that elastic snapped in the absence of the necessary evidence to sustain it.

In addition, in that same trial, I expressed on a number of occasions my concerns regarding the way this case had been investigated and was conducted especially vis-a-vis the handling of Mr. Bistrong. I even had an occasion, sadly, to chastise the government in a situation where the government’s handling of the discovery process constituted sharp practices that have no place in a federal courtroom.”

In a move seldom seen, the government even went on to dismiss the charges against the defendants who had already pleaded guilty in the case.

In discussing, amongst others, the Africa Sting prosecution in my new article on The Quest for Finality, I examine once again the role of plea bargaining.

It is disturbing to recognize that if all of the defendants in the Broadcom or Africa Sting cases had taken plea deals, we would likely never have learned just how tenuous the government’s positions were in these matters.  Further, evidence demonstrates that it is not unlikely that all the defendants in such a case might plead guilty, even if they were innocent.  During 2011 and 2012, Professor Vanessa Edkins and I conducted a psychological study in which we placed students in a situation where they were accused of cheating.  All the students, regardless of factual guilt or innocence were then offered a deal.  Of the guilty participants, 89% took the plea deal. Of the innocent participants, 56% took the plea deal.  Given the incentives plea bargaining creates for defendants to falsely admit guilt and the observed utilization of plea bargaining as a tool to mask flawed criminal cases where the evidence alone is insufficient for conviction at trial, perhaps it is time to reevaluate our reliance on bargained justice.

The Africa Sting Case is one in which a number of defendants proceeded to trial to challenge the government’s theory of the case.  Such challenges, however, have become a rarity in today’s criminal justice system.  As the Computer Associates case illustrates, even where the government’s aggressive application of broad criminal statutes draws wide attention, most defendants succumb to the powerful incentives plea bargaining offers to forgo trial.

You can read the full examination of the Africa Sting case and related white collar prosecutions by clicking here for a free copy of the article.

Referenced Articles

  • The Quest for Finality: Five Stories of White Collar Criminal Prosecution, 4 Wake Forest Journal of Law & Policy 91 (2014) (available here).
  • Over-Criminalization 2.0: The Symbiotic Relationship Between Plea Bargaining and Overcriminalization, 7 The Journal of Law, Economics, and Policy 645 (2011) (available here).
  • The Innocent Defendant’s Dilemma: An Innovative Empirical Study of Plea Bargaining’s Innocence Problem, 103 Journal of Criminal Law & Criminology 1 (2013) (with Dr. Vanessa A. Edkins) (available here).

Richard Bistrong … In His Own Words

Monday, April 14th, 2014

Richard Bistrong.

Most people likely associate his name with the manufactured Africa Sting FCPA enforcement action. The Africa Sting action involved a purported deal to purchase equipment for the presidential guard of an African Government with FBI agents posing as African Government officials and Bistrong working as an undercover informant.

The Africa Sting enforcement action resulted in criminal charges against 22 individuals.  After extensive motions practice and two trials, all charges against all defendants were ultimately dismissed by the DOJ and the action ended with Judge Richard Leon (D.D.C.) calling the entire case a “long and sad chapter in the annals of white collar criminal enforcement.” (See here).

Bistrong was not charged in the Africa Sting case, but previously pleaded guilty to “real-world” Foreign Corrupt Practices Act conduct, including conspiring with others to bribe United Nations officials, Dutch officials, and Nigeria officials.  (See here and here). This charge stemmed from Bistrong’s work as the international sales vice president for a large, successful and publicly traded multi-national corporation.  Bistrong started to cooperate with the DOJ in June 2007 and Judge Leon ultimately credited Bistrong’s extensive cooperation at sentencing.  (See here).

FCPA Professor seeks to highlight a wide range of voices on FCPA issues.  With this goal in mind, I requested to communicate with Bistrong with the permission of his attorney.  Bistrong’s attorney, Brady Toensing (diGenova & Toensing) would not allow his client to discuss questions about the Africa Sting case.

At present, Bistrong is out of prison but still serving the supervised release portion of his sentence.

In this detailed Q&A, Bistrong describes: the circumstances that put him in a position to violate the FCPA; what made him think he could get away with it; his thought process when he realized he was caught; and how he spent his time in federal prison. In the Q&A Bistrong not only looks back, but forward as well and shares what he learned from his experience and what he hopes to accomplish in the future, including through his recently launched blog.

Friday Roundup

Friday, March 28th, 2014

Further trimmed, scrutiny alerts and updates, facts and figures, quotable, and for the reading stack.  It’s all here in the Friday roundup.

Further Trimmed

When the SEC announced its enforcement action against James Ruehlen and Mark Jackson  (a current and former executive of Noble Corp.) in February 2012, I said that this would be an interesting case to follow because the SEC is rarely put to its burden of proof in FCPA enforcement actions – and when it has been put to its ultimate burden of proof – the SEC has never prevailed in an FCPA enforcement action.

Over the past two years, the SEC’s case has been repeatedly trimmed.  (See this recent post containing a summary).  In the latest cut, the SEC filed an unopposed motion for partial voluntary dismissal with prejudice on March 25th.  In pertinent part, the motion states as follows.

“To narrow this case and streamline the presentation of evidence to the jury, the SEC hereby moves for leave to voluntarily dismiss with prejudice all portions of its claims … predicated upon Noble Corporation’s violation of [the FCPA's internal controls provisions".

For additional specifics, see the filing.

As highlighted in this previous post, in 2010 the SEC charged Noble Corporation with violating the FCPA's anti-bribery, books and records and internal controls provisions based on the same core conduct alleged in the Jackson/Ruehlen action. Without admitting or denying the SEC’s allegations, Noble agreed to agreed to an injunction and payment of disgorgement and prejudgment interest of $5,576,998.

In short, the SEC's enforcement action against Ruehlen and Jackson is a shell of its former self.   Interesting, isn't it, what happens when the government is put to its burden of proof in FCPA enforcement actions.

Scrutiny Alerts and Updates

Alstom

Bloomberg reports speculation that a future FCPA enforcement action against Alstom could top the charts in terms of overall fine and penalty amounts.  (See here for the current Top 10).

The article states:

"The Justice Department is building a bribery case against Alstom SA , the French maker of trains and power equipment, that is likely to result in one of the largest U.S. anticorruption enforcement actions, according to two people with knowledge of the probe. Alstom, which has a history checkered with corruption allegations, has hindered the U.S. investigation of possible bribery in Indonesia and now faces an expanded probe including power projects in China and India, according to court documents in a related case. Settlement talks haven’t begun, the company said."

In response to the Bloomberg article, Alston released this statement.

"Robert Luskin of Patton Boggs, Alstom’s principal outside legal advisor in the USA, states that the Bloomberg article published on 27 March 2014, regarding the investigation of Alstom by the US Department of Justice, does not accurately reflect the current situation: “Alstom is cooperating closely, actively, and in good faith with the DOJ investigation. In the course of our regular consultations, the DOJ has not identified any on-going shortcomings with the scope, level, or sincerity of the company’s effort”.

“The discussions with the DOJ have not evolved to the point of negotiating a potential resolution of any claims. Any effort to estimate the size of any possible fine is sheer speculation, as would be any comparison with other cases that have recently been resolved. Alstom has agreed to focus its efforts on investigating a limited number of projects that we and the DOJ have identified in our discussions. We are working diligently with the DOJ to answer questions and produce documents associated with these specific projects so that we can address any possible improper conduct”.

VimpelCom

Netherlands-based and NASDAQ traded telecommunications company VimpelCom recently disclosed:

"[T]hat in addition to the previously disclosed investigations by the U.S. Securities and Exchange Commission and Dutch public prosecutor office, the Company has been notified that it is also the focus of an investigation by the United States Department of Justice. This investigation also appears to be concerned with the Company’s operations in Uzbekistan. The Company intends to continue to fully cooperate with these investigations.”

On March 12, 2014, VimpelCom disclosed:

“The Company received from the staff of the United States Securities and Exchange Commission a letter stating that they are conducting an investigation related to VimpelCom and requesting documents. Also, on March 11, 2014, the Company’s headquarter in Amsterdam was visited by representatives of the Dutch authorities, including the Dutch public prosecutor office, who obtained documents and informed the Company that it was the focus of a criminal investigation in the Netherlands. The investigations appear to be concerned with the Company’s operations in Uzbekistan. The Company intends to fully cooperate with these investigations.”

Orthofix International

As noted in this Wall Street Journal Risk & Compliance post, Orthofix International recently disclosed:

“We are investigating allegations involving potential improper payments with respect to our subsidiary in Brazil.

In August 2013, the Company’s internal legal department was notified of certain allegations involving potential improper payments with respect to our Brazilian subsidiary, Orthofix do Brasil. The Company engaged outside counsel to assist in the review of these matters, focusing on compliance with applicable anti-bribery laws, including the Foreign Corrupt Practices Act (the “FCPA”). This review remains ongoing.”

As noted in this previous post, in July 2012 Orthofix International resolved a DOJ/SEC FCPA enforcement action concerning alleged conduct by a Mexican subsidiary.  In resolving that action, the company agreed to a three year deferred prosecution agreement.  As is typical in FCPA DPAs, in the Orthofix DPA the DOJ agreed not continue the criminal prosecution of Orthofix for the Mexican conduct so long as the company complied with all of its obligations under the DPA, including not committing any felony under U.S. federal law subsequent to the signing of the agreement.

See this prior post for a similar situation involving Willbros Group (i.e. while the company while under a DPA it was investigating potential additional improper conduct).  As noted here, Willbros was released from its DPA in April 2012, the original criminal charges were dismissed and no additional action was taken.

Besso Limited

Across the pond, the U.K. Financial Conduct Authority (“FCA”) recently issued this final notice to Besso Limited imposing a financial penalty of £315,000 for failing “to take reasonable care to establish and maintain effective systems and controls for countering the risks of bribery and corruption associated with making payments to parties who entered into commission sharing agreements with Besso or assisted Besso in winning and retaining business (“Third Parties”).”

Specifically, the FCA stated:

“The failings at Besso continued throughout the Relevant Period [2005-2011] and contributed to a weak control environment surrounding the making of payments to Third Parties. This gave rise to an unacceptable risk that payments made by Besso to Third Parties could be used for corrupt purposes, including paying bribes to persons connected with the insured or public officials. In particular Besso:  (1) had limited bribery and corruption policies and procedures in place between January 2005 and October 2009. It introduced written bribery and corruption policies and procedures in November 2009, but these were not adequate in their content or implementation; (2) failed to conduct an adequate risk assessment of Third Parties before entering into business relationships; (3) did not carry out adequate due diligence on Third Parties to evaluate the risks involved in doing business with them; (4) failed to establish and record an adequate commercial rationale to support payments to Third Parties; (5) failed to review its relationships with Third Parties, in sufficient detail and on a regular basis, to confirm that it was still appropriate to continue with the business relationship; (6) did not adequately monitor its staff to ensure that each time it engaged a Third Party an adequate commercial rationale had been recorded and that sufficient due diligence had been carried out; and (7) failed to maintain adequate records of the anti-bribery and corruption measures taken on its Third Party account files.”

The FCA has previously brought similar enforcement actions against Aon Limited (see here), Willis Limited (see here), and JLT Speciality Limited (see here).    For more on the U.K. FCA and its focus on adequate procedures to prevent bribery , see this guest post.

Facts and Figures

Trace International recently released its Global Enforcement Report (GER) 2013 – see here to download.  Given my own focus on FCPA enforcement statistics and the various counting methods used by others (see here for a recent post), I particularly like the Introduction of the GER in which Trace articulates a similar “core” approach that I use in keeping my enforcement statistics.  The GER states:

“[W]hen a company and its employees or representatives face multiple investigations or cases in one country involving substantially the same conduct, only one enforcement action is counted in the GER 2013.  An enforcement action in a country with multiple investigating authorities, such as the U.S., is also counted as one enforcement action in the GER 2013.”

The Conference Board recently released summary statistics regarding anti-bribery policies.  It found as follows.

39% of companies in the S&P Global 1200; 23% of companies in the S&P 500; and 14% of companies in the Russell 1000 reported having a policy specifically against bribery.

Given the results of other prior surveys which reported materially higher numbers, these results are very surprising.

Quotable

This recent Wall Street Journal article “Global Bribery Crackdown Gains Steam” notes as follows.

“Cash-strapped countries are seeing the financial appeal of passing antibribery laws because of the large settlements collected by the U.S., according to Nathaniel Edmonds, a former assistant chief at the U.S. Department of Justice’s FCPA division.  ”Countries as a whole are recognizing that being on the anticorruption train is a very good train to be on,” said Mr. Edmonds, a partner at Paul Hastings law firm.”

The train analogy is similar to the horse comment former DOJ FCPA enforcement attorney William Jacobson made in 2010 in an American Lawyer article that “[t]he government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore.”  For additional comments related to the general topic, see this prior post.

Reading Stack

This recent Wall Street Journal Risk & Compliance Journal post contains a Q&A with former DOJ FCPA Unit Chief Chuck Duross.  Contrary to the inference / suggestion in the post, Duross did not bring “tougher tactics” such as wires and sting operations to the FCPA Unit.  As detailed in prior posts here and here, undercover tactics and even sting operations had been used in FCPA enforcement actions prior to the Africa Sting case.

Speaking of the Africa Sting case, the Q&A mentions reasons for why the Africa Sting case was dropped.  Not mentioned, and perhaps relevant, is that the jury foreman of the second Africa Sting trial published this guest post on FCPA Professor after the DOJ failed in the second trial.  Two weeks later, the DOJ dismissed all charges against all Africa Sting defendants.

Further relevant to the Africa Sting case, the Wall Street Journal recently ran this article highlighting the role of Richard Bistrong, the “undercover cooperator” in the case.  Bistrong has recently launched an FCPA Blog – see here.

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A good weekend to all.

Africa Sting Continues To Sting

Wednesday, May 15th, 2013

Judge Richard Leon called the collapse of the DOJ’s manufactured Africa Sting case in 2012 “the end of a long and sad chapter in the annals of white collar criminal enforcement.” (See here for the prior post).

As highlighted in my article, “What Percentage of DOJ FCPA Losses is Acceptable?” bringing criminal charges and marshalling the full resources of law enforcement agencies against an individual alters the lives of real people and their families, sidetracks real careers, empties real bank accounts in mounting a defense, and causes often irreversible damage to real reputations.

The manufactured Africa Sting case also had a negative impact on companies that employed the individuals charged in the case.  Previous posts here, here and here explored the various business effects of the Africa Sting case.

The Africa Sting case continues to have a negative impact on companies indirectly involved in the manufactured case.  In 2011, BlastGard International Inc. acquired HighCom Security Inc.  HighCom’s former CEO Yochanan Cohen was one of the individuals charged in the Africa Sting in January 2010.  In a recent disclosure BlastGard stated as follows.

“On January 19, 2010, the U.S. Department of Justice (“DOJ”) unsealed indictments of 22 individuals from both the law enforcement and defense supply industry, one of whom was HighCom’s then Chief Executive Officer, Yochanan Cohen, as an individual for allegedly violating [the FCPA].  (Note: On February 24, 2012, the United States District Court of Columbia, upon consideration of the government’s motion to dismiss, ordered the dismissal (with prejudice) of the indictment and superseding indictments against 22 defendants.)  HighCom was not a party to this indictment. HighCom has always taken, and continues to take seriously, our obligation as an industry leader to foster a responsible and ethical culture, which includes adherence to laws and industry regulations in the United States and abroad.  Following this indictment, Mr. Cohen stepped down from his daily responsibilities as CEO of HighCom.  As a result of this indictment, although not a named party to the indictment, in March 2010, HighCom was placed under a policy of denial by the U.S. State Department.  This resulted in a suspension of HighCom’s ability to export certain armor products under U.S. Government Regulations.  This effectively ended HighCom’s export capacity and significantly impacted its operations and ability to deliver product to its customers and in particular fulfill its shipment obligations under the U.N. contract awarded in late 2009.  HighCom was suspended by the US Dept. of Defense and added to its Excluded Party List. This severely restricted its ability to sell product in the US defense sector. To regain its export privileges under US State Department regulations, Mr .Cohen, as CEO and majority shareholder, was required to resign as an executive corporate officer and director and fully divest his equity interest in HighCom. On January 25, 2011, Mr. Cohen entered into a binding Letter of Intent to sell his equity interest to BlastGard International Inc. and closing occurred on March 4, 2011.”

“Concurrent with Mr. Cohen’s resignation both as a director and officer of HighCom and the sale of his equity interest to BlastGard, BlastGard filed with the US State Department to have the policy of denial lifted in order to regain HighCom’s ability to export certain armor products again.  As of March 29, 2011 this order of denial had been lifted and HighCom’s export privileges have been reinstated.  HighCom also successfully applied to the US Defense Dept to be removed from the Excluded Party List (“EPLS”). The successful reinstatement of HighCom’s export authority and its removal from the EPLS has dramatically improved HighCom’s ability to sell and market its products.  BlastGard has also been reinstated as a vendor for potential bids under the United Nations and has already completed several small orders since its reinstatement. However, on February 6, 2012, the United Nations notified the Company that the UN Secretariat Review Committee met on January 27, 2012 to review the vendor registration status of HighCom Security, Inc. The Committee noted the indictment of HighCom’s former CEO on four counts. Based on those charges, and in accordance with the UN’s policy with regards to ethics and compliance issues, placed an immediate hold on the registration status of HighCom, pending the UN’s internal review. The Company requested that the UN reconsider their decision as HighCom is under new ownership and management and that since their decision the United States District Court of Columbia dismissed all charges against the former CEO. A final decision is still pending the UN’s internal review.”

“In March 2011, BlastGard’s management team officially assumed operational control of HighCom.  Since this time we have accomplished a number of key compliance tasks and are currently in the process of finalizing manufacturing agreements with several key partners.  As stated in the paragraph above, BlastGard has received official communication from the U.S. State Department that HighCom’s export authority has been reinstated. In addition to this, BlastGard has completed registration through both the Directorate of Defense Trade Controls as well as the Bureau of Industry and Security (“BSI”). The purpose of these registrations is to allow BlastGard control over the export management and compliance program moving forward.  HighCom also completed their ISO certification which had been revoked under HighCom due to missed audits.  BlastGard management has been able to complete an internal audit and management review, in addition to meeting with BSI for the external audit review and in March 2012 HighCom secured ISO certification. Communication with the United Nations is ongoing. On February 6, 2012, the Company was notified by letter that the United Nation’s Vendor Review Committee (“VRC”) had recommended to immediately place on hold the registration status of HighCom Security. This VRC decision to place on hold our registration status was based on integrity/ethical issues surrounding the former CEO’s actions. Soon after this decision was made, we were notified that on February 21, 2012 the government dismissed all the charges against the former CEO. The Company has been in communication with the United Nations Procurement Division regarding this matter and on March 15, 2012, the Company was informed that the VRC had met regarding our request for re-instatement and that its recommendation is currently under consideration. To date we have not been re-instated but we are in communication with the United Nations Procurement Division in an effort of securing re-instatement. BlastGard has also made significant personnel changes within HighCom and restructuring of operating locations and costs. Since the completion of our acquisition of HighCom, the Company has focused its employee time and capital resources primarily on the development of the business of HighCom. Our results of operations for 2012 demonstrate the benefits of these changes.”

Friday Roundup

Friday, April 5th, 2013

Other items of note, add another to the list, a 6 day sentence, a notable name from the past and spot-on.  It’s all here in the Friday roundup.

Other Items of Note

Yesterday’s post highlighted comments made by former Attorney General Alberto Gonzalez at the Dow Jones / Wall Street Journal Global Compliance Symposium.  Other items of note from the event concern the Africa Sting case and the SEC’s neither admit nor deny settlement policy.

Africa Sting

The jury foreman in the second Africa Sting trial (see here for the prior post) stated that there were “enough small comments through the course of [jury] deliberations [that lead the person] to believe that [the jury's] underlying view was that the defendants had acted in good faith and the FBI/DOJ in bad faith.”

The Africa Sting cases ended (see here for the prior post) by Judge Richard Leon stating, in pertinent part, as follows.

“This appears to be the end of a long and sad chapter in the annals of white collar criminal enforcement.”

“I expressed on a number of occasions my concerns regarding the way this case had been investigated and was conducted especially vis-a-vis the handling of Mr. Bistrong.”

“I for one hope this very long, and I’m sure very expensive, ordeal will be a true learning experience for both the Department and the FBI as they regroup to investigate and prosecute FCPA cases against individuals in the future.”

Yet listening to the interview of Ronald Hosko (assistant director of the criminal investigative division of the FBI) at the Dow Jones event, one was left with the conclusion that nothing appeared to be learned.  Indeed, Hosko seemed to blame the government’s loss on Judge Leon’s evidentiary rulings and the defendants’ good lawyers.  Hosko was interviewed by Dow Jones reporter Christopher Matthews (who closely followed the Africa Sting cases) and Matthews specifically asked Hosko whether anything will change as a result of the case.  Hosko said “we will do it again – see you out there.”

Neither Admit Nor Deny

Former SEC Enforcement Director Robert Khuzami had the opportunity at the Dow Jones event to articulate a sound rationale and purpose for the SEC’s long-standing neither admit nor deny settlement policy.  (See numerous prior posts here, here, here, and here – focusing mostly on Judge Jed Rakoff’s (S.D.N.Y.) disdain of the policy. ).

Instead, Khuzami’s remarks were unconvincing.

Khuzami acknowledged that direct accountability occurs when someone is forced to admit something “on the record,” but he stated that this incremental benefit (compared to a defendant in an SEC enforcement action resolving the case by way of penalties and other relief via a neither admit nor deny settlement) presents challenges that are not worth the additional costs that come from a system that demanded such accountability.

Khuzami noted that without the settlement policy, the “SEC would get few settlements, [settlements] would happen much later in the process, [and that enforcement actions] would tie up a great deal of resources, resources that could be used for the next fraud or victim.”  Against “all those benefits,” and the defendant writing a check and reforming itself, Khuzami did not believe that “it is worth the marginal increase in accountability” to require an explicit admission.

The problem with Khuzami’s defense is the failure to recognize that such a policy insulates SEC enforcement positions from judicial scrutiny.  Indeed, the SEC explicitly acknowledged in the Bank of America enforcement action (where Judge Rakoff first expressed concerns regarding the settlement policy) that SEC settlements “do not necessarily reflect the triumph of one party’s position over the other.”

The SEC is a law enforcement agency and enforcing a law and accusing people (legal or natural) of wrongdoing should not be easy and efficiency should not be the goal.  Justice, transparency, and accountability ought to be the goals and the SEC’s neither admit nor deny settlement policy frustrates these goals.

Add Another

Add another to the list of companies subject to FCPA scrutiny.  SBM Offshore (a Netherlands-based company with ADRs traded in the U.S. and a company that provides floating production solutions to the offshore energy industry) recently issued this press release titled “Update on Internal Investigation.”  It stated, in pertinent part, as follows.

“This investigation commenced in 2012 at the request of SBM Offshore into alleged payments involving sales intermediaries in certain African countries in the period 2007 through 2011, in order to determine whether these alleged payments violated anti-corruption laws. These alleged payments came to the attention of the management board after a review of SBM Offshore’s compliance procedures in late 2011. In the course of the investigation allegations were made of improper payments in countries outside Africa but to date no conclusive proof of such allegations has been established. The investigation is being carried out by outside legal counsel and forensic accountants, with the support of the chief Governance and Compliance officer and under the oversight of the audit committee. The investigation is expected to be completed in 2013.

As the investigation is not yet concluded, SBM Offshore cannot make any definitive statements regarding the findings of the investigation. The initial feedback received to date is that there are indications that substantial payments were made, mostly through intermediaries, which appear to have been intended for government officials. Also, SBM Offshore’s new Management Board, which was appointed in the course of 2012, has found it necessary and appropriate to increase awareness of proper compliance throughout the Group up to the highest management levels.

The Company voluntarily disclosed the investigation to the Dutch Public Prosecution Service (Openbaar Ministerie) and the United States Department of Justice in 2012. The Company will update the authorities on this initial feedback from the investigation shortly. At this stage it is not possible to state anything on the outcome of the investigations, including financial or otherwise.

6-Day Sentence

Bloomberg’s David Glovin has extensively followed the Kozeny, Bourke, etc. enforcement actions.

He reports here that Clayton Lewis (a former executive at hedge fund Omega Advisors, Inc.) was sentenced to time served by U.S. District Court Judge Naomi Buchwald.  As noted in Glovin’s article, Lewis pleaded guilty in 2004 to charges that he conspired with Viktor Kozeny to pay bribes as part of a 1998 scheme to buy the state oil company in Azerbaijan. Soon after his 2003 arrest, Lewis agreed to cooperate with the DOJ and he previously served six days in jail.

A Notable Name From The Past

Roderick Hills (Chairman of the SEC in the mid-1970′s) was a notable voice in the story of the FCPA.  (See here for my article of the same name).  It is ironic (given the SEC’s current FCPA unit) that the Commission never wanted any role whatsoever in enforcing the FCPA’s anti-bribery provisions.  Indeed, Chairman Hill stated as follows during various Congressional hearings.

“The Commission does not oppose direct prohibitions against these payments, but we have previously stated that, as a matter of principle, we would prefer not to be involved even in the civil enforcement of such prohibitions. As a matter of long experience, it is our collective judgment that disclosure is a sufficient deterrent to the improper activities with which we are concerned.”

“[A]s a matter of longstanding tradition and practice, the [SEC] has been a disclosure agency. Causing questionable conduct to be revealed to the public has a deterrent effect. Consistent with our past tradition, we would rather not get into the business, however, we think get involved in prohibiting particular payments. It is a different thing entirely to try to prohibit something, to try to make a decision as to whether it is legal or illegal, or proper or improper. Under present law, if it is material, we cause its disclosure, and we need not get into the finer points of whether it is or is not legal.”

“[The SEC] would prefer not to be involved in civil enforcement of such prohibitions since they embody separate and distinct policies from those underlying the federal securities laws. The securities laws are designed primarily to insure disclosure to investors of all of the relevant facts concerning corporations which seek to raise their capital from the public at large. The [criminal payment provisions of proposed legislation], on the other hand, would impose substantive regulation on a particular aspect of corporate behavior.The Commission recognizes the congressional interest in enacting these prohibitions, but the enforcement of such provisions does not easily fit within the Commission’s mandate.”

Against this backdrop, I enjoyed reading recent comments by Hills on the FCPAmericas Blog (see here).  Hills recently stated as follows.

“My view at the time was that the problem of bribery that we had uncovered had been dealt with and I did not support the passage of the Foreign Corrupt Practice Act. I was concerned then that broad criminalization of “questionable payments” to foreign officials would adversely affect the incentives for transparency that we had created. Nonetheless, the FCPA was passed and it has been properly amended to reduce the possibility that undue criminal actions will be brought.  It is important to remember that it was the ability of the SEC to cause disclosure that brought the scope of worldwide corporate bribery to light. What began in the 1970’s with the SEC enforcement efforts is now a worldwide crusade against the use of bribes to secure business. Today I accept that the FCPA has had, on balance, a positive effect on the reduction of bribery and that similar laws in other countries can have a similar effect. However, criminalization alone is not a useful policy. By itself it is an incentive to conceal. Without effective independent auditing, fair enforcement of FCPA type legislation is unlikely. Also, I believe that in the United States and elsewhere, prosecutorial discretion is essential if we are serious about reducing the corruption. Payments that are made in response to extortion demands or payments that are made by lower level corporate officials contrary to the policies of their employer should surely be treated differently than money crassly offered to buy corrupt official action. In short, as other countries are following the United States’ lead they need to understand that the criminalization of corporate bribery is not enough. If a country does not have effective means of causing broad transparency with effective auditing and independent oversight, FCPA type laws make it too easy to use improper payments as a political weapon.”

Spot-On

In a recent Q&A on Law360, Haywood Gilliam Jr. (Covington & Burling), stated as follows.

“Q: What aspects of your practice area are in need of reform and why?

A: Foreign Corrupt Practices Act enforcement stands out as an area in need of further reform. Over the past several years, FCPA enforcement has been characterized by the U.S. Department of Justice and U.S. Securities and Exchange Commission advancing aggressive enforcement theories, but there have been limited opportunities for courts to scrutinize those theories. Most FCPA enforcement cases end in negotiated resolutions such as deferred prosecution or nonprosecution agreements. In that context, regulators often insist that the settling company or individual accept the government’s expansive theories as a condition of resolving the case.  For example, the DOJ has extracted penalties from non-U.S. based, non-U.S. traded companies not covered under the four corners of the statute by asserting broad theories such as aiding and abetting or conspiracy — even when the foreign entity has not taken any action in the U.S. As a practical matter, that could be a hard case to prove at trial — but the government almost never has to.  The result of this trend has been to enshrine the government’s aggressive enforcement positions as quasi-precedent: The law means what the DOJ and SEC say it means, and defendants (especially publicly traded companies) seldom have a realistic opportunity to push back in court, given the financial and practical costs of fighting a contested enforcement action. Relatively recently, district courts have begun to weigh in on these theories, which is a positive development, but there still is a dearth of FCPA case law as compared to other areas of criminal law.  This absence of settled law makes it challenging for companies to decide how to handle thorny FCPA compliance issues. For example, companies routinely face a difficult choice in deciding whether to self-report potential violations to the government, as opposed to thoroughly investigating and remediating the issues internally. While regulators insist that they will give “meaningful credit” to companies that self-report, the tangible benefits of doing so are far from clear. The recent FCPA resource guide issued by the DOJ and SEC says that the agencies place a “high premium” on self-reporting, but does not give concrete guidance as to how the government weighs self-reporting in deciding whether to charge a case, as opposed to offering a deferred prosecution or nonprosecution agreement, or declining the case outright. While the resource guide is a start, companies and their counsel would benefit from more specific guidance when they are weighing the potential, but uncertain, benefits of disclosure against the cost and distraction that can result from voluntarily handing the government a case that otherwise might not have come to its attention.”

Gilliam’s spot-on comments would make for good conversation with his firm’s new Vice-Chair, former Assistant Attorney General Lanny Breuer.

In a recent Q&A on Law360, Mary Spearing (Baker Botts) stated as follows.

“Q: What aspects of your practice area are in need of reform and why?

A: It would be good for the practice if there was more litigation surrounding the scope and breadth of the statutes as applied and the government were put to the test. Currently, so much is being defined in settlements reached with the government. More frequent trials would render more judicial oversight of the government’s readings of the scope of the statutes’ reach.”

*****

A good weekend to all.