Archive for the ‘Avon’ Category

Friday Roundup

Friday, May 2nd, 2014

U.S. reportedly did not cooperate, Avon’s reaches a settlement “understanding” and other scrutiny alerts, the “financial SWAT team,” at the SEC, FCPA Inc. news, and for the reading stack.  It’s all here in the Friday roundup.

U.S. Reportedly Did Not Cooperate

The DOJ talks a lot about cooperation with foreign law enforcement partners with its comes to its Foreign Corrupt Practices Act enforcement program.  For instance, and as noted in this prior post, in June 2013 the DOJ’s Acting Assistant Attorney General stated:

“Through our increased work on prosecutions with our foreign counterparts and our participation in various multi-lateral fora like the OECD and United Nations, it is safe to say that we are cooperating with foreign law enforcement on foreign bribery cases more closely today than at any time in history.  This type of collaboration is absolutely critical if we are going to have a meaningful impact on corruption internationally.  As our economies become more interdependent, corruption itself is increasingly transnational.  What may be a domestic corruption concern for one country may very well be a foreign bribery concern for another.”

In 2012 and 2013 (see here and here) the DOJ brought related FCPA enforcement actions against BizJet and various former executives regarding, in part, conduct involving officials from Panama’s Aviation Authority.

Panama also investigated the conduct at issue, but according to this report in Panama-Guide.com (a website that provides English translations of original source news articles):

“Panama’s Superior Prosecutor for Organized Crime requested the judges responsible for the case to provisionally close a case involving allegations of the payments of bribes to officials of the Civil Aviation Authority by the US company BizJet, that received the contract to maintain the presidential aircraft between 2004 and 2009. The prosecutor sent his request in early March 2014, because law enforcement authorities in the United States failed to respond to a second request for judicial assistance in order to clarify key pieces of data (evidence) contained in the Panamanian investigation. The prosecutor sent their first request for assistance to the United States in May 2012 asking for collaboration, but the answer they sent in response to the Panamanian investigators was not enough (insufficient) for them to continue the investigation. They sent a second request for assistance in 2013, asking for the evidence that linked the Panamanians to the alleged bribes.  According to judicial sources, these elements would be important to the process. The director of the AAC, Rafael Barcenas, confirmed that the officials mentioned in investigation in the United States are still working for the entity, and while there is no legal decision his office will not take any action against them.”

Scrutiny Alerts

Avon

Yesterday, Avon disclosed as follows regarding the FCPA scrutiny it has been under since 2008.

“We have now reached an understanding with respect to terms of settlement with each of the DOJ and the staff of the SEC. Based on these understandings, the Company would, among other things: pay aggregate fines, disgorgement and prejudgment interest of $135 [million] with respect to alleged violations of the books and records and internal control provisions of the FCPA, with $68 [million] payable to the DOJ and $67 [million] payable to the SEC; enter into a deferred prosecution agreement (“DPA”) with the DOJ under which the DOJ would defer criminal prosecution of the Company for a period of three years in connection with alleged violations of the books and records and internal control provisions of the FCPA; agree to have a compliance monitor which, with the approval of the government, can be replaced after 18 months by the Company’s agreement to undertake self monitoring and reporting obligations for an additional 18 months. If the Company remains in compliance with the DPA during its term, the charges against the Company would be dismissed with prejudice. In addition, as part of any settlement with the DOJ, a subsidiary of Avon operating in China would enter a guilty plea in connection with alleged violations of the books and records provision of the FCPA. The expected terms of settlement do not require any change to our historical financial statements. Final resolution of these matters is subject to preparation and negotiation of documentation satisfactory to all the parties, including approval by our board of directors and, in the case of the SEC, authorization by the Commission; court approval of the SEC settlement; and court approval of the DPA and acceptance of the expected guilty plea by an Avon subsidiary operating in China. We can provide no assurances that satisfactory final agreements will be reached, that authorization by the Commission or the court approvals will be obtained or that the court will accept the guilty plea or with respect to the timing or terms of any such agreements, authorization, and approvals and acceptance.”

A $135 million settlement will be the 11th largest in terms of fine / penalty amounts.

Some media outlets were quick to link disclosure of the future FCPA settlement to the approximate 10% slide in Avon’s stock price yesterday.  For instance, USA Today stated:

“Avon Products stock swooned more than 12% in mid-day trading after the company agreed to pay $135 million for long-standing federal changes that it paid bribes in China and other countries.”

However, Avon’s FCPA disclosure was in the same SEC filing in which the company disclosed, among other things, a 6% drop in total units sold during Q1, beauty sales were off 12%, and sales in North America fell 22%.

Johnson Controls

In its most recent quarterly filing, Johnson Controls first disclosed the following:

“In June 2013, the Company self-reported to the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) alleged Foreign Corrupt Practices Act (FCPA) violations related to its Building Efficiency marine business in China dating back to 2007. These allegations were isolated to the Company’s marine business in China which had annual sales ranging from $20 million to $50 million during this period. The Company, under the oversight of its Audit Committee and Board of Directors, proactively initiated an investigation into this matter with the assistance of external legal counsel and external forensic accountants. In connection with this investigation, the Company has made and continues to evaluate certain enhancements to its FCPA compliance program. The Company continues to fully cooperate with the SEC and the DOJ; however, at this time, the Company is unable to predict the ultimate resolution of this matter with these agencies.”

In 2007, Johnson Controls was a signatory to the York International FCPA enforcement action (see here and here) principally involving alleged conduct in connection with the Iraq Oil for Food Program.  According to the DOJ, “nearly all of the conduct described in the [York International Criminal] Information took place prior to York’s acquisition by Johnson Controls, Inc. on December 9, 2005.”

JPMorgan

In its most recent quarterly filing, JPMorgan disclosed as follows regarding its pending FCPA scrutiny:

“Referral Hiring Practices Investigations. Various regulators are investigating, among other things, the Firm’s compliance with the  Foreign Corrupt Practices Act and other laws with respect to the  Firm’s hiring practices related to candidates referred by clients, potential clients and government officials, and its engagement of consultants in the Asia Pacific region. The Firm is cooperating with these investigations.”

Teva Pharamaceuticals

In August 2012, the company first disclosed its FCPA scrutiny and in its most recent SEC filing disclosed as follows.

“Beginning in 2012, Teva received subpoenas and informal document requests from the Securities and Exchange Commission (“SEC”) and the Department of Justice (“DOJ”) to produce documents with respect to compliance with the U.S. Foreign Corrupt Practices Act (the “FCPA”) in certain countries. Teva has provided and will continue to provide documents and other information to the SEC and the DOJ, and is cooperating with the government in their investigations of these matters. Teva is also conducting a voluntary worldwide investigation into certain business practices that may have FCPA implications and has engaged independent counsel to assist in its investigation. In the course of its investigation, which is continuing, Teva has identified issues in Russia, certain Eastern European countries, certain Latin American countries and other countries where it conducts business that could rise to the level of FCPA violations and/or violations of local law. In connection with its investigation of these issues, Teva has become aware that Teva affiliates in certain countries under investigation provided to local authorities inaccurate or altered information relating to marketing or promotional practices. Teva continues to bring these issues to the attention of the SEC and the DOJ. No conclusion can be drawn at this time as to any likely outcomes in these matters.”

Och-Ziff

Och-Ziff Capital Management disclosed as follows in its recent quarterly filing:

“Beginning in 2011, and from time to time thereafter, the Company has received subpoenas from the Securities and Exchange Commission and requests for information from the U.S. Department of Justice in connection with an investigation involving the Foreign Corrupt Practices Act and related laws. The investigation concerns an investment by a foreign sovereign wealth fund in some of the Och-Ziff funds in 2007 and investments by some of the funds, both directly and indirectly, in a number of companies in Africa. At this time, the Company is unable to determine how the investigation will be resolved and what impact, if any, it will have. An adverse outcome could have a material effect on the Company’s consolidated financial statements. “

“Financial SWAT Team”

It receives scant attention compared to FCPA enforcement, but another prong of the DOJ’s efforts to combat bribery and corruption is its Kleptocracy Asset Recovery Initiative under which prosecutors in the DOJ Asset Forfeiture and Money Laundering Section work in partnership with federal law enforcement agencies to forfeit the proceeds of foreign official corruption. (See this 2009 post highlighting Attorney General Holder’s announcement of the program).

Earlier this week, speaking at Ukraine Forum on Asset Recovery Attorney General Holder announced “the creation of a dedicated Kleptocracy squad within the FBI.”  He stated:

“This specialized unit will partner with our Asset Forfeiture and Money Laundering Section to aggressively investigate and prosecute corruption cases – not only in Ukraine, but around the world. The squad of about a dozen personnel will consist of case agents and forensic analysts who are capable of unraveling the intricate money laundering transactions commonly employed by kleptocrats. Their sophisticated work will be supported by deputy marshals from the United States Marshals Service and analysts from FinCEN, which is our financial intelligence unit. And this new initiative will provide the United States with increased capacity to respond rapidly to political crises as they arise – so we can help prevent stolen assets from being dissipated or secreted away by deposed regimes.”

At the SEC

Further to the notion that SEC enforcement seems at times to be a numbers game, SEC Chair Mary Jo White testified as follows before the House Financial Services Committee.

“The Commission continues to pursue companies that bribe foreign officials to obtain or retain business, and over the last two-and-a-half years, we have obtained over $679 million in monetary relief from FCPA actions. For example, the SEC has brought FCPA actions charging a company with a bribe scheme involving business with Aluminum Bahrain; another company with various bribes and improper payments in the Middle East and Africa and violations of U.S. sanctions and export control laws involving Cuba, Iran, Syria, and Sudan; and a third company with bribe schemes involving business with the National Iranian Oil Company. The Commission is also focused on holding individuals accountable, with ongoing FCPA-related litigation against former executives of a number of corporations.”

Fact check.

Since 2008,  approximately 82% of corporate SEC FCPA enforcement actions have not (at least yet) resulted in any SEC charges against company employees and the SEC has not brought an individual FCPA enforcement action since 2012.

Although White’s FCPA testimony focused on the numbers, elsewhere she was quick to point out that:

“Quantitative metrics alone, however, are not the proper yardstick of the measure of Enforcement’s effectiveness. Enforcement considers the quality, breadth, and effect of the actions pursued.”

Staying with the SEC, its tough to beat the following for lack of transparency.  Recently in an insider trading enforcement action, the SEC entered into a non-prosecution agreement with an “individual.”

FCPA Inc. News

Few FCPA Inc. participants are publicy-traded companies.  Thus, it is often difficult to take the pulse of FCPA Inc. other than anecdotal information.  However, one FCPA Inc. participant that is publicly traded is FTI Consulting.  In a recent earnings release, the company stated:

“The major driver of quarterly results was Forensic and Litigation Consulting with a record quarter, fueled by a number of front-page newspaper assignments from across the globe relating to high-stakes client events ranging from FCPA investigations to mortgage-backed security litigations. Similarly, our Technology business continued to perform very well, driven by ongoing FCPA and financial services investigations as well as increased cross-border M&A related ‘second request’ activity.”

As previously highlighted, as Acting Assistant Attorney General for the Criminal Division, Mythili Raman often carried forward much of the same rhetoric former Assistant Attorney General Lanny Breuer frequently articulated concerning the DOJ’s FCPA enforcement program.  Raman will now be joining Breuer at Covington & Burling.  The firm announced that “Mythili Raman … is joining Covington & Burling as a partner. Ms. Raman will practice in the firm’s litigation and white collar groups and be resident in the Washington office.”

As noted in this Covington biography:

“As Acting Assistant Attorney General of the Criminal Division from 2013-2014, and before then, as the Principal Deputy Assistant Attorney General of the Criminal Division from 2009-2013, Ms. Raman oversaw the work of more than 600 prosecutors and led the Justice Department’s national and international criminal law enforcement initiatives, including investigations of [among other things] violations of the U.S. Foreign Corrupt Practices Act.”

For additional coverage see here from the New York Times and here from the Wall Street Journal.

For the Reading Stack

ProPublica takes a look at various aspects of white-collar law enforcement, including the “Breu Crew” (a reference to former Assistant Attorney General Lanny Breuer”) in “The Rise of Corporate Impunity.”  See here for my article “Lanny Breuer and Foreign Corrupt Practices Act Enforcement.”

Three cheers for Northwestern Professors Juliet Sorensen and Karen Alter for resisting the “feel good” notion that the International Criminal Court ought to be prosecuting corruption.  Writing in “Let Nations, Not the World, Prosecute Corruption,” the authors state:

“It is easy to understand the attraction of adding the crime of corruption to the International Criminal Court’s jurisdiction. Like violent atrocities, embezzlement and blackmail may be perpetrated on innocents. Corruption can be an international crime, featuring offshore accounts, money laundering and bribery of foreign officials. Moreover, when political leaders are involved in mass corruption, their crimes can become too dangerous for local judges and prosecutors to tackle. [...] But to add this crime to the court’s jurisdiction would be a mistake. It is limited for good reason to genocide, war crimes, crimes against humanity and in the future, the crime of aggression.  [...]  Before we give the court a new and even harder crime to prosecute, we must make sure that it can succeed in its core mandate. What international criminal law does best is prosecute those most responsible, at the apex of the pyramid, when individual nations are unwilling or unable to do so.  Finally, we must recognize that already the International Criminal Court faces a crisis of political support. [...]  The status quo is surely not a perfect one. But international intervention is not a panacea. The International Criminal Court needs to stay focused on the important task of prosecuting those most responsible for mass atrocities. Rather than put more resources into international criminal prosecution, the resources and energy of the international community should go towards bolstering national resources to investigate, prosecute, and deter public corruption.”

See here for “Anti-Corruption Compliance:  Meeting the Global Standard” recently published in Bloomberg BNA’s Corporate Law and Accountability Report by Arnold & Porter attorneys Keith Korenchuk, Samuel Witten and Daniel Bernstein:

“Designing an effective anti-corruption compliance program that meets the requirements of many different jurisdictions seems like a daunting task. Executives at global companies are likely to ask themselves: Do we need dozens of different compliance programs? Will we be subject to conflicting standards in the various countries where we do business? How can we ensure proper oversight of activity that occurs all over the globe? In addressing these questions, multinational companies should take note of the broad global consensus that has developed around what governments and international organizations expect of corporate anti corruption compliance programs. While there is no one-size-fits-all program—and a company must bear in mind applicable local laws—this global standard is welcome news. Here we review the commonly accepted best practices for an anti-corruption compliance program.”

From various Jones Day attorneys (here), “India’s New Corporate Social Responsibility Requirements – Beware of the Pitfalls”:

“In August 2013, the Indian parliament passed the Indian Companies Act, 2013 (the “New Act”), which has replaced the Companies Act of 1956. The New Act has made far-reaching changes affecting company formation, administration and governance, and it has increased shareholder control over board decisions. [...]  One of the New Act’s most startling changes—which came into effect on April 1, 2014—has been to impose compulsory corporate social responsibility  obligations (“CSR”) upon Indian companies and foreign companies operating in India. These obligations mainly come in the form of mandatory amounts companies must contribute to remediating social problems. This is a wholly new requirement; although companies were permitted, within certain limits, to make charitable contributions in the past, the New Act is essentially a self-administered tax.  [...] If the Indian company undertaking CSR is a subsidiary of a United States entity, or if its business activities “touch” the U.K., then the U.S. Foreign Corrupt Practices Act (“FCPA”) or the U.K. Bribery Act (“UKBA”), respectively, as well as other regulatory laws of these jurisdictions, may apply to the Indian company’s CSR payments. This may raise serious issues of compliance and liability.”

See here for “China Introduces New Health Care Sector Anti-Corruption Regulations” by Richard Grams and Allan Golder:

“As part of a concerted effort to tackle systemic commercial bribery in the country’s health care sector, China’s National Health and Family Planning Commission recently introduced separate new regulations aimed at hospitals and physicians, as well as the medical product companies that supply them.”

*****

A good weekend to all.

Friday Roundup

Friday, February 14th, 2014

Cisco’s discreet blog post, McDonald’s receives the “princeling” treatment, Avon update, further to the free-for-all, more candy, and for the reading stack.  It’s all here in the Friday roundup.

Cisco’s Discreet Disclosure

There is not much that slips through the cracks when it comes to the FCPA space.

However, this December 23, 2013 Cisco blog post by a Vice President for Compliance Services under the discreet heading “The Importance of Ethics in Global Business” has not otherwise been reported.  The post states, after noting that “for the sixth time in as many years, the Ethisphere Institute honored Cisco by naming us to its list of the “World’s Most Ethical Companies,” as follows:

“Recently, at the request of the Securities and Exchange Commission and the US Department of Justice, Cisco began an investigation into our business activities and discounting practices in Russia and other Commonwealth of Independent States in response to a communication those agencies had received. We are cooperating with the agencies and will fully share the results of our investigation with them. Despite the extensive investigation that we have undertaken thus far, we have found no basis to believe that Cisco’s activities are in violation of any law, and indeed the information we were provided does not allege wrongdoing by any of Cisco’s executive management. While this investigation is ongoing, we do not expect the outcome to have any material adverse effect on our business or operations.”

For a prior post concerning companies that have resolved FCPA enforcement actions or have otherwise been under FCPA scrutiny while at the same general time earning “world’s most ethical” company status see here.

McDonald’s

The word of the last six months would seem to be “princeling.”  In “princeling” updates:

This Wall Street Journal article “Vietnam Gets Its First McDonald’s” states:

“McDonald’s chose Henry Nguyen, a Vietnamese-American investor and the son-in-law of Vietnamese Prime Minister Nguyen Tan Dung, as its main franchise partner in the country.”

This Quartz article “McDonald’s Partnered with a Vietnamese Princeling”  notes:

“Partnering up with a well-connected member of one of Vietnam’s most prominent political families has raised remarkably few eyebrows for McDonald’s—especially given the growing scandal in China over investment banks that have done much the same thing.”

Among other things, the article notes:

“Nguyen, who also heads Vietnam’s Pizza Hut franchise business, worked hard for a decade to convince McDonald’s he was the right person for the partnership, he told Reuters last year. A McDonald’s spokeswoman said then, “His marriage did not preclude him for participating in what was a very competitive selection process.”

As noted in this prior post “Regarding Princelings and Family Members” there is nothing inherently illegal about hiring family members of alleged “foreign officials” and various DOJ FCPA Opinion Procedure Releases have blessed such arrangements.  Even so, several FCPA enforcement actions have been based, at least in part, on the hiring of family members of alleged “foreign officials” – see here.
Speaking of princelings, this Bloomberg article asks “If JPMorgan Has to Shun China’s Princelings, Shouldn’t Harvard?”

Avon

Avon has been under FCPA scrutiny since 2008 and disclosed yesterday as follows.

“The Company recorded an aggregate accrual related to the previously disclosed government Foreign Corrupt Practices Act (“FCPA”) investigations of $89 million, or $0.20 per diluted share, within operating profit, of which $12 million was recorded in the second quarter. Based on the status of the Company’s current settlement negotiations with the DOJ and the staff of the SEC, including the level of monetary penalties being discussed, an additional $77 million was recorded in the fourth quarter, and the Company estimates the aggregate amount of any potential settlements with the government could exceed this accrual by up to approximately $43 million. There can be no assurance that the Company’s efforts to reach settlements with the government will be successful or, if they are, what the timing or terms of such settlements will be.”
During yesterday’s earnings conference call, Avon’s CEO stated:
“As you saw in our press release this morning, we’ve continued our discussions with that SEC and DOJ and we’ve made significant progress. Based on the status of our recent discussions, we believe that a reasonable range for settlement with both agencies would be $89 million to $132 million. Our discussions with the government are ongoing and differences remain, but the team is working hard in an effort to bring these matters to a close.”

Free-For-All

In my recent article “Why You Should Be Alarmed by the ADM FCPA Enforcement Action,” I noted that with increasing frequency in this new era of FCPA enforcement, it appears that the Department of Justice and the Securities and Exchange Commission have
transformed FCPA enforcement into a free-for-all in which any conduct the enforcement agencies find objectionable is fair game to extract a multimillion-dollar settlement from a risk-averse corporation.  In this post regarding the recent Alcoa enforcement action I noted that it was hard to square the enforcement action (the fourth largest FCPA enforcement action of all-time in terms of a settlement amount) when the alleged consultant at the center of the alleged bribery scheme was criminally charged by another law enforcement agency, put the law enforcement agency to its burden of proof at trial, and the law enforcement agency dismissed
the case because there was no ”realistic prospect of conviction.”

Further to the free-for-all, Wiley Rein attorneys Gregory Williams, Ralph Caccia and Richard Smith write here as follows.

“[I]t is remarkable that such a large monetary sanction was imposed when the criminal charges brought by the U.K. Serious Fraud Office against the consultant central to the alleged bribery scheme were dismissed on the grounds that there was no “realistic prospect of conviction.” Perhaps most striking, however, is the theory of parent corporate liability that the settlement reflects. Although there is no allegation that an Alcoa official participated in, or knew of, the improper payments made by its subsidiaries, the government held the parent corporation liable for FCPA anti-bribery violations under purported “agency” principles. Alcoa serves as an important marker in what appears to be a steady progression toward a strict liability FCPA regime.

[...]

Such an enforcement approach appears to abrogate basic tenets of corporate liability. A parent company is not liable for the acts of its subsidiary except when the companies disregard corporate formalities (alter ego theory) or when the subsidiary acts as the agent of the parent for a specific purpose.  For the latter, the parent is required to control the particular activity in question. The government’s new agency theory of enforcement represents an aggressive expansion of corporate liability, with significant the implications for parent companies both in terms of the compliance and potentially liability.”

For additional reading, see this recent post (“Dig into certain corporate Foreign Corrupt Practices Act enforcement actions and it would appear that legal liability seems to hop, skip, and jump around a multinational company.  This of course would be inconceivable in other areas, such as contract liability, tort liability, etc. absent an “alter ego” / “piercing the veil” analysis for the simple reason that is what the black letter law commands”).

More Candy

Previous posts here and here have dispensed FCPA candy (that is year in reviews).  You can be tardy for the party, but still be included in the fun and set forth below are three additional worthwhile reads.

BakerHostetler 2013 Year-End Foreign Corrupt Practices Act Update

“This [recent] decrease [in corporate FCPA enforcement actions] appears to be the result of proactive internal investigations and remediation by U.S. companies that recognize the importance of retaining external resources to investigate FCPA issues in light of the substantial fines levied by the government over recent years.”

That’s a nice way to spin it, but the better answer by far is to have a proper perspective on FCPA statistics and to realize that 35% of all corporate FCPA enforcement actions in recent years and 55% of the settlement amounts were the direct result of just three unique events.

WilmerHale Foreign Corrupt Practices Act Alert

Kudos for the following statement regarding so-called “declinations.”

“[W]hile these corporate disclosures are frequently referred to generically as “declinations,” that term seems to encompass not only genuine declinations where the government exercises discretion to decline prosecution of an otherwise chargeable offense, but also cases where the government decides not to prosecute because it has found insufficient evidence of FCPA violations or faces insurmountable legal hurdles in bringing a case.”

For more on so-called “declinations” see prior posts here, here and here.

Miller & Chevalier FCPA Winter Review 2014 

Once again, be warned – the divergent enforcement statistics are likely to make you dizzy at times and as to certain issues.  [Given the increase in FCPA Inc. statistical information and the growing interest in empirical FCPA-related research, I again highlight the need for an FCPA lingua franca (see here for the prior post), including adoption of the “core” approach to FCPA enforcement statistics (see here for the prior post), an approach endorsed by even the DOJ (see here), as well as commonly used by others outside the FCPA context (see here)]

For the Reading Stack

From the Washington Post, a look at New Jersey Governor Chris Christie and the rise and controversy of non-prosecution and deferred prosecution agreements.

In this recent NY Times Dealbook article, “S.E.C.’s Losing Streak in Court Puts Agency in Spotlight,” Professor Peter Henning (a former SEC enforcement official) begins as follows.

“Every litigator says that trials are messy affairs because no one can predict how they will play out.  After a string of recent unfavorable verdicts in fraud cases, the Securities and Exchange Commission may, too, be concerned with that trend. The S.E.C. is a bit like the New York Yankees, because every defeat is magnified, so we should be careful not to read too much into the anecdotal evidence as garnered by the results of a few recent trials.  Most cases filed by the agency are settled, garnering only modest publicity, so the effectiveness of its enforcement program is not tied solely to its wins in the courtroom.”

For more on the SEC’s recent losses, see here from Marc Fagel and Mary Kay Dunning (Gibson Dunn).

“One likely consequence [of the SEC's recent losses] may be an increase in the number of enforcement matters filed as administrative cease-and-desist proceedings rather than as federal district court actions.”

Spot-on observation, but again a sorry state of affairs in that a way for the SEC to avoid litigated losses when put to its burden of proof is to avoid the judicial system altogether.

A recent survey from AlixPartners conducted in November 2013.  (The survey group consisted of executives at companies based in North America, Europe, the Middle East, and Asia that have annual revenues of $150 million or more).  “The survey also found that although some companies have expanded the scope of their reviews of their foreign subsidiaries, one-third said they have not done that. Less than half (43%) of respondents said they regularly conduct due diligence on third-party agents.”  (See here for the prior post “It’s More Like Bronze Dust.”).

Friday Roundup

Friday, November 1st, 2013

Scrutiny alerts and updates, quotable, and for the reading stack.  It’s all here in the Friday Roundup.

Scrutiny Alerts And Updates

Avon

Yesterday, Avon’s stock dropped approximately 22% to $17.50.  The company disclosed a drop in third quarter sales and weaker than expected earnings.  Avon also disclosed, in pertinent part, the following regarding its long-running FCPA scrutiny:

“As previously reported in our Quarterly Report on Form 10-Q for the period ending June 30, 2013, we made an offer of settlement to the DOJ and the SEC in June 2013 that, among other terms, would have included payment of monetary penalties of approximately $12. Although our offer was rejected by the DOJ and the staff of the SEC, we accrued the amount of our offer in the second quarter of 2013.

In September 2013, the staff of the SEC proposed terms of potential settlement that included monetary penalties of a magnitude significantly greater than our earlier offer. We disagree with the SEC staff’s assumptions and the methodology used in its calculations and believe that monetary penalties at the level proposed by the SEC staff are not warranted. We anticipate that the DOJ also will propose terms of potential settlement, although they have not yet done so and we are unable to predict the timing or terms of any such proposal. If the DOJ’s offer is comparable to the SEC’s offer and if the Company were to enter into settlements with the SEC and the DOJ at such levels, we believe that the Company’s earnings, cash flows, liquidity, financial condition and ongoing business would be materially adversely impacted.

Although we are working to resolve the government investigations through settlement, our discussions are at early stages and at this point we do not know if those efforts will be successful and, if they are, what the timing or terms of any such settlements would be. We expect any such settlements will include civil and/or criminal fines and penalties, and may also include non-monetary remedies, such as oversight requirements and additional remediation and compliance requirements. We may be required to incur significant future costs to comply with the non-monetary terms of any settlements with the SEC and the DOJ. If we are able to reach settlements with the SEC and the DOJ, the Company believes that such settlements are likely to include monetary penalties that would be material to its earnings and cash flows in the relevant fiscal period and could, depending on the amounts of the settlements, materially adversely impact the Company’s liquidity, financial condition and ongoing business.

There can be no assurance that our efforts to reach settlements with the government will be successful.  If we do not reach settlements with the SEC and/or the DOJ, we cannot predict the outcome of any subsequent litigation with the government but such litigation could have a material adverse effect on our earnings, cash flow, liquidity, financial condition and ongoing business.>We have not recorded an additional accrual beyond the amount recorded in the second quarter of 2013 because at this time, in light of the early stages of our discussions of possible settlement terms with the government, the magnitude of the difference between our offer and the amount proposed by the SEC and the absence of a proposal from the DOJ, and our inability to predict whether we will be able to reach settlements with the government, we cannot reasonably estimate the amount of additional loss above the amount accrued to date.

Until these matters are resolved, either through settlement or litigation, we expect to continue to incur costs, primarily professional fees and expenses, which may be significant, in connection with the government investigations. Furthermore, under certain circumstances, we may also be required to advance and/or reimburse significant professional fees and expenses to certain current and former Company employees in connection with these matters.”

In certain respects, Avon’s disclosure was similar to its August disclosure (see here for the prior post) in which it stated “we made an offer of settlement to the DOJ and the SEC that, among other terms, included payment of monetary penalties of approximately $12 [million]. The DOJ and the SEC have rejected the terms of our offer.”

The fact that there is a negotiation and back and forth between the SEC and a company concerning an FCPA settlement number is not unusual, what is a bit unusual is that this back and forth is being aired in public via the company’s SEC filings.

Embraer

Previous posts here and here have profiled Embraer’s FCPA scrutiny.  In an article titled “Plane Maker Embraer Faces Bribery Inquiries,” the Wall Street Journal reports:

“U.S. and Brazilian authorities are investigating whether aircraft maker Embraer SA bribed officials in the Dominican Republic in return for a $90 million contracts to furnish the country’s armed forces with attack planes.”

According to the article, U.S. authorities say they have “evidence – including bank records and e-mails – that they believe shows that Embraer executives had approved a $3.4 million bribe to a Dominican official with influence over military procurement.”

Mead Johnson

Mead Johnson Nutrition Company recently disclosed as follows.

“The company has initiated an internal investigation of, and is voluntarily complying with a Securities and Exchange Commission request for documents relating to, certain business activities of the company’s local subsidiary in China. The company’s investigation is focused on certain expenditures that were made by the subsidiary in connection with the promotion of the company’s products or may have otherwise been made and that may not have complied with company policies and applicable U.S. and/or local laws. The company has retained outside legal counsel to conduct the investigation, which is being overseen by a committee of independent members of the company’s board of directors. At this time, the company is unable to predict the scope, timing or outcome of this ongoing matter or any regulatory or legal actions that may be commenced related to this matter.”

National Geographic

The on-line publication Vocativ recently published an article “Tut-Tut: Did National Geographic Bribe Egypt’s Famed Indiana Jones?”  The article begins as follows.

“This is not your typical story about international bribery. For one thing, it involves mummies. It also involves one of America’s most beloved institutions: National Geographic.  Vocativ has learned that the Justice Department has opened a criminal bribery investigation into the prestigious nonprofit. At issue: Nat Geo’s tangled relationship with Dr. Zahi Hawass, a world-famous Indiana Jones–type figure who for years served as the official gatekeeper to Egypt’s glittering antiquities.  Beginning in 2001 and continuing for a decade, National Geographic paid the archaeologist between $80,000 and $200,000 a year for his expertise. The payments came at a time when the popularity of mummies and pharaohs was helping transform the 125-year-old explorer society into a juggernaut with multiple glossies, a publishing house and a television channel. But they also came as Hawass was still employed by the Egyptian government to oversee the country’s priceless relics.”

According to the article, Hawass also worked with National Geographic competitor, the Discovery Channel.

Although National Geographic is a non-profit entity, the FCPA’s definition of “domestic concern” is “any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship …”.

Teva Pharmaceuticals

As noted in this previous post, in August the company disclosed that it “received a subpoena … from the SEC to produce documents
with respect to compliance with the FCPA in Latin America.”  Earlier this week, Teva disclosed as follows.

“Beginning in 2012, Teva received subpoenas and informal document requests from the SEC and the Department of Justice (“DOJ”) to produce documents with respect to compliance with the Foreign Corrupt Practices Act (the “FCPA”) in certain countries. Teva has provided and will continue to provide documents and other information to the SEC and the DOJ, and is cooperating with the government in their investigations of these matters. Teva is also conducting a voluntary investigation into certain business practices that may have FCPA implications and has engaged independent counsel to assist in its investigation. In the course of its investigation, which is continuing, Teva has identified in Russia, certain Eastern European countries, and certain Latin American countries issues that could potentially rise to the level of FCPA violations and/or violations of local law. Teva has brought these issues to the attention of the SEC and the DOJ. No conclusion can be drawn at this time as to any likely outcomes in these matters.”

JPMorgan

As highlighted in this previous post, in August JPMorgan’s hiring practices in China came under scrutiny.

The company recently disclosed:

“The Firm has received subpoenas and requests for documents from the SEC’s Division of Enforcement regarding, among other things, hiring practices relating to candidates referred by clients, potential clients and government officials, the Firm’s employment of certain former employees in Hong Kong, its business relationships with certain related clients in the Asia Pacific region and its engagement of consultants in the Asia Pacific region. The Firm has also received a request for documents from the U.S. Department of Justice regarding the same referral hiring practices. The Firm is cooperating with these investigations. Separate inquiries on these or similar topics have been made by other authorities, including authorities in other jurisdictions, and the Firm is responding to those inquiries.”

Quotable

From Attorney General Eric Holder at the Arab Forum on Asset Recovery in Morocco.

“As we’ve all seen – and as President Obama has said – “[t]he struggle against corruption is one of the great struggles of our time.”  Fortunately [...] corruption is no longer widely seen as an accepted cost of doing business.  It is no longer tolerated as an unavoidable aspect of government.  On the contrary – it is now generally understood that the consequences of corruption are devastating – eroding trust in public and private institutions, undermining confidence in the fairness of free and open markets, siphoning precious resources at a time when they could hardly be more scarce, and all too often breeding contempt for the rule of law.

[...]

This is why, as Attorney General, I’ve consistently worked to ensure that anticorruption remains a top priority for my colleagues at every level of the United States Department of Justice – within as well as beyond our borders.”

A recent article in Corporate Counsel titled “The Perils of Keeping FCPA Infractions Under Wraps” states:

“Charles Duross, the deputy chief of the U.S. Justice Department’s Foreign Corrupt Practices Act Unit, delivered an ominous message Monday to in-house lawyers at the Association of Corporate Counsel’s Annual Meeting in Los Angeles: Failure to report potential bribery is more perilous than ever.  Duross, who is based in Washington, D.C., said DOJ is handling a “pretty steady stream of cases,” with every major U.S. attorney’s office investigating alleged violations of the FCPA, which prohibits bribery of foreign officials.  “The risk of getting caught . . . is greater today than any point previously,” Duross said. “I think that’s kind of a no-brainer.”  Duross said he isn’t naïve about the calculus companies have to perform when deciding whether to report a potential FCPA infraction to the U.S. government. But if a company makes the disclosure on its own, he noted, the Justice Department stands ready to help.  DOJ can make deferred-prosecution or non-prosecution agreements with businesses—or even decline to pursue any action against them, he said. “It’s a tough one” for companies, Duross said. “No doubt about it.” Self-reporting can be overrated, according to New York-based Morrison & Foerster partner Carl Loewenson Jr., a co-chairman of the firm’s securities litigation, enforcement, and white-collar defense group who also spoke at the ACC event. Making the disclosures is great for business at the DOJ, as well as law firms and accounting offices, he said. But companies that report almost always get some type of a public charge, he noted. “I think that these days there are too many cases in which too many companies are being too reflexive about self-reporting” to the government, Loewenson said. “In some cases, not in all, you can solve these problems yourself.”

Reading Stack

Several spot-on observations in the most recent issue of the always informative FCPA Update from Debevoise & Plimpton concerning the recent Diebold enforcement action (see here and here for prior posts).

“Although there are significant aggravating factors that might explain imposing $48 million in penalties and disgorgement on a company that voluntarily disclosed what are, unfortunately, common improprieties in China, combined with wholly unrelated commercial bribery in Russia, the size of the financial resolution – apart from the substantial burdens of the monitorship – raises questions about future enforcement of the FCPA, as well as the incentives for companies to self-report.

The first noteworthy aspect of this resolution is the enforcement agencies’ decision to use the books and records and internal controls provisions as a vehicle for obtaining monetary relief penalizing purely commercial bribery (40% of the improper payments at issue). While not entirely novel or outside the theoretical reach of those provisions, were the enforcement agencies routinely to investigate issuers in connection with commercial bribery abroad, the “risk-based” calculus of almost all corporate compliance programs would potentially need to be rebalanced.

Second, the total financial aspect of the resolution was 16 times the total value of alleged improper payments. In describing the improper payments, the enforcement agencies aggregated a number of often small payments over five years. When considered alongside the Ralph Lauren enforcement action from earlier this year, the Diebold enforcement action, and in particular its imposition of a monitor, long-considered one of the most burdensome aspects of FCPA settlements, could call into question one common view of the statements relating to gifts and corrupt intent in the November 2012 DOJ/SEC joint Resource Guide to the U.S. Foreign Corrupt Practices Act: namely, that FCPA covered companies should not “sweat the small stuff.”

[...]

“[T]he Diebold enforcement actions revive the pre-guidance confusion about the government’s enforcement priorities and raise significant questions about the value of voluntary disclosure. The confusion, arising from repeated charges related to relatively small expenditures, including, even, $500 for four pairs of shoes provided as gifts to Chinese officials, was part of  the background of frustration with the government’s enforcement of the FCPA that led to publication of the joint DOJ/ SEC Resource Guide.  It has been commonly thought that the Resource Guide’s distinctions between “expensive gifts” and “token[s] of esteem or gratitude” signified at least an implicit recognition by U.S. enforcement agencies that compliance resources would be better allocated to topics other than gifts valued at a few hundred dollars, let alone gifts that individually do not exceed $100 in value. But the Diebold case will raise new questions about the government’s enforcement priorities, questions that will only be amplified by the imposition of a monitor, potentially one of the most disruptive, burdensome, and costly components of FCPA settlement tools, and one that had been in declining use for several years.”

An observant article from The Lawyer titled “Round Table on Cross-Border Disputes – Bandwagons Roll.”  It states:

“Co-operation [between foreign law enforcement regulators] is good.’”  [...]  More co-operation between regulators when they are trying to address the same issues is welcome.”  However, co-operation – while praised for attempting to provide consistency – has its drawbacks.  “They all want to impose sanctions for the same conduct.” [...]   “It’s common now for a company to finish a US Foreign Corrupt Practices Act or UK Bribery Act investigation  that has taken three years and generated huge fees, to turn around and see a long line of regulators from, say, China or India with their own legal and  political concerns.”

It does not necessarily justify the behavior, but the following article at least puts the behavior in the proper context and highlights why Congress specifically included a facilitation payments exception in the FCPA’s anti-bribery provisions.

“Seventy-five percent of businesses in Vietnam pay bribes to  government agencies on their own volition in order to avoid being stuck in red tape, a World Bank specialist says.  At an anti-corruption conference held in Hanoi Thursday, Soren Davidsen said that sixty-three percent of firms questioned in a survey said they paid the “unofficial fees” to speed up procedures.”

A useful compliance resource here from the U.S. – China Business Council titled “Best Practices for Managing Compliance in China.”

*****

A good weekend to all,

Friday Roundup

Friday, August 2nd, 2013

Scrutiny alerts, misleading yet interesting, the flip side, and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Updates

Baxter International

The Wall Street Journal reports that Baxter International “investigated a joint venture in China and discovered expense violations there last year.”  According to the article, Baxter took action after employees of Guangzhou Baxter Qiaoguang Healthcare Co., reported problems internally in July 2012.  According to the article, similar allegations were made in July 2013 that “employees at Baxter’s joint venture paid travel agencies for arranging conferences between 2011 and 2012 for Chinese health officials.”  According to the article, “employees at several hotels identified as the conference sites in the documents said they had no records of the conferences.”

ENI

IntelliNews report here:  “ENI SpA  chief executive Paolo Scaroni will become a target of a major US Foreign Corruption Practices Act investigation by the US Department of Justice and the US Securities Exchange Commission in connection with an Algerian bribery scandal, [Italian] judicial sources said.” Among other things, the article states: “Judicial sources in Milan said they have compelling evidence Scaroni had personal knowledge of the bribe paid by SAIPEM and that SAIPEM is directly controlled by ENI and its management.”

As noted in this previous post, Eni has ADRs registered with the SEC.  In 2010, Eni resolved (see here) an SEC FCPA enforcement action concerning Bonny Island, Nigeria conduct.  In resolving the action, Eni consented to the entry of a court order permanently enjoining it from violating the FCPA’s books and record and internal controls provisions.

Weatherford

The company recently disclosed as follows concerning its long-lasting FCPA scrutiny.

“During the quarter ended June 30, 2013, negotiations related to the oil-for-food and FCPA matters progressed to a point where we recognized a liability for a  loss contingency that we believe is probable and for which a reasonable estimate  can be made.  Certain significant issues remain unresolved in the negotiations and, if these issues are not resolved to the Company’s satisfaction,  negotiations may be discontinued and such unresolved issues may ultimately  impact our ability to reach a negotiated resolution of the matters.  At this  time, the Company estimates that the most likely amount of this loss is $153 million.”

A $153 million settlement would be the eighth largest in FCPA history.

Avon

The company recently disclosed as follows concerning its long-lasting FCPA scrutiny.

“As previously reported in August 2012, we are in discussions with the SEC and the DOJ regarding resolving the government investigations. Our factual presentations as part of these discussions are substantially complete. In June 2013, we made an offer of settlement to the DOJ and the SEC that, among other terms, included payment of monetary penalties of approximately $12. The DOJ and the SEC have rejected the terms of our offer. Although we expect that the DOJ and the SEC will make a counterproposal to our offer, they have not yet done so. Our discussions with the DOJ and the SEC are ongoing.

There can be no assurance that a settlement with the SEC and the DOJ will be reached or, if a settlement is reached, the timing of any such settlement or the terms of any such settlement. We expect any such settlement will include civil and/or criminal fines and penalties, and may also include non-monetary remedies, such as oversight requirements and additional remediation and compliance requirements. We may be required to incur significant future costs to comply with the non-monetary terms of any settlement with the SEC and the DOJ. Under certain circumstances, we may also be required to advance significant professional fees and expenses to certain current and former Company employees in connection with these matters. Until any settlement or other resolution of these matters, we expect to continue to incur costs, primarily professional fees and expenses, which may be significant, in connection with the government investigations.
At this point we are unable to predict the developments in, outcome of, and economic and other consequences of the government investigations or their impact on our earnings, cash flows, liquidity, financial condition and ongoing business.  However, based on our most recent discussions with the DOJ and the SEC, the Company believes that it is probable that the Company will incur a loss upon settlement that is higher than the offer made by the Company of approximately $12, which was accrued by the Company as of June 30, 2013. We are unable to reasonably estimate the amount of any additional loss above the amount accrued to date; however it is reasonably possible that such additional loss will be material.”

Owens-Illinois

The beverage company recently disclosed as follows.

“The Company conducted an internal investigation into conduct in certain of its overseas operations that may have violated the anti-bribery provisions of the United States Foreign Corrupt Practices Act (the “FCPA”), the FCPA’s books and records and internal controls provisions, the Company’s own internal policies, and various local laws. In October 2012, the Company voluntarily disclosed these matters to the U.S. Department of Justice (the “DOJ”) and the Securities and Exchange Commission (the “SEC”). The Company intends to cooperate with any investigation by U.S. authorities. On July 18, 2013, the Company received a letter from the DOJ indicating that it presently did not intend to take any enforcement action and is closing its inquiry into the matter. The Company is presently unable to predict the duration, scope or result of any investigation by the SEC or whether the SEC will commence any legal action.”

AB InBev

The beverage company recently disclosed as follows.

“As previously disclosed, we have been informed by the SEC that it is conducting an investigation into our affiliates in India, including our non-consolidated Indian joint venture, InBev India Int’l Private Ltd, and whether certain relationships of agents and employees were compliant with the FCPA. We continue to cooperate in this investigation and have been informed by the Department of Justice (DOJ) that it is also conducting a similar investigation. Our investigation into the conduct in question is ongoing and we are cooperating with the SEC and the DOJ.”

Misleading Yet Interesting

Perhaps one reason for why there appears to much confusion about the FCPA and FCPA enforcement is due to the vast amount of misleading information in the public domain concerning the FCPA.

This recent article in the Economic Times of India concerning Wal-Mart is an instructive example.

Stating that the FCPA is a “law that prohibits American companies and their foreign subsidiaries from bribing officials” is not a completely accurate statement concerning the scope of the law.  Stating that “the anti-bribery provisions of the FCPA are enforced by the Department of Justice and the accounting provisions by the Securities and Exchange Commission” is not completely accurate either.  The SEC can also bring civil actions for FCPA anti-bribery violations and the DOJ can also bring criminal actions for wilful violations of the accounting provisions.

“In 2008, for example, Siemens paid a fine of $1.6 billion, the largest ever for an FCPA violation.”  This is a false statement.  While the Siemens enforcement action is indeed the largest in FCPA history in terms of fine and penalty amount, the amount was $800 million.”

Citing a source that says Wal-Mart’s FCPA scrutiny could result in an enforcement action ”between $4.5 billion and $9 billion” is outrageous beyond belief.

Despite its deficiencies, the article highlights an interesting tension between conducting a thorough internal investigation and the treatment of employees.  The article states:

“The long shadow of Bentonville, channelled by the permanent gaze of investigators, is causing angst among the Indian staff of Walmart. A company official quoted earlier says the army of investigators, who enjoy sweeping powers to seize documents and equipment of the staff, are seen by many employees as intrusive and as an extra-judicial authority in the office. For example, the investigators scan even the couriers sent out by the staff. The official quoted above says the objective to ensure FCPA compliance is causing even minor situations to snowball.”

[...]

“In another case, Richard Leonard, a British citizen and general manager for asset protection in India, was on a store visit to Ludhiana, that too with Asia head Price, when he received a frantic call from a colleague that KPMG executives were trying to seize his desktop computer and break open his drawer. He immediately called other colleagues, asking them to stop the investigators from taking possession of his workstation. On his return to the office, Leonard dashed off e-mails to his bosses, including Walmart’s global head Mike Duke, on how employees like him have lost respect in the office and they are being portrayed as “criminals” by independent auditors.”

The article also states:

“Walmart is asking all India employees who have left or been suspended to sign a three-page ‘consultancy and cooperation agreement’, ostensibly with the FCPA fallout in mind. The agreement essentially requires them to make themselves available to provide any information or explanation of materials or documents requested by Walmart or any government authority. “The manner in which lawyers and audit team are going about doing their business, I have started believing that I have done something wrong,” says an employee.”

The Flip Side

This Forbes columnist asks – in the context of GlaxoSmithKline –  ”is big pharma addicted to fraud?”

The question reminded me of the spot-on statement previously profiled here.  In a Law360 interview, Stephen Jonas (here), a partner in the Boston office of WilmerHale, was asked “what aspects of law in your practice are in need of reform, and why?”  He stated:

“One area greatly in need of reform, in my view, is the investigation of alleged health care fraud. This is an area in which the government regularly secures enormous settlements, starting in the tens of millions of dollars, and now exponentially expanding to the billions of dollars. Virtually every pharmaceutical company has now been subjected to one or more of these investigations and the results are predictable — enormous monetary contributions to the federal government. I find it hard to believe that wrongdoing is so rampant in this industry that every company has at least several hundred million dollars worth of it. The more likely answer is that these settlements often have far more to do with the leverage the government enjoys than the merits of what the company did or didn’t do. In order to stay in business, pharmaceutical and medical device companies must be able to sell products that can be paid for by Medicaid and Medicare. But a conviction for a health care offense would result in exclusion of the companies from federal health insurance and essentially a death sentence for their business. So they cannot afford to fight even the most debatable of charges. One of the results is that novel legal theories and sketchy evidence will never be tested in a court of law and negotiated settlements (under threat of exclusion) serve as “precedent” for the next case. That is a system badly in need of reform.”

Related to GSK, see here for my recent TV interview with LinkAsia.

Reading Stack

The always informative Miller & Chevalier FCPA Summer Review 2013.  As noted in the review “while investigation activity levels appear robust, the overall pace of  enforcement in 2013, in terms of resolved dispositions, remains at its lowest  level since 2006.”  This is correct, although difficult to square with a recent article from Compliance Week titled “FCPA Enforcement on the Rise Once Again.”  This is why an FCPA lingua franca is so important.  (See prior posts here and here).  Among other things, the Miller & Chevalier review contains useful charts including the nationality of companies under FCPA investigation and the countries implicated most frequently in FCPA enforcement actions.

Press coverage of BSG Resources and Beny Steinmetz (the wealthy Israeli for whom BSG Resources is named) regarding its business in Guinea continues.  (See this recent article from the U.K. Guardian).

An informative read from John Rupp (Covington) on how corporate interests and individual interests in a bribery investigation can collide and what corporate counsel can do to prevent this dynamic.

An interesting read from Trace Blog on how bribery schemes fall apart.  The post states:

“The reality is that many bribery schemes simply self-implode.  Think of it this way, once a bribe is paid, a corresponding debt is created to all who are involved in the scheme:  to the business partner who provides the funds; to the third party “consultant” who launders them through false pretense; to the accountant who cooks the books; to the bagman who delivers the payment; to each and every role player, big or small, who helps to bring about the bribe. At the time, loyalties may seem obvious: each co-conspirator will usually have a clear self-interest in keeping the bribery scheme hidden.  But as situations change, so too do incentives, and in business there are few guarantees as unsure as the honor among thieves.  [...] Think of all the bribery stories that have come to light simply by their own accord.”

*****

A good weekend to all.

 

Friday Roundup

Friday, May 3rd, 2013

Additional individual defendant added to Alstom-related enforcement action, a mere $110,000 per working day, a focus on international philanthropy, scrutiny alerts, and for the reading stack.  It’s all here in the Friday roundup.

Additional Alstom-Related Charges

This prior post highlighted the recently unsealed criminal charges against Frederic Pierucci (a current Alstom employee) and David Rothschild (a former Alstom employee) concerning alleged conduct in connection with the Tarahan coal-fired steam power plant project in Indonesia.  The post highlighted several other individuals generically referred to in the charging documents.

Earlier this week, the DOJ announced (here) that William Pomponi (a former executive of Alstom Power Inc., a Connecticut-based subsidiary of Alstom) was charged for his alleged participation in the same scheme.   Pomponi, previously identified as “Employee A,” is now described as “a Vice President of Regional Sales” at Alstom Power Inc. and “was one of the people responsible for approving the actions of, and authorizing payments to, Consultants A and B, knowing that a portion of the payments [to the consultants] was intended for Indonesian officials in exchange for their influence and assistance in awarding the Tarahan Project …”.

Like the original Pierucci indictment, all of the alleged overt acts in the superseding indictment against Pomponi allegedly occured between 2002 and 2004, although the information does allege wire transfers from Alstom Power Inc.’s bank account to the bank account of Consultant A until 2009.

Like Pierucci, Pomponi is also charged with one count of conspiracy to violate the FCPA, four substantive counts of FCPA anti-bribery violations, money laundering conspiracy and four substantive counts of money laundering.

Kudos to the DOJ for including a link to the charging document in the release.  This used to be DOJ’s practice, but when its new site launched a few years ago, it stopped doing this.  Let’s hope this is a new practice!

Avon’s FCPA Expenses

Nearly five years ago – in June 2008 – Avon launched an internal investigation concerning FCPA compliance in China and other countries.  In many respects, the most notable aspect of Avon’s FCPA scrutiny has been its pre-enforcement action professional and expenses – approaching $350 million (see here for instance).

In its most recent quarterly filing, Avon stated as follows.  “Professional and related fees associated with the FCPA investigations and compliance reviews … amounted to approximately $7 during the three months ended March 31, 2013.”

Headlines read “Avon FCPA Costs Down to $7 Million for Q1″ and “Avon Slows Spending on Bribery Probe.”

Both accurate headlines, but it is amazing to note nevertheless that – five years into Avon’s FCPA scrutiny – the company is still spending approximately $110,000 per working day on its FCPA issues.  (See this prior post concerning Wal-Mart’s pre-enforcement action professional fees and expenses and asking “does it really need to cost this much?”).

International Philanthropy

FCPA material pops up in a variety of places.  Such as this article in www.wealthmanagement.com concerning the perils of global giving.  With two FCPA enforcement actions (Schering-Plough and Eli Lilly) based, in whole or in part, on donations made to a Polish castle foundation and with Wynn Resorts under FCPA scrutiny for a donation to the University of Macau (see here), FCPA scrutiny based on international charitable giving is no mere hypothetical.

Scrutiny Alerts

Scrutiny alerts concerning IBM, ADM, Total, and ENRC.

IBM

This recent post highlighted a ProPublica report regarding the relationship between various tech companies including H-P, IBM and Oracle with a ”senior technology officer for Poland’s national police and, later, the nation’s Interior Ministry, [who] set the terms for hundreds of millions of dollars in technology contracts and decided which ones should be awarded without competitive bidding.”

In a recent quarterly filing, IBM disclosed as follows.

“In early 2012, IBM notified the SEC of an investigation by the Polish Central Anti-Corruption Bureau involving allegations of illegal activity by a former IBM Poland employee in connection with sales to the Polish government. IBM is cooperating with the SEC and Polish authorities in this matter. In April 2013, IBM learned that the U.S. Department of Justice (DOJ) is also investigating allegations related to the Poland matter, as well as allegations relating to transactions in Argentina, Bangladesh and Ukraine. The DOJ is also seeking information regarding the company’s global FCPA compliance program and its public sector business. The company is cooperating with the DOJ in this matter.”

In 2011, IBM resolved an FCPA enforcement action concerning alleged conduct in South Korea and China.  (See here).  The settlement is still pending the approval of Judge Richard Leon (D.D.C.).  In 2000, IBM resolved an FCPA enforcement action concerning alleged conduct in Argentina. (See here).

ADM

Archer Daniels Midland Company recently stated as follows in this release.

“ADM is in discussions with the U.S. Department of Justice and the U.S. Securities and Exchange Commission regarding a previously disclosed FCPA matter dating back to 2008 and earlier, and expects a resolution sometime this year. Based upon recent discussions, ADM believes it is appropriate to establish a provision of $25 million ($0.04 per share) to cover the potential assessments that may be imposed by these government agencies.”

Total

France-based Total recently stated as follows (here) concerning its long-running FCPA scrutiny concerning business conduct in Iran.

“In 2003, the United States Securities and Exchange Commission (SEC) followed by the Department of Justice (DoJ) issued a formal order directing an investigation in connection with the pursuit of business in Iran by certain oil companies including, among others, TOTAL.  The inquiry concerns an agreement concluded by the Company with consultants concerning gas fields in Iran and aims to verify whether certain payments made under this agreement would have benefited Iranian officials in violation of the Foreign Corrupt Practices Act (FCPA) and the Company’s accounting obligations. The Company fully cooperates with these investigations.  Since 2010, the Company has been in discussions with U.S. authorities (DoJ and SEC) to consider, as it is often the case in these kinds of proceedings, an out-of-court settlement, which would terminate the investigation in exchange for TOTAL respecting a number of obligations, including the payment of a fine and civil compensation, without admission of guilt.  U.S. authorities have proposed draft agreements that could be accepted by TOTAL. Consequently, and although discussions have not yet been finalized, a provision of $398 million, unchanged since its booking as of June 30, 2012 and reflecting the best estimate of potential costs associated with the resolution of these proceedings, remains booked in the Group’s consolidated financial statements as of March 31, 2013.  In this same affair, TOTAL and its Chief Executive Officer, President of the Middle East at the time of the facts, have been placed under formal investigation, following a judicial inquiry initiated in France in 2006. At this point, the Company considers that the resolution of these cases is not expected to have a significant impact on the Group’s financial situation or consequences on its future planned operations.”

A $398 million FCPA enforcement action would be the third-highest of all-time.

ENRC

Last week the U.K. Serious Fraud Office announced here as follows.

“The Director of the SFO has accepted [Eurasian Natural Resources Corp.] ENRC Plc. for criminal investigation.  The focus of the investigation will be allegations of fraud, bribery and corruption relating to the activities of the company or its subsidiaries in Kazakhstan and Africa.”

In a statement, the U.K. company,  stated as follows.

“The Board of Directors (the ‘Board’) of Eurasian Natural Resources Corporation PLC (‘ENRC’ or, together with its subsidiaries, the ‘Group’) today notes that the SFO has moved to a formal investigation. ENRC confirms that it is assisting and cooperating fully with the SFO. ENRC is committed to a full and transparent investigation of its procedures and conduct.

ENRC has ADRs listed with the SEC and thus could also be subject to the FCPA.

This recent article in the Wall Street Journal states as follows.

“U.K.-listed Eurasian Natural Resources Corp. PLC said … allegations of wrongdoing over minerals sales conducted through a Russian network of agents were thoroughly investigated and dismissed” in 2007.

Reading Stack

Tom Fox (FCPA Compliance and Ethics Blog) has penned a new book – “Best Practices Under the FCPA and Bribery Act: How to Create a First Class Compliance Program.”  I was pleased to contribute the foreword to the book and noted that Tom’s “use of real events as learning devices to demonstrate compliance best practices make [the] book an engaging and informative read.”

Inside the NY Times Wal-Mart investigation (here) from the perspective of the Mexican journalist who assisted in the investigative reporting.