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Will The DOJ Also Bring An Enforcement Action Against Griffiths Energy?

Tuesday, February 12th, 2013

Last month, in an event widely reported, Canadian authorities brought an enforcement action against Griffiths Energy International Inc. (“GEI”) under Canada’s Corruption of Foreign Public Officials Act (“CFPOA”)

This post summarizes that enforcement action, including allegations in the Statement of Facts concerning conduct in the U.S. that would seem to provide a basis for the U.S. Department of Justice to also bring a Foreign Corrupt Practices Act (“FCPA”) enforcement action against GEI.

Indeed, in GEI’s press release announcing resolution of the CFPOA matter, the company stated that it voluntarily disclosed the conduct at issue to both Canadian and U.S. authorities in November 2011 and specifically noted as follows. “Since its voluntary disclosure Griffiths Energy has been cooperating and working with the Royal Canadian Mounted Police, the Public Prosecution Service of Canada (“PPSC”) and the U.S. Department of Justice to bring the matter to a close.”

Given that the above release was unclear as to whether the DOJ investigation is active or closed, I asked GEI this precise question, and the response from the company’s external public relations advisor last week was as follows. “Griffiths Energy’s management is not available to comment.” That answer would seem to suggest that the DOJ investigation is not closed.

The Statement of Facts in the CFPOA matter (see here) focuses on GEI’s efforts to obtain a production sharing contract (“PSC”) with the African nation of Chad to provide GEI with the exclusive right to explore and develop oil and gas reserves and resources in the Borogop and Doseo blocks in southern Chad. In sum, GEI agreed that it “directly agreed to provide, and indirectly provided, improper benefits to a Chadian public official in order to further the business objectives of GEI and its subsidiaries.” The public official is Chad’s Ambassador to Canada, Mahamoud Adam Bechir (the “Ambassador”), and by extension his wife Ms. Nouracham Niam. Because Chad had no embassy located in Canada, the Ambassador resided in Washington D.C.

The Statement of Facts highlights a number of attempts by GEI to obtain the blocks in Chad as well as various consulting agreements designed to facilitate that process. The first consulting agreement in August 2009 was signed by GEI and the Ambassador, on behalf of a Maryland-based entity wholly-owned by the Ambassador, and it provided for a $2 million fee payable to the entity if “GEI was awarded the Doseo and Borogop blocks on or before December 31, 2009.” According to the Statement of Facts, “the services to be provided under the consulting agreement by the consultant were generally described as providing advisory, logistics, operational other assistance with respect to implementing GEI’s oil and gas projects in Chad.”

The Statement of Facts indicates however that “GEI’s outside legal counsel advised … that the Ambassador was a government official and that GEI could not make an offer or give an advantage or do anything directly or indirectly with him. The agreement was terminated and no payments were made by GEI pursuant to this agreement.”

However, a second consulting agreement, “with identical terms” was entered into in September 2009 between GEI and a Nevada entity wholly-owned by the Ambassador’ wife. According to the Statement of Facts, “a subscription agreement associated with the grant of 1,600,000 founders shares in GEI” to the Ambassador’s wife was also entered into and accompanied by a Western Union payment for the share price. The Statement of Facts also indicates that “two other individuals” nominated by the Ambassador’s wife also were given the opportunity to purchase founders shares. These individuals included the wife of the Deputy Chief of the Chadian Embassy in Washington D.C.

The Statement of Facts next discuss a meeting in Washington D.C. arranged by the Ambassador’s wife between “high-level officials from both GEI and the Government of Chad” to sign a memorandum of understanding (MOU) in relation to the blocks. The MOU was not signed at this meeting, but was shortly thereafter. During a change in Chad’s government, a final production sharing agreement was delayed, and a new MOU was signed in November 2010. According to the Statement of Facts, in January 2011, “GEI engaged new external legal counsel and transferred PSC-related documents for review” and GEI ”also instructed new external legal counsel to either extend or redo the original consulting agreement” referenced above. In mid-January 2011, the renewed consulting agreement was signed by GEI and the Ambassador’s wife.

Thereafter, “GEI and its outside legal advisors then travelled to Chad to complete the negotiations for the PSC” and on January 19, 2011, the PSC was signed. Shortly thereafter, the $2 million payment from GEI to the Maryland entity wholly-owned by the Ambassador’s wife was made and deposited in the entity’s bank account in Washington D.C.

However, the Statement of Facts noted that even though the payments were made to persuade the “Ambassador to exercise his influence to assist GEI entering Chad,” no “influence was actually realized.”

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GEI is a privately-held Canadian company and as such the FCPA’s dd-3 prong could apply if (in the words of the FCPA) GEI “or any officer, director, employee, or agent … while in the territory of the United States, corruptly [made] use of the mails or any means or instrumentality of interstate commerce or to do any other act in furtherance of” the payment scheme.

It is also interesting to note the relevance of the two ”domestic concerns” (in the words of the FCPA) - namely the Maryland entity and Nevada entity – in the conduct at issue.

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Returning to the CFPOA action, this is only the third instance Canadian authorities have brought corporate charges under the CFPOA. (See this prior post with an analysis of the Nikko Resources enforcement action and general reference to the Hydro Kleen enforcement action). The Statement of Facts provide a useful description by the Canadian authorities of facts and circumstances they considered when arriving at the ultimate fine amount of $9 million (plus the 15% victim fine surcharge) for a total amount of $10.35 million.

Under the heading “Full and Extensive Cooperation with Authorities” the Statement of Facts indicates as follows.

An entirely new management team was hired within GEI between July 2011 and August 2011 and six new independent directors were appointed to GEI’s board. “No current member of GEI’s management team or board of directors was involved with or knowledgeable about the consulting agreements that are issue in this case.”
GEI’s current board and management learned of the consulting agreements “in the course of conducting due diligence in anticipation of its initial public offering which was to take place prior to Dec. 31, 2011. “Immediately” thereafter, a Special Committee comprised entirely of the independent members of GEI’s board was created and engaged outside legal counsel and forensic accounting experts.
GEI “disclosed the existence of the issues [and the results of its internal investigation] to representatives of the Public Prosecution Service of Canada” as well as “enforcement authorities in the U.S.”
“Hard costs paid to GEI’ legal and accounting advisors on the internal investigation currently stand at CAD $5.0 million.
“GEI made the further decision to withdraw its IPO, causing GEI to write off approximately CAD $1.8 million in sunk pre-IPO expenses” and “causing GEI to incur significantly higher costs of capital through private placements in order to be able to continue its operations.”

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As to GEI’s “current development and exploration activities in Chad” see this recent company release.

Canada Redoubles Efforts at Combating Foreign Corruption: Canadian Businesses Warned to “Play by the Rules”

Wednesday, February 6th, 2013

Today’s post is from Riyaz Dattu (Partner at Osler, Hoskin & Harcourt LLP in Toronto) concerning yesterday’s development in Canada concerning proposed amendments (here) to Canada’s Corruption of Foreign Public Officials Act.

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Canada Redoubles Efforts at Combating Foreign Corruption: Canadian Businesses Warned to “Play by the Rules”

Within days of successfully imposing a fine in the amount of $10.3 million against Griffiths Energy (see here) pursuant to the Canadian Corruption of Foreign Public Officials Act (“CFPOA”), Minister of Foreign Affairs, John Baird, announced on February 5, 2012, that the Canadian government intends to “redouble its fight against corruption” and expects “Canadian businesses to play by the rules.”

This is to be accomplished by the government implementing some of the most significant changes to the CFPOA since it first came into force in 1999.

Proposed Amendments

The Minister’s announcement lists the following far-reaching amendments to the CFPOA:

Increasing the maximum term of imprisonment – The foreign bribery offence is currently punishable by a maximum of five years’ imprisonment, and unlimited monetary fines. The government is proposing to increase the maximum term of imprisonment to 14 years. As is the case now, it would appear that the amendments will not change the fact that as an indictable offence, no limitation period would apply.

Nationality jurisdiction – Currently, the Canadian government’s prosecutorial jurisdiction is restricted by the legal requirement that there exist “a real and substantial link between the offence and Canada” (e.g., that a significant portion of the activities constituting the offence of bribing a foreign public official take place in Canada). Canada has been criticized by the OECD for applying the “real and substantial link” test rather than a test based on nationality. In its announcement the government has indicated that this amendment will now permit prosecution under the CFPOA based on nationality, and therefore “will make it easier for Canada to prosecute Canadians or Canadian companies for bribery in other countries, insofar as it will allow the Government of Canada to exercise jurisdiction over all persons or companies that have Canadian nationality, regardless of where the alleged bribery has taken place.” The practical consequence of this amendment is that it will significantly expand the scope of Canadian prosecutorial jurisdiction to cover illegal activities by Canadian nationals (including officers and directors) and Canadian corporations in violation of the CFPOA, regardless of the level of connection of the illegal activity to Canada.

Books and records offence – This amendment adds an accounting books and records provision to the CFPOA. The offence will make it illegal to falsify the records or hide payments related to bribery of foreign public officials. Conviction under this offence can result in 14 years’ imprisonment, and monetary fines at the discretion of the Judge without regard to a prescribed maximum amount. Although this offence will be criminal in nature (and therefore will require proof of criminal intent) rather than an infraction subject to civil penalties, it nevertheless will substantially increase the exposure of Canadian corporations, officers and directors to prosecutions under the CFPOA.

Eventual elimination of facilitation payments - The CFPOA currently allows nominal payments made to expedite or secure the performance by a foreign public official of any act of a routine nature that is part of the foreign public official’s duties or functions. This amendment, which is to come into effect at a later date to be set by Cabinet, will be consistent with the recommendation from the OECD that such payments be made illegal, eliminate the exception for facilitation payments. The additional time for the coming into effect of this provision is intended to allow Canadian corporations to phase out any such prevailing practices in their foreign business activities.

Clarifying the definition of “business” - This amendment removes the words “for profit” in the definition of business to ensure that the CFPOA applies to all business, regardless of whether profit is made. It eliminates the potential defence that an unprofitable business cannot be charged under the CFPOA, and pays heed to the OECD’s recommendation that Canada undertake the necessary changes to its implementing legislation such that it is consistent with the OECD Convention.

Exclusive ability to lay charges - The Royal Canadian Mounted Police (RCMP) will now be given exclusive authority to lay charges under the CFPOA. Previously the provincial government law enforcement authorities were permitted to lay charges pursuant to the CFPOA. According to the government’s announcement, since 2008 the RCMP has established the International Anti-Corruption Unit dedicated to “raising awareness and enforcing the CFPOA.” The RCMP currently has 34 ongoing investigations under the CFPOA, and as such this amendment will ensure specialization and centralized decision-making by the RCMP and the federal Public Prosecution Services Canada concerning enforcement under the CFPOA.

Conclusion

There can be no doubt left that the Canadian government has taken seriously the criticisms levied against it by the OECD for not actively enforcing the CFPOA, and now intends to improve its international reputation by actively combating foreign corrupt activities of Canadian nationals and corporations. The government has also indicated that it “expects that other countries [will] do the same,” by stepping up their own enforcement of anti-corruption laws consistent with their international obligations.

Within the last five years, in addition to delegating to the RCMP the enforcement function for the CFPOA, the Canadian government has successfully levied fines against Niko Resources (in 2011 – $9.5 million fine plus three years probation) and Griffith Energy (in 2013 — $10.5 million fine). With the large number of ongoing investigations now being handled by the RCMP, one can expect more prosecutions pursuant to the CFPOA in the coming months.

It can be expected that the legislation containing the amendments, to be first tabled in the Senate on February 6, 2013, will pass through the Canadian Parliament without opposition.

Canada’s Jurisdictional Test

Wednesday, November 21st, 2012

Today’s post is from FCPA Professor Canada expert Mark Morrison (Blake, Cassels & Graydon). Michael Dixon (Blake, Cassels & Graydon) and Derek Jugnauth (Student of Law) also contributed to the post.

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Canada’s Jurisdictional Test

Like many of its international partners, Canada has domestic legislation designed to advance bedrock anti-corruption principles underlying the OECD Convention against bribing foreign public officials. However, Canada stands alone in terms of its jurisdictional approach. While all other signatories have embraced both nationality and territoriality based jurisdictional principles, Canada relies solely on the latter to give effect to the Corruption of Foreign Public Officials Act (CFPOA).

Territorial jurisdiction means that unless a significant portion of the activities constituting the offence take place in Canada the CFPOA does not apply. Considering the CFPOA is intended to capture conduct that is inherently likely to take place outside of the country, the Canadian approach appears at odds with the inherent purpose of the CFPOA. In practical terms, this could mean that a Canadian flying from a Canadian airport to a foreign jurisdiction to meet with a foreign public official in order to pay or promise a benefit is conduct that would likely be beyond the reach of the CFPOA.

However, change “Canadian” to “American” and “Canada” to the “United States” in the above example and the outcome would be diametrically opposite under the U.S. Foreign Corrupt Practice Act. Why the difference? When drafting the CFPOA, Parliament expressed its confidence in the sufficiency of Canada’s common law test for extending the territorial reach of the criminal law to circumstances taking place, in part, outside of the country. That test is whether there is “a real and substantial link” between the offence and Canada. If not, Canadian law does not apply

Of course whether a real and substantial link exists will turn on the facts, can be unpredictable, and will – at times – yield questionable results. For example, in a case called R. v. B.(O.), the Ontario Court of Appeal held that Canadian courts did not have jurisdiction over a Canadian trucker who sexually assaulted his 13-year-old Canadian granddaughter in his Canadian registered vehicle while travelling through the U.S. en route back to Canada. Moreover, given that Canada has only recorded two convictions under the CFPOA – both the result of guilty pleas – courts have not yet had the opportunity to consider the jurisdictional question in the context of foreign bribery. Until now.

In 2010 the Royal Canadian Mounted Police laid charges under the CFPOA against Nazir Karigar. Investigators allege Mr. Karigar paid significant bribes to a former Mumbai police chief and Indian cabinet minister in exchange for showing favour to a Canadian security company in relation to a lucrative $100-million Air India contract. At the time Mr. Karigar was head of that company’s Indian operations, and he is alleged to have facilitated a $250,000 payment to a political ally of India’s then Minister of Aviation. He has pled not guilty.

As the case is still pending before the Ontario Superior Court of Justice many details are not yet available. However, the conduct alleged to constitute the offence appears to have taken place predominantly in India and comments from Mr. Karigar’s lawyer suggest that challenging Canada’s jurisdiction will form one pillar of the defence.

As this case unfolds Canada will likely have its first judicial statement on the extent of its territorial reach over foreign corruption. If Mr. Karigar’s jurisdictional challenge carries the day, the federal government will come under increasing pressure to expressly legislate extraterritorial application to the CFPOA based on nationality, as it has for a series of other Criminal Code offences. In fact, the OECD and Transparency International have been calling for this change for some time and in 2009 a legislative amendment to this effect was proposed but died on the order paper.

Regardless of the result of Mr. Karigar’s case, recent signs are that the government has again been seeking input on an amendment to broaden the jurisdictional reach of the CFPOA. In the end, our prediction is that it is only a matter of time before Canada closes this jurisdictional loophole in its legislation.

Friday Roundup

Friday, August 10th, 2012

Add a few to the list, take a few off, a word on guest posts, take a deep breath, whose fault is it, once again nobody was charged. It’s all here in the Friday roundup.

Add Another

Most companies bury FCPA disclosures deep in SEC filings. Not so with Nordion Inc. (here – a Canadian based health sciences company with shares traded in the U.S). It took the open and direct route by issuing a release (here) specifically devoted to the topic. The release states as follows.

“[The company] disclosed that it is conducting an internal inquiry and investigation of a foreign supplier and related parties focusing on compliance with the Canadian Corruption of Foreign Public Officials Act (CFPOA) and the U.S. Foreign Corrupt Practices Act (FCPA). Through the Company’s own internal review as part of its CFPOA compliance program, Nordion discovered potential compliance irregularities. As a result, the Company recently commenced an internal investigation of the possible compliance issues. These issues relate to potential improper payments and other related financial irregularities in connection with the supply of materials and services to the Company. The investigation is being conducted by outside legal counsel and external forensic and accounting firms who are experts in such compliance. These external advisors are reporting regularly to a special Committee of the Board constituted to deal with this matter. Nordion has voluntarily contacted the regulatory and enforcement authorities, including the Canadian and U.S. Department of Justice, the Royal Canadian Mounted Police (RCMP), the U.S. Securities and Exchange Commission (SEC) and the Public Prosecution Service of Canada, to provide details of the matter and advise that an internal investigation is underway. The internal investigation is in its early stages and the Company’s external advisors have met with these authorities and will continue to provide reports to them as the investigation progresses.Nordion is committed to the highest standards of integrity and diligence in its business dealings and to the ethical and legally compliant business conduct by its employees, representatives and suppliers. The Company reviews its compliance programs on a regular basis to assess and align them with emerging trends and business practices. Corrupt or fraudulent business conduct is in direct conflict with the Company’s Global Business Practice Standards and corporate policies. The Company will continue to investigate this matter and cooperate with regulatory and enforcement authorities with a view to an expedient resolution.”

By my estimation, in the past four months, approximately twenty companies have become subject to FCPA scrutiny (whether through disclosures or FCPA-related civil complaints). In addition, industry sweeps as to the Hollywood movie industry and retail industry have reportedly been launched. See here for a prior post titled “The Sun Rose, A Dog Barked, and a Company Disclosed FCPA Scrutiny.”

Academi, Inc., formerly known as Xe Services, formerly known as Blackwater was also in the news this week. As noted in this FBI release, pursuant to a deferred prosecution agreement (here) the company admitted to certain facts and agreed to a $7.5 million fine in connection with certain export controls and firearms law violations. As noted in the release, the DPA ”also acknowledges and references a $42 million settlement between the company and the Department of State as part of a settlement of violations of the Arms Export Control Act and the International Trafficking in Arms Regulations.” As noted in this previous post, Blackwater has been under investigation for FCPA violations in Iraq (and Sudan as noted in the FBI release). The above DPA specifically states however that “this agreement does not apply to the Foreign Corrupt Practices Act investigation independently under investigation by the DOJ.” As noted in this previous post, Blackwater’s FCPA scrutiny in Iraq inspired Representative Peter Welch to introduce H.R. 5366, the “Overseas Contractor Reform Act,” an impotent debarment bill that passed the House in September 2010 (see here).

There are also developments to report on the other side of the Atlantic as the U.K. Serious Fraud Office announced hereas follows. “The Director of the Serious Fraud Office has decided to open a criminal investigation into allegations concerning GPT and aspects of the conduct of their business in the Kingdom of Saudi Arabia.” As noted in this Bloomberg piece, GPT is a unit of European Aeronautic Defence & Space Co. (EADS), and the investigation involved suspected payments to win a telecommunications deal with Saudi Arabia’s royal family. The Financial Times stated that the “Serious Fraud Office’s criminal inquiry is a step-change for the agency after it said in March that it was happy with an internal investigation the company was conducting.”

Although he is no longer in Congress, former Representative Todd Tiahrt is probably delighted by this news. See here for the prior post.

Take a Few Off

Huntsman Corporation recently disclosed as follows in a SEC filing (here).

“During the third quarter of 2010, we completed an internal investigation of the operations of Petro Araldite Pvt. Ltd. (“PAPL”), our majority owned joint venture in India. PAPL manufactures base liquid resins, base solid resins and formulated products in India. The investigation initially focused on allegations of illegal disposal of hazardous waste and waste water discharge and related reporting irregularities. Based upon preliminary findings, the investigation was expanded to include a review of the production and off-book sales of certain products and waste products. The investigation included the legality under Indian law and U.S. law, including the U.S. Foreign Corrupt Practices Act, of certain payments made by employees of the joint venture to government officials in India. Records at the facility covering nine months in 2009 and early 2010 show that less than $11,000 in payments were made to officials for that period; in addition, payments in unknown amounts may have been made by individuals from the facility in previous years. [...] Also in May 2010, we voluntarily contacted the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”) to advise them of our investigation and that we intend to cooperate fully with each of them. We met with the SEC and the DOJ in October 2010 to discuss this matter and we continue to cooperate with these agencies. Steps have been taken to halt all known illegal or improper activity, including the termination of employment of management employees as appropriate. In May 2012, the SEC and DOJ notified us that they would not recommend any enforcement action be taken against our Company in this matter.”

Since August 2010 (see here for the prior post), I have proposed that when a company voluntarily discloses an FCPA internal investigation to the DOJ and the SEC, and when the DOJ and/or SEC decline enforcement, the DOJ and/or the SEC should publicly state, in a thorough and transparent manner, the facts the company disclosed to the agencies and why the agencies declined enforcement on those facts.

In the meantime, we can only speculate as to why the enforcement agencies did not bring an enforcement action against Hunstman. Of note, in the DOJ’s written declination responses after the June 2011 House hearing (see here), the DOJ stated that it has declined matters when, among other circumstances, “the improper payments involved minimal funds compared to the overall business revenue.”

As noted in this previous post, in April Hercules Offshore disclosed as follows. “On April 4, 2011, the Company received a subpoena issued by the Securities and Exchange Commission (“SEC”) requesting the delivery of certain documents to the SEC in connection with its investigation into possible violations of the securities laws, including possible violations of the Foreign Corrupt Practices Act (“FCPA”) in certain international jurisdictions where the Company conducts operations. The Company was also notified by the Department of Justice (“DOJ”) on April 5, 2011, that certain of the Company’s activities were under review by the DOJ. On April 24, 2012, the Company received a letter from the DOJ notifying the Company that the DOJ has closed its inquiry into the Company regarding possible violations of the FCPA and does not intend to pursue enforcement action against the Company. The DOJ indicated that its decision to close the matter was based on, among other factors, the thorough investigation conducted by the Company’s special counsel and the Company’s compliance program. The Company, through the Audit Committee of the Board of Directors, intends to continue to cooperate with the SEC in its investigation. At this time, it is not possible to predict the outcome of the SEC’s investigation, the expenses the Company will incur associated with this matter, or the impact on the price of the Company’s common stock or other securities as a result of this investigation.”

Earlier this week, the company updated its disclosure as follows. “On August 7, 2012, Hercules Offshore, Inc. (the “Company”) received a letter from the Securities and Exchange Commission (“SEC”) notifying the Company that the SEC staff has completed its investigation into the Company regarding possible violations of the Foreign Corrupt Practices Act (“FCPA”) and does not intend to pursue enforcement action against the Company. As previously disclosed, the Company was notified by the SEC and the Department of Justice (“DOJ”) in April 2011, that certain of the Company’s activities were under review by the SEC and DOJ with respect to possible violations of the FCPA in certain international jurisdictions where the Company conducts operations. The Company previously disclosed that it received a letter from the DOJ on April 24, 2012, notifying the Company that the DOJ has closed its inquiry into the Company regarding possible violations of the FCPA and does not intend to pursue enforcement action against the Company. The DOJ noted that it terminated its investigation ‘…based on a number of factors, including, but not limited to, the thorough investigation undertaken by Hercules and the steps that Hercules has taken in the past and continues to take to enhance its compliance program, including efforts to ensure compliance with the FCPA.’ As a result of the termination by the SEC and the prior termination by the DOJ, there are no open FCPA investigations against the Company.”

As evident from the disclosures, unlike Huntsman, the FCPA scrutiny of Hercules was not based on a voluntary disclosure, but inquiries from the SEC and DOJ. Whether this represents a declination or a dud is the question.

Guest Posts

Part of the mission of FCPA Professor is to facilitate a forum for discussion and analysis of FCPA and related issues among FCPA practitioners, business and compliance professionals, scholars and students, and other interested persons. Given this mission, I frequently publish guest posts (see here for approximately 60 such posts). In publishing guest posts, it should not be assumed in all cases that I agree in whole or in part with the content of such posts. Rather, providing the forum for delivery into the marketplace of ideas is what I hope to facilitate and I encourage all who want to make their voice heard on the issues to consider submitting a guest post.

A Deep Breath

The FCPA is a unique statute, with unique and difficult to manage risks.

Nevertheless , it was refreshing to see this piece by Pamela Marple (Chabourne & Park – here) in the NACD Director Advisory titled “The FCPA: A New Bear in the Woods?” Marple begins as follows. “Over the past five years, the Foreign Corrupt Practices Act has solidified itself as an industry brimming with expert forums, company departments and substantial news coverage. Is this statute really the bear in the woods some say it is?” Marple states as follows. “The existence of the FCPA industry (and professionals who are available to conduct internal investigations at a high price) does not mean that this reaction is what is always required. What is required first and foremost is reasonable judgment exercised by directors and professionals who seek both compliance and solutions—without assuming a bear is present at every turn.”

As I previously commented (here) to Corporate Board Member, corporate directors need to keep a proper perspective. There’s a whole industry out there that’s trying to sell the steroids version of FCPA compliance. But directors should not get their undies in a bundle over this. This is an issue, just like any other risk area, that directors need to have on their radar screen. Corporate directors should not panic when it comes to FCPA compliance.

Whose Fault is It?

Do FCPA violations occur because companies subject to the law go into foreign markets intent on engaging in bribery or because the companies are confronted by corrupt foreign officials seeking to line their own pockets?

Circumstances vary of course, but this recent article in the African Globe includes comments from human rights lawyer and Senior Advocate of Nigeria Femi Falana who focused on the former. The article stated as follows. “In order to cover up the involvement of western governments and corporations in the promotion of corruption, terrorism and drug abuse in Africa, the impression is often created by top public officials of some foreign governments that Africans are the most corrupt people in the world,” Falana observed noting that only last week, the US Secretary of State, Mrs. Hillary Clinton, kicked off her 11-day tour of some African states in Senegal by condemning corruption in Africa and urging African leaders to fight it in order to get good governance in the continent. He said it was also the kernel of President Barack Obama’s message to Africans when he made a brief stopover in Ghana three years ago. “While we do not condone corruption, it is high time the Obama administration was told to stop blaming the victims of grand corruption promoted and fuelled by western countries led by Switzerland, France, United Kingdom and United States,” Falana said.”

Nobody Was Charged

A recent New York Times article (here) once again raises the issue of why few corporate fraud enforcement actions result in individual charges. The article states as follows. “The Justice Department has collected $8.6 billion over the last three years, more than in any similar period in history, but relatively few prosecutions of individuals have come from the biggest settlements.”

A reason?

In the FCPA context, I submit and stated during my 2010 Senate testimony (here), involves the quality of the corporate enforcement action. Given the prevalence of NPAs and DPAs in the FCPA context and the ease in which DOJ offers these alternative resolution vehicles to companies subject to an FCPA inquiry, companies often agree to enter into such resolution vehicles regardless of the DOJ’s legal theories or the existence of valid and legitimate defenses. It is simply easier, more cost efficient, and more certain for a company to agree to a NPA or DPA than it is to be criminally indicted and mount a valid legal defense even if the DOJ theory of prosecution is questionable. (See here for my scholarship ”The Facade of FCPA Enforcement). Individuals, on the other hand, face a deprivation of personal liberty, and are more likely to force the DOJ to satisfy its high burden of proof as to all FCPA elements.

A telling statistic?

As noted in this prior post, since alternative resolution vehicles were first used in the FCPA context (December 2004) there have been 61 “core” corporate DOJ FCPA enforcement actions. 47 of the 61 ”core” corporate DOJ FCPA enforcement actions (77%) have been resolved via an NPA (19 instances) or a DPA (28 instances). In these 47 “core” corporate DOJ FCPA enforcement actions, only 7 enforcement actions (15%) have resulted in any individual FCPA criminal charges against company employees. In other words, when the DOJ resolves an FCPA enforcement action via a NPA or DPA, there is only a 15% likelihood that individual criminal charges will be filed against any company employee or those affiliated with the company. [Note: the above statistics were calculated in Sept. 2011]

For previous posts on this very same issue see here.

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A good weekend to all.

Friday Roundup

Friday, June 29th, 2012

Credit when credit is due, no fear despite fear based marketing, a further Section 1504 development, and individual prosecutions in Canada, it’s all here in the Friday roundup.

Credit When Credit is Due

In this previous February 2012 post, I called out the DOJ for its deficient and misleading FCPA website in that the website did not inform the public of the DOJ’s setbacks in the Africa Sting cases, the O’Shea case, the Wooh case and the Lindsey Manufacturing cases. I ended the post by saying that the DOJ’s FCPA website ought to be improved and ought to keep citizens informed of all FCPA developments – not just those that cast the DOJ in a favorable light.

I am happy to dole out credit when credit is due and can now report that Wooh’s entry (here), O’Shea’s entry (here), the Lindsey related entry (here) and the numerous Africa Sting related entries have all been updated to reflect the final disposition of those cases.

Few Companies Concerned About the U.K. Bribery Act

Despite marketing campaigns that were often based on fear and overblown rhetoric, one year into the U.K. Bribery Act few companies have changed their compliance programs as a result and even fewer are concerned about an enforcement action being brought against their organization, according to this recent poll by Deloitte Financial Advisory Services. Specifically 24% of respondents answered “yes” to the following question - ”in July 2012, one year after the UK Bribery Act enforcement began, will your company have changed its anti-corruption program to comply” and 9% answered “yes” to the following question – “one year after UK Bribery Act enforcement began, is your company concerned about a UK action being brought against your organization.”

That is pretty much what I predicted in this January 3, 2011 post that states as follows – “I don’t see how companies already subject to the FCPA and already thinking about compliance in a pro-active manner, have much to worry about when it comes to the U.K. Bribery Act …”.

Even so, the silly marketing continues as evidenced by this post “Don’t Be Lulled by a Dearth of UK Bribery Act Convictions” which begins as follows. “Be warned that the UK Bribery Act is considered to be the world’s most restrictive and far-reaching anti-corruption law to date. This measure differs in many key aspects from the US Foreign Corrupt Practices Act.”

A Further Section 1504 Development

This recent post provided an update on Section 1504 of Dodd-Frank, the so-called Resource Extraction Issuer Disclosure Provisions, an ill-conceived “miscellaneous provision” tucked into Dodd-Frank at the last minute that will substantially increase compliance costs and headaches for numerous companies that already have extensive FCPA compliance policies and procedures by further requiring disclosure of perfectly legal and legitimate payments to foreign governments.

In a further update, last week several House members wrote to SEC Chairman Mary Schapiro “regarding the status of the long-delayed final rule making.” In the letter, the House members state that the Commission “has had more than enough time to consider and respond to all of the substantive comments from industry, civil society, investors and others” and that the “issue is too serious to allow further delay.”

Canada Prosecutions

Recent media articles (see here from the Globe and Mail and here from the Canadian Press) report that “two former executives of SNC-Lavalin Group Inc. have been charged with corrupting foreign officials” under Canada’s FCPA-like law, the Corruption of Foreign Public Officials Act. Ramesh Shah (a former Vice President) and Mohammad Ismail (a former Director of International Projects) allegedly ”offered payment to secure contracts for supervision and construction of the Padma Bridge and an elevated expressway in Dhaka, Bangladesh.”

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A good weekend to all.