Archive for the ‘Carlos Rodriguez’ Category

Friday Roundup

Friday, May 22nd, 2015

Roundup2Wal-Mart related, request for a new trial, scrutiny alert, and for the reading stack.  It’s all here in the Friday roundup.

Wal-Mart Related

Here is what Wal-Mart said in its recent 1Q FY2016 earnings call:

“FCPA and compliance related costs were approximately $33 million, comprised of $25 million for the ongoing inquiries and investigations, and $8 million for our global compliance program and organizational enhancements.”

Doing the math, Wal-Mart’s 1Q FCPA and compliance-related costs is approximately $516,000 in FCPA-related expenses per working day.

Over the past approximate three years, I have tracked Wal-Mart’s quarterly disclosed pre-enforcement action professional fees and expenses. While some pundits have ridiculed me for doing so, such figures are notable because, as has been noted in prior posts and in my article “Foreign Corrupt Practices Act Ripples,” settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.  Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.

While $516,000 per working day remains eye-popping, Wal-Mart’s recent figure suggests that the company’s pre-enforcement action professional fees and expenses have crested as the figures for the past six quarters have been approximately $563,000, $640,000, $662,000, $855,000, $1.1 million and $1.3 million per working day.

In the aggregate, Wal-Mart’s disclosed pre-enforcement professional fees and expenses are as follows.

FY 2013 = $157 million.

FY 2014 = $282 million.

FY 2015  = $173 million.

FY 2016 = $33 million (overall projection of $160 – $180 million for entire year)

Request for New Trial

Carlos Rodriguez, an individual convicted in a Haiti Teleco-related enforcement action (the focus of the 11th Circuit’s “foreign official” decision) and currently serving a federal prison sentence, has requested a new trial in this recent pro se motion.  In pertinent part, the motion states:

“In the instant case, an essential element of the FCPA charges hinged on whether Defendant had knowledge of the scheme to defraud Teleco . The factual predicate the Government relied upon at trial for proving that defendant had knowledge of the scheme to defraud Teleco was Perez ‘s [a cooperating witness] testimony .

Defendant has obtained new evidence , a sworn and notarized affiidavit from James Dickey , Terra ‘s General Counsel. Mr. Dickey ‘s affidavit states that ”he was never at any meeting at Terra or elsewhere where the subject of bribes to Antoine as International Director of Halti Teleco were discussed . Had the word ”bribe” been used in my presence in connection with the resumption of service with Haiti Teleco or the reduction of payments to that company, at any time during my tenure as general counsel, I would have remembered it and I would have immediately shut it down.

The affidavit demonstrates that ”facts” or ”evidence” the Government relied upon to show that Defendant had the requisite knowledge did not exist, and that the basis for his testimony against Defendant would have been completely impeached if this had been available at trial. In as much as the affidavit addresses an essential element of the FCPA offense, there is a reasonable likelihood that this new evidence would have affected the judgment of the jury, and, therefore, at a minimum, a new trial is required pursuant to Rule 33.”

Scrutiny Alert

Affinia Group (a North Carolina based company involved in design, manufacture, distribution and marketing of industrial grade products and services, including extensive offerings of aftermarket parts for automotive and heavy-duty vehicles) recently disclosed:

“As previously disclosed, the Company has conducted a review of certain allegations arising in connection with business operations involving its subsidiaries in Poland and Ukraine. The allegations raise issues involving potential improper payments in connection with governmental approvals, permits, or other regulatory areas and possible conflicts of interest. The Company’s review, which the Company considers to be substantially complete, has been supervised by the Audit Committee of Affinia’s Board of Directors and has been conducted with the assistance of outside professionals. Affinia voluntarily self-reported on these matters to the U.S. Department of Justice and the U.S. Securities and Exchange Commission and has cooperated fully with the U.S. government. No determination may yet be made as to whether, in connection with the circumstances surrounding the review, Affinia may become subject to any fines, penalties and/or other charges imposed by any governmental authority, or any other damages or costs that may arise in connection with those circumstances.”

For the Reading Stack

An informative read here by Eric Carlson (Covington & Burling)  regarding the Chinese fapiao, a form of receipt that is often used in connection with various fraudulent practices.

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A good holiday weekend to all.

If Only The Supreme Court Had Accepted Cert In The “Foreign Official” Challenge

Wednesday, March 4th, 2015

If OnlyAs highlighted here, here and here, last Fall the Supreme Court had the opportunity to correct the 11th Circuit’s flawed interpretation of the important “foreign official” element of the FCPA’s anti-bribery provisions in U.S. v. Esquenazi.

As highlighted here, the Supreme Court declined the opportunity to hear the case.

If only the Supreme Court had accepted cert the likely outcome would have been similar to last week’s Supreme Court decision in Yates v. U.S. in which the court reversed the 11th Circuit’s flawed statutory interpretation of Sarbanes Oxley in the (in)famous are “fish” a “tangible object” case.

The issues addressed by the Supreme Court in Yates were very similar to the issues the Court was asked to address in Esquenazi.

Indeed, the 11th Circuit’s flawed interpretation in Esquenazi was even more egregious because, as highlighted in my amicus brief, (i) competing versions of the FCPA Congress considered yet rejected, specifically included state-owned or state-controlled enterprise (SOE) concepts; and (ii) laws passed both before the FCPA and after the FCPA contain the term “instrumentality” as well as SOE concepts.

Despite the compelling arguments made for cert in Esquenazi, the Foreign Corrupt Practices Act community was left pondering what if (and because of how the DOJ and SEC have chosen to enforce the FCPA will likely be asking what if for some time).

The what if was likely answered by the Court in Yates and the below post highlights excerpts from the majority opinion written by Justice Ginsburg.

“Mindful that in Sarbanes-Oxley, Congress trained its attention on corporate and accounting deception and cover-ups, we conclude that a matching construction of §1519 is in order: A tangible object captured by §1519, we hold, must be one used to record or preserve information.”

[...]

“On appeal, the Eleventh Circuit found the text of §1519“plain.” Because “tangible object” was “undefined” in the statute, the Court of Appeals gave the term its “ordinary or natural meaning,” i.e., its dictionary definition, “[h]aving or possessing physical form.”

[...]

In the Government’s view, §1519 extends beyond the principal evil motivating its passage. The words of §1519,the Government argues, support reading the provision as a general ban on the spoliation of evidence, covering all physical items that might be relevant to any matter under federal investigation.

Yates urges a contextual reading of §1519, tying “tangible object” to the surrounding words, the placement of the provision within the Sarbanes-Oxley Act, and related provisions enacted at the same time, in particular §1520 and §1512(c)(1). Section 1519, he maintains, targets not all manner of evidence, but records,documents, and tangible objects used to preserve them, e.g., computers, servers, and other media on which information is stored.

We agree with Yates and reject the Government’s unrestrained reading. “Tangible object” in §1519, we conclude, is better read to cover only objects one can use to record or preserve information, not all objects in the physical world.

[...]

The ordinary meaning of an “object” that is “tangible,”as stated in dictionary definitions, is “a discrete . . . thing,” Webster’s Third New International Dictionary 1555 (2002), that “possess[es] physical form,” Black’s Law Dictionary 1683 (10th ed. 2014). From this premise, the Government concludes that “tangible object,” as that term appears in §1519, covers the waterfront, including fish from the sea.

Whether a statutory term is unambiguous, however,does not turn solely on dictionary definitions of its component words. Rather, “[t]he plainness or ambiguity of statutory language is determined [not only] by reference to the language itself, [but as well by] the specific context in which that language is used, and the broader context of the statute as a whole.” Robinson v. Shell Oil Co., 519 U. S. 337, 341 (1997). See also Deal v. United States, 508 U. S. 129, 132 (1993) (it is a “fundamental principle of statutory construction (and, indeed, of language itself) that the meaning of a word cannot be determined in isolation, but must be drawn from the context in which it is used”). Ordinarily, a word’s usage accords with its dictionary definition. In law as in life, however, the same words, placed in different contexts, sometimes mean different things.

[...]

In short, although dictionary definitions of the words “tangible” and “object” bear consideration, they are not dispositive of the meaning of “tangible object” in §1519.

[...]

The legislative history reveals that §1512(c)(1) was drafted and proposed after §1519. See 148 Cong. Rec. 12518, 13088–13089 (2002). The Government argues, and Yates does not dispute, that §1512(c)(1)’s reference to “other object” includes any and every physical object. But if §1519’s reference to “tangible object” already included all physical objects, as the Government and the dissent contend, then Congress had no reason to enact §1512(c)(1): Virtually any act that would violate §1512(c)(1) no doubt would violate §1519 as well, for §1519 applies to “the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States . . . or in relation to or contemplation of any such matter,” not just to “an official proceeding.”5

The Government acknowledges that, under its reading,§1519 and §1512(c)(1) “significantly overlap.” Brief for United States. Nowhere does the Government explain what independent function §1512(c)(1) would serve if the Government is right about the sweeping scope of §1519. We resist a reading of §1519 that would render superfluous an entire provision passed in proximity as part of the same Act.6 See Marx v. General Revenue Corp., 568 U. S. ___, ___ (2013) (slip op., at 14) (“[T]he canon against surplusage is strongest when an interpretation would render superfluous another part of the same statutory scheme.”).

[...]

Had Congress intended “tangible object” in §1519 to be interpreted so generically as to capture physical objects as dissimilar as documents and fish, Congress would have had no reason to refer specifically to “record”or “document.” The Government’s unbounded reading of“tangible object” would render those words misleading surplusage.

Having used traditional tools of statutory interpretation to examine markers of congressional intent within the Sarbanes-Oxley Act and §1519 itself, we are persuaded that an aggressive interpretation of “tangible object” must be rejected. It is highly improbable that Congress would have buried a general spoliation statute covering objects of any and every kind in a provision targeting fraud in financial record-keeping.

[...]

Finally, if our recourse to traditional tools of statutory construction leaves any doubt about the meaning of “tangible object,” as that term is used in §1519, we would invoke the rule that “ambiguity concerning the ambit of criminal statutes should be resolved in favor of lenity.” Cleveland v. United States, 531 U. S. 12, 25 (2000) (quoting Rewis v. United States, 401 U. S. 808, 812 (1971)).That interpretative principle is relevant here, where the Government urges a reading of §1519 that exposes individuals to 20-year prison sentences for tampering with any physical object that might have evidentiary value in any federal investigation into any offense, no matter whether the investigation is pending or merely contemplated, or whether the offense subject to investigation is criminal or civil. See Liparota v. United States, 471 U. S. 419, 427 (1985) (“Application of the rule of lenity ensures that criminal statutes will provide fair warning concerning conduct rendered illegal and strikes the appropriate balance between the legislature, the prosecutor, and the court in defining criminal liability.”). In determining the meaning of “tangible object” in §1519, “it is appropriate, before we choose the harsher alternative, to require that Congress should have spoken in language that is clear and definite.” See Cleveland, 531 U. S., at 25 (quoting United States v. Universal C. I. T. Credit Corp., 344 U. S. 218, 222 (1952)). See also Jones v. United States, 529 U. S. 848, 858–859 (2000) (rule of lenity “reinforces” the conclusion that arson of an owner-occupied residence is not subject to federal prosecution under 18 U. S. C. §844(i) because such a residence does not qualify as property “used in” commerce or commerce-affecting activity).

For the reasons stated, we resist reading §1519 expansively to create a coverall spoliation of evidence statute, advisable as such a measure might be. Leaving that important decision to Congress, we hold that a “tangible object” within §1519’s compass is one used to record or preserve information. The judgment of the U. S. Court of Appeals for the Eleventh Circuit is therefore reversed, and the case is remanded for further proceedings.”

Supreme Court Declines To Hear “Foreign Official” Challenge

Monday, October 6th, 2014

As highlighted in previous posts (here, here and here), the defendants in U.S. v. Esquenazi (see here for the May 2014 11th Circuit decision) petitioned the Supreme Court to hear the case – principally on the “foreign official” issue.  As previously noted, the cert petition was believed to be the first substantive FCPA cert petition in FCPA history and was supported by amicus briefs, including my own.

This morning, the Supreme Court, which decides its own docket, released this Orders List declining to hear the “foreign official” challenge in U.S. v. Esquenazi.

Cert denial in the case means that the 11th Circuit decision stands as a final decision.  Cert denial does not mean that the Supreme Court agreed or disagreed with the 11th Circuit decision.

As noted in previous posts, the Supreme Court has never heard an FCPA case.

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The below statement may be attributed to Professor Koehler.

“The reasoning of the Supreme Court in declining to hear the petition is not known, but is likely due to the absence of a circuit split on the “foreign official” issue.  This absence is largely a result of alternative resolution vehicles used by the DOJ (and SEC) as well as other discretionary decisions by the enforcement agencies. So long as these dynamics continue, Supreme Court review of the key elements of a top-priority federal criminal statute of significant importance to all businesses and individuals engaged in international commerce is unlikely.”

Counsel for Esquenazi (Markus Funk and Michael Sink – both of Perkins Coie) offered the following statement.

“Statistically speaking, having the Supreme Court hear Mr. Esquenazi’s case was of course a long-shot.  But, as the amicus petitions highlighted, the confusion the appellate court’s ruling added to the ongoing muddle of what qualifies as an ‘instrumentality’ of a foreign government provided some hope that the Court might weigh in on this issue of great concern to the global business community.  That the Court decided to pass on the opportunity is disappointing.”

Professor Koehler Files Amicus Brief Urging Supreme Court To Hear “Foreign Official” Challenge

Thursday, September 18th, 2014

This previous post highlighted the petition for certiorari filed in the Supreme Court requesting the Court hear U.S. v. Esquenazi (the recent 11th Circuit decision of first impression in which the court concluded that certain state-owned or state-controlled enterprises  (SOEs) can be “instrumentalities” of a foreign government such that employees of SOEs can be “foreign officials” under the FCPA).

Yesterday, my counsel Russell Ryan and Brandt Leibe (both of King & Spalding) filed this amicus brief in support of Petitioners as to Question 1 of the Petition (the “foreign official” issue).

Under the heading “Introduction and Summary of Argument,” the brief states:

“The Petition presents this Court, for the first time in the FCPA’s thirty-seven year history, with the opportunity to construe a key element of a top-priority federal criminal statute of significant importance to all businesses and individuals engaged in international commerce.

The issue presented in Question 1 of the Petition is whether a state-owned or state-controlled enterprise (“SOE”) can constitute an “instrumentality” of a foreign government as that term is used in the FCPA. If so, as the Court of Appeals held, employees of SOEs could qualify as “foreign officials” under the FCPA’s anti-bribery provisions such that anything of value offered or provided to them to obtain or retain business could violate the FCPA’s criminal anti-bribery provisions.

The FCPA defines a “foreign official” as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization.” The FCPA’s legislative history indicates that Congress did not intend that statutory term to include employees of SOEs. In the legislative process that ultimately produced the FCPA, Congress specifically considered competing bills that would have included employees of SOEs as “foreign officials” yet rejected those definitions in the version of the FCPA it enacted.

The proper scope and meaning of the “foreign official” element of the FCPA’s anti-bribery provisions is an issue of extraordinary practical significance as it affects all businesses and individuals engaged in international commerce. The FCPA’s criminal anti-bribery provisions prohibit certain business conduct with “foreign officials,” but those prohibitions do not apply to conduct that does not involve a “foreign official.” Thus, it would not violate the FCPA to offer or provide something of value to a private customer, but offering or providing the same to a “foreign official” could be a crime. Consequently, drawing the line between individuals who could qualify as “foreign officials” and those who could not is critically important in a wide range of international business interactions.

An issue that has developed so little in the lower courts would not ordinarily satisfy the criteria for this Court’s review. However, the way FCPA enforcement actions are resolved makes it unlikely that lower courts will often consider this issue in the foreseeable future. The vast majority of FCPA investigations are resolved through out-of-court settlements including non-prosecution agreements (“NPAs”), deferred prosecution agreements (“DPAs”), and other administrative settlements not subject to judicial scrutiny. As a result, courts rarely construe the FCPA. The court below was the first Court of Appeals to address this statutory issue since Congress first enacted the FCPA thirty-seven years ago. Given these dynamics, there is little reason to believe that other federal appellate courts will examine this issue in the foreseeable future. Yet the Eleventh Circuit’s erroneous interpretation of the statute is likely to affect numerous future FCPA enforcement actions — negotiated and resolved in the absence of judicial scrutiny and in the shadow of scant precedent interpreting the FCPA — and thus the conduct of countless businesses and individuals subject to the FCPA.

The Eleventh Circuit’s interpretation of the statute was erroneous. The decision below failed to consider the enacting legislative history of the provisions it construed. It instead mistakenly relied on amendments enacted more than twenty years later and mistakenly concluded that those amendments were intended to bring the FCPA into strict conformity with the OECD.

The Eleventh Circuit’s express reliance on amendments to the FCPA in 1998 is flawed in at least two respects. First, the 1998 amendments to the FCPA are, on their face, irrelevant to the statutory-interpretation question at issue in this case because those amendments did not modify the portion of the “foreign official” definition in question here. Second, contrary to the Eleventh Circuit’s conclusion, the 1998 amendments did not fully conform the FCPA to the OECD Convention. Because they did not conform the FCPA to the OECD Convention, the amendments the Eleventh Circuit relied upon do not support the conclusion that the FCPA’s “foreign official” element includes employees of SOEs.

Amending a key element of a top-priority federal criminal statute of such significance to international commerce is not properly accomplished through a process of judicial inferences about the supposed purpose of subsequent, unrelated statutory amendments. Rather, actual legislative action is required to amend the FCPA. If Congress wished to include employees of SOEs in the statutory definition of “foreign official,” it easily could have done so — when enacting the FCPA in 1977, when amending the FCPA in 1998, or on any other occasion. Congress has expressly included employees of SOEs in similar statutory definitions contained in other legislation passed both before and after the enactment of the FCPA. Similarly, the legislative bodies of several signatory countries to the OECD Convention have taken specific legislative action to include SOEs and related concepts in their comparable anti-corruption legislation.”

Last week, as highlighted in this post, the Washington Legal Foundation and the Independence Institute joined to file an amicus brief in support of Petitioners as to Question 1 of the Petition (the “foreign official” issue).

Amicus Brief Filed Urging The Supreme Court To Hear “Foreign Official” Challenge

Tuesday, September 16th, 2014

This previous post highlighted the petition for certiorari filed in the Supreme Court requesting the Court hear U.S. v. Esquenazi (the recent 11th Circuit decision of first impression in which the court concluded that certain state-owned or state-controlled enterprises  (SOEs) can be “instrumentalities” of a foreign government such that employees of SOEs can be “foreign officials” under the FCPA).

Last week, the Washington Legal Foundation and the Independence Institute joined to file this amicus brief in support of Petitioners as to Question 1 of the Petition (the “foreign official” issue).

Under the heading “Summary of Argument,” the brief states as follows.

“This case presents an issue of exceptional importance to the business community. Although the FCPA was adopted nearly 40 years ago, the statute has  been the subject of remarkably few court decisions. The result is that there is very little definitive guidance regarding the statute’s meaning that can assist businesses in avoiding criminal violations, yet they are urgently in need of such guidance in light of the significant increase in FCPA enforcement activity during the past decade.

The issue raised by this case—who are the “foreign officials” to whom the FCPA restricts payments?—is the single greatest source of confusion regarding the scope of the FCPA. Until the Eleventh Circuit ruled in this case, no federal appeals court had addressed that issue. Moreover, amici are unaware of any other cases in the appellate pipeline that raise the issue. The reason for the dearth of cases is readily apparent. Although federal prosecutors have initiated numerous FCPA proceedings in recent years, every large business entity against which a proceeding was initiated has entered into a settlement agreement. In light of the huge negative consequences that would befall any company that contested and lost an FCPA case, businesses are categorically unwilling to challenge in court government assertions that payments it made violated the FCPA. Given the absence of any case law, review is urgently needed to provide the business community with concrete guidance regarding the FCPA’s definition of a “foreign official” (and the subsidiary term “instrumentality”). In the absence of such guidance from this Court, businesses will have to navigate these unsettled waters with only the negligible guidance provided by the decision below—with very little likelihood that other appeals courts will weigh in any time soon. The Eleventh Circuit’s guidance is thin indeed; by stating explicitly that its list of relevant factors is non-exclusive, the appeals court leaves American businesses to guess at when a corporation whose controlling shareholder is a foreign government will be deemed an “instrumentality” of that government for FCPA purposes.

Review is also warranted because the court below has adopted a definition of “instrumentality” that is far broader than anything set forth in the FCPA. The Eleventh Circuit’s definition is inconsistent with the language of § 78dd-2(h)(2)(A) as well as the overall structure of the FCPA. In particular, because the word “instrumentality” appears in conjunction with the  words “department” and “agency,” the maxim noscitur a sociis (a word is known by the company it keeps) calls into doubt the Eleventh Circuit’s decision to include entities within the definition of “instrumentality” that bear little resemblance to the common understanding of a government “department” or “agency.”

The appeals court’s definition is also inconsistent with Congress’s and this Court’s use of the term “instrumentality” in other contexts. In particular, the Court has never used that term in conjunction with a corporation that was not created by the government itself and where the government merely acted in a manner consistent with its (temporary) role as a majority shareholder.

The appeals court’s decision is particularly problematic because it arises in a criminal law context in which an individual’s good-faith disagreement with a prosecutor’s interpretation of a statutory term can (and did here) result in imposition of a lengthy prison term.  The Eleventh Circuit conceded that the word “instrumentality” is capable of multiple meanings. It adopted an extremely broad definition of the term, and at the same time it heightened potential uncertainty by insisting that whether a particular entity is an “instrumentality” of a foreign government is a question of fact to be determined by the jury. Indeed, the universal response among defense lawyers was that the decision left the issue even more muddled than it had been previously. The U.S. Department of Justice has declined to exercise the full extent of its authority to provide safe-harbor guidance that would reduce the level of uncertainty. As a result, the competitiveness of American businesses in overseas markets suffers when companies refrain from engaging in legal activities out of a fear that they might expose themselves to FCPA liability. Review is warranted to resolve that constitutionally intolerable level of uncertainty.

The United States has waived its right to respond to the Petition, perhaps in an effort to signal to the Court that the issues raised are unimportant and thus that review should be denied. The United States cannot in good faith assert that the issues raised herein are not of paramount importance. The principal question raised by the Petition (who qualifies as a “foreign official” for purposes of FCPA payment restrictions?) is at issue in a significant number of the numerous recent FCPA investigations, yet this is the first occasion the question has reached the appellate level, and there is little likelihood that the question will again reach this Court in the foreseeable future. At the very least, the United States ought to be directed to file a response and  explain why it believes that the case is unworthy of the Court’s attention.”