Archive for the ‘China’ Category

Friday Roundup

Friday, August 29th, 2014

Some reading material to keep you occupied and engaged over the three-day holiday weekend.

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This recent Wall Street Journal article is about China’s recent antitrust crackdown, but the same could perhaps be said about China’s recent corruption crackdown against foreign multinationals doing business in China.

“The fact that regulators are going after allegedly dubious practices by multinationals isn’t what bothers trade officials at Western embassies in Beijing, even if they suspect that the probes sometimes have the effect of strengthening Chinese state-owned competitors.

What concerns them the most is the heavy-handed way that investigations are being pursued—and highly charged media coverage that makes for a troubling atmosphere for Western companies.

Foreign executives have learned two early lessons from the antitrust probes. First, the law provides little refuge. The message that the National Development and Reform Commission, the government agency that sets pricing rules, delivers in private to multinationals at the outset of a price-fixing investigation is not to bring in their foreign lawyers, according to numerous accounts by foreign executives, diplomats and lawyers themselves.

The second lesson is connected to the first: Resistance is futile. There’s scant need for lawyers when companies face a choice of either bowing to demands for quick remedies or becoming involved in a protracted wrangle with regulators in what is still a state-dominated economy. In almost every antitrust case launched so far, foreign companies have capitulated without a fight.

Voluntary price cuts of up to 20% are the norm, accompanied by board-level expressions of remorse and promises to do better.

And these cuts are offered at the very outset of investigations—and, sometimes, to get ahead of them. Chrysler described its abrupt decision to slash car-part prices as a “proactive response” to the price-fixing probe as it got under way. These price-fixing investigations have been accompanied by heated nationalistic rhetoric in the state media with antiforeign overtones. Taking down multinationals a peg plays well among the large sections of the public that view them as arrogant.”

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The always informative Debevoise & Plimption FCPA Update is particularly stellar this month.  It contains articles about the recent Wal-Mart – investor dispute in the Delaware Supreme Court as well as the recent settlement in SEC v. Jackson & Ruehlen.

Wal-Mart Delaware Action

The Wal-Mart Delaware action remains in my mind much to do about little at least as to the monumental corporate governance issues some had hoped for.

Nevertheless, the FCPA Update makes several valid points about the decision.

“In the wake of Wal-Mart, stockholders in future cases are likely to raise questions about the ways in which investigations have been conducted to see whether those questions also provide a “colorable basis” for seeking a broad range of investigative records. Companies that conduct investigations, therefore, will want to structure the investigation from the outset in a way that limits the ability of shareholders to assert that it was done improperly or otherwise may give rise to any legitimate shareholder concern. This, in turn, will place a premium on early decisions about who should conduct the review, who should supervise the review and the scope of the inquiry. Those decisions, which are generally made before any review has been conducted and based upon limited information, are sure to get close scrutiny from stockholders and should be undertaken with the utmost deliberation and care.”

SEC v. Jackson & Ruehlen

This previous post highlighted the recent settlement in SEC v. Jackson & Ruehlen and noted that the SEC, a law enforcement agency with merely a civil burden of proof, was never able to carry its burden and this was among other reasons why the SEC’s case against Jackson and Ruehlen failed – and yes – this is the only reasonable conclusion to be drawn from the settlement.

The FCPA Update states:

“In the realm of FCPA enforcement, where the vast majority of cases are settled before the filing and litigation of formal  charges, it is often hard to compare the outcomes of early and eve-of-trial or post-trial settlements in any meaningful way. The Noble case, however, provides  a rare opportunity to engage in such a comparison, not only because it was litigated by the SEC farther than almost any other FCPA case has been, but also because it involved both pre-and post-litigation settlements for individual defendants based on charges arising out of the same series of events.

In February 2012, the U.S. Securities and Exchange Commission (“SEC”) charged three executives of Noble Corporation with violating various provisions of the FCPA and related laws in the course of their interactions with public officials in Nigeria’s energy sector. One of these defendants, Thomas O’Rourke, promptly settled with the SEC, accepting permanent injunctions against future violations as to every count on which he was charged, and agreeing to pay a $35,000 civil penalty.

The remaining individual defendants, Mark Jackson and James Ruehlen, decided to litigate. On July 2, 2014 – less than a week before trial was to start and after more than two years of litigation – the SEC settled with these two defendants. Although Jackson and Ruehlen agreed to be enjoined from future violations of the books and records provision of the FCPA, the settlements in their matters were notable in that the vast majority of the charges in the initial complaint, including the bribery charges, were conspicuously absent from the settlements, and no monetary penalties were imposed.

Although the Noble case offers just one data point, the outcomes for the three defendants raise important questions about both the difficulties of litigating these types of cases for the SEC and the potential advantages of declining pre-trial settlement for would-be defendants. In addition, the SEC’s litigation strategy in these cases highlights some possible problems with the expansive interpretation of the FCPA that the SEC and the Department of Justice (“DOJ”) have advanced in recent FCPA cases. These problems, highlighted in the District Court’s refusal to accept the SEC’s interpretation on certain key issues, such as the scope of the facilitation payments exception, as well as the concrete impact of the U.S. Supreme Court’s Gabelli decision (133 S. Ct. 1216 (2013)) in gutting large portions of the SEC’s claims for penalty relief, will doubtless affect future litigation, as well as the “market” for SEC (and in certain respects, DOJ) settlements for years to come. But at the same time, the SEC’s losses on these key issues, which drove the favorable settlements with Jackson and Ruehlen, could well incentivize the SEC to dig deeper, and earlier, for the evidence needed to sustain its burdens in FCPA matters.”

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The Economist states – in a general article not specific to the FCPA – that “the [U.S.] legal system has become an extortion racket.” According to the article,

“[J]ustice should not be based on extortion behind closed doors. The increasing criminalisation of corporate behaviour in America is bad for the rule of law and for capitalism.  [...] Perhaps the most destructive part of it all is the secrecy and opacity. The public never finds out the full facts of the case, nor discovers which specific people—with souls and bodies—were to blame. Since the cases never go to court, precedent is not established, so it is unclear what exactly is illegal. That enables future shakedowns, but hurts the rule of law and imposes enormous costs.”

In the FCPA context, see here for my 2010 article “The Facade of FCPA Enforcement.

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A series of informative posts here, here, here and here from Thomas Fox (FCPA Compliance and Ethics Blog) regarding risk assessment.

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A good weekend to all.

Friday Roundup

Friday, August 22nd, 2014

The FCPA in the hallways, Super Bowl bribery, no FCPA charges, quotable, survey says, FCPA reform advocate nominated to the federal bench, interesting homework assignment, scrutiny alert, and for the reading stack.  It’s all here in the Friday roundup.

FCPA in the Hallways

Avon’s FCPA scrutiny brought the FCPA to main street.  News Corp.’s and Wal-Mart’s FCPA scrutiny generated world-wide media coverage.  Will the FCPA next become the topic of discussion in middle school and high school hallways across America?

According to this TMZ report:

“A Canadian border official has been fired for allegedly accepting a $10,000 bribe in return for allowing members of Justin Bieber’s entourage with criminal records to enter Canada. Bieber’s camp reportedly gave a female officer at the Niagara Falls border thousands of dollars in backstage passes to get members of his posse into the country while he performed. Canada has a strict policy on not allowing people with certain types of criminal records to enter. It’s unclear when the alleged bribes went down … but Justin performed 2 shows in Toronto last year. The accusations surfaced after more of Bieber’s friends allegedly showed up at the border looking for the same special treatment — and the officers on duty blew the whistle. The Canada Border Services agency reportedly circulated an internal memo reminding officers not to take bribes … and to rat out anyone who does.”

In case you are wondering, there have been several FCPA enforcement actions in recent years concerning alleged payments to customs, immigration and other regulatory officials in connection with a business purpose broadly speaking.

Super Bowl Bribery?

Providing money or other things of value to a person or entity to influence the discretionary acts of that person or entity in connection with a business purpose is bribery … is it not?

Yet, according to this Wall Street Journal article, the above may determine which artist receives the coveted Super Bowl half-time performance slot.  According to the article, the NFL “has asked artists under consideration for the high-profile gig to pay to play” including whether the artists “would be willing to contribute a portion of their post-Super Bowl tour income to the league, or if they would make some other type of financial contribution, in exchange for the halftime gig.”

According to the article, the NFL’s only goal is to “put on the best possible show.”

No FCPA Charges

It is sometimes perplexing why certain alleged conduct results in Foreign Corrupt Practices Act charges, whereas other alleged conduct – clearly implicating the FCPA – does not result in FCPA charges.

Case in point, the recent DOJ prosecution of Alisa Bivens, a U.S. citizen and former foreign program director of International Adoption Guides Inc. (IAG – a South Carolina company).  (See here for the DOJ release).  Bivens recently pleaded guilty to defrauding the U.S. in violation of 18 U.S.C. 317.  As noted in the DOJ release:

“Bivens admitted as part of her plea that she and her co-conspirators submitted fraudulent documents to the State Department to facilitate adoptions of Ethiopian children by U.S. parents from 2006 until 2009.  In support of U.S. visa applications for the Ethiopian children, Bivens and others submitted false documentation, including contracts of adoption signed by orphanages that could not properly give the children up for adoption because, for example, the child in question was never cared for or never resided at the orphanage.”

The DOJ release further states:

“In entering her guilty plea, Bivens also admitted that she and others paid bribes to two Ethiopian officials so that those officials would help with the fraudulent adoptions.   The first of these two foreign officials, an audiologist and teacher at a government school, accepted money and other valuables in exchange for providing non-public medical information and social history information for potential adoptees to the conspirators.   The second foreign official, the head of a regional ministry for women’s and children’s affairs, received money and all-expenses-paid travel in exchange for approving IAG’s applications for intercountry adoptions and for ignoring IAG’s failure to maintain a properly licensed adoption facility.”

Quotable

U.S. Ambassador to China Max Baucus recently delivered this speech to the APEC Network of Anti-Corruption Authorities and Law Enforcement Agencies.  Ambassador Baucus stated:

“The Obama Administration takes a firm stand against American and foreign companies that engage in bribing foreign officials to obtain or retain business.  Other economies here do this as well. In the United States, one of the most effective tools we use to combat corruption is enforcement of the Foreign Corrupt Practices Act.  We pursue corruption at many levels:

  • corporations, both big and small;
  • everyone from sales agents to CEOs;
  • U.S. and foreign companies;
  • citizens and foreign nationals; and
  • direct payers and intermediaries.

Since 2009, the U.S. Department of Justice has taken in $3.4 billion from criminal fines, penalties and forfeitures. And the U.S. Securities and Exchange Commission has seized another $1 billion of profits obtained by illegal or unethical acts over the last ten years.  As a result, more American companies have changed the way they do business.  Companies are now more willing to voluntarily disclose corrupt behavior and report on solicitations for bribes.”

The last sentence of course is debatable.

Even so, what is not debatable is the following from Ambassador Baucus – “we need to adopt international best practices of transparency and rule of law” in the fight against corruption.

U.S. officials preach this virtue abroad, yet the reality is we need to work on these virtues here at home as well.

As to the rule of law, and as noted in this speech by former Federal Reserve Chairman Paul Volcker who was the keynote speaker at the International Bar Association’s annual conference:

“There is frank recognition that the combination of a weak rule of law and corruption is not only economically debilitating, but threatening the political health of both new and old democracies. I do not exclude the United States. We think of ourselves as exemplars of the rule of law. We are certainly world champions in the extent of legislation and regulation governing bribery, conflicts of interest, procurement procedures, campaign financing, protection of human rights and most of all, transparency. All of these are ingredients of what some think of as the rule of law. But we still face the sad fact that in the United States itself, only a quarter of Americans believe that corruption is not widespread in our country. My feeling is that the impression of serious corruption has increased further, a reflection largely of the concern that campaign financing has come to gravely distort the political process. Should we be satisfied that we live with a really effective rule of law, when the perceived need for heavy campaign spending has come to dominate our political process? We let those financing practices infringe in a very basic way upon the rule of law, with its sense of even-handedness and openness. Does it not breed behaviour that is accomplished by any reasonable definition of corruption?”

Survey Says

PwC’s 2014 State of Compliance Survey asked:  ”Please select your top 3 areas in terms of current perceived level of risk to your business.”  The most popular responses from survey participants were:

  • Industry-specific regulations – 31%
  • Privacy and confidentiality – 25%
  • Bribery/corruption – 22%

FCPA Reform Advocate Nominated to the Federal Bench

Earlier this week, President Obama announced his intent to nominate Haywood Stirling Gilliam, Jr. (Vice-Chair of Covington & Burling’s White Collar Defense and Investigations practice group) to serve on the United States District Court for the Northern District of California.

As noted in this previous post, in a 2013 Law360 Q&A Gilliam was asked “what aspects of your practice area are in need of reform and why?” and he stated:

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

Interesting Homework Assignment

Professors are supposed to give homework, not receive homework.

Yet, as highlighted in this Corporate Crime Reporter article, Professor Brandon Garrett (UVA) recently received a homework assignment from a federal court judge.

The assignment:  “to appear in [a] case as an amicus curiae for the limited purpose of providing the Court with advocacy on questions regarding the scope of the Court’s authority, if any, to consider the fairness and reasonableness of a deferred prosecution in deciding whether to accept or reject such an agreement.”

As noted in the Corporate Crime Reporter article, the DPA is between the DOJ and Saena Tech, a defense contractor and grew out of a domestic bribery investigation.

To say the least, I look forward to reviewing Professor Garrett’s homework and so should you.

Scrutiny Alerts

Och-Ziff

Bloomberg goes in-depth in this article “The Hedge Fund and the Despot” concerning Och-Ziff’s relationships in Zimbabwe and the company’s overall scrutiny.

Barclays

Previous posts (here) have detailed Barclay’s scrutiny on both sides of the Atlantic regarding its business relationships with various Middle Eastern investors.

Reuters reports

“Britain’s fraud prosecutor could decide as soon as next month whether to charge former Barclays executives over undisclosed payments the bank made to Qatari investors in 2008.”

According to the article, “U.S. authorities are also investigating the same Barclays’ Qatari commercial agreements and whether third-party relationships breached anti-bribery rules.”

Reading Stack

From Bloomberg, an in-depth look at  the Libyan Investment Authority (LIA) and its relationships with various companies in the financial services industry which has resulted in FCPA scrutiny.

Informative article here titled “Land of Confusion:  Insurance Coverage for Pre-Suit FCPA Investigation Costs Under D&O Liability Policies.”

An interesting front-page read here from the Wall Street Journal regarding China’s anti-corruption crackdown.

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A good weekend to all.

What Zhou Yongkang and a Disgruntled Cab Driver Illustrate About China’s Anti-Corruption Campaign

Monday, August 11th, 2014

Today’s post is from Russell Menyhart (Taft Stettinius & Hollister).  Prior to joining Taft, Menyhart served nine years as a diplomat with the U.S. State Department.  He was Political Unit Chief at the U.S. Consulate in Shanghai from 2011-2014, and also served in Beijing, Buenos Aires, and Washington DC.

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What Zhou Yongkang and a Disgruntled Cab Driver Illustrate About China’s Anti-Corruption Campaign

By Russell Menyhart

China’s anti-corruption campaign is back in the headlines with the announcement that former Politburo Standing Committee member and Communist Party strongman Zhou Yongkang is under investigation for corruption.  Traditionally, Party elders are considered untouchable, but in this case I doubt any of the Communist Party’s 86 million members were surprised by the announcement.  Rumors have flown about Zhou being a target since General Secretary Xi Jinping started the campaign in late 2012.

One view is that China’s anti-corruption campaign is simply a means for Xi to pursue political vendettas, as previous anti-corruption campaigns have been used in this way. But during the last three years I spent talking to people in East China, I became convinced that the new Communist Party leadership—especially Xi and Politburo Standing Committee member Wang Qishan—realized that corruption undermined their claim to legitimacy and had become an existential threat to the Communist Party.

I first believed the anti-corruption campaign was more than just politics not when a Vice Governor or PLA general was taken down, but when a cab driver in Hangzhou, a prosperous provincial capital, complained to me about the campaign in January 2013.  He explained that January was usually his most profitable month, as he was kept busy delivering expensive Chinese New Year gifts from hotels and restaurants to government offices all across town.  “But now they aren’t sending gifts anymore, so I don’t have any work!” he complained.  An entire industry of corruption was being undercut by the campaign.  Shortly thereafter a contact told me a tourism bureau official complained that he hadn’t been taken out to dinner for months, and Communist Party members told me of officials being forced to reach into their own pockets to pick up the tab at a sumptuous banquet after a warning phone call from Beijing.

This campaign absolutely should not be mistaken for an inclination towards real rule of law in China.  It is a political move to tighten the Party’s internal controls and consolidate power (and sadly has been accompanied by a brutal anti-rule of law crackdown on political activists).  But it appears to be a long-term change attempting to solidify Communist Party control, not just a short-term wiping out of select opponents.  In the long run it should benefit U.S. companies, who already have strong internal anti-corruption controls due to the need to adhere to the FCPA.  In fact, in some ways it validates the views of those who argued for passage of the FCPA 37 years ago on grounds that it would actually increase U.S. competitiveness abroad.  If you are feeling the need to reinforce or double-check your company’s anti-corruption policies, imagine how much your counterpart at a Chinese state-owned enterprise is scrambling to get up to the same standard!

One hot topic for discussion has been whether China’s anti-corruption campaign is targeting foreign companies.  The main state-run English language paper in Shanghai published an article in April entitled “Anti-corruption net has no holes for foreigners.” Domestic media cannot publish anything without Communist Party approval, and publishing such an article in the English-language paper showed intent to warn foreign companies.  But my contacts maintain that the intent is to pursue prominent entities—foreign or domestic—to send the message that no one is immune.  Major state-owned enterprises and powerful Chinese businesspeople have also been pursued.  That said, investigating a foreign company with wide-spread brand recognition is a powerful symbol to other businesses—just as investigating a former top leader like Zhou Yongkang sends the message within the Communist Party ranks.  So foreign companies are well-advised to tighten their own internal controls—and keep checking the screws at regular intervals.

U.S. companies should also anticipate how to handle the requirements of both Chinese law and the FCPA, particularly if they have operations outside of the main cities.  Lawyers who feel comfortable dealing with an investigation by officials in Beijing or Shanghai blanch at handling the same case in Lanzhou or Bengbu, because local Administration for Industry and Commerce (AIC) officials are said to sometimes allege violations of anti-bribery and other laws (such as false advertising) without always stating clearly the legal and factual basis.  Chinese lawyers have told me local AIC officials are used to Chinese companies negotiating reduced fines as a quick way to resolve such cases.  But foreign companies must be careful to avoid payments that could be seen as bribing local officials to close an investigation, and thereby possibly violating the FCPA.

Companies with operations in China should also increase due diligence of local partners and localized training on domestic Chinese law.  FCPA compliance is not enough.  Chinese law has criminal and administrative penalties for commercial bribery, so dealings with private entities need to be examined as carefully as those with state officials.  Ideally a compliance program will not complicated things for local staff by asking them to determine if they are dealing with a state official—just focus on making them aware of what actions are defined as bribery and are therefore illegal.  Have rules that make it easy for your employees.  For example, some companies have completely banned the use of gift cards—whether to suppliers, customers, or inside the company—because they are such a common form of bribery in China.

Xi may be using China’s anti-corruption campaign to consolidate power and eliminate other factions in the Communist Party (which he appears to be doing very effectively), but the campaign is broader than that.  While unfortunately it does not appear to indicate an interest in adopting the rule of law, it ultimately should result in a cleaner business environment.  That will benefit U.S. companies that already have strong FCPA compliance schemes.

“Friday” Roundup

Thursday, July 3rd, 2014

On the brink of trial, statistics of note, the over-hyped U.K. Bribery Act turns 3, say what?, and for the reading stack.  It’s all here in a special Thursday edition of the Friday roundup.

On The Brink of Trial

This February 2012 post highlighting the SEC’s enforcement action against Mark Jackson and James Ruehlen (a former and current executive of Noble Corp. respectively) asked – “will the SEC be put to its burden of proof.”  Among other things, the post noted that the SEC has never prevailed in an FCPA enforcement action when put to its burden of proof.

With the passage of time, the SEC’s case against the defendants was consistently trimmed as the SEC attempted to meet its burden (see this post as well as here).  Among other things, a portion of the SEC’s claims were dismissed or abandoned on statute of limitations grounds and the trial court judge ruled, in an issue of first impression, that the SEC has the burden of negating the FCPA’s facilitation payments exception.

On the brink of the SEC’s first-ever FCPA trial (trial was scheduled to begin next week), the parties have agreed to settle.

Without admitting or denying the SEC’s allegations, Jackson consented to a final judgment permanently restraining and enjoining him from violating the FCPA’s books and records provisions.  Jackson was represented by, among others, David Krakoff (Buckley Sandler).  In a release, Krakoff stated:

“We are very pleased with today’s settlement.  It resolves allegations that have hung over Mr. Jackson for many years without any admission of liability, without any payment of money and without any restriction on Mr. Jackson’s future employment opportunities.  Mr. Jackson can now move forward with his life and career.”

Without admitting or denying the SEC’s allegations, Ruehlen consented to a final judgment permanently restraining and enjoining him from aiding and abetting FCPA books and records violations.  Ruehlen was represented by, among others, Joseph Warin and Nicola Hanna (Gibson Dunn).  In a release, Warin stated:

“We are very pleased with yesterday’s settlement.  Mr. Ruehlen is an exemplary and dedicated employee who first brought the allegations to light and fully cooperated with the SEC’s investigation.  While we were looking forward to presenting our case to a jury, the settlement of one record-keeping claim – without any admission of liability or wrongdoing, monetary penalty, or restriction on Mr. Ruehlen’s employment – satisfactorily ends the matter and allows Jim to focus his energies on his work for Noble.”

In neither consent is Jackson or Ruehlen required to pay any civil fine.

Score this one as you see fit, but my take is that this case represents yet another SEC failure in an FCPA enforcement action when put to its burden of proof.  As the Second Circuit recently recognized, SEC neither admit nor deny settlements are not about the truth, but pragmatism.

Statistics of Note

EY recently released its 13th annual Global Fraud survey (the results were based on interviews with more than 2,700 executives across 59 countries).  Statistics of note include the following.

“Despite the aggressive enforcement environment, our research suggests that the percentage of companies that have anti-bribery/anticorruption (ABAC) policies has increased by only 1% over the past two years, and a persistent minority has yet to take even the basic steps toward an effective compliance program.  One in five businesses still does not have an ABAC policy.  Less than 50% of respondents have attended ABAC training.  There has been a reduction in the level of reporting on compliance issues to boards.”

“The survey results show that executives in different roles have a differing view of the level of risk.  27% of chief compliance officers (CCOs) believe bribery and corrupt practices happen widely in their country versus 38% of all respondents — so they appear to have a more optimistic view than their colleagues.  18% of sales and marketing executives believe it is common practice to use bribery to win contracts in their sector versus 12% of all respondents — so they appear to have a more pessimistic view than their colleagues.”

“Additionally, the survey results suggest that compliance efforts may not always be targeting the right risks in the most effective way.  Less than a third of businesses are always or very frequently conducting anti-corruption due diligence as part of their mergers and acquisitions process.  45% of organizations are not mitigating risks by introducing a whistleblower hotline.  ABAC training is less likely to occur in jurisdictions where there is a higher perceived risk of bribery. Sales and marketing executives are the least likely of all our respondents to be included in risk assessments — despite being exposed to and aware of significant risks.  ABAC training, for example, is more likely to be attended by executives in mature markets, where corruption is perceived to be lower, than in higher-risk emerging markets. Of the survey population, 58% of respondents in developed markets had received ABAC training, compared with just 40% in emerging markets.”

Consistent with the observation in this recent post, these survey results again ought to prompt questions whether the current approach to enforcement – as well as enforcement policy – are effective.

Bribery Act Turns 3

The U.K. Bribery Act, a massively over-hyped law when it was being proposed and went live, has turned three.  On the day it went live, I offered the following two cents.

“As with any new law, there is likely to be a learning phase for both the enforcement agencies and those subject to the law. That was certainly the case in the U.S. in the years following passage of the FCPA in 1977. Thus, it very well may be the case that there are no enforcement actions for some time (recognizing that it often takes a few years from beginning of an inquiry to resolution of an action). Thus the greatest immediate impact of the Bribery Act is sure to be the compliance ethic it inspires. I expect that the enforcement actions that may develop over time to focus on egregious instances of corporate conduct on which no reasonable minds would disagree. I do not get the sense, based on public comments of the Ministry of Justice and the Serious Fraud Office, that the envelope will be pushed too far in the early years of the Bribery Act.”

Indeed, there has yet to be an “FCPA-like” Bribery Act enforcement action.  This troubles Transparency International – see here.

Say What?

Speaking of the Bribery Act, this is from “The Lawyer” regarding corruption allegations at FIFA and the ability of the U.K. Serious Fraud Office to bring an enforcement action against FIFA sponsors.

“Section 7 [of the U.K. Bribery Act] is entitled “Failure of commercial organisations to prevent bribery”. Its reach is as global as the World Cup. The fact that Fifa is a Zurich-based NGO does not mean it’s offside. Similarly for the sponsors so long as some aspect of their business is carried out in the UK. A single sale of an Adidas football boot via a Visa credit card is sufficient for David Green [Director of the SFO] to apply to the courts for search warrants in order to unleash dawn raids on their UK HQs.”

Regarding the italicized portion … say what?

For the Reading Stack

See here for the always informative Debevoise & Plimpton FCPA Update.  Regarding the Second Circuit’s recent decision in SEC v. Citigroup, the Update states:

“For companies subject to the SEC’s authority to enforce the FCPA, the Second Circuit’s decision in the Citi matter provides some comfort that a corporate resolution requiring judicial approval, once achieved, should be subject to appropriate deference when it comes before a district court for review. At the same time, however, the decision also reinforces the understanding that resolutions achieved by settlement, even if approved by a court, do not constitute legal precedent.”

An interesting read here from the BBC regarding “contemporary business culture” in China.

“Chinese workplaces are just as political as those anywhere else in the world, some would argue more so because the value placed on outward harmony in Chinese culture drives the rivalry underground. [...]  The politics in a multinational’s China operation can be especially insidious when there’s a thin layer of western management attempting to operate according to principles which have limited purchase in the Chinese business culture beneath.”

Aboard the “bribery express” – from Eurasianet.

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A Happy Independence Day to U.S. readers and a good weekend to all.

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.