Archive for the ‘Compliance’ Category

Issues To Consider From The Bristol-Myers Enforcement Action

Thursday, October 8th, 2015

IssuesThis recent post highlighted the SEC’s FCPA enforcement action against Bristol-Myers.

This post continues the analysis by highlighting various issues to consider from the enforcement action.

False and Misleading SEC Release

The SEC routinely brings enforcement actions against companies for false and misleading public statements.

Pardon me for being the stickler, but the first paragraph of the SEC’s press release announcing the Bristol-Myers action is false and misleading. It states:

“The Securities and Exchange Commission today announced that New York-based pharmaceutical company Bristol-Myers Squibb has agreed to settle charges that its joint venture in China made cash payments and provided other benefits to health care providers at state-owned and state-controlled hospitals in exchange for prescription sales.”

The above is false and misleading because the only charges that the SEC brought against Bristol-Myers (BMS) were the following as stated in the SEC’s order:

“BMS, through the actions of certain BMS China employees, violated [the FCPA's books and records provisions] by falsely recording, as advertising and promotional expenses, cash payments and expenses for gifts, meals, travel, entertainment, speaker fees, and sponsorships for conferences and meetings provided to foreign officials, such as HCPs at state-owned and state-controlled hospitals as well as employees of state-owned pharmacies in China, to secure prescription sales. BMS also violated [the FCPA's internal controls provisions] by failing to devise and maintain a system of internal accounting controls relating to payments and benefits provided by sales representatives at BMS China to these foreign officials.”

No Allegations Regarding Germany

As previously stated in Bristol-Myers disclosures, its FCPA scrutiny began in 2006 the following way.

“In October 2006, the SEC informed the Company that it had begun a formal inquiry into the activities of certain of the Company’s German pharmaceutical subsidiaries and its employees and/or agents. The SEC’s inquiry encompasses matters formerly under investigation by the German prosecutor in Munich, Germany, which have since been resolved. The Company understands the inquiry concerns potential violations of the Foreign Corrupt Practices Act (FCPA). The Company has been cooperating with the SEC.

In March 2012, the Company received a subpoena from the SEC issued in connection with its investigation under the FCPA, primarily relating to sales and marketing practices in various countries. In particular, the Company is investigating certain sales and marketing practices in China. The Company has been cooperating with the government in its investigation and is in discussions with the SEC regarding a potential settlement agreement that would result in a resolution of the SEC’s investigation. The Company believes it is fully reserved for this matter.”

Given the above disclosure, it is notable that the Bristol-Myers enforcement action concerned conduct only in China. Granted, 2006 is a long time ago but the SEC has not shied away from “old” allegations in other FCPA enforcement actions and, as a practical matter, statute of limitations have little impact in corporate FCPA enforcement actions.

Double Standard

At its core, the Bristol-Myers action focused on various things of value (such as gifts, meals, travel, entertainment, speaker fees, and sponsorships for conferences and meetings) provided to foreign physicians.

Pardon me for saying this, but this happens all the time in the U.S. (See here and here for the most recent posts).

Compliance Take-Aways

Regardless of the above, set forth below are certain compliance take-aways from the Bristol-Myers action:

  • If a company is going to provide FCPA training to its employees (and companies most certainly should), the company needs to make sure the employees are actually taking the training.  The SEC’s order dings Bristol-Myers as follows: “[The] BMS sales force in China received limited training and much of it was inaccessible to a large number of sales representatives who worked in remote locations. For example, when BMS rolled out mandatory anti-bribery training in late 2009, 67% of employees in China failed to complete the training by the due date.”
  • The use and abuse of employee reimbursement requests.  The SEC’s order dings Bristol-Myers as follows. “BMS lacked effective internal controls sufficient to provide reasonable assurances that funds advanced and reimbursed to employees of BMS China were used for appropriate and authorized purposes.”
  • Boots on the ground.  The SEC’s order dings Bristol-Myers as follows. “The corporate compliance officer responsible for the Asia-Pacific region through 2012 was based in the U.S. and rarely traveled to China. There was no dedicated compliance officer for BMS China until 2008, and no permanent compliance position in China until 2010.”

Compliance Practitioners: Are You Reading Foreign Newspapers?

Monday, October 5th, 2015

NewspaperI’ve read every Foreign Corrupt Practices Act enforcement action in the public domain.

The recent Hitachi enforcement action (see here and here for prior posts) contained allegations I’ve never seen before.

In its settled civil complaint, the SEC mentioned several South African newspaper articles to support its allegations that Hitachi (a Japanese company) knew, or should have known, that Chancellor House was an African National Congress funding vehicle.

Specifically, the SEC alleged:

“In August 2006, an HPA [a majority-owned subsidiary of HPE based in South Africa, that executed power station orders in South Africa, HPE in turn is wholly-owned subsidiary of Hitachi based in Germany] director received a telephone call from a reporter with the Mail & Guardian, a South African weekly newspaper that focuses on political analysis, investigative reporting, and South African news and culture. The reporter asked HPA to comment on whether there was a link between HPA’s 25% shareholder, Chancellor, and the ANC. HPA declined to comment.

On November 10, 2006, the same day that Hitachi submitted its bid for the Medupi power station contract, the Mail & Guardian published an article entitled, The ANC’ s New Funding Front. The article exposed Chancellor as a business front set up by the ANC “to seek profit on its behalf,” generally by acquiring “empowerment” stakes in businesses seeking state procurements. “This means,” the Mail & Guardian stated, “the ANC, as ruling party, has been both player and referee.”

Both HPA and HPE were aware of the Mail & Guardian’s reporting on Chancellor’s relationship to the ANC. On November 13, 2006, an HPA director forwarded two HPE executives a copy of The ANC’s New Funding Front. The same HPA director reported to the HPE executives that he had spoken to Chancellor’s chairman, who had denied the allegations in the newspaper.

In January 2007, both the Mail & Guardian and a separate South African newspaper, the Financial Mail, published articles that confirmed Chancellor was a funding vehicle for the ANC. In Financing the ANC, published on January 19, 2007, the Financial Mail quoted the ANC Secretary General and organizational head of the ANC’s operations as admitting that Chancellor was an “ANC vehicle” that existed for the sole purpose of funding the ANC. The Mail & Guardian reported this same admission by the ANC Secretary General a week later, in an article entitled, ANC Admits It Used BEE Funding Front.


In December 2007, the Financial Mail published another article about Hitachi’s relationship with Chancellor. The Financial Mail quoted an HPE executive as saying that there was “no proof’ that Chancellor was an ANC front company and if Chancellor was indeed a front· for the ANC, “this would contradict our own governance rules.” In fact, as Hitachi knew well before December 2007, and as the ANC’s Secretary General had confirmed publicly eleven months earlier, Chancellor was an alter ego of the ANC.

A week after the publication of the Financial Mail article, on December 14, 2007, Eskom and Hitachi -through HPE and HPA- executed the second of two contracts: a $2.71 billion contract to build the boiler works for the Kusile power station.”

The above allegations were not necessary for the SEC to properly allege the claims it brought against Hitachi (violations of the FCPA’s books and records and internal controls provisions).

However, I take the position that when the SEC includes specific non-outcome determinative allegations in an FCPA enforcement action, the SEC is doing more than just practicing its typing skills.

Were the above allegations in the Hitachi enforcement action intended to send a message to compliance practitioners that they have constructive knowledge of information in foreign newspapers?

If so, this is troubling as journalists frequently get things wrong and/or take things out of context. Indeed, several FCPA articles in major U.S. newspapers have been wrong.

Friday Roundup

Friday, September 25th, 2015

Roundup2More on the Yates Memo, scrutiny alerts, survey says, and FCPA reform.  It’s all here in the Friday roundup.

More on the Yates Memo

Once again a private company has marketed a public official to drive attendance to its paid event.

Earlier this week, Assistant Attorney General Leslie Caldwell delivered this speech reiterating various aspects of the “Yates Memo.” Caldwell stated:

“[O]ur focus on individuals stems from the reality that corporations act through human beings, and that justice usually requires identifying those responsible for criminal conduct and holding them personally accountable.  Prosecuting the corporate entity, and imposing a fine and other impersonal conditions, simply is not enough – in most instances – to fully punish and, more importantly, deter corporate misconduct.”

Regarding the cooperation credit aspects of the “Yates Memo,” Caldwell stated:

“We recognize, however, that a company cannot provide what it does not have.  And we understand that some investigations – despite their thoroughness – will not bear fruit.  Where a company truly is unable to identify the culpable individuals following an appropriately tailored and thorough investigation, but provides the government with the relevant facts and otherwise assists us in obtaining evidence, the company will be eligible for cooperation credit.  We will make efforts to credit, not penalize, diligent investigations.  On the flip side, we will carefully scrutinize and test a company’s claims that it could not identify or uncover evidence regarding the culpable individuals, particularly if we are able to do so ourselves.

As I have said before, it is not our intent to outsource our investigation of corporate wrongdoing to companies and their outside advisors.  As in the past, we will not sit idle, waiting for a company to conduct or complete its investigation.  Regardless of a company’s cooperation, federal agents and prosecutors will conduct thorough investigations.  If, through this process, we are able to identify the culpable individuals when the company itself did not do so, as well as evidence that would support the charging and prosecution of those individuals, we will assess whether that evidence truly was unavailable to the company.

We, of course, recognize that we sometimes can obtain evidence that a company cannot.  We often can obtain from third parties evidence that is not available to the company.  Also, we know that a company may not be able to interview former employees who refuse to cooperate in a company investigation.  Those same employees may provide information to us, whether voluntarily or through compulsory process.  Likewise, there are times when, for strategic reasons, we may ask that the company stand down from pursing a particular line of inquiry.  If so, the company will not be penalized for failing to identify facts subsequently discovered by government investigators.”

Caldwell also answered questions after the speech.  It appears that this Q&A was recorded and the same private company put the Q&A behind its paywall.

It’s just plain wrong that a private company is selling the words of public officials. It ought to stop.

Scrutiny Alerts


As highlighted here, in 2010 as part of the CustomsGate enforcement actions, Transocean resolved a $20.7 million FCPA enforcement action (involving a DOJ and SEC component) concerning alleged conduct in Nigeria.

Bloomberg reports:

“Transocean Ltd., the world’s largest offshore rig contractor, is being linked for the first time to the corruption probe of Petroleo Brasileiro SA, the state-owned energy giant at the center of Brazil’s biggest corporate scandal. A former executive at Brazil’s state-run oil company has testified to receiving what he says were payments made by someone claiming to be a Transocean agent in exchange for a rig-operation contract from Petrobras.”


This CBCNews report goes in-depth regarding new allegations in a civil suit concerning SNC-Lavalin. According to the article:

“Top executives for years endorsed bribes and lavish gifts — including a yacht and even prostitutes — to win contracts from Libya’s Gadhafi regime.”

To cement ties, [the complaint] alleges specific SNC executives signed off on or approved numerous favours to help Gadhafi, including:

  • providing SNC staff and hiring university professor as tutors;
  • helping to obtain a Canadian visa;
  • considering appointing Saadi Gadhafi an SNC vice-president;
  • officially sponsoring his Italian Serie A professional soccer team.

One of the largest expenses included the purchase of a Palmer Johnson yacht worth $38 million for Saadi Gadhafi ”organized and validated by CFO Laramée and approved by the then CEO Lamarre.” Saadi Gadhafi visited Canada in 2008, and SNC Lavalin picked up the bill — more than $2 million.”

Survey Says

KPMG recently conducted a worldwide online survey of corporate risk leaders to find out the strengths and weaknesses of their companies’ programs to combat bribery and corruption.  According to the survey responses:

“There is a sharp increase in the proportion of respondents who say they are highly challenged by the issue of Anti-Bribery Compliance (ABC) compared with a survey KPMG conducted four years earlier.

As companies continue to globalize, management of third parties poses the greatest challenge in executing ABC programs.

Despite the difficulty of monitoring their business dealings with third parties, more than one third of the respondents do not formally identify high-risk third parties. More than half of those respondents with right to-audit clauses over third parties have not exercised the right.

ABC considerations are accorded too low a priority by companies preparing to acquire, or merge with, other corporations across borders.

Respondents complain they lack the resources to manage ABC risk.

A top-down risk assessment would help companies set priorities, but executives admit that an ABC risk assessment is one of their companies’ top challenges.

Data analytics is an increasingly important and cost-effective tool to assess ABC controls. Yet only a quarter of respondents use data analysis to identify violations and, of those that do so, less than half continuously monitor data to spot potential violations.”

FCPA Reform

The U.S. Chamber of Commerce recently released this document outlining its policy priorities. Included in the lengthy document was the following:  ”work to reform the Foreign Corrupt Practices Act by supporting changes to enforcement practices.”


A good weekend to all.


Are You Ready For Some Football? How A Successful Football Organization Can Inform FCPA Compliance In A Business Organization

Thursday, September 10th, 2015

FBAre you ready for some football?

The answer is likely yes as the football season is arguably the most anticipated sports season and one that transforms the weekends of many.

For Foreign Corrupt Practices Act compliance practitioners, understanding the game is not just a professional diversion, but one that can actually add professional value as well.

The reason is because understanding what makes a football organization successful can also inform FCPA compliance in a business organization.

In the spirit of the season, my article “How a Successful Football Organization Can Inform FCPA Compliance In a Business Organization” highlights four attributes of a successful football organization that can also elevate FCPA compliance in a business organization.

Click here to download the article.

Friday Roundup

Friday, September 4th, 2015

Roundup2Vote, motion for reconsideration, and for the reading stack. It’s all here in the Friday roundup.


FCPA Professor has been selected as one of the best legal blogs by the Expert Institute.  If FCPA Professor adds value to your practice or business or otherwise enlightens your day, you can vote for FCPA Professor as the best niche/specialty blog here. It only takes a minute and your vote is most appreciated.

Motion for Reconsideration

Unhappy with U.S. District Court Judge Janet Bond Arterton’s (D. Conn.) recent interpretation in U.S. v. Hoskins (see here) of the FCPA that Congress actually enacted, the DOJ recently filed this motion for a reconsideration. The motion is based almost entirely on the DOJ’s views on the FCPA’s legislative history, demonstrating once again the importance of the FCPA’s legislative history (see here).

Reading Stack

Speaking of the recent decision in U.S. v. Hoskins, this King & Spalding alert states:

“[T]he Government argued for an accomplice theory, consistent with the Resource Guide to the Foreign Corrupt Practices Act. That guidance, first released in 2012, posed just such a hypothetical scenario:

Moreover, even if [defendant] had never taken any actions in the territory of the United States, they can still be subject to jurisdiction under a traditional application of conspiracy law and may be subject to substantive FCPA charges under Pinkerton liability, namely, being liable for the reasonably foreseeable substantive FCPA crimes committed by a co-conspirator in furtherance of the conspiracy.

The District Court rejected that theory, based on the U.S. Supreme Court’s decision in Gebardi v. United States, which established that whenever Congress has intentionally excluded certain individuals from liability for a specific law, this congressional intent must not be circumvented by prosecuting such individuals based on accomplice liability.

While the District Court rejected accomplice liability as an additional basis for FCPA jurisdiction, it remains to be seen how other courts will address this question, and whether the DOJ and the SEC will revisit their guidance on the matter. Given the rarity of written judicial opinions interpreting the FCPA, this ruling is likely to have an outsized impact on future FCPA enforcement actions.”

For additional reading on how the FCPA Guidance is an advocacy piece and not a well-balanced portrayal of the FCPA as it is replete with selective information, half-truths, and, worse information that is demonstratively false, see here.


An informative read here from the FCPAmericas blog titled “Localizing Compliance Programs in Latin America.”

“The compliance programs for Latin American subsidiaries of foreign companies often consist of translated versions of the program used at headquarters, without any (or just minor) adaptations. Oftentimes, this practice has the potential to negatively impact the ability of the program to operate at optimum levels and can lead to problems. Here are five practical steps that companies can take to maximize the efficiency of their compliance programs in Latin America.”


An interesting read here from Robert Appleton titled “Despite Prosecutions, Corruption Levels Stay the Course.”

“In light of this [increased corruption enforcement] activity [around the world], one might expect that corruption levels would decrease. But they have not. Why hasn’t it happened? The focus of this piece is to propose some possible explanations for this anomaly.”


A good weekend to all.