Archive for the ‘Compliance Defense’ Category

How The DOJ Can Better Achieve Its FCPA Policy Objectives

Wednesday, September 24th, 2014

Last week the DOJ’s Principal Deputy Assistant Attorney General for the Criminal Division, Marshall Miller, delivered this speech focused on how the DOJ is “addressing criminal conduct when it takes place at corporations and other institutions.”  While not specific to the Foreign Corrupt Practices Act, Miller did reference the FCPA several times during the speech.

The post is not about the DOJ’s empty rhetoric when it comes to individual FCPA prosecutions – that post was published last week the same day that Miller carried forward DOJ talking points on individual prosecutions.

Nor is this post about Miller carrying forward the DOJ’s talking points on Morgan Stanley’s so-called declination.  That post was published here in 2012.

Nor is this post about Miller’s suggestion that PetroTiger did not face any charges “of any kind [...] and no non-prosecution agreement was entered” because the company voluntarily disclosed and cooperated.  As highlighted in this post regarding the charges against the former PetroTiger executives, the core DOJ allegations concerned self-dealing by the executives and not disclosing conflicts of interest to their employer and other investors involved in a business deal.  To be sure, there have been several companies – ADM, Diebold, Ralph Lauren, Maxwell Technologies, and Tyson Foods to name just a few –  that have voluntarily disclosed and cooperated yet received NPAs or DPAs in the FCPA context.

Nor is this post about the “wow” factor of Miller’s speech – as termed by the FCPA Blog – because contrary to the suggestion by the FCPA Blog, the FCPA information in Miller’s speech was not new – all was previously mentioned in original source documents and/or previously highlighted in prior FCPA Professor posts or by others (see herehere, and here).

Rather, this post highlights for the DOJ (and others) how an FCPA reform proposal can help the DOJ better achieve its policy objectives, as sensibly articulated in Miller’s speech,. in the FCPA context.

For starters, I realize – based on reliable information – that I am a persona non grata within the DOJ’s FCPA Unit.  Nevertheless, I share an interest in advancing policies to make FCPA enforcement more effective so that the laudable objectives of the FCPA can best be achieved.

I’ve written about the below issue several times (see here for “Revisiting a Foreign Corrupt Practices Act Compliance Defense” and see here for the prior post “Seeing the Light From the Dark Ages”).

In his speech, Miller stated the following sensible policy objectives.

“[W]e would like corporations to cooperate.  We will ensure that there are appropriate incentives for corporations to do so.

[...]

I want to focus today on an aspect of [The Principles of Federal Prosecution of Business Organization and/or the DOJ's internal "Filip" factors]  that I believe, at times, receives insufficient attention – but that lies at the heart of our approach at the Criminal Division.   And that is what the factors have to say about the importance of individual prosecutions to the decision on how to approach a corporation.

[...]

[In analyzing cooperate cooperation], companies are always quick to tout voluntary disclosure of corporate misconduct and the breadth of an internal investigation.   What is sometimes given short shrift, however, is in many ways the heart of effective corporate cooperation: whether that cooperation exposed, and provided evidence against, the culpable individuals who engaged in criminal activity [...].

The importance of cooperating regarding individuals is set forth, in black and white, in the text of the [Principles of Prosecution] itself.   Factor Four expressly states that prosecutors should evaluate a corporation’s “willingness to cooperate in the investigation of [its] agents.”   This key point is fleshed out later in the guidance section, where prosecutors are directed to consider the corporation’s “willingness to provide relevant information and evidence and identify relevant actors within and outside the corporation, including senior executives.”

Voluntary disclosure of corporate misconduct does not constitute true cooperation, if the company avoids identifying the individuals who are criminally responsible.  Even the identification of culpable individuals is not true cooperation, if the company fails to locate and provide facts and evidence at their disposal that implicate those individuals.

This principle of cooperation is not new or unique to companies.   We have applied it to criminal cases of all kinds for decades.   Take, for example, organized crime cases.   Mob cooperators do not receive cooperation credit merely for halting or disclosing their own criminal conduct.   Attempted cooperators should not get reduced sentences if they refuse to provide testimony or fail to turn over evidence against other culpable parties.   A true cooperator – whether a mobster or a company – must forthrightly provide all the available facts and evidence so that the most culpable individuals can be prosecuted.

The importance of this principle is enhanced by a second Filip factor – Factor Eight – which states that, in deciding whether to charge a corporation, prosecutors must consider “the adequacy of the prosecution of individuals responsible for the corporation’s malfeasance.”   So, effective and complete corporate cooperation in the investigation and prosecution of culpable individuals is not only called for by Factor Four, but reinforced by Factor Eight.

[...]

Corporations do not act criminally, but for the actions of individuals.   The Criminal Division intends to prosecute those individuals, whether they’re sitting on a sales desk or in a corporate suite.

The prosecution of individuals – including corporate executives – for white-collar crimes is at the very top of the Criminal Division’s priority list under Assistant Attorney General Caldwell.”

The above are all sensible policy statements from the DOJ and are consistent with Attorney General Eric Holder’s similar sensible policy statements articulated on the same day in a different speech.  As Holder stated:

“[T]he department recognizes the inherent value of bringing enforcement actions against individuals, as opposed to simply the companies that employ them.  We believe that doing so is both important – and appropriate – for several reasons:

First, it enhances accountability.  Despite the growing jurisprudence that seeks to equate corporations with people, corporate misconduct must necessarily be committed by flesh-and-blood human beings.  So wherever misconduct occurs within a company, it is essential that we seek to identify the decision-makers at the company who ought to be held responsible.

Second, it promotes fairness – because, when misconduct is the work of a known bad actor, or a handful of known bad actors, it’s not right for punishment to be borne exclusively by the company, its employees, and its innocent shareholders.

And finally, it has a powerful deterrent effect.  All other things being equal, few things discourage criminal activity at a firm – or incentivize changes in corporate behavior – like the prospect of individual decision-makers being held accountable.  A corporation may enter a guilty plea and still see its stock price rise the next day.  But an individual who is found guilty of a serious fraud crime is most likely going to prison.”

Again, sensible policy statements.

The problem is – at least in the FCPA context – the DOJ is not achieving its policy objectives.  This is the unmistakable conclusion from the following statistics.

  • As highlighted in this previous post (with statistics calculated through the end of 2013) since 2008 approximately 75% of corporate FCPA enforcement have not (at least yet) resulted in any DOJ charges against company employees.
  • As highlighted in this previous post, in the 20 most recent DOJ corporate FCPA enforcement actions, only one has resulted (at least yet) in any DOJ charges against company employees.

An FCPA compliance defense can help the DOJ better achieve its above-stated policy objectives.

As stated in my article “Revisiting a Foreign Corrupt Practices Act Compliance Defense.”

“An FCPA compliance defense will better facilitate the DOJ’s prosecution of culpable individuals and advance the objectives of its FCPA enforcement program. At present, business organizations that learn through internal reporting mechanisms of rogue employee conduct implicating the FCPA are often hesitant to report such conduct to the enforcement authorities. In such situations, business organizations are rightfully diffident to submit to the DOJ’s opaque, inconsistent, and unpredictable decision-making process and are rightfully concerned that its pre-existing FCPA compliance policies and procedures and its good faith compliance efforts will not be properly recognized. The end result is that the DOJ often does not become aware of individuals who make improper payments in violation of the FCPA and the individuals are thus not held legally accountable for their actions. An FCPA compliance defense surely will not cause every business organization that learns of rogue employee conduct to disclose such conduct to the enforcement agencies. However, it is reasonable to conclude that an FCPA compliance defense will cause more organizations with robust FCPA compliance policies and procedures to disclose rogue employee conduct to the enforcement agencies. Thus, an FCPA compliance defense can better facilitate DOJ prosecution of culpable individuals and increase the deterrent effect of FCPA enforcement actions.”

Is the DOJ capable of viewing an FCPA compliance defense, not as a race to the bottom, but a race to the top?  Is the DOJ capable of viewing an FCPA compliance defense as helping it better achieve its FCPA policy objectives?

Let’s hope so.

*****

In his speech, Marshall also provided specifics as to what type of cooperation the DOJ looks for.  He stated:

“[I]f a corporation wants credit for cooperation, it must engage in comprehensive and timely cooperation; lip service simply will not do.

Corporations are often too quick to claim that they cannot retrieve overseas documents, emails or other evidence regarding individuals due to foreign data privacy laws.   Just as we carefully test – and at times reject – corporate claims about collateral consequences of a corporate prosecution, the department will scrutinize a claimed inability to provide foreign documents or evidence.   We have forged deepening relationships with foreign governments and developed growing sophistication and experience in analyzing foreign laws.   A company that tries to hide culpable individuals or otherwise available evidence behind inaccurately expansive interpretations of foreign data protection laws places its cooperation credit at great risk.   We strongly encourage careful analysis of those laws with an eye toward cooperating with our investigations, not stalling them.

Understand too, that we will use our own parallel investigation to pressure test a company’s internal investigation: to determine whether the company actually sought to root out the wrongdoing and identify those responsible, as far up the corporate ladder as the misconduct goes, or instead merely checked a box on a cooperation punch list.

Companies that have not conducted comprehensive investigations will not secure significant cooperation benefits.   Worse, companies that hamper the government’s investigation while conducting an internal investigation – for example, by conducting interviews that serve to spread corporate talking points rather than secure facts relating to individual culpability – will pay a price when they ask for cooperation credit.

A few final words: when you come in to discuss the results of an internal investigation to the Criminal Division and make a Filip factor presentation – expect that a primary focus will be on what evidence you uncovered as to culpable individuals, what steps you took to see if individual culpability crept up the corporate ladder, how tireless your efforts were to find the people responsible.

At the risk of being a little too Brooklyn, I’m going to be blunt.

If you want full cooperation credit, make your extensive efforts to secure evidence of individual culpability the first thing you talk about when you walk in the door to make your presentation.

Make those efforts the last thing you talk about before you walk out.

And most importantly, make securing evidence of individual culpability the focus of your investigative efforts so that you have a strong record on which to rely.”

Checking In Down Under

Monday, August 25th, 2014

Today’s post is from Robert Wyld (Johnson Winter & Slattery), the Australia Expert for FCPA Professor.

*****

This post highlights a range of important developments in Australia and the Asia Pacific Region in the area of foreign bribery policy, investigations and regulation through August 2014.  Issues covered include:

  • Australia’s agenda for the G20 November meetings;
  • Whistleblower protections;
  • Australian courts and “super injunctions”;
  • Australian foreign bribery investigations and prosecutions – media updates;
  • New Zealand amendments to foreign bribery and other economic crime laws; and
  • Asia-Pacific Anti-Corruption Network

Australia’s G20 Anti-Corruption Agenda

The Australian Government has a significant opportunity to proactively shape the anti-corruption agenda at the forthcoming meeting of G20 countries in Brisbane in November 2014. Senior members of the Attorney General’s Department (AGD) are leading the way, seeking to develop initiatives for consideration by all G20 countries.

The Action Plan of 2012 is due to expire in 2014. The AGD is focusing on three key priorities:

  • developing rules for the disclosure of beneficial ownerships;
  • combating foreign bribery; and
  • promoting judicial integrity.

There is a broadly held view that corporate or other structures are regularly used to engage in economic crime, including corruption, and transparency is required to identity the beneficial ownership of a particular entity. Together with targeting foreign bribery and corruption, the G20 governments regard these topics as of high priority.  Each G20 country is to prepare a detailed self-assessment of their performance as against the OECD Convention criteria. Once principles are agreed upon, they will be made public by the G20 leaders.

In terms of any National Anti-Corruption Plan, promoted by the former Labor Government, the Plan appears to have died due to government inactivity and it is not clear whether it will be resuscitated. The public perception from the media is that the current government is not interested in any over-arching Commonwealth anti-corruption body. This is disappointing as history tells us that wherever governments make decisions worth significant money, the existence of corruption rears its head.

ASIC and Whistleblower Protections

The role of protections for whistleblowers is not going away despite the apparent lack of focus within ASIC (Australian Securities and Investments Commission) to manage whistleblower complaints.

On 26 June 2014, the Australian Senate Economics Reference Committee released its report into the ongoing review of ASIC. The Committee made a number of key recommendations:

  • that ASIC establish an “Office of the Whistleblower”;
  • that existing laws should be extended to cover anonymous disclosures;
  • the “good faith” requirement for protected disclosures under the Corporations Act 2001 (Cth) be repealed;
  • the Government explore options to incentivise whistleblowers through a rewards-based system (as currently existing in the US under the Exchange Act).

It will be interesting to see how this last point develops. In the past, the Chairman of ASIC has publicly started he does not favour a scheme that rewards whistleblowers, believing that a reward will in some way corrupt the value of the evidence and undermine a whistleblower’s credibility (although that has not been a problem in the US to date).

Australian Courts and Super Injunctions

Australia is a signatory to the OECD Anti-Bribery Convention.  Article 5 of the Convention reads as follows:

“Investigation and prosecution of the bribery of a foreign public official shall be subject to the applicable rules and principles of each Party. They shall not be influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved.”

This principle is reflected in the Prosecution Guidelines issued by the Commonwealth Director of Public Prosecutions (CDPP) where, in Annexure A to the Guidelines dealing with prosecutions for foreign bribery, it is made clear a prosecutor must not be influenced by the factors identified in Article 5 of the OECD Convention. It should be noted that the CDPP has issued Guidelines for Suppression Orders (as at May 2013). These Guidelines acknowledge that while the fundamental principle of open justice should prevail, circumstances involving “national security”, “ensuring a fair trial” and the “protection of vulnerable witnesses” may justify suppression orders.

In June 2014, unbeknown to anyone outside a select group of litigants, the Victorian Supreme Court issued what is known as a “super injunction” in Australia’s prominent foreign bribery case. This injunction prevents the media from reporting anything about the case, the terms of the order or the identity of various persons named in the order. These orders have now been published on the internet by WikiLeaks and have been republished across a range of Asian media. These types of orders, secured in secrecy and imposing draconian contempt penalties for any contravention, sit very uncomfortably with Australia’s international obligations and the principle of open justice. Indeed, when the internet is free to publish such orders and they are republished across the regional media, one can only conclude that such orders are ineffective and are driven by unknown and unstated political or economic or other reasons. The only party that can explain the need for such orders is the Commonwealth Government, yet it remains conveniently silent, no doubt relying on that well-worn phrase “you may think that but I could not possibly comment”.

New Zealand Amends Anti-Corruption Laws and Penalties

The New Zealand Government has published the Organised Crime and Anti-Corruption Bill in Parliament to update its economic crime laws, to allow for a greater degree of international agency collaboration and to reflect the country’s obligations under the OECD and United Nations Conventions.

The principal features of the Bill, in so far as anti-corruption laws are concerned, include the following:

  • authorising the NZ Police to share personal information with their international counterparts;
  • creating a criminal offence to accept a bribe from a foreign public official (attacking the demand side of corruption);
  • creating a criminal offence to accept a bribe for using one’s influence over an official (referred to as “trading in influence”);
  • clarifying the circumstances under which a body corporate commits the criminal offence of bribery and corruption;
  • making it clear that a foreign bribery offence can be prosecuted whether or not the conduct is an offence in  the country in which the conduct occurred;
  • increasing the maximum penalty for imprisonment for a bribery and corruption conviction from 2 years to 7 years;
  • including bribery and corruption offences as a “crime involving dishonesty”;
  • requiring companies to record facilitation payments (permitted under the NZ Crimes Act) in a consistent manner under the Companies Act; and
  • amending the Income Tax Act to ensure bribes are not tax-deductible.

These are important changes and while the maintenance of facilitation payments is still regrettable, the laws demonstrate the NZ Government’s commitment to bringing its domestic laws into harmony with those of other OECD member countries.

Asia-Pacific Anti-Corruption Network

The recent meeting of the APEC Network of Ant-Corruption Authorities and Law Enforcement Agencies, or ACT-NET in Beijing announced the commencement of a new channel or platform for regulatory agencies to exchange information targeting large scale corruption and bribery in the Asia Pacific region. The secretariat will by initially hosted by China, based in Beijing and the Chinese Ministry of Supervision will manage the information sharing in an institutional capacity.

As Fu Kui, Vice Minister of China’s National Bureau of Corruption Prevention said:

“As domestic anti-corruption efforts intensify, corrupt officials flee abroad and remain at large by taking advantage of legal differences between our jurisdictions…this is a serious challenge to each economy’s rule of law. By building a multilateral platform to strengthen work-level exchange and case cooperation, and expand channels for anti-corruption and law enforcement partnership, we could cut off the escape route of corrupt fugitives.”

*****

Regarding the above-referenced New Zealand bill, it – like the FCPA-like laws of many other OECD member countries that recognize corporate criminal liability – contains compliance-defense concepts.  Specifically, the bill states:  ”a body corporate or corporation sole does not commit an offence … if it has taken reasonable steps to prevent the offence.”

Leading FCPA Practitioner Calls For An FCPA Compliance Defense

Tuesday, August 5th, 2014

Joseph Warin (Gibson Dunn) is a leading FCPA practitioner.  With the DOJ’s blessing, Warin has also served as a corporate monitor in connection with several Foreign Corrupt Practices Act enforcement actions.

In short, Warin knows the FCPA and FCPA compliance.

In this recent article in Corporate Disputes, Warin and his co-authors renew the call for an FCPA compliance defense.  In pertinent part, the article states:

“[This new era of FCPA enforcement] has wrought drastic change on the compliance landscape for transnational corporations, which devote significant resources to promoting FCPA compliance among their thousands of employees and contractors operating in international fora.  In particular, internal compliance, reporting and mitigation systems have grown significantly more robust in past years as companies seek to prevent corrupt practices and – when issues of noncompliance arise – to ferret them out and terminate them.  Even so, the lack of binding guidelines for framing compliance programs and the lack of assurances that robust programs will reliably mitigate the DOJ’s decisions to bring criminal charges leaves corporations in a state of uncertainty:  despite pouring millions into meaningful compliance regimes and sincere efforts to comply with the law, corporations are no more certain than they were 30 years ago that the actions of one, or a few, rogue employees will not bring debilitating criminal liability upon an entire entity.”

[...]

[The enforcement agencies] continued resistance to a compliance defense in light of a completely changed FCPA playing field is short-sighted.  The DOJ and SEC have strong interests in promoting self-policing within companies and turning them into corporate partners.  Where corporate compliance programs are functioning as they should – i.e. internally identifying employees who are operating outside of the bounds of company policy and extinguishing and mitigating illegal practices – companies should be rewarded with indemnification from the actions of those outsider employees, not punished with the threat of criminal and/or civil charges for actions that they took substantial steps to prevent.”

[...]

“It is time to reconsider the need for either an administrative or a statutory compliance defense.  The government’s focus on stemming corporate corruption has also raised the stakes for transnational corporations with ties to the United States.  The costs of internal investigations and compliance efforts are higher than ever before, and yet – as the DOJ and SEC acknowledge in their 2012 FCPA Resource Guide – ‘no compliance program can ever prevent all criminal activity by a corporation’s employees.’  Rather than continue to toe the anti-compliance defense line of a decade ago, the DOJ and SEC should acknowledge this changed landscape and give ethical companies that implement strong compliance programs assurance that they will not be punished for those occasional, inevitable acts by rogue employees who violate otherwise effective corporate policies.”

Warin’s call for an FCPA compliance defense mirror my own – see here for my 2011 article “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (the most extensive article written on the subject).

Numerous posts on FCPA Professor have since returned to the issue of an FCPA compliance defense – see here, here, and here for the most recent posts.

An FCPA compliance defense is a not panacea, but it is the best positive incentive to achieve greater FCPA compliance. The goal of an FCPA enforcement program ought to be constructing an enforcement regime that best promotes compliance, reduces improper conduct, and best advances the FCPA’s objective of reducing bribery.  However, the DOJ and SEC have a “wooden attitude” when it comes to a compliance defense and are seemingly incapable of grasping the benefits of a compliance defense to their enforcement programs.  Can the enforcement agencies soften this “wooden attitude”?  Are the enforcement agencies capable of diverting attention from enforcement statistics, settlement amounts, and political statements filled with empty rhetoric?

The FCPA has witnessed courageous moments before and a courageous moment is once again presented.

Warin’s call for an FCPA compliance defense is an important contribution to the current dialogue.

Survey Results Should Cause Concern

Monday, June 2nd, 2014

Senator Frank Church, Senator William Proxmire and Representative Robert Eckhardt were the main Congressional leaders when it came to passage of the Foreign Corrupt Practices Act.  None are with us today, but if they were, it would be interesting to hear their reaction to the plethora of FCPA related survey information in the public domain 37 years after passage of the FCPA.

My hunch is that these Congressional leaders would be flabbergasted.

For instance, Kroll and Compliance Week recently released a joint “2014 Anti-Bribery and Corruption Benchmarking Report” (see here to download).  The self-reported survey produced 197 responses from a range of industries and respondents were employed by companies with a median worldwide employee headcount of approximately 9.600.

The survey result that most caught my eye is the following:  81% of respondents anticipate the bribery and corruption risks to their company over the next 2-3 years to increase (51%) or remain the same (30%).

This response ought to prompt questions whether the current approach to enforcement – as well as enforcement policy – are effective.

I’ve long maintained that while ad hoc enforcement of alleged bribe payers is an important aspect of reducing bribery and corruption, the singular focus on actual enforcement statistics and the “pound the pavement” for more enforcement mantra of many does little to address the root causes of bribery and corruption in many instances.  Foreign trade barriers and distortions are often the root causes of bribery and a reduction in bribery will not be achieved without a reduction in trade barriers and distortions.

Moreover, enforcement policy ought to be focused on creating the best positive incentives.  The DOJ and SEC recognized this basic point in the FCPA Guidance, yet recent survey responses also ought to prompt many questions whether current enforcement policy is indeed creating the best positive incentives.

The vast majority of FCPA enforcement actions are based, in whole or in part, on the conduct of various third parties.  Yet, the Kroll / Compliance Week survey reports that 58% of respondents said they never train third parties on anti-corruption efforts. (Survey respondents reported an average of 3,868 third parties).

This Grant Thorton General Counsel survey also contained survey results that should cause concern as to the effectiveness of current enforcement policy.  According to the survey:

“Even with the movement towards the codification of compliance plans by the DOJ and the SEC over a year ago, only 29% of survey respondents state that they have implemented all of the guidelines, while 47% are “not sufficiently familiar” with the guidelines to reply. Among organizations that have not fully implemented the DOJ and SEC guidelines, 65% responded that a “lack of compliance staff and budgets” was the primary reason.”

Ditto for the recent LRN “2014 Ethics & Compliance Program Effectiveness Report” which found:

“Fewer than half of all programs average at least substantial progress on the critical hallmarks identified in the DOJ/SEC guidance on the Foreign Corrupt Practices Act.”

So what would the best positive incentive be to achieve greater adoption of best practices and thus FCPA compliance?

I have long submitted that an FCPA compliance defense (along the lines outlined in my article “Revisiting a Foreign Corrupt Practices Act Compliance Defense“) is an appropriate answer. So have several former high-ranking DOJ enforcement officials (see here among other posts).

I am not suggesting that an FCPA compliance defense is a panacea, but what I am suggesting and what I hoped to demonstrate in this post is that a compliance defense is the best positive incentive to achieve greater FCPA compliance.

While I can only speculate what various survey responses would be if there was an FCPA compliance defense, I am confident in predicting that more than 42% of companies would train third-parties on anti-corruption efforts, more than 29% of companies would be acting fully consistent with widely accepted best practices, and that more compliance staff and budgets would result.

And I further submit that these would all be good developments as an FCPA compliance defense is not a race to the bottom (as has been suggested) but rather a race to the top.

Friday Roundup

Friday, May 30th, 2014

Attend the FCPA Institute,  Wal-Mart fires back, up north, the race is on, deserving part 2, quotable, and a revised roundup.  It’s all here in the Friday roundup.

FCPA Institute

Join lawyers and other in-house counsel and compliance professionals already registered for the inaugural FCPA Institute July 16-17th in Milwaukee, Wisconsin.  The FCPA Institute is a unique two-day learning experience ideal for a diverse group of professionals seeking to elevate their FCPA knowledge and practical skills.  FCPA Institute participants will have their knowledge assessed and upon successful completion of a written assessment tool can earn a certificate of completion. In this way, successful completion of the FCPA Institute represents a value-added credential for professional development.

To register see here.

Wal-Mart Fires Back

This recent post highlighted various Wal-Mart shareholder proposals that touched upon FCPA issues.  As noted in the post, Institutional Shareholder Services (“ISS”) criticized Wal-Mart’s board for “fail[ing] to make progress in providing meaningful information to shareholders about any specific findings on the FCPA-related investigations and whether executives will be held accountable for related compliance failures.”

Wal-Mart has fired back in this proxy filing which states, in pertinent part:

The Audit Committee and the Company are following the appropriate protocol for an independent, thorough investigation

As the Company has previously reported, the Audit Committee of the Board is conducting an independent internal investigation into, among other things, alleged violations of the FCPA and alleged misconduct in connection with foreign subsidiaries. Also, as previously reported to shareholders, the Company voluntarily disclosed the Audit Committee’s investigative activity on these matters to the U.S. Department of Justice and the U.S. Securities and Exchange Commission, both of which are conducting their own external investigations of these matters.

We believe that ISS’s recommendation that shareholders vote against the election of Mr. Walton and Mr. Duke because the Board has not disclosed “specific findings” regarding the FCPA-related investigations is at odds with the appropriate conduct of such internal and external investigations. We further believe that ISS’s request for disclosure of “specific findings” with respect to these ongoing investigations is contrary to the best interests of the Company and our shareholders because such a disclosure: (1) could interfere with, or distract from, the ongoing investigations; (2) is impractical, given that no final conclusions or findings have been made; and (3) could adversely impact the Company’s position in any current or future legal proceedings that may relate to these matters.”

As hinted at in the previous post, I agree with Wal-Mart’s position.

Up North

This previous post highlighted Canada’s first individual conviction for a bribery offense under the Corruption of Foreign Public Officials Act (“CFPOA”) including the specific facts in the action against Nazir Karigar.  Karigar was recently sentenced to three years in prison.

As noted here from Baker & McKenzie’s Canadian Fraud Law:

“Superior Court Justice Hackland ruled that Karigar “had a leading role in a conspiracy to bribe Air India officials in what was undoubtedly a sophisticated scheme to win a tender for a Canadian based company.” The Court issue[d] the following warning: “Any person who proposes to enter into a sophisticated scheme to bribe foreign public officials to promote the commercial or other interests of a Canadian business abroad must appreciate that they will face a significant sentence of incarceration in a federal penitentiary”.

In his reasons for sentence Justice Hackland stated that “The idea that bribery is simply a cost of doing business in many countries, and should be treated as such by Canadian firms competing for business in those countries, must be disavowed. The need for sentences reflecting principles of general deterrence is clear.”

As noted in this Osler alert:

“The [sentencing] decision noted a number of aggravating factors. First, the bribery conspiracy was sophisticated, carefully planned, and would have involved the payment of millions of dollars in bribes. Second, Mr. Karigar orchestrated a fake bid to create the illusion of competition and used confidential insider information to prepare the bid. Third, Mr. Karigar behaved with “a complete sense of entitlement.” Finally, Mr. Karigar personally conceived and orchestrated the scheme.

Several mitigating factors were also noted. The bribery scheme was unsuccessful. In addition, Mr. Karigar helped to shorten the trial by cooperating in the prosecution. Indeed, it was his exposure of the bribery scheme after a falling out with his co-conspirators, and his inability to secure an immunity agreement, that led to his prosecution. Mr. Karigar’s prior clean record, his 67 years of age and his failing health were also considered mitigating factors.”

For more, see here from Blakes.

The Race is On

This previous post regarding GSK’s scrutiny in China noted that one of the more interesting aspects of the scrutiny will be the enforcement competition between Chinese, U.K., and U.S. authorities.    The U.K. has unique double jeopardy provisions and former U.K.  Serious Fraud Office Director Richard Alderman has stated (see here):

“Our double jeopardy law looks at the facts in issue in the other jurisdiction and not the precise offence. Our law does not allow someone to be prosecuted here in relation to a set of facts if that person has been in jeopardy of a conviction in relation to those facts in another jurisdiction.”

The race is on as GSK recently disclosed:

“GSK has … been informed by the UK’s Serious Fraud Office (SFO) that it has opened a formal criminal investigation into the Group’s commercial practices. GSK is committed to operating its business to the highest ethical standards and will continue to cooperate fully with the SFO.”

In this release, the SFO states:

“The Director of the SFO has opened a criminal investigation into the commercial practices of GlaxoSmithKline plc and its subsidiaries. Whistleblowers are valuable sources of information to the SFO in its cases. We welcome approaches from anyone with inside information on all our cases including this one …”.

For additional reporting, see here

Deserving Part 2

Earlier this week, the African Development Bank (“AfDB”) announced:

“[T]he conclusion of a Negotiated Resolution Agreement with Snamprogetti Netherlands B.V. following the company’s acceptance of the charge of corrupt practices by affiliated companies in an AfDB-financed project. As part of the Negotiated Resolution Agreement, the Bank’s Integrity and Anti-Corruption Department levied a financial penalty of US $5.7 million against the company.”

The project at issue was once again the Bonny Island, Nigeria project and the recent AfDB action follows a March action (see here for the prior post) in which the AfDB assessed $17 million in financial penalties against other Bonny Island participants – Kellogg Brown & Root, Technip, and JGC Corp.

As highlighted in this previous post, in July 2010 Snamprogetti and related entities resolved a $365 million DOJ/SEC enforcement action involving Bonny Island conduct.

My comment is the same as it was in connection with the March AfDB action against other Bonny Island participants.

Pardon me for interrupting this feel good moment (i.e. a corporation paying money to a development bank), but why is the AfDB deserving of any money from the companies?  As noted here, AfDB’s role in the Bonny Island project was relatively minor as numerous banks provided financing in connection with the project.  Moreover, as noted here, the AfDB “invested in the oil and gas sector through a USD 100 million loan to NLNG [Nigeria LNG Limited] to finance the expansion of a gas liquefaction plant located on Bonny Island.”

Why is the bank that loaned money to NLNG deserving of anything?  Is there any evidence to suggest that the $100 million given to NLNG was not used for its “intended purpose” of building the Bonny Island project?

Quotable

In this recent Wall Street Journal Risk & Compliance Journal Q&A, Kathleen Hamann (a recent departure from the DOJ’s FCPA Unit) states:

“Tell me what companies should take from your time at the Justice Department now that you’re advising them on how to fulfill the requirements of an FCPA compliance program.

The first thing I would say is that companies shouldn’t just be thinking about the FCPA. There’s been such a proliferation of transnational bribery laws and domestic bribery laws that you may not [just] have an FCPA issue. You also have to think about the U.K. Bribery Act, you may have to think about the Corruption of Foreign Public Officials Act in Canada, [among others.]

A lot of the laws in other countries have complete defenses to liability for having a good compliance program in place. Having a good compliance program ahead of time not only helps prevent misconduct, but it also puts the company in a better position if something does go wrong. There are points all the way where a good compliance program and strong remediation can either stop an investigation, or really mitigate the consequences of the investigation, both in terms of the penalty and in terms of the reputational risk the company will take.

[....]

What do you tell companies about self-reporting allegations to the authorities?

I think it’s a much more complicated question than even five years ago. It used to be that you disclose to the Justice Department and the SEC; you deal with them and it’s over. But now: How many different jurisdictions do you need to disclose to? What if it’s a country with no mechanism for voluntary disclosure, or no mechanism to reward voluntary disclosure?

I also think there’s a perception that your only two choices are to voluntarily disclose, lay down and cooperate, and give the department everything it asks for — or fight from day one. Those aren’t the only two options. There are stages of cooperation where you can get full credit, without accepting everything that is said by the government as gospel.

You want to minimize disruption to your business operations , which can be one of the best incentives for voluntary disclosure.  The U.S. generally doesn’t do things like seize servers, but others do. It’s incredibly disruptive to business operations to have foreign law enforcement take your in-country server. There has to be a very clearheaded assessment of what jurisdictions are involved, how complicated voluntary disclosure will be and what the genuine benefits and risks are of the disclosure are.”

Revised Roundup

Last week’s roundup collected commentary regarding the 11th Circuit’s recent “foreign official” ruling.  The post has been revised to include several additional law firm alerts, etc. and now includes over 25 links.

*****

A good weekend to all.