Archive for the ‘Declination Decisions’ Category

Items Of Interest From The Recent Dutch Enforcement Action Against SBM Offshore

Monday, December 1st, 2014

Dutch-based SBM Offshore recently resolved an enforcement action in the Netherlands.  With a settlement amount of $240 million, the SBM Offshore enforcement action is believed to be the third largest bribery enforcement action of 2014 with China’s $490 million enforcement action against GlaxoSmithKline and the U.S.’s $384 million enforcement action against Alcoa consisting of the top two.

The enforcement action was pursuant to Article 74 of the Dutch Penal Code, a provision of Dutch law that has been criticized by the OECD.

As stated by the OECD, Article 74 of the Dutch Penal Code “essentially involves the payment of a sum of money by the defendant to avoid criminal proceedings.”  Regarding such out-of-court settlements, the OECD has further noted that “out-of-court settlements in the Netherlands do not require an admission of guilt.”

In its December 2012 Phase 3 review of the Netherlands, one of the follow-up items listed was: “the use of out-of-court transactions for foreign bribery offences, as governed by article 74 of the  Dutch Penal Code, to ensure that they result in the imposition of effective, proportionate and dissuasive sanctions (Convention, Article 3.1).”

Regarding the SBM Offshore action, the Dutch Prosecutor’s Service announced:

“SBM Offshore has accepted an offer from the Dutch Public Prosecutor’s Service to enter into an out-of-court settlement. The settlement consists of a payment by SBM Offshore … of US$ 240,000,000 in total. This amount consists of a US$ 40,000,000 fine and US$ 200,000,000 disgorgement. This settlement relates to improper payments to sales agents and foreign government officials in Equatorial Guinea, Angola and Brazil in the period from 2007 through 2011 [...]. According to the [Dutch prosecutors] those payments constitute the indictable offences of bribery in the public and the private sector as well as forgery.”

According to the release, the reasons for the out-of-court settlement include:

  • SBM Offshore itself brought the facts to the attention of the authorities …SBM Offshore itself investigated the matter and agreed to fully cooperate with subsequent criminal investigations …;
  • there has been a new Management Board since 2012;
  • after it became aware of the facts, the newly established Management Board of SBM Offshore, at its own initiative, has taken significant measures to improve the company’s compliance; and
  • as noted in SBM Offshore’s press release, the current Management Board and Supervisory Board regret the failure of control mechanisms in place in the past.

According to the release, “from 2007 to 2011, SBM Offshore paid approximately US$ 200 million in commissions to foreign sales agents for services.  The largest part of these commissions totaling US $180.6 million, relate to Equatorial Guinea, Angola and Brazil.”

As to Equatorial Guinea, the release states:

“In early 2012, it came to SBM Offshore’s attention that one of its former sales agents might have given certain items of value to government officials in Equatorial Guinea. This reportedly involved one or more cars and a building. In the opinion of the Openbaar Ministerie and the FIOD, SBM Offshore’s former sales agent paid a significant portion of the commissions paid to him by SBM Offshore on to third parties, who in turn would have forwarded parts of these payments to one or more government officials in Equatorial Guinea. There also are other payments, such as education and health insurance costs. In the opinion of the [Dutch authorities], such (forwarded) payments took place with the knowledge of people who at the time were SBM Offshore employees, including someone who at the time was a member of the Management Board. From 2007 through 2011, SBM Offshore paid that particular sales agent USD 18.8 million in total in relation to Equatorial Guinea.”

As to Angola, the release states:

“In the period from 2007 through 2011, SBM Offshore also used several sales agents in Angola. These sales agents received commissions for services regarding certain projects in Angola. In the opinion of the [Dutch authorities], Angolan government officials, or persons associated with Angolan government officials, who are associated with at least one of these sales agents, received funds. In addition, there are payments for travel and study costs to one or more Angolan government officials or their relatives. Also with respect to Angola, the [Dutch authorities] are of the opinion that such payments took place with the knowledge of people who at the time were SBM Offshore employees. In the period from 2007 through 2011, SBM Offshore paid USD 22.7 million in commissions to its sales agents in connection with Angola.”

As to Brazil, the release states:

“With regard to Brazil, certain “red flags” relating to the main sales agent used in Brazil were found during the internal investigation commissioned by SBM Offshore. These red flags included:

  • the high amounts (in absolute terms) of commission that were paid to the sales agent and its companies;
  • a split between commissions paid to the sales agent between its Brazilian and its offshore entities; and
  • documents indicating the sales agent had knowledge of confidential information about a Brazilian client.

The internal investigation conducted by SBM Offshore did not yield any concrete evidence that payments may have been made to one or more government officials in Brazil. In the period from 2007 through 2011, SBM Offshore paid USD 139.1 million in commissions to its sales agents in connection with Brazil.

A mutual legal assistance request in the context of the investigation conducted by the [Dutch authorities] established that payments were made from the Brazilian sales agent’s offshore entities to Brazilian government officials. These findings resulted from means of investigation inaccessible to SBM Offshore.”

The release states, under the heading “Further Investigation” as follows.

“It appears from the criminal investigation that certain natural persons have been involved in the criminal offences committed in the opinion of the [Dutch authorities]. In a case like the one at hand, the [Dutch authorities] has jurisdiction if criminal acts are committed in the Netherlands, or when criminal acts are committed abroad by persons with the Dutch nationality. From the current state of affairs of the investigation, this does not appear to be the case. The [Dutch authorities] will cooperate fully with the countries that have jurisdiction to prosecute the natural persons involved.”

In this release, SBM Offshore stated that “the United States Department of Justice has informed SBM Offshore that it is not prosecuting the Company and has closed its inquiry into the matter.”

The SBM Offshore release further states:

Self-Reporting

The settlement with the [Dutch authorities] is a result of the discussions between the [Dutch authorities] and SBM Offshore, which started after SBM Offshore voluntarily informed the [Dutch authorities] and the United States Department of Justice of its self-initiated internal investigation in the spring of 2012. The findings of the internal investigation were communicated in SBM Offshore’s press release of April 2, 2014. SBM Offshore fully cooperated with the [Dutch authorities] and the United States Department of Justice.

Remedial Measures

With its voluntary reporting of the internal investigation to the [Dutch authorities], the United States Department of Justice and the market in April 2012, SBM Offshore made it clear that it wants to conduct its business transparently. The Supervisory Board appointed a new Management Board that took office in the first half of 2012. The new Management Board has repeatedly stressed the importance of compliance inside and outside the organisation. The Company, with the assistance of its advisors, enhanced its anti-corruption compliance program and related internal controls. The Company shared these measures with the [Dutch authorities] and the United States Department of Justice. The measures include:

  • the appointment of [a] Chief Governance and Compliance Officer, a newly created Management Board position;
  • the appointment of a seasoned compliance professional as Compliance Director, another newly created position;
  • the enhancement of anti-corruption related policies and procedures designed to ensure compliance by Company employees as well as third parties;
  • at the inception of the internal investigation, a review of all sales agents who were active at that time;
  • a decision to no longer use sales agents in those countries where the Company itself has a substantial presence;
  • the enhancement of compliance procedures related to the retention of sales agents, other intermediaries and joint venture partners;
  • the launch of a significant training effort for employees in compliance-sensitive positions;
  • the enhancement of mechanisms to report potential wrongdoing;
  • the enhancement of the Company’s internal financial controls related to anti-corruption compliance and internal audit processes; and
  • disciplinary actions against employees who were involved in or had knowledge of possible improper payments, including termination of employment agreements.

Although the current Management Board and the Supervisory Board regret that in the past, SBM Offshore’s processes relating to the monitoring of its sales agents appeared to not have been of a standard that allowed SBM Offshore to ensure the integrity of the actions taken by its sales agents, SBM Offshore believes that with these measures it offers a transparent and open Company to its clients and other stakeholders.

In the release Bruno Chabas (CEO of SBM Offshore) stated:

“SBM welcomes the conclusion of all discussions with the Dutch and U.S. authorities. We have been open, transparent and accountable throughout this difficult process which has addressed issues from a past era. We can now focus on the future, secure in the knowledge that we have put in place an enhanced compliance culture which embeds our core values.”

To some, the lack of a DOJ enforcement action against SBM Offshore was a declination.  However, such a conclusion implies that there was actually an FCPA enforcement action to bring against SBM Offshore.

Two points are relevant to this issue.  First, as noted in this Global Investigations Review article, SBM Offshore’s outside counsel comments that the company disclosed to the Dutch authorities an the DOJ “before we had done much of the internal investigation.” Second, SBM Offshore could only be prosecuted for FCPA anti-bribery violations to the extent the conduct at issue had a U.S. nexus.

Items Of Interest From The Bio-Rad Enforcement Action

Thursday, November 6th, 2014

This previous post dived deep into the Bio-Rad Laboratories FCPA enforcement action.

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

Play On Words

The enforcement action was the result of Bio-Rad’s voluntary disclosure and both the DOJ and SEC were complimentary of the company’s cooperation.

In the words of the DOJ, “that cooperation included voluntarily making U.S. and foreign employees available for interviews, voluntarily producing documents from overseas, and summarizing the findings of its internal investigation. ”  Elsewhere the DOJ stated that Bio-Rad translated numerous documents and provided timely reports on witness interviews to the DOJ.

Likewise, the SEC noted that Bio-Rad’s investigation “included over 100 in-person interviews, the collection of millions of documents, the production of tens of thousands of documents, and forensic auditing.”

Against this backdrop, the DOJ’s press release contained a most interesting play of words.

“The department pursues corruption from all angles …” (emphasis added).

“The FBI remains committed to identifying and investigating violations of the FCPA.”  (emphasis added).

Bio-Rad’s press release also contained an interesting play on words as well.

As highlighted in several previous posts (see here for instance), the term “declination” is already one of the more amorphous term in the “FCPA vocabulary.”

In a further twist, the company’s press release stated:

“The DOJ declined to prosecute Bio-Rad, and the parties entered into a Non-Prosecution Agreement under which Bio-Rad has agreed to pay a penalty of $14.35 million.” (emphasis added).

A Government Required Transfer of Shareholder Wealth to FCPA Inc?

Bio-Rad was the second FCPA enforcement in the past two weeks – Layne Christensen being the other (see here and here for prior posts).

Both enforcement actions were the result of voluntary disclosures in which the DOJ and/or SEC were complimentary of the company’s internal investigation, remedial actions, and compliance enhancements.

For instance, the DOJ noted that Bio-Rad conducted “an extensive internal investigation in several countries” and noted, among other things, as follows.

“the Company has engaged in significant remedial actions, including enhancing it anti-corruption policies globally, improving its internal controls and compliance functions, developing and implementing additional FCPA compliance procedures, including due diligence and contracting procedures for intermediaries, instituting heightened review of proposals and other transactional documents for all Company contracts … and conducting extensive anti-corruption training throughout the global organization.”

Likewise, the SEC stated, among other things, as follows.

“Bio-Rad also undertook significant and extensive remedial actions including: terminating problematic practices; terminating Bio-Rad employees who were involved in the misconduct; comprehensively re-evaluating and supplementing its anticorruption policies and procedures on a world-wide basis, including its relationship with intermediaries; enhancing its internal controls and compliance functions; developing and implementing FCPA compliance procedures, including the further development and implementation of policies and procedures such as the due diligence and contracting procedure for intermediaries and policies concerning hospitality, entertainment, travel, and other business courtesies; and conducting extensive anticorruption training throughout the organization world-wide.”

In the Layne Christensen action, the SEC likewise stated, as other things, as follows.

“Layne Christensen also took affirmative steps to strengthen its internal compliance policies, procedures, and controls. Layne Christensen issued a standalone anti-bribery policy and procedures, improved its accounting policies relating to cash disbursements, implemented an integrated accounting system worldwide, revamped its anti-corruption training, and conducted extensive due diligence of third parties with which it does business. In addition, Layne Christensen hired a dedicated chief compliance officer and three full-time compliance personnel and retained a consulting firm to conduct an assessment of its anti corruption program and make recommendations.”

Nevertheless, both Bio-Rad and Layne Christensen have two-year reporting obligations to the government after the enforcement action.

The following observation is the same as in this prior post.

In situations involving voluntary disclosures where the enforcement agencies are complimentary of the company’s remedial actions and compliance enhancements, such post-enforcement action reporting obligations seem to be little more than a government required transfer of shareholder wealth to FCPA Inc.

Sure, such post-enforcement action reporting obligations give enforcement agency officials something to do and provide even more work for FCPA Inc., but in the situations discussed above, are such post-enforcement action reporting obligations necessary?

Both Bio-Rad’s (see below) and Layne Christensen’s FCPA scrutiny lasted approximately four years from beginning to enforcement action.  Tack on two more years of reporting obligations and the result is that these two instances of FCPA scrutiny will have provided FCPA Inc. participants an engagement lasting over six years.

This recent Wall Street Journal article asks “what would get more companies to self-disclose bribery” (a more detailed answer to this question will be explored in a future post).

One answer is to ditch the post-enforcement action reporting obligations in cases where there is a voluntary disclosure and the enforcement agencies are complimentary of the company’s remedial actions and compliance enhancements.

Or perhaps the post-enforcement action reporting requirements do indeed lead to more voluntary disclosures when one considers the important gatekeeper role FCPA counsel often play in such corporate decisions.  (See here).

Timeline

As indicated in the resolution documents, Bio-Rad’s initial self-disclosure of potential FCPA violations occurred in May 2010. The length of the company’s FCPA scrutiny – from point of first public disclosure to resolution – thus lasted approximately 4.5 years. (See here for the prior post “The Gray Cloud of FCPA Scrutiny Simply Lasts Too Long”).

5 for 5

In 2014, there have been five SEC corporate FCPA enforcement actions (Bio-Rad, Layne Christensen, Smith & Wesson, Alcoa, and HP).  All have been resolved via the SEC’s administrative process.

My recent article, “A Foreign Corrupt Practices Act Narrative,” (see pgs. 991-995) discusses this trend and how it is troubling as it places the SEC in the role of regulator, prosecutor, judge and jury all at the same time.  As Judge Rakoff recently observed, “from where does the constitutional warrant for such unchecked and unbalanced administrative power derive?”

Here Come the Plaintiffs’ Lawyers

It is as predictable as the sun rising in the east.

No less than 24 hours after release of the Bio-Rad enforcement action documents, plaintiffs’ lawyers began salivating and announcing investigations to determine whether officers and directors of the company breached fiduciary duties owed to shareholders.  (See here, here, here, here, here, and here for releases).

Self-Serving Statements Do Not Establish The Truth Of The Matter Asserted

Tuesday, October 21st, 2014

FCPA Professor is the best website devoted to the Foreign Corrupt Practices Act.

Does this self-serving statement establish the truth of the matter asserted?

Of course not.

Yet, in the FCPA context it seems that many self-serving statements by political actors, advocates, and counsel are reported as establishing the truth of the matter asserted.

For instance, recently there was much reporting in the FCPA space regarding the DOJ’s so-called declination of Layne Christensen Company.

As highlighted in this prior post, the company has been under FCPA scrutiny since 2010 concerning conduct in Africa and as noted in this November 2013 post, the company disclosed that it was “engaged in discussions with the DOJ and the SEC regarding a potential negotiated resolution” of the matter.

However, in August Layne Christensen issued this release which stated in pertinent part:

“The DOJ has decided to not file any charges against the Company in connection with the previously disclosed investigation into potential violations of the FCPA.  The DOJ has notified Layne that it considers the matter closed. [...] Based on conversations with the DOJ, we understand that our voluntary disclosure, cooperation and remediation efforts have been recognized and appreciated by the staff of the DOJ and that the resolution of the investigation reflects these matters.”

The implicit suggestion from the company’s disclosure would seem to be that the reasons for the so-called declination was the company’s voluntary disclosure, cooperation and remediation.  Yet, the disclosure of course is little more than a self-serving statement that does not establish the truth of the matter asserted (indeed there have been many FCPA enforcement actions originating from voluntary disclosures during which the company cooperated and engaged in extensive remedial measures).

Moreover, there could be other reasons why the DOJ declined to prosecute Layne Christensen including the nature and quality of the evidence that the company actually violated the FCPA.  There is no way to test or measure the accuracy of Layne Christensen’s disclosure, yet the public is  invited to accept the self-serving statements as establishing the truth of the matter asserted.

Perhaps sensing a marketable moment, Layne Christensen’s counsel took the unusual step of issuing this press release. The release noted the “recently closed DOJ investigation” of its client and then cited to the substance of its own client’s press release.  In other words, the firm used its client’s self-serving statements to support its own self-serving statements with the implicit suggestion being that the nature and quality of the firm’s lawyering was a reason for the so-called declination of its client by the DOJ.

No big deal, everyone is entitled to engage in a bit of puffery aren’t they?

Yet, the problem arises when self-serving statements are then reported by others to establish the truth of the matter asserted.

And that is precisely what this recent article appeared to do.  The article began as follows.

“Often the best guidance on how to avoid Foreign Corrupt Practices Act charges comes from the details of cases that government authorities chose not to pursue. Companies looking to improve their FCPA compliance programs got two such cases recently. Together, the cases speak volumes about how to get a declination from the Department of Justice. In an unusual move, the Department of Justice opted not to bring enforcement actions against Image Sensing Systems and Layne Christensen in two separate cases pertaining to alleged violations of the FCPA. Statements issued by the companies themselves cite numerous reasons why the Justice Department declined to prosecute.” (emphasis added).

The article then quoted a number of self-serving statements from Layne Christensen’s counsel that appear to convince the reader of the truth of the matter asserted by the statements.

The above linked article even closed with the biggest self-serving statement of them all in the context of so-called DOJ declinations. The article stated:

“Learning from Morgan Stanley

In 2012, the Justice Department similarly exonerated Morgan Stanley of FCPA charges for its extensive cooperation, robust internal compliance program, and voluntary disclosure of the misconduct. “Often overlooked is one of the critical factors that led to that declination: Morgan Stanley assisted the government in identifying the individual executive responsible for the criminal conduct, Garth Peterson, and in securing evidence to hold Peterson criminally responsible,” [stated an industry participant]. For other companies facing an FCPA investigation, engaging the help of outside experts who have been through the process many times before and can help the company “not have to reinvent the wheel,” [stated an industry participant], really helps in the end to see the successful conclusion of an FCPA investigation and remediation.”

The above article cited, as so many articles have before, the self-serving statements in this April 2012 DOJ press release concerning its so-called Morgan Stanley declination.  However, the DOJ’s statements in that press release were not simply that of an umpire calling the balls and strikes.  Rather, the press release statements concerning Morgan Stanley are more properly viewed as statements by a political actor and advocate seeking to quell the then-existing growing tide of FCPA reform, including as to a compliance defense.  (See prior posts here and here for the context, timing, and background of the DOJ’s so-called Morgan Stanley declination).

In short, the DOJ was looking for an opportunity to make a policy statement – and a political move – yet to most this self-serving statement seemed to establish the truth of the matter asserted.  That this was the primary motivation of the DOJ’s so-called Morgan Stanley declination seems to become more apparent with time as it is a prominent talking point in nearly every DOJ FCPA policy speech since.  (See here – Sept. 2012); (here – October 2012); (here – Nov. 2012); (here – Nov. 2013); (here – Nov. 2013); (here – May 2014); (here – Sept. 2014); (here – Oct. 2014).

To anyone who has attended an FCPA conference in recent years, you know that self-serving statements dominate the conference circuit.

For instance, a DOJ or SEC enforcement official will state x, y, or z.  It is of course impossible to test the accuracy or veracity of x, y, or z, but the audience is of course invited to accept the self-serving statement as establishing the truth of the matter asserted.

Likewise, it is common on the conference circuit for FCPA Inc. participants to tell “war stories” about how they successfully negotiated with the DOJ or SEC as to issue x, y or z.  Again, it is of course impossible to test the accuracy or veracity of x, y or z, but once again the audience is invited to accept the self-serving statement as establishing the truth of the matter asserted.

To conclude, the point is this.

Self-serving statements are fine and political actors, advocates, and counsel are entitled to make them.  Yet, greater restraint should be exhibited in reporting self-serving statements as establishing the truth of the matter asserted.

Friday Roundup

Friday, October 17th, 2014

Strange definitions, asset recovery, through the revolving door, and proof.  It’s all here in the Friday roundup.

Strange Definitions

The Department of Justice and Securities and Exchange Commission sure do have some strange definitions.

For instance, in this Global Investigations Review Q&A, Marshall Miller (Principal Deputy Assistant Attorney General) states:

“[W]ith respect to declinations, if we have good reason to investigate potential criminal conduct then we’re going to follow that investigation to its end. At times, we do decline to prosecute, and we do so in an appropriate and expeditious way. One of the things we’ve been talking about is how to ensure that those under investigation understand why and when we decline to prosecute. But primarily these are cases where there were significant indicia of wrongdoing, but the wrongdoing doesn’t add up to a federal criminal case and [these] are not examples of the Justice Department just charging into corporations where there’s no wrongdoing in the first place.”

When the wrongdoing under investigation “doesn’t add up to a federal criminal case” that is not a declination, it is what the law commands.

Over at the SEC, yesterday the agency touted its FY 2014 enforcement actions (see here).  Andrew Ceresney (Director of the SEC’s Division of Enforcement) stated:  “I am proud of our excellent record of success and look forward to another year filled with high-impact enforcement actions.”

Included in the SEC’s release is the following:

“Combatting Foreign Corrupt Practices and Obtaining Highest-Ever Penalties Against Individuals

With the exception of Weatherford all of the corporate enforcement actions were resolved through the SEC’s own administrative process wherein it needs to convince only itself of the strength of its case.  In addition, see here for the article “Why You Should Be Alarmed by the ADM FCPA Enforcement Action” and see here for the post “HP Enforcement Action-Where to Begin.”

As to that “excellent record of success,” in the former Siemens executives action, see here for the previous guest post by a former Assistant Director of the SEC’s Enforcement Division (“Sometimes you see something in a Foreign Corrupt Practices Act case that’s so inexplicable you wish someone would throw the red challenge flag and have the play reviewed under the hood or up in the booth.  Unfortunately, in the largely-overlooked wind-down phase of the SEC’s FCPA case against several former Siemens executives, the last of the defendants defaulted, so nobody was around to throw the challenge flag – and as a result the SEC seems to have gotten away with a doozy of a blown call.”).

Asset Recovery

Relevant to the DOJ’s 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, the DOJ recently announced:

“[A] settlement of its civil forfeiture cases against assets in the United States owned by the Second Vice President of the Republic of Equatorial Guinea Teodoro Nguema Obiang Mangue that he purchased with the proceeds of corruption.”

“Through relentless embezzlement and extortion, Vice President Nguema Obiang shamelessly looted his government and shook down businesses in his country to support his lavish lifestyle, while many of his fellow citizens lived in extreme poverty,” said Assistant Attorney General Caldwell.  “After raking in millions in bribes and kickbacks, Nguema Obiang embarked on a corruption-fueled spending spree in the United States.  This settlement forces Nguema Obiang to relinquish assets worth an estimated $30 million, and prevents Nguema Obiang from hiding other stolen money in the United States, fulfilling the goals of our Kleptocracy Asset Recovery Initiative: to deny safe haven to the proceeds of large-scale foreign official corruption and recover those funds for the people harmed by the abuse of office.”

“While this settlement is certainly gratifying for the many investigators and prosecutors who worked tirelessly to bring it to fruition, it is undoubtedly even more rewarding for the people of Equatorial Guinea, knowing that at least some of the money plundered from their country’s coffers is being returned to them,” said Acting ICE Director Winkowski.  “ICE remains steadfast in its resolve to combat foreign corruption when the spoils of these crimes come to our shores and we are committed to seeking justice and compensation for the often impoverished victims.”

According to court documents, Nguema Obiang, the son of Equatorial Guinea’s President Teodoro Obiang Nguema Mbasogo, received an official government salary of less than $100,000 but used his position and influence as a government minister to amass more than $300 million worth of assets through corruption and money laundering, in violation of both Equatoguinean and U.S. law.  Through intermediaries and corporate entities, Nguema Obiang acquired numerous assets in the United States that he is agreeing to relinquish in a combination of forfeiture and divestment to a charity for the benefit of the people of Equatorial Guinea.

Under the terms of the settlement, Nguema Obiang must sell a $30 million mansion located in Malibu, California, a Ferrari automobile and various items of Michael Jackson memorabilia purchased with the proceeds of corruption.  Of those proceeds, $20 million will be given to a charitable organization to be used for the benefit of the people of Equatorial Guinea.  Another $10.3 million will be forfeited to the United States and will be used for the benefit of the people of Equatorial Guinea to the extent permitted by law.

Under the agreement, Nguema Obiang must also disclose and remove other assets he owns in the United States.  Nguema Obiang must also make a $1 million payment to the United States, representing the value of Michael Jackson memorabilia already removed from the United States for disbursement to the charitable organization.  The agreement also provides that if certain of Nguema Obiang’s other assets, including a Gulfstream Jet, are ever brought into the United States, they are subject to seizure and forfeiture.”

Related to the above action, the Wall Street Journal recently published this article titled “When U.S. Targets Foreign Leaders for Corruption, Recovering Loot Is a Challenge.”  The article notes:

“The [Obiang] settlement shows the ups and downs of the Justice Department’s Kleptocracy Asset Recovery Initiative, announced in 2010. So far, the agency has collected about $600 million out of the $1.2 billion pursued from 15 cases against current or former officials and businessmen in at least 14 different countries, according to a review of the cases by the Journal. Most of the cases involve alleged bribery, extortion or embezzlement. Justice Department officials said additional cases haven’t been made public yet because their court filings are sealed.

[...]

“I am pleased to be able to end this long and costly ordeal,” Mr. Obiang wrote in a statement on his Facebook page. “I agreed to settle this case despite the fact that the U.S. federal courts had consistently found that the Department of Justice lacked probable cause to seize my property.” Lawyers for Mr. Obiang have said the disputed property was bought with money earned legally through timber concessions and companies he owns. The Justice Department faced daunting obstacles in its fight against Mr. Obiang that are common in corruption cases against foreign leaders. To win in court, the government must prove that assets in the U.S. were bought with proceeds of illegal activity in the country where the alleged corruption occurred. The money trail is even harder to follow when the target has a large number of overseas shell companies and accounts, as Mr. Obiang did, according to court filings in the civil case. “These accounts are suspicious,” U.S. District Judge George Wu said in a ruling last year. But he threw out most of the Justice Department’s case, concluding there “is no evidence that the defendant assets were purchased with those funds.” In December, the Justice Department filed a new civil suit against Mr. Obiang. Before the settlement was reached, the two sides were sparring over whether a statute of limitations had lapsed.”

McInerney to Davis Polk

As Chief of the DOJ’s Fraud Section and Deputy Assistant Attorney General for the Criminal Division, Denis McInerney was involved in setting DOJ FCPA policy during this declared new era of enforcement and frequently advanced those policy positions on the FCPA conference circuit.  McInerney recently left the DOJ and Davis Polk recently announced:

“McInerney … is returning to the firm as a partner in its Litigation Department and member of its white collar criminal defense and investigations practice.  As Chief of the Fraud Section (from 2010 to 2013) and then Deputy Assistant Attorney General overseeing the Fraud, Appellate and Capital Case Sections of the Criminal Division (from 2013 to 2014), Mr. McInerney was responsible for supervising approximately 100 prosecutors in the Fraud Section, which has responsibility for all Foreign Corrupt Practices Act (FCPA) investigations conducted by DOJ, as well as a wide range of other complex white collar criminal investigations and prosecutions throughout the country, including corporate, securities, financial, health care and procurement fraud cases.

Among other matters, Mr. McInerney played a leadership role in DOJ’s investigations into the alleged manipulation of LIBOR and the foreign exchange market by various financial institutions around the world, and the preparation of A Resource Guide to the Foreign Corrupt Practices Act, which was published by DOJ and the SEC in 2012.  Mr. McInerney’s tenure leading the Fraud Section was marked by a substantial increase in the number of defendants charged and convicted on an annual basis, as well as the number of trials conducted by Fraud Section prosecutors each year.

[...]

“We are delighted to welcome Denis back. His integrity, judgment and experience, both as a high-level DOJ official overseeing some of the nation’s most important white collar cases and as a skilled defense attorney representing institutions and individuals in their most sensitive investigations and trials, will be a great asset to our world-class litigation and white collar criminal defense teams,” said Thomas J. Reid, Davis Polk’s Managing Partner. “Denis rejoins an extraordinary and growing team of former government officials in our New York and Washington offices, including litigators who have held senior positions with DOJ, the SEC, the White House and the CIA.”

Mr. McInerney said, “I’m very grateful that I was given the opportunity to return to the Department for these last four plus years to help lead a terrific group of prosecutors at Main Justice in Washington. At the same time, I’m very glad to be home, not only with my family in New York, but with Davis Polk, a firm that is all about excellence, where I was fortunate to have practiced for 18 years. Returning to Davis Polk will give me the opportunity to work on some of the most important and interesting enforcement and regulatory matters in the country with an expanded and extremely talented litigation group.”

 Proof

Need further proof that it is indeed an FCPA world.  See here.

*****

A good weekend to all.

Friday Roundup

Friday, October 3rd, 2014

Yesterday at an American Bar Association event in Washington, D.C. Kara Brockmeyer (Chief of the SEC’s FCPA Unit) and Patrick Stokes (Chief of the DOJ’s FCPA Unit) spoke on a panel titled “DOJ-SEC FCPA Update:  Trends and Significant Developments.”  This post rounds up their comments and responses to certain questions.

*****

Brockmeyer began by providing a general overview of the types of FCPA issues that the SEC often encounters.  She commented that – much to her surprise – “old-school sprawling bribery” cases still exist.  She also mentioned gifts, travel and entertainment type cases, charitable donations, and the use of third party intermediaries.

Brockmeyer mentioned the increasing international cooperation the SEC has with law enforcement agencies in other countries.  She indicated that some of this cooperation is visible to the outside world, but is even more visible inside the SEC.  According to Brockmeyer, the increase in international cooperation may not be a “positive development for companies” (she used the analogy that there are “more cooks in the kitchen”), but she did indicate that this dynamic will have a “positive long term impact” because it will level the playing field for U.S. companies.

Consistent with prior statements made by Brockmeyer, she also indicated that more FCPA enforcement will be handled through the SEC’s administrative process.

According to Brockmeyer, corporate self-reporting is “worth it.”  She stated that a “disproportionate number of cases we decline” are because of corporate self-reporting even if the SEC does not report this to the public.  Brockmeyer stated – “declinations are not unicorns – they do exist.”

In response to a question from Peter Clark (moderator of the panel and himself the former head of the DOJ’s FCPA Unit) concerning the quality of corporate compliance programs, Brockmeyer said that the SEC still sees a “lot of paper programs, lots of boxes, forms, but no teeth, no testing.”  She specifically mentioned small to medium size companies as generally having deficient compliance policies and procedures and stated that a message the SEC intended to send with the Smith & Wesson action (here) was that small to medium size companies trying to break into international markets need to have internal controls in place.

Stokes began his talk with statistics and reminded the audience of DOJ enforcement statistics and stressed that a number of cases in the pipeline are significant.  According to Stokes, the “past is a good window into where [the DOJ] is going in the near term.”

Stokes next highlighted various take-away points from recent cases that he thought were instructive.  The first was that the DOJ doesn’t “have a preference or bias for any particular industry.”  He said that the DOJ is “opportunistic” and will look for evidence of crimes anywhere and follow the evidence where it leads.  He reminded the audience that from DOJ’s perspective, it is “not just about high risk industries, but high risk jurisdictions.”

According to Stokes, the DOJ is aware that companies “are trying to push FCPA risk out of the company and onto third parties.”  He said that the DOJ is evolving as bribery schemes evolve and will use more investigative techniques to uncover bribery schemes.

As to another take-away point, Stokes stated that the DOJ is “very focused” on prosecuting individuals (executives, intermediaries) as well as companies.  According to Stokes, “going after one or the other is not sufficient for deterrence purposes.”  Stokes next reminded the audience that the DOJ is using various law enforcement tools available to it and that “corporate executives should wonder who is listening in on their calls and conversations.”

As to corporate self-disclosures, Stokes acknowledged that he often hears from people that there is no benefit.  He disputed this and stated that the reality is the DOJ has declined a number of cases in instances of self-reports as well as based on corporate cooperation and remediation.  According to Stokes, not all cases of voluntary disclosure are going to be rewarded with a declination because the DOJ still needs to prosecute “bad conduct.”

According to Stokes, self-reports are also rewarded in the following ways: various forms of resolution the DOJ uses, including which entity which be included in the enforcement action; penalty amounts; and whether or not a monitor may be required.

According to Stokes, the “risks are high” if a company does not self report because of whistleblowers and foreign law enforcement investigations.

Moderator Clark next asked Stokes if the DOJ has or will consider on an annual basis disclosing the matters that have been declined.  Stokes acknowledged that there is a “tremendous amount of interest in [DOJ] declinations” something that “never ceases to amaze” him.  He said that the DOJ is “very aware of the interest in providing more information about declinations.”

Nevertheless Stokes stated that it is a “difficult balance” because of a corporation’s privacy interest.  Moreover, Stokes noted that many factors go into the declination decision  including the quality of the evidence, self-disclosure, cooperation, whether employees were truly rogue, and whether the company had a strong compliance program.  According to Stokes, it is often a challenge for the DOJ to “encapsulate in a meaningful and helpful way” when it declines and the reason why.

In the end, Stokes stated that “raw” declination numbers might be useful to show the public that the DOJ is “living up to [its] word and declining cases” and that there is “value in the public understanding how [the DOJ is] exercising discretion.” One did get the sense from Stokes’s comments that this is an issue the DOJ is actively considering.  That would be a good thing and I have suggested since 2010 that when a company voluntarily discloses an FCPA internal investigation to the DOJ and the SEC, and when the DOJ and the SEC decline enforcement, the agencies should publicly state, in a thorough and transparent manner, the facts the company disclosed and why the agencies declined enforcement on those facts. (see here).

Stokes was asked a question from the audience – how is one “truly to determine who is a foreign official?”  He mentioned the recent 11th Circuit decision as factors the DOJ “will be looking to” and stated that these factors are “very consistent” with DOJ’s interpretation in other cases.  Stokes also mentioned that the DOJ has an Opinion Procedure Release program in which companies can seek a DOJ opinion.  Asked whether a question could be submitted as to the specific issue of whether someone is a “foreign official,” Stokes stated “yes we can answer that” so long as it is a real issue and forward looking.

As indicated above, both Brockmeyer and Stokes talked about the importance of individual prosecutions.  I asked Brockmeyer and Stokes to respond to statistics (see here, here and here) which highlight that approximately 80% of corporate FCPA enforcement actions lack any related enforcement actions against company employees.

Their response will be the focus of a future post.