Declination Decisions « FCPA Professor

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Friday Roundup

Friday, May 10th, 2013

Enforcement agency speeches, “foreign official” delay, and for reading stack. It’s all here in the Friday roundup.

Enforcement Agency Speeches

This prior post detailed comments by Mary Jo White prior to becoming SEC Chairman.

Last week, White spoke before the Investment Company Institute on the general topic of the SEC’s role in an increasingly global financial and regulatory system. She stated as follows (see here) concerning the SEC’s enforcement of the FCPA.

“Of course, misrepresentations and other unlawful actions travel in both directions across borders, which is another reason why our partnership with our regulatory counterparts abroad is so important. Among the most prominent concerns in this regard is bribery by U.S. companies overseas, which not only undermines international markets and governments but also simultaneously undermines the reporting and disclosure integrity of our own markets. Thus, strong and fair enforcement of the Foreign Corrupt Practices Act, which forbids U.S. companies from bribing foreign officials, has been and will continue to be a priority for us. Our first objective is to help companies avoid FCPA violations by educating them. And so our staff along with our colleagues at the Department of Justice recently published a comprehensive Guide to the FCPA to give clear guidance and clear up some myths. Of course, the other side of education is deterrence. Deterrence can mean strong enforcement actions with tough disgorgement and penalties. But it can also mean the tangible benefits that come with cooperation – as demonstrated by the Non-Prosecution Agreement with Ralph Lauren Corporation we announced in April. In this particular case, the corporation’s Argentine subsidiary paid bribes to government and customs officials to improperly secure the importation of their products into the country. The bribes occurred during a period when the U.S. parent company lacked meaningful anti-corruption compliance and control mechanisms over its foreign subsidiary. The misconduct came to light as a result of the company’s efforts to improve internal controls and compliance. And the company immediately reported the problem to the SEC and provided exceptional assistance to our investigation. Successful FCPA cases also increasingly require assistance from foreign law enforcement authorities. That is why we recently partnered with the DOJ and FBI in conducting a foreign bribery training program that provided intensive training to 130 foreign investigators and prosecutors from 30 countries, many on which the SEC staff relies for mutual legal assistance in FCPA cases.”

Yesterday, Daniel Suleiman (DOJ Deputy Chief of Staff for the Criminal Division) spoke at the Minnesota Bar Association’s Annual International Business Law Institute. (See here). Suleiman offered “some views from the U.S. Department of Justice on the topic of anti-corruption enforcement” and “what the Justice Department is doing in the area of criminal enforcement to fight corruption at home and abroad.” He stated, in pertinent part, as follows.

“I think of our anti-corruption efforts as falling into three principal buckets: number one is criminal prosecution; number two is assisting foreign countries to build up their judicial, prosecutorial, and investigative institutions; and number three is the pursuit, through civil actions, of the proceeds of foreign official corruption. I will discuss each of these buckets in turn.

First and foremost, the Criminal Division is a litigating operation. We investigate and prosecute cases. Our corruption prosecutions are of two kinds: we prosecute corruption by domestic officials, and we prosecute foreign bribery offenses under the Foreign Corrupt Practices Act, or FCPA.”

[...]

“[W]e have an incredibly strong team of prosecutors who focus exclusively on enforcing the FCPA. Depending upon how familiar you are with FCPA enforcement, you may know that the Criminal Division is the entity in the United States with primary responsibility for criminal enforcement of the Act. It is Justice Department policy that no FCPA prosecution can be brought without authorization from the Criminal Division, which distinguishes FCPA prosecutions from most other kinds of federal criminal cases. The Securities and Exchange Commission, which is a few blocks up the street from us, has primary responsibility for the Act’s civil enforcement.”

“Foreign bribery enforcement has for a long time been an important aspect of U.S. policy. The FCPA was enacted roughly 35 years ago, around the same time that our Public Integrity Section was created to focus on public corruption prosecutions, and it was the first effort of any nation to specifically criminalize the act of bribing foreign officials. The statute was enacted in the wake of the Watergate scandal, but it took more than 20 years for the Act to become a strong enforcement tool. And, over the past several years, the Justice Department has substantially increased its enforcement of the Act.”

“One important aspect of our FCPA enforcement involves, of course, our corporate resolutions. We have collected billions of dollars in criminal fines and penalties to resolve FCPA investigations against companies doing business abroad, including BizJet International Sales and Support Inc., a Lufthansa subsidiary; Alcatel-Lucent; Johnson & Johnson; and many others.”

“But another, critically important aspect of our enforcement regime involves holding individuals responsible for FCPA offenses. There is no greater deterrent to corporate crime than the prospect of prison time. As many have recognized, if people don’t go to prison, then enforcement can come to be seen as merely the cost of doing business. In the past four years, the Criminal Division’s FCPA Unit has obtained over three dozen criminal convictions of individuals, including of people who have been sentenced to as many as 15 years in prison.”

“We are as active today in this area as we have ever been. In the past month alone, we have announced charges against several key defendants in ongoing, active FCPA investigations. In mid-April, in a case that we are prosecuting with the U.S. Attorney’s Office in Manhattan, we secured the arrest of a defendant in connection with an alleged bribery scheme to secure mining rights in the Republic of Guinea. In a separate case, which we are prosecuting with the U.S. Attorney’s Office in Connecticut, we also secured the arrest last month of a defendant in connection with an alleged bribery scheme to secure power contracts in Indonesia. And just two days ago, together with the U.S. Attorney’s Office in Manhattan, we announced charges against two broker-dealer employees and a senior Venezuelan banking official for engaging in a multi-million dollar bribery scheme.”

[...]

“Finally, I want to tell you about a relatively new Justice Department initiative. About three-and-a-half years ago, Attorney General Holder gave a speech in Qatar, at which he pledged to increase the United States’ commitment to recovering foreign corruption proceeds. Since that time, the Criminal Division has led the charge in developing what we refer to as the Kleptocracy Asset Recovery Initiative.”

“The initiative’s purpose is to identify the proceeds of foreign official corruption – in other words, the spoils – forfeit them through civil actions, and, to the extent possible, repatriate the forfeited funds for the benefit of the people harmed. In most criminal prosecutions, a court can order forfeiture, upon conviction, as part of the defendant’s sentence. Often, however, it may be impractical or impossible to bring a criminal prosecution against a particular person – because that person is immune from prosecution, for example, beyond our jurisdiction, or otherwise unavailable. In these circumstances, we have begun bringing civil forfeiture actions to recover the stolen property.”

“We have brought several Kleptocracy cases in the past couple of years, and forfeited millions of dollars in corrupt proceeds. The most high-profile of our Kleptocracy cases to date involves two civil actions we have brought against approximately $70 million in assets allegedly belonging to a government minister in Equatorial Guinea who is also the son of that country’s president. According to court papers, despite an official government salary of less than $100,000 per year, this minister amassed wealth of over $100 million. Among the items we are seeking to forfeit are nearly $2 million worth of Michael Jackson memorabilia (including the white glove), a Gulfstream G-V jet worth $38.5 million, and a $30 million house in Malibu. These are hard, and hard-fought, cases, but we believe strongly that foreign officials who amass wealth through corruption should not be permitted to use the United States as a haven for their ill-gotten gains.”

“Foreign Official” Delay

Oral argument in the “foreign official” challenge pending in the 11th Circuit – originally scheduled for later this month, has been postponed until the week of October 7th.

This is a historic appeal in that it will be the first instance in which a circuit court directly confronts the enforcement theory that employees of alleged state-owned or state-controlled entities are “foreign officials” under the FCPA (see here for a prior post, including embedded links).

Scrutiny Alerts

For more on Barclay’s scrutiny, on both sides of the Atlantic, see this recent article in Middle East Monitor concerning the bank’s relationship with the Abu Dhabi government, including Sheikh Mansour, the deputy prime minister of the United Arab Emirates.

Samuel Rubenfeld (Wall Street Journal Risk & Compliance Journal) has the latest (here) regarding BSG Resources Ltd. a Guernsey-based company in the news after Frederic Cilins, a French citizen associated with the company, was recently arrested and accused of attempting to obstruct an ongoing investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea. (See here for the prior post). As noted in the WSJ article, BSG recently released this detailed statement concerning its conduct in Guinea.

Reading Stack

Several articles of interest to pass along from last week’s Corporate Crime Reporter conference. This article details comments made by Denis McInerney (DOJ Criminal Division Deputy Assistant Attorney General) regarding non-prosecution and deferred prosecution agreements. This article details comments made by McInerney concerning my suggested two-step reform plan (see here for the prior post) and also details McInerney’s response to my question concerning the definition of a declination. Articles here and here concern corporate monitors.

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Over the years, Bloomberg’s David Glovin has written some excellent articles concerning Viktor Kozney, Frederic Bourke, et al. With Bourke soon to report to prison, Glovin pens another great article here.

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This prior post discussed the NY Times recent “With Bags of Cash, CIA Seeks Influence in Afghanistan” story and how the story put our stark double standards in the headlines once again. More recently, the NY Times reports (here) as follows. ”[Afghan President] Karzai said he had called a meeting [...] with the CIA’s Kabul station chief. “I told him because of all these rumors in the media, please do not cut all this money, because we really need it,” he said. “We want to continue this sort of assistance, and he promised that they are not going to cut this money.” For more on the situation, including the views of others, see here from Alison Frankel’s On the Case column.

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See here from Josh Goodman (an attorney at the Federal Trade Commission) titled “The Anti-Corruption and Antitrust Connection.”

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A good weekend to all.

The Need For An FCPA Lingua Franca

Thursday, March 7th, 2013

There is a need for a Foreign Corrupt Practices Act lingua franca. The absence of a lingua franca has all sorts of negative effects, including an impact on the quality of FCPA enforcement and related statistics. I previously wrote about this issue here (“What is an FCPA Enforcement Action”), here (“The Need For a Consensus ‘Declination’ Definition”) and here (“Further to the Definition of ‘Declination’”).

Several recent events have put into sharper focus the need for an FCPA lingua franca – both as to what is an FCPA enforcement action and what is a declination.

What is an FCPA Enforcement Action?

Last week, a guest post on the FCPA Blog by Marc Alain Bohn (Miller & Chevalier) contained the headline “Year’s First FCPA Enforcement Action Flies Under the Radar.” The post concerned this February 28th SEC enforcement action against Keyuan Petrochemicals, Inc. and Aichun Li (the company’s CFO). To be sure, it was a nice find by Bohn and I agree with his statement that the action, regardless of what it is called, is significant because it was an SEC enforcement action against a China-based company whose stock is registered with the SEC and traded in the U.S.

The enforcement action was principally based on Keyuan’s systematic failure “to disclose in its SEC filings numerous material related party transactions between the company and its CEO and controlling shareholders, entities controlled by or affiliated with these persons, and entities controlled by Kenyuan’s management or their family members.” As alleged by the SEC, “the related party transactions took the form of sales of products, purchases of raw materials, loan guarantees and short term cash transfers for financing purposes.”

The enforcement action also included allegations that Kenyuan “operated an off-balance sheet cash account that was kept off the company books.” According to the SEC, “the account was used to pay for various items, including cash bonuses for senior officers, fees to consultants who provided technical services to the company, and reimbursements to the CEO for business expenses, including travel, entertainment, and rent for an apartment.” Later in the complaint, the SEC alleges as follows regarding the “off-balance sheet cash account.”

“From at least July 2008 and continuing until March 2011, Keyuan maintained an off-balance sheet cash account. Total amounts funded to and disbursed from the account were approximately $1 million. As a consequence of the use of the off-balance sheet cash account, the company’s reported balances in its financial statements for cash, receivables, construction-in progress, interest income, other income, and general and administrative expenses were misstated. Cash disbursements from the off-balance sheet account were used to pay for various expenses. For instance, cash bonuses were paid to senior officers, including Individual A, in 2010 from the off-balance sheet cash account; Keyuan did not withhold any taxes on these bonus payments. Keyuan also paid various technical experts that provided consulting services from this account; no provision was made by Keyuan to pay local taxes in connection with these payments. The company’s CEO also received cash disbursements from the off-balance sheet cash account, including funds to cover business expenses (such as travel and entertainment) and to cover the costs of an apartment near the plant facilities.”

As detailed in this prior post, the FCPA of course is a law much broader than its name suggests. The FCPA’s books and records and internal control provisions are among the most generic substantive legal provisions one can find and the SEC often brings what I’ve called “non-FCPA FCPA enforcement actions.”

In the Keyuan enforcement action it is thus not surprising that the SEC charged violations of the FCPA’s books and records and internal control provisions based on the above conduct.

Yet, as Bohn correctly points out in his FCPA Blog post, the SEC complaint also did made passing reference, in detailing the off-balance sheet cash account, that it “was also used to fund gifts – both cash and non-cash – for Chinese government officials.” Specifically, in paragraph 42 of the complaint the SEC alleges as follows.

“The off-balance sheet cash account was also used, in part, to fund gifts to Chinese government officials, typically around the Chinese New Year. Among the recipients of the gifts were officials from the local environment, port, police, and fire departments. Gifts ranged from household goods (such as beddings and linens) to ‘red envelope’ gifts in which cash was directly gifted to the recipients”

Of note, in the SEC’s summary paragraphs (paras. 45 and 46) titled “False Books and Records and Inadequate Internal Controls,” the SEC makes explicit reference to certain conduct, but not the above paragraph related to Chinese government officials.

So the issue becomes what to make of this one paragraph of the 18 page SEC complaint and what to call the Keyuan Petrochemicals enforcement action?

Is it an FCPA enforcement action?

In this prior post, I set forth my criteria for an FCPA enforcement action, in pertinent part, as follows.

(1) An FCPA enforcement action is an instance in which an enforcement agency (whether DOJ or SEC) charges or finds that the FCPA (whether its anti-bribery, books and records, or internal controls provisions) has been violated.

(2) As to FCPA books and records or internal control charges or findings, such actions are only FCPA enforcement actions to the extent categorized as such by either the DOJ or SEC on its FCPA websites.

In the Keyuan Petrochemicals enforcement action, the SEC did indeed charge (as it charges in many non-FCPA FCPA enforcement actions) violations of the books and records and internal controls provisions. However, my criteria (2) is that such charges should only be considered FCPA enforcement actions to the extent categorized as such by either the DOJ or SEC or its FCPA website. The SEC’s FCPA website (here) does not include the Keyuan Petrochemicals action. On that basis, and consistent with my criteria, I am not going to call it an FCPA enforcement action either.

In many respects, the Keyuan Petrochemicals enforcement action is similar to the SEC’s 2012 enforcement action against former Digi International CFO Subramanian Krishnan (see here for the prior post). That action, like the Keyuan Petrochemical action, is also not listed on the SEC’s FCPA website.

In short, what one calls an action matters. Just using the Kenyuan example, FCPA enforcement thus far in 2013 is either 1 action with $1,025,000 collected (Keyuan agreed to pay a $1,000,000 civil penalty and Li agreed to pay a $25,000 civil penalty) or 0 actions, $0 collected.

“What is a Declination?

The good-faith debate as to the “d” word continues. In addition, to the declination posts highlighted above in the first paragraph, see this recent FCPA Blog guest post, also by Marc Alain Bohn.

In recent weeks, the FCPA Blog (and others – there is a certain herd mentality when it comes to such things) have called the end of FCPA scrutiny for Nabors Industries, Zimmer Holdings, and 3M - declinations. “Nabors Wins Declination” – “Double Declination for Zimmer” – “Declination for 3m.”

I again respectfully disagree and ask why are some calling these instances of FCPA scrutiny declinations? In doing so, I am guided by my definition of a declination as being an instance in which an enforcement agency has concluded that it could bring a case, consistent with its burden of proof as to all necessary elements, yet decides not to pursue the action. (Others have offered the same definition – see here for a Wilmer Hale Client Alert -”the concept of a declination is supposed to be reserved for instances in which the offense is chargeable but the government declines in its own discretion to bring a case”).

The FCPA scrutiny of both Nabors and Zimmer can be analyzed together because both companies were the subject of FCPA scrutiny because of an industry sweep.

In its February 20th SEC filing, Nabors stated, in pertinent part, as follows.

“We previously disclosed that on July 5, 2007, we received an inquiry from the U.S. Department of Justice relating to its investigation of one of our vendors [Panalpina] and compliance with the Foreign Corrupt Practices Act. The inquiry related to transactions with and involving Panalpina, which provided freight forwarding and customs clearance services to some of our affiliates. In 2012, the SEC advised us that it had concluded its review of the matter and did not intend to recommend any enforcement action against us. On February 15, 2013, the Department of Justice likewise advised us that it has concluded its inquiry, also without recommending any enforcement action against us.”

In its February 27th SEC filing, Zimmer stated, in pertinent part, as follows.

“In September 2007, the Staff of the U.S. Securities and Exchange Commission (SEC) informed us that it was conducting an investigation regarding potential violations of the Foreign Corrupt Practices Act (FCPA) in the sale of medical devices in a number of foreign countries by companies in the medical device industry. In November 2007, we received a letter from the U.S. Department of Justice (DOJ) requesting that any information provided to the SEC also be provided to the DOJ on a voluntary basis. In the first quarter of 2011, we received a subpoena from the SEC seeking documents and other records pertaining to our business activities in substantially all countries in the Asia Pacific region where we operate. We produced documents responsive to the subpoena and reported to the government concerning the results of our own reviews regarding FCPA compliance. During a meeting in December 2012, representatives from the agencies informed us that the SEC and the DOJ planned to close their investigation without pursuing any enforcement action against us. The DOJ and SEC formally notified us through letters of declination dated December 19, 2012 and February 1, 2013, respectively, that the agencies have closed their inquiries into this matter. While we are pleased with the government’s declination decision in this matter, we are committed to continuing to enhance our global anti-corruption compliance program.”

Using the above definition of declinations, I previously stated that anything less ought not be termed a ”declination” and noted that it is really no different that saying a police officer “declined” to issue a speeding ticket in an instance in which the driver was not speeding. This is not a declination, it is what the law commands, and such reasoning applies in the FCPA context as well.

Sticking with the law enforcement analogy, calling an instance of FCPA scrutiny resulting from an industry sweep that does not result in an enforcement action a declination, is like saying the police “declined” to charge one with drunk driving if a sober driver successfully passes through a law enforcement sobriety checkpoint. That is not a declination, it is what the law commands, and such reasoning applies in the FCPA context as well.

In its February 14th SEC filing, 3M stated, in pertinent part, as follows.

“In November 2009, the Company contacted the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) to voluntarily disclose that the Company was conducting an internal investigation as a result of reports it received about its subsidiary in Turkey, alleging bid rigging and bribery and other inappropriate conduct in connection with the supply of certain reflective and other materials and related services to Turkish government entities. The Company also contacted certain affected government agencies in Turkey. In September 2012, the Turkish Competition Authority issued its decision finding that there was insufficient evidence obtained in the investigation to find that 3M Turkey or the other companies investigated violated the Turkish competition law. The Company retained outside counsel to conduct an assessment of its policies, practices, and controls and to evaluate its overall compliance with the Foreign Corrupt Practices Act (FCPA), including a review of its practices in certain other countries and acquired entities. As part of its review, the Company has also reported to the DOJ and SEC issues arising from transactions in other countries. In January 2013, the DOJ and SEC each notified the Company that they are terminating their investigations into possible violations of the FCPA without taking any action or imposing any fines against the Company. Among the reasons cited by the DOJ for closing its investigation included the Company’s voluntary disclosure and cooperation, the Company’s thorough investigation, and the steps the Company has taken to enhance its anti-corruption compliance program.”

There is nothing in this disclosure to suggest that the definition of declination has been met. Indeed, given that Turkish authorities concluded that there was “insufficient evidence” as to certain of the disclosed conduct, speaks to perhaps the quality of information 3M initially received as to its subsidiary.

Of course, if my declination proposal (see here from August 2010) were to be adopted, we would likely know the answer as to why the DOJ and SEC did not bring an enforcement action as a result of 3M’s voluntary disclosure.

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Further to declination issues, I could not help but notice in the U.S.’s recent ((Jan. 28, 2013) “Final Follow-Up to Phase 3 Report and Recommendations” (a document that, to my knowledge has yet to be covered elsewhere) the U.S. acknowledged that it “has declined to bring criminal charges in some cases, in part due to lack of admissible evidence obtained prior to the statute of limitations.” This reason for “declining” is self-obvious, but there was no mention of it in the November 2012 FCPA Guidance section on declinations, likely because it did not advance the enforcement agencies’ policy positions.

Finally, if you have not yet read “Legal Limbo – Seeking Clarity In How and When The Department of Justice Declines to Prosecute” by George Terwilliger and Matthew Miner, put it on your reading stack. Like my 2010 declination proposal and the policy rationales behind it, Legal Limbo states, in pertinent part, as follows.

“While the cases DOJ elects to prosecute are well known, better understanding of the parameters of its decisions to forego prosecution can add significantly to the body of guidance available to the business community. In addition, fundamental fairness dictates that decisions not to prosecute be communicated to affected parties as soon as possible.”

“Legal Limbo” notes that a “little bit of daylight on the declination process could help light corporations’ way to improved compliance with legal requirements and enforcement expectations within their operations” and it proposes as follows.

”First [...], notice of declinations be issued presumptively, rather than permissively following a declination decision. This practice could be subject to clearly-stated and narrowly defined exceptions that are necessary to protect the Department’s interests in ongoing investigations.

Second [...], the Department publish an annual report summarizing the circumstances or key factors underlying major declination decisions. Such a report should be drafted with the goal of providing maximum guidance as to the factors underlying the Department’s declination determinations by case category, while also protecting the identities of those who had been investigated. Such a reform could be presented in a categorical fashion so that companies facing investigations are provided a better understanding of the types of conduct leading to a declination decision.”

Further To The Definition Of “Declination”

Thursday, January 24th, 2013

Earlier this week on the FCPA Blog (see here), Marc Alain Bohn (Miller & Chevalier) responded to my recent post “The Need for a Consensus Declination Definition.” In that post, I offered my definition of a declination as being – an instance in which an enforcement agency has concluded that it could bring a case, consistent with its burden of proof as to all necessary elements, yet decides not to pursue the action. I then concluded the post by stating that anything less ought not be termed a declination, but rather what the law commands.

Bohn called my arguments “strong” and in the “abstract” he agreed with my declination definition.

Yet, Bohn also stated as follows. “As a practical matter, however, [my proposed] definition runs into difficulties, primarily because of the dearth of information surrounding decisions by the DOJ and SEC to conclude investigations without pursuing enforcement actions” and that “it is nearly impossible for those not directly involved in a matter to conclude why the agencies have decided not to pursue an enforcement action—even those directly involved may not have a full understanding.”

Bohn, of course, is spot-on as to his observations regarding the lack of transparency in FCPA enforcement and it is meaningful to read an FCPA practitioner write that “even those directly involved” in an FCPA matter “may not have a full understanding” of how the enforcement agencies decided to resolve a manner.

Bohn then writes as follows.

“Without more transparency from the agencies on the rationale behind their enforcement decisions, I think it is appropriate to apply the short-hand label “declination” more broadly to each instance where the DOJ or SEC has notified a company that it does not intend to bring an enforcement action. Including all such agency decisions is really the only way to consistently and systematically track possible declinations writ large.

Moreover, there is value in adopting this broader definition, particularly in instances where the issues involved were serious enough that a company opted to self-report the matter to the government and the agencies, in turn, followed-up with requests for additional information. In the wake of such self-reports, decisions by the agencies not to take the next step and pursue enforcement actions are significant and worth recognizing.”

My response relates to Bohn’s statement concerning “instances where the issues involved were serious enough that a company opted to self-report the matter to the government and the agencies, in turn, followed-up with requests for additional information. In the wake of such self-reports, decisions by the agencies not to take the next step and pursue enforcement actions are significant and worth recognizing.”

My response is the same as in this August 2011 post regarding an excellent article Bohn co-authored regarding declinations.

Based on my FCPA practice experience and my more recent conversations with FCPA practitioners concerning this issue, I am not willing to assume that an issue is “serious enough” from an FCPA liability risk perspective simply because a company voluntarily disclosed to the enforcement agencies.

In short, and as explained in the prior post, different FCPA practitioners as well as the companies they represent, have different trigger thresholds for voluntary disclosures.

In other words, not all voluntarily discloses are created equal. Some voluntary disclosures are a reactionary, risk averse decision and occur before even the company knows the full facts. Other voluntary disclosure decisions (and here, to be clear, I am not speaking of Bohn or his firm) occur in the context of significant conflicts of interest for FCPA lawyers – see here for a 2009 post titled “Voluntary Disclosure and the Role of FCPA Counsel” which discusses how voluntary disclosures lead to the “where else” question, which leads to, well, a few years of billable work. Indeed, as an FCPA practitioner (and a notable one at that) commented to the Wall Street Journal in connection with its FCPA Inc.: Business of Bribery articles this past October (see here for the prior post), “if you get two of these [FCPA investigations] a year as a partner, you’re pretty much set.”

It is precisely because of the lack of transparency that Bohn cites, that I proposed beginning in August 2010 (see here), that in instances where a company voluntarily discloses potential FCPA issues to the DOJ and SEC, and when the enforcement agencies decline enforcement, that the DOJ or SEC publicly state, in a thorough and transparent manner, the facts the company disclosed to the agencies and why the agencies declined enforcement on those facts.

I noted then, and repeat now, that this proposal would not only increase transparency (recall that Lanny Breuer stated at the Guidance press conference – here - that the DOJ strives to be “transparent” as to its FCPA enforcement program), but also inject some much-needed discipline into the voluntary disclosure decision itself.

Friday Roundup

Friday, January 18th, 2013

An on-point editorial, the former DOJ Fraud Chief on voluntary disclosures, and for the reading stack.

On-Point Editorial

“Government enforcers always need to be watched, especially when their business targets are politically unpopular. Then the feds think they can get away with anything.” So begins a recent Wall Street Journal editorial (here) on the Supreme Court’s recent oral arguments in Gabelli v. SEC – a case in which the five year limitations period under 28 U.S.C. § 2462 is squarely before the court (see here for SCOTUS Blog coverage). Gabelli is a case to watch given that the limitations period in most SEC FCPA enforcement actions would seemed to be stretched.

Former DOJ Fraud Chief on Voluntary Disclosures

Recently the online news site Main Justice interviewed former DOJ Fraud Section chief Steven Tyrrell (see here for the video). Much of the interview was about voluntary disclosures. Tyrrell stated that he is “certain” there have been so-called declinations that are “simply not public” where companies did not voluntary disclose, but had extensive remediation and cooperation. In the interview Tyrrell also agreed that the declination examples in the recent FCPA Guidance – all of which had voluntary disclosure as an apparent factor - was likely an enforcement agency attempt to encourage more voluntary disclosures. Tyrrell stated that voluntary disclosure “should not be the be all and end all” in any case.

Once again, selective government information as to FCPA enforcement designed to achieve policy objectives of the enforcement agencies.

For The Reading Stack

Some recommended reading on FCPA jurisdictional issues, Chinese SOEs, and an additional year in review.

Jurisdictional Issues

The current edition of the ABA International Law News has a great article by Debevoise & Plimpton attorneys Sean Hecker and Margot Laporte titled “Should FCPA ’Territorial’ Jurisdiction Reach Extraterritorial Proportions?”

As to FCPA enforcement actions against foreign entities and individuals for conduct that occurred overseas with only minimal U.S. contacts, the authors ask “whether the United States is the appropriate authority to prosecute such cases, where the evidence, witnesses, and conduct are located overseas and where alternative jurisdictions often have an even greater interest in enforcement.”

As to Judge Leon’s rejection of the DOJ’s expansive jurisdictional theory in the Africa Sting prosecution of Pankesh Patel (see here for the prior post), the authors state as follows. “This decision, which suggests a requirement of physical presence in the United States in connection with an allegedly corrupt act, call into question much of the DOJ and SEC’s expansive construction of territorial jurisdiction over foreign entities and individuals under the FCPA. Until additional courts speak to the issue, however, the DOJ and SEC are unlikely to back off their more expansive views of jurisdiction.”

As alluded to in the article, additional courts are poised to speak on jurisdictional issues as to foreign actors. (See here for general discussion of motions to dismiss pending in SEC enforcement actions against former Maygar Telekom executives Elek Straub, Andras Balogh and Tamas Morvai and former Siemens executive Herbert Steffen).

Chinese SOEs

Interested in Chinese SOEs? How can you not be if your interested in FCPA issues. If so, see here for a recent Wall Street Journal article titled “China’s Investments Prompt Call for New Rules.” The article details investments by Chinese companies, including SOEs, in the U.S. over the past several years and states as follows – “according to a U.S. congressional commission, state-owned companies accounted for 90% of the value of Chinese investments in the U.S. industrial-machinery, aerospace, automobile and logistics industries between 2007 and the third quarter of 2011.” The article also notes as follows. “Even figuring out which Chinese operations qualify as state-controlled can be tough.”

Year in Review

Miller & Chevalier recently published (here) its FCPA Winter Review 2013. The review highlights developments from Q4 of 2012, reviews 2012 enforcement trends, and looks forward to 2013. [Note, Miller & Chevalier keeps its FCPA statistics differently from the "core" approach described here].

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A good weekend to all.

The Need For A Consensus “Declination” Definition

Tuesday, January 15th, 2013

A pressing quality of FCPA information issue is the meaning of “declination.”

The purpose of this post is similar to this recent post titled “What is a Foreign Corrupt Practices Act Enforcement Action?” That is, to improve the quality and reliability of FCPA “declination” statistics given that such a statistic has become a new datapoint of interest.

As discussed in my article “Grading the Foreign Corrupt Practices Act Guidance” (here), to my knowledge, the DOJ has never offered a declination definition, but perhaps in an effort to portray a fair and balanced FCPA enforcement program, the DOJ appears to be advocating an expansive definition.

Using two recent examples of FCPA scrutiny, I discuss below how certain FCPA commentators are also liberally applying the declination label to instances of FCPA scrutiny that do not result in any FCPA enforcement action. I then suggest a declination definition.

Deere

As highlighted in this prior post, in August 2011 various media outlets reported that Deere received an inquiry from regulators in July regarding alleged payments made in Russia and nearby countries. In a subsequent statement, Deere stated as follows. “On July 25, 2011, Deere received a request from the SEC that it voluntarily produce documents relating to Deere’s activities, and those of third parties, in certain foreign countries. Deere is cooperating with the SEC’s requests.”

In a press release (here) last week, Deere stated as follows.

“Deere & Company has been notified in a letter from the U.S. Securities and Exchange Commission Enforcement Division staff that it has completed an investigation of Deere and does not plan to pursue any enforcement action. In August 2011, news media reported that Deere & Company was subject to an inquiry concerning alleged payments to foreign officials in Russia and surrounding countries. At that time, Deere stated that it had received a request from the SEC that Deere produce documents related to the company’s activities, and those of third parties, in certain foreign countries. Deere said it fully cooperated with the SEC during the investigation and is pleased to report this conclusion. The company also stated that Deere remains committed to its core value of doing business with the highest integrity around the globe.

Soon thereafter (see here), the FCPA Blog termed the resolution of Deere’s FCPA scrutiny as a “declination.”

W.W. Grainger

Another liberal use of the term “declination” occurred in the context of W.W. Grainger’s recent FCPA scrutiny. (See here for the prior post discussing the company’s disclosure). In November 2012, Grainger updated its prior disclosure in a quarterly filing and stated as follows.

“As previously reported, the Company has been conducting an inquiry into alleged falsification of expense reimbursement forms submitted by employees in certain sales offices of Grainger China LLC, a subsidiary of the Company. In the course of the investigation the Company learned that sales employees may have provided prepaid gift cards to certain customers. The company’s investigation included determining whether there were any violations of laws, including the U.S. Foreign Corrupt Practices Act. The Company retained outside counsel to assist in its investigation of this matter. On January 24, 2012, the Company contacted the DOJ and the Securities and Exchange Commission to voluntarily disclose that the Company was conducting an internal investigation, and agreed to fully cooperate and update the DOJ and SEC periodically on further developments. The results of the investigation, which have been submitted to the DOJ and the SEC, did not substantiate initial information suggesting significant use of gift cards for improper purposes. On August 14, 2012, the DOJ closed its inquiry into this matter.” (emphasis added).

Soon thereafter (see here), the FCPA blog stated in a headline that “after China investigation, Grainger wins DOJ declination.”

Declination?

The company specifically disclosed that it did not “substantiate initial information” suggesting potential FCPA issues.

How is this a declination?

In this prior post, I offered my definition of a declination as being – an instance in which an enforcement agency has concluded that it could bring a case, consistent with its burden of proof as to all necessary elements, yet decides not to pursue the action. Others have offered the same definition (see here for a Wilmer Hale Client Alert -”the concept of a declination is supposed to be reserved for instances in which the offense is chargeable but the government declines in its own discretion to bring a case”).

Anything less ought not be termed a ”declination.” It is really no different that saying a police officer “declined” to issue a speeding ticket in an instance in which the driver was not speeding. This is not a declination, it is what the law commands, and such reasoning applies in the FCPA context as well.