Archive for the ‘Declination Decisions’ Category

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.

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.”

Friday Roundup

Friday, April 4th, 2014

Contorted, interesting, deserving?, scrutiny alerts and updates, and for the reading stack.  It’s all here in the Friday Roundup.

Contorted

One of the most contorted words in the FCPA vocabulary is “declination” (see here among other posts).

This K&L Gates report contains a useful summary of DOJ and SEC comments at a recent conference.  It states:

“Mr. Knox [DOJ Criminal Division Fraud Section Chief] stated that companies continue to request specific information regarding the Department’s declinations, but that it is the Department’s long-standing practice not to publish details of declinations without a company’s permission, which is rarely given.  According to Mr. Knox, however, over the last two years, the Department has declined to prosecute dozens of cases.  Notably, Mr. Knox stated that, aside from finding no evidence of criminal conduct, the Department may issue a declination when a case involves an isolated incident, the company had a strong compliance program, and the problem was remediated.”

Newsflash.

If the DOJ does not find evidence of criminal conduct and therefore does not bring a case, this is not a “declination,” it is what the law commands.

On the topic of voluntary disclosure, the K&L Gates report states:

“Mr. Cain [SEC FCPA Unit Deputy Chief] started by stating “there is no perfect compliance program;” therefore, companies will always have some “background issues” which need to be addressed, especially as business and risk profiles change.  Mr. Cain does not expect companies to disclose these “normative” problems; however, companies should disclose “significant problems.”  These “significant problems” are the types of issues which may end up being enforcement actions if the SEC learns of them through means other than self-disclosure.”

“Mr. Knox took the position that it would be “very reckless and foolish” for him “to try and draw a line between matters which should be self-disclosed and matters which shouldn’t.”  In making the decision of whether to self-disclose, he advised companies and counsel to apply “common sense” and ask whether this is “something that [the Department] would be interested in hearing about?”  According to Mr. Knox, if the answer to that question is “yes,” then the Department would “probably want [a company] to self-disclose it.”  Nonetheless, there are instances which are not worthy of self-disclosure because the conduct is “minor” and “isolated” or the allegation of wrongdoing is “much too vague.”  Mr. Knox advised companies to “be thoughtful” when making disclosure decisions and carefully document any decision not to disclose.”

If the above leaves you scratching your head, join the club.

Interesting

My article “Why You Should Be Alarmed by the ADM FCPA Enforcement Action” highlights how ADM and its shareholders were victims of a corrupt Ukrainian government in that the government refused to give ADM something even the DOJ and SEC acknowledged ADM was owed – VAT refunds.  Among other things, the article discusses how VAT refund refusals were well-known and frequently criticized prior to the ADM enforcement action in late 2013.

Fast forward to the present day and VAT refund refusals remain a problem in Ukraine.  Recently the International Monetary Fund issued this release concerning a potential aid package for Ukraine.  Among the conditions is that Ukraine  adopt “reforms to strengthen governance, enhance transparency, and improve the business climate” such as taking “measures to facilitate VAT refunds to businesses.”

Deserving?

Earlier this week, the African Development Bank Group (AfDB) released this statement

“Kellogg Brown & Root LLC, Technip S.A. and JGC Corp. agree to pay the equivalent of US $17 million in financial penalties as part of Negotiated Resolution Agreements with the African Development Bank following admission of corrupt practices by affiliated companies in relation to the award of services contracts for liquefied natural gas production plants on Bonny Island, Nigeria, from 1995 until 2004.”

The Director of the AfDB’s Integrity and Anti-Corruption Department stated:

“This settlement demonstrates a strong commitment from the African Development Bank to ensure that development funds are used for their intended purpose.  At the same time, it is a clear signal to multinational companies that corrupt practices in Bank-financed projects will be aggressively investigated and severely sanctioned. These ground-breaking Negotiated Resolution Agreements substantially advance the Bank’s anti-corruption and governance agenda, a strategic priority of our institution.”

Pardon me for interrupting this feel good moment (i.e. a corporation paying money to a development bank), but why is 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.”

As alleged in the U.S. Bonny Island FCPA enforcement actions, the above-mentioned companies allegedly made corrupt payments to, among others, NLNG officials.  And for this, the specific companies paid $579 million (KBR, et al), $338 million Technip, and $219 million (JGC).

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?

Scrutiny Alerts and Updates

SBM Offshore, Sweett Group, Citigroup, Cisco, and Societe Generale.

SBM Offshore

The Netherlands-based company (with ADRs traded in the U.S. that provides floating production solutions to the offshore energy industry) has been under FCPA scrutiny for approximately two years.  It recently issued this statement which states, in summary, as follows.

“SBM Offshore presents the findings of its internal investigation, which it started in the first quarter of 2012, as the investigators have completed their investigative activities. The investigation, which was carried out by independent external counsel and forensic accountants, focused on the use of agents over the period 2007 through 2011. In summary, the main findings are:

  • The Company paid approximately US$200 million in commissions to agents during that period of which the majority relate to three countries: US$18.8 million to Equatorial Guinea, US$22.7 million to Angola and US$139.1 million to Brazil;
  • In respect of Angola and Equatorial Guinea there is some evidence that payments may have been made directly or indirectly to government officials;
  • In respect of Brazil there were certain red flags but the investigation did not find any credible evidence that the Company or the Company’s agent made improper payments to government officials (including state company employees). Rather, the agent provided substantial and legitimate services in a market which is by far the largest for the Company;
  • The Company voluntarily reported its internal investigation to the Dutch Openbaar Ministerie and the US Department of Justice in April 2012. It is presently discussing the disclosure of its definitive findings with the Openbaar Ministerie, whilst simultaneously continuing its engagement with the US Department of Justice. New information could surface in the context of the review by these authorities or otherwise which has not come up in the internal investigation to date;
  • At this time, the Company is still not in a position to estimate the ultimate consequences, financial or otherwise, if any, of that review;
  • Since its appointment in the course of 2012 the Company’s new Management Board has taken extensive remedial measures in respect of people, procedures, compliance programs and organization in order to prevent any potential violations of applicable anti-corruption laws and regulations. Both it and the Company’s Supervisory Board remain committed to the Company conducting its business activities in an honest, ethical, respectful and professional manner.”

The SBM Offshore release contains a detailed description of the scope and methodology of its review, as well as remedial measures the company has undertaken.  For this reason, the full release is an instructive read.

Sweett Group

As noted in this prior post, in June 2013 Sweett Group Ltd. (a U.K. based construction company) was the subject of a Wall Street Journal article titled “Inside U.S. Firm’s Bribery Probe.” The focus of the article concerned the construction of a hospital in Morocco and allegations that the company would get the contract if money was paid to “an official inside the United Arab Emirates President’s personal foundation, which was funding the project.”

Earlier this week, the company issued this release which stated:

“[T]here have been further discussions with the Serious Fraud Office (SFO) in the UK and initial discussions with the Department of Justice (DOJ) in the USA.  The Group is cooperating with both bodies and no proceedings have so far been issued by either of them.  The Group has commissioned a further independent investigation which is being undertaken on its behalf by Mayer Brown LLP.  Whilst this investigation is at an early stage and is ongoing, to date still no conclusive evidence to support the original allegation has been found.  However, evidence has come to light that suggests that material instances of deception may have been perpetrated by a former employee or employees of the Group during the period 2009 – 2011.  These findings are being investigated further.”

Citigroup

When first discussing Citigroup’s “FCPA scrutiny” I noted the importance of understanding that the FCPA contains generic books and records and internal controls provisions that can be implicated in the absence of any FCPA anti-bribery issues. (See here for a prior post on this subject).  As highlighted in this recent New York Times Dealbook article, this appears to be what Citigroup’s scrutiny involves.  According to the article:

“Federal authorities have opened a criminal investigation into a recent $400 million fraud involving Citigroup’s Mexican unit, according to people briefed on the matter …  The investigation, overseen by the FBI and prosecutors from the United States attorney’s office in Manhattan, is focusing in part on whether holes in the bank’s internal controls contributed to the fraud in Mexico. The question for investigators is whether Citigroup — as other banks have been accused of doing in the context of money laundering — ignored warning signs.”

Cisco

BuzzFeed goes in-depth as to Cisco’s alleged conduct in Russia that has resulted in FCPA scrutiny for the company. The article states, in pertinent part:

“[T]he iconic American firm is facing a federal investigation for possible bribery violations on a massive scale in Russia. At the heart of the probe by the Department of Justice and the Securities and Exchange Commission, sources tell BuzzFeed, are allegations that for years Cisco, after selling billions of dollars worth of routers, communications equipment, and networks to Russian companies and government entities, routed what may have amounted to tens of millions of dollars to offshore havens including Cyprus, Tortola, and Bermuda.”

“Two former Cisco insiders have described to BuzzFeed what they say was an elaborate kickback scheme that used intermediary companies and went on until 2011. And, they said, Cisco employees deliberately looked the other way.”

“No one is suggesting that Cisco bribed Russia’s top leaders. Instead, the investigation is centered on day-to-day kickbacks to officials who ran or helped run major state agencies or companies. Such kickbacks, according to the allegations, enabled the firm to dominate Russia’s market for IT infrastructure.”

“Last year, according to sources close to the investigation, a whistleblower came forward to the SEC, sketching out a vast otkat [kickback] scheme and providing documents as evidence.”

“The two former Cisco executives laid out for BuzzFeed how the alleged scheme worked:  In Cisco’s Russia operations, funds for kickbacks were built into the large discounts Cisco gave certain middleman distributors that were well-connected in Russia. The size of the discounts are head-turning, usually 35% to 40%, but sometimes as high as 68% percent off the list price.  And there was a catch: Instead of discounting equipment in the normal way, by lowering the price, parts of the discounts were often structured as rebates: Cisco sent money back to the middlemen after a sale. Some intermediaries were so close to the Russian companies and government agencies — Cisco’s end customers — that these intermediaries functioned as their agents. These middleman companies would direct the rebate money to be sent to bank accounts in offshore havens such as Cyprus, the British Virgin Islands, or Bermuda.”

According to the article, WilmerHale is conducting the internal investigation.

Societe Generale

Like other financial services company, Societe Generale has come under FCPA scrutiny for business dealings in Libya.  (See here for the prior post).  As noted in this recent article in the Wall Street Journal, in a U.K. lawsuit the Libyan Investment Authority has alleged that the company “paid a middleman $58 million in alleged bribes to secure almost $2 billion in business … during the final years of dictator Moammar Gadhafi’s rule.”

Reading Stack

The most recent issue of the always informative FCPA Update from Debevoise & Plimpton contains a useful analysis of the DOJ’s recent opinion procedure release (see here for the prior post).  Among other things, the Update states:

“[W]hy did it take eight months for the DOJ to issue an Opinion which could have simply cited [a prior Opinion Release]? The delay does not appear to be related to the DOJ’s heavy workload or bureaucratic inertia, as “significant backup documentation” was provided and “several follow up discussions” took place during the eight months.”

*****

A good weekend to all.  On Wisconsin!