Archive for the ‘Double Standard’ Category

Friday Roundup

Friday, July 25th, 2014

The U.K. SFO flexes its pre-Bribery Act muscle in criminally charging an Alstom subsidiary, other scrutiny alerts and updates, nominate, double standard, quotable, and for the reading stack.  It’s all here in the Friday roundup.

Alstom

As has been widely reported (see here and here for instance), the U.K. Serious Fraud Office announced:

“Alstom Network UK Ltd, formerly called Alstom International Ltd, a UK subsidiary of Alstom, has been charged with three offences of corruption contrary to section 1 of the Prevention of Corruption Act 1906, as well as three offences of Conspiracy to Corrupt contrary to section 1 of the Criminal Law Act 1977. The alleged offences are said to have taken place between 1 June 2000 and 30 November 2006 and concern large transport projects in India, Poland and Tunisia.”

According to the release, “the SFO investigation commenced as a result of information provided to the SFO by the Office of the Attorney General in Switzerland concerning the Alstom Group, in particular Alstom Network UK Ltd.”

I inquired with the SFO press office regarding any original source charging documents and was informed as follows.  ”Beyond our press release today, the nearest date for documents likely to be made available would be the charge sheet at the first court hearing – presently arranged for 9 September, at Westminster Magistrates’ Court.”

As readers likely know, since April 2013 the DOJ has charged four individuals associated with Alstom Power Inc., a subsidiary of Alstom, in connection with an alleged bribery scheme involving the Tarahan coal-fired steam power plant project in Indonesia. (See more below for a recent guilty plea).

As was the case in the U.S. – U.K. enforcement action against BAE (see here for the prior post) there may have been and/or currently is turf war issues between the agencies as to which agency is going to prosecute alleged conduct occurring in various countries.

Speaking of the DOJ action against various individuals associated with Alstom Power, last week, the DOJ announced that William Pomponi, a former vice president of regional sales at Alstom Power, pleaded guilty to a criminal information charging him with conspiracy to violate the FCPA in connection with the awarding of the Tarahan power project in Indonesia.

Assistant Attorney General Leslie R. Caldwell stated:

“The Criminal Division of the Department of Justice will follow evidence of corruption wherever it leads, including into corporate boardrooms and corner offices.  As this case demonstrates, we will hold both companies and their executives responsible for criminal conduct.”

As noted in the DOJ release:

“Pomponi is the fourth defendant to plead guilty to charges stemming from this investigation.   Frederic Pierucci, the vice president of global boiler sales at Alstom, pleaded guilty on July 29, 2013, to one count of conspiracy to violate the FCPA and one count of violating the FCPA; and, David Rothschild, a former vice president of regional sales at Alstom Power Inc., pleaded guilty to conspiring to violate the FCPA on Nov. 2, 2012.  Marubeni Corporation, Alstom’s consortium partner on the Tarahan project, pleaded guilty on March 19, 2014, to one count of conspiracy to violate the FCPA and seven counts of violating the FCPA, and was sentenced to pay a criminal fine of $88 million.   FCPA and money laundering charges remain pending against Lawrence Hoskins, the former senior vice president for the Asia region for Alstom, and trial is scheduled for June 2, 2015.”

See here for the original post highlighting the enforcement action against the individuals associated with Alstom and here for the original post regarding the Marubeni enforcement action.

Scrutiny Alerts and Updates

SEC Enforcement Action Against Former Magyar Telekom Executives

From Law360:

“The SEC has slimmed down its FCPA case against three former Magyar Telekom PLC executives, dropping claims they bribed government officials in Montenegro, according to a new complaint …  The amended complaint alleged former Magyar CEO Elek Straub and two other former executives, Andras Balogh and Tamas Morvai, authorized bribe payments to government officials in the Republic of Macedonia in exchange for regulations designed to hurt a competitor. The SEC, in its initial complaint in December 2011, had also alleged the defendants engaged in a second bribery scheme in Montenegro.  The agency said in a July 14 court filing that it would “continue to pursue the same legal causes of action alleged in its original complaint,” but without the claims related to Montenegro.  The SEC previously advised the court and defense attorneys in January 2014 of its intention to narrow the suit.”

Interesting, isn’t it, what happens when the SEC is put to its burden of proof.

Kowalewski Pleads Guilty

The DOJ announced:

“Bernd Kowalewski, the former President and CEO of BizJet, pleaded guilty … to conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and a substantive violation of the FCPA in connection with a scheme to pay bribes to officials in Mexico and Panama in exchange for those officials’ assistance in securing contracts for BizJet to perform aircraft maintenance, repair and overhaul services.”

Assistant Attorney General Leslie Caldwell stated:

“The former CEO of BizJet, Bernd Kowalewski, has become the third and most senior Bizjet executive to plead guilty to bribing officials in Mexico and Panama to get contracts for aircraft services.  While Kowalewski and his fellow executives referred to the corrupt payments as ‘commissions’ and ‘incentives,’ they were bribes, plain and simple.  Though he was living abroad when the charges were unsealed, the reach of the law extends beyond U.S. borders, resulting in Kowalewski’s arrest in Amsterdam and his appearance in court today in the United States.  Today’s guilty plea is an example of our continued determination to hold corporate executives responsible for criminal wrongdoing whenever the evidence allows.”

U.S. Attorney Danny Williams (N.D. Okla.) stated:

“I commend the investigators and prosecutors who worked together across borders and jurisdictions to vigorously enforce the Foreign Corrupt Practices Act. Partnership is a necessity in all investigations. By forging and strengthening international partnerships to combat bribery, the Department of Justice is advancing its efforts to prevent crime and to protect citizens.”

See here and here for posts regarding the 2012 DOJ enforcement action against BizJet and here and here for the 2013 DOJ enforcement action against Kowalewski and others associated with BizJet.

Cilins Sentenced

As noted in this prior post, in April 2013 the DOJ announced (here) that “Frederic Cilins a French citizen, has been 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.”  The Criminal Complaint charged Cilins with one count of tampering with a witness, victim, or informant; one count of obstruction of a criminal investigation; and one count of destruction, alteration, and falsification of records in a federal investigation.  Cilins was linked to Guernsey-based BSG Resources Ltd and in March 2014 the DOJ announced that Cilins pleaded guilty “to obstructing a federal criminal investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea.”  (See this prior post).

Last week, the DOJ announced that Cilins was sentenced to 24 months in prison.  In the DOJ release, U.S. Attorney Preet Bharara said:

“Frederic Cilins went to great lengths to thwart a Manhattan federal grand jury’s investigation into an alleged bribery scheme in the Republic of Guinea. In an effort to prevent the federal authorities from learning the truth, Cilins paid a witness for her silence and to destroy key documents. Today, Cilins learned that no one can manipulate justice.”

Assistant Attorney General Leslie Caldwell said:

“Cilins offered to bribe a witness in an FCPA investigation to stop the witness from talking to the FBI. Today’s sentence holds Cilins accountable for his effort to undermine the integrity of our justice system, and sends a message that those who interfere with federal investigations will be prosecuted and sent to prison.”

FBI Assistant Director-in-Charge George Venizelos said:

“Cilins obstructed the efforts of the FBI during the course of this investigation. His guilty plea and sentence demonstrate our shared commitment with the U.S. Attorney’s Office to hold accountable those who seek to interfere with the administration of justice. This case should be a reminder to all those who try to circumvent the efforts of a law enforcement investigation: the original crime and the cover-up both lend themselves to prosecution.”

According to the release, Cilins was also ordered to pay a fine of $75,000 and to forfeit $20,000.

GSK

From Reuters:

“GlaxoSmithKline faces new allegations of corruption, this time in Syria, where the drugmaker and its distributor have been accused of paying bribes to secure business, according to a whistleblower’s email reviewed by Reuters. Britain’s biggest drugmaker said on Thursday it was investigating the latest claims dating back to 2010, which were laid out in the email received by the company on July 18. The allegations relate to its former consumer healthcare operations in Syria, which were closed down in 2012 due to the worsening civil war in the country.  [...]  GSK has been rocked by corruption allegations since last July, when Chinese authorities accused it of funneling up to 3 billion yuan ($480 million) to doctors and officials to encourage them to use its medicines. The former British boss of the drugmaker’s China business was accused in May of being behind those bribes.  Since then, smaller-scale bribery claims have surfaced in other countries and GSK is now investigating possible staff misconduct in Poland, Iraq, Jordan and Lebanon. Syria is the sixth country to be added to the list. The allegations there center on the company’s consumer business, including its popular painkiller Panadol and oral care products. Although rules governing the promotion of non-prescription products are not as strict as for prescription medicines, the email from a person familiar with GSK’s Syrian operations said alleged bribes in the form of cash, speakers’ fees, trips and free samples were in breach of corruption laws. The detailed 5,000-word document, addressed to Chief Executive Andrew Witty and Judy Lewent, chair of GSK’s audit committee, said incentives were paid to doctors, dentists, pharmacists and government officials to win tenders and to obtain improper business advantages.”

Separately, this Reuters article states that the U.K. SFO  ”is working with authorities in China in a first for such Anglo-Chinese cooperation as it carries out its own investigation into alleged corruption at GSK.”  The article quotes SFO Director David Green as follows:  ”Certainly, so far as I am aware it is the first time we have had cooperation with the Chinese on an SFO case.”

Separately, in the U.S. this Wall Street Journal article states:

“Federal Bureau of Investigation agents have been interviewing current and former GSK employees in connection with bribery allegations made against the drug maker in China, according to a person familiar with the matter, as fresh claims of corruption surfaced against Glaxo’s operations in Syria. The interviews have taken place in Washington, D.C., in the past few months and are part of a Justice Department investigation into GSK’s activities in China, the person added. The U.S. Securities and Exchange Commission also is investigating the company’s business in China, according to people familiar with the matter.”

Key Energy Services

The company stated as follows in its Second Quarter 2014 Update and Earnings Release.

“Pre-tax expenses of approximately $5 million were incurred in connection with the previously disclosed Foreign Corrupt Practices Act investigations.”

Nominate

If FCPA Professor adds value to your practice or business or otherwise enlightens your day and causes you to contemplate the issues in a more sophisticated way, please consider nominating FCPA Professor for the ABA Journal’s Blawg 100 list (see here).

Double Standard

Beginning in 2009, I began writing about the “double standard” and how – despite the similarities between the FCPA and 18 USC 201 (the domestic bribery statute) – a U.S. company’s interaction with a “foreign official” is subject to more scrutiny and different standards than interaction with a U.S. official.  Since 2009, approximately 30 posts have appeared under the “double standard” subject matter tag.

Against this backdrop, I was happy to see another individual tackle the same general topic.  See here from the Global AntiCorruption Blog – “Is U.S. Campaign Finance Law More Permissive of Corruption Than the FCPA?”

Quotable

In this Corporate Crime Reporter interview, former U.S. Attorney Neil MacBride (E.D. Va.) says the following regarding the use of non-prosecution and deferred prosecution agreements:  “The Department now has the ability to reach more ambiguous conduct where it might be more difficult to prove a criminal conviction in court.”

Wait a minute!

If the conduct is ambiguous and the DOJ would have a difficult time to prove a criminal conviction in court, there should be no non-prosecution or deferred prosecution agreement.  Period.  End of story. The rule of law commands such a result.

Reading Stack

Over at the FCPA Compliance & Ethics blog, Tom Fox recently published a three-part series on M&A issues and the FCPA.  See Part I, Part II, and Part III.

Sherman & Sterling’s mid-year FCPA Digest, including its “Trends and Patterns” is here.  Among the trends and patterns:

“Recent paper victories by the SEC could be perceived as setbacks in the Commission’s actions against
individual defendants; and

The SEC has continued its practice of pursuing its theory of strict liability against a parent corporation
for the acts of its corporate subsidiaries.”

Kudos to Sherman & Sterling for adopting the “core” approach to keeping FCPA statistics.  (See here for the prior post regarding my suggested “core” approach).  The Digest states:

“We count all actions against a corporate “family” as one action. Thus, if the DOJ  charges a subsidiary and the SEC charges a  parent issuer, that counts as one action. In  addition, we count as a “case” both filed  enforcement actions (pleas, deferred prosecution agreements, and complaints)  and other resolutions such as  non-prosecution agreements that include  enforcement-type aspects, such as financial  penalties, tolling of the statute of  limitations, and compliance requirements.”

The most recent edition of Miller & Chevalier’s FCPA Update is here.  Debevoise & Plimpton’s always informative FCPA Update is here and Mayer Brown’s FCPA mid-year update is here.

Warning, the enforcement statistics cited in certain of the above updates will cause confusion because they do not adopt the “core” approach.

*****

A good weekend to all.

Supreme Court – “Ingratiation And Access Are Not Corruption”

Monday, April 7th, 2014

Corruption ought to be corruption, plain and simple.

The same rules and principles governing corruption of a “foreign official” ought to apply to corruption of U.S. “officials.”

Yet, as I have highlighted for years on these pages there is a glaring double standard when it comes to alleged corruption of “foreign officials” and corruption of U.S. “officials.”  The U.S. government is eager to address the former, yet countenances in many cases the latter by advancing certain policy arguments.

Last week in McCutcheon v. FEC, the U.S. Supreme Court dived into the topic of corruption.

The specific issue before the court was whether the aggregate limits on campaign contributions found in 2 USC 441(a)(a)(1), which restricts how much money a donor may contribute in total to all political candidates or political committees, violates the First Amendment.

In a plurality opinion authored by Chief Justice Roberts and joined by Justices Scalia, Kennedy and Alito, the court held that such aggregate limits are invalid under the First Amendment and in doing so dismissed the argument that such limits served the objective of combating corruption.

The opinion recognized that “while preventing corruption or its appearance is a legitimate objective, Congress may target only a specific type of corruption ‘quid pro quo’ corruption.”  As to that type of corruption, the opinion adopted a narrow view and stated: ”government regulation may not target the general gratitude a candidate may feel toward those who support him or his allies, or the political access such support may afford.  Ingratiation and access are not corruption.”

As to the aggregate limits at issue, the opinion stated:

“[S]pending large sums of money in connection with elections, but not in connection with an effort to control the exercise of an officeholder’s officials duties, does not give rise to such quid pro quo corruption.  Nor does the possibility that an individual who spends large sums may garner influence over or access to elected officials or political parties.”

“The line between quid pro quo corruption and general influence may seem vague at times, but the distinction must be respected in order to safeguard basis First Amendment rights.”

Next, the plurality opinion addressed contributions through various “third parties” such party committees, PACs or others and stated:

“[T]here is not the same risk of quid pro quo corruption or its appearance when money flows through independent actors to a candidate, as when a donor contributes to a candidate directly.  When an individual contributes to candidate, a party committee, or a PAC, the individuals must by law cede control over the funds. [...] As a consequence, the chain of attribution grows longer, and any credit must be shared among the various actors along the way.  For those reasons, the risk of quid pro quo corruption is generally applicable only to the narrow category of money gifts that are directed, in some manner, to a candidate or officerholder.”

It is difficult to square this logic with – for example – the third-party payment provisions of the Foreign Corrupt Practices Act.

In closing, the plurality opinion notes that any risk of corruption is cured by disclosure requirements under federal law and that “[t]oday, given the Internet, disclosure offers much more robust protections against corruption.”  It is interesting to note – as highlighted in my article “The Story of the Foreign Corrupt Practices Act” – that disclosure vs. prohibition was the preferred method of addressing the so-called foreign corporate payments problem by the Ford Administration and various members of Congress.

A dissenting opinion authored by Justice Breyer and joined by Justices Ginsburg, Sotomayor and Kagan states that the notion ”that large aggregate contributions do not give rise to corruption – is plausible only because the plurality defines corruption too narrowly.”

The dissenting opinion speaks broadly of corruption.

“Corruption breaks the constitutionally necessary chain of communication between the people and their representatives.  It derails the essential speech-to-government-action tie.  Where enough money calls the tune, the general public will not be heard.  Insofar as corruption cuts the link between political thought and political action, a free marketplace of political ideas loses its point.”

“Since the kinds of corruption that can destroy the link between public opinion and governmental action extend well beyond those the plurality describes, the plurality’s notion of corruption is flatly inconsistent with the [basic constitutional rationales].

In the end, the double standard between the meaning of corruption as it relates to “foreign officials” vs. U.S. “officials” matters as it undermines the legitimacy and moral authority on which the U.S. government acts.

Against the backdrop of the U.S. government bringing FCPA enforcement based on allegations that a company was seeking access to certain foreign officials or certain information or that company employees were seeking to ingratiate themselves with foreign officials through such items of value as a bottle of wine, flowers, karaoke bars or cigarettes … just remember, in the words of the U.S. Supreme Court “ingratiation and access are not corruption.”

If The DOJ Was A Business Organization …

Tuesday, March 18th, 2014

If the Department of Justice was a business organization and subject to the same legal principles its uses to prosecute business organizations, it would constantly be under scrutiny and the subject of numerous enforcement actions.

Why?

As highlighted in this recent report by the Project on Government Oversight (“POGO”) titled “Hundreds of Justice Department Attorneys Violated Professional Rules, Laws, or Ethical Standards:”

“An internal affairs office at the Justice Department has found that, over the last decade, hundreds of federal prosecutors and other Justice employees violated rules, laws, or ethical standards governing their work.”

[...]

“From fiscal year 2002 through fiscal year 2013, the Justice Department’s Office of Professional Responsibility (OPR) documented more than 650 infractions … In the majority of the matters – more than 400 – OPR categorized the violations as being at the more severe end of the scale:  recklessness or intentional misconduct, as distinct from error or poor judgment.”

As highlighted in the POGO report:

“[T]he Justice Department does not make public the names of attorneys who acted improperly ….  The result:  the Department, its lawyers, and the internal watchdog office itself are insulated from meaningful public scrutiny and accountability.”

Although not specifically discussed in the POGO report, Foreign Corrupt Practices Act enforcement actions have seen instances of prosecutorial misconduct.  For instance, as highlighted in this post, in the DOJ’s enforcement action against Lindsey Manufacturing and two of its executives, the judge in dismissing the case, stated that the instances of misconduct were “so varied, and occurr[ed] over so lengthy a period … that they add up to an unusual and extreme picture of a prosecution gone badly awry.”  In the failed Africa Sting case, the judge in dismissing the cases, stated that certain of the DOJ’s conduct had “no place in a federal courtroom.”  (See here).

The DOJ’s Principles of Prosecution of Business Organizations state, among the factors prosecutors should consider in deciding whether – and how – to charge a business organization as follows.

“Among the factors prosecutors should consider and weigh are whether the corporation appropriately disciplined wrongdoers, once those employees are identified by the corporation as culpable for the misconduct.”

Against this backdrop, the POGO report states that several “examples of misconduct” within the DOJ often result in lenient sanctions such as a 10, 14 or 30 day suspensions.

Obviously, the DOJ is not a business organization.

However, as a matter of principle should not the prosecutor / regulator and the prosecuted / regulated be held to the same general standards?

For instance, assume two organizations – A &B.

Organization A has tens of thousands of employees spread across the globe. Its employees are trained on the legal rules and requirements relevant to their jobs. Yet, despite the organization’s best training efforts and its committment to compliance and ethics, certain employees fail to conduct themselves according to the training and thus violate the law.  Organization A, as an entity will be held accountable, the organization will be forced – based on the isolated employee’s conduct – to conduct a thorough review of its entire operations, and will likely have a compliance monitor imposed on it.

Organization B, compared to Organization A, is substantially smaller and the vast majority of its employees are located in the United States.  Its employees are trained on the legal rules and requirements relevant to their jobs. Yet, despite the organization’s best training efforts and its committment to compliance and ethics, certain employees fail to conduct themselves according to the training and thus violate the law or relevant rules.  Organization B, as an entity will not be held accountable, the organization will not be forced – based on the isolated employee’s conduct – to conduct a thorough review of its entire operations, and will not have a compliance monitor imposed on it.

Organization A of course is a typical business organization doing business in the global marketplace.

Organization B of course is the DOJ.

Why should there be a difference?

As noted in the POGO report, “high-level DOJ officials have said in the past that given the context – tens of thousands of its attorneys working on tens of thousands of cases each year – the amount of misconduct is small.”  (See here).

Could not the same be said of a typical multinational business organization doing business in the global marketplace?

For previous posts touching upon the same topics as above, see “If the SEC Was An Issuer …” (nothing that if the SEC was an issuer, it would have some serious FCPA books and records and internal control issues to deal with as a result of a GAO report) and “Should There be A Difference.”

Friday Roundup

Friday, December 27th, 2013

“Scurrilous and hypocritical,” scrutiny alerts and updates, a foreign official brain teaser, quotable, and for the reading stack.  It’s all here in the Friday roundup.

“Scurrilous and Hypocritical”

As I have highlighted for years (see approximately 25 separate posts under the subject matter heading double standard), there is a double standard concerning corporate interaction with “foreign officials” under the FCPA and corporate interaction with U.S. officials under other U.S. laws – specifically 18 U.S.C. 201.

Commenting on JPMorgan’s current FCPA scrutiny concerning its alleged hiring practices in China, former SEC Commissioner Arthur Levitt writes, in pertinent part, in this Wall Street Journal opinion piece as follows.

“[A]ccording to financial regulators now looking into the hiring practices of major U.S. banks and multinationals in China—some of which have employed members of influential Chinese families—anyone who once hired me [Levitt's father was the New York state comptroller] might have been violating ethical and legal standards. Securities and Exchange Commission regulators now suggest that such hiring overseas is a form of untoward influence, akin to bribing foreign officials to win business.

The accusation is scurrilous and hypocritical. If you walk the halls of any institution in the U.S.—Congress, federal courthouses, large corporations, the White House, American embassies and even the offices of the SEC—you are likely to run into friends and family members of powerful and wealthy people.

[...]

Whether this is right or wrong, unfair or fair, is not the point. It is hypocritical of financial regulators to criticize—even penalize—practices abroad that are commonplace in Washington, New York and other seats of political and economic power.

Were the SEC to be completely consistent in its approach, it would have to come down hard on the same practices here in the U.S. And the agency would have a field day. Members of Congress and the executive branch regularly hire the children of major donors. Regulators would find scores of examples of men and women, occupying internships and entry-level positions in U.S. corporations, who were hired on the say-so of someone much higher up in the organization.

[...]

[I]f we were to deny multinational companies the ability to hire locally recommended talent, where do we draw the line? Are spouses of influential officials off-limits, but not their children? What about siblings? If not siblings, what about cousins, uncles, nephews? And then there is the issue of friends: How can a financial regulator know whether a friend of someone in power received a job offer in good faith or as a form of influence peddling?

I would hate to imagine what would happen if we applied the same kind of sliding scale to the many people who have received job offers by way of their familial relationships. If that happened, there aren’t many people in finance who would escape the accusation that their hiring was the byproduct of influence peddling.”

Scrutiny Alerts and Updates

This Macau Business Daily report notes the timing of a $10 million pledge by Nasdaq-listed Melco Crown Entertainment for a cultural project in collaboration with the Tokyo University of the Arts.  As noted in the article, the company needs various government permissions to increase its presence in Japan.  As noted in this prior post, among others, casino operators including Wynn Resorts have been the subject of FCPA scrutiny based on similar charitable contributions.

This previous post highlighted how Transparency International urged the DOJ to investigate the conduct of Walters Power International  (an Oklahoma based company that supplies, develops, services and manages electrical generation power plants around the world) in connection with power plant projects in Pakistan.  This recent article in The News International reports that Walters Power has “been cleared of any misconduct by the US Department of Justice.”  The article notes:

“Following [TI's] complaint, the US Department of Justice launched a lengthy inquiry against WPIL [...]. On Oct 31, 2012, it informed WPIL’s [...] lawyers in the US that the inquiry was being closed as no evidence of wrongdoing could be found against the companies. The clearance letter, a copy of which is available with The News, said: “Over the past several months, your client, Walters Power International Ltd., has responded to a number of inquires by the Department of Justice, Criminal Division, Fraud Section, into possible violations of the Foreign Corrupt Practices Act. You have also responded to inquiries on behalf of Pakistan Power Resources, LLC, and Walters Power International, LLC.  As you are aware, the Supreme Court of Pakistan issued an order on March 30, 2012, that declared the country’s rental power plant contracts void ab initio. Our review of that order and related pleadings has revealed no allegations of bribery in connection with those contracts. In addition, on July 24, 2012, Pakistan’s National Accountability Bureau closed its case regarding Walters Power noting that “there remains no basis for further proceedings about the Company.”  Finally, Transparency International Pakistan, which publicly referred this matter to the US Department of Justice, has provided no evidence of bribery in connection with the RPP contracts in response to our request for further information.  Based upon our investigation and the information that has been made available to us to date, we presently do not intend to take any enforcement action and are closing our inquiry into this matter.  If, however, additional information or evidence should be made available to us in the future, we may reopen our inquiry.”

The article concludes as follows.

“Interestingly, WPIL [...] sat on this letter issued by the US Department of Justice for over a year. When asked why this letter had not been made public for so long, a spokesman for WPIL said: “We cooperated unreservedly with the impartial and unimpeachable investigation of the US Department of Justice and are satisfied with the results. The findings of the US Department of Justice were shared with all shareholders and financial institutions but not made public for fear that this might be misconstrued as a rebuke by the now former chief justice of Pakistan.” He added that the Washington inquiry found no evidence of wrongdoing on the part of either company, contrary to popular misconceptions within Pakistan.”

“Foreign Official” Brain Teaser

As noted in this recent Wall Street Journal article, China State Construction Engineering Corp. (the largest home builder in the world), “is making its first acquisition in the U.S. market through its American subsidiary, as the company continues its aggressive push into overseas markets. China Construction America, the U.S. subsidiary, … agreed to acquire Manhattan-based Plaza Construction for an undisclosed sum.”  As noted in the article, “Plaza Construction mainly provides construction management and consulting services in places including New York, Florida, California and Washington, D.C.”

Congress never intended for employees of state-owned or state-controlled enterprises (SOEs) to be “foreign officials” under the FCPA – see here for my “foreign official” declaration – but given the DOJ and SEC’s “foreign official” interpretations, post-acquisition are Plaza Construction employees now Chinese “foreign officials?”

Quotable

World Bank Group President Jim Yong Kim recently stated as follows:

“I’d like to make clear why fighting corruption is a critical priority for me personally, and for the entire World Bank Group:  Every dollar that a corrupt official or a corrupt business person puts in their pocket is a dollar stolen from a pregnant woman who needs health care; or from a girl or a boy who deserves an education; or from communities that need water, roads, and schools. Every dollar is critical if we are to reach our goals to end extreme poverty by 2030 and to boost shared prosperity.  Let’s not mince words: In the developing world, corruption is public enemy number one. We will never tolerate corruption, and I pledge to do all in our power to build upon our strong fight against it.”

Reading Stack

The most recent edition of the always-informative Debevoise & Plimpton FCPA Update is here.  As to the recent Weatherford settlement, the Update states as follows.

“The $152 million in fines and penalties paid by Weatherford make it the eighth largest FCPA settlement in history. Although the monetary resolution is objectively large, comparing it to the monetary resolution in another recent enforcement action points to the difficulty of ascertainting the logic of penalty determinations.

[...]

Beyond the lack of transparency in the calculations that led to the financial resolution – a recurring feature of settled FCPA matters – the Weatherford settlement, like other recent settlements, is a disposition in which facts are included in the allegations or information without an explanation as to why they are relevant, potentially creating even more confusion as to what is or is not acceptable from the enforcement agencies’ point of view.”

For the recent post titled “FCPA Settlements Have Come a Long Way In a Short Amount of Time,” see here.

As to the recent Corruption Perception Index scores recently released by Transparency International (see here for the prior post), the FCPA Update rightly notes as follows.

“[W]hile companies subject to the FCPA, the UKBA, or other transnational anti-bribery regimes should continue to pay heed to the CPI, those seeking most efficiently to assess compliance risks also need to assess such matters as: (1) sector risk; (2) business model risk (including the degree to which the firm relies on third parties and the nature of controls over their activities); and (3) the nature and scope of government interactions, not only in connection with winning sales from government customers but also in obtaining zoning and building permits, tax clearances, customs rulings, currency transaction permissions, investment and financing approvals, and a range of other daily decisions from government actors. Firms with business risks associated with non-compliance such as expiring patents, excess capacity, disproportionate sales-based compensation, and limited oversight over sales and supply chain personnel, may well have significant corruption risks even in nations ranked highly in the CPI.”

*****

A good weekend to all.

 

Friday Roundup

Friday, December 13th, 2013

Ask yourself, the true measure of success is, statute of limitations decision of note, and more on JPMorgan.  It’s all here in the Friday roundup.

Ask Yourself

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If the answer to any of these questions is yes, please consider a donation – a voluntary yearly subscription - to FCPA Professor.  Yearly subscriptions to other legal publications or sources of information can serve as an appropriate guide for a donation amount.

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The True Measure of Success Is …

As numerous sources have reported (for instance see here from Reuters and here from the Telegraph), the U.K. Serious Fraud Office’s prosecution of Victor Dahdaleh for allegedly paying millions in bribes to former managers of Aluminium Bahrain has collapsed.

The SFO provided the following statement to the court.

“At the commencement of this trial, the Serious Fraud Office was of the view that there was a realistic prospect of conviction in this case and that furthermore, the evidence in this case was strong.  Two things, in particular, have happened which have led to the prospect of conviction deteriorating in this case.  The first of those is that Bruce Hall, a conspirator and significant witness for the SFO significantly changed his evidence from that contained in his witness statement. Secondly, we have the unwillingness of two witnesses to face cross-examination. That impacts both on the fairness of the trial as well as the prospects of conviction.  Since last Thursday, yet further contact has taken place with Akin Gump, the lawyers for Aluminium Bahrain, or “Alba”, to secure the attendance of these two American witnesses, Mark MacDougall and Randy Teslik who are both partners in that firm. As you will see from the correspondence, they have attempted to place limits on the extent to which they can be cross-examined.  The Serious Fraud Office does not believe it would be appropriate to attempt to persuade the court to agree to such limits nor, given your comments last week, that they should appear via video-link.  The Defence have raised issues questioning Akins Gump’s role in the provision of assistance to the Serious Fraud Office both as to what their motives may have been in the dissemination of material and assistance as to witnesses who could provide relevant information, this in the context, as accepted by the defence, of the Serious Fraud Office acting in good faith. The attendance of the two American witnesses would have allowed this aspect of the case to be ventilated before the jury. Their refusal to attend creates a situation where it is clear that the trial process cannot remedy the position and we accept unfairness now exists for the Defence.  In seeking to secure the attendance of these two witnesses – who have previously attended court on every other occasion when their attendance has been required – the Serious Fraud Office has taken every available step, including a direct telephone conversation between the Director of the Serious Fraud Office and the chair of Akin Gump.  Not every unfairness necessarily leads to trials being discontinued, particularly where there is other evidence and taking into account the public interest in pursuing serious crime. After careful consideration of all of the circumstances of the case the Serious Fraud Office has concluded that there is no longer a realistic prospect of conviction in this case and accordingly we offer no evidence.”

For an additional SFO statement, see here.

While I have no unique insight into the facts and circumstances relevant to the Dahdaleh case and the SFO’s decision to abandon it, this much I know.

Success in enforcing a law, whether in the corporate context or individual context, is best measured – not by instances in which an enforcement agency in position of various “carrots” and “sticks” is able to procure a settlement – but by instances in which an enforcement agency is actually put to its burden of proof in an adversarial proceeding.

Statute of Limitations Decision of Note

Speaking of that measure of success, earlier this week the Second Circuit Court of Appeals rejected the DOJ’s statute of limitations theory in U.S. v. Grimm.

The case – outside the FCPA context – involved employees of General Electric Company who allegedly engaged in a multi-year scheme to fix below-market rates on interest paid by GE to municipalities.  The defendants were tried and convicted of violating the general federal conspiracy statute (18 USC 371).  The defendants appealed their convictions on the ground that the indictment was barred by the statute of limitations.  The trial court held that the statute of limitations continued to run during the period when GE paid the (depressed) interest to municipalities, and that the interest payments could constitute overt acts.

On appeal, the defendants argued that such interest payments cannot serve as overt acts because the routine payments were scheduled to continue for years (if not decades) after the contract was awarded and after all concerted conduct had ended.

The Second Circuit concluded that those payments do not constitute overt acts in furtherance of the conspiracy.  In so holding, the court rejected the DOJ’s position that a conspiracy continues so long as a stream of anticipated payments contains an element of profit.  The court stated, “but that proves too much” – “a conspiracy to corrupt the rent payable on a 99-year ground lease would, under the government’s theory, prolong the overt acts until long after any conspirator or co-conspirator was left to profit, or to plot.”

Not that statute of limitations have much practical impact on corporate FCPA enforcement actions given the “carrots” and “sticks” relevant to resolving an action, but if they did, it is easy to see relevance to the FCPA context as certain alleged bribe payments could be made to secure a contract – such as a production sharing agreement or similar – that has a revenue stream of serial payments over a number of years.

More on JPMorgan

The NY Times returned (here) to the JPMorgan story it first reported in August (see here and here for prior posts) regarding the company’s hiring practices in China.  The article states:

“Federal authorities have obtained confidential documents that shed new light on JPMorgan Chase’s decision to hire the children of China’s ruling elite, securing emails that show how the bank linked one prominent hire to “existing and potential business opportunities” from a Chinese government-run company.  The documents, which also include spreadsheets that list the bank’s “track record” for converting hires into business deals, offer the most detailed account yet of JPMorgan’s “Sons and Daughters” hiring program, which has been at the center of a federal bribery investigation for months. The spreadsheets and emails — recently submitted by JPMorgan to authorities — illuminate how the bank created the program to prevent questionable hiring practices but ultimately viewed it as a gateway to doing business with state-owned companies in China, which commonly issue stock with the help of Wall Street banks.

[...]

“There is no indication that executives at JPMorgan’s headquarters in New York were aware of the hiring practices described in the documents. And authorities might ultimately conclude that the bank’s hiring, while aggressive, did not cross a legal line.”

Once again (see here and here for prior posts), the latest JPMorgan article spawned much commentary touching upon double standard issues.  For multimedia content, see here from the Daily Ticker.

In this Huffington Post column, former Labor Secretary Robert Reich states:

“But let’s get real. How different is bribing China’s “princelings,” as they’re called there, from Wall Street’s ongoing program of hiring departing U.S. Treasury officials, presumably in order to grease the wheels of official Washington?

[...]

Or, for that matter, how different is what JP Morgan did in China from Wall Street’s habit of hiring the children of powerful American politicians?

[...]

And how much worse is JP Morgan’s putative offense in China than the torrent of money JP Morgan and every other major Wall Street bank is pouring into the campaign coffers of American politicians — making the Street one of the major backers of Democrats as well as Republicans?”

Reich concludes by asking:

“The Foreign Corrupt Practices Act is important, and JP Morgan should be nailed for bribing Chinese officials. But, if you’ll pardon me for asking, why isn’t there a Domestic Corrupt Practices Act?”

Well, Mr. Reich, there is a domestic corrupt practices act – it is called 18 U.S.C. 201, but as I’ve highlighted for years there is a double standard (see the 25 separate posts under the subject matter heading double standard).

But why should corporate interaction with a “foreign official” be subject to greater scrutiny and different standards of enforcement than corporate interaction with a U.S. official? After all, 18 U.S.C. 201 has elements very similar to the FCPA.  Why do we reflexively label a “foreign official” who receives “things of value” from private business interests as corrupt, yet generally turn a blind eye when it happens here at home?

*****

A good weekend to all.