Archive for the ‘Double Standard’ Category

Friday Roundup

Friday, May 1st, 2015

Roundup2Exasperated, skittish, checking in, scrutiny alerts and updates, and for the reading stack.  It’s all here in the Friday roundup.

Exasperated

This recent post highlighted Assistant Attorney General Leslie Caldwell’s recent speech in which she stated – in reference to FCPA internal investigations – “we do not except companies to aimlessly boil the oil.”

This recent Law360 article notes that some attorneys are exasperated by Caldwell’s remarks.  The article states:

“[D]efense attorneys have balked at the idea that they’re spending too much time or money on investigations they’re conducting in large part for the government’s sake, saying they’re not willfully adding unnecessary work to an FCPA probe.

Many companies still feel like they’re being forced to walk the fine line between investigating problems thoroughly enough to satisfy the government without making it seem like they’re holding something back or impeding an investigation, according to Day Pitney LLP partner Bob Appleton.

“On the one hand they’re saying, ‘Be fast and don’t do an over-thorough job,’ but on the other hand, they’re saying, ‘If you only partially disclose you’ll get in trouble,’” said Appleton, a former assistant U.S. attorney.

And the costs of an investigation aren’t just limited to what a company self-reports, since the government will often then ask how the company can be sure the problem isn’t popping up anywhere else, according to Colleen P. Mahoney, partner at Skadden Arps Slate Meagher & Flom LLP.

“One of the biggest challenges is the expense after it starts,” Mahoney said about FCPA investigations at a Practicing Law Institute event Friday.

At the PLI event, SEC enforcement chief Andrew Ceresney said it was up to a company to decide what law firm to retain and how deep to investigate a potential bribery matter.

“We’re not micromanaging your internal investigation,” he said.”

Numerous posts on FCPA Professor have highlighted the staggering amount of pre-enforcement action professional fees and expenses (see also “FCPA Ripples“).

Speaking of which, Key Energy Services disclosed yesterday $18 million in expenses – for the first quarter of 2015 -”related to the previously disclosed Foreign Corrupt Practices Act (“FCPA”) investigations.”

I’ve had several conversations with FCPA practitioners about this issue.  For what it is worth, the common response is something along the following lines: FCPA practitioner agrees that pre-enforcement action professional fees and expenses have spun out of control in many instances, but FCPA practitioner insists that his/her firm is not part of the problem.

Other practitioners are also pushing back as to other aspects of Caldwell’s recent speech – namely “what cooperation looks like”.  In this recent post on the FCPA Blog an anonymous contributor states:

 ”When client companies and I have opted to cooperate early on and open up all information and records to the DOJ investigative units, I have seen the FCPA investigative team to be less interested in whether facts or evidence show violations or point to evidence raising red flags, as to how the client (and lawyer also) is bowing and mewling in anguish and sorrow before the government.

Provided the client is willing to genuflect and cry out mea culpa and beg for mercy (all three are required) there can be a happy and acceptable outcome in correcting corporate deficiencies and reaching an early valid resolution.

Executives who have somewhat less capacity to grovel underfoot are punished with the promise of crippling expansions of the process including raids and countless subpoenas to uninvolved officers, employees, consultants and accountants.

My experience is that this is not based on early findings of probable cause, but rather a haughty outrage that there was insufficient willingness to self-immolate.”

Skittish

Much has been written about whether the FCPA and its enforcement deters foreign investment.  (See here for instance).

Companies obviously make foreign investment decisions based on a host of legal and non-legal risks and thus empirically separating and measuring the impact of FCPA enforcement on foreign investment decisions is difficult.  Moreover, despite the general rise in FCPA enforcement concerning conduct in certain high risk jurisdictions such as China, India, and Brazil, there continues to be vast amounts of foreign direct investment in those countries by companies subject to the FCPA prohibitions.

Any “evidence” that the FCPA and its enforcement deters foreign investment thus tends to be anecdotal.

Following up on this prior post regarding Cambodia, the Phnom Penh Post reports:

“Despite high-profile US companies like Coca-Cola announcing plans to expand their footprint in the Kingdom, foreign investment from the US remains low compared to regional heavyweights. Large US businesses appear reluctant in setting up in the Kingdom due to corruption concerns, an unpredictable regulatory environment, and a lack of economic attractiveness that allows US interests to thrive.

[...]

Corruption remains one of the major factors keeping US companies away. According to an American Chamber of Commerce survey for 2015, 82 per cent of American businesses in Cambodia were dissatisfied with corruption – the second highest in the region after Laos.”

Checking In

Way back in 2010, Steven Jacobs, the former President of Macau Operations for Las Vegas Sands Corp., filed a civil lawsuit against Las Vegas Sands (LVS) in which Jacobs alleged various improprieties at LVS including in the FCPA context.

As noted in this Bloomberg article, Sheldon Adelson, the billionaire founder and chairman of LVS, recently testified in open court about the case and stated, among other things, that “after four years of investigating, they [the DOJ and SEC]  haven’t found a shred of evidence yet.”

Scrutiny Alerts and Updates

CSC / ServiceMesh

CSC is a Virginia-based IT company and in October 2013 it acquired acquire ServiceMesh, a cloud management company.  Various reports note that Eric Pulier, the former CEO of ServiceMesh, and head of the ServiceMesh division within CSC since ServiceMesh was acquired by that company, has left the company.

CSC sent the following statement to media about Pulier’s departure:

“On March 26, 2015 Eric Pulier was notified that his actions involving payments from the ACE Foundation—an organization founded by Mr. Pulier and not related to CSC—to former IT executives of Commonwealth Bank of Australia, a CSC client, violated CSC’s code of conduct related to conflicts of interests and appearance of improprieties. Mr. Pulier was further notified that these violations were grounds for termination of his employment.”

PTC

In this release, PTC stated:

“We have, since making a voluntary disclosure to the U.S. Securities and Exchange Commission and the Department of Justice, been cooperating to provide information to those agencies concerning expenditures by certain of our business partners in China and by our China business, including for travel and entertainment, that apparently benefitted employees of customers regarded as state owned enterprises in China. This matter involves issues regarding compliance with laws, including the U.S. Foreign Corrupt Practices Act. Negotiations with the SEC to reach a resolution of its investigation have begun but have not been concluded. We expect to begin negotiations with the Department of Justice to resolve its investigation in the near future. Resolution of this matter is likely to include fines and penalties. Given the uncertainty regarding whether settlements can be reached and, if reached, on what terms, we are not able to estimate a range of reasonably possible loss with regard to any such settlements and have not recorded any liability in connection with this matter. If settlements are reached, we believe that the associated financial liability could be material to our results of operations for the fiscal period in which the liability is recorded. Further, any settlement or other resolution of this matter could have collateral effects on our business in China, the United States and elsewhere.”

Braskem SA

Brazil-based Braskem recently disclosed in an SEC filing:

“In the context of anti-corruption allegations against certain individuals and entities in Brazil, including Petrobras, we were mentioned in allegations of improper payments made in order to receive favorable treatment in connection with certain contracts that we are party to with Petrobras. We have not received notice of any proceeding or investigation involving us that has been commenced in Brazil or the United States in connection with these allegations.

Although we have certain procedures in place, we have implemented additional procedures and controls to monitor our compliance with applicable anti-corruption laws and as a result of the recent allegations against us, have engaged Brazilian and U.S. legal counsel to conduct a voluntary internal investigation of this matter.  If any of these allegations prove to be true, or if we or any of our subsidiaries, or joint venture partners fails to comply with any of these laws, we could be subject to applicable civil or criminal penalties, which could adversely affect our overall performance.”

[…]

In early March 2015, declarations made by defendants in lawsuits filed against third parties were made public, in which Braskem and two of its former executive officers were cited in allegations of supposed improper payments between 2006 and 2012 to benefit the Company in raw-material supply agreements entered into with Petrobras. As of April 24, 2015, to the knowledge of the management, Braskem has not received any notification of the filing of any proceeding or investigation by Brazilian or U.S. authorities.

In light of such facts, the Company’s Management and Board of Directors approved in April the internal plan for investigation into the allegations (“Investigation”) to be carried out by law firms experienced in similar cases in the United States and in Brazil.  The law firms will work under the coordination of an ad hoc committee formed by members of its Board of Directors, specially created for this purpose.

In addition, the following measures have already been taken:

i)    Voluntary announcement about the Investigation and periodical updates sent to regulatory agencies of capital markets in Brazil (Securities and Exchange Commission of Brazil – CVM) and the United States (Securities and Exchange Commission – SEC, and the Department of Justice – DOJ);

ii)    Publication of two Material Fact notices and one Notice to the Market to clarify the news reports and to keep shareholders and the market informed of actions taken by the Company;

iii)   Updating the Audit Board and external auditors about the progress of the Investigation and of the actions already taken.

Braskem and its subsidiaries are subject to a series of anticorruption and anti-bribery laws in the countries where they operate. To reduce the likelihood of infringement of such laws, a series of procedures and controls were implemented and are continuously being improved.

On the other hand, if any of the allegations proves to be true, the Company may be subject to material penalties envisaged in law. At this moment, the Company Management believes that it is not possible to estimate the duration or outcome of the Investigation and, consequently, whether it will have any impact on future financial statements.

The Management is committed to taking all the necessary measures to clarify the facts and will keep the market informed of any progress on this matter.”

United Technologies

Recently, the company disclosed:

“As previously disclosed, in December 2013 and January 2014, UTC made voluntary disclosures to the United States Department of Justice (DOJ), the Securities and Exchange Commission (SEC) Division of Enforcement and the United Kingdom’s Serious Fraud Office to report the status of its internal investigation regarding a non-employee sales representative retained by United Technologies International Operations, Inc. (UTIO) and IAE for the sale of Pratt & Whitney and IAE engines and aftermarket services, respectively, in China.  On April 7, 2014, the SEC notified UTC that it was conducting a formal investigation and issued a subpoena to UTC.  UTC continues to cooperate fully with the investigations and has responded to requests for documents and information.  The DOJ and SEC also continue to request information, and the SEC issued a second subpoena on March 9, 2015 seeking documents related to internal allegations of alleged violations of anti-bribery laws from UTC’s aerospace and commercial businesses, including but not limited to Otis businesses in China.  Because the investigations are ongoing, we cannot predict the outcome or the consequences thereof at this time.”

For the Reading Stack

The NY Times goes in depth regarding the U.S’s attempt to extradite Dmitry Firtash, a Ukrainian national criminally indicted in April 2014 along with others (see here for the prior post).  According to the article:

“An Austrian judge will issue a crucial ruling in the case on Thursday at an extradition hearing here, where Mr. Firtash’s lawyers will argue that his arrest — on charges of bribing officials in India to secure a titanium mining deal that never materialized — was really an effort by the United States to remove him from public life in Ukraine, where he controls major business interests and still holds considerable clout. The Justice Department has repeatedly declined to discuss the case because it is an active prosecution, but the United States attorney’s office in Chicago, which led the investigation, has flatly denied any political motivations.

[...]

Andras Knopp, a Hungarian businessman and longtime associate of Mr. Firtash’s who is also charged in the case, said that the United States authorities had made no effort to extradite him, or even to talk to him about the case, even though he was at the center of the Indian titanium deal …”.

*****

The most recent edition of the always informative Debevoise & Plimpton FCPA Update is here.  Among the topics discussed are developments in India including potential amendments to the Prevention of Corruption Act providing for liability for a commercial organizations whose employees bribe but also creating a defense for a commercial organization commercial organization if it can prove it had “adequate procedures” in place to prevent bribery.

*****

This Bloomberg article (“The Dinner Proposal That Led United Into Corruption Probe”) begins:

“United Airlines Inc. was seeking hundreds of millions of dollars in public investment for the airport in Newark when its chief executive dined with New Jersey Governor Chris Christie’s top Port Authority official in September 2011.

Jeffery Smisek, United’s chief executive officer, wanted funding for several projects, including an estimated $600 million extension of the PATH train from downtown Newark to the airport, as the airline worked through its merger with Continental Airlines.

Halfway through dinner at Novita, an Italian restaurant in Manhattan, Port Authority Chairman David Samson surprised the group with a request of his own. He complained that he and his wife had grown weary of the trip to their weekend home in Aiken, South Carolina, because the best flight out of Newark was to Charlotte, North Carolina, 150 miles away. Until 2009, Continental had run direct service from Newark to Columbia, South Carolina, 100 miles closer.

In a tone described by one observer as “playful, but not joking,” Samson asked: Could United revive that route? An awkward silence fell over the table.

Though the United CEO didn’t agree to the request at the dinner, according to the accounts of some who attended, the airline ultimately added the money-losing route that became known as “the chairman’s flight.” Now federal prosecutors are looking into whether its genesis crossed the line from legitimate bargaining into illegal activity.”

*****

A good weekend to all.

“It Is Unclear Why The Justice Department Champions The Fight Against Foreign Corruption While It Simultaneously Tries To Deport Those Perceived As Fighting Foreign Corruption”

Monday, March 9th, 2015

Judge OwensI do not often read about the DOJ Board of Immigration Appeals (“BIA”).  Unless of course the decision contains the words “Foreign Corrupt Practices Act” in which case such a decision show up on my various searches.

An interesting recent case from the Ninth Circuit Court of Appeals in which Judge John Owens (pictured) wrote the words contained in the headline.

By way of background, an Armenian citizen sought asylum in the U.S. claiming “that the Armenian military police detained, beat, and threatened him after he was seen talking to a reporter following a personal confrontation with the city’s military police chief.”  According to the Armenian citizen, his objective in talking to the reporter was to expose corruption after his wife and cousin were forced to pay a bribe.

A U.S. immigration judge (“IJ”) held that the individual was ineligible for asylum because he failed to establish that he was persecuted on account of political opinion.  As noted in the Ninth Circuit opinion, the IJ concluded that the individual’s conversation with the reporter did not amount to whistleblowing because he “was telling about one incident with one police chief, not about the whole police force.  It was not an act of corruption within the police department.”

On appeal, the BIA held that the individual was ineligible for asylum because he had not demonstrated a nexus between his actual political opinion and the harm that he experienced.  According to the BIA, “to the extent that [the individual] sought to publicize his mistreatment, he has not demonstrated that his actions were meant to expose corruption in a governing institution, in this case the military police.”

On appeal to the Ninth Circuit, the court framed the issue as follows.

“The question thus presented is whether [the] direct and indirect evidence [of nexus offered by the individual] is sufficient proof that (1) the military police believed Petitioner to be a whistleblower who was attempting to expose corruption and, if so, (2) their belief motivated them to detain, beat, and threaten Petitioner. Even though the BIA couched a portion of its holding in terms of imputed political opinion, a close look at the BIA’s decision reveals that it did not address that key question at all.”

The Ninth Circuit noted that the “IJ concluded that there was no corruption to expose because the initial confrontation [with the police officer] did not involve bribery or extortion.”  However, the Ninth Circuit concluded, “the concept of government corruption is broader than that, and efforts to expose something that begins as a personal dispute can be interpreted as political dissent.”

In other respects, the Ninth Circuit stated:

“Corruption broadly refers to an abuse of public trust.  In common parlance, as well as in precedent, corruption means a lack of integrity and a use of a position of trust for dishonest gain, which need not be financial.  One form of gain is the maintenance of a position of authority.  We remand for the BIA to consider whether the evidence shows that the police chief, in an effort to keep his government job, used his position of power to silence a possible report about his abuse of that power.”

Concurring, Judge Owens stated in pertinent part as follows.

“I write separately to emphasize that the United States Department of Justice’s position in this and other immigration cases clashes with its own campaign against foreign corruption. The Justice Department does not limit corruption to “bribery.” Rather, it correctly defines corruption as the “abuse of entrusted power for personal gain.” Shortly after the Arab Spring, former Assistant Attorney General Lanny Breuer recounted the tragic story of Mohammed Bouazizi, who lit himself on fire in Tunisia after suffering the abuse of a corrupt local official.

Bouazizi faced corruption at the most personal level. His fruit stand and electronic scale were arbitrarily taken from    him by a municipal inspector, who also humiliated him with a slap across the face, and authorities refused to give         him back his property.

Bouazizi’s tale is unfortunately a global one, shared by [Petitioner] and many others. A guard who demands sexual favors from a prisoner is corrupt. So is a police officer who brutalizes a local community. And so is a police chief who, to impress his “ladies and friends,” uses his bodyguards to beat up a restaurant manager who refuses to kowtow to his demands. None of these violations feature bribes, but all involve the abuse of entrusted power for personal gain, which can be as petty as trying to look like a big shot in front of friends and members of the opposite sex. As [the majority] opinion ably demonstrates, this court has acknowledged that this abuse, not the exchange of money, is the essence of corruption. And I read our immigration laws as protecting (rather than deporting) those who protest (or are perceived as protesting) corrupt government officials. It is unclear why the Justice Department champions the fight against foreign corruption while it simultaneously tries to deport those perceived as fighting foreign corruption.” (emphasis added).

 

Can You Spot The FCPA Risk?

Monday, March 2nd, 2015

i found you!A high-ranking government official encourages other governments to sign deals and change policies to the advantage of various companies.  At the same time, those companies were among the many that gave to the high-ranking official’s family global foundation set up by her spouse. Indeed, at least 60 companies that lobbied the high-ranking official’s office during her tenure donated a total of more than $26 million to the foundation.  In some cases, the donations came after the high-ranking official took action that helped a company.  In other cases, the donation came first.  In some instances, donations came both before and after.

While a high-ranking official, the individual also sought corporate donations for another charity she co-founded.

Can you spot the FCPA risk?

A prudent FCPA practitioner would immediately see the “red flags;” counsel the companies at issue to conduct an internal investigation as to the conduct at issue and related conduct; and – mindful of the enforcement agencies guidance and cognizant of the carrots and sticks they posses – likely suggest voluntarily disclosure of the investigative findings.

But wait.

The above high-ranking government official was not a “foreign official” – it was a U.S. government official. See here for the Wall Street Journal’s recent article about former Secretary of State Hillary Clinton.

But why should business interactions with “foreign officials” be subject to different standards than business interactions with U.S. officials?  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? Is the FCPA enforced too aggressively or is enforcement of the U.S. domestic bribery statute too lax?  Ought not there be some consistently between enforcement of the FCPA and the domestic bribery statute?

As then Secretary Clinton said in this 2012 speech:

“[T]his Administration, like those before us, has taken a strong stand when it comes to American companies bribing foreign officials. We are unequivocally opposed to weakening the Foreign Corrupt Practices Act. We don’t need to lower our standards. We need to work with other countries to raise theirs. I actually think a race to the bottom would probably disadvantage us. It would not give us the leverage and the credibility that we are seeking.”

As the Wall Street Journal noted in the recent article “corporate donations to politically connected charities aren’t illegal so long as they aren’t in exchange for favors.  There is no evidence of that with the Clinton Foundation.”

For numerous posts under the double standard subject-matter tag – see here.

Friday Roundup

Friday, January 30th, 2015

Roundup2Scrutiny alerts, compliance defense, be a scholar, industry news, and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Alerts

The Bank of New York Mellon Corp (BNY Mellon) recently disclosed:

“In January 2011, the Enforcement Division of the U.S. Securities and Exchange Commission (the “SEC Staff”) informed several financial institutions, including BNY Mellon, that it had commenced an inquiry into certain of their business practices and relationships with sovereign wealth fund clients.  BNY Mellon has fully cooperated with the SEC Staff’s investigation.  In the third quarter of 2014, the SEC Staff issued Wells notices to certain current and former employees of BNY Mellon, informing them that the SEC Staff has made a preliminary determination to recommend enforcement action against them for alleged violations of the U.S. Foreign Corrupt Practices Act in connection with the provision of a limited number of internships to relatives of sovereign wealth fund officials.  BNY Mellon received a similar Wells notice in the fourth quarter of 2014.  Although it is not possible to predict the ultimate resolution or financial liability with respect to this matter, BNY Mellon is currently of the opinion that the outcome of this matter will not have a material effect on BNY Mellon’s business, financial condition or results of operations.”

A Wells Notice is not common in the FCPA context.  As highlighted earlier this week regarding Cobalt, just because the SEC issues a Wells Notice does not mean there will be an enforcement action.

Compliance Defense

Singapore, a country hardly viewed as a slouch on law and order issues, is in the process of reviewing its Prevention of Corruption Act (PCA).  As noted in this Norton Rose Fulbright update, among the areas for potential reform is corporate liability and a compliance defense.  As noted in the update:

Corporate Liability

Prosecutions in Singapore for bribery-related offences have primarily focused on individuals. While Singapore law allows corporations to be prosecuted, and international obligations under the OECD Anti-Bribery Convention require corporations to be legally liable for corrupt practices, the reality is that it is evidentially difficult to prove that a corporation had the requisite intent and carried out the relevant corrupt conduct. This is usually proven by showing the individual who committed the crime can be regarded as the “embodiment of the company” or its “directing mind and will” – not an easy task in an era of large multinational corporations with complex decision-making trees.

Any reform to the PCA may do well to take a leaf out of the pages of Singapore’s own anti-money laundering law – the Corruption, Drug-Trafficking and Serious Crimes (Confiscation of Benefits) Act (CDSA). The CDSA renders money-laundering by a corporation a criminal offence that can be proven through the state of mind as well as the conduct of any “director, employee or agent” who was acting within the scope of his or her actual or apparent authority. In other words, the evidential threshold is significantly lowered and the outdated “directing mind and will” test is done away with.

Compliance Defense

If the threshold for proving corporate liability is lowered, some balance can be restored by introducing a compliance defence. A corporation that is found liable for bribes paid by its “director, employee or agent” can be absolved of legal liability if it can show that it took reasonable steps to prevent such corrupt practices from taking place. Such a compliance defence provides a legal impetus for companies to adopt prudent business practices and foster ethical corporate cultures through the implementation of anti-corruption compliance programs.

This notion of a compliance defence finds support in the form of the “adequate procedures” defence enshrined in the recent UK Bribery Act 2010, and has been the subject of a movement in the US to introduce a similar affirmative defence in the context of the reform of the Foreign Corrupt Practices Act (FCPA).

Be a Scholar

Trace International has announced that “applications for the 2015-2016 TRACE Scholar Program at the University of Washington School of Law are being accepted now until February 28, 2015.”  Click here and here to learn more.

Industry News

King & Spalding recently announced that Jason Jones (the Assistant Chief of the DOJ’s FCPA Unit) is returning to the firm.

As stated in the release:  ”As a supervisor in the Justice Department’s FCPA unit, Jones oversaw investigations and prosecutions of corporations and their employees for making improper payments to foreign officials in business transactions. He is well versed in the Justice Department’s increasing enforcement in this area.”

In the release, Christopher Wray, leader of King & Spalding’s Special Matters and Government Investigations practice, states: “We are pleased to welcome Jason back to the firm. Jason is well-known by many lawyers in the firm – and highly respected. His FCPA oversight experience at a national level and his strong trial skills provide added bench strength to the broad range of defense work we offer our clients. Jason is a natural fit for our team.“

*****

Debevoise & Plimpton recently announced that “David A. O’Neil, former Acting Assistant Attorney General for the Criminal Division and former Deputy Assistant Attorney General for the Fraud Section at the Department of Justice, has joined the firm as a partner in Washington, D.C.”  As noted in the release, O’Neil “has experience across a broad range of high-profile matters, including the most significant FCPA prosecutions …”.

In this recent Corporate Crime Reporter interview, O’Neil talks about the shift of the corporate crime universe from New York City to Washington, D.C. and states:

“I have witnessed in my time in the Department a significant growth in the work that Main Justice is doing. It is not that the Southern District [of New York] is doing less. It’s that Main Justice is doing more. There are a number of reasons for that. Some are the result of the U.S. Attorney’s Manual, which requires that the Fraud Section have a role in every Foreign Corrupt Practices Act (FCPA) case. Much of it is FCPA driven.”

“When I started out, I actually worked some FCPA cases in private practice. But at that time, it was more of a niche practice. It was not the same kind of focus that it is now.”

“Today, in some ways, white collar practice is synonymous with FCPA practice. As a result, in every FCPA case, Main Justice’s Fraud Section is going to be an active player.”

Asked whether “the FCPA pipeline is still loaded,” O’Neil states:

“The FCPA is going to continue to be an active area. I don’t think we are anywhere near the end of the pipeline. In fact, you see the Department devoting greater resources, including through the creation of a dedicated FCPA unit at the FBI. My prediction would be that FCPA cases continue at their current pace or increase.”

For the Reading Stack

Reagan Demas (Baker & McKenzie) “Biting the Hands That Feed:  Corporate Charity and the U.S. Foreign Corrupt Practices Act.”

A Texas-sized double standard?  See here from the Texas Tribune in an article that begins as follows.  ”It is illegal to bribe a public official in Texas, of course. But you might be surprised with what you can get away with if that public official is a state lawmaker.”

*****

A good weekend to all.

Friday Roundup

Friday, January 23rd, 2015

Roundup2Scrutiny alerts, quotable, and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Alerts

Nortek

Nortek Inc.  recently disclosed:

“As part of our routine internal audit activities, Nortek, Inc. (the “Company” or “we”) discovered certain questionable hospitality, gift and payment practices, and other expenses at the Company’s subsidiary, Linear Electronics (Shenzhen) Co. Ltd. (“Linear China”), which are inconsistent with the Company’s policies and raise concerns under the U.S. Foreign Corrupt Practices Act (“FCPA”) and perhaps under other applicable anti-corruption laws. The Company initiated an internal investigation into these practices and payments with the assistance of outside counsel. On January 7, 2015 and January 8, 2015, respectively, we voluntarily contacted the United States Securities and Exchange Commission (“SEC”) and the United States Department of Justice (“DOJ”) to advise both agencies of our internal investigation. The Company intends to cooperate with any SEC or DOJ investigation into these matters. The Company takes these matters very seriously and is committed to conducting its business in compliance with all applicable laws. Based on information known at this time, we currently believe that the amount of the questionable expenses and payments is not material with respect to the Company’s financial condition or results of operations. However, at this time, we are unable to predict, what, if any, action may be taken by the DOJ or SEC or any penalties or remedial measures these agencies may seek, but intend to cooperate with both agencies. Any determination that our operations or activities are not in compliance with existing laws or regulations could result in the imposition of fines, civil and criminal penalties, and equitable remedies, including disgorgement or injunctive relief. Nortek’s Linear China location manufactures products primarily for our Security and Control Solutions Segment and does not sell products to third parties.”

Sony

Last week’s Friday Roundup highlighted the FCPA scrutiny of Sony and other Hollywood film studies in China.

In this article, Bloomberg reports:
“Sony Corp.’s entertainment unit investigated its Indian operations for possible legal violations including bidding fraud and kickbacks, according to internal e-mails released by hackers, highlighting challenges the company has faced in the country. Sony enlisted Ernst & Young to look into its businesses in the country and uncovered potential evidence of wrongdoing, according to the e-mails. In one case, investigators found that a joint venture between Sony and Discovery Communications Inc. (DISCA) may have engaged in fraudulent bids, kickbacks and excessive handouts to government officials …”
According to the article, there are various “areas of concern” including: “potential gifts and entertainment of Indian government officials” such as providing tickets to IPL cricket matches to public servants, as well as laptop bags that were requested as gifts for government officials during the Diwali festival.”

Related to the entertainment industry, this recent Wall Street Journal article “Media Giants Look Far Afield for New TV Audience” is an interesting read (with FCPA goggles on) as it describes how various U.S. companies are expanding abroad.

Transparency International

Transparency International (TI) is usually the one scrutinizing, not being scrutinized.  However, this Corporate Crime Reporter article highlights Siemens’ recent $3 million dollar donation to TI.  The article quotes a “TI insider, who asked not to be identified for fear of retaliation” as follows.

“This really shows that Transparency International is not as pure as people think. Transparency International’s own policy forbids accepting money from corrupt companies. Period. Even though the Siemens bribery scandal broke in 2006, the company is still being investigated in more than 20 countries — in Europe, Asia, the Americas, Africa and the Middle East. All over the world, Siemens is still under suspicion.”

“Its reputation is the most valuable asset that Transparency International has. But its management has made the choice that taking $3 million from Siemens to support its $70 million international budget is worth the risk of damaging its reputation. That’s less than 5 percent of TI’s budget. Is this really worth it?”

“How can anyone trust TI? The world’s leading anti-corruption NGO is now taking money from one of the world’s worst corporate criminals. People need to start asking the question.”

Quotable

In this recent speech, Deputy Assistant Attorney General Sung-Hee Suh spoke “about the Criminal Division’s white-collar criminal enforcement priorities now and in the coming year.” Among other things, Suh stated:  

“The prosecution of individuals—including corporate executives—for criminal wrongdoing continues to be a high priority for the department.  That is not to say that we will be looking to charge individuals to the exclusion of corporations. However, corporations do not act criminally, but for the actions of individuals.  And, the Criminal Division intends to prosecute those individuals, whether they are sitting on a sales desk or in a corporate suite. It is within this framework that we are also seeking to reshape the conversation about corporate cooperation to some extent.  Corporations too often overlook a key consideration that the department has long expressed in our Principles of Federal Prosecution, which guide our prosecutorial decisions:  That is a corporation’s willingness to cooperate in the investigation of its culpable executives. Of course, corporations—like individuals—are not required to cooperate.  A corporation may make a business or strategic decision not to cooperate.  However, if a corporation does elect to cooperate with the department, it should be mindful of the fact that the department does not view voluntary disclosure as true cooperation, if the company avoids identifying the individuals who are criminally responsible for the corporate misconduct. Even the identification of culpable individuals is not true cooperation, if the company intentionally fails to locate and provide facts and evidence at their disposal that implicate those individuals.  The Criminal Division will be looking long and hard at corporations who purport to cooperate, but fail to provide timely and full information about the criminal misconduct of their executives. In the past year, the Criminal Division has demonstrated its continued commitment to the prosecution of individual wrongdoers in the corporate context.  I will highlight a few examples. On the FCPA front, since 2009, we have convicted 50 individuals in FCPA and FCPA-related cases, and resolved criminal cases against 59 companies with penalties and forfeiture of almost $4 billion.  Within the last two years alone, we have charged, resolved by plea, or unsealed cases against 26 individuals, and 14 corporations have resolved FCPA violations with combined penalties and forfeiture of more than $1.6 billion. As just one example, the department unsealed charges against the former co-CEOs and general counsel of PetroTiger Ltd., a BVI oil and gas company with offices in New Jersey, for allegedly paying bribes to an official in Colombia in exchange for assistance in securing approval for an oil services contract worth $39 million. The general counsel and one of the CEOs already pleaded guilty to bribery and fraud charges, and the other former CEO is headed for trial. This case was brought to the attention of the department through voluntary disclosure by PetroTiger, which cooperated with the department’s investigation.  Notably, no charges of any kind were filed against PetroTiger. An example on the flip side is the Alstom case, an FCPA investigation stemming from a widespread scheme involving tens of millions of dollars in bribes spanning the globe, including Indonesia, Saudi Arabia, Egypt, and the Bahamas. When the Criminal Division learned of the misconduct and launched an investigation, Alstom opted not to cooperate at the outset.  What ensued was an extensive multi-tool investigation involving recordings, interviews, subpoenas, MLAT requests, the use of cooperating witnesses, and more. As of today, four individual Alstom executives have been charged; three of them have pleaded guilty; Alstom’s consortium partner, Marubeni, was charged and pleaded guilty; and Alstom pleaded guilty and agreed to pay a record $772 million fine.  And that only accounts for the charges in the United States. As I have said, we want corporations to cooperate, and will provide appropriate incentives.  But, we will not rely exclusively upon corporate cooperation to make our cases against the individual wrongdoers.

[...]

To do these complex, international investigations, we are increasingly coordinating with domestic and foreign regulators and law enforcement counterparts, some of whom are on this panel today. In working with our foreign counterparts, we have developed growing sophistication and experience in a variety of areas, including analyzing foreign data privacy laws and corporations’ claims that overseas documents cannot be provided to investigators in the United States. We are also building and relying upon on our relationships with our foreign counterparts to gather evidence, locate individuals overseas, conduct parallel investigations of similar conduct, and, when appropriate, coordinate the timing and scope of resolutions. Yes, just as we are coordinating our investigations, we are likewise willing to coordinate our resolutions, including accounting for the corporate monetary penalties paid in other jurisdictions when appropriate. This is all to say that you should expect to see these meaningful, multinational investigations and prosecutions of corporations and individuals to continue.”

*****

These pages have frequently highlighted how the root cause of bribery and corruption is often foreign trade barriers and distortions.

Jeremy Douglas (who leads the United Nation’s regional Office on Drugs and Crime for Southeast Asia and the Pacific) was thus spot-on in this recent Q&A.

“Q: How do western companies get themselves into trouble in the region?

A: … What we see in the region is that bureaucracies and government structures tend to be highly personalized. People are ensconced in key positions i.e. government procurement positions, or people in the position to give government contracts, let’s say building a power plant. [These officials] are in powerful positions to ease up administrative procedures and accelerate red tape and issue licenses. So companies can be drawn into scenarios where they are paying facilitation fees or their intermediaries are paying facilitation fees. [Much of] Southeast Asia doesn’t have a lot of the regulatory structure–the checks and balances you have in the [U.S. or Canada] so companies come in and run into very powerful persons in those structures, and they know if they can influence these officials, they can get what they need to win business.”

Reading Stack

The Corporate Crime Reporter previews a new bookUnaccountable: How Elite Power Brokers Corrupt our Finances, Freedom, and Security written by Professor Janine Wedel.  Professor Wedel states:
“Transparency International pioneered the corruption index in the early 1990s. They rank countries from most corrupt to the least corrupt. And they are based on public perception – perception of business people and experts from outside the country. They come up with these numbers that are attractive to the press. And it has put Transparency International on the map. They are simple minded surveys. But they don’t really mean a lot. The idea of corruption in these surveys is simple bribery — cash changing hands. It’s the proverbial cash in the piano or the freezer. Corruption is reduced to bribery. In fact, today’s most savvy power brokers are engaged in a kind of corruption that is much more subtle and more difficult to detect. Today’s most corrupt players, at least in the West, don’t need this quid pro quo corruption. They are far beyond that. That’s for the little players. That’s for the small fry. That’s a key point of Unaccountable.”

*****

This Op-Ed about Chinese law enforcement (in the corruption space and otherwise) states: “China’s leaders must realize that even the perception that they are targeting foreign businesses disproportionately can create great harm.”  Against this backdrop, is the following fact.  8 of the top 10 FCPA enforcement actions (in terms of settlement amounts) have been against foreign companies and are often based on sparse jurisdictional allegations.

*****

From the Singapore Corrupt Practices Investigation Bureau

“Public Officers Rejecting Bribe Offers

Singapore enjoys a good international standing for having a clean and efficient civil service. While this is reflected by the low number of public servants being prosecuted for corruption offences, another evidence of the clean public sector is the significant number of public officers who take pride in discharging their duties and say “no” to bribes when put to the test.”

The post then provides several examples.

*****

A good weekend to all.