Archive for the ‘Double Standard’ Category

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.“

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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.”

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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.”

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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.

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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.

Friday Leftovers

Friday, November 28th, 2014

Roundup2Scrutiny update, a double standard, ripples, that’s interesting, and for the reading stack.  It’s all here in a leftovers edition of the Friday roundup.

Scrutiny Update

One of the longest-lasting instances of FCPA scrutiny concerns PBSJ Corporation (a global engineering and architectural firm) that first disclosed FCPA scrutiny in December 2009.  PBSJ was subsequently acquired by WS Atkins (a U.K. company) and WS Atkins disclosed in a recently regulatory filing as follows.

“There are ongoing discussions regarding the longstanding and previously reported Department of Justice and Securities and Exchange Commission enquiries relating to potential Foreign Corrupt Practices Act violations by the PBSJ Corporation prior to its acquisition by the Group. We anticipate resolution of this matter before the end of the current financial year.”

Double Standard?

Several FCPA enforcement actions or instances of FCPA scrutiny have been based on providing things of value such as meals, entertainment and consulting fees to foreign physicians.

Against this backdrop, the Wall Street Journal reports:

“As it fights to buy Botox maker Allergan Inc.,  Valeant Pharmaceuticals International Inc. is investing cash and time wooing the doctors it would need on its side after a takeover. A centerpiece of the effort: Valeant said it met with a total of 45 influential cosmetic surgeons and dermatologists in September at events in Aspen, Colo., and Palm Beach, Fla. Valeant paid for the physicians’ airfares, two-night stays at luxury hotels and meals. The company also agreed to provide consulting fees that could amount to as much as $30,000, according to doctors who attended the meetings. Valeant, a smaller player than Allergan in cosmetic medicine, must win over doctors if it wrests control of the Botox maker, since it will rely on the physicians for business. Valeant said the pursuit seems to be paying off. Several doctors who attended the sessions, of what Valeant called its special advisory committee, said they were won over by the company’s plans for Allergan—including attracting patients to physicians’ offices and introducing new products.”

Ripples

My recent article “Foreign Corrupt Practices Act Ripples“ highlights that settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from FCPA scrutiny or enforcement in this new era.

One such ripple is offensive use of the FCPA to further advance a litigating position and that is just what Instituto Mexicano Del Seguro Social (“IMSS”) has done in this recent civil complaint against Orthofix International.

You may recall that in July 2012 Orthofix resolved a $7.4 million FCPA enforcement action based on allegations that its Mexican subsidiary paid bribes totaling approximately $317,000 to Mexican officials in order to obtain and retain sales contracts from IMSS. (See here for the prior post).

In the recent civil complaint, IMSS uses the core conduct at issue in the FCPA enforcement action and alleges various RICO claims, fraud claims, and other claims under Mexican law.

That’s Interesting

As has been widely reported (see here for instance), “President Obama called on the Federal Communications Commission … to declare broadband Internet service a public utility, saying that it was essential to the economy …”.

That’s interesting because – as informed readers know – in the 11th Circuit’s “foreign official” decision the court concluded that an otherwise commercial enterprise can be a “instrumentality” of a government if the “entity controlled by the government … performs a function the controlling government treats as its own.”  Among the factors the court articulated for whether an entity performs a “function the controlling government treats as its own” was “whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function.”

Reading Stack

Several law firm client alerts regarding the DOJ’s recent FCPA Opinion Procedure release concerning successor liability (see herehere, here).  In this alert, former DOJ FCPA Unit Chief Charles Duross leads with the headline “Is DOJ Evolving Away from the Halliburton Opinion Standard?” (a reference to this 2008 Opinion Procedure release).

From Foley & Larder and MZM Legal (India) – “Anti-Bribery and Foreign Corrupt Practices Act Compliance Guide for U.S. Companies Doing Business in India.”

Recent interviews (here and here) with Richard Bistrong, a real-world FCPA violator and undercover cooperator.  See here for my previous Q&A with Bistrong.  As noted here, Bistrong recently spoke to my FCPA class at Southern Illinois University School of Law. Having the ability to hear from an individual who violated the law my students were studying, and being able to hear first-hand of real-world business conditions, was of tremendous value to the students and added an important dimension to the class.

Should the government reconsider its use of deferred prosecution agreements?  That is the question posed in this New York Times roundtable (in the context of recent bank prosecutions).

Finally for your viewing pleasure, an FCPA-related interview here of SciClone’s CEO (a company that has been under FCPA scrutiny since approximately August, 2010).

*****

A good weekend to all.

Friday Roundup

Friday, November 7th, 2014

Roundup2A double standard dandy, scrutiny alerts, when the dust settles, quotable, asset recovery, protection money, and for the reading stack.  It’s all here in the Friday roundup.

Double Standard Dandy

Numerous prior posts have highlighted the double standard between enforcement (or lack thereof) of the U.S. domestic bribery statute (18 USC 201) and the FCPA.  (See here for the double standard tag with approximately 40 posts).

A leading FCPA practitioner sent me the following lead paragraphs in reaction to this recent New York Times article about alleged corruption in connection with state attorney generals offices.

“Media reports this week exposed widespread practices in which U.S.-based issuers have allegedly retained paid lobbyists to wine, dine, and make huge campaign contributions to the chief prosecutors in numerous foreign countries in hopes of obtaining favorable prosecutorial decisions in those countries, often with apparent success.  The DOJ and SEC have immediately launched one of the largest investigations in history to determine whether these activities violated the FCPA, which forbids U.S. companies from giving or promising anything of value to a foreign official in order to gain an improper advantage.  If found guilty, these companies could face multi-million-dollar fines and any implicated executives could face years of incarceration.

Oh wait.  Never mind.  It turns out the chief prosecutors work only for domestic U.S. state governments rather than foreign governments, and thus any tainted decisions would betray U.S. citizens rather than non-citizens living in foreign locations.  Nothing to worry about here after all – just keep moving along, citizens.”

Well said.

Scrutiny Alerts

Qualcomm

Qualcomm’s FCPA scrutiny has been interesting to follow as it represents a rare instance of a company receiving a Wells Notice from the SEC.  In its annual report, the company disclosed:

“Securities and Exchange Commission (SEC) Formal Order of Private Investigation and Department of Justice Investigation : On September 8, 2010, we were notified by the SEC’s Los Angeles Regional office of a formal order of private investigation. We understand that the investigation arose from a “whistleblower’s” allegations made in December 2009 to the audit committee of our Board of Directors and to the SEC. In 2010, the audit committee completed an internal review of the allegations with the assistance of independent counsel and independent forensic accountants. This internal review into the whistleblower’s allegations and related accounting practices did not identify any errors in our financial statements. On January 27, 2012, we learned that the U.S. Attorney’s Office for the Southern District of California/Department of Justice (collectively, DOJ) had begun an investigation regarding our compliance with the Foreign Corrupt Practices Act (FCPA). The audit committee conducted an internal review of our compliance with the FCPA and its related policies and procedures with the assistance of independent counsel and independent forensic accountants. The audit committee has completed this comprehensive review, made findings consistent with our findings described below and suggested enhancements to our overall FCPA compliance program. In part as a result of the audit committee’s review, we have made and continue to make enhancements to our FCPA compliance program, including implementation of the audit committee’s recommendations.

As previously disclosed, we discovered, and as a part of our cooperation with these investigations informed the SEC and the DOJ of, instances in which special hiring consideration, gifts or other benefits (collectively, benefits) were provided to several individuals associated with Chinese state-owned companies or agencies. Based on the facts currently known, we believe the aggregate monetary value of the benefits in question to be less than $250,000, excluding employment compensation.

On March 13, 2014, we received a Wells Notice from the SEC’s Los Angeles Regional Office indicating that the staff has made a preliminary determination to recommend that the SEC file an enforcement action against us for violations of the anti-bribery, books and records and internal control provisions of the FCPA. The bribery allegations relate to benefits offered or provided to individuals associated with Chinese state-owned companies or agencies. The Wells Notice indicated that the recommendation could involve a civil injunctive action and could seek remedies that include disgorgement of profits, the retention of an independent compliance monitor to review our FCPA policies and procedures, an injunction, civil monetary penalties and prejudgment interest.

A Wells Notice is not a formal allegation or finding by the SEC of wrongdoing or violation of law. Rather, the purpose of a Wells Notice is to give the recipient an opportunity to make a “Wells submission” setting forth reasons why the proposed enforcement action should not be filed and/or bringing additional facts to the SEC’s attention before any decision is made by the SEC as to whether to commence a proceeding. On April 4, 2014 and May 29, 2014, we made Wells submissions to the staff of the Los Angeles Regional Office explaining why we believe we have not violated the FCPA and therefore enforcement action is not warranted.

We are continuing to cooperate with the SEC and the DOJ, but are unable to predict the outcome of their investigations or any action that the SEC may decide to file.”

Cobalt International

The other instance of FCPA scrutiny involving an SEC Wells Notice is Cobalt International.  Earlier this week, the company disclosed:

“As previously disclosed, the Company is currently subject to a formal order of investigation issued in 2011 by the SEC related to its operations in Angola. On August 4, 2014, the Company received a Wells Notice from the Staff of the SEC with respect to such investigation. On September 24, 2014, the Company responded to the Wells Notice in the form of a Wells Submission. The Company is unable to predict the outcome of the SEC’s investigation or any action that the SEC may decide to pursue.”

When the Dust Settles

It is always interesting to see what happens when the dust settles from an FCPA enforcement action (see here for the prior post). The recent Bio-Rad enforcement action concerned conduct in, among other places, Vietnam.

According to this source:

“The [Vietnam] Ministry of Health has called on police to investigate an American medical equipment manufacturer that has admitted to bribing Vietnamese officials. Health Minister Nguyen Thi Kim Tien filed a formal request on Wednesday with the Ministry of Public Security that asked investigators to determine whether anyone had accepted kickbacks from Bio-Rad Laboratories, Inc. On the same day, the ministry’s inspectors instructed government hospitals to review any purchases from from Bio-Rad since 2005 and submit a report on the issue by November 15.”

Quotable

Earlier this week, the Supreme Court heard oral argument in Yates v. United States, the case involving a fisherman who was criminally charged with violating the anti-shredding provisions of Sarbanes-Oxley (i.e. “altered, destroyed, mutilated, concealed, covered up, falsified, or made a false entry in a record, document, or tangible object with the intent to impede or obstruct an investigation”) for disposing of some fish.

In this Wall Street Journal op-ed, Bill Shepherd, a partner in Holland & Knight LLP and lead counsel for the National Association of Criminal Defense Lawyers which filed an amicus brief in the Yates case, states:

“[C]reativity in law enforcement should be confined to new strategies for undercover operations, not new, tortured interpretations of laws on the books. [...]  Congress is often criticized for overregulating and overcriminalizing. But the Yates case is a dramatic example of executive branch overreaching. Just because a prosecutor can file a charge doesn’t mean it is the right thing to do. Prosecutors everywhere struggle with the burden of teaching new prosecutors how to recognize the appropriate use of their authority. Professional groups like the American Bar Association Criminal Justice Section work to help foster that dialogue. Success among colleagues in prosecutors’ offices is measured, as it should be, by the number of convictions and the length of sentences handed down. But the other part of success—more difficult to measure—is the courage to close unfounded investigations or dismiss cases because they are not supported by the evidence, or don’t match an American sense of justice. The ultimate measure of success is the ability to live, work and raise a family in a safe environment—secure in the knowledge that government will not abuse that power with which we entrust it. This must be our universal goal.”

For coverage of oral argument in the Yates case, see here from the New York Times.

Asset Recovery

Deputy Attorney General James Cole recently delivered this speech at the Third Annual Arab Forum on Asset Recovery.

“Corruption undermines and weakens that which is the basis of modern society – the rule of law.  Corrupt officials who put their personal enrichment before the benefit of their citizenry create unstable countries.  Corruption siphons precious resources away from those in need at a time when such resources could hardly be more scarce and when the world economy could hardly be more vulnerable.  The repercussions of corruption – the hospitals left unbuilt, the roads still unpaved, the medicine undelivered – undermine the integrity of democratic institutions, creating gaps in government structures that organized criminal groups exploit.  And as we have seen time and again, countries plagued with corruption become breeding grounds and havens for other criminals and terrorist groups who threaten global security.”

[...]

“To underscore the U.S.’s commitment to asset recovery, Attorney General Holder established a Kleptocracy Initiative in the Department of Justice.  The Kleptocracy Team includes dedicated prosecutors working to forfeit corruption proceeds and, whenever we can, return those proceeds to benefit the people harmed by the corruption.  The Kleptocracy prosecutors are soon to be paired with a dedicated Kleptocracy squad of FBI agents and analysts, and this squad will enhance the capacity of the United States to respond rapidly in investigating and locating corruption proceeds.

The Kleptocracy Initiative seeks to deliver on our responsibility to protect the integrity of the U.S. financial system and its institutions from the destructive influence of corruption proceeds and to deny kleptocrats safe haven to hide and enjoy their ill-gotten gains.”

Speaking of asset recovery, the DOJ announced that it filed a civil forfeiture complaint seeking the forfeiture of $106,488.31 in allegedly laundered funds traceable to a $2 million bribe payment made by a Canadian energy company to Chad’s former Ambassador to the United States and Canada and his wife.

According to the release:

“From 2004 to 2012, Mahamoud Adam Bechir, 49, served as Chad’s Ambassador to the United States and Canada.  According to the forfeiture complaint, Bechir agreed to use his position to influence the award of oil development rights in Chad in exchange for $2 million and other valuable interests from Griffiths Energy International Inc., a Canadian company.  In order to conceal the bribe, Bechir and his wife, Nouracham Niam, 44, allegedly entered into a series of agreements with Griffiths Energy that provided for the payment of a $2 million “consulting fee” if the company secured the oil rights in Chad.  After securing these oil rights in February 2011, Griffiths Energy allegedly transferred $2 million to an account located in Washington, D.C. held by a shell company created by Niam.  In 2013, Griffiths Energy pleaded guilty in Canadian court to bribing Bechir. The complaint further alleges that, after commingling the bribe payment with other funds and laundering these funds through U.S. bank accounts and real property, Bechir transferred $1,474,517 of the criminal proceeds traceable to the bribe payment to his account in South Africa, where he is now serving Chad’s Ambassador to South Africa.  The current action seeks forfeiture of $106,488.31, which is the current balance of Bechir’s accounts in South Africa.  Those funds have been seized pursuant to the complaint unsealed today.  The Department of Justice is also seeking additional assets from Bechir and Niam.”

See here for the prior post highlighting the Canadian enforcement action against Griffiths Energy and pondering whether there would be a U.S. enforcement action.

Protection Money
Is paying “protection money” to tribal leaders in Egypt an FCPA issue?  (See here from National Geographic).
“No US firm will speak publicly of the measures they take to avoid open appeasement of Bedouin claims, but in private conversations, employees of American and European oil giants have spoken of hiring tribesmen for non-existent or unnecessary jobs. Usually they’re listed as security guards or dump truck drivers ferrying sand and gravel, but they seldom turn up to except to collect their monthly salaries. This arrangement has afforded most energy firms a largely hassle-free hand to work in the vast, poorly policed expanses that flank the Nile river.”
Reading Stack
Professor Brandon Garrett’s – “Too Big to Jail: How Prosecutors Compromise with Corporations.”
*****
A good weekend to all.

As Foreign Scrutiny Grows, Dollars Continue To Flow In The U.S.

Wednesday, October 22nd, 2014

This 2012 post highlighted the origins and prominence of an enforcement theory in this new era of Foreign Corrupt Practices Act enforcement.

The enforcement theory is that employees (such as physicians, nurses, mid-wives, lab personnel, etc.) of various foreign health care systems are “foreign officials” under the FCPA.  The prior post detailed eleven corporate enforcement actions in which the enforcement theory was used, in whole or in part, and since then four additional corporate enforcement actions (Stryker, Philips Electronics, Tyco and Eli Lilly) have been based, in whole or in part, on the same enforcement theory.  Perhaps telling, the DOJ has never charged an individual based on this FCPA enforcement theory.

In most of the corporate enforcement actions based on the enforcement theory, the “things of value” provided to the alleged “foreign officials” have included consulting opportunities and services contracts and payment of travel and entertainment expenses such as  wine, speciality foods, visits to bath houses, card games, karaoke bars, door prizes, spa treatments and cigarettes.

The enforcement theory continues to be the reason certain companies are under FCPA scrutiny as evidenced by the on-going FCPA scrutiny of GlaxoSmithKline and Sanofi to name just a few (see here).

Yet as this foreign scrutiny of pharmaceutical and other healthcare related companies continues, the dollars continue to flow in the United States.

Recently, the Wall Street Journal ran articles here (“Doctors Net Billions From Drug Firms”) and here (“Payments Reveal Range of Doctors’ Ties With Industry”) based on information from “a new federal government transparency initiative mandated in the 2010 Affordable Care Act which required manufacturers of drugs and medical devices to disclose the payments they make to physicians and teaching hospitals every year.

In the words of the Wall Street Journal:

“The payments and so-called transfers of value to an estimated 546,000 doctors and 1,360 teaching hospitals include such items as free meals that company sales representatives bring to physicians’ offices, fees paid to doctors to speak about a company’s drug to other doctors at restaurants, and compensation for clinical trial research and consulting fees. Some doctors earned tens of thousands of dollars annual from drug companies by flying to various cities to give paid speeches, while some surgeons received even larger amounts from medical device makers, partly from royalties on products they helped develop.”

In short, many of the “things of value” are similar to those alleged in FCPA enforcement actions involving foreign physicians and other healthcare personnel.

Against this backdrop, it is interesting to note that in the United States approximately 20% of hospitals are owned by state or local governments (see here). In addition, approximately 150 more medical centers are run by the Veterans Health Administration (see here).

Presumably then, a healthy percentage of the “things of value” are going to U.S. officials – at least so long as one applies the FCPA enforcement theory to the U.S. context.

Yet, one should not hold their breath waiting for enforcement actions under 18 U.S.C 201, the U.S. domestic bribery statute with very similar elements to the FCPA’s anti-bribery provisions.  Nor should one hold their breath as to any books and records or internal controls enforcement actions regarding such payments by issuer companies.

But the question is why?

Assuming that foreign physicians and healthcare personnel are indeed “foreign officials” under the FCPA, 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?  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?

For numerous other prior posts on the “double standard,” see this tag.