Archive for the ‘Double Standard’ Category

Friday Roundup

Friday, August 30th, 2013

Scrutiny updates and alerts, a double standard, upcoming events, and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Updates and Alerts

JPMorgan

In this initial post concerning JPMorgan’sFCPA scrutiny in China I noted that hiring the son or daughter of an alleged “foreign official” is not inherently illegal, absent certain red flags.

In this recent article, Bloomberg reports on the existence of a potential red flag.  The article states:

“A probe of JPMorgan’s hiring practices in China has uncovered red flags across Asia, including an internal spreadsheet that linked appointments to specific deals pursued by the bank, people with knowledge of the matter said. [...] The bank has opened an internal investigation that has flagged more than 200 hires for review, said two people with knowledge of the examination, results of which JPMorgan is sharing with regulators. The scrutiny began in Hong Kong and has now expanded to countries across Asia, looking at interns as well as full-time workers, two people said. The employees include influential politicians’ family members who worked in JPMorgan’s investment bank, as well as relatives of asset-management clients, the people said. [...] The spreadsheet, which links some hiring decisions to specific transactions pursued by the bank, may be viewed by regulators as evidence that JPMorgan added people in exchange for business, according to one person with knowledge of the review.”

The article also notes that the DOJ has joined the SEC in the probe.

In this article, the New York Times reports:

“The [JPMorgan hiring] program was originally called “Sons and Daughters.” And although it was supposed to protect JPMorgan Chase’s business dealings in China, the program went so off track that it is now the focus of a federal bribery investigation in the United States, interviews and a confidential government document show.  JPMorgan started the program in 2006 as the friends and family of China’s ruling elite were clamoring for jobs at the bank, according to the interviews with former bank employees and financial executives in China and the United States. The program’s existence, which has not been previously reported, suggests that the bank’s hiring of such  employees was widespread.  Saying they wanted to weed out nepotism and avoid bribery charges in the United States, JPMorgan employees in Asia started the program to hire well-connected candidates on a separate track from ordinary applicants, the employees and executives said. Without the program and its heightened scrutiny of the candidates, the employees argued, JPMorgan might improperly hire the children of Chinese officials to win business.  But in the months and years that followed, the two-tiered process that could have prevented questionable hiring practices instead fostered them, according to the interviews as well as the confidential government document. Applicants from prominent Chinese families, interviews show, often faced few job interviews and relaxed standards. While many candidates met or exceeded the bank’s requirements, some had subpar academic records and lacked relevant expertise.”

According to this Wall Street Journal article, there is now a full-fledged industry sweep of hiring practices. The article states:

“U.S. authorities are questioning numerous banks and hedge funds on their international hiring practices for interns and other employees, according to people with knowledge of the situation. The Justice Department and Securities and Exchange Commission are seeking information to determine if there have been any violations of the U.S. Foreign Corrupt Practices Act …”.

Vision-China Media

JPMorgan’s scrutiny is focused on the alleged hiring of relatives of alleged Chinese “foreign officials” into non-executive positions.

That’s one thing.

It is quite another when the CEO of an issuer under the FCPA “is the daughter-in-law of a senior figure in the Chinese Communist Party.”

As detailed in this Wall Street Journal article, this is the situation at Vision-China Media, a company with shares traded on NASDAQ.  As noted in the article, “how many Chinese companies listed in the U.S. enjoy political ties is unknown.  That makes it all but impossible to quantify whether and how such relationships might dictate a business’s profitability or stock-market performance.”

PetroChina

Various outlets (see here for the Wall Street Journal article) have reported that three senior executives of PetroChina ”are under investigation by authorities for ‘severe disciplinary violations’ and have resigned.”  The article notes that “while neither PetroChina nor its parent [company China National Petroleum Corp.] have released specifics of the probes, the phrase ‘severe disciplinary violations’ is typically used by Chinese officials when investigating cases of corruption.”

The interesting thing about this of course is that PetroChina executives are – in the eyes of the enforcement agencies – “foreign officials” under the FCPA while at the same time being executives of an issuer subject to the FCPA given that PetroChina’s ADRs trade on the New York Stock Exchange.

EADS / ThyssenKrupp

Reuters reports here:

“A joint venture of EADS and ThyssenKrupp and offices of Rheinmetall were raided this week in Germany on suspicion of paying bribes related to an order of submarine equipment from Greece, a spokesman for the state prosecutor in Bremen said on Saturday. The Atlas Elektronik joint venture and Rheinmetall Defence Electronics were searched as they are suspected of paying 18 million euros ($24 million) in bribes and of avoiding taxes, the prosecutor’s spokesman said.  [...]  EADS and ThyssenKrupp both confirmed the raid on their unit, which they bought from BAE Systems. [...]  ThyssenKrupp said it had discovered the matter itself “as part of a compliance investigation” and notified the authorities in 2010 about it.”

Although neither EADS or ThyssenKrupp have shares traded on a U.S. exchange, the shares of both companies trade “over-the-counter” in the U.S.  In the FCPA Guidance, the DOJ and SEC state – “any company with a class of securities quoted in the over-the-counter market in the United States and required to file periodic reports with SEC, is an issuer.”  A certain other FCPA enforcement action (see here) began with a raid on offices by German law enforcement authorities.

In other raid news.

BSGR-Related

Reuters reports (here):

“Swiss police on Thursday searched the Geneva offices of Onyx Financial Advisors,  a company providing management services for BSGR, the mining arm of Israeli  billionaire Beny Steinmetz’s business empire.”

As highlighted in this previous post, French citizen Frederic Cillins was criminally charged by the DOJ for allegedly attempting to obstruct an ongoing FCPA investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea. Cillins has been linked to BSGR.

Double Standard?

A back to school edition of the double standard?

FCPA enforcement actions have included allegations of the following things of value being given to alleged foreign officials:  a bottle of wine (see here), a watch (see here), a camera (see here), kitchen appliances and business suits (see here), television sets, laptops and appliances (see here), and tea sets and office furniture (see here).  Likewise, the December 2012 enforcement action (see here for the prior post) against Eli Lilly included allegations (no joke) that meals, visits to bath houses, spa treatments, and cigarettes were provided to Chinese physicians.

Given these enforcement agency allegations, my radar went off when reading this recent Wall Street Journal article about U.S. school supplies.  According to the article, a popular website “that posts more than 300,000 back-to-school lists from around the country and is sponsored” by major corporate brands offers teachers (the vast majority of which in this country are public employees) and schools freebies and other goodies if the teachers put company product on the list.  As the article notes “getting on teacher lists is crucial, because parents tend to buy the suggested brands even though they aren’t mandatory.”

Upcoming Events

The ABA’s Sixth Annual National Institute on the Foreign Corrupt Practices Act will take place in Washington, D.C. on Sept. 18-20th (see here for program details).  I am pleased to be participating.  The following panel is particularly delicious.

Existing Limitations on the Scope of the FCPA: Is Anyone Paying Attention?

Most reform arguments have focused on narrowing the scope of the statute or providing new defenses. A better question, however, might be whether the statute’s existing limitations and defenses are being properly articulated and applied in enforcement actions. It is arguable that in several recent enforcement actions, the government’s factual allegations do not satisfy the FCPA’s elements or hide the ball on critical elements, deliberately blur different provisions of the statute, or seek remedies inconsistent with the letter and goals of the statute. Given that only two corporations have taken the government to trial on FCPA cases and individual cases do not always create opportunities to resolve these issues, the question is posed: Who is policing the police in FCPA matters?

In sum, that is the thesis of my 2010 article “The Facade of FCPA Enforcement.”

Securities Docket will be hosting Securities Enforcement Forum 2013 in Washington, D.C. on October 9th (see here for program details).

Reading Stack

The latest volume of the FCPA Update from Debevoise & Plimpton.

The latest Anti-Corruption Digest from Dorsey & Whitney.

*****

A good long weekend to all.

Friday Roundup

Friday, August 23rd, 2013

In the classroom, what if, scrutiny alerts and updates, and for the reading stack.  It’s all here in the Friday roundup.

In the Classroom

I am pleased to share this release concerning a new Foreign Corrupt Practices Act class I am teaching this semester at Southern Illinois University School of Law.  As noted in the release, the course is believed to be one of the first specific FCPA law school classes offered that is exclusively devoted to the FCPA, FCPA enforcement and FCPA compliance.

I am grateful for the media coverage the class has attracted.  See here from Corporate Counsel, here from Main Justice, and here from Corporate Crime Reporter.

What If?

As highlighted in this previous post concerning JPMorgan’s scrutiny in China,  the conduct at issue in the front-page New York Times article was disclosed (sort of) in the company’s August 7th quarterly filing.  That filing identified, under the heading “Regulatory Developments” the following.

“A request from the SEC Division of Enforcement seeking information and documents relating to, among other matters, the Firm’s employment of certain former employees in Hong Kong and its business relationships with certain clients.”

In the disclosure context, it has been noted by various courts that once a company “speaks” on an issue, its statements to the market can not be so incomplete as to be misleading.  Was JPMorgan’s August 7th disclosure misleading?  If not misleading, a bit “too cute?”  If JPMorgan’s August 7th disclosure mentioned the reason for the SEC’s request for information and that the request was in connection with an FCPA inquiry, would there even have been a front-page article in the NY Times on August 18th?  And if there was no front-page NY Times article would JPMorgan’s FCPA scrutiny have dominated the news this week?

Scrutiny Alerts and Updates

Entertainment Gaming Asia

Entertainment Gaming Asia, Inc., a company with shares listed on NASDAQ, is the focus of this article in the Cambodia Daily which states:

“Venturing into Cambodia’s casino market in May 2011, Macau-backed gambling firm Entertainment Gaming Asia (EGA) promised tens of thousands of dollars to the wife of Pailin’s provincial governor in order to lease land for the construction of a new casino … [...]   There is no suggestion that the land lease arrangement breaks any laws.  But EGA’s registration with the SEC means the company is subject to the U.S. Foreign Corrupt Practices Act (FCPA). [...] EGA senior vice president Traci Mangini declined to comment on the land-lease arrangement.“We are not available for comment,” Ms. Mangini said in an email. Contacted this week, Mr. Chhean [who has held the powerful local position of governor in Pailin for more than a decade] insisted there was nothing improper about the land being rented from his wife. “It is correct that they hire the land [from my wife], they have hired it for two years already,” he said. He said the casino was fully approved by the government in Phnom Penh, and that he had no role in the licensing decision. Mr. Chhean said there was nothing inappropriate about the wife of a governor having business interests.”

Microsoft

This March 2013 post highlighted Microsoft’s FCPA scrutiny and how the DOJ and SEC “are examining kickback allegations made by a former Microsoft representative in China, as well as the company’s relationship with certain resellers and consultants in Romania and Italy.”  Add Pakistan and Russia to the list.  As reported in this Wall Street Journal article:

“In Russia, an anonymous tipster told Microsoft that resellers of its software allegedly funneled kickbacks to executives of a state-owned company to win a deal, the people familiar with the matter said. In Pakistan, a tipster alleged that Microsoft authorized a consulting firm to pay for a five day trip to Egypt for a government official and his wife in order to win a tender, the people familiar with the matter said. The two contacted Microsoft directly in the last eight months, the people said.”

Eli Lilly

In December 2012, Eli Lilly agreed to pay $29 million to resolve an SEC FCPA enforcement action concerning alleged conduct in China, Brazil, Poland and Russia (see here for the prior post).

Lilly is again under scrutiny.  As referenced here by Reuters:

“U.S. drugmaker Eli Lilly and Co said it was ‘deeply concerned’ about allegations published in a Chinese newspaper that it spent more than 30 million yuan ($4.90 million) to bribe doctors in China to prescribe the firm’s medicines instead of rival products. A former senior manager for the company, identified by the pseudonym Wang Wei, told the 21st Century Business Herald that bribery and illegal payments at Eli Lilly’s China operations were widespread. [...] Eli Lilly said in an emailed statement to Reuters that it was looking into the matter. ‘Although we have not been able to verify these allegations, we take them seriously, and we are continuing our investigation,’ the statement said. The U.S. firm said it had been made aware of “similar allegations” of kickbacks in 2012 by a former sales manager. It said the firm had opened an investigation at that time involving staff interviews, e-mail monitoring and expense report audits.”

For the Reading Stack

Informative posts here and here on the FCPAmericas blog on how Brazil’s new bribery law compares to the FCPA.  Also on the FCPAmericas blog, informative posts here and here regarding the unknows of the law.

In reference to JPMorgan’s FCPA scrutiny over its alleged hiring of family members of alleged “foreign officials,” this article in the Economist states:

“Connections also count in the West, of course. Following initial reports of the SEC’s investigation in the New York Times, a flood of stories have noted the jobs held in politically sensitive American firms by the sprogs of American politicians. Even when offspring are not involved, the revolving door between the public and private sectors raises questions about why people are hired. JPMorgan Chase did not hire Tony Blair as a senior adviser for his knowledge of risk weights, after all. Mary Schapiro, a former head of the SEC, recently joined Promontory, a consultancy packed with ex-regulators used by banks to cope with regulation (she has said she will not lobby any government body in her new role). If it is unfair to cite these names, it is only because there are so many others. If the regulators genuinely fret about why firms make hiring decisions, they may want to extend their inquiries to Washington, DC, and New York as well.”

In the context of GlaxoSmithKline’s scrutiny in China, this Wall Street Journal article highlights “China’s fast-growing but deeply underfunded medical system” where “doctors are widely seen as underpaid, which makes them prime recipients of honorariums, which are
legal, or illegal cuts of sales from drug companies …”.

*****

A good weekend to all.

And The Apple Goes To …

Thursday, August 22nd, 2013

This month’s FCPA Professor Apple Award goes to …

Andrew Ross Sorkin.  Writing in his column at the New York Times DealBook in the aftermath of JPMorgan’s FCPA scrutiny for allegedly hiring family members of alleged Chinese “foreign officials,” Sorkin writes:

“But hiring the sons and daughters of powerful executives and politicians is hardly just the province of banks doing business in China: it has been a time-tested practice here in the United States.”

After citing various examples of companies hiring family members of U.S. officials, Sorkin states:

“In Washington, the line between lobbying and bribery is not clear-cut. Until 2008, R. Hunter Biden, son of then-Senator Joseph R. Biden Jr., lobbied Congress regularly. The Washington Post reported last year that “56 relatives of lawmakers have been paid to influence Congress” since 2007. While the House and Senate passed rules to limit some lobbying, the House left enough wiggle room for parents and children of lawmakers to still lobby. There is a conversation to be had about how unseemly this might appear.”

In some circles (see here), Sorkin has been harshly criticized for his comments.

However, Sorkin’s comments resonated with me.   For years I have highlighted the double standard (see here for approximately 20 posts) between enforcement of the U.S. domestic bribery statute (18 USC 201) and the FCPA.

The uncomfortable truth is that there is little intellectual or moral consistency between enforcement of the FCPA and 18 USC 201 despite the fact that these statutes have very similar elements.  Why should corporate interaction, direct or indirect, with a “foreign official” be subject to greater scrutiny and different standards of enforcement than corporate interaction, direct or indirect, with a U.S. official?

As noted in this article, in this new era of FCPA enforcement those subject to the FCPA have been frequently reminded that ‘‘we in the United States are in a unique position to spread the gospel of anti-corruption, because there is no country that enforces its anti-bribery laws more vigorously than we do.’’  We have been told that FCPA enforcement is “our way of ensuring not only that the [enforcement agencies are] on the right side of history, but also that it has a hand in advancing that history.”

However, Sorkin’s column once again highlighted the burning question – are we indeed in a “unique position to spread the gospel of anti-corruption”?

[The FCPA Apple Award recognizes informed, candid, and fresh thought-leadership on the Foreign Corrupt Practices Act or related topics.  There is  no prize, medal or plaque awarded to the FCPA Professor Apple Award recipient.  Just recognition by a leading FCPA website visited by a diverse group of readers around the world. There is no nomination procedure for the Apple Award.  If you  are writing something informed, candid and fresh about the FCPA or related topics, chances are high that I will find your work during my daily searches for FCPA content.]

Should There Be A Difference?

Monday, August 5th, 2013

Organization A sets out to accomplish a task.  To assist in accomplishing the task, it engages the services of a third party.  The third party cuts corners and, as a result, a person working on behalf of Organization A acts contrary to the organization’s policies and procedures.

Organization B sets out to accomplish a task.  To assist in accomplishing the task, it engages the services of a third party.  The third party cuts corners and, as a result, a person working on behalf of Organization B acts contrary to the organization’s policies and procedures.

Organization A is the U.S. government as it relates to alleged National Security Agency leaker Edward Snowden.  (See here and here).

Organization B is a typical multinational company involved in an FCPA enforcement action.

Should there be a difference?

For a previous should there be a difference post, see here.

President Carter Calls Out A Form Of Bribery

Monday, July 22nd, 2013

But for Jimmy Carter defeating Gerald Ford in the 1976 election, there might not have been a Foreign Corrupt Practices Act – at least when it was enacted or in the form we known it today.  As highlighted in my article “The Story of the Foreign Corrupt Practices Act,” the Ford administration favored a disclosure approach to remedy the foreign corporate payments problem discovered in the mid-1970′s whereas the newly elected Carter administration (as well as certain key Congressional leaders) favored a criminalization approach.

The criminalization approach won out and in signing the FCPA in December 1977 President Carter stated:

“During my campaign for the Presidency, I repeatedly stressed the need for tough legislation to prohibit corporate bribery. [The Act] provides that necessary sanction. I share Congress’s belief that bribery is ethically repugnant and competitively unnecessary. Corrupt practices between corporations and public officials overseas undermine the integrity and stability of governments and harm our relations with other countries. Recent revelations of widespread overseas bribery have eroded public confidence in our basic institutions.”

Last week at a public forum, President Carter called out a form of bribery.

According to this Washington Post report, President Carter stated as follows concerning unchecked political contributions in the U.S.

“It’s legal bribery of candidates. And that repayment may be in the form of an ambassadorship to someone who has raised three or four hundred thousand dollars to help a candidate get elected.”

When President Carter spoke out about a certain form of bribery approximately 35 years ago we listened and the FCPA was praised.  How will we react to President Carter speaking out about another form of bribery?