Archive for the ‘Double Standard’ Category

Friday Roundup

Friday, December 13th, 2013

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

Ask Yourself

Did FCPA Professor inform you of FCPA and related developments in 2013?  Did FCPA Professor provide you original source enforcement action documents and a comprehensive analysis of each enforcement action in 2013?  Did FCPA Professor cause you to contemplate the issues in a more sophisticated way in 2013?

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

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The True Measure of Success Is …

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

The SFO provided the following statement to the court.

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

For an additional SFO statement, see here.

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

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

Statute of Limitations Decision of Note

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

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

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

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

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

More on JPMorgan

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

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

[...]

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

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

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

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

[...]

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

[...]

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

Reich concludes by asking:

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

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

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

*****

A good weekend to all.

Friday Roundup

Friday, November 8th, 2013

That’s just so fringe, where now?, the pulse of FCPA Inc., scrutiny alerts and updates, for the reading stack, and save the date.  It’s all here in the Friday Roundup.

That’s Just So Fringe

Many in the anti-corruption space have latched onto developments in other countries and carried forward the torch of reform.  Just goggle Anna Hazare’s hunger strike in India or discover the wealth of material written about marches and demonstrations in Brazil prior to Brazil’s bribery laws being amended.

Recently there was a march in Washington D.C., protesting, in part, government corruption.  (See here).  Why has there not been similar coverage in the anti-corruption space?  Where are those who otherwise carried forward the torch of reform?  Apparently the reaction is – when it happens here in the U.S. – well, that’s just so fringe.

Where Now?

As DOJ Deputy Assistant Attorney, John Burretta “oversaw the Criminal Division’s Fraud Section, among others, including the Fraud Section’s FCPA Unit.”  He also “supervised the preparation of the DOJ and SEC’s Resource Guide to the U.S. Foreign Corrupt Practices Act, issued in November 2012.”

Like most other DOJ policy leaders and FCPA enforcement attorneys with supervisory powers during this new era of FCPA enforcement, Burretta is now in the private sector as he recently joined Cravath as a partner.  (See here).  According to his Cravath bio, “his practice focuses on investigations and white collar criminal defense, including advising and representing clients in matters related to the FCPA” among other things.

The Pulse of FCPA Inc.

Few FCPA Inc. participants are publicy-traded companies.  Thus, it is often difficult to take the pulse of FCPA Inc. other than anecdotal information.

However, one FCPA Inc. participant that is publicly traded is FTI Consulting.  The company recently disclosed that revenues for the quarter in its relevant business segment increased nearly 2% compared to the prior year “due to higher services revenues primarily for investigations involving the Foreign Corrupt Practices Act and interest rate setting process concerning the London Interbank Offered Rate (“LIBOR”) …”.

It’s only one company, but with few FCPA Inc. datapoints publicly available, it is a relevant datapoint.

Scrutiny Alerts and Updates

Weatherford

Weatherford International recently disclosed as follows concerning its long-running FCPA scrutiny:

“During the quarter ended June 30, 2013, negotiations related to the oil-for-food and FCPA matters progressed to a point where we recognized a liability for a loss contingency that we believe is probable and for which a reasonable estimate can be made.  The Company estimates that the amount of this loss is $153 million and recognized a loss contingency equal to such amount in the quarter ended June 30, 2013.  Since our last 10-Q filing, substantial progress in the negotiations was made, and these negotiations have recently concluded. These negotiations have resulted in agreements with representatives of the DOJ and the SEC enforcement staff relating to terms and total payments to be made to government agencies relating to the oil-for-food and FCPA matters subject in each case to final review and approval by the DOJ and SEC Commission as well as judicial approval.  The agreements would require total payments to government agencies equal to the $153 million loss contingency that the Company recognized in the quarter ended June 30, 2013.  The agreements would also include (1) an agreement under which criminal prosecution for the Company would be deferred for three years and a plea agreement would impose a criminal conviction on one of the Company’s subsidiaries; (2) a requirement to retain, for a period of at least 18 months, an independent monitor responsible to assess the Company’s compliance with the terms of the agreement so as to address and reduce the risk of recurrence of alleged misconduct, after which the Company would continue to evaluate its own compliance program and make periodic reports to the DOJ and SEC; and (3) a requirement to maintain agreed compliance monitoring and reporting systems.  If final settlement terms differ from the agreements we have reached with DOJ and SEC representatives or if necessary approvals are not ultimately obtained, we could become subject to injunctive relief, disgorgement, fines, penalties, sanctions or imposed modifications to business practices that could adversely affect our results of operations.”

A $153 million FCPA settlement amount would be 8th largest of all time based on the current top ten settlement list.

Layne Christensen Co.

Layne Christensen Co. recently disclosed as follows concerning its long-running FCPA scrutiny:

“The Company is engaged in discussions with the DOJ and the SEC regarding a potential negotiated resolution of these matters. The Company believes that it is likely that any settlement will include both the payment of a monetary fine and the disgorgement of any improper benefits. In May 2013, the staff of the SEC orally advised the Company that they calculated the estimated benefits to the Company from allegedly improper payments, plus interest thereon, to be approximately $4.8 million, which amount was accrued by the Company as of April 30, 2013. Based on the results of the Company’s internal investigation, an analysis of the resolution of recent and similar FCPA resolutions, the Company currently estimates a potential settlement range for resolving these matters (including the amount of a monetary penalty and the disgorgement of any improper benefits plus and interest) of $10.4 million to $16.0 million. The Company has increased its reserve for the settlement of these matters from $4.8 million to $10.4 million, representing the low end of this range.  At this time, we can provide no assurances as to whether the Company will be able to settle for an amount equal to its current reserve or within its estimated settlement range or whether the SEC or DOJ will accept voluntary settlement terms that would be acceptable to the Company. Furthermore, the Company cannot currently assess the potential liability that might be incurred if a settlement is not reached and the government was to litigate the matter. As such, based on the information available at this time, any additional liability related to this matter is not reasonably estimable. The Company will continue to evaluate the amount of its liability pending final resolution of the investigation, and any related settlement discussions with the government; the amount of the actual liability for any fines, penalties, disgorgement or interest that may be recorded in connection with a final settlement could be significantly higher than the liability accrued to date.  Other than the indication of the estimated disgorgement amount noted above, the Company has not received any proposed settlement offers from the SEC or DOJ and there can be no assurance that its discussions with the DOJ and SEC will result in a final settlement of any or all of these issues or, if a settlement is reached, the timing of any such settlement or that the terms of any such settlement would not have a material adverse effect on the Company.”

ADM

ADM recently disclosed as follows concerning its long-running FCPA scrutiny.

“The Company has completed its internal review and is engaged in discussions with the DOJ and SEC to resolve this matter. In connection with this review, government agencies could impose civil penalties or criminal fines and/or order that the Company disgorge any profits derived from any contracts involving inappropriate payments. Included in selling, general, and administrative expenses for the nine months ended September 30, 2013 were charges for the Company’s current estimate of potential disgorgement, penalties, and fines that may be paid by the Company in connection with this matter of $54 million. As of September 30, 2013, the estimated loss provision liability of $54 million is included in accrued expenses and other payables in the Company’s consolidated balance sheet. These events have not had, and are not expected to have, a material impact on the Company’s business or financial condition.”

GSK

In my first GSK post over the summer, I posed the question – based on GSK disclosures and public statements – whether GSK is the victim of rogue employee conduct?

According to this U.K. Independent article:

“GlaxoSmithKline, the British drug company at the heart of a bribery investigation in China, is likely to avoid a company-wide charge for  allegedly funneling up to £300m in kickbacks to doctors and government officials.  Instead, police are likely to charge some of its Chinese executives, according to reports citing legal and industry sources.  Such an outcome would see Chinese police drop  claims made in September that corruption was co-ordinated at a company level.  [...] The [Chinese] police investigation into GSK is likely to be concluded around the end of November or in December, said a person with direct knowledge of the probe. The sources noted it was difficult to predict what Chinese authorities would ultimately do. But the most likely legal scenario was that they would charge Chinese GSK executives, said the person with direct knowledge of the investigation and two other sources familiar with the matter. The sources declined to be identified because of the sensitivity of the case. Indeed, the Ministry of Public Security had tried to find evidence tying GSK   as a legal entity to the alleged wrongdoing, but it was unlikely authorities would be able to prove its involvement at a corporate level, said the person with direct knowledge of the investigation.” (emphasis added).

Bio-Rad Labs

Bio-Rad recently disclosed that it recorded “an accrued expense of $20 million in connection with the Company’s initial efforts to resolve the previously disclosed investigation of the Company in connection with the United States Foreign Corrupt Practices Act.”

For The Reading Stack

The always informative Miller & Chevalier quarterly update is out.  (See here for the Autumn 2012 FCPA Review).

From an article titled “The ‘Mens Rea’ Component Within the Issue of the Over-Federalization of Crime” by John Baker and William Haun in Engage, a Federalist Society publication.

“Designed to prohibit bribery of foreign officials for any business advantage, the [FCPA's] breadth allows the federal government to hold businesses liable for actions by rogue agents.  As former U.S. Attorney General Michael Mukasey and Jones Day partner James Dunlop note, this “adds unnecessary uncertainty and opens businesses to massive, largely unavoidable, liability, with few offsetting benefits.”  The statute’s broad language can transgress the intent of Congress.  In discussing the example of Wal-Mart, Professor Mike Koehler has shown that Congress had no desire to apply the Act against “grease payments” to clerical employees, but that the backroom nature of FCPA enforcement gives that congressional limitation uncertain relevance. The reluctance of corporations to go to trial minimizes judicial review of the FCPA’s use. As a result, the FCPA investigations have developed a “prosecutorial common law,” allowing the Department of Justice (DOJ) to impose burdensome compliance costs without having to prove in court that criminal activity has actually occurred or is likely to occur.  Companies spend millions to “comply” with requirements possessing an unknown reach.  In remarks on the FCPA, former U.S. Attorney General Mukasey observed that, given how few FCPA cases actually see a court room, “there is a whole body of law being developed” in prosecutor’s offices through negotiated FCPA settlements with major companies. Even if the settlements are reasonable, as General Mukasey noted, they do not provide any clarity or consistency necessary to “demystify” an ordinary person’s responsibilities under the law.  He noted that DOJ and the business community reached an understanding on some aspects of the FCPA.  Such agreements, however, should not serve as the functional equivalent of legislation.  It is the obligation of Congress to establish clear mens rea requirements for the FCPA and other statutes, not the executive via piecemeal prosecution.”

What’s one takeaway point from the recent Diebold enforcement actions?  According to Richard Smith (Norton Rose Fulbright) in this recent Law360 article:

“The Diebold settlements underscore the need for companies to fully evaluate whether voluntary disclosure is in the company’s best interest. Although U.S. authorities may be willing to reward companies for self-disclosing FCPA issues — indeed, the DOJ specifically stated in the DPA that it credited Diebold for making such a disclosure — the positive credit received is not always clear. The ultimate financial and operational burden on a company may, in any given instance, outweigh credit received.  Based on previous enforcement action settlements, some companies may have assumed that voluntary disclosure assists the company in avoiding the imposition of a compliance monitor. In light of the Diebold settlements, however, companies assessing the option of self-disclosure must consider the real possibility that doing so may not shield them from the increased costs and scrutiny associated with the retention of independent compliance monitors.”

Save The Date

On December 4th in Washington, D.C., George Washington University Law School is hosting a full-day symposium titled “The International Fight Against Corruption: Are the OECD and UN Conventions Achieving their Objectives?”  To learn more about the event, see here.

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.]