Archive for the ‘Enforcement Agency Policy’ Category

Weismmann On 2015 Slow-Down In DOJ FCPA Prosecutions: “Just Wait Three Months, It Might Be A Very Different Picture”

Thursday, January 28th, 2016

WeissmannAndrew Weissmann’s selection of DOJ Fraud Section Chief in January 2015 was interesting to say the least.

As highlighted in this prior post, in recent years Weissmann has been a vocal advocate of Foreign Corrupt Practices Act reform and more broadly reforming corporate criminal liability principles. Unable to achieve, no doubt for political reasons, the actual reforms he previously championed, Weissmann is widely viewed as the architect of the DOJ’s new compliance counsel position, largely a public relations move as highlighted in this prior post.

Trace Blog recently scored an interview with Weissmann. Relevant excerpts of the Q&A are set forth below.

“TT: Assistant Attorney General Leslie Caldwell announced in November that the FCPA Unit was planning to increase its capacity by hiring 10 additional prosecutors – where will the efforts of these additional lawyers be focused?

AW: That’s correct, in addition to the 19 line attorneys currently working in the FCPA Unit, we are adding 10 more, as well as 5 supervisors. These additional resources will help us enhance the “stick” side of the carrot and stick approach we use in the Fraud Section. The focus will be on companies that do not self-disclose, and on parts of the world where there is a sense of “practical immunity” due to common misperceptions that investigations are unlikely to take place there. Also, as we don’t just rely on self-disclosures, we need additional resources to follow other various leads, such as referrals from international enforcement agencies and governments, statements made by whistleblowers, and results of paper trails.

TT: How can you explain the relative dearth of FCPA prosecutions in 2015 when compared with previous years?

AW: I would say that 1 year isn’t long enough to tell the whole story. If we just wait three months, it might be a very different picture. The other part of the answer is that we are prosecuting more individuals. This focus on individuals adds a lot of complexity to our investigations and makes for a more time consuming process overall. And on top of that, we have a very high number of open investigations. The volume of matters per attorney was one reason I made the pitch for more resources.

[...]

TT: Do you have plans to update the 2012 Resource Guide?

AW: Yes, we are actually looking into it right now. There have been some clarifications and new issues since the last edition that would be important to include in the updated version.”

*****

Weissman assertion that the DOJ is “prosecuting more individuals” is curious.

As highlighted in this post and based on the DOJ’s own information, in 2015 the DOJ prosecuted fewer individuals for FCPA offenses than in 2014 and in 2014 the DOJ prosecuted fewer individuals for FCPA offenses than in 2013.

No doubt, as Weissmann stated, the “focus on individuals adds a lot of complexity to [DOJ]investigations and makes for a more time consuming process overall.” That tends to happen when the DOJ is forced to prove things to someone other than itself and the DOJ is subject to an adversary proceeding. In the 38 year history of the FCPA, only two business organizations have put the DOJ to its ultimate burden of proof in FCPA matters and in both instances the DOJ did not prevail.

To the extent the DOJ / SEC issues revised FCPA Guidance as Weissmann hinted, a good place to start might be correcting the selective information, half-truths, demonstratively false information in the 2012 Guidance. (To learn more, see the article “Grading the FCPA Guidance“).

At the very least, it should be an interesting start to 2016 based on Weissmann comment about the next three months.

Stay tuned to FCPA Professor for the most comprehensive, real-time coverage of any FCPA enforcement action.

New Article – Measuring The Impact Of NPAs And DPAs On FCPA Enforcement

Tuesday, December 15th, 2015

Ruler3My new article was recently published in the U.C. Davis Law Review.

*****

The summary is as follows.

Historically, the Department of Justice (“DOJ”) had two choices when a business organization was the subject of Foreign Corrupt Practices Act (“FCPA”) scrutiny: either charge the entity with an FCPA violation or not charge. However, in 2004 the DOJ brought to FCPA enforcement a third option: alternative resolution vehicles called non-prosecution agreements (“NPAs”) and deferred prosecution agreements (“DPAs”).

The use of alternative resolution vehicles to resolve FCPA scrutiny is not authorized by the FCPA nor any other specific Congressional legislation. Moreover, DOJ policy states that alternative resolution vehicles are to be used only “under appropriate circumstances.” However, this article demonstrates that alternative resolution vehicles have become the dominant way the DOJ resolves corporate FCPA scrutiny and serve as an obvious reason for the general increase in FCPA enforcement over the past decade. To the many cheerleaders of increased FCPA enforcement, NPAs and DPAs are thus worthy of applause.

Yet in a legal system based on the rule of law, quality of enforcement is more important than quantity of enforcement. Through empirical data and various case studies, this article measures the impact NPAs and DPAs have on the quality of FCPA enforcement and concludes that NPAs and DPAs — while resulting in higher quantity of FCPA enforcement — result in lower quality of FCPA enforcement. This disturbing finding matters not only in the specific context of the FCPA but more broadly as other nations with “FCPA-like” laws adopt U.S.-style alternative resolution vehicles.

The article can be downloaded at this link.

In analyzing the impact NPAs and DPAs have on the quality of FCPA enforcement, readers are encouraged to ponder the numerous statistics highlighted in the article such as:

  • The percentage of FCPA enforcement actions against business organizations that resulted in related prosecution of company employees prior to alternative resolution vehicles being introduced to the FCPA context compared to the percentage of FCPA enforcement actions against business organizations that resulted in related prosecution of company employees after alternative resolution vehicles were introduced to the FCPA context;
  • Since 2008, the percentage of corporate FCPA enforcement actions there were the result of a criminal indictment or resulted in a guilty plea that have resulted in related criminal charges of company employees compared to the percentage of corporate FCPA enforcement actions resolved solely with an NPA or DPA that have resulted in related criminal charges of company employees; and
  • Two aggressive FCPA enforcement theories (not subjected to any meaningful judicial scrutiny) that have yielded 17 DOJ enforcement actions against business organizations in which the DOJ extracted approximately $350 million in corporate settlements, yet 0 of these enforcement actions have resulted in any related criminal prosecution of individuals associated with the companies resolving the enforcement actions.

Friday Roundup

Friday, December 4th, 2015

Roundup2Top blog, event notice, scrutiny alerts and updates, what do DOJ FCPA attorneys do, quotable, and for the reading stack.  It’s all here in the Friday Roundup.

Top Blog

I am pleased to share that FCPA Professor has been honored by the American Bar Association as a “Top 100 Blawg.”  (See here).

Described by others as “the Wall Street Journal concerning all things FCPA-related,” and “the most authoritative source for those seeking to understand and apply the FCPA,” FCPA Professor has previously been named a Top Law Blog for in-house counsel by Corporate Counsel and a Top 25 Business Law Blog by LexisNexis.  FCPA Professor readers include a world-wide audience of attorneys, business and compliance professionals, government agencies, scholars and students, journalists and other interested persons.

In addition to informing readers of FCPA news and developments in a timely and in-depth manner, FCPA Professor is a comprehensive website which features, among other things:

  • links to original source documents;
  • a detailed FCPA 101 page;
  • a resource portal; and
  • hundreds of subject matter categories designed to facilitate in-depth FCPA research and analysis.

All of this takes time, money, and substantial effort, yet the content on FCPA Professor is provided free to readers and without compromising and distracting advertisements.

If FCPA Professor adds value to your practice or business or otherwise enlightens your day and causes you to contemplate the issues in a more sophisticated way, please consider 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.

Event Notice

I will be participating in a free telephonic event on Tuesday, December 8, 2015 at 3pm EST. Sponsored by the Young Advocates and Criminal Litigation Committees of the ABA, the event is titled: “Ask the Professor: What You Need to Know About Anti-Bribery Laws.”

The event will be moderated by Terra Reynolds (Paul Hastings). Click here to learn more and to register.

Scrutiny Alerts and Updates

British American Tobacco

The company, with ADRs traded in the U.S., was recently the focus of this in-depth piece by the BBC. According to the article:

“[T]he BBC obtained hundreds of documents that reveal how BAT employees bribed politicians, public officials and even people working for a rival company in Africa. [...] In 2012, BAT lobbyist Julie Adell-Owino arranged bribes totalling US$26,000 for three public officials in Rwanda, Burundi and the Comoros Islands. All three officials were connected to a United Nations effort to reduce the number of tobacco related deaths.”

As highlighted in this prior post, in 2010 U.S. tobacco companies Alliance One and Universal Corporation resolved FCPA enforcement based on alleged improper payments, including in Africa.

J.P. Morgan

The Wall Street Journal focuses on J.P. Morgan’s FCPA scrutiny for its alleged hiring practices in China. According to the article, J.P. Morgan hired 222 candidates under a program known internally as “Sons and Daughters.” The article makes much of the alleged fact that 45% of the hires were referred by Chinese government officials or employees of state-owned companies.  However, according to the article, an equal percentage (44%) were nongovernmental referrals – an issue that could be relevant to corrupt intent.

Vimpelcom

This recent post highlighted Vimpelcom’s disclosure of a $900 million reserve in connection with its FCPA and related scrutiny. The prior post noted that the disclosure was ambiguous as to the various components of the $900 million.

Bloomberg reports:

Vimpelcom “is in talks to pay about $775 million — a near record — to settle U.S. allegations it paid bribes in Uzbekistan to win business, according to three people familiar with the matter. The Amsterdam-based company’s resolution with the Justice Department and the Securities and Exchange Commission could be announced in January, said the people, who asked not to be identified because details of the proposed settlement aren’t public.”

Bloomberg also goes in-depth into the burgeoning Uzbekistan telecom scandal here.

PTC

The company (formerly known as Parametric Technology) has been under FCPA scrutiny since 2011 and recently disclosed:

“We have been in discussions with the U.S. Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) to resolve an investigation concerning expenditures by our business partners in China and by our China business, including for travel and entertainment, that apparently benefited employees of customers regarded as state owned enterprises in China. This matter involves issues regarding compliance with laws, including the U.S. Foreign Corrupt Practices Act. We have recorded liabilities of $28.2 million as a result of our agreements in principle with those agencies to settle the matter. There can be no assurance that we will enter into final settlements on the agreed terms with these agencies or, if not, that the cost of any final settlements, if reached, would not exceed the existing accrual. Further, any settlement or other resolution of this matter could have collateral effects on our business in China, the United States and elsewhere.”

 Wal-Mart

The media continues to gush over Wal-Mart’s FCPA scrutiny.  In the latest example, the Wall Street Journal reports:

“A U.S. investigation into potential foreign bribery by Wal-Mart Stores Inc. has unearthed evidence of possible misconduct by the retailer in Brazil, after investigators found little to support the sweeping allegations involving Mexico that initially prompted the probe, according to documents and people familiar with the matter. Federal prosecutors are examining $500,000 in payments that they believe ultimately went to an individual hired to obtain government permits the company needed to build two stores in Brasília, Brazil’s capital, between 2009 and 2012, an investigative document shows.”

What do DOJ FCPA Attorneys Do?

To the extent a job listing is an accurate depiction, this is what DOJ FCPA attorneys do:

“The Criminal Division, U.S. Department of Justice, is seeking qualified, experienced attorneys for two-year renewable term positions in the Fraud Section located in Washington, DC. The incumbent will serve as a Trial Attorney in the Foreign Corrupt Practices Act (FCPA) Unit or the Securities & Financial Fraud Unit (SFF) and, as such, will independently direct, conduct, and monitor investigations, prepare for and conduct trials, and advise on pleadings and other court filings.

Generally, as a Trial Attorney in the FCPA Unit or the SFF Unit, the incumbent:

  • In collaboration with unit managers, carries out and fosters effective investigations and prosecutions, including advising on strategy and legal complexities, and developing litigation priorities, policy, and legislative recommendations. Recommends charging decisions and proposes dispositions with regard to assigned cases.
  • Partners with and leads Assistant U.S. Attorneys and attorneys in other federal law enforcement agencies in the development, management and trial of complex white collar and corporate investigations and prosecutions. Engages in all phases of investigation and litigation, including, but not limited to, using the grand jury, advising federal law enforcement agents, utilizing international evidence collection tools, preparing appropriate pleadings, and litigating motions and trials before U.S. District Courts across the country.
  • Collaborates with foreign prosecutors and foreign law enforcement officers on international investigations.
  • Evaluates reports of potential violations of the FCPA / securities and financial fraud laws from both internal and outside sources to determine whether investigation is warranted.
  • Advises and instructs Assistant U.S. Attorneys on complicated questions of law and Departmental policy with respect to the FCPA / securities and financial fraud laws.
  • Represents the United States in direct negotiations and discussions with corporate counsel and high-level officials. Participates in discussions with opposing counsel for defendants and in the formulation of settlements often having far-reaching legal consequences.
  • Advises and consults with the Assistant Attorney General, Deputy Assistant Attorney General, Section Chief, et al., reporting on the status of all cases and matters related to civil/criminal remedies.
  • Serves as an expert, providing advice and policy determinations in matters involving the planning, discussion and coordination of the activities related to the investigation and litigation of FCPA cases. Oversees the preparation and litigation assignments of lower graded attorneys, paralegals and clerical personnel.”

Quotable

One thing high-ranking DOJ officials most certainly do is give numerous speeches.

In the latest example, DOJ Deputy Assistant Attorney General Sung-Hee Suh delivered this keynote address at the ABA Criminal Justice Section’s inaugural Global White Collar Crime Institute in Shanghai (an event, I am pleased to say, was organized by my Southern Illinois University School of Law colleague Professor Lucian Dervan).

Set forth below is an expert of Suh’s address.

On internal investigations:

“Until last year, I worked for 15 years in private practice representing companies – often in the context of criminal or regulatory investigations. I believe I have a good sense of the challenges that companies and their counsel face in determining the appropriate scope of an internal investigation. But some of those challenges appear to stem from a misperception that the longer and more expensive and more resource intensive the company’s internal investigation, the more favorably the government will view the company’s cooperation. But broad, aimless investigations by a company – just as by the government – are counter-productive. As we in the Criminal Division have long emphasized, and continue to stress today, an investigation should be narrowly focused on getting to the bottom of what happened, identifying who within the company was involved, and – if the company seeks cooperation credit — providing that information to us on a timely basis.”

On transparency:

“[W]e understand that it has not always been clear why the Department required a corporate entity to plead guilty to resolve a criminal case, as opposed to a deferred or non-prosecution agreement, or why we declined to pursue a criminal resolution altogether with another corporate entity that engaged in similar misconduct. I have also heard companies and their counsel say that they have no idea how the government’s monetary resolutions were arrived at – that it sometimes appears as if the government just picks these numbers out of thin air. Also notable has been the trend among companies over the last several years against voluntary self-reporting, including – and perhaps especially – in the FCPA space, in part due to what is perceived, as noted during this morning’s sessions, that there is little or no benefit to self-reporting. Some lawyers have advised their clients that it’s simply more rational to wait to see if the government comes knocking and then cooperate if and when that happens.”

[...]

“[T]o those companies that are disinclined to self-report in the belief that the government will never know – I say, think again. In the anti-corruption space, the Fraud Section and the Federal Bureau of Investigation are deploying significantly more resources to detect and prosecute companies that choose not to self-disclose in FCPA cases. We’re hiring an additional 10 prosecutors in the FCPA Unit, an increase of over 50%, and the FBI has established three new squads devoted to international corruption investigations and prosecutions.”

On compliance programs:

“No compliance program is foolproof. We understand that. We also appreciate that the challenges of implementing an effective compliance program are compounded by the everincreasing cross-border nature of business and of criminal activity. Many companies’ businesses are all over the world. They are creating products and delivering services not only here in China but overseas and are operating across many different legal regimes and cultures. We also recognize that a smaller company doesn’t have the same compliance resources as a Fortune-50 company. Finally, we know that a compliance program can seem like “state of the art” at a company’s U.S. headquarters, but may not be all that effective in the field, especially in far-flung reaches of the globe.”

*****

For your viewing pleasure, a video of a roundtable with new DOJ compliance counsel Hui Chen and DOJ Fraud Section Chief Andrew Weissmann.  The first portion of the event consisted of the DOJ officials respond to (likely scripted) questions by a moderator, the second portion – when the video recorder was turned off – consisted of the DOJ officials responding to audience questions.

Reading Stack

I did not come up with the title of the entry or its narrative, but I did answer the questions posed to me in this Corporate Crime Reporter entry about the political aspects of FCPA enforcement as well as questions about an FCPA compliance defense – a defense I have long advocated for (see here for the article “Revisiting a Foreign Corrupt Practices Act Compliance Defense.”

*****

A Wall Street Journal op-ed by Professor Lucian Dervan titled “The Injustice of the Plea-Bargaining System.”

*****

A good weekend to all.

Yates On The Yates Memo

Tuesday, November 24th, 2015

YatesAs highlighted in this prior post, in September DOJ Deputy Attorney General Sally Yates delivered this speech and released this memo titled “Individual Accountability for Corporate Wrongdoing” (hereafter the “Yates Memo”).  (See here for the video of the speech).

While many viewed the Yates Memo as articulating new DOJ policy, in many respects it did not.

Last week, Yates delivered this speech that elaborated on certain points in the Yates memo and announced that the Yates Memo has been incorporated into the U.S. Attorney’s Manual (USAM). Some are viewing this as another “new” development, but that too is misguided as the USAM has always been the final resting place for DOJ policy memos such as the previous Holder, Thompson, McNulty and Filip memos.

The remainder of this post excerpts portions of Yates’s speech that are likely to be of most interest to FCPA practitioners.

“A little more than two months ago, we issued a new policy designed to ensure that individual accountability is at the heart of our corporate enforcement strategy.  In announcing the policy, we emphasized the importance of holding accountable the individuals who commit corporate wrongs for reasons that are fairly obvious – crime is crime and lawbreakers must be held responsible regardless of whether they violate the law on the street corner or in the corner office.  We also know that in the white-collar context, one of the most effective ways to ensure this accountability and to deter future misconduct is by pursuing not just corporate entities, but also the individuals through which these corporations act.  And so our policy set forth six ways the Justice Department is changing how it does business to ensure that our attorneys and agents make the best possible cases against those individuals.

[...]

[N]ow that a couple of months have passed, I thought it would be helpful to expand a bit on what we are trying to accomplish and how we’re implementing the policy.

Before rolling out the memo in September, a team of senior DOJ attorneys spent months examining the issue – a project that began under former Attorney General Holder and continued under Attorney General Lynch. I’d like to think that the final product reflected the values that were instilled in these senior DOJ attorneys – and instilled in me – during our long careers at the Justice Department. I joined the U.S. Attorney’s office in Atlanta in 1989 and I’ve been with the department ever since. I spent a significant portion of my career handling white-collar prosecutions, as a line Assistant United States Attorney (AUSA), as the supervisor of our white-collar unit, as a U.S. Attorney and now as Deputy Attorney General. I know how challenging these cases can be and I’ve seen how extraordinarily hard our Department of Justice attorneys work to make them happen. That’s part of the reason we decided to adjust our approach. Everyone at the Justice Department wants to hold wrongdoers accountable, all the more so when those wrongdoers use corporations to lie, cheat and steal. But the barriers to a successful white-collar prosecution can be substantial. We needed to clear away some of those barriers and make sure that the department’s own priorities and resources were fully aligned so we could conduct our investigations more effectively and bring the best cases possible.

I’d like to talk a bit about how we’ve implemented the policy into the everyday work of our attorneys.  Today, we’re taking a big step forward on that front by issuing revisions to the United States Attorney’s Manual, or the USAM.

As I’m sure many of you know, the USAM is one of the most important documents within the Justice Department community.  It is a handbook that contains guidance on everything from initiating an investigation to closing a case and it serves as the foundation for many of the key decisions that DOJ attorneys make during their work.  It applies to everyone in the department, regardless of whether they’re an assistant U.S. Attorney out in the field or a trial attorney in Washington.  I know I consulted it regularly during my years as a prosecutor.

We don’t revise the USAM all that often and, when we do, it’s for something important.  We change the USAM when we want to make clear that a particular policy is at the heart of what all Department of Justice attorneys do and when we want to make sure that certain principles are embedded in the culture of our institution.  We also make these revisions as a way of telling the world about our priorities and our values, so that others know what to expect when the Justice Department comes knocking.

The first set of revisions involve the section of the USAM that addresses criminal cases – specifically, corporate criminal cases.  Technically, the chapter is called the “Principles of Federal Prosecution of Business Organizations,” but most of you know it as simply the “Filip factors.”

Today we are updating the Filip factors and the written guidance that accompanies these factors, to highlight some important principles from the September policy.  The revised factors now emphasize the primacy in any corporate case of holding individual wrongdoers accountable and list a variety of steps that prosecutors are expected to take to maximize the opportunity to achieve that goal.  And we are adding language that codifies a number of internal reporting and approval requirements, which are designed to ensure consistency across the Justice Department and allow us to keep track of how these policies are being implemented.

An important component of the individual accountability policy and the new revisions to the factors involves corporate cooperation.  This seems to be the policy shift that has attracted the most attention.  The new rule in the revised factors is exactly how I laid it out two months ago:  if a company wants credit for cooperating – any credit at all – it must provide all non-privileged information about individual wrongdoing.  Companies seeking cooperation credit are expected to do investigations that are timely, appropriately thorough and independent and  report to the government all relevant facts about all individuals involved, no matter where they fall in the corporate hierarchy.

I would note that this concept — that corporate cooperation includes giving all non-privileged information about the conduct of individuals –  is nothing new.  It was in the Filip factors long before this most recent policy shift and it is a point has been repeatedly emphasized by department officials, particularly Leslie Caldwell, our terrific Assistant Attorney General of the Criminal Division.

What is new is the consequence of not doing it.  In the past, cooperation credit was a sliding scale of sorts and companies could still receive at least some credit for cooperation, even if they failed to fully disclose all facts about individuals.  That’s changed now.  As the policy makes clear, providing complete information about individuals’ involvement in wrongdoing is a threshold hurdle that must be crossed before we’ll consider any cooperation credit.

Some have claimed that this new cooperation policy will result in unnecessarily broad, costly and time-consuming internal investigations.  But when we announced the policy, we made clear that we were not intending for companies to embark on a years-long, multimillion dollar investigation every time a company learns of misconduct.  We made clear at the time that we expect investigations to be tailored to the scope of the wrongdoing.  We expect cooperating companies to make their best effort to determine the facts with the goal of identifying the individuals involved.  As we said previously, if there is any question about the scope of what’s required, you should do what many defense attorneys do now – pick up the phone and discuss is with the prosecutor.

Others have opined that a company that does not have access to all the facts will be at a disadvantage, despite their best efforts to do a thorough and timely investigation.  As the corporate entity, the presumption will be that you have access to the evidence.  But if there are instances where you do not, or you are legally prohibited from handing it over, then you need to raise these issues with the prosecutor.

Additionally, there is nothing in the new policy that requires companies to waive attorney-client privilege or in any way rolls back the protections that were built into the prior factors.  The policy specifically provides that it requires only that companies turn over all relevant non-privileged information and our revisions to the USAM – which left the sections on the attorney-client privilege intact – underscore that point.

But let’s be clear about what exactly the attorney-client privilege means.  As we all know, legal advice is privileged.  Facts are not.  If a law firm interviews a corporate employee during an investigation, the notes and memos generated from that interview may be protected, at least in part, by attorney-client privilege or as attorney work product.  The corporation need not produce the protected material in order to receive cooperation credit and prosecutors will not request it.  But to earn cooperation credit, the corporation does need to produce all relevant facts –including the facts learned through those interviews—unless identical information has already been provided.  We will respect the privilege, but we will also expect companies to respect its boundaries and not to wrongly exploit its legitimate purpose by using it to shield non-privileged information from investigators.

Some have theorized that our new policy will have a chilling effect on employees’ willingness to cooperate in their companies’ internal investigations, thus limiting our ability to find out what really happened.  I will acknowledge that our focus on culpable individuals may make some employees nervous.  Some may have reason to be nervous.  But to the extent that there’s a tension between the interests of the company and the interests of individuals in an internal investigation, that dynamic is nothing new.  This tension is reflected in the admonition that corporate counsel give employees that they represent the company not the employee and that the company may provide to the government any information that the employee provides.  So these new cooperation rules simply emphasize — for the benefit of companies and prosecutors – the importance of identifying individual wrongdoers in any corporate case.

Understand that we’re not asking companies to pin a scarlet letter on their employees or provide us with prosecutable cases against them in order to get the benefits of cooperation.  Cooperation does not require a company to characterize anyone as “culpable.”  Cooperation does require that a company provide us with all facts about the all individuals involved.

Two last points on the subject of cooperation.  First, timing, as always, is of the essence.  A company should come in as early as it possibly can, even if it doesn’t quite have all the facts yet. The new USAM language makes plain that a company won’t be disqualified from receiving cooperation credit simply because it didn’t have all the facts lined up on the first day it began talking with us.  Rather, under those circumstances, we expect that cooperating companies will simply continue to turn over the information to the prosecutor as they receive it.

Second, one of the changes made to the USAM today separates what used to be a single factor that covered both a corporation’s voluntary disclosure and its willingness to cooperate into two separate factors – one focused solely on the company’s timely and voluntary disclosure and the second on its cooperation.   We made this change to emphasize that while the concepts of voluntary disclosure and cooperation are related, they are distinct factors to be given separate consideration in charging decisions.  In recognition of the significant value early reporting holds for us, prompt voluntary disclosure by a company will be treated as an independent factor weighing in the company’s favor.

[...]

We make all of these changes recognizing challenges that they may present.  Some have speculated that the new policy may mean that fewer companies cooperate with the government because of some perception that the new standard is too difficult to meet.  I suppose that may happen, but I’m not convinced.  I have a hard time imagining that it will truly be in a company’s best interest to forego the substantial benefits accorded for cooperation solely to avoid having to provide all the facts about individual conduct.  That would seem to be a particularly difficult call for the board of directors of a publicly traded company given the fiduciary duty to the shareholders.  But if fewer companies cooperate and our corporate settlements are reduced, we’re okay with that.   I will repeat a point I made when we announced this policy:  our mission is not to recover the largest amount of money from the greatest number of corporations; our job is to seek accountability from those who break our laws and victimize our citizens.

Here in the audience, we have more than lawyers and bankers; we also have one of the most important constituencies in our efforts to combat corporate misconduct:  compliance professionals.  You are a crucial partner in the fight against white-collar crime.  At DOJ, we don’t want to go after the corporate wrongdoers simply as an end unto itself; we want to decrease the amount of corporate wrongdoing that happens in the first place.  We want to restore and help protect the corporate culture of responsibility. That’s only possible with strong compliance programs—and with rigorous internal controls that help companies self-assess and self-correct.  It is in our mutual interest to ensure that we root out misconduct, promote fairness and demonstrate that no one is above the law.

At the Justice Department, our ability to do our jobs effectively depends on the public’s confidence in the institutions we represent.  The public must believe what I have always known to be true; that we will aggressively pursue wrongdoing in all its forms, no matter who the wrongdoer may be.  That means that we must continue to demonstrate that our criminal justice system operates fairly and applies equally and is designed not only to punish misconduct but also to try to stop it from happening again.”

Little New Information Of Significance In SEC Director Ceresney’s FCPA Speech

Thursday, November 19th, 2015

CeresneyYesterday’s post highlighted Assistant Attorney General Leslie Caldwell’s recent speech before a Foreign Corrupt Practices Act audience.

Today’s post provides equal time to Andrew Ceresney’s (Director of the SEC’s Enforcement Division) FCPA speech to the same audience.

To those well-versed on prior SEC FCPA policy speeches, there was little new information of significance in Ceresney’s speech (and you can assess this for yourself by visiting this subject matter tag which highlights every SEC FCPA policy speech in the public domain over the last several years). Indeed, significant portions of Ceresney’s speech were near carbon copies of prior speeches he delivered at the same event one year ago and two years ago (see here and here for prior posts).

[From a LinkedIn comment: "I agree with your assessment of Director Ceresney's speech. In fact the majority of the attendees who were present during the luncheon speech felt the same way. And judging from his presentation, he was hardly enthused about the speech. Basically, it was just read off paper word for word not even looking up. But you also have to put his speech in the proper context. It was something designed to take up the slack time between the main meal and waiting for the dessert to come out."]

The only new item in Ceresney’s speech was the following statement: “the Enforcement Division has determined that going forward, a company must self-report misconduct in order to be eligible for the Division to recommend a DPA or NPA to the Commission in an FCPA case.”

As a practical matter, this statement is not very significant as the SEC has only used NPAs or DPAs three time since the SEC authorized their use in 2010. Moreover, the SEC has handled voluntary disclosure in the FCPA context in several different ways.  In certain instances, civil complaints are filed in connection with voluntary disclosures; in other instances, administrative cease and desist orders are used in connection with voluntary disclosures; and in other instances  - as noted by Ceresney – NPAs and DPAs are used in connection with voluntary disclosures.

Prior to excerpting Ceresney’s speech, a few observations about the individual prosecution and BHP Billiton portions of the speech.

Individual Proseuctions

Ceresney stated:

“Outside the FCPA context in particular, over the last five years, 80% of the SEC’s enforcement actions (excluding follow-on administrative proceedings and delinquent filings) have involved charges against individuals.  This focus on individuals also applies to FCPA cases.”

Ceresney did not provide statistics for individual prosecutions in connection with corporate SEC enforcement actions so I will. As noted in prior posts here and here, since 2008 83% of SEC corporate FCPA enforcement actions have not resulted in any SEC charges against company employees.

No doubt in recognition of these FCPA specific statistics, Ceresney attempted to articulate why FCPA enforcement actions against individuals “present formidable challenges.” However, most of the factors listed are also present in corporate FCPA enforcement actions. There is however a key difference.  In the FCPA’s history, it is not believed that the SEC has ever had to prove a case against an issuer whereas individuals are more likely to, and have, put the SEC’s to burden of proof and the SEC has never satisfied its ultimate burden of proof against an individual when this happens.

BNY Mellon / Anything of Value

Similar to his speech last year at the same event, Ceresney devoted a material portion of his remarks to an FCPA element that is seldom the focus of much discussion:  anything of value.   In the words of Ceresney “enforcing the FCPA to its fullest extent.”

Ceresney provided a list of questions regarding less tangible things of value that will be of value to compliance practitioners.

In connection with this portion of his speech, Ceresney defended the SEC’s enforcement action against BNY Mellon which focused on the company’s internship practices. He called criticism of the enforcement action “unfounded.”

However, Ceresney failed to address many of the other criticisms of the enforcement action not necessarily connected to the anything of value element such as corrupt intent, obtain or retain business, and other statutory issues. (See here).

The remainder of this post excerpts Ceresney’s speech.

“Pursuing violations of the FCPA remains a critical part of the SEC’s enforcement efforts.  The SEC has taken a lead role in combatting corruption worldwide, enforcing the FCPA vigorously against issuers and individuals within its jurisdiction and working with foreign partners to enhance their anticorruption efforts.

The Division of Enforcement – including its specialized FCPA Unit, as well as other members of the staff – continues to be very active holding wrongdoers accountable for FCPA violations.  The Commission’s enforcement efforts over the last ten years, along with those of our partners at the DOJ and FBI, have resulted in a sea change in enhancing the focus on FCPA compliance issues.

[...]

I thought I would spend some time this afternoon discussing a few issues that are important to the SEC’s FCPA program: self-reporting and cooperation; holding individuals accountable for FCPA violations; cooperation with foreign regulators; and ongoing efforts to ensure that the FCPA is enforced to its fullest extent.

The Importance of Self-Reporting and Cooperation

I want to start with the importance of self-reporting and cooperation in FCPA cases.  The Commission launched its formal cooperation program a little more than five years ago, and as I have explained in other contexts, it has been a great success overall.  Even before that formal cooperation program was implemented, the SEC was rewarding cooperation in FCPA matters, and it has continued to do so under the more formal program.  In the last fiscal year alone, the Commission gave significant credit for cooperation in more than half a dozen cases.  These included the settlement with Layne Christensen, which included a significantly reduced penalty of 10% of the disgorgement amount; a settlement with PBSJ, where we entered into a deferred prosecution agreement and the penalty was a small fraction of disgorgement; and a settlement with Goodyear, which was the first case where the Commission agreed not seek any penalty in recognition of the company’s significant cooperation.  These cases should send the message loud and clear that the SEC will reward self-reporting and cooperation with significant benefits.  Companies should understand that the benefits of cooperating with the SEC are significant and tangible.

Let me spend a moment on self-reporting because that is an issue that has attracted lots of attention in recent years.  Self-reporting is critical to the success of SEC’s cooperation program.  Self-reporting allows the Enforcement staff to discover misconduct more quickly and reliably than otherwise would be possible.  In certain cases, particularly when misconduct occurs overseas, companies may be in a better position to quickly investigate misconduct and the information provided by companies as part of their self-reporting often gives a significant head start on our investigations.

Self-reporting also is a valuable tool for parties who want to maximize the benefits available for cooperation.  As the cases I just mentioned make clear, there are significant benefits available to companies who self-report violations and cooperate fully with our investigations.  Benefits range from reduced charges and penalties, to deferred prosecution or non-prosecution agreements – known as DPAs or NPAs – in instances of outstanding cooperation, or in certain instances when the violations are minimal, no charges.

However, beyond these benefits, which are the carrot, there is also a stick that should further incentivize self-reporting.  Companies that make a decision not to self-report misconduct take the chance that the Enforcement Division will learn of this misconduct through other means.  The SEC’s whistleblower program has created real incentives for people to report wrongdoing to us.  If the Enforcement Division finds the violations through its own investigation or from a whistleblower, the consequences to the company will likely be worse and the opportunity to earn additional cooperation credit may well be lost.  As I’ve said before, when discussing our cooperation program in general and specifically in the FCPA context, companies are gambling if they fail to self-report FCPA misconduct to us.

Given the importance of self-reporting to our FCPA investigations, the Enforcement Division continues to looks for ways to encourage self-reporting of violations through our cooperation program.  Towards that end, the Enforcement Division has determined that going forward, a company must self-report misconduct in order to be eligible for the Division to recommend a DPA or NPA to the Commission in an FCPA case.  I am hopeful that this condition on the decision to recommend a DPA or NPA will further incentivize firms to promptly report FCPA misconduct to the SEC and further emphasize the benefits that come with self-reporting and cooperation.

It is important to note here that while the Division will require a company to self-report in order to be eligible for a DPA or NPA, self-reporting alone is not enough.  Determinations of how much credit to give an entity for cooperation, including whether to take the extraordinary step of entering into a DPA or NPA, are made by evaluating the broad factors set out by the Commission in the Seaboard report. In addition to self-reporting, these factors include a corporation’s self-policing, remediation, and cooperation. While DPAs and NPAs are valuable tools, they reflect a significant level of cooperation and have been a relatively limited part of Commission enforcement practice.  I think this is appropriate and should continue to be the case.  But the Division will not even consider this step if a company fails to self-report.

Requiring a company to self-report potential FCPA violations in order to be eligible for a DPA or NPA is consistent with the SEC’s practice since the introduction of our formal cooperation program in 2010.  In each FCPA case where the SEC entered into a DPA or NPA, the company involved self-reported the violations, and then provided significant cooperation throughout the investigation.

The most recent example is the DPA the Commission entered into with PBSJ Corporation earlier this year.  In that case, the Commission charged a former officer of the Florida engineering and construction firm with violating the FCPA by offering and authorizing bribes and employment to foreign officials to secure Qatari government contracts. The Commission determined that a DPA with the company was appropriate.  PBSJ self-reported the violations to the SEC, took immediate steps to end the misconduct, and fully cooperated with the investigation, including voluntarily making foreign witnesses available for interviews and providing factual chronologies, timelines, internal summaries, and full forensic images to the SEC.  Under the DPA, PBSJ agreed to pay more than $3 million in disgorgement and prejudgment interest and a penalty of $375,000 – approximately 10% of the disgorgement level – and to comply with certain undertakings.

Similarly, in 2013 the Commission entered into its first ever FCPA NPA with Ralph Lauren Corporation in connection with bribes paid by a subsidiary to government officials in Argentina.  In determining to enter a NPA with the company, the Commission recognized the company’s prompt self-reporting of the violation – within two weeks of discovering the illegal payments – and its extraordinary cooperation with the SEC’s investigation, which included voluntarily and expeditiously producing relevant documents, providing translations of foreign-language documents, providing witness interview summaries from its internal investigation, making overseas witnesses available, and bringing witnesses to the U.S.  The Commission also took into account significant remedial measures undertaken by Ralph Lauren.  Under the NPA, the company paid more than $700,000 in disgorgement and pre-judgment interest.

Finally, self-reporting was a key consideration leading to the DPA with Tenaris, S.A., in 2011, which was the SEC’s first DPA since the introduction of the cooperation program.  The agreement with Tenaris involved allegations that the global manufacturer of steel pipe products made almost $5 million on contracts obtained through bribes of Uzbekistan government officials during a bidding process to supply pipelines for transporting oil and natural gas. The Commission determined that a DPA with Tenaris was appropriate.  The company immediately reported the violations to the SEC, conducted a thorough internal investigation, fully cooperated with the investigation, and implemented significant remediation efforts.  Under the DPA, Tenaris paid $5.4 million in disgorgement and prejudgment interest and agreed to enhance its compliance practices.  Tenaris paid no penalty.

I hope that by highlighting the benefits of cooperation and detailing the efforts companies took to self-report and cooperate, the Enforcement Division can help provide a blueprint for companies regarding what kind of cooperation and remediation efforts are required to maximize the benefits of the SEC’s cooperation program.

Focus on Individual Liability

The next area I want to talk about today is our focus on individual liability.  Holding individuals accountable for their wrongdoing is critical to effective deterrence and, therefore, the Division considers individual liability in every case.  Outside the FCPA context in particular, over the last five years, 80% of the SEC’s enforcement actions (excluding follow-on administrative proceedings and delinquent filings) have involved charges against individuals.  This focus on individuals also applies to FCPA cases.  When we are able to recommend a case against individuals for FCPA violations, we do so.

However, it is also true that FCPA cases often present formidable challenges to establishing individual liability.  In most FCPA cases, the individuals most directly involved in the wrongdoing are foreign nationals who live outside the United States.  As a result, it is often difficult to establish personal jurisdiction over potential wrongdoers, particularly if they are employees of the foreign subsidiary rather than the parent issuer.  In addition, most of the witnesses and documents are located overseas, which presents evidentiary challenges.  The cases are very time-consuming and resource-intensive to litigate, and if the wrongdoer is a foreign national with no assets or ties to the U.S., recoveries may be limited.  Finally, given the evidentiary challenges and complexity of FCPA investigations, the statute of limitations also complicates these cases.  The statute of limitations applicable to Commission actions is not tolled when foreign evidence requests are outstanding.

However, where the Division’s investigations find sufficient evidence to bring charges and establish personal jurisdiction, the Commission brings those cases.  Over twenty percent of the SEC’s FCPA cases this past year were brought against individuals, sometimes in conjunction with a case against the issuer, and sometimes before or after the issuer case was brought.  In the PBSJ case I discussed earlier, while the Commission entered into a DPA with the company, it charged the former PBSJ officer who orchestrated the scheme with violating the anti-bribery provisions of the FCPA.  As set out in the SEC’s order, the officer offered to funnel funds to a local company owned and controlled by a foreign official in order to secure two multi-million Qatari government contracts for PBSJ and also offered employment to a second foreign official in return for assistance as the bribery scheme began to unravel. The officer agreed to settle the charges and pay a significant penalty.

In August, the Commission brought charges against a former executive at a worldwide software manufacturer for violating the FCPA by bribing Panamanian government officials through an intermediary to procure software license sales.  As set out in the SEC’s order, the executive orchestrated a scheme to pay bribes to one government official and promised to pay two others in order to obtain four contracts to sell software to the Panamanian government.  The executive, who lives in Miami, agreed to settle the charges and disgorge all of his ill-gotten gains.

And earlier this fiscal year, the SEC charged two former employees in the Dubai office of a U.S.-based defense contractor with violating the FCPA by providing government officials in Saudi Arabia with improper benefits to help secure business for the company.  The individual employees settled the charges and each agreed to pay a significant penalty.

The Commission is committed to holding individuals accountable and I expect you will continue to see more FCPA cases against individuals.

Effective Coordination with International Regulators and Law Enforcement

One of the reasons we’ve been able to achieve such success in our FCPA cases over the past few years – both against companies and individuals – is the Division’s effective coordination with international regulators and law enforcement.  In today’s globalized marketplace, the SEC’s ability to protect investors and maintain fair and efficient markets is often dependent on Enforcement’s ability to investigate misconduct that takes place, at least in part, abroad.  This is especially true with FCPA investigations, which routinely rely on evidence obtained from foreign jurisdictions, and often are conducted in parallel with foreign governments.

Over the past five years, the Enforcement Division has experienced a transformation in the ability to get meaningful and timely assistance from international partners.  Enforcement has greatly expanded its efforts to obtain evidence of potential wrongdoing from around the globe with the assistance of the SEC’s Office of International Affairs and continues to strengthen our partnerships with other countries.  There has also been an important trend of significant growth in focus and legislation on corruption issues worldwide over the last few years.  The result has been a tremendous increase in cooperation from other governments and better access to evidence in foreign countries.

This increased coordination helps the SEC successfully conclude significant enforcement actions.  For example, assistance from foreign authorities was critical to the Commission’s recent case against Hitachi.  The investigation was greatly assisted by the African Development Bank and the South African Financial Services Board.  And the resulting case charged Hitachi with violating the FCPA by inaccurately recording improper payments to a front company for the African National Congress – the ruling party in South Africa – in connection with contracts to build two power plants.  The company agreed to settle the charges and pay a $19 million penalty for its FCPA violations.

In April of this year, the SEC also charged FLIR Systems, Inc. for violating the FCPA by financing what an employee termed a “world tour” of personal travel for government officials in the Middle East who played key roles in decisions to purchase products from FLIR. The Commission’s order found that FLIR earned more than $7 million in profits from sales influenced by the improper travel and gifts.  We received valuable assistance in our investigation from the United Arab Emirates Securities and Commodities Authority.  To settle the matter, FLIR agreed to pay more than $9.5 million in disgorgement and penalties and report its FCPA compliance efforts to the agency for the next two years.  In the BHP Billiton matter I mentioned earlier, the Division received assistance from the Australian Federal Police.

These are just three recent examples of the Division’s success in working with the international community to receive documents and other types of foreign assistance.  I fully expect the pace and extent of foreign agencies’ cooperation in the FCPA space to grow over the coming years as the Division continues to forge new relationships abroad and strengthen those we already have.

Enforcing the FCPA Statute to its Fullest Extent

Finally, I thought I would say a few words about the Commission’s efforts to enforce the FCPA to the fullest extent of the statute.  As this audience surely knows, the statute precludes the payment or provision of “anything of value” to a foreign official in order to induce that official to take official action or obtain an improper advantage for the purpose of obtaining or retaining business.

And of course “anything” of value is, on its face, a broad term.  Obviously, cash payments count.  Similarly, tangible gifts to foreign officials undoubtedly qualify as things of value.  But the Commission has also successfully brought FCPA cases where other, less traditional, items of value have been given in order to influence foreign officials.  For example, last year, I discussed a series of cases in which the Commission brought bribery charges against companies that made contributions to charities that were affiliated with foreign government officials, provided no-show jobs to the spouse of a foreign official, or paid for the honeymoon of a foreign official’s daughter, all to induce those officials to direct business to the companies.  Each of these benefits qualifies as something of value under the FCPA statute.

The SEC’s recent case against BNY Mellon, its first FCPA case against a financial institution, also illustrates this approach.  The Commission’s case charged that the firm violated the FCPA by providing valuable student internships to family members of foreign government officials affiliated with a Middle Eastern sovereign wealth fund.

Some have expressed concern about these cases, arguing that it is difficult to draw a clear line between what constitutes a violation and what does not, in cases involving less traditional items of value.  In my view, these concerns are unfounded.  The line between what is acceptable and what constitutes a violation of the law is in the same place it always has been:  when something of value – which can include a gift, donation, favor, or hiring decision – is given or taken with intent to influence the foreign official in his or her official actions or obtain an improper advantage.  While this analysis is dependent on the facts and circumstances of each particular case, it is the same analysis companies routinely conduct when considering how their employees interact with government officials in the course of business. The relevant questions include:

  • Was the gift, donation, favor, or hiring asked for by the foreign official?
  • Did the company official believe that the gift, donation, favor, or hiring would advance their business interests and help them obtain particular business, or at least obtain an improper advantage with the foreign official?
  • Was the gift, donation, favor, or hiring consistent with company policy and practice?
  • Were the company’s normal procedures followed in connection with the gift, donation, favor, or hiring?
  • Would the gift, donation, favor, or hiring have been made if there were no potential business benefit?

In the BNY Mellon case for example, the Commission’s order described the following facts.  The sovereign wealth fund officials explicitly and repeatedly requested the internships and the BNY Mellon employees viewed providing the internships as important to keeping the sovereign wealth fund’s business and potentially obtaining new business.  Indeed, one BNY Mellon employee stated that failure to provide the internships would “potentially jeopardize our mandate” with the sovereign fund and another stated that providing the internship was “the only way” to increase BNY Mellon’s share of business from the sovereign funds’ European office. In addition, the bank did not evaluate or hire the officials’ relatives through its internship program, which had stringent standards, including a minimum grade point average, relevant prior work experience, and multiple rounds of interviews.  In fact, the family members hired did not meet the basic entrance standards for any established BNY Mellon internship program, did not have the requisite academic or professional credentials, and were not even required to interview before being offered the positions.

Under these circumstances, I would suggest that there was ample basis for viewing the internships as something of value to the foreign officials who requested them for their relatives, and for concluding that they were given in an attempt to influence the foreign officials in connection with the performance of their official duties or to obtain an improper advantage from the foreign officials.

As I’ve said before, bribes come in many shapes and sizes.  And in my view, the FCPA is properly read to cover providing valuable favors to a foreign official, as well as providing cash, tangible gifts, travel or entertainment.

Conclusion

To sum up, the Enforcement Division is committed to aggressively pursuing violations of the FCPA by entities and individuals.  We will continue to use our cooperation program and to coordinate with international regulators and law enforcement to do so more effectively.  It is my hope that we can continue to build on the solid foundation we have created for FCPA compliance in the coming years.”