Archive for the ‘Enforcement Agency Policy’ Category

Is The DOJ Picking on Non-U.S. Companies and Individuals?

Wednesday, June 18th, 2014

Today’s post is from David Simon (Foley & Lardner).

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The debate over whether the United States should impose its values on the rest of the world through enforcement of the Foreign Corrupt Practices Act (“FCPA”) is over.

Almost everyone now rejects the cultural relativist argument—that there are different business cultures in different parts of the world, and that the United States should respect those differences and refrain from imposing our standards of doing business on U.S. companies operating abroad.  Rather, the rise of anti-corruption legislation, the proliferation of OECD standards, and increased enforcement—not only by the United States, but by many countries enforcing their own anticorruption laws—all show an emerging consensus that corruption of this nature is objectively bad.  The United States should be commended for leading the way on this.

Yet the recent enforcement activity of the Department of Justice[i] (“DOJ”) raises questions as to whether it is enforcing the FCPA in a manner consistent with the statute’s purpose (and the overarching purpose of domestic criminal law).  According to Deputy Assistant Attorney General James Cole, whose remarks are available here, that purpose is U.S.-centric:

“In enacting the FCPA … Congress recognized that foreign bribery had tarnished the image of U.S. businesses, impaired public confidence in the financial integrity of U.S. companies, and had hampered the functioning of markets, resulting in market inefficiencies, market instability, sub-standard products and services, and an unfair playing field.”

True enough, but it is hard to dispute that the focus of FCPA enforcement has to some extent shifted away from U.S. businesses and citizens.  As noted on FCPA Professor, eight of the top ten corporate FCPA settlements have involved non-U.S. businesses.

Likewise, the number of individual FCPA prosecutions against non-U.S. citizens has been increasing.  In recent years, individual criminal prosecutions have been brought against citizens of the Ukraine, Hungary, Slovakia, Switzerland, Venezuela, and Sri Lanka—and some involve very tenuous connections to the United States.

For example, as previously highlighted on this blog, in December 2011 the DOJ charged, among others, former Siemens executive and German national Stephan Signer under the FCPA based on conduct concerning the Argentine prong of the 2008 Siemens enforcement action.  The jurisdictional allegation against Signer was that he caused Siemens to transfer two wires to bank accounts in the United States in furtherance of a scheme to bribe Argentine government officials.[ii]

I do not argue that the FCPA does not permit the DOJ to charge non-U.S. citizens or companies.  Indeed, the 1998 amendments make it clear that Congress intended to give the DOJ that power, providing it with jurisdiction over several categories of non-U.S. entities and individuals.  It should be noted, however, that the DOJ has adopted a markedly broad interpretation of the FCPA’s territorial jurisdiction provisions, resulting in increasingly attenuated connections between the United States and individual defendants like Mr. Signer.  These connections may include merely “placing a telephone call or sending an e-mail, text message, or fax from, to, or through the United States.”[iii]  The legal significance of these increasingly tenuous jurisdictional justifications, previously referred to on FCPA Professor as “de facto extraterritorial jurisdiction,” remains a contentious, and related, issue.

The question I raise here is not whether the DOJ’s policy of enforcement is legal, but whether such a focus (or, at least, the perception of such a focus) on non-U.S. persons and companies is prudent and appropriate.  In describing the principles underlying the jurisdiction to prescribe, the American Law Institute (“ALI”) notes that the United States has “generally refrained from exercising jurisdiction where it would be unreasonable to do so.”[iv]  But “[a]ttempts by some states—notably the United States, to apply their law on the basis of very broad conceptions of territoriality or nationality [has bred] resentment and brought forth conflicting assertions of the rules of international law.”[v]  Indeed.

The concerns I have about this are not confined to FCPA enforcement.  The same trend is apparent in other areas of the law, such as economic sanctions and export controls.  The pattern of enforcement being concentrated against non-U.S. companies is shown just as sharply under those laws, with the recent economic sanctions against such firms as ING Bank ($619 million against Netherlands financial institution), Royal Bank of Scotland ($100 million against UK financial institution), and Credit Suisse ($536 million against Swiss financial institution).  With the U.S. Government reportedly considering the first $10 billion penalty for violations of U.S. economic sanctions laws against BNP Paribas (a French financial institution), French President Francois Hollande reportedly has personally lobbied against what is perceived as an unfair singling out of an EU financial institution for payment of such a large fine.  To the French Government, at least, the inequity of the U.S. Government assessing a fine that surpasses the entire yearly profits of one of the largest French financial institutions is plain.

The pattern of enforcement described above, should it be allowed to continue, sends a message to the rest of the world that the DOJ is mostly interested in big dollar settlements and soft foreign targets.  Is this the message we wish to send to our foreign allies in the fight against corruption?

Although the DOJ’s application of the FCPA (and other laws governing international business conduct)  to prosecute increasing numbers of foreign persons may be legal, and technically “reasonable” at international law, that does not necessarily make it appropriate or advisable.  Rather, these attempts to apply a broad conception of territoriality in pursuit of greater numbers of prosecutions and larger settlements may be more damaging than DOJ perceives.  This has the potential to undermine the U.S. position that anti-corruption is a global issue, and counteracts the progress the U.S. has made in altering its image from that of an overreaching imperialist power to a competent and moderate leader in the creation and enforcement of global anti-corruption norms.

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This article in today’s New York Times DealBook discusses many of the same issues highlighted in the above post.


[i] I focus here principally on the DOJ, not the SEC.  The DOJ, of course, is a law enforcement agency charged with enforcing criminal laws.  The SEC is a regulatory agency, and the companies and individuals subject to its jurisdiction essentially opt in by taking advantage of the U.S.’s financial markets.

[ii] Indictment at 40, United States v. Uriel Sharef, et. al., 11CR-1-56 (S.D.N.Y 2011), available at http://www.justice.gov/criminal/fraud/fcpa/cases/sharef-uriel/2011-12-12-siemens-ndictment.pdf.

[iii] See U.S. Dep’t of Justice & U.S. Sec. Exch. Comm’n, A Resource Guide to the U.S. Foreign Corrupt Practices Act, 11 (Nov. 14, 2012), available at http://www.justice.gov/criminal/fraud/fcpa/guide.pdf.

[iv] Restatement (Third) of the Foreign Relations Law of the United States, § 403 cmt. a. (1986).

[v] Id. at Chapter One: Jurisdiction to Prescribe, Subchapter A.: Principles of Jurisdiction to Prescribe, Introductory Note.

Second Circuit Concludes That SEC Settlements Are Not About The Truth, But Pragmatism

Thursday, June 5th, 2014

Although outside the Foreign Corrupt Practices Act context, these pages have covered from day one (see here and here) Judge Rakoff’s concerns about SEC settlement policy as expressed in SEC v. Citigroup.  As noted in this December 2011 post, Judge Rakoff refused to sign off on the settlement and in pertinent part stated:

“Purely private parties can settle a case without ever agreeing on the facts, for all that is required is that a plaintiff dismiss his complaint.  But when a public agency asks a court to become its partner in enforcement by imposing wide-ranging injunctive remedies on a defendant, enforced by the formidable judicial power of contempt, the court, and the public, need some knowledge of what the underlying facts are: for otherwise, the court becomes a mere handmaiden to a settlement privately negotiated on the basis of unknown facts, while the public is deprived of ever knowing the truth in a matter of obvious public importance.”

Judge Rakoff called the SEC’s long-standing resolution policy ”hallowed by history, but not by reason” and stated that the policy “deprives the Court of even the most minimal assurance that the substantial injunctive relief it is being asked to impose has any basis in fact.”  Judge Rakoff’s stated that the “SEC, of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if it fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency’s contrivances.”

Yesterday, the Second Circuit concluded (see here for the decision) that the SEC does not need to establish “the truth” of the allegations against a settling party as a condition for approving consent decrees because, in the words of the Court, “trials are primarily about truth” whereas “consent decrees are primarily about pragmatism.”  The Second Circuit’s rebuke of Judge Rakoff was hardly a surprise given the same court’s March 2012 procedural decision in the same case (see here for the prior post) in which it stated – as to SEC settlement policy – that “it is not … the proper function of federal courts to dictate policy to executive administrative agencies.”

In pertinent part, the Second Circuit concluded that “there is no basis in the law for the district court to require an admission of liability as a condition for approving a settlement between the parties. The decision to require an admission of liability before entering into a consent decree rests squarely with the S.E.C.”

Under the heading “scope of deference” the opinion states in pertinent part as follows (internal citations omitted).

“We turn, then, to the far thornier question of what deference the district court owes an agency seeking a consent decree. Our Court recognizes a “strong federal policy favoring the approval and enforcement of consent decrees.” “To be sure, when the district judge is presented with a proposed consent judgment, he is not merely a ‘rubber stamp.’”

The district court here found it was “required, even after giving substantial deference to the views of the administrative agency, to be satisfied that it is not being used as a tool to enforce an agreement that is unfair, unreasonable, inadequate, or in contravention of the public interest.” Other district courts in our Circuit view “[t]he role of the Court in reviewing and approving proposed consent judgments in S.E.C. enforcement actions [as] ’restricted to assessing whether the settlement is fair, reasonable and adequate within the limitations Congress has imposed on the S.E.C.to recover investor losses.’”

The “fair, reasonable, adequate and in the public interest” standard invoked by the district court finds its origins in a variety of cases. Our Court previously held, in the context of assessing a plan for distributing the proceeds of a proposed disgorgement order, that “once the district court satisfies itself that the distribution of proceeds in a proposed S.E.C. disgorgement plan is fair and reasonable, its review is at an end.” The Ninth Circuit— in circumstances similar to those presented here, a proposed consent decree aimed at settling an S.E.C. enforcement action—noted that “[u]nless a consent decree is unfair, inadequate, or unreasonable, it ought to be approved.”

Today we clarify that the proper standard for reviewing a proposed consent judgment involving an enforcement agency requires that the district court determine whether the proposed consent decree is fair and reasonable, with  the additional requirement that the “public interest would not be disserved,” in the event that the consent decree includes injunctive relief. Absent a substantial basis in the record for concluding that the proposed consent decree does not meet these requirements, the district court is required to enter the order.

We omit “adequacy” from the standard. Scrutinizing a proposed consent decree for “adequacy” appears borrowed from the review applied to class action settlements, and strikes us as particularly inapt in the context of a proposed S.E.C. consent decree.

The adequacy requirement makes perfect sense in the context of a class action settlement—a class action settlement typically precludes future claims, and a court is rightly concerned that the settlement achieved be adequate. By the same token, a consent decree does not pose the same concerns regarding adequacy—if there are potential plaintiffs with a private right of action, those plaintiffs are free to bring their own actions. If there is no private right of action, then the S.E.C. is the entity charged with representing the victims, and is politically liable if it fails to adequately perform its duties.

A court evaluating a proposed S.E.C. consent decree for fairness and reasonableness should, at a minimum, assess (1) the basic legality of the decree, (2) whether the terms of the decree, including its enforcement mechanism, are clear; (3) whether the consent decree reflects a resolution of the actual claims in the complaint; and (4) whether the consent decree is tainted by improper collusion or corruption of some kind.  Consent decrees vary, and depending on the decree a district court may need to make additional inquiry to ensure that the consent decree is fair and reasonable. The primary focus of the inquiry, however, should be on ensuring the consent decree is procedurally proper, using objective measures similar to the factors set out above, taking care not to infringe on the S.E.C.’s discretionary authority to settle on a particular set of terms.

It is an abuse of discretion to require, as the district court did here, that the S.E.C. establish the “truth” of the allegations against a settling party as a condition for approving the consent decrees. Trials are primarily about the truth. Consent decrees are primarily about pragmatism. “[C]onsent decrees are normally compromises in which the parties give up something they might have won in litigation and waive their rights to litigation.”

Thus, a consent decree “must be construed as . . . written, and not as it might have been written had the plaintiff established his factual claims and legal theories in litigation.” Consent decrees provide parties with a means to manage risk. “The numerous factors that affect a litigant’s decision whether to compromise a case or litigate it to the end include the value of the particular proposed compromise, the perceived likelihood of obtaining a still better settlement, the prospects of coming out better, or worse, after a full trial, and the resources that would need to be expended in the attempt.“  These assessments are uniquely for the litigants to make. It is not within the district court’s purview to demand “cold, hard, solid facts, established either by admissions or by trials,” as to the truth of the allegations in the complaint as a condition for approving a consent decree.

As part of its review, the district court will necessarily establish that a factual basis exists for the proposed decree. In many cases, setting out the colorable claims, supported by factual averments by the S.E.C., neither admitted nor denied by the wrongdoer, will suffice to allow the district court to conduct its  review. Other cases may require more of a showing, for example, if the district court’s initial review of the record raises a suspicion that the consent decree was entered into as a result of improper collusion between the S.E.C. and the settling party. We need not, and do not, delineate the precise contours of the factual basis required to obtain approval for each consent decree that may pass before the court. It is enough to state that the district court here, with the benefit of copious submissions by the parties, likely had a sufficient record before it on which to determine if the proposed decree was fair and reasonable.

[…]

The job of determining whether the proposed S.E.C. consent decree best serves the public interest, however, rests squarely with the S.E.C., and its decision merits significant deference.  [F]ederal judges—who have no constituency—have a duty to respect legitimate policy choices made by those who do. The responsibilities for assessing the wisdom of such policy choices and resolving the struggle between competing views of the public interest are not judicial ones: “Our Constitution vests such responsibilities in the public branches.”

[…]

To the extent the district court withheld approval of the consent decree on the ground that it believed the S.E.C. failed to bring the proper charges against Citigroup, that constituted an abuse of discretion.  […] The exclusive right to choose which charges to levy against a defendant rests with the S.E.C.

[…]

Finally, we note that to the extent that the S.E.C. does not wish to engage with the courts, it is free to eschew the involvement of the courts and employ its own arsenal of remedies instead. The S.E.C. can also order the disgorgement of profits.  Admittedly, these remedies may not  be on par with the relief afforded by a so‐ordered consent decree and federal  court injunctions. But if the S.E.C. prefers to call upon the power of the courts in ordering a consent decree and issuing an injunction, then the S.E.C. must be willing to assure the court that the settlement proposed is fair and reasonable. “Consent decrees are a hybrid in the sense that they are at once both contracts and orders; they are construed largely as contracts, but are enforced as orders.”  For the courts to simply accept a proposed S.E.C. consent decree without any review would be a dereliction of the court’s duty to ensure the orders it enters are proper.”

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Judge Rakoff may have lost this case, but I agree with this New York Times article “that he had already secured a victory of sorts, having set in motion a series of events that swayed public opinion and influenced the S.E.C.’s broader enforcement agenda.”  For instance, the SEC’s revision to its long-standing neither admit nor deny settlement policy (see here) is largely attributable to Judge Rakoff.

For additional analysis of the Second Circuit’s decision, see here from Professor Peter Henning writing at the NY Times Dealbook, here from Professor Eric Gerding writing at the Conglomerate.

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In Gabelli v. SEC (see here for the prior post) a unanimous Supreme Court recognized that the SEC is a different type of plaintiff. Thus, the most troubling aspect of the Second Circuit’s opinion is the statement that if the “S.E.C. does not wish to engage with the courts, it is free to eschew the involvement of the courts and employ its own arsenal of remedies instead.”

As highlighted in my article “A Foreign Corrupt Practices Act Narrative,” in the FCPA context this is largely the path the SEC has chosen.  As noted,  in 2013 50% of SEC corporate FCPA enforcement actions were not subjected to one ounce of judicial scrutiny either because the actions were resolved via a non-prosecution agreement or administrative cease and desist orders.

SEC Chair White’s Recent Speech Touches Upon Several FCPA Related Issues

Thursday, May 22nd, 2014

SEC Chair Mary Jo White recently delivered this speech titled “Three Key Pressure Points in the Current Enforcement Environment.”  White addressed the following “pressure points” through her “lens as the Chair of the SEC”

(1) the pressure of multiple regulators in the same or overlapping investigations;

(2) the decision to charge individuals, entities, or both; and

(3) the range of remedies and ultimate resolutions.

The SEC’s FCPA enforcement program touches upon all of these issues and this post highlights certain ironies in White’s speech.

 As to the first “pressure point” –  ”which regulators are involved,” White stated in pertinent part:

“The first variable is which regulators are, or are likely to be, involved.  The answer, of course, will depend on the nature of the alleged conduct as well as the jurisdiction and interest of regulators and prosecutors.  And the number and type of regulators involved will define the range of possible outcomes, and dictate the kind of advice you will give clients.

When I first went back into private practice in 2002, investigations were often conducted by one, maybe two, regulators.  Frequently, investigations were conducted in parallel by the SEC and criminal authorities, as they are today.  But usually, that was it.  Now, it is common to have investigations with more – sometimes many more – than two regulators, whether they are additional federal regulators, state prosecutors, attorneys general, or foreign regulators.  There are many reasons for this, including: the internationalization of enforcement; the global nature of many of today’s securities frauds; the increased regulatory activity on the state level; and the increased complexity of our markets.

So, with numerous regulators with overlapping mandates to investigate any given potential case, how do we stay in our lanes?  Or is it inevitable that we overcrowd every domestic and international highway on today’s enforcement landscape?

Of course, each agency makes its own decision about which investigations to pursue, thus leading to a crowded highway in many investigations.  Enforcers may perceive that outcome as both necessary and desirable if their mandates are to be strongly implemented and their messages heard.  From my perch at the SEC, I surely have that inclination, wanting us to be involved in any matter that touches our jurisdiction, so that we can shape the outcome in a way that is consistent with our view of the law and appropriate conduct.

But, at the same time, we regulators need to keep in mind the impact we have on those we regulate and ensure that our own respective interests do not lead to unjust, duplicative outcomes.  Especially in an era of scarce resources, regulatory choices and coordination are critical.  Each agency should make a frank assessment of whether it brings the right expertise, jurisdictional authority, and appropriate remedies to the table.

There are actually some coordination successes we can point to and build upon.  For example, in the FCPA area, the SEC and DOJ, and frequently other international regulators, have a long history of coordinating effectively, to the point that the SEC and DOJ jointly developed the “Resource Guide” that closely examines the SEC and DOJ approach to FCPA enforcement.  In the typical case, the SEC and DOJ will investigate in parallel from the outset, and if the matter settles, the SEC usually obtains the disgorgement as part of its resolution and DOJ obtains the penalty.  This division of labor and remedies achieves full accountability without regulatory “double dipping.”

[...]

Collectively, we should also try to avoid unnecessary competition among ourselves for cases and headlines.  While I realize we may not always achieve this goal in practice, enforcement is serious business and we have a professional responsibility to use our agency resources wisely and in a manner that best applies our specific expertise and enforcement tools.  And there is never room for anything other than a thorough investigation of all the evidence – wherever and to whomever it may lead.  Rushes to judgment or to the courthouse can potentially result in both injustices and charges that may not capture all of the culpable parties or misconduct.

Of course, there is often good reason for conducting criminal and regulatory investigations in parallel.  In appropriate cases, we need to rely on our criminal law enforcement colleagues, who have the power to jail, to work with us.  But what does and should determine whether a securities fraud case is brought civilly, criminally, or both?

It may help to think about the cases in three categories.  The first are those that do not involve intentional wrongdoing, but rather failures of controls or reporting obligations.  These cases fall squarely within the SEC’s wheelhouse and will rarely, if ever, be brought criminally.  Examples include failure to supervise cases; violations of broker-dealer rules like the market access rule, Rule15c3-5; cases involving unprofessional, but not fraudulent, audits; failures of investment advisers to follow compliance rules; or violations by exchanges of their own rules.  These are important cases that influence conduct in the industry and ensure a significant focus on compliance and controls.  But they are not criminal cases because the misconduct rarely involves intent.

The second category of cases are those that clearly have a criminal component – those involving egregious, fraud-based conduct with a strong evidentiary trail.  These cases are often the most sophisticated frauds causing significant investor harm, brazen attempts to steal money through offering frauds or Ponzi schemes, or blatant frauds on the markets through insider trading.  There is no ambiguity in these cases – egregious conduct deserves the severe sanction of imprisonment, and often in these cases, the criminal authorities are participants in the investigation from the beginning.

The third category – the most difficult to define – are those on the line, where a criminal case is possible but not necessarily apparent on the face of the conduct.Often, such cases rely on prosecutors ready to bring cases where the evidence is not overwhelming but is sufficient to find the offense beyond a reasonable doubt.  It is often in these cases that the criminal authorities monitor the SEC investigations to determine whether sufficient evidence has developed to justify criminal interest.  And it is in these cases that we at the SEC must maintain open channels of communication with the criminal authorities to determine whether they have sufficient interest in the matter to participate in interviews of witnesses and other evidence gathering exercises.

The bottom line is that the decision of whether a case will go criminal will typically turn on the strength of the evidence and the type of offense under investigation – which are the appropriate factors to consider in making such a determination.”

White’s concerns regarding “overcrowding,” “duplicative outcomes” and “double dipping” of course were spot-on.  Indeed “double dipping” is what occurs in most FCPA enforcement actions involving issuers – see here for the prior post.

The irony of course is that she mentioned the DOJ/SEC’s overlapping FCPA jurisdiction as a success when, in the minds of many, overlapping FCPA jurisdiction is Exhibit A for “overcrowding,” “duplicative outcomes” and “double dipping.”  For starters, as highlighted in “The Story of the Foreign Corrupt Practices Act,” the SEC never wanted any part in enforcing the FCPA’s anti-bribery provisions.

Among the FCPA reform proposals advanced by Philip Urofosky (former DOJ Assistant Chief of the Fraud Section) in this article is to “eliminate overlapping enforcement jurisdiction” – in other words Urofosky writes, “the SEC should get out of the anti-bribery business.”

He writes as follows.

“The SEC’s enforcement of the anti-bribery provisions raises a fundamental matter of fairness.  Take two companies, one public and one private, and assume that both violate the FCPA and realize the same illicit gain from the violation.  The private company will be subject only to DOJ’s jurisdiction and will therefore be exposed to a criminal fine of up to twice its gain.  The public company, on the other hand, will be subject both to that criminal fine and to a civil fine and disgorgement of the illicit proceeds, thus potentially paying a third more in fines than the private company for the same conduct.”

For additional support for this reform proposal, see Professor Barbara Black’s article (here) “The SEC and the Foreign Corrupt Practices Act:  Fighting Global Corruption Is Not Part of the SEC’s Mission.”

As to the second “pressure point” –  ”what defendants are being charged,” White stated in pertinent part:

“Irrespective of which and how many investigators you face, the second decision point in nearly every securities enforcement investigation is who will be charged as a defendant – a decision that again is, and should be, dictated by the nature of the misconduct and strength of the evidence.

[...]

First, I want to dispel any notion that the SEC does not charge individuals often enough or that we will settle with entities in lieu of charging individuals.

The simple fact is that the SEC charges individuals in most of our cases, which is as it should be.  A recent Harvard survey shows that since 2000, the SEC has charged individuals in 93% of our actions involving nationally listed firms in which we charged fraud or violations of books and records and internal control rules.  An internal, back-of-the envelope, analysis the staff did recently indicates that since the beginning of the 2011 fiscal year, we charged individuals in 83% of our actions. Under either calculation, those percentages are very high – which means that the cases where individuals are not charged are by far the exception, not the rule.

I expect that this is probably not news to most of you who have had individual clients charged by the SEC.  It should also not be a surprise that we focus our investigations initially on the individuals closest to the wrongdoing and work outward and upward from there to determine who else should be charged, including whether to charge the corporation.  A company, after all, can only act through its employees and if an enforcement program is to have a strong deterrent effect, it is critical that responsible individuals be charged, as high up as the evidence takes us.  And we look for ways to innovate in order to further strengthen our ability to charge individuals.

One new approach to charging individuals is to use Section 20(b) of the Exchange Act.  Although this section dates back to the original Exchange Act of 1934, chances are you may not be very familiar with it because, frankly, it has not been a common charge.  Before you start reaching for your smart phones to look it up, let me save you the trouble.  Section 20(b) imposes primary liability on a person who, directly or indirectly, does anything “by means of any other person” that would be unlawful for that person to do on his or her own. This is analogous in the criminal context to 18 U.S.C. Section 2(b), which provides for criminal liability as a principal for anyone who “willfully causes an act to be done which if directly performed by him or another would be” a criminal violation.

We are focusing on Section 20(b) charges where – as is frequently the case in microcap and other frauds – individuals have engaged in unlawful activity but attempted to insulate themselves from liability by avoiding direct communication with the defrauded investors.  It is potentially a very powerful tool that can reach those who have participated in disseminating false or misleading information to investors through offering materials, stock promotional materials, or earnings call transcripts, but who might not be liable under Rule 10b-5(b) following the Supreme Court’s decision in Janus because they may not be the “maker” of the statement.

Just as importantly, though, as with 18 U.S.C. Section 2(b), Exchange Act Section 20(b) is a form of primary liability, rather than secondary liability, which would require proof of a separate violation by someone other than the defendant.  So, we can use Section 20(b) where aiding and abetting or controlling person theories may fall short because there is no underlying violation by someone else, such as, for example, when the other person who publicly makes the misleading statements lacks knowledge that they were misleading.

In this portion of her speech, White stated:  ”the simple fact is that the SEC charges individuals in most of our cases, which is as it should be.”

Fact-check.

As highlighted in this prior post, between 2008 – 2013, 82% of corporate SEC FCPA enforcement actions have not (at least yet) resulted in any SEC charges against company employees.  Thus far in 2014 there have been two corporate SEC FCPA enforcement actions and none have involved (at least yet) charges against company employees.  The last time the SEC has brought an FCPA enforcement action against individuals in connection with a corporate enforcement action was in February 2012 (see here).

As to the third “pressure point,” – “determining the appropriate resolution,” White stated in pertinent part:

“[L]let me share a bit about our current thinking on some of the non-monetary remedies and resolutions we are currently emphasizing at the SEC – the use of bars, monitors, and admissions.

One the SEC’s most powerful non-monetary remedies to protect the public from future harm is our authority to bar wrongdoers who work in the industry or appear before the SEC.  And I have encouraged our Enforcement Division to increase the use of these bars in appropriate cases and to ensure that we obtain bars for periods of time that respond to the seriousness of the misconduct.

We have also been more focused on seeking and obtaining undertakings requiring the use of monitors or independent compliance consultants, and doing so in a way that directly addresses the root causes of the misconduct.  Ensuring that defendants address their deficiencies and implement corrective actions is critical to making sure that our actions protect investors from future harm.

Another popular tool we have implemented since I became Chair is to require admissions of wrongdoing in certain cases.  As I have described before, we seek admissions in cases where there is a heightened need for public accountability or for the investing public to know the unambiguous facts.  And, we have now required admissions in a number of significant cases. Expect to see more as we go forward and the new protocol evolves.”

As highlighted over the past several years in SEC FCPA enforcement year in review posts, it is a mystery to many how and why certain FCPA enforcement actions include a civil penalty, disgorgement and prejudgment interest, whereas other enforcement actions include only disgorgement and prejudgment interest, whereas other enforcement actions include only disgorgement, whereas other enforcement actions include only a civil penalty.

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In this recent speech, Andrew Ceresney (SEC Division of Enforcement Director) stated:

“I have found that you can predict a lot about the likelihood of an enforcement action by asking a few simple questions about the role of the company’s legal and compliance departments in the firm.  Are legal and compliance personnel included in critical meetings?  Are their views typically sought and followed?  Do legal and compliance officers report to the CEO and have significant visibility with the board?  Are the legal and compliance departments viewed as an important partner in the business and not simply as support functions or a cost center?  Far too often, the answer to these questions is no, and the absence of real legal and compliance involvement in company deliberations can lead to compliance lapses, which, in turn, result in enforcement issues.

When I was in private practice, I always could detect a significant difference between companies that prioritized legal and compliance and those that did not.  When legal and compliance were not equal partners in the business, and were not consulted as a matter of course, problems were inevitable. “

In this recent speech SEC Commissioner Kara Stein talked about the important “role of gatekeepers” and stated:

The Role of Gatekeepers

“So who is in a position, either within or outside a firm, to help? In effect, who are the gatekeepers that are able to disrupt or prevent misconduct? Certainly auditors and outside legal counsel can play this role. As most of you know, it doesn’t stop there. Executives, compliance officers, in-house counsels, and boards of directors also can help.

Each of these persons is in a unique position to monitor and promote legal compliance. Accountants and lawyers provide services that issuers need to access our capital markets. And their services are provided to multiple firms, which enables them to promote compliance broadly.

Internal gatekeepers play just as vital a role in compliance. Compliance officers must design, test, and update firm policies. Firm management and the board generally must approve these policies and monitor compliance with them. Executives, hopefully with the help of a good Chief Compliance Officer (CCO), must establish a strong “tone at the top.” Because, as we all know, the compliance function won’t work without buy-in and commitment at the top.

A recurring theme in many of the cases that I review each week is the failure of some of these important players or gatekeepers to disrupt or prevent misconduct. This troubles me greatly, and I know it troubles all of you as well.

How can the Commission help you make prevention more effective? What are the best incentives? Carrots? Sticks? Or both?

First, let’s talk about sticks. The Commission recently imposed a $200 million penalty against a large bank for misstating financial results and lacking effective internal controls. This breakdown in controls, a core part of compliance, contributed to billions – yes billions – in trading losses. The penalty was unprecedented for this type of case and is one of the largest penalties in the history of the Commission. Yet it amounted to a tiny fraction of the firm’s net income for just one quarter.

If our actions become nothing more than a footnote in the litigation reserve section of a firm’s financial statements, or a brief media storm that can be easily weathered before it is back to business as usual, have we been effective?

Or is it more effective to hold individuals to account? The people who could have, and should have, prevented the harm? This may help empower each of you in making the case to your clients and your firms that they should heed your advice.

I applaud our enforcement staff for bringing some tough and important cases. For example, we recently brought a financial fraud case against the Chief Financial Officer of a large public company, a case against a Chief Compliance Officer for violations of custody and compliance rules, and a case against the directors of an investment company for failing to properly oversee the fair valuation of fund securities.

But one gatekeeper that often is absent from the list of cases I see every week are the lawyers. Lawyers often serve as trusted advisers, and they give advice on almost every corporate transaction. They prepare and review disclosures that investors rely upon – disclosures that are at the core of the Commission’s regulatory program. And in most cases, they do a good job. But when lawyers provide bad advice or effectively assist in a fraud, sometimes their involvement is used as a shield against liability for both themselves, and for others.

Are we treating lawyers differently from other gatekeepers, such as accountants? I think we should carefully review the role that lawyers play in our markets, with a view towards how they can better help deter misconduct and prevent fraud.

Another critical partner is the CCO. Many of you in the audience are CCOs, and I appreciate the important work that you do each day. The CCO is a relatively new position, and the role has evolved significantly over time.

It is clear to me that the vast majority of CCOs are working hard and getting good results. But many of you are nonetheless concerned about possible enforcement actions against CCOs. There is a concern that charging CCOs will have the unintended consequence of weakening the compliance function. I have heard it said that these cases may lead to a drop in the quality of CCOs, because the best candidates will not be willing to serve. And those CCOs that remain willing to assume the role will be less effective because, for example, they may avoid certain functions such as participating in firm committees. That is not the intention.

If you read the facts in the cases we bring, you will see that they are not cases against CCOs that were promoting compliance. Instead, they are cases against CCOs that were assisting fraud, ignoring red flags, not asking the tough questions, and not demanding answers.

These cases should empower you within your firms to continue to be vigilant and assertive. And know that we “have your back” when others try to prevent you from doing your job. For example, the Commission recently brought a case against a portfolio manager for misleading the firm’s CCO by forging documents to conceal his failure to report personal trades.

While these enforcement cases are important, carrots to incentivize the right behavior may be even more critical. This, of course, raises an important threshold question – what is the right behavior? It will depend on the type of gatekeeper, the role that he or she plays, and the facts and circumstances of each case. For some gatekeepers, such as accountants, the role is well-defined. For others, such as CCOs, it is less so.

This creates uncertainty, which I believe is at the heart of the concerns that I’ve heard about CCO liability. We owe it to you to remove some of this uncertainty so that you can fully unleash your power to prevent harm.

One way to do this is for the Commission to provide guidance that sets clearer expectations on what it means to act appropriately. And when those expectations are met, a CCO can have comfort that he or she will not face liability.

What are the right expectations for CCOs? Again, I need your input. Should the Commission establish a minimum baseline of conduct for CCOs? It could contain basic obligations, such as requiring the CCO to establish and implement policies, and escalate issues that arise. And to whom should the CCO escalate issues? Executives at the firm? The board? A firm committee? And what happens if the CCO receives an unsatisfactory response? There are no easy answers here, but we must make the effort to bring guidance and clarity to you on these issues. And we need your help to get it right.”

Ipse Dixit

Tuesday, April 8th, 2014

This post last week highlighted the recent activity in SEC v. Mark Jackson & James Ruehlen (a Foreign Corrupt Practices Act enforcement action scheduled for trial this summer).  As noted in the post, among other things, the SEC is seeking to exclude various defense expert witnesses on a variety of issues including internal controls issues.

If you read the SEC’s motions (see here – condensed into one document) you will see that a primary basis for exclusion is the SEC’s argument that the experts are merely offering their own naked ipse dixit.

I must confess – arcane latin phrases not being in my strike zone – I had to look up the meaning of ipse dixit.

Ipse Dixit – Latin for He himself said it – an unsupported statement that rests solely on the authority of the individual who makes it.

The term ipse dixit appears approximately 30 times in the SEC’s motions – and related to it – is the SEC’s argument that the experts’ internal controls opinions should be excluded because the experts fail to define certain terms and/or there is no discernible methodology underlying their opinions.

For instance, in seeking to exclude Alan Bell (CPA – regarding, among other things, internal controls) the SEC states:

“Bell could not define what constitutes a “circumvention” of an internal control.”

“Bell concedes that there are no written standards to evaluate what constitutes, in his view, a “circumvention” of an internal control.”

“Bell’s opinions are not the product of a reliable methodology applied to the facts of this case. In fact, Bell employed no methodology at all; instead, his opinions are “based on [his] 40 years of experience.”

In seeking to exclude Gary Goolsby (CPA – regarding, among other things, internal controls issues) the SEC states:

“There is also no discernible methodology underlying his opinion on Jackson’s purported reliance [on Noble's internal controls], other than Goolsby’s own naked ipse dixit. Goolsby’s methodology reduces to the proposition that “I know what I’m looking at.” Yet, in deposition, he could not explain what his opinion means, as a practical matter, with reference to the conduct at issue in this case. Goolsby’s testimony thus confirms what is apparent from his report – his factual findings are based on nothing more than his subjective say-so.”

In seeking to exclude Lowell Brown (regarding various FCPA compliance issues) the SEC states:

“There is no discernible analysis or methodology underlying Brown’s opinion as to Jackson’s purported reliance, other than Brown’s own naked ipse dixit – a manifestly improper basis for expert testimony.”

In seeking to exclude Professor Ronald Gilson (regarding, among other things, internal controls issues) the SEC states:

“There is no genuine methodology here, other than Gilson’s own ipse dixit based on his subjective interpretation of the evidence

In the final analysis, Gilson is an advocate for the defense who proffers nothing but his ipse dixit in the place of rigorous analytical connection between his deficient methodology (reading deposition transcripts and exhibits) and his expert conclusion (the inference that if Ruehlen told others at Noble what he was doing, he lacked the corrupt intent to violate the FCPA, as opposed to simply colluding to bribe foreign officials).”

The irony of course is that while attacking the defendants’ experts for their own ipse dixit, many of the SEC’s FCPA internal controls enforcement theories are nothing more than ipse dixit.

For instance, as noted in this prior post, the SEC alleged that Oracle violated the FCPA’s internal control provisions. The only allegations against Oracle itself is that it failed to audit distributor margins against end user prices and that it failed to audit third party payments made by distributors.  The SEC did not allege any red flags to suggest why Oracle should have done this.  Thus, how did Oracle violate the FCPA’s internal controls provisions?  What was the methodology the SEC used?

Ipse dixit.

Indeed, in a pointed critique of the SEC’s Oracle enforcement theory, the former Assistant Chief of the DOJ’s FCPA unit stated:

“Oracle is the latest example of the SEC’s expansive enforcement of the FCPA’s internal controls provision, and it potentially paints a bleak picture—one in which the provision is essentially enforced as a strict liability statute that means whatever the SEC says it means (after the fact).”  (See here for the prior post).

In many SEC FCPA enforcement actions, the SEC merely makes conclusory statements for why the company allegedly violated the FCPA’s internal controls provisions.  For instance, in the Philips enforcement action (see here for the prior post) the SEC states:

“Philips failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions were properly recorded by Philips in its books and records. Philips also failed to implement an FCPA compliance and training program commensurate with the extent of its international operations. Accordingly, Philips violated [the internal control provisions].”

Source?  Methodology?

Ipse dixit.

As noted in my recent article “Why You Should Be Alarmed by the ADM FCPA Enforcement Action” one reason, among others, why you should be alarmed by the action is because of the “failure to prevent” standard invoked by the SEC for why ADM violated the FCPA’s internal controls provisions.  As noted in the article, this standard  does not even exist in the FCPA and is inconsistent with actual legal authority.  (See here for the previous post regarding SEC v. World-Wide Coin – the only judicial decision to directly address the FCPA’s internal controls provisions).

Moreover, as noted in the article, the “failure to prevent standard” is inconsistent with SEC guidance relevant to the internal-controls provisions.  (See also this prior post).  The SEC’s most extensive guidance on the internal controls provisions states, in pertinent part, as follows:

“The Act does not mandate any particular kind of internal controls system. The test is whether a system, taken as a whole, reasonably meets the statute’s specified objectives. ‘‘Reasonableness,’’ a familiar legal concept, depends on an evaluation of all the facts and circumstances.

Private sector decisions implementing these statutory objectives are business decisions. And, reasonable business decisions should be afforded deference. This means that the issuer need not always select the best or the most effective control measure. However, the one selected must be reasonable under all the circumstances.

Inherent in this concept [of reasonableness] is a toleration of deviations from the absolute. One measure of the reasonableness of a system relates to whether the expected benefits from improving it would be significantly greater than the anticipated costs of doing so. Thousands of dollars ordinarily should not be spent conserving hundreds. Further, not every procedure which may be individually cost-justifiable need be implemented; the Act allows a range of reasonable judgments.

The test of a company’s internal control system is not whether occasional failings can occur. Those will happen in the most ideally managed company. But, an adequate system of internal controls means that, when such breaches do arise, they will be isolated rather than systemic, and they will be subject to a reasonable likelihood of being uncovered in a timely manner and then remedied promptly.”

What is the source for the “failure to prevent” standard in ADM?  What is the methodology?

Ipse dixit.

In short, while attacking the defendants’ experts for their lack of defined methodology regarding internal controls issues, the SEC itself has long recognized that the FCPA’s internal controls lack a defined methodology.

As noted in this post, in a 2013 speech SEC Chair Mary Jo White reminded us why trials are important.  Among other things, White stated that “trials allow for more thoughtful and nuanced interpretations of the law in a way that settlements and summary judgments cannot.”

The SEC’s enforcement action against Jackson and Ruehlen represents an extremely rare instance in which the SEC is being forced to articulate its FCPA positions in the context of an adversary proceeding.

The SEC’s motions seeking to exclude defendants’ experts – while primarily based on ipse dixit – reminds us that a large portion of the SEC’s (and DOJ’s) FCPA enforcement program is nothing more than ipse dixit – and subjective say so.

Friday Roundup

Friday, April 4th, 2014

Contorted, interesting, deserving?, scrutiny alerts and updates, and for the reading stack.  It’s all here in the Friday Roundup.

Contorted

One of the most contorted words in the FCPA vocabulary is “declination” (see here among other posts).

This K&L Gates report contains a useful summary of DOJ and SEC comments at a recent conference.  It states:

“Mr. Knox [DOJ Criminal Division Fraud Section Chief] stated that companies continue to request specific information regarding the Department’s declinations, but that it is the Department’s long-standing practice not to publish details of declinations without a company’s permission, which is rarely given.  According to Mr. Knox, however, over the last two years, the Department has declined to prosecute dozens of cases.  Notably, Mr. Knox stated that, aside from finding no evidence of criminal conduct, the Department may issue a declination when a case involves an isolated incident, the company had a strong compliance program, and the problem was remediated.”

Newsflash.

If the DOJ does not find evidence of criminal conduct and therefore does not bring a case, this is not a “declination,” it is what the law commands.

On the topic of voluntary disclosure, the K&L Gates report states:

“Mr. Cain [SEC FCPA Unit Deputy Chief] started by stating “there is no perfect compliance program;” therefore, companies will always have some “background issues” which need to be addressed, especially as business and risk profiles change.  Mr. Cain does not expect companies to disclose these “normative” problems; however, companies should disclose “significant problems.”  These “significant problems” are the types of issues which may end up being enforcement actions if the SEC learns of them through means other than self-disclosure.”

“Mr. Knox took the position that it would be “very reckless and foolish” for him “to try and draw a line between matters which should be self-disclosed and matters which shouldn’t.”  In making the decision of whether to self-disclose, he advised companies and counsel to apply “common sense” and ask whether this is “something that [the Department] would be interested in hearing about?”  According to Mr. Knox, if the answer to that question is “yes,” then the Department would “probably want [a company] to self-disclose it.”  Nonetheless, there are instances which are not worthy of self-disclosure because the conduct is “minor” and “isolated” or the allegation of wrongdoing is “much too vague.”  Mr. Knox advised companies to “be thoughtful” when making disclosure decisions and carefully document any decision not to disclose.”

If the above leaves you scratching your head, join the club.

Interesting

My article “Why You Should Be Alarmed by the ADM FCPA Enforcement Action” highlights how ADM and its shareholders were victims of a corrupt Ukrainian government in that the government refused to give ADM something even the DOJ and SEC acknowledged ADM was owed – VAT refunds.  Among other things, the article discusses how VAT refund refusals were well-known and frequently criticized prior to the ADM enforcement action in late 2013.

Fast forward to the present day and VAT refund refusals remain a problem in Ukraine.  Recently the International Monetary Fund issued this release concerning a potential aid package for Ukraine.  Among the conditions is that Ukraine  adopt “reforms to strengthen governance, enhance transparency, and improve the business climate” such as taking “measures to facilitate VAT refunds to businesses.”

Deserving?

Earlier this week, the African Development Bank Group (AfDB) released this statement

“Kellogg Brown & Root LLC, Technip S.A. and JGC Corp. agree to pay the equivalent of US $17 million in financial penalties as part of Negotiated Resolution Agreements with the African Development Bank following admission of corrupt practices by affiliated companies in relation to the award of services contracts for liquefied natural gas production plants on Bonny Island, Nigeria, from 1995 until 2004.”

The Director of the AfDB’s Integrity and Anti-Corruption Department stated:

“This settlement demonstrates a strong commitment from the African Development Bank to ensure that development funds are used for their intended purpose.  At the same time, it is a clear signal to multinational companies that corrupt practices in Bank-financed projects will be aggressively investigated and severely sanctioned. These ground-breaking Negotiated Resolution Agreements substantially advance the Bank’s anti-corruption and governance agenda, a strategic priority of our institution.”

Pardon me for interrupting this feel good moment (i.e. a corporation paying money to a development bank), but why is AfDB deserving of any money from the companies?  As noted here, AfDB’s role in the Bonny Island project was relatively minor as numerous banks provided financing in connection with the project.  Moreover, as noted here, the AfDB “invested in the oil and gas sector through a USD 100 million loan to NLNG [Nigeria LNG Limited] to finance the expansion of a gas liquefaction plant located on Bonny Island.”

As alleged in the U.S. Bonny Island FCPA enforcement actions, the above-mentioned companies allegedly made corrupt payments to, among others, NLNG officials.  And for this, the specific companies paid $579 million (KBR, et al), $338 million Technip, and $219 million (JGC).

Why is the bank that loaned money to NLNG deserving of anything?  Is there any evidence to suggest that the $100 million given to NLNG was not used for its “intended purpose” of building the Bonny Island project?

Scrutiny Alerts and Updates

SBM Offshore, Sweett Group, Citigroup, Cisco, and Societe Generale.

SBM Offshore

The Netherlands-based company (with ADRs traded in the U.S. that provides floating production solutions to the offshore energy industry) has been under FCPA scrutiny for approximately two years.  It recently issued this statement which states, in summary, as follows.

“SBM Offshore presents the findings of its internal investigation, which it started in the first quarter of 2012, as the investigators have completed their investigative activities. The investigation, which was carried out by independent external counsel and forensic accountants, focused on the use of agents over the period 2007 through 2011. In summary, the main findings are:

  • The Company paid approximately US$200 million in commissions to agents during that period of which the majority relate to three countries: US$18.8 million to Equatorial Guinea, US$22.7 million to Angola and US$139.1 million to Brazil;
  • In respect of Angola and Equatorial Guinea there is some evidence that payments may have been made directly or indirectly to government officials;
  • In respect of Brazil there were certain red flags but the investigation did not find any credible evidence that the Company or the Company’s agent made improper payments to government officials (including state company employees). Rather, the agent provided substantial and legitimate services in a market which is by far the largest for the Company;
  • The Company voluntarily reported its internal investigation to the Dutch Openbaar Ministerie and the US Department of Justice in April 2012. It is presently discussing the disclosure of its definitive findings with the Openbaar Ministerie, whilst simultaneously continuing its engagement with the US Department of Justice. New information could surface in the context of the review by these authorities or otherwise which has not come up in the internal investigation to date;
  • At this time, the Company is still not in a position to estimate the ultimate consequences, financial or otherwise, if any, of that review;
  • Since its appointment in the course of 2012 the Company’s new Management Board has taken extensive remedial measures in respect of people, procedures, compliance programs and organization in order to prevent any potential violations of applicable anti-corruption laws and regulations. Both it and the Company’s Supervisory Board remain committed to the Company conducting its business activities in an honest, ethical, respectful and professional manner.”

The SBM Offshore release contains a detailed description of the scope and methodology of its review, as well as remedial measures the company has undertaken.  For this reason, the full release is an instructive read.

Sweett Group

As noted in this prior post, in June 2013 Sweett Group Ltd. (a U.K. based construction company) was the subject of a Wall Street Journal article titled “Inside U.S. Firm’s Bribery Probe.” The focus of the article concerned the construction of a hospital in Morocco and allegations that the company would get the contract if money was paid to “an official inside the United Arab Emirates President’s personal foundation, which was funding the project.”

Earlier this week, the company issued this release which stated:

“[T]here have been further discussions with the Serious Fraud Office (SFO) in the UK and initial discussions with the Department of Justice (DOJ) in the USA.  The Group is cooperating with both bodies and no proceedings have so far been issued by either of them.  The Group has commissioned a further independent investigation which is being undertaken on its behalf by Mayer Brown LLP.  Whilst this investigation is at an early stage and is ongoing, to date still no conclusive evidence to support the original allegation has been found.  However, evidence has come to light that suggests that material instances of deception may have been perpetrated by a former employee or employees of the Group during the period 2009 – 2011.  These findings are being investigated further.”

Citigroup

When first discussing Citigroup’s “FCPA scrutiny” I noted the importance of understanding that the FCPA contains generic books and records and internal controls provisions that can be implicated in the absence of any FCPA anti-bribery issues. (See here for a prior post on this subject).  As highlighted in this recent New York Times Dealbook article, this appears to be what Citigroup’s scrutiny involves.  According to the article:

“Federal authorities have opened a criminal investigation into a recent $400 million fraud involving Citigroup’s Mexican unit, according to people briefed on the matter …  The investigation, overseen by the FBI and prosecutors from the United States attorney’s office in Manhattan, is focusing in part on whether holes in the bank’s internal controls contributed to the fraud in Mexico. The question for investigators is whether Citigroup — as other banks have been accused of doing in the context of money laundering — ignored warning signs.”

Cisco

BuzzFeed goes in-depth as to Cisco’s alleged conduct in Russia that has resulted in FCPA scrutiny for the company. The article states, in pertinent part:

“[T]he iconic American firm is facing a federal investigation for possible bribery violations on a massive scale in Russia. At the heart of the probe by the Department of Justice and the Securities and Exchange Commission, sources tell BuzzFeed, are allegations that for years Cisco, after selling billions of dollars worth of routers, communications equipment, and networks to Russian companies and government entities, routed what may have amounted to tens of millions of dollars to offshore havens including Cyprus, Tortola, and Bermuda.”

“Two former Cisco insiders have described to BuzzFeed what they say was an elaborate kickback scheme that used intermediary companies and went on until 2011. And, they said, Cisco employees deliberately looked the other way.”

“No one is suggesting that Cisco bribed Russia’s top leaders. Instead, the investigation is centered on day-to-day kickbacks to officials who ran or helped run major state agencies or companies. Such kickbacks, according to the allegations, enabled the firm to dominate Russia’s market for IT infrastructure.”

“Last year, according to sources close to the investigation, a whistleblower came forward to the SEC, sketching out a vast otkat [kickback] scheme and providing documents as evidence.”

“The two former Cisco executives laid out for BuzzFeed how the alleged scheme worked:  In Cisco’s Russia operations, funds for kickbacks were built into the large discounts Cisco gave certain middleman distributors that were well-connected in Russia. The size of the discounts are head-turning, usually 35% to 40%, but sometimes as high as 68% percent off the list price.  And there was a catch: Instead of discounting equipment in the normal way, by lowering the price, parts of the discounts were often structured as rebates: Cisco sent money back to the middlemen after a sale. Some intermediaries were so close to the Russian companies and government agencies — Cisco’s end customers — that these intermediaries functioned as their agents. These middleman companies would direct the rebate money to be sent to bank accounts in offshore havens such as Cyprus, the British Virgin Islands, or Bermuda.”

According to the article, WilmerHale is conducting the internal investigation.

Societe Generale

Like other financial services company, Societe Generale has come under FCPA scrutiny for business dealings in Libya.  (See here for the prior post).  As noted in this recent article in the Wall Street Journal, in a U.K. lawsuit the Libyan Investment Authority has alleged that the company “paid a middleman $58 million in alleged bribes to secure almost $2 billion in business … during the final years of dictator Moammar Gadhafi’s rule.”

Reading Stack

The most recent issue of the always informative FCPA Update from Debevoise & Plimpton contains a useful analysis of the DOJ’s recent opinion procedure release (see here for the prior post).  Among other things, the Update states:

“[W]hy did it take eight months for the DOJ to issue an Opinion which could have simply cited [a prior Opinion Release]? The delay does not appear to be related to the DOJ’s heavy workload or bureaucratic inertia, as “significant backup documentation” was provided and “several follow up discussions” took place during the eight months.”

*****

A good weekend to all.  On Wisconsin!