Archive for the ‘Enforcement Agency Speeches’ Category

Issues To Consider From The Recent OECD Report

Thursday, December 4th, 2014

Earlier this week the OECD released a report titled “OECD Foreign Bribery Report – An Analysis of the Crime of Bribery of Foreign Public Officials.”

The Report “endeavours to measure, and to describe, transnational corruption based on data from the 427 foreign bribery cases that have been concluded since the entry into force of the OECD Anti-Bribery Convention in 1999″ by the 41 signatory countries to the OECD Convention. From this universe of cases, the Report then attempts to calculate several statistics.

Calculating statistics across 41 countries with different legal regimes, different ways of prosecuting cases, etc. is a monumental task.

It is also a task that yields statistics that are not very reliable or meaningful, particularly given certain of the methodologies and assumptions made in the Report.

For starters, the report itself notes as follows.  ”This report is peppered with unknown data, ranging from 2% to 36% depending on the particular data set.  Many of the concluded cases did not contain all the information needed to make a full analysis and were also not publicly available.”

Second, the report ”does not examine foreign bribery related offenses such as accounting.”  It is a bit unclear what this means, but if it means that FCPA books and records and internal controls cases only are not included in the dataset, then this is a significant limitation because actual charges in an FCPA enforcement action are often based – not solely on the conduct at issue – but other factors such as voluntary disclosure, cooperation, collateral effects, etc.  In short, several FCPA enforcement which could implicate the FCPA’s anti-bribery provisions do not as a technical matter.

Third, and as noted in footnote 11 of the report, “in the case of the United States, sanctions imposed by the Securities Exchange Commission (US SEC) and Department of Justice (US DOJ) are counted separately.”  Given that U.S. cases comprised approximately 1/4 of the total cases examined, this creative counting method is hugely significant.

Consider just 2013 FCPA enforcement in which there were 9 core corporate enforcement actions (ADM, Bilfinger, Weatheford, Diebold, Total, Ralph Lauren, Parker Drilling, Stryker and Phillips).  Yet if one counts DOJ and SEC actions separately, as did the OECD, notwithstanding the fact that most DOJ and SEC enforcement actions were based on the same core conduct, the number dramatically jumps to 15 corporate enforcement actions in 2013.  In other words and using just one year, one can clearly see how creative FCPA enforcement action counting methods dramatically changes the denominator for every statistic calculated.

One statistic that has generated much media attention from the OECD Report  (see here and here) is the finding that 53% of foreign bribery cases involved corporate management or CEOs.  However, the OECD Report - as noted in footnote 36 – defines “management” to mean senior level management, executives at the board level, directors and lower level management and states that “case data was insufficient to distinguish between these categories.”

To be sure in the FCPA context, certain enforcement actions have involved senior executive conduct and/or board conduct, but the vast majority of FCPA enforcement actions do not involve senior level management and a frequent allegation in such enforcement actions is that no one at the parent company resolving the enforcement action was aware of or participated in the alleged improper conduct.  To the extent there was a management level employee (and “title inflation” surely seems to be used in many FCPA enforcement actions) involved in the alleged improper conduct, the individual was employed by a legal entity (such as foreign subsidiary) separate from the entity actually resolving the enforcement action.

Because the OECD Report was “prepared with the aim of assisting the OECD Working Group on Bribery in International Business Transactions and the G20 Anti-Corruption Working Group in their efforts to combat transnational bribery,” it was imperative that the statistics in the Report be reliable and meaningful.

Based on the above information, you can decide for yourself whether this is the case.

Despite the statistical deficiencies of the OECD Report there are several “preliminary conclusions” in the report worthy of highlighting.

For instance, as to the long timeframes involved in foreign bribery cases, the report states “it is essential that law enforcement authorities undertake efficient and effective investigations to avoid unnecessary delays.”

As to settlements, the predominate vehicle by which foreign bribery cases are resolved, the report states that “settlement procedures should respect the principles of due process, transparency and consistency.”

As to compliance programs, the report states that there is “scope for greater incentivizing preventative anti-bribery compliance programs …”.

*****

DOJ Assistant Attorney General Leslie Caldwell delivered this speech in connection with the release of the OECD Report.

DOJ And SEC Officials Talk FCPA

Thursday, November 20th, 2014

Speaking8In what has become a mid-November tradition, DOJ and SEC officials yesterday gave speeches at a Foreign Corrupt Practices Act conference.

Topics discussed included the following:  individual prosecutions, voluntary disclosure and cooperation, compliance programs, asset recovery, foreign law enforcement cooperation.  (For factual information concerning DOJ and SEC individuals prosecutions see this prior post and as relevant to the issue of “success” – a topic touched upon in both speeches – you might want to read the article ”What Percentage of DOJ FCPA Losses is Acceptable?“)

In many respects, yesterday’s DOJ and SEC speeches were very similar to previous speeches delivered by enforcement agency officials in September and October (see here, herehere and here for prior posts).

This post excerpts this speech by Assistant Attorney General Leslie Caldwell and this speech by Andrew Ceresney, Direct of the SEC’s Enforcement Division.

DOJ

Caldwell began her remarks as follows.

“I want to focus my remarks on one of our most important enforcement priorities – our efforts to combat corruption around the world.

At the Criminal Division, we are stepping up our efforts in the battle against corruption, at home and abroad.  Through our Public Integrity Section, which prosecutes corruption cases involving U.S. federal, state, and local officials, we are attacking domestic corruption.

More relevant to this audience, we are also deeply committed to fighting corruption abroad.  Now, more than ever, we are bringing to justice individuals and corporations who use foreign bribery as a way to gain a business advantage.  In part, we are doing this using the tools and methods that have made our past enforcement efforts so successful – FCPA prosecutions and penalties.

But there have been some really big changes in the Justice Department’s FCPA work since I last worked there.  First, thanks to the expertise and knowledge we have acquired over the years, we are now able to investigate FCPA cases much more quickly.  We also are better equipped to prosecute individuals who are actually making corrupt payments, as well as intermediary entities hired to serve as conduits for bribes.

And now we also are prosecuting the bribe takers, using our money laundering and other laws.  And, importantly, we have begun stripping corrupt officials of the proceeds of their corruption involving both bribes and kleptocracy, using both criminal and civil authorities.

The Criminal Division’s FCPA enforcement program and our Kleptocracy Initiative are really two sides of the same anti-corruption coin.  We bring those who pay bribes to justice, no matter how rich and powerful they are.  But by itself, that is not enough.  We also attack corruption at its source – by prosecuting and seizing the assets of the corrupt officials who betray the trust of their people.

Another big change – one that has been building for years but now has really developed momentum – is that we increasingly find ourselves shoulder-to-shoulder with law enforcement and regulatory authorities in other countries.  Every day, more countries join in the battle against transnational bribery. And this includes not just our long-time partners, but countries in all corners of the globe.

Together with our foreign law enforcement and regulatory partners we are taking a truly global approach to rooting out international corruption.  And make no mistake, this international approach has dramatically advanced our efforts to uncover, punish and deter foreign corruption.

Increasingly, we and our counterparts share information about bribery schemes.   We report schemes to one another.  And, where appropriate, we discuss strategy and coordinate our use of investigative techniques, so that we can obtain the best possible results, especially in very high-impact cases.

These efforts are incredibly important. The World Bank estimates that more than $1 trillion is paid every year in bribes, which amounts to about 3 percent of the world economy.  That amount is stunningly wasteful.  No one benefits from corruption other than the corrupt officials.

But corruption is far more insidious and harmful than can be measured numerically.  We all know that when corruption takes hold, the fundamental notion of playing-by-the-rules gets pushed to the side, and individuals, businesses and governments instead begin to operate under a fundamentally unfair – and destabilizing – set of norms.  This undermines confidence in the markets and governments, and destroys the sense of fair play that is absolutely critical for the rule of law to prevail.

In emerging economies, corruption stifles economic development that would lift people out of poverty, improve infrastructure, and better people’s lives.  And the fruits of corruption can prop up autocratic and oppressive rulers even in wealthier countries.

Make no mistake, the effects of foreign corruption are not just felt overseas.  In today’s global economy, the negative effects of foreign corruption inevitably flow back to the United States.  For one, American companies are harmed by global corruption.  They are denied the ability to compete in a fair and transparent marketplace.  Instead of being rewarded for their efficiency, innovation, and honest business practices, U.S. companies suffer at the hands of corrupt governments and lose out to corrupt competitors.

International corruption also presents broader public safety concerns.  Indeed, criminal networks of all kinds, including narcotics traffickers, cyber criminals, terrorists, and human traffickers, often take advantage of countries whose commitment to the rule of law is weakened by corruption of its officials.  And, as we’ve seen in the more extreme cases, thoroughly corrupted regimes have created safe havens for criminals by giving them a secure base from which they can orchestrate their criminal activities.

You have no doubt heard my predecessors speak of the evils of corruption.  It is because of these evils that the fight against international bribery has been, and continues to be, a core priority of the Department of Justice.

Our commitment to the fight against foreign bribery is reflected in our robust enforcement record in this area, which includes charges against corporations and individuals alike from all over the world.  Since 2009, we have convicted more than 50 individuals in FCPA and FCPA-related cases, and resolved criminal cases against more than 50 companies with penalties and forfeiture of approximately $3 billion.  Twenty-five of the cases involving individuals have come since 2013 alone.  And those are just the cases that are now public.  These individuals run the gamut of actors involved in bribery schemes: corporate executives, middlemen, and corrupt officials.”

Caldwell next focused on asset recovery and international cooperation:

“As our enforcement actions demonstrate, we are focusing our attention on bribes of consequence – ones that fundamentally undermine confidence in the markets and governments.  And our record of success in these prosecutions has allowed us to show – rather than just tell – corporate executives that if they participate in a scheme to improperly influence a foreign official, they will personally risk the very real prospect of going to prison.

[...]

Stripping individuals of the proceeds of their conduct – and thus depriving them of the very profits that are driving the corrupt conduct in the first place – is one technique that we are using increasingly in our fight against foreign bribery.  And, we are not just pursuing these corrupt proceeds through criminal actions.

The FCPA Unit’s efforts to eradicate foreign corruption also are assisted by the work of our Kleptocracy Asset Recovery Initiative, through which prosecutors in the Criminal Division’s Asset Forfeiture and Money Laundering Section and Office of International Affairs are pursuing ill gotten riches from corrupt officials using our civil authority. [...] [W]e are ready, willing, and able to confiscate the riches of corrupt leaders who drain the resources of their countries for their own benefit.”

[O]ur efforts to hold bribe takers as well as bribe payors accountable for their criminal conduct are greatly aided by our foreign partners.  Transnational bribery is a global problem and an international solution truly is beginning to develop.  Every day, more countries reject the notion that bribery in international business is inevitable and acceptable.  Indeed, in just the last few years several countries have enacted new anti-corruption laws or enhanced existing laws.  Admittedly, the global trend against foreign corruption continues to face many challenges, but the tide has turned and I truly believe that it is now on our side.

This level of collaboration is the product of hard work and strategic coordination, which has allowed us to forge the international partnerships that are essential to fight global corruption.  For example, just a couple of weeks ago, about 200 judges, prosecutors, investigators, and regulators from more than 50 countries, multi-development banks, and international organizations around the world joined prosecutors, investigators, and regulators from the Criminal Division, SEC, and FBI in Washington, D.C., for a week long training course to exchange ideas and best practices on combating foreign corruption.

I had the opportunity to participate in this meeting and saw its value first-hand.  The meeting provided a critical opportunity for the people who fight global corruption in the trenches every day to meet face-to-face, discuss ongoing cases, identify new opportunities to collaborate, and improve intelligence sharing.

The results from this increased international collaboration speak for themselves.”

[...]

[T]hese coordinated global actions sent a powerful message – countries all over the world are now engaged in the fight against foreign bribery and together, we can and will hold to account individuals and companies who engage in corruption, regardless of where they operate or reside.

The increase in international collaboration is not only enhancing our own FCPA enforcement efforts but it is also resulting in anti-corruption enforcement actions by other countries.”

[...]

Continued international collaboration is absolutely critical if we are going to have a meaningful impact on corruption across the globe and we are committed to maintaining – and enhancing – our working relationships with our foreign partners.

By enhancing our coordination with our overseas counterparts, continually improving our already successful methods of investigating and prosecuting FCPA cases, and increasing our efforts to prosecute corrupt officials and recover their ill-gotten gains, we are now, more than ever, making a tangible difference in the fight against foreign bribery.”

Caldwell next shifted to voluntary disclosure and cooperation and stated:

“When I last worked at the department and even over the 10 years that I was in private practice, it seemed that many FCPA investigations were initiated by self-disclosures.  While we of course still welcome self-disclosure, today we are far from reliant on it.

[...]

And in a world of whistleblowers and international cooperation, I expect that will be the case more often than not going forward.  That said, we still encourage and reward self-disclosure and cooperation.

When you detect significant potential criminal conduct at your company, or a company that has retained you, I encourage you to disclose it to the Justice Department – and to do so in a timely manner.  As I am sure you all know, the department’s Principles of Federal Prosecution of Business Organizations provides that prosecutors should consider “the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents” in deciding how to proceed in a corporate investigation.

So, in addition to promptly disclosing the conduct to us, I also encourage you to conduct a thorough internal investigation and to share with us the facts you uncover in that investigation.  We do not expect you to boil the ocean in conducting your investigation but in order to receive full credit for cooperation, we do expect you to conduct a thorough, appropriately tailored investigation of the misconduct.

And we expect you to provide us useful facts in a timely manner.  And that includes, importantly, facts about the individuals responsible for the misconduct, no matter how high their rank may be.

[...]

The sooner you disclose the conduct to us, the more avenues we have to investigate culpable individuals.  And, the more open you are with us about the facts you learned about that conduct during your investigation, the more credit you will receive for cooperation.

But, if you delay notifying us about an executive’s conduct or attempt to whitewash the facts about an individual’s involvement, you risk receiving any credit for your “cooperation.”

This does not mean that we expect you to use law-enforcement style techniques to investigate your employees.  To the contrary, it simply means that when you do an internal investigation, and you choose to cooperate with us, you should understand that we will expect to hear not just what happened, but who did what, when, and where.

We also expect that a truly cooperating company will provide relevant documents in a timely fashion, even if those documents are located overseas.  We recognize that some countries’ laws pose real challenges to data access and transfer of information, but we also know that many do not.

The Criminal Division investigates and prosecutes a large volume of international cases and through these cases, we have developed an understanding of these laws.  We will not give full cooperation credit to companies that hide behind foreign data privacy laws instead of providing overseas documents when they can.  Foreign data privacy laws exist to protect individual privacy, not to shield companies that purport to be cooperating in criminal investigations.

Put simply, cooperation – and the quality and timeliness of that cooperation – matter.  This is a well-established principle that we have applied in criminal cases across the spectrum – from violent and organized crime cases to corporate fraud cases – for decades.

If a company works with us, it not only helps the Department, but it helps itself.

[...]

Fighting corruption is not a choice we have made. It is, increasingly, a global imperative.  Given the critical nature of this mission, we are bringing more resources to bear than ever before – and we will continue doing so.  We have achieved significant successes using our traditional FCPA enforcement tools.  We are building on those successes and continuing to evolve our enforcement efforts.  Especially with the power of so many countries now standing by our side, we are determined to use every lawful means available to hold the perpetrators of corruption to account.”

SEC

Ceresney began his remarks as follows.

“Pursuing such [FCPA] violations remains a critical part of our enforcement efforts, as international bribery has many nefarious impacts, including sapping investor confidence in the legitimacy of a company’s performance and undermining the accuracy of a company’s books and records. Our specialized FCPA unit as well as other parts of the Enforcement Division continue to do remarkable work in this space, bringing significant and impactful cases often in partnership with the DOJ and FBI. [...] Looking ahead, I anticipate another productive year of FCPA enforcement, as we have a robust pipeline of investigations across the globe. I thought I would spend my time this morning discussing some areas we will be focusing on in the coming year and beyond, and then, if we have time, I can take some questions.”

Under the heading “Focus on Individuals,” Ceresney stated:

“Let me start with cases against individuals. It is a hot topic of the day, in the face of some significant enforcement actions against entities alone, to ask the question of whether enforcement actions against entities are as impactful as actions against individuals, and whether actions against entities actually deter misconduct.

I always have said that actions against individuals have the largest deterrent impact. Individual accountability is a powerful deterrent because people pay attention and alter their conduct when they personally face potential punishment. And so in the FCPA arena as well as all other areas of our enforcement efforts, we are very focused on attempting to bring cases against individuals.

That is not to say that cases against companies are unimportant — in fact, I think FCPA enforcement is perhaps one of the best examples of how actions against entities can have a tremendous deterrent effect. Our actions against entities have had a tremendous impact in the last 10 years on FCPA compliance. Companies have increased their compliance spending and focus exponentially — the attendance at this conference is but one example of that. And these actions continue to provide significant deterrence and send important messages about areas that companies should be focused on. Every action we bring is scrutinized closely and dissected for information on areas of risk. That is a great dynamic and one we should continue to foster. But individual accountability is critical to FCPA enforcement — and imposing personal consequences on bad actors, including through bars and monetary sanctions, will continue to be a high priority for us.

Now it is important to recognize that FCPA cases against individuals can present some unique challenges for us and we simply are unable to bring cases against individuals in connection with a number of our cases. For example, in many cases we face significant investigative hurdles, including difficulties in gathering specific testimony and documents from overseas that will be admissible at trial. This is one area where we have been working closely with our counterparts in other jurisdictions, to access foreign witnesses, bank statements, and company records. These efforts have been more and more successful as we form strong partnerships with other countries to combat corruption.

When the conduct involves foreign nationals — as it often does — another challenge can be establishing personal jurisdiction over the bad actor. We have had some favorable decisions in this area, but it still remains a challenge in certain cases. Statute of limitations issues also complicate these cases.

Despite these various challenges, we continue to vigorously pursue cases against individuals.”

Under the heading “Importance of FCPA Compliance Programs,” Ceresney stated:

“This is a message that I think has started to get through in the past 5 years. Nothing situates a company better to avoid FCPA issues than a robust FCPA compliance program.

The best companies have adopted strong programs that include compliance personnel, extensive policies and procedures, training, vendor reviews, due diligence on third-party agents, expense controls, escalation of red flags, and internal audits to review compliance. You can look to our Resource Guide on the FCPA that we jointly published with the DOJ, to see what some of the hallmarks of an effective compliance program are. I won’t mention them all because you should be familiar with many that relate to policies, procedures and training. But, I’ll highlight just a few others. Companies should perform risk assessments that take into account a host of factors listed in the guide and then place controls in these risk areas. Companies should have disciplinary measures in place to deter violations and compliance programs should be periodically tested and reviewed to ensure they are keeping pace with the business. Such programs, properly implemented, will also help companies avoid other problems at foreign subsidiaries, like self-dealing, embezzlement and financial fraud.

As part of our settlements, we have on occasion required the retention of a monitor to assist in administering such compliance programs. For those companies that have developed robust programs during the investigation, we have required self-reporting and certifications. But the overwhelming message that one has to take away from our actions is how important such programs are for ensuring compliance.

Of course, it is critical for such programs to be real programs. When I was in private practice, I saw companies that had great paper programs but did not implement them effectively. When the business would push back, they would remove requirements and make exceptions. The best companies would put the compliance program ahead of business interests and allow decisions to be made to ensure compliance with the law, no matter the business consequences. It is that sort of attitude that is the measure of whether such programs will be successful.

As I said, we have seen many companies improving and properly implementing their compliance programs, as the message from our cases over the years has penetrated the legal and compliance community. But there is still more work to be done, particularly for small-to-medium sized companies trying to enter foreign markets to grow their businesses. As those businesses seek to expand and globalize, their compliance functions must keep pace.

[...]

The bottom line is that no responsible company should operate overseas without a comprehensive compliance program to guard against FCPA risk.

One other aspect of compliance programs is the benefit that companies will derive from having them if a problem should arise. I can tell you that the SEC staff will look well on companies that have robust programs and that the existence of such programs will pay dividends should an FCPA issue arise despite the existence of such programs.”

Under the heading “Cooperation,” Ceresney stated:

“Related to the issue of the existence of FCPA compliance programs, I wanted to focus for a moment on self-reporting and cooperation. The existence of FCPA compliance programs place the company in the best position to detect FCPA misconduct. But the question is what a company does once it learns of such misconduct. There has been a lot of discussion recently about the advisability of self-reporting FCPA misconduct to the SEC. Let me be clear about my views — I think any company that does the calculus will realize that self-reporting is always in the company’s best interest. Let me explain why.

Self-reporting from individuals and entities has long been an important part of our enforcement program. Self-reporting and cooperation allows us to detect and investigate misconduct more quickly than we otherwise could, as companies are often in a position to short circuit our investigations by quickly providing important factual information about misconduct resulting from their own internal investigations.

In addition to the benefits we get from cooperation, however, parties are positioned to also help themselves by aggressively policing their own conduct and reporting misconduct to us. We recognize that it is important to provide benefits for cooperation to incentivize companies to cooperate. And we have been focused on making sure that people understand there will be such benefits. We continue to find ways to enhance our cooperation program to encourage issuers, regulated entities, and individuals to promptly report suspected misconduct. The Division has a wide spectrum of tools to facilitate and reward meaningful cooperation, from reduced charges and penalties, to non-prosecution or deferred prosecution agreements in instances of outstanding cooperation.

Last year, for example, we announced our first-ever non-prosecution agreement in an FCPA matter with a company that promptly reported violations and provided real-time, extensive cooperation in our investigation.

More commonly, we have reflected the cooperation in reduced penalties. Companies that cooperate can receive smaller penalties than they otherwise would face, and in some cases of extraordinary cooperation, pay significantly less.

[...]

The bottom line is that the benefits from cooperation are significant and tangible. When I was a defense lawyer, I would explain to clients that by the time you become aware of the misconduct, there are only two things that you can do to improve your plight — remediate the misconduct and cooperate in the investigation. That obviously remains my view today. And I will add this — if we find the violations on our own, and the company chose not to self-report, the consequences will surely be worse and the opportunity to earn significant credit for cooperation may well be lost.

[...]

The SEC’s whistleblower program has changed the calculus for companies considering whether to disclose misconduct to us, knowing that a whistleblower is likely to come forward. Companies that choose not to self-report are thus taking a huge gamble because if we learn of the misconduct through other means, the result will be far worse.”

Under the heading “Items of Value,” Ceresney stated:

“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 for the purpose of obtaining or retaining business. Obviously, money or property is an item of value. Gifts to foreign officials also easily qualify as items of value.

But we also have successfully brought FCPA cases where other, less traditional, items of value have been given in order to obtain or retain business. For example, in three separate actions, Stryker, Eli Lilly and Schering-Plough, we brought bribery charges against pharmaceutical or medical technology companies that made contributions to charities that were headed by or affiliated with foreign government officials to induce them to direct business to the companies.

We also have charged companies for providing items of value to family members of foreign officials. In Tyson Foods, for example, we charged the company for providing no-show jobs to the spouses of foreign officials who were responsible for certifying the company’s products for export. More recently, in Weatherford, we charged the company for a variety of bribes to foreign officials and their families, including paying for the honeymoon of an official’s daughter and a religious trip by an official and his family that was improperly recorded as a donation.

As these examples make clear, bribes come in many shapes and sizes. So it is critical that we carefully scrutinize a wide range of unfair benefits to foreign officials when assessing compliance with the FCPA — whether it is cash, gifts, travel, entertainment, or employment of the family and friends of foreign officials. We should and will continue to pursue a broad interpretation of the FCPA that precludes bribery in all forms.”

In conclusion, Ceresney stated:

“[T]he Enforcement Division will continue to look for opportunities to enhance our impact with respect to FCPA enforcement. We have made significant progress over the last 10 years but there is still much more we can do. We will continue our efforts to level the playing field for companies doing business abroad and hold corrupt actors accountable when they fail to play by the rules.”

In The Words Of Loretta Lynch

Tuesday, November 11th, 2014

LynchRecently President Obama nominated Loretta Lynch (U.S. Attorney, Eastern District of New York) to be the next Attorney General.

This post highlights Lynch’s responses to various Foreign Corrupt Practices Act or FCPA related questions originally posed in this September/October 2013 Q&A with the Society of Corporate Compliance and Ethics’ magazine Compliance & Ethics Professional and posted on the DOJ’s website.

In the Q&A, Lynch speaks generally about corruption and compliance and specifically about Morgan Stanley’s so-called “declination” and the FCPA enforcement action against Ralph Lauren.  For additional information on Morgan Stanley’s so-called “declination” (see here and here) and for additional information on the Ralph Lauren enforcement action (see herehere and here).

Q: What did you learn about compliance programs, good and bad, in your [prior private] practice?

A: The most important thing I learned about compliance programs is also the most basic thing—the tone at the top truly sets the
parameters for whether one has an effective or ineffective compliance program. And by effective, I don’t mean a program in a company where there is never any wrongdoing, because that company does not exist. If there is one message I’d like to leave with corporate America, it is that the government actually does understand that things can and will go wrong, even where there is a strong compliance program. Every company develops issues. It’s how you deal with them that defines your corporate culture and informs me if you are serious about fixing the problem and preventing it from recurring going forward.

Q: One of the things that strikes me about your career in the U.S. Attorney’s Office is that fighting corruption has been an ongoing focus. And, it’s notable to point out that we’re not just talking about the Foreign Corrupt Practices Act (FCPA), but also corruption here in the U.S. Are there common threads that you see among government corruption cases everywhere?

A: Corruption, whether here in Brooklyn or on the other side of the globe, has real and far-reaching consequences. The common
thread is that someone in power loses their connection to the constituency they are supposed to serve, whether citizens or shareholders. When government officials engage in self-dealing, when they abdicate their responsibility, when they succumb to greed, the average citizen pays for it dearly and on many levels. Constituents everywhere end up spending more for services—infrastructure, healthcare, education—and sometimes have to go without these vital services, when government officials line their own pockets with public funds. Law-abiding companies here in the U.S. and abroad are placed at a competitive disadvantage when business is won or lost based on bribes, not the quality of a company’s products and services.

And because corruption involves, at its heart, the breaking of a trust relationship, its ramifications often go far beyond the financial. Corruption infects society as a whole, increasing the level of cynicism and distrust that constituents have about their elected officials and government processes. In this way, corruption also impacts those government officials who are truly trying to do the right thing. They get tarred with the same brush. We all deserve honest and effective representation, and my office is committed to investigating and prosecuting those who trade on the trust we place in them to enrich themselves, who let greed get in the way of helping the people that they represent.

Q: The Morgan Stanley FCPA case was a very high-profile declination by main Justice and your U.S. Attorney’s Office. They don’t come that often, and it’s very rare to see compliance efforts cited so widely as the reason why. Can you give a brief description of the case for those who are not familiar with it?

A: Absolutely. In April of 2012, my office and the Department of Justice’s (DOJ) fraud section prosecuted Garth Peterson, the former Managing Director in charge of the Morgan Stanley’s real estate group in Shanghai, China. Peterson had engaged in a conspiracy to sell an ownership interest in a Shanghai building owned by Morgan Stanley to a local government official who had provided assistance to Peterson in securing business for Morgan Stanley in China. During the conspiracy, Peterson repeatedly and falsely told Morgan Stanley that the corporation buying the ownership interest in the building was owned by the Shanghai government when, in fact, it was owned by Peterson and the local government official, among others. By lying and providing false information to Morgan Stanley, Peterson was circumventing the company’s internal controls, which were created and intended to prevent FCPA violations. Peterson was charged with one count of conspiring to circumvent Morgan Stanley’s internal controls, and after pleading guilty, he was ultimately was sentenced to a period of incarceration. We declined to take any action against Morgan Stanley in that case.

Q: Again, what’s notable is that it was the first major FCPA case I can recall in which there was a public declination, and just as importantly, the compliance program was cited so publicly as a major part of the reason why. In fact, it’s hard to remember many cases of any type in which the compliance program’s effectiveness was cited so publicly, which suggests to me that even people without FCPA risks should take note. What made this case so different?

A: You’re right. This was an unusual case. Morgan Stanley self-reported Peterson’s conduct, and cooperated fully and extensively
with the government’s investigation. But that’s not what made the case different. What set Morgan Stanley apart was that, after considering all the available facts and circumstances, the government concluded that Morgan Stanley was a company that had done all that it could. It had a compliance program specifically tailored to its business risks, with commitment to compliance from the very top of the company, that itself did not tolerate wrongdoing. The bank acted to fire Peterson before any of the facts became
public. We concluded that Peterson was the quintessential “rogue employee” who schemed to affirmatively sidestep compliance because he knew his behavior would  not be countenanced. Every company says its bad actors are “rogues,” and that they do not promote corruption, but at Morgan Stanley we could see it. There was a stark contrast between the bank’s corporate culture and Peterson’s actions.

This presented a fundamentally different situation from companies that say they don’t tolerate wrongdoing, yet push employees to meet goals and quotas overseas with little to no guidance on the risks and consequences. It was fundamentally different from companies who distance themselves from their agents and consultants overseas, and then argue that they have to “go along” to avoid being disadvantaged in overseas markets. And it was fundamentally different from companies that say “That’s not who we are,” yet have nothing on record that informs me otherwise.

What we saw was that Morgan Stanley conducted extensive due diligence with respect to the sale that Peterson orchestrated.
We saw that Peterson had circumvented a compliance program that was an active component of the company’s business—Peterson himself was trained on FCPA compliance seven times and reminded about FCPA compliance at least 35 times. Compliance
at Morgan Stanley was also proactive, with the bank routinely adjusting and updating its compliance program to address new
issues and problems as they arose. It was not simply a program that was put in place 10 years ago, set apart from the business, and
left unchanged over time, without regard to changes in the company’s business or the increasing complexity of transactions. When we looked at Morgan Stanley, we also saw a bank that invested resources, that had internal controls in place to ensure accountability, that regularly monitored transactions, and that randomly audited employees, transactions, and business units.

This case stands out because it also touched on a common complaint in the FCPA world, and that is the supposed lack of transparency regarding the government’s consideration of a company’s compliance efforts in making charging decisions. The lengthy description of Morgan Stanley’s compliance program in the Peterson charging document was a deliberate response to that criticism. The Peterson case was even cited for that purpose in the FCPA Resource Guide prepared by DOJ and the Securities and Exchange Commission (SEC) in November 2012.

Q: What should compliance professionals take away as key learning from that case?

A: There are actually two “takeaways” in this case. The first is that the government will aggressively pursue those who engage in criminal conduct involving corporate corruption. The second is that companies that employ robust and effective compliance programs are not only better able to detect and identify potential compliance issues that may negatively affect the company’s business and reputation, but also those unusual instances where an employee is intent on circumventing a company’s internal controls. An added benefit for a company that employs a robust compliance program is that the company will be in a better position to address concerns raised by regulators or the government, if the company’s conduct ever comes under scrutiny. Morgan Stanley was able to demonstrate that Peterson truly was a “rogue,” that he had betrayed them, and he had rejected their culture of compliance.

Q: More recently we had the declination in the Ralph Lauren case. In that case, Ralph Lauren discovered questionable payments by a third party working on their behalf in Argentina. You were the US attorney on that case as well. What were some of the factors that led to the decision not to prosecute?

A: Actually we did not decline prosecution in that case. Rather, we entered into a non-prosecution agreement with Ralph Lauren. The agreement is for a two-year term and requires the implementation of various corporate reforms. Ralph Lauren also paid an $882,000 penalty to the DOJ and disgorged $700,000 in ill-gotten gains and interest to the SEC. There were several reasons for that outcome. Ralph Lauren discovered criminal conduct involving violations of the FCPA while it was in the midst of trying to improve its internal controls and compliance worldwide. Our investigation revealed that, over the course of five years, the manager of Ralph Lauren’s subsidiary in Argentina had made roughly $580,000 in corrupt payments to customs officials for unwarranted benefits, like obtaining entry for its products into the country without the necessary paperwork or without any inspection at all. The bribes were funneled through a customs broker who, at the manager’s direction, created fictitious invoices that were paid by Ralph Lauren in order to cover up the scheme.

Several factors compelled our decision to enter into a non-prosecution agreement with Ralph Lauren. First, there was the detection
of the wrongdoing by the corporation itself, as part of an effort to improve global compliance standards. Following the discovery of the corruption, the company also undertook an exceedingly thorough internal investigation of the misconduct and cooperated fully with our investigation. They made foreign witnesses available for government interviews; they provided real-time translation
of foreign documents.

It was also very significant that Ralph Lauren implemented a host of extensive, remedial measures, including the termination of employees engaged in the wrongdoing, and improvements in internal controls and compliance programs. Finally, we took into account that they swiftly and voluntarily disclosed the conduct to the government and the SEC. The company first self-reported the misconduct to the government within two weeks of discovering it. They basically did everything that a company that finds itself in that unfortunate situation can possibly do.

Q: This was the first time the SEC publicly stated it would not proceed. What got their attention and led to the decision?

A: I cannot speak for the SEC, but we do typically have parallel investigations of FCPA violations, and I believe that they were swayed by the same factors that we were. Although Ralph Lauren did not have an anti-corruption program and did not provide any anticorruption training or oversight during the five-year span of the conspiracy, all of the government agencies investigating the case were impressed with their resulting commitment to compliance in this area globally, as well as their self-disclosure and full cooperation.

Q: Finally, are we seeing the start of a new era in which compliance programs are going to be looked at more closely by prosecutors? And, just as importantly, will good programs earn organizations public credit for their efforts?

A: Absolutely. Compliance is the lens through which we view your company. A robust compliance program demonstrates to us that the company “gets it.” Making your compliance program a top priority is an investment a company can’t afford not to make. To put it more bluntly, by the time you have a problem that has drawn the government’s attention, under our principles and guidelines that govern corporate prosecutions, the existence of a robust compliance program can save you, as in the Morgan Stanley case.

The Use Of Overblown And Inherently Inconsitent Rhetoric In Connection With FCPA Enforcement Continues

Monday, October 27th, 2014

This post is not about whether the Foreign Corrupt Practices Act is a fundamentally sound statute.  It is, even though the FCPA and FCPA enforcement policies and procedures could be improved.

This post is not about whether FCPA enforcement by the DOJ and SEC – when facts legitimately satisfy FCPA elements – is in the public interest.  It is, for a variety of reasons.

Rather this post is about overblown and inherently inconsistent government rhetoric in connection with FCPA enforcement.

As highlighted in this post, there is seemingly little connection between the bulk of FCPA enforcement actions and U.S. national security.  Indeed, as further highlighted in this post, U.S. national security is, as a matter of law and seemingly as a matter of practice, a reason not to enforce the FCPA.

Last week, Assistant Attorney General Leslie Caldwell delivered this speech.

The general topic was “about the enforcement of our nation’s federal criminal laws in the 21st Century, and how the Justice Department constantly is adapting its approach to new challenges presented by the global economy and expansion of crime beyond national borders.”

As to the FCPA, Caldwell stated:

“The Foreign Corrupt Practices Act, or FCPA, is a law that prohibits the paying of bribes to foreign government officials to assist in obtaining or retaining business.

You may be asking yourself why the U.S. Justice Department is involved in the fight against corruption abroad.  In fact, there are people who claim that taking aim at foreign bribery puts U.S. companies at a competitive disadvantage in countries where bribery is just business as usual.

The threats posed to the United States by international corruption, however, cannot be overlooked.  Foremost, corrupt countries are less safe.  Corruption thwarts economic development, traps entire populations in poverty, and leaves countries without a credible justice system.  Corrupt officials who put their personal enrichment before the benefit of their citizenry create unstable countries.  And as we have seen time and again, unstable countries become the breeding grounds and safe havens for terrorist groups and other criminals who threaten the security of the United States.

International corruption also inhibits the ability of American companies to compete overseas on a level playing field.  Once bribery and corruption take hold, fair and competitive business practices are eliminated.  Nobody but the corrupt official benefits from bribery.

For all of these reasons, fighting foreign corruption is not a service we provide to the global community, but rather a necessary enforcement action to protect our own national security interests and the ability of our U.S. companies to compete on a global scale.

And, it is not just the United States that is recognizing the importance of foreign bribery laws.  There is an ever growing chorus of countries voicing support for the fight against this type of corruption.  More and more countries are joining international bodies that provide uniform standards for the criminalization of bribery of foreign public officials in international business transactions.  This type of collaboration is critical if we are going to have a meaningful impact on international corruption.”

The notion that FCPA enforcement is “necessary” to “protect our own national security” causes me to once again ask the question: do high-ranking DOJ officials actually read the allegations in most FCPA enforcement actions?  (See here for the prior post).

Recent DOJ FCPA enforcement actions have included the following.

  • Against HP related entities concerning conduct that occurred 7-14 years in which alleged improper payments were made in selling telecommunications, computer equipment, and other technology products in Russia, Poland and Mexico.
  • Against an Alcoa entity concerning conduct that occurred  15-20 years in which alleged improper payments were made in connection with an aluminium smelter project in Bahrain.
  • Against ADM concerning alleged improper payments made in Ukraine in connection with value added tax (VAT) refunds, notwithstanding the fact that the company was legitimately owed the VAT refunds.

Moreover, in the past several years approximately 15 corporate FCPA enforcement actions have concerned business relationships with foreign physicians, lab personnel and yes even a mid-wife.

Moreover, during this new era of enforcement, a substantial percentage of FCPA enforcement actions concern alleged conduct in connection with obtaining foreign licenses, permits, certifications and the like.

Moreover, most of the large FCPA enforcement actions in the past several years have concerned alleged improper relationships between foreign companies and foreign officials in which the alleged conduct seemingly has little actual connection to the U.S.

Moreover, many FCPA enforcement actions have involved, to name just a few, allegations about a bottle of wine (see here), a Cartier watch (see here), a camera (see here), kitchen appliances and business suits (see here), television sets, laptops and appliances (see here), and tea sets and office furniture (see here).

I invite anyone to submit a guest post articulating a credible and direct link between the above enforcement activity and U.S. national security.

The implicit suggestion of course from Caldwell’s speech is that if one is critical of certain FCPA enforcement efforts, one is somehow against U.S. national security.

I reject that.

Indeed, U.S. national security is, as a matter of law and seemingly as a matter of practice, a reason not to enforce the FCPA.

The FCPA itself states:

“(3)(A) With respect to matters concerning the national security of the United States, no duty or liability under [the FCPA] shall be imposed upon any person acting in cooperation with the head of any Federal department or agency responsible for such  matters if such act in cooperation with such head of a department or agency was done upon the specific, written directive of the head of such department or agency pursuant to Presidential authority to issue such directives. Each directive issued under this paragraph  shall set forth the specific facts and circumstances with respect to which the provisions of  this paragraph are to be invoked. Each such directive shall, unless renewed in writing,  expire one year after the date of issuance.

(B) Each head of a Federal department or agency of the United States who issues such a directive pursuant to this paragraph shall maintain a complete file of all such directives and shall, on October 1 of each year, transmit a summary of matters covered by such directives in force at any time during the previous year to the Permanent Select Committee on Intelligence of the House of Representatives and the Select Committee on Intelligence of the Senate.”

That the above provision specifically invoke the FCPA’s books and records and internal controls provisions, but not the FCPA’s anti-bribery provisions, would seem to be a scrivener’s error.

Moreover, U.S. national security also seems to be a reason not to enforce the FCPA as a matter of practice.

Consider the BAE enforcement action.  Despite the DOJ alleging conduct that clearly implicated the FCPA’s anti-bribery provisions, BAE (a large U.S. defense contractor) was not charged with violating the FCPA.  (To learn more about the BAE enforcement action, see “The Facade of FCPA Enforcement” pgs. 993-996).

Consider also the mysterious conclusion to the James Giffen enforcement action.  In 2003, James Giffen was criminally charged with “making more than $78 million in unlawful payments to two senior officials of the Republic of Kazakhstan in connection with six separate oil transactions, in which the American oil companies Mobil Oil, Amoco, Texaco and Phillips Petroleum acquired valuable oil and gas rights in Kazakhstan.” However, Giffen’s defense was that his actions were made with the knowledge and support of the CIA, the National Security Council, the Department of State and the White House. The DOJ did not dispute that Giffen had frequent contacts with senior U.S. intelligence officials or that he used his ties within the Kazakh government to assist the United States. With the court’s approval, Giffen sought discovery from the government to support his public authority defense and much of the delay in the case was due to the government’s resistance to such discovery and who was entitled to see such discovery.  In 2010, the enforcement action took a sudden and mysterious turn when Giffen agreed to plead guilty to a one-paragraph superseding indictment charging a misdemeanor tax violation.  The enforcement action ended with the presiding judge imposing no jail time on Giffen and stating that he was a Cold War hero and that the enforcement action should have never been brought in the first place. Giffen presumably prevailed over the DOJ not because of the facts or the law, but because he possessed significant leverage over the government in that he asserted his actions were taken with the knowledge and support of the highest levels of our  government. 

Consider also the fact that there has been no FCPA enforcement actions concerning contracts at the Manas airbase in Kyrgyzstan (which the U.S. used to route personnel and equipment headed for Afghanistan).  (To learn about the Manas contracts see here for a U.S. House hearing devoted to the subject and here, here and here for additional information).

In short, the DOJ’s recent “national security” rhetoric concerning FCPA enforcement was overblown and inherently inconsistent.

*****

Ms. Caldwell of course did not invent overblown or inherently inconsistent rhetoric to describe FCPA enforcement.  Rather such rhetoric is a carry-over from former DOJ officials.   To learn more, read this article.

Friday Roundup

Friday, October 10th, 2014

A tribute, resource alert, bureaucratic brazennessscrutiny alerts and updates, a bushel, quotable, and for the reading stack. It’s all here in the Friday roundup.

James McGrath

I join Tom Fox (FCPA Compliance and Ethics Blog) in paying tribute to James McGrath.  Owner of his own Ohio-based firm McGrath & Grace and founder and editor of his own Internal Investigations Blog, McGrath was a bear of a man as Fox wrote.  Yet a gentle and kind bear and I will remember Jim for his desire to learn and engage with students.  He was an occasional contributor to FCPA Professor (see here) and his candid wit resulted in this classic post.  I last communicated with Jim a few weeks ago and he was excited to share some new things in his life and I was happy and excited for him.  Moreover, Jim paid me a visit in Southern Illinois this past spring which is no small feat as one has to make a big of effort to get here.  I enjoyed our visit and discussion.

You will be missed Jim, rest in peace.

Resource Alert

The University of Houston Law Center announced:

“[Release of] a searchable database that contains the compliance codes for Fortune 500 companies.  The project was led by Houston attorney Ryan McConnell, an adjunct professor at the University of Houston Law Center. McConnell worked with a team of recent graduates and current students to develop the database, which covers 42 different topics. “The free database allows any company to conduct benchmarking on virtually every compliance area covered in a code of conduct and to spot compliance trends within their industry,” McConnell explained. “In addition to proactively building a program, when compliance failures occur, whether a foreign bribery violation or environmental issue, stakeholders – whether they are shareholders in a lawsuit or criminal investigators – frequently scrutinize the company’s compliance program.  This database provides a powerful tool for anyone to evaluate the strength of a company’s compliance program, including subject matters addressed in the code and the organization’s core values.”

Bureaucratic Brazenness

This recent Wall Street Journal column “The New Bureaucratic Brazenness” caught my eye.

“We’re all used to a certain amount of doublespeak and bureaucratese in government hearings. That’s as old as forever. But in the past year of listening to testimony from government officials, there is something different about the boredom and indifference with which government testifiers skirt, dodge and withhold the truth. They don’t seem furtive or defensive; they are not in the least afraid. They speak always with a certain carefulness—they are lawyered up—but they have no evident fear of looking evasive. They really don’t care what you think of them. They’re running the show and if you don’t like it, too bad.

[...]

Everything sounds like propaganda. That will happen when government becomes too huge, too present and all-encompassing. Everything almost every level of government says now has the terrible, insincere, lying sound of The Official Line, which no one on the inside, or outside, believes.

[...]

We are locked in some loop where the public figure knows what he must pronounce to achieve his agenda, and the public knows what he must pronounce to achieve his agenda, and we all accept what is being said while at the same time everyone sees right through it. The public figure literally says, “Prepare my talking points,” and the public says, “He’s just reading talking points.” It leaves everyone feeling compromised. Public officials gripe they can’t break through the cynicism. They cause the cynicism.”

I sort of feel this way when I hear DOJ and SEC FCPA enforcement attorneys speak.  Do you?

For instance, last year I attended an event very early in tenure of a high-ranking SEC enforcement official.  This person – who came to the SEC from private practice – candidly stated something to the effect that given his very new position he did not yet know what he was supposed to say.

Scrutiny Alerts and Updates

Sanofi

As recently reported in this Wall Street Journal article:

“Sanofi said it has told U.S. authorities about allegations of improper payments to health-care professionals in the Mideast and East Africa, joining a lineup of pharmaceutical companies that have faced similar claims. Among the allegations are that Sanofi employees made improper payments to doctors in Kenya and other East African nations, handing out perks based on whether the doctors prescribed or planned to prescribe Sanofi drugs, according to the firm and e-mails from a tipster The Wall Street Journal viewed. The French pharmaceutical company said it hired New York law firm Weil Gotshal & Manges LLP to look into the claims and the investigation is continuing. “At this stage, it is too early to draw conclusions,” a company spokesman said. “Sanofi takes these allegations seriously.”

[...]

“The Sanofi investigation began after the firm received a series of anonymous allegations that wrongdoing occurred between 2007 and 2012 in parts of the Middle East and East Africa, the company said. One allegation was that employees of subsidiary Sanofi Kenya bribed medical professionals, a claim made via emails sent to Sanofi senior management last October and in March and viewed by the Journal. Sanofi paid for influential medical professionals to attend conferences, many of which were abroad, and gave them cash and gifts at its own events to win business, the emails allege. Copies of letters the tipster said were sent to Sanofi Kenya by medical professionals, as well as what the emails describe as other Sanofi documents, which were also reviewed by the Journal, indicate that doctors would request money from Sanofi Kenya to attend conferences and events and that Sanofi employees would take into account the applicant’s value to Sanofi’s business before deciding whether to sponsor them or not.”

As highlighted in this August 2013 post, Sanofi’s conduct in China has also been under scrutiny.

GSK

As recently reported in this Reuters article:

“GlaxoSmithKline, which was slapped with a record $489 million fine for corruption in China last month, said on Tuesday it was looking into allegations of corruption in the United Arab Emirates. Britain’s biggest pharmaceuticals group confirmed the investigation following allegations of improper payments set out in a whistleblower’s email sent to its top management on Monday. The email, purporting to be from a GSK sales manager in the Gulf state, was seen by Reuters. The company is already investigating alleged bribery in a number of Middle East countries, including Lebanon, Jordan, Syria and Iraq, as well as Poland. ”As we have already said, we are undertaking an investigation into our operations in the Middle East following complaints made previously. This investigation continues and these specific claims were already being investigated as part of this process,” a GSK spokesman said.”

DynCorp

The Washington Times reports here

“State Department investigators uncovered evidence that agents working for one of the largest U.S. military contractors paid tens of thousands of dollars in bribes to Pakistani officials to obtain visas and weapons licenses, but records show the government closed the case without punishing DynCorp.

[...]

But investigators closed the case after deciding they couldn’t prove or disprove the company had the “requisite corrupt” intent required to prove a violation of the Foreign Corrupt Practices Act (FCPA), which bars U.S. companies from bribing foreign officials.

“There was no evidence to support the allegations that DynCorp or its employees had specific knowledge of bribes paid Pakistani government officials,” an investigator wrote in a memo closing out the case last year.

Still, investigators concluded there were violations of the FCPA involving both Speed-Flo and Inter-Risk, both of which are based in Islamabad.”

AgustaWestland / Finmeccanica Related

As noted in this Wall Street Journal article:

“An Italian court found Giuseppe Orsi, the former chief executive of defense firm Finmeccanica, not guilty of international corruption, absolving him of the most serious charge he faced in connection with a 560-million-euro contract won in 2010 to supply the Indian government with 12 helicopters. The three judge panel found Mr. Orsi, 68, guilty of falsifying invoices and sentenced him for that crime to two years in prison, a penalty that was immediately suspended. “A nightmare is over for me and my family,” a visibly relieved Mr. Orsi told reporters after the judge had read the verdict. Italian prosecutors had argued that Mr. Orsi, who at the time of the alleged corruption was CEO of Finmeccanica unit AgustaWestland, directed a plan to pay tens of millions of dollars to Indian officials, including the former top officer in the Indian air force, to win the helicopter-supply competition. Mr. Orsi rose to become CEO of Finmeccanica in 2011 and resigned last year when the corruption charges surfaced. The court also absolved Bruno Spagnolini, who followed Mr. Orsi as CEO of AgustaWestland, of corruption while finding him guilty of falsifying invoices. In reading the verdict, the judge said that while prosecutors had proven that fake invoices had been issued, there was no corruption. Prosecutors had argued there was a direct connection between the false invoices and the payment of kickbacks.”

A Bushel

Matthew Fishbein (Debevoise & Plimpton) was awarded an FCPA Professor Apple Award for this this recent article titled “Why Aren’t Individuals Prosecuted for Conduct Companies Admit.”  Fishbein continues with his spot-on observations in this recent Corporate Crime Reporter Q&A.  For additional reading on the same topics see:

The Facade of FCPA Enforcement“ (2010)

My 2010 Senate FCPA testimony (“The lack of individual prosecutions in the most high-profile egregious instances of corporate bribery causes one to legitimately wonder whether the conduct was engaged in by ghosts. [...]  However, a reason no individuals have been charged in [most FCPA] enforcement actions may have more to do with the quality of the corporate enforcement action than any other factor. As previously described, given the prevalence of NPAs and DPAs in the FCPA context and the ease in which DOJ offers these alternative resolution vehicles to companies subject to an FCPA inquiry, companies agree to enter into such resolution vehicles regardless of the DOJ’s legal theories or the existence of valid and legitimate defenses. It is simply easier, more cost efficient, and more certain for a company … to agree to a NPA or DPA than it is to be criminally indicted and mount a valid legal defense – even if the DOJ’s theory of prosecution is questionable …”.

But Nobody Was Charged” (2011)

“DOJ Prosecution of Individuals – Are Other Factors At Play?” (2011) (2013) (2014)

Why You Should Be Alarmed by the ADM Enforcement Action” (2014).

Quotable

In this recent speech, SEC Chair Mary Jo White stated:

“In fiscal year 2013, we brought more than 675 enforcement actions and obtained orders for $3.4 billion in total penalties and disgorgement.  We will soon be announcing the results for our 2014 fiscal year, which ended yesterday.  It was another very productive year as those numbers will show. But numbers only tell part of the story. The quality and breadth of actions are really the more meaningful measure of an effective enforcement program. (emphasis added).”

As to international cooperation, White stated:

“International cooperation is essential to the SEC’s enforcement program, and indeed, to all of our enforcement programs.  In today’s global marketplace, fraudulent schemes and other misconduct commonly have cross-border elements, and the need for seamless cooperation among us has never been greater.

The SEC’s investigations and enforcement actions often involve witnesses and evidence in different countries around the world.  And I know that the same is true in your investigations and enforcement cases.

Faced with this simple reality, if we are to continue to conduct these investigations successfully, and prosecute the offenses and wrongdoers to the fullest extent of our laws, broad and effective use of the MMoU, and our bilateral agreements, is more important than ever.

No one knows that better than the SEC.  Virtually every week, I meet with my fellow Commissioners to decide which cases to bring.  Rarely is there a week when one or more of the cases recommended by the enforcement staff does not involve critical international assistance.  In fact, in the last fiscal year, the SEC made more than 900 requests for international assistance and, as a result, we were able to obtain critical evidence that helped us prosecute wrongdoers for a vast array of serious offenses.

In one recent FCPA case, for example, the SEC obtained valuable evidence — bank and other corporate records — from German prosecutors. [HP] And, we received great support from regulators in Australia, Guernsey, Liechtenstein, Norway, Canada, Switzerland, and the United Kingdom in another major FCPA action. [Alcoa].”

From the Houston Chronicle, a Q&A with former Deputy Attorney General – and current FCPA practitioner – George Terwilliger.

Q: How will enforcement of the Foreign Corrupt Practices Act (FCPA) hinder U.S. energy companies from doing business abroad?

A: Notwithstanding all the good things that are happening with energy upstream production in the United States, the real growth opportunities remain overseas. And a lot of them are in places that are ethically challenged at best in terms of their business and legal cultures. Two things cause problems for companies subject to U.S. law.

One, ambiguities are in the law itself. What is a foreign official? What organizations are covered as entities of foreign governments that are state-owned enterprises three times removed?

Then there’s the uncertainty of the parameters of enforcement policy. Why is this case prosecuted and that one isn’t? Why does this case settle for this much money and that one for that much money? There’s not a lot of transparency, and it’s not apparent to the people who work at this all the time exactly where those parameters are.

Q: Why is that a problem?

A: A company subject to U.S. law that is looking at an opportunity overseas looks at what the profitability model is and then they look at the risk inherent in doing business in that environment. The least little thing that comes up in that process — there’s a piece of real estate they want us to use as a staging area that’s owned by the brother-in-law of the cousin of the oil minister — and they look at it and go, “You know what? We’re not going to do that. It’s not worth the risk.”

Q: Are companies passing up business opportunities because of those risks?

A: Yes, that happens. Companies forgo economic opportunities because the uncertainties are perceived to be too great given the potential return on the investment. The objective of the law is to have a corruption-free level playing field. Most American business people I think believe that given a level playing field they can compete very well, particularly with foreign competitors. The problem is when that playing field is knocked out of kilter by the influence of corruption. Perhaps companies from other countries don’t operate under these constraints, then the playing field isn’t level anymore.

Q: What can mitigate those risks and balance the playing field for U.S. companies abroad?

A: For some time I have advocated some kind of corporate amnesty for companies that investigate themselves, fix their problems and disclose them to the government. If companies become aware of corrupt activity, I think given an incentive to report that they would do it. And that will help the government and help the objectives of this program rather than playing a kind of gotcha game.

Q: Are there any incentives now for companies to disclose potential violations?

A: The Securities Exchange Commission and the Justice Department have articulated policies that whatever the penalty should be for some wrongdoing, it will be less if you self-report, cooperate with an investigation and so forth. I don’t think that’s widely believed in the U.S. corporate community. And it’s almost impossible to measure. I have represented companies where we have made voluntary disclosures that have not been prosecuted. And the government has said the reason they are not prosecuting is because of internal investigation and cooperation. So I’m not saying it doesn’t happen. At the end of the day, companies wrestle with the question of, “Is it really worth it?” All the heartache that’s going to flow from a voluntary disclosure, particularly on something that may be marginal as a violation, is it worth what that’s going to cost? In terms of damage to reputation, shareholder issues, management issues with the board and so forth, is that going to be worth it in terms of what a company might get in terms of some forbearance of penalty?

Reading Stack

“It’s as if the FCPA Super Bowl just ended in a tie.”  (See here from Bracewell & Giuliani attorneys Glen Kopp and Kedar Bhatia regarding the Supreme Court recently declining to hear the “foreign official” challenge in U.S. v. Esquenazi).   

A legitimate concern or a bluff?  (See here from The Globe and Mail – “The head of Canadian engineering giant SNC-Lavalin Group Inc. says any move by authorities to charge the company in connection with an extensive bribery scandal would immediately threaten its future and could force it to close down.”).

An interesting video on Bloomberg’s “Market Matters” regarding the DOJ’s approach to prosecuting alleged corporate crime. The FCPA is not specifically discussed, although the issues discussed are FCPA relevant.

From the Economist “The Kings of the Courtroom:  How Prosecutors Came to Dominate the Criminal-Justice System.” (“The prosecutor has more control over life, liberty and reputation than any other person in America,” said Robert Jackson, the attorney-general, in 1940. As the current attorney-general, Eric Holder, prepares to stand down, American prosecutors are more powerful than ever before. Several legal changes have empowered them. The first is the explosion of plea bargaining, where a suspect agrees to plead guilty to a lesser charge if the more serious charges against him are dropped. Plea bargains were unobtainable in the early years of American justice. But today more than 95% of cases end in such deals and thus are never brought to trial.”).

*****

A good weekend to all.