Archive for the ‘Enforcement Agency Speeches’ Category

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!

Friday Roundup

Friday, March 21st, 2014

A happy holiday to all, scholars program, scrutiny alerts and updates, departing speech, spot-on and inexcusable.  It’s all here in the Friday roundup.

Happy Holiday

Readers often encourage me to “share” more about myself and background.  I have obliged in part, by going off-topic once a year to share my Ironman triathlon results.

I will oblige once again, particularly since it is March Madness.

Happy Mike Koehler Day!

That’s right, on this day 21 years ago (gosh that is hard to believe) my hometown of Elkhart Lake, Wisconsin retired my #21 basketball jersey and proclaimed it “Mike Koehler Day.”  No facilitating payments were necessary.  I ended my high school basketball career, and still remain, the third leading scorer in the history of Wisconsin high school basketball (#1 leading scorer in the history of the state that did not play for their dad)!  A poorly timed illness ended my high school career without that “one shining moment” I dreamed of, and while I was  academic all-conference at the University of South Dakota, my college basketball career was uneventful.

So there you have it, you now know something more about me.

Back to the task at hand.

Scholars Program

Kudos to Trace International for launching a new scholars program.  The Trace Scholars Program is aimed at developing exceptional leaders in the field of anti-corruption who are committed to advancing commercial transparency. The TRACE Scholar Program will fully fund, with tuition, lodging and travel, two international LLM students from developing countries to pursue studies related to strategies and tools for increasing transparency and reducing corruption. TRACE Scholars will spend an academic year at one of two universities (the University of Washington School of Law or the University of Maryland Francis King Carey School of Law) followed by a paid summer internship at TRACE headquarters in Annapolis, Maryland.

Scrutiny Alerts and Updates

Och-Ziff Capital Management Group, SL Industries, SciClone Pharmaceuticals, TeliSonera and a clarification regarding Beny Steinmetz.

Och-Ziff Capital Management Group

Och-Ziff Capital Management Group stated in its recent annual report as follows:

“Beginning in 2011, and from time to time thereafter, we have received subpoenas from the SEC and requests for information from the U.S. Department of Justice (the “DOJ”) in connection with an investigation involving the FCPA and related laws.  The investigation concerns an investment by a foreign sovereign wealth fund in some of our funds in 2007 and investments by some of our funds, both directly and indirectly, in a number of companies in Africa.  At this time, we are unable to determine how the investigation will be resolved and what impact, if any, it will have.  An adverse outcome could have a material effect on our business, financial condition or results of operations.”

A day after the company’s annual report, the company’s stock closed down approximately 3.5% and you can rest assured plaintiffs firms will soon be announcing “investigations” and/or filing civil suits.  For more see here from Bloomberg.

SL Industries

As noted in this Wall Street Journal Risk & Compliance Journal post has disclosed:

“During 2012, the Company conducted an investigation to determine whether certain employees of SL Xianghe Power Electronics Corporation, SL Shanghai Power Electronics Corporation and SL Shanghai International Trading Corporation, three of the Company’s indirect wholly-owned subsidiaries incorporated and operating exclusively in China, may have improperly provided gifts and entertainment to government officials (the “China Investigation”). The Company had retained outside counsel and forensic accountants to assist in the China Investigation. Based upon the China Investigation, the estimated amounts of such gifts and entertainment were not material to the Company’s financial statements. Such estimates did not take into account the costs to the Company of the China Investigation itself, or any other additional costs.

The China Investigation included determining whether there were any violations of laws, including the U.S. Foreign Corrupt Practices Act (“FCPA”). The Company’s outside counsel contacted the DOJ and the Securities and Exchange Commission (the “SEC”) voluntarily to disclose that the Company was conducting an internal investigation, and agreed to cooperate fully. Additionally, the Company hired outside consultants to provide assistance in implementing a mandatory FCPA compliance program for all of its employees which is now completed by such employees annually. Also, during the first and second quarters of 2013 the Company engaged outside consultants to perform FCPA compliance tests at its operations in China and Mexico, which, going forward, will be performed by the Company annually. On September 26, 2013, the DOJ notified the Company that it had closed its inquiry into this matter without filing criminal charges. The Company has not received an update from the SEC regarding the status of its inquiry. The Company cannot predict at this time whether any action may be taken by the SEC.”

SciClone Pharmaceuticals

SciClone Pharmaceuticals has been under FCPA scrutiny since August 2010 (see here for the prior post).  In its most recent annual report, the company disclosed:

“For the year ended December 31, 2013, we determined that a payment of $2.0 million to the government in penalties, fines and/or other remedies is probable. Accordingly, we have recorded $2.0 million of operating expense in our 2013 results of operations to reflect our estimate of a probable loss incurred related to potential penalties, fines and/or other remedies in the ongoing investigations with the SEC and DOJ.”

Once again highlighting that any actual enforcement action fines and penalties are just the tip of the iceberg in terms of a company’s overall financial exposure due to FCPA scrutiny, SciClone also disclosed:

“Additional increases in general and administrative expenses for the year ended December 31, 2013, included higher professional expenses of approximately $5.3 million related to legal matters associated with the ongoing government investigation and our ongoing improvements to our FCPA compliance efforts …”.

TeliaSonera

Various media have reported (see here from the Wall Street Journal for instance) that the DOJ and SEC have opened investigations of Swedish telecommunications company TeliaSonera.  According to the reports:

“[The DOJ and SEC] have requested documents relating to the acquisition of an Uzbekistan wireless data license and spectrum frequencies in 2007. The deals were done with a Gibraltar-based holding company with alleged ties to Uzbekistan’s authoritarian regime.  The U.S. DOJ and the SEC join several authorities investigating the transactions. The scrutiny was sparked after a Swedish television program in 2012 alleged TeliaSonera may have been involved in corruption when it bought its Uzbeki telecom license.”

Steinmetz

Regarding Beny Steinmetz, the founder of BSG Resources, the 100 Reporters story that identified him as a “target” of a DOJ investigation has been amended as follows.

“After this story was published, the source informed 100Reporters that the source had mischaracterized the letter in question as a “target letter.” Later conversations and further reporting suggested that the letter had instead indicated that Steinmetz was a subject and not a target of the investigation.”

Departing Speech

As highlighted in this February post concerning the announced departure of Mythili Raman as Acting Assistant Attorney, Raman carried forward much of the same rhetoric former Assistant Attorney General Lanny Breuer frequently articulated concerning the DOJ’s FCPA enforcement program.  (See here for my article “Lanny Breuer and Foreign Corrupt Practices Act Enforcement).

Like other DOJ FCPA officials before her, Raman frequently highlighted certain enforcement statistics, yet conveniently ignored the most telling enforcement statistic of all – the DOJ’s dismal record when actually put to its burden of proof in FCPA enforcement actions.  In short, for a long time the DOJ’s FCPA Unit has had a distorted view of success.

During his last day as head of the Criminal Division, Raman delivered this speech before an FCPA audience and the critique remains the same.  Among other things, Raman stated:

“[The DOJ's] successful foreign bribery prosecutions speaks for itself …”

“These efforts and these successes are the product of the skill, hard work and determination of the talented prosecutors in our Fraud Section’s FCPA Unit, working in tandem with federal prosecutors across the country at many of the 94 U.S. Attorney’s Offices.”

“We have been successful in our efforts to prosecute individuals in part because we are using all of the law enforcement techniques that are at our disposal.”

Spot-On

I’ve written a number of times that trade barriers and distortions are often the root causes of bribery and a reduction in bribery will not be achieved without a reduction in trade barriers and distortions.  Few in the anti-bribery space seem to grasp this basic issue, perhaps because it is just easier to pound the pavement for more enforcement or blame everything on those evil corporations.

However, Evelyn Suarez (Williams Mullen) gets it.  In this recent piece about the pending Trade Facilitation Agreement (“FTA”), she writes:

“There can be no trade facilitation when border officials solicit bribes and grant favorable treatment to those who pay such bribes.  The demand side of corruption has generally been overlooked, and the implementation of TFA  provides an excellent and even funded opportunity to address the problem.  Thus, measures to ensure public integrity must be adopted along with the trade facilitation measures specified in TFA.”

Spot-on.

Inexcusable

Did you know that NCR Corp. has “paid FCPA penalties in 2014″?

Did you know that Avon has “paid FCPA penalties in 2014?”

Did you know that in 2013 the “U.S. government handed down .. just five FCPA enforcement actions”?

Of course you did not know this, because every one of the above statements are false.

Yet every one of the above statements is included in just one paragraph in this recent Inside Counsel article.

Simply inexcusable, and once again not the media’s finest FCPA moment.  (See herehere and here for prior posts).

*****

A good weekend to all – and good luck with your brackets.

FCPA Readings

Wednesday, March 12th, 2014

If your idea of a good time is cuddling up with an entire law journal volume devoted to the Foreign Corrupt Practices Act, then this post is for you.

Even if that is not your idea of a good time, if you are the least bit interested in the FCPA and its evolution, then you owe it to yourself to get your hands on the Fall 1982 edition of the Syracuse Journal of International Law and Commerce, a symposium volume titled “The Foreign Corrupt Practices Act:  Domestic and International Implications.”

This post previously highlighted the speech by Richard Shine (Chief, Multinational Fraud Branch, Criminal Division, U.S. Department of Justice – the name given to the DOJ’s then de facto FCPA Unit) in the volume.

This recent post highlighted the speech by Frederick Wade (Chief Counsel, SEC Enforcement Division) in the volume.

The remainder of this post highlights notable aspects of other articles found in the Fall 1982 edition of the Syracuse Journal of International Law and Commerce.

In “An Overview of the FCPA,” Wallace Timmeny (the former Deputy Director, SEC Division of Enforcement and at the time a lawyer in private practice) rightly identified the foreign policy concerns which motivated Congress to pass the FCPA:

“Concerns were expressed that our government was faced with foreign policy determinations and decisions made by American corporations.  In other words, some of our corporations were affecting foreign policy and there was also the overriding concern that the whole idea of foreign payments or corruption in business was really putting an arrow in the bow of the countries that oppose our system.”

For more on this primary motivation of Congress in enacting the FCPA, and how the FCPA was thus not a purely altruistic act, see my article “The Story of the Foreign Corrupt Practices Act.”

In “An Examination of the Accounting Provisions of the FCPA,” Lloyd Feller (the former Associate Director of the SEC’s Division of Market Regulation and at the time a lawyer in private practice) nicely touched upon the FCPA’s books and records and internal controls provisions and how they created much controversy at the time.

“Let me try to put into context the controversy surrounding the accounting provisions.  First, it is important to understand that the accounting provisions are part of the Securities Exchange Act of 1934, and apply to all issuers which register securities with the SEC.  The provisions apply to all such issuers, whether or not they do business overseas.  The Act, as it is applied through the accounting provisions, has absolutely nothing to do with foreign corrupt practices; it has to do with accounting, including the maintenance of books and records, and the establishment and maintenance of a system of internal accounting controls.”

“I think it is important to start with the understanding of how the Act was presented to the corporate community at the time it was passed, because the context in which the words were used and the purpose for which the accounting provisions were intended create the great controversy.  It is important to understand that people who never heard of the bribery of foreign officials woke up one day and found that an Act had just been passed which applied to them in very significant ways.  This was an Act which they had never heard of, had never thought involved them, had never paid any attention to, and had never understood.  They listened to the lawyers and accountants explain it to them and still did not understand.”

In “The SEC Interpretative and Enforcement Program Under the FCPA,” John Sweeny (former Assistant General Counsel of the SEC and at the time a lawyer in private practice) rightly noted:

“The SEC did not actively support the bribery provisions of the Foreign Corrupt Practices Act.  Indeed, it’s not entirely clear that they have any interest in prohibiting bribery per se.”

Sweeny also nicely touched upon a prosecutorial common law issue that remains today.

“The corporate community cannot sit back and wait to see how the law develops.  Because it makes sound business sense to comply with federal regulatory authorities without a public clamor, corporations must confirm their activity in ways which the agency requires.  To do otherwise would mean that the corporations would be risking substantial litigation expenses and adverse publicity.”

In ”International Aspects of the Control of Illicit Payments,” Professor Seymour Rubin assessed the then current state of the FCPA.

“The course of events in this particular area has been long, but it has not yielded much in the way of result.  Whether the FCPA has yielded a great deal in the way of results, I leave to all of you who have considered the matter.  Certainly it has yielded much in the way of instruction to people in various corporations.  I am somewhat impressed by the amount of paper which has been produced on this subject.  It reminds me again of the old saying to the effect that when the weight of the paper equals the weight of the airplane, the airplane will fly.”

Professor Rubin also rightly identified bribery and corruption as a trade issue and particularly how Senate Resolution 265 sponsored by Senator Ribicoff during the FCPA’s legislative debate was the most promising way to deal with the bribery and corruption problem.  For more on Senate Resolution 265, see the Story of the Foreign Corrupt Practices Act (pgs. 982-984).

“[Senator Ribicoff's proposal - Senate Resolution 265] was more realistic than some of the other proposals.  In particular, Senator Ribicoff argued that bribes, as well as similar practices, represent distortions of proper trade practices.  Under this premise, the members of the General Agreement on Tariffs and Trade would be the appropriate group to consider the question of illicit payments and bribes that distort the fair competition desirable in the field of international trade.  In other words, just as dumping and subsidization distort normal competition, so too does the practice of making illicit payments.  This premise served as the basis upon which the issue was to be presented at the GATT conference.  But when a special trade representative presented Senator Ribicoff’s proposal before the GATT conference, he was greeted with polite silence.  The GATT, in 1979, concluded a multilateral trade negotiation.  Among other things, this multilateral trade negotiation dealt with trade-distorting practices such as nontariff barriers, the question of government procurement, dumping codes, and the anti-subsidy or subsidies and countervailing duties.  It would seem that the multilateral trade negotiation would have been a legitimate arena in which to discuss the subject, as being one more example of a trade distortion which ought to be regulated.”

“I think if one were to rexamine the idea presented in Senate Resolution 265 and adopt this in the area of trade, one would be addressing the problem of illicit payments in more meaningful and significant terms.  When a large contract is lost by an American corporation because somebody else paid a bribe, a trade distortion results.  Clearly, if one were really serious about achieving a meaningful agreement in the area of international control of illicit payments, the peg on which to hang it would be trade policy and not morality.”

In “The Foreign Corrupt Practices Act:  Implications for the Private Practitioner,” Robert Primoff (a lawyer in private practice) called the FCPA a “prosecutor’s paradise” and observed:

“The target is always guilty of the violation.  The government has the option of deciding whether or not to prosecute.  For practitioners, however, the situation is intolerable.  We must be able to advise our clients as to whether their conduct violates the law, not whether this year’s crop of administrators is likely to enforce a particular alleged violation.  That would produce, in effect, a government of men and women rather than a government of law.”

If the Fall 1982 edition of the Syracuse Journal of International Law and Commerce does not completely fill your FCPA belly, you might also want to check out Volume 18, Number 2 of the Northwestern Journal of International Business (Winter 1998).

It is a symposium edition titled “A Review of the Foreign Corrupt Practices Act on Its Twentieth Anniversary:  Its Application, Defense and International Aftermath.“  The articles are rather pedestrian, but Stanley Sporkin’s (the former Director of the SEC’s Enforcement Division during Congress’s consideration and deliberation of the FCPA) article “The Worldwide Banning of Schmiergeld:  A Look at the Foreign Corrupt Practices Act On Its Twenieth Birthday” is worth a read as he provides a first-person account of the origins of the FCPA. [In case you are wondering Schmiergeld is the German word for bribe].

See here for a prior post detailing articles in a 2012 symposium edition of the Ohio State Law Journal “The FCPA At Thirty-Five and Its Impact on Global Business.”

The FCPA And The “Failure To Communicate”

Tuesday, March 11th, 2014

The year was 1982 and the Foreign Corrupt Practices Act was a mere 5 years old.  Leading FCPA experts, such as Frederick Wade (Chief Counsel, SEC Enforcement Division) gathered for a symposium at Syracuse University College of Law (See Volume 9, Number 2, Syracuse Journal of International Law and Commerce).

In a speech titled ”An Examination of the Provisions and Standards of the FCPA,” Wade lamented the “quality of the public debate” surrounding passage of the FCPA and then-current FCPA issues.  He observed:

“[A]t the time the FCPA was being considered in the Congress, and hearings were being held, there was a great reluctance on the part of interested companies and persons to come forward and make their views known.  Although this reluctance may be understandable, given the subject matter, there was virtually no opposition to the bill.  Few, if any, concerns were expressed in a public form as to how the FCPA might affect overseas operations or how the statute might be interpreted and applied.”

[...]

“[T]here is still great difficulty in getting the corporate sector to come forward and express concerns in a public forum in a way that the Congress can get a handle on them and try to deal with them in a rational way.”

[...]

[I]t is difficult to get a handle on the impact that the statute has had, because most of the experience people have had is related to the government or to the Congress in the form of anonymous anecdotes.  People say we have had this type of experience, or this kind of problem, but you have to take our word for it, accept our general description of the circumstances, and agree not to identify the source of the information.”

[...]

“From my perspective, the critics of the FCPA and those in government charged with administering the Act have been talking past each other for four years.  I am not sure why this is true.  I am sure that there has been a failure to communicate and that we have not advanced the ball to a great degree in terms of coming to grips with the issues.  This failure to communicate has profound implications with respect to the ability of the policymaking process to evaluate the issues and make needed changes to the law.”

Wade’s observations remain true 32 years later.

There remains a great reluctance on the part of interested companies and persons to come forward and make their FCPA views known.

If only I could publish the many comments I receive, including from current enforcement agency attorneys, critical of various aspects of FCPA enforcement.

If only leading FCPA practitioners would allow their names to be used in the observations they share with me.  For instance, a leading FCPA practitioner recently shared with me the following:

“I think the reality is that the FCPA Bar is, for obvious reasons, very eager to ingratiate itself with, the FCPA Unit in DC. The predictable result is that firms put out flattering articles and updates about the skill and fairness of the enforcers. This hardly results in meaningful discourse, scholarship, or conversation; that said, those who know the most and deal with the FCPA unit the most are also least likely to say in public what they will be happy to share in private over a beer.”

Given the largely opaque nature in which the FCPA is generally “enforced” behind closed doors in Washington, D.C., anecdotes, legend and lore often carry the day.

Persons interested in the FCPA continue to talk past each other.

To be critical of various aspects of FCPA enforcement may give one a label of being anti-FCPA (see here).  FCPA enforcement statistics are all-over-the-map (see here).  So-called civil society groups and organizations clamor for more enforcement while at the same time: (i) exhibiting a clear lack of knowledge regarding various issues relevant to the FCPA or FCPA enforcement; and (ii) articulating policy positions that not even the pro-enforcement enforcement agencies agree with (see here and here).  Major media outlets now have for-profit risk and compliance divisions and thus are hardly objective reporters of FCPA information.

Wade’s observation 32 years ago remains true today:

“This failure to communicate has profound implications with respect to the ability of the policymaking process to evaluate the issues and make needed changes to the law.”

SEC Official – “FCPA Law .. Is Not Well Developed”

Thursday, December 5th, 2013

“FCPA law …  is not well developed.”

It’s an obvious statement that is known and understood by many.

Yet what makes the statement noteworthy is that it was recently made by Andrew Ceresney (Co-Director of the SEC’s Division of Enforcement).

It is thus arguably the most notable - and candid – statement by an FCPA enforcement official in recent years.

This prior post highlighted the recent comments of Deputy Attorney General James Cole before an FCPA audience.  This post contains excerpts of Ceresney’s speech at the same event and also provides certain commentary.

*****

As to the FCPA being a “fundamental part of the SEC’s mission,” Ceresney stated:

“[T]he SEC’s work in the FCPA arena over the last 35 years has been a fundamental part of the SEC’s mission. And the last 10 years have seen an even bigger increase in FCPA enforcement actions. As most of you know, three years ago, we formed a specialized Unit within the Division of Enforcement devoted to investigating potential FCPA violations. Our FCPA Unit has approximately three dozen dedicated attorneys and other professionals nationwide, including two industry experts who are forensic accountants with extensive private sector FCPA experience. Their work in marshaling expertise and developing cases has been remarkable — they and the other specialized units we created have fulfilled the promise of creating true centers of excellence within the Division that serve as resources to everyone within the Division. I always like to say that the purpose of specialized units was to expand the pie of cases in the Division, rather than just eating from the existing pie, and the FCPA unit has certainly done that.”

As to the FCPA not being a fundamental part of the SEC’s mission, see here.  As Philip Urofosky (former DOJ Assistant Chief of the Fraud Section) stated in this article, “the SEC should get out of the anti-bribery business.”  Indeed, I would call this “granting the wish” because, as noted in my article “The Story of the Foreign Corrupt Practices Act,” the SEC never wanted any part in enforcing the FCPA’s anti-bribery provisions.

As to the global fight against corruption, Ceresney stated:

“The last 10 years also have yielded a sea change in attitudes towards foreign bribery. The groundbreaking cases that we have brought have sent an unmistakable message that most companies have heard loud and clear — obey the FCPA, and ensure that your employees are sensitive to FCPA issues, or face stiff penalties and other consequences.  But despite the hard work of the SEC and our sister agencies, far too many companies and individuals still believe that paying a bribe is the best way to win business. And there are still countries where bribes are viewed as a necessary evil. In fact, when I was in private practice, I often was told by business people that bribery was simply a fact of life in certain countries; it was simply accepted as a given. So there is still work to be done to fight corruption globally and there are still messages to be sent.”

As to how the SEC has contributed to a ”culture of compliance,” Ceresney stated:

“The extent of the impact that we have had on the culture of FCPA compliance over the last 10 years cannot be overstated. I did a fair amount of FCPA work at Debevoise. Ten years ago, when I first went into private practice, the FCPA was an area in which few lawyers specialized; it certainly was not viewed as a practice area that could employ numerous lawyers. Companies did not have many compliance officers focused on the area; training of employees was minimal; the FCPA was rarely discussed during contract negotiations or focused on with agents or vendors; audits were not focused on FCPA compliance; and due diligence in connection with transactions rarely focused on FCPA issues. There was simply little recognition that such conduct needed attention.  Fast forward 10 years and there has been a sea change in focus on these issues. Most companies now have some form of an FCPA compliance program, often with professionals who spend a good chunk of their jobs focused on the FCPA. FCPA training is now a common requirement among multinational companies. Much time is now spent on ensuring that contracts have appropriate provisions on FCPA compliance. FCPA diligence is often done on agents and vendors in advance of retention, and many companies have sophisticated systems for assessing risk to determine the level of diligence that will be done. Issues relating to gifts and other events involving government officials are often escalated. I also have noticed a growing trend of companies hiring separate firms to do compliance due diligence in connection with transactions — a development that signals the importance placed on the FCPA, and the need for specialized counsel to focus on these issues.”

Would it not be sensible to more adequately reward these good faith commitments to FCPA compliance and allow good corporate citizens a better return on their compliance investments?  Yes it would, see here for my article “Revisiting an FCPA Compliance Defense.”

As to the difference between FCPA legal authority and non-legal sources of  FCPA information, Ceresney stated:

“[L]awyers now heavily scrutinize our FCPA actions to glean any information about our interpretation of the law. Each aspect of our actions is closely scrutinized to extract kernels of guidance and hopefully helps companies identify problems and comply in the future.”

[...]

In addition, this intense interest from companies and defense counsel about our FCPA efforts created a growing need to provide clear, meaningful guidance on how the government interprets and applies the FCPA — a need that culminated in the DOJ/SEC FCPA Resource Guide issued last year. As someone who was in the private sector at the time it was issued, I can attest firsthand that the Guide did a great job of providing a concrete sense of the government’s views. And building off of that success, it is important that we continue to find ways to educate and inform the industry about the limits of permissible conduct — whether it be through more guidance or through enforcement actions — because strong compliance programs that incorporate a company’s internal audit and financial controls at the outset enable companies to catch problems early and remediate quickly.”

[...]

“FCPA law … is not well developed.  Companies typically enter settlements in FCPA cases, leading to a paucity of case law.”

As to “international trends,” Ceresney stated:

“Another important trend in the last 10 years has been the immense growth in focus and legislation on corruption issues around the globe, and the tremendous increase in cooperation that we have received from other governments. Although the SEC and DOJ are at the forefront of this global fight against corruption, we cannot do it alone. There are capable and committed law enforcement partners worldwide, and their numbers are steadily growing. Over the past five years, we have experienced a transformation in our ability to get meaningful and timely assistance from our international partners. And through our collaborative efforts, the world is becoming a smaller place for corrupt actors.

[...]

As other countries begin to step up their efforts to combat corruption, it makes our job easier. Countries with strong anti-corruption laws are often great partners to us in combatting corruption. Scrutiny from the local government, in addition to us, will often be a strong deterrent to bribery. More and more, our investigations are conducted in parallel with a foreign government.

Obviously, evidence in many FCPA cases resides in foreign countries and in many instances, it is only with the assistance of local authorities that we are able to obtain evidence necessary for us to prove FCPA violations. We are having greater success working with the international community to receive documents and other types of foreign assistance.

[...]

[E]arlier this year, the SEC, in conjunction with the DOJ and FBI, hosted the first-ever Foreign Bribery and Corruption Training Conference for international law enforcement, which included representatives from over 50 law enforcement and regulatory agencies from 30 different countries. The Conference strengthened relationships among regulators and informed international officials about the latest developments in investigative techniques and multilateral requests for assistance. The more we can foster this sort of international cooperation, the more we can be successful in prosecuting FCPA cases.

I am encouraged by such close collaboration and fully expect the pace and extent of our cooperation with foreign agencies to grow over the coming years. Indeed, only recently, I have been involved in a case in which we are receiving cooperation from a country that has never before provided any meaningful assistance. This sort of progress gives me confidence that the future is even brighter.”

As to the “focus on individuals,” Ceresney stated:

“Another area of focus, and recent progress, has been our efforts to bring FCPA cases against individuals. To better root out corruption, we have ramped up our pursuit not just of companies, but of the individuals responsible for the corporate malfeasance.

A core principle of any strong enforcement program is to pursue culpable individuals wherever possible. After all, companies can only act through their people. Cases against individuals have great deterrent value, as they drive home to individuals the real consequences to them personally that their acts can have. In every case against a company, we ask ourselves whether an action against an individual is appropriate.

FCPA cases against individuals pose unique challenges. For example, we sometimes are unable to reach defendants who are in foreign jurisdictions, and the remedies we can obtain against such individuals are often quite limited, particularly when we cannot enforce judgments in those jurisdictions. Also, even when we can reach defendants, we often have difficulties obtaining foreign evidence and gaining access to overseas witnesses, particularly under circumstances that would allow us to use their testimony at trial. The length of time it takes to investigate these cases, particularly given the frequent need to collect foreign evidence, sometimes presents a statute of limitations issue. These are challenging cases, particularly in proving the culpability of individuals we can reach.

But we are overcoming these challenges through a variety of steps, including expanding the availability and use of Memoranda of Understanding with international financial regulators to obtain bank records, other documents, and testimony; using border watches and other methods of obtaining information from foreign nationals; subpoenaing U.S.-based affiliates of foreign companies; and more aggressively seeking videotaped depositions that we can use at trial if we cannot secure live testimony.

We have been successful in recent years in increasing the number of FCPA actions against individuals. Many of you are familiar with our pending litigation against various executives of Magyar Telekom, Siemens, and Noble. Litigation is ongoing against individuals in all three matters, and these cases have sent an unambiguous message that we will vigorously pursue cases to hold individual accountable for FCPA violations — including executives at the highest rungs of the corporate ladder. In fact, this April, we obtained the second highest penalty ever assessed against an individual in an FCPA case, when one of the Siemens executives agreed to pay $275,000.

[...]

And so despite the investigative headwinds that we often face in FCPA matters, we intend to be more creative and aggressive in pursuing such actions against companies and individuals. I expect that in the coming months, we will be filing more actions against individuals in FCPA cases.”

Fact.

Between 2008 to 2012, 79% of corporate SEC FCPA enforcement actions have not (at least yet) resulted in any SEC charges against company employees.  Thus far in 2013 there have been 7 corporate SEC FCPA enforcement actions and none have resulted (at least yet) in any SEC charges against company employees.

As to Ceresney’s statement that “FCPA cases against individuals pose unique challenges,” this is true.  Individuals are more likely than issuers to put the SEC to its burden of proof in FCPA enforcement actions and this recent post highlighted the SEC’s track record in such instances.

As to the “importance of cooperation,” Ceresney stated:

“[W]e have been very successful in the FCPA arena in fostering self-reporting and cooperation by companies with our investigations. Institutions and individuals are uniquely positioned to help us and help themselves by aggressively policing their own conduct.

Since launching our Cooperation Program in 2010, the Commission has made it clear that it will reward companies or individuals who cooperate, despite the fact that a violation has occurred. But receiving credit requires timely self-reporting, candor, thoroughness, prompt remediation and a serious commitment to act lawfully in the future.

Some lawyers sometimes ask me what is the incentive to notify us promptly about wrongdoing that you uncover? The answer is simple — if we find the violations on our own, the consequences will surely be worse than if you had self-reported the conduct. Companies must keep in mind that the risk of not coming forward grows by the day as our whistleblower program continues to pick up steam. We are increasingly sourcing our own cases through whistleblower tips — which have come from individuals in nearly 70 different countries — and just last month, we made our largest-ever whistleblower award: over $14 million. Given the high-dollar value of FCPA monetary relief—often in the tens or hundreds of millions of dollars—we expect FCPA violations to become an increasingly fertile ground for Dodd-Frank whistleblowing. In fact, during the last fiscal year we received 149 whistleblower tips related to the FCPA. All of which reinforces the value of reporting misconduct directly to the SEC in the first instance, and then demonstrating extraordinary levels of cooperation thereafter.

We have a wide range of tools available to us to facilitate and reward meaningful cooperation — from reduced charges and penalties, to taking no action at all. We have tried through our actions to be clear about the benefits that companies obtain through cooperation. Two recent examples highlight the importance of and benefits from cooperation.

In April, we entered into a Non-Prosecution Agreement with Ralph Lauren Corporation arising out of FCPA violations — our first-ever NPA in an FCPA case under our Cooperation Program. In that case, Ralph Lauren’s Argentine subsidiary bribed officials to secure the importation of its products in Argentina. Ultimately, we decided an NPA was appropriate due to Ralph Lauren’s prompt reporting of violations on its own initiative; voluntary and expeditious production and translation of documents and production of witnesses; thorough and real-time cooperation with the investigation; and significant remedial measures.

But our cooperation program is not limited to corporations. Just last week, we entered into our first-ever deferred prosecution agreement with an individual. We decided a DPA was appropriate in the matter because the individual contacted government authorities about the misconduct, which involved a hedge fund manager misappropriating investor assets, and provided immediate and complete cooperation with the SEC during our investigation. As a result of the individual’s assistance, we were able to file an emergency action and freeze over $6 million in assets.

As these examples make clear, the benefits of responding appropriately to violations and cooperating fully with the SEC can be substantial. And it is incumbent on us to clearly, and loudly, communicate these rewards because cooperation helps us as well. It enhances our ability to detect misconduct and increases the efficiency and effectiveness of our investigations.

Ultimately, it is important to keep in mind that greater cooperation benefits all market participants. Faster detection helps us minimize investor harm in the short run, while the implementation of preventive measures from cooperation agreements improves the transparency and fluidity of our markets in the long run.”

In conclusion, Ceresney stated:

“[L]et me assure you that we will remain the vigilant cop on the beat when it comes to the FCPA. I am confident that we will remain aggressive and proactive in enforcing the FCPA. And through strong enforcement, we will continue to level the playing field for U.S. companies doing business abroad and hold corrupt actors accountable when they fail to play by the rules. We also recognize, however, that successful enforcement is assisted by cooperation from others.  Through rigorous compliance programs and internal controls, companies can identify and eliminate corruption before it takes root.  Through greater international collaboration and enforcement, we can gather evidence more easily and expand our reach.  And through greater cooperation from companies and individuals in our investigations, we can bring cases faster and ensure fair, transparent, and efficient markets. The U.S. has been a leader in the world’s anticorruption efforts since the passage of the FCPA and with your help we will continue to lead the charge.”