Archive for the ‘Enforcement Agency Speeches’ Category

Attorney General Holder – “The Buck Needs to Stop Somewhere” – But Does It Stop With Him?

Tuesday, September 23rd, 2014

Buck Stops HereLast week U.S. Attorney General Eric Holder delivered this speech at New York University School of Law.  While focusing on financial fraud issues, the speech also touched upon several issues of general interest such as Holder’s statement that “the buck needs to stop somewhere where corporate misconduct is concerned.”  (emphasis in original).  Holder spoke of corporate structures that “blur lines of authority and prevent responsibility for individual business decisions from residing with a single person.”  Holder also highlighted that:

“[A]t some institutions that engaged in inappropriate conduct before, and may yet again, the buck still stops nowhere.  Responsibility remains so diffuse, and top executives so insulated, that any misconduct could again be considered more a symptom of the institution’s culture than a result of the willful actions of single individual.”

Recognizing that there are obvious differences between a government department and a business organization, the fact remains there are many similarities between the two when it comes to internal behavior, diffusion of responsibility and insulation of top leadership.

For instance and to borrow corporate analogies, Attorney General Holder is the CEO of DOJ Inc. and even the DOJ describes itself as the “world’s largest law office, employing more than 10,000 attorneys nationwide.”  That employee headcount (obviously the DOJ also employs non-attorneys as well) is rather small compared to a typical corporation doing business in the global marketplace through employees and hundreds, if not thousands, of third parties.

Returning to an issue previously highlighted here and here, if the DOJ was a business organization and subject to the same legal principles its uses to prosecute business organizations, the DOJ would constantly be under scrutiny and the subject of numerous enforcement actions.

Why?

Because as highlighted in this recent report by the Project on Government Oversight (“POGO”) titled “Hundreds of Justice Department Attorneys Violated Professional Rules, Laws, or Ethical Standards:”

“An internal affairs office at the Justice Department has found that, over the last decade, hundreds of federal prosecutors and other Justice employees violated rules, laws, or ethical standards governing their work.”

[...]

“From fiscal year 2002 through fiscal year 2013, the Justice Department’s Office of Professional Responsibility (OPR) documented more than 650 infractions … In the majority of the matters – more than 400 – OPR categorized the violations as being at the more severe end of the scale:  recklessness or intentional misconduct, as distinct from error or poor judgment.”

Although not specifically discussed in the POGO report, Foreign Corrupt Practices Act enforcement actions have seen instances of prosecutorial misconduct.  For instance, as highlighted in this post, in the DOJ’s enforcement action against Lindsey Manufacturing and two of its executives, the judge in dismissing the case, stated that the instances of misconduct were “so varied, and occurr[ed] over so lengthy a period … that they add up to an unusual and extreme picture of a prosecution gone badly awry.” In the failed Africa Sting case, the judge in dismissing the cases, stated that certain of the DOJ’s conduct had “no place in a federal courtroom.”  (See here).

The DOJ’s Principles of Prosecution of Business Organizations state, among the factors prosecutors should consider in deciding whether – and how – to charge a business organization as follows.

“Among the factors prosecutors should consider and weigh are whether the corporation appropriately disciplined wrongdoers, once those employees are identified by the corporation as culpable for the misconduct.”

Against this backdrop, the POGO report stated that several “examples of misconduct” within the DOJ often result in lenient sanctions such as a 10, 14 or 30 day suspensions.  Moreover, if I am not mistaken, certain of the DOJ prosecutors in the above FCPA enforcement actions – far from being disciplined – were promoted after their conduct was called into question by the federal judiciary.

The policy question needs to be asked: as a matter of principle should not the prosecutor / regulator and the prosecuted / regulated be held to the same general standards?

As a matter of principle and borrowing Holder’s policy pronouncements, should not the buck somewhere in the DOJ when improper conduct occurs within its ranks?  Is responsibility so diffuse in the DOJ that top leaders are insulated from accountability?

As noted in the POGO report, “high-level DOJ officials have said in the past that given the context – tens of thousands of its attorneys working on tens of thousands of cases each year – the amount of misconduct is small.”  (See here).

Could not the same be said of a typical business organization doing business in the global marketplace?  After all, dig into the details of many corporate FCPA enforcement actions and you will quickly learn that the conduct at issue was engaged in by a “small fraction” of the company’s global workforce to borrow the phrase the DOJ used in the HP enforcement action.

To be clear, the point of this post is not to call (as some actually have) for Holder’s resignation or to insist that Holder ought to be personally responsible, legally or ethically, for the improper conduct that has taken place in the DOJ under his leadership.

Rather, the point of this post is to highlight from a policy perspective the similarities between the DOJ and a business organization when it comes to compliance, internal behavior, diffusion of responsibility and insulation of top leadership.

These similarities ought to make top government enforcement officials less confident and less sweeping in their policy statements and simplistic views of legal and ethical culpability.  And if not, the similarities should at least cause top government enforcement officials to recognize that the same statements and views can be appropriately used to shine a light on the organizations they are tasked with running.

*****

For additional views of Holder’s recent speech, see here from Debevoise & Plimpton and here from Professor Peter Henning at his White Collar Crime Watch column in the New York Times.

DOJ’s Empty Rhetoric On Individual FCPA Prosecutions Continues

Wednesday, September 17th, 2014

This previous post highlighted the empty rhetoric of a former DOJ Criminal Division Chief regarding individual FCPA prosecutions.

A change in leadership at the DOJ Criminal Division has not brought about a change in the rhetoric.

As noted in this Reuters FCPA article, current Chief of the Criminal Division Leslie Caldwell stated:

“Certainly…there has been an increased emphasis on, let’s get some individuals.”

“It’s very important for us to hold accountable individuals who engage in criminal misconduct in white-collar (cases), as we do in every other kind of crime.”

Once again, the rhetoric is empty.

Sure the DOJ can point to a few core actions in which the DOJ has “clustered” multiple defendants into one action to achieve notable individual prosecution numbers.  The April 2014 action against six individuals allegedly involved in a conspiracy to obtain Indian mining licenses is a good example as was the “clustering phenomenon” in the enforcement action against five individuals associated with Direct Access Partners.   As highlighted in this previous post (with statistics calculated through the end of 2013), 53% of the individuals charged by the DOJ with FCPA criminal offenses since 2008 have been in just four cases and 75% of the individuals charged by the DOJ since 2008 have been in just nine cases.

In the vast majority of corporate FCPA enforcement actions (based presumably on the conduct of real individuals not ghosts as I indicated in my 2010 Senate FCPA testimony), the talk of individual prosecutions is nothing more than empty rhetoric.  Indeed, as highlighted in this previous post (with statistics calculated through the end of 2013) since 2008 approximately 75% of corporate FCPA enforcement have not (at least yet) resulted in any DOJ charges against company employees.

Consider the below chart with the 20 most recent corporate FCPA enforcement actions.  Only one has resulted (at least yet) in any DOJ charges against company employees.

Corporate Action

Related Prosecution of Company Employees

 

HP

No

Marubeni

No

Alcoa

No

ADM

No

Bilfinger

No

Weatherford

No

Diebold

No

Total

No

Ralph Lauren

No

Parker Drilling

No

Tyco

No

Pfizer

No

Nordam Group

No

Orthofix

No

Data Systems & Solutions

No

Biomet

No

BizJet / Lufthansa

Yes

Smith & Nephew

No

Marubeni

No

Magyar / Deutsche Telekom

No

The DOJ has long recognized that an FCPA enforcement program based solely on corporate fines is not effective and does not adequately deter future FCPA violations. For instance, in 1986 the DOJ Deputy Assistant Attorney General stated:

“If the risk of conduct in violation of the [FCPA] becomes merely monetary, the fine will simply become a cost of doing business, payable only upon being caught and in many instances, it will be only a fraction of the profit acquired from the corrupt activity. Absent the threat of incarceration, there may no longer be any compelling need to resist the urge to acquire business in any way possible.”

In 2010, the DOJ Deputy Chief of the Fraud Section likewise stated that a corporate fine-only FCPA enforcement program allows companies to calculate FCPA settlements as the cost of doing business.   In this new era, the DOJ has consistently stated that prosecution of individuals is a “cornerstone” of its FCPA enforcement strategy and in a 2012 speech the Assistant Attorney General stated: “If you look at the FCPA over the past 4 years, you’ll see we really have been vigorous about holding individuals accountable.” Add Caldwell’s recent statements to this long line of empty rhetoric.

Despite the rhetoric, the actual statistics demonstrate that FCPA enforcement is largely corporate enforcement only.

Friday Roundup

Friday, September 5th, 2014

Knox to FCPA Inc., DOJ response brief filed, SFO speeches, and asset recovery.  It’s all here in the Friday roundup.

Knox to FCPA Inc.

As highlighted in this prior post, over the summer Jeffrey Knox (DOJ Fraud Section Chief) followed the same tired script on a number of FCPA issues.  It will be interesting to hear / read of Knox’s positions in the future as – following a well-traveled career path for DOJ FCPA enforcement attorneys – he is leaving government service for the private sector to provide FCPA investigative and compliance services to business organizations subject to the current era of FCPA enforcement.  (See here from the Washington Post, here from the Wall Street Journal, and here from the New York Times).

Knox is headed to Simpson Thatcher (also home to former SEC FCPA Unit Chief Cheryl Scarboro – see here for the prior post). This Simpson Thatcher release states in pertinent part:

“Mr. Knox will be a partner based in the Firm’s Washington, D.C. office and a member of the Firm’s Government and Internal Investigations Practice. During his tenure at the DOJ, Mr. Knox served as the Chief and, before then, the second-ranking official of the Criminal Division’s Fraud Section, which has responsibility for some of the nation’s most significant fraud cases, including … Foreign Corrupt Practices Act (FCPA) criminal investigations and prosecutions in the United States.”

[...]

“We are pleased to welcome Jeff back to the Firm,” said Bill Dougherty, Chairman of Simpson Thacher’s Executive Committee. “His deep experience in overseeing high-stakes government investigations and enforcement actions will be a significant asset to our clients as they navigate an increasingly complex enforcement landscape.” “We are very excited that Jeff is joining our Government and Internal Investigations team here at Simpson Thacher. As Chief of the Fraud Section, Jeff has presided over many of the most significant financial fraud, healthcare fraud, and FCPA investigations in recent years, and we know that he is greatly respected within both the DOJ and the white collar bar. His experience and insight will provide substantial value to our clients,” added Mark J. Stein, Head of the Firm’s Government and Internal Investigations Practice.”

The release further states: “[Knox] was a contributor to the DOJ and SEC’s A Resource Guide to the FCPA, published in 2012.”

As I have done in all previous instances of high-ranking DOJ or SEC FCPA enforcement attorneys leaving government services for lucrative FCPA related jobs in the private sector (see here for instance), I will restate my position.

As to DOJ and SEC FCPA enforcement attorneys who have supervisory and discretionary positions and articulate government FCPA policies, it is in the public interest that such individuals be prohibited, upon leaving government service, from providing FCPA defense or compliance services in the private sector for a five-year period.

DOJ Response Brief Filed

This previous post highlighted the motion to dismiss filed by former Alstom executive Lawrence Hoskins in the criminal FCPA action against him.  In short, the motion to dismiss stated that the DOJ’s indictment “charges stale and time-barred conduct that occurred more than a decade ago; it asserts violations of U.S. law by a British citizen who never stepped foot on U.S. soil during the relevant time period; and, it distorts the definition of the time-worn legal concept of agency beyond recognition.”  As noted in the prior post, much of Hoskins’s brief focuses on the issue of whether he withdrew from the alleged criminal conspiracy involving alleged improper payments at the Tarahan power plant project in Indonesia.

Earlier this week, the DOJ filed this response brief.  In pertinent part, the DOJ’s brief states:

“The defendant seeks to have the Court take the extraordinary step of dismissing the Indictment against him at this pretrial phase based on his interpretation of the legal import of  certain allegations contained in the Indictment, supplemented by his own selective version of events contained in an affidavit attached to his motion. The Indictment, however, sets forth more than sufficient facts to support the charged crimes. Moreover, at trial the Government expects to present substantial additional evidence supporting the charges, including facts that bear directly on the arguments raised by the defendant in his motion. The defendant’s motion thus represents a novel effort to – in effect – invent and obtain summary judgment in the criminal process based on the claim that he has established the factual basis for his defenses. For good reason, the law provides that only after the Government has presented its case should a judge and jury grapple with the legal and factual sufficiency of that evidence. Thus, the defendant’s motion should be denied. Even addressing the merits of his arguments at this premature stage, however, the defendant’s motion should fail.

In particular, the defendant’s motion fails because: (1) the issue of withdrawal is necessarily a factual one to be decided by a jury and, nonetheless, the defendant did not withdraw from the charged conspiracies; (2) the Indictment has adequately alleged, and the Government will prove at trial, that the defendant was an “agent” of a domestic concern under the Foreign Corrupt Practices Act (“FCPA”), the charged conduct is domestic (not extraterritorial), and Congress has not specially excepted the defendant from prosecution under the FCPA and, thus, he can be liable for causing, aiding and abetting, or conspiring to commit an FCPA violation even if he is not guilty as a principal; and (3) the Indictment alleges continuing transactions (the bribe payments) that were initiated from Connecticut and alleges that the defendant aided and abetted the transactions through acts in Connecticut, and thus the money laundering charges are properly venued in the District of Connecticut.”

SFO Speeches

David Green’s (Director of the U.K. Serious Fraud Office) recent speech regarding a “cross-section of SFO cases” included the following in the foreign bribery space:

  • Barclays/Qatar: is an investigation, begun in 2012, into the circumstances surrounding Barclays’ £8bn recapitalisation in 2008.
  • Rolls Royce: concerns allegations of bribery carried out by local agents in return for orders in various markets, touching several divisions of Rolls Royce business activity.
  • GlaxoSmithKline: this is an investigation into allegations that bribes were paid in order to increase business in several jurisdictions.
  • GPT: this investigation concerns a subsidiary’s business relationship with the Saudi National Guard.
  • Alstom: this is an ongoing investigation into the use of British subsidiaries of a major French multinational to dispense bribes in several jurisdictions in order to secure large infrastructure contracts. Charges have already been laid against a subsidiary.
  • The Sweett Group: this investigation concerns allegations of bribes paid in return for building contracts in North Africa.

For another recent speech by Alun Milford (General Counsel of the SFO) on cooperation and disclosure, see here.

Asset Recovery

In news related to the DOJ’s Kleptocracy Asset Recovery Initiative (under which prosecutors in the DOJ Asset Forfeiture and Money Laundering Section work in partnership with federal law enforcement agencies to forfeit the proceeds of foreign official corruption – see this 2009 post highlighting Attorney General Holder’s announcement of the program), the DOJ announced:

“The Department of Justice has seized approximately $500,000 in assets traceable to corruption proceeds accumulated by Chun Doo Hwan, the former president of the Republic of Korea.   This seizure brings the total value of seized corruption proceeds of President Chun to more than $1.2 million.  [...] Chun Doo Hwan orchestrated a vast campaign of corruption while serving as Korea’s president,” said Assistant Attorney General Caldwell.   “President Chun amassed more than $200 million in bribes while in office, and he and his relatives systematically laundered these funds through a complex web of transactions in the United States and Korea.   Today’s seizure underscores how the Criminal Division’s Kleptocracy Initiative – working in close collaboration with our law enforcement partners across the globe – will use every available means to deny corrupt foreign officials and their relatives safe haven for their assets in the United States.”

*****

A good weekend to all.

 

Across The Pond

Tuesday, July 22nd, 2014

Today’s post highlights various developments across the pond in the United Kingdom.

*****

Last week, Sweett Group (a U.K.-based provider of professional services for the construction and management of building and infrastructure projects) provided this update regarding its previously disclosed scrutiny:

“Sweett Group, notified the Serious Fraud Office (SFO) last year about an allegation of impropriety concerning the conduct of a former employee in 2010, which was reported in the Wall Street Journal in 2013. That former employee operated from an office in Dubai under contract with Cyril Sweett International Limited (CSI).  CSI is a company registered in Cyprus and is a wholly owned subsidiary of Sweett Group plc. Sweett Group initiated independent investigations of the allegation and has been keeping the SFO regularly informed as to the progress of those investigations. As was reported on 2 April 2014, evidence came to light that suggests that material instances of deception may have been perpetrated by a former employee or employees during the period 2009 – 2011. One of the former employees refused to answer questions asked of him by the independent investigators. The SFO has now decided to exercise its statutory powers under the Criminal Justice Act to investigate this matter. Sweett Group continues to cooperate fully with the SFO on this matter.”

The U.K. SFO issued this release stating:

“The SFO confirmed today that the Director has opened an investigation into Sweett Group in relation to its activities in the United Arab Emirates and elsewhere.”

*****

This recent front-page Wall Street Journal article added Tradition Financial Services of Switzerland to the growing list of financial services firms under scrutiny for  prior relationships with senior Libyan officials under Moammar Gadhafi.  According to the article, “City of London police pursuing a criminal probe have interviewed former employees of Tradition and are nearing a decision on whether to bring charges.”  The article also suggests that the SEC and DOJ are also “examining whether the firm or its employees were part of what authorities believe was a broad pattern in which Western companies used improper means to curry favor with officials in the Gadhafi regime.”  According to the article, “U.S. investigators have also looked into the Libyan activities of hedge-fund manager Philip Falcone of Harbinger Capital Partners.”

This 2011 guest post predicted scrutiny concerning business practices in Libya after Gadhafi. This previous post asked – in connection with the various Libya probes – whether the U.S. government bears some responsibility.

*****

This Pillsbury client alert asks – in regards to the Bribery Act’s recent three-year anniversary – “The UK Bribery Act, Three Years On: Can We Relax Yet?”  The alert begins:

“The Bribery Act 2010 has now been in force for three years. Despite the announcements and commentary that it heralded a new and aggressive face toward corporate corruption, there have as yet been no corporate prosecutions brought under the Act. Was it all sound and fury signifying nothing? Or should all involved remain cautious and focused on compliance?”

*****

In this recent speech, Ben Morgan (Joint Head of Bribery and Corruption at the U.K. Serious Fraud Office) asks “Deferred Prosecution Agreements:  What Do We Know So Far?”

The obvious answer is nothing since there has not yet been a UK DPA in the “FCPA-like” context or otherwise.  Nevertheless in the speech Morgan did highlight what “you need to do if a DPA is to be a potential resolution to an issue you discover.”

Morgan stated:

“It is not my job to try to persuade you to seek a DPA – that is a matter entirely for you and it is open to you to ignore that potential disposal of an issue and defend a prosecution instead. We are very comfortable with both scenarios, but the point of today is to concentrate on the DPA fork in the road as opposed to the adversarial prosecution fork in the road, so that’s what I will concentrate on. While my intention today is to encourage co-operation between you and the SFO, do remember that that only applies to those of you who choose the DPA fork in the road. For everyone else, remember we are ultimately a prosecutor and you can expect the bulk of our case load to be prosecuted in the usual way – the Director has made that entirely clear.”

[Comment:  years ago the DOJ said the same thing about NPAs and DPAs (i.e. they were to be used sparingly and only in appropriate circumstances) however the passage of time has suggested otherwise].

Back to Morgan’s speech.  He stated:

“If I was back in my old job, advising a company that had become aware of a potential criminal incident, I would be asking myself these two questions:

  • 1) Will the SFO ever find out? and
  • 2) If they do, what would they really do about it anyway?

Those of you who follow what the SFO has to say about DPAs will know that the Director and our General Counsel have spoken about both of these points at length. I do not repeat what they have said today, although I do endorse it. Today I want to make just two new points to amplify that.

As for “will the SFO find out” the point is simply this – our intelligence capability is expanding and as is widely known, we are investing heavily in it. The Director has said that we are seeking to make use of the full range of investigative tools available to us, and I can say from personal experience that that is now moving to a new level in practice. Through our own capabilities, and in conjunction with our law enforcement and intelligence partners, we have access to and are using that full range of tools. That is potentially game changing for us, not only in respect of forensic recovery of things that have happened in the past, but also in respect of evidence of things happening right now – crime in action.

Judging whether we will find out has always been an exercise in balancing risk. My message for you is if you don’t understand what that full range of investigative tools entails, you are not doing a proper balancing exercise – so you need to do some research on that, and have another think about your risk appetite. Refresh your assessment of what we’re able to do and how that might affect you.

As for “the SFO won’t do anything anyway”, I have to acknowledge history – we have very few corporate convictions in our stable. But under the current Director’s leadership I and others are expressly addressing that as a priority. Three points are worth making.

1) It is often said that it is too difficult to prosecute under pre-Bribery Act legislation. I disagree with that strongly – it can be done if the evidence is there. With the convictions recently of two of the controlling minds of Innospec – the former CEO and current Sales Director – we have shown that we have the resilience to find that evidence and make sure a jury has the opportunity to consider it, however long that takes and however robustly defendants try to stop that happening. Had the company not already pleaded, we would have had a conviction of a corporate under the old legislation for the bribery of foreign public officials. It can be done, we are doing it on other cases right now and we have the appetite to take it on on new cases as well if the evidence leads that way. It is not too difficult to prosecute under pre-Bribery Act legislation. It is hard, yes, but that is what the SFO is for, and we will do it.

2) Of course as time moves on, more and more of the conduct we are looking at is starting to straddle or post-date the coming into force of the Bribery Act, so for corruption offences at least, the job of prosecuting a corporate should become easier.

3) Finally on this, you will have heard the Director speak about the need for the logical expansion of the section 7 offence to cover other economic crimes, and my own view is that that logic is irresistible, such that the job of prosecuting corporates for more than just corruption offences should also become easier.”

As to “what we know about DPAs so far,” Morgan stated:

“[W]hen you become aware of potentially criminal conduct, there is a fork in the road – do you keep quiet and brace yourself for a fight if the SFO comes calling; or do you come and talk to us, work with us rather than against us, and try to manage the consequences of that incident responsibly, exhibiting the characteristics of honesty and integrity that I am sure every one of you has a lot to say about in your Code of Ethics and your Corporate Social Responsibility literature. Do you do the right thing morally, regardless of your analysis of the balance of risk?

I speak to defence barristers and solicitors about this a lot, and I am frequently told that the impediment to corporates coming forward is that their advisers cannot say with enough certainty what will happen if they do. That’s nonsense. Ever since DPAs have been on the agenda the consistent message from the SFO has been that a company that comes to tell us about a problem and genuinely co-operates with us in resolving it is unlikely to be prosecuted. While there will still be corporate prosecutions, the Director has said on many occasions that if a company genuinely does that, it will weigh heavily against the public interest parts of the Full Code Test pointing toward a prosecution. So actually, the position is pretty clear.

The question that naturally arises then is what is meant by genuinely co-operating with us? Again, I personally think this is pretty clear too – the DPA code covers it, and we have developed that in several speeches since. It seems to me that the issue amongst defence lawyers on co-operation is less a lack of clarity about what we are asking for, and more the fact that they don’t particularly like what we are asking for. For that reason I am glad to have this opportunity to speak directly to the corporates present here today. I think it’s important people hear from us about what we are asking for. If you want to have a chance of getting a DPA when you discover an issue somewhere in your network, you need to think through some of the following:

1) Tell us something we don’t already know, and do it within a reasonable period of the incident coming to light. I accept that it is hard to strike the balance between knowing enough about what has happened to make it worth speaking to us, and leaving it too long and us finding out anyway. If I was an adviser, I would be trying to approach that judgement by reference to the SFO’s own criteria for taking on a case. The Director has the power under section 1 of the Criminal Justice Act to open a criminal investigation into a suspected offence which appears to him on reasonable grounds to involve serious fraud, bribery or corruption. Practical tip number one is why not approach your analysis using that same test? I can’t guarantee it will get you a DPA, but it is the best help I feel I can offer in terms of when to come and talk to us.

One thing I can say with confidence is that generally speaking, the time to come will be a lot sooner than people have tended to think in the past. We certainly do not need you to have instructed lawyers to do an 18 month internal investigation and produce a weighty report. In the context of DPAs, from the SFO’s perspective those days are over. You need to decide early if you want a DPA to an option, and come and see us promptly if you do. And if that seems worrying, remember this – we have to apply the Full Code Test to any charging decision we make, so if you come and tell us something early you have the security that if having looked at it together, the evidence of a crime is not there, we MUST NOT pursue the case, and I can promise you we won’t. We are far too busy to try to force a square peg into a round hole.

[...]

4) There are a series of other important steps a co-operating company needs to take – and these are set out in the Code of Conduct: engaging with us on the scope of an ongoing investigation, points around the capture and sharing of digital material, that sort of thing. The final practical tip I would offer is this. In the case of all co-operative steps, make sure that you really are co-operating; genuinely. I came across the awful phrase recently at an event “the impression of co-operation” and believe me, nothing is more likely to derail the DPA process than a stage-managed attempt to co-operate that, as our investigation progresses, inevitably transpires to have been designed to give no more than the impression of co-operation. It is a matter of substance, sustained over time, not form, and proper co-operation requires genuine effort on the part of a company from the point of coming to speak to us, right through the DPA process, and then on throughout the life of the DPA.

Remember that ultimately it is a matter for a judge whether a DPA is finalised, not the SFO. I can say for my part that I certainly won’t be inviting any corporate into the process who I do not honestly believe is being fully frank with us. Littering correspondence with the word “co-operation” but in fact doing anything but is really not good enough. Co-operation is something we will judge by actions, not words. And while I can’t speak for the judiciary, I would be stunned if anything other than genuine, unreserved co-operation from a corporate would be enough to satisfy a judge that it is in the interests of justice to dispose of criminal conduct through a DPA rather than a prosecution.

For those that choose the DPA fork in the road, my message for you today is a warm one; if we think a DPA is appropriate then we are willing to work with you, collaboratively, to present to the court a DPA that is properly in the interests of justice. To get to that mutual goal, where we are both in court asking the judge for the same thing, you will have to be frank and open with us, and co-operate with us. I’ve explained what that means to us. A DPA won’t be appropriate in every case, and even if you follow everything I’ve said this morning I can’t guarantee you will get a DPA, but if you choose to ignore everything I’ve said, you might quickly find you’ve ruled one out.”

Friday Roundup

Friday, June 27th, 2014

Elevate, a surprise verdict? SEC Chair on compliance, self-reporting and cooperation, quotable, and for the reading stack.  It’s all here in the Friday Roundup.

Elevate Your FCPA Knowledge and Practical Skills

Join lawyers and other in-house counsel and compliance professionals from around the country – indeed the world –  already registered for the inaugural FCPA Institute July 16-17th in Milwaukee, Wisconsin.  The FCPA Institute is a unique two-day learning experience ideal for a diverse group of professionals seeking to elevate their FCPA knowledge and practical skills.  FCPA Institute participants will have their knowledge assessed and upon successful completion of a written assessment tool can earn a certificate of completion. In this way, successful completion of the FCPA Institute represents a value-added credential for professional development.

To register see here.

A Surprise Verdict?

As has been widely reported (see here and here for instance) Rebekah Brooks, a former senior News Corporation executive, was found not guilty of various counts (including conspiracy to commit misconduct – in other words bribery) by an English jury earlier this week.

The bribery-related verdict comes as a bit of a surprise given that Brooks – as highlighted in this previous post and as reported by the media:

“[Rebekah Brooks testified that] she authorized payments to public officials in exchange for information on “half a dozen occasions” during her time as a newspaper editor—but did so only in what she said was the public interest. [...]  On the stand, Ms. Brooks, who edited News Corp’s Sun newspaper and its now-closed News of the World sister title, said the payments were made for good reasons, and done so on rare occasions and after careful consideration. “My view at the time was that there had to be an overwhelming public interest to justify payments in the very narrow circumstances of a public official being paid for information directly in line with their jobs,” said Ms. Brooks.”

As to the other defendants – Andy Coulson (a former senior News Corp. editor) and Clive Goodman (a former royal reporter for New Corp.’s defunct News of the World publication) –  the jury failed to reach a verdict on the bribery-related count.

At the beginning of the trials, in this October 2013 post, I observed:

“What happens in these trials concerning the bribery offenses will not determine the outcome of any potential News Corp. FCPA enforcement action.  But you can bet that the DOJ and SEC will be interested in the ultimate outcome.  In short, if there is a judicial finding that Brooks and/or Coulson or other high-level executives in London authorized or otherwise knew of the alleged improper payments, this will likely be a factor in how the DOJ and SEC ultimately resolve any potential enforcement action and how News Corp.’s overall culpability score may be calculated under the advisory Sentencing Guidelines.”

SEC Chair White on Compliance, Self-Reporting and Cooperation

SEC Chair Mary Jo White recently delivered this speech titled “A Few Things Directors Should Know About the SEC.”

Among other topics, White spoke about the importance of compliance, self-reporting and cooperation and relevant portions of the speech are highlighted below.

Compliance

“Ethics and honesty can become core corporate values when directors and senior executives embrace them.  This includes establishing strong corporate compliance programs focused on regular training of employees, effective and accessible codes of conduct, and procedures that ensure complaints are thoroughly and fairly investigated.  And, it must be obvious to all in your organization that the board and senior management highly value and respect the company’s legal and compliance functions.  Creating a robust compliance culture also means rewarding employees who do the right thing and ensuring that no one at the company is considered above the law.  Ignoring the misconduct of a high performer or a key executive will not cut it.  Compliance simply must be an enterprise-wide effort.”

Self-Reporting and Cooperation

“Even in the best run companies with strong boards, the right tone at the top and robust compliance programs, wrongdoing will almost inevitably occur from time-to-time.  What should you do when that happens?  How should you respond?  What does the SEC expect you to do?  When should a company self-report wrongdoing to the SEC or other authorities?  All of these questions require careful consideration and appropriate action. For tonight, I will focus just on the last one about self-reporting.

If your company has uncovered serious wrongdoing, you will need to decide whether, how and when to report the matter to the SEC.  One immediate question you will have to answer is whether what has been discovered constitutes material information that requires public disclosure.  If the answer is yes, that fact will also invariably dictate an obvious affirmative answer to broader self-reporting to the SEC.

In other situations, you will need to decide whether to call us about a serious, but non-material event – perhaps a rogue employee in a small foreign subsidiary has been bribing a foreign official in violation of the Foreign Corrupt Practices Act (“FCPA”).  You intend to take decisive action against the employee and enhance your FCPA compliance program.  Your disclosure lawyer’s view is that the occurrence does not require public disclosure.  That does not, however, end your inquiry or responsibilities.  Your company still needs to decide whether to self-report to the SEC, and consider what that may mean for the company.

As many of you know, the Commission in the 2001 Seaboard statement on cooperation, explained how self-reporting, cooperation, self-policing, and remediation factor into our decisions when considering enforcement actions.  And, I can tell you from experience that of those four factors, self-reporting is especially important to both the SEC and the Department of Justice.

What are the benefits to your company of self-reporting?  You can read about that in the SEC’s press releases on enforcement actions, which routinely highlight how the quality of a company’s cooperation has affected any resulting enforcement action.  Typically, a company realizes the benefits of cooperation through a reduced penalty, or, at times, no penalty or even not proceeding in an exceptional case.

Not that you should need any extra incentive, but keep in mind that there are also downsides in deciding not to self-report.  If the wrongdoing is not self-reported, the opportunity to earn significant credit for cooperation may be lost.  And, with our new whistleblower program … the SEC is more likely than ever to learn of the misconduct through another channel.

Let me just say a few words about how to cooperate with SEC investigations.

As an initial matter, the decision to cooperate should be made early in the investigation.  The tone and substance of the early communications we have with a company are critical in establishing the tenor of our investigations and how the staff and the Commission will view your cooperation in the final stages of an investigation. Holding back information, perhaps out of a desire to keep options open as the investigation develops, can, in fact, foreclose the opportunity for cooperation credit.  We are looking for companies to be forthcoming and candid partners with the SEC investigative team – and the board has a responsibility to ensure that management and the legal team are providing this kind of cooperation.

When choosing the path of self-reporting and cooperation, do so decisively.  Make it clear from the outset that the board’s expectation is that any internal investigation will search for misconduct wherever and however high up it occurred; that the company will act promptly and report real-time to the Enforcement staff on any misconduct uncovered; and that the company will hold its responsible employees to account.

There is, of course, cooperation and then there is cooperation, just as there are compliance programs that look great on paper but are not strongly enforced.  We know the difference.  Cooperation means more than complying with our subpoenas for documents and testimony – the law requires you to do that.  If you want your company to get credit for cooperation – and you should – then sincere and thorough partnering with the Division of Enforcement to uncover all the facts is required.”

As highlighted in this previous post, here is what White had to say about cooperation issues as a lawyer in private practice.

“Today, before making their decisions about charging companies, some prosecutors are exerting considerable – some say, extreme -pressure on corporate behavior under the not so subtle threat that if the company doesn’t do as the government wishes, the company risks, at the end of the day, being indicted.”

[...]

“To ensure that a company does not become that ‘rare’ case resulting in a corporate indictment with all of its attendant negative consequences, a company must not poke the government in the eye by declining any of its requests or suggestion of how a cooperative, good corporate citizen is to behave in the government’s criminal investigation.  This template, in my view, can give prosecutors too much power.”

Quotable

Homer Moyer (Miller & Chevalier) states as follows in the June issue of Global Investigations Review.

“As this area of law has evolved, the challenges for all concerned have changed.  Agencies plainly hold most of the cards here.  They have great leverage in these cases.  [...] [T]hey are rarely subject to judicial review.  That creates a special responsibility for enforcement agencies.

As a practical matter, they are creating the operative jurisprudence.  Companies and practitioners read those settlements and try to tease out of them the principles that have been at play.  So it’s important that the government articulates its legal rationales, and frankly it’s important the government self-policies.  It may invest in a lengthy investigation at the end of which it should take no action.  And that’s sometimes hard for an agency to do.

The agencies have, over the last 25 years, expanded their jurisdictional reach; they’ve expanded their theories of liability; they have expanded the penalties imposed with new kinds of penalties and new kinds of settlements.  So I think there’s a burden on the agencies, given that much sway, to act especially responsibly.

[...]

[T]he great interest in this area has been prompted in part by reports of enormous costs to corporations of investigations.  I think law firms have to address that.  Many of the reported cases are stupefying and, in my opinion, can be avoided.  But that takes a little clear-eyed thinking on the part of both outside law firms and corporations.”

Reading Stack

From Transparency International UK - Countering Small Bribes.  As described in this release:

“[The report] provides practical advice on addressing the challenge of countering small bribes including “grease payments”. It is also designed to be of assistance to regulators, law-makers, prosecuting agencies and professional advisers. Countering small bribes is a complex challenge for companies. Transparency International research shows that, globally, more than 1 in 4 people paid a bribe in a recent 12 month period, highlighting the scale of the problem facing companies. Demands most often occur in overseas markets, where employees may be vulnerable through travelling alone or the company needs to release critical goods from customs. The guidance provides a set of principles, discussion and advice designed to help companies operate to high ethical standards, protect their reputations and fulfill their legal obligations.”

*****

A good weekend to all.