If you enjoy reading pleadings in Foreign Corrupt Practices Act enforcement actions, then your week is already off to a great start as there is much to read.
In advance of a scheduled July 9th trial in SEC v. Mark Jackson & James Ruehlen (an enforcement action filed in the S.D. of Tex. in February 2012 and highlighted in last Friday’s post), both parties filed numerous motions last Friday.
The SEC filed: (1) a motion for partial summary judgment on the inapplicability of the facilitating payment exception, and (2) a motion for a determination of foreign law pursuant to Federal Rule of Civil Procedure 44.1. The SEC also filed 5 motions seeking to exclude defendants’ expert witnesses. Both Jackson and Ruehlen filed separate motions for summary judgment as well as 3 motions seeking to exclude the SEC’s expert witnesses.
This post provides an overview of the motions.
In pertinent part, the SEC states as follows:
“Questions of Nigerian law pervade this bribery case for two reasons. First, findings on threshold questions of Nigerian law are necessary for the jury to determine whether Defendants induced foreign officials “to do or omit to do any act in violation of the lawful duty of such foreign official[s]” in violation of Section 30A of the Securities Exchange Act of 1934 (the “Exchange Act”), an element of the SEC’s bribery claims. 15 U.S.C. §78dd-1(a)(3)(A)(ii) (emphasis added). Questions of Nigerian law are also necessary to determine whether the payments at issue in this case fit within the narrow “facilitating payment” exception under the
Foreign Corrupt Practices Act (the “FCPA”).
These questions of Nigerian law include: (i) whether the grant of a Temporary Import Permit (“TIP”) – a concession that allows an importer to avoid the payment of import duties – was discretionary; (ii) what was the permissible duration of a TIP and whether and to what extent a TIP may be extended; and (iii) whether Nigerian customs officials could lawfully accept payments to approve a TIP based on false paperwork showing that Noble’s rigs in Nigeria had been exported and re-imported, when the rigs in fact had never moved out of Nigerian waters. These questions of Nigerian law are, like questions of U.S. law, questions of law for the Court to decide, and each defines the scope of Nigerian customs officials’ “lawful duty” in connection with granting the TIPs and TIP extensions at issue in this case.
Second, rulings on these issues of Nigerian law are necessary in light of the Defendants’ purported expert evidence. Defendants intend to introduce expert evidence asserting that, among other things, the payment of bribes to civil servants in Nigeria “is common – and even expected”; the submission of falsified documents to Nigerian governmental agencies is “satisfactory” or “acceptable” from the Nigerian government’s perspective; that laws governing the issuance of temporary import permits are not laws but “internal rules or policies”; and that compliance with Nigerian law is unclear. Thus, the Defendants’ experts intend to opine directly or indirectly on what is allegedly “permissible” in Nigeria notwithstanding clear and undisputed provisions of Nigerian law to the contrary. Because foreign law is for the Court, not the jury, these issues of Nigerian law should be resolved by the Court.”
As noted in this prior post, in December 2012 Judge Ellison concluded, in what was believed to be an issue of first impression, that the SEC must bear the burden of negating the facilitation payments exception.
In its motion, the SEC states as follows.
“The SEC seeks partial summary judgment on the limited question of whether the payments to Nigerian government officials that Defendants authorized to secure Temporary Import Permits (“TIPs”) and TIP extensions fit within the narrow “facilitating payment” exception under the Foreign Corrupt Practices Act (the “FCPA”).
The SEC alleges that the Defendants violated the anti-bribery and accounting provisions of the FCPA by authorizing the payment of bribes on behalf of their employer – Noble Corporation – to Nigerian government officials to influence or induce these officials to grant Noble TIPs and TIP extensions. These TIPs allowed Noble to avoid paying import duties on oil drilling rigs that it operated in Nigeria. Because TIPs provide only a temporary exemption from import duties, at the expiration of a TIP and its allowable extension, Noble had an obligation to either pay the import duties due on the drilling rigs or export them out of Nigeria. Using bribes and other means, Defendants secured serial TIPs and TIP extensions, which enabled Noble to keep its rigs operating continuously in Nigeria well beyond the time period allowed under Nigerian law.
The FCPA broadly prohibits corrupt payments to foreign officials to influence any official act or induce any official to violate a lawful duty. See 15 U.S.C. § 78dd-1(a). But there is a narrow exception to that broad prohibition: Under subsection 78dd-1(b), the FCPA permits certain “facilitating or expediting payments” made “to expedite or to secure the performance of a routine governmental action.” 15 U.S.C. § 78dd-1(b). This so-called facilitating payment exception does not apply in this case, as a matter of law.
Summary judgment is appropriate for three reasons:
First, the law of decision is clear and binding. This Court previously held that payments to government officials for discretionary or illegal TIPs and TIP extensions are not permissible facilitating payments.
Second, the applicable foreign law is clear and undisputed. As demonstrated in the SEC’s Motion for a Determination of Foreign Law Pursuant to Federal Rule of Civil Procedure 44.1 (“Rule 44.1 Motion”), the relevant provisions of Nigerian law are clear and undisputed. First, under Nigerian law, customs officials have discretion to grant or deny TIPs and TIP extensions; these TIPs and extensions are a discretionary exemption from import duties, not an entitlement. Second, Nigerian law prohibits both the use of false paperwork to secure TIPs and payments to government officials to secure TIPs and TIP extensions. Third, Nigerian law provides that an initial TIP may not exceed twelve months and may only be extended once for up to an additional twelve months. These provisions of Nigerian law are clear and undisputed, and must be determined as a matter of law by the Court.
Third, the material facts are not in genuine dispute. The payments to Nigerian government officials at issue in this case were themselves illegal in Nigeria and were authorized to obtain import duty exemptions that were (i) discretionary and (ii) in certain cases, illegal under Nigerian law. Specifically, each of the payments to Nigerian government officials at issue was authorized in connection with obtaining a valuable and discretionary government benefit – i.e., import duty exemptions for Noble’s rigs. Certain of the payments were made to obtain TIPs on false pretenses, in violation of Nigerian law. And, some of the payments were authorized to obtain TIP extensions that exceeded the number and duration of TIP extensions allowed under Nigerian law.
For these reasons, the SEC respectfully requests that the Court grant its motion for partial summary judgment that the facilitating payment exception is not applicable in this case.”
SEC Expert Motions
In addition to the above motions, the SEC also filed 5 motions seeking to exclude defendants’ experts: (1) Alan Bell (CPA – regarding internal controls and books and records issues); (2) Gary Goolsby (CPA – regarding corporate governance and internal controls issues; (3) John Campbell (former U.S. ambassador to Nigeria – regarding Nigeria specific issues; (4) Professor Ronald Gilson (regarding various corporate governance and internal controls issues); and (5) H. Lowell Brown (regarding various FCPA compliance issues).
The motion, signed by David Krakoff (BuckeySandler) , states as follows.
“This case is entirely about Mr. Jackson’s state of mind: Did he act “corruptly” in violation of the FCPA when he approved certain payments to Nigerian customs officials? In denying the Defendants’ Motions to Dismiss, the Court held that an act is done corruptly when it is “done with an evil motive or wrongful purpose of influencing a foreign official to misuse his position.” It is the SEC’s burden to prove that “Defendants acted corruptly.”
The SEC failed to come close to carrying that burden. Put simply, discovery revealed only one thing: Undisputed evidence that Mr. Jackson acted with the “good faith” belief that Noble’s payments facilitated getting temporary import permits and extensions to which Noble was entitled. But as the Court observed regarding permit extensions, to establish corrupt intent the SEC must show “that Defendants knew they were not entitled to extensions as a matter of right upon satisfying certain basic threshold requirements.”
Mr. Jackson was repeatedly advised by Noble management that Noble was entitled to those permits and extensions. He was advised by management and PricewaterhouseCoopers that as long as the rigs had contracts to drill oil for the benefit of the Nigerian government, the rigs could stay in the country to perform those contracts. He was advised and observed that legal and audit experts were reviewing Noble’s FCPA compliance and, specifically, compliance in its Nigerian operations. And he was advised that Noble’s Nigerian lawyer had counseled that the use of the so-called “paper process,” where rigs obtained new permits without leaving the country, was legal in Nigeria.
The SEC has no evidence to prove Mr. Jackson’s state of mind was anything different. Despite many promises in the SEC’s pleadings, promises proved false by discovery, there was no evidence that Mr. Jackson believed Nigerian officials had discretion to deny Noble these permits and extensions. There was no evidence that he knew the “paper process” was illegal in Nigeria, so that any payments related to it had to be corrupt. And there was no evidence that he misled anyone – not the Audit Committee, not auditors, not anyone – about any of Noble’s facilitating payments. Instead, what he knew was that Noble’s legal counsel and internal auditors did not question the propriety of payments to Nigerian customs officials. No reasonable jury could conclude that Mark Jackson acted with the state of mind requisite for a violation of the FCPA. The SEC has not met its burden and the Court should grant summary judgment on all claims.”
“The Complaint portrays Jim Ruehlen as a “rogue” employee who, shortly after being promoted to the first management-level position of his career, embarked on an intricate scheme to bribe Nigerian officials to obtain illegal temporary import permits for Noble’s rigs; routinely flouted company policy; ignored directions from Noble’s Audit Committee; and concealed illicit payments in Noble’s books and records. At the motion to dismiss stage, the Court was required to accept those allegations as true. Since then, 15 months of discovery have laid bare the utter falsity of the SEC’s narrative.
The undisputed evidence establishes that Mr. Ruehlen—a diligent and hardworking operations employee with an impeccable reputation for honesty and integrity—at all times acted in good faith and under the close supervision of Noble’s most senior executives. At no point did he attempt to conceal any conduct or circumvent controls or company processes. To the contrary, it was Mr. Ruehlen who in 2004 first reported Noble’s use of the so-called “paper process”—the central focus of the SEC’s claims in this matter. And it was Mr. Ruehlen who received approval for every one of the payments at issue from Noble’s senior management, executives who had access to experts to assess the nature and propriety of those payments. It is undisputed that none of those executives or experts ever raised concerns to Mr. Ruehlen about the payments. The evidence also shows that Mr. Ruehlen, who had no accounting or legal training, had no role in determining how the payments—which were well known within Noble’s corporate hierarchy—were recorded in Noble’s books. And to compound the irony of the SEC’s charges against Mr. Ruehlen, it was Mr. Ruehlen who independently raised new concerns regarding the temporary import process in early 2007, prompting Noble’s internal investigation and voluntary disclosure to the U.S. government.
Notwithstanding this evidence—much of which was known to the SEC well before it filed this action—the SEC charged Mr. Ruehlen with violating the FCPA’s books and records and internal accounting control provisions (collectively, the “accounting provisions”) “under every stretched legal theory imaginable.” Purportedly to “streamline the presentation of evidence to the jury,” the SEC—on the eve of summary judgment—voluntarily dismissed two of those claims (that Mr. Ruehlen failed to “implement” a system of internal accounting controls and aided and abetted Noble’s alleged failure to “devise and maintain” such a system). But the SEC’s remaining FCPA accounting provision claims fail for the same reasons as the claims it now tacitly admits lacked merit—Mr. Ruehlen simply had no responsibility for or authority over the accounting function at Noble, and had no role in determining how the payments at issue were recorded. Moreover, the SEC failed to develop any evidence during discovery to support the numerous—and illogical—ways that Mr. Ruehlen allegedly “circumvented” Noble’s system of internal accounting controls. The Court should grant summary judgment on these claims in light of the undisputed evidence.
The Court should also grant summary judgment on the SEC’s claims for violations of the FCPA’s anti-bribery provisions. Whether the SEC can prove these claims turns entirely on Mr. Ruehlen’s state of mind—i.e., whether he acted “corruptly.” The undisputed evidence shows that Mr. Ruehlen, like many others within the company, believed in good faith that the payments were to secure or expedite temporary import permits to which Noble was entitled.”
In addition to the above motions, the defendants also jointly filed 3 motions seeking to exclude SEC experts: (1) Jeffrey Harfenist (CPA – as to various internal controls issues); (2) Wayne Kelley (as to various customs and practices in the oil and gas industry); and (3) Kofo Olugbesan (a former official of the Nigerian Customs Service).