Archive for the ‘Facilitating Payments’ Category

What’s On Your Mind?

Tuesday, August 27th, 2013

The dog days of summer.  A time for reflection, a time to think.

I posed the question “what’s on your mind” to the following FCPA practitioners and below are their responses.

Philip Rohlik (Debevoise & Plimpton – Hong Kong)

“While I have been working on Asian related FCPA matters for more than seven years, I moved to the region two years ago.  Living here and interacting with local employees in situations other than investigations has given me a different perspective of the cost and difficulties associated with compliance.

Facilitating payments and transnational legal regimes that seek to bar them are on my mind.  While it is correct and easy to say that ethical multinational corporations should not give in to the petty extortion that characterizes facilitation payments, the issue is not so simple when looked at from the reality of an employee in a high-risk jurisdiction — the kind of employee who recently asked me for advice on “how do I make the police go away?” when they visit the second or third week of every month (about the time their last month’s paycheck runs out).  It is easy for a compliance officer or lawyer who encounters random government officials on his or her way to or from the airport to make full use of the ICC’s Resist handbook.  Local (and, let’s face it, not that well paid) employees who must deal with specific officials on a regular basis are in a different situation especially if they have no desire to test the limits of “imminent physical harm.”

When laws impose vicarious or respondeat superior liability, situations to which the law applies should not be determined from the abstract perspective of a corporation but from the realities faced by the company’s employees.  Is the fight against corruption really furthered by having zero tolerance policies for facilitation payments at the corporate level, but local employees very rationally believing that such grand pronouncements leave them in a situation that will either (i) make their life very difficult or (ii) force them to circumvent internal controls in order to make the payment (thereby creating a potential mechanism for more nefarious payments)?  In this respect, the U.S. law that exempts facilitating payments from the anti-bribery provisions of the FCPA may be less anachronistic than it is often made out to be.

Also often on my mind is third party due diligence.  Right now, one of our concerns is attending to our clients’ needs for right-sizing third party due diligence. Businesses are concerned that the continued lack of clarity from regulators as to the required steps results in excessive cost and a misallocation of compliance resources.  While some third parties deserve thorough diligence, how much diligence is due other third-parties?  Is a basic questionnaire and (the often-not-inexpensive) outsourcing of a public records check sufficient?  What if such checks are almost always inconclusive in countries with limited public records?  Do they just become inefficient box ticking?  We are actively working with both clients as well as due diligence firms providing cloud-based and world-wide investigative services to help get these costs under control.  Among the solutions we are working on are greater use of in-house information.  If there are adequate internal controls on the evaluation of in-house experience with a third party, we believe that the greater use of on-hand information to evaluate third parties can be a real cost-saver.  Doing so would free up resources for other compliance tasks as well as improve the client’s bottom line.”

John Rupp (Covington & Burling – London)

“As we continue to struggle on behalf of clients with demands for bribes, large and small, by government officials in a depressing number of countries, I have become ever more convinced that a new approach to the campaign against bribery – in particular, by western countries – is needed.  The approach that western countries have taken thus far to the bribery of foreign government officials is to punish the bribe giver.  The premise appears to be that international companies, including those subject to the US Foreign Corrupt Practices Act and the UK Bribery Act 2010, rather like bribing foreign government officials, seeing it as a convenient way to win business without having to compete fairly with other companies operating in the same space.

A completely different picture emerges, of course, when one spends a good part of each working day developing strategies to enable clients to operate in countries where official corruption is endemic.  The international company employee who wakes up in the morning, steadies himself or herself in the mirror and then looks forward to winning business through bribery is an exceedingly rare bird in my experience.  Overwhelming, the reflected image of the vast majority of employees of international companies grappling with bribery demands is of consternation – how does one continue to operate in Country X when everyone on the government payroll in the country is demanding a bribe for everything?

A fully developed, and maximally effective, anti-bribery program by a western country would involve, I believe, much more attention than has been paid in the past to assisting international companies when they are confronting demands for bribes by foreign government officials.  The US State and Commerce Departments, UK and German Foreign Ministries, World Bank – and many others – should put much more emphasis in the future than they have in the past on assisting companies fend off official demands for bribes.  In many, many cases, they have the resources – and the leverage – to do so.

I’m not suggesting that western countries consider repealing statutes punishing the bribery of foreign government officials.  What I am suggesting is that they balance that approach with an equally concerted effort to deal with the demand side of the bribery equation.

Thomas Fox (Solo Practitioner, Founder and Editor of the FCPA Compliance and Ethics Blog)

“The Securities and Exchange Commission (SEC) is investigating JPMorgan Chase regarding its hiring practices in China. It appears that JP Morgan Chase hired children of Chinese government officials or heads of state owned enterprises. While such hirings do not violate the FCPA per se, they do raise red flags. The FCPA Professor was quoted in the New York Times, “While the hire of a son or daughter itself is not illegal, red flags would be raised if the person hired was not qualified for the position, or, for example, if a firm never received business before and then lo and behold, the hire brought in business.” Such a hire may be a FCPA noteworthy event if the timing of the alleged hiring is closely connected to important business victories and awards of government business.

While the questions of corrupt intent will be paramount I think that this episode emphasizes the continuing key concept of the three most important things in any FCPA compliance program; that being: Document, Document, Document. If your compliance program does not document its successes there is simply no evidence that it has succeeded. In addition to providing to your company support to put forward to the DOJ, it is the only manner in which to gauge the overall effectiveness of your compliance program. To negate corrupt intent, JP Morgan Chase will have to dis-link any hiring with the obtaining of business. It will be the documentary efforts of the company in answering this query that may well decide the question of whether the SEC will consider the matter a FCPA violation or not.”

Friday Roundup

Friday, July 26th, 2013

A sign-off, no surprise, scrutiny alert, for the reading stack, spot-on, and the $10 million man.

Judge Leon Signs-Off On IBM Action

As highlighted in this prior post, in March 2011 the SEC announced an FCPA enforcement action against IBM concerning alleged conduct in South Korea and China.  The settlement terms contained a permanent injunction as to future FCPA violations and thus required judicial approval.  Similar to the Tyco FCPA enforcement action, the case sat on Judge Leon’s docket.  Last month, Judge Leon approved the Tyco settlement (see here) and yesterday Judge Leon approved the IBM settlement.

The common thread between the two enforcement actions would seem to be that both companies were repeat FCPA offenders.

Like Judge Leon’s final order in Tyco, the final order in IBM action states:

“[For a two year period IBM is required to submit annual reports] to the Commission and this Court describing its efforts to comply with the Foreign Corrupt Practices Act (“FCPA”), and to report to the Commission and this Court immediately upon learning it is reasonably likely that IBM has violated the FCPA in connection with either improper payments to foreign officials to obtain or retain business or any fraudulent books and records entries …””

For additional coverage of yesterday’s hearing, see here from Bloomberg.  The article quotes Judge Leon as follows.  IBM “has learned its lesson and is moving in the right direction to ensure this never happens again.” If there’s another violation over the next two years, “it won’t be a happy day.”

However, as noted in this previous post, IBM recently disclosed additional FCPA scrutiny.

No Surprise

This recent post highlighted the 9th Circuit’s restitution ruling in the Green FCPA enforcement action and was titled “Green Restitution Order Stands … For Now.”  As noted in the prior post, the decision practically invited the Greens to petition for an en banc hearing.

No surprise, the Greens did just that earlier this week - see here for the petition.

Scrutiny Alert

This February 2012 post detailed how Wynn Resorts $135 million donation to the University of Macau became the subject of an SEC inquiry.

Earlier this month, Wynn disclosed in an SEC filing as follows:

“On February 13, 2012, Wynn Resorts, Limited (the “Company”) filed a Report on Form 8-K disclosing that it had received a letter from the Salt Lake Regional Office (the “Office”) of the Securities and Exchange Commission (the “SEC”) advising the Company that the Office had commenced an informal inquiry with respect to certain matters, including a donation by Wynn Macau, Limited, an affiliate of the Company, to the University of Macau Development Foundation. On July 2, 2013, the Company received a letter from the Office stating that the investigation had been completed with the Office not intending to recommend any enforcement action against the Company by the SEC.”

According to this report:

“Speaking to The Associated Press from his boat on the Spanish island of Ibiza … CEO Steve Wynn said he never had any doubt federal investigators would clear the company.  ‘We were so sanguine that we never paid any attention to it; we had no exposure. It was a nonevent except for the damn newspapers.’”

For the Reading Stack

The always informative Gibson Dunn Mid-Year FCPA Update and Mid-Year DPA and NPA Update (through July 8th, approximately 30% of all DPAs/NPAs have been used to resolve FCPA enforcement actions).

Sound insight from Robertson Park and Timothy Peterson in this Inside Counsel column:

“Without putting too fine a spin on the matter, the discussion of the potential consequences faced by a company with potential anti-bribery exposure was fundamentally U.S.-centric. The dispositive question was often whether or not the potential misconduct was likely to fall under the umbrella of FCPA enforcement. Would U.S. authorities be interested in pursuing this matter? Would they find out about this matter? There were not many other concerns that mattered. Whether the site of the potential misconduct was in the European, Asian, South American or African sector, the substantial likelihood was that home authorities would have little interest in the matter, and even if they did it was likely an interest that would often frustrate and impede efforts by the Department of Justice or the Securities and Exchange Commission to investigate the matter. Cooperative enforcement was unlikely. This has changed. [...]  For companies that learn of a potential international corruption issue, the impact of this emerging global enforcement market means that the headache associated with scoping an internal investigation is now a migraine with diverse and complex symptoms. Companies investigating potential bribery have always faced the question of how, if at all, they plan to disclose any subsequent findings to government authorities. Now, initial assessments of investigative plans in anti-bribery matters must consider a broader array of potentially interested enforcement authorities. Companies must design their anti-bribery investigations at the outset to consider not only the FCPA enforcement regime in the U.S., but also a newly energized U.K. anti-bribery law, along with a growing list of ant-bribery measures in almost all of the important jurisdictions with business growth opportunities.”

Six ways to improve in-house compliance training from Ryan McConnell and Gérard Sonnier.

The reality of facilitation payments from Matt Kelly.

“… Facilitation payments are a fact of life in global business. Nobody likes them, and no compliance officer wants to pay a bribe disguised as a facilitation payment. But when the transaction truly fits the definition of a facilitation payment—money paid to a government official, to speed up some job duty he would normally perform anyway—there shouldn’t be any ethical or legal crisis in paying it. After all, we have facilitation payments domestically in the United States. If you want a passport from the State Department, you pay $165 in fees. If you want an expedited passport, you pay an extra $60 fee and get your passport in half the usual time. That’s a facilitation payment, pure and simple. Other countries have all sorts of facilitation payments as well, say, to get a visa processed quickly or to clear goods through customs rather than let them rot on the docks. Urgent needs happen in business, and facilitation payments get you through them. That’s life.”

The language of corruption from the BBC.


Regardless of what you think of former New York Attorney General Eliot Spitzer, he is spot-on with his observation that the so-called Arthur Anderson effect (i.e. if a business organization is criminally charged it will go out of business) is “overrated.”  As noted in this Corporate Crime Reporter piece, in a new book titled “Protecting Capitalism Case by Case” Spitzer writes:

“Almost all entities have the capacity to regenerate — even if under a new name, with new ownership and new leadership — and forcing them to do so will have the deterrent effect we desire.”

“Most companies would have no trouble continuing in operation once charged. They might suffer reputational harm, perhaps lose contracts, have certain loans be declared to be in default, and lose some personnel and public support. But that would probably be the proper price to be paid in the context of the violations of the law they committed.”

As noted in previous posts, the Arthur Anderson effect was effectively debunked (see here) and even Denis McInerney (DOJ, Deputy Assistant Attorney General) recently acknowledged (see here) that there is a very small chance that a company would be put out of business as a result of actual DOJ criminal charges.

In his new book Spitzer also writes as follows concerning the SEC’s neither admit nor deny settlement policy.

“I hope that the new leadership at the Securities and Exchange Commission will mandate that an admission of guilt is a necessary part of future settlements in cases of this stature or magnitude. The law and justice require such an acknowledgement — or else nothing has been accomplished.”

Speaking of neither admit nor deny, part of the SEC’s talking points defense of this policy is that the SEC is not the only federal agency that makes use of such a settlement policy.

On this score, it is notable – as detailed in this Law360 article – that Bart Chilton, a top official at the U.S. Commodity Futures Trading Commission, “said the commission should rethink its policy of allowing defendants to settle claims without admitting or denying the allegations.”  According to the article, Chilton stated:

“I understand there are certain circumstances where we might not want to require [admissions], but I think we at the CFTC should change our modus operandi.  The default position should be that people who violate the law should admit wrongdoing.”

$10 Million Man

Continuing with neither admit nor deny, one of the defenders of this settlement policy was Robert Khuzami while he was at the SEC as the Director of Enforcement.   As noted in this Kirkland & Ellis release, Khuzami joined the firm as a partner in the global Government, Regulatory and Internal Investigations Practice Group.  According to this New York Times article, Khuzami’s new position “pays more than $5 million per year” and is guaranteed for two years.  In joining Kirkland, the New York Times stated that Khuzami “is following quintessential Washington script: an influential government insider becoming a paid advocate for industries he once policed.”

Khuzami and former Assistant Attorney General Lanny Breuer were the voice and face of the SEC and DOJ last November upon release of the FCPA Guidance.  As detailed in this prior post, Breuer is currently at Covington & Burling making approximately $4 million per year.


A good weekend to all.

Friday Roundup

Friday, February 15th, 2013

From the SEC Chairman, Congress is capable, adding to the list, scrutiny alerts, and for the reading stack.  It’s all here in the Friday Roundup.

From the SEC Chairman

SEC Chairman Elisse Walter stated as follows earlier this week (see here) in opening a Foreign Bribery and Corruption Training Conference for law enforcement officials from around the world.

“[W]e have found that corrupt practices by a registered company are generally indicators of larger problems within the business – problems with the potential to harm that business’s shareholder-owners.  Bribery and other corrupt practices may result in accounting fraud and falsified disclosures where shareholders are not getting an accurate picture of a company’s finances in their regulatory filings.  Bribery means losing control of – or deliberately falsifying – books and records.  Often, key executives or board members are kept in the dark, limiting their ability to make informed decisions about the company’s business. Obviously, engaging in corrupt practices means weakening or circumventing internal control mechanisms, leaving a company less able to detect and end not just corruption but other questionable practices. A company that has lost its moral compass is in grave danger of losing its competitive roadmap, as well – while shareholders are kept in the dark.”

Congress Is Capable

Well, at least as to certain issues.

Such as introducing and passing laws that expressly describe state-owned entities (“SOEs”).  In reading my historical account of the FCPA’s legislative history, “The Story of the Foreign Corrupt Practices Act” or my “foreign official” declaration here, you will learn that despite being aware of SOEs, despite exhibiting a capability for drafting a definition that expressly included SOEs in other bills, and despite being provided a more precise way to describe SOEs, Congress chose not to include such definitions or concepts in S. 305, the bill that ultimately became the FCPA in December 1977.

This prior post highlighted Congress’s capability in capturing SOEs in Dodd-Frank Section 1504 and along comes another example which demonstrates that Congress is capable of legislating as to SOEs.  Recently, H.R.491 - the Global Online Freedom Act of 2013 was introduced in the House.  The purpose of the bill is “To prevent United States businesses from cooperating with repressive governments in transforming the Internet into a tool of censorship and surveillance, to fulfill the responsibility of the United States Government to promote freedom of expression on the Internet, to restore public confidence in the integrity of United States businesses, and for other purposes.”

The bill defines “foreign official” as follows.

The term ‘foreign official’ means– (A) any officer or employee of a foreign government or of any department; and (B) any person acting in an official capacity for or on behalf of, or acting under color of law with the knowledge of, any such government or such department, agency, state-owned enterprise, or instrumentality.” (emphasis added).

It is a basic premise of statutory construction that Congress is presumed not to use redundant or superfluous language.  Granted, H.R.491 is not yet law, but let’s assume it becomes law as introduced.   If instrumentality includes SOEs (as the enforcement agencies maintain), then Congress will violate this legislative maxim by using redundant or superfluous language in H.R. 491.

Adding To The List

The Heritage Foundation recently published (here) a speech by Peter Hansen titled “Unleashing the U.S. Investor in Africa: A Critique of U.S. Policy Toward the Continent.”  Hansen critiqued U.S. government thinking about African development, including Ambassador statements that it is important to raise incentives for overly “cautious” U.S. companies to invest in Africa.  Hansen stated that this “mistaken assumption” assumed that ”mainstream U.S. companies will be motivated more by the prospect of higher rewards than by the diminishment of risks.”  He noted that this view is not just wrong, but counterproductive and stated as follows.

“The problem with Africa is not a lack of attractive prospects, but rather Africa’s risk profile. With few exceptions, sensible U.S. direct investors (that is, those who run projects, not just take portfolio positions) have steered clear of Africa for the simple reason that Africa’s risks often exceed their risk tolerance. The African market has been left largely to non-Americans, to the unsophisticated seekers of El Dorado, and to a legion of “chancers” who seek sweetheart deals with no money down. The resulting tales of woe coming out of Africa, due largely to poor investment planning or thwarted get-rich-quick schemes, serve wrongly to tarnish Africa’s reputation.  By exclusively raising incentives and failing to reduce risks, Ambassador Carson’s approach simply encourages those already prone to failure, without inspiring broad-spectrum investment by serious U.S. companies. Such bedrock U.S. firms do not need higher incentives. Africa already presents high-return opportunities. What serious U.S. firms need instead is for Africa’s risks to be reduced. Rewards that cannot be obtained are, after all, just mirages. The easiest way for the U.S. government to reduce risks for U.S. investors in Africa is to provide them with legal protection.  The basic legal tools for protecting U.S. investors are double tax treaties (DTTs), often called double tax agreements (DTAs) and bilateral investment treaties (BITs).”

Query whether an FCPA compliance defense should be added to this list?  See here to download my article “Revisiting a Foreign Corrupt Practices Act Compliance Defense.”

Scrutiny Alerts and Updates

This previous post highlighted the scrutiny Brookfield Asset Management (a Toronto based global asset management company with shares traded on the NYSE) was facing in Brazil concerning allegations that its subsidiary paid bribes to win construction permits.  As the Wall Street Journal recently reported (here), Sao Paulo, Brazil prosecutors filed civil charges against the company’s Brazilian subsidiary, two of its top executives and a former employee.  The prosecutor is quoted in the WSJ as saying that “Brookfield has created a high system of bribery in order to obtain approval for its projects quickly and with irregularities.”  A spokesman for the company stated as follows.  “These are unproven allegations made by a former employee.  We don’t believe Brookfield did anything wrong and we are cooperating with authorities.”

This previous post highlighted scrutiny of EADS subsidiary, GPT Special Management Systems in the U.K.  The Financial Times recently reported here that the FBI is also probing corruption allegations against GPT ”relating to a contract in Saudi Arabia.”  The article states as follows.  “The FBI has interviewed a witness and taken possession of documents in connection with allegations that GPT bribed Saudi military officials with luxury cars and made £11.5m of unexplained payments – some via the US – to bank accounts in the Cayman Islands.”

This recent Reuters article reports that Italian police arrested the head of defense group Finmeccanica SpA (Giuseppe Orsi) on a warrant alleging that he paid bribes to win an Indian contract.  According to the report, Prosecutors accuse Orsi of paying bribes to intermediaries to secure the sale of 12 helicopters in a 560 million euro ($749 million) deal when he was head of the group’s AgustaWestland unit.  Finmeccanica, which is approximately 30% owned by the Italian government, has ADRs registered with the SEC and AgustaWestland does extensive business in the U.S. (see here), including with the U.S. government.  According to this Wall Street Journal article, Italian prosecutors are also “investigating [Finmeccanica] on suspicion that it engaged in corrupt activities to win various types of contracts in Latin America, Asia, and at home.”

This recent Bloomberg article reports that “Eni SpA Chief Executive Officer Paolo Scaroni is being investigated for alleged corruption in an Italian probe of contracts obtained by its oil services company, Saipem SpA, in Algeria.”  Eni has ADRs registered with the SEC.  In 2010, Eni resolved (see here) an SEC FCPA enforcement action concerning Bonny Island, Nigeria conduct.  In resolving the action, Eni consented to the entry of a court order permanently enjoining it from violating the FCPA’s books and record and internal controls provisions.

NCR Corporation stated in a recent release here, in pertinent part, as follows concerning its FCPA scrutiny.

“Update regarding OFAC and FCPA Investigations

The Company and the Special Committee of the  Company’s Board of Directors have each completed their respective internal investigations regarding the anonymous allegations received from a purported whistleblower regarding certain aspects of the Company’s business practices in China, the Middle East and Africa. The principal allegations relate to the Company’s compliance with the Foreign Corrupt Practices Act (“FCPA”) and federal regulations that prohibit U.S. persons from engaging in certain activities in Syria.


The Company has made a presentation to the staff of the Securities and Exchange Commission(“SEC”) and the U.S. Department of Justice (“DOJ”) providing the facts known to the Company related to the whistleblower’s FCPA allegations, and advising the government that many of these allegations were unsubstantiated.  The Company’s investigations of the whistleblower’s FCPA allegations identified a few opportunities to strengthen the Company’s comprehensive FCPA compliance program, and      remediation measures were proposed and are being implemented.  As previously disclosed, the Company is responding to a subpoena of the SEC and requests of the DOJ for documents and information related to the FCPA, including matters related to the whistleblower’s FCPA allegations.”

Investigating the purported whistleblower’s allegations has been a costly exercise for NCR.  In a recent earnings conference call, company CFO Bob Fishman stated that the “overall cost” has been approximately $4.8 million.

Reading Stack

See here for the New York Times DealBook writeup of oral arguments in SEC v. Citigroup - an appeal which focuses of Judge Jed Rakoff’s concerns about common SEC settlements terms, including neither admith nor deny.

FCPA enforcement statistics are over-hyped for compliance assessments says Ryan McConnell (Morgan Lewis) in this Corporate Counsel article.  In this Corporate Counsel article, McConnell and his co-author compare 2012 to 2011 numbers in terms of facilitation payments data found in corporate policies.

The three types of employees one encounters when conducting FCPA training – here from Alexandra Wrage (President, Trace International).

If for no other reason, because of the picture associated with this recent post on


A good weekend to all.

Friday Roundup

Friday, January 25th, 2013

The latest double standard installment, a Rocky Mountain Rakoff, interesting tidbits, save the date, and just in case you were wondering.  It’s all here in the Friday roundup.

Double Standard

A pharmaceutical company faces pending government restraints that could negatively affect its business.  The company turns to its lobbyists that include the former chiefs of staff to various current government officials on a key government committee.  Also, in recent years the company indirectly gave thousands of dollars to the current government officials and otherwise made large donations to groups favored by the current government officials.  The government officials insert a paragraph into a massive spending bill that, while not specifically mentioning the company, strongly favors one of the company’s drugs.  The effect of the paragraph in the bill gives the company two additional years to sell the drug without government price controls.

Having read the recent Eli Lilly FCPA enforcement action (see here for the prior post) and otherwise being an astute FCPA observer, your FCPA antennas are going off.

But wait.

The government officials were not “foreign officials” – they were U.S. government officials!

See here for the recent New York Times story on Amgen’s courting of various members of the Senate Finance Committee.

Scrap those internal investigation plans, forget about voluntary disclosure, and slim chance there will be an enforcement action. Nobody said our system was perfect, but that is just how the system works some will say.

But why should corporate interaction with a “foreign official” be subject to greater scrutiny and different standards of enforcement than corporate interaction with a U.S. official? After all, there is a U.S. domestic bribery statute (18 USC 201) with elements very similar to the FCPA.  Why do we reflexively label a “foreign official” who receives “things of value” from private business interests as corrupt, yet generally turn a blind eye when it happens here at home?

As you contemplate these questions, just remember, as soon to be former Assistant Attorney General Lanny Breuer recently declared (see here), “we in the United States are in a unique position to spread the gospel of anti-corruption.”

For numerous prior posts concerning the double standard, see here.

A Rocky Mountain Rakoff

We celebrate Mary Jo White’s appointment to be the next Chair of the SEC by focusing on yet another federal court judge calling into question the SEC’s signature neither admit nor deny settlement policy.  For more on that policy and how it contributes to a facade of enforcement, see numerous prior posts here, here, here, and here - focusing mostly on Judge Jed Rakoff’s (S.D.N.Y.) disdain of the policy.

In August 2012, the SEC brought a complaint (see here) against Colorado-based Bridge Premium Finance LLC and certain of its executives for allegedly perpetrating a Ponzi scheme.  The SEC and defendants agreed to resolve the matter and, as typical and as is frequently the case in SEC FCPA matters, the defendants did so without admitting or denying the SEC’s allegations.

Enter U.S. Senior District Court Judge John Kane (D. Co.) who pulled a Rocky Mountain Rakoff.  In a January 17th order, Judge Kane stated as follows.

“I refuse to approve penalties against a defendant who remains defiantly mute as to the veracity of the allegations against him. A defendant’s options in this regard are binary: he may admit the allegation or he may go to trial. I also object to the language in the consents and the proposed final judgments whereby the defendants waive their rights to the entry of findings of fact and conclusions of law pursuant to FRCP 52 and their rights to appeal. These findings are important to inform the public and the appellate courts. I will not endorse any final judgments including such provisions.”

Returning to Judge Rakoff, you may recall (see here for the prior post) that his disdain for the SEC’s settlement policy is currently before the Second Circuit in SEC v. Citigroup.  As Professor Barbara Black notes on her Securities Law Prof blog, oral arguments on the merits is scheduled for February 8th.

Interesting Tidbits

Alexandra Wrage (President of Trace International) writes in a recent Forbes column (here) as follows.

“Whether they’re stating it expressly or acting on it quietly, governments are using corporations as their primary tool to reduce international bribery.   They alarm companies with vast fines and terrify individuals with substantial prison sentences with the hope of ending the payment of bribes because they cannot, in most cases, do much of anything about those demanding them.   This is not inappropriate.  Companies are regulated, subject to laws and answerable to shareholders.  The worst offenders demanding bribes, on the other hand, do so with impunity, hiding behind sovereign immunity and, often, their own, complicit local law enforcement.  Abacha.  Suharto. Marcos.  Duvalier.  It’s a longstanding tradition, still thriving in many countries today.  US and some European law enforcement agencies have been extraordinarily successful, with fines in the United States now counted in the billions of dollars and other jurisdictions promising to catch up soon.   While these efforts have done more than anything else to reduce bribery, they have yet to convince us that companies are both the sole source and solution of all international corruption — and that’s insupportable.  [...]  The simple reality is that there are just some things that companies can’t do about corruption.”


Wrage’s comments remind me a similar spot-on observation made during the middle of the FCPA’s legislative history.  See here for the prior post regarding Milton Gwirtzman’s dandy article published by the New York Times Magazine in October 1975 in which he observes as follows – “it would be unwise, as well as unfair, simply to write off bribery abroad to corporate lust – it is a symbol of far deeper issues …”.

As to those deeper issues, an issue I frequently write about is why do FCPA violations occur?  Do companies subject to the law have bribery as a business strategy?  Or do companies subject to the law encounter difficult and opaque business conditions abroad?  To be sure, FCPA enforcement actions have been based on both scenarios, but my opinion (as well as that of the former chief of the DOJ’s FCPA unit – see here for his previous guest post) is that the later scenario is the more common reason for FCPA exposure.

For instance, a recent post on the China Law Blog by Dan Harris (here) begins as follows.

“Got a call the other day from an American company wanting to sell its food products into China. And fast.  The problem this company is facing is that one cannot “just” sell food into China immediately.  To sell food legally into China, Foreign companies must first pass certification before China’s General Administration of Quality Supervision, Inspection and Quarantine, better known as AQSIQ.  The food company told me that its research had revealed that it typically takes around a year to secure this certification, but that someone in China was promising they could do it in “around six to eight weeks.”

Also on the list of FCPA exposure risks, I would add various trade distortions and barriers, such as central government procurement policies.  For this reason, I found this recent Sidley & Austin alert interesting.  It concern a new China “regulation that subjects certain high-value medical devices to a centralized procurement regime.”

Save the Date

D.C. area readers may be interested in a February 12th event hosted by American University Washington College of Law and presented by the American University International Law Review.  Titled “Bribes Without Borders:  The Challenges of Fighting Corruption in the Global Context,” the symposium will feature panels of academics, practitioners, and civil society representatives and will touch upon a variety of bribery and corruption topics including the FCPA.  I will be participating on an afternoon panel and will be speaking on FCPA enforcement and the rule of law.  Robert Leventhal (Director, Anti-Corruption and Governance Initiatives, U.S. State Department) will deliver a keynote luncheon address.  The symposium is free, but registration is requested.

Just in Case

Just in case you were wondering about the U.K. SFO’s position on facilitation payments (see here for a prior post), the Bribery Library site shines light on a December 6, 2012 “to whom it may concern” letter (here) from SFO Director David Green in which he states that “facilitation payments are illegal under the Bribery Act 2010 regardless of their size or frequency.”

You can now head into the weekend confident in your knowledge of the U.K.’s position.


A good weekend to all.

Judge Grants Jackson And Ruehlen’s Motion To Dismiss SEC’s Monetary Claims – Finds That SEC Was Not Diligent In Bringing Case And That SEC Failed To Negate Facilitation Payments Exception – However Judge Allows SEC To File An Amended Complaint

Wednesday, December 12th, 2012

Previous posts here, here and here discussed the motion to dismiss briefing in the SEC v. Mark Jackson and James Ruehlen Foreign Corrupt Practices Act enforcement action.  The enforcement action is notable in that the defendants, unlike most FCPA defendants, mounted a legal defense.

This previous guest post highlighted last week’s oral argument on the motion.

Yesterday, Judge Keith Ellison (S.D. Tex.) issued a lengthy 61 page decision (see here).

This post goes long and deep as to Judge Ellison’s decision.

Judge Ellison granted Defendants’ motion to dismiss the SEC’s claims that seek monetary damages while denying the motion to dismiss as to claims seeking injunctive relief.  Even though Judge Ellison granted the motion as to SEC monetary damage claims, the dismissal is without prejudice meaning that the SEC will be allowed to file an amended complaint within 30 days.  Presumably after the SEC does this, a new round of briefing will begin again.

In short, Judge Ellison’s decision was based on statute of limitations grounds (specifically that the SEC failed to plead any facts to support an inference that it acted diligently in bringing the complaint) as well as the SEC’s failure to adequately plead discretionary functions relevant to the facilitation payments exception.  As to the first issue, see this post from February 2011 in which I imagined a world in which FCPA defendants mounted legal defenses based on black-letter legal principles such as statute of limitations.  As to the second issue, Judge Ellison concluded, in what is believed to be an issue of first impression, that the SEC must bear the burden of negating the facilitation payments exception.

In addition, Judge Ellison’s decision also touches upon whether the SEC needs to specifically identify the alleged ”foreign officials” as well as corrupt intent.  As to the first issue, Judge Ellison concluded that the identity of the foreign official need not be pled with specificity nor does the FCPA mandate a bright-line rule of detailed pleadings about a foreign official’s particular duties.  In so concluding, Judge Ellison acknowledged his disagreement with Judge Lynn Hughes (also in the S.D. of Texas) who stated the opposite in the DOJ’s unsuccessful prosecution of John O’Shea.

All issues are discussed below in the order discussed in Judge Ellison’s decision.

By way of background, the SEC’s complaint (see here for the prior post) alleges that Jackson and Ruehlen violated “the FCPA by participating in a bribery scheme to obtain illicit permits [Temporary Import Permits - "TIPs"] for oil rigs  in Nigeria in order to retain business under lucrative drilling contracts.”  The SEC’s complaint is based on the same core set of facts as the November 2010 DOJ/SEC enforcement action against the Defendants employer, Noble Corporation (see here for the prior post).  As Judge Ellison stated (his recitation of the facts takes up 15 pages) ”the SEC charges Jackson and Ruehlen with multiple violations of the Foreign Corrupt Practices Act and other federal securities law in connection with actions they allegedly took to obtain TIPs and TIP extensions in order to avoid paying permanent import duties.”

As Judge Ellison observed in setting forth the legal standard in ruling on a motion to dismiss, “the question for the court to decide is whether the complaint states a valid claim when viewed in the light most favorable to the plaintiff” and the “court should not evaluate the merits of the allegation, but must satisfy itself only that plaintiff has adequately pled a legally cognizable claim.”

Judge Ellison next addressed Defendants claims which contended that the SEC’s complaint failed to adequately plead:  (1) the involvement of a foreign official; (2) that the payments were not facilitating payments, (3) that the Defendants acted corruptly, and (4) whether the facilitating payments exception is unconstitutionally vague.

“Foreign Official”

As to the involvement of a “foreign official,” Judge Ellison summarized the position of the parties as follows.

“Defendants contend that the FCPA requires a plaintiff to allege the identity of the foreign official whose authority a defendant sought to misuse.  They suggest that the SEC must allege by name, or at a minimum by role and job responsibility, the foreign official who was sought to be influenced.  The SEC contends that there is nothing in the FCPA that requires pleading the identity of the foreign official involved with the level of detail Defendants advocate.  Furthermore, it [the SEC] argues that Defendants’ interpretation of the FCPA would run counter to congressional intent.”

Judge Ellison stated, in pertinent part, a follows.

“The language of the statute does not appear to require that the identity of the foreign official involved be pled with specificity. Indeed, the terms of the FCPA make it unlawful corruptly to authorize payments to any person, knowing that any portion of those payments would be offered to any foreign official.  It is possible that the requirement that the payment be made or authorized with the purpose of “influencing any act or decision of such foreign official . . . in his . . . official capacity . . . , (ii) inducing such foreign official . . . to do or omit to do any act in violation of the lawful duty of such foreign official . . . , or (iii) securing any improper advantage . . . ”, would, at times, require the government to plead details about the foreign official’s identity, duties and responsibilities. For instance, the Court can imagine cases where, in order to show that the payment was intended to influence the official to neglect some particular duty, the government would have to plead that the official had that duty in the first place. However, the Court can similarly imagine situations where the purpose element could be satisfied without pleading details about a foreign official’s particular duties. Where the government alleges that payments made were intended to influence a foreign official to violate the very laws he is charged with implementing, it hardly seems necessary to require the government to identify the day-to-day duties of that foreign official; that foreign official, irrespective of whether he is the most junior staff member or the official who name appears at the top of the organizational chart, surely has a duty, like every government official, not to violate the laws he is charged with implementing. Furthermore, [the FCPA] provides that the purpose element can be satisfied by factual allegations that a payment was made with the purpose that some foreign official would be paid money to secure some improper advantage, which also does not appear to require allegations about that individual’s job responsibilities. The Court cannot see why the purpose requirement in [the FCPA] should mandate a bright-line rule of detailed pleadings about a foreign official’s particular duties.

Nothing in the legislative history of the FCPA suggests that Congress intended to limit the application of [the FCPA] to those cases where the government could show that a defendant knew, either by name or job description, precisely which foreign officials would be receiving the illicit payments he had authorized. The Fifth Circuit has recognized that, subject to the narrow exception for facilitation payments, Congress intended, with the FCPA, to “cast an otherwise wide net over foreign bribery.”  Kay I, 359 F.3d at 749.  Indeed, in explaining the requirement that a defendant act knowingly, Congress specified that the statute is intended to cover “both prohibited actions that are taken with ‘actual knowledge’ of intended results as well as other actions that, while falling short of what the law terms ‘positive knowledge,’ nevertheless evidence a conscious disregard or deliberate ignorance of known circumstances that should reasonably alert one to the high probability of violations of the Act.” H.R. Conf. Rep. 100-576 (1988).

In light of this legislative history, it would be perverse to read into the statute a requirement that a defendant know precisely which government official, or which level of government official, would be targeted by his agent; a defendant could simply avoid liability by ensuring that his agent never told him which official was being targeted and what precise action the official took in exchange for the bribe. Yet, Defendants contend that the Complaint must allege this level of detail. [...] The Court seriously doubts that Congress intended to hold an individual liable under [the FCPA] only if he took great care to know exactly whom his agent would be bribing and what precise steps that official would be taking. Congress intended to address the problem of domestic entities bribing foreign officials to accomplish certain proscribed ends, see Kay I, 359 F.3d at 747, not domestic entities carefully monitoring the execution of that bribery.  And, if the FCPA does not require a defendant to know precisely which government official was being bribed, a plaintiff bears no burden to allege such facts.

[T]he limitations set out in [the FCPA] do not require the government in every case to plead details about the particular duties of the government official involved; sometimes, the nature of the benefit sought would inherently fall into the class of prohibited acts. Similarly, as discussed infra, pleading the non-applicability of the “facilitating” payments exception will not always require pleading details about the foreign official’s duties. Finally, that the offer or payment must be made in order to assist a defendant in obtaining or retaining business also does not require pleading anything about the foreign officials’ particular responsibilities.  Accordingly, the Court’s conclusion is bolstered by the fact that interpretations of the domestic bribery statutes have not required the level of specificity Defendants seek.

The authorities cited by the Defendants do not convince this Court. It is true that, in Kay I, the Fifth Circuit noted, in a parenthetical, that among the elements of a violation of the FCPA are “the identity of the foreign country and of the officials to whom the suspect payments were made, and the sought-after unlawful actions taken or not taken by the foreign officials in consideration of the bribes.”  Kay I, 359 F.3d at 760.  This, of course, says nothing about the level of detail with which these elements must be alleged. It is telling that, in Kay I itself, the government alleged only that payments were made to “customs officials in the Republic of Haiti” and “officials of other Haitian agencies” to accept documents that understated the true amount of rice being imported by the defendants in that case.  Kay I, 359 F.3d at 762.  The indictment does not specify the job responsibilities of the customs officials and entirely unidentified “other” officials, or what precise actions they took to accept the false documents at issue in Kay I.  If the Fifth Circuit intended for the foreign officials’ identities and specific  misdeeds to be alleged in the great level of detail that Defendants propose, the Court thinks it would have made mention of the woefully inadequate allegations in the case before it. The SEC here has alleged that payments were made to “Nigerian government officials” to “process eleven illegitimate TIPs with false paperwork” and “to obtain discretionary or unlawful extensions of these TIPs.”  The SEC also specifically alleges that among the agencies that received such payments were the NMA and NPA. The Court finds that these allegations are no less detailed than the allegations in Kay I’s indictment.


In a footnote, Judge Ellison stated as follows.

“[T]he Court must disagree with Judge Hughes’s oral statements in a recent criminal FCPA prosecution. [U.S. v. O'Shea] (“You can’t convict a man promising to pay unless you have a particular promise to a particular person for a particular benefit. If you call up the Basurtos and say, look, I’m going to send you 50 grand, bribe somebody, that does not meet the statute.”). This Court holds that asking a third party to bribe a government official, in order to induce that official to act in one of the proscribed ways detailed in [the FCPA], would meet the statute. The government does not have to “connect the payment to a particular official.”

“Facilitating” Payments and “Corruptly”

Judge Ellison summarized the position of the parties as follows.

“Defendants argue that the FCPA charges must be dismissed because the SEC bears the burden of pleading the inapplicability of the “facilitating” payments exception, [...]   and it has failed to do so. Defendants also argue that the SEC has failed to plead sufficient facts that would support the inference that Defendants acted “corruptly” because the facts pled by the SEC are equally consistent with Defendants’ belief that the payments were permissible facilitating payments, and because, in any event, the SEC has not alleged sufficient facts to indicate that the payments were made with the requisite intent.  Finally, Ruehlen argues that the “facilitating” payments exception is unconstitutionally vague.

The SEC contends that Defendants bear the burden of pleading the inapplicability of the “facilitating” payments exception, but claims that, in any event, it has negated the “facilitating” payments exception.  The SEC further argues that it has adequately pled corrupt intent because it has pled sufficient facts to support the inference that Defendants knew their actions did not fall under the “facilitating” payments exception and were, in fact, taken with the requisite evil motive.  Finally, the SEC argues that the “facilitating” payments exemption is not unconstitutionally vague because a man of common intelligence would have understood what would constitute a permissible payment under the exception and what would not.”

As to the issues, Judge Ellison stated as follows.

“[T]he Court cannot, in every instance, divine, from the sheer fact that Congress chose to exempt “facilitating” payments from liability through an exception instead of an affirmative defense, that it intended for plaintiffs to bear the burden of pleading and proving the exception.  Instead the Court starts from the presumption that  Defendants bear the burden of raising and proving the applicability of an affirmative defense.  The Court then considers whether this statute is on of those rare instances where the true definition of the offense cannot be discerned unless the exception is negated.”

Judge Ellison next turns to the “particular circumstances that led to the addition of the “facilitating” payments exception, which neither party addresses” and stated as follows.

“When the FCPA was first enacted in 1977, there was no such explicit exception, but the legislative history indicated that by using the word “corruptly,” Congress intended to exempt such payments from the purview of the statute. For instance, the House Committee on interstate and foreign commerce provided as follows in its report: The language of the bill is deliberately cast in terms which differentiate between such payments and facilitating payments, sometimes referred to as “grease payments.” In using the word “corruptly,” the committee intends to distinguish between payments which cause an official to exercise other than his free will in acting or deciding or influencing and act or decision and those payments which merely move a particular matter toward an eventual act or decision or which do not involve any discretionary action. H.R. Rep. No. 95-640, at 4 (1977). Similarly, the Senate Committee on Banking, Housing and Urban Affairs wrote: “The statute does not . . . cover so-called ‘grease payments’ such as payments for expediting shipments through customs or placing a transatlantic telephone call, securing required permits, or obtaining adequate police protection, transactions which may involve even the proper performance of duties.” S. Rep. No. 95-114, at 10 (1977). In adding an explicit exception for “facilitating” payments in 1988, both houses explained that the amendment was meant “only to clarify ambiguities ‘without changing the basic intent . . . of the law.’” [...]  The legislative history reveals that Congress intended, by using the word “corruptly,” to except facilitating payments from the ambit of the FCPA, and the addition of the “facilitating” payments exception into the language of the statute was intended only to clarify that intent. No one disputes that the SEC must bear the burden of proving that Defendants acted corruptly. Accordingly, the Court finds that the evolution of the statute in this case strongly supports the conclusion that the SEC must bear the burden of negating the “facilitating” payments exception.  The facilitating payments exception is best understood as a threshold requirement to pleading that a defendant acted “corruptly.”

The “facilitating” payments exception was intended to provide a “very limited exception[] to the kinds of bribes to which the FCPA does not apply.”  Kay I, 359 F.3d at 750.  The exception allows for payments to foreign officials the purpose of which is to “expedite or secure the performance of a routine government action,” [...], which refers to a “very narrow categor[y] of largely non-discretionary, ministerial activities performed by mid- or low-level foreign functionaries.” Kay I, 359 F.3d at 751.  While the statute specifically includes “obtaining permits” as an example of the type of action that typically qualifies as routine, the Court interprets the example to refer to obtaining permits to which one is properly entitled.  See H.R. Rep. No. 95-640, at 8 (explaining that Congress intended to exclude from the FCPA’s reach “those payments which merely move a particular matter toward an eventual act or decision or which do not involve any discretionary action”).

The SEC alleges that Defendants authorized payments to foreign officials in order to obtain TIPs based on false paperwork, in contravention of what Defendants knew was the proper process for obtaining TIPs. As discussed supra,the SEC pled sufficient facts to support the allegation that Defendants knew these payments would be going to Nigerian government officials to obtain TIPs in a manner that violated Nigerian law. The grant of permits by government officials that have no authority to grant permits on the basis sought is in no way a ministerial act nor can it be characterized as “speeding the proper performance of a foreign official’s duties.” H.R. Rep. No. 95-640, at 8. Similarly, if payments were made to induce officials to validate the paperwork while knowing it to be false, that too would not qualify as simply expediting a ministerial act. Accordingly, the SEC’s pleadings easily negate the “facilitating” payments exception with regard to payments made to acquire false paperwork TIPs.

The SEC also alleges that Defendants authorized payments to foreign officials in order to obtain discretionary TIP extensions. Although the Court found that the SEC has alleged sufficient facts to support the inference that Ruehlen, and for the most part Jackson as well, knew that the payments they authorized would be going to bribe foreign officials, the Court cannot conclude that the Complaint pleads sufficient facts to support the allegation that Ruehlen or Jackson knew that these payments would be used to influence a discretionary decision of a foreign official. In fact, the SEC fails to plead sufficient facts to support the allegation that granting of TIP extensions is a discretionary action. The SEC repeatedly alleges that the granting of extensions is a discretionary action.  However, repeated incantations that NCS may grant an extension in its discretion do not satisfy the SEC’s obligations under Iqbal and Twombly to plead facts that render plausible such conclusory allegations.  The SEC alleges sufficient facts to support the conclusion that fourth extensions were illegal, including that grants of third extensions routinely indicated that the extension was the final extension that would be granted for that rig, as well as Noble’s own failed attempt to obtain a fourth extension.  It also alleges that NCS had previously denied a third extension because the rig was operating under a different drilling contract. However, these allegations are insufficient to make plausible the conclusion that granting TIP extensions is discretionary. These allegations are just as consistent with a regime where up to three TIP extensions are granted as a matter of routine for rigs that continue to operate on the same contract as they were operating when the initial TIP was granted. And if NCS does grant up to three TIPs routinely, any bribes offered to speed along or assure that action would fall squarely into the “facilitating” payments exception.


[T]he SEC has leave to amend the Complaint to allege facts that would support the allegation that granting TIP extensions is a matter of discretion. The SEC can satisfy this burden in a number of ways. The simplest way to do so would be to plead the Nigerian law or policy that so provides. However, the Court does not discount other means. After all, the SEC has plausibly pled that granting TIPs based on false paperwork is a violation of Nigerian law by relying on the fact of a prior Nigerian prosecution and the opinion of a legal expert.  Therefore, the Court does not rule out the possibility that the SEC may be able adequately to plead facts that would support the conclusion that grants of TIP extensions are a matter of discretion without pleading the provisions of Nigerian law. However, should the SEC not rely on Nigerian law, it must do more than just plead facts tat would be equally consistent with a protocol under which where TIP extensions are routinely granted if they satisfy certain threshold requirements.

After reviewing the FCPA’s legislative history, Judge Ellison interpreted the word “corruptly” as an act done with an evil motive or wrongful purpose of influencing a foreign official to misuse his position.”

He further stated as follows.

“In pleading that Defendants acted corruptly, the SEC need not proffer facts that would show that they knew their actions would constitute a violation of the FCPA [...] (noting that nothing about the word “corruptly” suggests that the government must prove that a defendant knew he was violating the FCPA);  Kay II, 513 F.3d at 450-451 (holding that even the willfulness requirement in a criminal prosecution does not require the government to prove that a defendant knew he was violating a particular statute).  Indeed, this court seriously doubts that the SEC even needs to prove that Defendants knew that their actions violated any specific law. Because Kay II interpreted the willfulness requirement as requiring only a showing that a defendant knew that his actions were in some way unlawful, [...] to interpret the word “corruptly” to require such knowledge would eliminate the distinction between a criminal and civil violation of the FCPA.  [...]

Defendants argue that the SEC has not pled that they acted corruptly because it had failed to plead any violations of Nigerian law, and because both defendants had a good faith belief that they were acting lawfully.   Specifically, Jackson argues that he had a good faith belief in the legality of the payments as facilitating payments, and Ruehlen argues that he relied in good faith on the approval of the payments by supervisors, including Jackson.

As the Court has already discussed, the SEC has alleged sufficient facts that support the inference that obtaining TIPs through the use of false paperwork violated Nigerian law. However, as explained, the SEC has no obligation to plead that Defendants knew that they were violating a law, or even that they were seeking an illegal result to state a civil FCPA violation. Instead, it must plead only that Defendants acted with the wrongful purpose of influencing a foreign official to misuse his official position. As explained the SEC has adequately alleged that Defendants authorized payments to foreign officials to obtain TIPs based on false paperwork, in contravention of what Defendants knew to be the proper protocol. Seeking to obtain governmentally-issued benefits through payments intended to ensure Nigerian officials ignore the proper protocols plainly satisfies the requirement of having the wrongful purpose of influencing a foreign official to misuse his position. Defendants’ representations of their good-faith belief that the payments were “facilitating” payments, and therefore legal, are unavailing. First, as explained, the SEC’s allegations support the inference that Defendants knew they were seeking to obtain TIPs in an illegal manner, thereby pleading facts that, if true, would negative any claim of good faith belief that the payments were made to ensure routine government actions. At the motion to dismiss stage, representations to the contrary are irrelevant. Second, the Court is not certain that the SEC is obliged to plead that Defendants did not have a good-faith belief that their payments fell under the “facilitating” payments exception. As a practical matter, the Court has difficulty imagining how the SEC could plead that Defendants acted “corruptly” without, at the same time, pleading facts that, if true, would render implausible any claim that Defendants had a good-faith belief that the payments fell into the “facilitating” payments exception. After all, it is hard to see how one could have the evil motive or wrongful purpose of influencing an official to misuse his official position while, at the same time, believing, in good faith, that he was simply ensuring or expediting a routine government action. The Court need not resolve the question, however, because, in any event, the facts alleged by the SEC support the inference that Defendants knew use of false paperwork to obtain TIPs was illegal.

Finally, Ruehlen argues that the SEC has not pled adequate facts that he acted corruptly because he authorized payments with the knowledge and consent of Noble’s senior management.  [...]  The factfinder may certainly consider whether Jackson’s approval of the payments negates corrupt intent. However, for the purpose of Rule 12(b)(6) motion, the Court finds that the facts pled regarding Ruehlen’s intimate involvement with the West Africa Audit make plausible the allegation that he did act “corruptly.”

Because the Court finds that the SEC has failed adequately to plead that the payments to obtain TIP extensions were not facilitating payments, it does not address whether the SEC has adequately pled that Defendants acted corruptly in making those payments. However, the Court notes, that should the SEC amend its complaint to plead sufficient facts to support the inference that the grant of TIP extensions is a discretionary act, it will need also to plead facts that support the inference that, in making these payments, Jackson and Ruehlen had the evil motive or wrongful purpose of influencing an official to misuse his position.”

In a footnote Judge Ellison then stated as follows.

[W]hile the Court finds no explicit statutory obligation to plead facts that would tend to show that Defendants did not have a good faith belief that their payments fell within the “facilitating” payments exception, the Court has difficulty imagining that the SEC will be able to plead that Defendants had the bad purpose of influencing an official to misuse his position if it does not first plead that Defendants knew they were not entitled to extensions as a matter of right upon satisfying certain basic threshold requirements.

As to the unconstitutional vagueness issue, Judge Ellison stated as follows.

“Here, a person of common intelligence should have no difficulty understanding that routine government actions do not include the granting of permits based on fraudulent documents. He would not fail to understand that the statutory example of “obtaining permits” as a routine governmental action presupposes that those permits are obtained based on some valid entitlement. Furthermore, even if a man of common intelligence might be somewhat uncertain about whether payments to secure TIPs through a known illegal method would be covered by the “facilitating” payments exception, the exception is but one of numerous elements of a civil FCPA violation; some ambiguity in the scope of this one part of the statute does not draw an impermissibly vague line.  [...]

Similarly, should the SEC amend its Complaint adequately to plead that the granting of TIP extensions is a discretionary action, any argument that enforcement actions could not be initiated on the basis of payments to obtain favorable exercises of discretion in obtaining permits would also fail. In analyzing the FCPA, the Fifth Circuit made it unambiguously clear that the FCPA was enacted in substantial part to “prohibit the type of bribery that . . . prompts officials to misuse their discretionary authority.”  […} Even if the language of the “facilitating” payments exception failed adequately to put persons of common intelligence on alert that bribery to influence discretionary decisions was prohibited under the FCPA, Kay I, a  decision from February 2004, established the point as a matter of law. It is, of course, a “common maxim, familiar to all minds, that ignorance of the law will not excuse any person, either civilly or criminally.” [...]“

Statute of Limitations

Judge Ellison summarized the positions of the parties as follows.

“Jackson and Ruehlen argue that the SEC’s Complaint should be dismissed because all of the events giving rise to the claims occurred outside of the limitations period and the SEC’s Complaint has failed to raise any basis for tolling.  The SEC does not dispute that the Complaint, on its face, raises no basis for tolling, but it argues that the statute of limitations should be tolled because of tolling agreements between the parties, because the fraudulent concealment doctrine applies, and because the continuing violations doctrine applies. Additionally, the SEC contends that the statute of limitations does not apply to equitable relief such as injunctions.  Finally, the SEC requests leave to amend its Complaint to plead any additional facts necessary for statute of limitations purposes.”

After discussing the applicable five year statute of limitations, he stated as follows.

The Complaint in this case was filed on February 24, 2012. Accordingly, absent some reason the statute of limitations should not apply, claims that accrued before February 24, 2007 should be barred. Here, the vast majority of the misconduct alleged occurred before February 24, 2007.  Although the Complaint does not plead any basis for tolling, the Court examines the  arguments as to why the statute of limitations should be tolled or is inapplicable, to determine whether any of the claims predicated on conduct prior to February 24, 2007 survive, and also to determine whether leave to amend would be futile.


Defendants do not dispute that they each signed tolling agreements with the SEC that would suspend the running of the statute of limitations for a total of 290 days.  These tolling agreements would make timely any claims based on conduct occurring after May 10, 2006.  [...] Thus, although the SEC should have pled the existence of these tolling agreements, the Court finds it appropriate to grant the SEC leave to amend.”

As to fraudulent concealment as a basis for tolling the statute of limitations, Judge Ellison stated as follows.

Defendants also argue that the Complaint has failed to raise any basis for tolling. They argue that the SEC has failed to plead facts that would give rise to tolling based on the doctrine of fraudulent concealment. The SEC contends that it has pled the elements of fraudulent concealment that it is required to plead, and that Defendants actually bear some of the burden because the statute of limitations is an affirmative defense.


The Court rejects the SEC’s contention that it is Defendants who must bear the burden of proving that the Commission should have discovered the fraud earlier.


Under the applicable Fifth Circuit standard, the SEC has pled enough facts to suggest that Defendants concealed their wrongdoing. Specifically, the SEC has pled that each time a payment for false paperwork TIPs was approved, it was logged as a legitimate operating expense, as Defendants knew and intended. Furthermore, the SEC has alleged that Jackson signed personal certifications as CFO and CEO that were attached to Noble’s public quarterly and annual filings, dated from August 8, 2005 to May 9, 2007, stating that he had disclosed to Noble’s auditors and Audit Committee all significant deficiencies and material weaknesses in the design or operation of internal controls and any fraud. These acts are pled with adequate specificity and can, theoretically, be enough to support a claim of concealment. However, the Court notes that, if these assertions by Defendants that their actions are legal are to be the sole basis of the fraudulent concealment allegations, the SEC will eventually have to show that its reliance on these representations was reasonable. This is because “generally speaking, denial of wrongdoing is no more an act of concealment than is silence” and such a denial may constitute concealment only “where the parties are in a fiduciary relationship, or where the circumstances indicate that it was reasonable for the plaintiff to rely on defendant’s denial.”

However, the SEC has not pled any facts that support the inference that it acted diligently in bringing this Complaint. The SEC argues that, because it did not learn of the misconduct until June 2007, and because it brought its complaint within five years of that date, it has pled all it needs to plead.  However, as explained above, the SEC must plead facts that show that it acted diligently in gathering the facts that form the basis of its claims. It concedes that, by June 2007, when Noble disclosed its internal investigation to the SEC, it had inquiry notice of potential misconduct. The SEC has leave to amend its Complaint to plead facts that would support the inference that it acted diligently in gathering the facts that form the basis of this Complaint.

As to the SEC seeking the equitable remedy of injunction, the court noted that the “parties have cited no cases that suggest that dismissal of claims for injunctive relief is appropriate at the Rule 12(b)(6) stage.  [...] The SEC, of course, ultimately will bear the burden of showing that an injunction is warranted.