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Friday Roundup

Friday, December 21st, 2012

Better late than never, Judge Leon pulls a Judge Rakoff, Edmonds sentenced, it’s official, whistleblower statistics, it ought to stop marketing, China related issues, ICE melted quickly, and a U.K. enforcement action. It’s all here in the Friday roundup.

The Foreign Corrupt Practices Act Under The Microscope

Academic publishing is seldom quick. Yet before the calendar flips into another year, I am pleased to share my article concerning 2011 FCPA enforcement. The abstract of ”The Foreign Corrupt Practices Act Under The Microscope” (see here to download) recently published in the University of Pennsylvania Journal of Business Law is as follows. Information in the article is current as of January 16, 2012.

For most of the Foreign Corrupt Practices Act’s history, key decisions concerning its scope and enforcement were made behind closed doors around conference room tables in Washington, D.C. The FCPA took on a life of its own and, in many instances, the statute came to mean whatever the DOJ or SEC could get putative corporate FCPA defendants (mindful of the consequences of actual prosecuted charges) to agree to behind those closed doors. However, as the enforcement agencies continued to push the envelope on enforcement theories and practices, and as the DOJ brought more individual FCPA enforcement actions, including through manufactured sting operations, business entities and individuals alike began to openly fight back. While many FCPA enforcement decisions and procedures remain opaque, 2011 witnessed the most intense year of public scrutiny in the FCPA’s history. This Article (i) provides an overview of 2011 FCPA enforcement and discusses certain problematic enforcement trends, and (ii) highlights how in 2011 the FCPA was subjected to the most meaningful public scrutiny in its history. FCPA enforcement trends and scrutiny demonstrate that as the FCPA nears its thirty-fifth year, basic legal and policy questions remain as to the purpose, scope, and effectiveness of the FCPA.

Start your collection of FCPA Year in Reviews. For my 2011 (short version), see here. For 2010, see here (short version), here (long version). For 2009, see here (long version).

Judge Leon Pulls a Judge Rakoff

My post concerning the SEC’s March 2011 enforcement action against IBM was titled “Questions Abound in IBM Enforcement Action.” (See here). Among the issues I discussed were the following. That in December 2000, IBM resolved an FCPA enforcement action and consented, as part of the settlement, to the entry of an Order that requires IBM to cease and desist from committing or causing any future violation of [the FCPA's books and records provisions]. I noted that because the March 2011 enforcement action alleged FCPA books and records charges, that IBM was thus in clear violation of the 2000 court order.

The case was assigned to Judge Richard Leon (of Africa Sting fame) and lingered for a long time. This Wall Street Journal Corruption Currents post and this Bloomberg article report that Judge Leon has refused to approve the settlement.

As stated by Bloomberg – “The heart of the dispute is that Leon, who has had the case under review for 22 months, wants reporting on a broader range of possible wrongdoing than the company is willing to turn over. Leon, who spoke loudly and angrily, asked why the regulator would agree to limit such requirements for a company with a history of books-and-records violations. [...] “I guess you want that $10 million judgment on your list of achievements this year,” Leon told [the SEC lawyer]. “Well, it’s not going to happen.” He scheduled a hearing for Feb. 4.”

As stated by Wall Street Journal Corruption Current – “Leon also questioned broader SEC settlement policies and warned that he was among “a growing number of district judges who are increasingly concerned” by those policies.”

In not ”rubber stamping” the SEC – IBM settlement, Judge Leon pulled a Judge Rakoff. Judge Rakoff of the S.D. of N.Y. has been a frequent focus on this site – see here, here, here and here. See also, the discussion of Judge Rakoff in my 2010 article “The Facade of FCPA Enforcement.”

Edmonds Sentence

This past June, David Edmonds, a defendant in the long-running “Carson” enforcement action involving former employees of Control Components Inc., agreed to plead guilty on the eve of trial to substantially reduced charges. (See here for the prior post). Earlier this week, Judge James Selna sentenced Edmonds to four months in prison and four months of home confinement. (See here for Judge Selna’s sentencing memo). As noted in the DOJ’s sentencing memo (here), the DOJ sought a 14 month prison sentence.

Other defendants previously sentenced in the case are Stuart Carson (4 months in prison followed by 8 months of home detention), Hong Carson (3 years probation to include 6 months of home detention) and Paul Cosgrove (13 months home detention).

It’s Official

Imagine a foreign country in which the president is actively seeking and accepting corporate money to fund inaugural festivities. All sorts of red flags right?

But wait, this describes the United States and President Obama’s upcoming inauguration. As detailed in this prior post, President Obama’s fundraising advisers “have urged the White House to accept corporate donations for his January 2013 inaugural celebration rather than rely exclusively on weary donors who underwrote his $1 billion re-election effort.”

It’s now official. As noted by this recent New York Times article “President Obama’s finance team is offering corporations and other institutions that contribute $1 million exclusive access to an array of inaugural festivities.” As noted in the article, Obama’s finance team is offering four different packages “with differing levels of access depending on the level of contribution.”

Our FCPA enforcement agencies are bringing enforcement actions against companies for conduct that includes providing $600 bottles of wine, Cartier watches, cameras, kitchen appliances, business suits, and executive education classes to individuals employed by foreign companies that are allegedly state-owned or state-controlled. (These are all allegations found in recent FCPA enforcement actions).

But remember, as 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.”

Whistleblower Statistics

The Dodd-Frank Act enacted in July 2010 contained whistleblower provisions applicable to all securities law violations including the Foreign Corrupt Practices Act. In this prior post from July 2010, I predicted that the new whistleblower provisions would have a negligible impact on FCPA enforcement. As noted in this prior post, my prediction was an outlier (so it seemed) compared to the flurry of law firm client alerts that predicted that the whistleblower provisions would have a significant impact on FCPA enforcement.

So far, there have not been any whistleblower awards in connection with FCPA enforcement actions. Given that enforcement actions (from point of first disclosure to resolution) typically take between 2-4 years, it still may be too early to effectively analyze the impact of the whistleblower provisions on FCPA enforcement.

Whatever your view, I previously noted that the best part of the new whistleblower provisions were that its impact on FCPA enforcement can be monitored and analyzed because the SEC is required to submit annual reports to Congress. Last month, the SEC released (here) its annual report for FY2012.

Of the 3,001 whisteblower tips received by the SEC in FY2012, 3.8% (115) related to the FCPA. As noted in this similar post from last year, in FY2011 (a partial reporting year) 3.9% of the 334 tips received by the SEC related to the FCPA.

It Ought to Stop Marketing

In this previous post titled “It Ought to Stop” I focused on the FCPA conference industry and how conference firms drive attendance to their events by touting the public servants who will speak at the event.

Here is how conference firm C5 touts its upcoming conference in a press release (here).

Ask the U.S. DOJ and U.S. SEC directly how your company can remain compliant

Hear the latest on the newly released FCPA guidance. Along with the U.S. Securities & Exchange Commission’s, Charles E. Cain, the Deputy Chief of the FCPA Unit, Enforcement Division, we will have Matthew S. Queler, from the Criminal Division at the U.S. Department of Justice, presenting comprehensive, insightful and practical details of the U.S. government’s interpretation of the guidance, and highlight recent examples designed to help prevent future violations. Their session at 14:00 on Day 1, will help you navigate the ever evolving markets and recognize the current enforcement trends; giving you the tools to reanalyse risk profiles and minimize areas of exposure. Finally, to top off the hour you will be given an exclusive opportunity to have your FCPA questions answered. The only way to obtain answers directly from the U.S. DOJ and U.S. SEC is to register for this forum!

The event, depending when you register and which package you select, costs between €4341 – €1795.

It ought to stop.

China Related Issues

An occassional topic of discussion on this site is Chinese state-owned enterprises (SOEs) and how such companies are frequently doing business outside its borders, including here in the U.S. (See here, here, and here for prior posts).

Wall Street Journal Columnist Dennis Berman “hit the nail on the head” in his recent column when he noted that one of “the most intriguing business stories of the past month has been taking place in San Francisco, where a group of U.S. developers is planning the biggest real-estate expansion there since the 1906 earthquake. The group—which includes Lennar Corp., Ross Perot Jr. and others —isn’t getting financing from an American bank or pension fund. No, the money, some $1.7 billion of it, is coming from the China Development Bank, a policy arm of the Chinese state. As Berman further notes, a financing contingency is that China Railway Construction Corp. – a state-owned infrastructure builder with roots in the People’s Liberation Army—take part in the projects, which will develop up to 20,000 new homes.

Another occasional topic of discussion on this site is how Chinese companies are listing shares on U.S. exchanges and thus becoming “issuers” for purposes of the FCPA. (See here for a prior post). A core FCPA enforcement action of a Chinese issues has never occurred, but I predict it will some day – diplomatic and foreign policy issues aside. Only now, the universe of potential targets is shrinking. As noted in this recent Wall Street Journal article, several Chinese companies have delisted from U.S. exchanges. The article provides the following information. “At the peak, at year-end 2010, 167 Chinese companies were listed on Nasdaq and 99 on the NYSE. That compares with 84 China-based companies on NYSE and 129 on Nasdaq as of Nov. 30, 2012, according to the exchanges.” For more, see this recent article from the New York Times.

ICE Melted Quickly

This recent post highlighted the cert petition of Instituto Constarricense de Electricidad of Costa Rica (“ICE”) to the Supreme Court related to victim issues in connection with the December 2010 Alcatel-Lucent FCPA enforcement action. After several unsuccessful 11th Circuit appeals, ICE petitioned the Supreme Court to hears it case (see here). The question presented for review is as follows. “Whether a crime victim who is denied rights conferred by the federal Crime Victims’ Rights Act has a right to directly appeal the denial of those rights.”

The ice melted quickly as recently the Supreme Court denied ICE’s petition.

U.K. Enforcement Action

Earlier this week, the U.K. Serious Fraud Office announced (here) charges against former employees of Swift Group (an oil and gas services provider) following “a two-year investigation into allegations of corruption in relation to the tax affairs of Swift Technical Energy Solutions Ltd, a Nigerian subsidiary of the Swift Group of companies.” According to the SFO release, ”the value of the bribes alleged to have been paid is approximately£180,000.”

The SFO release notes that Paul Jacobs (the former Chief Financial Officer of Swift), Bharat Sodha (the former Tax Manager of Swift), Nidhi Vyas (the former Financial Controller of Swift), and Trevor Bruce (the former Area Director for Nigeria of Swift) were charged in relation to “bribes to tax officials to avoid, reduce or delay paying tax on behalf of workers placed by Swift. The charges relate to payments said to have been made to agents of the Rivers State Board of Internal Revenue and the Lagos State Board of Internal Revenue, both in Nigeria. The payments were made in 2008 and 2009.”

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A happy holiday season to all.

Grading The Foreign Corrupt Practices Act Guidance

Friday, December 14th, 2012

I am pleased to share a download link (here) to my article “Grading The Foreign Corrupt Practices Act Guidance” recently published in Bloomberg / BNA’s White Collar Crime Report.

The article abstract is as follows.

This article is a critical analysis of the Foreign Corrupt Practices Act Guidance released by the Department of Justice and Securities and Exchange Commission. Issues discussed in the article include the following: (i) the enforcement agencies’ motivations in issuing the Guidance and the fact that it should have been issued years ago; (ii) the utility of the Guidance from an access-of-information perspective and how the Guidance can be used as a measuring stick for future enforcement agency activity; (iii) how the Guidance is an advocacy piece and not a well-balanced portrayal of the FCPA as it is replete with selective information, half-truths, and, worse information that is demonstratively false; (iv) how, despite the Guidance, much about FCPA enforcement remains opaque; and (v) how, despite the Guidance, FCPA reform remains a viable issue.

Interested in additional discussion and analysis of the Guidance?

Sign up for this free webinar on Monday, December 17th at 1 p.m. EST. Joining me in analyzing the Guidance will be William Sullivan (Partner, Pillsbury, Winthrop, Shaw, Pittman LLP); Sandra Lee Fenske (Vice President and General Counsel, Lockheed Martin) and Jason Montgonery (Director of Research, Laurel Hill Advisory Group).

The Story Of The Foreign Corrupt Practices Act

Tuesday, December 11th, 2012

Thirty-five years ago this month, the Foreign Corrupt Practices Act became law. In connection with this anniversary, I am pleased to share my scholarship “The Story of the Foreign Corrupt Practices Act” recently published in the Ohio State Law Journal. For a short video introduction to the article and issues, see here courtesy of Levick Communications.

“The Story of the Foreign Corrupt Practices Act” is the most extensive piece ever written about the FCPA’s history and it tells the FCPA’s story through original voices of actual participants who shaped the law.

The abstract of the article is as follows.

In the mid-1970s, Congress journeyed into uncharted territory. After more than two years of investigation, deliberation, and consideration, what emerged in 1977 was the Foreign Corrupt Practices Act, a pioneering statute and the first law in the world governing domestic business conduct with foreign government officials in foreign markets. This Article weaves together information and events scattered in the FCPA’s voluminous legislative record to tell the FCPA’s story through original voices of actual participants who shaped the law. As the FCPA approaches thirty-five years old, and as enforcement enters a new era, the FCPA’s story remains important and relevant to government agencies charged with enforcing the law, those subject to the law, and policy makers contemplating reform.

“Carbon Copy” Prosecutions: A Growing Anticorruption Phenomenon In A Shrinking World

Thursday, November 1st, 2012

Andrew Boutros and Markus Funk recently released (here) their article “Carbon Copy” Prosecutions: A Growing Anticorruption Phenomenon in a Shrinking World” published in The University of Chicago Legal Forum. Boutros is an Assistant U.S. Attorney in the N.D. of Illinois and Lecturer in Law at the University of Chicago Law School (who co-wrote the article in his personal capacity) and Funk is a partner at Perkins Coie. Boutros and Funk are Co-Chair’s of the ABA’s Global Anti-Corruption Task Force.

In summary, the authors, using recent enforcement actions, note as follows.

“[I]f a corporation reaches a negotiated resolution with US authorities on international bribery-related charges—whether through a non-prosecution agreement, a deferred prosecution agreement, or a guilty plea—there is a bona fide risk that other countries will initiate prosecutions based on the same facts as, and admissions arising out of, the US investigation and resolution. [I]f an individual corporate officer is even tangentially involved or implicated in a US-negotiated resolution, that corporate officer—even if not named at all in the resolution—faces potential criminal charges overseas. The officer, therefore, has a strong incentive to ensure that the resolution either does not name him or her or describes the officer’s conduct in the most positive light (or at least neutrally). [The] Article examines this growing—but still largely under-recognized—international phenomenon of “carbon copy” prosecutions.”

What is a carbon copy prosecution? The authors define the term to mean “successive, duplicative prosecutions by multiple sovereigns for conduct transgressing the laws of several nations, but arising out of the same common nucleus of operative facts.”

The article then “details the myriad cost-benefit considerations that companies might weigh when deciding whether to make voluntary front-end disclosures to foreign authorities concurrently with their disclosures of potential FCPA violations to U.S. officials.” Among the considerations the authors identify is 5th Amendment double jeopardy issues and the collateral estoppel effect of U.S. resolutions on international enforcement actions and vice versa.

In addition, the authors note as follows. “The net effect of [DOJ and SEC FCPA settlement policies] is that when a company enters into a negotiated resolution with the DOJ – particularly in those cases with parallel SEC enforcement actions – it is essentially powerless to defend against, much less deny, the factual basis on which the resolution is based. This all but ensures that a company that settles with the DOJ – or both the DOJ and SEC in parallel proceedings – will have little or no choice but to settle with foreign authorities, should such authorities choose to exercise jurisdiction and enforce their corollary anticorruption laws.”

Although the notion of carbon copy prosecutions have been known for some time, Boutros and Funk’s article is an important contribution to Foreign Corrupt Practices Act literature and provides an analytical scrutiny to this observable trend. For this reason, the article should find a place on your reading stack.

Friday Roundup

Friday, September 21st, 2012

Strange things tend to happen on Halloween, does your foreign local counsel present FCPA risk, insights from the boardroom, checking in on the Wynn-Okada battle royale, tobacco companies in the Middle East, a hat tip, and unmasked. It’s all here in the Friday roundup.

Halloween Hearing Date

Strange things tend to happen on Halloween. Thus, it is fitting that U.S. District Court Judge Keith Ellison (S.D. Tex.) has set October 31st as the hearing date for the motion to dismiss in the SECs FCPA enforcement action against Mark Jackson and James Ruehlen. See here for a prior post linking to the briefs and arguments. How strange is this? It is believed that the last time the SEC stood before a federal court judge to defend its FCPA enforcement theories was in 2002. As noted in this previous post, the SEC lost that case.

Foreign Counsel Risk

A company engages foreign local counsel to help it accomplish a business objective. The company pays thousands of dollars in legal bills to the counsel without probably giving much thought to Foreign Corrupt Practices Act risk.

In this recent article in the Duquesne Business Law Journal, Zachary Cregar (Liberty Mutual Insurance Group, Senior Litigation Auditor) sets forth the need to include foreign legal counsel due diligence and audits within an FCPA compliance program.

Cregar concludes the article as follows. “Foreign outside counsel supervision and legal bill auditing is not only a successful method of detecting corrupt payments, but it pays dividends beyond the realm of FCPA compliance. Cost savings from discovered billing irregularities will likely justify the cost of the program itself. While companies’ bottom lines are impacted by over-billing or fraudulent legal invoices, the financial stakes grow ever higher within the purview of the FCPA. Corporate anti-corruption and due diligence policies may be helpful in reducing hefty FCPA violation penalties after the fact. However, only vigorous, real-time auditing and detection of corrupt payments at the onset will avoid foreign corruption from even occurring.”

Current instances of FCPA scrutiny which involve, at least in part, questions regarding foreign legal counsel include Wal-Mart’s conduct in Mexico and Las Vegas Sands conduct in Macau.

Insights From the Boardroom

PwC’s Annual Corporate Director Survey, “Insights from the Boardroom 2012,” is available for download here. It contains a few FCPA / bribery / corruption related statistics.

Which of the following has your company done in response to the 2011 SEC whistleblower rules? 43% of respondents indicated that their companies have expanded the role of internal audit for bribery and corruption compliance and 11% of respondents indicated that their companies scheduled more board discussions regarding bribery and corruption.

I argue in “Revisiting a Foreign Corrupt Practices Act Compliance Defense” here that, among other reasons, the FCPA should be amended to include a compliance defense because such a defense will better incentivize corporate compliance and thus reduce improper conduct. I state that organizations with existing FCPA compliance policies and procedures will be incentivized to make existing programs better and that organizations currently without stand-alone FCPA policies and procedures (and statistics indicate there are many) will be incentivized to spend finite resources to implement compliance policies and procedures.

Imagine the FCPA is amended in 2012 to include a compliance defense. What would the numbers in PwC’s 2013 survey look like if respondents asked “which of the following has your company done in response to the FCPA compliance defense amendment.” I can only speculate as to the exact numbers, but I am confident in saying that more than 43% of respondents would indicate that their companies expanded the role of internal audit for bribery and corruption compliance and that more than 11% of respondents would indicate that their companies scheduled more board discussions regarding bribery and corruption.

Another question in the survey was the following. Indicate if you would like your board to devote more time in the upcoming year to considering the following matters? As to bribery and corruption concerns, 2% said yes, much more time and focus than in the past; 20% said yes, but not a great increase from the past; 75% said no, a change is unnecessary; and 3% said no, decrease our time and focus— we spend too much time on this.

The PwC survery occurred this past summer and was based on responses of 860 public company directors (70% of whom serve on the board of companies with more than $1 billion in annual revenue).

Wynn-Okada

As noted in this previous summary post, it is one of the strangest instances of FCPA scrutiny one can imagine. A corporate board member accuses the company of conduct that could implicate the FCPA, which then causes the SEC to open an inquiry, which then results in the company accusing the board member of separate and distinct conduct that could implicate the FCPA.

Its the Wynn-Okada battle royale.

Earlier this week Kazuo Okada (President of Aruze USA, Inc. – Aruze is the largest stockholder of Wynn Resorts with current ownership of approximately 20% of the outstanding shares) released this letter to Wynn’s shareholders concerning various corporate governance changes.

The letter states, under the heading “Suspicious $135 million donation to the University of Macau Development Foundation” as follows.

“In April 2011, the Board met, discussed, and approved a pledge by Wynn Macau, Limited (“Wynn Macau”), a subsidiary of the Company, to donate HK$1 billion (roughly $135 million) to the University of Macau Development Foundation, at a time when Wynn Macau was seeking local government approval to develop a third casino. This donation is suspicious for a number of reasons, including its enormous size, the fact that the 10-year term of the pledge matches precisely the length of the casino license Wynn Resorts was seeking, and the fact that the lead trustee of the University of Macau Development Foundation also has a position in the Macau government which enables him to influence the issuance of gaming licenses. Mr. Okada questioned and objected to the donation and was ultimately the sole director to vote against it. Mr. Okada has noted that “I am at a complete loss as to the business justification for the donation, other than that it was an attempt to curry favor with those that have ultimate authority for issuing gaming licenses.” Following the April 2011 board meeting, pursuant to his rights as a director of the Company and in furtherance of his fiduciary duties to stockholders of the Company, Mr. Okada, sought to further investigate the Wynn Macau donation and requested additional information from Wynn Resorts concerning the donation and related matters. When the Company refused to provide the information, Mr. Okada took legal action and was vindicated by a court order requiring Wynn Resorts to comply with Mr. Okada’s reasonable requests. As Mr. Okada feared, the questionable Wynn Macau donation has already spawned at least four stockholder lawsuits against the Company and investigations by both the United States Securities and Exchange Commission (for possible violations of law including the Foreign Corrupt Practices Act) and the Nevada Gaming Board. Not only is this enormous financial commitment a drain on the Company’s coffers, but now Wynn Resorts stockholders will be saddled with the added costs associated with responding to the regulatory investigations and lawsuits. If the results of these investigations and lawsuits include the development of facts regarding legally questionable practices by the Company, stockholders will be at still further risk.”

In response, Wynn Resorts issued this statement which states as follows. ““Aruze has not been a stockholder of Wynn Resorts, Limited since February 18, 2012 when its shares were redeemed by the Wynn Board after a lengthy, third-party investigation uncovered prima facie evidence of improper conduct under the Foreign Corrupt Practices Act by Mr. Okada, Universal Entertainment and Aruze in their dealings with Philippine officials. This most recent filing is a regrettable attempt to divert attention from the issues facing Mr. Okada and Aruze. Given the fact that Aruze was ejected seven months ago as a Wynn shareholder based on conduct unacceptable for a gaming licensee, it has absolutely no rights as a shareholder to nominate directors and its invalid nominations have been rejected on this basis.”

Tobacco Companies in the Middle East

An interesting article (here) from the Saudi Gazette.

The article states as follows. “In most countries, public smoking is banned. Taxes on the sale of cigarettes and other tobacco related products are high, and labeling on cigarette packs is often very graphic and clear: Smoking kills! From the United States to Australia, governments are clamping down on tobacco companies with regulations to throttle consumption and it seems to be working. And so, tobacco companies have to seek other markets. The Middle East is fertile ground as anti-smoking legislation is weak at best, and a fast growing birthrate means a higher number of potential smokers. As a result, big tobacco companies quickly established regional headquarters for the GCC market in the UAE and set to work.” The article then describes how a source tells of companies reaching out to “area [government] officials to lessen any impact on tobacco sales.”

As noted in this prior post, in August 2010, U.S. tobacco companies Alliance One International and Universal Corporation resolved FCPA enforcement actions.

Hat Tip

A hat tip to Christopher Matthews, Samuel Rubenfeld and others associated with the Wall Street Journal’s Corruption Currents page on their two-year anniversary. Corruption Currents (here) is a daily read for me and should be for anyone interested in FCPA and related topics.

Who is that Masked Man?

A small town Midwesterner who saw the world and became interested in a law is who. Thanks to Tom Fox (FCPA Compliance and Ethics Blog) for the opportunity to tell my story. See here for the Q&A.

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A good weekend to all.