Archive for the ‘FCPA Statistics’ Category

Further To The Clustering Phenomenon

Wednesday, April 16th, 2014

Earlier this week, the DOJ announced that two additional individual defendants have been added to the Foreign Corrupt Practices Act (and related) enforcement action against individuals associated with broker dealer Direct Access Partners.  (See here for the original May 2013 enforcement action against Jose Hurtado and Tomas Clarke and here for an additional individual, Ernesto Lujan, being added to the enforcement action in June 2013).

Like in the previous enforcement actions, the additional defendants (Benito Chinea and Joseph DeMeneses, the Chief Executive Officer and a managing partner, respectively of Direct Access Partners) were criminally charged in connection with alleged improper payments to Maria Gonzalez (V.P. of Finance / Executive Manager of Finance and Funds Administration at Bandes, an alleged Venezuelan state-owned banking entity that acted as the financial agent of the state to finance economic development projects).

As noted in the DOJ’s release, Chinea and DeMeneses were each charged with one count of conspiracy to violate the FCPA and the Travel Act, five counts of violating the FCPA, and five counts of violating of the Travel Act. Chinea and DeMeneses were also charged with one count of conspiracy to commit money laundering and three counts of money laundering. DeMeneses was further charged with one count of conspiracy to obstruct justice.  (See here for the SEC’s announcement of a related enforcement action against Chinea and DeMeneses.  Like the SEC’s prior enforcement actions against the other individuals, Chinea and DeMeneses are charged with various securities law violations, but not FCPA offenses as the individuals – while associated with a broker dealer –  are not associated with an issuer).

As noted in the DOJ’s release, in August 2013 Lujan, Hurtado and Clarke each pleaded guilty to conspiring to violate the FCPA, to violate the Travel Act and to commit money laundering, as well as substantive counts of these offenses.

The DOJ’s enforcement action against Chinea and DeMeneses is further to the curious clustering phenomenon clearly observable in FCPA enforcement.

As highlighted in this previous post (with statistics calculated through the end of 2013), 53% of the individuals charged by the DOJ with FCPA criminal offenses since 2008 have been in just four cases and 75% of the individuals charged by the DOJ since 2008 have been in just nine cases.

Of further note (and again with statistics calculated through the end of 2013), of the 89 individuals charged by the DOJ with FCPA criminal offenses since 2008, 61 of the individuals (69%) were employees or otherwise affiliated with private business entities (for instance – Haiti Teleco related enforcement actions, Control Components Inc. Latin Node, Nexus Technologies, BizJet, not to mention failed prosecutions against various Africa Sting defendants and individuals associated with Lindsey Manufacturing).

This is a striking statistic given that 48 of the 60 corporate DOJ FCPA enforcement actions since 2008 (80%) (again using statistics calculated through the end of 2013) were against publicly traded corporations.  In short, a private entity DOJ FCPA enforcement is approximately three times more likely to have a related DOJ FCPA criminal prosecution of an individual than a public entity DOJ FCPA enforcement action.

Thus far in 2014, the trends have been further magnified.  In addition to this week’s action:

  • 5 individuals associated with private company Group DF were charged with FCPA offenses (see here); and
  • 3 individuals associated with private company PetroTiger Ltd. were charged with FCPA offenses (see here)

Friday Roundup

Friday, March 28th, 2014

Further trimmed, scrutiny alerts and updates, facts and figures, quotable, and for the reading stack.  It’s all here in the Friday roundup.

Further Trimmed

When the SEC announced its enforcement action against James Ruehlen and Mark Jackson  (a current and former executive of Noble Corp.) in February 2012, I said that this would be an interesting case to follow because the SEC is rarely put to its burden of proof in FCPA enforcement actions – and when it has been put to its ultimate burden of proof – the SEC has never prevailed in an FCPA enforcement action.

Over the past two years, the SEC’s case has been repeatedly trimmed.  (See this recent post containing a summary).  In the latest cut, the SEC filed an unopposed motion for partial voluntary dismissal with prejudice on March 25th.  In pertinent part, the motion states as follows.

“To narrow this case and streamline the presentation of evidence to the jury, the SEC hereby moves for leave to voluntarily dismiss with prejudice all portions of its claims … predicated upon Noble Corporation’s violation of [the FCPA's internal controls provisions".

For additional specifics, see the filing.

As highlighted in this previous post, in 2010 the SEC charged Noble Corporation with violating the FCPA's anti-bribery, books and records and internal controls provisions based on the same core conduct alleged in the Jackson/Ruehlen action. Without admitting or denying the SEC’s allegations, Noble agreed to agreed to an injunction and payment of disgorgement and prejudgment interest of $5,576,998.

In short, the SEC's enforcement action against Ruehlen and Jackson is a shell of its former self.   Interesting, isn't it, what happens when the government is put to its burden of proof in FCPA enforcement actions.

Scrutiny Alerts and Updates

Alstom

Bloomberg reports speculation that a future FCPA enforcement action against Alstom could top the charts in terms of overall fine and penalty amounts.  (See here for the current Top 10).

The article states:

"The Justice Department is building a bribery case against Alstom SA , the French maker of trains and power equipment, that is likely to result in one of the largest U.S. anticorruption enforcement actions, according to two people with knowledge of the probe. Alstom, which has a history checkered with corruption allegations, has hindered the U.S. investigation of possible bribery in Indonesia and now faces an expanded probe including power projects in China and India, according to court documents in a related case. Settlement talks haven’t begun, the company said."

In response to the Bloomberg article, Alston released this statement.

"Robert Luskin of Patton Boggs, Alstom’s principal outside legal advisor in the USA, states that the Bloomberg article published on 27 March 2014, regarding the investigation of Alstom by the US Department of Justice, does not accurately reflect the current situation: “Alstom is cooperating closely, actively, and in good faith with the DOJ investigation. In the course of our regular consultations, the DOJ has not identified any on-going shortcomings with the scope, level, or sincerity of the company’s effort”.

“The discussions with the DOJ have not evolved to the point of negotiating a potential resolution of any claims. Any effort to estimate the size of any possible fine is sheer speculation, as would be any comparison with other cases that have recently been resolved. Alstom has agreed to focus its efforts on investigating a limited number of projects that we and the DOJ have identified in our discussions. We are working diligently with the DOJ to answer questions and produce documents associated with these specific projects so that we can address any possible improper conduct”.

VimpelCom

Netherlands-based and NASDAQ traded telecommunications company VimpelCom recently disclosed:

"[T]hat in addition to the previously disclosed investigations by the U.S. Securities and Exchange Commission and Dutch public prosecutor office, the Company has been notified that it is also the focus of an investigation by the United States Department of Justice. This investigation also appears to be concerned with the Company’s operations in Uzbekistan. The Company intends to continue to fully cooperate with these investigations.”

On March 12, 2014, VimpelCom disclosed:

“The Company received from the staff of the United States Securities and Exchange Commission a letter stating that they are conducting an investigation related to VimpelCom and requesting documents. Also, on March 11, 2014, the Company’s headquarter in Amsterdam was visited by representatives of the Dutch authorities, including the Dutch public prosecutor office, who obtained documents and informed the Company that it was the focus of a criminal investigation in the Netherlands. The investigations appear to be concerned with the Company’s operations in Uzbekistan. The Company intends to fully cooperate with these investigations.”

Orthofix International

As noted in this Wall Street Journal Risk & Compliance post, Orthofix International recently disclosed:

“We are investigating allegations involving potential improper payments with respect to our subsidiary in Brazil.

In August 2013, the Company’s internal legal department was notified of certain allegations involving potential improper payments with respect to our Brazilian subsidiary, Orthofix do Brasil. The Company engaged outside counsel to assist in the review of these matters, focusing on compliance with applicable anti-bribery laws, including the Foreign Corrupt Practices Act (the “FCPA”). This review remains ongoing.”

As noted in this previous post, in July 2012 Orthofix International resolved a DOJ/SEC FCPA enforcement action concerning alleged conduct by a Mexican subsidiary.  In resolving that action, the company agreed to a three year deferred prosecution agreement.  As is typical in FCPA DPAs, in the Orthofix DPA the DOJ agreed not continue the criminal prosecution of Orthofix for the Mexican conduct so long as the company complied with all of its obligations under the DPA, including not committing any felony under U.S. federal law subsequent to the signing of the agreement.

See this prior post for a similar situation involving Willbros Group (i.e. while the company while under a DPA it was investigating potential additional improper conduct).  As noted here, Willbros was released from its DPA in April 2012, the original criminal charges were dismissed and no additional action was taken.

Besso Limited

Across the pond, the U.K. Financial Conduct Authority (“FCA”) recently issued this final notice to Besso Limited imposing a financial penalty of £315,000 for failing “to take reasonable care to establish and maintain effective systems and controls for countering the risks of bribery and corruption associated with making payments to parties who entered into commission sharing agreements with Besso or assisted Besso in winning and retaining business (“Third Parties”).”

Specifically, the FCA stated:

“The failings at Besso continued throughout the Relevant Period [2005-2011] and contributed to a weak control environment surrounding the making of payments to Third Parties. This gave rise to an unacceptable risk that payments made by Besso to Third Parties could be used for corrupt purposes, including paying bribes to persons connected with the insured or public officials. In particular Besso:  (1) had limited bribery and corruption policies and procedures in place between January 2005 and October 2009. It introduced written bribery and corruption policies and procedures in November 2009, but these were not adequate in their content or implementation; (2) failed to conduct an adequate risk assessment of Third Parties before entering into business relationships; (3) did not carry out adequate due diligence on Third Parties to evaluate the risks involved in doing business with them; (4) failed to establish and record an adequate commercial rationale to support payments to Third Parties; (5) failed to review its relationships with Third Parties, in sufficient detail and on a regular basis, to confirm that it was still appropriate to continue with the business relationship; (6) did not adequately monitor its staff to ensure that each time it engaged a Third Party an adequate commercial rationale had been recorded and that sufficient due diligence had been carried out; and (7) failed to maintain adequate records of the anti-bribery and corruption measures taken on its Third Party account files.”

The FCA has previously brought similar enforcement actions against Aon Limited (see here), Willis Limited (see here), and JLT Speciality Limited (see here).    For more on the U.K. FCA and its focus on adequate procedures to prevent bribery , see this guest post.

Facts and Figures

Trace International recently released its Global Enforcement Report (GER) 2013 – see here to download.  Given my own focus on FCPA enforcement statistics and the various counting methods used by others (see here for a recent post), I particularly like the Introduction of the GER in which Trace articulates a similar “core” approach that I use in keeping my enforcement statistics.  The GER states:

“[W]hen a company and its employees or representatives face multiple investigations or cases in one country involving substantially the same conduct, only one enforcement action is counted in the GER 2013.  An enforcement action in a country with multiple investigating authorities, such as the U.S., is also counted as one enforcement action in the GER 2013.”

The Conference Board recently released summary statistics regarding anti-bribery policies.  It found as follows.

39% of companies in the S&P Global 1200; 23% of companies in the S&P 500; and 14% of companies in the Russell 1000 reported having a policy specifically against bribery.

Given the results of other prior surveys which reported materially higher numbers, these results are very surprising.

Quotable

This recent Wall Street Journal article “Global Bribery Crackdown Gains Steam” notes as follows.

“Cash-strapped countries are seeing the financial appeal of passing antibribery laws because of the large settlements collected by the U.S., according to Nathaniel Edmonds, a former assistant chief at the U.S. Department of Justice’s FCPA division.  ”Countries as a whole are recognizing that being on the anticorruption train is a very good train to be on,” said Mr. Edmonds, a partner at Paul Hastings law firm.”

The train analogy is similar to the horse comment former DOJ FCPA enforcement attorney William Jacobson made in 2010 in an American Lawyer article that “[t]he government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore.”  For additional comments related to the general topic, see this prior post.

Reading Stack

This recent Wall Street Journal Risk & Compliance Journal post contains a Q&A with former DOJ FCPA Unit Chief Chuck Duross.  Contrary to the inference / suggestion in the post, Duross did not bring “tougher tactics” such as wires and sting operations to the FCPA Unit.  As detailed in prior posts here and here, undercover tactics and even sting operations had been used in FCPA enforcement actions prior to the Africa Sting case.

Speaking of the Africa Sting case, the Q&A mentions reasons for why the Africa Sting case was dropped.  Not mentioned, and perhaps relevant, is that the jury foreman of the second Africa Sting trial published this guest post on FCPA Professor after the DOJ failed in the second trial.  Two weeks later, the DOJ dismissed all charges against all Africa Sting defendants.

Further relevant to the Africa Sting case, the Wall Street Journal recently ran this article highlighting the role of Richard Bistrong, the “undercover cooperator” in the case.  Bistrong has recently launched an FCPA Blog – see here.

*****

A good weekend to all.

Of Note From The Marubeni Enforcement Action

Tuesday, March 25th, 2014

This previous post highlighted specifics from the recent Marubeni Foreign Corrupt Practices Act enforcement action and this post continues the coverage by discussing various items of note.

Do Legal Principles Even Matter?

Forgive me for being the law guy, but in the aftermath of the Marubeni enforcement action, like so many others, one can legitimately ask – do legal principles even matter?

As highlighted in the previous post, the most recent alleged overt act in support of Marubeni’s conspiracy charge allegedly occurred in November 2008.  In other words, all of the alleged conduct supporting the conspiracy charge was beyond the five year statute of limitations applicable to FCPA offenses.

In addition, the information also charged 7 substantive FCPA anti-bribery violations.  One charge concerned a 2005 wire transfer, three charges concerned 2006 wire transfers, one charge concerned a 2007 wire transfer, and one charge concerned a 2008 wire transfer.  In other words, 6 of the 7 substantive FCPA anti-bribery charges concerned alleged conduct beyond the five year limitations period applicable to FCPA offenses.  (Note:  the final substantive FCPA charge was based on an October 2009 wire transfer made, not by any Marubeni employee, but Alstom employees).

In corporate FCPA enforcement actions, companies often enter into tolling agreements and statute of limitations can also otherwise be extended in other ways, but the DOJ’s criminal information and plea agreement are silent as to any of these issues relevant to statute of limitations.

Is Marubeni A Recidivist?

As noted in the original Marubeni post, last week’s $88 million FCPA enforcement action followed closely on the heels of Marubeni exiting a deferred prosecution agreement from its 2012 FCPA enforcement action based on conduct at Bonny Island, Nigeria.  (See here for the prior post).

Against this backdrop, it is tempting to call Marubeni an FCPA recidivist.

However, as noted in Marubeni’s release (a release that the DOJ needed to approve per the plea agreement) “the Tarahan conduct pre-dates the execution of Marubeni’s 2012 Deferred Prosecution Agreement with the DOJ.”

At the very least, Marubeni is a repeat FCPA offender and joins a category that also includes IBM, Tyco, Aibel Group, General Electric, Diebold (at least as to books and records and internal controls issues) and Ashland Oil (at least in theory given that the first enforcement action occurred prior to passage of the FCPA in 1977).

The distinction Marubeni has among the group though is the shortest gap between enforcement actions.

More Details Please As to Lack of Cooperation

As noted in the previous post, the $88 million Marubeni enforcement action was a relatively rare instance of a company paying a criminal fine within the advisory guidelines range.  The plea agreement includes the DOJ’s justification as to why, including Marubeni’s lack of cooperation.  However, the plea agreement merely states that Marubeni refused to cooperate with the Department’s investigation when given the opportunity to do so.

It sure would have been nice for the DOJ to provide some additional details regarding Marubeni’s apparent lack of cooperation.

For instance, in the Bonny Island, Nigeria enforcement action against JGC Corp. (also a Japanese company), the DOJ stated that the company declined “to cooperate with the Department based on jurisdictional arguments?”

The DOJ’s statement motivated this prior post, “Does the DOJ Except FCPA Counsel to Roll Over and Play Dead?

While the DOJ declined to provide specifics as to Marubeni’s lack of cooperation, it would be truly frightening if the DOJ’s position is that a company is not cooperating if it raises purely legal issues such as jurisdiction or statute of limitations.

FCPA Enforcement Statistics

FCPA enforcement statistics are literally all over the map given the creative and unique ways in which many FCPA Inc. participants keep such statistics.  (For instance, see this prior post for visual proof).

As I have long maintained, the most reliable and accurate way to keep FCPA enforcement statistics is by using the “core” approach, an approach to tracking FCPA enforcement endorsed by the DOJ and a commonly accepted method used in other areas.

Consider the stark difference in approaches using just the Marubeni enforcement action and the April 2013 FCPA enforcement action against current and former employees of Alstom.  The enforcement actions were virtual carbon copies of each other involving the same project in Indonesia, involving the same alleged “foreign officials,” the same consultants, Marubeni was a central actor in the Alstom related action and the Alstom employees were central actors in the Marubeni enforcement action.

In short, the Marubeni and Alstom related action were the same “core” action.

However, many in FCPA Inc. will no doubt count these actions as five enforcement actions:  Marubeni and Alstom employees Frederic Pierucci, David Rothschild, Lawrence Hoskins and William Pomponi.  Make that six enforcement actions when – in all likelihood – Alstom resolves an enforcement action based, in whole or in part, on the same conduct.   In short, by tracking FCPA enforcement statistics this way the statistics will be distorted.

The Need For An FCPA Lingua Franca – Visual Proof

Monday, March 10th, 2014

I have frequently highlighted (here and here among other posts) the need for a Foreign Corrupt Practices Act lingua franca.

The absence of a lingua franca has all sorts of negative effects including an impact on the quality of FCPA enforcement and related statistics.  Nearly every FCPA enforcement statistic one would want to track from:

  • “how many FCPA enforcement actions are there,” to
  • “what country is the site of the most FCPA enforcement actions,” to
  • “what percentage of FCPA enforcement actions are resolved via non-prosecution or deferred prosecution agreements,” to
  • “what percentage of FCPA enforcement actions involve related individual enforcement actions,” to
  • “what is the average fine/penalty amount in an FCPA enforcement action” and many, many more

is infected by the lack of an FCPA lingua franca.

As I have stated before, the most reliable and accurate way to keep FCPA statistics is by using the “core” approach which focuses on unique instances of FCPA scrutiny.  In other words, Africa Sting was not 22 enforcement actions, but rather 1 core enforcement action.  Siemens was not 20 enforcement actions, but rather 1 core enforcement action.  Just using these two examples is the difference between 2 core enforcement actions vs. 42 enforcement actions – a massive difference.

The “core” approach to tracking FCPA enforcement has been endorsed by the DOJ, and the “core” approach is a commonly accepted method used in other areas.

Yet, few in FCPA Inc. use the “core” approach.

Moreover, counting methods among FCPA Inc. participants vary widely and the numbers are literally all over the map.

It’s been said that a picture is worth 1,000 words.

Thus, this post concludes with 4,000 words – visual proof for the need for an FCPA lingua franca.

HoganLovells

BakerHostetler

WilmerHaleGibson Dunn FCPA Enforcement Actions

Friday Roundup

Friday, February 28th, 2014

Most admired, from the U.K., one way to avoid judicial scrutiny is to avoid the courts, another DOJ official departs, scrutiny updates, and survey says.  It’s all here in the Friday roundup.

Most Admired

Are companies that resolve a Foreign Corrupt Practices Act enforcement or are otherwise under FCPA scrutiny bad or unethical companies?  To be sure, certain companies that have resolved FCPA enforcement actions are deserving of this label, yet most are not.  Indeed, as detailed in this prior post several companies have earned designation as “World Most Ethical Companies” during the same general time period relevant to an enforcement action or instance of FCPA scrutiny.

In a similar vein, several FCPA violators or companies under FCPA scrutiny can be found on Fortune’s recent “Most Admired Company” list.  In the top 50, I count 12 such companies including IBM, Johnson & Johnson, Microsoft, Wal-Mart, JPMorgan, and Cisco.

Let’s face it, not all companies that resolve FCPA enforcement actions or are under FCPA scrutiny are bad or unethical companies.  If more people would realize this and accept this fact, perhaps a substantive discussion could take place regarding FCPA reform absent the misinformed rhetoric.

From the U.K.

In this October 2013 post at the beginning of the U.K. trial of former News Corp. executives Rebekah Brooks, the former editor of News of the World, and Andy Coulson, another former News of the World editor, I observed as follows.

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

Well …, this Wall Street Journal article reports as follows.

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

As noted in this previous post at the beginning of News Corp.’s FCPA scrutiny, any suggestion that the media industry is somehow excluded from the FCPA’s prohibitions is entirely off-base.

One Way to Avoid Judicial Scrutiny is to Avoid the Courts

In recent years, the SEC has had some notable struggles in the FCPA context and otherwise when put to its burden of proof in litigated actions or otherwise having to defend its settlement policies to federal court judges.  For instance, Judge Shira Scheindlin (S.D.N.Y.) dismissed the SEC’s FCPA enforcement against former Siemens executive Herbert Steffen.  In another FCPA enforcement action,  Judge Keith Ellison (S.D.Tex.) granted without prejudice Mark Jackson and James Ruehlen’s motion to dismiss the SEC’s claims that sought monetary damages.  In Gabelli, the Supreme Court unanimously rejected the SEC’s statute of limitations position.  Judge Richard Leon (D.D.C.) expressed concerns regarding the SEC’s settlement of FCPA enforcement actions against Tyco and IBM and approved the settlements only after imposing additional reporting requirements on the companies.  In addition, the SEC’s neither admit nor deny settlement policy has been questioned by several judges (most notably Judge Jed Rakoff) and the merits of this policy is currently before the Second Circuit.

The SEC’s response to this judicial scrutiny has been, as strange as it may sound, to bypass the judicial system altogether  when resolving many of its enforcement actions including in the FCPA context.  As detailed in this previous post concerning SEC FCPA enforcement in 2013, of the 8 corporate enforcement actions from 2013, 3 enforcement actions were administrative actions (Philips Electronics, Total, and Stryker) and 1 action (Ralph Lauren) was a non-prosecution agreement.  In other words, there was no judicial scrutiny of 50% of SEC FCPA enforcement actions from 2013.

Based on recent statements from SEC officials at the “SEC Speaks” conference this trend is going to continue.

According to this Vedder Price bulletin:

“Charlotte Buford, Assistant Chief Counsel, spoke about the SEC’s intention to use the administrative proceeding forum more frequently and in a wider variety of upcoming enforcement actions. Ms. Buford stated that in choosing the forum, the SEC considers factors such as speed and efficiency, the nature of the case, litigation considerations such as the amount of discovery needed, and settlement considerations. Ms. Buford noted that, although certain types of actions such as insider trading cases were historically brought in district court, two insider trading cases were recently brought as administrative actions. She also referenced the SEC’s recent action against Alcoa, Inc. involving FCPA violations, which was filed as a settled administrative proceeding. Ms. Buford indicated that the SEC will continue to increase its use of administrative proceedings in the coming years.”

This Perkins Coie alert adds the following:

“[Kara Brockmeyer - Chief of the SEC's FCPA Unit] also noted that companies can expect to see more cases resolved in administrative proceedings, and that the FCPA Unit is considering bringing litigated FCPA cases through administrative proceedings as well.”

SEC administrative settlements in the FCPA context were rare prior to 2010 largely because the SEC could not impose monetary penalties in such proceedings absent certain exceptions.  However, the Dodd-Frank Wall Street Reform Act granted the SEC broad authority to impose civil monetary penalties in administrative proceedings in which the SEC staff seeks a cease-and-desist order.  However, Congress’s grant of such authority to the SEC – no doubt politically popular in the aftermath of the so-called financial crisis – has directly resulted in less judicial scrutiny of SEC enforcement theories including in the FCPA context.

Like so much of what is happening in the FCPA space (and government regulation of corporate conduct generally), this is a troubling development.

In other “SEC Speaks” tidbits, the Vedder Price bulletin also states:

“Kara Brockmeyer, Chief of the FCPA Unit, noted that her unit brought a variety of cases in 2013, which included “old school” bribery cases funneling money, improper travel and entertainment, and improper charitable donations. Ms. Brockmeyer stated that the SEC continues to see issues with third-party intermediaries, as many companies enter into arrangements with third parties without adequately explaining the roles of the third parties. Ms. Brockmeyer lauded companies for “putting more thought” into compliance programs and internal controls, as well as for their decisions to self-report. She also discussed the Cross-border working group, which has brought 21 fraud actions involving 90 individuals or entities and has revoked the registrations of 63 companies since this initiative started three years ago.”

The Perkins Coie alert also states:

“Turning to the area of cooperation credit and non-prosecution agreements (NPAs), Chief Brockmeyer stated that the 2013 Ralph Lauren case is a good example of where such an outcome was warranted.  Several factors that weighed in favor of that favorable NPA settlement resulted from the company: self-reporting the suspected bribery within two weeks of finding violations; discovering the violations on its own through internal monitoring activities; assisting the SEC’s investigation by providing English language translations of foreign documents, and bringing witnesses to the United States for questioning; and undertaking extensive remediation efforts, including a worldwide investigation to determine if there were any systemic issues.  Finally, Chief Brockmeyer added that it was significant that Ralph Lauren’s investigation determined that the bribery issues were confined to one country; if the violations were found to be more widespread, the company would likely still have received cooperation credit, but would not have been a candidate for a NPA.

Chief Brockmeyer stated that the SEC will continue to address Compliance Monitorship requirements on a case-by-case basis.  Recently, the SEC has imposed both “full” monitorships, as well as some “hybrid” monitorships that include 18 months of monitoring, combined with 18 months of self-monitoring by the company.  She noted that some companies might even qualify for just internal monitoring, but all these considerations depend heavily on the state of the company’s compliance program.

Finally, Chief Brockmeyer indicated that whistleblower tips continue to serve as a primary lead for the SEC in identifying potential FCPA actions.  The SEC is using these tips to identify specific sectors or industries that are not paying sufficient attention to corporate compliance or internal controls.  The SEC is also focused on enforcing the anti-retaliation whistleblower provisions in Dodd Frank.  In some instances, the SEC has observed that companies have required employees to sign confidentiality agreements that appear to bar an employee from becoming a whistleblower.  She opined that such agreements would violate Dodd-Frank’s prohibition against regulated entities taking actions to impede employees from making whistleblower complaints.”

Another DOJ Official Departs

When Lanny Breuer departed as DOJ Assistant Attorney Criminal Division in March 2013, Mythili Raman became Acting Assistant Attorney and carried forward much of the same rhetoric Breuer frequently articulated concerning the DOJ’s FCPA enforcement program.  (See here for my article “Lanny Breuer and Foreign Corrupt Practices Act Enforcement).

In speeches (here and here) Raman stated that the DOJ’s “stellar FCPA Unit continues to go gangbusters, bringing case after case,” “our recent string of successful prosecutions of corporate executives is worth highlighting” and “we are not going away … our efforts to fight foreign bribery are more robust than ever.”

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

Certainly, the DOJ and SEC have had “success” in this new era of FCPA enforcement exercising leverage and securing large corporate FCPA settlements against risk-averse corporations through resolution vehicles often not subjected to any meaningful judicial scrutiny.  However, by focusing on the quantity of FCPA enforcement, the quality of that enforcement is often left unexplored.  The simplistic notion advanced by the enforcement agencies seems to be that more FCPA enforcement is an inherent good regardless of enforcement theories, regardless of resolution vehicles, and regardless of actual outcomes when put to its burden of proof.  This logic is troubling and ought to be rejected.  In a legal system founded on the rule of law, a more meaningful form of government enforcement agency success is prevailing in the context of an adversarial system when put to the burden of proof.  As to this form of success, during this new era of FCPA enforcement, the DOJ and SEC have had far less “success” in enforcing the FCPA.

Recently the DOJ announced that Raman is departing from her position. (See here).  In this related Q&A with the Wall Street Journal Law Blog (LB) Raman confirmed that the DOJ measures success in terms of quantity without regard to quality.

LB: [On enforcement of the Foreign Corrupt Practices Act, which has increased in recent years] do you think you’re winning? Are there fewer bribes being paid now?

MR: We often measure our success by numbers of enforcement actions but actually at the end of the day…. the deterrent effect is what actually matters. I don’t know if fewer bribes are being paid or not. But I do know that there are many more companies who know what their obligations are now.

For additional coverage of Raman’s departure, see here and here.

Scrutiny Alerts

Last summer German healthcare firm Fresenius Medical Care AG disclosed an FCPA internal investigation (see here for the prior post).  In its recently filed annual report, the company stated as follows:

“The Company has received communications alleging certain conduct in certain countries outside the U.S. and Germany that may violate the U.S. Foreign Corrupt Practices Act (“FCPA”) or other anti-bribery laws. The Audit and Corporate Governance Committee of the Company’s Supervisory Board is conducting an internal review with the assistance of independent counsel retained for such purpose. The Company  voluntarily advised the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”) that allegations have been made and of the Company’s internal review. The Company’s review and dialogue with the SEC and DOJ are ongoing.  The review has identified conduct that raises concerns under the FCPA or other anti-bribery laws that may result in monetary penalties or other sanctions. In addition, the Company’s ability to conduct business in certain jurisdictions could be negatively impacted. Given the current status of the internal review, the Company cannot reasonably estimate the possible loss or range of possible loss that may result from the identified matters or from the final outcome of the continuing internal review. Accordingly, no provision with respect to these matters has been made in the accompanying consolidated financial statements.  The Company’s independent counsel, in conjunction with the Company’s Compliance Department, have reviewed the Company’s anti-corruption compliance program, including internal controls related to compliance with international anti-bribery laws, and appropriate enhancements are being implemented. The Company is fully committed to FCPA compliance.”

Bio-Rad Laboratories disclosed as follows yesterday in an earnings release.

“[Fourth quarter] results included an accrued expense of $15 million in connection with the Company’s efforts to resolve the previously disclosed investigation of the Company in connection with the United States Foreign Corrupt Practices Act; this is in addition to an accrued expense of $20 million in the third quarter of 2013.”

Survey Says

The American Chamber of Commerce in Shanghai recently released its China Business Report (2013-2014).

Notable findings include the following:

“Generally consistent with previous years, 80 percent of respondents cited bureaucracy as the No. 1 challenge, with 72 percent declaring difficulties from an unclear regulatory environment and 70 percent were concerned over problems with tax administration rounding out the top three leading legal and regulatory challenges that companies said hindered their business.”

As I’ve frequently stated, the root causes of much bribery and corruption are various trade barriers and distortions. These barriers and distortions – whether complex customs procedures, import documentation and inspection requirements, local sponsor or other third-party requirements, arcane licensing and certification requirements, quality standards that require product testing and inspection visits, or other foreign government procurement practices – all serve as breeding grounds for harassment bribes to be requested. Simply put, trade barriers and distortions create bureaucracy. Bureaucracy creates points of contact with foreign officials. Points of contact with foreign officials create discretion. Discretion creates the opportunity for a foreign official to misuse their position by making demand bribes.

The report also stated:

“Efforts by the Chinese government to target companies for corruption investigations have sharply increased companies’ concern over compliance with China’s laws and regulations. In 2013, 46 percent of companies said compliance with domestic laws was more important to their business, up from 31 percent in 2012, compared to international anti-bribery laws such as the FCPA (32 percent).

Twice as many respondents said that China’s more aggressive regulatory enforcement for anti-corruption and anti-competition has greatly increased or increased their own business risk (18 percent) than those who say their business risk has greatly decreased or decreased (8 percent). The issue of corruption and fraud was most strongly felt in the healthcare industry (24 percent), which contended with high profile government investigations of foreign and domestic pharmaceutical companies in 2013.”

The impetus for much of this concern is the result of GSK’s (and other pharma and healthcare related companies) scrutiny by Chinese authorities for alleged improper business practices.  (See here for the prior post).

*****

A good weekend to all.