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Friday Roundup

Friday, December 28th, 2012

Sleepless nights, briefings complete, Africa Sting lawyers recognized, a leader of the FCPA bar on voluntary disclosure, small bribes in Russia, and satire. It’s all here in the Friday roundup.

Sleepless Nights

According to this recent article by Ashby Jones of the Wall Street Journal, FCPA enforcement is one of “three concerns costing big-company lawyers the most sleep.”

Briefings Complete

One of the bigger FCPA stories of 2012, and one that will reach into 2013 as well, are challenges by foreign defendants in two separate SEC Foreign Corrupt Practices Act enforcement actions.

Prior posts here and here have discussed the briefing in SEC v. Herbert Steffen (a former Siemens executives).

Prior posts here and here have discussed the briefing in SEC v. Elek Straub, Andras Balogh and Tamas Morvai (former Magyar Telecom executives).

Defendants in both actions recently filed reply briefs.

Steffen (here) argues in summary fashion, as follows.

“In its opposition, the SEC asks this Court to assert personal jurisdiction over a defendant: (1) who is a German citizen and resident; (2) who conducted no business in the United States; (3) whose only alleged U.S. “contact” resulted from the unilateral actions of another party; (4) whose allegedly improper conduct occurred entirely outside the United States; and (5) whose conduct was not aimed at and caused no injury in the United States. This request should be rejected. Because the SEC has not met its burden to plead legally sufficient allegations establishing personal jurisdiction over Mr. Steffen, its complaint must be dismissed. In addition, the SEC has failed to explain how its action against Mr. Steffen is not barred by the applicable statute of limitations, 28 U.S.C. § 2462. In addition, although the SEC acknowledges that the purpose of the statutory tolling provision is to ensure that a defendant does not evade U.S. prosecution by “fleeing to another country” where he is “difficult to locate and serve,” it ignores that Mr. Steffen did nothing to evade the SEC, and that the SEC was able to locate him and obtain an order to serve him by publication in Germany, the country of his nationality and residency. Under these circumstances, accepting the SEC’s argument would mean that claims against foreign-national defendants who reside abroad are perpetual, not subject to any time limitations. Finally, even if this Court were to accept a continuing violation theory for securities violations, it does not help the SEC’s case because Mr. Steffen did not take any unlawful acts within the limitations period. For all of these reasons, the motion to dismiss should be granted with prejudice.”

Straub, Balogh and Morvai’s reply brief (here) addresses many of the same jurisdictional and statue of limitations issues at issue in the Steffen challenge. In addition, the former Magyar Telekom executive’s brief argues that: (1) the pertinent SEC filing the SEC relies upon in making certain allegations was not even filed with the Commission, (2) the SEC has failed to allege corrupt use of an instrumentality of interstate commerce by the defendants; and (3) the SEC has failed to allege the identity of the alleged foreign bribery recipients.

With both the DOJ and SEC bringing more FCPA enforcement actions against foreign actors – for instance in 2011 90% of DOJ individual prosecutions were against foreign nationals and 100% of SEC individual prosecutions were against foreign nationals – the challenges are noteworthy. Particularly so because Judge Leon, in the Africa Sting case, rejected the DOJ’s jurisdictional theory against U.K. national Pankesh Patel (see here for the prior post) in what was believed to be the first instance of judicial scrutiny concerning FCPA jurisdiction against foreign nationals.

Africa Sting Lawyers Recognized

Two Africa Sting defense lawyers were recently recognized by Law360 as White Collar MVPs.

Michael Madigan (Orrick Herrington & Sutcliffe) represented John Gregory Godsey, who was found not guilty by the jury. (See here for the prior post). Commenting on the Africa Sting cases, Madigan stated as follows. “This case stands out as a significant one. There are certain cases that come along that alter the system of justice and I think this is really one of them.”

In the Law360 article, Madigan was specifically cited for his leadership in leading defense discovery efforts which resulted in the FBI having to turn over its text messages with Richard Bistrong. According to the article, the Africa Sting case was the ”first major criminal trial to achieve court-ordered production in discovery of thousands of text messages between FBI agents of the government’s key cooperating informant.” As noted in the article – “The texts showed FBI agents joking with the informant that ‘you could sell snow to an Eskimo’ — a notion that undercut allegations that Godsey and other defendants were willing participants in a bribery scheme. The texts also revealed FBI agents wondering who would play them when Hollywood made a movie about the investigation.”

Eric Dubelier (Reed Smith) was also recognized for his work on the Africa Sting case, specifically his pro bono representation of R. Patrick Caldwell, a former secret service agent and Vietnam veteran, who was also found not guilty by the jury.

In the Law360 article, Dubelier stated as follows regarding his representation of Caldwell. “Having spent time in the government myself and knowing people like Pat, I thought, You know what? If anyone deserves to represented, this guy does. Pat really had held only two jobs his entire life: the first as a US soldier in combat, the second as a U.S. Secret Service agent. His whole career had been in service to the U.S., but it had earned him nothing close to the resources he needed to defend himself against this prosecution. Providing Pat with the defense he deserved was simply the right thing to do.”

As noted by the Law360 article, “After the acquittals — and the mistrials of three additional defendants — and after a concerned jury foreman penned an open letter expressing deep skepticism about the case, the government ultimately dropped the case against the remaining defendants including those awaiting trial and three who already had pled guilty.”

See here for the February 6, 2012 guest post on FCPA Professor by the Africa Sting jury foreman.

Voluntary Disclosure

Willkie Farr & Gallagher FCPA attorneys Martin Weinstein, Robert Meyer and Jeffrey Clark recently published a new book, “The Foreign Corrupt Practices Act: Compliance, Investigations and Enforcement.”

In this recent Metropolitian Corporate Counsel interview, the authors answer various questions, including the following.

Q: Do you advise your clients to self-report?

Weinstein: We are very cautious about self-reporting to the government. We certainly sometimes advise companies to self-report, but in general we believe that most companies can handle their compliance problems properly without disclosure or government involvement and can appropriately remediate compliance issues and be prepared to respond should the government ever inquire. Companies across industries fix compliance problems – for instance, in a target company that they are acquiring or have just acquired – every day, without the assistance of the U.S. government. This is good all around: it allows the acquiring company to proceed with the acquisition, raises the standard of compliance in the acquired company, and permits the government to deploy its enforcement resources where they are needed most. Our book clearly sets forth how to proceed down such a path. That said, the book also discusses the kinds of circumstances in which self-disclosure may be necessary or advisable and helps readers navigate through that fact-specific, critical strategic decision.

Small Bribes In Russia

Relevant to the question I often ask – do FCPA violations occur because companies have bribery as a business strategy or because companies are subject to difficult and opaque business conditions abroad – is this recent Washington Post article concerning the prevalence of small bribes in Russia.

FCPA Satire

If you like satire, you must check out this post by James McGrath at his Internal Investigations blog.

*****

A good weekend to all.

Friday Roundup

Friday, October 12th, 2012

Beverage industry news, a long-running FCPA-related civil case settles, checking in on the World Bank, survey says, and on-point. It’s all here in the Friday roundup.

Beverage Industry News

Disclosure by Central European Distribution Corp.

As noted in this Wall Street Journal Corruption Currents post, Central European Distribution Corp. (here - one of the world’s largest vodka producers) recently made an FCPA disclosure. In this filing, the company (a Delaware company headquartered in New Jersey) stated as follows.

“It has [...] been determined that there has been a breach of the books and records provisions of the Foreign Corrupt Practices Act (FCPA) of the United States and potentially other breaches of the FCPA. It was determined that payments or gifts were made in a foreign jurisdiction in which the Company operates, and that there was a failure to maintain documentation in respect of certain of these payments or gifts adequate to establish whether there was a valid business purpose in making the payments or gifts. Furthermore, our management also identified a material weakness in our internal control over financial reporting regarding the implementation of our policy on compliance with applicable laws as of December 31, 2011. Our conclusion that this deficiency is a material weakness in our internal control over financial reporting is not based on misstatements in our historical consolidated financial statements or our consolidated financial statements as of and for the period ended December 31, 2011, but instead on the determination that we did not design or maintain sufficient policies, procedures, controls, communications or training to deter or prevent the risk of violations of law, including the Foreign Corrupt Practices Act (“FCPA”) of the United States.”

Beam Inc. Investigating Possible FCPA Violations

In other beverage industry news, the Times of India reports (here) that Beam Inc. (here) “has initiated investigations into whistleblower allegations of financial misdemeanours at its India unit.” According to the report, the investigation covers possible violations of Foreign Corrupt Practices Act.

As noted in this previous post, in July 2011 the SEC brought an FCPA enforcement action against beverage company Diageo PLC.

Alba-Alcoa Civil Case Settles

Earlier this week, Alcoa announced (here) that it “entered into a settlement agreement with Aluminium Bahrain B.S.C. (“Alba”) resolving a civil lawsuit that had been pending … since 2008. Without admitting any liability, Alcoa agreed to make a cash payment to Alba of $85 million payable in two installments.”

Alba was represented by Akin Gump which put out this release. The release notes that “the settlement arises out of a claim brought by Alba under the Racketeer Influenced and Corrupt Organizations (RICO) Act against Alcoa, an Alcoa subsidiary and Canadian businessman Victor Dahdaleh alleging a “pattern of corrupt activities by the defendants and officials in Bahrain in order to obtain long-term contract and pricing advantages in the sale of raw materials.” As noted in the release, ‘the case was stayed for nearly four years while the U.S. Department of Justice pursued a criminal investigation under the Foreign Corrupt Practices Act” and the settlement “represents the first time that a foreign-owned corporation has successfully sued a U.S. company in a federal court to recover losses suffered due to allegations of corrupt activity. “

As highlighted in this previous post, Alcoa’s agent (Dahdaleh) has been criminally charged in the U.K.

The DOJ and SEC’s investigation of Alcoa concerning the conduct at issue in the civil lawsuit is ongoing.

In its most recent quarterly filing, Alcoa stated as follows.

“The DOJ’s and the SEC’s investigations are ongoing. Alcoa has been in dialogue with both the DOJ and the SEC and is exploring whether a settlement can be reached. Given the uncertainty regarding whether a settlement can be reached and what the terms of any such settlement would be, Alcoa is unable to estimate a range of reasonably possible loss with regard to any such settlement, However, Alcoa expects the amount of any such settlement would be material in a particular period to Alcoa’s results of operations. If a settlement cannot be reached, Alcoa will proceed to trial with the DOJ and the SEC and under those circumstances is unable to predict an outcome or to estimate a range of reasonably possible loss. There can be no assurance that the final outcome of the government’s investigations would not have a material adverse effect on Alcoa.”

World Bank

The World Bank’s fraud and corruption unit, the Integrity Vice Presidency (INT), recently released its annual report (see here for the full report). This release states as follows. The INT “concluded another strong year in its preventive and investigative efforts, with 83 debarments of wrongdoing firms, new agreements with national law enforcement authorities to expand the impact of INT’s investigations, numerous referrals to law enforcement agencies, and robust preventive efforts to help ensure Bank-financed projects deliver results.”

Survey Says

This past July, FTI Consulting conducted an on-line survey of 571 executives in UK businesses in board-level, senior management and middle management positions. As noted in this release, among the survey findings were the following.

40% of UK businesses surveyed think the current economic climate is encouraging risk taking around compliance with the UK Bribery Act
27% do not believe the government will prosecute offenders
25% of board-level employees surveyed might breach Bribery Act regulations to win business
63% of respondents believe the UK Bribery Act eventually will have a positive effect on prospects for UK business

Spot-On

In the aftermath of the Wall Street Journal’s FCPA Inc.: Business of Bribery series (see here), the WSJ published the following letter to the editor from Steve Travis of Mercer Island, WA.

“The Foreign Corrupt Practices Act makes it illegal to offer money or a gift to foreign government officials or employees to gain a business advantage. Yet in the U.S., every business worthy of its name has lobbyists whose sole job in Washington, D.C., is to do exactly that: give money or gifts to our elected officials or employees of our government in a position to steer contracts their way. Does anyone really think that things like flying government officials around on company private jets or putting them up in private homes on vacations don’t come with a quid pro quo? Who is naive enough to think that contributions to election campaigns don’t come with strings attached?”

Spot-on – see here for a prior post (as well as numerous previous posts embedded therein).

*****

A good weekend to all.

Friday Roundup

Friday, September 28th, 2012

In the classroom, survey says, a candid statement, on-point, an informative read, patience and a prediction. It’s all here in the Friday roundup.

In The Classroom

I was pleased to learn that my recent article “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Exposure” (here) was required reading for the MBA students in Jeffrey Klink’s FCPA-related class at the University of Pittsburgh Joseph S. Katz Graduate School of Business. (See here for a recent profile of the class.) Klink (a former AUSA and current CEO of Klink & Co., a global risk management firm – here) shared the following.

“During our class we discussed your recent article regarding the Wal Mart case at length. Many students opined that it was likely that many of the payments were in fact facilitation payments and especially where permits would definitely be issued. The majority of students, however, believed that probably many payments were not clerical or ministerial, noting that according to the NY Times article, payments caused zoning maps to be changed, and environmental permits were obtained likely without proper process. Students believed that these kinds of payments were not grease or skid payments, but were in fact bribes designed to allow Wal Mart to open new stores without competition, thus gaining new business. All but one of the 41 students (a bright law student held out) present believed that Wal Mart had successfully obtained new business by paying bribes through the $24 million in payments to gestores. We also discussed the significance of an organization’s compliance culture. Wal Mart was viewed very negatively by the students, having been subject to successful discrimination suits regarding gender bias, its poor treatment of vendors, locking its own injured employees inside stores, and the facts of the Mexico bribery case, where, if the NY Times article is correct, it was clear that top officials buried facts, did not pursue an investigation, and promoted corrupt executives to high ranking positions. As geography under the FCPA can also be destiny, I also noted that Mexico is rated #100 by TI, and it doesn’t appear that Wal Mart had a risk plan in place to address its growth in places where corruption and bribery are extremely common and not unexpected. Many students believed that Wal Mart, like other large organizations, likely engaged in, and continues to engage in, cost – benefit thinking where executives conclude that the cost of bribery is not significant compared to the benefits that accrue to the organization through growth and profits.”

Staying on campus and referring to “THE” New York Times article (see here for the prior post) readers may enjoy this webcast of the recent Wal-Mart focused Milbank Tweed Forum at the NYU School of Law. Moderated by Professor Kevin Davis (the author of recent FCPA scholarship – here and here), the panel included David Barstow, the investigative reporter at the New York Times who broke the Wal-Mart story.

Survey Says

Speaking of the significance of the FCPA, a recent boardroom survey conducted by BDO USA (an accounting and consulting firm) reveals as follows. “One-third (33%) of directors cite corruption/bribery as the greatest fraud risk facing their company, compared to approximately one-fifth that identify either revenue recognition (20%) or earnings management (18%). Two-thirds (68%) of directors indicate their companies conduct business in foreign locations or with foreign customers or suppliers. Of those conducting international business, a majority (57%) say they deal with foreign officials and almost one-third (32%) of those believe compliance risks related to bribery of government officials has increased over the past two years, compared to just four percent reporting a decrease.”

The survey, conducted in late August and early September 2012, examined the opinions of 72 corporate directors of public company boards, with revenues ranging from $250 million to $750 million, regarding financial reporting and corporate governance issues. For more, see this BDO release.

Candid Statement

Hank Walther (a former Assistant Chief in the DOJ’s FCPA unit and currently at Jones Day – see here), stated in this recent interview in the Metropolitan Corporate Counsel as follows.

“Most government attorneys realize that a company can take every reasonable step to prevent wrongdoing but ultimately is powerless if somebody really wants to break the law.”

Makes you wonder why the DOJ is steadfast in its opposition to an FCPA compliance defense. But then again the current enforcement environment provides the DOJ maximum leverage. However, for the reasons I articulate in “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (here), the DOJ should be in favor of a compliance defense.

On-Point

This previous post, “Testing Innocence,” noted that the longest individual FCPA sentences (Joel Esquenazi and Carlos Rodriguez) were issued in enforcement actions where the defendants exercised their constitutional rights to a jury trial. The conduct Esquenazi and Rodriguez allegedly engaged in (and the jury found, although their appeals are pending) paled in comparison to some other FCPA individual prosecutions – such as the individual prosecutions in the Bonny Island Nigeria cases. What did Esquenazi and Rodriguez do that warranted such a long sentence? They tested their innocence.

The FCPA community once again saw the high cost of testing innocence this past spring and summer when the individual defendants in the so-called Carson enforcement action pleaded guilty on the eve of trial. (See here, here, here). The guilty pleas came after the trial court judge issued a pro-defendant jury instruction relating to knowledge of foreign official. (See here). On the brink of the DOJ being put to its ultimate burden of proof on “foreign official” and other elements as well, the DOJ offered plea agreements to substantially reduced charges and the defendants, likely mindful of the high costs of testing their innocence, did what most rationale, risk averse actors in their position would do – agreed to plead guilty.

The Wall Street Journal ran a feature story this week “Federal Guilty Pleas Soar As Bargains Trump Trial” (here) which documented the trend of a “growing number of federal defendants who [plead guilty] often to avoid the lengthy prison sentences that can come with losing at trial.” Among other things, the article noted that “federal [sentencing] guidelines not only toughened punishments but also formalized a system to reward defendants who plead guilty by reducing sentences if they accept responsibility or cooperate with prosecutors, among other things. As part of plea deals, federal prosecutors often drop additional charges that could add years, or decades, to a sentence. Going to trial brings none of those benefits for the accused.”

The WSJ article included research (here) co-authored by my Southern Illinois University School of Law colleague Lucian Dervan (here) which found that 55% of students who were innocent in a control group study pleaded “guilty.” The study showed “a strong compulsion to have the matter resolved even if it meant confessing to something that they really didn’t do.”

Informative Read

Breon Peace and Ryan Becker (Cleary Gottlieb Steen & Hamilton – here and here) recent authored this informative article in Bloomberg Law that touches upon just about everything you would want to know about the FCPA and statute of limitations. The article, written in the context of Wal-Mart’s potential FCPA scrutiny discusses black letter law and judicial decisions, but rightly notes in connection with Wal-Mart as follows.

“Given the facts as reported by the New York Times, Wal-Mart, and individuals involved in the bribery scheme, would have a plausible statute of limitations defense to any FCPA actions—even a potential conspiracy charge. As a practical matter, companies, especially publicly held companies like Wal-Mart, typically make a strategic decision to fully cooperate with a DOJ investigation. Despite the potential success of a statute of limitations defense, a company will often make the judgment that the negative press of a protracted investigation and the uncertainty of the outcome at trial make cooperation the more prudent business judgment. The company’s hope is that it will be given credit for the cooperation and it will achieve a better outcome than if it went to trial (i.e., avoid charges, a deferred prosecution agreement, or a reduced fine).”

Patience

Before Wal-Mart’s potential FCPA scrutiny dominated the headlines, there was News Corp. In July 2011, world-wide media attention focused on the company, not just the phone hacking aspects of the scandal, but the potential FCPA implications as well. See here for the prior post. In the prior Q&A style post, I addressed the issue of how long the FCPA gray cloud will likely hang over News Corp. and said that it would likely be between 2-4 years if the case followed the typical pattern. In February of this year, I noted (here) that the FCPA aspect of News Corp.’s scrutiny was following a typical path.

Eliot Spitzer (former New York Governor, former New York Attorney General and current TV personality) apparently is not aware of the typical path. In this recent Slate article titled “Why Hasn’t Eric Holder Charged News Corp. With Foreign Corrupt Practices?” Spitzer writes as follows.

“[W]here is the inept U.S. Department of Justice in all this? The DOJ has brought many irrelevant and tiny cases against companies for violating the Foreign Corrupt Practices Act, which makes it illegal to bribe either individuals or government officials, even in a company’s overseas operations. The DOJ loves to use the statute to show just how tough it is. Yet now they have the most important case sitting right there in front of them. It’s easy. Even a rookie could field this one. But what are they doing? It’s not clear. If they fail to make this case against News Corp., Eric Holder is a failure as attorney general.”

Patience. And while Sptizer is waiting, he may want to brush up on the FCPA - not sure what he means when he says that the FCPA “makes it illegal to bribe either individuals or government officials.”

Prediction

No, I am not going to predict that the DOJ’s FCPA guidance will be released next week. OK, maybe I will, see here from Compliance Week.

Rather my prediction concerns FCPA risk in India.

The Indian Commerce Ministry recently eased (see here) foreign investment restrictions giving multi-brand retailers greater access to the growing Indian market. Per the new policy, it will be the “prerogative of the states to allow a multi brand store” and “local and state-level regulations which govern shops and establishment are the prerogative of the respective state governments.”

I predict that India’s new FDI policy will be an FCPA compliance headache for relevant companies seeking to expand in India as the new policy facilitates points of contact between a company and state and local officials in regards to license, permit, and land issues. In “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (see here), I highlight how companies subject to the FCPA are often funneled into an arbitrary world of low-paying civil servants who frequently supplement their meager salaries through payments condoned in the host country. I argue that such barriers create the conditions in which harassment bribes flourish and I predict India’s new FDI policy will do just that.

*****

A good weekend to all.

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.

*****

A good weekend to all.

Friday Roundup

Friday, August 31st, 2012

The guidance is coming - the guidance is coming, compliance by the numbers, checking in on Wynn-Okada, industry news, and refreshing candor. It’s all here in the Friday roundup.

Guidance

Since Assistant Attorney General Lanny Breuer announced last November that the DOJ would be issuing FCPA guidance in 2012 (see here for the prior post), approximately 25 years after Congress encouraged the DOJ to issue guidance, FCPA Inc. has been waiting patiently, and too long (see here for the prior post), for such guidance.

There have been whispers that the guidance would be released in October and this recent Wall Street Journal Corruption Currents post by Chris Matthews, citing “people familiar with the matter” confirms those whispers.

Compliance Practices By The Numbers

What percentage of the Fortune 500 have publicly available, stand-alone FCPA compliance policies and procedures? Do the policies and procedures include discussion of the FCPA’s books and records and internal control provisions? How do companies address facilitation payments? What about gift-giving?

Answers can be found in this recent article in Corporate Counsel by Ryan McConnell (Baker & McKenzie), Jay Martin (Baker Hughes) and Paula Bonavides (a University of Houston law student).

Wynn-Okada

Remember Kazuo Okada, the former business partner of Steve Wynn, accused of various FCPA violations by Wynn Resorts earlier this year? Given the nature of Wynn’s investigative report authored by former FBI Director Louie Freeh of Freeh, Sporkin & Sullivan LLP (see this prior post which provides a detailed summary of the report) it is not surprising, as noted in this Reuters article, that Okada has filed a defamation lawsuit in Japan against the casino company and its officials. According to the article, Okada is claiming $140 million in damages and he alleges that Wynn’s actions led to a decline in his company’s stock price, a decline in new business opportunities, and damaged his reputation. As noted in the Reuters article, a Wynn spokesperson said that Okada’s lawsuit is an “attempt to distract” from the real issues facing Okada and his company “as identified in the Freeh Report.”

Industry News

Speaking of Freeh, in addition to his role in the Wynn-Okada dispute, he is also known in FCPA circles for being the monitor in the Daimler FCPA enforcement action. (See here for the prior post).

As noted in this release from Pepper Hamilton LLP, the firm “and the lawyers of Freeh Sporkin & Sullivan, LLP announced the union of the legal talent of the two firms and Pepper Hamilton’s acquisition of Freeh Group International Solutions, LLC.”

Refreshing Candor

FCPA Inc. participants are of course an active group of speakers. But rarely does one find much candor in the discussions. FCPA Inc. participants often filter what they say cognizant of client issues and mindful of what the small world of enforcement agency officials will think of them. I’ve had numerous exchanges with industry participants in which a person says something insightful or provocative. I then offer up the opportunity to publish a guest post on FCPA Professor, and the person declines.

Against this backdrop, this recent transcript of the 2012 Chief Legal Officer Leadership Forum hosted by Argyle Executive Forum is a nice read in that Adam Siegel (the c0-chair of global white collar group at Freshfields Bruckhaus Deringer) speaks with refreshing candor. Siegel (here, a former federal prosecutor) states as follows.

Regarding a compliance defense.

“Well, the U.K. act, even though it’s perceived as being broader and worse than the FCPA, has this wonderful feature to it, which is that a corporation is legally not responsible if it had adopted adequate procedures. It’s a great argument that we can take to the business about why they ought to invest in an appropriate compliance program. It means we’re actually innocent and you’re not begging some 27-year-old – apologies to anyone in the room of that age – to exercise their enormous discretion and give the corporation and shareholders a pass because some rogue employee in Indonesia has decided that they were going to do something to hit their targets this year.”

On the increase in FCPA enforcement.

“In 2005, due to some changes in personnel and some other issues of justice, someone realized that they can use this statute more aggressively. If you think back to 2007, we had a major record in FCPA civil and criminal finds; $150 million. I think people were amazed that in that year that was what the government was able to do. Fast forward to 2010 and you’re at $1.8 billion. I mean, if any of us in this room have a business that has grown at that rate, I think we’d all be very happy and our shareholders would be delighted.”

On the global trend of increased enforcement.

“I think some of it is pressure from globalization. I think a lot of it is looking at the numbers on that chart. I think a lot of the global anti-bribery movement is driven by regulators around the world saying, Okay, a German company just paid $300 million to the U.S. That’s sort of funny to us. Where are we in this? I think there is some international pressure. There is the pressure of raising the bar, but there’s also a very cynical pressure of raising money. We’re in an economic climate today where I don’t think there’s a single government in the world that isn’t struggling to find resource. This area has emerged, again, as a money making center, which is kind of bizarre.”

*****

A good weekend to all.