Archive for the ‘Foreign Official’ Category

Do You Now Understand Why The Meaning Of “Foreign Official” Matters?

Wednesday, August 26th, 2015

Understand2For some time, certain people have been confused, perplexed etc. as to why the meaning of “foreign official” in the FCPA’s anti-bribery provisions matters.

In connection with the June 2011 Foreign Corrupt Practices Act reform hearing in the House of Representatives, a variety of civil society organizations asked – why is greater clarity needed as “foreign official” – “greater certainty of what? Greater certainty of who [companies] are permitted to bribe and who [companies] are not permitted to bribe.”

In the immediate aftermath of the May 2014 “foreign official” in U.S. v. Esquenazi, a commentator stated:

 “If your are trying to figure out whether a company is a private company or an “instrumentality” of a foreign government under the Foreign Corrupt Practices Act you are already in trouble. To reach that point in the FCPA analysis you’ve already paid a bribe, or are thinking of paying a bribe. (If you’re just thinking about it; Don’t do it.) Otherwise you’ll end up in the position of Joel Esquenazi and Carlos Rodriguez.”

Such comments were, and still are, entirely off-base and not the main reason why the meaning of “foreign official” matters. To be sure, the meaning of “foreign official” mattered to Esquenazi and Rodriguez in the narrow context of their case and more broadly for the obvious rule of law reasons implicated in criminal law enforcement.

Stating that the meaning of “foreign official” matters only to those intent on engaging in bribery is like saying the drinking laws matter only to those intent on drunk driving. Sure, the drinking laws can certainly capture those engaged in drunk driving, yet the reality is the underlying activity – drinking – is legal and socially acceptable in most other situations.

The same is true when it comes to the meaning of “foreign official.” The FCPA’s anti-bribery provisions are generally implicated when anything of value is offered or provided to a “foreign official” in connection with a business purpose.

Some will still maintain that the above is all fine and dandy, but a company still shouldn’t “bribe.”

However, as recent enforcement activity has highlighted, FCPA enforcement actions are increasingly based on allegations concerning internships (BNY Mellon), sports tickets (BHP Billiton), travel and entertainment (FLIR Systems and several other enforcement actions) and other inconsequential things of value such as flowers, cigarettes, and visits to karaoke bars (Eli Lilly and several other enforcement actions).

In other words, the underlying activity is legal and socially acceptable in most situations. In fact, it is often called effective sales and marketing, wining and dining the customer, or maintaining good will. Yet when such activity is focused, directly or indirectly, on a “foreign official” the U.S. government is inclined to call it bribery.

In short, the meaning of “foreign official” determines whether a criminal law applies to an interaction in the global marketplace. The Esquenazi decision expanded regulation of business interactions with a “well-defined group of persons” (as correctly noted by the 5th Circuit in U.S. v. Castle) to an ill-defined, practically boundless category of persons.

The proper scope and meaning of the “foreign official” is an issue of extraordinary practical significance to businesses and individuals subject to the FCPA. Not because business organizations want to bribe, but because business organizations competing in good faith in the global marketplace want to engage in conduct that is legal and socially acceptable in most other situations.

Do you now understand why the meaning of “foreign official” matters?

The Coming Battle Over The Status Of Ecopetrol

Thursday, April 30th, 2015

EcopetrolAs recently highlighted here by the Wall Street Journal, the Foreign Corrupt Practices Act criminal trial of former PetroTiger CEO Joseph Sigelman, originally scheduled to begin this week, was “pushed back for two months to allow him assistance from an unlikely ally: the former Colombian official he is accused of bribing.”  As noted in the article, “Mr. Sigelman is accused of paying David Duran, a former official at Colombia’s Ecopetrol SA to win business for his oil services company, PetroTiger.”

This November 2014 post highlighted how Sigelman is challenging various aspects of the DOJ’s case, including its interpretation and application of the “foreign official” element to Ecopetrol. Similar to previous “foreign official” challenges, the DOJ argued that the dispute is an issue of fact inappropriate for pre-trial disposition.  Accordingly, as in the previous “foreign official” challenges, the “foreign official” issue is moving to other phases of the case.

Recently the DOJ and Sigelman filed motions foreshadowing the evidence the parties intend to offer to prove or disprove whether Ecopetrol is an “instrumentality” of the Colombian government and thus whether Duran is a “foreign official” under the FCPA.

Although not binding in the Sigelman case pending in federal court in New Jersey, approximately one year ago in U.S. v. Esquenazi, the 11th Circuit concluded, in a case of first impression at the appellate level, that “an ‘instrumentality’ [under the FCPA] is an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.” (emphasis added).

In this letter the DOJ provides notice that it may call (1) Alejandro Linares Cantillo and (2) Carlos Mantilla McCormick to provide expert testimony.  In pertinent part, the letter states:

Alejandro Linares Cantillo

Mr. Linares is the Vice President for Legal Affairs and General Counsel of Ecopetrol S.A., and he has been in this position since October 2014. Mr. Linares’s testimony is based on his training, education, and experience as described in his curriculum vitae, including his experience at Ecopetrol S.A. (“Ecopetrol”), as well as his review of relevant material including, but not limited to, Ecopetrol’s Forms 20-F filed with the U.S. Securities and Exchange Commission, Colombian laws and regulations, scholarly articles and books, and Ecopetrol company materials. If called as a witness, Mr. Linares would generally testify about the history, business, and structure of Ecopetrol over time. Mr. Linares would also testify about the Colombian government’s control of Ecopetrol and the company’s functions as a government-controlled entity, particularly as it relates to the Mansarovar contract at issue in this case. More specifically, if called as a witness, we anticipate Mr. Linares would testify to the following:

In Colombia, the state owns all hydrocarbon reserves. To ensure proper management and supply of hydrocarbon resources to the nation, the Colombian government has adopted laws, regulations, and policies to ensure an appropriate supply of energy to the nation while responsibly maintaining the nation’s hydrocarbon resources. It effectuates these goals through various agencies and state-controlled entities, including Ecopetrol.

Ecopetrol was originally incorporated by the Colombian government on August 25, 1951, as the Empresa Colombiana de Petróleos S.A. It functioned as a governmental industrial and commercial company responsible for administering Colombia’s hydrocarbon resources.

The company’s legal form has evolved since its inception. For example, in 1970, the company adopted its first by-laws, ratifying its nature as a stateowned industrial and commercial company linked to the Ministry of Mines and Energy and fiscally supervised by the Office of the General Controllership.

In 2003 the government restructured Empresa Colombiana de Petróleos into a 100% state-owned corporation by shares linked to the Ministry of Mines and Energy and renamed the company Ecopetrol S.A. (hereinafter referred to as “Ecopetrol” regardless of time period).

In 2006 the legal nature of Ecopetrol was changed to one of a mixed economy corporation, linked with the Ministry of Mines and Energy and funded by Colombian government and private capital.

The Republic of Colombia is required by law to own at least 80% of the outstanding voting shares of Ecopetrol. In 2009 and 2010 the government owned roughly 90% of the outstanding voting shares, and it currently owns roughly 88.5% of Ecopetrol’s outstanding voting shares. Ecopetrol has had American Depository Shares trading on the New York Stock Exchange since 2008.

In 2003 the Colombia government created the National Hydrocarbons Agency (NHA), and the government granted the NHA authority over, among other things, the design, promotion, negotiation, conclusion, tracking, and management of new exploration and exploitation of Colombian hydrocarbon resources. The Ministry of Mines and Energy continues to administer the overall oil policy and planning coordination, and together with the Oil and Gas Regulation Commission it also regulates the downstream sector.

Prior to December 31, 2003, Ecopetrol exercised administrative, industrial, and commercial powers over Colombian hydrocarbon resources owned by the Republic of Colombia.

After December 31, 2003, as a mixed economy company, Ecopetrol retained authority to engage in industrial and commercial activities, under the indirect control of the Colombian government, with respect to, among other things, the exploration, exploitation, transportation, and supply and marketing of Colombian hydrocarbon resources, as well as related concessions, assets, and real estate. It does so as an association contracts administrator in the commercial sphere on behalf of the Colombian government.

Ecopetrol has also retained certain administrative functions with regard to association contracts it entered into prior to December 31, 2003, including the Mansarovar contract at issue in this case. Administrative functions retained by Ecopetrol after December 31, 2003, with respect to association contracts include, but are not limited to, the following:  management, development, and negotiation of exploration and exploitation rights in connection with hydrocarbon resources; overseeing the advancement of programs that benefit the communities in the areas of influence of the contracts; managing the Colombian government’s share of moneys and in-kind resources obtained from the exploitation of hydrocarbon resources; and managing and disposing of the assets and real estate associated with exploration and exploitation of hydrocarbon resources at the end of the Association contracts.

Ecopetrol may extend association contracts, at its sole discretion, which is an administrative function. If Ecopetrol refuses to extend an association contract, the right to exploit the hydrocarbon reserves that are the subject of the contract would revert to Ecopetrol, and Ecopetrol would have the right to exploit those reserves for an indefinite period at no additional cost to it.

Ecopetrol is the largest company in Colombia as measured by revenue, assets, and shareholder’s equity. It is also the main producer and supplier of fuel and refined products in Colombia. In recent years it has contributed approximately 15% of the Colombian government’s annual revenues through royalties, taxes and dividends, and it remains the single largest source of revenue for the government. Oil production and exports account for a significant part of Colombia’s economy. Ecopetrol accounts for a significant percentage of Colombia’s oil production, exports of crude oil, imports of refined oil products, and refining capacity.

Ecopetrol owns outright 42% of the total crude oil pipeline shipping capacity in Colombia, and in conjunction with partners 99% of the total product pipeline shipping capacity in Colombia. The Colombian government controls and regulates the pipelines through the Ministry of Mines and Energy by establishing hydrocarbon transportation tariffs and transportation regulations.

Ecopetrol is the only producer of asphalt in the country and accounts for nearly all domestic consumption.

Ecopetrol owns and manages nearly all oil refining capacity in Colombia. Because domestic demand outstrips domestic refining capacity, Ecopetrol also imports refined oil products, including gasoline. The Colombian government, by means of The Oil Prices Stabilization Fund, may control the price of gasoline and other fuels by setting prices for them domestically through the Ministry of Mines and Energy below prices in the international market. The government makes payments to refiners and importers, principally Ecopetrol, to account for any fuel price differential, in favor of Ecopetrol, caused by these domestic fuel price subsidies. The government controls the timing of such payouts to Ecopetrol and other refiners and importers.

While the Colombian government enjoys the advantages of a natural monopoly over many aspects of the management, development, and supply of hydrocarbon resources in Colombia through its control of Ecopetrol, it also restricts Ecopetrol’s market share in other areas. For example, the government prohibits Ecopetrol from owning more than 25% of any natural gas transportation company.

The Colombian government’s budget is set in part based on expected revenues from Ecopetrol. As a result of falling world prices of crude oil, it is anticipated that Ecopetrol’s revenues and profits will decline in 2015, and the Colombian government has had to cut its budget for 2015.

In addition to exerting control over Ecopetrol through law, regulation, and policy, Colombia controls Ecopetrol through its majority shareholding position, through which it directly appoints a majority of the board of directors and indirectly the chief executive officer. The board consists of nine members. As the majority shareholder, the Colombian government has the right to elect the majority of the directors. Ecopetrol’s by-laws establish that three of its directors will be the Minister of Mines and Energy, the Minister of Finance, and the Director of the National Planning Agency. The board also has the authority to hire and fire the chief executive officer of the company.

As the majority shareholder in Ecopetrol, the Colombian government may propose and approve decisions that are in furtherance of its own economic and political interests that do not necessarily benefit minority shareholders and may not be in the interest of Ecopetrol. It may also approve dividends at the ordinary general shareholders’ meeting, notwithstanding the interest of minority shareholders, in an amount that results in Ecopetrol having to reduce its capital expenditures, thereby negatively affecting Ecopetrol’s prospects, results of operations and financial condition.

In order for Ecopetrol to issue debt in international or Colombian markets with a tenor greater than one year, or incur any other form of indebtedness, the Ministry of Finance and Public Credit must first authorize the issuance of such debt and register any external debt with the Colombian Central Bank. The Colombian government has the authority to refuse to approve such issuances. These restrictions do not apply to private companies.

Ecopetrol reserves the right to plead sovereign immunity under the U.S. Foreign Sovereign Immunities Act of 1976 with respect to actions brought against it under U.S. or state securities laws.

The Office of the Controller General (“OCG”) is a government institution that acts as the highest form of fiscal control in Colombia. It is charged with ensuring the proper management of public resources and funds. The OCG has oversight responsibility for various public entities in Colombia, including Ecopetrol. As a state-controlled entity, Ecopetrol is subject to review by the OCG and has reporting requirements to it regarding the management of public funds or resources. OCG may bring actions against Ecopetrol’s employees for mismanagement of public funds or resources.

The Office of the Inspector General of Colombia (“OIG”) is an independent public institution with authority over public conduct of those in authority or exercising a public function. The OIG is charged with overseeing public officials’ performance, intervening in defense of the legal order, public funds, and fundamental rights, and instituting disciplinary actions against public officials. Ecopetrol employees are subject to the purview of the OIG.

The National Accounting Office of the Colombian government adopted accounting principles for state-owned entities in 2007 known as the Regime of Public Accounting (“RCP”). RCP differs in some regards from the accounting principles required for private enterprises. Ecopetrol has been required to prepare its financial statements in accordance with RCP since 2008. In its Form 20-F, Ecopetrol refers to this accounting regime as Colombian Government Entity GAAP.

Ecopetrol is subject to the jurisdiction of Colombia’s administrative court system. Disputes between Ecopetrol and private companies must be addressed within the administrative court system, whereas disputes between private parties are handled within Colombia’s ordinary court system.

Ecopetrol’s employees are subject to prosecution under Colombia’s laws against public corruption.

Ecopetrol is subject to Colombia’s Transparency Law, which applies to entities that exercise a public function. This law is similar to the Freedom of Information Act in the U.S.

As a government-controlled entity, Ecopetrol is required to unilaterally terminate contracts with contractors who finance terrorist activities. Private companies are not subject to this requirement.

Ecopetrol is controlled by the Colombian government. Ecopetrol functions as an instrumentality of the state, including as an industrial and commercial operator with respect to exploring, exploiting, transporting, and supplying hydrocarbon resources for the Colombian state. Ecopetrol also functions as an instrumentality of the state through its administrative functions in connection with association contracts entered into prior to December 31, 2003, including the Mansarovar contract at issue in this case. Ecopetrol also manages public resources.

Carlos Mantilla McCormick

Mr. Mantilla is the Vice President of Hydrocarbon Contracts of the NHA, and he has been in this position since 2014. Mr. Mantilla’s testimony is based on his training, education, and experience as described in his curriculum vitae, including his experience at NHA, as well as his review of relevant material including, but not limited to, Colombian laws and regulations and NHA materials. If called as a witness, Mr. Mantilla would generally testify about the history and structure of the NHA since its inception in 2003 to present, as well as the history and background of Ecopetrol as further described above in the description of Mr. Linares’s anticipated testimony. Mr. Mantilla would also testify about the Colombian government’s control of Ecopetrol and the functions that Ecopetrol and the NHA have performed and continue to perform, as described in greater detail above. More specifically, if called as a witness, we anticipate Mr. Mantilla would testify to the following:

In 2003, Colombia created the NHA and granted the NHA authority over, among other things, the design, promotion, negotiation, conclusion, tracking, and management of new exploration and exploitation of Colombian hydrocarbon resources.

After December 31, 2003, Ecopetrol continued to administer substantial hydrocarbon resources covered by association contracts with third parties, and it remained the government’s principal instrument of engaging in commercial and industrial activity in the hydrocarbon market. The NHA took over certain administrative and regulatory functions from Ecopetrol in the upstream sector, except as to those resources covered by Ecopetrol’s association contracts entered into prior to December 31, 2003. Ecopetrol has retained certain administrative functions with regard to association contracts it entered into prior to December 31, 2003, including the Mansarovar contract at issue in this case.

As a state-controlled entity, Ecopetrol is charged with exploring, extracting, processing, transporting, and marketing Colombia’s hydrocarbon resources. It is also charged with the administration of hydrocarbon resources related to association contracts entered into prior to December 31, 2003, as well as exploiting those resources and others administered by other agencies as an operator in the commercial sphere as an instrumentality of the Colombian government.

Ecopetrol is still a counterparty to the contracts that it signed before January 1, 2004, including the Mansarovar contract at issue in this case. Those contracts have clauses providing, at Ecopetrol’s sole option, for extensions. If Ecopetrol were to refuse to extend one of those contracts, the right to exploit the hydrocarbon reserves that are the subject of the contract would revert to Ecopetrol, and Ecopetrol would have the right to exploit those reserves for an indefinite period at no additional cost to it.

After NHA was created, Ecopetrol continued to perform administrative functions with regard to association contracts and performed many of the same governmental functions with respect to those contracts after NHA was created that it had performed before NHA was created.

NHA sets oil prices for exploration and production contracts that it controls, but has no role in setting prices for association contracts controlled by Ecopetrol. With regard to exploration and production contracts, NHA establishes plans related to drilling, budget, extraction, general rules, and contracting. In association contracts maintained by Ecopetrol, Ecopetrol carries out those functions, and NHA has no role in those decisions.

NHA plays no part in approving contracts with service providers with respect to association contracts, and it has no role in ensuring that private companies that sign association contracts with Ecopetrol adhere to their agreements. Ecopetrol had that responsibility before NHA was created and has retained that responsibility. NHA has certain authority over all oil fields, and thus has limited functions with respect to association contracts, including: NHA conducts technical inspections of all oil fields in Colombia. Once an association contract ends, Ecopetrol may continue to maintain the oil fields that the contract covered. To do so, Ecopetrol must submit a petition for NHA’s approval to continue to administer the oil fields covered by the contract. Ecopetrol is the only company that may submit such a petition. Royalties that are paid for oil extraction are set by NHA.

NHA has significant authority over exploration and production contracts signed after December 31, 2003.

In this letter, Sigelman’s defense counsel provides notice of the expert testimony it intends to offer.  In pertinent part, the letter states:

Justice Carlos G. Arrieta

We anticipate that Justice Arrieta will offer testimony regarding Ecopetrol, including the functions it performed between 2009 and 2010 and its relationship with the Republic of Colombia (“Colombia”) during that period. This testimony is expected to include Ecopetrol’s history, the laws and regulations bearing on its functions and its relationship with Colombia, Ecopetrol’s internal governance and operations, and the role of Ecopetrol’s employees. Justice Arrieta has already provided one declaration in this matter, [...]  and we expect that his testimony at trial will be consistent with and supplemental to that declaration.

Justice Arrieta is qualified to offer this testimony on the basis of his education, professional training, academic research, and experience in administrative law. His extensive judicial experience includes terms as Justice on Colombia’s State Council (Colombia’s highest court for administrative law disputes) and as adjunct Justice on Colombia’s Constitutional Court (Colombia’s highest court for constitutional law matters). In addition, he served for four years as Colombia’s Attorney Inspector General. Justice Arrieta’s private practice experience includes litigation and client advisory services related to administrative law issues prevalent in the oil and gas industry. He also acts as an arbitrator in disputes arising from public and commercial contracts. Additionally, Justice Arrieta was a professor of law at the Los Andes School of Law in Bogota, Colombia, for many years and served as the school’s Dean from 1986-89.

Professor David R. Mares

We anticipate that Professor Mares will offer testimony regarding the characteristics and relative autonomy of various nationally-owned and private oil and gas companies, including Ecopetrol. Professor Mares is also expected to provide testimony regarding the political, social, and economic factors influencing the creation and/or privatization of national oil companies. Professor Mares is qualified to offer this testimony on the basis of his extensive academic research of Latin American energy issues. In addition to his current teaching position at the University of California, San Diego, Professor Mares is the Baker Institute Scholar for Latin American Energy Studies at Rice University. Professor Mares has also held teaching posts at El Colegio de Mexico; the Universidad de Chile; FLACSO Ecuador; Harvard University; Stanford University; and a fellowship at the Oxford Institute for Energy Studies. In the course of his scholarship, Professor Mares has written or edited nine books, as well as hundred journal articles, book chapters, and reports. Professor Mares’s teaching includes classes on energy politics.

Justice Jorge A. Gomez

We anticipate that Justice Gomez will offer testimony regarding Colombia’s criminal laws and procedure, including the effects of certain criminal penalties. Justice Gomez is expected to provide testimony as to the penalty of debarment from performing public functions as well as to the effect of such penalty on crimes against the public administration of Colombia, such as bribery. Justice Gomez is qualified to offer this testimony on the basis of his education, professional training, academic research, and experience. His professional background includes extensive judicial experience, including terms on the Criminal Section of Colombia’s Supreme Court of Justice (Colombia’s highest court for criminal matters) as well as appellate and trial courts with jurisdiction over criminal matters. In addition, Justice Gomez’s private practice experience focuses on criminal law matters. He has taught Colombian criminal law at several universities and published academic articles in Colombian legal journals.

*****

Sigelman’s trial in U.S. District Court, District of New Jersey – Camden, is scheduled to begin on June 1st.

Friday Roundup

Friday, April 3rd, 2015

Roundup2Looking for talent – got talent, FBI announcement, Bourke related, to FCPA Inc., and for the reading stack.  It’s all here in the Friday Roundup.

Looking for FCPA Talent?  Got Talent

If your firm or organization is looking for either a summer associate or full-time lawyer with a solid foundation in the FCPA, FCPA enforcement, and FCPA compliance, please e-mail me at fcpaprofessor@gmail.com. I teach one of the only FCPA specific law school classes in the country (see here) and my Southern Illinois University law students who excelled in the class have, I am confident in saying, more practical skills and knowledge on FCPA topics than other law students.

I can recommend several students and I encourage you to give them an opportunity.

FBI Announcement

The FBI recently announced the establishment of international corruption squads.  In pertinent part, the release states:

“The FCPA … makes it illegal for U.S. companies, U.S. persons, and foreign corporations with certain U.S. ties to bribe foreign officials to obtain or retain business overseas. And we take these crimes very seriously—foreign bribery has the ability to impact U.S. financial markets, economic growth, and national security. It also breaks down the international free market system by promoting anti-competitive behavior and, ultimately, makes consumers pay more.

We’re seeing that foreign bribery incidents are increasingly tied to a type of government corruption known as kleptocracy, which is when foreign officials steal from their own government treasuries at the expense of their citizens. And that’s basically what these foreign officials are doing when they accept bribes in their official capability for personal gain, sometimes using the U.S. banking system to hide and/or launder their criminal proceeds.

The FBI—in conjunction with the Department of Justice’s (DOJ) Fraud Section—recently announced another weapon in the battle against foreign bribery and kleptocracy-related criminal activity: the establishment of three dedicated international corruption squads, based in New York City, Los Angeles, and Washington, D.C.

Special Agent George McEachern, who heads up our International Corruption Unit at FBI Headquarters, explains that the squads were created to address the national and international implications of corruption. “The FCPA allows us to target the supply side of corruption—the entities giving the bribes,” he said. “Kleptocracy cases allow us to address the demand side—the corrupt officials and their illicit financial assets. By placing both threats under one squad, we anticipate that an investigation into one of these criminal activities could potentially generate an investigation into the other.”

Corruption cases in general are tough to investigate because much of the actual criminal activity is hidden from view. But international corruption cases are even tougher because the criminal activity usually takes place outside of the U.S. However, members of these three squads—agents, analysts, and other professional staff—have a great deal of experience investigating white-collar crimes and, in particular, following the money trail in these crimes. And they’ll have at their disposal a number of investigative tools the Bureau uses so successfully in other areas—like financial analysis, court-authorized wiretaps, undercover operations, informants, and sources.

Partnerships with our overseas law enforcement counterparts—facilitated by our network of legal attaché offices situated strategically around the world—are an important part of our investigative arsenal. The FBI also takes part in a number of international working groups, including the Foreign Bribery Task Force, to share information with our partners and help strengthen investigative efforts everywhere. And we coordinate with DOJ’s Fraud Section—which criminally prosecutes FCPA violators—and the Securities and Exchange Commission—which uses civil actions to go after U.S. companies engaging in foreign bribery.

Our new squads will help keep the Bureau at the forefront of U.S. and global law enforcement efforts to battle international corruption and kleptocracy.”

Bourke Related

This October 2013 post highlighted a Democracy Now program that attempted to re-script the Frederic Bourke FCPA enforcement action.

Democracy Now returns to the story in this recent interview with former U.S. Senator George Mitchell.  Mitchell, like Bourke, invested in the Azeri project at issue, but unlike Bourke was not prosecuted.

Set forth below is the Q&A:

Democracy Now: Do you believe [Bourke] is a whistleblower, and do you believe that he should be exonerated.

Mitchell: Well, I believe that he should not have been convicted in the trial, in which conviction did occur. I think it was a very unfortunate circumstance, and as you describe it, regrettable from Rick Bourke’s standpoint.

Democracy Now: Do you believe he should now be exonerated, to be able to clear his name fully?

Mitchell: Well, yes, but I’m not sure what process would occur. He was tried, convicted. The conviction was upheld on appeal. But, as I said, I repeat, I do not believe he should have been convicted in the first place.

As noted in the prior post, while each is entitled to his/her own opinion about the Bourke case, the fact is – the case received more judicial scrutiny than arguably any other FCPA enforcement action.

To FCPA Inc.

It happens so often it is difficult to keep track of, but I try my best.

In the latest example of a DOJ FCPA enforcement attorney departing for FCPA Inc., Sidley Austin recently announced that James Cole (former DOJ Deputy Attorney General) “ has joined the firm in Washington, D.C. as a partner in its White Collar: Government Litigation & Investigations practice.”  As stated in the release, ““[Cole's] experience at the highest levels of law enforcement will enable him to counsel our clients facing the most difficult and complex challenges.”  Cole’s law firm bio states that he will focus “his practice on the full range of federal enforcement and internal investigation matters, with a particular emphasis on cross-border and multi-jurisdictional matters.”

While at the DOJ, Cole frequently articulated DOJ FCPA positions and enforcement policies.  (See here for example).

For the Reading Stack

From Professor Peter Henning in his New York Times Dealbook column – “Lawmakers Focus on How the SEC Does Its Job.”

From Miller & Chevalier attorneys – “DOJ is Losing the Battle to Prosecute Foreign Executives.”  An informative article regarding the DOJ’s struggles to prosecute foreign nationals for a variety of offenses (antitrust, FCPA, etc.).

An informative article here in the New York Law Journal by Marcus Asner and Daniel Ostrow  titled “A New Focus On Victims’ Rights in FCPA Restitution Cases.”

An interesting read here from the Wall Street Journal regarding China National Cereals, Oils and Foodstuffs Corp (Cotfco), a state-owned enterprise.

“In a few short years, Cofco has spent a couple billion dollars quietly buying up Australian cane fields, French vineyards and soybean pastures in Brazil, helping it become one of the world’s largest food companies. Now, Cofco is exploring deals in the world’s biggest exporter of agricultural commodities: the U.S.”

Weekend assignment:  are Cofco employees Chinese “foreign officials” under the 11th Circuit’s Esquenazi decision?

*****

A good weekend to all and “On Wisconsin.”

Friday Roundup

Friday, March 27th, 2015

Roundup2Is this appropriate, sentenced, scrutiny alerts and updates, quotable, a future foreign official teaser?, Brazil update, and for the reading stack.

It’s all here in the Friday roundup.

Is This Appropriate?

If this truly is an event, “Drinks With an FBI Agent – Inside Stories From the Foreign Corrupt Practices Act,” is it appropriate?

Sentenced

Chinea and DeMeneses Sentences

The DOJ announced

“Benito Chinea and Joseph DeMeneses, the former chief executive officer and former managing director of a broker-dealer Direct Access Partner “were sentenced to prison … for their roles in a scheme to pay bribes to a senior official in Venezuela’s state economic development bank, Banco de Desarrollo Económico y Social de Venezuela (Bandes), in return for trading business that generated more than $60 million in commissions.”

Chinea and DeMeneses were each sentenced to four years in prison.  They were also ordered to pay $3,636,432 and $2,670,612 in forfeiture, respectively, which amounts represent their earnings from the bribery scheme.  On Dec. 17, 2014, both defendants pleaded guilty to one count of conspiracy to violate the Foreign Corrupt Practices Act and the Travel Act.”

In the release, Assistant Attorney General Leslie Caldwell stated:

“These Wall Street executives orchestrated a massive bribery scheme with a corrupt official in Venezuela to illegally secure tens of millions of dollars in business for their firm. The convictions and prison sentences of the CEO and Managing Director of a sophisticated Wall Street broker-dealer demonstrate that the Department of Justice will hold individuals accountable for violations of the FCPA and will pursue executives no matter where they are on the corporate ladder.”

U.S. Attorney Preet Bharara of the Southern District of New York stated:

“Benito Chinea and Joseph DeMeneses paid bribes to an officer of a state-run development bank in exchange for lucrative business she steered to their firm. Chinea and DeMeneses profited for a time from the corrupt arrangement, but that profit has turned into prison and now they must forfeit their millions of dollars in ill-gotten gains as well as their liberty.”

Elgawhary Sentence

This previous post highlighted the DOJ enforcement action against Asem Elgawhary, a former principal vice president of Bechtel Corporation and general manager of a joint venture operated by Bechtel and an Egyptian utility company, for allegedly accepting $5.2 million in kickbacks to manipulate the competitive bidding process for state-run power contracts in Egypt.

The DOJ recently announced that Elgawhary was sentenced to 42 months in federal prison.

When the Alstom enforcement action was announced in December 2014 (see here and here for prior posts), Elgawhary was described as an Egyptian “foreign official.”

So what was Elgawhary?

A former principal vice president of Bechtel Corporation and general manager of a joint venture operated by Bechtel and an Egyptian utility company or a Egyptian “foreign official?”

Can the DOJ have it both ways?

Scrutiny Alerts and Updates

Anheuser-Busch InBev

Anheuser-Busch InBev recently disclosed in its annual report:

“We have been informed by the U.S. Securities and Exchange Commission and the U.S. Department of Justice that they are conducting investigations into our affiliates in India, including a non-consolidated Indian joint venture that we previously owned, ABInBev India Private Limited, and whether certain relationships of agents and employees were compliant with the FCPA. We are investigating the conduct in question and are cooperating with the U.S. Securities and Exchange Commission and the U.S. Department of Justice.”

Bilfinger

As highlighted in this previous post, in December 2013 German-based Bilfinger paid approximately $32 million to resolve an FCPA enforcement action concerning alleged conduct in Nigeria.  The enforcement action was resolved via a three-year deferred prosecution agreement.

As noted in the previous post, Bilfinger’s CEO described the conduct at issue as “events from the distant past.”

From the not-so distant past, Bilfinger recently announced:

“Bilfinger received internal information last year indicating that there may have been violations of the Group’s compliance regulations in connection with orders for the supply of monitor walls for security control centres in several large municipalities in Brazil. The company immediately launched a comprehensive investigation. The allegation relates to suspected bribery payments from employees of a Bilfinger company in Brazil to public officials and employees of state companies.”

See here for a follow-up announcement from the company.

As a foreign company, Bilfinger is only subject to the FCPA’s anti-bribery violations to the extent the payment scheme involves a U.S. nexus (as was alleged in the prior Bilfinger FCPA enforcement action).

IBM

Canadian media reports:

“Seven people, including Revenue Quebec employees and officials with computer companies IBM and EBR, were [recently] arrested … in connection with an alleged corruption scheme aimed at obtaining a government IT contract worth $24 million.Two Revenue Quebec employees, Hamid Iatmanene and Jamal El Khaiat, stand accused of providing privileged information about an upcoming government contract to a consortium made up of IBM and Quebec company Informatique EBR Inc.”

As highlighted here, in 2000 IBM resolved an FCPA enforcement action.

As highlighted here, in 2011 IBM resolved another FCPA enforcement action.  This enforcement action was filed in federal court (back in the day when the SEC actually filed FCPA enforcement actions in federal court vs. its preferred in-house method now) and Judge Richard Leon was concerned about the settlement process.  As highlighted here, Judge Leon approved the settlement, but his July 2013 final order states, among other things:

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

According to media reports, Judge Leon stated: “if there’s another violation over the next two years, it won’t be a happy day.”

Quotable

In this Law360 article, Richard Grime (former Assistant Director of Enforcement at the SEC and current partner at Gibson Dunn) states regarding recent alleged FCPA violations.

“It’s not that you couldn’t intellectually [conceive of] the violation. It’s that the government is sort of probing every area where there is an interaction with government officials and then working backwards from there to see if there is a violation, as opposed to starting out with the statute … and what it prohibits.”

Given that most SEC FCPA enforcement actions are the result of voluntary disclosures, it is a curious statement.  Perhaps its companies, at the urging of FCPA Inc., that are probing every area where there is an interaction with government officials and then working backwards?

*****

As reported here:

“Greek authorities [recently] indicted 64 people to stand trial over years-old allegations of bribery involving Siemens AG, the German engineering giant … A probe of corporate dealings from 1992 to 2006 allegedly found that Greece had lost about 70 million euros in the sale of equipment from Siemens to Greek telephone operator Hellenic Telecommunications also known as OTE, which was still owned by the state at the beginning of that period … A panel of judges decided that those indicted, including both Greek and German nationals, should stand trial for bribery or money laundering. The list of suspects includes former Siemens and OTE officials.”

As noted here, Joe Kaeser (President and CEO of Siemens) reportedly stated:

“I really believe the country (Greece) can move to the future, rather than trying to find the solutions in the past.” He added that his company had a “dark history,” mentioning compliance issues. But he said it was not a “black and white story” when asked whether the indictments had been politically motivated by the current friction between the German and Greek governments. ”Looking at the past doesn’t help the future because the past is the past.”

If the U.S. brings FCPA enforcement actions based on conduct that in some instances is 10 – 15 years old, it is not surprising that Greece is doing the same.  Yet is this right?

As the U.S. Supreme Court recently stated in Gabelli:

“Statute of limitations are intended to ‘promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared.  They provide ‘security and stability to human affairs.  [They] are ‘vital to the welfare of society [and] ‘even wrongdoers are entitled to assume that their sins may be forgotten.’ […] It ‘would be utterly repugnant to the genius of our laws if actions for penalties could ‘be brought at any distance of time.’”

****

Since day one, I called Morgan-Stanley’s so-called declination politically motivated.  (See here and here).

I am glad to see that FCPA commentator Michael Volkov recently joined the club.  Writing on the Garth Peterson / Morgan Stanley so-called declination, Volkov states:  ”my intelligence on the case indicated that … [the] DOJ apparently wanted to demonstrate for political reasons that it could recognize a company’s compliance program to decline a case against a company.

A Future Foreign Official Teaser?

As recently reported by the Wall Street,

“China’s leadership is preparing to radically consolidate the country’s bloated state-owned sector, telling thousands of enterprises they need to rely less on state life support and get ready to list on public markets. [...] Communist Party leaders plan to release broad guidelines in the next months for restructuring the country’s more than 100,000 state-owned enterprises, according to government officials and advisers with knowledge of the deliberations. [...]  Strategically important industries such as energy, resources and telecommunications are marked for consolidation, the officials and advisers say. The merged entities would then be reorganized as asset-investment firms, with a mandate to make sure they run more like commercial operations than arms of the government. Upper management will be under orders to maximize returns and prepare many of the companies for eventual listing on stock markets, these people say.”

In U.S. v. Esquenazi, the 11th Circuit concluded that  an “instrumentality” under the FCPA is an “entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.” The Court recognized that what “constitutes control and what constitutes a function the government treats as its own are fact-bound questions” and, without seeking to list all “factors that might prove relevant,” the court did list “some factors that may be relevant” in deciding issues of control and function.

As to control, the 11th Circuit listed the following factors:

“[whether] the foreign government’s formal designation of that entity; whether the government has a majority interest in the entity; the government’s ability to hire and fire the entity’s principals; the extent to which the entity’s profits, if any, go directly into the governmental fisc, and, by the same token, the extent to which the government funds the entity if it fails to break even; and the length of time these indicia have existed.”

As to function, the 11th Circuit listed the following factors:

“whether the entity has a monopoly over the function it exists to carry out; whether the government subsidizes the costs associated with the entity providing services; whether the entity provides services to the public at large in the foreign country; and whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function.”

Have fun applying this test should China’s proposed changes go forward.

Brazil Update

My own cents regarding Brazil’s recent implementation of regulations regarding certain features of its Clean Companies Act (a law which provides for only civil and administrative liability of corporate entities for alleged acts of bribery) is that the regulations are a yawner for any company that is already acting consistent with FCPA best practices.

Yet, if you feel the urge to read up on Brazil’s recent regulations, comprehensive coverage can be found here from Debevoise & Plimpton and here from FCPAmericas.

For the Reading Stack

A thoughtful article here from Alexandra Wrage (President of Trace) regarding the “cult of the imperfect.”  It states:

“Sir Robert Alexander Watson-Watt is credited with saving thousands of lives in Britain during the worst days of World War II after developing Chain Home, a low-frequency radar system able to detect aircraft from about 90 miles away. He openly encouraged what he called the “cult of the imperfect” among his team. He knew that Britain didn’t need the best possible radar system in five years; the country needed a viable radar system urgently. Immediately. Watson-Watt, who was knighted shortly after the Battle of Britain, is said to have instructed his team to strive for the third-best option, because “the second-best comes too late . . . the best never comes.

[...]

Perfect due diligence risk assessments never come. And even second-best may come too late. Just get started. You’ll see more protections and benefits from good (for now) than perfect (some day, maybe . . .).”

Sound advice that I agree with and completely consistent with Congressional intent in enacting the FCPA’s internal controls provisions and even prior enforcement agency guidance.

Problem is, the DOJ and SEC wear rose-colored glasses, including as to conduct years ago, and if a company is acting consistent with FCPA best practices 99% of the time, that means 1% of the time they are not.

*****

A good weekend to all. On Wisconsin!

Analyzing The SEC’s Recent FCPA Pharma Speech

Thursday, March 5th, 2015

Pharm SpeechIn November 2009, then DOJ Assistant Attorney General Lanny Breuer delivered this Foreign Corrupt Practices Act speech at a pharmaceutical industry conference.  In the speech, Breuer warned the audience as follows.

“[C]onsider the possible range of “foreign officials” who are covered by the FCPA: Some are obvious, like health ministry and customs officials of other countries. But some others may not be, such as the doctors, pharmacists, lab technicians and other health professionals who are employed by state-owned facilities. Indeed, it is entirely possible, under certain circumstances and in certain countries, that nearly every aspect of the approval, manufacture, import, export, pricing, sale and marketing of a drug product in a foreign country will involve a “foreign official” within the meaning of the FCPA.”

In the speech, Breuer also talked about “the importance [of] rigorous FCPA compliance polic[ies] that are faithfully enforced” and reminded the audience as follows.

“[A]ny pharmaceutical company that discovers an FCPA violation should seriously consider voluntarily disclosing the violation and cooperating with the Department’s investigation. If you voluntarily disclose an FCPA violation, you will receive meaningful credit for that disclosure. And if you cooperate with the Department’s investigation, you will receive a meaningful benefit for that cooperation—without any request or requirement that you disclose privileged material. Finally, if you remediate the problem and take steps to ensure that it does not recur, you will benefit from that as well.”

Over five years and ten FCPA enforcement actions against pharma/healthcare companies later, Andrew Ceresney (Director of the SEC’s Enforcement Division) delivered a nearly identical speech earlier this week.

The below post excerpts Ceresney’s speech.

When reviewing the speech, you may want to keep the following in mind.

As highlighted in this prior post, the enforcement theory that physicians, lab personnel, etc. are “foreign officials” under the FCPA was first used in 2002 and has since been used in 17 corporate enforcement actions.

Even even though Ceresney’s speech contains several citations, it is telling that the following assertion lacks any citation “doctors, pharmacists, and administrators from public hospitals in foreign countries … are often are classified as foreign officials for purposes of the FCPA.”

There is no citation for this assertion because it is one of the most dubious enforcement theories of this new era of FCPA enforcement and an enforcement theory that finds no support in the FCPA’s extensive legislative history.  (See here for “The Story of the Foreign Corrupt Practices Act“).

Of further note, despite extracting hundreds of millions of dollars from risk averse corporations based on this “foreign official” theory, the DOJ and SEC have never used this enforcement theory to charge any individual.

Another issue to consider.

As highlighted in this recent post, despite the continued foreign scrutiny of the pharma and healthcare industry, the corporate dollars continue to flow to U.S. physicians and other healthcare workers.  It is one of the more glaring double standards when it comes to FCPA enforcement and enforcement of U.S. domestic bribery laws.

With that necessary information, to Ceresney began his speech as follows.

“Pursuing FCPA violations is a critical part of our enforcement efforts.  International bribery has many nefarious impacts, including sapping investor confidence in the legitimacy of a company’s performance, undermining the accuracy of a company’s books and records and the fairness of the competitive marketplace.  Our specialized FCPA unit as well as other parts of the Enforcement Division continue to do remarkable work in this space, bringing significant and impactful cases, often in partnership with our criminal partners.

Now, our FCPA focus obviously covers many industries.  For example, we have conducted a recent sweep in the financial services industry that will yield a number of important cases.  But the pharma industry is one on which we have been particularly focused in recent years.  A few factors combine to make it a high-risk industry for FCPA violations.  Pharmaceutical representatives have regular contact with doctors, pharmacists, and administrators from public hospitals in foreign countries.  Those people often are classified as foreign officials for purposes of the FCPA, and they often decide what products public hospitals or pharmacies will purchase.  This influence over the awarding of contracts is true for virtually every country around the globe.

There have been three types of misconduct that we have seen arise most often in our pharma FCPA cases.  One is “Pay-to-Prescribe”; another is bribes to get drugs on the approved list or formulary; and the third is bribes disguised as charitable contributions.  Let me discuss each of these in turn.

In “Pay-to-Prescribe” cases, we see public official doctors and public hospitals being paid bribes in exchange for prescribing certain medication, or other products such as medical devices.  Some of our cases involve simple cash payments to doctors and other medical officials. But we have also seen some more innovative schemes created for the purposes of rewarding prescribing physicians.  For example, in our 2012 action against Pfizer, subsidiaries in different countries found a variety of illicit ways to compensate doctors. In China, employees invited “high-prescribing doctors” in the Chinese government to club-like meetings that included extensive recreational and entertainment activities to reward doctors’ past product sales or prescriptions.  Pfizer China also created various “point programs” under which government doctors could accumulate points based on the number of Pfizer prescriptions they wrote.  The points were redeemed for gifts ranging from medical books to cell phones, tea sets, and reading glasses. In Croatia, Pfizer employees created a “bonus program” for Croatian doctors who were employed in senior positions in Croatian government health care institutions.  Once a doctor agreed to use Pfizer products, a percentage of the value purchased by a doctor’s institution would be funneled back to the doctor in the form of cash, international travel, or free products.  Each of these schemes violated the FCPA by routing money to foreign officials in exchange for business.

Let me turn to a second form of bribery, which is aimed at getting products on a formulary.  Of course, getting your company’s drugs on formularies is important to success in this industry.  But the FCPA requires that you do this without paying bribes, and we have taken action where companies have crossed that line.  We brought a case against Eli Lilly that included such violations.  There, the company’s subsidiary in Poland made payments totaling $39,000 to a small foundation started by the head of a regional government health authority.  That official, in exchange, placed Lilly drugs on the government reimbursement list.  That action involved a variety of other FCPA violations and Eli Lilly paid $29 million to settle the matter.

The Eli Lilly case brings me to my third point, which concerns bribes disguised as charitable contributions.  As you might know, the FCPA prohibits giving “anything of value” to a foreign official to induce an official action to obtain or retain business, and we take an expansive view of the phrase “anything of value.”  The phrase clearly captures more than just cash bribes, and Eli Lilly is not the only matter where we have brought an action arising out of charitable contributions.

For example, in Stryker, we charged a medical technology company after subsidiaries in five different countries paid bribes in order to obtain or retain business. Stryker’s subsidiary in Greece made a purported donation of nearly $200,000 to a public university to fund a laboratory that was the pet project of a public hospital doctor.  In return, the doctor agreed to provide business to Stryker.  Stryker agreed to pay $13.2 million to settle these and other charges.

Similarly, in Schering-Plough, we brought charges against the company arising out of $76,000 paid by its Polish subsidiary to a charitable foundation.  The head of that foundation was also the director of a governmental body that funded the purchase of pharmaceutical products and that influenced the purchase of those products by other entities, such as hospitals.  In settling our action, Schering-Plough consented to paying a $500,000 penalty.

The lesson is that bribes come in many shapes and sizes, and those made under the guise of charitable giving are of particular risk in the pharmaceutical industry.  So it is critical that we carefully scrutinize a wide range of unfair benefits to foreign officials when assessing compliance with the FCPA – whether it is cash, gifts, travel, entertainment, or charitable contributions.  We will continue to pursue a broad interpretation of the FCPA that addresses bribery in all forms.”

Under the heading “Compliance Program,” Ceresney stated:

“The best way for a company to avoid some of the violations that I have just described is a robust FCPA compliance program.   I can’t emphasize enough the importance of such programs.  This is a message that I think has started to get through in the past 5 years.

The best companies have adopted strong FCPA compliance programs that include compliance personnel, extensive policies and procedures, training, vendor reviews, due diligence on third-party agents, expense controls, escalation of red flags, and internal audits to review compliance.  I encourage you to look to our Resource Guide on the FCPA that we jointly published with the DOJ, to see what some of the hallmarks of an effective compliance program are.  I’ll highlight just a couple.

First, companies should perform risk assessments that take into account a host of factors listed in the guide and then place controls in these risk areas.  The pharmaceutical industry operates in virtually every country, including many high risk countries prone to corruption.  The industry also comes into contact with customs officials and may need perishable medicines and other goods cleared through customs quickly.  They may also come into contact with officials involved in licensing and inspections.  These are just a few examples of risk factors that a risk assessment should be focused on in this particular sector.

A healthy compliance program should also include third-party agent due diligence.  In addition to using third-party agents, many pharmaceutical companies use distributors.  This creates the risk that the distributor will use their margin or spread to create a slush fund of cash that will be used to pay bribes to foreign officials.  Because of this added layer of cash flow, companies frequently improperly account for bribes as legitimate expenses.  To properly combat against these abuses, a compliance program must thoroughly vet its third-party agents to include an understanding of the business rationale for contracting with the agent.  Appropriate expense controls must also be in place to ensure that payments to third-parties are legitimate business expenses and not being used to funnel bribes to foreign officials.”

Under the heading, “Self-Reporting and Cooperation,” Ceresney stated:

“The existence of FCPA compliance programs place companies in the best position to detect FCPA misconduct and allow the opportunity to self-report and cooperate.  There has been a lot of discussion recently about the advisability of self-reporting FCPA misconduct to the SEC.  Let me be clear about my views – I think any company that does the calculus will realize that self-reporting is always in the company’s best interest.  Let me explain why.

Self-reporting from individuals and entities has long been an important part of our enforcement program.  Self-reporting and cooperation allows us to detect and investigate misconduct more quickly than we otherwise could, as companies are often in a position to short circuit our investigations by quickly providing important factual information about misconduct resulting from their own internal investigations.

In addition to the benefits we get from cooperation, however, parties are positioned to also help themselves by aggressively policing their own conduct and reporting misconduct to us.  We recognize that it is important to provide benefits for cooperation to incentivize companies to cooperate.  And we have been focused on making sure that people understand there will be such benefits.  We continue to find ways to enhance our cooperation program to encourage issuers, regulated entities, and individuals to promptly report suspected misconduct.  The Division has a wide spectrum of tools to facilitate and reward meaningful cooperation, from reduced charges and penalties, to non-prosecution or deferred prosecution agreements in instances of outstanding cooperation. For example, we announced our first-ever non-prosecution agreement in an FCPA matter with a company that promptly reported violations and provided real-time, extensive cooperation in our investigation. And just six weeks ago, we entered into a deferred prosecution agreement with another company that self-reported misconduct.

More commonly, we have reflected the cooperation in reduced penalties.  Companies that cooperate can receive smaller penalties than they otherwise would face, and in some cases of extraordinary cooperation, pay significantly less.  One recent FCPA matter in this sector illustrates the considerable benefits that can flow from coming forward and cooperating.  Our joint SEC-DOJ FCPA settlement with Bio-Rad Laboratories for $55 million reflected a substantial reduction in penalties due to the company’s considerable cooperation in our investigation. In addition to self-reporting potential violations, the company provided translations of numerous key documents, produced witnesses from foreign jurisdictions, and undertook extensive remedial actions.  There, the DOJ imposed a criminal fine of only $14 million, which was equivalent to about 40% of the disgorgement amount – a large reduction from the typical ratio of 100% of the disgorgement amount.

In fact, we have recently announced FCPA matters featuring penalties in the range of 10 percent of the disgorgement amount, an even larger discount than the case I just mentioned. And in the Goodyear case we announced last week, we imposed no penalty.  In those cases, the companies received credit for doing things like self-reporting; taking speedy remedial steps; voluntarily making foreign witnesses available for interviews; and sharing real-time investigative findings, timelines, internal summaries, English language translations, and full forensic images with our staff.

The bottom line is that the benefits from cooperation are significant and tangible.  When I was a defense lawyer, I would explain to clients that by the time you become aware of the misconduct, there are only two things that you can do to improve your plight – remediate the misconduct and cooperate in the investigation.  That obviously remains my view today.  And I will add this – when we find the violations on our own, and the company chose not to self-report, the consequences are worse and the opportunity to earn significant credit for cooperation often is lost.

This risk of suffering adverse consequences from a failure to self-report is particularly acute in light of the continued success and expansion of our whistleblower program.  The SEC’s whistleblower program has changed the calculus for companies considering whether to disclose misconduct to us, knowing that a whistleblower is likely to come forward.  Companies that choose not to self-report are thus taking a huge gamble because if we learn of the misconduct through other means, including through a whistleblower, the result will be far worse.”