Archive for the ‘Fresenius Medical Care’ Category

Friday Roundup

Friday, May 9th, 2014

Is trust “reasonable,” Sigelman formally indicted, scrutiny alerts and updates, and for the reading stack.  It’s all here in the Friday roundup.

Is Trust “Reasonable”

This prior post asked:

Would FCPA compliance be better achieved if companies had fewer formal internal controls and instead devoted greater effort to fostering trust within a business organization?  Would such an approach even satisfy an issuer’s obligations under the FCPA’s internal controls provisions which require that issuers devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are properly authorized, recorded, and accounted for by the issuer?

The questions are posed once again after reading this New York Times article titled “Berkshire’s Radical Strategy: Trust.”  In the article, Charlie Munger, vice chairman of Berkshire Hathaway (arguably one of the most well-respected companies in America) “ruminates on the state of corporate governance, offering a counternarrative to the distrustful culture of most businesses: instead of filling your ranks with lawyers and compliance people, he argued, hire people that you actually trust and let them do their job.”

As highlighted in the article:

“Here’s a little-known fact: Berkshire Hathaway, the fifth-largest company in the United States, with some $162.5 billion in revenue and 300,000 employees worldwide, has no general counsel that oversees the holding company’s dozens of units. There is no human resources department, either.

If that sounds like a corporate utopia, that’s probably because it is. To some people in this day and age — given the daily onslaught of headlines about scandal and fraud in corporate America — that also may sound almost like corporate negligence.”

Sigelman Formally Indicted

In January 2014, the DOJ announced FCPA and related charges against former executives of PetroTiger Ltd., a British Virgin Islands oil and gas company with operations in Colombia and offices in New Jersey, “for their alleged participation in a scheme to pay bribes to foreign government officials in violation of the FCPA, to defraud PetroTiger, and to launder proceeds of those crimes.”  The individuals charged were former co-CEOs of PetroTiger Joseph Sigelman and Knut Hammarskjold and former general counsel Gregory Weisman.  (See this prior post for additional details).

In this criminal complaint, Sigelman was charged with conspiracy to violate the FCPA’s anti-bribery provisions as well as three substantive FCPA charges.  The FCPA charges were based on allegations that Sigelman and others made at least four transfers of money in the approximate amount of $333,500 to an account in Colombia of a “foreign government official in Colombia.”

In this release, the DOJ announced today that Sigelman was formally criminally indicted for the same conduct.  The release states that Sigelman “charged with conspiracy to violate the FCPA and to commit wire fraud, conspiracy to launder money, and substantive FCPA and money laundering violations.”

The DOJ release further states:  ”The case was brought to the attention of the department through a voluntary disclosure by PetroTiger, which cooperated with the department’s investigation.”

As previously noted, both Hammarskjold and Weisman have pleaded guilty.

Scrutiny Alerts

Key Energy Services

Key Energy Services disclosed in its recent SEC filing:

“The U.S. Securities and Exchange Commission has advised us that it is investigating possible violations of the U.S. Foreign Corrupt Practices Act involving business activities of Key’s operations in Russia. We take any such allegations very seriously and are conducting an investigation into the allegations. We are fully cooperating with and sharing the results of our investigation with the Commission. While the outcome of our investigation is currently not determinable, we do not expect that it will have a material adverse effect on our consolidated financial position, results of operations, or cash flows.”

Quanta Services

Quanta Services (an engineering, procurement and construction services company) disclosed in its recent SEC filing:

“On March 10, 2014, the SEC notified Quanta of an inquiry into certain aspects of Quanta’s activities in certain foreign jurisdictions, including South Africa and the United Arab Emirates. The SEC also requested that Quanta take necessary steps to preserve and retain categories of relevant documents, including those pertaining to Quanta’s U.S. Foreign Corrupt Practices Act compliance program. The SEC has not alleged any violations of law by Quanta or its employees. Quanta has complied with the preservation request and is cooperating with the SEC.”

PTC Inc.

PTC Inc. (formerly known as Parametric Technology) first disclosed its FCPA scrutiny in August 2011 and recently disclosed in this  SEC filing:

China Investigation
We have been cooperating to provide information to the U.S. Securities and Exchange Commission and the Department of Justice concerning payments and expenses by certain of our business partners in China and/or by employees of our Chinese subsidiary that raise questions concerning compliance with laws, including the U.S. Foreign Corrupt Practices Act. Our internal review is ongoing and now includes periods earlier than those previously examined. We continue to respond to requests for information from these agencies, including a subpoena issued to the company by the SEC. We cannot predict when or how this matter may be resolved. Resolution of this matter could include fines and penalties; however we are unable to estimate an amount that could be associated with any resolution and, accordingly, we have not recorded a liability for this matter. If resolution of this matter includes substantial fines or penalties, this could materially impact our results for the period in which the associated liability is recorded or such amounts are paid. Further, any settlement or other resolution of this matter could have collateral effects on our business in China, the United States and elsewhere.”
Fresenius Medical Care
Germany-based Fresenius Medical Care first disclosed FCPA scrutiny in August 2012 and stated as follows in its recent SEC filing:
“[The previously disclosed internal] review has identified conduct that raises concerns under the FCPA or other anti-bribery laws that may result in monetary penalties or other sanctions.  In addition, the Company’s ability to conduct business in certain jurisdictions could be negatively impacted.  The Company has recorded a non-material accrual for an identified matter.  Given the current status of the internal review, the Company cannot reasonably estimate the range of possible loss that may result from additional identified matters or from the final outcome of the continuing internal review.”
Financial Services Industry

In case you had not heard that numerous financial services companies were under FCPA scrutiny for alleged hiring practices, the Wall Street Journal reports:

“U.S. regulators have expanded their investigation into large banks’ hiring practices in Asia, seeking more information from at least five U.S. and European firms, according to people close to the probe.  The Securities and Exchange Commission in early March sent letters to a group of companies including Credit Suisse Group AG, Goldman Sachs Group Inc., Morgan Stanley, Citigroup Inc. and UBS AG seeking more information about their hiring in Asia, according to people.  [...]  The SEC late last year issued a round of letter to at least six banks, seeking information on their hiring practices, such as whether the firms had special programs dedicated to relatives of influential officials, according to people close to the inquiry.  The second round of requests reflects a deepening of the probe.  The agency is seeking more data on the banks’ recruiting in Asia, including lists of employees hired as a result of referrals from foreign officials and clients, added the people familiar with the investigation.”

As to the above, Goldman disclosed in its most recent SEC filing:

“Regulatory Investigations and Reviews and Related Litigation.

[The company] and certain of its affiliates are subject to a number of other investigations and reviews by, and in some cases have received subpoenas and requests for documents and information from, various governmental and regulatory bodies and self-regulatory organizations and litigation relating to various matters relating to the firm’s businesses and operations, including:

compliance with the U.S. Foreign Corrupt Practices Act, including with respect to the firm’s hiring practices …”

Reading Stack

No surprise that an individual who paid $174 million to post bail has hired an A-list legal team in defense of DOJ allegations that he violated, among other laws, the FCPA.  (See here for a recent New York Times article regarding Dmitry Firtash).

Sound advice from former DOJ FCPA Unit Chief Chuck Duross in this MoFo Tech article concerning FCPA risk and the technology industry:

“[T]echnology companies are also at risk from the distribution model that’s often used in the industry. Many companies sell their products to channel partners, which add some value to the product or service—such as other hardware, software, an installation, or a service plan—and then resell it at a higher price. That’s an entirely appropriate business model. But as with any third party, companies need to appreciate the potential risk if, for example, the distributor is simply reselling at a higher price without adding any legitimate value and using that profit as a slush fund to funnel bribes to government officials. It may seem to the company that it is not violating the FCPA. It has simply sold its product to another company. But if a company’s employees are aware that the distributor is paying (or just offering) bribes to government officials to help sell the product, the company and its employees could be criminally liable as conspirators and aiders and abettors.

What should tech companies be doing to avoid these issues?

One thing is to know the third parties they’re doing business with. It is also fundamental to understand the business reason for working with third parties. One of the first questions asked during a DOJ or SEC investigation will often be, “What was the business purpose behind working with X?” Having a clear answer will earn credibility with regulators and underscore the company’s commitment to compliance. Also, making sure employees—and third parties—understand company policies, are properly trained, execute FCPA certifications, and are subject to appropriate ongoing reviews can prevent violations and mitigate (or avoid altogether) penalties if a problem does occur. That is just good business. Corruption tends to occur at companies with loose control environments. While I was at DOJ, we routinely saw loose control environments leading to embezzlement, self-dealing, fraud, and even antitrust violations. When a company doesn’t know where its money is going, that’s bad business and negatively impacts shareholder value. When companies invest in a compliance program, they are investing in the health of the business.”

This Kyiv Post article notes:

“Some of Ukraine’s underpaid cadre of civil servants might get bonuses from international finance institutions to reduce the temptation of taking bribes. According to Ukrainian Tax Service chief Ihor Bilous, the European Bank for Reconstruction and Development is exploring the idea of setting up a fund that would provide officials with additional pay. ‘Last week I had a meeting with EBRD representatives and they proposed to create a fund to pay money for people who serve the state in high positions,’ Bilous told the Kyiv Post. This idea was successfully implemented in Georgia, he adds, “we need to change the system, state salaries are very low and this situation creates some kind of temptation.”

*****

A good weekend to all, and to all mothers, Happy Mother’s Day!

Friday Roundup

Friday, August 3rd, 2012

Add two more companies to the list, a reply to a retort, Avon developments, Total S.A. perhaps nears a top-5 settlement, the reason for those empty Olympic seats, another FCPA-inspired derivative action is dismissed, Sensata Technologies and more on the meaning of “declination,” one of my favorite reads and additional material for the weekend reading stack.  It’s all here in the Friday roundup.

Recent Disclosures

As noted in this Wall Street Journal Corruption Currents post “German healthcare firm Fresenius Medical Care AG has opened an internal investigation into potential violations” of the FCPA.  The company’s recent SEC filing (here) states as follows.

“The Company has received communications alleging certain conduct that may violate the U.S. Foreign Corrupt Practices Act (“FCPA”) and other anti-bribery laws. In response to the allegations, the Audit and Corporate Governance Committee of the Company’s Supervisory Board is conducting an internal review with the assistance of counsel retained for such purpose. The Company has voluntarily advised the U.S. Securities and Exchange Commission and the U.S. Department of Justice that allegations have been made and of the Company’s internal review. The Company is fully committed to FCPA compliance. It cannot predict the outcome of its review.”

In addition, as noted in this Wall Street Journal Corruption Currents post, “the Securities and Exchange Commission is investigating Teva Pharmaceutical Industries Ltd, the world’s largest manufacturer of generic drugs, for possible violations” of the FCPA.   The Israel based company recently stated in an SEC filing (here) as follows.

“Teva received a subpoena dated July 9, 2012 from the SEC to produce documents with respect to compliance with the Foreign Corrupt Practice Act (“FCPA”) in Latin America. Teva is cooperating with the government. Teva is also conducting a voluntary investigation into certain business practices which may have FCPA implications and has engaged independent counsel to assist in its investigation. These matters are in their early stages and no conclusion can be drawn at this time as to any likely outcomes.”

U.K. DPAs

In this previous post, I discussed my letter to the U.K. Ministry of Justice urging the MoJ to just say no to deferred prosecution agreements.  Over at thebriberyact.com (a site that has lead discussion of the issue) the authors disagree with me (see here).  That’s all fine and dandy and healthy to the discussion, but the substance of the retort is not persuasive.

The retort is  basically that the SFO “frequently has to fight its corner in court” and that “sometimes it loses” whereas in the U.S. “the accepted wisdom [is] that an FCPA investigation would result in a corporate settlement” and the “DOJ simply [does] not have to test its legal theories in court.”  In short, the authors state “statistically in the US corporates and their counsel often fold in the face of a DOJ investigation” but “in the UK this is not so.”

Contrary to the suggestion in the retort, I did not ignore the Bribery Act’s Section 7 offense – rather it is all the more reason to reject DPAs.

The retort closes as follows.  “Sadly, as it stands, the UK enforcement agencies do not have equality of arms when it comes to their enforcement toolkit.  Put another way the DOJ can end run UK enforcement agencies because it does have the potential to enter into DPA’s.  This reason alone is justification enough for putting in place a system which delivers a similar result to the US system.”

This confirms in my mind that the UK’s desire for DPAs has little to do with justice and deterring improper conduct, but more to do with enforcement statistics and posturing in an emerging “global arms race” when it comes to “prosecuting” corruption and bribery offenses.

Avon Developments

Avon was in the news quite a bit this week.

On Monday, the Wall Street Journal reported (here) that “federal prosecutors looking into possible bribery of foreign officials by Avon have asked to speak to Andrea Jung, the former chief executive and current full-time chairman.”

On Wednesday, the company filed its quarterly report and stated, among other things, as follows.  “We are in discussions with the SEC and DOJ regarding mutually resolving the government investigations. There can be no assurance that a settlement will be reached or, if a settlement is reached, the timing of any such settlement or that the terms of any such settlement would not have a material adverse effect on us.”  During the Q2 earnings call, company CEO Sheri McCoy stated as follows.   “We are in discussion with the SEC and DOJ regarding mutually resolving the government investigations.”

On Thursday, the Wall Street Journal reported (here) that McCoy “frustrated with the pace of Avon’s internal probe, has pushed to bring in a second law firm for advice on the progress of the investigation.   The company has held discussions with law firm Allen & Overy LLP for that role.”  Arnold & Porter has been leading Avon’s investigation.  According to the article, Avon’s “probe has turned up millions of dollars of payments in Brazil and France made to consultants hired to assist with Avon’s tax bills in those countries.”

What to make of the above information?

It is unusual for the enforcement agencies to want to speak to a former CEO and current chairman in connection with an FCPA inquiry.  But then again, prosecutors have reportedly spoken to several other Avon executives in connection with the probe.  Given Avon’s disclosure that it has begun settlement discussions, this would suggest that the factual portion of the enforcement agencies investigation is over.

Avon’s FCPA scrutiny has perhaps been most notable for the amount of pre-enforcement action professional fees and expenses – approximately $280 million.  Thus, yesterday’s report that the company is considering bringing in a second law firm nearly four years into the investigation is interesting and unusual.

Even though Avon has disclosed it is in settlement talks, an enforcement action in 2012 is not certain.  In many cases, companies have disclosed the existence of FCPA settlement discussions, but the actual enforcement action did not happen for 6-12 months (or longer).

Whenever the enforcement action occurs, and whatever the ultimate fine and penalty is, Avon’s greatest financial hit  has likely already occured - its pre-enforcement action professional fees and expenses.  For instance, assuming a settlement amount would match the $280 million, this would be the sixth largest FCPA settlement of all time, and none of the enforcement actions in the top 5 were outside the context of foreign “government” procurement.

Total Settlement Near?

For some time, there has been speculation that Total S.A. (you better sit down for this) would actually mount a defense and put the DOJ and SEC to its burden of proof in an enforcement action.  Information in a recent company press release suggests that this is unlikely to occur.  In this recent release, Total stated as follows.  “Total has been cooperating with the … SEC and DOJ in connection with an investigation concerning gas contracts awarded in Iran in the 1990′s.  Total, the SEC, and the DOJ have conducted discussions to resolve issues arising from the investigation.  In light of recent progess in these discussions, Total has provisioned 316 million euros [$389 million]  in its accounts in the second quarter of 2012.”

A $389 million settlement would be a top five FCPA settlement in terms of fine and penalty amounts.  For additional coverage, see here from Reuters.

Empty Olympic Seats

A reason, perhaps, for those empty Olympic seats?  According to a recent study (see here) by the Society for Corporate Compliance and Ethics  “tighter than anticipated corporate entertainment and gift policies.”

Smith & Wesson Derivative Action Dismissed

Even against the backdrop of generally frivolous plaintiff derivative claims in the FCPA context, the action against Smith & Wesson (“S&W”) stood out.  After S&W employee Amaro Goncalves was criminally indicted in the manufactured Africa Sting case, certain investors filed a derivative claim in U.S. District Court in Massachusetts suing members of the board of S&W and company officers derivatively on behalf of the corporation for failing to have effective FCPA controls and oversight, thereby breaching their duty of care.

In dismissing the complaint (see here for the decision) Judge Michael Ponsor characterized the complaint as follows. “[I]n essence, that the company enjoyed an increase in international sales and then had an employee indicted for FCPA violations. This indictment, later dropped, supposedly evidenced a failure to implement proper controls.”

For another recent dismissal of an FCPA inspired derivative claim against Tidewater, see this prior post.  See also this recent post from Kevin LaCroix at The D&O Diary blog.

Sensata Technologies

In October 2010, Sensata Technologies disclosed in a quarterly report (here) as follows.

“An internal investigation has been conducted under the direction of the Audit Committee of the Company’s Board of Directors to determine whether any laws, including the Foreign Corrupt Practices Act (“FCPA”), may have been violated in connection with a certain business relationship entered into by one of the Company’s operating subsidiaries involving business in China. The Company believes the amount of payments and the business involved was immaterial. The Company discontinued the specific business relationship and its investigation has not identified any other suspect transactions. The Company has contacted the United States Department of Justice and the Securities and Exchange Commission to begin the process of making a voluntary disclosure of the possible violations, the investigation, and the initial findings. The Company will cooperate fully with their review.”

In its most recent quarterly report (here), the company disclosed as follows.

“During 2012, the DOJ informed us that it has closed its inquiry into the matter but indicated that it could reopen its inquiry in the future in the event it were to receive additional information or evidence. We have not received an update from the SEC concerning the status of its inquiry.”

Did Sensata ”win a declination” as the FCPA Blog suggested here?

Since August 2010 (see here for the prior post) I have proposed that when a company voluntarily discloses an FCPA internal investigation to the DOJ and the SEC, and when the DOJ and/or SEC decline enforcement, the DOJ and/or the SEC should publicly state, in a thorough and transparent manner, the facts the company disclosed to the agencies and why the agencies declined enforcement on those facts.

Perhaps then we would know if the DOJ concluded it could prove beyond a reasonable doubt all the necessary elements of an FCPA charge, yet decided not to pursue Sensata – which is my definition of declination as noted in this prior post.  Anything else, is what the law commands, not a declination.

Favorite Read

One of my favorite reads is always Shearman & Sterling’s “Recent Trends and Patterns in the Enforcement of the Foreign Corrupt Practices Act.”  See here for the most recent edition.

As to “foreign official,” the report states as follows. ”[T]he government does not appear to have been deterred by the [foreign official] debate. In most of the cases brought in 2012, the relevant government officials were employed by “instrumentalities” such as state health insurance plans (Orthofix), a state-owned nuclear plant (Data Systems & Solutions), government hospitals (Biomet and Smith & Nephew), a state-owned real estate development company (Peterson) a state-owned oil company (Marubeni), and state-owned airlines (NORDAM).”

As to FCPA guidance, the report states as follows. ”We understand that this guidance will be issued before October, when the US is scheduled to issue a written progress report on its implementation of the OECD Working Group on Bribery’s recommendations.”

A final kudos – Shearman & Sterling keeps its FCPA enforcement statistics the best way.  As it explains – “we count all actions against a corporate “family” as one action. Thus, if the DOJ charges a subsidiary and the SEC charges a parent issuer, that counts as one action.”  This is consistent with my “core” approach (see here), but unlike many others in the industry.

Weekend Reading Stack

An interesting and informative article (here) in Fortune about the Alba-Alcoa tussle and the role of Victor Dahdaleh.  For more on the underlying civil suit between Alba and Alcoa see this recent Wall Street Journal Corruption Currents post.

SOX’s executive certification requirements were supposed to be a panacea for corporate fraud.  It has not happened.  See here from Alison Frankel (Reuters) and here from Michael Rapoport (Wall Street Journal).  As noted in this prior post concerning the Paul Jennings (former CFO and CEO of Innospec) enforcement action, SOX certification charges were among the charges the SEC filed against Jennings.  Then SEC FCPA Unit Chief Cheryl Scarboro stated, “we will vigorously hold accountable those who approve such bribery and who sign false SOX certifications and other documents to cover up the wrongdoing.”  Speaking of Jennings, as noted in this recent U.K. Serious Fraud Office, Jennings recently pleaded guilty to one charge of conspiracy to corrupt Iraqi public officials and other agents of the Government of Iraq.

*****

A good weekend to all.