Archive for the ‘Guidance’ Category

Friday Roundup

Friday, April 25th, 2014

FCPA scrutiny equals a raise, Qualcomm declines to cave, scrutiny alerts, industry specific risks, survey says, gaps in the narrative, a pulse on FCPA Inc., quotable and not quotable, and for the reading stack.  It’s all here in the Friday Roundup

FCPA Scrutiny Equals A Raise

There are some things that happen in the FCPA space that cause one to scratch their head.

Such as a company being under FCPA scrutiny paying audit committee members more money because of the time devoted to the FCPA scrutiny.  In its recent proxy statement, Wal-Mart disclosed as follows.

“Since November 2011, the Audit Committee has been conducting an internal investigation into, among other things, alleged violations of the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”) and other alleged crimes or misconduct in connection with foreign subsidiaries, and whether prior allegations of such violations and/or misconduct were appropriately handled by Walmart. The Audit Committee and Walmart have engaged outside counsel from a number of law firms and other advisors who are assisting in the ongoing investigation of these matters. This investigation has resulted in a significant increase in the workload of the Audit Committee members since the commencement of this investigation, and during fiscal 2014, the Audit Committee conducted 13 additional meetings related to the investigation and compliance matters, and Audit Committee members received frequent updates via conference calls and other means of communication with outside counsel and other advisors related to the investigation. As it had done in November 2012 in recognition of the significantly increased commitment of time required of the Audit Committee to conduct this investigation, in November 2013, the CNGC (Compensation, Nomination, and Governance Committee) and the Board approved an additional annual fee in the amount of $75,000 payable to each Audit Committee member other than the Audit Committee Chair for fiscal 2014, and an additional annual fee in the amount of $100,000 payable to the Audit Committee Chair for fiscal 2014. These amounts were prorated for directors who served on the Audit Committee during a portion of fiscal 2014. The CNGC determined the amounts of these additional fees based on (1) the CNGC’s and the Board’s review of the significant additional time and effort that had been required of the Audit Committee members during the previous Board term in connection with these matters, which were in addition to the time spent by the Audit Committee with respect to the Audit Committee’s other duties and its regularly scheduled meetings, and (2) the expectation that the Audit Committee members would continue to expend approximately the same amount of time and effort in discharging their responsibilities as Audit Committee members at least through the remainder of fiscal 2014.”

Qualcomm Declines to Cave

Rare are so-called Wells Notices in the FCPA context for the simple reason that few issuers actually publicly push back against the SEC.  Thus, the below disclosure by Qualcomm earlier this week stands out:

“Securities and Exchange Commission (SEC) Formal Order of Private Investigation and Department of Justice Investigation : On September 8, 2010, the Company was notified by the SEC’s Los Angeles Regional office of a formal order of private investigation. The Company understands that the investigation arose from a “whistleblower’s” allegations made in December 2009 to the audit committee of the Company’s Board of Directors and to the SEC. In 2010, the audit committee completed an internal review of the allegations with the assistance of independent counsel and independent forensic accountants. This internal review into the whistleblower’s allegations and related accounting practices did not identify any errors in the Company’s financial statements. On January 27, 2012, the Company learned that the U.S. Attorney’s Office for the Southern District of California/Department of Justice (collectively, DOJ) had begun an investigation regarding the Company’s compliance with the Foreign Corrupt Practices Act (FCPA). As previously disclosed, the audit committee conducted an internal review of the Company’s compliance with the FCPA and its related policies and procedures with the assistance of independent counsel and independent forensic accountants. The audit committee has completed this comprehensive review, made findings consistent with the Company’s findings described below and suggested enhancements to the Company’s overall FCPA compliance program. In part as a result of the audit committee’s review, the Company has made and continues to make enhancements to its FCPA compliance program, including implementation of the audit committee’s recommendations.

As previously disclosed, the Company discovered, and as a part of its cooperation with these investigations informed the SEC and the DOJ of, instances in which special hiring consideration, gifts or other benefits (collectively, benefits) were provided to several individuals associated with Chinese state-owned companies or agencies. Based on the facts currently known, the Company believes the aggregate monetary value of the benefits in question to be less than $250,000, excluding employment compensation.

On March 13, 2014, the Company received a Wells Notice from the SEC’s Los Angeles Regional Office indicating that the staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Company for violations of the anti-bribery, books and records and internal control provisions of the FCPA. The bribery allegations relate to benefits offered or provided to individuals associated with Chinese state-owned companies or agencies. The Wells Notice indicated that the recommendation could involve a civil injunctive action and could seek remedies that include disgorgement of profits, the retention of an independent compliance monitor to review the Company’s FCPA policies and procedures, an injunction, civil monetary penalties and prejudgment interest.

A Wells Notice is not a formal allegation or finding by the SEC of wrongdoing or violation of law. Rather, the purpose of a Wells Notice is to give the recipient an opportunity to make a “Wells submission” setting forth reasons why the proposed enforcement action should not be filed and/or bringing additional facts to the SEC’s attention before any decision is made by the SEC as to whether to commence a proceeding. On April 4, 2014, the Company made a Wells submission to the staff of the Los Angeles Regional Office explaining why the Company believes it has not violated the FCPA and therefore enforcement action is not warranted.

The Company is continuing to cooperate with the SEC and the DOJ, but is unable to predict the outcome of their investigations or any action that the SEC may decide to file.”

Needless to say, this instance of FCPA scrutiny will be interesting to follow.

Scrutiny Alerts

Hiring Probes Expand

Reuters reports here:

“U.S. government agencies that have been probing banks’ hiring of children of powerful Chinese officials are expanding existing investigations in other industries across Asia to include hiring practices …The U.S. Justice Department and the Securities and Exchange Commission have been asking global companies in a range of industries including oil and gas, telecommunications and consumer products for information about their hiring practices to determine if they could amount to bribery …”.

For more on JPMorgan’s FCPA scrutiny which got this started, see here.  For more on so-called industry sweeps, see here.

Delphi Automotive

Delphi Automotive disclosed in it most recent SEC quarterly filing as follows:

“During the first quarter of 2014, Delphi identified certain potentially improper payments, made by certain manufacturing facility employees in China, that may violate certain provisions of the U.S. Foreign Corrupt Practices Act (the “FCPA”). Under the oversight of Delphi’s Audit Committee of the Board of Directors, Delphi has engaged outside counsel to assist in the review of these matters, and to evaluate existing controls and compliance policies and procedures. This review remains ongoing. Violations of the FCPA could result in criminal and/or civil liabilities and other forms of penalties or sanctions. Delphi has voluntarily disclosed these matters to the U.S. Department of Justice and the SEC, and is cooperating fully with these agencies. Although Delphi does not expect the outcome of this review to have a material adverse impact on the Company, there can be no assurance as to the ultimate outcome of these matters at this time.”

United Technologies

United Technologies disclosed in its most recent SEC quarterly filing as follows:

“Non-Employee Sales Representative Investigation

In December 2013 and January 2014, UTC made voluntary disclosures to the United States Department of Justice, the Securities and Exchange Commission Division of Enforcement and the United Kingdom’s Serious Fraud Office to report the status of its internal investigation regarding a non-employee sales representative retained by United Technologies International Operations, Inc. (UTIO) and International Aero Engines (IAE) for the sale of Pratt & Whitney and IAE engines and aftermarket services, respectively, in China. On April 7, 2014, the SEC notified UTC that it is conducting a formal investigation and issued a subpoena to UTC seeking production of documents related to the disclosures. UTC is cooperating fully with the investigation. Because the investigation is at an early stage, we cannot predict its outcome or the consequences thereof at this time. At the outset of the internal investigation, UTIO and IAE suspended all commission payments to the sales representative, and UTIO and IAE have not resumed making any payments. This led to two claims by the sales representative for unpaid commissions: a civil lawsuit filed
against UTIO and UTC and an arbitration claim against IAE. We are contesting the lawsuit and the arbitration claim. We do not believe that the resolution of the lawsuit or the arbitration will have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.”

Industry Specific Risk

The reasons why companies become the subject of FCPA scrutiny are often unique to the industry the company is in.  This is why FCPA compliance is best tailored to a company’s unique risk profile as informed by a risk assessment.

This recent Wall Street Journal Risk & Compliance post from the Dow Jones Global Compliance Symposium is informative in collecting industry insight.

“Technology. Melissa Lea, Chief Global Compliance Officer, SAP AG. Profit margins for distributors are flexible in tech as so much of the cost is related to labor. And that flexibility offers room for partners to try to pad expenses to pay bribes. “Any time you hear about flexibility it opens the door for corruption,” said Ms. Lea, who noted that authorities have recently cracked down on bribery in the technology sector, once thought to be amongst the cleanest industries.

Pharmaceuticals. Rady A. Johnson, Chief Compliance & Risk Officer, Pfizer Inc. Drug companies pay doctors for a variety of consulting services and often invite them to attend events to promote their products. But since it’s these same doctors that prescribe drugs, pharmaceutical companies need to ensure that fancy conferences and payments for services are not cover for bribes. “We can’t do our job without interacting with health care professionals,” Mr. Johnson said. But companies need to ensure those interactions are appropriate and well defined, he said. In 2012, Pfizer agreed to pay more than $60 million to settle investigations into improper payments made to doctors and foreign officials.

Banks. W.C. Turner Herbert, Director of Anti-Corruption, Bank of America Corp.  Lately in the banking sector, corruption concerns have centered on hiring the relatives of foreign officials in exchange for business. In the past few years, U.S. authorities have investigated a number of banks over allegations of the practice, including Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. “Its a new area of enforcement without much precedence,” Mr. Herbert said. While hiring well-connected people shouldn’t, by itself, be a red flag, compliance officers need to ensure the selection is done on “merit and the business objectives” of the job, he said. “What draws red flags is if he’s not qualified,” Mr. Herbert said.

Survey Says

In connection with the above-mentioned Dow Jones Global Compliance Symposium, Dow Jones released this “Anti-Corruption Survey Results 2014.”  The survey was conducted on-line “among compliance professionals worldwide” and 383 responses “were completed among companies with anti-corruption programs.”  It is difficult to assess survey results without knowing the precise questions asked, but the Dow Jones survey does contain some interesting nuggets.

Such as “approximately 30% of companies spend $1 million or more on anti-corruption staff and policies.”

In “Revisiting a Foreign Corrupt Practices Act Compliance Defense,” I suggest that the current FCPA enforcement environment does not adequately recognize a company’s good faith commitment to FCPA compliance and does not provide good corporate citizens a sufficient return on their compliance investments.

Compliance defense opponents (such as the DOJ) like to point out that such a defense will result in “paper compliance” and “check-a-box” exercises.  Such clichés, however, ignore the reality of the situation – this many companies are making substantial investments of time and money in pro-active compliance policies and procedures.

One irony of course is that several former DOJ FCPA enforcement attorneys who have criticized a compliance defense as resulting in “paper compliance” and “check-a-box” exercises now devote a substantial portion of their private practice advising companies on FCPA compliance.

Gaps in the Narrative

You know the narrative.

In 2002, an accounting partnership (Arthur Anderson) was convicted of obstruction of justice for shredding documents related to its audit of Enron.  Even though the Supreme Court ultimately tossed the conviction, Arthur Anderson essentially went out of business.  Because of this, in the minds of some, the DOJ can’t criminally charge business organizations with crimes and thus the DOJ has crafted alternative resolution vehicles such as non-prosecution and deferred prosecution agreements to avoid the perceived collateral consequences of a criminal indictment or conviction.

Never mind that the narrative is based on a false premise.  (See here for the guest post and article by Gabriel Markoff titled “Arthur Anderson and the Myth of the Corporate Death Penalty).

Nevertheless, the narrative persists and is accepted by some as gospel truth.

However, perhaps you have heard that in early April Pacific Gas & Electric Corporation (PG&E – a public company) was criminally charged with multiple violations of the Natural Gas Pipeline Safety Act.

The company’s stock is still trading (in fact it is up since the criminal charges were announced), it is still employing people, and it is still operating its business.

Recognizing the fallacy of the narrative is important for corporate leaders of businesses subject to DOJ scrutiny in the FCPA context or otherwise.  Defenses can be mounted and the DOJ can and should be put to its burden of proof more often.

A Pulse on FCPA Inc.

Law360 highlights “Four Practices Areas Generating Big Billable Hours.”  As to the FCPA the article notes:

“The Foreign Corrupt Practices Act, which mandates certain accounting transparency requirements and gives the U.S. government the power to pursue businesses that bribe foreign officials, is creating long workdays for attorneys throughout the world.  ”If Foreign Corrupt Practices Act were a stock, I wish I would have held it,” said William Devaney, co-chair of  Venable LLP’s FCPA and anti-corruption practice group. “We’ve seen huge growth in the practice area since 2004, and with the government’s current focus on FCPA, it’s safe to say anti-corruption enforcement will be around for a long time.”  After the FCPA was amended in 1998 to include additional anti-bribery provisions, the U.S. government began actively applying the FCPA to not only large companies but also their smaller counterparts.  As a result, Devaney says, a lot of midmarket and smaller companies are now coming into the FCPA compliance fold after acknowledging their obligations under the law, resulting in a surge in demand.
And according to Aaron G. Murphy, a partner with Akin Gump Strauss Hauer & Feld LLP, foreign countries passing legislation similar to the FCPA will create an explosion of fraud investigations that begin abroad but later will involve the U.S. Department of Justice.  Murphy said the FCPA stood as one of the lone anti-corruption laws in the world for 20 years, then in the mid-1990s, numerous foreign governments adopted similar rules to punish local and international corruption. ”No politician has ever been elected on a ‘get softer on corruption’ ticket,” Murphy said. “If anti-corruption laws get modified, they will probably get stronger, not weaker. So we likely won’t see, 20 years from now, attorneys reminiscing about when companies had to deal with corruption laws. This practice area is here to stay.”

That the FCPA practice is here to stay is all the more reason to elevate your FCPA knowledge and practical skills at the FCPA Institute.

The three other practice areas highlighted in the article were:  export controls and trade sanctions; civil false claims act; and patent litigation and patent trolls.

Quotable

The White House recently announced that President Obama named Kirkland & Ellis partner W. Neil Eggleston to be White House Counsel (see here).  FCPA Professor has highlighted in the past (see here and here) certain of Eggleston’s spot-on comments regarding the FCPA or related issues.

In this interview Eggleston stated: “I worry that [NPAs and DPAs] will become a substitute for a prosecutor deciding – this is not an appropriate case to bring – there is no reason to subject this corporation to corporate criminal liability. In the old days, they would have dropped the case. Now, they have the back up of seeking a deferred or non prosecution agreement, when in fact the case should not have been pursued at all. That’s what I’m worried about – an easy out.”

In another interview, Eggleston was asked “what is an important issue or case relevant to your practice area and why” and stated: “We are beginning to see the development of case law in the FCPA area, which I believe is good for the process. Most of these cases have been settled. When that occurs, defendants have little incentive to refuse to agree to novel Department of Justice theories of prosecution or jurisdiction, so long as the penalty is acceptable. The department then cites its prior settlement as precedent when settling later ones. But no court approved the earlier settlement, and the prior settlement should have no precedential value in favor of the DOJ in later settlements. As the DOJ increases its prosecution of individuals, we will see many more trials, which will give rise to courts, not the DOJ, interpreting the statute.”

Not Quotable

DOJ Deputy Attorney General James Cole was a keynote speaker earlier this week at the Dow Jones Global Compliance Symposium.   According to the event agenda, the title was “What the Justice Department Has in Its Sights” and described as follows.

“From foreign bribery to insider trading, the U.S. Department of Justice has been at the forefront of rigorous enforcement that has forced companies to treat compliance seriously. We interview James Cole, deputy attorney general, about where the department is focusing its efforts now.”

I reached out to the DOJ Press Office for a transcript of Mr. Cole’s remarks and was told “we don’t have one.”

It is unfortunate that public officials speak about matters of public interest at private conferences that charge thousands of dollars to attend.

Reading Stack

The FCPA Guidance was sort of interesting to read, but as noted in my article “Grading the FCPA Guidance” it lacks any legal authority or effect.  A hat tip to the Tax Law Prof Blog for highlighting a recent U.S. Tax Court decision finding that IRS Guidance is “not binding precedent” nor “substantial authority” for a tax position.

The New York Times here goes in-depth on Dmitry Firtash, the Ukrainian businessman recently criminally charged in connection with an alleged bribery scheme involving Indian licenses (see here for the prior post).

An informative three-part series (here, here and here) by Tom Fox (FCPA Compliance & Ethics Blog) regarding gifts, travel and entertainment.

Miller & Chevalier’s FCPA Spring 2014 Review is here.

“The FCPA Guide Presents A Classic Case Of Treating A Symptom While Ignoring The Disease”

Wednesday, April 9th, 2014

This recent post highlighted a Foreign Corrupt Practices Act article by former Deputy DOJ Assistant General Larry Thompson in a recent issue of the American Criminal Law Review (“ACLR”).  Thompson’s article was part of a symposium edition of the ACLR (Volume 51, Number 1, Winter 2014) titled “Reducing Corporate Criminality:  Evaluating Department of Justice Policy on the Prosecution of Business Organizations and Options for Reform.”

In addition to Thompson’s article, there was another FCPA article in the ACLR edition that should likewise make its way onto your reading stack.

Barry Pollack (Miller & Chevalier) was the lead author of an article focusing on DOJ guidance surrounding the FCPA, including the 2012 FCPA Guidance.  (See “Lone Wolf Or The Start Of A New Pack:  Should The FCPA Guidance Represent A New Paradigm In Evaluating Corporate Criminal Liability Risks?”).

Commenting on DOJ settlement documents (NPAs/DPAs, etc.) serving as “de facto agency ‘jurisprudence’ guiding corporate conduct”, Pollack observes, consistent with my own observations in “The Facade of FCPA Enforcement” (2010), as follows.

“While publicly available resources regarding settlement dispositions through plea agreements, DPAs, and NPAs are helpful in providing corporations with some insight into the DOJ’s enforcement priorities and practices, there are some very important differences and limitations which distinguish these settlement documents from case law. Most importantly, these settlements represent the results of privately-negotiated agreements between the DOJ and corporate defendants, which are subject to little or no judicial scrutiny. While plea agreements and DPAs are filed with the court and are technically subject to a judge’s approval, the DOJ and defendants are not generally required to present or defend the factual assertions or legal theories contained in such agreements. Furthermore, NPAs are subject to no judicial scrutiny because they are not filed with the court. Accordingly, these documents provide fertile ground for the prosecution to advance expansive enforcement theories based on bare-boned and undeveloped factual assertions without having to meet the burden of proof beyond a reasonable doubt, given that the promise of avoiding the costly and risky endeavor of litigation through settlement provides every incentive to corporate defendants to accept the prosecution’s position so long as the matter is resolved quickly and for the lowest fine possible.

As a result, the agreements do not necessarily contain all of the relevant facts that went into determining the outcomes. They may contain broader enforcement theories than what would result from fully litigated cases, they do not have precedential value and thus do not bind the DOJ to act consistently, and they may not represent cases where criminal FCPA violations would have been found had the cases actually been litigated.”

Regarding the 2012 FCPA Guidance, Pollack writes:

“Overall, while the Guide is comprehensive and represents an unprecedented undertaking, it marks no sharp departure from current practice. Rather, the Guide clarifies the statute and how it is applied by the enforcement agencies, expressly confirms pre-existing enforcement practices and policies apparent in settlement documents to practitioners in the field, and consolidates current agency thinking into a single, comprehensive reference source.”

Spot-on and consistent with my own observations in “Grading the Foreign Corrupt Practices Act Guidance.”

Further, Pollack states that the “FCPA Guide presents a class case of treating a symptom while ignoring the disease.”

Among the “facets” of the disease is that “the collateral consequences for contesting and litigating corporate criminal liability are far too great for a corporation of any size.”

The article then states:

“Unless and until at least one of these aspects of the disease is eradicated, the symptoms of the disease will continue to exist. The symptoms are over- and under-compliance based on a lack of clear understanding regarding what the law forbids, and the acceptance by risk-adverse corporations of criminal dispositions in cases that are eminently defensible.

In a world where the disease exists, the FCPA Guide makes perfect sense. It provides an authoritative source of information regarding current practice. Before the Guide was issued, practitioners could only cite to their own experience and the limited information available in negotiated settlements.”

[...]

“The FCPA Guide is not as novel as it might appear.”

[...]

“The authors hope that at some point, Congress will turn its attention to fighting the disease.”

I’ll second that, but add the DOJ and SEC to the mix (i.e. hopefully the enforcement agencies will turn its attention to better fighting the disease by reconsidering certain enforcement agency policies and procedures).  (See here among other posts for more).

Assignment: Read Former Deputy Attorney General Larry Thompson’s New Article

Thursday, March 27th, 2014

Larry Thompson has experience with the Foreign Corrupt Practices Act from a number of vantage points few can claim:  DOJ Deputy Attorney General, a lawyer in private practice, and a general counsel of a major multinational company.

For this reason, you should read Thompson’s new article -”In-Sourcing Corporate Responsibility for Enforcement of the Foreign Corrupt Practices Act,” 51 American Criminal Law Review 199 (Winter 2014).

In the article, you will find an informed and candid critique of many current aspects of FCPA enforcement.

Thompson laments the uncertainty of the FCPA and states:

“The uncertainty of precisely what the FCPA forbids and allows harbors frightening potential for prosecutorial abuse and over-criminalization – topics that have preoccupied me, both as a private attorney and as Deputy Attorney General of the United States, for many years.  This uncertainty in the FCPA is particularly troubling when one is dealing not just with individuals, who have control over all their own actions, but also with large corporations – artificial ‘persons’ consisting of hundreds, or thousands, or even hundreds of thousands, of individuals for whom the corporation can be held accountable.”

Referencing FCPA congressional hearings in 2010 and 2011, Thompson observes:

“DOJ was unperturbed by the uncertainty surrounding FCPA enforcement.  Indeed, one could be forgiven for suspecting that at least some federal prosecutors favor that uncertainty.  But we must never forget that uncertainty in the law is the antitheses of the rule of law.  There is reason that the Latin word for ‘uncertainty’ is arbitrarius.  That some FCPA enforcement attorneys might relish and exploit the arbitrary enforcement of a federal criminal statute is not merely unseemly – it is illegitimate.”

In short, you can add Thompson’s observation to my own (see here) in countering commentator suggestions that the FCPA is anything other than clear.

On the topic of the 2012 FCPA Guidance, Thompson cites my article “Grading the Foreign Corrupt Practices Act Guidance” and states:

“Its 130 pages appear impressive at first glance, but about two-thirds of that is routine recitation of background information:  the introduction and table of contents consume thirty-five pages, the reprinting of the statute itself accounts for another thirty pages, and a summary of previously issued (and by definition inadequate) guidance and discussion of other statutes fleshes out yet another twenty pages.”

On the general topic of guidance and commenting on NPAs and DPAs used to resolve FCPA enforcement actions, Thompson cites my Congressional testimony and observes:

 ”The FCPA guidance … offered by the Justice Department [in NPAs and DPAs] is less helpful because it may include coerced settlements that record instances where even DOJ itself was not sure that a violation of the FCPA actually occurred.”

Thompson’s observation in this regard is similar to former Attorney General Alberto Gonzales’s observation as highlighted in this previous post.

The majority of Thompson’s article renews calls for an FCPA compliance defense.

I first highlighted Thompson’s call (along with several other former higher ranking DOJ officials) for a compliance defense in my article ”Revisiting a Foreign Corrupt Practices Act Compliance Defense” and in this previous post I further highlighted Thompson’s call for compliance defense at an FCPA symposium.

In short, a hard-to-ignore reality of the current compliance defense debate – against the backdrop of DOJ’s strong institutional opposition to compliance defense concepts – is the chorus of former DOJ officials who support compliance defense concepts.

In his new article, Thompson writes:

“[W]e must create an incentive structure that drives corporations to establish internal compliance programs and to root out foreign corruption within their own organizations.  Only those businesses themselves have the resources to conduct the global investigations that the FCPA requires.  To accomplish this end, I believe that we need to do two things:  first, we must give businesses clear and predictable guidance on what sort of compliance programs they must establish; second, we must give them powerful incentives to engage in self-investigation and self-reporting of the bribery they uncover or suspect.  The incentives I suggest are two:  (1) businesses must be assured that a strong compliance program and prompt and full self-disclosure will ensure that the company itself will not be subject to criminal prosecution under the FCPA; and (2) such self-disclosure will also prevent the company from being debarred from doing business with the federal government or being denied government permits or licenses necessary for the company’s operations.”

Adopting a similar “baby carrot” / “real carrot” analogy I used in “Revisiting an FCPA Compliance Defense“, Thompson writes:

“I propose two carrots.  First, if a corporation establishes a comprehensive, fully funded, adequately staffed and trained FCPA compliance program, then the rogue employee who circumvents it and violates the FCPA – and is caught and turned over to authorities by his employer – should be deemed to be acting outside the realm of his corporate responsibilities and the self-reporting corporation should not be held criminally liable for his conduct.  This would be an instance of a blameless corporation. For this incentive to work, of course, the carrot must be large and appetizing – hence the absolute necessity for transparency and predictability in FCPA enforcement.  The second carrot is that a genuinely cooperative, self-reporting company with a proper compliance program must be assured that it will not be debarred from contracting with the United States government or receiving the government permits required to run its operations.”

In my “Revisiting an FCPA Compliance Defense” article and elsewhere (see prior posts here, here and here) I have articulated – like Thompson – reasons why the DOJ should be in support of – not opposed to – a compliance defense.  A compliance defense is not a race to the bottom – as government officials have suggested – it is a race to the top.  Like Thompson, I have argued that a compliance defense will better facilitate DOJ’s prosecution of culpable individuals and advance the objectives of the FCPA.

I agree with Thompson when he says that the DOJ and SEC have an “almost wooden attitude” when it comes to the FCPA. Reflecting on the enforcement agencies sense of confidence and the billions of dollars collected in enforcement actions, Thompson states:

“But this supposedly shining vision of FCPA enforcement prowess is a Potemkin village, because without corporations’ own internal policing and self-reporting, the FCPA can accomplish little.”

I sincerely hope that Thompson’s article can renew a substantive – not rhetorical – discussion of a compliance defense and how it can help advance the laudable purpose of the FCPA.  To learn more about my proposal, and how it differs slightly from Thompson’s, see here.

Can the DOJ and SEC soften its “wooden attitude”?  Is the DOJ and SEC capable of diverting attention from enforcement statistics, settlement amounts, and political statements filled with empty rhetoric?

As I wrote in my most recent post about a compliance defense, the FCPA has witnessed courageous moments before and a courageous moment is once again presented..

Congress Remains Interested In FCPA Issues

Wednesday, February 26th, 2014

Foreign Corrupt Practices reform may not be the hot issue it was circa 2011 (political posturing by the DOJ in connection with the FCPA Guidance as well as certain headlines caused the issue to simmer), but Congress remains interested in FCPA issues.

For instance, in connection with a recent confirmation hearing for Leslie Caldwell to be the DOJ’s Assistant Attorney General of the Criminal Division, Senator Charles Grassley (R-IA), Ranking Member of the Senate Judiciary Committee, asked Caldwell several FCPA-related questions for the record.

Caldwell punted on every question (perhaps not surprising given that Caldwell is not currently at the DOJ), but the questions posed nevertheless highlight specific FCPA issues on the minds of certain members of Congress.

Set forth in full below are the FCPA-related questions by Senator Grassley and Caldwell’s responses.

*****

“I recently asked Attorney General Holder these questions and have not yet received response.  As the FCPA falls within the Criminal Division, would you please respond to the following questions.

What are the Department’s current enforcement priorities under the FCPA?

Answer:  I am not in the Department; therefore, I am not in a position to address this question.  If I am confirmed as the Assistant Attorney General of the Criminal Division, I assure you that I will be vigilant in pursuing cases under the FCPA.

What particular industries, markets or practices is the Department focusing on, and why?

Answer:  I am not in the Department; therefore, I am not in a position to address this question.  As noted above, if I am confirmed as the Assistant Attorney General of the Criminal Division, I assure you that I will be vigilant in pursuing cases under the FCPA.

What proportion of the Department’s enforcement activity during 2013 involved non-U.S. companies?

Answer:  I am not in the Department; therefore, I am not in a position to address this question.  If I am confirmed as the Assistant Attorney General of the Criminal Division, I assure you that I will be vigilant in pursuing cases against U.S. and non-U.S. companies that violate the FCPA.

Has the Department seen a recent increase in whistleblower claims of FCPA violations?  If so, to what would you attribute that?  How has the Department responded?

Answer:  I am not in the Department; therefore, I am not in a position to address these questions.

Although the Department does not publicize each particular instance in which it declines prosecution despite evidence of an FCPA violation, what characterized the Department’s declinations during 2013?  Did the number increase from 2012?  What factors were most important in leading the Department to decline prosecution?

Answer:  I am not in the Department; therefore, I am not in a position to address these questions.  While I have not been privy to the internal deliberations surrounding the Department’s declination decisions, if confirmed as the Assistant Attorney General of the Criminal Division, I assure you that declination decisions will be based on the law and the evidence presented.

In November 2012, the Department and SEC issued the FCPA ”Resource Guide,” which reflected guidance from your agencies regarding the interpretation and enforcement of the FCPA.  Does the Department anticipate updating, supplementing or amending the “Resource Guide” in the foreseeable future?

Answer:  I am not in the Department; therefore, I am not in a position to address this question.

In 2013, the Department issued only one Opinion Release concerning the FCPA.  Does the Department consider the “Resource Guide” a substitute for its opinion release program?

Answer:  I am not in the Department; therefore, I am not in a position to address this question.

A More Complete Picture Of Duross’s Tenure As DOJ FCPA Unit Chief

Wednesday, January 29th, 2014

Yesterday’s post highlighted how Chuck Duross (the DOJ’s FCPA Unit Chief) became the latest in a long line of DOJ and SEC FCPA enforcement attorneys to leave government service for FCPA Inc. to provide defense and compliance services to business organizations subject to the enforcement climate they helped create.  The concerns raised in the prior post were policy issues relevant to the typical career path of DOJ and SEC enforcement attorneys.

This post uses the news of Duross’s departure to highlight additional factual information concerning FCPA enforcement during his tenure.  As FCPA Unit Chief, Duross was a public figure and one that publicly welcomed scrutiny and accountability.  This post does nothing more than provide the public with additional facts and information concerning FCPA enforcement during Duross’s tenure beyond the press release issued by his future employer Morrison & Foerster (“MoFo”).

In this way, readers can analyze for themselves Duross’s tenure as FCPA Unit Chief – and more broadly – various policy issues relevant to DOJ FCPA enforcement including how the DOJ’s FCPA enforcement program is often publicly portrayed.

During his tenure as FCPA Unit Chief, I had the pleasure to meet Chuck several times.  He was helpful to me in obtaining access to certain original source documents and we engaged several times over e-mail and a few times by phone.  Moreover, I will forever be grateful to him for participating in an FCPA conference in March 2012 I helped organize at Ohio State University Moritz College of Law (at the time, the most comprehensive FCPA symposium ever held at a law school).

Throughout his tenure as FCPA Unit Chief, Duross appeared uneasy as to the public scrutiny associated with his position and the DOJ’s FCPA enforcement program more broadly.  Earlier in his tenure, I chaired the World Bribery & Corruption Compliance Forum in London during which Duross stated (see here for the prior post) that he took the FCPA Unit Chief job with a bit of “trepidation” given that he had big shoes to fill (he made specific praise of prior FCPA Chiefs Peter Clark and Mark Mendelsohn) and given that each new case is followed more closely than the last.  More recently, in September 2013, as noted in this prior post, Duross struck a similar theme when he stated that one of his biggest surprises upon becoming FCPA Unit chief was realizing how the unit “operates under a microscope” which highlighted, in his words, the need for his unit “to have its A game” at all times.

To his credit, Duross publicly welcomed scrutiny of the FCPA Unit.  For instance, at the September 2013 event, Duross indicated that “we should be held accountable for what we do – good and bad.”

This post does just that as the MoFo press release announcing the hiring of Duross paints an incomplete picture of FCPA enforcement during his tenure as FCPA Unit Chief.

This post does not suggest or imply that everything that occured in connection with DOJ FCPA enforcement since April 2010 was the direct result of Duross’s decisions or conduct. 

Yet, the same could be said regarding the FCPA statistics touted in the MoFo release. (“Under his leadership, the FCPA Unit resolved more than 40 corporate cases, which include about two-thirds of the top 25 biggest corporate resolutions ever.  Those matters resulted in approximately $1.9 billion in monetary penalties and the conviction of more than two dozen business executives and money launderers.”)  Many of these enforcement actions, including several of the largest ones from a settlement amount perspective, were on the DOJ’s docket long before Duross assumed leadership of the FCPA Unit in April 2010.

Perhaps the most notable event of Duross’s tenure as FCPA Unit was publication of the FCPA Guidance in November 2012.

However, far from a pro-active DOJ effort to “make FCPA enforcement more transparent and compliance with the statute more understandable to the business community” (as stated in the MoFo release), the timing of the Guidance appeared to be a DOJ attempt to forestall introduction of an actual FCPA reform bill.

The following chronology of events is relevant as highlighted in my article “Grading the FCPA Guidance.”  After the November 2010 Senate FCPA hearing, FCPA reform gained steam.  After the Senate hearing, Senator Amy Klobuchar (D-Minn.) asked the DOJ, ‘‘do you believe companies could comply with more certainty with the FCPA if they were provided with more generally applicable guidance from the Department in regards to situations covered by the FCPA that are not clear cut or fall into gray areas?’’  The DOJ response was that it “believes it provides clear guidance with respect to FCPA enforcement through a variety of means,’’ and it then listed the same general categories of information the OECD identified in 2002 as being deficient.”  FCPA reform gained further steam as a result of the June 2011 House FCPA hearing which evidenced bipartisan support for certain aspects of FCPA reform.  Against this backdrop, and only then, did Assistant Attorney General Lanny Breuer announce in November 2011 that the DOJ intended to issue FCPA Guidance in 2012.  Those on Capital Hill who were inclined to introduce an FCPA reform bill said they would await DOJ’s FCPA guidance before introducing such a bill.  It took a year for the DOJ and SEC to release the FCPA Guidance and its release was shortly after the November presidential election and during a lame duck Congress.

Regardless of the motivations of the DOJ (and SEC) in releasing the FCPA Guidance when they did, the related issue is the Guidance itself.

In the MoFo release, Paul Friedman, co-chair of the firm’s FCPA & Anti-Corruption Practice, calls the Guidance “groundbreaking” and “authoritative” and states that it “has proven invaluable to global companies and practitioners.”  As noted in this prior post (summarizing nearly 50 law firm and practitioner views on the Guidance), the Guidance has been perceived much differently than portrayed in the MoFo release.  For instance, Steven Tyrrell  (the former chief of the DOJ fraud section) called the Guidance “more of a scrapbook of past DOJ and SEC successes than a guide book for companies who care about playing by the rules.”

Perhaps more to the point, Duross’s future law firm had a different take as to the Guidance it termed “groundbreaking” in its recent release.  Indeed, MoFo previously called the Guidance “not groundbreaking.”  In this November 2012 Client Alert, Friedman and others state, in pertinent part:

“the guidance is not a panacea for the difficult issues that global companies navigate on a daily basis …”

“the guidance does not deliver any of the fundamental reform that the business community has been seeking, likely setting the stage for further attempts to secure statutory reform from Congress”

“[as to "foreign official" issues discussed in the Guidance] it provides no meaningful relief from the fact-specific ambiguities presented in real life.”

“[as to the standard for corporate liability v. individual liability in the Guidance] what the regulators see as the difference between “willful” and “corrupt intent” goes unsaid.”

“The [FCPA Guidance] is not groundbreaking. There is no sign of the regulators retreating from their expansive views of liability under the FCPA.”

Guidance aside, Duross’s departure from the DOJ once again raises the broader point –  how does the DOJ actually define success in its FCPA enforcement program?   (For instance, see recent statements here and here from Acting Assistant Attorney General Mythili Raman “our stellar FCPA unit continues to go gangbusters” and “our recent string of successful prosecutions of corporate executives is worth highlighting.”)

While the DOJ has had “success” in exercising its leverage and securing large FCPA settlements against risk-averse corporations through resolution vehicles not subjected to any meaningful judicial scrutiny, when put to its burdens of proof in the context of an adversarial system, the DOJ has had substantially less success. In a legal system founded on the rule of law, this later form of success is more meaningful than the former.

For instance, as noted in this recent post, SEC Chairman Mary Jo White recently stated that trials are the “crown jewel of our system of justice” as they “create public accountability for both defendants and the government through the public airing of charges and evidence.”  As White stated, “trials allow for more thoughtful and nuanced interpretations of the law in a way that settlements and summary judgments cannot.”

To his credit, Duross recognized the importance of trials in terms of the FCPA Unit’s overall legitimacy and credibility.  As noted in this September 2010 post, Duross stated that the “ability to try lengthy and complex trials” is critical to the FCPA Unit’s success and that the Unit must continue to be willing to try cases and be put to its burden.

Duross’s FCPA Unit was put to its burden several times during his tenure and the results were often DOJ failures.

Again, this post does not suggest or imply that everything that occured with DOJ FCPA enforcement since April 2010 was the direct result of Duross’s decisions or conduct. 

Nevertheless, it is a fact that the following things occurred while Duross headed the DOJ’s FCPA Unit.

The DOJ’s Africa Sting cases ended in February 2012 with Judge Richard Leon granting the DOJ’s motion for dismissal and stating as follows (see here for the prior post).

“This appears to be the end of a long and sad chapter in the annals of white collar criminal enforcement. Unlike takedown day in Las Vegas, however, there will be no front page story in the New York Times or the Post for that matter tomorrow reflecting the government’s decision today to move to dismiss the charges against the remaining defendants in this case. Funny, isn’t it, what sells newspapers? The good news, however, is that for these defendants, agents, prosecutors, defense counsel and the court we can get on with our professional and personal lives without the constant strain and burden of three to four more eight-week trials hanging over our heads. I for one hope this very long, and I’m sure very expensive, ordeal will be a true learning experience for both the department and the FBI as they regroup to investigate and prosecute FCPA cases against individuals in the future. Two years ago, at the very outset of this case, I expressed more than my fair share of concerns on the record regarding the way this case has been charged and was being prosecuted. Later, during the two trials that I presided over, I specifically commented again on the record regarding the government’s very, very aggressive conspiracy theory that was pushing its already generous elasticity to its outer limits. Of course, in the second trial that elastic snapped in the absence of the necessary evidence to sustain it. In addition, in that same trial, I expressed on a number of occasions my concerns regarding the way this case had been investigated and was conducted especially vis-a-vis the handling of Mr. Bistrong. I even had an occasion, sadly, to chastise the government in a situation where the government’s handling of the discovery process constituted sharp practices that have no place in a federal courtroom. Notwithstanding all of this water over the dam, and there has been a lot of water, I’m happy to see and I applaud the department for having the wisdom and courage of its convictions to face up to the limitations of its case as revealed in the past 26 weeks of trial and the courage to do the right thing under the circumstances. Having served at the higher levels of the department, I know that that was not an easy decision. They never are, when so much has been invested, and the agents and the prosecutors are so convinced of the righteousness of their position. I for one however am confident this will be in the end a positive, if not painful, lesson that results in better prosecutions of individuals in the future under the FCPA. As for the defendants, I hope the healing process is a swift one and that they get back to their normal lives in the very near future. Finally, I would be remiss if I did not comment on the tireless and spirited effort by the defense counsel from all over the country who came here to try these very lengthy and complicated cases under difficult circumstances and some even pro bono. Their hard work and effective advocacy are a testament to how strong our criminal defense bar is nationwide. And so without further adieu I grant the government’s motion to dismiss. The defendants are excused.”

In a recent interview, Duross stated as follows regarding the Africa Sting case – “I still believe it was a better case than most people thought.”  This is not how the jury foreman in one of the Africa Sting trials saw it.  In this guest post, the jury foreman stated that ‘‘a number of jurors were troubled by the nature of the FBI sting operation’’ and stated that the underlying view of the jury was that ‘‘the defendants had acted in good faith and the FBI/DOJ in bad faith.”

The jury foreman concluded the FCPA Professor post as follows:

“The government has the option to try [the defendants on which the jury hung] again. As a taxpayer, I sincerely hope they will instead dismiss the charges. The evidence simply does not exist, even if they get their witnesses to behave better under cross, to convict. This is a case that makes one wish that a supermajority was sufficient to acquit. Prolonging this prosecution is a waste of government resources. At some point in the deliberations, I described this sting and prosecution as a quarterback sneak. Although I came to regret that analogy for the frequency with which it was recalled in the jury room, I think it apt. The FBI and DOJ designed a play to get the ball just across the goal line. Unfortunately, in the ensuing pileup, no camera angle shows the ball with clarity and it is anyone’s guess as to whether they scored.”

The DOJ’s enforcement action against Lindsey Manufacturing and its executives Keith Lindsey and Steve Lee ended in December 2011 with Judge Howard Matz dismissing the indictment after finding numerous instances of prosecutorial misconduct and stating as follows (see here for the prior post).

“[The instances of misconduct were so varied and occurred over such a long time]  that they add up to an unusual and extreme picture of a prosecution gone badly awry.  [...] The Government team allowed a key FBI agent to testify untruthfully before the grand jury, inserted material falsehoods into affidavits submitted to magistrate judges in support of applications for search warrants and seizure warrants, improperly reviewed e-mail communications between one Defendant and her lawyer, recklessly failed to comply with its discovery obligations, posed questions to certain witnesses in violation of the Court’s order, engaged in questionable behavior during closing argument and even made misrepresentations to the Court.”

“Dr. Lindsey and Mr. Lee were put through a severe ordeal. Charges were filed against them as a result of a sloppy, incomplete and notably over-zealous investigation, an investigation that was so flawed that the Government’s lawyers tried to prevent inquiry into it. In some instances motives, statements and conduct were attributed to them that were wholly unfounded or were obtained unlawfully . . . [. . .] The financial costs of the investigation and trial were immense, but the emotional drubbing [Lindsey and Lee] absorbed was even worse. As for [Lindsey Manufacturing], the very survival of that small, once highly respected enterprise has been placed in jeopardy.”

The DOJ’s enforcement action against John O’Shea ended in January 2012 when Judge Lynn Hughes granted O’Shea’s motion for acquittal after the DOJ’s case, a case which Duross personally tried (see here).  Judge Hughes stated as follows.

“The problem here is that the principal witness against Mr. O’Shea … knows almost nothing.”

“The government should have been prepared before they brought the charges to the Grand Jury.  [...] You shouldn’t indict people on stuff you can’t prove.”

As FCPA Unit Chief, Duross was a public figure and one that publicly welcomed scrutiny and accountability.  This post provides the public with additional facts and information concerning FCPA enforcement during Duross’s tenure as FCPA Unit Chief so that readers can analyze for themselves Duross’s tenure, as well as more broadly, various policy issues relevant to DOJ FCPA enforcement.

In a recent interview, Duross stated as follows concerning his tenure as FCPA Unit Chief – “I think I had a great run.”

You can decide for yourself.