Archive for the ‘Industry Sweeps’ Category

Friday Leftovers

Friday, November 29th, 2013

Scrutiny alerts, corruption in China, quotable, and for the reading stack.  It’s all here in the Friday leftover version of the roundup.

Scrutiny Alerts

Caribbean News Now reports here as follows.

“A complaint has been filed with the Department of Justice (DOJ) in the United States under the Foreign Corrupt Practices Act (FCPA) in relation to a contract purporting to grant oil exploration rights over some eight million acres of Saint Lucia’s maritime territory.  The 46-page complaint, which Caribbean News Now has seen, names Saint Lucia’s prime minister, Dr Kenny Anthony, and RSM Production Company (RSM), a Texas company, along with its president Jack J. Grynberg. Caribbean News Now has also seen a written notification confirming receipt of the document by the DOJ.

[...]

Specifically, the complaint notes that, in or about February 2000, Anthony, as then minister of finance, planning and sustainable development, signed a contract with RSM that purported to grant the company an “Exploration License” in respect of territorial maritime resources belonging to Saint Lucia amounting to 8,726,263 acres.  However, under Saint Lucia’s Minerals Vesting Act, all minerals in, on or under any land in Saint Lucia are vested in and controlled by the Crown and only the governor general may grant a licence to prospect for and/or mine such minerals.  Further, although the contract provides that RSM shall pay a royalty to “the Government” (as required by section 5 of the Minerals Vesting Act), it goes on to state that the liability of RSM in this respect shall be discharged by paying such royalty to the minister and not the government.”

Reuters reports here as follows.

“The U.S. Justice Department is probing Morgan Stanley for its hiring practices in China as part of an industry-wide investigation by the government into whether banks’ employment of politically connected Chinese breached U.S. bribery laws, according to people familiar with the matter.  As part of the industry sweep, the U.S. Securities and Exchange Commission sent letters to Morgan Stanley and other banks, including Goldman Sachs and Citigroup, seeking information about their hiring practices, according to several people familiar with the matter.  The SEC has asked the financial services firms to provide information about their hiring of the relatives of government officials in China …”.

This is not a surprising development following the New York Times August story regarding JPMorgan (see here for the prior post).

Corruption in China

The Congressional-Executive Commission on China recently held a roundtable on “Corruption in China Today: Consequences for Governance, Human Rights, and Commercial Rule of Law.”  As stated on the Commission’s website:

“Corruption takes many forms in China, from corrupt officials at all levels using their public office for private gain and seizing land for development to corrupt state-owned enterprises gaming the system to their advantage. Corruption also continues to be among the root causes of rights abuses against Chinese citizens. Senior leaders acknowledge that corruption threatens the legitimacy of the Communist Party and contributes to citizen dissatisfaction, and President Xi Jinping has stated that fighting corruption is a high priority. But Chinese authorities continue to crack down on independent and citizen-led efforts to combat corruption. Panelists will discuss corruption among Chinese high-level officials and recent anti-corruption efforts, and explore corruption’s role in human rights violations. Panelists also will examine corruption linked to state-owned and other enterprises and explore the implications for commercial rule of law.”

Among the panelists were Professor Daniel Chow (Ohio State) (see here for his statement).  In 2012,  I was pleased to play a role, along with   Professor Chow and the staff of the Ohio State Law Journal, in organizing “The FCPA at Thirty-Five and Its Impact on Global Business,” a full-day symposium at The Ohio State University Moritz College of Law.  (See here).

Quotable

On his Corruption, Crime & Compliance site, Michael Volkov states:

“The idea of legal ‘marketing’ has been diluted in the last few years.  As businesses become smarter consumers of legal services, in-house counsel and Chief Compliance Officers are much better at deciphering legal mumbo jumbo.  Perhaps the best example of legal marketing as an oxymoron, was the roll-out of the UK Bribery Act.  Legal marketing was premised on one idea –fear and fear alone.  Client alert after client alert warned companies about the impending doom, the effective date of the UK Bribery Act.  Not to pat myself on the back (assuming my arm is long enough), but I wrote that the UK Bribery Act was a real non-event in the world anti-corruption compliance and that it was unlikely to have any real impact.  To this day, those words still ring true.  After writing the ‘truth’ about the UK Bribery Act, I received a call from the firm’s London partners and was chastised for undermining their entire ‘marketing’ program.  (In stark contrast, many clients wrote me and thanked me for my ‘honesty.’”

Spot-on.

Nearly three years ago, I wrote:

“The U.K. Bribery Act … has been the subject of much discussion and much over-hype in my opinion.  It has been called the FCPA ‘on steroids’ (here) and if one subscribes to the industry marketing material, you might be left with the impression that the end of the world is near.  [...]   In sum, I don’t see how companies already subject to the FCPA and already thinking about compliance in a pro-active manner, have much to worry about when it comes to the U.K. Bribery Act because of the adequate procedures defense.  I will be surprised if U.K. enforcement of the Bribery Act reaches the level of U.S. enforcement of the FCPA …”.

See here for my post the day the U.K. Bribery Act went live in July 2011.

See here for my post “Marketing The FCPA … The FCPA Risks Of … Well, Just About Everything.”

For the Reading Stack

The most recent issue of the always-informative FCPA Update from Debevoise & Plimpton is here.  Among other things, the issue summarizes recent remarks of DOJ and SEC officials regarding the FCPA and FCPA enforcement.

*****

A good weekend to all.

Friday Roundup

Friday, September 20th, 2013

A roundup of comments made yesterday by Charles Duross (DOJ FCPA Unit Chief) and Kara Brockmeyer (SEC FCPA Unit Chief) at the ABA’s National Institute on the Foreign Corrupt Practices Act in Washington, D.C.

Resources

Duross stated that the DOJ has “20 full-time prosecutors” focused on the FCPA, an “embarrassment of riches” in terms of resources compared to the past he said.  He indicated that the DOJ’s FCPA unit also makes frequent use of Assistant U.S. Attorneys, particularly in litigated cases.  Duross countered the notion that his unit sits “back on our hands” waiting for the next case to come in.  He stated that DOJ FCPA attorneys are “actively encouraged to follow-up on leads” and cited the BizJet enforcement action as an example where the case involved a voluntary disclosure, individuals cooperating, and charging individuals under seal (see here for a prior post).

According to Brockmeyer, the SEC FCPA Unit “has about three dozen” staff dedicated full-time to the FCPA.  This number is in addition to other enforcement attorneys in SEC offices outside of DC who may also work on FCPA cases.  Her best guess is that approximately 75% of SEC FCPA cases are handled in Washington, D.C. with the rest of the cases handled by regional offices (such as Fort Worth, Salt Lake City, etc.) with coordination from D.C.

Law Enforcement Partners

According to Duross, domestic law enforcement partners include U.S. Attorneys Offices and the FBI.  He also mentioned the IRS as a partner in FCPA cases and indicated that the Haiti Teleco case was an “IRS case from start to finish” and thus it was not surprising that the prosecutions in that case included money laundering charges.

Challenges

Despite an “embarrassment of riches” in terms of resources compared to the past, Duross indicated that the FCPA Unit, like other DOJ offices, “could always use more resources.”  He cited the following challenges in bringing FCPA cases:  foreign evidence collection, foreign laws concerning data privacy, foreign blocking statutes, and multi-jurisdictional issues.  As to the later, Duross stated that with increasing frequency more than one sovereign is involved in bribery and corruption investigations and that this is a “fact of life.”  He indicated that the U.S. has encouraged foreign jurisdictions to increase their involvement in this area and that since “we invited them to the party” “we must now deal with it.”

Brockmeyer cited the same general challenges as Duross in terms of enforcing the FCPA.

Case Origins

Brockmeyer indicated that the SEC FCPA Unit tracks its inventory of cases and she shared the following.  30% – 40% of cases come from corporate voluntary disclosures.  According to Brockmeyer, the number of voluntary disclosures has been steady compared to prior years, but as a percentage of the overall enforcement pie it is shrinking because the overall enforcement pie is growing.   Other sources Brockmeyer identified included whistleblower tips (including more sophisticated and detailed tips), enforcement attorneys reading the news, that a “pretty significant number of investigations” began as “spin-offs” of other investigations, and that “increasing number of referrals” are from foreign law enforcement authorities.”

Duross said that the DOJ FCPA Unit does not formally track its inventory like the SEC but his “general sense” was that voluntary disclosures are less than 50% of the inventory of cases.  According to Duross, voluntary disclosure as a source of FCPA cases “is less than people tend to think it is.”  According to Duross, the number of voluntary disclosures has remained steady, but most “get declined and nobody ever hears about them.”

Duross said that over the past several years, FBI agents and DOJ prosecutors (outside of the FCPA unit) have become more sophisticated about the FCPA and that more cases are coming to the FCPA Unit’s attention from others in the field who may spot FCPA issues in their other cases.  Brockmeyer agreed with this comment and stated that SEC enforcement attorneys handling typical accounting fraud cases are also now looking for indicia of FCPA issues.

Related to the above issue, both Brockmeyer and Duross talked about so-called “industry sweeps” (see here for the prior post).

According to Brockmeyer, an industry sweep is not a situation where an existing case may suggest a wider problem in an industry and lead to investigations of others.  Nevertheless, she did indicate that “very occasionally” the SEC does engage in industry sweeps, but “not as often as people think,” where the SEC, in its role as a regulator, sends out “high-level requests for information” to certain industries in which the SEC thinks there are FCPA risk factors.  As to the predication leading to such an inquiry, Brockmeyer said that such a sweep can result even if there is no specific tip as to the industry.  Nevertheless she stated that the SEC is not going to send out information letters “willy-nilly” because the SEC does recognize that when it sends out letters there are costs to the company’s associated with the request.

Duross agreed that following the evidence in one particular case to perhaps another company is not an “industry sweep,” it is simply following the evidence.

Future

According to Duross, the future of the DOJ FCPA’s unit is “bright,” there is a “tremendous pipeline of cases,” and that his unit continues “to do proactive cases” using all of the resources in its toolkit (i.e. wiretaps, etc.).

According to Brockmeyer, the SEC has become more focused on how compliance programs and internal controls are “intertwined.”  She indicated that companies have generally become more sophisticated when it comes to compliance programs, but that much work still needs to be done in monitoring compliance programs and how compliance can impact a company’s overall internal financial controls.

Other Issues

As to the “where else” question (see here for the prior post), Duross suggested that often company lawyers are seeking to over do it through a global search of operations for FCPA issues.  He discussed a case in which a company and its professional advisors came to a meeting with a global search plan and he said “no, no, no, that is not what I want.”  He indicated that the lawyers and other professional advisors in the room “looked unhappy,” but that the general counsel of the company was happy.  (For more on this dynamic, see this prior post).

As to a compliance defense, as I highlight in my article “Revisiting an FCPA Compliance Defense,” the DOJ already recognizes in various ways a de facto compliance defense to the FCPA.  Further support for this proposition is found in the following comment from Duross.  He indicated that a large company (he did not provide the company’s name – other than it would be recognizable to the audience) was a “serial reporter” of FCPA issues to the DOJ’s FCPA Unit.  Duross said that this company has a “good compliance program and system” in place and does “robust” internal investigations when issues arise.  Duross said that he and his unit have a “relationship of trust” with this company and its counsel and that “frankly, most of the time” the issue is “not a particularly large issue.”  According to Duross this company remediates the issue and then it “goes on its way.”

As to the media, Duross indicated that media reports (domestic and foreign) have led the DOJ to open up FCPA investigations.  He stated “what happens in China, doesn’t stay in China.”  Duross stated that while the media can be critical of the DOJ’s FCPA unit and its efforts, that is not necessarily a “bad thing” because “criticism of us can be useful and cause us to look inward.”  Duross indicated that “we should be held accountable for what we do – good and bad.”  Duross shared that one of his biggest surprises upon becoming FCPA Unit chief is realizing how the unit “operates under a microscope” which highlights the need for his unit “to have its A game” at all times.  Duross stated that media reporting of bribery and corruption issues can also spread a message of general deterrence.

Scrutiny Alerts

A roundup of the latest scrutiny alerts.  As Christopher Matthews at the Wall Street Journal’s Risk & Compliance Journal stated ”if you’re a corruption probe enthusiast, the hits just keep coming out of China these days.”

Danone

As noted in this article, Dumex Baby Food Co., a subsidiary of France’s Danone SA, is “launching a probe of its infant-formula marketing after China’s state broadcaster alleged the formula maker pays hospital staff to use its products and influence sales.”  Danone has ADRs that are traded in the U.S.

Novortis

Novortis, already on the scrutiny list see here, was the focus of recent media articles (see here) suggesting that “it would investigate allegations published in a Chinese newspaper that its eye care unit Alcon bribed doctors.”  Novortis has ADRs that are traded in the U.S.

Gabriel Resources

Gabriel Resources, a Canada based company with shares traded “over the counter” in the U.S., was the focus of this article concerning allegations of bribery in Romania in connection with a proposed gold mine.

*****

A good weekend to all.

Friday Roundup

Friday, August 30th, 2013

Scrutiny updates and alerts, a double standard, upcoming events, and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Updates and Alerts

JPMorgan

In this initial post concerning JPMorgan’sFCPA scrutiny in China I noted that hiring the son or daughter of an alleged “foreign official” is not inherently illegal, absent certain red flags.

In this recent article, Bloomberg reports on the existence of a potential red flag.  The article states:

“A probe of JPMorgan’s hiring practices in China has uncovered red flags across Asia, including an internal spreadsheet that linked appointments to specific deals pursued by the bank, people with knowledge of the matter said. [...] The bank has opened an internal investigation that has flagged more than 200 hires for review, said two people with knowledge of the examination, results of which JPMorgan is sharing with regulators. The scrutiny began in Hong Kong and has now expanded to countries across Asia, looking at interns as well as full-time workers, two people said. The employees include influential politicians’ family members who worked in JPMorgan’s investment bank, as well as relatives of asset-management clients, the people said. [...] The spreadsheet, which links some hiring decisions to specific transactions pursued by the bank, may be viewed by regulators as evidence that JPMorgan added people in exchange for business, according to one person with knowledge of the review.”

The article also notes that the DOJ has joined the SEC in the probe.

In this article, the New York Times reports:

“The [JPMorgan hiring] program was originally called “Sons and Daughters.” And although it was supposed to protect JPMorgan Chase’s business dealings in China, the program went so off track that it is now the focus of a federal bribery investigation in the United States, interviews and a confidential government document show.  JPMorgan started the program in 2006 as the friends and family of China’s ruling elite were clamoring for jobs at the bank, according to the interviews with former bank employees and financial executives in China and the United States. The program’s existence, which has not been previously reported, suggests that the bank’s hiring of such  employees was widespread.  Saying they wanted to weed out nepotism and avoid bribery charges in the United States, JPMorgan employees in Asia started the program to hire well-connected candidates on a separate track from ordinary applicants, the employees and executives said. Without the program and its heightened scrutiny of the candidates, the employees argued, JPMorgan might improperly hire the children of Chinese officials to win business.  But in the months and years that followed, the two-tiered process that could have prevented questionable hiring practices instead fostered them, according to the interviews as well as the confidential government document. Applicants from prominent Chinese families, interviews show, often faced few job interviews and relaxed standards. While many candidates met or exceeded the bank’s requirements, some had subpar academic records and lacked relevant expertise.”

According to this Wall Street Journal article, there is now a full-fledged industry sweep of hiring practices. The article states:

“U.S. authorities are questioning numerous banks and hedge funds on their international hiring practices for interns and other employees, according to people with knowledge of the situation. The Justice Department and Securities and Exchange Commission are seeking information to determine if there have been any violations of the U.S. Foreign Corrupt Practices Act …”.

Vision-China Media

JPMorgan’s scrutiny is focused on the alleged hiring of relatives of alleged Chinese “foreign officials” into non-executive positions.

That’s one thing.

It is quite another when the CEO of an issuer under the FCPA “is the daughter-in-law of a senior figure in the Chinese Communist Party.”

As detailed in this Wall Street Journal article, this is the situation at Vision-China Media, a company with shares traded on NASDAQ.  As noted in the article, “how many Chinese companies listed in the U.S. enjoy political ties is unknown.  That makes it all but impossible to quantify whether and how such relationships might dictate a business’s profitability or stock-market performance.”

PetroChina

Various outlets (see here for the Wall Street Journal article) have reported that three senior executives of PetroChina ”are under investigation by authorities for ‘severe disciplinary violations’ and have resigned.”  The article notes that “while neither PetroChina nor its parent [company China National Petroleum Corp.] have released specifics of the probes, the phrase ‘severe disciplinary violations’ is typically used by Chinese officials when investigating cases of corruption.”

The interesting thing about this of course is that PetroChina executives are – in the eyes of the enforcement agencies – “foreign officials” under the FCPA while at the same time being executives of an issuer subject to the FCPA given that PetroChina’s ADRs trade on the New York Stock Exchange.

EADS / ThyssenKrupp

Reuters reports here:

“A joint venture of EADS and ThyssenKrupp and offices of Rheinmetall were raided this week in Germany on suspicion of paying bribes related to an order of submarine equipment from Greece, a spokesman for the state prosecutor in Bremen said on Saturday. The Atlas Elektronik joint venture and Rheinmetall Defence Electronics were searched as they are suspected of paying 18 million euros ($24 million) in bribes and of avoiding taxes, the prosecutor’s spokesman said.  [...]  EADS and ThyssenKrupp both confirmed the raid on their unit, which they bought from BAE Systems. [...]  ThyssenKrupp said it had discovered the matter itself “as part of a compliance investigation” and notified the authorities in 2010 about it.”

Although neither EADS or ThyssenKrupp have shares traded on a U.S. exchange, the shares of both companies trade “over-the-counter” in the U.S.  In the FCPA Guidance, the DOJ and SEC state – “any company with a class of securities quoted in the over-the-counter market in the United States and required to file periodic reports with SEC, is an issuer.”  A certain other FCPA enforcement action (see here) began with a raid on offices by German law enforcement authorities.

In other raid news.

BSGR-Related

Reuters reports (here):

“Swiss police on Thursday searched the Geneva offices of Onyx Financial Advisors,  a company providing management services for BSGR, the mining arm of Israeli  billionaire Beny Steinmetz’s business empire.”

As highlighted in this previous post, French citizen Frederic Cillins was criminally charged by the DOJ for allegedly attempting to obstruct an ongoing FCPA investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea. Cillins has been linked to BSGR.

Double Standard?

A back to school edition of the double standard?

FCPA enforcement actions have included allegations of the following things of value being given to alleged foreign officials:  a bottle of wine (see here), a watch (see here), a camera (see here), kitchen appliances and business suits (see here), television sets, laptops and appliances (see here), and tea sets and office furniture (see here).  Likewise, the December 2012 enforcement action (see here for the prior post) against Eli Lilly included allegations (no joke) that meals, visits to bath houses, spa treatments, and cigarettes were provided to Chinese physicians.

Given these enforcement agency allegations, my radar went off when reading this recent Wall Street Journal article about U.S. school supplies.  According to the article, a popular website “that posts more than 300,000 back-to-school lists from around the country and is sponsored” by major corporate brands offers teachers (the vast majority of which in this country are public employees) and schools freebies and other goodies if the teachers put company product on the list.  As the article notes “getting on teacher lists is crucial, because parents tend to buy the suggested brands even though they aren’t mandatory.”

Upcoming Events

The ABA’s Sixth Annual National Institute on the Foreign Corrupt Practices Act will take place in Washington, D.C. on Sept. 18-20th (see here for program details).  I am pleased to be participating.  The following panel is particularly delicious.

Existing Limitations on the Scope of the FCPA: Is Anyone Paying Attention?

Most reform arguments have focused on narrowing the scope of the statute or providing new defenses. A better question, however, might be whether the statute’s existing limitations and defenses are being properly articulated and applied in enforcement actions. It is arguable that in several recent enforcement actions, the government’s factual allegations do not satisfy the FCPA’s elements or hide the ball on critical elements, deliberately blur different provisions of the statute, or seek remedies inconsistent with the letter and goals of the statute. Given that only two corporations have taken the government to trial on FCPA cases and individual cases do not always create opportunities to resolve these issues, the question is posed: Who is policing the police in FCPA matters?

In sum, that is the thesis of my 2010 article “The Facade of FCPA Enforcement.”

Securities Docket will be hosting Securities Enforcement Forum 2013 in Washington, D.C. on October 9th (see here for program details).

Reading Stack

The latest volume of the FCPA Update from Debevoise & Plimpton.

The latest Anti-Corruption Digest from Dorsey & Whitney.

*****

A good long weekend to all.

Unsealed Documents In Enforcement Acton Against Former BizJet Executives Reveal A Trove Of Information

Tuesday, April 9th, 2013

Yesterday’s post (here) summarized the criminal indictments against former BizJet executives Bernd Kowalewski and Jald Jensen.  Today’s post discusses the related criminal informations, based on the same core set of conduct, against former BizJet executives Peter DuBois (former Vice President of Sales & Marketing) and Neal Uhl (former Controller, Vice President of Finance).  As noted in the prior post, DuBois and Uhl agreed to plead guilty and were sentenced last week.

Today’s post also highlights documents recently unsealed in the DuBois and Uhl action which reveal a trove of information of interest to anyone curious about the inner workings of an FCPA enforcement action and connecting the dots to other FCPA enforcement actions.

DuBois was charged via a criminal information (here) with one count of conspiracy to violate the FCPA’s anti-bribery provisions and one substantive FCPA anti-bribery violation.  The conduct at issue is the same core set of conduct at issue in 2012 BizJet corporation action, as well as the criminal indictments against Kowalewski and Jensen.  That is a scheme to “obtain aircraft maintenance, repair and overhaul (“MRO”) service contracts and other business [for BizJet] from foreign government customers, including the Mexican Federal Police, the Mexican President’s Fleet, Sinaloa and the Panama Aviation Authority, by paying bribes to government officials employed by the foreign government customers.”

The DuBois information was filed on December 27, 2011 and the related motion by the DOJ to seal the docket (since unsealed) reveals the following.

As part of his plea agreement, DuBois worked in an undercover capacity for the government.  The motion specifically states as follows.  “As part of his work in an undercover capacity, Mr. DuBois has recorded conversations with former BizJet executives and other subjects of the government’s ongoing investigation.”  Later, the motion to seal states that “public identification of Mr. DuBois as a defendant who likely is cooperating with the government may jeopardize the undercover aspect of the government’s investigation.”

In the plea agreement, DuBois agreed to pay a forfeiture amount of $98,950 “representing proceeds derived by defendant in connection with the conspiracy” and to pay an additional $61,000 as the amount DuBois “received … as a result of his participation in the conspiracy.”

The DOJ’s memo in support of a downward departure for sentencing states as follows.

DuBois “assisted in the investigation from the outset and cooperated fully with the government throughout its investigation.  DuBois submitted to multiple interviews by the government and has assisted in every way that the government has asked.  DuBois told the truth to the government from the outset and continued to do so up until this very day.  DuBois’ cooperation not only assisted the government in connection with its investigation into BizJet, but also led to the investigation of another maintenance, repair, and overhaul company engaged in a similar scheme to pay bribes to government officials overseas.”

This last portion of the DOJ’s memo makes clear that the 2012 FCPA enforcement action against NORDAM Group (see here for the prior post) had its origins in the BizJet enforcement action.  Both BizJet and NORDAM Group are Tulsa, OK based aircraft maintenance companies.  The link and information about DuBois’ undercover role also raises the issue of whether individual prosecutions related to the NORDAM Group corporate enforcement action are also forthcoming.

As noted in the DOJ release, DuBois was sentenced to 60 months probation and eight months home detention.

Uhl was charged via a criminal information (here - filed on December 28, 2011) with one count of conspiracy to violate the FCPA’s anti-bribery provisions.  The conduct at issue is the same core set of conduct as indicated above, that is a scheme to “obtain aircraft maintenance, repair and overhaul (“MRO”) service contracts and other business [for BizJet] from foreign government customers, including the Mexican Federal Police, the Mexican President’s Fleet, Sinaloa and the Panama Aviation Authority, by paying bribes to government officials employed by the foreign government customers.”  See here for the Uhl plea agreement.

In the Uhl matter, the DOJ’s motion for a downward departure states as follows.

 Uhl ”agreed to a voluntary proffer session and, when confronted by the government, admitted to the illegal conduct.  Throughout the course of the investigation, Uhl was cooperative and provided truthful information that substantially assisted the government in confronting other co-conspirators and witnesses.  Uhl offered to assist in any way that he could.”

As noted in the DOJ release, Uhl was sentenced to 60 months probation, eight months home detention, and was ordered to pay a $10,000 fine.

The motions to seal in both the DuBois and Uhl actions further state as follows. ”BizJet’s corrupt payments were not limited to Mexico.  BizJet employees bribed key decision makers in a number of countries, including Panama, Brazil, and Chile.”  This is notable in that the 2012 BizJet corporate enforcement action made no mention of conduct in Brazil or Chile.  This demonstrates that resolution documents in a corporate FCPA enforcement action are the result of negotiations and that final documents rarely offer the complete picture of the conduct that allegedly occurred.

Both the DuBois and Uhl plea agreements further indicate that BizJet’s bribery scheme was not just in foreign countries.  Both plea agreements state that the customers or potential customers BizJet bribed “included customers both in the United States and abroad.

Friday Roundup

Friday, March 1st, 2013

Hits and misses, does it really need to cost this much, the Wal-Mart effect, survey says, Senate hearing quotable, while they’re at it, checking in on Hollywood and Goldman too, spot on, and some refreshing words.  It’s all here in the Friday roundup.

Hits and Misses

I read pretty much everything churned out by FCPA Inc., including the flood of recent client alerts concerning the Straub and Steffen decisions.  (See here and here for previous posts summarizing the decisions).  Many of these alerts are good and informative (for instance, see here from Debevoise & Plimpton).  However, some of these alerts are just plain wrong.

The headline of one alert was “District Court Decision Limits the Extraterritorial Reach of the FCPA.”  The headline of another alert was “Court Sets Limits on Extraterritorial FCPA Reach; Dismisses Case Against Foreign Siemens Executive.”

Neither the Straub nor Steffen decisions concerned extraterritorial application of the FCPA.  In fact, there is no extraterritorial reach of the FCPA as to foreign actors.  Yes, the FCPA was amended in 1998 to provide for alternative “nationality” jurisdiction (i.e. extraterritorial jurisdiction) over U.S. persons (both legal and natural), however, 78dd-1(g) and 78dd-2(i) are strictly limited to U.S. persons.

Rather, the Straub decision concerned the scope of territorial jurisdiction under 78dd-1(a), specifically the meaning of “use of the mails or any means or instrumentality of interstate commerce …”.

The Steffen decision did not even reach this issue as the judge found the initial threshold issue of personal jurisdiction lacking.

Wal-Mart’s FCPA Scrutiny Expenses Mount

During the media feeding frenzy after the New York Times April 2012 Wal-Mart article (see here for the prior post), I had the pleasure to appear on Eliot Spitzer’s Viewpoint program on Current TV.  At the end of the segment, after the substantive issues were discussed, Spitzer offered that he has several contacts in the FCPA bar and that, regardless of the substantive issues involved in Wal-Mart’s FCPA scrutiny or the ultimate outcome, lots of lawyers were poised to make lots of money.

Spitzer of course was right.

Wal-Mart recently stated (here) that it has incurred “$157 million of professional fees and expenses related to the ongoing” FCPA matter during its last fiscal year and that it expect to incur an additional ”$40 to $45 million for the first quarter of fiscal 2014.”  During Wal-Mart’s recent earnings conference call, a company executive stated as follows.  “On FCPA, we continue  to work closely with anticorruption compliance experts to review and to assess  our programs and help us implement concrete steps for each particular market. In  the various markets, these experts have spent tens of thousands of hours on  anti-corruption support and training. We remain committed to follow all laws and  regulations in the markets where we operate.”

The $157 million Wal-Mart spent in the last FY equates to approximately $604,000 in professional fees and expenses per working day.

I observed in this March 2011 articles as follows.

“This new era of enforcement has resulted in wasteful overcompliance, companies viewing every foreign business partner with irrational suspicion, and companies deploying teams of lawyers and specialists around the world spending millions to uncover every potential questionable or unethical $100 corporate payment.  This new era of enforcement has proven lucrative to many segments of the legal, accounting, and compliance industries and the status quo would, from their perspective, seem desirable.”

The question again ought to be asked – does it really need to cost this much or has FCPA scrutiny turned into a boondoggle for many involved?  For more on this issue, see my article “Big, Bold, and Bizarre: The Foreign Corrupt Practices Act Enters a New Era.”

While minor compared to Wal-Mart’s FCPA professional fees and expenses, Beam Inc. recently disclosed here that in 2012 the company spent approximately $4.2 million for “legal, forensic accounting, and other fees related to our internal investigation into Foreign Corrupt Practices Act compliance in our India operations.”

Wal-Mart Effect

Switching gears, but sticking with Wal-Mart related issues, this May 2012 post highlighted a potential “Wal-Mart effect.”  In short, the point was that Wal-Mart is clearly not the only company subject to the FCPA that needs licenses, permits and the like when doing business in Mexico.  I predicted that Wal-Mart’s potential FCPA exposure would cause sleepless nights for many company executives doing business in Mexico and the general region.  The post then discussed statements made during a Kimco Realty Corporation earnings call in May 2012 concerning its properties in Mexico.

Earlier this week, Kimco Realty stated in an SEC filing as follows.

“On January 28, 2013, the Company received a subpoena from the Enforcement Division of the SEC in connection with an investigation, In the Matter of Wal-Mart Stores, Inc. (FW-3678), that the SEC Staff is currently conducting with respect to possible violations of the Foreign Corrupt Practices Act. The Company is responding to the subpoena and intends to cooperate fully with the SEC in this matter. The Company has also been notified that the U.S. Department of Justice (“DOJ”) is conducting a parallel investigation, and the Company expects that it will cooperate with the DOJ investigation. At this point, we are unable to predict the duration, scope or result of the SEC or DOJ investigation.”

Survey Says

The annual Litigation Trends and Survey report by Fulbright & Jaworski is always a good read.  This year’s report (see here to download) surveyed 392 “senior corporate counsel” (275 in the U.S., 100 in the U.K. and 17 in other jurisdictions) on a wide-range of litigation and related matters.  The following were FCPA or related survey results.

“Companies that have retained outside counsel to assist with a corruption or bribery investigation in the past 12 months (including, but not limited to, FCPA in U.S. and equivalent in U.K.”

  • 9% of U.S. respondents answered “yes”; 18% of U.K. respondents answered “yes.”  As noted, “U.S. figures [2010-2012] have remained relatively stable.”

“Companies that have engaged in due diligence for bribery or corruption (including FCPA matters) relating to a merger, acquisition or other business transactions with a foreign country in the past 12 months.”

  • 18% of U.S. respondents answered “yes”; 26% of U.K. respondents answered “yes.”  As noted, “more companies this year have engaged outside counsel in due diligence for corruption or bribery investigations due to business transactions with entities based in a foreign country.”

As to the due diligence figures, in the abstract these figures do not mean much, unless one knows how many responding companies actually engaged in foreign acquisitions or other business combinations.

The last survey result in the report perhaps speaks best to the over-hyped nature of the U.K. Bribery Act.

“Has your company changed the way it operates due to the emergence of anti-bribery legislation outside the U.S., such as U.K. Bribery Act 2010?”

  • 78% of U.S. respondents answered “no” and 63% of U.K. respondents answered “no.”

Senate Hearing Quotable

Senator Elizabeth Warren (D-MA) had some quotable moments (here) during a recent Senate Banking hearing.  The hearing concerned financial regulation, not the FCPA.  Nevertheless, some of the issues have some overlap to FCPA enforcement - including how settlement policies in regulatory enforcement actions create conditions in which there is “not much incentive to follow the law” and how “too big to fail” perhaps means “too big for trial.”

Disclosure Issues

This recent Wall Street Journal CFO Journal post notes as follows.

“Securities and Exchange Commissioner Troy Paredes called for a complete review of the information companies disclose to investors, amid concerns that investors suffer from “disclosure overload” that could hamper their ability to gauge the importance of the data.  “What we need is a top-to-bottom review of our disclosure regime,” Mr. Paredes said at the Practising Law Institute’s annual “SEC Speaks” conference in Washington, D.C. on Friday.”

While they’re at it, the SEC should take a look at its absurd position that all payments in violation of the FCPA, no matter how small the payment and no matter how large the company, are “qualitatively material.”  For instance, as noted in this previous post concerning comments made by enforcement officials at a conference I chaired, an SEC official suggested that the concept of materiality itself has two “sub-concepts”: (i) quantitative materiality (something that impacts a company’s financial statements) and (ii) qualitative materiality.  While conceding that very few improper payments are “quantitatively material” and while recognizing that “qualitative materiality” is a “complicated gray area,” the SEC officials nevertheless said that all bribes can be considered qualitatively material because they may “automatically trigger a books and records violation.”  For formal SEC guidance on this issue, see here.

Checking In

Hollywood Industry Sweep

From the New York Times regarding the on-going scrutiny of Hollywood movie studios in China.

“Last March, word reached several studios of a confidential inquiry by the Securities and Exchange Commissionand the Justice Department into possible violations of the Foreign Corrupt Practices Act by people or companies involved in the China film trade. Since then, executives and their advisers have been waiting for some public sign of the scope or focus of the government’s interest.  So far, there has been none. But official silence has not kept the investigation from casting a chill over dealings between Hollywood and China.”

Goldman

From the Wall Street Journal regarding the on-going scrutiny of Goldman’s dealings with Libya’s sovereign wealth fund.

“Libya’s sovereign-wealth fund said it is cooperating with the U.S. Securities and Exchange Commission in its ongoing investigation into Goldman Sachs Group Inc. over the securities firm’s dealings with the fund when Col. Moammar Gadhafi was in power.  [...]  People close to the Libyan investment fund said officials have authorized some former fund executives to give testimony to the SEC. The officials also agreed to provide documents and other data to U.S. regulators about the fund’s ties to Goldman, these people said.”

Spot On

Two recent Q&A’s on Law360 caught my eye.  The question was “what is an important issue or case relevant to your practice area and why.”

Neil Eggleston (Kirkland & Ellis) stated as follows.

“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.”

For more on these issues, see my article “The Facade of FCPA Enforcement” and this previous guest post on ”prosecutorial common law.”

Richard Marmaro (Skadden) answered the same question as follows.

“An issue of importance in the white collar area is the issue of prosecutorial misconduct, and appropriate remedies for prosecutors who intentionally conceal evidence, intimidate witnesses, or otherwise compromise or impact a defendant’s right to a fair trial. I have seen firsthand in several of my cases shocking misconduct, which has gone undisciplined by the U.S. Department of Justice. I have been fortunate enough to expose this misconduct, and have had cases dismissed as a result. Indeed, over the last decade, there have been several dismissals nationwide at trial or reversals on appeal based on willful misconduct by government lawyers. Despite these judicial findings, however, the Justice Department’s record of disciplining misbehaving prosecutors is shockingly inadequate. I don’t know of any prosecutor that has been terminated based on a judicial finding of intentional misconduct. In addition, I believe that only two prosecutors have received any discipline at all (both in the Stevens case). In my view, the failure to sanction prosecutors who have been found by judges to have committed misconduct sends the wrong signal to defendants, the public and the vast majority of prosecutors who do their jobs honestly every day.”

For more, see this previous post titled ”Should There Be A Difference?”

Refreshing Words

Every now and then it is refreshing to read some common sense words about FCPA compliance and risk assessment.  Such as this recent post from the Trace blog.

“Remember, perfection is neither possible nor necessary.  When devising a compliance plan, it’s important to remind oneself of the big picture.  A company need not break the bank to have a compliance program that follows accepted best practices.  As discussed below, there are various ways that good compliance can be affordable.  And companies are not responsible for developing full-proof compliance programs; they only need to develop programs proportionate to the risk they face, with the understanding that no program will completely eliminate all risk from the equation.  Unlike in other areas of business, when it comes to compliance, being in the middle of the pack is okay.”

*****

A good weekend to all.