Internal Investigation Issues

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Wal-Mart’s FCPA Scrutiny Grows

Saturday, April 21st, 2012

In December 2011, Wal-Mart made the following generic disclosure in a 10-K filing.

“During fiscal 2012, the Company began conducting a voluntary internal review of its policies, procedures and internal controls pertaining to its global anti-corruption compliance program. As a result of information obtained during that review and from other sources, the Company has begun an internal investigation into whether certain matters, including permitting, licensing and inspections, were in compliance with the U.S. Foreign Corrupt Practices Act. The Company has engaged outside counsel and other advisors to assist in the review of these matters and has implemented, and is continuing to implement, appropriate remedial measures. The Company has voluntarily disclosed its internal investigation to the U.S. Department of Justice and the Securities and Exchange Commission. We cannot reasonably estimate the potential liability, if any, related to these matters. However, based on the facts currently known, we do not believe that these matters will have a material adverse effect on our business, financial condition, results of operations or cash flows.”

Today, the New York Times ran a major story (here) titled “Vast Mexico Bribery Case Hushed Up by Wal-Mart After Top-Level Struggle” that relates to Wal-Mart’s prior disclosure. Was Wal-Mart’s disclosure to the DOJ, as stated in its December 10-K filing “voluntary”? According to the Times article, “in December, after learning of The Times’s reporting in Mexico, Wal-Mart informed the Justice Department that it had begun an internal investigation into possible violations of the Foreign Corrupt Practices Act.” (emphasis added).

The conduct at issue in the Times article relates to Wal-Mart’s largest foreign subsidiary, Wal-Mart de Mexico (“Wal-Mart Mexico), and suggests that Wal-Mart Mexico “orchestrated a campaign of bribery to win market dominance” and that the entity “paid bribes to obtain permits in virtually every corner” of Mexico.

According to the article, in 2005, “Wal-Mart dispatched investigators to Mexico City, and within days they unearthed evidence of widespread bribery. They found a paper trail of hundreds of suspect payments totaling more than $24 million. They also found documents showing that Wal-Mart de Mexico’s top executives not only knew about the payments, but had taken steps to conceal them from Wal-Mart’s headquarters in Bentonville, Ark.” According to the Times, Wal-Mart’s lead investigator, a former FBI agent, “recommended that Wal-Mart expand the investigation” but its own examination found that ”Wal-Mart’s leaders shut it down.” The article states that “in one meeting where the bribery case was discussed, H. Lee Scott Jr., then Wal-Mart’s chief executive, rebuked internal investigators for being overly aggressive.”

The Times examination included more than 15 hours of interviews with Sergio Cicero Zapata a former executive who resigned from Wal-Mart Mexico in 2004 after nearly a decade in the company’s real estate department. The article states as follows. “In the interviews, Mr. Cicero recounted how he had helped organize years of payoffs. He described personally dispatching two trusted outside lawyers to deliver envelopes of cash to government officials. They targeted mayors and city council members, obscure urban planners, low-level bureaucrats who issued permits — anyone with the power to thwart Wal-Mart’s growth. The bribes, he said, bought zoning approvals, reductions in environmental impact fees and the allegiance of neighborhood leaders.”

Elsewhere, the Times article states as follows. “The idea, [Cicero] said, was to build hundreds of new stores so fast that competitors would not have time to react. Bribes, he explained, accelerated growth. They got zoning maps changed. They made environmental objections vanish. Permits that typically took months to process magically materialized in days. ‘What we were buying was time,’ he said. ” The article states that Cicero’s “allegations were all the more startling because he implicated himself” and ”helped funnel bribes through trusted fixers, known as ‘gestores.’”

The times article contains several internal documents including Willkie Farr & Gallagher’s 2005 ”investigative work plan” that called for tracing all payments to anyone who helped Wal-Mart Mexico obtain permits for the previous five years. The Times article states as follows. “In short, Willkie Farr recommended the kind of independent, spare-no-expense investigation major corporations routinely undertake when confronted with allegations of serious wrongdoing by top executives. Wal-Mart’s leaders rejected this approach. Instead, records show, they decided Wal-Mart’s lawyers would supervise a far more limited ‘preliminary inquiry’ by in-house investigators.”

According to the Times article, in 2006, Wal-Mart again considered a full investigation of the conduct in Mexico, but that in the end, the company largely delegated responsibility for the investigation to Wal-Mart Mexico. The Times article quotes a person with knowledge of the thinking of Wal-Mart executives as follows. “It’s a Mexican issue; it’s better to let it be a Mexican response.”

The Times article contains a detailed statement by Wal-Mart. Among other things, the Wal-Mart statement notes that “many of the alleged activities in the New York Times article are more than six years old” and that “in a large global enterprise such as Walmart, sometimes issues arise despite our best efforts and intentions.” The statement continues as follows. ”When they do, we take them seriously and act quickly to understand what happened. We take action and work to implement changes so the issue doesn’t happen again. That’s what we’re doing today.”

See here for Wal-Mart’s video response to the New York Times article.

*****

The New York Times article paints a troubling picture for Wal-Mart that will likely occupy the company for years to come. In addition to the Mexico conduct, the DOJ and SEC will surely be interested in the response (or lack thereof) by company executives in Arkansas as well as the results of Wal-Mart’s worldwide review of its operations.

The DOJ and SEC frequently bring FCPA enforcement actions premised on payments to obtain foreign licenses, permits and the like. For instance see here (and embedded posts therein) for the numerous Panalpina related enforcement actions in 2010. See here at pages 972-975 for a listing of such cases 2007-2009.

This despite the following relevant history.

The FCPA’s original definition of “foreign official” was as follows. “… any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or any person acting in an official capacity for or on behalf of such government or department, agency or instrumentality. Such terms do not include any employee of a foreign government or any department, agency, or instrumentality thereof whose duties are essentially ministerial or clerical.”

This last sentence was the FCPA’s original (albeit indirect) facilitating payment or grease exception. The relevant House Report states in pertinent part as follows: “… a gratuity paid to a customs official to speed the processing of a customs document would not be reached by this bill. Nor would it reach payments made to secure permits, licenses, or the expeditious performance of similar duties of an essentially ministerial or clerical nature which must be performed in any event.”

When Congress amended the FCPA in 1988 it, among other things, amended the definition of foreign official by removing this indirect facilitating payment exception from the “foreign official” definition by creating a stand-alone facilitating payment exception currently found in the statute.

The relevant House Report indicates that Congress did not seek to disturb Congress’s original intent. “The policy adopted by Congress in 1977 remains valid, in terms of both U.S. law enforcement and foreign relations considerations. Any prohibition under U.S. law against this type of petty corruption would be exceedingly difficult to enforce, not only by U.S. prosecutors but by company officials themselves. Thus while such payments should not be condoned, they may appropriately be excluded from the reach of the FCPA. U.S. enforcement resources should be devoted to activities have much greater impact on foreign policy.”

Also relevant is the holding of U.S. v. Kay, the only appellate court decision to directly address payments outside the context of directly securing a foreign government contract. In Kay, the 5th Circuit said that such payments “could” violate the FCPA, but that “there are bound to be circumstances” in which such payments merely increase the profitability of an existing profitable company and thus, presumably does not assist the payer in obtaining or retaining business. The court specifically stated as follows. “If the government is correct that anytime operating costs are reduced the beneficiary of such advantage is assisted in getting or keeping business, the FCPA’s language that expresses the necessary element of assisting in obtaining or retaining business would be unnecessary, and thus surplusage – a conclusion that we are forbidden to reach.”

Checking In On The Carson Case

Thursday, April 19th, 2012

In April 2009, Stuart and Hong Carson (husband and wife) were criminally charged, along with other defendants who were also former employees of Control Components Inc. (CCI), in a criminal indictment (here) for engaging in ”a conspiracy to secure contracts by paying bribes to officials of foreign state-owned companies as well as officers and employees of foreign and domestic private companies.”

The indictment alleged as follows.

“Company A’s state-owned customers included, but were not limited to, Jiangsu Nuclear Power Corporation (“JNPC”) (China), Guohua Electric Power (China), China Petroleum Materials and Equipment Corporation (“CPMEC”), PetroChina, Dongfang Electric Corporation (China), China National Offshore Oil Corporation (“CNOOC”), Korea Hydro and Nuclear Power (“KHNP”), Petronas (Malaysia), and National Petroleum Construction Company (“NPCC”) (United Arab Emirates). Each of these state-owned entities was a department, agency, and instrumentality of a foreign government, within the meaning of the FCPA. The officers and employees of these entities, including the Vice-Presidents, Engineering Managers, General Managers, Procurement Managers, and Purchasing Officers, were “foreign officials” within the meaning of the FCPA.”

As noted in the DOJ release (here), Stuart Carson was charged with one count of conspiracy to violate the FCPA and the Travel Act, and two counts of violating the FCPA. Hong Carson was charged with one count of conspiracy to violate the FCPA and the Travel Act, five counts of violating the FCPA, and one count of destruction of records in connection with a matter within the jurisdiction of a department or agency of the United States. This latter charge was ultimately dismissed by the DOJ. As stated in the DOJ release, “in the period from 2003 through 2007, the defendants caused the valve company to pay approximately $4.9 million in bribes, in violation of the Foreign Corrupt Practices Act (FCPA), to officials of foreign state-owned companies …”.

Shortly thereafter, Control Components Inc. resolved an FCPA enforcement action based on the same core set of conduct alleged in the above indictment. (See here for the prior post). I noted, then, as I had since launching this website in July 2009, that DOJ’s position that employees of state-owned companies, regardless of position, are “foreign officials” under the FCPA is an unchallenged and untested legal theory – and one I believe is ripe for challenge.

In February 2011 (as noted in this prior post), for the first time in FCPA history, a federal court judge, with the benefit of a detailed and complete overview of the FCPA’s extensive legislative history on the “foreign official” element, was asked to rule on the DOJ’s interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA. My declaration on the FCPA’s legislative history relevant to “foreign official” (here) was used in the “foreign official” motion to dismiss.

In May 2011 (as noted in this prior post), Judge James Selna denied the “foreign official” motion to dismiss and concluded that “the question of whether state-owned companies qualify as instrumentalities under the FCPA is a question of fact.” The “foreign official” issue thus moved to the jury instructions (as noted in this prior post).

In February 2012 (as noted in this prior post), Judge Selna issued certain jury instructions. Not surprisingly, Judge Selna carried forward his previous “instrumentality” analysis into the “instrumentality” jury instruction. Yet, in a significant development in terms of the future of the case, Judge Selna issued an instruction titled “knowledge of status of foreign official.” In pertinent part, the instruction stated as follows.

[.....]

“(4) The defendant offered, paid, promised to pay, or authorized the payment of money, or offered, gave, promised to give, or authorized the giving of anything of value to a foreign official;

(5) The payment or gift at issue in element 4 was to (a) a person the defendant knew or believed was a foreign official or (b) any person and the defendant knew that all or a portion of such money or thing of value would be offered, given, or promised (directly or indirectly) to a person the defendant knew or believed to be a foreign official. Belief that an individual was a foreign official does not satisfy this element if the individual was not in fact a foreign official.”

In his order, Judge Selna stated as follows.

“The Government proposes to add the following paragraph to element 5:”

The government need not prove that the defendant knew the legal definition of “foreign official” under the FCPA or knew that the intended recipient of the payment or gift fell within the legal definition. The defendant need not know in what specific official capacity the intended recipient was acting, but the defendant must have known or believed that the intended recipient had authority to act in a certain manner as specified in element 6.”

The Court does not believe that this language is necessary, and it is potentially confusing.”

Earlier this week, the DOJ announced (here) that Stuart Carson and Hong Carson “each pleaded guilty … before U.S. District Judge James V. Selna in Santa Ana, Calif., to separate one-count superseding informations charging them with making a corrupt payment to a foreign government official in violation of the FCPA.”

Unlike the original indictment, the four page superseding information as to Stuart Carson (here) focuses solely on Turow Power Plant in Poland and states as follows. “Turow was a department, agency, and instrumentality of a foreign government, within the meaning of the FCPA, [...]. The officers and employees of Turow were “foreign officials” within the meaning of the FCPA.” The superseding information states that on March 8, 2000, Stuart Carson “corruptly caused an e-mail to be sent authorizing the payment of approximately $16,000 to officials of Turow for the purpose of securing Turow’s business.”

Unlike the original indictment, the four page superseding information as to Hong Carson (here) focuses solely on Kuosheng Nuclear Power Plant in Taiwan and states as follows. “Kuoshen was a department, agency, and instrumentality of a foreign government, within the meaning of the FCPA, [...]. The officers and employees of Kuosheng were “foreign officials” within the meaning of the FCPA. The superseding information states that on August 14, 2002, Hong Carson “corruptly caused an e-mail to be sent authorizing the payment of $40,000 to officials of Kuosheng for the purposes of securing Kuosheng’s business.”

As noted in the DOJ’s release, “at sentencing (Oct. 15, 2012), Stuart Carson, 73, faces up to 10 months in prison. Rose Carson, 48, faces a sentence of three years probation, which may include up to six months of home confinement.”

The conclusions are yours to reach.

Paul Cosgrove and David Edmonds remain defendants in the case and their trial is scheduled for June.

*****

Previous posts here and here discussed the motion to suppress filed by Cosgrove and Edmonds (joined by Hong Carson) to suppress certain statements made by the individuals to CCI and its counsel (Steptoe & Johnson) on the basis that its counsel were de facto public actors and that CCI’s actions in compelling their statements were “fairly attributable to the government” and ought to be suppressed.

Earlier this week, Judge Selna, whose practice is to issue tentative rulings, tentatively ruled (here), in connection with a subpoena to Steptoe & Johnson, that production must be made as to the following. “All communications exchanged between Steptoe, IMI, and/or CCI on the one hand, and the United States Department of Justice, on the other hand during the period August 10 through August 25 2007 which relate to interviews of CCI employees, taken or to be taken, for the purpose of investigating actual or suspected violations of the [FCPA and Travel Act]. This includes but is not limited to all e-mails exchanged between Patrick Norton (Steptoe & Johnson) and Mark Mendelsohn (former DOJ FCPA unit chief). Judge Selna noted that such information “could yield admissible evidence under the defendants’ Government-actor theory of agreements or understanding between Steptoe that would render Steptoe lawyers agents of the Government, specifically the Department of Justice, at the time the interviews of defendants were conducted.”

Judge Selna also issued another tentative ruling (here) regarding various aspects of the subpoena to Steptoe & Johnson that will be of interest to FCPA practitioners.

Potpourri

Monday, April 9th, 2012

“Can Someone Please Turn On the Lights”

Former U.S. Attorney General Michael Mukasey (here - currently at Debevoise & Plimpton and active in the FCPA reform movement on behalf of the Chamber of Commerce) and James Dunlop (here – Jones Day) recently published “Can Someone Please Turn On the Lights? Bringing Transparency to the Foreign Corrupt Practices Act” (here). Published in Engage, a publication of the Federalist Society, the article asserts as follows.

” … [The] unobjectionable vision [of the FCPA] has virtually disappeared in a miasma of aggressive prosecutions by the Justice Department … The FCPA is almost never litigated in court. Public companies are the typical FCPA target, and such defendants are rarely positioned to litigate criminal charges, or even risk indictment, given (among other things) the substantial risk of federal contract debarment in many industries. The same is often true for individuals, most of whom face substantial prison time if convicted and who are thus unwilling to hang their hopes on uncertain interpretive arguments. As a result, the FCPA has had almost no judicial oversight, with the result that corporations trying to comply with its mandates find they are fighting corruption in the dark, their quest for standards confined to making mitigation arguments in prosecutors’ offices. This has enabled the FCPA’s enforcers, the Justice Department, and the Securities and Exchange Commission, to ‘win’ most FCPA cases through plea bargains or settlements, in which regulators set the terms, and into which regulators import their capacious constructions of the FCPA. This regulatory latitude has, in turn, transformed the FCPA into a catch-all for illicit conduct abroad, no matter how removed the target of the enforcement action is from the underlying offense. As Professor Mike Koehler has put it, ‘the FCPA means what the enforcement agencies say it means.’”

The article next states that “because the FCPA will never be heavily litigated—thus depriving the courts of the opportunity to clarify its murky text—Congress must speak clearly about what conduct does and does not violate the FCPA.” The article then largely tracks the reform proposals originally set forth in the Chamber sponsored white paper “Restoring Balance” (here).

Regardless of your views on FCPA reform, the Mukasey, Dunlop article is well written, extensively footnoted, and should find a place on your reading stack.

Checking in on the Carson Case

This previous post highlighted the Carson defendants recent motion to suppress (here) and motion to dismiss (here).

In substance, the motion to suppress argued that “from the outset of [Control Component Inc's] CCI’s internal investigation in August 2007, CCI, through its counsel Steptoe & Johnson LLP (“Steptoe”), worked hand-in-hand with DOJ to investigate the matters at issue in this case.” The motion further argued as follows. “The DOJ and CCI essentially agreed to a private information-sharing arrangement between them. With this agreement in place, CCI selectively disclosed only information CCI believed inculpated Defendants and DOJ did not seek additional information.” According to the motion, “the collaborative nature of DOJ’s and CCI’s relationship provided both parties benefits, to the detriment of Defendants …”.

Last week the DOJ filed (here) its opposition brief. In summary, the DOJ asserts as follows. “Only state actors can violate a defendant’s Fifth Amendment rights, and the evidence shows that the Company’s actions were not the result of any pressure or influence from the government sufficient to convert the Company’s lawyers to state actors.”

The government submitted in camera the notes of Mark Mendelsohn, then Deputy Chief of the DOJ’s Fraud Section, reflecting his summary of the Company’s voluntary disclosure and many of the factual issues in dispute concern e-mails between Steptoe & Johnson and Mendelsohn. As to these e-mails, the DOJ states as follows. “These e-mails show no nexus between the Company and the government. Instead, they show a company in cooperative mode informing the government of what is transpiring in its internal investigation. [....] At no time did the government direct the actions of Steptoe/CCI. The government did not instruct the company who to interview or what questions to ask. In fact, the government provided no direction or instruction as to the conduct of the interviews.”

Citing caselaw that purports to show that a company’s efforts to cooperate with the government do not transform it into an arm of the state, the DOJ states that a company’s voluntary disclosure coupled with DOJ policy regarding a company’s cooperative efforts does not equate to state action and that finding state action “on these facts alone would be unprecedented and unwarranted, the effect of which would be to turn the cooperating company into a government agent in every case. There is no precedent for such an outcome.”

The DOJ also filed last week (here) its opposition to the motion to dismiss which mostly focused on due process / discovery issues.

Common Ground

Recently, Ann Hollingshead, writing on Global Financial Integrity’s (GFI) blog (here), made a spot-on observation regarding the type of “petty corruption” (or what I will call “harassment bribery”) common throughout the world. Hollingshead stated as follows.

“But this type of corruption is pervasive and deeply entrenched in the culture of many nations. It makes life difficult for citizens trying to live their lives and carry out what should be ordinary tasks. And in many countries—like India for example—where paying a bribe is illegal, the corrupt official forces everyday citizens to choose between completing your transaction and complying with the law. It is in this way that systematic corruption creates both a power imbalance and a forced cooperative between those demanding the bribe and those paying it.” (emphasis added).

I agree and the same is precisely the point I argue in “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (here) as to a specific reason, among others, warranting an FCPA compliance defense. Like Hollingshead, I too focus on India and note as follows. “Recent FCPA enforcement actions concerning business conduct in India demonstrate that harassment bribery is common and that companies operating in India face – just as locals face – difficult conditions simply to get things done.” I further note that “companies seeking to do business in many foreign countries are often funneled into an arbitrary world of low-paying civil servants who frequently supplement their meager salaries through bribe payments condoned in the host country.”

It is encouraging to see that proponents of an FCPA compliance defense and opponents on an FCPA compliance defense seem to at least agree on the business conditions present in many foreign markets giving rise to discussion of an FCPA compliance defense.

Hollinghead’s comments on GFI’s blog would seem drastically different from GFI’s previous statements concerning the general issue. Previously, in connection with the June 2011 House FCPA hearing, GFI (and others) release a statement (here) that stated as follows. “If a company is found to be in violation of the FCPA, then the existence of a company’s compliance program must not have prevented the acts of bribery. So why should the existence of their compliance program be a defense to the charge of bribery?”

Basurto Sentenced to Time Served

As detailed in this prior post, Fernando Maya Basurto was charged along with John Joseph O’Shea. Unlike O’Shea, who decided to put the DOJ to its burden of proof – and when he did he prevailed (see here), Basurto (the principal of the Mexican company that performed work for ABB’s business unit on its contracts with CFE) pleaded guilty.

The DOJ release (here) stated as follows. “Basurto pleaded guilty … to a one-count information charging him for his role in the conspiracy. In his plea, Basurto admitted that while he acted as a sales representative for the Texas business unit, he conspired with others to make corrupt payments to CFE officials, helped launder the bribe monies, and engaged in a cover up to obstruct the investigations of the Department of Justice and the SEC. Basurto also admitted that he submitted false invoices and helped fabricate correspondence in contemplation of federal investigations into the bribery.”

As part of his plea agreement, Basurto agreed to cooperate with the DOJ in its prosecution of O’Shea and Basurto was a key DOJ witness at O’Shea’s trial. However, the presiding judge, Judge Lynn Hughes (S.D. Tex.), stated, in dismissing the FCPA charges against O’Shea, that Basurto knew “ almost nothing” and that his answers “were abstract and vague, generally relating to gossip.”

Last week, Hughes granted the DOJ’s request and sentenced Basurto to time served. As noted by Christopher Matthews (here - Wall Street Journal Corruption Currents), Basurto was arrested in April 2009 and was released on bail in July 2011, according to court records.

Checking In On The Carson Case

Thursday, March 8th, 2012

After Judge James Selna (C.D. Cal.) denied the “foreign official” motion to dismiss challenge in the Carson case in May 2011 (see here for the prior post) , the “foreign official” issue moved to the jury instructions – see here and here for prior posts. Last month, Judge Selna issued an order (here) regarding certain jury instructions. Not surprisingly, Judge Selna carried forward his previous “instrumentality” analysis into the “instrumentality” jury instruction.

As to the “knowledge of status of foreign official,” Judge Selna’s instruction states as follows.

[.....]

“(4) The defendant offered, paid, promised to pay, or authorized the payment of money, or offered, gave, promised to give, or authorized the giving of anything of value to a foreign official;

(6) The payment or gift at issue was intended for at least one of four purposes: a. To influence any act or decision of a foreign official in his or her official capacity; b. To induce a foreign official to do or omit to do any act in violation of that official’s lawful duty; c. To secure any improper advantage; or d. To induce a foreign official to use his or her influence with a foreign government or department, agency, or instrumentality thereof to affect or influence any act or decision of such government, department, agency, or instrumentality;

[.....]

In his order, Judge Selna stated as follows.

“The Government proposes to add the following paragraph to element 5:”

The Court does not believe that this language is necessary, and it is potentially confusing.”

*****

As previously noted by the Federal Securities Law Blog (see here), earlier this week, the Carson defendants filed a motion to dismiss (here) and a motion to suppress (here).

In summary, the motion to dismiss states as follows.

“The basis for Defendants’ Motion is that the impact of the cumulative impediments – unique investigation tactics preventing Defendants access to millions of pages of evidence they would normally receive under Rule 16, the lack of a meaningful Brady review, CCI’s loss of crucial documents underlying many of the counts and transactions, the inability of Defendants to obtain foreign documents and subpoena foreign witnesses, CCI instructing its employees not to speak with the defense, many of which are pertinent to the counts and transactions, as well as opaque statutes applied in a novel fashion and failure to provide mandated public awareness – in combination, deprived Defendants’ of their Due Process and Sixth Amendment rights, including the right to present a complete defense, and have prejudiced Defendants to such a severe extent that dismissal is the only appropriate remedy.”

Of note, the motion argues that “from the outset of [Control Component Inc's] CCI’s internal investigation in August 2007, CCI, through its counsel Steptoe & Johnson LLP (“Steptoe”), worked hand-in-hand with DOJ to investigate the matters at issue in this case.” The motion further argues as follows. “The DOJ and CCI essentially agreed to a private information-sharing arrangement between them. With this agreement in place, CCI selectively disclosed only information CCI believed inculpated Defendants and DOJ did not seek additional information.” According to the motion, “the collaborative nature of DOJ’s and CCI’s relationship provided both parties benefits, to the detriment of Defendants …”.

Under the heading “The FCPA and Congressional Efforts for Clarity” the motion states as follows.

“Portions of the FCPA are obscurely written and a key term at issue in this case is the meaning of “instrumentality,” which is not defined in the statute. This Court’s ruling, which involves a non-exclusive, multiple factor test to determine whether a state-owned-enterprise is an “instrumentality,” shows just how complex and unclear the FCPA is. The FCPA’s history reflects Congress’ recognition of the inherent lack of clarity. Eleven years after Congress enacted the FCPA, Congress adopted amendments via the 1988 Omnibus Trade and Competitiveness Act (“Trade Act”), reflecting an important policy decision: the federal government must make substantial efforts to inform the public about the FCPA. Congress, therefore, required the Attorney General (“AG”) to consult with various federal agencies and departments; obtain the views of interested persons through a public notice and comment procedure; determine based on this combined input “to what extent” FCPA compliance would be enhanced and the business community assisted by further clarification of the FCPA; and then, based on this determination, issue guidelines illustrating allowable and prohibited conduct, clarify Department of Justice’s (“DOJ’s”) enforcement policies and generate precautionary procedures to aide in compliance. The AG’s compliance with Congress’ directive has been minimal.” [For more on this issue, see this prior guest post].

The motion also asserts that CCI “directed employees not to talk with defense counsel.” The motion states, in pertinent part, as follows. “Had the government directly instructed witnesses not to speak with the defense, or even to do so only in the prosecution’s presence, such conduct would violate Defendants’ constitutional right to present a defense.” [...] The same constitutional principle should apply here, given CCI cooperated in the government’s investigation, including by sharing witness specific information. [...] Steptoe’s actions against [a former Regional Sales Manager in Asia] and possibly others would constitute government intimidation of a witness if this Court finds CCI was an agent of the government, which clearly would violate Defendants’ Fifth and Sixth Amendment rights.”

Elsewhere, the motion states as follows. “Defendants were responsible for oversight of significant international business, yet IMI/CCI provided no FCPA training.”

In summary, the motion to suppress states as follows.

“The basis for this Motion is that CCI and its counsel were de facto public actors when they implicitly threatened to terminate Defendants’ employment if they did not cooperate and participate in interviews with CCI’s investigators. At the time of the interviews, CCI and IMI were not only in contact with law enforcement authorities regarding the investigation, but were collaborating with the Department of Justice (“DOJ”) in how to conduct the investigation and obtain relevant admissions from the Defendants. CCI compelled the Defendants’ statements with the government’s knowledge, certainly at a minimum with the government’s general encouragement, and with the intent to cooperate with the DOJ. As a matter of fact and law CCI was an agent of the government during the interviews. Thereafter and further to published DOJ memoranda, CCI spared no expense in cooperating with the government by identifying purported culprits and disclosing the fruits of its investigation, including interviews of the Defendants, to the DOJ. Thus, CCI’s actions are “fairly attributable to the government.” CCI compelled the Defendants’ statements under a classic “penalty situation” – CCI required them to answer all questions regardless of their Fifth Amendment right against self-incrimination or be fired. Because CCI was a state actor when it compelled the Defendants’ statements, it violated their Fifth Amendment rights and the statements must be suppressed.”