Archive for the ‘Las Vegas Sands’ Category

Friday Roundup

Friday, May 1st, 2015

Roundup2Exasperated, skittish, checking in, scrutiny alerts and updates, and for the reading stack.  It’s all here in the Friday roundup.

Exasperated

This recent post highlighted Assistant Attorney General Leslie Caldwell’s recent speech in which she stated – in reference to FCPA internal investigations – “we do not except companies to aimlessly boil the oil.”

This recent Law360 article notes that some attorneys are exasperated by Caldwell’s remarks.  The article states:

“[D]efense attorneys have balked at the idea that they’re spending too much time or money on investigations they’re conducting in large part for the government’s sake, saying they’re not willfully adding unnecessary work to an FCPA probe.

Many companies still feel like they’re being forced to walk the fine line between investigating problems thoroughly enough to satisfy the government without making it seem like they’re holding something back or impeding an investigation, according to Day Pitney LLP partner Bob Appleton.

“On the one hand they’re saying, ‘Be fast and don’t do an over-thorough job,’ but on the other hand, they’re saying, ‘If you only partially disclose you’ll get in trouble,’” said Appleton, a former assistant U.S. attorney.

And the costs of an investigation aren’t just limited to what a company self-reports, since the government will often then ask how the company can be sure the problem isn’t popping up anywhere else, according to Colleen P. Mahoney, partner at Skadden Arps Slate Meagher & Flom LLP.

“One of the biggest challenges is the expense after it starts,” Mahoney said about FCPA investigations at a Practicing Law Institute event Friday.

At the PLI event, SEC enforcement chief Andrew Ceresney said it was up to a company to decide what law firm to retain and how deep to investigate a potential bribery matter.

“We’re not micromanaging your internal investigation,” he said.”

Numerous posts on FCPA Professor have highlighted the staggering amount of pre-enforcement action professional fees and expenses (see also “FCPA Ripples“).

Speaking of which, Key Energy Services disclosed yesterday $18 million in expenses – for the first quarter of 2015 -”related to the previously disclosed Foreign Corrupt Practices Act (“FCPA”) investigations.”

I’ve had several conversations with FCPA practitioners about this issue.  For what it is worth, the common response is something along the following lines: FCPA practitioner agrees that pre-enforcement action professional fees and expenses have spun out of control in many instances, but FCPA practitioner insists that his/her firm is not part of the problem.

Other practitioners are also pushing back as to other aspects of Caldwell’s recent speech – namely “what cooperation looks like”.  In this recent post on the FCPA Blog an anonymous contributor states:

 ”When client companies and I have opted to cooperate early on and open up all information and records to the DOJ investigative units, I have seen the FCPA investigative team to be less interested in whether facts or evidence show violations or point to evidence raising red flags, as to how the client (and lawyer also) is bowing and mewling in anguish and sorrow before the government.

Provided the client is willing to genuflect and cry out mea culpa and beg for mercy (all three are required) there can be a happy and acceptable outcome in correcting corporate deficiencies and reaching an early valid resolution.

Executives who have somewhat less capacity to grovel underfoot are punished with the promise of crippling expansions of the process including raids and countless subpoenas to uninvolved officers, employees, consultants and accountants.

My experience is that this is not based on early findings of probable cause, but rather a haughty outrage that there was insufficient willingness to self-immolate.”

Skittish

Much has been written about whether the FCPA and its enforcement deters foreign investment.  (See here for instance).

Companies obviously make foreign investment decisions based on a host of legal and non-legal risks and thus empirically separating and measuring the impact of FCPA enforcement on foreign investment decisions is difficult.  Moreover, despite the general rise in FCPA enforcement concerning conduct in certain high risk jurisdictions such as China, India, and Brazil, there continues to be vast amounts of foreign direct investment in those countries by companies subject to the FCPA prohibitions.

Any “evidence” that the FCPA and its enforcement deters foreign investment thus tends to be anecdotal.

Following up on this prior post regarding Cambodia, the Phnom Penh Post reports:

“Despite high-profile US companies like Coca-Cola announcing plans to expand their footprint in the Kingdom, foreign investment from the US remains low compared to regional heavyweights. Large US businesses appear reluctant in setting up in the Kingdom due to corruption concerns, an unpredictable regulatory environment, and a lack of economic attractiveness that allows US interests to thrive.

[...]

Corruption remains one of the major factors keeping US companies away. According to an American Chamber of Commerce survey for 2015, 82 per cent of American businesses in Cambodia were dissatisfied with corruption – the second highest in the region after Laos.”

Checking In

Way back in 2010, Steven Jacobs, the former President of Macau Operations for Las Vegas Sands Corp., filed a civil lawsuit against Las Vegas Sands (LVS) in which Jacobs alleged various improprieties at LVS including in the FCPA context.

As noted in this Bloomberg article, Sheldon Adelson, the billionaire founder and chairman of LVS, recently testified in open court about the case and stated, among other things, that “after four years of investigating, they [the DOJ and SEC]  haven’t found a shred of evidence yet.”

Scrutiny Alerts and Updates

CSC / ServiceMesh

CSC is a Virginia-based IT company and in October 2013 it acquired acquire ServiceMesh, a cloud management company.  Various reports note that Eric Pulier, the former CEO of ServiceMesh, and head of the ServiceMesh division within CSC since ServiceMesh was acquired by that company, has left the company.

CSC sent the following statement to media about Pulier’s departure:

“On March 26, 2015 Eric Pulier was notified that his actions involving payments from the ACE Foundation—an organization founded by Mr. Pulier and not related to CSC—to former IT executives of Commonwealth Bank of Australia, a CSC client, violated CSC’s code of conduct related to conflicts of interests and appearance of improprieties. Mr. Pulier was further notified that these violations were grounds for termination of his employment.”

PTC

In this release, PTC stated:

“We have, since making a voluntary disclosure to the U.S. Securities and Exchange Commission and the Department of Justice, been cooperating to provide information to those agencies concerning expenditures by certain of our business partners in China and by our China business, including for travel and entertainment, that apparently benefitted employees of customers regarded as state owned enterprises in China. This matter involves issues regarding compliance with laws, including the U.S. Foreign Corrupt Practices Act. Negotiations with the SEC to reach a resolution of its investigation have begun but have not been concluded. We expect to begin negotiations with the Department of Justice to resolve its investigation in the near future. Resolution of this matter is likely to include fines and penalties. Given the uncertainty regarding whether settlements can be reached and, if reached, on what terms, we are not able to estimate a range of reasonably possible loss with regard to any such settlements and have not recorded any liability in connection with this matter. If settlements are reached, we believe that the associated financial liability could be material to our results of operations for the fiscal period in which the liability is recorded. Further, any settlement or other resolution of this matter could have collateral effects on our business in China, the United States and elsewhere.”

Braskem SA

Brazil-based Braskem recently disclosed in an SEC filing:

“In the context of anti-corruption allegations against certain individuals and entities in Brazil, including Petrobras, we were mentioned in allegations of improper payments made in order to receive favorable treatment in connection with certain contracts that we are party to with Petrobras. We have not received notice of any proceeding or investigation involving us that has been commenced in Brazil or the United States in connection with these allegations.

Although we have certain procedures in place, we have implemented additional procedures and controls to monitor our compliance with applicable anti-corruption laws and as a result of the recent allegations against us, have engaged Brazilian and U.S. legal counsel to conduct a voluntary internal investigation of this matter.  If any of these allegations prove to be true, or if we or any of our subsidiaries, or joint venture partners fails to comply with any of these laws, we could be subject to applicable civil or criminal penalties, which could adversely affect our overall performance.”

[…]

In early March 2015, declarations made by defendants in lawsuits filed against third parties were made public, in which Braskem and two of its former executive officers were cited in allegations of supposed improper payments between 2006 and 2012 to benefit the Company in raw-material supply agreements entered into with Petrobras. As of April 24, 2015, to the knowledge of the management, Braskem has not received any notification of the filing of any proceeding or investigation by Brazilian or U.S. authorities.

In light of such facts, the Company’s Management and Board of Directors approved in April the internal plan for investigation into the allegations (“Investigation”) to be carried out by law firms experienced in similar cases in the United States and in Brazil.  The law firms will work under the coordination of an ad hoc committee formed by members of its Board of Directors, specially created for this purpose.

In addition, the following measures have already been taken:

i)    Voluntary announcement about the Investigation and periodical updates sent to regulatory agencies of capital markets in Brazil (Securities and Exchange Commission of Brazil – CVM) and the United States (Securities and Exchange Commission – SEC, and the Department of Justice – DOJ);

ii)    Publication of two Material Fact notices and one Notice to the Market to clarify the news reports and to keep shareholders and the market informed of actions taken by the Company;

iii)   Updating the Audit Board and external auditors about the progress of the Investigation and of the actions already taken.

Braskem and its subsidiaries are subject to a series of anticorruption and anti-bribery laws in the countries where they operate. To reduce the likelihood of infringement of such laws, a series of procedures and controls were implemented and are continuously being improved.

On the other hand, if any of the allegations proves to be true, the Company may be subject to material penalties envisaged in law. At this moment, the Company Management believes that it is not possible to estimate the duration or outcome of the Investigation and, consequently, whether it will have any impact on future financial statements.

The Management is committed to taking all the necessary measures to clarify the facts and will keep the market informed of any progress on this matter.”

United Technologies

Recently, the company disclosed:

“As previously disclosed, in December 2013 and January 2014, UTC made voluntary disclosures to the United States Department of Justice (DOJ), the Securities and Exchange Commission (SEC) 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 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 was conducting a formal investigation and issued a subpoena to UTC.  UTC continues to cooperate fully with the investigations and has responded to requests for documents and information.  The DOJ and SEC also continue to request information, and the SEC issued a second subpoena on March 9, 2015 seeking documents related to internal allegations of alleged violations of anti-bribery laws from UTC’s aerospace and commercial businesses, including but not limited to Otis businesses in China.  Because the investigations are ongoing, we cannot predict the outcome or the consequences thereof at this time.”

For the Reading Stack

The NY Times goes in depth regarding the U.S’s attempt to extradite Dmitry Firtash, a Ukrainian national criminally indicted in April 2014 along with others (see here for the prior post).  According to the article:

“An Austrian judge will issue a crucial ruling in the case on Thursday at an extradition hearing here, where Mr. Firtash’s lawyers will argue that his arrest — on charges of bribing officials in India to secure a titanium mining deal that never materialized — was really an effort by the United States to remove him from public life in Ukraine, where he controls major business interests and still holds considerable clout. The Justice Department has repeatedly declined to discuss the case because it is an active prosecution, but the United States attorney’s office in Chicago, which led the investigation, has flatly denied any political motivations.

[...]

Andras Knopp, a Hungarian businessman and longtime associate of Mr. Firtash’s who is also charged in the case, said that the United States authorities had made no effort to extradite him, or even to talk to him about the case, even though he was at the center of the Indian titanium deal …”.

*****

The most recent edition of the always informative Debevoise & Plimpton FCPA Update is here.  Among the topics discussed are developments in India including potential amendments to the Prevention of Corruption Act providing for liability for a commercial organizations whose employees bribe but also creating a defense for a commercial organization commercial organization if it can prove it had “adequate procedures” in place to prevent bribery.

*****

This Bloomberg article (“The Dinner Proposal That Led United Into Corruption Probe”) begins:

“United Airlines Inc. was seeking hundreds of millions of dollars in public investment for the airport in Newark when its chief executive dined with New Jersey Governor Chris Christie’s top Port Authority official in September 2011.

Jeffery Smisek, United’s chief executive officer, wanted funding for several projects, including an estimated $600 million extension of the PATH train from downtown Newark to the airport, as the airline worked through its merger with Continental Airlines.

Halfway through dinner at Novita, an Italian restaurant in Manhattan, Port Authority Chairman David Samson surprised the group with a request of his own. He complained that he and his wife had grown weary of the trip to their weekend home in Aiken, South Carolina, because the best flight out of Newark was to Charlotte, North Carolina, 150 miles away. Until 2009, Continental had run direct service from Newark to Columbia, South Carolina, 100 miles closer.

In a tone described by one observer as “playful, but not joking,” Samson asked: Could United revive that route? An awkward silence fell over the table.

Though the United CEO didn’t agree to the request at the dinner, according to the accounts of some who attended, the airline ultimately added the money-losing route that became known as “the chairman’s flight.” Now federal prosecutors are looking into whether its genesis crossed the line from legitimate bargaining into illegal activity.”

*****

A good weekend to all.

Las Vegas Sands Reporting – Not The Media’s Finest FCPA Moment

Wednesday, March 6th, 2013

Las Vegas Sands has been the subject of much FCPA scrutiny since October 2010 when Steven Jacobs (the former President of the company’s Macau operations) filed a civil cause against the company in Nevada State court alleging various causes of action, including facts implicating the Foreign Corrupt Practices Act.  (See here for the 2010 post highlighting the action).

This post from September 2012 highlighted various reporting of the Las Vegas Sands (“LVS”) FCPA scrutiny,and that of its CEO Sheldon Adelson, in ProPublica, the Wall Street Journal and the New York Times.

Last Friday, LVS disclosed in an SEC filing, in pertinent part, as follows.

“On February 9, 2011, LVSC received a subpoena from the Securities and Exchange Commission (the “SEC”) requesting that the Company produce documents relating to its compliance with the Foreign Corrupt Practices Act (the “FCPA”). The Company has also been advised by the Department of Justice (the “DOJ”) that it is conducting a similar investigation. It is the Company’s belief that the subpoena may have emanated from the lawsuit filed by Steven C. Jacobs described above. After the Company’s receipt of the subpoena from the SEC on February 9, 2011, the Board of Directors delegated to the Audit Committee, comprised of three independent members of the Board of Directors, the authority to investigate the matters raised in the SEC subpoena and related inquiry of the DOJ. As part of the annual audit of the Company’s financial statements, the Audit Committee advised the Company and its independent accountants that it had reached certain preliminary findings, including that there were likely violations of the books and records and internal controls provisions of the FCPA and that in recent years, the Company has improved its practices with respect to books and records and internal controls.” (emphasis added).

Given the intense prior media coverage of LVS’s  FCPA scrutiny, the recent disclosure spread like wild-fire this past weekend.  However, the reporting was not the media’s finest FCPA moment.

As is clear from a basic reading of the FCPA, the law has two provisions.  The FCPA’s anti-bribery provisions and the books and records and internal control provisions.  These later provisions are among the most generic substantive legal provisions one can find and are often implicated in situations that have nothing to do with bribery and corruption.

It is also clear from a basic reading of the LVS’s disclosure that it says “likely violations of the books and records and internal controls provisions.”

Notwithstanding the above, the Wall Steet Journal’s lead paragraph stated as follows.

“Las Vegas Sands Corp. told the Securities and Exchange Commission that an internal review found the casino operator had likely violated the Foreign Corrupt Practices Act, a federal law that bans bribing public officials abroad.”

The New York Times’s lead paragraph stated as follows.

“The Las Vegas Sands Corporation, an international gambling empire controlled by the billionaire Sheldon G. Adelson, has informed the Securities and Exchange Commission that it likely violated a federal law against bribing foreign officials.”

ProPublica’s lead paragraph stated as follows.

“Last week’s admission by Sheldon Adelson’s casino company that it had “likely” violated provisions of the federal law barring U.S. companies from bribing foreign officials raises some intriguing questions.”

The media of course plays an important role in our modern society.  However, with that role comes a duty to get things right, particularly so in this day and age when reporting by high-profile media outlets spread like wild-fire on the internet.

The recent reporting of LVS’s latest disclosure (and several other examples could also be cited in the FCPA context) was not the media’s finest FCPA moment.

Thus, LVS was justified in its Sunday press release titled “LVS Fires Back at Misleading and Sensationalistic Reporting of Company’s Most Recent Financial Disclosure” which stated as follows.

“Las Vegas Sands Corp. today fired back at various media headlines and press reports that have suggested that the company violated any of the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA).  The company did not report any violations of the anti-bribery provisions of the FCPA and it said news reports stating otherwise, such as the headline in today’s New York Times which described the matter by saying “Casino Says it Likely Cheated,” are both inflammatory and defamatory. The company said it will vigorously defend itself against that type of uninformed and misleading reporting. In the company’s 10-K disclosure filed with the Securities and Exchange Commission(SEC) last Friday it made no such statement and insists no violations of the anti-bribery provisions of the FCPA have occurred. Instead, the company said that in its preliminary findings the company’s Audit Committee had advised that there were “likely violations” of the books and records and internal controls provisions (i.e. “accounting provisions”) of the FCPA. A potential violation of the accounting provisions could range anywhere from a single transaction recorded incorrectly to other errors in the accounting records. Additionally, the company’s independent auditors — who have been auditing the company for more than a decade — issued an unqualified opinion on the financial statements for the year ended December 31, 2012. Those financial statements also included the disclosure that any violations of the accounting provisions have not had a material impact on the financial statements of the company and did not warrant any restatement of its past financial statements.”

Isn’t It Ironic, Don’t You Think?

Wednesday, September 19th, 2012

[Proper citation to Alanis Morissette is in order, this song makes for good background music as well for this post]

This post has been in the works for some time, but with the recent political conventions ending and the election season beginning in earnest, it was time to finish it.  To be sure, this is not the first time I have written about this general topic, see here, here, here, here and here for prior posts regarding the double standard.

Isn’t it ironic, don’t you think, that as the U.S. aggressively expands its Foreign Corrupt Practices Act enforcement theories and snares foreign firms on flimsy jurisdictional theories, the U.S. continues to slide in Transparency International’s Corruption Perception Index (a well-known index that ranks countries on how corrupt their public sector is perceived to be)?  Never in the top 10, the U.S. has now fallen out of the top 20.

Isn’t it ironic, don’t you think, that while the U.S. is bringing enforcement actions against companies for conduct that includes providing $600 bottles of wine, Cartier watches, cameras, kitchen appliances, business suits, and executive education classes to individuals deemed “foreign officials,” the U.S. has legitimized corporate influence over government in this country?

Think about this glaring double standard in the context of Las Vegas Sands (“Sands”) and its CEO Sheldon Adelson.

This ProPublica investigation “Inside the Investigation of Leading Republican Money Man Sheldon Adelson” revealed that “Adelson instructed a top executive to pay about $700,000 in legal fees to Leonel Alves, a Macau legislator whose firm was serving as an outside counsel to Las Vegas Sands” and that the payment was under FCPA scrutiny “because of Alves’ government and political roles in Macau.”  As noted in this previous post, Sands has been under FCPA scrutiny for approximately two years.

Numerous articles for been writing about Sands (and perhaps Adelson’s) FCPA exposure.  See here from the Wall Street Journal “Sands China Deals Scrutinized” (noting that Sands is under investigation by the DOJ and SEC for a variety of potential FCPA issues including a planned Adelson Center for U.S.-China Enterprise designed to help small and medium size U.S. businesses break into the Chinese market, Sands’ sponsorship of a Chinese basketball team, and Sands’ creation of a high-speed ferry services to bring gamblers from Macau to Hong Kong and obtaining a favorable administrative judgment).  See also here from the New York Times “Scrutiny for Casino Mogul’s Frontman in China.”

At the same time, Adelson is a top Republican donor in U.S. elections.  See here from the Wall Street Journal, “Casino Mogul Aids Romney’s Backers” (June 14, 2012) (noting that Aldelson and his wife have given $10 million to the main political action committee supporting Mitt Romney).  As noted in the article, Adelson and his family also previously gave $25 million to other political action committees this election cycle.  In addition, as noted in the article, “during the early primary season Mr. Adelson and his family kept Newt Gingrich’s campaign alive with $21 million in donations.”

Aldeson is not the only corporate titan seeking to influence (and influencing) the political process.  Earlier this week, the Wall Street Journal reported here “Investor Bankrolls Big Romney Campaign” how Joe Ricketts, the founder of what become online brokerage TD Ameritrade Inc., “plans to spend $10 million airing ads supporting GOP nominee Mitt Romney.”  The article reported that Ricketts total political spending on the 2012 election is expected to be about $18.5 million.

This is not, of course, just a Republican issue.  The Wall Street Journal Article noted that DreamWorks Animation CEO Jeffrety Katzenberg and Irwin Jacobs, co-founder of Qualcomm Inc., are big spenders for President Obama and the Democratic Party.  See also here from National Public Radio as to Katzenberg and here from Bloomberg Businessweek as to Jacobs.

Yet the U.S. political expenditures discussed above are perfectly legal.  In Citizens United, the Supreme Court stated that such expenditures ”do not give rise to corruption or the appearance of corruption.”

Yet payments made in the foreign context, even payments that pale in magnitude and degree, would be clear crimes under U.S. law. because they indeed give rise to corruption and the appearance of corruption.”

I close with the same questions posed in my previous double standard posts.  Will a U.S. company’s interaction with a “foreign official” be subject to more scrutiny and different standards than its interaction with a U.S. official?  Do we reflexively label a “foreign official” who receives “things of value” directly or indirectly from private business interests as corrupt, yet when a U.S. official similarly receives “things of value” directly or indirectly from private business interests we merely say “well, no one said our system is perfect”?

This is not a question of what the law is, but what the law should be, and whether there is any intellectual and moral consistency between these two extreme opposites.  This is an issue of facing an uncomfortable truth that will be clear display the next several months.

Wynn – Okada And Offensive Use Of The FCPA

Wednesday, February 29th, 2012

Rarely does one hear of offensive use of the FCPA to accomplish a business objective.  Usually it is the other way around – the FCPA thwarts a business objective such as acquiring a foreign target, not hiring the foreign agent who says he knows a way to get that lucrative contract, etc.

But then again, rarely does one hear of a corporate board member accusing the company of conduct that could implicate the FCPA, which then causes the SEC to open an inquiry, which then results in the company accusing the board member of separate and distinct conduct that could implicate the FCPA.

This post discusses Wynn’s internal investigation report that accuses Kazuo Okada (a member of its board) of prima facie FCPA violations.  For previous posts on the Wynn-Okada dispute, see here and here.  The Wynn internal investigation report (here) discusses a number of issues (such as breach of fiduciary duty, issues under Nevada gaming laws and issues under Philippine law), but this post will focus on the FCPA issues in the report authored Louis Freeh (former Director of the FBI) of Freeh, Sporkin & Sullivan LLP.

In summary, the Freeh Report states as follows.  “Mr. Okada, his associates and companies appear to have engaged in a longstanding practice of making payments and gifts to his two (2) chief gaming regulators at the Philippines Amusement and Gaming Corporation (“PAGCOR”), who directly oversee and regulate Mr. Okada’s Provisional Licensing Agreement to operate in that country.  Since 2008, Mr. Okada and his associates have made multiple payments to and on behalf of these chief regulators, former PAGCOR Chairman Efraim Genuino and Chairman Cristino Naguiat (his current chief regulator), their families and PAGCOR associates, in an amount exceeding $110,000.”  The report categorizes this conduct as “prima facie violations” of the FCPA.

Because jurisdiction will clearly be an issue in any potential FCPA enforcement action against Okada (a Japanese national currently serving as Director and Chairman of the Board of Universal Entertainment Corporation, a Japanese company), the Freeh Report sensibly begins with a jurisdictional analysis.

According to the report, Aruze USA Inc. (“Aruze USA”) is a wholly-owned subsidiary of Universal incorporated in Nevada and Okada is a Director of Aruze USA and serves as its President, Secretary, and Treasurer.  In addition, the report states that Okada also currently serves as a Director, Secretary, and Treasurer of Aruze Gaming America, Inc. (“Aruze Gaming”), a U.S. company.

Thus, based on the information in the Freeh report, depending upon which “hat” Okada wears at any given time, he is, in the language of the FCPA, a “domestic concern” or “any person other than an issuer or a domestic concern.”  The Freeh Report covers both bases and correctly notes that FCPA violations can be committed by a “domestic concern” regardless of any U.S. nexus (this was part of the FCPA’s 1998 amendments), but that FCPA violations can be committed by “any person” only if the “while in the territory of the U.S.” jurisdictional test is met.  If Okada is merely “any person” under the FCPA, the Freeh Report states that “means or instrumentalties of interstate commerce” were used by Okada.  Specifically, the Freeh Report states that many of Okada payments at issue passed through the accounts (either the Universal City Ledger Account or the Aruze City Ledger Account) ”maintained at the corporate offices of Wynn Resorts, Limited in Las Vegas, Nevada where periodic deposits are made from Universal into the Wynn Resorts, Limited operating account at Bank of America in Las Vegas, Nevada.”

Back to the Freeh Report’s discussion of Philippine PAGCOR Officials at Wynn Resort properties.  The report highlights 36 “separate instances, from May 2008 through June 2011 when Mr. Okada, his associates and companies made payments exceeding $110,000 which directly benefited senior PAGCOR officials, including two chairman and their family members.”  For starters, 35 of the 36 instances involve charges to the Aruze City Ledger account in amounts ranging from $253 to $5,380 for stays (generally multi-night stays) at the Wynn Macau or Wynn Las Vegas.  As separately discussed below, the one instance that sticks out is the September 2010 stay of various PAGCOR officials at the Wynn Macau for which approximately $50,000 was charged to the Aruze City Ledger.

The Freeh Report terms all of these instances “prima facie” FCPA violations, a term presumably chosen carefully because as every first-year law student knows “prima facie” means on first appearance, on the face of it, a fact presumed to be true unless disproved by some evidence to the contrary.

It is here that the Freeh Report is shockingly deficient as it does not contain any discussion of the FCPA’s affirmative defense for payments, gifts, etc. that are a “reasonable and bona fide expenditure, such as travel and lodging expenses, incurred by or on behalf of a foreign official … directly related to (a) the promotion, demonstration, or explanation of products or services; or (b) the execution or performance of a contract with a foreign government or agency thereof.”  The Freeh Report notes, yet disagrees with, Okada’s assertion that “all his efforts in the Philippines prior to the change of presidential administration in the summer of 2010 were undertaken on behalf of and for the benefit of Steve Wynn and Wynn Resorts.”  Summer 2010 is obviously a vague term, but Okada’s assertion could be relevant to 23 of the 36 instances detailed in the Freeh Report.

The one instance identified in the Freeh Report that sticks out is approximately $50,000 charged to the Aruze City Ledger in September 2010 for a five day stay at the Wynn Macau by “then and current PAGCOR Chairman and CEO Cristino L. Naguiat, Jr., his wife, three children, nanny and other PAGCOR officials.”  The Freeh Report devotes five pages to this visit and states, among other things, that Chairman Naguiat occupied Villa 81 (the most expensive accommodation at Wynn Macau – a room that costs approximately $6,000 per day and is mostly reserved for “high-rollers”).  Even if Chairman Naguiat and his delegation visited the resort, in whole or in part, for a business purpose it is unlikely that such expenses would be viewed as “reasonable and bona fide” and directly related to a business purpose – even if the Freeh Report does note that some of the charges may have been reimbursed by Chairman Naguiat’s delegation.

In addition, the Freeh Report says that “Mr. Okada, his associates and companies” made “similar payments to a Korean government official who oversees Mr. Okada’s initial gaming investment in that country.”  The report notes that Okada was pursuing development of a resort complex in the Incheon Free Economic Zone and the report notes six instances in which “possible Korean government officials” stayed at Wynn properties.  Total charges to the Aruze City Account were $5,945 and ranged from $507 to $1,597.  The Freeh Report states that “these payments made for or on behalf of possible Korean government officials may be part of a continuing pattern by Mr. Okada and his associates to commit prima facie violations of the FCPA.”

Finally, the Freeh Report also states that “Universal paid expenses related to then-PAGCOR Chairman Genuino’s trip to Beijing during the 2008 Olympics.

Have there been FCPA enforcement actions focused on excessive and travel entertainment expenses paid to ”foreign officials”?  The answer is yes.  In 2007, Lucent Technologies resolved related DOJ and SEC enforcement actions (see here and here) focused on hundreds of trips for Chinese “foreign officials” that included primarily sightseeing, entertainment and leisure.  According to the allegations in that enforcement action, Chinese “foreign officials” were treated to trips to Boston, Las Vegas, the Grand Canyon and Hawaii “for strictly entertainment, travel and leisure purposes.”  In 2009 UTStarcom resolved related DOJ and SEC enforcement actions (see here for the prior post) focused on hundreds of trips for Chinese “foreign officials” that likewise were to places such as Hawaii, Las Vegas, and New York.

However, in pointing numerous FCPA fingers at Okada, even the Freeh Report points a few fingers back at Wynn.  For instance, as to the accounts Okada allegedly used to make the improper payments the report states as follows.

“As a Director of Wynn Resorts, Mr. Okada is entitled to receive the courtesy of what is called a “City Ledger Account.”  Such accounts were originally instituted as a result of Sarbanes Oxley’s prohibition of extensions of credit, in the form of a personal loan from an issuer to an officer or director.  The accounts were funded by deposits from the director or his company.  Such an account exists for billing conveniences related to charges incurred at various Wynn Resorts locales.  Mr. Okada has availed himself of this courtesy and established such a City Ledger Account.  Within Wynn Resorts, this Okada City Ledger Account is referred to either as the “Universal City Ledger Account” or as the “Aruze City Ledger Account.”"

Elsewhere, the Freeh Report states that funds in connection with the problematic September 2010 visit were “advanced from the Wynn Macau” to a representative of Aruze USA.

In other words, while accusing Okada of committing “prima facie” FCPA violations through his use of the accounts, including the September 2010 visit, the Freeh Report acknowledges that the accounts were provided to him by Wynn as a courtesy for billing conveniences related to charges incurred at various Wynn Resort locales and that portions of the money used in connection with the problematic September 2010 visit were advanced from the Wynn Macau.

The Freeh Report puts the DOJ (and perhaps even the SEC given Okada’s membership on the Wynn Board) in a difficult position.  How can the agencies not investigate the conduct at issue when the former Director of the FBI is terming the conduct “prima facie” FCPA violations.  An analogy would be like calling the fire department to inform that your house is on the fire, but the fire department fails to show up.  Based on media reports, it appears that the agencies are indeed in active investigation mode.  According to a Feb. 24th article in the Financial Times (“US Probes Wynn Resorts’ Allegations), “the US Securities and Exchange Commission’s investigation is looking into allegations that Mr Okada made at least $110,000 in unauthorised payments to two gaming officials in the Philippines” and last week “Wynn’s attorney, Debra Yang, a partner with Gibson Dunn &  Crutcher and former US attorney for the Los Angeles area, flew to Washington and met with criminal prosecutors at the Department of Justice.”

Does the Freeh Report and the FCPA allegations against Okada evidence offensive use of the FCPA to accomplish a business objective?  The FCPA allegations against Okada - a Wynn business rival – contributed to a finding that Okada was “unsuitable” under Nevada gaming regulations, which then facilitated Wynn’s purchase of Okada’s Wynn shares at a substantial discount.

Another way of asking the same question is as follows – if the Freeh report found the same exact conduct (i.e. 36 instances – 35 of which were very minor in scope, totaling $110,000 involving a person other than Okada) would Wynn have gone public with such “prima facie” FCPA violations through a voluntary disclosure?  I highly doubt it.

By publicly stating that Okada’s conduct (36 instances of lodging expenses and entertainment for “foreign officials” – 35 of which were very minor in scope) evidences “prima facie” FCPA violations, is Wynn opening itself up to greater scrutiny as to its own relationships with the “foreign officials” which regulate its businesses abroad?  Is Wynn supremely confident that someone associated with the company did not charge $253 to a corporate account for a ”foreign official” to stay a night at one of its hotels?  Did Wynn leave a chocolate for the “foreign official” on his pillow or pay for a fancy dinner?

In a strange twist to the story, yesterday the Wall Street Journal reported that Wynn competitor Las Vegas Sands CEO Sheldon Adelson stated that “complimentary hotel rooms is a common practice in the gambling industry.”  Las Vegas Sands is already under FCPA scrutiny (see here for the prior post) and if that investigation was not already focused on travel and entertainment issues, you can bet it is headed in that direction.

I agree with Professor Peter Henning who writes the White Collar Crime Watch at the New York Times that Wynn’s accusations against Okada “open up a can of worms” (see here) and that Wynn’s accusations ”means the Justice Department and the Securities and Exchange Commission will be scouring the company’s books for possible violations, a front that neither side can control” and that “by invoking the specter of overseas bribery, Wynn has effectively opened itself up to a wide-ranging federal investigation of its dealings in Macao and elsewhere.”

The question Wynn will have to ask itself as this presumably goes forward is whether it was worth using the unhinged FCPA enforcement theories defining this new era to oust a business rival?

As to the big, big picture, if the DOJ or SEC do bring an enforcement action against Okada (or Wynn) for the conduct described in the Freeh Report, are we prepared to confront the glaring double standard increasingly coming into focus during this new era of FCPA enforcement?  For more on the double standard and corporate benefits given to U.S. officials, see here, here, here, and here.

Wynn Resorts $135 Million University of Macau Donation The Subject Of SEC Scrutiny

Tuesday, February 14th, 2012

In May 2011,  Wynn Resorts donated $135 million to the University of Macau (see here for the University’s press release).

In an 8-K filing yesterday, Wynn Resorts Ltd. disclosed as follows.

“As previously disclosed, in May 2011, Wynn Macau, a majority owned subsidiary of Wynn Resorts, Limited (the “Company”), made a commitment to the University of Macau Development Foundation in support of the new Asia-Pacific Academy of Economics and Management. This contribution consists of a $25 million payment made in May 2011 and a commitment for additional donations of $10 million each year for the calendar years 2012 through 2022 inclusive. The pledge was consistent with the Company’s longstanding practice of providing philanthropic support for deserving institutions in the markets in which it operates. The pledge was made following an extensive analysis which concluded that the gift was made in accordance with all applicable laws. The pledge was considered by the Boards of Directors of both the Company and Wynn Macau and approved by 15 of the 16 directors who serve on those boards. The sole dissenting vote was Mr. Kazuo Okada whose stated objection was to the length of time over which the donation would occur, not its propriety.

Also as previously disclosed, Mr. Okada commenced litigation on January 11, 2012 [see here for the complaint], in Nevada seeking to compel the Company to produce information relating to the donation to the University of Macau, among other things.

On February 8, 2012, following Mr. Okada’s lawsuit, the Company received a letter from the Salt Lake Regional Office of the U.S. Securities and Exchange Commission (“SEC”) requesting that, in connection with an informal inquiry by the SEC, the Company preserve information relating to the donation to the University of Macau, any donations by the Company to any other educational charitable institutions, including the University of Macau Development Foundation, and the Company’s casino or concession gaming licenses or renewals in Macau. The Company intends to fully comply with the SEC’s request.”

While the Wynn’s disclosure does not specifically mention the Foreign Corrupt Practices Act, given that the company’s disclosure of the SEC inquiry appears to link the donation to the “Company’s casino or concession gaming licenses or renewals in Macau” it is likely that the SEC’s interest in the donation is based, at least in part, on the FCPA.  As Okada alleges in his complaint “Wynn Macau’s gaming concession expires in June 2022″ – the last year of Wynn’s donation committment.  According to Okada’s complaint “he objected to this donation, which appears to be unprecedented in the annals of the University” [which he alleges sits on land owned by the government].

According to Wynn’s most recent quarterly filing, the company’s Macau operations constitute approximately 75% of the company’s overall revenue.  Macau is also a focus of the company’s expansion plans.

Charitable donations are not in and of themselves prohibited by the FCPA’s anti-bribery provisions.  For instance, see here for a 2009 FCPA Opinion Procedure Release.  Yet, such donations do carry FCPA risk and, as anyone who has reviewed DOJ NPAs and DPAs know, FCPA best practices is to have adequate controls as to charitable donations (see here for the recent Aon NPA – specifically Appendix B).

Charitable donations hit the radars of FCPA practitioners as a result of a 2004 SEC FCPA enforcement action against Schering-Plough (see here).  In the enforcement action, the SEC alleged that Schering-Plough violated the FCPA when its wholly-owned Polish subsidiary (“S-P Poland”) improperly recorded a bona fide charitable donation to a Polish foundation that restored castles where the founder/president of the foundation was also a director of a government health fund  that provided money to hospitals throughout Poland for the purchase of pharmaceutical products.  Although the SEC and Schering-Plough ultimately resolved the matter based only on violations of the FCPA books and records and internal control provisions, the enforcement action is commonly viewed as standing for the proposition that “payments to a bona fide charity could violate the FCPA if made to influence the actions of a government official” (see this client alert from Wilmer Cutler).

Wynn is not the only casino under scrutiny for Macau conduct.  Las Vegas Sands has also been under FCPA scrutiny concerning its operations in Macau.  In a question out of left-field, during the June 2011 FCPA hearing in the House, Representative Quayle (R-AZ) asked the DOJ whether it “looked into the gambling practices in Macau and if there is any illegal activity occurring in that arena?”  (See here page 71).

Like Wynn’s Macau inquiry, the Las Vegas Sands inquiry also seems to have started with a civil lawsuit.  See here for the prior post.