Archive for the ‘Non-Prosecution Agreement’ Category

Like A Kid In The Candy Store

Friday, January 29th, 2016

Kid in Candy StoreLike every year around this time, I feel like a kid in a candy store given the number of FCPA year in reviews hitting my inbox.  This post highlights various FCPA or related publications that caught my eye.

Reading the below publications is recommended and should find their way to your reading stack.

However, be warned.  The divergent enforcement statistics contained in them (a result of various creative counting methods) are likely to make you dizzy at times and as to certain issues. There will be more on this issue in the near future.

Shearman & Sterling

The firm’s Recent Trends and Patterns in FCPA Enforcement is among the best year-after-year.

Content that caught my eye:

“It is … noteworthy that the DOJ’s and SEC’s prioritization of individual prosecutions comes as enforcement agencies continue to struggle while pursuing FCPA charges against individual defendants. Setbacks in United States v. Sigelman and United States v. Firtash may cause the Department to rethink its strategy. Indeed, while the DOJ has had some success extracting plea agreements, when put to its burden of proof the DOJ (and the SEC for that matter) has experienced difficulty in securing convictions and judgments. Given these struggles, it is possible that future individual defendants may be emboldened to test their chances against the government in court, potentially requiring the DOJ to devote even more resources to trying these individuals. While the DOJ and SEC have made it a clear priority to prosecute individuals for violations of the FCPA, the risk-reward calculations that prosecutors must consider before bringing charges could be altered going forward.”

[For more on this general topic, see “What Percentage of DOJ FCPA Losses is Acceptable?“]

[...]

“[Regarding so-called declinations] we note however, in the cases of Eli Lilly, Goodyear, Mead Johnson Nutrition, Hyperdynamics, and Bristol-Myers, the DOJ’s declination decision might also be explained by a possible lack of jurisdiction. Specifically, in each of the cases above, where all of the illicit conduct was committed by subsidiaries of the parent company, the DOJ may have concluded it was too difficult to prove that the subsidiaries’ conduct should be imputed on the corporate parent—bearing in mind that the DOJ has a higher burden of proof to sustain criminal FCPA charges against a company.”

[...]

“The DOJ’s 2015 prosecution of Daren Condrey in United States v. Condrey raises some questions as to whether government prosecutors are remaining faithful to the government instrumentality test set out in the Eleventh Circuit’s 2014 decision in United States v. Esquenazi.”

[For more on this topic, see this prior post]

[...]

“[Regarding the 2015 BNY Mellon "internship" enforcement action] [T]he government’s approach is bad policy. For better or worse, some of the most educated and most qualified potential hires in many countries are the children of government officials—individuals who benefited from their parents’ privileges and had the opportunity to attend prestigious schools, learn foreign languages, etc. If the government infers an intent to apply corrupt influence from the potential hire’s relationship to government officials, it is likely to chill hiring of such individuals, resulting in a completely unnecessary disadvantage to U.S. and other companies covered by the FCPA.”

Debevoise & Plimpton

The firm’s FCPA Update is the best monthly read there is and the most recent edition states:

“Even adding in amounts agreed or ordered to be recovered from individuals in FCPA cases, last year was by any objective measure one of more muted FCPA enforcement. Various theories can be advanced to explain these figures.

One, and probably the most plausible, is that, in a system of FCPA enforcement against companies that almost never ends in a trial, corporate resolutions require companies’ consent. It was only a matter of time for there to be a dry spell of large corporate resolutions. Thus, there were no large settlements last year because of the mundane fact that none of the larger cases in the pipeline was ready to be settled. Because of potential negotiation delays of various kinds in cases in the pipeline, it is conceivable if not likely there will be large settlements in 2016, which may dampen urges to downplay enforcement risk.

Still, a theory warranting consideration is that more companies subject to the FCPA are “getting it,” the possibility being that after a decade of vigorous enforcement the number of big cases that could be brought is markedly decreased. That the number of FCPA-related investigations reported by public companies declined by about 20 percent, year over year, arguably supports this theory.

But negating this theory is the large number of new foreign corruption matters reported daily in the media, and the kinds of political upheaval and developments in technology, social media culture, whistle-blowing, and transparency movements that drive anti-bribery enforcement. Given the broad jurisdictional reach of the FCPA (particularly as construed by the DOJ and SEC), a large percentage of the new cases reported in the media could well subject companies and individuals alike to future FCPA enforcement risks. These risks are magnified by a growing level of cross-border cooperation among anti-bribery enforcement agencies.

And as the Obama Administration heads into its final year, with a new Attorney General and Assistant Attorney General for the Criminal Division now settled into their roles, the likelihood of increased enforcement seems relatively high.”

Gibson Dunn

The firm’s Year-End FCPA Update is also a quality read year after year.

Gibson Dunn also released (here) its always informative “Year-End Update on Corporate Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs).”

It begins as follows.

“2015 was a blockbuster year in corporate non-prosecution agreements (“NPA”) and deferred prosecution agreements (“DPA”), by sheer numbers alone.  Skyrocketing to 100 [87 NPAs and 13 DPAs], in 2015 the number of agreements more than doubled the numbers in every prior year since 2000 , when Gibson Dunn first began tracking NPA and DPA data.”

Davis Polk

The firm’s Trends in Anti-Corruption Enforcement is here. A visual FCPA Resolution Tracker is here.

Jenner Block

The firm’s Business Guide to Anti-Corruption Laws 2016 is here.

Hogan Lovells

The firm’s Global Bribery and Corruption Review is here.

Arnold & Porter

The firms Global Anti-Corruption Insights is here.

On The Concentration Of Power …

Thursday, December 17th, 2015

ChecksThe DOJ often speaks of the rule of law in connection with Foreign Corrupt Practices Act enforcement.

For instance, in 2010 then DOJ Assistant Attorney General Lanny Breuer delivered a speech before the Council on Foreign Relations titled “International Criminal Law Enforcement:  Rule of Law, Anti-Corruption and Beyond” and how the increase in FCPA enforcement was consistent with U.S.’s global approach to promote the rule of law. Breuer began his speech by asking two rhetorical questions:  is the rule of law “more than just a catch phrase” and “does the rule of law have any real meaning” and concluded his speech by saying that there is nothing “more critical, both to our country and to other nations, than establishing true rule of law.”

A commonly accepted rule of law principle includes limited government powers.

The World Justice Project defines this factor as a “system of checks and balances to limit the reach of excessive government power” and “the distribution of authority in a manner that ensures that no single organ of government has the practical ability to exercise unchecked power.”

Regardless of what one thinks about the efficacy and policy merits of non-prosecution and deferred prosecution agreements, one must concede that NPAs and DPAs represent a concentration of power by a “single organ of government” (the DOJ).

This concentration of power has, with increasing frequency, been criticized including on these pages since 2010 (see here for the article “The Facade of FCPA Enforcement,” and here for the more recent article “Measuring the Impact of NPAs and DPAs on FCPA Enforcement”).

A notable development this year has been U.S. v. Fokker Services.

Although not an FCPA case (it involves criminal charges against the company to unlawfully export U.S. origin goods and services to Iran, Sudan, and Burma), the case has been followed closely here at FCPA Professor because of its potential impact on FCPA enforcement.

As highlighted in this prior post, U.S. District Court Judge Richard Leon (D.D.C.) refused to rubber stamp the DPA agreed to by the DOJ and Fokker Services.  Judge Leon’s decision is being appealed to the D.C. Circuit and as noted in this prior post the DOJ’s position is basically “hands off our DPAs.” See here for additional briefs filed in the matter. In September, the D.C. Circuit heard oral arguments and the audio file of the arguments is here. For a good summary of the oral argument, see here. The appeal presents an uncommon situation in which the DOJ and criminal defendant share similar positions – that is, wanting the DPA to be approved so both sides can move on. Yet as evidenced in the oral argument, the court seems to have serious concerns regarding the substantive and procedural arguments of the parties.

Big picture, what is at issue in Fokker Services is the concentration of power.

While we await the D.C. Circuit’s decision, it is worth noting that concentration of power has always been issue of concern in this country.

In 1788 James Madison penned what would become known as Federalist Paper No. 51 titled “The Structure of the Government Must Furnish the Proper Checks and Balances Between the Different Departments.”

In pertinent part, Madison wrote:

“To what expedient, then, shall we finally resort, for maintaining in practice the necessary partition of power among the several departments, as laid down in the Constitution? The only answer that can be given is, that as all these exterior provisions are found to be inadequate, the defect must be supplied, by so contriving the interior structure of the government as that its several constituent parts may, by their mutual relations, be the means of keeping each other in their proper places. Without presuming to undertake a full development of this important idea, I will hazard a few general observations, which may perhaps place it in a clearer light, and enable us to form a more correct judgment of the principles and structure of the government planned by the convention.

In order to lay a due foundation for that separate and distinct exercise of the different powers of government, which to a certain extent is admitted on all hands to be essential to the preservation of liberty, it is evident that each department should have a will of its own; and consequently should be so constituted that the members of each should have as little agency as possible in the appointment of the members of the others. Were this principle rigorously adhered to, it would require that all the appointments for the supreme executive, legislative, and judiciary magistracies should be drawn from the same fountain of authority, the people, through channels having no communication whatever with one another. Perhaps such a plan of constructing the several departments would be less difficult in practice than it may in contemplation appear. Some difficulties, however, and some additional expense would attend the execution of it. Some deviations, therefore, from the principle must be admitted. In the constitution of the judiciary department in particular, it might be inexpedient to insist rigorously on the principle: first, because peculiar qualifications being essential in the members, the primary consideration ought to be to select that mode of choice which best secures these qualifications; secondly, because the permanent tenure by which the appointments are held in that department, must soon destroy all sense of dependence on the authority conferring them.

It is equally evident, that the members of each department should be as little dependent as possible on those of the others, for the emoluments annexed to their offices. Were the executive magistrate, or the judges, not independent of the legislature in this particular, their independence in every other would be merely nominal.

But the great security against a gradual concentration of the several powers in the same department, consists in giving to those who administer each department the necessary constitutional means and personal motives to resist encroachments of the others. The provision for defense must in this, as in all other cases, be made commensurate to the danger of attack. Ambition must be made to counteract ambition. The interest of the man must be connected with the constitutional rights of the place. It may be a reflection on human nature, that such devices should be necessary to control the abuses of government. But what is government itself, but the greatest of all reflections on human nature? If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions.

This policy of supplying, by opposite and rival interests, the defect of better motives, might be traced through the whole system of human affairs, private as well as public. We see it particularly displayed in all the subordinate distributions of power, where the constant aim is to divide and arrange the several offices in such a manner as that each may be a check on the other — that the private interest of every individual may be a sentinel over the public rights.”

In more modern times, it is worth noting (see here) that the United Kingdom rejected NPAs because they represented too extreme a concentration of power.  In the words of the U.K. Ministry of Justice, “the lack of judicial oversight is likely to make [NPAs] unsuitable for the constitutional arrangements and legal traditions in England and Wales.  We have concluded that [NPAs] are not suitable for this jurisdiction due to their markedly lesser degree of transparency, including the absence of judicial oversight.”

Moreover, it is worth noting that the U.K.’s regime for DPAs does provide for a system of early and consistent checks and balances by the judiciary.

New Article – Measuring The Impact Of NPAs And DPAs On FCPA Enforcement

Tuesday, December 15th, 2015

Ruler3My new article was recently published in the U.C. Davis Law Review.

*****

The summary is as follows.

Historically, the Department of Justice (“DOJ”) had two choices when a business organization was the subject of Foreign Corrupt Practices Act (“FCPA”) scrutiny: either charge the entity with an FCPA violation or not charge. However, in 2004 the DOJ brought to FCPA enforcement a third option: alternative resolution vehicles called non-prosecution agreements (“NPAs”) and deferred prosecution agreements (“DPAs”).

The use of alternative resolution vehicles to resolve FCPA scrutiny is not authorized by the FCPA nor any other specific Congressional legislation. Moreover, DOJ policy states that alternative resolution vehicles are to be used only “under appropriate circumstances.” However, this article demonstrates that alternative resolution vehicles have become the dominant way the DOJ resolves corporate FCPA scrutiny and serve as an obvious reason for the general increase in FCPA enforcement over the past decade. To the many cheerleaders of increased FCPA enforcement, NPAs and DPAs are thus worthy of applause.

Yet in a legal system based on the rule of law, quality of enforcement is more important than quantity of enforcement. Through empirical data and various case studies, this article measures the impact NPAs and DPAs have on the quality of FCPA enforcement and concludes that NPAs and DPAs — while resulting in higher quantity of FCPA enforcement — result in lower quality of FCPA enforcement. This disturbing finding matters not only in the specific context of the FCPA but more broadly as other nations with “FCPA-like” laws adopt U.S.-style alternative resolution vehicles.

The article can be downloaded at this link.

In analyzing the impact NPAs and DPAs have on the quality of FCPA enforcement, readers are encouraged to ponder the numerous statistics highlighted in the article such as:

  • The percentage of FCPA enforcement actions against business organizations that resulted in related prosecution of company employees prior to alternative resolution vehicles being introduced to the FCPA context compared to the percentage of FCPA enforcement actions against business organizations that resulted in related prosecution of company employees after alternative resolution vehicles were introduced to the FCPA context;
  • Since 2008, the percentage of corporate FCPA enforcement actions there were the result of a criminal indictment or resulted in a guilty plea that have resulted in related criminal charges of company employees compared to the percentage of corporate FCPA enforcement actions resolved solely with an NPA or DPA that have resulted in related criminal charges of company employees; and
  • Two aggressive FCPA enforcement theories (not subjected to any meaningful judicial scrutiny) that have yielded 17 DOJ enforcement actions against business organizations in which the DOJ extracted approximately $350 million in corporate settlements, yet 0 of these enforcement actions have resulted in any related criminal prosecution of individuals associated with the companies resolving the enforcement actions.

Friday Roundup

Friday, June 19th, 2015

Roundup2Scrutiny alerts and updates, quotable, and for the reading stack.  It’s all here in the Friday Roundup.

Scrutiny Alerts and Updates

Net1

As highlighted here, in 2012 Net1 UEPS (a South African telecommunications company with shares traded on a U.S. exchange) disclosed that it had received information requests from the DOJ and SEC following South African media reports concerning civil litigation in that country by an unsuccessful bidder of a telecommunications contract.

As highlighted here, in 2013 Net1 announced: “[A] full bench of the South African Supreme Court of Appeal (“Appeal Court”) unanimously ruled that the tender process followed by the South African Social Security Agency (“SASSA”) in awarding a contract to Net1’s wholly owned subsidiary Cash Paymaster Services (Proprietary) Limited (“CPS”) was valid and legal.”

Recently, the company disclosed as follows.

“[We have] received a letter from the Foreign Corrupt Practices Act unit of the Division of Enforcement of the U.S. Securities and Exchange Commission (“SEC”), advising the Company as follows:

“We have concluded the investigation as to Net 1 UEPS Technologies, Inc. Based on the information we have as of this date, we do not intend to recommend an enforcement action by the Commission against Net 1 UEPS Technologies, Inc. We are providing this notice under the guidelines set out in the final paragraph of Securities Act Release No. 5310, which states in part that the notice “must in no way be construed that the party has been exonerated or that no action may ultimately result from the staff’s investigation” [...]

“The investigation commenced in December 2012 following the award of the SASSA national contract to us in January 2012,” said Dr. Serge Belamant, Chairman and CEO of Net1. “It commenced largely as a result of one of the losing bidders for the contract, Barclays Africa’s subsidiary AllPay, referring unsubstantiated South African press articles alleging irregularities in the tender process to the U.S. Department of Justice. We believe that AllPay was responsible for instigating those media allegations. This resulted in the DOJ and SEC initiating investigations into alleged FCPA and disclosures violations. This letter from the SEC is an important step in the Company clearing its name and is in line with the total absence of any findings of irregularities against Net1 by any South African Court or Regulator resulting from actions pursued by AllPay over the past three years,” he concluded.

The separate investigation into these matters initiated by Net1 itself with the South African Police’s Commercial Crimes unit is expected to be concluded shortly.

It is the Company’s understanding that the DOJ investigation remains open at this time.”

Electrobras

As noted here:

“Brazil’s state-run power company Centrais Eletricas Brasileiras SA has hired U.S. law firm Hogan Lovells to assess possible cases of corruption in some of the projects the company is involved in. Eletrobras, as the company is known, said in a filing to the Brazilian market regulator that the law firm will check whether there were practices which violated the U.S. Foreign Corrupt Practices Act. The projects to be scrutinized will be selected based on their financial relevance to the company and on their relationships with construction companies already being investigated by Brazilian authorities in the so-called Operation Car Wash, focused on state-run oil company Petrobras. Eletrobras also said that internal units assigned to investigate possible wrongdoings are progressing with evaluations and that it will inform investors of their findings as soon as they are available.”

SOCO International

The British oil and gas company with ADRs traded on a U.S. exchange was recently the subject of this New York Times article:

“[A]ccording to documents obtained by Global Witness, an advocacy group, SOCO appears to have paid tens of thousands of dollars to a Congolese Army officer who has been accused of leading a brutal campaign against those objecting to the company’s oil exploration in the nature reserve, Virunga National Park. Over the course of two weeks during the spring of 2014, according to the documents, the officer, Maj. Burimba Feruzi, received at least $42,250 in payments from a local bank account associated with SOCO. That is the equivalent of 30 years of salary for the army officer, according to Global Witness.”

Quotable

Earlier this week Assistant Attorney General Leslie Caldwell spoke at the Annual Association of Certified Fraud Examiners Global Fraud Conference.  In pertinent part, she stated:

“The threats posed by international corruption cannot be overlooked.  Corruption renders countries less safe and less stable.  Corruption thwarts economic development, traps entire populations in poverty and undercuts credible justice systems.

International corruption also inhibits the ability of American companies—and others—to compete overseas on a level playing field.  Once bribery and corruption take hold, fair and competitive business practices are eliminated.

A timely example of how corruption can infect international business practices is the FIFA case recently charged by the U.S. Attorney’s Office of the Eastern District of New York.  In that case, nine FIFA officials and five corporate executives have been charged with various offenses, including racketeering conspiracy, in connection with a 24-year scheme to enrich themselves through the corruption of international soccer.  The Criminal Division’s Office of International Affairs has worked closely with the lead FIFA prosecutors to obtain evidence from numerous countries across the globe.  Swiss authorities have opened a separate, parallel probe into FIFA, relating to the selection of World Cup hosts.  We are sharing evidence and collaborating closely with governments around the world in connection with the ongoing investigation.  This worldwide effort is a profound illustration of the success that can be achieved through a truly global coalition.

In many ways, the FIFA case is very much like the Foreign Corrupt Practices Act (FCPA) cases the Criminal Division is regularly investigating and prosecuting to attack illegal conduct in the global marketplace.  These cases protect markets from corruption and the artificial influences of bribery, and ensure that American companies—indeed, all companies—can compete fairly and freely across international boundaries.

But make no mistake: fighting corruption is not some service we provide to the global community; this is a fight in which we have critical international allies.  Far from acting as the world’s corruption police, the United States is part of a formidable and growing coalition of international enforcement partners who together combat corruption around the world—at home as well as abroad—that threatens each of our nations.

It is not just the United States that is recognizing the importance of foreign bribery laws.  There is a growing chorus of countries voicing support for the fight against this type of corruption.  More and more countries are joining international bodies—like the Organisation for Economic Co-operation and Development—that provide uniform standards for the criminalization of bribery of foreign public officials in international business transactions.  This type of collaboration is critical if we are going to have a meaningful impact on international corruption.

[...]

At the same time that we work to combat corruption overseas, we are also increasing our efforts to ensure that American borders do not protect criminals or their assets.  In this regard, the Justice Department launched the Kleptocracy Asset Recovery Initiative in 2010.  The initiative relies on the use of U.S. civil forfeiture actions to recover the proceeds of foreign official corruption that pass through the United States.

More simply, it takes the monies and assets stolen by foreign despots and kleptocrats and returns them to the people harmed.  This initiative protects the integrity of the U.S. financial system from use by corrupt officials and denies those officials the ability to enjoy luxuries purchased in the United States at the expense of the populations they purport to serve.

In many ways, the Criminal Division’s FCPA enforcement program and our Kleptocracy Initiative are really two sides of the same anti-corruption coin.  We bring those who pay bribes to justice, no matter how rich and powerful they are.  But by itself, that is not enough.  We also attack corruption at its source, by prosecuting and seizing the assets of the corrupt officials who betray the trust of their people.”

[...]

The United States is not going to overcome the threat posed by global corruption and international organized crime by going it alone.  The Department of Justice is never going to serve as the world’s global police force.  But we can—and I believe we should—lead by example: by vigorously investigating and prosecuting international corruption and organized crime when it violates U.S. laws, and by sustaining and increasing our commitment to international collaboration in our nations’ shared struggle to safeguard our markets, our networks and our citizens.

Under my leadership, the Criminal Division will remain steadfastly committed to forging and growing our international partnerships as we fight the scourge of international corruption and organized crime.”

*****

This recent Global Investigations Review article highlights comments made by Matthew Queler ( assistant chief of the DoJ’s FCPA unit) concerning the hiring of so-called princelings (a hiring practice that has resulted in FCPA scrutiny of a variety of companies in the financial services sector).  Queler’s comments reminded me of reading an article from the Onion in that he basically said its OK to hire princelings so long as it is legal and we at the DOJ determine what legal is.

For the Reading Stack

From Morrison & Foerster’s most recent Anti-Corruption Developments alert.

“DOJ Revokes Non-Prosecution Agreement (NPA). As we previously reported, Assistant Attorney General Leslie Caldwell publicly stated last month that DOJ would “not hesitate to tear up a DPA or NPA and file criminal charges” if a company breaches its agreement. AAG Caldwell’s statement was likely intended to foreshadow DOJ’s May 20, 2015 announcement that it had revoked an NPA with a corporate defendant, the first action of this kind since the revocation of a DPA with Aibel Group Limited in November 2008. In 2012, DOJ entered into an NPA with UBS AG in which DOJ declined to prosecute the bank for any crimes related to its submission of interest rates for LIBOR and other rate benchmarks. In return, the company was required to abide by several conditions during the pendency of the NPA, including the requirement that it “commit no United States crime whatsoever.” DOJ revoked the NPA after (according to the factual statement attached to the guilty plea) the company “engaged in deceptive FX trading and sales practices.” Although not an FCPA case, the revocation of the NPA in this case is relevant to FCPA enforcement because DOJ’s Fraud Section, which has exclusive authority to bring criminal FCPA cases, was involved in the decision. There are a number of reasons to find this action unfair to companies where, as here, the company implemented an enhanced compliance program, and once it found issues, it brought them forward voluntarily to the Antitrust Division (indeed, qualifying for immunity under the Leniency Program). In other words, the company undertook an enhanced compliance program as it promised to do and then it brought the matter forward, as DOJ has repeatedly encouraged companies to do, only to be punished for it. DOJ’s action, thus, presents a potential disincentive to well-meaning companies to report problems discovered as a product of the enhanced compliance program implemented in the wake of a DOJ resolution.”

Friday Roundup

Friday, April 24th, 2015

Roundup2Really no big deal, scrutiny alerts, across the pond, quotable, and for your viewing pleasure.  It’s all here in the Friday roundup.

Really No Big Deal

Lockheed’s request (which the SEC does not oppose) to be relieved of an SEC permanent injunction stemming from a 1976 (pre-FCPA) enforcement action has been receiving some recent ink (see here and here ”Lockheed Wants Out of 40-Year Old Disclosure Demand”).

I don’t really see this as a big deal given that Lockheed’s reporting obligation is not disappearing, it’s just now subject to a more specific law.

As stated in the unopposed motion:

“On April 13, 1976, the Commission filed a Complaint against Lockheed Martin for violations of Sections 10(b), 13(a), and 14(a) of the Securities Exchange Act of 1934 (and the Commission’s Rules promulgated thereunder) arising out of alleged payments to foreign government officials in the early 1970s. Simultaneous with the filing of the Commission’s Complaint, Lockheed Martin consented to the entry of a final judgment of permanent injunction (the “Final Judgment”) without admitting or denying the Commission’s non jurisdictional allegations.

The Final Judgment was entered by the Court that same day. The Final Judgment incorporated by reference a “Consent and Undertaking” entered into and filed by Lockheed Martin (the “Consent”), pursuant to which Lockheed Martin agreed to undertake several remedial actions. [...] Those actions included (a) the creation of an independent Special Committee to conduct an investigation into the matters alleged in the Commission’s Complaint; (b) the preparation and submission of a full report of the Special Committee’s investigation to the Court, the Commission, and Lockheed Martin’s Board of Directors; and (c) the adoption of a “Statement of Policies and Procedures” regarding “unlawful payments to government officials” (hereinafter “Anti-Corruption Policies and Procedures”).  In addition, Lockheed Martin agreed that it would file a Form 8-K with the Commission at least 10 days in advance of any future changes to its Anti-Corruption Policies and Procedures.  This prospective requirement—which Lockheed Martin has now complied with for nearly four decades—is the only aspect of the Final Judgment at issue in this motion.

In 2003, the Commission issued a final rule implementing Section 406 of the SarbanesOxley Act of 2002 (the “Sarbanes-Oxley Act”), which directed the Commission to devise and promulgate requirements for the disclosure of “codes of ethics” by public companies. The final rule defines a “code of ethics” as “written standards that are reasonably designed to deter wrongdoing and to promote,” among other things, “[c]ompliance with applicable governmental laws, rules and regulations.”  The Commission’s final rule requires public companies to disclose their codes of ethics to the public by either (i) filing them as an exhibit to an annual report (on Form 10-K), or (ii) posting them on the company’s website. The final rule also requires that certain types of changes to a company’s code of ethics must be disclosed within four business days of the change where the company elects to disclose its code of ethics on its website.

In light of the Commission’s final rule, Lockheed Martin—like many other public companies—has elected to make its code of ethics (as well as certain other corporate policies) available to the public by posting them on its corporate website. Among other things, Lockheed Martin’s “Code of Ethics and Business Conduct”—which applies to anyone “conducting business on behalf of Lockheed Martin” (including, but not limited to, its employees), and is made available in 16 different languages—requires strict compliance with all applicable anticorruption laws, including the U.S. Foreign Corrupt Practices Act (“FCPA”). Lockheed Martin also makes its more detailed policy on “Compliance with the Anti-Corruption Laws” available on its website. By virtue of the Final Judgment, however, Lockheed Martin must continue to file a Form 8-K before making any change to its Anti-Corruption Policies and Procedures, notwithstanding its compliance with the Commission’s final rule.”

Scrutiny Alerts

Interpublic Group

The bribery and corruption news from Brazil continues to flow.  First it was Petrobras-related bribery, then it was various corporate interactions with tax authorities, and now it is advertising industry.

Advertising Age reports

“A former executive at Lowe & Partners’ Brazilian agency, Borghi/Lowe, was detained by police last Friday and a federal judge authorized the agency’s financial and other records to be searched … Ricardo Hoffman, Borghi/Lowe’s former VP and head of the agency’s office in the nation’s capital Brasilia, is said by Federal judge Sergio Moro [...] to have instructed third parties to make payments to then-Congressman Andre Vargas in connection with two government accounts handled by Borghi/Lowe.”

Lowe & Partners is a unit of The Interpublic Group of Companies, Inc., a New York based company.

See here for a 1989 FCPA enforcement action against an advertising agency and various executives.

SOCO International

Voice of America highlights allegations of bribery and corruption in the Democratic Republic of Congo (DRC) by London-based SOCO (a company with ADRs registered with the SEC).

According to the article:

“A member of DRC’s Parliament allegedly admitted to taking monthly payments from SOCO to lobby for the oil company and a high-level SOCO official and a company contractor allegedly admitted that the company paid rebels.

[...]

SOCO has “categorically denied” corruption allegations.

“The company operates in accordance with the [British] Bribery Act of 2010, and any allegation to the contrary is categorically denied,” SOCO said in a statement [...]. “Payments to rebel groups have never been, or will ever be, sanctioned by SOCO.”

Across the Pond

thebriberyact.com highlights the 5th birthday of the U.K. Bribery Act (from the date passed, not the date the law went live – July 1, 2011) and asks – “the Bribery Act has moved from crawling to walking.  Anyone for cake?”  The post notes:

“The Bribery Act was born amid a huge public fanfare, plenty of hype and lots press coverage. Prosecutions would be imminent and UK PLC would be seriously disadvantaged on the global stage as a result of the ‘red tape’ of the Bribery Act. In 2015 it is hard to square the reality of what happened with what the naysayers forecast.  A handful of individual prosecutions under the Act but none of them are ‘Bribery Act’ cases in the true sense of the word. Put another way, the hype around the Bribery Act focussed on the potential enforcement of new UK anti-corruption laws against corporates UK and foreign who fell under the long arm jurisdiction of the Act. To date, there has been no corporate prosecution launched and no Deferred Prosecution Agreement disposing of a Bribery Act case. Five years on the UK economy is the strongest in Europe and predictions of the the demise of UK PLC turn out to have been premature. So.  What was all the fuss about?”

Precisely.  Here was my two cents on the date the Bribery Act went live in 2011.

“As with any new law, there is likely to be a learning phase for both the enforcement agencies and those subject to the law. That was certainly the case in the U.S. in the years following passage of the FCPA in 1977. Thus, it very well may be the case that there are no enforcement actions for some time (recognizing that it often takes a few years from beginning of an inquiry to resolution of an action). Thus the greatest immediate impact of the Bribery Act is sure to be the compliance ethic it inspires. I expect that the enforcement actions that may develop over time to focus on egregious instances of corporate conduct on which no reasonable minds would disagree. I do not get the sense, based on public comments of the Ministry of Justice and the Serious Fraud Office, that the envelope will be pushed too far in the early years of the Bribery Act.”

Quotable

In this recent Q&A on the FCPA Compliance and Ethics Blog, James Koukios, a lawyer who recently left the DOJ’s FCPA Unit for private practice, states:

“Because the Fraud Section has the exclusive mandate for FCPA prosecutions, we were able to formulate—and execute—policy decisions in a manner that, I believe, had a significant impact on corporate compliance programs and the global anti-corruption movement.”

As I have long argued, special enforcement policies require special rules.  As to DOJ and SEC FCPA enforcement attorneys who have supervisory and discretionary positions and articulate government FCPA policies, it is in the public interest that such individuals be prohibited, upon leaving government service, from providing FCPA defense or compliance services in the private sector for a five-year period.

For Your Viewing Pleasure

Calling all Judge Jed Rakoff fans.  In this video of a recent speech, Judge Rakoff talks about corporate criminal liability and judicial review of NPAs and DPAs.

*****

A good weekend to all.