Archive for the ‘Non-Prosecution Agreement’ Category

And The Apple Goes To …

Monday, September 22nd, 2014

applepicFitting of the season, the FCPA Professor apple award goes to Matthew Fishbein (Debevoise & Plimpton).

In this recent article titled “Why Aren’t Individuals Prosecuted for Conduct Companies Admit,” Fishbein (who previously served in the U.S. Attorney’s Office for the Southern District of New York as Chief Assistant U.S. Attorney and Chief of the Criminal Division, among other DOJ positions), picks an orchard. He writes:

“The public has every right to wonder how it can be that the government brings no charges against individuals in the wake of [corporate criminal settlements]. Companies act only through the conduct of individuals—if the conduct is as egregious as portrayed in these settlements, and if the massive penalties are appropriate, how is it that so often the government charges no individuals?

[...]

Prosecutors’ increasing appreciation of the leverage they enjoy over corporate entities, coupled with companies’ determinations that a “bad” settlement is likely better than a “good” litigation, has resulted in a greater number of corporate settlements in cases where the government would be unlikely to prevail if forced to prove its case in court. The result, increasingly common over the last 20 years, is that prosecutors can obtain what appears to be a monumental victory without needing to develop a theory, supported by evidence, that could survive a legal challenge or prevail before a jury.

Prosecutors have far less leverage over individuals. People, unlike corporations, often face the prospect of incarceration and financial ruin in the event of a criminal conviction. As a result, individuals are more likely to test the government’s legal theories and version of the facts. Of course, the government often does pursue complex cases against individuals where the legal theory is clear and the facts compelling (for example, the recent wave of insider trading cases). But in many of the recent settlements, prosecutors know from their interactions with lawyers for individuals that, unlike with the corporation, they are likely to have a fight on their hands if they bring charges. Prosecutors are under enormous pressure from Congress and the public to pursue cases against senior executives who are thought to have caused the financial crisis. If they thought they would prevail, is there any doubt that they would bring these cases?

[...]

As NPAs and DPAs have become increasingly common, the government’s leverage over corporations in negotiating these settlements has become more apparent. In addition to the tremendous risks associated with an indictment, prosecutors have several other powerful sources of negotiating leverage. These include: government suspension and debarment; the loss of key licenses, such as banking licenses; the drain on the time and energy of corporate executives and other witnesses; legal costs; and costs associated with the uncertainty of a criminal investigation and potential indictment.

Corporations are also reluctant to go to trial because they are risk averse. Regardless of the strength of the government’s case, the facts in corporate criminal cases are often complex or esoteric, and there is always a chance that a jury may not understand why a few problematic documents do not add up to criminal liability.

In light of these factors, companies often may view an admission of criminal conduct as preferable to a legal victory that clears the company’s name but requires years of uncertainty. By entering into a settlement, a company often confines its exposure to a press conference followed by writing a large check, after which the incident may be relegated to a paragraph in a 10-Q filing. By contrast, a company that goes to trial may receive negative—and unpredictable—news coverage for years.

From a business perspective, the preference to settle appears to be prudent: Even though DPAs often involve damaging admissions and massive fines, such negotiated resolutions tend to lead to an immediate increase in a company’s stock price. [...] The increase of a company’s stock price after it admits to often egregious criminal conduct and pays a multimillion dollar fine reflects the strong desire of shareholders and the market—and the consequent pressure on corporate executives—to resolve investigations by entering into settlements. The market appears to value the certainty of a resolution more than it is concerned by admissions of criminal conduct.

The above factors all contribute to an environment in which the government can test the limits of its leverage in negotiating corporate settlements. In recent years, prosecutors have pushed those limits further, knowing that they often need not develop a theory of criminal liability that would likely survive a court challenge. A December 2013 NPA that Archer Daniels Midland (ADM) entered into to settle FCPA charges provides a telling example. Under the NPA, ADM agreed to pay $54 million in penalties for bribing foreign government officials. Although it was undisputed that officials of ADM indirect subsidiary ACTI Ukraine paid off foreign officials, they did so in order to receive tax refunds owed by the Ukrainian government.

According to FCPA expert and Southern Illinois University School of Law Professor Michael Koehler, “it is difficult to square [the elements of the FCPA] with the facts alleged in the [ACTI] Ukraine information, and anyone who values the rule of law should be alarmed by it.” The FCPA was designed to prevent companies from “corruptly” acquiring “business”—not receiving owed tax refunds. Moreover, the statute specifically exempts from its anti-bribery provisions “payments to a foreign official…the purpose of which is to expedite or to secure the performance of a routine government action by a foreign official.”

The ADM NPA appears to reflect what Mark Mendelsohn, former head of the Justice Department’s FCPA Unit, has described as the “danger” of NPAs and DPAs: “it is tempting for the [Justice Department] or the SEC…to seek to resolve cases through DPAs or NPAs that don’t actually constitute violations of the law.” But if a case turns out to be marginal, why would a prosecutor pursue it? My experience as a former prosecutor and current defense lawyer suggests that there are at least three reasons for this phenomenon.

First, competition between prosecutors’ offices and public demands for immediate investigations in the wake of high-profile stories place substantial pressure on prosecutors to investigate companies quickly and to pursue cases without having necessarily vetted their appropriateness for criminal charges.

Second, many of the subjects of corporate investigations are complicated, esoteric, and place a substantial burden on the limited resources of prosecutors’ offices. After a lengthy investigation, a prosecutors’ office may not be inclined to simply close a case, especially if it can induce the company to enter into a settlement.

Third, as a result of the leverage discussed above, prosecutors can obtain settlements and massive payments in even marginal cases. Corporate prosecutions represent a low-risk, high-reward opportunity: The risk inherent in pursuing a marginal case is blunted by the high likelihood that a corporation will settle because of the prosecutor’s superior leverage and the corporate defendant’s rational risk aversion. And as settlements increase and monetary penalties skyrocket, the government accumulates and issues press releases reporting record amounts in fines and forfeitures.

[...]

[F]ew prosecutions of individuals actually occur. The reason is simple: Prosecutors do not possess the same kind of leverage over individuals that they do over companies. Because an admission of wrongdoing by an individual has far greater consequences, individuals are more likely to test the prosecution’s case. In cases where the evidence of criminal conduct is weak, prosecutors may well succeed in inducing the corporation to settle, but fail to convince individuals to do the same. Consequently, we see DPAs, often accompanied by inflammatory statements of fact (drafted by prosecutors) documenting outrageous criminal conduct by the company through its employees, without any follow-up prosecution of individuals.

Prosecutors have long been able to charge companies for the criminal conduct of their employees. And in the appropriate case, it makes sense that the corporation, which is created by the laws of the state, should be held accountable to ensure that its employees follow the law. But it follows that if criminal conduct has occurred, the individuals responsible should also be pursued.

The leverage the government can exercise over companies has tipped the scales to a troubling degree. By using their considerable leverage to induce companies to enter into settlements in increasingly marginal cases and forcing them to admit to egregious conduct to settle charges that likely would not survive a legal challenge or be proved to a jury, prosecutors have created a situation where the public is deceived into thinking that the individuals involved in corporate criminal conduct are receiving a free pass.

If these cases were exposed to the light of day by the adversarial system, the public would learn that they are often far murkier than they appear in the DPA’s statement of facts. Instead, however, the public sees a fundamental disconnect between the prosecution of corporations and the prosecution of individuals—and is justifiably left to wonder why prosecutors do not pursue the individuals through whom all corporations must act.”

For additional reading on the above topics see:

The Facade of FCPA Enforcement“ (2010)

My 2010 Senate FCPA testimony (“The lack of individual prosecutions in the most high-profile egregious instances of corporate bribery causes one to legitimately wonder whether the conduct was engaged in by ghosts. [...]  However, a reason no individuals have been charged in [most FCPA] enforcement actions may have more to do with the quality of the corporate enforcement action than any other factor. As previously described, given the prevalence of NPAs and DPAs in the FCPA context and the ease in which DOJ offers these alternative resolution vehicles to companies subject to an FCPA inquiry, companies agree to enter into such resolution vehicles regardless of the DOJ’s legal theories or the existence of valid and legitimate defenses. It is simply easier, more cost efficient, and more certain for a company … to agree to a NPA or DPA than it is to be criminally indicted and mount a valid legal defense – even if the DOJ’s theory of prosecution is questionable …”.

But Nobody Was Charged” (2011)

“DOJ Prosecution of Individuals – Are Other Factors At Play?” (2011) (2013) (2014)

Why You Should Be Alarmed by the ADM Enforcement Action” (2014).

*****

[The FCPA Apple Award recognizes informed, candid, and fresh thought-leadership on the Foreign Corrupt Practices Act or related topics. There is no prize, medal or plaque awarded to the FCPA Professor Apple Award recipient. Just recognition by a leading FCPA website visited by a diverse group of readers around the world. There is no nomination procedure for the Apple Award. If you are writing something informed, candid and fresh about the FCPA or related topics, chances are high that I will find your work during my daily searches for FCPA content.]

Friday Roundup

Friday, September 12th, 2014

The problem with NPAs and DPAs, how does your product go to market in China, media coverage in China, victory, scrutiny alerts and updates, and for the reading stack.  It’s all here in the Friday roundup.

The Problem With NPAs and DPAs

I’ve long called for the abolition of NPAs and DPAs in the FCPA context as part of a two-pronged reform approach (see here among other posts).  As highlighted here among other posts, NPAs and DPAs are problematic across a wide spectrum and the agreements often contain meaningless or senseless language.

This recent Wall Street Journal Law Blog post titled “5 Things Companies Agree to But Can’t Deliver On in DPAs” is a worthy read. It begins:

“FCPA lawyers have a love-hate relationship with deferred-prosecution agreements,” said Laurence Urgenson, a partner at Mayer Brown. “We need them to get around the collateral consequences of prosecutions…but there is language in the agreements that drives us crazy.” Mr. Urgenson said the agreements originated with settlements prosecutors would reach with individuals, often children, placing certain requirements on them as a condition for the charges eventually being dropped. But many of those requirements make no sense in a settlement with a company; Mr. Urgenson picked out some of his favorites.”

How Does Your Product Go To Market In China?

Returning to issues discussed in this 2011 post and this 2011 post, this recent article in Food Navigator – Asia (not my typical source of FCPA material) states as follows concerning practices in China:

“One currently emerging trend is how companies are apparently becoming more comfortable to talk openly about measures they are taking to avoid gaining approvals and still move their products to market.  Indeed, four companies outlined to us the agreements they had made with Chinese distributors to deliver their products to locations near to China and then leave the local partners to navigate their movement into the People’s Republic.  Most likely, this would be done in cahoots with ministry officials in deals that would involve sweeteners and other transactions.  ’Once we’ve delivered the product, it isn’t our problem what our partner decides to do with it,’ an executive at a U.S.-based multinational told us in Hong Kong.  ’It’s not the cost of approvals that concerns us, it’s the time,” a mid-market manufacturer, also from the U.S., told us.  ”It is important for us that we hit China right now.’  Not all the companies we talked to about this were from America, but the fact that two were was surprising.  This is not least because business practices there are governed by the FCPA …  [...]  What is surprising to us is not the fact that these practices exist at all, it is how U.S. businesses in particular have now become comfortable enough to openly brief the press about their part in this trend.”

That makes two of us that are surprised!

Media Coverage in China

This prior 2012 post titled “All the News That Fit? To Print” highlighted the practice of paying journalists for media coverage in China.  Related to the general issue is this recent New York Times article which describes how “journalists who worked for a business news website under investigation in Shanghai have described a scheme of extorting Chinese companies, which were pressed to pay in return for the production of flattering articles or the burying of damaging ones.”

Victory

In this prior post I exposed how the DOJ and SEC literally re-wrote the FCPA statute in the November 2012 issued FCPA Guidance. The post highlighted the difference – even a first year law student would be expected to see – between what the FCPA actually says and the version of the FCPA in the Guidance.

Set forth below is the text of the FCPA regarding the “obtain or retain business” element.

   ”anything of value to

         any foreign official for purposes of

(A) (i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (iii) securing any improper advantage; or

(B) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality,

         in order to assist such issuer in obtaining or retaining business for or with, or directing business to, any person;

Set forth below is how the text of the FCPA was [originally] portrayed in the FCPA Guidance.

   “anything of value to

         any foreign official for purposes of

(A) (i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (iii) securing any improper advantage; or

(B) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in order to assist such issuer in obtaining or retaining business for or with, or directing business to, any person;

Recently, I received an interesting e-mail from a reader who was confused by my prior post because the FCPA Guidance does not portray the FCPA as suggested in my original post.  The reader was right!  That’s because the DOJ/SEC changed the version of the FCPA originally set forth in the Guidance to its proper form.  To prove that the original FCPA Guidance literally re-wrote the FCPA, here is the version of the FCPA that originally appeared in the FCPA Guidance which relevant portions highlighted.

Subtle yes, but sometimes victory occurs in the shadows.

Scrutiny Alerts and Updates

HP Russia

Related to the April 2014 DOJ enforcement action against HP related entities (see here for the prior post), the DOJ announced yesterday that HP Russia formally pleaded guilty.

As stated in the DOJ release

“In a brazen violation of the FCPA, Hewlett Packard’s Russia subsidiary used millions of dollars in bribes from a secret slush fund to secure a lucrative government contract,” said Principal Deputy Assistant Attorney General Marshall Miller.  “Even more troubling was that the government contract up for sale was with Russia’s top prosecutor’s office.   Tech companies, like all companies, must compete on a level playing field, not resort to secret books and sham transactions to hide millions of dollars in bribes.  The Criminal Division has been at the forefront of this fight because when corruption takes hold overseas, American companies and the rule of law are harmed.  Today’s conviction and sentencing are important steps in our ongoing efforts to hold accountable those who corrupt the international marketplace.”

“Today’s conviction and sentence of HP Russia demonstrates that the United States Attorney’s Office is dedicated to aggressively prosecuting all forms of corporate fraud that touch our district, wherever they may occur,” said U.S. Attorney Melinda Haag.  “HP’s cooperation during the investigation is what we expect of major corporate leaders facing the challenges of doing business around the world.”

“For more than a decade HP Russia business executives participated in an elaborate scheme that involved paying bribes to government officials in exchange for large contracts,” said Assistant Director in Charge of the FBI’s Washington Field Office Andrew McCabe. “There is no place for bribery in any business model or corporate culture.  Along with the Department of Justice, the IRS and international law enforcement partners, the FBI is committed to investigating corrupt backroom deals that threaten our global commerce.”

Image Sensing Systems

Earlier this week, the company issued the following release:

“Image Sensing Systems, Inc. today announced that the DOJ has closed its inquiry into the Company in connection with the previously disclosed investigation of potential violations of the FCPA citing the Company’s voluntary disclosure, thorough investigation, cooperation and voluntary enhancements to its compliance program.  The SEC earlier notified the Company that it had closed its investigation under the FCPA without recommending enforcement action. Kris Tufto, Image Sensing Systems chief executive officer, commented, “We are very pleased to conclude the DOJ and SEC investigations without further action.  From the very beginning, we have voluntarily cooperated with the authorities and have worked diligently to implement measures to enhance our internal controls and compliance efforts. We understand that those efforts have been recognized and that the resolution of the investigation reflects this cooperation.”  As previously reported by Image Sensing Systems, it had learned in early 2013 that Polish authorities were conducting an investigation into alleged violations of Polish law by two employees of Image Sensing Systems Europe Limited SP.Z.O.O., its Polish subsidiary, who had been charged with criminal violations of certain laws related to a project in Poland. A special subcommittee of the audit committee of the board of directors immediately engaged outside counsel to conduct an internal investigation.  Image Sensing Systems voluntarily disclosed the matter to the DOJ and the SEC, and it has cooperated fully with those agencies in connection with their review.”

Alstom

Regarding the previously announced U.K. criminal charges against Alstom (see here for the prior post), the U.K. Serious Fraud Office recently released this charge sheet detailing the charges in connection with alleged conduct in India, Poland and Tunisia.

Reading Stack

A very interesting read from the New York TimesForeign Powers By Influence at Think Tanks.”  The article begins as follows.

“More than a dozen prominent Washington research groups have received tens of millions of dollars from foreign governments in recent years while pushing United States government officials to adopt policies that often reflect the donors’ priorities, an investigation by The New York Times has found. The money is increasingly transforming the once-staid think-tank world into a muscular arm of foreign governments’ lobbying in Washington.”

Forbes asks – is it “silly season” in China?  What is perhaps silly is the advice highlighted in the article to negotiate the regulatory minefield:

“[B]uild a network. ‘Involve some powerful local Chinese partners in some peripheral areas in order to build a political foundation. I don’t necessarily recommend an overall partnership, since they would be better off with a well-placed approach in specific areas. Have a partnership in marketing or R&D and develop a perception that you are working closely with Chinese firms, but in reality you will not give away anything that is sensitive.”

This is probably only going to increase a company’s risk because of the FCPA’s third-party payment provisions.

*****

A good weekend to all.

 

Friday Roundup

Friday, July 25th, 2014

The U.K. SFO flexes its pre-Bribery Act muscle in criminally charging an Alstom subsidiary, other scrutiny alerts and updates, nominate, double standard, quotable, and for the reading stack.  It’s all here in the Friday roundup.

Alstom

As has been widely reported (see here and here for instance), the U.K. Serious Fraud Office announced:

“Alstom Network UK Ltd, formerly called Alstom International Ltd, a UK subsidiary of Alstom, has been charged with three offences of corruption contrary to section 1 of the Prevention of Corruption Act 1906, as well as three offences of Conspiracy to Corrupt contrary to section 1 of the Criminal Law Act 1977. The alleged offences are said to have taken place between 1 June 2000 and 30 November 2006 and concern large transport projects in India, Poland and Tunisia.”

According to the release, “the SFO investigation commenced as a result of information provided to the SFO by the Office of the Attorney General in Switzerland concerning the Alstom Group, in particular Alstom Network UK Ltd.”

I inquired with the SFO press office regarding any original source charging documents and was informed as follows.  ”Beyond our press release today, the nearest date for documents likely to be made available would be the charge sheet at the first court hearing – presently arranged for 9 September, at Westminster Magistrates’ Court.”

As readers likely know, since April 2013 the DOJ has charged four individuals associated with Alstom Power Inc., a subsidiary of Alstom, in connection with an alleged bribery scheme involving the Tarahan coal-fired steam power plant project in Indonesia. (See more below for a recent guilty plea).

As was the case in the U.S. – U.K. enforcement action against BAE (see here for the prior post) there may have been and/or currently is turf war issues between the agencies as to which agency is going to prosecute alleged conduct occurring in various countries.

Speaking of the DOJ action against various individuals associated with Alstom Power, last week, the DOJ announced that William Pomponi, a former vice president of regional sales at Alstom Power, pleaded guilty to a criminal information charging him with conspiracy to violate the FCPA in connection with the awarding of the Tarahan power project in Indonesia.

Assistant Attorney General Leslie R. Caldwell stated:

“The Criminal Division of the Department of Justice will follow evidence of corruption wherever it leads, including into corporate boardrooms and corner offices.  As this case demonstrates, we will hold both companies and their executives responsible for criminal conduct.”

As noted in the DOJ release:

“Pomponi is the fourth defendant to plead guilty to charges stemming from this investigation.   Frederic Pierucci, the vice president of global boiler sales at Alstom, pleaded guilty on July 29, 2013, to one count of conspiracy to violate the FCPA and one count of violating the FCPA; and, David Rothschild, a former vice president of regional sales at Alstom Power Inc., pleaded guilty to conspiring to violate the FCPA on Nov. 2, 2012.  Marubeni Corporation, Alstom’s consortium partner on the Tarahan project, pleaded guilty on March 19, 2014, to one count of conspiracy to violate the FCPA and seven counts of violating the FCPA, and was sentenced to pay a criminal fine of $88 million.   FCPA and money laundering charges remain pending against Lawrence Hoskins, the former senior vice president for the Asia region for Alstom, and trial is scheduled for June 2, 2015.”

See here for the original post highlighting the enforcement action against the individuals associated with Alstom and here for the original post regarding the Marubeni enforcement action.

Scrutiny Alerts and Updates

SEC Enforcement Action Against Former Magyar Telekom Executives

From Law360:

“The SEC has slimmed down its FCPA case against three former Magyar Telekom PLC executives, dropping claims they bribed government officials in Montenegro, according to a new complaint …  The amended complaint alleged former Magyar CEO Elek Straub and two other former executives, Andras Balogh and Tamas Morvai, authorized bribe payments to government officials in the Republic of Macedonia in exchange for regulations designed to hurt a competitor. The SEC, in its initial complaint in December 2011, had also alleged the defendants engaged in a second bribery scheme in Montenegro.  The agency said in a July 14 court filing that it would “continue to pursue the same legal causes of action alleged in its original complaint,” but without the claims related to Montenegro.  The SEC previously advised the court and defense attorneys in January 2014 of its intention to narrow the suit.”

Interesting, isn’t it, what happens when the SEC is put to its burden of proof.

Kowalewski Pleads Guilty

The DOJ announced:

“Bernd Kowalewski, the former President and CEO of BizJet, pleaded guilty … to conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and a substantive violation of the FCPA in connection with a scheme to pay bribes to officials in Mexico and Panama in exchange for those officials’ assistance in securing contracts for BizJet to perform aircraft maintenance, repair and overhaul services.”

Assistant Attorney General Leslie Caldwell stated:

“The former CEO of BizJet, Bernd Kowalewski, has become the third and most senior Bizjet executive to plead guilty to bribing officials in Mexico and Panama to get contracts for aircraft services.  While Kowalewski and his fellow executives referred to the corrupt payments as ‘commissions’ and ‘incentives,’ they were bribes, plain and simple.  Though he was living abroad when the charges were unsealed, the reach of the law extends beyond U.S. borders, resulting in Kowalewski’s arrest in Amsterdam and his appearance in court today in the United States.  Today’s guilty plea is an example of our continued determination to hold corporate executives responsible for criminal wrongdoing whenever the evidence allows.”

U.S. Attorney Danny Williams (N.D. Okla.) stated:

“I commend the investigators and prosecutors who worked together across borders and jurisdictions to vigorously enforce the Foreign Corrupt Practices Act. Partnership is a necessity in all investigations. By forging and strengthening international partnerships to combat bribery, the Department of Justice is advancing its efforts to prevent crime and to protect citizens.”

See here and here for posts regarding the 2012 DOJ enforcement action against BizJet and here and here for the 2013 DOJ enforcement action against Kowalewski and others associated with BizJet.

Cilins Sentenced

As noted in this prior post, in April 2013 the DOJ announced (here) that “Frederic Cilins a French citizen, has been arrested and accused of attempting to obstruct an ongoing investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea.”  The Criminal Complaint charged Cilins with one count of tampering with a witness, victim, or informant; one count of obstruction of a criminal investigation; and one count of destruction, alteration, and falsification of records in a federal investigation.  Cilins was linked to Guernsey-based BSG Resources Ltd and in March 2014 the DOJ announced that Cilins pleaded guilty “to obstructing a federal criminal investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea.”  (See this prior post).

Last week, the DOJ announced that Cilins was sentenced to 24 months in prison.  In the DOJ release, U.S. Attorney Preet Bharara said:

“Frederic Cilins went to great lengths to thwart a Manhattan federal grand jury’s investigation into an alleged bribery scheme in the Republic of Guinea. In an effort to prevent the federal authorities from learning the truth, Cilins paid a witness for her silence and to destroy key documents. Today, Cilins learned that no one can manipulate justice.”

Assistant Attorney General Leslie Caldwell said:

“Cilins offered to bribe a witness in an FCPA investigation to stop the witness from talking to the FBI. Today’s sentence holds Cilins accountable for his effort to undermine the integrity of our justice system, and sends a message that those who interfere with federal investigations will be prosecuted and sent to prison.”

FBI Assistant Director-in-Charge George Venizelos said:

“Cilins obstructed the efforts of the FBI during the course of this investigation. His guilty plea and sentence demonstrate our shared commitment with the U.S. Attorney’s Office to hold accountable those who seek to interfere with the administration of justice. This case should be a reminder to all those who try to circumvent the efforts of a law enforcement investigation: the original crime and the cover-up both lend themselves to prosecution.”

According to the release, Cilins was also ordered to pay a fine of $75,000 and to forfeit $20,000.

GSK

From Reuters:

“GlaxoSmithKline faces new allegations of corruption, this time in Syria, where the drugmaker and its distributor have been accused of paying bribes to secure business, according to a whistleblower’s email reviewed by Reuters. Britain’s biggest drugmaker said on Thursday it was investigating the latest claims dating back to 2010, which were laid out in the email received by the company on July 18. The allegations relate to its former consumer healthcare operations in Syria, which were closed down in 2012 due to the worsening civil war in the country.  [...]  GSK has been rocked by corruption allegations since last July, when Chinese authorities accused it of funneling up to 3 billion yuan ($480 million) to doctors and officials to encourage them to use its medicines. The former British boss of the drugmaker’s China business was accused in May of being behind those bribes.  Since then, smaller-scale bribery claims have surfaced in other countries and GSK is now investigating possible staff misconduct in Poland, Iraq, Jordan and Lebanon. Syria is the sixth country to be added to the list. The allegations there center on the company’s consumer business, including its popular painkiller Panadol and oral care products. Although rules governing the promotion of non-prescription products are not as strict as for prescription medicines, the email from a person familiar with GSK’s Syrian operations said alleged bribes in the form of cash, speakers’ fees, trips and free samples were in breach of corruption laws. The detailed 5,000-word document, addressed to Chief Executive Andrew Witty and Judy Lewent, chair of GSK’s audit committee, said incentives were paid to doctors, dentists, pharmacists and government officials to win tenders and to obtain improper business advantages.”

Separately, this Reuters article states that the U.K. SFO  ”is working with authorities in China in a first for such Anglo-Chinese cooperation as it carries out its own investigation into alleged corruption at GSK.”  The article quotes SFO Director David Green as follows:  ”Certainly, so far as I am aware it is the first time we have had cooperation with the Chinese on an SFO case.”

Separately, in the U.S. this Wall Street Journal article states:

“Federal Bureau of Investigation agents have been interviewing current and former GSK employees in connection with bribery allegations made against the drug maker in China, according to a person familiar with the matter, as fresh claims of corruption surfaced against Glaxo’s operations in Syria. The interviews have taken place in Washington, D.C., in the past few months and are part of a Justice Department investigation into GSK’s activities in China, the person added. The U.S. Securities and Exchange Commission also is investigating the company’s business in China, according to people familiar with the matter.”

Key Energy Services

The company stated as follows in its Second Quarter 2014 Update and Earnings Release.

“Pre-tax expenses of approximately $5 million were incurred in connection with the previously disclosed Foreign Corrupt Practices Act investigations.”

Nominate

If FCPA Professor adds value to your practice or business or otherwise enlightens your day and causes you to contemplate the issues in a more sophisticated way, please consider nominating FCPA Professor for the ABA Journal’s Blawg 100 list (see here).

Double Standard

Beginning in 2009, I began writing about the “double standard” and how – despite the similarities between the FCPA and 18 USC 201 (the domestic bribery statute) – a U.S. company’s interaction with a “foreign official” is subject to more scrutiny and different standards than interaction with a U.S. official.  Since 2009, approximately 30 posts have appeared under the “double standard” subject matter tag.

Against this backdrop, I was happy to see another individual tackle the same general topic.  See here from the Global AntiCorruption Blog – “Is U.S. Campaign Finance Law More Permissive of Corruption Than the FCPA?”

Quotable

In this Corporate Crime Reporter interview, former U.S. Attorney Neil MacBride (E.D. Va.) says the following regarding the use of non-prosecution and deferred prosecution agreements:  “The Department now has the ability to reach more ambiguous conduct where it might be more difficult to prove a criminal conviction in court.”

Wait a minute!

If the conduct is ambiguous and the DOJ would have a difficult time to prove a criminal conviction in court, there should be no non-prosecution or deferred prosecution agreement.  Period.  End of story. The rule of law commands such a result.

Reading Stack

Over at the FCPA Compliance & Ethics blog, Tom Fox recently published a three-part series on M&A issues and the FCPA.  See Part I, Part II, and Part III.

Sherman & Sterling’s mid-year FCPA Digest, including its “Trends and Patterns” is here.  Among the trends and patterns:

“Recent paper victories by the SEC could be perceived as setbacks in the Commission’s actions against
individual defendants; and

The SEC has continued its practice of pursuing its theory of strict liability against a parent corporation
for the acts of its corporate subsidiaries.”

Kudos to Sherman & Sterling for adopting the “core” approach to keeping FCPA statistics.  (See here for the prior post regarding my suggested “core” approach).  The Digest states:

“We count all actions against a corporate “family” as one action. Thus, if the DOJ  charges a subsidiary and the SEC charges a  parent issuer, that counts as one action. In  addition, we count as a “case” both filed  enforcement actions (pleas, deferred prosecution agreements, and complaints)  and other resolutions such as  non-prosecution agreements that include  enforcement-type aspects, such as financial  penalties, tolling of the statute of  limitations, and compliance requirements.”

The most recent edition of Miller & Chevalier’s FCPA Update is here.  Debevoise & Plimpton’s always informative FCPA Update is here and Mayer Brown’s FCPA mid-year update is here.

Warning, the enforcement statistics cited in certain of the above updates will cause confusion because they do not adopt the “core” approach.

*****

A good weekend to all.

Potpourri

Monday, July 21st, 2014

Inversions

Readers of business news know that a term du jour these days is “inversion.”  In other words and at the risk of oversimplification , the process by which, largely for tax reasons,  a U.S. company acquires a foreign company, obtains that foreign company’s “legal address,” yet maintains – in many cases –  its operational base in the U.S.

I’ve been asked a few times recently what impact, if any, “inverting” will have on a company’s FCPA exposure.  My answer has been very little, if any, impact.

Most of the companies that are “inverting” remain issuers under the FCPA.  Moreover, even if an “inverted” company is not an issuer, because most of these companies are keeping an operational base in the U.S. – even if a legal address elsewhere – it is likely that the DOJ would consider such companies to be “domestic concerns” under the FCPA.

The FCPA defines “domestic concern,” in pertinent part, as follows.

“any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship which has its principal place of business in the United States, or which is organized under the laws of a State of the United States or a territory, possession, or commonwealth of the United States.”

In other words, place of incorporation and “legal address” is one way for an entity to be a domestic concern under the FCPA, but so too is having a principal place of business in the U.S.

For instance, in the Weatherford action, the DOJ stated:

“Prior to March 2009, Weatherford was incorporated in Bermuda and headquartered in Houston, Texas … As of March 2009, Weatherford was incorporated and headquartered in Switzerland, although it maintained a significant presence in Houston, Texas.”

In short, while inversions may have tax implications, it is difficult to see any meaningful implication under the Foreign Corrupt Practices Act.

It Can Be Done

You know the narrative.

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

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

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

I have been publicly wondering since 2010 (see here) what the “shelf life” of the Arthur Anderson effect would be and how long the Arthur Anderson myth would be believed.

If there are still believers, witness yet another instance (PG&E from earlier this year was an example as well – see here) that companies (even publicly-traded companies) can mount legal and factual defenses to what the company views as aggressive and overzealous DOJ enforcement theories.

As widely reported, last week FedEx Corporation, FedEx Express, Inc., and FedEx Corporate Services, Inc.,  were criminally indicted “with conspiracies to traffic in controlled substances and misbranded prescription drugs for its role in distributing controlled substances and prescription drugs for illegal Internet pharmacies.”  (See here for the DOJ release).

In response, FedEx issued this statement which stated, in pertinent part, as follows.

“FedEx is innocent of the charges brought today by the Department of Justice. We will plead not guilty. We will defend against this attack on the integrity and good name of FedEx and its employees.”

FedEx stock is still trading, (in fact it is up since the criminal charges were announced), it is still employing people, and it is still operating its business.  In fact, a FedEx truck just went down my residential street a few hours prior to writing this post.

While the FedEx example is outside the FCPA context, the message to corporate boards, audit committees, and other corporate leaders should be clear.

Yes, there are “carrots” and “sticks” which motivate risk-adverse business organizations to do things regardless of the law or facts in any particular matter.  However, fighting back against what the company perceives to be aggressive and overzealous DOJ theories is an acceptable and viable option in many cases despite speculative doomsday scenarios to the contrary.

If more companies would do what FedEx is doing in the FCPA context. and thereby expose certain DOJ and SEC theories of enforcement, I am confident of one thing.  This “new era” of FCPA enforcement would look different than it does today.  In this regard, and as highlighted in my recent article, the business community is, at least in part, responsible for the current aggressive FCPA enforcement climate. Indeed, as Homer Moyer, a dean of the FCPA bar, recently observed:

“One reality is the enforcement agencies’ [FCPA] views on issues and enforcement policies, positions on which they are rarely challenged in court. The other is what knowledgeable counsel believe the government could sustain in court, should their interpretations or positions be challenged. The two may not be the same. The operative rules of the game are the agencies’ views unless a company is prepared to go to court or to mount a serious challenge within the agencies.”

Kudos to FedEx, its board, counsel and corporate leaders for having the courage of conviction and not rolling over and playing dead in the face of DOJ scrutiny.  (Note, last year UPS resolved its alleged scrutiny for the same core conduct by agreeing to a non-prosecution agreement in which it paid $40 million).

In-House Counsel Opportunity at Avon

Avon Cosméticos, a subsidiary of Avon Products, Inc., based near Buenos Aires, Argentina, is looking for an attorney to join the Ethics & Compliance team.  The Compliance Counsel has day-to-day operational responsibility for managing the compliance program in the South Markets Group (Argentina, Chile, Paraguay and Uruguay).  The program seeks to minimize risk exposure of corporate and regulatory law through company guidance and controls.  A primary activity of the Compliance Counsel is to provide operational advice and interpretation of company policies and procedures, including but not limited to the company’s anti-corruption policy.  As part of the program, the Compliance Counsel supports corporate, regional and local governance, monitoring, auditing, training and communication initiatives.  A primary goal for the Compliance Counsel is to enhance the culture of awareness and adherence to company policies.  Prospective candidates should apply via the Avon website:  https://avon.zonajobs.com.ar/listadoAvisosBj/.

Friday Roundup

Friday, July 11th, 2014

The cheerleaders fume, quotable, scrutiny alert, and for the reading stack.  It’s all here in the Friday roundup.

The Cheerleaders Fume

In the SEC’s failed enforcement action against Mark Jackson and James Ruehlen, the SEC was forced to carry its burden of proof in the context of an adversarial proceeding.  This should be celebrated as evidence that the rule of law worked.

Yet, to the cheerleaders of more FCPA enforcement regardless of enforcement theories or quality of evidence, the end result of the SEC’s failed enforcement action is something to fume about.  (See here).

Four words come to mind.  Silly, just plain silly.

Quotable

From Robert Amsterdam (here)

“My law firm has counselled entrepreneurs who have seen their companies needlessly gutted by their own lawyers, who in an act of self-preservation turn themselves into appendages of the state to work against their own clients. Even worse, we’ve seen courts seize property for years with little regard for the personal impact on the owners, while others have spent the majority of margin on FCPA compliance costs, leaving little motivation to run their business.

This is all possible thanks to the culture being spread by the war on wealth — we have been so eager to hand over vast powers to regulators and rapidly diminish the rights of those who stand accused, trusting in the flawless execution of the fight against graft and fraud.

There is such a tremendous distrust of the wealthy that politically ambitious prosecutors seek out opportunities for advancement rather than enforcement of the law. The victims tend to be individuals — not the behemoth banks who knowingly traded on debt and credit default swaps, not the industrial giants with decades of experience in bribery, nor the corporate quasi-state bodies that leech off subsidies.

Means to an end

The fight against corruption is important and commendable, and the drive to achieve greater income equality bears an undeniable moral truth. But the way we go about achieving these goals must be intelligent. Rights and due process must continue to be strong throughout the administration of justice. Then expanding opportunities for all, rather than depriving them from some, will put our society back on track for success.”

Scrutiny Alert

GPT Special Project Management Ltd, a unit of Airbus, has been under scrutiny August 2012 (see here).  The Wall Street Journal reports here:

“Airbus Group NV said … that the U.K.’s Serious Fraud Office has contacted some of its current and former employees, as well as U.K. defense ministry officials, in a long-running corruption probe into activities at one of its units. Airbus “understands that four former and current employees were recently interviewed, along with MOD [Ministry of Defence] officials, as part of a wide-ranging SFO investigation,” a spokesman said by email. The U.K.’s anticorruption regulator has for roughly two years investigated GPT Special Project Management Ltd., an Airbus unit that works with the U.K.’s defense ministry, regarding allegations relating to its business in Saudi Arabia.”

Reading Stack

See here for Gibson Dunn’s mid-year FCPA update.

“The Ruehlen and Jackson settlements, earned only after two years of hard-nosed litigation that brought the parties to the brink of trial, demonstrate that those who are willing to put the Government to its burden of proof can come out materially better for their efforts.”

See here for Gibson Dunn’s mid-year update on corporate NPAs and DPAs.

“As the debate continues over whether and how to punish companies for unlawful conduct, U.S. federal prosecutors continue to rely significantly on NPAs and DPAs.  [...]  During the first half of 2014, DOJ entered into 11 agreements to resolve a variety of alleged conduct spanning multiple DOJ divisions and sections.  The SEC entered into one agreement.  Of the 12 agreements total, 5 were NPAs and 7 were DPAs.  This figure is in line with the 12 agreements reached in the first half of 2013.  In past years, we observed the phenomenon of an uptick in NPAs and DPAs during the second half of the year, so we anticipate that this year’s tallies could match or exceed the 2013 figure of 27 agreements.”

*****

A good weekend to all.