Archive for the ‘Obtain or Retain Business’ Category

Like A Kid In A Candy Store

Monday, February 2nd, 2015

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.

Given the increase in FCPA Inc. statistical information and the growing interest in empirical FCPA-related research, I again highlight the need for an FCPA lingua franca (see here for the prior post), including adoption of the “core” approach to FCPA enforcement statistics (see here for the prior post), an approach endorsed by even the DOJ (see here), as well as commonly used by others outside the FCPA context (see here)

Debevoise & Plimpton

The firm’s monthly FCPA Update is consistently a quality read.  The most recent issue is a year in review and the following caught my eye.

“The government’s pressure on companies to assist in investigating and prosecuting individuals raises significant challenges for in-house legal and compliance personnel as they work to navigate the potentially conflicting interests in anti-bribery compliance and internal investigations.  This pressure has produced legitimate concerns that a failure to self-report could, in and of itself, be met with, or be the cause for imposing, monetary penalties.  Although the U.S. Sentencing Guidelines provide for a reduction in fines for a heightened level of cooperation, outside of a narrow range of arenas (such as where duties to self-report are imposed on U.S. government contractors), the government generally lacks any statutory basis for imposing financial penalties against companies for the failure to self-report potential misconduct.  Since there is no legal obligation to self-report, it is our view that the government should exercise caution when discussing bases for monetary penalties and should rely solely on laws passed by Congress and the Sentencing Guidelines provisions that properly draw their authority from a duly-passed statute.  It would be a disturbing trend indeed were the government to begin to impose monetary penalties for failing to self-report where there is no legal obligation to do so.  The actions by U.S. regulators in the coming year will continue to warrant close scrutiny …”.

Gibson Dunn

The firm’s Year-End FCPA Update is a quality read year after year.  It begins as follows.

“Within the last decade, Foreign Corrupt Practices Act (“FCPA”) enforcement has become a juggernaut of U.S. enforcement agencies.  Ten years ago, we published our first report on the state-of-play in FCPA enforcement.  Although prosecutions were at the time quite modest–our first update noted only five enforcement actions in 2004–we observed an upward trend in disclosed investigations and advised our readership that enhanced government attention to the then-underutilized statute was likely.  From the elevated plateau of 2015, we stand by our prediction. In addition to the traditional calendar-year observations of our year-end updates, this tenth-anniversary edition looks back and analyzes five trends in FCPA enforcement we have observed over the last decade.”

The update flushes out the following interesting tidbit from the Bio-Rad enforcement action.

“[A noteworthy aspect] of the Bio-Rad settlement is that it is the first DOJ FCPA corporate settlement agreement to require executives to certify, prior to the end of the [post-enforcement action] reporting period, that the company has met its disclosure obligations.  As noted above in the Ten-Year Trend section, post-resolution reporting obligations, including an affirmative obligation to disclose new misconduct, have long been a common feature of FCPA resolutions.  But Bio-Rad’s is the first agreement to insert a provision requiring that prior to the conclusion of the supervisory period, the company CEO and CFO “certify to [DOJ] that the Company has met its disclosure obligations,” subject to penalties under 18 U.S.C. § 1001.”

Gibson Dunn also released (here) its always informative “Year-End Update on Corporate Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs).”  The update:  ”(1) summarizes highlights from the DPAs and NPAs of 2014; (2) discusses several post settlement considerations, including protections for independent monitor work product and post settlementterm revisions; (3) analyzes a potential trend in the judicial oversight of DPAs; and(4) addresses recent developments in the United Kingdom, where the Deferred ProsecutionAgreements Code of Practice recently took effect.

According to the Update, there were 30 NPAs or DPAs entered into by the DOJ (29) or SEC (1) in 2014. (However, this figure includes two in the Alstom action and two in the HP action.  Thus, there were 27 unique instances of the DOJ using an NPA or DPA in 2014.  Of the 27 unique instances, 5 (19%) were in FCPA enforcement actions and the FCPA was the single largest source of NPAs and DPAs in 2014 in terms of specific statutory allegation.

The Gibson Dunn updates provides a thorough review of two pending cases in which federal court judges are wrestling with the issue of whether to approve of a DPA agreed to be the DOJ and a company.

Shearman & Sterling

The firm’s “Recent Trends and Patterns in Enforcement of the FCPA” is also another quality read year-after-year.

Of note from the publication:

“[W]hat may be the most interesting facet of the SEC’s current enforcement approach is the Commission’s shift in the latter half of 2014 in Timms to settle charges against individuals through administrative proceedings. This may come as no surprise, as the SEC has had difficulty successfully prosecuting individuals for violating the FCPA in previous years. Most recently, in early 2014, the SEC suffered a pair of setbacks in its enforcement actions against executives from Nobel Corp. and Magyar Telekom [...] before the U.S. courts. Other cases, such as SEC v. Sharef (the SEC’s case against the Siemens executives) and SEC v. Clarke (which is currently the subject of a pending stay), have lingered in the S.D.N.Y. for significant periods of time without resolution.”

[...]

Obtain or Retain Business

Following the announcement of the SEC’s settlement with Layne Christensen over improper payments made to foreign officials in various African countries, we noted that the SEC’s approach to the “obtaining or retaining business” test in the FCPA appeared at odds with the Fifth Circuit’s 2007 opinion in United States v. Kay. Specifically, in Kay, the DOJ charged two executives of American Rice, Inc. for engaging in a scheme to pay Haitian customs officials bribes in exchange for accepting false shipping documents that under-reported the amount of rice onboard ocean-going barges. The result of the false shipping documents was to reduce the amount of customs duties and sales taxes that American Rice would have otherwise been forced to pay. While the court in Kay dismissed the defendants’ argument that the FCPA was only intended to cover bribes intended for “the award or renewal of contracts,” holding instead that the payment of bribes in exchange for reduced customs duties and sales taxes, the court added that in order to violate the FCPA, the prosecution must show that the reduced customs duties and sales taxes were in turned used “to assist in obtaining or retaining business” per the language of the FCPA. In short, the court in Kay held that while bribes paid exchange for the reduction of duties or taxes could violate the FCPA, they were not per se violations of the statue, and that the Department would have to show how the benefit derived from the reduced duties and taxes were used to obtain or retain business.

Fast forwarding to 2014 in Layne Christensen, the Houston-based global water management, construction, and drilling company, was forced to pay over $5 million in sanctions despite the fact that the SEC’s cease-and-desist order pleaded facts inconsistent with the Fifth Circuit’s opinion in Kay. In its discussion of Layne Christensen’s alleged violation of the FCPA’s anti-bribery provisions, the SEC only alleged that the company paid bribes to foreign officials in multiple African countries “in order to, among other things, obtain favorable tax treatment, customs clearance for its equipment, and a reduction of customs duties.” The SEC’s cease-and-desist made no reference to how these reduced costs were used to obtain or retain business, rendering the SEC’s charges facially deficient.

Layne Christensen is not, however, the first time the DOJ and SEC have brought similar FCPA charges against companies without alleging how reduced taxes and customs duties were used to obtain or retain business. In the Panalpina cases from 2010, a series of enforcement actions against various international oil and gas companies, the DOJ and SEC treated the exchange of bribes for reduced taxes and customs duties as per se violations of the FCPA. Even in the 2012 FCPA Guide the enforcement agencies make clear that “bribe payments made to secure favorable tax treatment, or to reduce or eliminate customs duties . . . satisfy the business purpose test.” Whether the DOJ’s and SEC’s approach to the “obtaining or retaining business” element of the FCPA stems from a misinterpretation of Kay or is an attempt to challenge the Fifth Circuit’s opinion, remains to be seen. Nevertheless, we are troubled by the lack of clarity in the DOJ’s and SEC’s approach as it ultimately disadvantages defendants who may otherwise be pressured to settle charges over conduct which does not necessarily constitute a crime.”

Parent/Subsidiary Liability

As noted in previous Trends & Patterns, over the past several years the SEC has engaged in the disconcerting practice of charging parent companies with anti-bribery violations based on the corrupt payments of their subsidiaries. In short, the SEC has adopted the position that corporate parents are subject to strict criminal liability not only for books & records violations (since it is the parent’s books ultimately at issue) but also for bribery violations by their subsidiaries regardless of whether the parent had any involvement or even knowledge of the subsidiaries’ illegal conduct. The SEC has subsequently continued this approach in Alcoa and Bio-Rad.

According to the charging documents, officials at two Alcoa subsidiaries arranged for various bribe payments to be made to Bahraini officials through the use of a consultant. The SEC acknowledged that there were “no findings that an officer, director or employee of Alcoa knowingly engaged in the bribe scheme” but it still charged the parent company with anti-bribery violations on the grounds that the subsidiary responsible for the bribery scheme was an agent of Alcoa at the time. The Commission’s tact is curious considering that it charged Alcoa with books and records and internal controls violations as well, making anti-bribery charges seemingly unnecessary. Moreover, it is noteworthy that in the parallel criminal action, the DOJ elected to directly charge Alcoa’s subsidiary with violations of the FCPA’s anti-bribery provisions instead of Alcoa’s corporate parent.

In Bio-Rad, the SEC’s cease-and-desist order alleged that the corporate parent was liable for violations of the FCPA’s anti-bribery provisions committed by the company’s corporate subsidiary in Russia, Vietnam, and Thailand. In order to impute the alleged wrongful conduct upon the corporate parent, the SEC relied heavily upon corporate officials’ willful blindness to a number of red flags arising from the alleged schemes in Russia, Vietnam, and Thailand. Nevertheless, even if certain officials from Bio-Rad’s corporate parent were aware of the bribery scheme, the SEC’s charges ignore the black-letter rule that in order to find a corporate parent liable for the acts of a subsidiary, it must first “pierce the corporate veil,” showing that the parent operated the subsidiary as an alter ego and paid no attention to the corporate form.

It is also interesting that much like the case of Alcoa, the DOJ’s criminal charges against Bio-Rad are notably distinct from the SEC’s. Specifically, while the DOJ charged Bio-Rad’s corporate parent with violating the FCPA, the Department elected to only charge the company with violations of the FCPA’s book-and-records and internal controls provisions, not the anti-bribery provisions like the SEC.

The SEC’s charging decisions in Alcoa and Bio-Rad are even more peculiar given the fact that the SEC took an entirely different approach in HP, Bruker, and Avon, where despite alleging largely analogous fact patterns, the SEC charged the parent companies in HP, Bruker, and Avon with violations of the FCPA’s books-and-records and internal controls provisions only. Much like Alcoa and Bio-Rad, all of the relevant acts of bribery in HP, Bruker, and Avon were committed by the company’s subsidiaries in Mexico, Poland, Russia (HP), and China (Bruker and Avon). The SEC’s decisions in Alcoa, Bio-Rad, HP, Bruker, and Avon to charge parent companies involved in largely analogous fact patterns with different FCPA violations raise ongoing questions as to consistency and predictability of the SEC’s approach to parent-subsidiary liability.”

WilmerHale

The firm’s FCPA alert states regarding the travel and entertainment enforcement actions from 2014.

“While most cases involving travel and entertainment historically have involved other allegedly corrupt conduct, it was notable this year that travel and entertainment was the focus of the conduct in some cases. … [T]his suggests that travel and entertainment should continue to be a focus of corporate compliance programs. Unfortunately, the settled cases give little guidance as to some of the gray areas that challenge compliance officers, such as the appropriate dollar amounts for business meals, or how much ancillary leisure activity is acceptable in the context of a business event. Perhaps most interesting about the recent cases is that the government’s charging papers in some cases seem to lack any direct evidence that the benefits provided were provided as a quid pro quo to obtain a specific favorable decision from the official. The cases seem to simply conclude that if there were benefits provided to a government decision maker, the benefits must have been improper. Whether such allegations would be sufficient to satisfy the FCPA’s “corruptly” standard in litigation remains to be seen.”

Regarding the lack of transparency in FCPA enforcement, the alert states:

“[T]here still remains legitimate debate about whether the amount of credit that companies receive for voluntary disclosures is sufficient, especially when compared to companies that cooperate but do not self-report. One important factor that is often left out of the debate on this topic is the “credit” that is not visible in the public settlement documents but is nonetheless often informally received by companies that voluntarily disclose and/or cooperate. While the discussion above focuses on Sentencing Guidelines calculations and percentages of credit off the Sentencing Guidelines ranges, the discussion does not take into account decisions made by the government in settlement discussions that affect the ranges that are not seen in the settlement documents. For example, in settlement negotiations, the government might determine not to include certain transactions when calculating the gains obtained by the corporate defendant—perhaps because the evidence might have been weaker, or because jurisdiction might have been questionable, or because the settlement may have focused on transactions from a certain time period, or because of other factors. Thus, while the settlement documents might suggest a 20% discount from the bottom of the Sentencing Guidelines range, that range could have been higher had other transactions been included. These determinations are not transparent, but, anecdotally, there is some basis to believe that companies that voluntarily disclose and/or cooperate are more likely to get the benefit of the doubt as the sausage is being made. Given the lack of transparency in this area, the debates on this topic are likely to continue for a long time.”

Covington & Burling

The firm’s “Trends and Developments in Anti-Corruption Enforcement” is here.  Among other things, it states:

“As we have noted in the past, U.S. enforcement authorities have a taken creative and aggressive legal positions in pursuing FCPA cases. This past year saw a continuation of that trend, most notably with the SEC staking out an expansive position on the FCPA’s reach via agency theory.

Aggressive Use of Agency Theory. 2014 saw the SEC make use of a potentially far reaching agency theory to hold a parent company liable for the conduct of subsidiaries. In the Alcoa settlement, the SEC made clear that it had made “no findings that an officer, director or employee of [corporate parent Alcoa Inc.] knowingly engaged in the bribe scheme” at issue. Instead, its theory of liability was that the parent company “violated Section 30A of the Exchange Act by reason of its agents, including subsidiaries [Alcoa World Aluminum and Alcoa of Australia], indirectly paying bribes to foreign officials in Bahrain in order to obtain or retain business.” This agency theory was premised on the parent company’s alleged control over the business segment and subsidiaries where the conduct at issue allegedly occurred. Notably, the SEC did not rely on any evidence that parent-company personnel had direct involvement in or control over the alleged bribery scheme. Instead, the SEC pointed only to general indicia of corporate control that are the normal incidents of majority stock ownership (e.g., that Alcoa appointed the majority of seats on the business unit’s “Strategic Council,” transferred employees between itself and one of the relevant subsidiaries, and “set the business and financial goals” for the business segment). This is notable, in our view, because it is arguably at odds with DOJ and the SEC’s statement in the FCPA Resource Guide that they “evaluate the parent’s control — including the parent’s knowledge and direction of the subsidiary’s actions, both generally and in the context of the specific transaction — when evaluating whether a subsidiary is an agent of the parent.” (Emphasis added.) In the Alcoa matter, the SEC seemed to focus solely on “general” control; it did not allege any facts to support parent-level “knowledge and direction . . . in the context of the specific transaction.” This potentially expansive use of agency theory underscores the need for parent companies who are subject to FCPA jurisdiction to be attentive to corruption issues and compliance in all their corporate subsidiaries, even entities over which they do not exercise day-to-day managerial control.”

Miller & Chevalier

The firm’s FCPA Winter Review 2015 is here.

Among other useful information is a chart comparing the top ten FCPA enforcement actions (in terms of settlement amounts) as of 2007 compared to 2014 and a chart comparing SEC administrative proceedings and court filed complaints since 2005.

Davis Polk

The firm recently hosted a webinar titled “FCPA: 2014 Year-End Review of Trends and Global Enforcement Actions.”  The webcast and presentation slides are available here.

Jones Day

The firm’s FCPA Year in Review 2014 is here.

Other Items for the Reading Stack

From the FCPAmericas Blog – “Top FCPA Enforcement Trends to Expect in 2015.”

From the Corruption, Crime & Compliance Blog – “FCPA Year in Review 2014,” and FCPA Predictions for 2015.”

And The Apples Go To …

Wednesday, November 26th, 2014

applepicOften times there seems to be an echo chamber when it comes to Foreign Corrupt Practices Act reporting, commentary, etc.

One such occasion has been the recent Layne Christensen enforcement action (see here for the prior post).  The theme, which appears to have first been floated by lawyers representing Layne Christensen, but repeated by many others (see here and here for instance), is that the enforcement action was SEC only because of the company’s voluntary disclosure, cooperation and remedial actions.

That’s one narrative.

But some have bucked this narrative and have thankfully injected some informed thought into the conversation surrounding the Layne Christensen enforcement action.  And for this, the various individuals identified below receive FCPA Professor apple awards.

This other narrative is that the conduct alleged in the SEC’s enforcement action does not even violate the FCPA’s anti-bribery provisions.

This Shearman & Sterling Client publication, with former DOJ FCPA enforcement Philip Urofsky listed as the lead author, states:

“While a relatively unremarkable case at first glance, the SEC’s charges against Layne Christensen reflect a troubling approach by enforcement agencies to disregard the “business nexus element” of the FCPA’s anti-bribery provisions. These recent practices appear to contradict the Fifth Circuit’s opinion in United States v. Kay and create greater uncertainty as to the scope of the statute.”

[...]

Although a seemingly unremarkable case in a field known for blockbuster settlements, Layne Christensen illustrates a troubling practice by the SEC and US Department of Justice to disregard the “business nexus element” of the FCPA. Specifically, the FCPA states that to violate the anti-bribery provisions of the law, the defendant must pay a bribe “to assist the issuer in obtaining or retaining business . . . .” While it is often the case that bribes are paid on a quid pro quo basis in exchange for the award of valuable contracts, there are additional scenarios, like that seen in Layne Christensen, where the bribes merely assisted the defendant to improve its profit margins. In United States v. Kay, the Fifth Circuit held that bribes made in exchange for a reduction in tax liability or customs duties did not per se violate the statute without proof that the increased profits were used to obtain or retain some form of business.”

“Layne Christensen is further evidence that the DOJ’s and SEC’s current approach to the “business nexus element” of the FCPA flies in the face of Kay. By charging companies (often under extreme pressure to settle the case against them) with facts that do not show how the bribes were used to assist in obtaining or retaining business, the DOJ and SEC have created significant uncertainty as to the scope of the FCPA.”

[...]

“The SEC’s case against Layne Christensen demonstrates that the government continues to follow the practice … [of] treating the “business nexus requirement” as a seemingly unnecessary feature of the FCPA.”

[...]

“Strikingly, short of simply parroting the language of the statute, the SEC made no effort to allege facts as to what specific business was obtained or retained as a result of the reduced tax liability and customs duties. Such a pleading is clearly at odds with the Fifth Circuit’s opinion in Kay which stated that while bribes in exchange for increased profitability could violate the FCPA, they would not, per se, constitute criminal conduct without an allegation that the increased profits were used to obtain or retain business.”

[...]

“Whether the DOJ’s and SEC’s approach to the business nexus element of the FCPA stems from a misinterpretation of Fifth Circuit’s opinion or an active attempt to challenge Kay remains to be seen. Nevertheless, the lack of clarity ultimately disadvantages defendants who may be pressured to settle charges over conduct which does not necessarily constitute a crime.”

This is not the first time Urofsky, et al have rightly noted the DOJ/SEC’s unhinged enforcement theories relevant to “obtain or retain business.”  (See here for a prior post).

Charles Leeper (DrinkerBiddle) is also deserving of an apple award for his writing on the Layne Christensen enforcement action. He writes:

“According to the Consent Order, between 2005 and 2010 Layne’s subsidiaries made approximately $800,000 in improper payments to foreign officials in various African countries in order to: (1) realize improper tax benefits; (2) secure custom clearance of equipment; (3) avoid assessed customs duties and penalties; and (4) secure work permits for, and avoid deportation of, their employees.  While the SEC alleged that Layne realized financial benefits of approximately $3.9 million by making these payments, the Consent Order does not allege that Layne obtained business from the African governments in question, or even that Layne improved its competitive position in those countries on account of these payments.  Other than a single rote reference to the alleged purpose of “obtain[ing] or retain[ing] business,” the Consent Order contains no indication that the SEC’s investigation produced evidence satisfying the business nexus element of the FCPA.

[...]

Layne’s voluntary disclosure and substantial cooperation likely contributed to the relatively modest penalty that it was assessed by the SEC.  But it is equally likely that the SEC showed uncommon leniency, and the DOJ declined prosecution altogether, because an essential element of the FCPA could not be readily proven.”

Apple awards as well for commentary in this Global Investigations Review article.

“[A] number of lawyers are saying the DoJ failed to file charges as Layne did not satisfy the business-nexus element of the FCPA, which requires violating companies to have paid bribes “to assist the issuer in obtaining or retaining business”. They say the SEC’s decision to bring an administrative proceeding despite the business-nexus element not being met, is part of larger trend in both the SEC and the DoJ to wrongly pursue such cases. Kelly Kramer at Mayer Brown in Washington, DC, agreed that the SEC and DoJ are ignoring the precedent set by Kay. “There is very little court guidance. As a consequence the SEC and DoJ have adopted their own interpretation of the FCPA. Essentially, they presume that bribes that increase corporate profits also help companies to obtain or retain business,” he said. “But that is not always true. The DoJ and SEC seem to be using this presumption to avoid the business-nexus element.” Kramer added that as there are so few appellate FCPA cases, due to the tendency for companies to settle, the SEC and DoJ have created their own “common law of settlement”, which has persuasive value for general counsels, but lacks any legal weight.”

The above commentary should not come as a surprise to frequent readers of FCPA Professor.  The issue of whether the SEC could have actually proved its allegations in the Layne Christensen enforcement action were first flagged in this prior post.

More broadly, I have been writing about the DOJ/SEC’s unhinged “obtain or retain business” theories for years.

See “The Facade of FCPA Enforcement” (an extensive discussion of the Kay case starts at pg. 918 and concludes: Despite the equivocal nature of the Kay holding, the decision clearly energized the enforcement agencies and post-Kay there has been an explosion in FCPA enforcement actions where the alleged improper payments involve customs duties and tax payments or are otherwise alleged to have assisted the payer in securing foreign government licenses, permits, and certifications which assisted the payer in generally doing business in a foreign country. These enforcement actions are profiled [elsewhere in the article.] Because none of these actions have been challenged, it remains an open question whether the payments at issue in these cases, if subjected to judicial scrutiny: (i) would satisfy the FCPA’s “obtain or retain business” element; or (ii) were too attenuated to obtaining or retaining business (such as merely increasing the profitability of an existing profitable business) and thus, per the Kay holding, not a violation of this key FCPA anti-bribery element.”).

See “FCPA Enforcement As Seen Through Wal-Mart’s Potential Exposure” (“[T]he enforcement theory that payments to a foreign official outside the context of foreign government procurement fall under the FCPA’s anti-bribery provisions has been subjected to judicial scrutiny four times. The enforcement agencies lost three of those cases and the fourth case—the Fifth Circuit’s decision in Kay—is equivocal. The decision merely holds that payments to a foreign official outside the context of foreign government procurement can, under appropriate circumstances, fall within the statute. Given the facts and circumstances the Kay court found relevant, it is a highly fact-dependent question whether a payment to a foreign official outside the context of foreign government procurement is subject to the FCPA. A key portion from the Kay ruling logically implicated by Wal-Mart’s alleged payments is the following: ‘‘there are bound to be circumstances in which payments outside the context of foreign government procurement merely increase the profitability of an existing profitable company and thus, presumably, does not assist the payer in obtaining or retaining business.’’).

See “Why You Should Be Alarmed by the ADM Enforcement Action” (The Kay court did conclude that payments outside the context of foreign government procurement ‘‘could’’ violate the FCPA, but only if the payments were intended to lower a company’s cost of doing business enough to assist the company in ‘‘obtaining or retaining’’ business. Specifically, the court stated: If the government is correct that anytime operating costs are reduced the beneficiary of such advantage is assisted in getting or keeping business, the FCPA’s language that expresses the necessary element of assisting in obtaining business would be unnecessary, and thus surplusage—a conclusion that we are forbidden to reach.”

[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.

 

Chevron Decision Touches Upon FCPA Issues

Thursday, March 6th, 2014

This 2009 post flagged the “War of Words in Ecuador” between Chevron and plaintiff lawyers representing Ecuadorian villagers alleging environmental contamination at oil fields in the Amazon for its potential FCPA implications.

Earlier this week, as noted in this Wall Street Journal article:

“A federal judge ruled in favor of Chevron … in a civil racketeering case [against New York lawyer Steven Donziger, the plaintiffs' lawyer], saying a record $9.5 billion environmental judgment in Ecuador against the oil giant was “obtained by corrupt means.”  U.S. District Judge Lewis Kaplan [S.D.N.Y.] found that … Donziger and his litigation team engaged in coercion, bribery, money laundering and other criminal conduct in pursuit of the 2011 verdict.”

As stated by Judge Kaplan:

“This case is extraordinary. The facts are many and sometimes complex. They include things that normally come only out of Hollywood – coded emails among Donziger and his colleagues describing their private interactions with and machinations directed at judges and a court appointed expert, their payments to a supposedly neutral expert out of a secret account, a lawyer who invited a film crew to innumerable private strategy meetings and even to ex parte meetings with judges, an Ecuadorian judge who claims to have written the multibillion dollar decision but who was so inexperienced and uncomfortable with civil cases that he had someone else (a former judge who had been removed from the bench) draft some civil decisions for him, an 18-year old typist who supposedly did Internet research in American, English, and French law for the same judge, who knew only Spanish, and much more. The evidence is voluminous. The transnational elements of the case make it sensitive and challenging. Nevertheless, the Court has had the benefit of a lengthy trial. It has heard 31 witnesses in person and considered deposition and/or other sworn or, in one instance, stipulated testimony of 37 others. It has considered thousands of exhibits. It has made its findings, which of necessity are lengthy and detailed.”

As relevant to the Foreign Corrupt Practices Act and any potential FCPA liability of Donziger, Judge Kaplan, beginning at pg. 392 of his mammoth 485-page opinion, addressed Chevron’s assertion that “Donziger violated the Travel Act through the use of facilities of interstate or foreign commerce with the intent to facilitate violations of the anti-bribery provisions of the Foreign Corrupt Practices Act (“FCPA”).”

Judge Kaplan concluded that ”[Donziger] did so by using email and by causing money to be wired to Ecuador to further the payment of money to Cabrera, a court appointee [of the Ecuadorian judicial system].”

Judge Kaplan’s decision most squarely addressed the FCPA’s “obtain or retain business” element.  Judge Kaplan stated as follows.

“The SEC and the Department of Justice interpret the FCPA to prohibit payments to court officials and regularly find that such payments satisfy the business purpose test.  [citing to DOJ FCPA enforcement actions against Pride International and Jim Bob Brown].   This court agrees.”

“Here, the payments increased the likelihood that Donziger’s business – that of contingency litigation – would benefit from a favorable judgment. Roughly 30 percent of the 20 percent contingency fee owed to the litigation team accrues to Donziger. He stood to benefit directly from any judgment and, accordingly, from any act that improved the likelihood that such a judgment would issue and its amount. The improper payments to Cabrera were intended to do, and did, exactly that.”

As to “foreign official,” Judge Kaplan stated: “as an expert appointed by the Lago Agrio court, Cabrera was an officer or official of the Ecuadorian court” (citing to an exhibit which stated:  “The Expert [Cabrera] is hereby reminded that he is an auxiliary to the Court for purposes of providing to the process and to the Court scientific elements for determining the truth.”).

As to the “knowledge” component of the FCPA’s third-party payment provisions, Judge Kaplan stated:  “The Court … finds that Donziger was “aware” that it was “substantially certain” that Cabrera would be paid from the funds he wired to the secret account.”

A judicial finding that Donziger engaged in conduct sufficient to establish an FCPA violation is – to state the obvious – a troubling event for him.

In response to Judge Kaplan’s decision, Donziger issued this statement.  In the above-referenced Wall Street Journal article, Donziger is quoted as follows.  “I am a zealous advocate for my clients.  I woud never bribe a judge or perpetrate a fraud … Ultimately I think the Court of Appeals will reverse this decision and whatever damage caused to my reputation will be restored.”

In this press release, Chevron stated, in pertinent part:

“[Judge Kaplan's decision] finds that Steven Donziger, the lead American lawyer behind the Ecuadorian lawsuit against the company, violated the federal Racketeer Influenced and Corrupt Organizations Act (RICO), committing extortion, money laundering, wire fraud, Foreign Corrupt Practices Act violations, witness tampering and obstruction of justice in obtaining the Ecuadorian judgment and in trying to cover up his and his associates’ crimes.  [...]  Chevron’s reputation was taken hostage and held for a multibillion-dollar ransom. Rather than give in and pay these criminals off, Chevron exposed the truth. Chevron is pleased with today’s judgment. We are confident that any court that respects the rule of law will likewise find the Ecuadorian judgment to be illegitimate and unenforceable.”

For additional coverage of Judge Kaplan’s decision, see here from the New York Times and here from Reuters.  In addition, this 2013 Wall Street Journal article goes in-depth as to Donziger and the case.

Did Richard Liedo Win Or Lose?

Monday, December 23rd, 2013

[This post is part of a periodic series regarding "old" FCPA enforcement actions]

This previous post highlighted the 1989 Foreign Corrupt Practices Act enforcement action against NAPCO International in connection with military sales to the Republic of Niger.  The previous post noted that the DOJ also criminally charged the Vice President of the Aerospace Division of NAPCO and that this individual exercised his constitutional right to a jury trial and put the DOJ to its burden of proof.

That person was Richard Liedo and his enforcement action is worthy of its own post.

Among other things, the Liebo enforcement action resulted in a rare appellate FCPA decision, and an often overlooked one at that given that the court concluded that a jury could find that a subordinate who acted at his supervisor’s direction in providing a thing of value to a foreign official lacked “corrupt” intent.

In this lengthy 62 page criminal indictment, the DOJ charged Liebo in connection with the same bribery scheme alleged in the NAPCO action.  In pertinent part, the DOJ alleged that in connection with aircraft sales to Niger, Liebo conspired with others to violate the FCPA by making payments or authorizing payments of money to “officials of the Government of Niger, that is, Tahirou Barke Doka [the First Counselor of the Embassy of Niger in Washington, D.C.] and Captain Ali Tiemogo [Chief of Maintenance for the air force component of the Niger Ministry of Defense] and “Fatouma Mailelel Boube and Amadou Mailele, both relatives of Tiemogo, while knowing that all or a portion of such money would be offered, given or promised, directly or indirectly, to foreign officials, namely Barke and Tiemogo” for the purpose of “influencing the acts and decisions of Barke and Tiemogo in their official capacities, and inducing them to use their influence with the Ministry of Defense.”

In addition to the conspiracy charge (count 1), the DOJ also charged Liebo with 10 counts of violating the FCPA’s anti-bribery provisions (counts 2 – 11), one count of violating the FCPA’s books and records provisions (count 12), three counts of aiding and abetting in the preparation of false corporate income tax returns (counts 13 – 15), and five counts of making false statements to the Defense Security Assistance Agency (DSAA) of the U.S. Department of Defense in connection with the sales (counts 16 – 20).

Liebo exercised his constitutional right to a jury trial and put the DOJ to its burden of proof.

The jury considered 19 charges against Liebo (on the first day of trial, the court granted the DOJ’s motion to dismiss one of the false statement charges) and he was acquitted of 17 charges.  The only charges Liebo was convicted of was one count of violating the FCPA’s anti-bribery provisions and one count of making a false statement to DSAA.  The FCPA charge related to the payment of $2,028 “for the airline tickets purchased for Barke’s wedding and honeymoon travel.”

As noted in this judgment, Liebo was sentenced to 18 months in federal prison.  However, as noted in a Trace Compendium entry, “Liebo only served two of the 18 months, having petitioned for, and eventually received, a retrial.”

As noted in this Eighth Circuit opinion, Liebo appealed and argued on appeal that “his convictions should be reversed because of insufficient evidence and because the district court erred in instructing the jury” and that the “district court abused its discretion by denying his motion for a new trial based on newly discovered evidence.”

As to the FCPA anti-bribery charge Liebo was found guilty on, he argued on appeal that: (1) there was insufficient evidence to show that the airline tickets were given to obtain or retain business; and (2) that there was no evidence to show that his gift of honeymoon tickets was done corruptly.

After setting forth the standard of review (i.e. considering the evidence in the light most favorable to the government with all reasonable inferences and credibility determinations made in support of the jury’s verdict), the court stated as follows as to obtain or retain business.

“There is sufficient evidence that the airplane tickets were given to obtain or retain business. Tiemogo testified that the President of Niger would not approve the contracts without his recommendation. He also testified that Liebo promised to “make gestures” to him before the first contract was approved, and that Liebo promised to continue to “make gestures” if the second and third contracts were approved. There was testimony that Barke helped Liebo establish a bank account with a fictitious name, that Barke used money from that account, and that Barke sent some of the money from that account to Tiemogo. Barke testified that he understood Liebo deposited money in the account as “gestures” to Tiemogo for some “of the business that they do have together.”

Although much of this evidence is directly relevant to those counts on which Liebo was acquitted, we believe it appropriate that we consider it in determining the sufficiency of evidence as to the counts on which Liebo was convicted.

[…]

Moreover, sufficient independent evidence exists that the tickets were given to obtain or retain business. Evidence established that Tiemogo and Barke were cousins and best friends. The relationship between Barke and Tiemogo could have allowed a reasonable jury to infer that Liebo made the gift to Barke intending to buy Tiemogo’s help in getting the contracts approved. Indeed, Tiemogo recommended approval of the third contract and the President of Niger approved that contract just a few weeks after Liebo gave the tickets to Barke. Accordingly, a reasonable jury could conclude that the gift was given “to obtain or retain business.”

As to corrupt intent, the court stated as follows.

“Liebo also contends that the evidence at trial failed to show that Liebo acted “corruptly” by buying Barke the airline tickets. In support of this argument, Liebo points to Barke’s testimony that he considered the tickets a “gift” from Liebo personally. Liebo asserts that “corruptly” means that the offer, payment or gift “must be intended to induce the recipient to misuse his official position….”  […] Because Barke considered the tickets to be a personal gift from Liebo, Liebo reasons that no evidence showed that the tickets wrongfully influenced Barke’s actions.

We are satisfied that sufficient evidence existed from which a reasonable jury could find that the airline tickets were given “corruptly.” For example, Liebo gave the airline tickets to Barke shortly before the third contract was approved. In addition, there was undisputed evidence concerning the close relationship between Tiemogo and Barke and Tiemogo’s important role in the contract approval process. There was also testimony that Liebo classified the airline ticket for accounting purposes as a “commission payment.” This evidence could allow a reasonable jury to infer that Liebo gave the tickets to Barke intending to influence the Niger government’s contract approval process. We conclude, therefore, that a reasonable jury could find that Liebo’s gift to Barke was given “corruptly.” Accordingly, sufficient evidence existed to support Liebo’s conviction.”

As to Liebo’s argument on appeal that the “district court abused its discretion by denying his motion for a new trial based on newly discovered evidence,” Liebo noted that “two months after his conviction, a NAPCO employee provided Liebo with a memorandum showing [a superior's] approval to the charge of the airline tickets.”  Liebo argued that the discovery of this evidence warranted a new trial.  In support, Liebo argued that “he was acquitted on all other bribery counts for which there was evidence that the payment in question was approved [by a superior].  Liebo argued that evidence of a superior’s approval of the wedding trip was a determinative factor in the jury’s verdict by “pointing to a question sent out by the jury during their deliberations asking whether there was ‘any information regarding authorization for payment of wedding trip.’”

After noting that motions for a new trial based on newly discovered evidence are looked upon with disfavor, the court also noted that “courts have granted a new trial based on newly discovered evidence especially when the evidence supporting the defendant’s conviction is weak.”

The court closed its opinion as follows.

“[T]he evidence against Liebo, while sufficient to sustain the conviction, was not overwhelming. Indeed, we believe that the company president’s approval of the purchase of the tickets is strong evidence from which the jury could have found that Liebo acted at his supervisor’s direction and therefore, did not act “corruptly” by giving the tickets to Barke. Furthermore, we are highly persuaded that the jury considered such approval pivotal, especially in light of the question it submitted to the court during its deliberations and its acquittal of Liebo on the other bribery counts in which evidence of approval existed. Accordingly, we hold that the district court clearly abused its discretion in denying Liebo’s motion for a new trial.”

In the re-trial, Liebo was convicted of aiding and abetting FCPA anti-bribery violations and making a false statement to the DSAA.  He was then sentenced to three years probation, two months home detention, and 400 hours of community service.

Based on all of the above, the question is raised – did Richard Liedo win or lose when he put the DOJ to its burden of proof?

In this the exam grading season, I know where I come out when the one with the burden is 90% unsuccessful.