Archive for the ‘Opinion Procedure Release’ Category

Latest FCPA Opinion Procedure Release Reflects A High Level Of Anxiety

Tuesday, October 30th, 2012

The current era of Foreign Corrupt Practices Act enforcement has led to a high level of anxiety and skittishness over things that should not.  The end result is overcompliance and inefficient use of resources.

Case in point is the latest FCPA Opinion Procedure Release (12-02 – see here).

Despite a directly on point FCPA opinion procedure release from 2011 involving the exact same situation, despite several other directly on-point opinion procedure releases, and despite a statutory affirmative defense concerning reasonable and bona fide expenses concerning promotion, demonstration or explanation of products or services – all of which a first-year associate would be capable of analyzing, the Requestors in Release 12-02 were still apparently skittish enough to go through the time (and no doubt expense) of obtaining a DOJ seal of approval as to conduct that would not raise an eyebrow if directed to a non-foreign official.

In Release 12-02 (dated October 18th), the DOJ received a request “from 19 non-profit adoption agencies headquartered in the U.S.” seeking an opinion “related to their proposal to host 18 government officials from a foreign country during visits to the United States.”  The purpose of the trip “is to allow government officials from the Foreign Country to learn more about the Requestors’ work, which includes processing adoptions in the Foreign Country” and during the trip the officials “will interview the Requestors’ staff members, inspect the Requestors’ files, and meet with families who adopted children from the Foreign Country.”

The release involves the exact same situation at issue in Release 11-01 (here) in which other non-profit adoption agencies sought a DOJ opinion concerning travel by foreign officials.  As noted in this prior post, the DOJ stated its intention that the contemplated conduct did not raise any FCPA issues.

Release 12-02 notes as follows concerning the 18 officials the Requestor is seeking to host.

“ 13 are from the government ministry in the Foreign Country that oversees adoptions (the “Adoption Ministry”), and one is the presiding judge of the court in the Foreign Country that ultimately approves or disapproves adoption requests (the “Adoption Court”). The Adoption Ministry exercises discretion in determining whether to issue an opinion approving of an adoption, and the Adoption Court exercises similar discretion in ultimately approving or rejecting adoptions. The remaining officials are the director of the Foreign Country’s agency that oversees orphanages, a minister in the Office of the Foreign Country’s head of government, and two members of the Foreign Country’s legislature. The head of government and legislature play no direct role in the adoption process but can affect the process by appointing and confirming the Minister in charge of the Adoption Ministry and passing adoption-related legislation.”

The Release further states as follows.

“The trip will consist of approximately two days of meetings for each set of government officials (plus travel). Two of the officials will attend two trips, meaning that they will spend approximately four days in the United States (plus travel). The Requestors will pay for the following:

  • Business class airfare on international portions of flights for ministers, members of the legislature, and the director of the Orphanage Agency; coach airfare for  international portions of flights for all other government officials; and coach airfare for domestic portions of flights for all government officials;
  • Two or three nights hotel stay at a business-class hotel;

  • Meals during the officials’ stays; and

  • Transportation between agencies and local transportation.

The amount that the Requestors spend on hotels and meals will not exceed General Services Administration (“GSA”) rates.  The Requestors will pay for business class airfare for high-ranking officials which, as proposed, is permitted by the Foreign Country’s government. The Requestors will pay all expenses directly to the providers and will not give any money, including per diems, directly to the government officials. If some of the trips require staying over a weekend, the Requestors will pay for hotels and meals during those periods, subject to the same limitations above. The Requestors will share the costs of the trips.

The Requestors have also represented, among other things, that:

  • The Requestors plan to organize entertainment events that will be of nominal cost and will involve families who have adopted children from the Foreign Country.  The Requestors are not planning to fund, organize, or host any other entertainment, side trips, or leisure activities for the officials.
  • The Requestors will not have a role in selecting the particular government officials who will travel.  That decision will be made solely by the Foreign Country’s government.
  • The Requestors will host only the designated government officials and not their spouses or family members.

  • Any souvenirs that a Requestor gives the visiting officials will reflect a Requestors’ business or logo and will be of nominal value.

  • Apart from the expenses identified above, the Requestors will not compensate the officials for their visit and will not provide the officials with any stipend or spending money.

  • Costs and expenses will be only those necessary and reasonable to educate the visiting officials about the operations and services of U.S. adoption service providers.

  • The Requestors will not pay any additional money to the Foreign Country’s government or any other entity in connection with this trip.

Under the analysis section of the Release, the DOJ stated as follows.

“Based on their representations and proposed safeguards, the payments that the Requestors propose to make here fall within the same affirmative defense. First, the expenses described above are reasonable under the circumstances. This includes the provision of business class airfare for high-ranking officials, which, as proposed, is permitted by the Foreign Country. Second, the expenses are directly related to the promotion, demonstration, and explanation of the Requestors’ services. The Requestors represent that the purpose of the trip is to demonstrate the Requestors’ work to the government officials by allowing the government officials to interview the Requestors’ staff members, to inspect the Requestors’ files, and to meet with families who have adopted children from the Foreign Country. The proposed itineraries are consistent with this purpose.

Based upon all of the facts and circumstances, as represented by the Requestors, including additional information received from the Requestors and consistent with the prior opinions discussed above, the proposed expenses reflect no corrupt intent and appear to be bona fide promotional expenses.  The expenses contemplated are reasonable under the circumstances and directly relate to “the promotion, demonstration, or explanation of the Requestors’ products or services.”

Accordingly, with respect to the trips that the Requestors propose paying for, based on the representations made in the Request, including those recited above, as well as the Department’s review of supplemental materials submitted by the Requestors, the Department does not presently intend to take enforcement action.”

Like Release 11-01, Release 12-02 speaks volumes as to the high level of anxiety and skittishness in this current era of FCPA enforcement over things that should not.

DOJ’s Recent Opinion Procedure Release Creates Additional “Foreign Official” Confusion

Thursday, October 4th, 2012

On September 18th, the DOJ issued this FCPA Opinion Procedure Release.  Seldom do things go unnoticed these days in the FCPA space, but this post appears to be the first public reporting of the release issued a few weeks ago.

First a summary of the Release which focuses on “foreign official” issues and then some analysis and commentary.

The Requestor was a U.S. lobbying firm who wished to represent the Embassy of a Foreign Country to the United States and the Foreign Country’s Foreign Ministry in its lobbying activities in the United States.

The Release describes as follows.   “To facilitate that lobbying representation, the Requestor further wishes to contract with a third party (the “Consulting Company”) to introduce the Requestor to the Foreign Country Embassy, to advise the Requestor on cultural awareness issues in dealing with the Foreign Country’s officials and businesses, to act as the Requestor’s sponsor in the Foreign Country, to help the Requestor establish an office in the Foreign Country, and to identify additional business opportunities for the Requestor in the Foreign Country. One of the partners in the Consulting Company is a member of the royal family of the Foreign Country (the “Royal Family Member”), although he holds no position in the government.”

According to the release, the Consulting Company “is a limited liability company located in both the United States and the Foreign Country” and it has ”three partners, one of which is the Royal Family Member.”

As to the Royal Family Member, the release states as follows.

“The Royal Family Member holds no title or position in the government, has no governmental duties or responsibilities, is a member of the royal family through custom and tradition rather than blood relation, and has no benefits or privileges because of his status. The Royal Family Member has held only one governmental position in the Foreign Country: in the late 1990s, he served for less than twelve months in a position overseeing a governmental construction project.  Other than this one previous governmental position, the Royal Family Member does not act—and has never acted—in any capacity for, or on behalf of, the Foreign Country, or any department, agency, or instrumentality of the Foreign Country. The Royal Family Member has also never had any role in any public organization. The Royal Family Member’s position in the royal family does not put him in line to ascend to any governmental post.”

As to why the Requestor would engage the Consulting Company and the Royal Family Member in the first place, the release states as follows.

“Any private sector company planning to open an office or operate a business in the Foreign Country is required by law to have local sponsorship. The Royal Family Member has sponsored numerous foreign companies wishing to do business in the Foreign Country. In his work on behalf of these foreign companies, the Royal Family Member interacts in his personal capacity (i.e., not on behalf of the royal family) with government officials of the Foreign Country who are not themselves members of the royal family.”

The release further states as follows.  “The Requestor believes that the Royal Family Member’s experience and expertise in matters relating to the Foreign Country are essential to its succesful lobbying efforts on behalf of the Foreign Country Embassy.  In addition to these services, the Consulting Company may also work to identify additional business opportunities in the Foreign Country for the Requestor.”

The release notes that under the proposed engagement, the Requestor would pay the Consulting Company 20% of what it receives from the Foreign Country Embassy which the Consulting Company would then split equally “among its three partner, one of whom is the Royal Family Member.”

Based on these circumstances, the DOJ framed the issues as follows: (1) whether the Royal Family Member is a “foreign official” under the FCPA; and (2) whether the Requestor’s proposed engagement with the Consulting Company would result in any enforcement action by the Department.

The DOJ’s opinion “is that the Royal Family Member does not qualify as a foreign official under [the FCPA] so long as the Royal Family Member does not directly or indirectly represent that he is acting on behalf of the royal family or in his capacity as a member of the royal family.”  The DOJ further stated as follows.  ” [B]ased on the facts as represented by the Requestor, the Requestor’s proposed engagement of the Consulting Company to assist in its potential representation of the Foreign Country Embassy in its U.S. lobbying efforts may go forward without enforcement action.  The Department does not opine about any other aspect of the proposed engagement.”

In terms of the DOJ’s “analysis,” the Release states as follows.

“A person’s mere membership in the royal family of the Foreign Country, by itself, does not automatically qualify that person as a ‘foreign official.’ Rather, the question requires a fact-intensive, case-by-case determination that will turn on, among other things, the structure and distribution of power within a country’s government; a royal family’s current and historical legal status and powers; the individual’s position within the royal family; an individual’s present and past positions within the government; the mechanisms by which an individual could come to hold a position with governmental authority or responsibilities (such as, for example, royal succession); the likelihood that an individual would come to hold such a position; an individual’s ability, directly or indirectly, to affect governmental decision-making; and numerous other factors.  The Department concludes that the Royal Family Member does not presently qualify as a foreign official.”

In support, the DOJ cites the Carson case as follows.  “District court decisions addressing whether a state-owned entity may be an ‘instrumentality’ of a foreign government are also instructive for identifying the characteristics of a ‘foreign official’ under the FCPA.  In these cases, courts applied a fact-based analysis that focused on several factors, such as those articulated in United States v. Carson:

• The foreign state’s characterization of the entity and its employees;

• The foreign state’s degree of control over the entity;

• The purpose of the entity’s activities;

• The entity’s obligations and privileges under the foreign state’s law, including whether the entity exercises exclusive or controlling power to administer its designated functions;

• The circumstances surrounding the entity’s creation; and

• The foreign state’s extent of ownership of the entity, including the level of financial support by the state (e.g., subsidies, special tax treatment, and loans).”

The DOJ then states as follows.  “[W]hether a member of a royal family is a ‘foreign official’ turns on such factors as (i) how much control or influence the individual has over the levers of governmental power, execution, administration, finances, and the like; (ii) whether a foreign government characterizes an individual or entity as having governmental power; and (iii) whether and under what circumstances an individual (or entity) may act on behalf of, or bind, a government.  This inquiry is fact-intensive and no single factor is dispositive.”

The DOJ then states as follows.

“In the Department’s opinion, in light of the representations made by the Requestor recited above, this member of this particular royal family is not a foreign official—so long as he does not directly or indirectly represent that he is acting on behalf of the Royal Family or in his capacity as a member of the Royal Family. As represented by the Requestor, the Royal Family Member presently has no official or unofficial title or role in the Foreign Country’s government, nor does he have any official or unofficial power over any aspect of the Foreign Country’s governmental decision-making process, executive function, administration, finances, or, indeed, any aspect whatsoever of the government, including specifically the direct or indirect power to award the business the Requestor seeks. The Royal Family Member also cannot, by virtue of his membership in the royal family, ascend to a governmental position and has no benefits or privileges because of his status as a Royal Family Member. Further, the Royal Family Member has no relationship—personal, professional, or familial—with the decision-makers in the Foreign Country’s Embassy and the Foreign Country’s government who will decide whether to award the business the Requestor seeks. In light of these representations, the Royal Family Member has no power to affect the Foreign Country government’s award of the engagement the Requestor seeks.”

And now for some analysis and commentary.

The logical import of the DOJ’s opinion is that when a foreign individual “does not directly or indirectly represent that he is acting on behalf” of a foreign government “or in his capacity as a member” of a foreign government, then that individual is not a “foreign official” under the FCPA.  The folly of the DOJ’s position is the high likelihood that the vast majority of individuals the DOJ considers to be “foreign officials” under the FCPA (such as employees of alleged state-owned or state-controlled enterprises or employees of certain foreign health care providers) are clueless that they are considered foreign government actors under U.S. enforcement agency interpretations.

Moreover, the DOJ’s conclusion that ”a person’s mere membership in the royal family of the Foreign Country, by itself, does not automatically qualify that person as a “foreign official” is difficult to square with the DOJ’s statement in its FCPA Lay-Person’s Guide (here) that “the FCPA applies to payments to any public official, regardless of rank or position. The FCPA focuses on the purpose of the payment instead of the particular duties of the official receiving the payment …”.

The DOJ’s opinion in Release 12-01 however appears to be based entirely on the Royal Family Member’s particular duties or lack thereof.

Moreover, by focusing on the Royal Family Member’s particular duties or lack thereof, the DOJ actually drifts far-away from the Carson factors it cites to support its decision.  The Carson factors all focus on the status of the entity employing an alleged “foreign official” without any reference to a specific individuals particular duties or lack thereof.  In its recent 11th Circuit “foreign official” brief (here), the DOJ likewise elevates status over duties in assessing whether employees of Haiti Teleco were “foreign officials” under the FCPA.

However, in Release 12-01 the DOJ switches gears and elevates duties above status.  In doing so, the DOJ actually goes back to the FCPA’s original definition of “foreign official” which categorically excluded certain bona fide traditional government officials based on their duties.  The FCPA’s original definition of “foreign official” stated as follows “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or any person acting in an official capacity for or on behalf of such government or department, agency or instrumentality. Such terms does not include any employee of a foreign government or any department, agency, or instrumentality thereof whose duties are essentially ministerial or clerical.”

In short, the DOJ’s recent Release further adds to existing confusion of a key element of the FCPA.

*****

The DOJ’s Opinion Procedure Release is also notable given the following sentence.  “In declining to take enforcement action, the Department has also considered the steps that the Requestor and the Consulting Company have taken here to comply with the FCPA and other anti-bribery laws.”

In “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (here), I argue that despite DOJ’s institutional opposition to an FCPA compliance defense, the DOJ currently recognizes a de facto compliance defense in a number of ways including its FCPA Opinion Procedure Releases.  I highlight that in many FCPA Opinion Procedure Releases, the DOJ recognized a Requestor’s good-faith efforts to comply with the FCPA through pro-active compliance measures designed to reduce liability.  I then argue that good-faith efforts to comply with the FCPA through pro-active compliance measures should be recognized as a matter of law and not just when an organization decides to engage in the formal FCPA Opinion Procedure Release Program.

*****

A final point regarding Opinion Procedure Release 12-01 deserving of attention is the time it took the Requestor to obtain a DOJ opinion.  The Requestor submitted the release on February 15, 2012 and it took the DOJ (after requesting supplemental information) until September 18, 2012 to issue its opinion.  The DOJ frequently cites the Opinion Procedure Release as a panacea for business concerns regarding FCPA ambiguity (i.e. if business is confused submit to the Opinion Procedure Release program).  Seven months may seem like a short time period in government, but in the real-world where business decisions and contracts can be won or lost in a matter of days, it is not practical for a Requestor to wait seven months for a decision.  If the DOJ wants its Opinion Procedure Release program to be taken seriously, it must issue more prompt opinions.

Cobalt Experiences The Front Page Effect As Well

Wednesday, April 25th, 2012

Wal-Mart’s stock is not alone in experiencing a wild ride based on recent front page news coverage of FCPA issues.  Last week, Cobalt International (a Houston based oil exploration and production company) experienced a wild ride as well.

On Friday, April 13th, Cobalt’s shares closed at $28.38.

On Sunday, April 15th, the Financial Times (“FT”) published two articles: “Spotlight Falls on Cobalt’s Angola Partner” and “Angola Officials Held Hidden Oil Stakes” that spooked investors the following day.  Never mind that, as in Wal-Mart’s case, Cobalt disclosed FCPA scrutiny weeks earlier – see here for the prior post.  (Point taken that market reaction to Wal-Mart – the stock was down an additional 3% yesterday, down approximately 8% this week – is likely not just based on Wal-Mart’s potential FCPA scrutiny, but Wal-Mart’s response (or lack thereof) to the payments since 2005 and the impact this could have for senior leadership at the company).

The FT articles document how in 2008 Cobalt was looking to obtain rights to drill for oil in Angolan waters.  According to the FT, an Angolan government stipulation was that Cobalt would have partner with Nazaki Oil & Gaz, described by the FT as “an obscure local company.”  According to the articles, FT confirmed that “three of the most powerful figures in the Angolan regime have held interests in Nazaki.”  The FT stated that these individuals “interests in Cobalt’s local partner could raise questions about compliance with U.S. anti-corruption laws, which make it a crime to pay or offer anything of value to foreign officials to win business.”  For its part, Cobalt stated in the articles that its extensive and ongoing due diligence “has not found any credible support for the central allegation that Angolan government officials, and specifically the officials identified … have any ownership in Nazaki” and that the company “has at all times complied fully with both U.S. and Angolan laws.”

Nevertheless, in mid-day trading on Monday, April 16th, the company’s stock plunged approximately 11% and closed at $26.35, down approximately 7% from its previous close.

After watching its stock dive based on the FT article, Cobalt issued a release (here) strongly refuting “any allegations of wrong doing and once again stood behind its principles of full compliance with all laws in all jurisdictions in which it operates.”  According to Cobalt’s release, “prior to publication of [the FT] articles, Cobalt went on the record asking for any documentation that the Financial Times could offer which was at  odds with its position. The Financial Times declined Cobalt’s repeated requests for supporting documentation. In fact, in the course of these communications, Cobalt informed the Financial Times of certain egregious, demonstrably false allegations that it provided to Cobalt.”  As noted in the release, “Cobalt began its investigation into its Angola business relationships in 2007. Cobalt has based its decisions and actions on the results of these  extensive investigations and will continue to maintain rigorous due diligence in all of its worldwide activities. Cobalt remains confident that it has not violated any US or Angolan Law and will vigorously defend its reputation and legal rights in this matter.”

On Tuesday April 17th, as if on cue, a plaintiff shareholder firm announced (here) that it is investigating “potential claims on behalf of purchasers of the securities of Cobalt International Energy Inc. concerning whether the company and certain of its officers and directors have violated federal securities laws.”  Other shareholder firms have joined in as well – see here.

Also on Tuesday April 17th, Morgan Stanley, in a morning equity summary, said that the “market is overreacting to worries of alleged” Cobalt violations and that Cobalt “has no risk of losing” its interest in the Angola blocks.  The company’s shares climbed approximately 4% and closed at $27.44.  Since then the company’s stock has generally trended downward, yesterday it closed at $26.41.

What to make of Cobalt’s potential FCPA exposure?

Time will tell of course, but the DOJ has previously brought FCPA enforcement actions where the thing of value given to the “foreign official” was provided in the context of a business relationship with a company owned or controlled by a “foreign official” or family members.

For instance, in both the Charles Jumet and John Warwick (these individuals were employed by Ports Engineering Consultants Corporation) charging documents (here and here) the DOJ generally alleged as follows.

“Government Official A was the Administrator of Panama’s National Maritime Ports Authority (APN), the Panamanian governmental entity responsible for operating and maintaining the lighthouses and buoys in the waterways near the Panama Canal.” ”Government Official B” was at various times the Deputy Administrator or Administrator of APN.  “Government Official C was a very high-ranking executive official of the Republic of Panama.”

According to the charging documents, Government Official A owned a shell corporation, Soderville Corporation, which become a majority shareholder of Ports Engineering Consultants Corporation (PECC).  Government Official B’s relatives were corporate officers of Warmspell Holding Corporation, which became a shareholder of PECC.

The DOJ alleged a conspiracy “to pay money secretly to Panamanian government officials in return for awarding PECC contracts to maintain lighthouses and buoys along Panama’s waterways.”  According to the DOJ, part of the conspiracy was that Government Official A and Government Official B received “corrupt payments” in the form of purported ‘dividends’ and that Government Official C received “bearer” shares from PECC as part of the conspiracy.

Doing business with a “foreign official” of course is not per se illegal under the FCPA and several FCPA Opinion Procedure Releases discuss the issue – see here, here and here for instance.

Yet one of the red flags when engaging foreign partners is when a company is told by the foreign government who to do business with.  In such a situation, a company needs to ask itself – why are we being told to do business with this company?  A company needs to do sufficient pre-engagement due diligence, as Cobalt claims it did in Angola, to understand who the owners are to be satisfied that it is not being told to do business with the particular entity simply as an indirect way of enriching foreign officials.

All The News That’s Fit? To Print

Thursday, April 5th, 2012

This recent article from the New York Times (“In China Press, Best Coverage Cash Can Buy”) caught my eye.  It discusses how Chinese journalists are often “more than willing to let flattering news about Western and Asian businesses appear in print and broadcast media – if the price is right.”  The article notes that “while Western companies and many Chinese journalists are loath to discuss the subject, public relations and advertising firms are sometimes surprisingly candid about their roles as brokers in buying flattering coverage, referred to [in China] as ‘soft news’ or ‘paid news.’”

In the article, Ogilvy & Mather (one of the world’s largest advertising agencies that services Fortune Global 500 companies and a unit of NASDAQ listed WPP) essentially admits, in certain instances, to facilitating such payments for its clients.  Also in the article a “Chinese account manager for another American public relations firms was strikingly frank about paying for coverage.”

The FCPA implication?

In the eyes of the enforcement agencies, employees of state-owned or state-controlled enterprises (i.e. most Chinese media outlets) are “foreign officials” under the FCPA.  Given the agencies’ interpretation coupled with the agencies increasingly boundless interpretation of “obtain or retain business”, it will be interesting to see how they react (if they haven’t already) to the front-page New York Times article. Is the type of conduct described in the New York Times article the type of conduct that Congress sought to prohibit when it passed the FCPA?  Likely no, but then again this same question could be asked in connection with many recent FCPA inquiries and enforcement actions.

While not a direct parallel to the issues discussed in the New York Times article, in FCPA Opinion Procedure Release 08-03 (here), TRACE International Inc. proposed to pay for certain expenses for journalists employed by Chinese state-owned media outlets to attend a TRACE press conference in Shanghai.  According to TRACE in the request, “it is common practice for foreign and domestic companies operating in the PRC to provide a stipend and travel expenses to journalists in connection with a press conference and such stipends are not conditioned on subsequent coverage of the press conference or the nature of the coverage.”  Given the various representations offered by TRACE, including that the payments were not contrary to Chinese law and that they would be accurately recorded in its books and records, the DOJ opined that it did not intend to take any enforcement action with respect to the payments.  The DOJ noted that the expenses would fall within the FCPA’s affirmative defense in that they appeared to be directly related to the promotion, demonstration, and explanation of TRACE’s products or services.  However, in its opinion, the DOJ stated it did not “place [any] weight on the fact that it may be common practice for companies in the PRC to provide such benefits to journalists attending a press conference.”

The New York Times article notes that the above dynamic may not be limited to China.  The article states, “media outlets in Europe, Japan, the Philippines, Latin America and even the United States may venture into various gray area, encouraging companies to pay for journalists’ travel or underwriting favorable reporting or agreeing to take out advertising packages in exchange for coverage.”

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

Tuesday, February 14th, 2012

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

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

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

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

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

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

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

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

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

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

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