Archive for the ‘SEC’ Category

Friday Roundup

Friday, October 24th, 2014

SEC administrative proceedings, a sorry state of affairs, voluntary disclosure calculus, nice payday but what was really accomplished, and for the reading stack.  It’s all here in the Friday roundup.

SEC Administrative Proceedings

A focus on SEC administrative proceedings here at the Wall Street Journal.

“The Securities and Exchange Commission is increasingly steering cases to hearings in front of the agency’s appointed administrative judges …”

For discussion of this dynamic in the FCPA context, see my article “A Foreign Corrupt Practices Act Narrative” (pgs. 991-995).

“SEC administrative settlements, as well as SEC  DPAs and NPAs, place the SEC in the role of regulator,  prosecutor, judge and jury all at the same time and a notable  feature from 2013 SEC FCPA corporate enforcement is that 4 (1  NPA and 3 administrative orders) of the 8 corporate enforcement  actions (50%) were not subjected to one ounce of judicial  scrutiny.”

In 2014, there have been three SEC corporate FCPA enforcement actions (Smith & Wesson, Alcoa, and HP).  All have been resolved via the SEC’s administrative process.

Sorry State of Affairs

It really is a sorry state of affairs when former government enforcement attorneys go into private practice and then criticize the current enforcement climate that they helped create.  For more on this dynamic in the FCPA context, see this prior post “A Former Enforcement Official Is Likely To Say (Or Has Already Said) The Same Thing.”

Albeit outside the FCPA Context, this ProPublica article, “In Turnabout, Former Regulators Assail Wall St. Watchdogs,” touches on the same general issue.

“Last week, I visited an alternate universe. The real world sees a pandemic of bank misconduct, but to the white-collar defense lawyers of Washington, the banks are the victims as they bow beneath the weight of regulators’ remarkably harsh punishments.

I was attending the Securities Enforcement Forum, a gathering of top regulators and white-collar defense worthies. The marquee section was a panel that included Andrew Ceresney, the current enforcement director of the SEC, and five of his predecessors. Four of those former S.E.C. officials represent corporations at prominent white-collar law firms. [...] The conference turned into a free-for-all of high-powered and influential white-collar defense lawyers hammering regulators on how unfair they have been to their clients, some of America’s largest financial companies.

[...]

This is how power and influence work in Washington. Former top officials, whose portraits mount the walls, weigh in on matters of enforcement. Now working for the private sector, they assail the regulatory “overreach.” Sincerely held or self-serving, these views carry weight in Washington’s clubby legal milieu.

[...]

Former regulators are the mouthpieces. And given what they say in public, one can only imagine what is happening behind closed doors.”

Voluntary Disclosure Calculus

At the Corporate Crime Reporter, Laurence Urgenson (Mayer Brown) talks about, among other topics, voluntary disclosure.

“Voluntary disclosure is still an important option in dealing with FCPA risk,” Urgenson said. “It used to be the default position — people had a predisposition toward it. It’s moved from the default position to one taken only after a clear-eyed case by case analysis of the benefits and the costs.” “That’s because the benefits and costs of voluntary disclosure have shifted. Part of that is the result of globalization. Part of it has to do with the increased penalties.” “It used to be that the Department of Justice and the SEC could provide companies with one stop shopping. If you volunteered to the Department and SEC, and you settled the matter, you had finality.” “That was a big benefit of the voluntary disclosure process. Now, because in part of the high penalties and globalization, the Department and SEC resolution can be the first stop in a long journey, which includes dealing with law enforcement authorities around the world, dealing with NGOs such as the World Bank which has an enforcement process, and navigating the risks of civil litigation.” “Once the Department of Justice resorted to the alternative fine provisions, which greatly increases the potential fines and once the SEC began to use the disgorgement remedy, FCPA settlements became much more costly, so much so that they could affect the stock price and provoke civil actions.” “You really have to sit down with the client and look at the list of pluses and minuses to voluntary disclosure. You have to go through with the client the long list of things that follow from voluntary disclosure.”

Nice Payday But What Was Really Accomplished?

As highlighted in this Law360 article:

“Alcoa Inc. shareholders on Monday asked a Pennsylvania federal judge to approve a settlement between shareholders and the board over allegations that the company paid hundreds of millions of dollars in illegal bribes to government officials in Bahrain. The proposed agreement states that aluminum producer Alcoa “has adopted or will adopt” compliance reforms that include the creation of a chief ethics and compliance officer, an officer-level position that oversees the ethics and compliance program, enhancements to the program that include the development of an anti-corruption policy, and implementation of Alcoa’s due diligence and contracting procedure for intermediaries.

[...]

The proposed settlement also provides that there be a reorganization of Alcoa’s regional and local counsel reporting structure, enhanced mandatory annual Foreign Corrupt Practices Act and employee anti-corruption training, improvements to its business expense policies, and enhancements to its compliance policies for evaluating the effectiveness of preventing corruption.

In addition, the company has agreed to pay $3.75 million to the plaintiffs’ counsel.

Alcoa admits no wrongdoing or liability under the terms of the proposed agreement.”

The issue is the same as highlighted in this prior post – nice payday, plaintiffs’ lawyer,s but what was really accomplished?

In connection with the January 2014 FCPA enforcement action against Alcoa World Alumina, Alcoa basically agreed to the same thing it agreed to do in the above settlement.  (See here at Exhibit 4).

Reading Stack

A review of my book, “The Foreign Corrupt Practices Act in a New Era” published at International Policy Digest by John Giraudo (of the Aspen Institute and formerly a chief compliance officer).  It begins:

“If you care about the rule of law, The Foreign Corrupt Practices Act in the New Era by Mike Koehler, is one of the most important books you can read—to learn how it is being eroded. Professor Koehler’s book … is a must read for people who care about law reform. It is a story of how a good law, the US Foreign Corrupt Practices Act, a criminal law that prevents companies from bribing foreign government officials has been misapplied in recent enforcement actions by the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC).”

Miller & Chevalier’s FCPA Autumn Review 2014 is here.

*****

A good weekend to all.

Friday Roundup

Friday, October 17th, 2014

Strange definitions, asset recovery, through the revolving door, and proof.  It’s all here in the Friday roundup.

Strange Definitions

The Department of Justice and Securities and Exchange Commission sure do have some strange definitions.

For instance, in this Global Investigations Review Q&A, Marshall Miller (Principal Deputy Assistant Attorney General) states:

“[W]ith respect to declinations, if we have good reason to investigate potential criminal conduct then we’re going to follow that investigation to its end. At times, we do decline to prosecute, and we do so in an appropriate and expeditious way. One of the things we’ve been talking about is how to ensure that those under investigation understand why and when we decline to prosecute. But primarily these are cases where there were significant indicia of wrongdoing, but the wrongdoing doesn’t add up to a federal criminal case and [these] are not examples of the Justice Department just charging into corporations where there’s no wrongdoing in the first place.”

When the wrongdoing under investigation “doesn’t add up to a federal criminal case” that is not a declination, it is what the law commands.

Over at the SEC, yesterday the agency touted its FY 2014 enforcement actions (see here).  Andrew Ceresney (Director of the SEC’s Division of Enforcement) stated:  “I am proud of our excellent record of success and look forward to another year filled with high-impact enforcement actions.”

Included in the SEC’s release is the following:

“Combatting Foreign Corrupt Practices and Obtaining Highest-Ever Penalties Against Individuals

With the exception of Weatherford all of the corporate enforcement actions were resolved through the SEC’s own administrative process wherein it needs to convince only itself of the strength of its case.  In addition, see here for the article “Why You Should Be Alarmed by the ADM FCPA Enforcement Action” and see here for the post “HP Enforcement Action-Where to Begin.”

As to that “excellent record of success,” in the former Siemens executives action, see here for the previous guest post by a former Assistant Director of the SEC’s Enforcement Division (“Sometimes you see something in a Foreign Corrupt Practices Act case that’s so inexplicable you wish someone would throw the red challenge flag and have the play reviewed under the hood or up in the booth.  Unfortunately, in the largely-overlooked wind-down phase of the SEC’s FCPA case against several former Siemens executives, the last of the defendants defaulted, so nobody was around to throw the challenge flag – and as a result the SEC seems to have gotten away with a doozy of a blown call.”).

Asset Recovery

Relevant to the DOJ’s Kleptocracy Asset Recovery Initiative under which prosecutors in the DOJ Asset Forfeiture and Money Laundering Section work in partnership with federal law enforcement agencies to forfeit the proceeds of foreign official corruption, the DOJ recently announced:

“[A] settlement of its civil forfeiture cases against assets in the United States owned by the Second Vice President of the Republic of Equatorial Guinea Teodoro Nguema Obiang Mangue that he purchased with the proceeds of corruption.”

“Through relentless embezzlement and extortion, Vice President Nguema Obiang shamelessly looted his government and shook down businesses in his country to support his lavish lifestyle, while many of his fellow citizens lived in extreme poverty,” said Assistant Attorney General Caldwell.  “After raking in millions in bribes and kickbacks, Nguema Obiang embarked on a corruption-fueled spending spree in the United States.  This settlement forces Nguema Obiang to relinquish assets worth an estimated $30 million, and prevents Nguema Obiang from hiding other stolen money in the United States, fulfilling the goals of our Kleptocracy Asset Recovery Initiative: to deny safe haven to the proceeds of large-scale foreign official corruption and recover those funds for the people harmed by the abuse of office.”

“While this settlement is certainly gratifying for the many investigators and prosecutors who worked tirelessly to bring it to fruition, it is undoubtedly even more rewarding for the people of Equatorial Guinea, knowing that at least some of the money plundered from their country’s coffers is being returned to them,” said Acting ICE Director Winkowski.  “ICE remains steadfast in its resolve to combat foreign corruption when the spoils of these crimes come to our shores and we are committed to seeking justice and compensation for the often impoverished victims.”

According to court documents, Nguema Obiang, the son of Equatorial Guinea’s President Teodoro Obiang Nguema Mbasogo, received an official government salary of less than $100,000 but used his position and influence as a government minister to amass more than $300 million worth of assets through corruption and money laundering, in violation of both Equatoguinean and U.S. law.  Through intermediaries and corporate entities, Nguema Obiang acquired numerous assets in the United States that he is agreeing to relinquish in a combination of forfeiture and divestment to a charity for the benefit of the people of Equatorial Guinea.

Under the terms of the settlement, Nguema Obiang must sell a $30 million mansion located in Malibu, California, a Ferrari automobile and various items of Michael Jackson memorabilia purchased with the proceeds of corruption.  Of those proceeds, $20 million will be given to a charitable organization to be used for the benefit of the people of Equatorial Guinea.  Another $10.3 million will be forfeited to the United States and will be used for the benefit of the people of Equatorial Guinea to the extent permitted by law.

Under the agreement, Nguema Obiang must also disclose and remove other assets he owns in the United States.  Nguema Obiang must also make a $1 million payment to the United States, representing the value of Michael Jackson memorabilia already removed from the United States for disbursement to the charitable organization.  The agreement also provides that if certain of Nguema Obiang’s other assets, including a Gulfstream Jet, are ever brought into the United States, they are subject to seizure and forfeiture.”

Related to the above action, the Wall Street Journal recently published this article titled “When U.S. Targets Foreign Leaders for Corruption, Recovering Loot Is a Challenge.”  The article notes:

“The [Obiang] settlement shows the ups and downs of the Justice Department’s Kleptocracy Asset Recovery Initiative, announced in 2010. So far, the agency has collected about $600 million out of the $1.2 billion pursued from 15 cases against current or former officials and businessmen in at least 14 different countries, according to a review of the cases by the Journal. Most of the cases involve alleged bribery, extortion or embezzlement. Justice Department officials said additional cases haven’t been made public yet because their court filings are sealed.

[...]

“I am pleased to be able to end this long and costly ordeal,” Mr. Obiang wrote in a statement on his Facebook page. “I agreed to settle this case despite the fact that the U.S. federal courts had consistently found that the Department of Justice lacked probable cause to seize my property.” Lawyers for Mr. Obiang have said the disputed property was bought with money earned legally through timber concessions and companies he owns. The Justice Department faced daunting obstacles in its fight against Mr. Obiang that are common in corruption cases against foreign leaders. To win in court, the government must prove that assets in the U.S. were bought with proceeds of illegal activity in the country where the alleged corruption occurred. The money trail is even harder to follow when the target has a large number of overseas shell companies and accounts, as Mr. Obiang did, according to court filings in the civil case. “These accounts are suspicious,” U.S. District Judge George Wu said in a ruling last year. But he threw out most of the Justice Department’s case, concluding there “is no evidence that the defendant assets were purchased with those funds.” In December, the Justice Department filed a new civil suit against Mr. Obiang. Before the settlement was reached, the two sides were sparring over whether a statute of limitations had lapsed.”

McInerney to Davis Polk

As Chief of the DOJ’s Fraud Section and Deputy Assistant Attorney General for the Criminal Division, Denis McInerney was involved in setting DOJ FCPA policy during this declared new era of enforcement and frequently advanced those policy positions on the FCPA conference circuit.  McInerney recently left the DOJ and Davis Polk recently announced:

“McInerney … is returning to the firm as a partner in its Litigation Department and member of its white collar criminal defense and investigations practice.  As Chief of the Fraud Section (from 2010 to 2013) and then Deputy Assistant Attorney General overseeing the Fraud, Appellate and Capital Case Sections of the Criminal Division (from 2013 to 2014), Mr. McInerney was responsible for supervising approximately 100 prosecutors in the Fraud Section, which has responsibility for all Foreign Corrupt Practices Act (FCPA) investigations conducted by DOJ, as well as a wide range of other complex white collar criminal investigations and prosecutions throughout the country, including corporate, securities, financial, health care and procurement fraud cases.

Among other matters, Mr. McInerney played a leadership role in DOJ’s investigations into the alleged manipulation of LIBOR and the foreign exchange market by various financial institutions around the world, and the preparation of A Resource Guide to the Foreign Corrupt Practices Act, which was published by DOJ and the SEC in 2012.  Mr. McInerney’s tenure leading the Fraud Section was marked by a substantial increase in the number of defendants charged and convicted on an annual basis, as well as the number of trials conducted by Fraud Section prosecutors each year.

[...]

“We are delighted to welcome Denis back. His integrity, judgment and experience, both as a high-level DOJ official overseeing some of the nation’s most important white collar cases and as a skilled defense attorney representing institutions and individuals in their most sensitive investigations and trials, will be a great asset to our world-class litigation and white collar criminal defense teams,” said Thomas J. Reid, Davis Polk’s Managing Partner. “Denis rejoins an extraordinary and growing team of former government officials in our New York and Washington offices, including litigators who have held senior positions with DOJ, the SEC, the White House and the CIA.”

Mr. McInerney said, “I’m very grateful that I was given the opportunity to return to the Department for these last four plus years to help lead a terrific group of prosecutors at Main Justice in Washington. At the same time, I’m very glad to be home, not only with my family in New York, but with Davis Polk, a firm that is all about excellence, where I was fortunate to have practiced for 18 years. Returning to Davis Polk will give me the opportunity to work on some of the most important and interesting enforcement and regulatory matters in the country with an expanded and extremely talented litigation group.”

 Proof

Need further proof that it is indeed an FCPA world.  See here.

*****

A good weekend to all.

Friday Roundup

Friday, October 10th, 2014

A tribute, resource alert, bureaucratic brazennessscrutiny alerts and updates, a bushel, quotable, and for the reading stack. It’s all here in the Friday roundup.

James McGrath

I join Tom Fox (FCPA Compliance and Ethics Blog) in paying tribute to James McGrath.  Owner of his own Ohio-based firm McGrath & Grace and founder and editor of his own Internal Investigations Blog, McGrath was a bear of a man as Fox wrote.  Yet a gentle and kind bear and I will remember Jim for his desire to learn and engage with students.  He was an occasional contributor to FCPA Professor (see here) and his candid wit resulted in this classic post.  I last communicated with Jim a few weeks ago and he was excited to share some new things in his life and I was happy and excited for him.  Moreover, Jim paid me a visit in Southern Illinois this past spring which is no small feat as one has to make a big of effort to get here.  I enjoyed our visit and discussion.

You will be missed Jim, rest in peace.

Resource Alert

The University of Houston Law Center announced:

“[Release of] a searchable database that contains the compliance codes for Fortune 500 companies.  The project was led by Houston attorney Ryan McConnell, an adjunct professor at the University of Houston Law Center. McConnell worked with a team of recent graduates and current students to develop the database, which covers 42 different topics. “The free database allows any company to conduct benchmarking on virtually every compliance area covered in a code of conduct and to spot compliance trends within their industry,” McConnell explained. “In addition to proactively building a program, when compliance failures occur, whether a foreign bribery violation or environmental issue, stakeholders – whether they are shareholders in a lawsuit or criminal investigators – frequently scrutinize the company’s compliance program.  This database provides a powerful tool for anyone to evaluate the strength of a company’s compliance program, including subject matters addressed in the code and the organization’s core values.”

Bureaucratic Brazenness

This recent Wall Street Journal column “The New Bureaucratic Brazenness” caught my eye.

“We’re all used to a certain amount of doublespeak and bureaucratese in government hearings. That’s as old as forever. But in the past year of listening to testimony from government officials, there is something different about the boredom and indifference with which government testifiers skirt, dodge and withhold the truth. They don’t seem furtive or defensive; they are not in the least afraid. They speak always with a certain carefulness—they are lawyered up—but they have no evident fear of looking evasive. They really don’t care what you think of them. They’re running the show and if you don’t like it, too bad.

[...]

Everything sounds like propaganda. That will happen when government becomes too huge, too present and all-encompassing. Everything almost every level of government says now has the terrible, insincere, lying sound of The Official Line, which no one on the inside, or outside, believes.

[...]

We are locked in some loop where the public figure knows what he must pronounce to achieve his agenda, and the public knows what he must pronounce to achieve his agenda, and we all accept what is being said while at the same time everyone sees right through it. The public figure literally says, “Prepare my talking points,” and the public says, “He’s just reading talking points.” It leaves everyone feeling compromised. Public officials gripe they can’t break through the cynicism. They cause the cynicism.”

I sort of feel this way when I hear DOJ and SEC FCPA enforcement attorneys speak.  Do you?

For instance, last year I attended an event very early in tenure of a high-ranking SEC enforcement official.  This person – who came to the SEC from private practice – candidly stated something to the effect that given his very new position he did not yet know what he was supposed to say.

Scrutiny Alerts and Updates

Sanofi

As recently reported in this Wall Street Journal article:

“Sanofi said it has told U.S. authorities about allegations of improper payments to health-care professionals in the Mideast and East Africa, joining a lineup of pharmaceutical companies that have faced similar claims. Among the allegations are that Sanofi employees made improper payments to doctors in Kenya and other East African nations, handing out perks based on whether the doctors prescribed or planned to prescribe Sanofi drugs, according to the firm and e-mails from a tipster The Wall Street Journal viewed. The French pharmaceutical company said it hired New York law firm Weil Gotshal & Manges LLP to look into the claims and the investigation is continuing. “At this stage, it is too early to draw conclusions,” a company spokesman said. “Sanofi takes these allegations seriously.”

[...]

“The Sanofi investigation began after the firm received a series of anonymous allegations that wrongdoing occurred between 2007 and 2012 in parts of the Middle East and East Africa, the company said. One allegation was that employees of subsidiary Sanofi Kenya bribed medical professionals, a claim made via emails sent to Sanofi senior management last October and in March and viewed by the Journal. Sanofi paid for influential medical professionals to attend conferences, many of which were abroad, and gave them cash and gifts at its own events to win business, the emails allege. Copies of letters the tipster said were sent to Sanofi Kenya by medical professionals, as well as what the emails describe as other Sanofi documents, which were also reviewed by the Journal, indicate that doctors would request money from Sanofi Kenya to attend conferences and events and that Sanofi employees would take into account the applicant’s value to Sanofi’s business before deciding whether to sponsor them or not.”

As highlighted in this August 2013 post, Sanofi’s conduct in China has also been under scrutiny.

GSK

As recently reported in this Reuters article:

“GlaxoSmithKline, which was slapped with a record $489 million fine for corruption in China last month, said on Tuesday it was looking into allegations of corruption in the United Arab Emirates. Britain’s biggest pharmaceuticals group confirmed the investigation following allegations of improper payments set out in a whistleblower’s email sent to its top management on Monday. The email, purporting to be from a GSK sales manager in the Gulf state, was seen by Reuters. The company is already investigating alleged bribery in a number of Middle East countries, including Lebanon, Jordan, Syria and Iraq, as well as Poland. ”As we have already said, we are undertaking an investigation into our operations in the Middle East following complaints made previously. This investigation continues and these specific claims were already being investigated as part of this process,” a GSK spokesman said.”

DynCorp

The Washington Times reports here

“State Department investigators uncovered evidence that agents working for one of the largest U.S. military contractors paid tens of thousands of dollars in bribes to Pakistani officials to obtain visas and weapons licenses, but records show the government closed the case without punishing DynCorp.

[...]

But investigators closed the case after deciding they couldn’t prove or disprove the company had the “requisite corrupt” intent required to prove a violation of the Foreign Corrupt Practices Act (FCPA), which bars U.S. companies from bribing foreign officials.

“There was no evidence to support the allegations that DynCorp or its employees had specific knowledge of bribes paid Pakistani government officials,” an investigator wrote in a memo closing out the case last year.

Still, investigators concluded there were violations of the FCPA involving both Speed-Flo and Inter-Risk, both of which are based in Islamabad.”

AgustaWestland / Finmeccanica Related

As noted in this Wall Street Journal article:

“An Italian court found Giuseppe Orsi, the former chief executive of defense firm Finmeccanica, not guilty of international corruption, absolving him of the most serious charge he faced in connection with a 560-million-euro contract won in 2010 to supply the Indian government with 12 helicopters. The three judge panel found Mr. Orsi, 68, guilty of falsifying invoices and sentenced him for that crime to two years in prison, a penalty that was immediately suspended. “A nightmare is over for me and my family,” a visibly relieved Mr. Orsi told reporters after the judge had read the verdict. Italian prosecutors had argued that Mr. Orsi, who at the time of the alleged corruption was CEO of Finmeccanica unit AgustaWestland, directed a plan to pay tens of millions of dollars to Indian officials, including the former top officer in the Indian air force, to win the helicopter-supply competition. Mr. Orsi rose to become CEO of Finmeccanica in 2011 and resigned last year when the corruption charges surfaced. The court also absolved Bruno Spagnolini, who followed Mr. Orsi as CEO of AgustaWestland, of corruption while finding him guilty of falsifying invoices. In reading the verdict, the judge said that while prosecutors had proven that fake invoices had been issued, there was no corruption. Prosecutors had argued there was a direct connection between the false invoices and the payment of kickbacks.”

A Bushel

Matthew Fishbein (Debevoise & Plimpton) was awarded an FCPA Professor Apple Award for this this recent article titled “Why Aren’t Individuals Prosecuted for Conduct Companies Admit.”  Fishbein continues with his spot-on observations in this recent Corporate Crime Reporter Q&A.  For additional reading on the same topics see:

The Facade of FCPA Enforcement“ (2010)

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

But Nobody Was Charged” (2011)

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

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

Quotable

In this recent speech, SEC Chair Mary Jo White stated:

“In fiscal year 2013, we brought more than 675 enforcement actions and obtained orders for $3.4 billion in total penalties and disgorgement.  We will soon be announcing the results for our 2014 fiscal year, which ended yesterday.  It was another very productive year as those numbers will show. But numbers only tell part of the story. The quality and breadth of actions are really the more meaningful measure of an effective enforcement program. (emphasis added).”

As to international cooperation, White stated:

“International cooperation is essential to the SEC’s enforcement program, and indeed, to all of our enforcement programs.  In today’s global marketplace, fraudulent schemes and other misconduct commonly have cross-border elements, and the need for seamless cooperation among us has never been greater.

The SEC’s investigations and enforcement actions often involve witnesses and evidence in different countries around the world.  And I know that the same is true in your investigations and enforcement cases.

Faced with this simple reality, if we are to continue to conduct these investigations successfully, and prosecute the offenses and wrongdoers to the fullest extent of our laws, broad and effective use of the MMoU, and our bilateral agreements, is more important than ever.

No one knows that better than the SEC.  Virtually every week, I meet with my fellow Commissioners to decide which cases to bring.  Rarely is there a week when one or more of the cases recommended by the enforcement staff does not involve critical international assistance.  In fact, in the last fiscal year, the SEC made more than 900 requests for international assistance and, as a result, we were able to obtain critical evidence that helped us prosecute wrongdoers for a vast array of serious offenses.

In one recent FCPA case, for example, the SEC obtained valuable evidence — bank and other corporate records — from German prosecutors. [HP] And, we received great support from regulators in Australia, Guernsey, Liechtenstein, Norway, Canada, Switzerland, and the United Kingdom in another major FCPA action. [Alcoa].”

From the Houston Chronicle, a Q&A with former Deputy Attorney General – and current FCPA practitioner – George Terwilliger.

Q: How will enforcement of the Foreign Corrupt Practices Act (FCPA) hinder U.S. energy companies from doing business abroad?

A: Notwithstanding all the good things that are happening with energy upstream production in the United States, the real growth opportunities remain overseas. And a lot of them are in places that are ethically challenged at best in terms of their business and legal cultures. Two things cause problems for companies subject to U.S. law.

One, ambiguities are in the law itself. What is a foreign official? What organizations are covered as entities of foreign governments that are state-owned enterprises three times removed?

Then there’s the uncertainty of the parameters of enforcement policy. Why is this case prosecuted and that one isn’t? Why does this case settle for this much money and that one for that much money? There’s not a lot of transparency, and it’s not apparent to the people who work at this all the time exactly where those parameters are.

Q: Why is that a problem?

A: A company subject to U.S. law that is looking at an opportunity overseas looks at what the profitability model is and then they look at the risk inherent in doing business in that environment. The least little thing that comes up in that process — there’s a piece of real estate they want us to use as a staging area that’s owned by the brother-in-law of the cousin of the oil minister — and they look at it and go, “You know what? We’re not going to do that. It’s not worth the risk.”

Q: Are companies passing up business opportunities because of those risks?

A: Yes, that happens. Companies forgo economic opportunities because the uncertainties are perceived to be too great given the potential return on the investment. The objective of the law is to have a corruption-free level playing field. Most American business people I think believe that given a level playing field they can compete very well, particularly with foreign competitors. The problem is when that playing field is knocked out of kilter by the influence of corruption. Perhaps companies from other countries don’t operate under these constraints, then the playing field isn’t level anymore.

Q: What can mitigate those risks and balance the playing field for U.S. companies abroad?

A: For some time I have advocated some kind of corporate amnesty for companies that investigate themselves, fix their problems and disclose them to the government. If companies become aware of corrupt activity, I think given an incentive to report that they would do it. And that will help the government and help the objectives of this program rather than playing a kind of gotcha game.

Q: Are there any incentives now for companies to disclose potential violations?

A: The Securities Exchange Commission and the Justice Department have articulated policies that whatever the penalty should be for some wrongdoing, it will be less if you self-report, cooperate with an investigation and so forth. I don’t think that’s widely believed in the U.S. corporate community. And it’s almost impossible to measure. I have represented companies where we have made voluntary disclosures that have not been prosecuted. And the government has said the reason they are not prosecuting is because of internal investigation and cooperation. So I’m not saying it doesn’t happen. At the end of the day, companies wrestle with the question of, “Is it really worth it?” All the heartache that’s going to flow from a voluntary disclosure, particularly on something that may be marginal as a violation, is it worth what that’s going to cost? In terms of damage to reputation, shareholder issues, management issues with the board and so forth, is that going to be worth it in terms of what a company might get in terms of some forbearance of penalty?

Reading Stack

“It’s as if the FCPA Super Bowl just ended in a tie.”  (See here from Bracewell & Giuliani attorneys Glen Kopp and Kedar Bhatia regarding the Supreme Court recently declining to hear the “foreign official” challenge in U.S. v. Esquenazi).   

A legitimate concern or a bluff?  (See here from The Globe and Mail – “The head of Canadian engineering giant SNC-Lavalin Group Inc. says any move by authorities to charge the company in connection with an extensive bribery scandal would immediately threaten its future and could force it to close down.”).

An interesting video on Bloomberg’s “Market Matters” regarding the DOJ’s approach to prosecuting alleged corporate crime. The FCPA is not specifically discussed, although the issues discussed are FCPA relevant.

From the Economist “The Kings of the Courtroom:  How Prosecutors Came to Dominate the Criminal-Justice System.” (“The prosecutor has more control over life, liberty and reputation than any other person in America,” said Robert Jackson, the attorney-general, in 1940. As the current attorney-general, Eric Holder, prepares to stand down, American prosecutors are more powerful than ever before. Several legal changes have empowered them. The first is the explosion of plea bargaining, where a suspect agrees to plead guilty to a lesser charge if the more serious charges against him are dropped. Plea bargains were unobtainable in the early years of American justice. But today more than 95% of cases end in such deals and thus are never brought to trial.”).

*****

A good weekend to all.

Judge Rakoff Offers A Few Final Zingers

Wednesday, August 6th, 2014

If you have not noticed by now, I admire Judge Jed Rakoff (S.D.N.Y.).

Although outside the Foreign Corrupt Practices Act context, FCPA Professor has covered from day one (see here and here) Judge Rakoff’s concerns about SEC settlement policy as expressed in SEC v. Citigroup.  As highlighted in this post, the Second Circuit recently rebuked Judge Rakoff for his refusal to sign off on the settlement and concluded that the SEC does not need to establish “the truth” of the allegations against a settling party as a condition for approving consent decrees because, in the words of the Court, “trials are primarily about truth” whereas “consent decrees are primarily about pragmatism.”

On remand and obligated to assess the SEC v. Citigroup settlement through the narrow prism the Second Circuit adopted, Judge Rakoff had little choice but to approve of the settlement.  However, in doing so in his opinion yesterday, Judge Rakoff offered a few final zingers as he wrote:

“Nonetheless, this Court fears that, as a result of the Court of Appeal’s decision, the settlements reached by governmental regulatory bodies and enforced by the judiciary’s contempt powers will in practice be subject to no meaningful oversight whatsoever. But it would be a dereliction of duty for this Court to seek to evade the dictates of the Court of Appeals. That Court has now fixed the menu, leaving this Court with nothing but sour grapes.”

In the prior post highlighting the Second Circuit’s decision, I noted that the most troubling aspect of the decision is the statement that if the “S.E.C. does not wish to engage with the courts, it is free to eschew the involvement of the courts and employ its own arsenal of remedies instead.”  As highlighted in my article “A Foreign Corrupt Practices Act Narrative,” in the FCPA context this is largely the path the SEC has chosen.  As noted,  in 2013 50% of SEC corporate FCPA enforcement actions were not subjected to one ounce of judicial scrutiny either because the actions were resolved via a non-prosecution agreement or administrative cease and desist orders.

On this issue, Judge Rakoff states in a footnote as follows.

“[T]he Court of Appeals invites the SEC to avoid even the extremely modest review it leaves to the district court by proceeding on a solely administrative basis. (“Finally, we note that to the extent that the S.E.C. does not wish to engage with the courts, it is free to eschew the involvement of the courts and employ its own arsenal of remedies instead.” ). One might wonder: from where does the constitutional warrant for such unchecked and unbalanced administrative power derive?”

As to this last point, see also this recent Wall Street Journal opinion piece by Russell Ryan ((King & Spalding and previously an Assistant Director of the SEC Enforcement Division).

“[A]  surge in administrative [SEC] prosecutions should alarm anyone who values jury trials, due process and the constitutional separation of powers. The SEC often prefers to avoid judicial oversight and exploit the convenience of punishing alleged lawbreakers by administrative means, but doing so is unconstitutional. And if courts allow the SEC to get away with it, other executive-branch agencies are sure to follow. [...]  On its website, the SEC accurately describes itself as “first and foremost” a law-enforcement agency. As such, the agency should play no role in deciding guilt and meting out punishment against the people it prosecutes. Those roles should be reserved for juries and life-tenured judges appointed under Article III of the Constitution. Today’s model of penal SEC law enforcement is categorically unsuited for rushed and truncated administrative hearings in which the agency and its own employees serve as prosecutor, judge and punisher. Such administrative prosecution has no place in a constitutional system based on checks and balances, separation of powers and due process.”

*****

I also tipped my hat to Judge Rakoff in this November 2013 post for his speech “Why Have No High Level Executives Been Prosecuted in Connection with the Financial Crisis?” As highlighted in the post, Judge Rakoff hit on many of the same general issues (outside the FCPA context) I discussed in my 2010 Senate FCPA testimony - namely the general lack of individual enforcement actions in connection with most corporate FCPA enforcement actions and how this dynamic (far from the “but nobody was charged” claim)  could best be explained by the quality and legitimacy of the corporate enforcement action in the first place given the prevalent use of non-prosecution and deferred prosecution agreements to resolve corporate FCPA enforcement actions.  As highlighted in the post, in answering his own question, Judge Rakoff offered that “one possibility … is that no fraud was committed.  This possibility should not be discounted.”

Friday Roundup

Friday, August 1st, 2014

When the dust settles, scrutiny alerts and updates, quotable and for the reading stack.  It’s all here in the Friday roundup.

When the Dust Settles

Given the ease in which information now flows and the world-wide interest in corruption and bribery, FCPA enforcement actions are read around the world.  It is thus not surprising that when the dust settles on the U.S. FCPA enforcement action, many are left wondering … who are those “foreign officials”?

Most recent case in point concerns this week’s FCPA enforcement action against Smith & Wesson which involved alleged conduct in Indonesia, among other countries.  According to the SEC:

“In 2009, Smith & Wesson attempted to win a contract to sell firearms to a Indonesian police department by making improper payments to its third party agent in Indonesia, who indicated that part of the payment would be provided to the Indonesian police officials under the guise of legitimate firearm lab testing costs. On several occasions, Smith & Wesson’s third-party agent indicated that the Indonesian police expected Smith & Wesson to pay them additional amounts above the actual cost of testing the guns as an inducement to enter the contract. The agent later notified Smith & Wesson’s Regional Director of International Sales that the price of “testing” the guns had risen further. Smith & Wesson’s Vice President of International Sales and its Regional Director of International Sales authorized and made the inflated payment, but a deal was never consummated.”

As noted in this Jakarta Post article:

“The Indonesian Corruption Watch (ICW) has called for an investigation into an alleged attempt by US gunmaker Smith & Wesson to bribe officials at the National Police.  [...] In response to the SEC [action], ICW legal researcher Donal Fariz urged the Corruption Eradication Commission (KPK) to look into the scandal.  The National Police may face a conflict of interest by handling the case. So, it is better to entrust the investigation with the KPK. The KPK needs to ask for the detailed report [from the SEC] on the police officials who were involved in the scandal,” he said on Wednesday in a telephone interview”

Nominate

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

Scrutiny Alerts and Updates

Bloomberg reports here:

“British prosecutors told several former employees of Alstom SA that they’ll be charged as part of its prosecution of the French train-maker, according to two people with knowledge of the situation.The prosecutor contacted the individuals yesterday to offer to start plea discussions, the people said, asking not to be identified because the correspondence isn’t public. Some may appear with the company at a London court on Sept. 9, according to the people. The U.K. Serious Fraud Office charged Alstom’s U.K. subsidiary with corruption and conspiracy to corrupt yesterday following a five-year investigation. The company was charged in relation to transport projects in India, Poland and Tunisia, the agency said. The SFO contacted at least five individuals about two months ago inviting them for plea discussions, people with knowledge of the matter said in June. The SFO then decided to postpone the talks until it decided whether to prosecute Alstom.”

Bloomberg reports here:

“Wynn Resorts said it has been contacted by Macau’s anti-corruption agency regarding the company’s land purchase for its new resort-casino on the Cotai Strip. “We are working cooperatively with” the city’s Commission Against Corruption, the Las Vegas-based company said in an e-mailed reply to questions yesterday. The Macau Business newspaper reported July 11 that the agency is investigating why Wynn Resorts was made to pay 400 million patacas ($50 million) for the land rights, citing Commission Chief Fong Man Chon.  Wynn Resorts had to buy the rights from certain mainlanders, though the Land Public Works and Transport Bureau said it wasn’t aware of their involvement, according to the Macau Business report.”

As highlighted in this February 2012 e-mail, Wynn Resorts was under FCPA scrutiny for its $135 million donation to the University of Macau. See here for an update based on the company’s disclosures.

Quotable

Thomas Baxter (Executive Vice President and General Counsel of the Federal Reserve Bank of New York) stated, in pertinent part, as follows in a recent speech:

“[T]here is one part of the FCPA that makes me uncomfortable.  The FCPA’s bribery prohibition, and the compliance officers in the audience will know this well, contains a narrow exception for “facilitating or expediting payments” made in furtherance of routine governmental action.  [...]  The real mischief is what this exception might do to an organizational value system.  When an organizational policy allows some types of official corruption (and we have come up with candy coated names for this, like facilitation or expediting payments), this diminishes the efficacy of compliance rules that are directed toward stopping official corruption.  Again, the best compliance cultures are formed when the rules and the organizational value system are in perfect harmony.  So, for U.S. chartered institutions, perhaps this is a place where your organizational value system should go beyond black-letter U.S. law.  If you tolerate a little corruption, watch out!”

I generally agree and as highlighted in this recent post when it comes to employee FCPA training, companies should consider omitting reference to the FCPA’s facilitating payments exception and affirmative defenses.  The Global Anti-Bribery Course I have developed in partnership with Emtrain best assists companies in reducing their overall risk exposure by omitting reference to the FCPA’s facilitating payments exception and affirmative defenses in rank-and-file employee training.

To learn more about the course, see here.

To read what others are saying about the course, see here.

Michael Volkov at the Corruption, Crime & Compliance site often tells-it-like-it-is and this post begins as follows.

“The Internet is littered with FCPA Mid-Year Assessments and reports on enforcement activity and so-called trends and developments. Talk about making mountains out of molehills. Some of the reports are excellent; others are rehashes filled with “analysis” that are intended to promote FCPA fear marketing.”

Reading Stack

This recent article in the Corporate Law & Accountability Report details comments made by SEC FCPA Unit Chief Kara Brockmeyer.  In the article Brockmeyer talks about:

  • SEC administrative proceedings;
  • the 11th Circuit’s recent “foreign official” decision; the recent conclusion of the SEC’s enforcement action against Mark Jackson and James Ruehlen which she called “a very good settlement for us”;
  • the origins of SEC FCPA inquiries; and
  • holistic compliance and typical risk areas.