Archive for the ‘Team Inc.’ Category

Either Enforce the FCPA or Don’t Enforce the FCPA

Thursday, August 11th, 2011

The DOJ and the SEC (the “Enforcement Agencies”) should either enforce the FCPA or not enforce the FCPA.

For instance, Team Inc. violated the FCPA, but in its August 2nd SEC filing (here) the company stated as follows regarding its previously disclosed FCPA issue.  “In a letter to us dated July 12, 2011, the staff of the SEC informed us that it had completed its investigation and did not intend to recommend any enforcement action by the Commission or impose any fines or penalties against the Company. We have not received formal notification from the DOJ, however in July 2011, the staff of the DOJ informed us that it was likely that the staff would not recommend taking any further action or imposing any fines or penalties against the Company.”

How do we know that Team Inc. violated the FCPA?  Because the company said it did.  For instance, in this August 2010 SEC filing the company said as follows in reference to its previously disclosed internal review regarding its branch operation in Trinidad.  “The report of the independent investigator was delivered to the Audit Committee in March 2010 and to the DOJ and SEC in May 2010.  The investigation concluded that improper payments of limited size were made to employees of foreign government owned enterprises in Trinidad, but determined that the improper payments were not made, or authorized by, employees outside the one TMS Trinidad branch. The investigation of our other foreign operations did not result in any findings of significance and management has remediated or is undertaking remedial action on all matters identified in the investigation. Based upon the results of the investigation, we believe that the total of the improper payments to government owned enterprises over the past five years did not exceed $50,000. The total annual revenues from the impacted TMS Trinidad branch represent less than one percent of our annual consolidated revenues for all years presented. “  (emphasis added).

Accepting the Enforcement Agencies’ position that payments to government-owned enterprises fall under the FCPA, why didn’t the Enforcement Agencies bring an action?  Sure Team Inc. did voluntarily disclose the conduct at issue and the results of its investigation, but that could also be said for nearly all corporate FCPA enforcement actions.  Sure,  Team Inc.’s  ”improper payments” appear to have been isolated, were relatively minor in scope, and were not (per the company) ”made, or authorized by, employees outside the one TMS Trinidad branch.”  But again, the same could also be said for a significant percentage of all corporate FCPA enforcement actions

Using the Team Inc. standard, did Rockwell Automation deserve an FCPA enforcement action (see here for the prior post).  Did Comverse (see here for the prior post) deserve an FCPA enforcement action? 

If the FCPA contained a compliance defense (along the lines that a company would not be held vicariously liable for a violation of the FCPA’s anti-bribery provisions by its employees or agents, who were not an officer or director, if the company established procedures reasonably designed to prevent and detect FCPA violations by employees and agents) the end result in Team Inc. would have likely been the same and rightfully so.

But at least the result would have been grounded in law, not in the ad hoc, opaque, non-reviewable discretionary decisions of the Enforcement Agencies.

Friday Roundup

Friday, August 6th, 2010

The former DOJ top cop speaks, Senator Feingold joins the debarment discussion, anything is possible, and a House Resolution focused on BP … it’s all here in the Friday roundup.

Mendelsohn Interview

During the period of the FCPA’s resurgence, Mark Mendelsohn was the public face and voice on FCPA issues at the Department of Justice. In April, he announced his departure and now maintains an FCPA private practice at Paul Weiss. (See here and here for more).

See here for Mendeloshn’s recent interview with The Metropolitan Corporate Counsel as he reflects back on his DOJ tenure and other issues.

Senator Feingold Joins The Debarment Discussion

Earlier this week Senator Russ Feingold (D-WI) testified before the Senate Judiciary Subcommittee on Administrative Oversight and the Courts (see here). The hearing was on the topic of “Protecting the Public Interest: Understanding the Threat of Agency Capture.” He began his testimony by stating that a better job needs to be done to ensure that there are no significant conflicts of interest or other inappropriate ties between regulators and the corporations they purport to regulate.”

He then stated:

“I want to raise a concern that a new, more subtle type of agency capture is beginning to emerge as a result of our increasing reliance on government contractors. The Council of the Inspectors General on Integrity and Efficiency recently reported that the total number of suspensions and debarments in FY 2008 was half the total from five years ago, and that suspensions and debarments had been steadily decreasing over the last five years. This is a disturbing statistic, especially when you consider that the number of contract fraud, Foreign Corrupt Practices Act, and other corruption investigations involving contractors is on the rise.”

For more on debarment issues, including an FCPA debarment bill pending in the House see here and here and here.

Is It Possible?

Is it possible to spend $3.2 million on “professional costs” associated with an internal investigation “limited in size and scope” to a branch office that represents approximately one-half of one percent of the company’s annual consolidated revenues?

Apparently it is.

In January I ran this post about Team Inc. and its voluntary disclosure of less than $50,000 in potentially improper payments in its Trinidad branch.

Earlier this week, when disclosing its financial results, the company stated as follows:

“The results of the FCPA investigation were communicated to the SEC and Department of Justice in May 2010 and the Company is awaiting their response. The results of the independent investigation support management’s belief that any possible violations of the FCPA were limited in size and scope. The total professional costs associated with the investigation were approximately $3.2 million.” (emphasis added).

Exhibit A for how even isolated instances of improper conduct under the FCPA in a branch office can be very expensive or Exhibit A for just how out of whack professional costs associated with an FCPA internal investigation and disclosure have become?

It’s your conclusion to make.

BP House Resolution

This recent post discussed Senator Charles Schumer’s (D-NY) request that the Department of Justice investigate BP for FCPA violations.

On July 30, House Resolution 1597 was introduced. Sponsored by Representative Daniel Maffei (D-NY) and co-sponsored by Representatives Christopher Lee (R-NY) and Michael McMahon (D-NY) the resolution (see here) encourages the United Kingdom to “investigate British Petroleum (BP) for foreign corrupt practices.”

The reason?

The same as offered by Senator Schumer – that BP attempted to influence the August 2009 release of Abdel Baset al-Megrahi, the Libyan terrorist convicted of the 1988 bombing of Pan-Am flight 103 that killed 270 people, including 189 Americans.

The resolution states, in part:

“Whereas the Scottish courts released al-Megrahi from prison on August 20, 2009, under the understanding that he was suffering from terminal prostate cancer;

Whereas the Scottish authorities have never clarified why al-Megrahi could not receive humane treatment while still in captivity;

Whereas al-Megrahi seems to have well outlived his original diagnosis;

Whereas it is very troubling that al-Megrahi received a hero’s welcome to his home country of Libya;

Whereas British Petroleum (BP) admitted on July 15, 2010, that a delayed prisoner-transfer between Britain and Libya ‘could have a negative impact’ on BP’s oil negotiations;

Whereas there are allegations that BP inappropriately attempted to affect the Scottish Government’s decision and possibly even the doctor’s diagnosis; and

Whereas al-Megrahi’s release sends an incredibly offensive message to the families that lost loved ones on Pan Am Flight 103: Now, therefore, be it

Resolved, That the House of Representatives encourages the United Kingdom to investigate British Petroleum (BP) for foreign corrupt practices.”

As I asked in my original post – following Schumer’s (and now Maffei’s) lead will a British politician request that the U.K. Serious Fraud Office or the U.S. government investigate a U.S. company because it lobbied its own government officials in connection with a business purpose?

*****

A good weekend to all.

Team of Plenty

Wednesday, January 6th, 2010

Voluntary disclosure (i.e. picking up the phone and calling the DOJ and/or SEC (if applicable) to schedule a meeting, during which a company’s lawyers disclose conduct that could potentially implicate the FCPA, even though the enforcement agencies, in many cases, would never find out about the conduct) is a tough issue.

In a November 2009 speech to an FCPA audience (see here), Assistant Attorney General Lanny Breuer acknowledged that the decision of whether to make a voluntary disclosure is “sometimes a difficult question” [...] a question I grappled with as a defense lawyer.”

The Gibson Dunn Year End FCPA Report (the subject of yesterday’s post see here) has this to say about voluntary disclosure:

“To be sure, a company that voluntary discloses a potential FCPA violation to DOJ and the SEC will be better situated than one that otherwise finds itself across the table from the government having not disclosed the conduct.”

[...]

“On the other hand, there is substantial debate about just how “tangible” the benefits of voluntary disclosure truly are.”

[...]

“Although some corporate defendants that self-reported misconduct have certainly received relatively lenient treatment, it is not clear that voluntary disclosure was the reason for any particular settlement term.”

[...]

“Although it is certain that companies do receive some benefit for self-reporting FCPA violations, the real question is whether the company considering a voluntary disclosure is better off for having made the disclosure, which is not necessary one-and-the-same. Because voluntary disclosure makes the government aware of alleged improper conduct that it otherwise may have never discovered on its own, the likelihood of the government uncovering the misconduct through other means, such as a whistleblower, foreign government investigation, tip from a competitor or business partner, or industry-wide investigation, is a critical factor in determining whether to make a voluntary disclosure.”

[...]

“Given the multitude of factors to consider when making a voluntary disclosure decision, it is often challenging to make such a significant decision with any degree of confidence that a particular course of action is the right one. This task is made even more difficult by the uncertainty of obtaining any particular benefits for disclosing.”

As raised in a prior post (see here), a company’s decision in deciding whether or not to voluntarily disclose conduct to the enforcement agencies that could potentially implicate the FCPA is made even more difficult given the potential conflict of interest FCPA counsel has in advising the company as to the important disclosure issue – particularly where the disclosure only involves a potential FCPA violation?

I raised this lurking “elephant in the room” question in connection with Dyncorp International’s recent disclosure of potential FCPA issues.

One could raise the same question in connection with Team Inc.

In August 2009, Team (a Texas-based provider of specialty industrial services) disclosed (here) that an internal investigation conducted by FCPA counsel “found evidence suggesting that payments, which may violate the Foreign Corrupt Practices Act (FCPA), were made to employees of foreign government owned enterprises.”

The release further noted that “[b]ased upon the evidence obtained to date, we believe that the total of these improper payments over the past five years did not exceed $50,000. The total annual revenues from the impacted Trinidad branch represent approximately one-half of one percent of our annual consolidated revenues. We have voluntary disclosed information relating to the initial allegations, the investigation and the initial findings to the U.S. Department of Justice and to the Securities and Exchange Commission, and we will cooperate with the DOJ and SEC in connection with their review of this matter.”

In the prior post, I noted that a voluntary disclosure often sets into motion a series of events and the next thing the company knows it is paying for a team of lawyers (accompanied by forensic accountants and other specialists) even though the voluntary disclosure that got the whole process started involved conduct that may not actually violate the FCPA.

Fast forward to yesterday as Team disclosed (here) as follows:

“As previously reported, the Audit Committee is conducting an independent investigation regarding possible violations of the Foreign Corrupt Practices Act (“FCPA”) in cooperation with the U.S. Department of Justice and the Securities and Exchange Commission. While the investigation is ongoing, management continues to believe that any possible violations of the FCPA are limited in size and scope. The investigation is now expected to be completed during the first calendar quarter of 2010. The total professional costs associated with the investigation are now projected to be about $3.0 million.”

A $3 million dollar internal investigation concerning non-material payments made by a branch office that represents less than one-half of one percent of the company’s annual consolidated revenues?

Wow!

Double-wow because the payments may not even violate the FCPA because they were made to “employees of foreign government owned enterprises” (see here for several prior posts on the enforcement agenices untested and unchallenged interpretation of the “foreign official” element)!

Others have scratched their heads about this as well (see here and here).

Of course, the FCPA does not contain a de minimis exception and of course the FCPA contains books and records and internal control provisions applicable to issuers like Team. Thus, even if the payments were not material in terms of the company’s overall financial condition, there still could be FCPA books and records and internal control exposure if they were misrecorded in the company’s books and records or made in the absence of any internal controls.

But then again, the FCPA books and records and internal control provisions would be implicated if a Team employee took his Cousin Randy to the company’s corporate suite for the ballgame but recorded the costs as “marketing expenses” on his reimbursement request causing the company to misrecord the payment. Yet, no one would suggest disclosing this potential FCPA violation!