Archive for the ‘Uncategorized’ Category

Introducing FCPA Connect

Wednesday, March 26th, 2014

You will notice a new page today atop this website for FCPA Connect.

FCPA Connect is an expert consulting service offered to legal, business, and other professional communities.

FCPA Connect is not a law firm and does not provide legal advise directly to clients. Rather, through FCPA Connect expert consulting services can be provided to lawyers, in-house and compliance counsel, and other professionals seeking reliable information about the Foreign Corrupt Practices Act, FCPA enforcement, FCPA compliance and related issues.

FCPA Connect thus assists other professionals achieve client and business objectives in a more efficient and effective manner.

Through FCPA Connect, professionals can tap into expertise and experience informed by a decade of FCPA practice experience at a leading international law firm and insights further informed by a review and analysis of: the FCPA’s entire legislative history, every FCPA enforcement action, every FCPA judicial decision, and other information and sources of guidance relevant to the FCPA, FCPA enforcement, FCPA compliance and related issues.

Candid, comprehensive, and cost-effective, FCPA Connect is a value added service for a wide range of professionals regarding: FCPA authority and other sources of information; FCPA enforcement actions; FCPA statistical information; FCPA compliance best practices; and other legal and policy issues relevant to the FCPA and FCPA enforcement.

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FCPA Connect is a service mark of FCPA Professor LLC.  By contacting Professor Koehler through FCPA Connect, it is acknowledged that no attorney-client relationship is formed and, absent a formal engagement, no assurance is given that information conveyed will be secure or treated as confidential. 

Former SEC Enforcement Official Throws The Red Challenge Flag

Monday, February 10th, 2014

Today’s post is from Russ Ryan (Partner, King & Spalding).  Prior to joining King & Spalding,  Ryan spent ten years in the SEC’s Division of Enforcement, including his last  three years as Assistant Director of the Division.

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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.

Recall that this is the same 7-defendant case in which only one – Herbert Steffen – actively contested the SEC’s charges.  Of the other six defendants, the SEC voluntarily dismissed one (Carlos Sergi), three others settled without admitting or denying any wrongdoing (Bernd Regendantz, Andres Truppel, and Uriel Sharef), and the last two defaulted (Ulrich Bock and Stephan Signer).  Steffen, a German citizen and the only defendant who actively contested the charges, was dismissed from the case in February 2013 in a widely-noted decision that found a lack of personal jurisdiction over him.  (See here for my prior guest post).  None of the other defendants in the case were U.S. citizens either, and few if any appear to have had any significant contacts with the United States; the SEC alleged the familiar sporadic touching of U.S. bank accounts, along with a single meeting in Miami during the decade-long alleged bribery scheme, but proffered little else to support personal jurisdiction over any of these foreign nationals.

You might think the court’s dismissal of the only defendant who actively contested personal jurisdiction might have led the SEC to tread carefully when seeking penalties and other sanctions against the defaulting defendants.  Think again.

To the contrary, the SEC took an astonishingly aggressive approach to sanctions against the defaulting defendants, and it got everything it asked for.  The overall case raises legal and policy issues too numerous to address here, but two warrant especially close scrutiny.  First, the SEC convinced the court to impose more than a half-million dollars in civil penalties against each of the two defaulting defendants, despite alleging only four alleged bribes and despite the FCPA’s statutory limit of $10,000 per violation (increased for the relevant period to $11,000 through the SEC’s periodic inflation adjustment as authorized by statute).

How did the SEC get away with a penalty demand more than ten times this apparent $44,000 statutory limit for each defendant?  First, by saying that each of the four alleged bribes should be triple-counted as three separate securities law violations – once as a bribe, again as a books-and-records violation, and yet again as an internal-controls violation – thus artificially multiplying four violations to create twelve.  And as the SEC wonks among us well know, books-and-records and internal-controls violations come with their own separate statutory penalty regime.  But even here the SEC was super aggressive, taking the position that these classically non-fraud violations involved “reckless disregard” of a regulatory requirement, thus allowing the SEC to demand the maximum $60,000  per violation in “second-tier” penalties rather than the $6,000 per violation in the “first-tier” penalties ordinarily associated with non-fraud violations.  (The statutory anomaly that permits dramatically higher civil penalties for books-and-records and internal-controls violations than for bribery violations is another topic beyond the scope of this guest post.)

By triple counting each bribe in this way, the SEC demanded $11,000 + $60,000 + $60,000 ($131,000 total) in penalties against each defaulting defendant, and then multiplied that amount yet again for each of the four alleged bribes in question, arriving at a staggering total penalty of $524,000 per defendant.  This penalty for each of the defaulting defendants was much higher than the total penalties paid by all three of the settling defendants combined (which were only $40,000, $80,000, and $275,000 respectively).

But that’s not even the most bizarre aspect of the SEC’s penalty demand.  Of the four bribes alleged by the SEC against the defaulting defendants, three unquestionably occurred – according to the SEC’s own complaint and penalty motion papers – more than five years before the lawsuit was filed in December 2011, thus raising the obvious question of how the SEC could lawfully request, and how the court could lawfully impose, any penalty at all for those bribes.  By now everyone knows that SEC penalty demands are subject to the 5-year statute of limitations codified at 28 U.S.C. § 2462.  Indeed, just last year the Supreme Court unanimously ruled against the SEC in a case that involved the same statute (Gabelli v. SEC), wherein the SEC conceded the statute’s applicability to penalty demands.  (See my prior guest posts here and here).

So how did the SEC overcome this seemingly insurmountable statute of limitations obstacle?  Essentially by ignoring the issue entirely.  Of course, it’s possible the SEC got a tolling agreement from these two foreign nationals who later decided to ignore the ensuing lawsuit altogether, but that seems improbable. In any event, neither the SEC’s complaint nor its penalty motion mentioned any tolling agreement.  Of the $524,000 in penalties demanded and imposed against each of the defaulting defendants, nearly $400,000 seems obviously barred by the statute of limitations, yet neither the SEC nor the court appears to have acknowledged this issue at all.

One final oddity in this case warrants a separate challenge flag.  On top of the $524,000 in penalties imposed against defaulting defendant Bock, the SEC was awarded another $316,000 against him in what the agency euphemistically styled as “disgorgement” of ill-gotten profits from the bribery scheme.  But as described by the SEC, this money bore no resemblance to profits derived from any of the alleged bribes.  The SEC described it as hush money allegedly paid to Bock (and his wife) to buy his silence and false testimony in two arbitration proceedings that occurred long after he had retired from the company and that, according to the SEC, helped prevent the bribery scheme from being uncovered.

In my recent article, The Equity Façade of SEC Disgorgement, I wrote at length about how disgorgement in SEC cases, as a general matter, is often stretched beyond its proper limits.  The default judgment against Bock reflects many of the concerns I raised in that article, but it also reflects an even more fundamental disconnect under settled disgorgement law.  Characterizing the kind of hush money allegedly paid to Bock as ill-gotten profits caused by his alleged securities law violations seems a stretch to say the least.  The SEC’s theory was that the money was paid to induce and reward Bock’s false testimony in two arbitration proceedings – not as his share of any alleged bribes, not as extra compensation he was paid for his securities law violations, and not as his share of profits earned by Siemens as a result of the bribes.  Here too, neither the SEC nor the court addressed the obvious causation issue, and the SEC got the full amount it demanded.

One can only hope that neither the SEC nor the courts will view these default judgments as models for similar treatment of individuals in future FCPA cases.  This case illustrates the oft-lamented perils presented by the multitude of SEC cases that are decided each year without any effective advocacy on behalf of the defendant – typically due to the defendant’s default, pro se status, lack of adequate financial resources, or counsel possessing little or no expertise in securities law.  The perils run not only to the hapless defendants who invariably get steamrolled in such cases, but sometimes also to the credibility and ultimate enforceability of the resulting judgments.

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See here for original source documents relevant to the above issues.

Thumbs Up

Thursday, February 6th, 2014

January was the most-read month in the history of FCPA Professor.  Thumbs up and many thanks for making FCPA Professor a part of your day.

Each of the tens of thousands of people who visit FCPA Professor each month no doubt have their own reasons for doing so, and I hope depth of coverage and the desire to read experienced analysis of the FCPA and related topics are at the top of the list.

In this regard, two articles – both outside the FCPA context – recently caught my eye and I give them a thumbs up because the articles are relevant to the ebb and flow and quality of certain information in the public domain concerning the FCPA and related topics. (see here and here for prior posts on similar issues).

This article is titled “In Praise of Depth” and states in pertinent part:

“I’m craving more depth in my life, and so are they. My strong suspicion is that it’s because we’re drowning in so much trivia — a tsunami of texts and tweets, instant messages and Gchat; Facebook posts and bookmarked websites we mindlessly cruise; and multiple Google searches to get answers to the endless, often useless questions that happen to pop into our overcrowded minds.  The hunger we’re all feeling is for instant gratification. It’s not unlike the siren call of a fragrant chocolate chip cookie — or, for that matter, the allure of any drug that promises a frisson of pleasure.  But the dopamine squirts we get from these drugs are short-lived. They mostly prompt a craving for more — a compulsion to match the initial buzz by upping the ante in the face of diminishing returns. What we chase through our digital devices is instant connection and information. What we get is no more nutritious or enduringly satisfying than a sugary dessert. We don’t need more bits and bytes of information, or more frequent updates about each other’s modest daily accomplishments. What we need instead is more wisdom, insight, understanding and discernment — less quantity, higher quality; less breadth and more depth.”

This article is titled “The Death of Expertise” and states in pertinent part:

“I fear we are witnessing the ‘death of expertise’: a Google-fueled, Wikipedia-based, blog-sodden collapse of any division between professionals and laymen, students and teachers, knowers and wonderers – in other words, between those of any achievement in an area and those with none at all. By this, I do not mean the death of actual expertise, the knowledge of specific things that sets some people apart from others in various areas. There will always be doctors, lawyers, engineers, and other specialists in various fields. Rather, what I fear has died is any acknowledgement of expertise as anything that should alter our thoughts or change the way we live.

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Critics might dismiss all this by saying that everyone has a right to participate in the public sphere. That’s true. But every discussion must take place within limits and above a certain baseline of competence.

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Once upon a time — way back in the Dark Ages before the 2000s — people seemed to understand, in a general way, the difference between experts and laymen.

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How did this peevishness about expertise come about, and how can it have gotten so immensely foolish?  Some of it is purely due to the globalization of communication. There are no longer any gatekeepers: the journals and op-ed pages that were once strictly edited have been drowned under the weight of self-publishable blogs. There was once a time when participation in public debate, even in the pages of the local newspaper, required submission of a letter or an article, and that submission had to be written intelligently, pass editorial review, and stand with the author’s name attached. Even then, it was a big deal to get a letter in a major newspaper.  Now, anyone can bum rush the comments section of any major publication. Sometimes, that results in a free-for-all that spurs better thinking. Most of the time, however, it means that anyone can post anything they want, under any anonymous cover, and never have to defend their views or get called out for being wrong.

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Expertise is necessary, and it’s not going away. Unless we return it to a healthy role in public policy, we’re going to have stupider and less productive arguments every day.

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Experts come in many flavors. Education enables it, but practitioners in a field acquire expertise through experience; usually the combination of the two is the mark of a true expert in a field. But if you have neither education nor experience, you might want to consider exactly what it is you’re bringing to the argument.

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In any discussion, you have a positive obligation to learn at least enough to make the conversation possible. The University of Google doesn’t count. Remember: having a strong opinion about something isn’t the same as knowing something.”

In short, thanks for reading FCPA Professor and thumbs up to depth and expertise.

Thank You

Tuesday, December 31st, 2013

Thank you for making FCPA Professor a part of your day in 2013.

2013 consisted of 257 posts.

It has been noted - regarding the FCPA space - as follows.   ”Bad information is often worse than no information.  There is a tremendous amount of noise in the discussion around FCPA.  Not only noise, but anti-signal.  That is, not just bad information, but information that is contrary to fact.”

Spot-on.  For instance, yesterday this CNBC / USA Today article stated that “the SEC collected more than $700 million in penalties related” to FCPA enforcement in 2013.  That number is only about $400 million off!

In short, I appreciate the trust and confidence you place in me every day by visiting FCPA Professor.  It is a responsibility I take very seriously.

I may not be the first to report on a Foreign Corrupt Practices Act enforcement action or other development.  However, you can have confidence that I have read the relevant original source documents before reporting and discussing an issue.

You can also have confidence that my posts and other writings are informed by the following information and experience:  (1) having read and analyzed the FCPA’s entire legislative history; (2) having read and analyzed every FCPA enforcement action brought by the DOJ and/or SEC; (3) having read and analyzed every FCPA judicial decision; and (4) approximately ten years of FCPA practice experience during which I conducted FCPA internal investigations around the world, negotiated resolutions to FCPA enforcement actions with government enforcement agencies, and advised clients on FCPA compliance and risk assessment.

A goal of FCPA Professor has always been to provide a forum for analysis and discussion of the FCPA and related topics.  Of the 257 posts in 2013, approximately 45 were guest posts.  Guest contributors included practitioners, compliance professionals, professors, and students.

If you have something unique to say about the FCPA or FCPA enforcement, please consider making your voice heard on FCPA Professor in 2014.

Again, thank you for reading FCPA Professor in 2013.  If you got your FCPA from FCPA Professor in 2013, you can help support this free website here.

I look forward to your readership and participation in 2014.

A Former Enforcement Official Is Likely To Say (Or Has Already Said) The Same Thing

Monday, October 21st, 2013

Some think – or at least I’ve been told – that certain of my Foreign Corrupt Practices Act views are controversial or out of the “main stream” (whatever the “main stream” actually is or means).

Yet, I am confident that much of what I write and talk about represents silent majority views.

Indeed, as I’ve commented before, one of the interesting things about writing about the FCPA and related issues on a daily basis is that often I just need to wait for a former FCPA enforcement official to say the same thing.

It happens frequently.

Looking for support as to the following issues:

  • “it is often difficult to determine where the lines  [regarding the FCPA's anti-bribery provisions] are to be drawn,”
  • the enforcement agencies “push[] the boundaries of jurisdiction for substantive FCPA charges,”
  • “U.S. enforcement personnel have interpreted the language [of the obtain or retain business element] broadly,”
  • that it is ”not necessarily easy to identify the dividing line between a permitted facilitating payment and a prohibited bribe,” and
  • that various public policy issues are raised because “virtually all DOJ and SEC enforcement cases against business entities are settled.”?

That’s easy – all of the above quotes are from writings of the self-described “architect and key enforcement official of the DOJ’s modern FCPA enforcement program.”  (See here)

Does every FCPA issue need to be voluntarily disclosed to the DOJ or SEC?  Don’t believe just me that the answer is no.  A former DOJ Deputy Assistant Attorney General, Criminal Division has stated the same thing (see here for the prior post).  So has a former DOJ fraud section chief (see here).

A central theme in my “The Facade of FCPA Enforcement” article was that not all instances of FCPA scrutiny resolved via non-prosecution and deferred prosecution agreements represent actual, provable violations of the FCPA.  A former DOJ attorney general has stated the same thing (see here).

Does FCPA enforcement appear – in certain instances – to be a cash cow for the government?  Former enforcement officials have said the same thing and one of the more forceful comments on this issue came from a former DOJ Assistant Chief for FCPA enforcement who stated that “[t]he government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore.”

Who else is in favor of an FCPA compliance? Lots of former DOJ FCPA enforcement officials or other high-ranking DOJ officials as detailed in “Revisiting an FCPA Compliance Defense” and here.

Numerous other examples also abound.

For instance, just last week a candid quote was captured by the Wall Street Journal in this article concerning SEC enforcement. Robert Khuzami, who stepped down as the SEC’s head of enforcement in January, stated that the SEC has de facto power as “judge, jury and prosecutor.”  This dynamic is also highlighted in my “Facade of FCPA Enforcement” article.  (The referenced Wall Street Journal article is also an interesting read regarding whether SEC enforcement is a numbers game).

Often times, waiting for an enforcement official to leave government service is not necessary.  Another fruitful source that informs my FCPA and related views are statements of current enforcement officials made prior to government service.

For instance, as highlighted in this prior post, one of the more informed and forceful critiques of NPAs and DPAs is from Mary Jo White, the current Chair of the SEC.  As highlighted in this prior post and in the “Revisiting an FCPA Compliance Defense” article, one of the more notable advocates of an FCPA compliance-like defense is James Doty, appointed by the SEC in 2011 to be Chair of the Public Company Accounting Oversight Board.

In short, what’s so controversial or out of the “main stream” writing and talking about the same issues former enforcement officials are likely to say (or have already said)?