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U.K. Deferred Prosecution Agreements Expected In Early 2014 – A Work In Progress

Monday, May 20th, 2013

Today’s post is from Robert Amaee (Covington & Burling). Amaee is the United Kingdom Expert for FCPA Professor.

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The UK Crime and Courts Bill, which contained the implementing legislation for Deferred Prosecution Agreements (“DPAs”), received Royal Assent on 25 April 2013. The legislation will enable the UK Serious Fraud Office and the Crown Prosecution Service (the “Prosecutors”) to enter into DPAs with organisations — most likely from early 2014 — to deal with a specified list of economic crimes, including bribery, fraud and money laundering.

The move by the UK government to introduce implementing legislation for DPAs reflected an acknowledgement expressed in the UK Ministry of Justice’s May 2012 consultation paper on DPAs that: (1) there was little incentive for companies to self-report due to uncertainty over where that process would lead and (2) the options available to the Prosecutors for tackling economic crime were unduly limited.

The Prosecutors will welcome the addition of DPAs to their armory and the likelihood of there being a greater number of global settlements in multi-jurisdictional cases involving economic crime. There are, however, a number of factors peculiar to the UK version of DPAs that organisation will need to examine before a decision is taken to self-report instances of suspected wrongdoing or to enter into DPA negotiations with the Prosecutor.

The Process

The newly-enacted legislation contemplates that – following the commencement of an investigation into suspected economic crime – the Prosecutor may decide to enter into DPA negotiations with an organisation. Once the Prosecutor and organisation have formulated an agreed statement of facts concerning the alleged offence, which may or may not include admissions, that statement will be presented in private to a Crown Court judge. Details of the alleged offending, a draft indictment, the agreed – or contemplated – conditions to be included in the DPA and a list of any issues that have not yet been resolved also will be provided to the judge at the preliminary hearing.

At the conclusion of the preliminary hearing, the judge will be asked by the Prosecutor to declare that resolving the matter by means of a DPA is in the interests of justice and that the proposed terms of the DPA are fair, reasonable and proportionate. The judge could decide that certain steps must be taken, or further lines of inquiry pursued, before he/she will consider issuing the declaration at the subsequent preliminary hearing or hearings.

Following the preliminary hearing(s), agreement of the terms of the proposed DPA between the Prosecutor and organisation and the resolution of any outstanding issues, the Prosecutor and organisation will return to the Crown Court for a final hearing in private. The purpose of that hearing is for the Prosecutor to seek the judge’s approval of the DPA and its terms. If the DPA is approved, the Prosecutor must publish details of the DPA and the declarations made and reasons provided by the judge at the preliminary and final hearings.

In the event of an alleged breach of the DPA by an organisation, the Prosecutor can make an application to the Crown Court. In such circumstances, if the judge finds – on the balance of probabilities – that the organisation has breached the DPA, he/she can either: (1) ask the Prosecutor and organisation to agree to a proposal for remedying the breach or (2) terminate the DPA. Once the DPA has expired – assuming that the organisation has complied with the terms of the DPA – the Prosecutor is unable to bring criminal proceedings against the organisation for the same offence(s) unless it can be shown that the organisation knew – or ought to have known – that it provided inaccurate, misleading or incomplete information to the Prosecutor.

It is expected that the Director of the SFO and the Director of Public Prosecutions shortly will issue a draft Code for Prosecutors that will contain further detail on the DPA process, including guidance on the principles to be applied by the Prosecutor when deciding whether a DPA is the appropriate means of resolving a particular case and the disclosure obligations of Prosecutors. In addition, the UK Sentencing Council is expected to produce guidance on corporate criminal fines, including for those offences eligible for resolution by means of a DPA.

A Work in Progress

While the UK approach toward DPAs builds upon the US system, there are a number of noteworthy factors unique to the UK system. One such factor is the significant role played by the judiciary. In contrast to the US, the UK DPA process mandates a notable degree of oversight and involvement by the judiciary from an early stage in negotiations through to the handling of any alleged breaches of a DPA.

The level of judicial involvement built into the UK system is intended to enshrine transparency in the DPA process and takes the ultimate outcome of a DPA negotiation out of the hands of the Prosecutor. An inevitable consequence of this judicial involvement is the introduction of additional uncertainty into the DPA process. It is not difficult to conceive of negotiations that have taken a number of months to reach the Crown Court being greatly protracted or even terminated by a judge who takes the view that what has been proposed is not fair, just or reasonable or that it is not in the interest of justice to pursue discussions. By that stage discussions may be at an advanced stage and the Prosecutor will have amassed case materials provided by the organisation in the course of the negotiations. While the Prosecutor, in most cases, will not be able to rely either on the fact that it conducted DPA negotiations with the organisation, or on any draft DPA in future criminal proceedings, he/she is entitled to rely on evidence obtained from investigations pursued as a result of anything said in any unsigned statement of facts or in the draft DPA. Any pre-existing material provided by the organisation during the DPA process also could become admissible in subsequent proceedings.

Another factor worthy of consideration is the nature of the admissions that may have to be made by an organisation to secure a DPA. In particular, it is unclear whether the Prosecutor is likely to need to insist — as a condition of agreeing to a DPA — on an admission of the involvement of a “controlling mind” of the organisation in the alleged wrongdoing or, in the appropriate case, the lack of adequacy of an organisation’s anti-bribery systems and controls.

In order to attribute criminal liability to an organisation for offences requiring mens rea, a UK prosecutor needs to prove that the offender was a directing mind and will of the organisation. This ‘identification principle’ requires that the acts and state of mind of those who represent the directing mind and will be imputed to the organisation. The UK courts have restricted the application of this principle to the actions of ‘controlling officers’ of the organisation, namely the Board of Directors, the Managing Director and senior officers who carry out functions of management and speak and act as the organisation. The Prosecutors have found this test to impose a high barrier to corporate prosecutions, meaning that many cases against organisations do not proceed as sufficient evidence cannot be amassed by the Prosecutor to implicate a controlling mind of that organisation.

It may be that the soon to be issued Code for Prosecutors will address this topics but, at this stage, a question mark remains over whether a Prosecutor can be satisfied with agreeing to a statement of facts or admissions that fall short of implicating a controlling mind of the organisation. If an organisation seeking to resolve matters by way of a DPA is required to provide documentation or make admissions in relation to the role of a particular senior officer and his or her involvement in any wrongdoing during the early DPA negotiations with the Prosecutor, the organisation could be left at a disadvantage in the event that there is a derailment of the negotiations and a subsequent prosecution of the organisation.

It remains to be seen whether concerns about the level of uncertainty inherent in the UK DPA process or about any admissions that may have to be made will be justified and sufficient to deter organisations from reporting instances of possible wrongdoing and seeking to enter into discussions with the Prosecutor. Experience with DPAs in the US would tend to suggest that, irrespective of the legal arguments that could be deployed, the prospect of a settlement may well prove attractive enough for many organisations to prompt them to explore the UK DPA process in the hope of avoiding a drawn-out and uncertain court battle and the associated business disruption and reputational damage.

Friday Roundup

Friday, May 3rd, 2013

Additional individual defendant added to Alstom-related enforcement action, a mere $110,000 per working day, a focus on international philanthropy, scrutiny alerts, and for the reading stack. It’s all here in the Friday roundup.

Additional Alstom-Related Charges

This prior post highlighted the recently unsealed criminal charges against Frederic Pierucci (a current Alstom employee) and David Rothschild (a former Alstom employee) concerning alleged conduct in connection with the Tarahan coal-fired steam power plant project in Indonesia. The post highlighted several other individuals generically referred to in the charging documents.

Earlier this week, the DOJ announced (here) that William Pomponi (a former executive of Alstom Power Inc., a Connecticut-based subsidiary of Alstom) was charged for his alleged participation in the same scheme. Pomponi, previously identified as “Employee A,” is now described as “a Vice President of Regional Sales” at Alstom Power Inc. and “was one of the people responsible for approving the actions of, and authorizing payments to, Consultants A and B, knowing that a portion of the payments [to the consultants] was intended for Indonesian officials in exchange for their influence and assistance in awarding the Tarahan Project …”.

Like the original Pierucci indictment, all of the alleged overt acts in the superseding indictment against Pomponi allegedly occured between 2002 and 2004, although the information does allege wire transfers from Alstom Power Inc.’s bank account to the bank account of Consultant A until 2009.

Like Pierucci, Pomponi is also charged with one count of conspiracy to violate the FCPA, four substantive counts of FCPA anti-bribery violations, money laundering conspiracy and four substantive counts of money laundering.

Kudos to the DOJ for including a link to the charging document in the release. This used to be DOJ’s practice, but when its new site launched a few years ago, it stopped doing this. Let’s hope this is a new practice!

Avon’s FCPA Expenses

Nearly five years ago – in June 2008 – Avon launched an internal investigation concerning FCPA compliance in China and other countries. In many respects, the most notable aspect of Avon’s FCPA scrutiny has been its pre-enforcement action professional and expenses – approaching $350 million (see here for instance).

In its most recent quarterly filing, Avon stated as follows. “Professional and related fees associated with the FCPA investigations and compliance reviews … amounted to approximately $7 during the three months ended March 31, 2013.”

Headlines read “Avon FCPA Costs Down to $7 Million for Q1″ and “Avon Slows Spending on Bribery Probe.”

Both accurate headlines, but it is amazing to note nevertheless that – five years into Avon’s FCPA scrutiny – the company is still spending approximately $110,000 per working day on its FCPA issues. (See this prior post concerning Wal-Mart’s pre-enforcement action professional fees and expenses and asking “does it really need to cost this much?”).

International Philanthropy

FCPA material pops up in a variety of places. Such as this article in www.wealthmanagement.com concerning the perils of global giving. With two FCPA enforcement actions (Schering-Plough and Eli Lilly) based, in whole or in part, on donations made to a Polish castle foundation and with Wynn Resorts under FCPA scrutiny for a donation to the University of Macau (see here), FCPA scrutiny based on international charitable giving is no mere hypothetical.

Scrutiny Alerts

Scrutiny alerts concerning IBM, ADM, Total, and ENRC.

IBM

This recent post highlighted a ProPublica report regarding the relationship between various tech companies including H-P, IBM and Oracle with a ”senior technology officer for Poland’s national police and, later, the nation’s Interior Ministry, [who] set the terms for hundreds of millions of dollars in technology contracts and decided which ones should be awarded without competitive bidding.”

In a recent quarterly filing, IBM disclosed as follows.

“In early 2012, IBM notified the SEC of an investigation by the Polish Central Anti-Corruption Bureau involving allegations of illegal activity by a former IBM Poland employee in connection with sales to the Polish government. IBM is cooperating with the SEC and Polish authorities in this matter. In April 2013, IBM learned that the U.S. Department of Justice (DOJ) is also investigating allegations related to the Poland matter, as well as allegations relating to transactions in Argentina, Bangladesh and Ukraine. The DOJ is also seeking information regarding the company’s global FCPA compliance program and its public sector business. The company is cooperating with the DOJ in this matter.”

In 2011, IBM resolved an FCPA enforcement action concerning alleged conduct in South Korea and China. (See here). The settlement is still pending the approval of Judge Richard Leon (D.D.C.). In 2000, IBM resolved an FCPA enforcement action concerning alleged conduct in Argentina. (See here).

ADM

Archer Daniels Midland Company recently stated as follows in this release.

“ADM is in discussions with the U.S. Department of Justice and the U.S. Securities and Exchange Commission regarding a previously disclosed FCPA matter dating back to 2008 and earlier, and expects a resolution sometime this year. Based upon recent discussions, ADM believes it is appropriate to establish a provision of $25 million ($0.04 per share) to cover the potential assessments that may be imposed by these government agencies.”

Total

France-based Total recently stated as follows (here) concerning its long-running FCPA scrutiny concerning business conduct in Iran.

“In 2003, the United States Securities and Exchange Commission (SEC) followed by the Department of Justice (DoJ) issued a formal order directing an investigation in connection with the pursuit of business in Iran by certain oil companies including, among others, TOTAL. The inquiry concerns an agreement concluded by the Company with consultants concerning gas fields in Iran and aims to verify whether certain payments made under this agreement would have benefited Iranian officials in violation of the Foreign Corrupt Practices Act (FCPA) and the Company’s accounting obligations. The Company fully cooperates with these investigations. Since 2010, the Company has been in discussions with U.S. authorities (DoJ and SEC) to consider, as it is often the case in these kinds of proceedings, an out-of-court settlement, which would terminate the investigation in exchange for TOTAL respecting a number of obligations, including the payment of a fine and civil compensation, without admission of guilt. U.S. authorities have proposed draft agreements that could be accepted by TOTAL. Consequently, and although discussions have not yet been finalized, a provision of $398 million, unchanged since its booking as of June 30, 2012 and reflecting the best estimate of potential costs associated with the resolution of these proceedings, remains booked in the Group’s consolidated financial statements as of March 31, 2013. In this same affair, TOTAL and its Chief Executive Officer, President of the Middle East at the time of the facts, have been placed under formal investigation, following a judicial inquiry initiated in France in 2006. At this point, the Company considers that the resolution of these cases is not expected to have a significant impact on the Group’s financial situation or consequences on its future planned operations.”

A $398 million FCPA enforcement action would be the third-highest of all-time.

ENRC

Last week the U.K. Serious Fraud Office announced here as follows.

“The Director of the SFO has accepted [Eurasian Natural Resources Corp.] ENRC Plc. for criminal investigation. The focus of the investigation will be allegations of fraud, bribery and corruption relating to the activities of the company or its subsidiaries in Kazakhstan and Africa.”

In a statement, the U.K. company, stated as follows.

“The Board of Directors (the ‘Board’) of Eurasian Natural Resources Corporation PLC (‘ENRC’ or, together with its subsidiaries, the ‘Group’) today notes that the SFO has moved to a formal investigation. ENRC confirms that it is assisting and cooperating fully with the SFO. ENRC is committed to a full and transparent investigation of its procedures and conduct.

ENRC has ADRs listed with the SEC and thus could also be subject to the FCPA.

This recent article in the Wall Street Journal states as follows.

“U.K.-listed Eurasian Natural Resources Corp. PLC said … allegations of wrongdoing over minerals sales conducted through a Russian network of agents were thoroughly investigated and dismissed” in 2007.

Reading Stack

Tom Fox (FCPA Compliance and Ethics Blog) has penned a new book – “Best Practices Under the FCPA and Bribery Act: How to Create a First Class Compliance Program.” I was pleased to contribute the foreword to the book and noted that Tom’s “use of real events as learning devices to demonstrate compliance best practices make [the] book an engaging and informative read.”

Inside the NY Times Wal-Mart investigation (here) from the perspective of the Mexican journalist who assisted in the investigative reporting.

The U.K.’s Growing Pains

Monday, April 15th, 2013

A recent post at thebriberyact.com highlighted a recent U.K. House of Lords select committee report (here) on small and medium size enterprises. The objective of the committee was “to consider the Government’s assistance and promotion of the export of products and services by Small and Medium Sized Enterprises and to make recommendations.”

A section of the report concerns the Bribery Act, and as detailed below, the committee recommends that “the Act should be the subject of post legislative scrutiny by a Parliamentary select committee.”

Chapter 10 of the report states, in full, as follows (emphasis in original).

Introduction

10.1. The Bribery Act 2010 came into force in July 2011. Its purpose was to modernise domestic and foreign offences of bribery. Its enactment led to a flurry of concern that SMEs would be particularly harshly affected. Mr Simon of UKTI agreed that the Act had “provoked a bit of anxiety” and said that “it is possible that [the UK] have lost some business”

10.2. It was not surprising, therefore, that whilst several witnesses recognised it as having enhanced the reputation of the UK in terms of business ethical standards, some expressed concern that the Act had given rise to uncertainty and put the UK at a trading disadvantage. Deltex Medical Ltd, for example, said: “The Bribery Act is a concern because it creates an imbalance with other markets. We support appropriate measures to uphold industry best practice and ethical business practices. However, the terms of the Bribery Act itself potentially restrict trading opportunities—for example in countries such as China and Brazil that do not conform to the same code of practice as the UK. In our experience, we have had to pay to review potential overseas distributors in China. Many Directors of SMEs are rightly concerned about being able to expand export markets whilst conforming to the Bribery Act.”

10.3. He went on: “BRIC countries especially raise challenging questions around the Bribery Act. My fellow directors and I have concerns over how we operate correctly under the Bribery Act within those countries. We have taken legal advice. We have made changes to our contracts. All of those areas have ways of trading that are different from those that we have in the UK, and different standards. It is difficult for any company to go in and follow the recommendations.”

10.4. Tony Shepherd of Alderley plc expressed his views robustly: “The existing Act is virtually impossible to operate as far as a UK company is concerned. You cannot really take someone out to dinner without committing a crime. I am very strongly in favour of trying to eliminate bribery, but to have a situation where we are subject to a law that is much more severe than anywhere else in the world is not good.”

10.5. ADS also recognised the value of the Act but asked for “clearer guidance … on its practical application and its implications, particularly the responsibility on SMEs for local ‘agents’. They also thought it “essential that the UK pursues a global level playing field in bribery rules so UK companies are not disadvantaged”. LMK Thermosafe Ltd. similarly understood the purpose of the Act but said that adhering to the Act restricted their ability to sell successfully and, as a result of Act, they preferred to “work in markets where honesty is appreciated”. Mr. Ehmann of the IoD described the Bribery Act as a “counterproductive” measure that has “held us back”. It had had, he said, “a significant impact” on his members, especially for those trading with BRIC countries and developing economies.

Current Government action

10.6. The Government explained to us what action they had taken to help SMEs to understand the implications of the Bribery Act 2010. The Ministry of Justice has published guidance on the Act and has run a programme of awareness-raising, prioritising UK industrial sectors most exposed to corruption risks. There is an online Business Anti-Corruption Portal which is specially targeted at SMEs and provides a comprehensive and practical business tool to help them avoid and fight corruption, with specific advice on 62 countries. Commercial Awareness training for FCO staff aims to equip them with the knowledge and skills to be able to provide suitable support to businesses, including advice on this issue. Mr. Simon referred also to an initiative being considered by UKTI, “a potential signposting opportunity to people who can give specific guidance to companies as to how directors can take appropriate levels of care to ensure they do not infringe the Bribery Act”. He suggested that the “most dangerous thing” was not “the legislation per se” but a “lack of confidence”

10.7. As with intellectual property issues, we exhort the Government to make efforts to promote the international harmonisation of standards, and also to raise awareness amongst SMEs about the application of the Bribery Act 2010 and explain exactly how it will be applied in practice.

10.8. Mr Simon suggested that “there is a desire that the Bribery Act be tested by the Crown Prosecution Service, because then the community as a whole will have a better sense of where it stands”. We do not agree. It is not satisfactory to wait for elaborate court cases to define the actual workings of the Bribery Act 2010 in case law.

10.9. Whilst we acknowledge the importance of the example of high ethical standards being set by the UK, application of the Bribery Act 2010 has been met with confusion and uncertainty. We recommend, therefore, that, at the earliest opportunity, the Act should be the subject of post legislative scrutiny by a Parliamentary select committee.

To be sure, the report and its recommendation represent U.K. growing pains. But let’s not forget, here in the U.S. we too had growing pains concerning the young FCPA.

As detailed in prior posts here and here, the ink was hardly dry on the FCPA when concerns were raised that the law was harmful to U.S. business.

There was much activity on this issue in the early 1980′s and among other things:

(i) the Carter administration (Carter signed the FCPA into law in December 1977) “sent a hefty 250-page report to Congress on the various ways the U.S. discourages exporters” – one example – “the provisions of the 1977 Foreign Corrupt Practices Act, which have never been clearly spelled out by the Justice Department;”

(ii) the GAO released a report in 1981 detailing how the FCPA “is riddled with complicating ambiguities and shortcomings;”

(iii) President Reagan’s “transition team on the workings of the Securities and Exchange Commission [...] recommended decriminalization of bribery; and

(iv) John Fedders, named in 1981 to be the SEC’s Director of Enforcement to replace Stanley Sporkin who left to become general counsel at the CIA, stated during a news conference that he ”pledged to enforce, with discretion, the Foreign Corrupt Practices Act, which he criticized as being ambiguous.”

Our FCPA growing pains lasted until 1988 when the FCPA was amended in significant ways and, to a certain extent, the growing pains have not fully disappeared even as the FCPA has matured into an “adult” statute.

In short, the U.K’s growing pains are understandable and to be expected.

Friday Roundup

Friday, March 8th, 2013

Well represented, scrutiny alerts / updates, and a timetable. It’s all here in the Friday roundup.

Well Represented

Companies that have resolved FCPA enforcement actions or have been otherwise the subject of FCPA scrutiny are well represented in Ethisphere’s recent World’s Most Ethical Companies list.

I point this out not to argue that Ethisphere’s methodology if flawed, but to demonstrate, consistent with this prior post, that just because a company resolves an FCPA enforcement action does not therefore mean that the company is a bad or unethical company. To the contrary, many FCPA enforcement actions involve companies, such as those on World’s Most Ethical Companies list, that have pre-existing FCPA compliance policies and procedures, yet because of respondeat superior, face legal exposure based on the conduct of a small group of individuals.

Companies appearing on the list that have recently resolved FCPA enforcement actions, or have otherwise been the subject of FCPA scrutiny, are: ABB, Deere & Company, Dun & Bradstreet, General Electric, Rockwell Automation, and Sempra Energy.

Scrutiny Alerts / Updates

Optimer Pharmaceuticals

Christopher Matthews (Wall Street Journal – Corruption Currents) reported earlier this week (here) that Optimer Pharmaceuticals is “investigating whether an attempted grant of stock options to the company’s co-founder violated the FCPA. According to the company’s recent earnings call transcript, the conduct under investigation relates to an ”attempted grant in September of 2011 to Dr. Michael Chang of 1.5 million technical shares of Optimer Biotechnology, Inc. (“OBI”) as well as “a potentially improper $300,000 payment in July 2011 to a research laboratory involving an individual who was also associated with the OBI share grant.” The company has disclosed the results of its preliminary investigation to the DOJ and SEC.

As noted in this previous post, business interests or equity interests have previously been a basis for FCPA scrutiny and FCPA enforcement actions.

Tesco Corporation

Tesco (a Houston based oil services company) disclosed in a recent SEC filing as follows.

“On December 26, 2012, we received a request by the staff of the United States Securities and Exchange Commission (“SEC”) that the Company take steps to preserve and retain five categories of documents relating to commercial agents who perform services for the corporate group in a foreign jurisdiction, the Company’s general use of commercial agents in that jurisdiction, and compliance with the Foreign Corrupt Practices Act. This request stated that it “should not be construed as an indication by the Commission, or its staff, that any violations of law have occurred; nor should it be considered an adverse reflection upon any person, entity, or security.” We have, under the advice and through independent external legal counsel, cooperated with and have provided the SEC staff with specific information which it has requested. External legal counsel for the Company has been advised by the SEC staff that no formal order of investigation has been issued. The outcome of the SEC’s review and any future financial impact resulting from this matter are indeterminable at this time.”

Bio-Rad

Bio-Rad Laboratories Inc., a company that previously disclosed FCPA scrutiny, disclosed earlier this week (see here) that it would be unable to file its annual report for the year ended December 31, 2012 prior to the filing deadline. The SEC filing states, in pertinent part, as follows.

“Bio-Rad is unable to file its Annual Report on Form 10-K for the year ended December 31, 2012 (the “Form 10-K”) prior to the filing deadline because the Company has not finalized its assessment of the effectiveness of its internal control over financial reporting due in part to recently raised issues and has not finalized an accrual for royalties payable by the Company as of December 31, 2012 under certain patent licenses from a third party. As previously reported, the Company has implemented enhancements to its internal control over financial reporting and is continuing to evaluate and improve its internal controls, including processes and procedures relating to the Company’s compliance with the U.S. Foreign Corrupt Practices Act (“FCPA”). The Company is currently in the process of finalizing its assessment of the effectiveness of its internal control over financial reporting as of December 31, 2012 and will be unable to file the Form 10-K until the Company completes this assessment. “

Brookfield Asset Management

Prior posts here and here discussed the scrutiny of Brookfield Asset Management for conduct in Brazil. Today, the Wall Street Journal reported (here) that the “SEC is looking into allegations that a Brazilian unit” of the company “paid bribes to win construction permits.” According to the article, “a member of the SEC’s enforcement division is scheduled to interview a former executive in the Sao Paulo unit of Brookfield who made the allegations.” According to the article “the allegations include that Brookfield employee hired an armored truck to deliver cash to two city officials to speed the permits.”

Timetable

Via thebriberyact.com, a timetable for DPAs becoming real in the U.K. This is unfortunate, as discussed in this prior post.

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A good weekend to all.

Friday Roundup

Friday, January 25th, 2013

The latest double standard installment, a Rocky Mountain Rakoff, interesting tidbits, save the date, and just in case you were wondering. It’s all here in the Friday roundup.

Double Standard

A pharmaceutical company faces pending government restraints that could negatively affect its business. The company turns to its lobbyists that include the former chiefs of staff to various current government officials on a key government committee. Also, in recent years the company indirectly gave thousands of dollars to the current government officials and otherwise made large donations to groups favored by the current government officials. The government officials insert a paragraph into a massive spending bill that, while not specifically mentioning the company, strongly favors one of the company’s drugs. The effect of the paragraph in the bill gives the company two additional years to sell the drug without government price controls.

Having read the recent Eli Lilly FCPA enforcement action (see here for the prior post) and otherwise being an astute FCPA observer, your FCPA antennas are going off.

But wait.

The government officials were not “foreign officials” – they were U.S. government officials!

See here for the recent New York Times story on Amgen’s courting of various members of the Senate Finance Committee.

Scrap those internal investigation plans, forget about voluntary disclosure, and slim chance there will be an enforcement action. Nobody said our system was perfect, but that is just how the system works some will say.

But why should corporate interaction with a “foreign official” be subject to greater scrutiny and different standards of enforcement than corporate interaction with a U.S. official? After all, there is a U.S. domestic bribery statute (18 USC 201) with elements very similar to the FCPA. Why do we reflexively label a “foreign official” who receives “things of value” from private business interests as corrupt, yet generally turn a blind eye when it happens here at home?

As you contemplate these questions, just remember, as soon to be former Assistant Attorney General Lanny Breuer recently declared (see here), “we in the United States are in a unique position to spread the gospel of anti-corruption.”

For numerous prior posts concerning the double standard, see here.

A Rocky Mountain Rakoff

We celebrate Mary Jo White’s appointment to be the next Chair of the SEC by focusing on yet another federal court judge calling into question the SEC’s signature neither admit nor deny settlement policy. For more on that policy and how it contributes to a facade of enforcement, see numerous prior posts here, here, here, and here - focusing mostly on Judge Jed Rakoff’s (S.D.N.Y.) disdain of the policy.

In August 2012, the SEC brought a complaint (see here) against Colorado-based Bridge Premium Finance LLC and certain of its executives for allegedly perpetrating a Ponzi scheme. The SEC and defendants agreed to resolve the matter and, as typical and as is frequently the case in SEC FCPA matters, the defendants did so without admitting or denying the SEC’s allegations.

Enter U.S. Senior District Court Judge John Kane (D. Co.) who pulled a Rocky Mountain Rakoff. In a January 17th order, Judge Kane stated as follows.

“I refuse to approve penalties against a defendant who remains defiantly mute as to the veracity of the allegations against him. A defendant’s options in this regard are binary: he may admit the allegation or he may go to trial. I also object to the language in the consents and the proposed final judgments whereby the defendants waive their rights to the entry of findings of fact and conclusions of law pursuant to FRCP 52 and their rights to appeal. These findings are important to inform the public and the appellate courts. I will not endorse any final judgments including such provisions.”

Returning to Judge Rakoff, you may recall (see here for the prior post) that his disdain for the SEC’s settlement policy is currently before the Second Circuit in SEC v. Citigroup. As Professor Barbara Black notes on her Securities Law Prof blog, oral arguments on the merits is scheduled for February 8th.

Interesting Tidbits

Alexandra Wrage (President of Trace International) writes in a recent Forbes column (here) as follows.

“Whether they’re stating it expressly or acting on it quietly, governments are using corporations as their primary tool to reduce international bribery. They alarm companies with vast fines and terrify individuals with substantial prison sentences with the hope of ending the payment of bribes because they cannot, in most cases, do much of anything about those demanding them. This is not inappropriate. Companies are regulated, subject to laws and answerable to shareholders. The worst offenders demanding bribes, on the other hand, do so with impunity, hiding behind sovereign immunity and, often, their own, complicit local law enforcement. Abacha. Suharto. Marcos. Duvalier. It’s a longstanding tradition, still thriving in many countries today. US and some European law enforcement agencies have been extraordinarily successful, with fines in the United States now counted in the billions of dollars and other jurisdictions promising to catch up soon. While these efforts have done more than anything else to reduce bribery, they have yet to convince us that companies are both the sole source and solution of all international corruption — and that’s insupportable. [...] The simple reality is that there are just some things that companies can’t do about corruption.”

Spot-on.

Wrage’s comments remind me a similar spot-on observation made during the middle of the FCPA’s legislative history. See here for the prior post regarding Milton Gwirtzman’s dandy article published by the New York Times Magazine in October 1975 in which he observes as follows – “it would be unwise, as well as unfair, simply to write off bribery abroad to corporate lust – it is a symbol of far deeper issues …”.

As to those deeper issues, an issue I frequently write about is why do FCPA violations occur? Do companies subject to the law have bribery as a business strategy? Or do companies subject to the law encounter difficult and opaque business conditions abroad? To be sure, FCPA enforcement actions have been based on both scenarios, but my opinion (as well as that of the former chief of the DOJ’s FCPA unit – see here for his previous guest post) is that the later scenario is the more common reason for FCPA exposure.

For instance, a recent post on the China Law Blog by Dan Harris (here) begins as follows.

“Got a call the other day from an American company wanting to sell its food products into China. And fast. The problem this company is facing is that one cannot “just” sell food into China immediately. To sell food legally into China, Foreign companies must first pass certification before China’s General Administration of Quality Supervision, Inspection and Quarantine, better known as AQSIQ. The food company told me that its research had revealed that it typically takes around a year to secure this certification, but that someone in China was promising they could do it in “around six to eight weeks.”

Also on the list of FCPA exposure risks, I would add various trade distortions and barriers, such as central government procurement policies. For this reason, I found this recent Sidley & Austin alert interesting. It concern a new China “regulation that subjects certain high-value medical devices to a centralized procurement regime.”

Save the Date

D.C. area readers may be interested in a February 12th event hosted by American University Washington College of Law and presented by the American University International Law Review. Titled “Bribes Without Borders: The Challenges of Fighting Corruption in the Global Context,” the symposium will feature panels of academics, practitioners, and civil society representatives and will touch upon a variety of bribery and corruption topics including the FCPA. I will be participating on an afternoon panel and will be speaking on FCPA enforcement and the rule of law. Robert Leventhal (Director, Anti-Corruption and Governance Initiatives, U.S. State Department) will deliver a keynote luncheon address. The symposium is free, but registration is requested.

Just in Case

Just in case you were wondering about the U.K. SFO’s position on facilitation payments (see here for a prior post), the Bribery Library site shines light on a December 6, 2012 “to whom it may concern” letter (here) from SFO Director David Green in which he states that “facilitation payments are illegal under the Bribery Act 2010 regardless of their size or frequency.”

You can now head into the weekend confident in your knowledge of the U.K.’s position.

*****

A good weekend to all.