Archive for the ‘United Kingdom’ Category

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.

Friday Roundup

Friday, July 25th, 2014

The U.K. SFO flexes its pre-Bribery Act muscle in criminally charging an Alstom subsidiary, other scrutiny alerts and updates, nominate, double standard, quotable, and for the reading stack.  It’s all here in the Friday roundup.

Alstom

As has been widely reported (see here and here for instance), the U.K. Serious Fraud Office announced:

“Alstom Network UK Ltd, formerly called Alstom International Ltd, a UK subsidiary of Alstom, has been charged with three offences of corruption contrary to section 1 of the Prevention of Corruption Act 1906, as well as three offences of Conspiracy to Corrupt contrary to section 1 of the Criminal Law Act 1977. The alleged offences are said to have taken place between 1 June 2000 and 30 November 2006 and concern large transport projects in India, Poland and Tunisia.”

According to the release, “the SFO investigation commenced as a result of information provided to the SFO by the Office of the Attorney General in Switzerland concerning the Alstom Group, in particular Alstom Network UK Ltd.”

I inquired with the SFO press office regarding any original source charging documents and was informed as follows.  ”Beyond our press release today, the nearest date for documents likely to be made available would be the charge sheet at the first court hearing – presently arranged for 9 September, at Westminster Magistrates’ Court.”

As readers likely know, since April 2013 the DOJ has charged four individuals associated with Alstom Power Inc., a subsidiary of Alstom, in connection with an alleged bribery scheme involving the Tarahan coal-fired steam power plant project in Indonesia. (See more below for a recent guilty plea).

As was the case in the U.S. – U.K. enforcement action against BAE (see here for the prior post) there may have been and/or currently is turf war issues between the agencies as to which agency is going to prosecute alleged conduct occurring in various countries.

Speaking of the DOJ action against various individuals associated with Alstom Power, last week, the DOJ announced that William Pomponi, a former vice president of regional sales at Alstom Power, pleaded guilty to a criminal information charging him with conspiracy to violate the FCPA in connection with the awarding of the Tarahan power project in Indonesia.

Assistant Attorney General Leslie R. Caldwell stated:

“The Criminal Division of the Department of Justice will follow evidence of corruption wherever it leads, including into corporate boardrooms and corner offices.  As this case demonstrates, we will hold both companies and their executives responsible for criminal conduct.”

As noted in the DOJ release:

“Pomponi is the fourth defendant to plead guilty to charges stemming from this investigation.   Frederic Pierucci, the vice president of global boiler sales at Alstom, pleaded guilty on July 29, 2013, to one count of conspiracy to violate the FCPA and one count of violating the FCPA; and, David Rothschild, a former vice president of regional sales at Alstom Power Inc., pleaded guilty to conspiring to violate the FCPA on Nov. 2, 2012.  Marubeni Corporation, Alstom’s consortium partner on the Tarahan project, pleaded guilty on March 19, 2014, to one count of conspiracy to violate the FCPA and seven counts of violating the FCPA, and was sentenced to pay a criminal fine of $88 million.   FCPA and money laundering charges remain pending against Lawrence Hoskins, the former senior vice president for the Asia region for Alstom, and trial is scheduled for June 2, 2015.”

See here for the original post highlighting the enforcement action against the individuals associated with Alstom and here for the original post regarding the Marubeni enforcement action.

Scrutiny Alerts and Updates

SEC Enforcement Action Against Former Magyar Telekom Executives

From Law360:

“The SEC has slimmed down its FCPA case against three former Magyar Telekom PLC executives, dropping claims they bribed government officials in Montenegro, according to a new complaint …  The amended complaint alleged former Magyar CEO Elek Straub and two other former executives, Andras Balogh and Tamas Morvai, authorized bribe payments to government officials in the Republic of Macedonia in exchange for regulations designed to hurt a competitor. The SEC, in its initial complaint in December 2011, had also alleged the defendants engaged in a second bribery scheme in Montenegro.  The agency said in a July 14 court filing that it would “continue to pursue the same legal causes of action alleged in its original complaint,” but without the claims related to Montenegro.  The SEC previously advised the court and defense attorneys in January 2014 of its intention to narrow the suit.”

Interesting, isn’t it, what happens when the SEC is put to its burden of proof.

Kowalewski Pleads Guilty

The DOJ announced:

“Bernd Kowalewski, the former President and CEO of BizJet, pleaded guilty … to conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and a substantive violation of the FCPA in connection with a scheme to pay bribes to officials in Mexico and Panama in exchange for those officials’ assistance in securing contracts for BizJet to perform aircraft maintenance, repair and overhaul services.”

Assistant Attorney General Leslie Caldwell stated:

“The former CEO of BizJet, Bernd Kowalewski, has become the third and most senior Bizjet executive to plead guilty to bribing officials in Mexico and Panama to get contracts for aircraft services.  While Kowalewski and his fellow executives referred to the corrupt payments as ‘commissions’ and ‘incentives,’ they were bribes, plain and simple.  Though he was living abroad when the charges were unsealed, the reach of the law extends beyond U.S. borders, resulting in Kowalewski’s arrest in Amsterdam and his appearance in court today in the United States.  Today’s guilty plea is an example of our continued determination to hold corporate executives responsible for criminal wrongdoing whenever the evidence allows.”

U.S. Attorney Danny Williams (N.D. Okla.) stated:

“I commend the investigators and prosecutors who worked together across borders and jurisdictions to vigorously enforce the Foreign Corrupt Practices Act. Partnership is a necessity in all investigations. By forging and strengthening international partnerships to combat bribery, the Department of Justice is advancing its efforts to prevent crime and to protect citizens.”

See here and here for posts regarding the 2012 DOJ enforcement action against BizJet and here and here for the 2013 DOJ enforcement action against Kowalewski and others associated with BizJet.

Cilins Sentenced

As noted in this prior post, in April 2013 the DOJ announced (here) that “Frederic Cilins a French citizen, has been arrested and accused of attempting to obstruct an ongoing investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea.”  The Criminal Complaint charged Cilins with one count of tampering with a witness, victim, or informant; one count of obstruction of a criminal investigation; and one count of destruction, alteration, and falsification of records in a federal investigation.  Cilins was linked to Guernsey-based BSG Resources Ltd and in March 2014 the DOJ announced that Cilins pleaded guilty “to obstructing a federal criminal investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea.”  (See this prior post).

Last week, the DOJ announced that Cilins was sentenced to 24 months in prison.  In the DOJ release, U.S. Attorney Preet Bharara said:

“Frederic Cilins went to great lengths to thwart a Manhattan federal grand jury’s investigation into an alleged bribery scheme in the Republic of Guinea. In an effort to prevent the federal authorities from learning the truth, Cilins paid a witness for her silence and to destroy key documents. Today, Cilins learned that no one can manipulate justice.”

Assistant Attorney General Leslie Caldwell said:

“Cilins offered to bribe a witness in an FCPA investigation to stop the witness from talking to the FBI. Today’s sentence holds Cilins accountable for his effort to undermine the integrity of our justice system, and sends a message that those who interfere with federal investigations will be prosecuted and sent to prison.”

FBI Assistant Director-in-Charge George Venizelos said:

“Cilins obstructed the efforts of the FBI during the course of this investigation. His guilty plea and sentence demonstrate our shared commitment with the U.S. Attorney’s Office to hold accountable those who seek to interfere with the administration of justice. This case should be a reminder to all those who try to circumvent the efforts of a law enforcement investigation: the original crime and the cover-up both lend themselves to prosecution.”

According to the release, Cilins was also ordered to pay a fine of $75,000 and to forfeit $20,000.

GSK

From Reuters:

“GlaxoSmithKline faces new allegations of corruption, this time in Syria, where the drugmaker and its distributor have been accused of paying bribes to secure business, according to a whistleblower’s email reviewed by Reuters. Britain’s biggest drugmaker said on Thursday it was investigating the latest claims dating back to 2010, which were laid out in the email received by the company on July 18. The allegations relate to its former consumer healthcare operations in Syria, which were closed down in 2012 due to the worsening civil war in the country.  [...]  GSK has been rocked by corruption allegations since last July, when Chinese authorities accused it of funneling up to 3 billion yuan ($480 million) to doctors and officials to encourage them to use its medicines. The former British boss of the drugmaker’s China business was accused in May of being behind those bribes.  Since then, smaller-scale bribery claims have surfaced in other countries and GSK is now investigating possible staff misconduct in Poland, Iraq, Jordan and Lebanon. Syria is the sixth country to be added to the list. The allegations there center on the company’s consumer business, including its popular painkiller Panadol and oral care products. Although rules governing the promotion of non-prescription products are not as strict as for prescription medicines, the email from a person familiar with GSK’s Syrian operations said alleged bribes in the form of cash, speakers’ fees, trips and free samples were in breach of corruption laws. The detailed 5,000-word document, addressed to Chief Executive Andrew Witty and Judy Lewent, chair of GSK’s audit committee, said incentives were paid to doctors, dentists, pharmacists and government officials to win tenders and to obtain improper business advantages.”

Separately, this Reuters article states that the U.K. SFO  ”is working with authorities in China in a first for such Anglo-Chinese cooperation as it carries out its own investigation into alleged corruption at GSK.”  The article quotes SFO Director David Green as follows:  ”Certainly, so far as I am aware it is the first time we have had cooperation with the Chinese on an SFO case.”

Separately, in the U.S. this Wall Street Journal article states:

“Federal Bureau of Investigation agents have been interviewing current and former GSK employees in connection with bribery allegations made against the drug maker in China, according to a person familiar with the matter, as fresh claims of corruption surfaced against Glaxo’s operations in Syria. The interviews have taken place in Washington, D.C., in the past few months and are part of a Justice Department investigation into GSK’s activities in China, the person added. The U.S. Securities and Exchange Commission also is investigating the company’s business in China, according to people familiar with the matter.”

Key Energy Services

The company stated as follows in its Second Quarter 2014 Update and Earnings Release.

“Pre-tax expenses of approximately $5 million were incurred in connection with the previously disclosed Foreign Corrupt Practices Act investigations.”

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).

Double Standard

Beginning in 2009, I began writing about the “double standard” and how – despite the similarities between the FCPA and 18 USC 201 (the domestic bribery statute) – a U.S. company’s interaction with a “foreign official” is subject to more scrutiny and different standards than interaction with a U.S. official.  Since 2009, approximately 30 posts have appeared under the “double standard” subject matter tag.

Against this backdrop, I was happy to see another individual tackle the same general topic.  See here from the Global AntiCorruption Blog – “Is U.S. Campaign Finance Law More Permissive of Corruption Than the FCPA?”

Quotable

In this Corporate Crime Reporter interview, former U.S. Attorney Neil MacBride (E.D. Va.) says the following regarding the use of non-prosecution and deferred prosecution agreements:  “The Department now has the ability to reach more ambiguous conduct where it might be more difficult to prove a criminal conviction in court.”

Wait a minute!

If the conduct is ambiguous and the DOJ would have a difficult time to prove a criminal conviction in court, there should be no non-prosecution or deferred prosecution agreement.  Period.  End of story. The rule of law commands such a result.

Reading Stack

Over at the FCPA Compliance & Ethics blog, Tom Fox recently published a three-part series on M&A issues and the FCPA.  See Part I, Part II, and Part III.

Sherman & Sterling’s mid-year FCPA Digest, including its “Trends and Patterns” is here.  Among the trends and patterns:

“Recent paper victories by the SEC could be perceived as setbacks in the Commission’s actions against
individual defendants; and

The SEC has continued its practice of pursuing its theory of strict liability against a parent corporation
for the acts of its corporate subsidiaries.”

Kudos to Sherman & Sterling for adopting the “core” approach to keeping FCPA statistics.  (See here for the prior post regarding my suggested “core” approach).  The Digest states:

“We count all actions against a corporate “family” as one action. Thus, if the DOJ  charges a subsidiary and the SEC charges a  parent issuer, that counts as one action. In  addition, we count as a “case” both filed  enforcement actions (pleas, deferred prosecution agreements, and complaints)  and other resolutions such as  non-prosecution agreements that include  enforcement-type aspects, such as financial  penalties, tolling of the statute of  limitations, and compliance requirements.”

The most recent edition of Miller & Chevalier’s FCPA Update is here.  Debevoise & Plimpton’s always informative FCPA Update is here and Mayer Brown’s FCPA mid-year update is here.

Warning, the enforcement statistics cited in certain of the above updates will cause confusion because they do not adopt the “core” approach.

*****

A good weekend to all.

Across The Pond

Tuesday, July 22nd, 2014

Today’s post highlights various developments across the pond in the United Kingdom.

*****

Last week, Sweett Group (a U.K.-based provider of professional services for the construction and management of building and infrastructure projects) provided this update regarding its previously disclosed scrutiny:

“Sweett Group, notified the Serious Fraud Office (SFO) last year about an allegation of impropriety concerning the conduct of a former employee in 2010, which was reported in the Wall Street Journal in 2013. That former employee operated from an office in Dubai under contract with Cyril Sweett International Limited (CSI).  CSI is a company registered in Cyprus and is a wholly owned subsidiary of Sweett Group plc. Sweett Group initiated independent investigations of the allegation and has been keeping the SFO regularly informed as to the progress of those investigations. As was reported on 2 April 2014, evidence came to light that suggests that material instances of deception may have been perpetrated by a former employee or employees during the period 2009 – 2011. One of the former employees refused to answer questions asked of him by the independent investigators. The SFO has now decided to exercise its statutory powers under the Criminal Justice Act to investigate this matter. Sweett Group continues to cooperate fully with the SFO on this matter.”

The U.K. SFO issued this release stating:

“The SFO confirmed today that the Director has opened an investigation into Sweett Group in relation to its activities in the United Arab Emirates and elsewhere.”

*****

This recent front-page Wall Street Journal article added Tradition Financial Services of Switzerland to the growing list of financial services firms under scrutiny for  prior relationships with senior Libyan officials under Moammar Gadhafi.  According to the article, “City of London police pursuing a criminal probe have interviewed former employees of Tradition and are nearing a decision on whether to bring charges.”  The article also suggests that the SEC and DOJ are also “examining whether the firm or its employees were part of what authorities believe was a broad pattern in which Western companies used improper means to curry favor with officials in the Gadhafi regime.”  According to the article, “U.S. investigators have also looked into the Libyan activities of hedge-fund manager Philip Falcone of Harbinger Capital Partners.”

This 2011 guest post predicted scrutiny concerning business practices in Libya after Gadhafi. This previous post asked – in connection with the various Libya probes – whether the U.S. government bears some responsibility.

*****

This Pillsbury client alert asks – in regards to the Bribery Act’s recent three-year anniversary – “The UK Bribery Act, Three Years On: Can We Relax Yet?”  The alert begins:

“The Bribery Act 2010 has now been in force for three years. Despite the announcements and commentary that it heralded a new and aggressive face toward corporate corruption, there have as yet been no corporate prosecutions brought under the Act. Was it all sound and fury signifying nothing? Or should all involved remain cautious and focused on compliance?”

*****

In this recent speech, Ben Morgan (Joint Head of Bribery and Corruption at the U.K. Serious Fraud Office) asks “Deferred Prosecution Agreements:  What Do We Know So Far?”

The obvious answer is nothing since there has not yet been a UK DPA in the “FCPA-like” context or otherwise.  Nevertheless in the speech Morgan did highlight what “you need to do if a DPA is to be a potential resolution to an issue you discover.”

Morgan stated:

“It is not my job to try to persuade you to seek a DPA – that is a matter entirely for you and it is open to you to ignore that potential disposal of an issue and defend a prosecution instead. We are very comfortable with both scenarios, but the point of today is to concentrate on the DPA fork in the road as opposed to the adversarial prosecution fork in the road, so that’s what I will concentrate on. While my intention today is to encourage co-operation between you and the SFO, do remember that that only applies to those of you who choose the DPA fork in the road. For everyone else, remember we are ultimately a prosecutor and you can expect the bulk of our case load to be prosecuted in the usual way – the Director has made that entirely clear.”

[Comment:  years ago the DOJ said the same thing about NPAs and DPAs (i.e. they were to be used sparingly and only in appropriate circumstances) however the passage of time has suggested otherwise].

Back to Morgan’s speech.  He stated:

“If I was back in my old job, advising a company that had become aware of a potential criminal incident, I would be asking myself these two questions:

  • 1) Will the SFO ever find out? and
  • 2) If they do, what would they really do about it anyway?

Those of you who follow what the SFO has to say about DPAs will know that the Director and our General Counsel have spoken about both of these points at length. I do not repeat what they have said today, although I do endorse it. Today I want to make just two new points to amplify that.

As for “will the SFO find out” the point is simply this – our intelligence capability is expanding and as is widely known, we are investing heavily in it. The Director has said that we are seeking to make use of the full range of investigative tools available to us, and I can say from personal experience that that is now moving to a new level in practice. Through our own capabilities, and in conjunction with our law enforcement and intelligence partners, we have access to and are using that full range of tools. That is potentially game changing for us, not only in respect of forensic recovery of things that have happened in the past, but also in respect of evidence of things happening right now – crime in action.

Judging whether we will find out has always been an exercise in balancing risk. My message for you is if you don’t understand what that full range of investigative tools entails, you are not doing a proper balancing exercise – so you need to do some research on that, and have another think about your risk appetite. Refresh your assessment of what we’re able to do and how that might affect you.

As for “the SFO won’t do anything anyway”, I have to acknowledge history – we have very few corporate convictions in our stable. But under the current Director’s leadership I and others are expressly addressing that as a priority. Three points are worth making.

1) It is often said that it is too difficult to prosecute under pre-Bribery Act legislation. I disagree with that strongly – it can be done if the evidence is there. With the convictions recently of two of the controlling minds of Innospec – the former CEO and current Sales Director – we have shown that we have the resilience to find that evidence and make sure a jury has the opportunity to consider it, however long that takes and however robustly defendants try to stop that happening. Had the company not already pleaded, we would have had a conviction of a corporate under the old legislation for the bribery of foreign public officials. It can be done, we are doing it on other cases right now and we have the appetite to take it on on new cases as well if the evidence leads that way. It is not too difficult to prosecute under pre-Bribery Act legislation. It is hard, yes, but that is what the SFO is for, and we will do it.

2) Of course as time moves on, more and more of the conduct we are looking at is starting to straddle or post-date the coming into force of the Bribery Act, so for corruption offences at least, the job of prosecuting a corporate should become easier.

3) Finally on this, you will have heard the Director speak about the need for the logical expansion of the section 7 offence to cover other economic crimes, and my own view is that that logic is irresistible, such that the job of prosecuting corporates for more than just corruption offences should also become easier.”

As to “what we know about DPAs so far,” Morgan stated:

“[W]hen you become aware of potentially criminal conduct, there is a fork in the road – do you keep quiet and brace yourself for a fight if the SFO comes calling; or do you come and talk to us, work with us rather than against us, and try to manage the consequences of that incident responsibly, exhibiting the characteristics of honesty and integrity that I am sure every one of you has a lot to say about in your Code of Ethics and your Corporate Social Responsibility literature. Do you do the right thing morally, regardless of your analysis of the balance of risk?

I speak to defence barristers and solicitors about this a lot, and I am frequently told that the impediment to corporates coming forward is that their advisers cannot say with enough certainty what will happen if they do. That’s nonsense. Ever since DPAs have been on the agenda the consistent message from the SFO has been that a company that comes to tell us about a problem and genuinely co-operates with us in resolving it is unlikely to be prosecuted. While there will still be corporate prosecutions, the Director has said on many occasions that if a company genuinely does that, it will weigh heavily against the public interest parts of the Full Code Test pointing toward a prosecution. So actually, the position is pretty clear.

The question that naturally arises then is what is meant by genuinely co-operating with us? Again, I personally think this is pretty clear too – the DPA code covers it, and we have developed that in several speeches since. It seems to me that the issue amongst defence lawyers on co-operation is less a lack of clarity about what we are asking for, and more the fact that they don’t particularly like what we are asking for. For that reason I am glad to have this opportunity to speak directly to the corporates present here today. I think it’s important people hear from us about what we are asking for. If you want to have a chance of getting a DPA when you discover an issue somewhere in your network, you need to think through some of the following:

1) Tell us something we don’t already know, and do it within a reasonable period of the incident coming to light. I accept that it is hard to strike the balance between knowing enough about what has happened to make it worth speaking to us, and leaving it too long and us finding out anyway. If I was an adviser, I would be trying to approach that judgement by reference to the SFO’s own criteria for taking on a case. The Director has the power under section 1 of the Criminal Justice Act to open a criminal investigation into a suspected offence which appears to him on reasonable grounds to involve serious fraud, bribery or corruption. Practical tip number one is why not approach your analysis using that same test? I can’t guarantee it will get you a DPA, but it is the best help I feel I can offer in terms of when to come and talk to us.

One thing I can say with confidence is that generally speaking, the time to come will be a lot sooner than people have tended to think in the past. We certainly do not need you to have instructed lawyers to do an 18 month internal investigation and produce a weighty report. In the context of DPAs, from the SFO’s perspective those days are over. You need to decide early if you want a DPA to an option, and come and see us promptly if you do. And if that seems worrying, remember this – we have to apply the Full Code Test to any charging decision we make, so if you come and tell us something early you have the security that if having looked at it together, the evidence of a crime is not there, we MUST NOT pursue the case, and I can promise you we won’t. We are far too busy to try to force a square peg into a round hole.

[...]

4) There are a series of other important steps a co-operating company needs to take – and these are set out in the Code of Conduct: engaging with us on the scope of an ongoing investigation, points around the capture and sharing of digital material, that sort of thing. The final practical tip I would offer is this. In the case of all co-operative steps, make sure that you really are co-operating; genuinely. I came across the awful phrase recently at an event “the impression of co-operation” and believe me, nothing is more likely to derail the DPA process than a stage-managed attempt to co-operate that, as our investigation progresses, inevitably transpires to have been designed to give no more than the impression of co-operation. It is a matter of substance, sustained over time, not form, and proper co-operation requires genuine effort on the part of a company from the point of coming to speak to us, right through the DPA process, and then on throughout the life of the DPA.

Remember that ultimately it is a matter for a judge whether a DPA is finalised, not the SFO. I can say for my part that I certainly won’t be inviting any corporate into the process who I do not honestly believe is being fully frank with us. Littering correspondence with the word “co-operation” but in fact doing anything but is really not good enough. Co-operation is something we will judge by actions, not words. And while I can’t speak for the judiciary, I would be stunned if anything other than genuine, unreserved co-operation from a corporate would be enough to satisfy a judge that it is in the interests of justice to dispose of criminal conduct through a DPA rather than a prosecution.

For those that choose the DPA fork in the road, my message for you today is a warm one; if we think a DPA is appropriate then we are willing to work with you, collaboratively, to present to the court a DPA that is properly in the interests of justice. To get to that mutual goal, where we are both in court asking the judge for the same thing, you will have to be frank and open with us, and co-operate with us. I’ve explained what that means to us. A DPA won’t be appropriate in every case, and even if you follow everything I’ve said this morning I can’t guarantee you will get a DPA, but if you choose to ignore everything I’ve said, you might quickly find you’ve ruled one out.”

Checking In With Richard Alderman

Tuesday, June 24th, 2014

Richard Alderman is the former Director of the United Kingdom Serious Fraud Office (“SFO”).  Since leaving the SFO in April 2012, Alderman has remained active in anti-corruption projects.

In this Q&A, Alderman discusses certain of these projects and offers insight on the following issues:  the current international enforcement climate including multi-jurisdictional issues; voluntary disclosure; DPAs; and a compliance defense.

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In April 2012, you left the SFO.  What have you been doing since?

I have been working with some international institutions and NGOs dealing with anti-corruption on the front line. This is what I wanted to do because I had met a number of individuals who inspired me. Recent examples are the Convention on Business Integrity in Nigeria and an initiative by the Egyptian Junior Business Association aimed at the vibrant SME sector in Egypt. I have also had the privilege of meeting individuals involved in the radical transformation of the procurement practices of Moscow City Council.

How do you see the current international corruption enforcement scene?

We have moved on from where we were a few years ago when there were only a few states that took action in these cases. Examples of issues now are-

  • How do we deal with the interests of the different states that want to enforce the law?
  • What will be the impact of more enforcement by demand states (including demand states that are also supply states)?
  • When will law enforcement agencies uncover and prosecute corrupt companies that have no intention of complying with global rules?
  • How do we get the proceeds of settlements back to the demand states?
  • Can a system of incentives be devised to reward companies with top quality anti-corruption systems?

In current enforcement era, multiple sovereigns may have jurisdiction over the same alleged conduct.  What issues do you see regarding multi-jurisdictional enforcement?

This is becoming a key issue. I prepared a detailed report for the UNCAC conference in Panama in November 2013 that covered these and other issues.

Companies are undoubtedly at risk here. If we look at violations first, different states can prosecute for the same violation. The company’s only protection is the principle of double jeopardy but this is interpreted in different ways in different states. For example it is not an issue for the US because the US does not recognise foreign convictions and acquittals for this purpose.

This will become a particular issue when one of the enforcing states is the demand state. Why should such a state be prevented from taking action in its own courts because of a resolution elsewhere? We can expect national sovereignty issues.

Companies can also seek to exclude a state with a wide concept of double jeopardy by reaching a settlement with another state and then pleading double jeopardy in the first state. I have seen this.

The issue also arises with asset forfeiture. I do not understand how multiple states can confiscate the same asset or profit. Once the money has been paid to law enforcement somewhere then any further disgorgement is actually a criminal fine.

What about global settlements?

I am very much in favour of these. I know from my own experience that they are very difficult to bring about. The international mechanisms in Article 47 of UNCAC and Article 4(3) of the OECD Convention should be used to discuss how the different enforcing states should work together and how a global settlement should be structured. Neither mechanism has yet been used for this purpose but they are available. Enforcing states will be nervous but these mechanisms will be vital as more and more states start to enforce the law.

Do the recent Libor settlements have any implications for global settlements in corruption cases?

These settlements have been very remarkable. A UK prosecutor cannot however enter into such an agreement if there are criminal pleas in the UK. This is because the senior judge in the Innospec case said that it was wrong for the SFO to discuss the penalty to be paid by the company even if the penalty was subject to the overall approval of the court.

One consequence of the new UK DPA system is that the UK enforcing authority can enter into these discussions if what is being discussed is a DPA rather than a traditional prosecution. It will be up to the judge to decide if this is the right way forward.

The result is that UK prosecuting authorities will not be able to participate in global settlements in the future unless there is a DPA approved by the court. I see this as an issue that will be increasingly important in the UK.

Do you still favour corporate self-reporting of conduct that could implicate bribery and corruption laws?

Yes. I remain a keen supporter of self-reporting. This has however become more difficult for companies. There are two main reasons. These are-

  • No enforcing state has set out its policy on when it will refer the self-report to another state.  A company considering a self-report therefore has to think about the other states that may see the report (and whether employees are at risk). We need a proper understanding of what enforcing states should do. This needs to be publicly available and agreed by the UN and the OECD.
  • Even if the report is not passed to another state, that other state is likely to see media reports of the resolution and the admissions made by the company and decide to start its own action. There is an increasing risk of these follow up cases.

Should companies carry out their own investigations when alerted to alleged instances of improper conduct?

My experience is that major global companies take these allegations very seriously and want to see what happened. There is an issue about whether the company should self-report immediately or whether it should carry out some preliminary work to satisfy itself that there is something in the allegation. The expectations of enforcing authorities can vary here. My view has always been that the company should be satisfied first that there is something that requires detailed investigation.

I am in favour of companies carrying out their own investigations with agreement from the enforcing state about scope, milestones and regular updates. I know that some enforcing states will also want to carry out their own independent investigation. I understand the reasons for this but it means that the authority is spending its scarce resource on a case where the company is willing to cooperate and not on the more difficult cases where the company has no intention of self-reporting and cooperating. As I see it there is too little action by enforcing authorities in finding such companies and dealing with them.

Recently the U.K. adopted DPAs.  How do you feel about DPAs and what are the issues as you see them?  What issues do you see regarding DPAs?

I have always been in favour of DPAs as one tool available to prosecutors. My experience was that the UK was in a poor position in global cases with international resolutions with the traditional criminal justice tools. I saw two main advantages of DPAs. These are-

  • They can form part of a system of incentives to encourage companies to self-report and cooperate and to improve compliance.
  • They enable prosecutors to discuss global resolutions without contravening the Innospec case.

I know that the FCPA Professor has expressed considerable public opposition to DPAs. I agree that they need to be transparent and that the judges have to be fully involved. I also agree that we still need to see the traditional full prosecution with debarment in suitable cases. This could be where the company is systemically corrupt and has no intention of abandoning corruption. I want to see more of these cases being pursued by enforcing states.

The full prosecution should be part of the toolkit of the prosecutor. There should be other tools for other types of case. It is notable that the only states that have made a sustained attack on corporate corruption over the years have either not used traditional prosecution or have used it sparingly and have also used alternatives. This is significant although it seems to me to be insufficiently appreciated.

Should corporate compliance be a defence to a bribery or corruption offense or merely mitigate the potential fine and penalty amount?

I remain in favour of the compliance defence. The Bribery Act offence is an excellent model in this area. I have seen how much impact this had on companies and the scale of the improvement made in their anti-corruption work. There are a number of other states that have compliance as a defence.

There is however an issue that is going to be increasingly relevant in those states that have compliance as a defence. The public wants to see the offence produce results in terms of criminal convictions. So far there do not appear to be any in the states with a compliance defence. There will be a question about whether compliance as a defence is right or whether the US approach with compliance as mitigation is to be preferred because of the results achieved. We can expect a lot more on this. It may be one of the issues to be considered in the recently announced UK review of the effectiveness of the enforcing institutions.

You have talked publicly about sanctions and incentives for companies as it relates to bribery and corruption offenses.  Can you elaborate on this issue?

Alternatives to traditional prosecution together with self-reporting and cooperation are important incentives in the area of violations. There is though a wider issue that is not sufficiently recognised and discussed. This is whether there should be more general incentives to companies that have brought about an excellent standard of anti-corruption compliance.

There was a Recommendation by the OECD in 2009 encouraging states to look at public procurement, licenses, aid funding and export credits as a way of recognising companies with the highest standards of anti-corruption. There has been little progress on this although a few states have introduced some initiatives.

I am very much in favour of this. For example the citizens of a state will benefit if a company that meets very high standards is successful in a public procurement exercise and companies with a poor anti-corruption approach are not. If those companies with a poor record decide that they have to reform then that is a benefit to everyone.

I see this as one of the key issues in anti-corruption that will become increasingly prominent in the coming years. It has great potential to make a difference.

Friday Roundup

Friday, June 20th, 2014

Scrutiny alerts, across the pond, for the reading stack, and congrats.  It’s all here in the Friday Roundup.

Scrutiny Alerts And Updates

FedEx

The Wall Street Journal reports here:

“FedEx Corp. told U.S. authorities that it received allegations that its Kenya operation paid bribes to government officials, according to a statement the company issued to The Wall Street Journal. The shipping company has told the U.S. Department of Justice and Securities and Exchange Commission about the allegations it potentially violated the Foreign Corrupt Practices Act, the statement said. FedEx also said it is investigating the allegations, and has “not found anything to substantiate the allegations.” The anonymous person contacted the firm through email in December 2013 with allegations of bribery in Kenya, according to an email reviewed by the Journal. [...] FedEx told the Journal it approached the SEC and DOJ “shortly after” receiving the December allegations, but didn’t say when specifically it went to authorities. The firm also said it has brought in a U.S. law firm and an external audit team in East Africa as a part of its investigation. The person alleged that FedEx’s Kenya operation bribed government officials in the country between 2010 and 2013, according to the email. FedEx operates through a so-called nominated service contractor in Kenya and other countries in the region, according to the allegations and the company’s website. The alleged bribes went to customs officials to clear shipments without inspection, as well as to government vehicle inspectors and others, the person alleged, according to the email.  The person also wrote that the same notification would go to the DOJ and SEC, according to the email …  FedEx said in its statement that it has been “engaged in a cooperative dialogue with both agencies” since it approached them about the allegations.”

Barrick Gold

Barrick Gold Corp. (a Toronto-based company with shares traded on the New York Stock Exchange) and African Barrick Gold (and entity Barrick Gold holds an approximate 65% ownership interest in) were the focus of this recent Wall Street Journal article.  The article states, in pertinent part:

“As part of a process to buy land near [a Tanzania] mine starting last year, African Barrick paid more than $400,000 in cash mostly to Tanzanian government officials and consultants responsible for valuing the land, according to company invoices and copies of checks reviewed by The Wall Street Journal. An anonymous person said the payments were bribes to officials in position to influence African Barrick’s business interests, according to an email sent to the company last year and reviewed by the Journal. The person didn’t describe any quid pro quo behind the payments. African Barrick and Toronto-based Barrick Gold said payments they made weren’t bribes and were legitimate payments for expenses and allowances tied to an agreement with the Tanzanian government.”

In response to the WSJ article, African Barrick Gold released this statement.

Smith & Wesson

The company disclosed in its most recent annual report:.

“On January 19, 2010, the DOJ unsealed indictments of 22 individuals from the law enforcement and military equipment industries, one of whom [Amaro Goncalves] was our former Vice President-Sales, International & U.S. Law Enforcement. We were not charged in the indictment. We also were served with a Grand Jury subpoena for the production of documents. Since that time, the DOJ has been conducting an investigation to determine whether we have violated the FCPA and we have continued to cooperate fully with the DOJ in this matter. On February 21, 2012, the DOJ filed a motion to dismiss with prejudice the indictments of the remaining defendants who are pending trial, including our former Vice President-Sales, International & U.S. Law Enforcement. On February 24, 2012, the district court granted the motion to dismiss. Following extensive investigation and evaluation, the DOJ declined to pursue any FCPA charges against us and closed its investigation. The DOJ has noted our “thorough cooperation” in correspondence to the company.

In May 2010, we received a letter from the staff of the SEC giving notice that the SEC was conducting a non-public, fact-finding inquiry to determine whether there have been any violations of the federal securities laws. It appears this civil inquiry was triggered in part by the DOJ investigation into potential FCPA violations. We have always taken, and continue to take seriously, our obligation as an industry leader to foster a responsible and ethical culture, which includes adherence to laws and industry regulations in the United States and abroad. We are cooperating fully with the SEC in this matter and have undertaken a comprehensive review of company policies and procedures. We are in the final stages of discussions with the SEC staff that have brought us close to a resolution. Any future agreement is subject to final review and approval by the SEC Commissioners. Based upon the status of current discussions, we have estimated and accrued an expense of approximately $2.0 million in fiscal 2014.”

Across The Pond

Earlier this week, the U.K. Serious Fraud Office announced:

“[That a jury convicted] Dennis Kerrison and Miltiades Papachristos of conspiracy to commit corruption, following an investigation conducted by the Serious Fraud Office.  The convictions of Mr Kerrison, a former CEO of Associated Octel Corporation (subsequently renamed Innospec Limited) and Dr Papachristos, former Regional Sales Director for the Asia Pacific region, complete the SFO’s six year investigation into Innospec, which led to two other individuals and Innospec entering guilty pleas.

Innospec itself pleaded guilty in March 2010 to bribing state officials in Indonesia and was fined $12.7 million. The bribes were intended to secure, or serve as rewards for having secured, contracts from the Government of Indonesia for the supply of Innospec products including Tetraethyl Lead, also known as TEL, a highly dangerous organo-lead compound that was created as an octane booster to be added to engine fuel. Leaded fuel, i.e. fuel that contains TEL, was banned in the UK in 2000 due to links between the compound and severe neurological damage.”

As noted in the SFO release, the Kerrison and Papachristos matter was the “first contested overseas corruption case brought by the SFO concerning the bribery of foreign public officials.”

As further noted in the SFO release:

“Another former Innospec CEO, Paul Jennings, pleaded guilty in June 2012 to two charges of conspiracy to commit corruption and a further charge of conspiracy to commit corruption in July 2012. David Turner, former Innospec Sales and Marketing Director pleaded guilty to three charges of conspiracy to commit corruption in January 2012.”

The Innospec enforcement action also had a U.S. prong involving both the company and individuals (see here, here, and here for prior posts).

For The Reading Stack

An informative read here from Trevor McFadden (Baker & McKenzie) titled “The U.S. Sentencing Guidelines in FCPA Matters:  Understanding the True Impact on Settlement Discussions.”

Congrats

Congrats to Thomas Fox for his 1,000th post on the FCPA Compliance and Ethics Blog.  I second many of the big-picture observations he makes.  Over the years, Tom has become a good friend and trusted colleague and his “long strange trip” (as he puts it) is a testament that out of adversity can come opportunity.

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A good weekend to all.