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Friday Roundup

Friday, December 21st, 2012

Better late than never, Judge Leon pulls a Judge Rakoff, Edmonds sentenced, it’s official, whistleblower statistics, it ought to stop marketing, China related issues, ICE melted quickly, and a U.K. enforcement action. It’s all here in the Friday roundup.

The Foreign Corrupt Practices Act Under The Microscope

Academic publishing is seldom quick. Yet before the calendar flips into another year, I am pleased to share my article concerning 2011 FCPA enforcement. The abstract of ”The Foreign Corrupt Practices Act Under The Microscope” (see here to download) recently published in the University of Pennsylvania Journal of Business Law is as follows. Information in the article is current as of January 16, 2012.

For most of the Foreign Corrupt Practices Act’s history, key decisions concerning its scope and enforcement were made behind closed doors around conference room tables in Washington, D.C. The FCPA took on a life of its own and, in many instances, the statute came to mean whatever the DOJ or SEC could get putative corporate FCPA defendants (mindful of the consequences of actual prosecuted charges) to agree to behind those closed doors. However, as the enforcement agencies continued to push the envelope on enforcement theories and practices, and as the DOJ brought more individual FCPA enforcement actions, including through manufactured sting operations, business entities and individuals alike began to openly fight back. While many FCPA enforcement decisions and procedures remain opaque, 2011 witnessed the most intense year of public scrutiny in the FCPA’s history. This Article (i) provides an overview of 2011 FCPA enforcement and discusses certain problematic enforcement trends, and (ii) highlights how in 2011 the FCPA was subjected to the most meaningful public scrutiny in its history. FCPA enforcement trends and scrutiny demonstrate that as the FCPA nears its thirty-fifth year, basic legal and policy questions remain as to the purpose, scope, and effectiveness of the FCPA.

Start your collection of FCPA Year in Reviews. For my 2011 (short version), see here. For 2010, see here (short version), here (long version). For 2009, see here (long version).

Judge Leon Pulls a Judge Rakoff

My post concerning the SEC’s March 2011 enforcement action against IBM was titled “Questions Abound in IBM Enforcement Action.” (See here). Among the issues I discussed were the following. That in December 2000, IBM resolved an FCPA enforcement action and consented, as part of the settlement, to the entry of an Order that requires IBM to cease and desist from committing or causing any future violation of [the FCPA's books and records provisions]. I noted that because the March 2011 enforcement action alleged FCPA books and records charges, that IBM was thus in clear violation of the 2000 court order.

The case was assigned to Judge Richard Leon (of Africa Sting fame) and lingered for a long time. This Wall Street Journal Corruption Currents post and this Bloomberg article report that Judge Leon has refused to approve the settlement.

As stated by Bloomberg – “The heart of the dispute is that Leon, who has had the case under review for 22 months, wants reporting on a broader range of possible wrongdoing than the company is willing to turn over. Leon, who spoke loudly and angrily, asked why the regulator would agree to limit such requirements for a company with a history of books-and-records violations. [...] “I guess you want that $10 million judgment on your list of achievements this year,” Leon told [the SEC lawyer]. “Well, it’s not going to happen.” He scheduled a hearing for Feb. 4.”

As stated by Wall Street Journal Corruption Current – “Leon also questioned broader SEC settlement policies and warned that he was among “a growing number of district judges who are increasingly concerned” by those policies.”

In not ”rubber stamping” the SEC – IBM settlement, Judge Leon pulled a Judge Rakoff. Judge Rakoff of the S.D. of N.Y. has been a frequent focus on this site – see here, here, here and here. See also, the discussion of Judge Rakoff in my 2010 article “The Facade of FCPA Enforcement.”

Edmonds Sentence

This past June, David Edmonds, a defendant in the long-running “Carson” enforcement action involving former employees of Control Components Inc., agreed to plead guilty on the eve of trial to substantially reduced charges. (See here for the prior post). Earlier this week, Judge James Selna sentenced Edmonds to four months in prison and four months of home confinement. (See here for Judge Selna’s sentencing memo). As noted in the DOJ’s sentencing memo (here), the DOJ sought a 14 month prison sentence.

Other defendants previously sentenced in the case are Stuart Carson (4 months in prison followed by 8 months of home detention), Hong Carson (3 years probation to include 6 months of home detention) and Paul Cosgrove (13 months home detention).

It’s Official

Imagine a foreign country in which the president is actively seeking and accepting corporate money to fund inaugural festivities. All sorts of red flags right?

But wait, this describes the United States and President Obama’s upcoming inauguration. As detailed in this prior post, President Obama’s fundraising advisers “have urged the White House to accept corporate donations for his January 2013 inaugural celebration rather than rely exclusively on weary donors who underwrote his $1 billion re-election effort.”

It’s now official. As noted by this recent New York Times article “President Obama’s finance team is offering corporations and other institutions that contribute $1 million exclusive access to an array of inaugural festivities.” As noted in the article, Obama’s finance team is offering four different packages “with differing levels of access depending on the level of contribution.”

Our FCPA enforcement agencies are bringing enforcement actions against companies for conduct that includes providing $600 bottles of wine, Cartier watches, cameras, kitchen appliances, business suits, and executive education classes to individuals employed by foreign companies that are allegedly state-owned or state-controlled. (These are all allegations found in recent FCPA enforcement actions).

But remember, as 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.”

Whistleblower Statistics

The Dodd-Frank Act enacted in July 2010 contained whistleblower provisions applicable to all securities law violations including the Foreign Corrupt Practices Act. In this prior post from July 2010, I predicted that the new whistleblower provisions would have a negligible impact on FCPA enforcement. As noted in this prior post, my prediction was an outlier (so it seemed) compared to the flurry of law firm client alerts that predicted that the whistleblower provisions would have a significant impact on FCPA enforcement.

So far, there have not been any whistleblower awards in connection with FCPA enforcement actions. Given that enforcement actions (from point of first disclosure to resolution) typically take between 2-4 years, it still may be too early to effectively analyze the impact of the whistleblower provisions on FCPA enforcement.

Whatever your view, I previously noted that the best part of the new whistleblower provisions were that its impact on FCPA enforcement can be monitored and analyzed because the SEC is required to submit annual reports to Congress. Last month, the SEC released (here) its annual report for FY2012.

Of the 3,001 whisteblower tips received by the SEC in FY2012, 3.8% (115) related to the FCPA. As noted in this similar post from last year, in FY2011 (a partial reporting year) 3.9% of the 334 tips received by the SEC related to the FCPA.

It Ought to Stop Marketing

In this previous post titled “It Ought to Stop” I focused on the FCPA conference industry and how conference firms drive attendance to their events by touting the public servants who will speak at the event.

Here is how conference firm C5 touts its upcoming conference in a press release (here).

Ask the U.S. DOJ and U.S. SEC directly how your company can remain compliant

Hear the latest on the newly released FCPA guidance. Along with the U.S. Securities & Exchange Commission’s, Charles E. Cain, the Deputy Chief of the FCPA Unit, Enforcement Division, we will have Matthew S. Queler, from the Criminal Division at the U.S. Department of Justice, presenting comprehensive, insightful and practical details of the U.S. government’s interpretation of the guidance, and highlight recent examples designed to help prevent future violations. Their session at 14:00 on Day 1, will help you navigate the ever evolving markets and recognize the current enforcement trends; giving you the tools to reanalyse risk profiles and minimize areas of exposure. Finally, to top off the hour you will be given an exclusive opportunity to have your FCPA questions answered. The only way to obtain answers directly from the U.S. DOJ and U.S. SEC is to register for this forum!

The event, depending when you register and which package you select, costs between €4341 – €1795.

It ought to stop.

China Related Issues

An occassional topic of discussion on this site is Chinese state-owned enterprises (SOEs) and how such companies are frequently doing business outside its borders, including here in the U.S. (See here, here, and here for prior posts).

Wall Street Journal Columnist Dennis Berman “hit the nail on the head” in his recent column when he noted that one of “the most intriguing business stories of the past month has been taking place in San Francisco, where a group of U.S. developers is planning the biggest real-estate expansion there since the 1906 earthquake. The group—which includes Lennar Corp., Ross Perot Jr. and others —isn’t getting financing from an American bank or pension fund. No, the money, some $1.7 billion of it, is coming from the China Development Bank, a policy arm of the Chinese state. As Berman further notes, a financing contingency is that China Railway Construction Corp. – a state-owned infrastructure builder with roots in the People’s Liberation Army—take part in the projects, which will develop up to 20,000 new homes.

Another occasional topic of discussion on this site is how Chinese companies are listing shares on U.S. exchanges and thus becoming “issuers” for purposes of the FCPA. (See here for a prior post). A core FCPA enforcement action of a Chinese issues has never occurred, but I predict it will some day – diplomatic and foreign policy issues aside. Only now, the universe of potential targets is shrinking. As noted in this recent Wall Street Journal article, several Chinese companies have delisted from U.S. exchanges. The article provides the following information. “At the peak, at year-end 2010, 167 Chinese companies were listed on Nasdaq and 99 on the NYSE. That compares with 84 China-based companies on NYSE and 129 on Nasdaq as of Nov. 30, 2012, according to the exchanges.” For more, see this recent article from the New York Times.

ICE Melted Quickly

This recent post highlighted the cert petition of Instituto Constarricense de Electricidad of Costa Rica (“ICE”) to the Supreme Court related to victim issues in connection with the December 2010 Alcatel-Lucent FCPA enforcement action. After several unsuccessful 11th Circuit appeals, ICE petitioned the Supreme Court to hears it case (see here). The question presented for review is as follows. “Whether a crime victim who is denied rights conferred by the federal Crime Victims’ Rights Act has a right to directly appeal the denial of those rights.”

The ice melted quickly as recently the Supreme Court denied ICE’s petition.

U.K. Enforcement Action

Earlier this week, the U.K. Serious Fraud Office announced (here) charges against former employees of Swift Group (an oil and gas services provider) following “a two-year investigation into allegations of corruption in relation to the tax affairs of Swift Technical Energy Solutions Ltd, a Nigerian subsidiary of the Swift Group of companies.” According to the SFO release, ”the value of the bribes alleged to have been paid is approximately£180,000.”

The SFO release notes that Paul Jacobs (the former Chief Financial Officer of Swift), Bharat Sodha (the former Tax Manager of Swift), Nidhi Vyas (the former Financial Controller of Swift), and Trevor Bruce (the former Area Director for Nigeria of Swift) were charged in relation to “bribes to tax officials to avoid, reduce or delay paying tax on behalf of workers placed by Swift. The charges relate to payments said to have been made to agents of the Rivers State Board of Internal Revenue and the Lagos State Board of Internal Revenue, both in Nigeria. The payments were made in 2008 and 2009.”

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A happy holiday season to all.

Across The Pond

Tuesday, December 4th, 2012

After focusing on the FCPA guidance for the past few weeks, this post goes across the pond to check in on three U.K. developments.

First Her Majesty’s Crown Prosecution Service Inspectorate, the independent Inspectorate for the U.K. Crown Prosecution Service, recently released (see here) a “Report to the Attorney General On The Inspection of the Serious Fraud Office.” The report focuses mostly on general issues, but readers may be most interested in Chapter 8 dealing with “Asset Recovery and Alternative Resolution.”

Second, the Crown Office (the agency responsible for prosecution of crime in Scotland) recently announced (here) a £5.6 million civil recovery enforcement action against Aberdeen, Scotland based drilling company Abbot Group Limited. According to the release, Abbot “admitted that it had benefited from corrupt payments made in connection with a [2006] contract entered into by one of its overseas subsidiaries and an overseas oil and gas company.” According to the release, ”the sum to be paid by Abbot represents the profit made by the company under the contract.” Two things to note. First, the release makes much of the fact that Abbot “self-reported” the conduct at issue. Yet, the release itself states that ”the corrupt payments were brought to light in May 2011 following enquiries by an overseas tax authority which resulted in an investigation by a firm of solicitors and a firm of accountants instructed by Abbot itself.” Second, the release notes that the enforcement proceeds “will be invested in the Scottish Government’s hugely successful CashBack for Communities Programme which takes cash from the Proceeds of Crime and invests it in a range of sporting, cultural, community mentoring projects and sports facilities for the benefit of our young people and their communities.”

Third, David Green (Director of the U.K. Serious Fraud Office) recently answered questions before a House of Commons Justice Committee. (See here for the transcript). In his comments, Green: (i) says FCPA / Bribery Act Inc. created unnecessary “spin” regarding the SFO’s recent policy revisions; (ii) discusses the role of the SFO; (iii) makes an apt analogy to early enforcement of the FCPA; and (iv) talks about the prospect of DPAs in the U.K.

Below are excerpts from the Q&A’s that touch upon bribery and corruption issues.

“Q24 Steve Brine: [...] I want to ask you about the notes that I have been reading about facilitating payments, business expenditure and corporate self-reporting. What is your intention behind the revision of policies on those three areas? Are they really a radical departure from the previous guidance, or is there a bit of spin there?

David Green: It is not my spin. What you might call the bribery and corruption industry-by which, I suppose, if I was being unkind, I might mean lawyers who make an enormous amount of money out of it, advising corporates-wants to put it that way. In fact, it is not that. What I have done, as you know, is to withdraw policies in relation to bribery and corruption, and they have been replaced with a statement that we are subject to the joint guidance agreed with the Crown Prosecution Service. In other words, all I have done is to remove what is actually a unilateral gloss placed on that joint guidance by my predecessor at the SFO. It was also done in order to comply with the recommendations of the OECD which, as you will know, are about being careful how a self-report is defined.

What I have done most specifically, which certainly excited some-perhaps they are easily excited-is to withdraw the exclusive pledge that the SFO would not prosecute if you self-report. Why did I do that? In my view, it is not something that a responsible prosecutor should be saying, simply because you have no idea what kind of facts or combination of facts you might be presented with when somebody comes through your door with an expensive lawyer. You have no idea, so you cannot cater for it in advance. What you can say, without question, is that the fact of a genuine self-report-by a genuine self-report I mean, in its purest form, telling us something that we did not know already, and the corporate acting proactively to investigate it-must be very significant as a factor in weighing up the public interest limb of the decision to prosecute; that is the code test. That is what I am about. That is why I did that.

There is one other thing. I have said that I wanted to restate the SFO’s role as a crime-fighting agency. In addition, frankly, so far as I am concerned, we are not there to give advice to people. They can get their advice from their lawyers and their other experts, which they have in spades. I am not there, nor are my staff there, to give advice. We are there to investigate and prosecute serious fraud, bribery and corruption.”

[...]

Q26 Steve Brine: [...] “Without specifying details, would you give us some indication of how many investigations you are currently undertaking into potential offences under the Act?

David Green: Under the new Act?

Q27 Steve Brine: Yes, because you are also bringing cases under old bribery legislation, are you not? Let us just look at the new Act. It is not retrospective, if I am correct.

David Green: That is exactly right. We are just concerned with stuff after July 2011. It is important to understand that section 2A of the Criminal Justice Act 1988 added a pre-investigation power in relation to bribery and corruption, which enables us basically to look at the facts and assess them, and to see whether there is material that would justify, in law, my launching a full-scale investigation. If I may, for the sake of clarity, I shall call those pre-investigation investigations “projects”.

From recollection, we have seven cases that are in the project phase. What will come of them I cannot tell you; I really do not know, but if we can we will turn them into investigations if we are justified in doing so. We have another half dozen cases that relate to pre-Bribery Act law; again, they are in the same phase.

Understandably, legislators, journalists and, indeed, members of the public may say, “Well, you have this marvellous new Bribery Act. What are you doing about it?” As a kind of private project, I have been looking at the fortunes of the FCPA-the Foreign Corrupt Practices Act of the United States. That was enacted in the late 1970s, and the first prosecution was in 1981. It did not get any teeth, in a really meaningful way, until the penalties were enhanced, and so forth, in the 1990s. I am not saying for a moment that you are going to have to wait 20 years for your first Bribery Act prosecution, but things are in hand and no one would be keener than I would to see a good, solid Bribery Act prosecution. We are working on it.”

[...]

“Q30 Mr Buckland: May I move on to the question of deferred prosecution agreements? I have read very carefully the memorandum and evidence that you have submitted to the Committee, and it is clear that the SFO supports the Government’s proposals to amend the current Crime and Courts Bill and to bring in DPAs. I do not know whether you or your office have troubled yourselves with the potential impact assessment, in terms of financial benefit and whether the SFO directly would receive either a share or the entirety of any receipts from financial settlements pursuant to DPAs.

David Green: As I understand it, all funds from DPAs will go directly to the Treasury, to avoid concerns over conflicts of interest.

Q31 Mr Buckland: So there is no hypothecation. Would it be fair to say that the SFO would have a legitimate expectation that, even though the moneys were not hypothecated, you could end up receiving some additional funding to help deal with the work that you are doing?

David Green: It has always been my view, Mr Buckland, that the SFO is here to stay, but that it needs to prove itself. Assuming that it proves itself-I hope fervently that it does-I would be the first to join any negotiation on an enhanced budget to get us more resources to do more good work. But I would say that, wouldn’t I?

Q32 Mr Buckland: I would expect you to, and I am glad to hear it. Having looked at the impact assessment prepared by the MoJ on DPAs, I was a little concerned. My reading of it is that there was an assumption in the document that there would not be an overall increase in the number of cases dealt with. In other words, there would potentially be a shift from early guilty pleas to DPAs, meaning no overall increase in the number of cases dealt with. Would that be your expectation, or would you hope for something more ambitious?

David Green: I would be far more ambitious. I would expect our case load-including cases dealt with under DPAs-to increase significantly once they kick off. I hope, as I am sure you do, that we will have our first DPA in place in early 2014.

Q33 Mr Buckland: Obviously, public perception is very important. Two aspects of DPAs as currently proposed may cause some concern. The first is having the preliminary hearings in private, as opposed to having all hearings in public. Does the SFO have a view on the reasons for that proposal?

David Green: I do not, as I sit here, have a particular view on that. What I would say is that later on, as the process develops, it does of course become public. Obviously a big difference between our DPAs and the US model is judicial involvement from day one. I would not be happy in expressing a particular view on that. It is something that I would have to think about, but I would be happy to let you know in due course.

Q34 Mr Buckland: I would be very grateful, Mr Green. Thank you. Again, public perception is important. The idea that you are doing some sort of niche job is wholly wrong, I think. The public are genuinely concerned about a culture of impunity that is perceived to have grown up around corporate and serious fraud. Is there a danger, with DPAs, that we could end up with white-collar crime somehow being seen as less serious than other types of crime?

David Green: That is obviously something that I have thought about a lot-indeed, it has troubled me-and I think that the answer is this. It is important that DPAs are seen as just one additional tool in the prosecutor’s toolkit. They are certainly not, in any sense, a universal panacea for corporate misconduct. They will be used in the right circumstances only. An example of what I think would be the right circumstance is where an incoming board chooses to self-report past misconduct by a previous board, which it has unearthed and proactively investigated. That would be just the sort of challenge to be met, in my view, by a DPA. It would certainly not be appropriate if, for instance, the corporate had been set up and used as a vehicle for fraud. That would be quite wrong. Obviously our first principle, as I hope I have made clear, is that serious fraud, bribery and corruption must always be prosecuted where that is possible-always.

Q35 Mr Buckland: Do you see this as having the potential to deal with the common scenario of when a legitimate business becomes dishonest? I am sure that, like me, you have had plenty of experience of that sort of scenario.

David Green: Of course, we would only be dealing with the corporate itself, under a DPA.

Q36 Mr Buckland: Not the individual.

David Green: Indeed. If there was a case against individuals, we would obviously prosecute if we could.

Q37 Mr Buckland: One concern that has been put to me about DPAs is that we have looked to the United States as an example, but that the US has a very big stick in terms of how they-I won’t say aggressively, but certainly robustly-police their free market, and the penalties available under the criminal justice system in the various US states to deal with wrongdoers. Do you think that the British scenario, where the stick is much less potent, is a good parallel to draw with the United States?

David Green: Just as we have adapted the US model for our circumstances, so we have adapted the carrot and stick equation. I have touched on this twice, but I cannot overemphasize the importance of our decision to enhance our intelligence capability. I really mean business on that. At the moment, our intelligence capability-the one I inherited-is really a sort of vetting process. I want to be far more aggressive in our intelligence activities, not to run it ourselves but to buy it in from, say, the City of London police or external agencies, going up to all sorts of exotic intelligence. The intelligence capability being built up-that is the stick. These people may well be found out, and they need to understand that. The carrot, of course, is often said to be certainty. Actually, it is not really certainty, because when they come along to self-report, they are not sure how they are going to end up. What they mean, I think, is finality. In other words, a line will be drawn in the sand under previous corporate misconduct, under certain conditions, and a company can then move on. Having thought about it quite a lot, I think that that is really what a corporate wants.”

Will U.K. DPA’s Make A Difference?

Tuesday, November 13th, 2012

Today’s post is from Kathleen Harris (a London based partner at Arnold & Porter). Prior to joining Arnold & Porter, Harris served (2008-2011) as Head of Fraud Business Group and Head of Policy at the U.K. Serious Fraud Office. In the post, Harris discusses the U.K.’s push towards deferred prosecution agreements. For more on this topic see this recent post (as well as prior posts mentioned therein).

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Will U.K. DPA’s Make A Difference?

Kathleen Harris

Deferred Prosecution Agreements (“DPAs”) and Non-Prosecution Agreements are used to great effect by the Department of Justice in the United States whereas they are not currently available as an enforcement tool in the UK. On 23 October 2012 the UK’s Ministry of Justice (MoJ) announced (here) that it will legislate to introduce DPAs in England and Wales. Clearly, the UK authorities wish to emulate the successful use of this enforcement tool across the Atlantic. However the model of DPA proposed for introduction in the UK is very different to the US prototype and there is a question mark as to whether they will prove to be as effective here as they are in the US..

Under the MoJ’s proposal , UK DPAs will only be available to organizations (commercial or otherwise) which are alleged to have committed economic crime, in particular fraud, bribery (specifically offences under the Bribery Act 2010), and money laundering. They will not be available to individuals at all, nor will they be available to organizations which are alleged to have been involved in non-economic crime. In the same way as the US, UK DPAs will entail a voluntary agreement with a prosecutor whereby, in return for complying with a range of conditions, the prosecutor will defer a criminal prosecution and if, at the end of the deferral period, the prosecutor is satisfied that the conditions have been fulfilled, there will be no prosecution.

However, the MoJ has consciously distanced itself from US DPAs on a number of key points, notably in relation to the level of judicial involvement and transparency. The MoJ stated as follows.

“Although the US model has been in use for over 20 years, in its current form it would not be suitable for the constitutional arrangements and legal traditions in England and Wales … the Government remains of the view that the US model offers a good example of the effective use of a voluntary agreement approach, albeit in a very different legislative context. However, our proposals will ensure a greater level of judicial involvement and transparency throughout the DPA process in order to command public confidence.”

With regard to the level of judicial involvement, the MoJ states that “under our plans, the judiciary will play a vital independent role in this process to ensure that DPAs are properly scrutinised, transparent and in the interests of justice. They will be empowered to block them if they do not agree that they are an appropriate response to the organisation’s wrongdoing.”

With regard to the level of transparency, the MoJ states that “there will be public scrutiny of the process – the public will know what wrongdoing has taken place and the sanctions for it, including any penalty that has been paid. The final hearing will be held in open court and the final agreement will be published by the prosecutor.”

The arguments for greater judicial oversight of the DPA regime in the UK than is the case in the US have been well rehearsed but whilst it is open to judges to set aside the agreement reached between company and prosecutor and to alter its terms, there will be understandable reluctance on the part of corporates to embark upon a course of action with such an uncertain outcome. This uncertainty will deter self reporting and self investigation, both of which are required if UK prosecutors are to tackle economic crime as effectively as their US counterparts.

Greater transparency is to be welcomed. It is a valid criticism of the Civil Recovery Orders obtained by the Serious Fraud Office against corporates in recent years, that there is little or no information disclosed to allow the public to understand the offending conduct that gave rise to the criminal property made subject to the order. This undermines faith in the justice system. In the US a lack of transparency and an absence of checks on prosecutorial discretion has led to recent judicial criticism of the operation of the DPA regime. Transparency ensures that all those with an interest in the matter, and especially victims, can see that the outcome is just and fair

It may be that the guidance that has been promised by the MoJ to accompany the proposed UK legislation will help to clarify areas of uncertainty and allow corporates, practitioners, and the wider public to understand how the decision making process will work. In particular the guidance should encourage transparent settlements and ensure victims are compensated. However, justice requires each case to be decided on its own facts and no guidance can anticipate all relevant factors. Accordingly, decisions will require the judicious application of prosecutorial discretion and in reality may lead to more challenges against the use of this discretion if sufficient safeguards are not in place to protect against potentially overzealous decision making to ensure large financial penalties. The wider the scope of such discretionary decision making the greater the uncertainty and the lesser the transparency.

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This prior post titled “It Ought to Stop” discusses various aspects of the FCPA conference business. The Corporate Crime Reporter (here) picks up the issues as well and discusses how the press is largely being shut out from the FCPA conference later this week in Washington, D.C., including as to several panels in which public servant DOJ and SEC officials are speaking.

Friday Roundup

Friday, November 9th, 2012

Thanks, the “foreign officials” of Medicine Bow, are you sure the company is FCPA-compliant in China, quotable, checking in on Brazil, and an interesting read.

Thanks

Many thanks for making FCPA Professor a part of your day. October readership was an all-time record in the history of FCPA Professor (this site launched in July 2009) and two posts earlier this week “Stop Drinking the Kool-Aid” and “It Ought to Stop” were among the most read posts in FCPA Professor history. As to these posts, I received many positive and supportive comments.

Should you have ideas for how FCPA Professor can be improved, please let me know at fcpaprofessor@gmail.com.

The “Foreign Officials” of Medicine Bow

Given the enforcement agencies’ untethered and boundless views on who is a “foreign official” under the FCPA, one never knows where a “foreign official” will pop up.

Such as Medicine Bow, Wyoming – population 300.

As noted in this recent Wall Street Journal article, “an arm of [China] state-controlled Sinopec Group, also known as China Petrochemical Corp., is planning to build an advanced facility [in Medicine Bow] that will convert coal into gasoline.” According to the article, the project will create approximately 400 full-time jobs when the facility goes into operation.

In this 2010 article, I noted that with foreign government owned sovereign wealth funds making investments around the world (including in U.S. companies) and with SOEs listing public shares on various exchanges and otherwise doing business around the world, there has never been a more critical time for the enforcement agencies to make clear their legal and policy reasoning on “foreign official.”

Far from adding clarity on this issue, the recent “foreign official” trial court decisions (see here and here), as well as the DOJ’s recent “foreign official” reversal (see here), has only muddied the waters.

Are You Sure the Company Is Compliant?

Subject to a few observable exceptions, investors seem to care very little about FCPA scrutiny and enforcement actions. All the more reason the below exchange from the recent Novartis AG earnings conference call caught my eye.

ANDREW BAUM (Citigroup Analyst): One trend would notice with some of you peers is where there is a sudden acceleration in the growth in China, it is often closely followed by scrutiny under the Foreign Corrupt Practices Act. Could you just give us an update on what you’re doing to ensure compliance in Novartis in China, is held in check, so that doesn’t become a risk?

DAVID EPSTEIN (Novartis, Head of Pharmaceuticals): “You asked about compliance. And just — I would just say rest assured our Company does everything that is in the power to be done, on a worldwide basis, to teach our people to be compliant. Both in terms of training and coming from the top and everything else. So I’m quite pleased with where our Chinese business is going. And leave it at that.”

Quotable

The U.K. Independent recently ran (here) a profile of David Green (who became Director of the U.K. Serious Fraud Office this past spring).

Below are some notable Green quotes.

“I would like the SFO to have a hard-edged, tough reputation. It should be something which is feared. You don’t want to be investigated by the SFO.”
On the issue of guidance. “I am sceptical of guidance notes. I suspect the motives of those that want absolutely precise guidance, because I suspect they want to wait round the corner and hit you over the head with it, and say, you are acting contrary to your guidance. The criminal law covers an endless multitude of possibilities and possible sets of facts. It is very hard to be specific. On corporate hospitality, it rather depends on the motive and the context and the timing and the value. You can’t just say, Wimbledon tickets are OK. They’ll say that you said, ‘Wimbledon tickets are all right.’”
On the issue of criminal law enforcement as a funding source. “It is a good source of income, and as a matter of principle I see nothing wrong with prosecutors being in part funded by money taken from criminals. I am all for that.”

Matthew Jacobs, a former DOJ prosecutor who now heads the San Francisco offices of Vinson & Elkins LLP, stated as follows in a recent Law360 article (“FCPA Enforcement Will Stay Robust Beyond Obama’s 2nd Term”): “The Department of Justice has figured out that conducting investigations of corporations is a lucrative business. This is the one area of government activity that actually brings money in rather than shoots money out. We’re talking about literally billions of dollars that the government is able to collect … as long as there’s a budget issue it’s not too cynical to say that … generating revenue is a factor in bringing these cases.”

Matt Kelly at Compliance Week recently stated (here) as follows concerning the DOJ’s promise of upcoming FCPA guidance and the role of Assistant Attorney General Lanny Breuer. “We’d be foolish to ignore the profit motive, too [in addressing the why FCPA guidance now question]: Breuer will be in the private sector again soon enough, representing companies ensnared in FCPA probes. He’ll be able to command quite a premium if he can legitimately say, ‘I know how the Justice Department will interpret its FCPA guidance, because I wrote it. I don’t believe that career advancement is why Breuer is pushing for this guidance, but the fact remains that he stands to reap more money because of it.”

Brazil Developments

If Latin America is an area of your interest and concern, you should be reading the FCPAmericas blog (here) run by Matteson Ellis. This recent post tracks developments of Brazil’s draft bribery bill.

Interesting Read

See here for a write-up of an article examining the differences between a tip and a bribe. From the article. “It is generally considered a good-natured prosocial thing to tip, but bribing is considered to be antisocial and negative. [...] Tips and bribes can possess striking similarities that may lead to their positive association. In a sense, both are gifts intended to strengthen social bonds and each is offered in conjunction with advantageous service. One could even argue that the main difference between the two acts is merely the timing of the gift: Tips follow the rendering of a service, whereas bribes precede it.”

*****

A good weekend to all.

The U.K. Moves One Step Closer To The “Facade” Of Enforcement

Monday, October 29th, 2012

Prior posts here, here, here and here have tracked the desire of United Kingdom law enforcement agencies to import deferred prosecution agreements (DPAs). In response to the U.K. Ministry of Justice’s (“MoJ”) open consultation process, I submitted this letter suggesting that the MoJ should say no to DPAs in the Bribery Act context. Among other things, I noted that in its consultation paper, the MOJ relied upon several unfounded assertions when discussing use of DPAs in the U.S.

I also posed the following questions the MoJ should consider during its consultation process. “Why does a law with an adequate procedures defense require the third option of a deferred prosecution agreement (the first two options being prosecute vs. not prosecute)? If a corporate has adequate procedures, but an isolated act of bribery nevertheless occurs within its organization, the corporate presumably would not face prosecution under the Bribery Act. This seems like a just and reasonable result and there is no need for a third option in such a case. On the other hand, if a corporate does not have adequate procedures (thus demonstrating a lack of commitment to anti-bribery compliance) and an act of bribery occurs within its organization, it presumably would face prosecution under the Bribery Act. This seems like a just and reasonable result. Does a third option really need to be created for corporates who do not implement adequate procedures?”

Last week, the MOJ issued it consultation response (found here). Despite stating in the Executive Summary that its response “summarises the responses” received, no where in the response does the MoJ address the questions I posed.

The MoJ’s response makes much of the fact that “respondents overwhelmingly welcomed the proposals to create a new tool for prosecutors to tackle economic crime, with 86% of respondents agreeing that Deferred Prosecution Agreements have the potential to improve the way in which corporate economic crime is dealt with and would enable prosecutors to bring more cases to justice.”

This high percentage is hardly surprising. As indicated by Annex A of the MoJ consultation response, law firms were by far the largest category of the 75 respondents. In this regard, the MoJ’s response “poll” is like taking a poll of car dealers and car manufacturers asking them if they are in favor of new and unique ways to sell cars. Likewise, both the MoJ and law firms benefit from alternative resolution vehicles such as DPAs. However, the alternate reality that is DPAs harm other stakeholders and undermine the rule of law and justice. This is becoming increasingly clear in the U.S. and I predict will become clear as well in the U.K. with the passage of time.

The most revealing part of the MoJ’s consultation response concerns the “appropriate level of evidence that prosecutors would need in order to satisfy themselves that entering into a DPA would be appropriate. The response notes that there was disagreement as to whether the test for entering into a DPA should “be the same test as for bringing a prosecution (a “realistic prospect of conviction”) or whether a lower evidential threshold would suffice.”

The MoJ punts on this issue, yet implicitly endorses a lower evidential threshold. Its consultation response states as follows. “With regards to the evidential test, we consider that this should be included in the DPA Code of Practice for Prosecutors [yet more guidance that the MoJ says is forthcoming] and must set a sufficiently high threshold to establish a real threat of future prosecution for the other party. However, the exact contents of the DPA Code of Practice for Prosecutors will be a matter for those responsible for developing it.”

By endorsing a system whereby lower thresholds of proof will suffice to resolve a corporate “criminal” enforcement action, the U.K. has moved one step closer to a “facade” of enforcement.

In the concluding section of my 2010 article “The Facade of FCPA Enforcement” (here), I stated that among the reasons why the facade of FCPA enforcement matters is “the increasing frequency by which other nations are modeling enforcement of their own bribery laws on U.S. enforcement methods and theories.” I warned that a “global facade of enforcement” will follow unless these methods are corrected here in this country. These methods have not been corrected here at home. Indeed, as noted in this recent post, Assistant Attorney General Lanny Breuer recently defended the DOJ’s use of NPAs and DPAs. I have argued here, here and elsewhere that use of NPAs or DPAs in the FCPA context allow “under-prosecution” of egregious instance of corporate bribery while at the same time facilitate the “over-prosecution” of business conduct.

The global push for alternative resolution agreements I warned about in the “Facade of FCPA Enforcement” is just beginning. As noted in this recent Irish Times article, there is now discussion of importing these agreements into Irish law. And who can blame the Irish?

Alternative resolution vehicles allow law enforcement agencies to pad enforcement statistics creating the appearance that such “enforcement” actually accomplishes a worthy objective. How will Irish law enforcement authorities keep pace with the U.S. and (now the English) if it has fewer options? If its enforcement statistics are lower, the Irish will be shamed by civil society organizations and others (who appear to place a premium on quantity of enforcement vs. quality of enforcement).

As evidence that DPAs are a wanted device in this new “global arms race” (i.e. which country can bring the most bribery and corruption enforcement actions) the MoJ says that obtaining DPAs will be a “prize.” Specifically, the MoJ consultation response states as follows. “We will now forward legislative provisions to introduce DPAs in England and Wales in the Crime and Courts Bill, which is currently making its way through Parliament. The prize will be a more just and effective system for dealing with economic crime, where wrongdoers are identified and brought to justice as commonly as for other offences.” (emphasis added). Further to this issue, last week U.K. Solicitor General Oliver Heald stated (here) as follows. “DPAs will be a swifter, more nimble way to conduct enforcement.”

The global facade of enforcement is beginning to take hold. Does anyone else care?

*****

Even though this post has been critical of the MoJ for moving forward on DPAs, the following points remain relevant.

As highlighted in this previous post, the U.K. has rejected non-prosecution agreements – a resolution vehicle that has been used to resolve several FCPA enforcement actions. As also highlighted in the previous post, even though the U.K. is moving forward on DPAs, its proposed model is not the U.S. model. Rather, the U.K. model envisions judicial involvement in the DPA process from an early stage whereby the proposed DPA is considered by the judiciary at a preliminary hearing before it returns for final judicial approval.

Indeed, the U.K. Solicitor General recently stated (here) as follows. “We decided to build on the U.S. model by formulating proposals which ensure a greater level of judicial involvement, from an earlier stage, as well as greater levels of transparency in order to command the confidence of the public.”