Victims « FCPA Professor

Archive for the ‘Victims’ Category

Friday Roundup

Friday, February 1st, 2013

The SEC files an amended complaint, Judge Leon strikes again, a provocative press release, a focus on lobbying and for the reading stack. It’s all here in the Friday roundup.

SEC Files Amended Complaint in Jackson / Ruehlen Matter

As highlighted in this prior post, this past December Judge Keith Ellison (S.D. Tex.) issued a lengthy 61 page decision (here) in SEC v. Mark Jackson and James Ruehlen. In short, Judge Ellison granted Defendants’ motion to dismiss the SEC’s claims that seek monetary damages while denying the motion to dismiss as to claims seeking injunctive relief. Even though Judge Ellison granted the motion as to SEC monetary damage claims, the dismissal was without prejudice meaning that the SEC was allowed to file an amended complaint. As explained in the prior post, Judge Ellison’s decision was based on statute of limitations grounds (specifically that the SEC failed to plead any facts to support an inference that it acted diligently in bringing the complaint) as well as the SEC’s failure to adequately plead discretionary functions relevant to the FCPA’s facilitation payments exception.

Last week, the SEC filed its amended complaint (here). The most noticeable difference in the amended complaint, based on my brief review of the 58 page document, appears to be several allegations regarding Nigerian law, including the Customs & Excise Management Act.

Judge Leon Strikes Again

This prior post generally discussed Judge Richard Leon’s rejection of the SEC v. IBM FCPA settlement, a case that still lingers on the docket.

As noted in this Main Justice story and this Wall Street Journal story, Judge Leon has struck again. According to the reports, yesterday Judge Leon conducted a scheduled hearing in SEC – Tyco FCPA case in chambers, much to the dismay of media assembled in open court.

As noted in this prior post, in September 2012, the DOJ and SEC announced an FCPA enforcement against Tyco International Ltd. and a subsidiary company. Total fines and penalties in the enforcement action were approximately $26.8 million (approximately $13.7 million in the DOJ enforcement action and approximately $13.1 million in the SEC enforcement action). As noted in this SEC release, Tyco consented to a final judgment that orders the company to pay approximately $10.5 million in disgorgement and approximately $2.6 million in prejudgment interest. Tyco also agreed to be permanently enjoined from violating the FCPA.

Although both the IBM and Tyco enforcement actions involve the SEC’s neither admit nor deny settlement language, this would not seem to be the key thread between these two enforcement actions that is drawing the ire of Judge Leon. Rather as explained in this post summarizing the IBM enforcement action and this post highlighting various notable features of the Tyco action, both companies are repeat FCPA violators. In resolving the “original” FCPA enforcement actions – IBM in 2000 and Tyco in 2006 – both companies agreed to permanent injunctions prohibiting future FCPA violations.

This prior post titled “Meaningless Settlement Language” detailed Judge Jed Rakoff’s discussion of so-called ”obey the law” injunctions in SEC v. Citigroup and this prior guest post discussed an Eleventh Circuit decision last year vacating a SEC “obey the law” injunction.

A Provocative Press Release

The law firm Bienert, Miller & Katzman (“BMK”) represented Paul Cosgrove (a former executive of Control Components Inc.) in the so-called Carson enforcement actions. The Carson action involved a notable “foreign official” challenge and as highlighted in previous posts here, here, and here, after Judge Selna issued a pro-defendant jury instruction, the DOJ soon thereafter offered the remaining defendants (Stuart Carson, Hong Carson, David Edmonds, and Cosgrove) plea agreements which the defendants accepted. As to those plea agreements, I ended each post by saying – the conclusions are yours to reach. In Fall 2012, the defendants were sentenced as follows: S. Carson (four months in prison), H. Carson (three years probation), Edmonds (four months in prison) and Cosgrove (15 months of home detention). See this prior post regarding Carson sentencing issues.

In a January 17th press release (here), BMK stated as follows.

“BMK and counsel for three other defendants … conducted a worldwide investigation and developed evidence suggesting the government’s evidence was incomplete, the court documents indicate. Ultimately, most companies bought CCI valves because they were the best in the world (not because of bribes); most of the supposed “public officials” denied receiving any bribes; and, in most cases, the alleged improper payments were never actually made, according to court records.

Further, through an aggressive litigation and motion strategy, counsel were able to obtain jury instructions that highlighted the government’s heavy burden of proof at trial. For example, the trial court agreed with defense counsel that the government was obligated to prove defendants’ knew they were dealing with “foreign officials,” something that would have been extremely difficult for the government to prove. The supposed bribery recipients worked for companies that appeared to operate like private companies in the United States, making it very unlikely that the defendants realized they were dealing with “government officials.”

BMK and other defense counsel raised several other issues that brought the government’s ability to obtain a conviction, or defend an appeal, into serious doubt. These motions called into question whether the alleged bribe recipients were even “public officials” as intended by the FCPA; whether the Travel Act even applied to the case; and, whether defendants were entitled to millions of pages of documents that had been withheld from them by CCI, their former employer. Each of these issues likely would have been decided for the first time on an appeal in this case.”

[Full disclosure - I was an engaged expert in the Carson cases, filed a "foreign official" declaration in connection with the motion to dismiss, and was disclosed as a testifying expert for the trial]

Lobbying

In my double-standard series (here), I have highlighted various aspects of lobbying here in the U.S. The beginning of the recent opinion in U.S. v. Ring (D.C. Circuit) is an interesting read. In pertinent part, it states as follows (internal citations omitted).

“Lobbying has been integral to the American political system since its very inception. […] As some have put it more cynically, lobbyists have besieged the U.S. government for as long as it has had lobbies.” […] By 2008, the year Ring was indicted, corporations, unions, and other organizations employed more than 14,000 registered Washington lobbyists and spent more than $3 billion lobbying Congress and federal agencies. […]

The interaction between lobbyists and public officials produces important benefits for our representative form of government. Lobbyists serve as a line of communication between citizens and their representatives, safeguard minority interests, and help ensure that elected officials have the information necessary to evaluate proposed legislation. Indeed, Senator Robert Byrd once suggested that Congress “could not adequately consider [its] workload without them.” […]

In order to more effectively communicate their clients’ policy goals, lobbyists often seek to cultivate personal relationships with public officials. This involves not only making campaign contributions, but sometimes also hosting events or providing gifts of value such as drinks, meals, and tickets to sporting events and concerts. Such practices have a long and storied history of use—and misuse. During the very First Congress, Pennsylvania Senator William Maclay complained that “New York merchants employed ‘treats, dinners, attentions’ to delay passage of a tariff bill.” […] Sixty years later, lobbyists working to pass a bill that would benefit munitions magnate Samuel Colt “stage[d] lavish entertainments for wavering senators.” […] Then, in the 1870s, congressmen came to rely on railroad lobbyists for free travel. [...]. Indeed, one railroad tycoon complained that he was “averag[ing] six letters per day from Senators and Members of Congress asking for passes over the road.”

Reading Stack

Some dandy articles/essays to pass along regarding the FCPA books and records provisions, victim issues and criminal procedure.

FCPA Books and Records Provisions

Michael Schachter (Willkie Farr & Gallagher and a former Assistant United States Attorney in the Southern District of New York, where he focused on criminal prosecution of securities fraud and was a member of the Securities and Commodities Fraud Task Force) recently authored an article concerning the FCPA’s books and records provisions. Titled “Defending an FCPA Books and Records Violation” and published in the New York Law Journal, the article begins as follows.

“In recent years, the books and records provisions of the [FCPA] have taken on new life, as both the [DOJ and SEC] have announced their intention to bring more charges, especially against individuals, for violation of this section of the FCPA. A review of recent enforcement actions reveals that the Justice Department and the SEC consider the books and records requirement violated whenever corrupt payments are made to a foreign official and recorded in a corporation’s books as anything other than a ‘bribe,’ including, but not limited to, such things as commissions, social payments, or after sales service fees. This article proposes that the books and records provision is, in fact, narrower than the Justice Department and the SEC interpretations suggest, and argues that both agencies may be using the provision to punish behavior falling outside the FCPA’s reach.”

Spot on. See prior posts here and here. See here for a word cloud of the FCPA’s books and records and internal control provisions.

Corporate Employer’s As Victims

The title of Professor Peter Henning’s recent White Collar Crime Watch post in the New York Times DealBook was “How Can Companies Sue Defendants in Insider Trading Cases?” The post concerned the Mandatory Victims Restitution Act and Professor Henning writes that it ”has been interpreted to allow companies that incur costs in cooperating with the government to seek repayment of their expenses from defendants” and the “statute requires a court to order the reimbursement to victims of ‘other expenses incurred during participation in the investigation or prosecution of the offense.’”

The parallels to a company incurring expenses in connection with FCPA investigations based on employee conduct is obvious.

Yet, Professor Henning writes as follows.

“[T]he crucial word in the Mandatory Victims Restitution Act is “incurred,” and there isn’t a consensus among federal courts over what expenses are covered. Companies want it to include all costs related to any part of the case, including dealing with the S.E.C. even though it can only pursue a civil enforcement case. Defendants take a much narrower view, arguing that mandatory restitution covers only expenses arising as direct result of the criminal prosecution by the Justice Department.

Ham Sandwich Nation

Glenn Reynolds (University of Tennessee College of Law) recently published an essay titled “Ham Sandwich Nation: Due Process When Everything is a Crime” (see here to download). The essay does not mention the FCPA, yet it is very much applicable to the FCPA. In just the past year, approximately 25 individuals criminally indicted by the DOJ have put the DOJ to its burden of proof and ultimately prevailed. Ham Sandwich Nation would also seem applicable given the extensive use of NPAs and DPAs in the FCPA context. The thesis of the essay is spot on. Reynolds write as follows.

“Though people suspected of a crime have extensive due process rights in dealing with the police, and people charged with a crime have even more extensive due process rights in courts, the actual decision whether or not to charge a person with a crime is almost completely unconstrained. Yet, because of overcharging and plea bargains, that decision is probably the single most important event in the chain of criminal procedure.”

Year In Review

The Year in Review version of Debevoise & Plimpton’s always informative and comprehensive FCPA Update is here. Among the many topics discussed in the FCPA Update is the notion that many FCPA enforcement actions are based on very old conduct and the following observation. “Targets of enforcement actions also run the risk that regulators – whether consciously or not – apply current expectations of appropriate compliance measures and effective internal controls mechanisms when evaluating the adequacy of procedures that existed at times when less rigorous standards may have commonly been considered acceptable.” For my similar previous observation, see this prior post.

*****

A good weekend to all.

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.”

*****

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.”

Friday Roundup

Friday, November 30th, 2012

Two years ago today, you just can’t make this stuff up, no new trial for Bourke, more offensive use of the FCPA, and ICE is not melting away. It’s all here in the Friday roundup.

Two Years Ago Today

Two years ago today, the Senate held a hearing titled “Examining Enforcement of the Foreign Corrupt Practices Act.” (See here for the full hearing transcript. I had the pleasure to testify at the hearing (see here for my written testimony). I went to Capital Hill without an agenda and on behalf of no one but myself. My testimony represented my beliefs and I was proud of what I said then and I remain proud today.

You Just Can’t Make This Stuff Up

Try as you might, you just can’t make up a better example of the double-standard I frequenlty write about. (See here for numerous other prior posts).

Assistant Attorney General Lanny Breuer recently declared (see here) that “we in the United States are in a unique position to spread the gospel of anti-corruption.”

Against this backdrop, the Wall Street Journal reports (here) that 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.” Among the justifications put forward by the Obama team according to the Wall Street? The inauguration is “more of a civic event than a partisan political affair.”

Bourke Development

Perhaps this is finally the end of the FCPA enforcement action against Frederick Bourke. As noted in this previous post, in July 2009 Bourke was convicted by a jury for conspiring to pay bribes to Azerbaijan officials. At sentencing, Judge Shira Scheindin (S.D.N.Y.) sentenced Bourke to 366 days in prison, even though she commented that “after years of supervising this case, it’s still not entirely clear to me whether Mr. Bourke is a victim or a crook or a little bit of both.”

An appeal to the Second Circuit followed, largely on knowledge issues. As highlighted in this previous post, in December 2011, the Second Circuit affirmed Bourke’s conviction. Bourke subsequently requested a new trial based on newly discovered evidence relating to alleged perjury of a key trial witness. Judge Scheindin denied Bourke’s request. Bourke then appealed the issue to the Second Circuit.

Earlier this week, in an order (here) the Second Circuit affirmed the trial court decision and rejected Bourke’s request for a new trial. In short, the Second Circuit concluded that Bourke failed to present newly discovered evidence or that the key trial witness in fact committed perjury.

As noted in this Bloomberg article, Bourke’s lawyers plan to ask the Second Circuit to consider the case again.

Offensive Use of the FCPA

Rarely does one hear of offensive use of the FCPA to accomplish a business objective. Usually it is the other way around – the FCPA thwarts a business objective such as acquiring a foreign target, not hiring the foreign agent who says he knows a way to get that lucrative contract, etc.

But with increasing frequency, the FCPA is being used offensively (at least it seems). See this prior post for offensive use of the FCPA in the on-going Wynn-Okada dispute.

Recently Chris Matthews (Wall Street Journal Corruption Currents) has been reporting (here, here, and here) on seemingly offensive use of the FCPA in regards to CEDC Distribution Company, a company that has previously disclosed FCPA scrutiny. (See here for the prior post).

In short, Russian billionaire Roustam Tariko, the founder of CEDC rival Russian Standard vodka brand and CEDC’s largest shareholder, claimed that CEDC executives themselves were the subject of FCPA investigation.

Tariko’s claims prompted CEDC to issue this letter to shareholders that stated, in pertinent part, as follows.

“As you may be aware, earlier this week, Mr. Roustam Tariko, Chairman of Russian Standard, published a letter to CEDC investors that has created anxiety and confusion in the marketplace. What you may not be aware of is that Mr. Tariko’s letter was published less than 48 hours after the CEDC Board voted 5 to 3 (the 3 being Mr. Tariko and his Board designees) against Mr. Tariko’s request that he be given total control over CEDC’s operations and finance. This request follows repeated attempts by Russian Standard to remove the interim CEO. The purpose of this letter is to provide you with (1) an explanation as to why we did not give Mr. Tariko complete control over CEDC last weekend when he asked us to; (2) correct information regarding FCPA matters; (3) a current and accurate picture of the CEDC/RTL Strategic Partnership; and (4) information as to the steps we are taking to address the challenges facing CEDC.”

ICE is Not Melting Away

Previous posts here and here (among others) have the detailed the unsuccessful peition by Instituto Constarricense de Electricidad of Costa Rica (“ICE”) for victim status of Alcatel-Lucent’s wide-ranging bribery scheme. The petition followed the December 2010 announcement that Alcatel-Lucent and certain subsidiaries agreed to resolve a wide-ranging FCPA enforcement action, including conduct in Costa Rica involving payments to ICE officials. Even though ICE acknowledged that “three disloyal and corrupt [ICE] Directors and two disloyal and corrupt employees” were the recipients of Alcatel Lucent’s bribe payments, it nevertheless claimed it was a victim because the corrupt activities of Alcatel-Lucent caused the company “massive losses” and “catastrophic harm.”

After several unsuccessful 11th Circuit appeals, ICE has 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.”

*****

A good weekend to all.

Friday Roundup

Friday, August 24th, 2012

The sting may be over but it effects are not, Orthofix information unsealed, checking in on Wal-Mart, a pipeline report, a safe assumption, and the alternative reality. It’s all here in the Friday roundup.

Stung By The Sting

The manufactured Africa Sting case may be over, but it effects are still being felt.

Allied Defense Group (“ADG”) employed Mark Frederick Morales, one of the individuals charged in the case. The company stated in its recent quarterly filing (here) as follows.

“In February and March, 2012, the DOJ dismissed charges against all individuals indicted in the FCPA sting operation, including the former employee of MECAR USA. Since this time, the Company’s FCPA counsel has had several discussions with the DOJ and SEC regarding the agencies’ respective inquiries. Based upon these discussions, it appears likely that resolution of these inquiries will involve a payment by the Company to at least one of these government agencies in connection with at least one transaction involving the former employee of Mecar USA. At this point, the amount of this payment is undeterminable.”

As noted in this previous post, in January 2010, ADG agreed to be acquired by Chemring Group PLC.

Another publicly traded company that employed an Africa Sting defendant, Amaro Goncalves, is Smith & Wesson. The company disclosed in its most recent quarterly filing (here) as follows.

“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. We cannot predict, however, when the investigation will be completed or its final outcome. There could be additional indictments of our company, our officers, or our employees. If the DOJ determines that we violated FCPA laws, we may face sanctions, including significant civil and criminal penalties. In addition, we could be prevented from bidding on domestic military and government contracts and could risk debarment by the U.S. Department of State. We also face increased legal expenses and could see an increase in the cost of doing international business. We could also see private civil litigation arising as a result of the outcome of the investigation. In addition, responding to the investigation may divert the time and attention of our management from normal business operations. Regardless of the outcome of the investigation, the publicity surrounding the investigation and the potential risks associated with the investigation could negatively impact the perception of our company by investors, customers, and others.”

Even though the individual Africa Sting cases are over, the case provided a point of entry into several companies and an entire industry and its effects are still being felt as demonstrated by the above disclosures.

Orthofix

This previous post discussed the July enforcement action against Orthofix International. As noted in the post, the specifics of the DOJ’s allegations were not known as the information against Orthofix was filed under seal. The information (here) was recently unsealed. In summary fashion, the DOJ alleged as follows under the heading “corrupt conduct.” “From [2003 through March 2010], with the knowledge of Orthofix Executive A [a citizen of Peru and legal permanent resident in the U.S. who was a senior manager of Orthofix Inc. (an indirectly wholly owned subsidiary) and responsible for sales operations in Latin America], Promeca [an entity incorporated and headquartered in Mexico and an indirectly wholly owned subsidiary of Orthofix International] and its employees paid approximately $300,000 to Mexican officials, in return for agreements with IMSS and its hospitals to purchase millions of dollars in Orthofix International products.”

IMSS is a social service agency of the Mexican government that provided public services to Mexican workers and their families and the Mexican Officials identified in the information are as follows.

Mexican Official 1 – a deputy administrator of Magdelena de las Salinas (a hospital in Mexico City that IMSS owned and controlled)

Mexican Official 2 – the purchasing director of Magdelena de las Salinas

Mexican Official 3 – the purchasing director of Lomas Verdes (a hospital in the State of Mexico that IMSS owned and controlled)

Mexican Official 4 – a sub-director of IMSS

According to the information, “Executive A knew of the payments and things of value [provided to the Mexican Officials] but failed to stop the scheme or report the scheme to Orthofix Interntional or Orthofix’s Inc.’s compliance department.”

Under the heading “Internal Controls” the information alleges, among other things, as follows. “Orthofix International,which grew its direct distribution footprint in part by purchasing existing companies, often in high-risk markets, failed to engage in any serious form of corruption-related diligence before it purchased Promeca. Although Orthofix International promulgated its own anti-corruption policy, that policy was neither translated into Spanish nor implemented at Promeca. Orthofix International failed to provide any FCPA-related traning to many of its personnel, including Executive A. Orthofix also failed to train Promeca personnel for years on the FCPA, to test regularly or audit particular transactions, or to ensure that subsidiary maintained controls sufficient to detect, deter or prevent illicit payments to government officials.”

The information charges one count of violating the FCPA’s internal control provisions.

Checking In On Wal-Mart

During the media feeding frenzy after the New York Times Wal-Mart article (see here for the prior post), I had the pleasure to appear on Eliot Spitzer’s Viewpoint program on Current TV. At the end of the segment, after the substantive issues were discussed, Spitzer offered that he has several contacts in the FCPA bar and that, regardless of the substantive issues involved in Wal-Mart’s FCPA scrutiny or the ultimate outcome, lots of lawyers were poised to make lots of money.

Spitzer of course was right.

During its second quarter earnings call (see here for the transcript) Wal-Mart executives stated as follows. ”Within core corporate, we incurred approximately $34 million in expenses related to third-party advisors reviewing matters involving the Foreign Corrupt Practices Act and we expect these expenses to continue through the rest of the year.” Later in the call, the following was said. “We also expect to incur approximately $35 to $40 million in expenses for the review of matters relating to the Foreign Corrupt Practices Act during each of the remaining quarters for this fiscal year.”

In other news, on the civil litigation front, as noted in this Reuters article “an Indiana union pension fund that owns shares in Wal-Mart Stores Inc has sued the company to gain access to thousands of internal documents related to allegations that a Wal-Mart subsidiary bribed Mexican government officials.” According to the report, the lawsuit, filed in Delaware’s Chancery Court, alleges the “company had made a ‘woefully deficient’ production of documents following an earlier out-of-court demand and that hat documents were produced were ‘so heavily redacted,’ or blacked out, they were nearly worthless.”

Turning to Capital Hill, several prior posts have chronicled efforts by Representative Elijah Cummings and Henry Waxman to conduct a shadow investigation of Wal-Mart in the aftermath of the New York Times article (see here for the previous post). As indicated in this recent press release and this recent letter the lawmakers are growing impatient. In pertinent part, the letter to Wal-Mart CEO Michael Duke stated as follows.

“We are writing to give you a final opportunity to respond to our requests for information about allegations that your company violated the Foreign Corrupt Practices Act. Although you have stated on multiple occasions that you intend to cooperate with our investigation, you have failed to provide the documents we requested, and you continue to deny us access to key witnesses. Your actions are preventing us from assessing the thoroughness of your internal investigation and from identifying potential remedial actions.

During the course of our investigation, we have learned that Wal-Mart’s concerns about potential violations of the Foreign Corrupt Practices Act are not limited to operations in Mexico, but are global in nature. Your outside counsel informed us that, before allegations of bribery in Mexico became public, Wal-Mart retained attorneys to conduct a broad review of the company’s anti-corruption policies. This review identified five “first tier” countries “where risk was the greatest.” Wal-Mart then conducted a worldwide assessment of the company’s anti-corruption policies, culminating in a series of recommendations and policy changes based on those findings.

In addition, we have obtained internal company documents, including internal audit reports, from other sources suggesting that Wal-Mart may have had compliance issues relating not only to bribery, but also to “questionable financial behavior” including tax evasion and money laundering in Mexico.”

Pipeline Report

Add NCR Corporation and Expro International to the list of companies under FCPA scrutiny.

NCR

Global technology company NCR Corp. recently disclosed here as follows.

“NCR has received anonymous allegations from a purported whistleblower regarding certain aspects of the Company’s business practices in China, the Middle East and Africa, including allegations which, if true, might constitute violations of the Foreign Corrupt Practices Act. NCR has certain concerns about the motivation of the purported whistleblower and the accuracy of the allegations it received, some of which appear to be untrue. NCR takes all allegations of this sort seriously and promptly retained experienced outside counsel and began an internal investigation that is ongoing. NCR does not comment on ongoing internal investigations. Certain of the allegations relate to NCR’s business in Syria. NCR has ceased operations in Syria, which were commercially insignificant, notified the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) of potential apparent violations and is taking other measures consistent with OFAC guidelines.”

Based on the disclosure, an analyst downgraded NCR stock (see here) causing shares to drop approximately 10%.

Expro

As reported in this Wall Street Journal Corruption Currents post, Expro International (an oil field management company owned by a Goldman Sachs-backed private equity consortium) “is re-investigating claims that its employees paid bribes in Kazakhstan.” The report states as follows. “Expro International and the consortium, Umbrellastream, received allegations from an anonymous tipster in May that two of Expro’s former operations coordinators in Western Kazakhstan oversaw and approved bribes to customs officials there from 2006 until summer 2009, according to an email reviewed by Corruption Currents. The alleged bribes were paid to clear Expro’s equipment through customs to avoid costly delays, the tipster said. The allegations have sparked an internal investigation by Expro’s lawyers at Gibson, Dunn & Crutcher LLP into the claims, according to another email. But it appears the investigation is not the first time Expro has scrutinized its operations in Kazakhstan.”

Add a few, but take one off.

As noted in this recent Friday roundup, Academi, Inc., formerly known as Xe Services, formerly known as Blackwater recently resolved a non-FCPA case and the DPA specifically stated that the agreement “does not apply to the Foreign Corrupt Practices Act investigation independently under investigation by the DOJ.” As noted in this previous post, Blackwater has been under investigation for FCPA violations in Iraq and as noted in this previous post, its FCPA scrutiny in Iraq inspired Representative Peter Welch to introduce H.R. 5366, the “Overseas Contractor Reform Act,” an impotent debarment bill that passed the House in September 2010 (see here).

However, as on-line news agency Main Justice reports here, reference to the FCPA investigation in the recent DPA appears to have been a drafting error. Citing a July 19th letter to the company, Main Justice reports that the DOJ has closed its “foreign bribery inquiry” of the company. Main Justice cites the following portion of the declination letter. “[The DOJ has closed its inquiry] based on a number of factors, including but not limited to, the investigation undertaken by Academi and the steps taken by the company to enhance its anti-corruption compliance program.”

A Safe Assumption

This previous post regarding the recent Pfizer enforcement action raised the following question(s).

Does anyone truly believe that the only reason Chinese doctors prescribed Pfizer products was because under the “point programs” the physician would receive a tea set? Does anyone truly believe that the only reason Czech doctors prescribed Pfizer products was because the company sponsored educational weekend took place at an Austrian ski resort? Does anyone truly believe that the only reason Pakistani doctors offered Wyeth nutritional products to new mothers was because the company provided office equipment to the physicians?

The questions were asked in the context of disgorgement remedies, but can also be asked in the context of product safety. One can safely assume that if the enforcement agencies had any evidence to suggest that the products at issue jeopardized public safety, the enforcement agencies would have alleged such facts, as they occasionally do in FCPA enforcement actions (see Innospec for instance).

The absence of such allegations make this recent article by Online Pharmacy Safety foolishly speculative. The article states as follows.

“[The conduct at issue in the enforcement action] puts the safety of consumers at risk. If large companies are able to bribe their way to getting more business, and anticipate government officials to turn a blind eye, the wrong products could be getting into the hands of consumers worldwide. The Pfizer products approved by foreign governments and prescribed by doctors may not have been the best product available, which could endanger consumers. Doctors put selfishness at the expense of patients, and the company was putting profits ahead of its public safety.”

Alternative Reality

Harvey Silverglate (author of Three Felonies a Day: How the Feds Target the Innocent) hit the ball out of the park with this recent Wall Street Jouranl op-ed. Referring to the recent Gibson Guitar Lacey Act enforcement action and how the resolution documents muzzle the company (as is typical in FCPA NPAs and DPAs), Silverglate wrote as follows.

“Through these and myriad other techniques, federal investigator and prosecutors create an alternative reality that favors their own institutional interests, regardless of the truth or of justce. All citizens and companies become subject to the Justice Department’s essentially unfettered power. Remedying this problem cannot be left to the victims of this governmental extortion, because their risks are too high if they fight; nor will their lawyers likely blow the whistle, since the bar makes a tidy living by playing the game. It is up to the rest of civil society to let the Justice Department emperor know that we see he is not wearing clothes.”

*****

A good weekend to all.