Voluntary Disclosure « FCPA Professor

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Friday Roundup

Friday, May 31st, 2013

Boondoggle specifics, another DOJ enforcement official to FCPA Inc., scrutiny alert, across the pond, and for the reading stack. It’s all here in the Friday roundup.

Wal-Mart’s FCPA Expenses

Previous posts (here) and (here) have calculated Wal-Mart’s per working day FCPA related professional fees and expenses.

No wonder Wal-Mart’s first quarter professional fees and expenses equal approximately $1.16 million per working day. According to this recent article in India’s Economic Times, concerning just the India portion of Wal-Mart’s investigation:

“So far Greenberg Traurig and KPMG have spent 26,000 hours on consulting and shaping anti-corruption compliance programme for Bharti Walmart, which operates 20 Best Price Modern Wholesale stores in various cities in India. This work has included developing and implementing procedures and providing training to over 1,800 senior business and store level associates in India,” a Bharti Walmart spokesperson said in an e-mail response to ET. “For the past several months, the company has also been using Greenberg Traurig and KPMG to perform due diligence on third party service providers in India.” Currently there are about 20 Greenberg Traurig attorneys stationed in India working on Bharti Walmart’s compliance programme, the spokesperson said.”

Relevant to FCPA investigative expenses, this FCPA Inc. participant marketing pitch caught my eye. Is it really necessary to analyze millions of documents in an FCPA review? Also, since when did FCPA investigations focus on “proving a negative that [the company] did not bribe foreign officials?”

Suleiman to FCPA Inc.

As noted in this recent post, earlier this month Daniel Suleiman (DOJ Deputy Chief of Staff for the Criminal Division) stated in a speech that the DOJ’s FCPA enforcement efforts ”are as active today … as we have ever been.”

Earlier this week, Covington & Burling announced (here) that Suleiman would be joining his former boss Lanny Breuer (see here for the prior post concerning Breuer’s jump to FCPA Inc.) at Covington. Suleiman thus becomes the latest in a long-line of former DOJ or SEC FCPA enforcement attorneys to depart for FCPA Inc. The firm stated, in pertinent part, as follows.

“Mr. Suleiman joins the firm’s Washington office as special counsel where he is expected to focus on defending individuals and corporations facing white collar criminal charges, Foreign Corrupt Practices Act investigations and congressional inquiries. [...] In his Justice Department role, Mr. Suleiman helped oversee about 600 lawyers and 1,000 employees, and managed an annual budget of approximately $600 million. He provided advice on a wide range of federal law enforcement priorities, with particular focus on Foreign Corrupt Practices Act and financial fraud enforcement.”

In his speech earlier this month, Suleiman rightly observed an issue I have long pointed out that, among other things, warrants a five-year bar on DOJ FCPA enforcement attorneys from providing private sector FCPA services. Suleiman stated as follows. “It is Justice Department policy that no FCPA prosecution can be brought without authorization from the Criminal Division, which distinguishes FCPA prosecutions from most other kinds of federal criminal cases.”

Scrutiny Alert

According to this report by the Organized Crime and Corruption Reporting project, the SEC “has opened an investigation into Swedish multinational Ericsson’s business practices in Romania. The investigation is related to allegations made by a former Ericsson employee that the company used an approved slush-fund to pay off Romanian officials and decision makers to win contracts.”

Ericsson has ADR shares listed on NASDAQ in the United States.

Across the Pond

From thebriberyact.com, a useful of summary (here) of recent remarks by U.K. Serious Fraud Office Director David Green.

Staying in the U.K., a useful summary (here) by Eversheds of the “third conviction for an individual under the Bribery Act 2010.” The case concerns a Chinese national studying in the U.K. who attempted to bribe his professor for a passing grade. As noted in the Eversheds summary, “the UK has yet to see prosecution of a corporate under the [Bribery] Act, so companies are still awaiting judicial interpretation the corporate offence under [section] 7 of the Bribery Act and the Ministry of Justice’s Guidance on ‘adequate procedures’”. [Note the U.K. Bribery Act has domestic bribery provisions as well as "FCPA-like" foreign bribery provisions. The three individual Bribery Act convictions have all been domestic bribery prosecutions].

Reading Stack

Trace International recently released (here) its third annual Global Enforcement Report. The report provides an updated summary of international anti-bribery enforcement trends based on the cases and investigations tracked in the TRACE Compendium, TRACE’s public, online database of transnational corruption cases.

Sound advice from Tim Peterson (a former SEC enforcement attorney) and Robertson Park (a former DOJ enforcement attorney) in this article in Inside Counsel regarding voluntary disclosures.

“Not all potential [FCPA] problems, however, are appropriate for disclosure. After investigation, allegations of misconduct may not result in a determination that illicit activity has occurred. Problematic payments may not be sufficiently material to amount to an FCPA violation (though companies should be aware of different standards for liability under other jurisdictions’ anti-corruption laws; for example, the U.K. Bribery Act of 2010). Prematurely attracting the government’s attention may, as a practical matter, shift the burden to the company to prove the absence of a corruption problem. Enforcement officials may feel the need as a matter of basic human nature to seek some type of resolution to a case where they have invested significant time and effort. Companies need to weigh the potential benefits of cooperation against the significant costs of initiating a potentially unwarranted government investigation.”

From Compliance Week, a useful summary (here) of recent remarks by Chuck Duross (DOJ FCPA Unit Chief) and Kara Brockmeyer (SEC FCPA Unit Chief).

*****

A good weekend to all.

Further To The Definition Of “Declination”

Thursday, January 24th, 2013

Earlier this week on the FCPA Blog (see here), Marc Alain Bohn (Miller & Chevalier) responded to my recent post “The Need for a Consensus Declination Definition.” In that post, I offered my definition of a declination as being – an instance in which an enforcement agency has concluded that it could bring a case, consistent with its burden of proof as to all necessary elements, yet decides not to pursue the action. I then concluded the post by stating that anything less ought not be termed a declination, but rather what the law commands.

Bohn called my arguments “strong” and in the “abstract” he agreed with my declination definition.

Yet, Bohn also stated as follows. “As a practical matter, however, [my proposed] definition runs into difficulties, primarily because of the dearth of information surrounding decisions by the DOJ and SEC to conclude investigations without pursuing enforcement actions” and that “it is nearly impossible for those not directly involved in a matter to conclude why the agencies have decided not to pursue an enforcement action—even those directly involved may not have a full understanding.”

Bohn, of course, is spot-on as to his observations regarding the lack of transparency in FCPA enforcement and it is meaningful to read an FCPA practitioner write that “even those directly involved” in an FCPA matter “may not have a full understanding” of how the enforcement agencies decided to resolve a manner.

Bohn then writes as follows.

“Without more transparency from the agencies on the rationale behind their enforcement decisions, I think it is appropriate to apply the short-hand label “declination” more broadly to each instance where the DOJ or SEC has notified a company that it does not intend to bring an enforcement action. Including all such agency decisions is really the only way to consistently and systematically track possible declinations writ large.

Moreover, there is value in adopting this broader definition, particularly in instances where the issues involved were serious enough that a company opted to self-report the matter to the government and the agencies, in turn, followed-up with requests for additional information. In the wake of such self-reports, decisions by the agencies not to take the next step and pursue enforcement actions are significant and worth recognizing.”

My response relates to Bohn’s statement concerning “instances where the issues involved were serious enough that a company opted to self-report the matter to the government and the agencies, in turn, followed-up with requests for additional information. In the wake of such self-reports, decisions by the agencies not to take the next step and pursue enforcement actions are significant and worth recognizing.”

My response is the same as in this August 2011 post regarding an excellent article Bohn co-authored regarding declinations.

Based on my FCPA practice experience and my more recent conversations with FCPA practitioners concerning this issue, I am not willing to assume that an issue is “serious enough” from an FCPA liability risk perspective simply because a company voluntarily disclosed to the enforcement agencies.

In short, and as explained in the prior post, different FCPA practitioners as well as the companies they represent, have different trigger thresholds for voluntary disclosures.

In other words, not all voluntarily discloses are created equal. Some voluntary disclosures are a reactionary, risk averse decision and occur before even the company knows the full facts. Other voluntary disclosure decisions (and here, to be clear, I am not speaking of Bohn or his firm) occur in the context of significant conflicts of interest for FCPA lawyers – see here for a 2009 post titled “Voluntary Disclosure and the Role of FCPA Counsel” which discusses how voluntary disclosures lead to the “where else” question, which leads to, well, a few years of billable work. Indeed, as an FCPA practitioner (and a notable one at that) commented to the Wall Street Journal in connection with its FCPA Inc.: Business of Bribery articles this past October (see here for the prior post), “if you get two of these [FCPA investigations] a year as a partner, you’re pretty much set.”

It is precisely because of the lack of transparency that Bohn cites, that I proposed beginning in August 2010 (see here), that in instances where a company voluntarily discloses potential FCPA issues to the DOJ and SEC, and when the enforcement agencies decline enforcement, that the DOJ or SEC publicly state, in a thorough and transparent manner, the facts the company disclosed to the agencies and why the agencies declined enforcement on those facts.

I noted then, and repeat now, that this proposal would not only increase transparency (recall that Lanny Breuer stated at the Guidance press conference – here - that the DOJ strives to be “transparent” as to its FCPA enforcement program), but also inject some much-needed discipline into the voluntary disclosure decision itself.

Friday Roundup

Friday, January 18th, 2013

An on-point editorial, the former DOJ Fraud Chief on voluntary disclosures, and for the reading stack.

On-Point Editorial

“Government enforcers always need to be watched, especially when their business targets are politically unpopular. Then the feds think they can get away with anything.” So begins a recent Wall Street Journal editorial (here) on the Supreme Court’s recent oral arguments in Gabelli v. SEC – a case in which the five year limitations period under 28 U.S.C. § 2462 is squarely before the court (see here for SCOTUS Blog coverage). Gabelli is a case to watch given that the limitations period in most SEC FCPA enforcement actions would seemed to be stretched.

Former DOJ Fraud Chief on Voluntary Disclosures

Recently the online news site Main Justice interviewed former DOJ Fraud Section chief Steven Tyrrell (see here for the video). Much of the interview was about voluntary disclosures. Tyrrell stated that he is “certain” there have been so-called declinations that are “simply not public” where companies did not voluntary disclose, but had extensive remediation and cooperation. In the interview Tyrrell also agreed that the declination examples in the recent FCPA Guidance – all of which had voluntary disclosure as an apparent factor - was likely an enforcement agency attempt to encourage more voluntary disclosures. Tyrrell stated that voluntary disclosure “should not be the be all and end all” in any case.

Once again, selective government information as to FCPA enforcement designed to achieve policy objectives of the enforcement agencies.

For The Reading Stack

Some recommended reading on FCPA jurisdictional issues, Chinese SOEs, and an additional year in review.

Jurisdictional Issues

The current edition of the ABA International Law News has a great article by Debevoise & Plimpton attorneys Sean Hecker and Margot Laporte titled “Should FCPA ’Territorial’ Jurisdiction Reach Extraterritorial Proportions?”

As to FCPA enforcement actions against foreign entities and individuals for conduct that occurred overseas with only minimal U.S. contacts, the authors ask “whether the United States is the appropriate authority to prosecute such cases, where the evidence, witnesses, and conduct are located overseas and where alternative jurisdictions often have an even greater interest in enforcement.”

As to Judge Leon’s rejection of the DOJ’s expansive jurisdictional theory in the Africa Sting prosecution of Pankesh Patel (see here for the prior post), the authors state as follows. “This decision, which suggests a requirement of physical presence in the United States in connection with an allegedly corrupt act, call into question much of the DOJ and SEC’s expansive construction of territorial jurisdiction over foreign entities and individuals under the FCPA. Until additional courts speak to the issue, however, the DOJ and SEC are unlikely to back off their more expansive views of jurisdiction.”

As alluded to in the article, additional courts are poised to speak on jurisdictional issues as to foreign actors. (See here for general discussion of motions to dismiss pending in SEC enforcement actions against former Maygar Telekom executives Elek Straub, Andras Balogh and Tamas Morvai and former Siemens executive Herbert Steffen).

Chinese SOEs

Interested in Chinese SOEs? How can you not be if your interested in FCPA issues. If so, see here for a recent Wall Street Journal article titled “China’s Investments Prompt Call for New Rules.” The article details investments by Chinese companies, including SOEs, in the U.S. over the past several years and states as follows – “according to a U.S. congressional commission, state-owned companies accounted for 90% of the value of Chinese investments in the U.S. industrial-machinery, aerospace, automobile and logistics industries between 2007 and the third quarter of 2011.” The article also notes as follows. “Even figuring out which Chinese operations qualify as state-controlled can be tough.”

Year in Review

Miller & Chevalier recently published (here) its FCPA Winter Review 2013. The review highlights developments from Q4 of 2012, reviews 2012 enforcement trends, and looks forward to 2013. [Note, Miller & Chevalier keeps its FCPA statistics differently from the "core" approach described here].

*****

A good weekend to all.

Friday Roundup

Friday, December 28th, 2012

Sleepless nights, briefings complete, Africa Sting lawyers recognized, a leader of the FCPA bar on voluntary disclosure, small bribes in Russia, and satire. It’s all here in the Friday roundup.

Sleepless Nights

According to this recent article by Ashby Jones of the Wall Street Journal, FCPA enforcement is one of “three concerns costing big-company lawyers the most sleep.”

Briefings Complete

One of the bigger FCPA stories of 2012, and one that will reach into 2013 as well, are challenges by foreign defendants in two separate SEC Foreign Corrupt Practices Act enforcement actions.

Prior posts here and here have discussed the briefing in SEC v. Herbert Steffen (a former Siemens executives).

Prior posts here and here have discussed the briefing in SEC v. Elek Straub, Andras Balogh and Tamas Morvai (former Magyar Telecom executives).

Defendants in both actions recently filed reply briefs.

Steffen (here) argues in summary fashion, as follows.

“In its opposition, the SEC asks this Court to assert personal jurisdiction over a defendant: (1) who is a German citizen and resident; (2) who conducted no business in the United States; (3) whose only alleged U.S. “contact” resulted from the unilateral actions of another party; (4) whose allegedly improper conduct occurred entirely outside the United States; and (5) whose conduct was not aimed at and caused no injury in the United States. This request should be rejected. Because the SEC has not met its burden to plead legally sufficient allegations establishing personal jurisdiction over Mr. Steffen, its complaint must be dismissed. In addition, the SEC has failed to explain how its action against Mr. Steffen is not barred by the applicable statute of limitations, 28 U.S.C. § 2462. In addition, although the SEC acknowledges that the purpose of the statutory tolling provision is to ensure that a defendant does not evade U.S. prosecution by “fleeing to another country” where he is “difficult to locate and serve,” it ignores that Mr. Steffen did nothing to evade the SEC, and that the SEC was able to locate him and obtain an order to serve him by publication in Germany, the country of his nationality and residency. Under these circumstances, accepting the SEC’s argument would mean that claims against foreign-national defendants who reside abroad are perpetual, not subject to any time limitations. Finally, even if this Court were to accept a continuing violation theory for securities violations, it does not help the SEC’s case because Mr. Steffen did not take any unlawful acts within the limitations period. For all of these reasons, the motion to dismiss should be granted with prejudice.”

Straub, Balogh and Morvai’s reply brief (here) addresses many of the same jurisdictional and statue of limitations issues at issue in the Steffen challenge. In addition, the former Magyar Telekom executive’s brief argues that: (1) the pertinent SEC filing the SEC relies upon in making certain allegations was not even filed with the Commission, (2) the SEC has failed to allege corrupt use of an instrumentality of interstate commerce by the defendants; and (3) the SEC has failed to allege the identity of the alleged foreign bribery recipients.

With both the DOJ and SEC bringing more FCPA enforcement actions against foreign actors – for instance in 2011 90% of DOJ individual prosecutions were against foreign nationals and 100% of SEC individual prosecutions were against foreign nationals – the challenges are noteworthy. Particularly so because Judge Leon, in the Africa Sting case, rejected the DOJ’s jurisdictional theory against U.K. national Pankesh Patel (see here for the prior post) in what was believed to be the first instance of judicial scrutiny concerning FCPA jurisdiction against foreign nationals.

Africa Sting Lawyers Recognized

Two Africa Sting defense lawyers were recently recognized by Law360 as White Collar MVPs.

Michael Madigan (Orrick Herrington & Sutcliffe) represented John Gregory Godsey, who was found not guilty by the jury. (See here for the prior post). Commenting on the Africa Sting cases, Madigan stated as follows. “This case stands out as a significant one. There are certain cases that come along that alter the system of justice and I think this is really one of them.”

In the Law360 article, Madigan was specifically cited for his leadership in leading defense discovery efforts which resulted in the FBI having to turn over its text messages with Richard Bistrong. According to the article, the Africa Sting case was the ”first major criminal trial to achieve court-ordered production in discovery of thousands of text messages between FBI agents of the government’s key cooperating informant.” As noted in the article – “The texts showed FBI agents joking with the informant that ‘you could sell snow to an Eskimo’ — a notion that undercut allegations that Godsey and other defendants were willing participants in a bribery scheme. The texts also revealed FBI agents wondering who would play them when Hollywood made a movie about the investigation.”

Eric Dubelier (Reed Smith) was also recognized for his work on the Africa Sting case, specifically his pro bono representation of R. Patrick Caldwell, a former secret service agent and Vietnam veteran, who was also found not guilty by the jury.

In the Law360 article, Dubelier stated as follows regarding his representation of Caldwell. “Having spent time in the government myself and knowing people like Pat, I thought, You know what? If anyone deserves to represented, this guy does. Pat really had held only two jobs his entire life: the first as a US soldier in combat, the second as a U.S. Secret Service agent. His whole career had been in service to the U.S., but it had earned him nothing close to the resources he needed to defend himself against this prosecution. Providing Pat with the defense he deserved was simply the right thing to do.”

As noted by the Law360 article, “After the acquittals — and the mistrials of three additional defendants — and after a concerned jury foreman penned an open letter expressing deep skepticism about the case, the government ultimately dropped the case against the remaining defendants including those awaiting trial and three who already had pled guilty.”

See here for the February 6, 2012 guest post on FCPA Professor by the Africa Sting jury foreman.

Voluntary Disclosure

Willkie Farr & Gallagher FCPA attorneys Martin Weinstein, Robert Meyer and Jeffrey Clark recently published a new book, “The Foreign Corrupt Practices Act: Compliance, Investigations and Enforcement.”

In this recent Metropolitian Corporate Counsel interview, the authors answer various questions, including the following.

Q: Do you advise your clients to self-report?

Weinstein: We are very cautious about self-reporting to the government. We certainly sometimes advise companies to self-report, but in general we believe that most companies can handle their compliance problems properly without disclosure or government involvement and can appropriately remediate compliance issues and be prepared to respond should the government ever inquire. Companies across industries fix compliance problems – for instance, in a target company that they are acquiring or have just acquired – every day, without the assistance of the U.S. government. This is good all around: it allows the acquiring company to proceed with the acquisition, raises the standard of compliance in the acquired company, and permits the government to deploy its enforcement resources where they are needed most. Our book clearly sets forth how to proceed down such a path. That said, the book also discusses the kinds of circumstances in which self-disclosure may be necessary or advisable and helps readers navigate through that fact-specific, critical strategic decision.

Small Bribes In Russia

Relevant to the question I often ask – do FCPA violations occur because companies have bribery as a business strategy or because companies are subject to difficult and opaque business conditions abroad – is this recent Washington Post article concerning the prevalence of small bribes in Russia.

FCPA Satire

If you like satire, you must check out this post by James McGrath at his Internal Investigations blog.

*****

A good weekend to all.

New Position, New Positions

Monday, December 17th, 2012

On February 1, 2012 Davis Polk announced (here) that Greg Andres (the former DOJ Deputy Assistant Attorney General, Criminal Division) was leaving government service to join the law firm. The firm’s release noted that Andres, while at the DOJ, ”was involved in policy and enforcement issues” relating to the Foreign Corrupt Practices Act. Likewise, on his Davis Polk bio page (here), Andres notes that while at the DOJ he “managed” many of the DOJ’s white collar prosecutions, including the DOJ’s FCPA program, and that he “represented” the DOJ on FCPA issues before Congress.

Indeed, at both the November 2010 Senate FCPA hearing and the June 2011 House FCPA Hearing, Andres was the voice and face of the Department of Justice.

This post highlights how Andres’s new position has resulted in new positions as to several FCPA issues and also highlights the significant public policy issue of former enforcement agency attorneys marketing, in private practice, the reality they helped to create while at the government.

During his Senate testimony (here), Andres encouraged companies to voluntarily disclose conduct that could implicate the FCPA.

Now that he is in private practice, Andres appears to have a different position on voluntary disclosure.

In an interview published by Corporate Crime Reporter on November 19th, Andres stated as follows. “Not every issue that a company uncovers should necessarily be disclosed. Some of it depends on size and scale – hundreds, or thousands or tens of thousands of dollars – it may not rise to the level where you would need to bring it to the Department’s attention.”

During his House testimony (here), Andres stated that an FCPA compliance defense ”is a novel and somewhat risky approach, the time is not right to adopt such a compliance defense.”

Now that he is in private practice, Andres appears to have softened his position. The same Corporate Crime Reporter interview included the following Q&A.

Q: You were with the government when the government was saying no compliance defense is necessary. Is that your view now?

A: I don’t know that I would take a specific view on that. I’m certainly aware of what the government’s arguments were in favor [of rejecting such a defense]“

The Corporate Crime Reporter interview also highlights the significant public policy issue of former enforcement agency attorneys marketing, in private practice, the reality they helped to create while at the government.

For instance, in both his written and oral Senate testimony, Andres stated as follows. “The investigation and prosecution of transnational bribery is an important priority for the Department of Justice and we have been hard at work.”

Now in private practice, Andres’s practice appears to be benefitting from the priorities and policy he recently articulated while at the DOJ. The Corporate Crime Reporter interview included the following Q&A.

“Q: What part of your practice is FCPA?

A: At the moment a large part. That remains a large focus of the government’s white collar program. Our practice reflects in part the priorities of the Department of Justice. And clearly the FCPA is one.”

For another instance of a former high-ranking DOJ FCPA official marketing the reality he helped to create, see this prior post.

I have frequently written about the revolving door of FCPA enforcement attorneys into private practice. Some will say, that is just how Washington works. That is hardly a persuasive response.

Given the niched nature of both the DOJ and SEC FCPA units, I have long called for (see here and here) a five year prohibition on FCPA enforcement attorneys and those setting government FCPA policy from providing FCPA defense or compliance services in the private sector.

Related to this issue, a recent study focused on the SEC (here) and examined whether SEC lawyers’ future career prospects influence their enforcement efforts while at the SEC. The study found that lawyers that leave the SEC to join law firms that specialize in defending clients against the SEC are associated with stronger enforcement efforts.