Archive for the ‘Whistleblowers’ Category

Friday Roundup

Friday, February 28th, 2014

Most admired, from the U.K., one way to avoid judicial scrutiny is to avoid the courts, another DOJ official departs, scrutiny updates, and survey says.  It’s all here in the Friday roundup.

Most Admired

Are companies that resolve a Foreign Corrupt Practices Act enforcement or are otherwise under FCPA scrutiny bad or unethical companies?  To be sure, certain companies that have resolved FCPA enforcement actions are deserving of this label, yet most are not.  Indeed, as detailed in this prior post several companies have earned designation as “World Most Ethical Companies” during the same general time period relevant to an enforcement action or instance of FCPA scrutiny.

In a similar vein, several FCPA violators or companies under FCPA scrutiny can be found on Fortune’s recent “Most Admired Company” list.  In the top 50, I count 12 such companies including IBM, Johnson & Johnson, Microsoft, Wal-Mart, JPMorgan, and Cisco.

Let’s face it, not all companies that resolve FCPA enforcement actions or are under FCPA scrutiny are bad or unethical companies.  If more people would realize this and accept this fact, perhaps a substantive discussion could take place regarding FCPA reform absent the misinformed rhetoric.

From the U.K.

In this October 2013 post at the beginning of the U.K. trial of former News Corp. executives Rebekah Brooks, the former editor of News of the World, and Andy Coulson, another former News of the World editor, I observed as follows.

“What happens in these trials concerning the bribery offenses will not determine the outcome of any potential News Corp. FCPA enforcement action.  But you can bet that the DOJ and SEC will be interested in the ultimate outcome.  In short, if there is a judicial finding that Brooks and/or Coulson or other high-level executives in London authorized or otherwise knew of the alleged improper payments, this will likely be a factor in how the DOJ and SEC ultimately resolve any potential enforcement action and how News Corp.’s overall culpability score may be calculated under the advisory Sentencing Guidelines.”

Well …, this Wall Street Journal article reports as follows.

“[Rebekah Brooks testified that] she authorized payments to public officials in exchange for information on “half a dozen occasions” during her time as a newspaper editor—but did so only in what she said was the public interest. [...]  On the stand, Ms. Brooks, who edited News Corp’s Sun newspaper and its now-closed News of the World sister title, said the payments were made for good reasons, and done so on rare occasions and after careful consideration. “My view at the time was that there had to be an overwhelming public interest to justify payments in the very narrow circumstances of a public official being paid for information directly in line with their jobs,” said Ms. Brooks.”

As noted in this previous post at the beginning of News Corp.’s FCPA scrutiny, any suggestion that the media industry is somehow excluded from the FCPA’s prohibitions is entirely off-base.

One Way to Avoid Judicial Scrutiny is to Avoid the Courts

In recent years, the SEC has had some notable struggles in the FCPA context and otherwise when put to its burden of proof in litigated actions or otherwise having to defend its settlement policies to federal court judges.  For instance, Judge Shira Scheindlin (S.D.N.Y.) dismissed the SEC’s FCPA enforcement against former Siemens executive Herbert Steffen.  In another FCPA enforcement action,  Judge Keith Ellison (S.D.Tex.) granted without prejudice Mark Jackson and James Ruehlen’s motion to dismiss the SEC’s claims that sought monetary damages.  In Gabelli, the Supreme Court unanimously rejected the SEC’s statute of limitations position.  Judge Richard Leon (D.D.C.) expressed concerns regarding the SEC’s settlement of FCPA enforcement actions against Tyco and IBM and approved the settlements only after imposing additional reporting requirements on the companies.  In addition, the SEC’s neither admit nor deny settlement policy has been questioned by several judges (most notably Judge Jed Rakoff) and the merits of this policy is currently before the Second Circuit.

The SEC’s response to this judicial scrutiny has been, as strange as it may sound, to bypass the judicial system altogether  when resolving many of its enforcement actions including in the FCPA context.  As detailed in this previous post concerning SEC FCPA enforcement in 2013, of the 8 corporate enforcement actions from 2013, 3 enforcement actions were administrative actions (Philips Electronics, Total, and Stryker) and 1 action (Ralph Lauren) was a non-prosecution agreement.  In other words, there was no judicial scrutiny of 50% of SEC FCPA enforcement actions from 2013.

Based on recent statements from SEC officials at the “SEC Speaks” conference this trend is going to continue.

According to this Vedder Price bulletin:

“Charlotte Buford, Assistant Chief Counsel, spoke about the SEC’s intention to use the administrative proceeding forum more frequently and in a wider variety of upcoming enforcement actions. Ms. Buford stated that in choosing the forum, the SEC considers factors such as speed and efficiency, the nature of the case, litigation considerations such as the amount of discovery needed, and settlement considerations. Ms. Buford noted that, although certain types of actions such as insider trading cases were historically brought in district court, two insider trading cases were recently brought as administrative actions. She also referenced the SEC’s recent action against Alcoa, Inc. involving FCPA violations, which was filed as a settled administrative proceeding. Ms. Buford indicated that the SEC will continue to increase its use of administrative proceedings in the coming years.”

This Perkins Coie alert adds the following:

“[Kara Brockmeyer - Chief of the SEC's FCPA Unit] also noted that companies can expect to see more cases resolved in administrative proceedings, and that the FCPA Unit is considering bringing litigated FCPA cases through administrative proceedings as well.”

SEC administrative settlements in the FCPA context were rare prior to 2010 largely because the SEC could not impose monetary penalties in such proceedings absent certain exceptions.  However, the Dodd-Frank Wall Street Reform Act granted the SEC broad authority to impose civil monetary penalties in administrative proceedings in which the SEC staff seeks a cease-and-desist order.  However, Congress’s grant of such authority to the SEC – no doubt politically popular in the aftermath of the so-called financial crisis – has directly resulted in less judicial scrutiny of SEC enforcement theories including in the FCPA context.

Like so much of what is happening in the FCPA space (and government regulation of corporate conduct generally), this is a troubling development.

In other “SEC Speaks” tidbits, the Vedder Price bulletin also states:

“Kara Brockmeyer, Chief of the FCPA Unit, noted that her unit brought a variety of cases in 2013, which included “old school” bribery cases funneling money, improper travel and entertainment, and improper charitable donations. Ms. Brockmeyer stated that the SEC continues to see issues with third-party intermediaries, as many companies enter into arrangements with third parties without adequately explaining the roles of the third parties. Ms. Brockmeyer lauded companies for “putting more thought” into compliance programs and internal controls, as well as for their decisions to self-report. She also discussed the Cross-border working group, which has brought 21 fraud actions involving 90 individuals or entities and has revoked the registrations of 63 companies since this initiative started three years ago.”

The Perkins Coie alert also states:

“Turning to the area of cooperation credit and non-prosecution agreements (NPAs), Chief Brockmeyer stated that the 2013 Ralph Lauren case is a good example of where such an outcome was warranted.  Several factors that weighed in favor of that favorable NPA settlement resulted from the company: self-reporting the suspected bribery within two weeks of finding violations; discovering the violations on its own through internal monitoring activities; assisting the SEC’s investigation by providing English language translations of foreign documents, and bringing witnesses to the United States for questioning; and undertaking extensive remediation efforts, including a worldwide investigation to determine if there were any systemic issues.  Finally, Chief Brockmeyer added that it was significant that Ralph Lauren’s investigation determined that the bribery issues were confined to one country; if the violations were found to be more widespread, the company would likely still have received cooperation credit, but would not have been a candidate for a NPA.

Chief Brockmeyer stated that the SEC will continue to address Compliance Monitorship requirements on a case-by-case basis.  Recently, the SEC has imposed both “full” monitorships, as well as some “hybrid” monitorships that include 18 months of monitoring, combined with 18 months of self-monitoring by the company.  She noted that some companies might even qualify for just internal monitoring, but all these considerations depend heavily on the state of the company’s compliance program.

Finally, Chief Brockmeyer indicated that whistleblower tips continue to serve as a primary lead for the SEC in identifying potential FCPA actions.  The SEC is using these tips to identify specific sectors or industries that are not paying sufficient attention to corporate compliance or internal controls.  The SEC is also focused on enforcing the anti-retaliation whistleblower provisions in Dodd Frank.  In some instances, the SEC has observed that companies have required employees to sign confidentiality agreements that appear to bar an employee from becoming a whistleblower.  She opined that such agreements would violate Dodd-Frank’s prohibition against regulated entities taking actions to impede employees from making whistleblower complaints.”

Another DOJ Official Departs

When Lanny Breuer departed as DOJ Assistant Attorney Criminal Division in March 2013, Mythili Raman became Acting Assistant Attorney and carried forward much of the same rhetoric Breuer frequently articulated concerning the DOJ’s FCPA enforcement program.  (See here for my article “Lanny Breuer and Foreign Corrupt Practices Act Enforcement).

In speeches (here and here) Raman stated that the DOJ’s “stellar FCPA Unit continues to go gangbusters, bringing case after case,” “our recent string of successful prosecutions of corporate executives is worth highlighting” and “we are not going away … our efforts to fight foreign bribery are more robust than ever.”

Like other DOJ FCPA officials before her, Raman frequently highlighted certain enforcement statistics, yet conveniently ignored the most telling enforcement statistic of all – the DOJ’s dismal record when actually put to its burden of proof in FCPA enforcement actions.  In short, for a long time the DOJ’s FCPA Unit has had a distorted view of success.

Certainly, the DOJ and SEC have had “success” in this new era of FCPA enforcement exercising leverage and securing large corporate FCPA settlements against risk-averse corporations through resolution vehicles often not subjected to any meaningful judicial scrutiny.  However, by focusing on the quantity of FCPA enforcement, the quality of that enforcement is often left unexplored.  The simplistic notion advanced by the enforcement agencies seems to be that more FCPA enforcement is an inherent good regardless of enforcement theories, regardless of resolution vehicles, and regardless of actual outcomes when put to its burden of proof.  This logic is troubling and ought to be rejected.  In a legal system founded on the rule of law, a more meaningful form of government enforcement agency success is prevailing in the context of an adversarial system when put to the burden of proof.  As to this form of success, during this new era of FCPA enforcement, the DOJ and SEC have had far less “success” in enforcing the FCPA.

Recently the DOJ announced that Raman is departing from her position. (See here).  In this related Q&A with the Wall Street Journal Law Blog (LB) Raman confirmed that the DOJ measures success in terms of quantity without regard to quality.

LB: [On enforcement of the Foreign Corrupt Practices Act, which has increased in recent years] do you think you’re winning? Are there fewer bribes being paid now?

MR: We often measure our success by numbers of enforcement actions but actually at the end of the day…. the deterrent effect is what actually matters. I don’t know if fewer bribes are being paid or not. But I do know that there are many more companies who know what their obligations are now.

For additional coverage of Raman’s departure, see here and here.

Scrutiny Alerts

Last summer German healthcare firm Fresenius Medical Care AG disclosed an FCPA internal investigation (see here for the prior post).  In its recently filed annual report, the company stated as follows:

“The Company has received communications alleging certain conduct in certain countries outside the U.S. and Germany that may violate the U.S. Foreign Corrupt Practices Act (“FCPA”) or other anti-bribery laws. The Audit and Corporate Governance Committee of the Company’s Supervisory Board is conducting an internal review with the assistance of independent counsel retained for such purpose. The Company  voluntarily advised the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”) that allegations have been made and of the Company’s internal review. The Company’s review and dialogue with the SEC and DOJ are ongoing.  The review has identified conduct that raises concerns under the FCPA or other anti-bribery laws that may result in monetary penalties or other sanctions. In addition, the Company’s ability to conduct business in certain jurisdictions could be negatively impacted. Given the current status of the internal review, the Company cannot reasonably estimate the possible loss or range of possible loss that may result from the identified matters or from the final outcome of the continuing internal review. Accordingly, no provision with respect to these matters has been made in the accompanying consolidated financial statements.  The Company’s independent counsel, in conjunction with the Company’s Compliance Department, have reviewed the Company’s anti-corruption compliance program, including internal controls related to compliance with international anti-bribery laws, and appropriate enhancements are being implemented. The Company is fully committed to FCPA compliance.”

Bio-Rad Laboratories disclosed as follows yesterday in an earnings release.

“[Fourth quarter] results included an accrued expense of $15 million in connection with the Company’s efforts to resolve the previously disclosed investigation of the Company in connection with the United States Foreign Corrupt Practices Act; this is in addition to an accrued expense of $20 million in the third quarter of 2013.”

Survey Says

The American Chamber of Commerce in Shanghai recently released its China Business Report (2013-2014).

Notable findings include the following:

“Generally consistent with previous years, 80 percent of respondents cited bureaucracy as the No. 1 challenge, with 72 percent declaring difficulties from an unclear regulatory environment and 70 percent were concerned over problems with tax administration rounding out the top three leading legal and regulatory challenges that companies said hindered their business.”

As I’ve frequently stated, the root causes of much bribery and corruption are various trade barriers and distortions. These barriers and distortions – whether complex customs procedures, import documentation and inspection requirements, local sponsor or other third-party requirements, arcane licensing and certification requirements, quality standards that require product testing and inspection visits, or other foreign government procurement practices – all serve as breeding grounds for harassment bribes to be requested. Simply put, trade barriers and distortions create bureaucracy. Bureaucracy creates points of contact with foreign officials. Points of contact with foreign officials create discretion. Discretion creates the opportunity for a foreign official to misuse their position by making demand bribes.

The report also stated:

“Efforts by the Chinese government to target companies for corruption investigations have sharply increased companies’ concern over compliance with China’s laws and regulations. In 2013, 46 percent of companies said compliance with domestic laws was more important to their business, up from 31 percent in 2012, compared to international anti-bribery laws such as the FCPA (32 percent).

Twice as many respondents said that China’s more aggressive regulatory enforcement for anti-corruption and anti-competition has greatly increased or increased their own business risk (18 percent) than those who say their business risk has greatly decreased or decreased (8 percent). The issue of corruption and fraud was most strongly felt in the healthcare industry (24 percent), which contended with high profile government investigations of foreign and domestic pharmaceutical companies in 2013.”

The impetus for much of this concern is the result of GSK’s (and other pharma and healthcare related companies) scrutiny by Chinese authorities for alleged improper business practices.  (See here for the prior post).

*****

A good weekend to all.

Congress Remains Interested In FCPA Issues

Wednesday, February 26th, 2014

Foreign Corrupt Practices reform may not be the hot issue it was circa 2011 (political posturing by the DOJ in connection with the FCPA Guidance as well as certain headlines caused the issue to simmer), but Congress remains interested in FCPA issues.

For instance, in connection with a recent confirmation hearing for Leslie Caldwell to be the DOJ’s Assistant Attorney General of the Criminal Division, Senator Charles Grassley (R-IA), Ranking Member of the Senate Judiciary Committee, asked Caldwell several FCPA-related questions for the record.

Caldwell punted on every question (perhaps not surprising given that Caldwell is not currently at the DOJ), but the questions posed nevertheless highlight specific FCPA issues on the minds of certain members of Congress.

Set forth in full below are the FCPA-related questions by Senator Grassley and Caldwell’s responses.

*****

“I recently asked Attorney General Holder these questions and have not yet received response.  As the FCPA falls within the Criminal Division, would you please respond to the following questions.

What are the Department’s current enforcement priorities under the FCPA?

Answer:  I am not in the Department; therefore, I am not in a position to address this question.  If I am confirmed as the Assistant Attorney General of the Criminal Division, I assure you that I will be vigilant in pursuing cases under the FCPA.

What particular industries, markets or practices is the Department focusing on, and why?

Answer:  I am not in the Department; therefore, I am not in a position to address this question.  As noted above, if I am confirmed as the Assistant Attorney General of the Criminal Division, I assure you that I will be vigilant in pursuing cases under the FCPA.

What proportion of the Department’s enforcement activity during 2013 involved non-U.S. companies?

Answer:  I am not in the Department; therefore, I am not in a position to address this question.  If I am confirmed as the Assistant Attorney General of the Criminal Division, I assure you that I will be vigilant in pursuing cases against U.S. and non-U.S. companies that violate the FCPA.

Has the Department seen a recent increase in whistleblower claims of FCPA violations?  If so, to what would you attribute that?  How has the Department responded?

Answer:  I am not in the Department; therefore, I am not in a position to address these questions.

Although the Department does not publicize each particular instance in which it declines prosecution despite evidence of an FCPA violation, what characterized the Department’s declinations during 2013?  Did the number increase from 2012?  What factors were most important in leading the Department to decline prosecution?

Answer:  I am not in the Department; therefore, I am not in a position to address these questions.  While I have not been privy to the internal deliberations surrounding the Department’s declination decisions, if confirmed as the Assistant Attorney General of the Criminal Division, I assure you that declination decisions will be based on the law and the evidence presented.

In November 2012, the Department and SEC issued the FCPA ”Resource Guide,” which reflected guidance from your agencies regarding the interpretation and enforcement of the FCPA.  Does the Department anticipate updating, supplementing or amending the “Resource Guide” in the foreseeable future?

Answer:  I am not in the Department; therefore, I am not in a position to address this question.

In 2013, the Department issued only one Opinion Release concerning the FCPA.  Does the Department consider the “Resource Guide” a substitute for its opinion release program?

Answer:  I am not in the Department; therefore, I am not in a position to address this question.

Friday Roundup

Friday, November 22nd, 2013

Another acknowledgment of the logic, whistleblower statistics, a guilty plea, and for the reading stack.  It’s all here in the Friday roundup.

Another Acknowledgment of the Logic

Previous posts here and here have highlighted recent speeches by top SEC officials in which they acknowledge the underlying logic supporting a compliance defense.  Deputy Attorney General James Cole did the same in this recent speech before a bank compliance officer crowd.

“At the Department of Justice, we know that compliance officers within financial institutions, and the lawyers, bankers, and others who work with them, are the first line of defense against abuse within these institutions.  Compliance officers are critical to protecting both a bank’s reputation and its bottom line.  They’re essential when it comes to preventing criminal activity – and if that effort is not entirely successful, detecting and reporting such conduct.  It is not an exaggeration to say that compliance is fundamental to protecting the security of our financial institutions and is essential to the integrity of our entire financial system. Despite, and in some ways because of, this crucial role, I know that working in compliance is often difficult.  Compliance is seldom thought of as a ‘money-maker’ for any bank, and it may be challenging to get sufficient resources and authority to do the job well.  To some, compliance may not seem to fit within the culture of a fast-moving, cutting-edge institution.  And at times, certain business units or managers may seem downright hostile toward the compliance function. We at the Department of Justice understand this reality.  And we appreciate that, despite these challenges, you and your colleagues are fully committed to helping protect the integrity of your institutions and our financial system.”

[...]

The notion that compliance must be firmly embedded in a corporation’s culture has been raised before, including at this conference, by many government officials.  You’ve heard a great deal about the importance of ‘tone at the top.’  Indeed, companies regularly argue during negotiations that they have taken various steps to set the right tone at the highest levels of their institutions.  But based on what we have seen, we cannot help but feel that the message is not getting through often enough or clearly enough. Despite years of admonitions by government officials that compliance must be an important part of a corporation’s culture, we continue to see significant violations of law at banks, inadequate compliance programs, and missed opportunities to prevent and detect crimes.”

In “Revisiting a Foreign Corrupt Practices Act Compliance Defense,” I argue, among other things, that a compliance defense will better incentivize corporate compliance and reduce improper conduct.  Compliance is a cost center within business organizations and expenditure of finite resources on FCPA compliance is an investment best sold if it can reduce legal exposure, not merely lessen the impact of legal exposure.

In short, an FCPA compliance defense will best allow compliance professionals in the FCPA context to – in the words of Cole – “get sufficient resources and authority to do the job well.”

Will the DOJ and SEC ever be capable of realizing that a compliance defense is a race to the top, not a race to the bottom?  (See here for the prior post).  Will the DOJ and SEC ever have the courage to realize that a compliance defense can best help the enforcement agencies accomplish its laudable goals? (See here for the prior post).

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 anxious was FCPA Inc. for a marketing opportunity to sell its compliance services, some even called the generic whistleblower provision the FCPA’s “new” whistleblower provisions.

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.  Recently, the SEC released (here) its annual report for FY2013.

Of the 3,238 whisteblower tips received by the SEC in FY2013, 4.6% (149) related to the FCPA.  As noted in this similar post from last year, of the 3,001 whisteblower tips received by the SEC in FY2012, 3.8% (115) related to the FCPA.  In FY2011 (a partial reporting year)  3.9% of the 334 tips received by the SEC related to the FCPA.

Yes, there will be in the future a whistleblower award made in the context of an FCPA enforcement action.  Yes, there will be much ink spilled on this occasion and wild predictions about this “new trend.”  Yet, I stand by my prediction – now 3.5 years old, that Dodd-Frank’s whistleblower provisions will have a negligible impact on FCPA enforcement.

“Foreign Official” Pleads Guilty

Earlier this week, the DOJ announced that Maria Gonzalez, the alleged “foreign official” at the center of the FCPA enforcement actions against individuals associated with broker-dealer Direct Access Partners LLC, pleaded guilty to “conspiring to violate the Travel Act and to commit money laundering, as well as substantive counts of these offenses.”  Gonzalez (V.P. of Finance / Executive Manager of Finance and Funds Administration at Bandes – an alleged state-run economic development bank in Venezuela) is to be sentenced on August 15, 2014.

As noted in the DOJ’s release:

“Previously, three former employees of the Broker-Dealer – Ernesto Lujan, Jose Alejandro Hurtado, and Tomas Alberto Clarke Bethancourt – each pleaded guilty in New York federal court to conspiring to violate the Foreign Corrupt Practices Act (FCPA), to violate the Travel Act and to commit money laundering, as well as substantive counts of these offenses, relating, among other things, to the scheme involving bribe payments to Gonzalez.  Sentencing for Lujan and Clarke is scheduled for Feb. 11, 2014, before U.S. District Judge Paul G. Gardephe.  Hurtado is scheduled for sentencing before U.S. District Judge Harold Baer Jr. on March 6, 2014.”

Reading Stack

An interesting read from a Vietnam media source regarding the notion that – just like in tango – it takes two in a bribery scheme and that many instances of bribery are the result of harassment by foreign officials and extortion-like demands.  When passing the FCPA in 1977, Congress fully recognized and understood this reality and that is why it did not seek to capture facilitation payments in the FCPA.  (See here for more reading).

*****

A good weekend to all.

Re-Scripting The Bourke Case

Monday, October 28th, 2013

Frederic Bourke, “another whistleblower put in prison by the Obama administration.”

So begins this recent lengthy depiction of the Bourke case on Democracy Now.  Over the course of the approximate 45 minute video, the viewer is lead to believe that it has been a miscarriage of justice that Bourke is currently in a minimum security prison after being found guilty of, among other charges, conspiring to violate the FCPA.

Yes, I agree (as highlighted in this prior post) that the Bourke case is arguably the most complex and convoluted case in Foreign Corrupt Practices Act history.

Yes, the presiding judge in the Bourke trial - Judge Shira Scheindlin (S.D.N.Y.) – did reject the DOJ’s 10 year sentencing recommendation in sentencing Bourke to 366 days in prison.

Yes, Judge Scheindlin did comment at the sentencing hearing 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.”  This comment did not exactly leave one with warm fuzzy feelings regarding the case.

However, the facts and enforcement theories at issue in Bourke have also received the most judicial scrutiny in the history of the FCPA - something seemingly glossed over in the lengthy Democracy Now video.

There was extensive pre-trial motion activity resulting in several written decisions by the S.D. of N.Y. as well as the Second Circuit (see 493 F.Supp.2d 693, 541 F.3d 166, and 582 F.Supp.2d 535), reconsideration of pre-trial rulings (see 2008 WL 5329960), and a written decision denying Bourke’s request for a judgment of acquittal (see 638 F.Supp. 2d 348).

In July 2009, Bourke was found guilty after a six week trial by a federal jury of conspiracy to violate the FCPA, among other charges.  There was a post-trial reconsideration of the motion to deny a judgment of acquittal (664 F.Supp.2d 369).

From there, Bourke’s case went to the Second Circuit and the primary issue on appeal was Bourke’s knowledge of the alleged bribery scheme in connection with the privatization of Azerbaijan’s alleged state oil company.  The issues on appeal were dissected in prior posts here and here.

In December 2011, the Second Circuit affirmed Bourke’s conviction of conspiring to violate the FCPA, among other charges.  (see here for the prior post).  In pertinent part, the court held that Bourke enabled himself to participate in a bribery scheme without acquiring actual knowledge of the specific conduct at issue and that such conscious avoidance, even if supported primarily by circumstantial  evidence, is sufficient to warrant an FCPA-related charges.

Specifically, the Second Circuit stated:

“While the government’s primary theory at trial was that he had actual knowledge of the bribery scheme, there is ample evidence to support a conviction based on the alternate theory of conscious avoidance. The testimony at trial demonstrated that Bourke was aware of how pervasive corruption was in Azerbaijan generally.  Bourke knew of Kozeny’s reputation as the “Pirate of Prague.”  Bourke created the American advisory companies to shield himself and other American investors from potential liability from payments made in violation of FCPA, and joined the boards of the American companies instead of joining the Oily Rock board.   In so doing, Bourke enabled himself to participate in the investment without acquiring actual knowledge of Oily Rock’s undertakings. The strongest evidence demonstrating that Bourke willfully avoided learning whether corrupt payments were made came from tape recordings of a May 18, 1999 phone conference with Bourke, fellow investor Friedman and their attorneys, during which Bourke voiced concerns about whether Kozeny and company were paying bribes.  [...]  Finally, Bourke’s attorney testified that he advised Bourke that if Bourke thought there might be bribes paid, Bourke could not just look the other way. Taken together, a rational juror could conclude that Bourke deliberately avoided confirming his suspicions that Kozeny and his cohorts may be paying bribes.”

With the Second Circuit appeal pending, Bourke filed motions requesting a new trial based on the theory that a key prosecution witness offered false testimony.  The motion was denied.

As noted in this prior post, Bourke then appealed this denial to the Second Circuit.  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 highlighted in this prior post, Bourke then petitioned the Supreme Court to hear his case.  In April 2013, the Supreme Court declined to hear Bourke’s appeal.

The Democracy Now program glossed over the extensive judicial scrutiny of the facts and enforcement theories at issue in Bourke in an attempt to re-script the Bourke case as “another whistleblower put in prison by the Obama administration.”

Once again, not the media’s finest FCPA moment.  (See here and here for prior posts on the same subject).

In short, I agree with the DOJ statement (included at the very end of the approximate 45 minute video) which stated:

“After three years of Mr. Bourke’s trying to overturn a jury’s verdict of guilty, his two unsuccessful appeals to the Court of Appeals, and a denial of review by the U.S. Supreme Court, there is not much left say, other than that Mr. Bourke has had every opportunity in numerous forums to make every argument he chose to make, and every challenge to his conviction has been rejected.”

The Odd Dynamic Persists

Tuesday, October 22nd, 2013

When Congress passes a law with various provisions which apply generically to any securities law violations without thinking through, on a micro level, the intersection of such provisions, odd dynamics can result.

That was my observation in this 2012 post concerning Khaled Asadi v. GE Energy, a whistleblower case brought under Dodd-Frank’s Anti-Retaliation Provision alleging underlying conduct that could implicate the Foreign Corrupt Practices Act.  The trial court held (subsequently affirmed on appeal – see 720 F.3d 620) that a foreign national could not avail themselves of protection under the Anti-Retaliation Provision because the provision does not apply extraterritorially.  I noted it was an odd result, because that same foreign national could be awarded a whistleblower bounty under Dodd-Frank.

As highlighted in this previous post, a similar case was brought in early 2013 by Meng-Lin Liu, a former compliance officer for Siemens AG in China.

Yesterday, Judge William Pauley (S.D.N.Y.) dimissed the complaint brought under the Anti-Retaliation Provision of Dodd-Frank.  Adopting the reasoning in the Asadi case, Judge Pauley concluded that “there is simply no indication that Congress intended the Anti-Retaliation Provision to apply extraterritorially.”  Judge Pauley noted that Liu’s complaint (brought by a Taiwanese resident against a German corporation for acts concerning its Chinese subsidiary relating to alleged corruption in China and North Korea), “must be dismissed” “because the Anti-Retaliation Provision does not apply overseas.”

For more on the decision, see here from Reuters, here from Wall Street Journal Risk and Compliance.

As to the odd dynamic framed above, Judge Pauley stated:

“The issue is not whether persons located abroad can be ‘whistleblowers’ and thus eligible for whistleblower awards, but whether the Anti-Retailiation Provision’s protections extend to overseas whistleblowers.  The fact that a person outside the United States may be a “whistleblower” under Dodd-Frank does not compel the conclusion that he is protected by the Anti-Retaliation Provision.”

In short, the odd dynamic persists.

Assuming the truth of Liu’s factual allegations, the DOJ and/or SEC could bring an FCPA action (at least books and records and internal controls charges) against Siemens regardless of whether the payment scheme had a U.S. neuxs, Liu could qualify for a Dodd-Frank whistleblower bounty if an SEC enforcement action was brought, but Liu can not qualify for protection under the Anti-Retaliation Provision for blowing the whistle on the allegations.