Archive for the ‘Whistleblowers’ Category

Potpourri

Monday, November 24th, 2014

Wal-Mart Related

Here is what Wal-Mart said in its recent 3Q FY 2015 earnings call.

“FCPA and compliance-related costs were approximately $41 million, which represents approximately $30 million for the ongoing inquiries and investigations and approximately $11 million for our global compliance program and organizational enhancements. Last year, FCPA and compliance-related costs were $69 million for the third quarter.  Through the third quarter of this year, we have spent $137 million on FCPA  and compliance-related costs, versus our guidance of between $200 and  $240 million. We expect to be near the low end of the guidance for the full  year.”

Doing the math, that is approximately $640,000 in FCPA-related expenses per working day.

Over the past approximate two years, I have tracked Wal-Mart’s quarterly disclosed pre-enforcement action professional fees and expenses. While some pundits have ridiculed me for doing so, such figures are notable because, as has been noted in prior posts and in my article “Foreign Corrupt Practices Act Ripples,” settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.  Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.

While $640,000 per working day remains eye-popping, Wal-Mart’s recent figure suggests that the company’s pre-enforcement action professional fees and expenses have crested as the figures for the past four quarters have been approximately $662,000, $855,000, $1.1 million and $1.3 million per working day.

In the aggregate, Wal-Mart’s disclosed pre-enforcement professional fees and expenses are as follows.

FY 2013 = $157 million.

FY 2014 = $282 million.

FY 2015 (first three quarters) = $137 million.

*****

Another ripple of FCPA scrutiny and enforcement highlighted in “Foreign Corrupt Practices Act Ripples” is shareholder litigation in connection with FCPA scrutiny.

On that score, plaintiffs firm Robbins Geller Rudman & Dowd LLP recently sued the SEC in federal court seeking certain documents in the SEC’s possession concerning Wal-Mart’s FCPA scrutiny.  In the complaint, Robbins Geller alleges that the SEC has improperly denied its Freedom of Information Act document requests.  The complaint alleges that the SEC’s reliance on a FOIA exemption concerning documents “compiled for law enforcement purposes” does not apply because the documents sought “were provided by and retained by Walmart, the subject of the SEC investigation, and therefore not “compiled for law enforcement purposes.”

*****

India’s Economic Times reports:

“The Indian arm of American retail giant Walmart has terminated a mid-level manager amid investigations into alleged violations of U.S. anti-bribery laws in the country. Two years ago, when the company was known as Bharti Wal-Mart, it had sacked its chief financial officer and the entire legal team in connection with the same probe. The mid-level manager, who received a termination notice last week, is also required to be available for questioning by the U.S. Department of Justice in the next five years.”

Petrobras

Petrobras, an oil and gas company in Brazil, has been the focus of much recent news.

Recently, the Financial Times reported that the DOJ and SEC have opened investigations into the company and reported that “U.S. authorities are looking into whether Petrobras or its employees, middlemen, or contractors, violated the FCPA.”  It was reported that there is also an open investigation in Brazil and the Financial Times noted that “prosecutors in Brazil allege that Petrobras and its contractors overinflated the cost of capital expenditure projects and acquisitions by hundreds of millions of dollars and paid part of the proceeds to politicians from the ruling Workers’ Party coalition.”  According to the Financial Times, the “ruling coalition politicians received 3 percent of all contracts.”

The apparent FCPA scrutiny of Petrobras is interesting on many levels.

For starters, certain FCPA enforcement actions have involved Petrobras employees – not as a payor of alleged improper payments – but as the recipient of alleged improper payments.  The enforcement theory of course is that the company making the alleged improper payments violated the FCPA’s anti-bribery provisions because Petrobras was an alleged “instrumentality” of the Brazilian government and thus Petrobras employees were “foreign officials” under the FCPA.

On the flip side of course is the fact that Petrobras has ADRs listed on a U.S. exchange and thus would be considered by the enforcement agencies to be an “issuer” subject to the FCPA.

In short, the enforcement theory that employees of SOEs are “foreign officials” results in an interesting paradox of sorts should there be an FCPA enforcement action against Petrobras as Petrobras employees would have been on “both sides” of the FCPA – an occurrence that has likely never happened before.  Taking the enforcement theory to its logical conclusion also means that the U.S. government is apparently investigating whether the Brazilian government has engaged in corruption.  A host of legal and policy issues would seem to arise.

Another interesting issue to ponder from Petrobras’s apparent FCPA scrutiny is whether any alleged improper payments by Petrobras – either directly or indirectly through others – to Brazilian officials would truly represent payments to ‘foreign officials.”

As highlighted in this prior post concerning the first FCPA enforcement action against a foreign issuer (albeit not charging violations of the anti-bribery provisions), according to a knowledgeable source at the SEC at the time, there was a belief that there were no “foreign” officials involved because Montedison, an Italian company, allegedly bribed Italian officials.

This dynamic has not been present in other foreign issuer FCPA enforcement actions (for instance Siemens did not allegedly bribe German “officials,” Technip did not allegedly bribe French “officials”, etc.) but would be present in any FCPA enforcement action against Petrobras.

Regarding the potential FCPA scrutiny of Petrobras, it appears that the subject of inquiry concerns potential payments made by third parties on behalf of Petrobras or at least with the knowledge of Petrobras employees.  As I indicated to the Wall Street Journal in this story:

“The vast majority of FCPA enforcement actions are indeed based upon indirect payments. If Petrobras paid an inflated amount to a contractor, the questions will be why, were they aware it was inflated, and what steps did they take to remedy the situation, or did they just accept the inflated amount with an inkling or suspicion that it would go somewhere else?”

More recently, the story continues to evolve and as highlighted in this recent Wall Street Journal article:

“Federal police [in Brazil last week] arrested 18 people, including Renato Duque, former director of engineering and services at Petrobras. Authorities allege he and others were part of a bribery and money-laundering scheme that has siphoned hundreds of millions of dollars from the state-owned oil firm into the pockets of employees, contractors and politicians. Police also served dozens of search warrants and raided the offices of 11 companies they suspect of participating in a scam. The companies, which include Brazilian multinationals Odebrecht SA, Camargo Corrêa SA, Construtora OAS SA and others, are suspected of colluding to inflate the costs of work performed for Petrobras. Prosecutors allege some of the resulting profits were funneled to Petrobras executives and high-level politicians, including some members of the president’s ruling Workers’ Party, a charge the party has repeatedly denied.”

As a result of the controversy swirling about the company, Petrobras recently announced that it was “unable to release its third quarter 2014 financial statements at this time.”

Separately, Reuters reported:

“Petrobras said on Monday it had received a subpoena from the U.S. Securities and Exchange Commission asking for documents relating to an investigation it is pursuing. [...]  Petrobras did not provide details as to what documents the SEC had requested. The company is also under investigation by the U.S. Department of Justice, according to a person familiar with the matter who was not authorized to speak publicly about the matter. [...] The U.S. investigation, conducted by both the SEC and the DOJ, is “broad” in nature and has been ongoing since at least the start of 2014, the person said.”

In short, the apparent FCPA scrutiny of Petrobras raises several interesting issues worthy of pondering.  Should there be an enforcement action against the company for violating the FCPA’s anti-bribery provisions, it would be historic for the reasons discussed above.

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 has not been any whistleblower award in connection with an FCPA enforcement action.  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 FY2014.

Of the 3620 whistleblower tips received by the SEC in FY2014, 4.4% (159) related to the FCPA. As noted in this similar post from last year, of the 3,238 whistleblower tips received by the SEC in FY2013, 4.6% (149) related to the FCPA.  As noted in this similar post from 2012, of the 3,001 whistleblower 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, in the future there will be 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 4.5 years old, that Dodd-Frank’s whistleblower provisions will have a negligible impact on FCPA enforcement.

DOJ And SEC Officials Talk FCPA

Thursday, November 20th, 2014

Speaking8In what has become a mid-November tradition, DOJ and SEC officials yesterday gave speeches at a Foreign Corrupt Practices Act conference.

Topics discussed included the following:  individual prosecutions, voluntary disclosure and cooperation, compliance programs, asset recovery, foreign law enforcement cooperation.  (For factual information concerning DOJ and SEC individuals prosecutions see this prior post and as relevant to the issue of “success” – a topic touched upon in both speeches – you might want to read the article ”What Percentage of DOJ FCPA Losses is Acceptable?“)

In many respects, yesterday’s DOJ and SEC speeches were very similar to previous speeches delivered by enforcement agency officials in September and October (see here, herehere and here for prior posts).

This post excerpts this speech by Assistant Attorney General Leslie Caldwell and this speech by Andrew Ceresney, Direct of the SEC’s Enforcement Division.

DOJ

Caldwell began her remarks as follows.

“I want to focus my remarks on one of our most important enforcement priorities – our efforts to combat corruption around the world.

At the Criminal Division, we are stepping up our efforts in the battle against corruption, at home and abroad.  Through our Public Integrity Section, which prosecutes corruption cases involving U.S. federal, state, and local officials, we are attacking domestic corruption.

More relevant to this audience, we are also deeply committed to fighting corruption abroad.  Now, more than ever, we are bringing to justice individuals and corporations who use foreign bribery as a way to gain a business advantage.  In part, we are doing this using the tools and methods that have made our past enforcement efforts so successful – FCPA prosecutions and penalties.

But there have been some really big changes in the Justice Department’s FCPA work since I last worked there.  First, thanks to the expertise and knowledge we have acquired over the years, we are now able to investigate FCPA cases much more quickly.  We also are better equipped to prosecute individuals who are actually making corrupt payments, as well as intermediary entities hired to serve as conduits for bribes.

And now we also are prosecuting the bribe takers, using our money laundering and other laws.  And, importantly, we have begun stripping corrupt officials of the proceeds of their corruption involving both bribes and kleptocracy, using both criminal and civil authorities.

The Criminal Division’s FCPA enforcement program and our Kleptocracy Initiative are really two sides of the same anti-corruption coin.  We bring those who pay bribes to justice, no matter how rich and powerful they are.  But by itself, that is not enough.  We also attack corruption at its source – by prosecuting and seizing the assets of the corrupt officials who betray the trust of their people.

Another big change – one that has been building for years but now has really developed momentum – is that we increasingly find ourselves shoulder-to-shoulder with law enforcement and regulatory authorities in other countries.  Every day, more countries join in the battle against transnational bribery. And this includes not just our long-time partners, but countries in all corners of the globe.

Together with our foreign law enforcement and regulatory partners we are taking a truly global approach to rooting out international corruption.  And make no mistake, this international approach has dramatically advanced our efforts to uncover, punish and deter foreign corruption.

Increasingly, we and our counterparts share information about bribery schemes.   We report schemes to one another.  And, where appropriate, we discuss strategy and coordinate our use of investigative techniques, so that we can obtain the best possible results, especially in very high-impact cases.

These efforts are incredibly important. The World Bank estimates that more than $1 trillion is paid every year in bribes, which amounts to about 3 percent of the world economy.  That amount is stunningly wasteful.  No one benefits from corruption other than the corrupt officials.

But corruption is far more insidious and harmful than can be measured numerically.  We all know that when corruption takes hold, the fundamental notion of playing-by-the-rules gets pushed to the side, and individuals, businesses and governments instead begin to operate under a fundamentally unfair – and destabilizing – set of norms.  This undermines confidence in the markets and governments, and destroys the sense of fair play that is absolutely critical for the rule of law to prevail.

In emerging economies, corruption stifles economic development that would lift people out of poverty, improve infrastructure, and better people’s lives.  And the fruits of corruption can prop up autocratic and oppressive rulers even in wealthier countries.

Make no mistake, the effects of foreign corruption are not just felt overseas.  In today’s global economy, the negative effects of foreign corruption inevitably flow back to the United States.  For one, American companies are harmed by global corruption.  They are denied the ability to compete in a fair and transparent marketplace.  Instead of being rewarded for their efficiency, innovation, and honest business practices, U.S. companies suffer at the hands of corrupt governments and lose out to corrupt competitors.

International corruption also presents broader public safety concerns.  Indeed, criminal networks of all kinds, including narcotics traffickers, cyber criminals, terrorists, and human traffickers, often take advantage of countries whose commitment to the rule of law is weakened by corruption of its officials.  And, as we’ve seen in the more extreme cases, thoroughly corrupted regimes have created safe havens for criminals by giving them a secure base from which they can orchestrate their criminal activities.

You have no doubt heard my predecessors speak of the evils of corruption.  It is because of these evils that the fight against international bribery has been, and continues to be, a core priority of the Department of Justice.

Our commitment to the fight against foreign bribery is reflected in our robust enforcement record in this area, which includes charges against corporations and individuals alike from all over the world.  Since 2009, we have convicted more than 50 individuals in FCPA and FCPA-related cases, and resolved criminal cases against more than 50 companies with penalties and forfeiture of approximately $3 billion.  Twenty-five of the cases involving individuals have come since 2013 alone.  And those are just the cases that are now public.  These individuals run the gamut of actors involved in bribery schemes: corporate executives, middlemen, and corrupt officials.”

Caldwell next focused on asset recovery and international cooperation:

“As our enforcement actions demonstrate, we are focusing our attention on bribes of consequence – ones that fundamentally undermine confidence in the markets and governments.  And our record of success in these prosecutions has allowed us to show – rather than just tell – corporate executives that if they participate in a scheme to improperly influence a foreign official, they will personally risk the very real prospect of going to prison.

[...]

Stripping individuals of the proceeds of their conduct – and thus depriving them of the very profits that are driving the corrupt conduct in the first place – is one technique that we are using increasingly in our fight against foreign bribery.  And, we are not just pursuing these corrupt proceeds through criminal actions.

The FCPA Unit’s efforts to eradicate foreign corruption also are assisted by the work of our Kleptocracy Asset Recovery Initiative, through which prosecutors in the Criminal Division’s Asset Forfeiture and Money Laundering Section and Office of International Affairs are pursuing ill gotten riches from corrupt officials using our civil authority. [...] [W]e are ready, willing, and able to confiscate the riches of corrupt leaders who drain the resources of their countries for their own benefit.”

[O]ur efforts to hold bribe takers as well as bribe payors accountable for their criminal conduct are greatly aided by our foreign partners.  Transnational bribery is a global problem and an international solution truly is beginning to develop.  Every day, more countries reject the notion that bribery in international business is inevitable and acceptable.  Indeed, in just the last few years several countries have enacted new anti-corruption laws or enhanced existing laws.  Admittedly, the global trend against foreign corruption continues to face many challenges, but the tide has turned and I truly believe that it is now on our side.

This level of collaboration is the product of hard work and strategic coordination, which has allowed us to forge the international partnerships that are essential to fight global corruption.  For example, just a couple of weeks ago, about 200 judges, prosecutors, investigators, and regulators from more than 50 countries, multi-development banks, and international organizations around the world joined prosecutors, investigators, and regulators from the Criminal Division, SEC, and FBI in Washington, D.C., for a week long training course to exchange ideas and best practices on combating foreign corruption.

I had the opportunity to participate in this meeting and saw its value first-hand.  The meeting provided a critical opportunity for the people who fight global corruption in the trenches every day to meet face-to-face, discuss ongoing cases, identify new opportunities to collaborate, and improve intelligence sharing.

The results from this increased international collaboration speak for themselves.”

[...]

[T]hese coordinated global actions sent a powerful message – countries all over the world are now engaged in the fight against foreign bribery and together, we can and will hold to account individuals and companies who engage in corruption, regardless of where they operate or reside.

The increase in international collaboration is not only enhancing our own FCPA enforcement efforts but it is also resulting in anti-corruption enforcement actions by other countries.”

[...]

Continued international collaboration is absolutely critical if we are going to have a meaningful impact on corruption across the globe and we are committed to maintaining – and enhancing – our working relationships with our foreign partners.

By enhancing our coordination with our overseas counterparts, continually improving our already successful methods of investigating and prosecuting FCPA cases, and increasing our efforts to prosecute corrupt officials and recover their ill-gotten gains, we are now, more than ever, making a tangible difference in the fight against foreign bribery.”

Caldwell next shifted to voluntary disclosure and cooperation and stated:

“When I last worked at the department and even over the 10 years that I was in private practice, it seemed that many FCPA investigations were initiated by self-disclosures.  While we of course still welcome self-disclosure, today we are far from reliant on it.

[...]

And in a world of whistleblowers and international cooperation, I expect that will be the case more often than not going forward.  That said, we still encourage and reward self-disclosure and cooperation.

When you detect significant potential criminal conduct at your company, or a company that has retained you, I encourage you to disclose it to the Justice Department – and to do so in a timely manner.  As I am sure you all know, the department’s Principles of Federal Prosecution of Business Organizations provides that prosecutors should consider “the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents” in deciding how to proceed in a corporate investigation.

So, in addition to promptly disclosing the conduct to us, I also encourage you to conduct a thorough internal investigation and to share with us the facts you uncover in that investigation.  We do not expect you to boil the ocean in conducting your investigation but in order to receive full credit for cooperation, we do expect you to conduct a thorough, appropriately tailored investigation of the misconduct.

And we expect you to provide us useful facts in a timely manner.  And that includes, importantly, facts about the individuals responsible for the misconduct, no matter how high their rank may be.

[...]

The sooner you disclose the conduct to us, the more avenues we have to investigate culpable individuals.  And, the more open you are with us about the facts you learned about that conduct during your investigation, the more credit you will receive for cooperation.

But, if you delay notifying us about an executive’s conduct or attempt to whitewash the facts about an individual’s involvement, you risk receiving any credit for your “cooperation.”

This does not mean that we expect you to use law-enforcement style techniques to investigate your employees.  To the contrary, it simply means that when you do an internal investigation, and you choose to cooperate with us, you should understand that we will expect to hear not just what happened, but who did what, when, and where.

We also expect that a truly cooperating company will provide relevant documents in a timely fashion, even if those documents are located overseas.  We recognize that some countries’ laws pose real challenges to data access and transfer of information, but we also know that many do not.

The Criminal Division investigates and prosecutes a large volume of international cases and through these cases, we have developed an understanding of these laws.  We will not give full cooperation credit to companies that hide behind foreign data privacy laws instead of providing overseas documents when they can.  Foreign data privacy laws exist to protect individual privacy, not to shield companies that purport to be cooperating in criminal investigations.

Put simply, cooperation – and the quality and timeliness of that cooperation – matter.  This is a well-established principle that we have applied in criminal cases across the spectrum – from violent and organized crime cases to corporate fraud cases – for decades.

If a company works with us, it not only helps the Department, but it helps itself.

[...]

Fighting corruption is not a choice we have made. It is, increasingly, a global imperative.  Given the critical nature of this mission, we are bringing more resources to bear than ever before – and we will continue doing so.  We have achieved significant successes using our traditional FCPA enforcement tools.  We are building on those successes and continuing to evolve our enforcement efforts.  Especially with the power of so many countries now standing by our side, we are determined to use every lawful means available to hold the perpetrators of corruption to account.”

SEC

Ceresney began his remarks as follows.

“Pursuing such [FCPA] violations remains a critical part of our enforcement efforts, as international bribery has many nefarious impacts, including sapping investor confidence in the legitimacy of a company’s performance and undermining the accuracy of a company’s books and records. Our specialized FCPA unit as well as other parts of the Enforcement Division continue to do remarkable work in this space, bringing significant and impactful cases often in partnership with the DOJ and FBI. [...] Looking ahead, I anticipate another productive year of FCPA enforcement, as we have a robust pipeline of investigations across the globe. I thought I would spend my time this morning discussing some areas we will be focusing on in the coming year and beyond, and then, if we have time, I can take some questions.”

Under the heading “Focus on Individuals,” Ceresney stated:

“Let me start with cases against individuals. It is a hot topic of the day, in the face of some significant enforcement actions against entities alone, to ask the question of whether enforcement actions against entities are as impactful as actions against individuals, and whether actions against entities actually deter misconduct.

I always have said that actions against individuals have the largest deterrent impact. Individual accountability is a powerful deterrent because people pay attention and alter their conduct when they personally face potential punishment. And so in the FCPA arena as well as all other areas of our enforcement efforts, we are very focused on attempting to bring cases against individuals.

That is not to say that cases against companies are unimportant — in fact, I think FCPA enforcement is perhaps one of the best examples of how actions against entities can have a tremendous deterrent effect. Our actions against entities have had a tremendous impact in the last 10 years on FCPA compliance. Companies have increased their compliance spending and focus exponentially — the attendance at this conference is but one example of that. And these actions continue to provide significant deterrence and send important messages about areas that companies should be focused on. Every action we bring is scrutinized closely and dissected for information on areas of risk. That is a great dynamic and one we should continue to foster. But individual accountability is critical to FCPA enforcement — and imposing personal consequences on bad actors, including through bars and monetary sanctions, will continue to be a high priority for us.

Now it is important to recognize that FCPA cases against individuals can present some unique challenges for us and we simply are unable to bring cases against individuals in connection with a number of our cases. For example, in many cases we face significant investigative hurdles, including difficulties in gathering specific testimony and documents from overseas that will be admissible at trial. This is one area where we have been working closely with our counterparts in other jurisdictions, to access foreign witnesses, bank statements, and company records. These efforts have been more and more successful as we form strong partnerships with other countries to combat corruption.

When the conduct involves foreign nationals — as it often does — another challenge can be establishing personal jurisdiction over the bad actor. We have had some favorable decisions in this area, but it still remains a challenge in certain cases. Statute of limitations issues also complicate these cases.

Despite these various challenges, we continue to vigorously pursue cases against individuals.”

Under the heading “Importance of FCPA Compliance Programs,” Ceresney stated:

“This is a message that I think has started to get through in the past 5 years. Nothing situates a company better to avoid FCPA issues than a robust FCPA compliance program.

The best companies have adopted strong programs that include compliance personnel, extensive policies and procedures, training, vendor reviews, due diligence on third-party agents, expense controls, escalation of red flags, and internal audits to review compliance. You can look to our Resource Guide on the FCPA that we jointly published with the DOJ, to see what some of the hallmarks of an effective compliance program are. I won’t mention them all because you should be familiar with many that relate to policies, procedures and training. But, I’ll highlight just a few others. Companies should perform risk assessments that take into account a host of factors listed in the guide and then place controls in these risk areas. Companies should have disciplinary measures in place to deter violations and compliance programs should be periodically tested and reviewed to ensure they are keeping pace with the business. Such programs, properly implemented, will also help companies avoid other problems at foreign subsidiaries, like self-dealing, embezzlement and financial fraud.

As part of our settlements, we have on occasion required the retention of a monitor to assist in administering such compliance programs. For those companies that have developed robust programs during the investigation, we have required self-reporting and certifications. But the overwhelming message that one has to take away from our actions is how important such programs are for ensuring compliance.

Of course, it is critical for such programs to be real programs. When I was in private practice, I saw companies that had great paper programs but did not implement them effectively. When the business would push back, they would remove requirements and make exceptions. The best companies would put the compliance program ahead of business interests and allow decisions to be made to ensure compliance with the law, no matter the business consequences. It is that sort of attitude that is the measure of whether such programs will be successful.

As I said, we have seen many companies improving and properly implementing their compliance programs, as the message from our cases over the years has penetrated the legal and compliance community. But there is still more work to be done, particularly for small-to-medium sized companies trying to enter foreign markets to grow their businesses. As those businesses seek to expand and globalize, their compliance functions must keep pace.

[...]

The bottom line is that no responsible company should operate overseas without a comprehensive compliance program to guard against FCPA risk.

One other aspect of compliance programs is the benefit that companies will derive from having them if a problem should arise. I can tell you that the SEC staff will look well on companies that have robust programs and that the existence of such programs will pay dividends should an FCPA issue arise despite the existence of such programs.”

Under the heading “Cooperation,” Ceresney stated:

“Related to the issue of the existence of FCPA compliance programs, I wanted to focus for a moment on self-reporting and cooperation. The existence of FCPA compliance programs place the company in the best position to detect FCPA misconduct. But the question is what a company does once it learns of such misconduct. There has been a lot of discussion recently about the advisability of self-reporting FCPA misconduct to the SEC. Let me be clear about my views — I think any company that does the calculus will realize that self-reporting is always in the company’s best interest. Let me explain why.

Self-reporting from individuals and entities has long been an important part of our enforcement program. Self-reporting and cooperation allows us to detect and investigate misconduct more quickly than we otherwise could, as companies are often in a position to short circuit our investigations by quickly providing important factual information about misconduct resulting from their own internal investigations.

In addition to the benefits we get from cooperation, however, parties are positioned to also help themselves by aggressively policing their own conduct and reporting misconduct to us. We recognize that it is important to provide benefits for cooperation to incentivize companies to cooperate. And we have been focused on making sure that people understand there will be such benefits. We continue to find ways to enhance our cooperation program to encourage issuers, regulated entities, and individuals to promptly report suspected misconduct. The Division has a wide spectrum of tools to facilitate and reward meaningful cooperation, from reduced charges and penalties, to non-prosecution or deferred prosecution agreements in instances of outstanding cooperation.

Last year, for example, we announced our first-ever non-prosecution agreement in an FCPA matter with a company that promptly reported violations and provided real-time, extensive cooperation in our investigation.

More commonly, we have reflected the cooperation in reduced penalties. Companies that cooperate can receive smaller penalties than they otherwise would face, and in some cases of extraordinary cooperation, pay significantly less.

[...]

The bottom line is that the benefits from cooperation are significant and tangible. When I was a defense lawyer, I would explain to clients that by the time you become aware of the misconduct, there are only two things that you can do to improve your plight — remediate the misconduct and cooperate in the investigation. That obviously remains my view today. And I will add this — if we find the violations on our own, and the company chose not to self-report, the consequences will surely be worse and the opportunity to earn significant credit for cooperation may well be lost.

[...]

The SEC’s whistleblower program has changed the calculus for companies considering whether to disclose misconduct to us, knowing that a whistleblower is likely to come forward. Companies that choose not to self-report are thus taking a huge gamble because if we learn of the misconduct through other means, the result will be far worse.”

Under the heading “Items of Value,” Ceresney stated:

“The statute precludes the payment or provision of “anything of value” to a foreign official in order to induce that official to take official action for the purpose of obtaining or retaining business. Obviously, money or property is an item of value. Gifts to foreign officials also easily qualify as items of value.

But we also have successfully brought FCPA cases where other, less traditional, items of value have been given in order to obtain or retain business. For example, in three separate actions, Stryker, Eli Lilly and Schering-Plough, we brought bribery charges against pharmaceutical or medical technology companies that made contributions to charities that were headed by or affiliated with foreign government officials to induce them to direct business to the companies.

We also have charged companies for providing items of value to family members of foreign officials. In Tyson Foods, for example, we charged the company for providing no-show jobs to the spouses of foreign officials who were responsible for certifying the company’s products for export. More recently, in Weatherford, we charged the company for a variety of bribes to foreign officials and their families, including paying for the honeymoon of an official’s daughter and a religious trip by an official and his family that was improperly recorded as a donation.

As these examples make clear, bribes come in many shapes and sizes. So it is critical that we carefully scrutinize a wide range of unfair benefits to foreign officials when assessing compliance with the FCPA — whether it is cash, gifts, travel, entertainment, or employment of the family and friends of foreign officials. We should and will continue to pursue a broad interpretation of the FCPA that precludes bribery in all forms.”

In conclusion, Ceresney stated:

“[T]he Enforcement Division will continue to look for opportunities to enhance our impact with respect to FCPA enforcement. We have made significant progress over the last 10 years but there is still much more we can do. We will continue our efforts to level the playing field for companies doing business abroad and hold corrupt actors accountable when they fail to play by the rules.”

Friday Roundup

Friday, September 26th, 2014

An invite, ripples, the odd dynamic, and scrutiny alerts and updates.  It’s all here in the Friday roundup.

You Are Invited

King & Spalding is pleased to host Professor Mike Koehler for an informal lunch discussion of his recently published book The Foreign Corrupt Practices Act in a New Era. The conversation and related question-and-answer session will be of interest to anyone seeking a candid and comprehensive discussion of legal and policy issues present in this new era of FCPA enforcement.

The event takes place on Thursday, October 2nd at noon at King & Spalding’s office (1700 Pennsylvania Avenue N.W. Washington, D.C.). There is no charge for this event, but pre-registration is required. If you would like to attend, please send your name and contact information to Sylvia Gates at sgates@kslaw.com.  For additional information, see here.

Ripples

My recent article “Foreign Corrupt Practices Act Ripples” highlights how settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from FCPA scrutiny or enforcement in this new era.

Regarding those ripples, Canada’s Globe and Mail reports:

“Hewlett-Packard Co., one of the leading technology suppliers to the Canadian government, is facing a possible 10-year ban on selling products and services to Ottawa in the wake of a high-profile U.S. bribery conviction. The recent criminal conviction, involving bribes paid to Russian government officials, marks the first major test of strict new Canadian integrity rules quietly introduced in March by Public Works and Government Services. Under the new regime, companies face an automatic ban on future government contracts if they or any of their affiliates are convicted of a list of various crimes, such as bribery, even if those crimes occurred outside Canada. “The department is reviewing the recent U.S. court decision regarding HP Russia and is examining the impact of this court decision on our current and future business with HP Canada,” confirmed Alyson Queen, communications director for Public Works Minister Diane Finley. The department will conduct its review “as quickly as possible,” Ms. Queen insisted, adding that the government is “committed to doing business with suppliers who respect the law and act with integrity, including affiliates of suppliers.”

The main point of “Foreign Corrupt Practices Ripples” was described above.  However, the article also states:

“This Article accepts the fact that FCPA scrutiny and enforcement results in many other ripples in this new era. Yet, throughout this Article many questions are posed regarding the legitimacy of certain ripples. Moreover, while it is beyond the focus of this Article, it must nevertheless be highlighted that because of the many ripples of FCPA enforcement, it is important that FCPA enforcement be subjected to meaningful judicial scrutiny and that enforcement actions represent legitimate instances of provable FCPA violations, not merely settlements entered into for reasons of risk aversion. This would seem like an obvious statement. However, the reality is that the majority of corporate FCPA enforcement actions in this new era are based on aggressive and controversial enforcement theories, yet resolved via non-prosecution and deferred prosecution agreements (NPAs / DPAs) not subjected to any meaningful judicial scrutiny by risk-averse business organizations mindful of the adverse consequences of putting the enforcement agencies to its burden of proof in an adversarial proceeding.”

Perhaps Canadian authorities should review this prior post “HP Enforcement Action – Where to Begin.”  The post begins:

“Where to begin? That is the question when analyzing last week’s $108 million Foreign Corrupt Practices Act enforcement action against HP and related entities.  (See here). Should the title of this post have been “The FCPA’s Free-For-All Continues”? Should the title have been “HP = Hocus Pocus” (as in look what the enforcement agencies pulled out their hats this time)? Should the title have been “Warning In-House and Compliance Professionals:  This Post Will Induce Mental Anguish”? Unable to arrive at the best specific title for this post, I simply picked the generic “Where to Begin?” In short, if the HP enforcement action does not leave you troubled as to various aspects of FCPA enforcement you: (i) may not be well-versed in actual FCPA legal authority; (ii) don’t care about the rule of law; or (iii) somehow derive satisfaction from government required transfers of shareholder money to the U.S. treasury regardless of theory. Least there be any misunderstanding, let me begin this post by stating that the enforcement actions against HP Poland, HP Russia and HP Mexico allege bad conduct by certain individuals –  a “small fraction of HP’s global workforce” to use the exact words of the DOJ. As to that “small fraction,” those individuals should be held accountable for their actions by relevant law enforcement authorities. However, as to the actual defendants charged in the enforcement actions – HP Russia, HP Poland and HP Mexico in the DOJ actions – and HP in the SEC administrative proceeding – there are actual legal elements that must be met and there is also prior enforcement agency guidance that ought to be followed.  The entire credibility and legitimacy of the DOJ and SEC’s FCPA enforcement programs depend on these two basics points.”

The Odd Dynamic

I have consistently stated (see here for the most recent iteration) that, based on recent judicial decisions, an odd dynamic exists between application of Dodd-Frank’s anti-retaliation provisions and Dodd-Frank’s whistleblower bounty provisions. As noted in the recent post concerning the Second Circuit’s decision in Liu Meng-Lin v. Siemens, courts have held that the former provisions lack extraterritorial effect while acknowledging that a foreign national could receive a bounty under the whistleblower provisions.

The odd dynamic is front-and-center in the SEC’s recent announcement of “an expected award of more than $30 million to a whistleblower who provided key original information that led to a successful SEC enforcement action.”  According to the release,  ”the award will be the largest made by the SEC’s whistleblower program to date and the fourth award to a whistleblower living in a foreign country, demonstrating the program’s international reach.”

In the release, Sean McKessy, Chief of the SEC’s Office of the Whistleblower states:

“This award of more than $30 million shows the international breadth of our whistleblower program as we effectively utilize valuable tips from anyone, anywhere to bring wrongdoers to justice.  Whistleblowers from all over the world should feel similarly incentivized to come forward with credible information about potential violations of the U.S. securities laws.”

Regarding the odd dynamic, the SEC’s order states:

“We believe an award payment is appropriate here notwithstanding the existence of certain extraterritorial aspects of Claimant’s application. See generally Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247, 266 (2010) (discussing analytical framework for determining whether an application of a statutory provision that involves certain foreign aspects is an extraterritorial or domestic application of the provision; explaining that it is a domestic application of the provision if the particular aspect that is the “focus of congressional concern” has a sufficient U.S. territorial nexus); European Community v. RJR Nabisco, Inc., F.3d , 2014 WL 1613878, *10 (2d Cir. Apr. 23, 2014) (applying Morrison framework and finding that “[i]f domestic conduct satisfies every essential element to prove a violation of a United States statute that does not apply extraterritorially, that statute is violated even if some further conduct contributing to the violation occurred outside the United States.”). In our view, there is a sufficient U.S.  territorial nexus whenever a claimant’s information leads to the successful enforcement of a covered action brought in the United States, concerning violations of the U.S. securities laws, by the Commission, the U.S. regulatory agency with enforcement authority for such violations.  When these key territorial connections exist, it makes no difference whether, for example, the claimant was a foreign national, the claimant resides overseas, the information was submitted from overseas, or the misconduct comprising the U.S. securities law violation occurred entirely overseas. We believe this approach best effectuates the clear Congressional purpose underlying the award program, which was to further the effective enforcement of the U.S. securities laws by encouraging individuals with knowledge of violations of these U.S. laws to voluntarily provide that information to the Commission. See S. Rep. No. 111-176 at 110 (2010) (“to motivate those with inside knowledge to come forward and assist the Government to identify and prosecute persons who have violated the securities laws ….”). Finally, although we recognize that the Court of Appeals for the Second Circuit recently held that there was an insufficient territorial nexus for the anti-retaliation protections of Section 21F(h) to apply to a foreign whistleblower who experienced employment retaliation overseas after making certain reports about his foreign employer, Liu v. Siemens, F.3d , 2014 WL 3953672 (2d Cir. Aug. 14, 2014), we do not findthat decision controlling here; the whistleblower award provisions have a different Congressional focus than the anti-retaliation provisions, which are generally focused on preventing retaliatory employment actions and protecting the employment relationship.”

Scrutiny Alerts and Updates

BHP Billiton

In its most recent annual report the company stated:

“As previously disclosed, BHP Billiton received requests for information in August 2009 from the US Securities and Exchange Commission (SEC). Following that request, the Group commenced an internal investigation and disclosed to relevant authorities evidence that it has uncovered regarding possible violations of applicable anticorruption laws involving interactions with government officials. The issues relate primarily to matters in connection with previously terminated exploration and development efforts, as well as hospitality provided as part of the Company’s sponsorship of the 2008 Beijing Olympics. The Group is currently discussing a potential resolution of the matter. As has been publicly reported, the Australian Federal Police has indicated that it has commenced an investigation and the Group continues to fully cooperate with the relevant authorities. In light of the continuing nature of the investigations, it is not appropriate at this stage for BHP Billiton to predict outcomes.”

General Cable Corp.

General Cable Corporation (a Kentucky-based company involved in the development, design, manufacture, marketing and distribution of copper, aluminum and fiber optic wire and cable products and systems for the energy, industrial, specialty, construction and communications markets) recently disclosed:

“We have been reviewing, with the assistance of external counsel, certain commission payments involving sales to customers of our subsidiary in Angola. The review has focused upon payment practices with respect to employees of public utility companies, use of agents in connection with such payment practices, and the manner in which the payments were reflected on our books and records. We have determined at this time that certain employees in our Portugal and Angola subsidiaries directly and indirectly made payments at various times from 2002 through 2013 to officials of Angola government owned public utilities that raise concerns under the FCPA and possibly under the laws of other jurisdictions. We also have been reviewing, with the assistance of external counsel, our use and payment of agents in connection with our Thailand and India operations, which may have implications under the FCPA. We have voluntarily disclosed these matters to the SEC and the United States Department of Justice (“DOJ”) and have provided them with additional information at their request. The SEC and DOJ inquiries into these matters are ongoing. We continue to cooperate with the DOJ and the SEC with respect to these matters. We are implementing a screening process relating to sales agents that we use outside of the United States, including, among other things, a review of the agreements under which they were retained and a risk-based assessment of such agents to determine the scope of due diligence measures to be performed by a third-party investigative firm. However, this screening process may not be effective in preventing future payments or other activities that may raise concerns under the FCPA or other laws. At this time, we are unable to predict the nature of any action that may be taken by the DOJ or SEC or any remedies these agencies may pursue as a result of such actions. Any determination that our operations or activities are not in compliance with existing laws or regulations could result in the imposition of substantial fines, civil and criminal penalties, and equitable remedies, including disgorgement and injunctive relief. Because our review regarding commission payment practices and our use and payment of agents described above is ongoing, we are unable to predict its duration, scope, results, or consequences. Dispositions of these types of matters can result in modifications to business practices and compliance programs, and in some cases the appointment of a monitor to review future business and practices with the objective of effecting compliance with the FCPA and other applicable laws.”

In the first trading day after the disclosure, the company’s stock dropped 6.4% to 17.74.

Embraer-Related

As highlighted in this previous post, Brazil based Embraer (one of  the world’s largest manufacturer of commercial jets with shares traded on the New York Stock Exchange) has been under FCPA scrutiny since 2010.

The Wall Street Journal reports:

“Brazilian authorities have filed a criminal action against eight Embraer employees accusing them of bribing officials in the Dominican Republic in return for a $92 million contract to provide the country’s armed forces with attack planes.”

According to the article:

“[The DOJ and SEC] are also investigating the company’s dealings in the Dominican Republic and elsewhere and have provided their Brazilian counterparts with evidence, according to a request last year for legal assistance from Brazilian prosecutors.

[...]

Brazilian prosecutors filed the 31-page complaint in a criminal court in Rio de Janeiro in August, the first step in a criminal prosecution. A spokesman for the Brazilian prosecutors’ office declined to comment on the case.

The complaint alleges that Embraer sales executives agreed to pay a $3.5 million bribe to a retired Dominican Air Force colonel, who then leaned on legislators to approve the deal and a financing agreement between the Dominican Republic and the National Economic and Social Development Bank. The sale was completed and the aircraft were delivered.

The retired colonel, Carlos Piccini Nunez, was serving as the Dominican Republic’s director of special projects for the armed forces in 2008, around the time of the contract negotiations. The contract provided the Dominican Republic with eight Embraer Super Tucanos, turboprop attack support aircraft that have been a darling of air forces in developing countries for their low maintenance and affordability.

[...]

The criminal complaint alleges that an Embraer vice president for sales, Eduardo Munhos de Campos, promised to pay the bribe, and that he was assisted in arranging the payments by Orlando Jose Ferreira Neto, another vice president; Embraer regional directors Acir Luiz de Almeida Padilha Jr., Luiz Eduardo Zorzenon Fumagalli and Ricardo Marcelo Bester ; and managers Albert Phillip Close, Luiz Alberto Lage da Fonseca and Eduardo Augusto Fernandes Fagundes.”

Goldman Sachs

The company was recently the focus of this Wall Street Journal article which began:

“A yearslong probe of Goldman Sachs Group’s ties to Libya’s sovereign-wealth fund is focusing on an internship and other perks allegedly offered by the Wall Street bank to win business from the Gadhafi regime, according to people familiar with the matter. The Securities and Exchange Commission is reviewing the New York-based bank’s decision in June 2008 to hire as an intern the brother of Mustafa Zarti, then deputy chief of the Libyan Investment Authority, the people said. The move came after Goldman entered into more than $1 billion worth of trades with the authority, and just as the firm’s relationship with the Libyan fund had begun to sour. The investigators are also reviewing why the brother, Haitem Zarti, was allowed to remain at the firm for almost a year, long after most Wall Street internships last, the people added.”

AgustaWestland / Finmeccanica Related

The Wall Street Journal goes in-depth into the Italian trial of Giuseppe Orsi, former CEO of AgustaWestland – a unit of Finmeccanica Spa, concerning bribery allegations in India. As highlighted in this previous post, Finmeccanica, which is approximately 30% owned by the Italian government, has ADRs registered with the SEC and AgustaWestland does extensive business in the U.S. (see here), including with the U.S. government.

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A good weekend to all.

The Odd Dynamic Persists

Tuesday, August 19th, 2014

What happens when Congress passes a law with various provisions that generically apply to any securities law violations without thinking through, on a micro level, the intersection of such provisions?

The answer is this recent Second Circuit decision in the Liu Meng-Lin v. Siemens.

This observation is the same as it was in 2012 concerning Khaled Asadi v. GE Energy (see here for the prior post) and as it was in 2013 concerning the trial court decision in the Liu case (see here for the prior post).

To repeat, an odd dynamic exists when a foreign national is unable to maintain a private cause of action under Dodd-Frank’s anti-retaliation provisions based on allegations that his foreign employer retaliated against him for internally reporting conduct that could implicate the Foreign Corrupt Practices Act, yet that same foreign national can be awarded a whistleblower bounty under Dodd-Frank should the SEC bring an enforcement action based on the information the foreign national provided to it.

In Liu, the Second Circuit held, consistent with the trial court, that the anti-retaliation provisions of Dodd-Frank do not apply extraterritorially because “a statute is presumed, in the absence of clear congressional intent, to apply only domestically.”

Thus, the Second Circuit dismissed Liu’s complaint because Liu alleged that he was a non-citizen (a citizen and resident of Taiwan), employed by a foreign company (a former compliance officer of Siemens China, a Chinese corporation that is a wholly owned subsidiary of Siemens, a German corporation with shares listed on the New York Stock Exchange), and that all the events allegedly giving rise to liability occurred outside the United States (Liu alleged that Siemens employees were indirectly making improper payments to officials in North Korea and China in connection with the sale of medical equipment in those countries).

Consistent with the odd dynamic referenced above, Liu argued that Dodd-Frank’s anti-retaliation provisions should have extraterritorial application because Dodd-Frank’s whistleblower bounty provisions seemingly do citing to SEC guidance and regulations for support.

As to Liu’s argument regarding the whistleblower bounty provisions, the Second Circuit initially observed in dicta that “it is far from clear that [the SEC's] assertion that a statute has extraterritorial effect, unmoored from any plausible statutory basis for rebutting the presumption against extraterritoriality, should be given deference.”

More to the point, the Second Court concluded as to the anti-retailiation provisions follows.

“[E]ven if we assume that the [SEC regulations] clearly apply the bounty program to whistleblowers located abroad and that some deference would be due such an agency interpretation, it would not follow that Congress intended the anti-retailiation provision to apply similarly.  [...] [A] regulation addressing the bounty provision cannot be taken to support the proposition that the anti-retailiation provision should apply extraterritoriality. [...]  [E]xtraterritorial application of the bounty and anti-retailiation provisions have far different international ramifications.  Providing rewardings to persons, foreign or domestic, who supply information about lawbreaking is far less intrusive into other countries’ sovereignity than seeking to regulate the employment practices of foreign companies with respect to the foreign nationals they employ in foreign countries.  Applying the anti-retaliation provision in circumstances such as Liu’s would effect such an intrusion.  Thus, whatever their merits, none of the arguments that the bounty provision is meant to have extraterritorial reach provide any support for Liu’s claim that the anti-retaliation provision is meant to have extraterritorial reach.”  (emphasis is original).

From my perspective, the most interesting aspect of the Second Circuit’s decision is the above dicta statement which calls into question whether Dodd-Frank’s bounty provisions have extraterritorial application.

This will be an interesting issue to follow and once again the current odd dynamic (as well as potential future odd dynamics) are the direct result of Congress being sloppy in passing a law with various provisions that generically apply to any securities law violations without thinking through, on a micro level, the intersection of such provisions.

Checking In Down Under

Wednesday, April 23rd, 2014

Today’s post is from Robert Wyld (Partner, Johnson Winter & Slattery).  Wyld is the Australia Expert for FCPA Professor.

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This update covers a range of important developments in Australia and overseas in the area of foreign bribery policy, investigations and regulation in the first quarter of 2014.

The key issues that are covered in this Update include:

  • Australia’s address to the G20 Anti-Corruption Roundtable
  • The Australian Securities and Investment Commission (ASIC) and whistleblower protections
  • ASIC and civil penalties
  • Australian foreign bribery investigations and prosecutions – media updates
  • Asia Pacific developments

Australia and the G20 Anti-Corruption Roundtable

The Australian Government has been remarkably quiet in the foreign bribery space. A Consultation Paper into whether facilitation payments should be abolished (published in November 2011) appears to have died an unfortunate death by inertia.

It was refreshing to read that the Attorney General, George Brandis QC, in delivering his opening address to the G20 Anti-Corruption Roundtable, made it clear that corruption is and remains one of the greatest barriers to global growth and that all governments must address the systemic problems flowing from corruption.

The Attorney General highlighted three specific issues that warranted close attention by the Roundtable group – judicial integrity, foreign bribery and the transparency of legal structures, and the identity of beneficial owners. While little was said on the detail, it is encouraging to see the topic of foreign bribery (whatever that entails) is firmly on the agenda while Australia chairs the G20 in 2014.

ASIC and Whistleblower Protections

On 18 February 2014, ASIC published its Information Sheet No. 52 entitled ‘Whistleblowers and whistleblower protection’. ASIC’s responsibilities are to regulate companies acting in contravention of the Corporations Act 2001 (Cth) (Act). ASIC’s focus is on conduct which is disclosed to it which involves a potential contravention of the Act. The Act provides a statutory framework to protect whistleblowers (see Pt9.4AAA, sections 1317AA to 1317AE).

The key elements under the statutory whistleblower protection regime that must be satisfied are:

  • the whistleblower must be an officer or an employee of the company or a contractor or employee of a contractor which has a current contract to supply goods or services to the company the disclosure is about;
  • the disclosure must be to the company’s auditor, a director, secretary or senior manager within the company, a person authorised by the company to receive whistleblower disclosures or ASIC;
  • the whistleblower must identify himself when making the disclosure;
  • the whistleblower must have reasonable grounds to suspect that the information disclosed indicates the company or company officers may have breached the Act (or ASIC’s Act); and
  • the whistleblower must make the disclosure in good faith.

The tenor of ASIC’s approach is that it still has limited resources, it prefers to focus on the disclosed conduct and it keeps emphasising that a whistleblower should seek independent legal advice. ASIC has been criticised in the past for responding very slowly at times to significant complaints. ASIC will now appoint a dedicated Liaison Officer to be in regular contact with the whistleblower. While a whistleblower may have protection from victimisation, any complaint about how a whistleblower is treated is a private matter between the whistleblower and the company.

In an Ethics Conversation hosted by the St James Ethics Centre in Sydney on 8 April 2014, the ASIC Chairman, Greg Medcraft indicated that while the protection of whistleblowers was important, he appeared less enamoured of the US whistleblower bounty scheme established under the US Securities Exchange Act. Mr Medcraft felt that such a scheme sat uncomfortably with the Australian culture of “not dobbing in a mate”. At the same event, Rod Sims, the Chairman of the Australian Competition & Consumer Commission, was concerned about how Australian courts might treat an individual who had a financial interest in a prosecution and the impact that might have on a whistleblower’s overall credibility. Perhaps the pioneering research work of Prof AJ Brown at Griffith University might help to debunk the myth of not dobbing in a mate – and encourage regulators to realise that the vast majority of Australians consider that whistleblowers who report serious misconduct should be both praised and protected. It remains to be seen how ASIC will act in the future towards whistleblowers.

ASIC and Civil Penalties

In March 2014, ASIC published its Report No. 387 entitled ‘Penalties for corporate wrongdoing’ which considered the penalties available to ASIC and whether they were proportionate and consistent with those for comparable wrongdoing in selected overseas jurisdictions. The key findings of the Report were as follows:

  • ASIC rated effective enforcement as critical to achieving its strategic priorities of fair and efficient financial markets with a range of penalties designed to deter contravention and promote greater compliance;
  • in relation to imprisonment and fines open to ASIC to seek through litigation: the maximum fines are broadly consistent with other comparable jurisdictions save for the US; other jurisdictions have greater flexibility to impose higher non-criminal fines; other jurisdictions can seek the disgorgement of profit generated by the wrongdoing,
  • within Australian legislation, there are examples where non-criminal fines can be imposed at a much higher amount than those available to ASIC.

ASIC has called for greater penalties to be available to it for corporate wrongdoing. While ASIC made it clear that it will pursue the sanctions and remedies best suited to each case on its merits, Mr Medcraft made it clear at the St James Ethic Centre Conversation that he wanted to target individuals as it was only through “scaring the hell out of people” faced with imprisonment, that he believed commercial behaviour might, in fact, change.

Australian Foreign Bribery Investigations and Prosecutions – Media Updates

The Securency banknote printing corruption prosecution continues to roll on slowly in Victoria. While the whole process is subject to suppression orders in Victoria, it is hoped significant public progress in the case occurs during 2014.

The Australian media has continued to follow the saga of an AFP investigation into the Middle East business activities of Leighton Holdings, its various entities and senior officers. While no criminal prosecution has occurred, the opening salvos in a securities class action in Victoria concerning non-disclosure to the market between aggrieved Leighton shareholders and the company suggests the case will continue to affect the company, currently under new Spanish management.

Asia Pacific Developments

The Asia Pacific region is home to both many of the world’s most active economies and to those where the perception of systemic corruption is the greatest.

Developments in China, as one of Australia’s most significant trading partners, must be followed. From mid-2013, the Chinese Government started to target multinational companies in the pharmaceutical sector, in the “supply side” of corruption rather than its traditional focus on the “demand side” of corruption, being the local Chinese public official. This must ring warnings to all Australian business that they are not immune from Chinese Government investigation.

In addition, the role of the US – China Joint Liaison Group on Law Enforcement, may yet see an increase in parallel US and China investigations, although human rights issues may see such investigations undertaken only in limited cases.

In the Asia-Pacific Economic Cooperation (APEC) Bali Declaration in late 2013, APEC called for greater regional cooperation on corruption and collaboration between regulators. A new regional authority is to be established, called the APEC Network of Anti-Corruption Authorities & Law Enforcement Agencies (ACT-NET). The goal of this agency is to, in part, “encouraging private sector stakeholders to implement APEC’s high standard principles for codes of business ethics”.

At the meeting of the APEC Anti-Corruption and Transparency Working Group held in Ningbo in China in February 2014, members agreed to further discuss ACT-NET’s development and implementation during 2014. The goal of the ACT-NET was said to advance greater collaboration among law enforcement authorities in combating corruption, bribery, money laundering, and illicit trade.. Future meetings of ACT-NET will take place during 2014.