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Friday Roundup

Friday, March 30th, 2012

This week’s disclosure, Jefferson’s non-FCPA appeal, statistics of note, and an update on Brazil’s “FCPA”. It’s all here in the Friday roundup.

MTS Systems Corp. Disclosure

Minnesota-based MTS Systems Corp. (here), a global supplier of test systems and industrial position sensors, disclosed earlier this week (here) as follows.

“MTS Systems Corporation (the “Company”) is investigating certain gift, travel, entertainment and other expenses that may have been improperly incurred in connection with some of the Company’s operations in the Asia Pacific region. The investigation has focused on possible violations of Company policy, corresponding internal control issues and any possible violations of applicable law, including the Foreign Corrupt Practices Act. Though the investigation is not complete, the Company has taken remedial actions, including changes to internal control procedures and removing certain persons formerly employed in its Korea office. The Company believes, however, that the amount of the expenses in question is not material to its reported consolidated financial statements. The Company has voluntarily disclosed this matter to the U.S. Department of Justice and the U.S. Securities and Exchange Commission. Additionally, the Company has disclosed this matter to the U.S. Air Force pursuant to its Administrative Agreement. The Company cannot predict the outcome of this matter at this time or whether it will have a materially adverse impact on its business prospects, financial condition, operating results or cash flows.”

MTS’s FCPA disclosure marks the fourth time in the last five weeks that a company has newly disclosed FCPA scrutiny. See here for the prior post “The Sun Rose, a Dog Barked, and a Company Disclosed FCPA Scrutiny.”

Jefferson’s Non-FCPA Appeal

I respectfully disagree with others who have recently stated that the 4th Circuit upheld former Congressman William Jefferson’s FCPA conspiracy conviction. Yes, the 4th Circuit did affirm Jefferson’s conviction of Count 1, as well as other charges. Count 1 was a conspiracy charge to solicit bribes, commit honest services wire fraud, and violate the FCPA in violation of 18 USC 371; however, as even the 4th Circuit noted in its opinion – here, this count charged a conspiracy with multiple objects and the jury was instructed that it only had to find that Jefferson conspired to commit one of the substantive offenses identified. In announcing the jury verdict the court did not specify which object of the conspiracy the jury agreed on and in fact the jury found Jefferson not guilty of a substantive FCPA charge, a charge principally based on allegations that Jefferson attempted to bribe Nigerian officials (including the former Nigerian Vice President) to assist himself and others obtain or retain business for a Nigerian telecommunications joint venture.

As stated in the 4th Circuit’s opinion, Jefferson appealed his convictions on the following grounds: “(1) that an erroneous instruction was given to the jury with respect to the bribery statute’s definition of an ‘official act’; (2) that another erroneous instruction was given with respect to the ‘quid pro quo’ element of the bribery-related offenses; (3) that Jefferson’s schemes to deprive citizens of honest services do not constitute federal crimes; and (4) that venue was improper on one of his wire fraud offenses.” [Reference to the "bribery statute" is to 18 USC 201 - the domestic bribery statute, not the FCPA]. In short, Jefferson’s 4th Circuit appeal had nothing to do with the FCPA.

Statistics of Note

In “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (see here), I argue that a compliance defense will better incentivize corporate compliance, reduce improper conduct, and thereby advance the FCPA’s objective of preventing bribery of foreign officials. Sure, business organizations at present have at least two incentives (the DOJ’s Principles of Prosecution of Business Organizations and the U.S. Sentencing Guidelines) to implement FCPA compliance policies and procedures. I argue that these incentives are not well known by a meaningful segment of the business community and, even if they were, despite these incentives (incentives which merely lessen the impact of legal exposure vs. reduce legal exposure), few business organizations operating in a world of finite resources are sufficiently implementing comprehensive FCPA policies and procedures. Various survey data is cited in support.

Add Deloitte’s recent third-party business relationships poll (see here) to the list. Despite the fact that a significant majority of corporate FCPA enforcement actions are based on the conduct of foreign third parties (such as agents, representatives, distributors, joint venture partners) the poll found the following.

On what percentage of your organization’s third-party business partners do you estimate it performs due diligence and risk assessments?
Votes Received: 1,339

None	5%
Up to 25%	23.4%
26–50%	14.5%
51–75%	12.4%
76-100%	13.4%
NA/Don’t know	31.3%

An FCPA compliance defense surely will not cause 100% of business organizations to perform due diligence and risk assessment of all foreign third parties, but it is reasonable to conclude that an FCPA compliance defense will better incentivize more robust FCPA compliance policies and procedures, including as to third-parties.

Another statistic of note. A recent Global Anti-Corruption Survey by AlixPartners found that 95% of survey participants believe their industry is exposed to business practices that may constitute corruption. Southeast Asia and Africa presented the most significant risk according to survey participants. Survey participants were in-house legal counsel or compliance officers at North American multinational companies with annual revenues of $250 million or greater (with 90% of respondents working for companies with annual revenues exceeding $1 billion).

Brazil Update

In this prior post, Matteson Ellis (founder and Principal of Matteson Ellis Law, PLLC, who also writes the FCPAmericas Blog), provided an overview of a draft bill making its way through the Brazilian Congress that would strengthen its “FCPA-like” law. In this recent post on his FCPAmericas Blog, Ellis provides an update on the draft bill. Ellis reports as follows. “A Special Committee created by the Brazilian Congress to analyze [the draft bill] has recently presented a revised draft that bolsters certain key provisions and keeps other significant ones the same. The House aims to vote on the legislation before July 2012.” In his post, Ellis provides various highlights of the revised draft bill as to corporate liability, sanctions, voluntary disclosure, and compliance programs.

*****

A good weekend to all.

Quiz Time Answer

Thursday, April 22nd, 2010

In a prior post (here), I noted that in 2009 there were three FCPA trials – Frederic Bourke, William Jefferson, and Gerald and Patricia Green.

I then posted the question – what is the common thread in these three FCPA enforcement actions – a fact which speaks to the great difficulty individual FCPA defendants generally have in mounting a legal defense?

Before the answer, the background.

Individual FCPA defendants tend to work for companies. Under respondeat superior theories of liability, the company is going to have a very difficult time “distancing” itself from its employees conduct.

Thus, all corporate FCPA enforcement actions tend to be resolved through a non-prosecution agreement, a deferred prosecution agreement, or a plea. Entering into one of these resolution vehicles is often easier, more cost efficient, and more certain than actually mounting a legal defense based on the FCPA’s statutory elements. Further, because these resolution vehicles are subject to little or no judicial scrutiny and are entered into the context of the DOJ possessing certain “carrots” and “sticks” they do not necessarily reflect the triumph of one party’s legal position over the other.

While these resolution vehicles may indeed avert “another Arthur Anderson” here is the problem.

A key feature of each resolution vehicle is a statement along the following lines:

“[company] admits, accepts, and acknowledges responsibility for the conduct set forth in [the statement of facts] and agrees not to make any public statement contradicting [the statement of facts]” (see UTStarcom NPA here);

“[company] admits, accepts and acknowledges that it is responsible for the acts of its officers, employees and agents as set forth in the Statement of Facts [...] and that the facts described [...] are true and accurate [...] and that should the DOJ initiate prosecution that is deferred by this agreement [company] agrees that it will neither contest the admissibility of, nor contradict, in any such proceeding, the Statement of Facts” (see AGA Medical DPA here); or

“Defendant admits,agrees and stipulates that the factual allegations set forth in the Statement of Facts [...] are true and correct, that it is responsible for the acts of its former officers and employees described in the Statement of Facts, and that the Statement of Facts accurately reflects CCI’s criminal conduct” (see Control Components Inc. Plea Agreement here).

So what can you do if you are the targeted employee of such a company?

More likely than not, your employee has already terminated you (even before all the facts may be known) to demonstrate to the DOJ that it is implementing “prompt remedial actions” – a factor DOJ will consider when making its charging decision (see here).

Then, because of the resolution vehicle your employer entered into to make the DOJ go away, you are stuck with your employer admitting and accepting responsibility for your misconduct, even though there has been no finding that your conduct was even misconduct.

Against this backdrop, it is no surprise that nearly all FCPA individual defendants plead. What choice do they really have?

So that brings us back to the quiz answer.

Perhaps it was pure coincidence, perhaps not, but the three individual FCPA trials all occurred in the context of there being no parallel NPA, DPA or plea with a corporate entity.

Jefferson Jurors Speak

Monday, April 19th, 2010

In August 2009, former Congressman William Jefferson (D-LA) was found guilty by a federal jury of a variety of charges (solicitation of bribes, honest services wire fraud, money laundering, racketeering, and conspiracy).

The jury found Jefferson not guilty of a substantive FCPA charge, a charge principally based on allegations that Jefferson attempted to bribe Nigerian officials (including the former Nigerian Vice President) to assist himself and others obtain or retain business for a Nigerian telecommunications joint venture. The famous “cash in the freezer” was allegedly part of the bribery scheme. (See here for prior post).

Just what conspiracy charge the jury found Jefferson guilty of was unclear.

The indictment charged conspiracy to solicit bribes, to commit honest services wire fraud, and to violate the FCPA.

Problem is, the jury was instructed, that to convict on this charge, it only needed to find Jefferson guilty on two out of three of those counts.

In announcing the jury verdict, the court did not specify which counts the jury agreed on (see here and here).

A recent article in the New Orleans Times-Picayune (here) contains statements by “three jurors who spoke to The Times-Picayune on the condition they remain anonymous to avoid angering federal Judge T.S. Ellis III, who advised against talking to the news media.”

These anonymous juror statements, while clearly not official in any sense, may shed some light on Jefferson’s FCPA verdict.

For instance, why didn’t the jury convict Jefferson of the substantive FCPA offense?

According to the article, “because two members of the 12-member panel believed that the congressman planned to keep the money for himself rather than to bribe the vice president of Nigeria as alleged by federal prosecutors.”

The article states: “Two of the jurors explained the jury’s decision to return an innocent verdict on a single charge of violating the Foreign Corrupt Practices Act. Jefferson was the first elected official ever charged with violating the law, which is intended to block payments of bribes by U.S. citizens to foreign officials. According to the interviews, two jurors expressed doubts that Jefferson actually intended to use the $100,000 in cash given to him by Mody to bribe Atiku Abubakar, then the vice president of Nigeria, as he said he would in the taped conversations. ‘I think there was some thought he intended to keep the money himself, and that’s not the crime he was accused of,’ said one juror who added that the remaining 10 jurors eventually went along with the sentiments of their two colleagues.”

What about the conspiracy conviction – did that conviction include conspiracy to violate the FCPA?

According to the jurors comments – yes.

The article states: “But jurors decided that his discussion about wanting to keep Abubakar happy was enough to support a charge of conspiracy to violate the Foreign Corrupt Practices Act.”

As the article notes: “The question about whether the jury found Jefferson guilty of conspiracy to solicit bribes domestically or internationally is important because, as part of Jefferson’s appeal, his attorneys contend that influencing foreign officials isn’t part of a congressional member’s official duties and therefore can’t be prosecuted under federal bribery laws.”

In November 2009, Jefferson was sentenced to 13 years in federal prison. He remains free on bail while his appeal is pending.

FCPA Undercover

Monday, January 25th, 2010

The Africa Sting case is indeed the largest and most dramatic use of pro-active, undercover investigative techniques in an FCPA investigation.

However, contrary to numerous reports and even statements attributed to DOJ officials, the Africa Sting case is not the first time that pro-active, undercover investigative techniques have been used in an FCPA investigation. In other words, this is not a new development as demonstrated below.

Shu Quan-Sheng

In September 2008, Shu Quan-Sheng (a naturalized U.S. citizen and President, Secretary, and Treasurer of AMAC International (“AMAC”), a high tech company located in Virginia with an office in Beijing, China) was charged in a criminal complaint (see here and here) with, among other things, offering bribes to Chinese “foreign officials” in violation of the FCPA.

An affidavit (see here) in support of the criminal complaint by an FBI special agent describes several pro-active, undercover investigative methods including court authorized electronic surveillance and physical surveillance. Among other things, the affidavit describes several phone conversations Shu participated in connection with the bribery scheme.

Shu plead guilty to FCPA violations (among other charges) and was sentenced to 51 months in prison. (see here).

Gerald and Patricia Green

In January 2008, Gerald and Patricia Green, owners and operators of Film Festival Management (a private Los Angeles based private entertainment company) were criminally indicted for conspiring to bribe an official with the Tourism Authority of Thailand (TAT) and for making improper payments to the TAT official in violation of the FCPA. (see here and here).

The criminal charges were supported by an affidavit (see here) from an FBI special agent which describes several pro-active undercover investigative methods, including a multiple agent trip to Thailand to witness Mr. Green meeting with the Thai “foreign official.”

In September 2009 (see here), the Greens were found guilty by a federal jury of substantive FCPA violations, conspiracy to violate the FCPA, and other charges. The Greens are scheduled to be sentenced in March 2010.

William Jefferson

In June 2007, then U.S. Congressman William Jefferson was criminally indicted (see here and here). The charges included substantive FCPA violations and conspiracy.

According to numerous media sources (see here), the FBI affidavit released in connection with the investigation describes several pro-active, undercover investigative techniques including cooperating witnesses wearing FBI wires and video surveillance.

In August 2009, Jefferson was acquitted of substantive FCPA charges by a federal jury, but convicted of a wide range of other charges. (see here for more on the Jefferson case). In November 2009, Jefferson was sentenced to 13 years in prison and he remains free on bail pending his appeal.

WrageBlog (see here) has also identified two other previous instances of pro-active, undercover investigative techniques employed in connection with FCPA investigations.

Jefferson Sentenced / When a Jury Verdict is Relegated to a Footnote

Friday, November 13th, 2009

[Please scroll down, there are three posts today]

Today, former Congressman William Jefferson was sentenced to 13 years in federal prison. He was convicted in early August of a variety of charges (solicitation of bribes, honest services wire fraud, money laundering, racketeering, and conspiracy)(see here for the DOJ release).

However, he was acquitted on the substantive FCPA antibribery charge.

As mentioned above, Jefferson was convicted of conspiracy, but what conspiracy was unclear as the indictment charged conspiracy to solicit bribes, to commit honest services wire fraud, and to violate the FCPA.

Problem is, the jury was instructed that to convict it only needed to find Jefferson guilty on two out of three of those counts.

In announcing the jury verdict, the court did not specify which counts the jury agreed on … the jury may have concluded that Jefferson conspired to violate the FCPA or it may have not. (See here for my prior post). See here for what others have said.

This uncertainty / ambiguity, it would seem, matters little to the DOJ as its sentencing memorandum in the Jefferson case says that “… as egregious and illegal as [Jefferson's] bribe solicitations were, Congressman Jefferson further compounded his criminal culpability by conspiring with others to pay a bribe to the then-sitting Vice President of Nigeria.” (p. 6).

Given the above, this statement would seem to be a bit of a stretch based on the jury’s verdict.

Sure, the DOJ sentencing memorandum mentions the jury’s verdict on this issue, but it relegates the verdict to a mere footnote. Here is the footnote in its entirety:

“The government recognizes that the jury returned a verdict of “not guilty” to the charge contained in Count 11 of the indictment, a substantive violation of the Foreign Corrupt Practices Act. The government believes that the jury found Congressman Jefferson not guilty on Count 11, at least in part, because he ultimately failed to deliver the $100,000.00 in cash to the Nigerian Vice President before the Vice President departed the United States on July 31, 2005. However, the evidence fully supports the proposition that the jury, nevertheless, found that the defendant conspired to bribe the Vice President of Nigeria, an object of the conspiracy charged in Count 1, a count on which the jury returned a guilty verdict. Such a verdict would not require proof of the actual delivery of the cash to the Vice President (front end) or actual payment of the percentage of the proceeds of the joint venture (back end). The government believes that the evidence supports such a split finding by the jury as to Counts 1 and 11. Although delivery of the cash to the Vice President of Nigeria was not a legal pre-requisite to finding Congressman Jefferson guilty of Count 11, it offers a compelling explanation for the jury’s split verdict. Finally, the government recognizes that such a split verdict can never be completely confirmed because the conspiracy charged in Count 1 contained three objects, one of them being the charge related to the bribe of the Vice President of Nigeria. The verdict form completed by the jury on August 5, 2009 did not require the jury to delineate which, if not all, of the objects charged in the conspiracy in Count 1 were found to have been proved, only that at least one of the objects was proven by the government beyond a reasonable doubt.”

As if relegating a jury verdict to a footnote is not unsettling enough, yesterday Assistant Attorney General Breuer in his speech (see here for the post) was so bold as to say this:

“In the past few months, we have the completed the trials of the Greens in California, of Mr. Bourke in New York and of former Congressman William Jefferson in Virginia. In each of these cases, individuals were found guilty of FCPA violations and face jail time.”