A prosecutorial common law defeat, the SEC repeats its prior positions, better but not good, document issues, and recent scrutiny news.

Prosecutorial Common Law Defeat

One of the best guest posts in FCPA Professor history was this 2011 post from Michael Levy in which he described the concept of prosecutorial common law.  Prosecutorial common law is all around us.  Take a look at the footnotes of the recent FCPA Guidance - most of the “authority” cited for “legal” propositions is DOJ or SEC settlements.

For obvious reasons, prosecutorial common law does not sit well with federal court judges.  For instance, in U.S. v. Bodmer, Judge Shira Scheindlin of the Southern District of New York, in rejecting the DOJ’s position that the FCPA’s criminal penalty provisions applied to a foreign national prior to the 1998 FCPA amendments, noted as follows – “the Government’s charging decision, standing alone, does not establish the applicability of the statute.”  Likewise as noted in this previous post about the Giffen enforcement action, Judge William Pauley of the Southern District of New York stated that prosecutorial common law ”is not the kind or quality of precedent this Court need consider.”

Prosecutorial common law recently suffered a major defeat when the Second Circuit, in a non-FCPA case, rejected (see here for the opinion)  a DOJ theory of prosecution concerning off-label promotion of drugs that it has previously used to secure billions (yes that is a “b”) in recent settlements with pharmaceutical companies.

Commenting on this recent development, Levy stated as follows.  “It is amazing to me how consistently this pattern seems to repeat but, given the incentives on both sides, I don’t really see any structural solutions that would change it.”

For additional reading, see this client alert from Debevoise & Plimpton, this client alert from Arnold & Porter, and this client alert from Gibson Dunn.

SEC Responds to Magyar Telekom Execs Motion to Dismiss

Given the SEC’s positions in its recent response to Herbert Steffen’s motion to dismiss (see here for the prior post), it comes as little surprise that the SEC is taking the same positions in its response to the motion to dismiss filed by former Magyar Telecom executives Elek Straub, Andras Balogh and Tamas Morvai.

In its response brief (here), the SEC states, in summary form, as follows.

“The defendants move to dismiss the complaint, arguing that (1) the Court lacks personal jurisdiction; (2) the SEC’s claims are time-barred; (3) the complaint fails to allege facts supporting the SEC’s anti-bribery claims; and (4) the complaint fails to allege facts supporting the SEC’s lying to auditors claims. The Court should deny the motion on all four grounds.

First, the defendants are subject to personal jurisdiction because their conduct caused foreseeable consequences in the United States. The complaint alleges that the defendants orchestrated a bribery scheme in Macedonia; that they concealed their bribes through the use of sham contracts and falsified books and records; that they lied to Magyar’s auditors by signing false annual and quarterly certifications; and that their actions caused Magyar to file annual and quarterly reports with the SEC in the United States that misrepresented the company’s financial statements and included false Sarbanes-Oxley certifications.

Second, the complaint was timely filed within the statute of limitations set forth at 28 U.S.C. § 2462. That provision expressly states that the limitations period does not begin to run until the defendants are “found within the United States.” The defendants acknowledge in their brief that they have remained outside of the United States since their commission of this scheme. Thus, the statute of limitations period has not begun to run as to them. In any event, claims for equitable relief are not subject to the limitations period of Section 2462, which by its terms applies only to “penalties.”

Third, the complaint pleads all facts necessary to support every element of every claim against the defendants.  The defendants met the “interstate commerce” prong of Exchange Act Section 30A, 15 U.S.C. § 78dd-1, by sending, in furtherance of their bribery scheme, electronic mail messages that were routed through servers located in the United States. Because the use of interstate commerce is a jurisdictional element, the Exchange Act does not require that defendants know, let alone “corruptly” intend, that their messages would reach the United States. The complaint sufficiently identifies the foreign officials whom the defendants bribed; Section 30A does not require that the officials be expressly named. And the complaint sufficiently identifies the specific false statements made by each defendant to Magyar’s auditors and why those statements were material.”

Of particular note as to “foreign official,” the SEC makes the sweeping statement that “there is no requirement under the FCPA or in the case law interpreting it that the SEC’s complaint [needs to] identify bribed foreign officials by name.”  The SEC then states in a footnote as follows.  “Any such requirement would be completely at odds with the FCPA’s statutory scheme. [...]  By its very structure, [the anti-bribery provisions were] drafted to prohibit corrupt transactions in which the precise identity of a government official might not be known even to the payor.”

As noted in this previous post, the SEC is asserting the same “foreign official” position in the Mark Jackson / James Ruehlen challenge.  Oral arguments are to take place today on that motion in Houston.

It should be noted that in the DOJ’s unsuccessful prosecution of John O’Shea, Judge Hughes stated as follows.  “[W]hile the Government does not have to trace a particular dollar to a particular pocket of a particular official, it has to connect the payment to a particular official, that the funds made under his authority to a foreign official, who can be identified in some reasonable way, that is, with no reasonable doubt.” Judge Hughes also stated as follows.  “You can’t convict a man promising to pay unless you have a particular promise to a particular person for a particular benefit. If you call up the [intermediary] and say, look, I’m going to send you 50 grand, bribe somebody, that does not meet the statute.”

Corruption Perception Index

Transparency International (“TI”) recently released its annual Corruption Perceptions Index (“CPI”) (see here).  The CPI ranks countries/territories based on how corrupt their public sector is perceived to be and is a composite index drawing on corruption-related data collected by a variety of reputable institutions and reflecting the views of observers from around the world including experts living and working in the countries/territories evaluated.

The top three (very clean) countries in the CPI were Denmark, Finland and New Zealand. The bottom three (highly corrupt) countries were Afghanistan, North Korea and Somalia.

The United States placed 19th on the list of 176 countries.  While this is better than last year’s 24th place finish, as noted in this prior post it’s a bit ironic that as the U.S. aggressively expands its Foreign Corrupt Practices Act enforcement theories, the U.S. remains far from the top of the CPI.

Assistant Attorney General Lanny Breuer recently spoke of the U.S. FCPA enforcement effort in religious terms (“we in the United States are in a unique position to spread the gospel of anti-corruption, because there is no country that enforces its anti-bribery laws more vigorously than we do”), yet CPI’s rankings should again cause pause as to our claimed moral superiority.

Document Issues

I am not one to usually highlight FCPA Inc. marketing material, but I thought this video clip from e-discovery firm H5 was instructive as to many of the document issues involved in an FCPA investigation.  The enforcement agencies have commented from time to time that FCPA Inc. has a tendency to sometimes over do it in this area, but be that as it may – data collection, data storage, data analysis, etc. are among the reasons why FCPA investigations often soar into the millions.

Recent Scrutiny News

Rolls-Royce

Reuters reports (here) that Rolls-Royce, the world’s second-largest maker of aircraft engines “said the [U.K. Serious Fraud Office] had asked it to conduct an internal inquiry into dealings involving intermediaries in China, Indonesia and other overseas markets.”  According to the report, ”a source close to the investigation said the allegations relate to events in the “distant past” and Rolls-Royce had told the U.S. Department of Justice about the inquiry.”

As noted in this previous post, in June, Data Systems & Solutions, LLC, a wholly-owned subsidiary of Rolls-Royce Holdings, resolved an FCPA enforcement action.

Barclays

Reuters also reports (here) that a previously disclosed DOJ and SEC “investigation into whether Barclays Plc paid bribes to win a banking license in Saudi Arabia has spread to other banks that operate in the region.”

Net 1

Earlier this week, Net 1 UEPS Technologies Inc. disclosed in an SEC filing (here) as follows.

“On November 30, 2012, we received a letter from the U.S. Department of Justice, Criminal Division (the “DOJ”) informing us that the DOJ and the Federal Bureau of Investigation have begun an investigation into whether Net 1 UEPS Technologies, Inc. and its subsidiaries, including their officers, directors, employees, and agents (collectively, “Net 1”) and other persons and entities possibly affiliated with Net 1 violated provisions of the Foreign Corrupt Practices Act and other U.S. federal criminal laws by engaging in a scheme to make corrupt payments to officials of the Government of South Africa in connection with securing a contract with the South African Social Security Agency to provide social welfare and benefits payments and also engaged in violations of the federal securities laws in connection with statements made by Net 1 in its SEC filings regarding this contract. On the same date, we received a letter from the Division of Enforcement of the Securities and Exchange Commission (the “SEC”) advising us that it is also conducting an investigation concerning our company. The SEC letter states that the investigation is a non-public, fact-finding inquiry.”

In this additional release, the company states as follows.

“These investigations appear to be directed at matters which are similar to those that were the subject of articles which appeared in various South African newspapers after AllPay Consolidated Investment Holdings (Pty) Limited (“AllPay”) instituted legal proceeding in the South African courts to set aside the contract awarded to us in January 2012 by SASSA. AllPay was an unsuccessful bidder for the SASSA contract.”

News of the company’s FCPA scrutiny caused the company’s U.S. listed shares to plunge approximately 58%.  This of course caused several plaintiff law firms to announce investigations of their own.  See here, here, and here.  In the meantime, the company’s shares have risen 46%.

It’s an FCPA world.

*****

A good weekend to all.