September 9th, 2014

The Gray Cloud Of FCPA Scrutiny Simply Lasts Too Long

Gray CloudLegal scrutiny – whether in the FCPA context or otherwise – is a cloud hanging over a business organization.  When that legal scrutiny can result in potential criminal liability, the cloud is black or at the very least gray.

For many companies, the gray cloud of FCPA scrutiny simply lasts too long.

If you dig into the details of most corporate FCPA enforcement actions you quickly discover that the alleged conduct at issue occurred 5-7 years, 7-10 years, and in some instances, 10-15 years prior to the enforcement action.

For instance, in a 2012 enforcement action against pharmaceutical company Biomet the conduct at issue went back to 2000; in a 2012 enforcement action against pharmaceutical company Pfizer the conduct at issue went back to 1997; and in a 2012 enforcement action against trading and investment firm Marubeni the conduct at issue went back to 1995.   Likewise, in a 2013 enforcement action against oil and gas company Total, the conduct at issue went back to 1995.   So old was the conduct giving rise to the Total enforcement action that the DOJ made the unusual statement in the DPA that “evidentiary challenges” were present for both parties given that “most of the underlying conduct occurred in the 1990s and early 2000s.”

Statute of limitations are ordinarily the remedy the law provides for legal gray clouds.

In 2013, in Gabelli v. SEC (an SEC enforcement action outside the FCPA context) the Supreme Court stated:

“Statute of limitations are intended to ‘promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared.  They provide ‘security and stability to human affairs.  [They] are ‘vital to the welfare of society [and] ‘even wrongdoers are entitled to assume that their sins may be forgotten.’ […] It ‘would be utterly repugnant to the genius of our laws if actions for penalties could ‘be brought at any distance of time.’”

The Supreme Court further stated that statute of limitations are even more important in a government enforcement action compared to a case brought by a private plaintiff.

“There are good reasons why the fraud discovery rule has not been extended to Government enforcement actions for civil penalties. […]  The SEC, for example, is not like an individual victim who relies on apparent injury to learn of a wrong. Rather, a central ‘mission’ of the Commission is to ‘investigate potential violations of the federal securities laws.’ Unlike the private party who has no reason to suspect fraud, the SEC’s very purpose is to root it out, and it has many legal tools at hand to aid in that pursuit. […]  Charged with this mission and armed with these weapons, the SEC as enforcer is a far cry from the defrauded victim the discovery rule evolved to protect.  In a civil penalty action, the Government is not only a different kind of plaintiff, it seeks a different kind of relief. The discovery rule helps to ensure that the injured receive recompense. But this case involves penalties, which go beyond compensation, and are intended to punish, and label defendants wrongdoers.”

Why, despite the importance of statute of limitations to our legal system and Supreme Court recognition that it “would be utterly repugnant to the genius of our laws if actions for penalties could be brought at any distance of time,” do most corporate FCPA enforcement actions concern conduct well beyond the statute of limitations?

Simply put, because in corporate FCPA enforcement actions the fundamental black-letter legal principle of statute of limitations seems not to matter.  Granted counsel for a company under FCPA scrutiny based on conduct beyond the limitations period can argue about statute of limitation defenses around conference room tables behind closed doors in Washington, D.C.  However, like with other FCPA issues, to truly challenge the enforcement agencies first requires that the company be criminally or civilly charged, something few corporate leaders are willing to let happen.

In short, cooperation is the name of the game in corporate FCPA inquiries and to raise bona fide legal arguments such as statute of limitations is not cooperating in an investigation.  Given the “carrots” and “sticks” relevant to resolving corporate FCPA enforcement actions, one of the first steps a company the subject of FCPA scrutiny often does to demonstrate its cooperation is agree to toll the statute of limitations or waive any statute of limitations defenses.

A former DOJ enforcement attorney noted:

“As a practical matter, companies, especially publicly held companies […], typically make a strategic decision to fully cooperate with a DOJ investigation. Despite the potential success of a statute of limitations defense, a company will often make the judgment that the negative press of a protracted investigation and the uncertainty of the outcome at trial make cooperation the more prudent business judgment. The company’s hope is that it will be given credit for the cooperation and it will achieve a better outcome than if it went to trial (i.e., avoid charges, a DPA, or a reduced fine).”

Given this dynamic, the enforcement agencies face little or no time pressure in bringing corporate FCPA enforcement actions.  The end result is that the gray cloud of FCPA scrutiny often hangs over a company far too long.  For instance, Pfizer’s FCPA scrutiny began in 2004 but was not resolved until a 2012 enforcement action.  Likewise, Total’s FCPA scrutiny began in 2003 but was not resolved until a 2013 enforcement action.

Regarding the typical long periods of corporate FCPA scrutiny, an FCPA commentator stated:

“[Companies under FCPA scrutiny are] routinely asked to waive the statute of limitations. They could refuse but none do; refusal might trigger an instant enforcement action against the company or its people. So the waiver gives the feds limitless time to investigate, deliberate, or procrastinate. And no one can force the DOJ or SEC to move on, either with an enforcement action or a declination. The result? Companies [under FCPA scrutiny] get stuck in FCPA limbo.  […] But the DOJ and SEC should always keep one eye on the calendar. The threat of FCPA enforcement […] casts a long shadow. It darkens the future for management, shareholders, lenders, customers, and suppliers. Exactly the problem the statute of limitations was supposed to fix.”

Another FCPA commentator stated:

“The Justice Department and the SEC attorneys have a duty to manage caseloads and move cases responsibly. I called it “cut and run.”  Either the government has the evidence or it does not – and they now fairly early on what direction a case is heading.”

All of the above comments are of course spot-on.

Yet when black letter legal principles matter little, the end result is that the gray cloud of FCPA scrutiny simply lasts too long and the DOJ and SEC are part of the problem.

Posted by Mike Koehler at 12:04 am. Post Categories: Statute of Limitations




September 8th, 2014

Four-Time Ironman

IronmanMy annual second Monday of September off-topic post.

Yesterday, I competed in Ironman Wisconsin for the fourth-straight year and became a four-time Ironman.  I completed the event (a 2.4 mile swim, a 112 mile bike and a 26.2 mile run) in 12 hours and 5 minutes.  A podium finish it was not, but it was my second best time in the event.

Why Ironman?

To those who have done it, you know, but it is hard to explain.

For me the answer is as follows.

There are currently people who are physically unable, or practically unable given their circumstances in life – to do an Ironman. But I am capable at the present moment.

Moreover, there will come a day in which I will be unable to do an Ironman, but that day has not yet arrived and god-willing will not arrive for some time.  But I am capable at the present moment.

Ironman is obviously a physical test, but a mental and emotional journey just the same.  It takes determination to get to the finish line as well as courage to put yourself at the starting line.  For me, Ironman is a place to channel my competitive juices and accomplish a cathartic cleanse each year.  Each year, during the physical, mental and emotional journey that is Ironman, I learn something new about myself, my life, and those around me that I might not have learned but for putting myself through the journey.

Thanks for listening and tomorrow we will return to the regularly-scheduled program.

Posted by Mike Koehler at 12:03 am. Post Categories: Uncategorized




September 5th, 2014

Friday Roundup

Knox to FCPA Inc., DOJ response brief filed, SFO speeches, and asset recovery.  It’s all here in the Friday roundup.

Knox to FCPA Inc.

As highlighted in this prior post, over the summer Jeffrey Knox (DOJ Fraud Section Chief) followed the same tired script on a number of FCPA issues.  It will be interesting to hear / read of Knox’s positions in the future as – following a well-traveled career path for DOJ FCPA enforcement attorneys – he is leaving government service for the private sector to provide FCPA investigative and compliance services to business organizations subject to the current era of FCPA enforcement.  (See here from the Washington Post, here from the Wall Street Journal, and here from the New York Times).

Knox is headed to Simpson Thatcher (also home to former SEC FCPA Unit Chief Cheryl Scarboro – see here for the prior post). This Simpson Thatcher release states in pertinent part:

“Mr. Knox will be a partner based in the Firm’s Washington, D.C. office and a member of the Firm’s Government and Internal Investigations Practice. During his tenure at the DOJ, Mr. Knox served as the Chief and, before then, the second-ranking official of the Criminal Division’s Fraud Section, which has responsibility for some of the nation’s most significant fraud cases, including … Foreign Corrupt Practices Act (FCPA) criminal investigations and prosecutions in the United States.”

[...]

“We are pleased to welcome Jeff back to the Firm,” said Bill Dougherty, Chairman of Simpson Thacher’s Executive Committee. “His deep experience in overseeing high-stakes government investigations and enforcement actions will be a significant asset to our clients as they navigate an increasingly complex enforcement landscape.” “We are very excited that Jeff is joining our Government and Internal Investigations team here at Simpson Thacher. As Chief of the Fraud Section, Jeff has presided over many of the most significant financial fraud, healthcare fraud, and FCPA investigations in recent years, and we know that he is greatly respected within both the DOJ and the white collar bar. His experience and insight will provide substantial value to our clients,” added Mark J. Stein, Head of the Firm’s Government and Internal Investigations Practice.”

The release further states: “[Knox] was a contributor to the DOJ and SEC’s A Resource Guide to the FCPA, published in 2012.”

As I have done in all previous instances of high-ranking DOJ or SEC FCPA enforcement attorneys leaving government services for lucrative FCPA related jobs in the private sector (see here for instance), I will restate my position.

As to DOJ and SEC FCPA enforcement attorneys who have supervisory and discretionary positions and articulate government FCPA policies, it is in the public interest that such individuals be prohibited, upon leaving government service, from providing FCPA defense or compliance services in the private sector for a five-year period.

DOJ Response Brief Filed

This previous post highlighted the motion to dismiss filed by former Alstom executive Lawrence Hoskins in the criminal FCPA action against him.  In short, the motion to dismiss stated that the DOJ’s indictment “charges stale and time-barred conduct that occurred more than a decade ago; it asserts violations of U.S. law by a British citizen who never stepped foot on U.S. soil during the relevant time period; and, it distorts the definition of the time-worn legal concept of agency beyond recognition.”  As noted in the prior post, much of Hoskins’s brief focuses on the issue of whether he withdrew from the alleged criminal conspiracy involving alleged improper payments at the Tarahan power plant project in Indonesia.

Earlier this week, the DOJ filed this response brief.  In pertinent part, the DOJ’s brief states:

“The defendant seeks to have the Court take the extraordinary step of dismissing the Indictment against him at this pretrial phase based on his interpretation of the legal import of  certain allegations contained in the Indictment, supplemented by his own selective version of events contained in an affidavit attached to his motion. The Indictment, however, sets forth more than sufficient facts to support the charged crimes. Moreover, at trial the Government expects to present substantial additional evidence supporting the charges, including facts that bear directly on the arguments raised by the defendant in his motion. The defendant’s motion thus represents a novel effort to – in effect – invent and obtain summary judgment in the criminal process based on the claim that he has established the factual basis for his defenses. For good reason, the law provides that only after the Government has presented its case should a judge and jury grapple with the legal and factual sufficiency of that evidence. Thus, the defendant’s motion should be denied. Even addressing the merits of his arguments at this premature stage, however, the defendant’s motion should fail.

In particular, the defendant’s motion fails because: (1) the issue of withdrawal is necessarily a factual one to be decided by a jury and, nonetheless, the defendant did not withdraw from the charged conspiracies; (2) the Indictment has adequately alleged, and the Government will prove at trial, that the defendant was an “agent” of a domestic concern under the Foreign Corrupt Practices Act (“FCPA”), the charged conduct is domestic (not extraterritorial), and Congress has not specially excepted the defendant from prosecution under the FCPA and, thus, he can be liable for causing, aiding and abetting, or conspiring to commit an FCPA violation even if he is not guilty as a principal; and (3) the Indictment alleges continuing transactions (the bribe payments) that were initiated from Connecticut and alleges that the defendant aided and abetted the transactions through acts in Connecticut, and thus the money laundering charges are properly venued in the District of Connecticut.”

SFO Speeches

David Green’s (Director of the U.K. Serious Fraud Office) recent speech regarding a “cross-section of SFO cases” included the following in the foreign bribery space:

  • Barclays/Qatar: is an investigation, begun in 2012, into the circumstances surrounding Barclays’ £8bn recapitalisation in 2008.
  • Rolls Royce: concerns allegations of bribery carried out by local agents in return for orders in various markets, touching several divisions of Rolls Royce business activity.
  • GlaxoSmithKline: this is an investigation into allegations that bribes were paid in order to increase business in several jurisdictions.
  • GPT: this investigation concerns a subsidiary’s business relationship with the Saudi National Guard.
  • Alstom: this is an ongoing investigation into the use of British subsidiaries of a major French multinational to dispense bribes in several jurisdictions in order to secure large infrastructure contracts. Charges have already been laid against a subsidiary.
  • The Sweett Group: this investigation concerns allegations of bribes paid in return for building contracts in North Africa.

For another recent speech by Alun Milford (General Counsel of the SFO) on cooperation and disclosure, see here.

Asset Recovery

In news related to the DOJ’s Kleptocracy Asset Recovery Initiative (under which prosecutors in the DOJ Asset Forfeiture and Money Laundering Section work in partnership with federal law enforcement agencies to forfeit the proceeds of foreign official corruption – see this 2009 post highlighting Attorney General Holder’s announcement of the program), the DOJ announced:

“The Department of Justice has seized approximately $500,000 in assets traceable to corruption proceeds accumulated by Chun Doo Hwan, the former president of the Republic of Korea.   This seizure brings the total value of seized corruption proceeds of President Chun to more than $1.2 million.  [...] Chun Doo Hwan orchestrated a vast campaign of corruption while serving as Korea’s president,” said Assistant Attorney General Caldwell.   “President Chun amassed more than $200 million in bribes while in office, and he and his relatives systematically laundered these funds through a complex web of transactions in the United States and Korea.   Today’s seizure underscores how the Criminal Division’s Kleptocracy Initiative – working in close collaboration with our law enforcement partners across the globe – will use every available means to deny corrupt foreign officials and their relatives safe haven for their assets in the United States.”

*****

A good weekend to all.

 

Posted by Mike Koehler at 12:04 am. Post Categories: Asset RecoveryEnforcement Agency PolicyEnforcement Agency SpeechesFCPA Inc.Lawrence HoskinsSerious Fraud OfficeUnited Kingdom




September 4th, 2014

Are You Ready For Some Football? How A Successful Football Organization Can Inform FCPA Compliance In A Business Organization

FBAre you ready for some football? The answer is likely yes as the football season is arguably the most anticipated sports season and one that transforms the weekends of many.

For Foreign Corrupt Practices Act compliance practitioners, understanding the game is not just a professional diversion, but one that can actually add professional value as well.  The reason is because understanding what makes a football organization successful can also inform FCPA compliance in a business organization.

In the spirit of the season, my recent article in Bloomberg BNA’s White Collar Crime Report titled “How a Successful Football Organization Can Inform FCPA Compliance In a Business Organization” highlights four attributes of a successful football organization that can also elevate FCPA compliance in a business organization.

Click here to download the article.

Posted by Mike Koehler at 12:02 am. Post Categories: ComplianceFCPA Scholarship




September 3rd, 2014

Gifts And The “Bribery Gaze”

[I originally published this post as a book review on Criminal Law and Criminal Justice Book (a joint project of Rutgers School of Law-Newark and Rutgers School of Criminal Justice) and it is republished below with permission.]

Throughout human history, gifts have been a respected and legitimate form of gratitude and generosity, serving as a social glue important to any cohesive society. Yet at the same time, gifts have been offered to seek influence, have compromised the integrity of the gift recipient, and have thus represented a form of bribery.

These divergent realities are the subject of Professor Malin Akerstrom’s engaging new book “Suspicious Gifts.” Professor Akerstorm, a Swedish sociologist by discipline, examines the everyday dilemmas faced by low-level professionals working in the public sector and the business persons who interact with such public officials to chart the ambiguity between legitimate gifts and illegitimate bribery.

Acknowledging the corrupting power of gifts, Professor Akerstrom is nevertheless critical of contemporary anticorruption efforts that seemingly label all gifts as blameworthy or even criminal. Invoking the phrase the “bribery gaze” on a number of occasions, Professor Akerstorm highlights the following warnings found in anti-corruption literature.

  • When you want to display hospitality – it could be bribery!
  • When you want to be generous – it could be bribery!
  • When you want to be friendly – it could be bribery!
  • When you take self-promoting measures – it could be corrupt marketing!
  • When you allow yourself to be invited – it could be a bribe!
  • When you accept a present or prize – it could be a bribe!
  • If you don’t say no thanks or decline a perk in time – it could be corruption!

These circumstances, of course, are not academic, but present in real-world bribery enforcement actions. While the Swedish examples Professor Akerstrom highlights may be foreign to most readers outside of that region, gifts are also frequently alleged as bribes in U.S. Foreign Corrupt Practices Act enforcement actions. For example, recent FCPA enforcement actions have involved: flowers, cigarettes, bottles of wine; karaoke bars; and tea sets.

As Professor Akerstrom rightly notes however, the current “bribery gaze,” in which everything seems to be transformed into a hazard, a trap or criminal bribery, is not without social and public policy consequences. She persuasively argues:

“Campaigns to eliminate these gift exchanges are at the same time campaigns to restrict the gamut of courtesy or ritual exchanges. The manifestations of courtesy, gratitude, and social bonds, which are so important as social glue in any cohesive society, are not just called into question, but criminalized.”

In this new era of enforcement of bribery and corruption laws, many are pounding the table for more enforcement, as if the quantity of enforcement was an inherent good regardless of enforcement theories, resolution vehicles, or collateral social and public policy considerations.

Regarding gifts as a form of bribery, Professor Akerstorm asks, “should the ideal society be gift-less?” With the current “bribery gaze,” expanding theories of enforcement, and risk-averse business organizations responding by eliminating most forms of gratitude and generosity, this appears to be where the winds are blowing.

Yet in “Suspicious Gifts” Professor Akerstorm reminds those in the anti-corruption space – whether practitioner, policy-maker or scholar – that bribery and corruption is seldom the simple and safe issue it appears to be at first blush.  

Posted by Mike Koehler at 12:04 am. Post Categories: Cultural IssuesFCPA ScholarshipGifts