April 3rd, 2014

DOJ Alleges Wide-Ranging Conspiracy To Bribe Indian Officials To Secure Mining Licenses

Yesterday the DOJ announced the unsealing of a criminal indictment charging six individuals “with participating in an alleged international racketeering conspiracy involving bribes of state and central government officials in India to allow the mining of titanium minerals.”

According to the indictment, Dmitry Firtash, a Ukrainian businessman who was arrested in March in Austria (see here for the DOJ’s prior release), was the leader of a criminal enterprise, through his group of companies Group DF, that included:

  • Andras Knopp (a Hungarian businessman)
  • Suren Gevorgyan (of Ukraine)
  • Gajendra Lal (an Indian national and permanent resident of the U.S.)
  • Periyasamy Sunderalingam (of Sri Lanka)
  • K.V.P. Ramachandra Rao (a Member of the Parliament in India who was an official of the state government of Andra Pradesh and a close advisor to the now-deceased chief minister of the State of Andhra Pradesh, Y.S. Rajasekhara Reddy)

According to the indictment, the illegal activities of the enterprise included, but were not limited to: “utilizing United States financial institutions to engage in the international transmission of dollars for the purpose of bribing Indian public officials in connection with obtaining approval of the necessary licenses for [a mining project within Andhra Pradesh], which project was forecast to generate more than $500 million in revenues per year …”

According to the indictment:

“Licenses were required for the project before mining could begin.  These licenses required the approval of both the State Government of Andhra Pradesh and the Central Government prior to their issuance.  The approval and issuance of such licenses were discretionary, non-routine governmental actions.”

The indictment charges all defendants with racketeering conspiracy; money laundering conspiracy; and two counts of interstate travel in aid of racketeering.

In addition, all defendants except Rao (the alleged Indian “foreign official”) were charged with conspiracy to violate the FCPA’s anti-bribery provisions.

The absence of Rao from this charge is, no doubt, a result of U.S. v. Castle, 925 F.2d 831 (5th Cir. 1991). In that case involving Canadian “foreign officials,” the DOJ acknowledged that it could not charge the officials with direct FCPA violations since the FCPA did not criminalize the receipt of bribes by a foreign official.  However, the DOJ charged the Canadian officials with conspiring to violate the FCPA.  The court dismissed this charge and rejected the DOJ’s position that a “foreign official” could be charged with conspiring to violate the FCPA.  Based on the language and legislative history of the FCPA, the court found a “legislative policy to leave unpunished a well-defined group of persons [i.e., “foreign officials] who were necessary parties to the acts constituting a violation of the substantive law.”

As to the FCPA conspiracy charge, Lal is charged as a domestic concern and the other defendants are charged as “persons” under the 78dd-3 prong of the statute which contains the following jurisdictional element – “while in the territory of the U.S., corruptly … make[s] use of the mails or any means or instrumentality of interstate commerce or to do any act in furtherance” of an improper payment. The indictment contains various allegations relevant to this jurisdictional prong including use of U.S. bank accounts, travel in the U.S., use of e-mail accounts hosted on computer servers located within the U.S., and use of cell phones operating on interstate networks.

Among other things, the indictment seeks forfeiture of approximately $10.6 million from the defendants.

In the DOJ’s release, Acting Assistant Attorney General David O’Neil states:

“Fighting global corruption is part of the fabric of the Department of Justice.  The charges against six foreign nationals announced today send the unmistakable message that we will root out and attack foreign bribery and bring to justice those who improperly influence foreign officials, wherever we find them.”

U.S. Attorney for the N.D. of Illinois Zachary Fardon states:

“Criminal conspiracies that extend beyond our borders are not beyond our reach.  We will use all of the tools and resources available to us to ensure the integrity of global business transactions that involve U.S. commerce.”

Special Agent in Charge of the FBI’s Chicago Office Robert Holley states:

“This case is another example of the FBI’s willingness to aggressively investigate corrupt conduct around the globe.  With the assistance of our law enforcement partners, both foreign and domestic, we will continue to pursue those who allegedly bribe foreign officials in return for lucrative business contracts.”

As noted in the release, other than Firtash, all other defendants remain at large.  When Firtash was arrested in March, he released this statement through Group DF.  As highlighted here, Firtash paid approximately $172 million to be released on bail.

For more on the enforcement action, see here from the Chicago Tribune, here from Reuters and here from Bloomberg.

As noted in this article, while several FCPA enforcement actions have been brought in connection with foreign license and permitting issues, the government has an overall losing record when put to its burden of proof in FCPA enforcement actions outside the context of foreign government procurement.





April 2nd, 2014

On Being An FCPA Associate … A Q&A With Jane Shvets

FCPA Professor enjoys a diverse group of readers including law students and young associates interested in careers that focus on the Foreign Corrupt Practices Act.

To these readers and others, meet Jane Shvets, a 2007 graduate of Harvard Law School and a current associate in the New York office of Debevoise & Plimpton.

In the below Q&A, Shvets describes her FCPA experiences to date and provides advice to those interested in FCPA careers.

What was your first FCPA-related assignment?

The Siemens AG investigation.  When I started at Debevoise in September 2007, the investigation had been going on for about 9 months, so I was thrown right in.  Given the unprecedented size and scope of that case, it was certainly a trial by fire, and a great way to learn whether FCPA work was right for me.  I loved it, and transitioned in the course of the year between several sub-investigations, involving several of the company’s business units and country subsidiaries in Germany, Austria, and Russia, among others.  Aside from getting a crash course in FCPA enforcement and the investigative process, I got to learn a lot about Siemens’ business, including  technology in high-speed trains in Russia and how to build a hospital in Romania.  That aspect – learning about different businesses and how they operate – has remained one of my favorite aspects of FCPA work.

What countries have you visited doing FCPA work?

Russia, Germany, Austria, the UK (all too many times to count), China, New Zealand, Bulgaria, Israel, and Switzerland.

 Of those countries, what has been your most memorable experience?

There have been so many, both professionally and personally.  One that certainly comes to mind is an interview at which the company’s executive drew us a map of the location of some binders with problematic documents in the company’s archive.  We were actually able to use that “treasure map” to find the binders in the dark and dusty recesses of the underground archive.  I am a big fan of whodunits, and that was my Nancy Drew moment.  More importantly, I have had great luck traveling with incredibly interesting, knowledgeable, and fun colleagues, many of whom have become friends.

 As you learned more about the FCPA, what surprised you the most?

I was most surprised to find how easy it can be, for a company executive or a rank-and-file employee, to “go wrong” when it comes to compliance with the FCPA or other anti-corruption laws.  When starting out, I had a preconception that the majority of those involved in FCPA violations took conscious and deliberate action to violate the law.  After years of practicing in this field, I now think that such people represent a very small minority.  Instead, frequently it is an email written without much thought on a busy day or not making a follow-up inquiry in response to a problematic due diligence report that can land both the employee and the company in trouble.  That is why it is so important to understand the context in which the events you are investigating occurred, and to appreciate the pressures under which the people were operating before coming to conclusions.  It is also why training – frequently conducted and tailored to address the real-world scenarios employees face – is paramount to prevent problems from occurring.

If you could change one thing about the FCPA or FCPA enforcement, what would it be?

I believe that more credit should be given to companies that self-report potential violations, and the government should make it clearer when, and how, such credit is given.  Although government officials consistently emphasize importance of self-reporting and do appear to take it into account when making enforcement decisions, more can be done to bring clarity and certainty in this area.  In 2013, for example, only 4 of the 11 companies that received declinations from the DOJ or the SEC self-reported potential violations, making it difficult to conclude that a decision to self-disclose is a prerequisite to receiving a declination.  Of course, in every given case, the government considers a whole host of factors in deciding on the appropriate resolution to an FCPA case.  Nevertheless, the lack of guidance in this area makes it difficult for companies – and for us in advising them – to decide whether to recommend self-disclosure.  That can be particularly difficult for companies based in jurisdictions where cooperation with government authorities is not part of the legal culture; they often want to see clear evidence of advantages of self-disclosure, which is hard to come by.

What advice do you have to students or young associates interested in having an FCPA practice?

Often, FCPA work at law firms, particularly at junior levels, focuses heavily on the facts of the case and the issues under investigation.  I highly recommend taking time to go beyond the specific issue at hand and to learn more about the business of the company and the work that the relevant employees do every day.  Google the company, read its annual report, ask some general questions in the interviews.  Gaining that broader perspective is invaluable in placing the particular situation that gave rise to potential FCPA issue in its proper context and in assessing its likelihood of recurrence.  It also helps create rapport in the interviews – in my experience, nothing irks interviewees more than when the interviewers know nothing about their business.

Also, make sure you understand why the issues you are investigating may be problematic to begin with:  read the FCPA and keep current with the legal developments in the area.  Don’t be the associate who does not know what the “FCPA” stands for!  As you become more senior, it is increasingly important to be able not just to master the facts, but also to understand what those facts mean for your client’s liability and potential exposure.

Finally, sign up for TSA Pre-Check.  You save tons of time at the airport.

Posted by Mike Koehler at 12:04 am. Post Categories: FCPA Career Interviews




April 1st, 2014

What You Need To Know From Q1

This post provides a summary of Foreign Corrupt Practices Act activity and related events from the first quarter of 2014.

DOJ Enforcement (Corporate)

The DOJ brought two corporate enforcement actions in the first quarter.  DOJ recovery in these enforcement action was approximately $311 million.   Both enforcement actions were resolved via plea agreements. At present, none of the enforcement actions have resulted in any individual charges against company employees.

Marubeni (March 19th)

See here for the prior post

Charges:  Conspiracy to violate the FCPA’s anti-bribery provisions and 7 substantive FCPA anti-bribery violations

Resolution Vehicle:  Criminal information resolved via a plea agreement

Guidelines Range:  $63.7 million to $127.4 million

Penalty:  $88 million

Disclosure:  Related to the April 2013 FCPA enforcement action against various current and former employees of Alstom

Monitor:  No

Individuals Charged:  No

Alcoa (January 9th)

See here for the prior post

Charges:  One count of violating the FCPA’s anti-bribery provisions.

Resolution Vehicle:  Criminal information against Alcoa World Alumina LLC resolved via a plea agreement.

Guidelines Range:  $446 million – $892 million.

Penalty:  $209 million (plus administrative forfeiture of $14 million)

Disclosure:  A 2008 civil lawsuit between Alba and Alcoa.

Monitor:  No

Individuals Charged:  No

DOJ Enforcement (Individual)

As noted in this post, on January 6th the DOJ announced criminal charges against three former executives of PetroTiger Ltd., a British Virgin Islands oil and gas company with operations in Colombia and offices in New Jersey, “for their alleged participation in a scheme to pay bribes to foreign government officials in violation of the FCPA, to defraud PetroTiger, and to launder proceeds of those crimes.” The individuals charged were former co-CEOs of PetroTiger Joseph Sigelman and Knut Hammarskjold and former general counsel Gregory Weisman.  As noted here, Hammarskjold and Weisman have pleaded guilty and the charges against Sigelman remain pending.

SEC Enforcement (Corporate)

The SEC resolved 1 corporate FCPA enforcement action in the first quarter.  SEC recovery in this enforcement action was approximately $161 million.  At present, none of the enforcement actions have resulted in any individual charges against company employees.

Alcoa (January 9th)

See here for the prior post.

Charges:   None.  Administrative cease and desist order finding violations of the FCPA’s anti-bribery provisions and books and records and internal control provisions.

Settlement:  $175 million in disgorgement (of which $14 million will be satisfied by the payment of the forfeiture in the criminal action).

Disclosure:   A 2008 civil lawsuit between Alba and Alcoa.

Individuals Charged:  No

Related DOJ Enforcement Action:  Yes

SEC Enforcement (Individual)

The SEC did not bring any FCPA charges against individuals in the first quarter.

Other Developments

As noted in this post, the DOJ released FCPA Opinion Procedure Release 14-01 in which the DOJ gave a company the green light to purchase a foreign businessman’s (turned “foreign official”) minority interest in a company for fair market value.

As noted in this post, a judicial decision in a civil case between Chevron and a plaintiffs’ lawyer representing Ecuadorian villagers alleging environmental contamination at oil fields in the Amazon touched upon FCPA issues.  Specifically, a federal court judge found that the lawyer  ”violated the Travel Act through the use of facilities of interstate or foreign commerce with the intent to facilitate violations of the anti-bribery provisions of the Foreign Corrupt Practices Act” and the decision most squarely addressed the FCPA’s “obtain or retain business” element.

As highlighted in this post, Congress remains interested in FCPA issues as Senator Charles Grassley (R-IA), Ranking Member of the Senate Judiciary Committee, asked several FCPA-related questions for the record in connection with the confirmation hearing of a nominee for Assistant Attorney General of the Criminal Division.

As discussed in this post, the U.K. formally entered the facade era as DPAs officially became available to U.K. prosecutors.  Why did the U.K. adopt DPAs?  In short, the U.K. agencies tell us that doing things the old-fashioned way (i.e. proving a criminal violation in an adversarial system) is too difficult and takes too long.  The SFO Director’s language on this issue is blunt as he states that “one of the principal purposes of DPAs is to bring resolution to cases of corporate criminality more quickly.” The U.K.’s justification for DPAs is really quite sad as ease and efficiency are not concepts normally associated with the rule of law and justice.  Yet, when politicians and civil society groups are clamoring for more prosecutions this is the end result.

During the first quarter, the DOJ’s FCPA Unit Chief became the latest in a long line of DOJ and SEC FCPA enforcement attorneys to leave government service for FCPA Inc. to provide defense and compliance services to business organizations subject to the enforcement climate they helped create.  For more information see posts here, here and here.

As highlighted here, FCPA lawyers would be wise to review a recent Third Circuit decision in which the court upholds an order from the district court enforcing a grand jury subpoena issued to a corporation’s FCPA lawyer concerning oral advice the lawyer gave to the client regarding the application of the Foreign Corrupt Practices Act.

Finally, as noted in this post, sometimes it takes the Supreme Court to remind us … well … what the law is! Dig into certain corporate FCPA enforcement actions and it would appear that legal liability seems to hop, skip, and jump around a multinational company.  This of course would be inconceivable in other areas, such as contract liability, tort liability, etc. absent an “alter ego” / “piercing the veil” analysis for the simple reason that is what the black letter law commands.  In Daimler v. Bauman, the Supreme Court, in a non-FCPA case, slammed the “agency” theory seemingly serving as the basis for several recent corporate FCPA enforcement actions.

Posted by Mike Koehler at 12:03 am. Post Categories: Year in Review 2014




March 31st, 2014

Much Activity In SEC Enforcement Action Against Jackson & Ruehlen

If you enjoy reading pleadings in Foreign Corrupt Practices Act enforcement actions, then your week is already off to a great start as there is much to read.

In advance of a scheduled July 9th trial in SEC v. Mark Jackson & James Ruehlen (an enforcement action filed in the S.D. of Tex. in February 2012 and highlighted in last Friday’s post), both parties filed numerous motions last Friday.

The SEC filed: (1) a motion for partial summary judgment on the inapplicability of the facilitating payment exception, and (2) a motion for a determination of foreign law pursuant to Federal Rule of Civil Procedure 44.1.  The SEC also filed 5 motions seeking to exclude defendants’ expert witnesses.  Both Jackson and Ruehlen filed separate motions for summary judgment as well as 3 motions seeking to exclude the SEC’s expert witnesses.

This post provides an overview of the motions.

SEC Motion for a Determination of Foreign Law

In pertinent part, the SEC states as follows:

“Questions of Nigerian law pervade this bribery case for two reasons. First, findings on threshold questions of Nigerian law are necessary for the jury to determine whether Defendants induced foreign officials “to do or omit to do any act in violation of the lawful duty of such foreign official[s]” in violation of Section 30A of the Securities Exchange Act of 1934 (the “Exchange Act”), an element of the SEC’s bribery claims. 15 U.S.C. §78dd-1(a)(3)(A)(ii) (emphasis added).  Questions of Nigerian law are also necessary to determine whether the payments at issue in this case fit within the narrow “facilitating payment” exception under the
Foreign Corrupt Practices Act (the “FCPA”).

These questions of Nigerian law include: (i) whether the grant of a Temporary Import Permit (“TIP”) – a concession that allows an importer to avoid the payment of import duties – was discretionary; (ii) what was the permissible duration of a TIP and whether and to what extent a TIP may be extended; and (iii) whether Nigerian customs officials could lawfully accept payments to approve a TIP based on false paperwork showing that Noble’s rigs in Nigeria had been exported and re-imported, when the rigs in fact had never moved out of Nigerian waters. These questions of Nigerian law are, like questions of U.S. law, questions of law for the Court to decide, and each defines the scope of Nigerian customs officials’ “lawful duty” in connection with granting the TIPs and TIP extensions at issue in this case.

Second, rulings on these issues of Nigerian law are necessary in light of the Defendants’ purported expert evidence. Defendants intend to introduce expert evidence asserting that, among other things, the payment of bribes to civil servants in Nigeria “is common – and even expected”; the submission of falsified documents to Nigerian governmental agencies is “satisfactory” or “acceptable” from the Nigerian government’s perspective; that laws governing the issuance of temporary import permits are not laws but “internal rules or policies”; and that compliance with Nigerian law is unclear. Thus, the Defendants’ experts intend to opine directly or indirectly on what is allegedly “permissible” in Nigeria notwithstanding clear and undisputed provisions of Nigerian law to the contrary. Because foreign law is for the Court, not the jury, these issues of Nigerian law should be resolved by the Court.”

SEC Motion Regarding  Inapplicability of Facilitating Payment Exception

As noted in this prior post, in December 2012 Judge Ellison concluded, in what was believed to be an issue of first impression, that the SEC must bear the burden of negating the facilitation payments exception.

In its motion, the SEC states as follows.

“The SEC seeks partial summary judgment on the limited question of whether the payments to Nigerian government officials that Defendants authorized to secure Temporary Import Permits (“TIPs”) and TIP extensions fit within the narrow “facilitating payment” exception under the Foreign Corrupt Practices Act (the “FCPA”).

The SEC alleges that the Defendants violated the anti-bribery and accounting provisions of the FCPA by authorizing the payment of bribes on behalf of their employer – Noble Corporation – to Nigerian government officials to influence or induce these officials to grant Noble TIPs and TIP extensions. These TIPs allowed Noble to avoid paying import duties on oil drilling rigs that it operated in Nigeria. Because TIPs provide only a temporary exemption from import duties, at the expiration of a TIP and its allowable extension, Noble had an obligation to either pay the import duties due on the drilling rigs or export them out of Nigeria. Using bribes and other means, Defendants secured serial TIPs and TIP extensions, which enabled Noble to keep its rigs operating continuously in Nigeria well beyond the time period allowed under Nigerian law.

The FCPA broadly prohibits corrupt payments to foreign officials to influence any official act or induce any official to violate a lawful duty. See 15 U.S.C. § 78dd-1(a). But there is a narrow exception to that broad prohibition: Under subsection 78dd-1(b), the FCPA permits certain “facilitating or expediting payments” made “to expedite or to secure the performance of a routine governmental action.” 15 U.S.C. § 78dd-1(b). This so-called facilitating payment exception does not apply in this case, as a matter of law.

Summary judgment is appropriate for three reasons:

First, the law of decision is clear and binding. This Court previously held that payments to government officials for discretionary or illegal TIPs and TIP extensions are not permissible facilitating payments.

Second, the applicable foreign law is clear and undisputed. As demonstrated in the SEC’s Motion for a Determination of Foreign Law Pursuant to Federal Rule of Civil Procedure 44.1 (“Rule 44.1 Motion”), the relevant provisions of Nigerian law are clear and undisputed. First, under Nigerian law, customs officials have discretion to grant or deny TIPs and TIP extensions; these TIPs and extensions are a discretionary exemption from import duties, not an entitlement. Second, Nigerian law prohibits both the use of false paperwork to secure TIPs and payments to government officials to secure TIPs and TIP extensions. Third, Nigerian law provides that an initial TIP may not exceed twelve months and may only be extended once for up to an additional twelve months. These provisions of Nigerian law are clear and undisputed, and must be determined as a matter of law by the Court.

Third, the material facts are not in genuine dispute. The payments to Nigerian government officials at issue in this case were themselves illegal in Nigeria and were authorized to obtain import duty exemptions that were (i) discretionary and (ii) in certain cases, illegal under Nigerian law. Specifically, each of the payments to Nigerian government officials at issue was authorized in connection with obtaining a valuable and discretionary government benefit – i.e., import duty exemptions for Noble’s rigs. Certain of the payments were made to obtain TIPs on false pretenses, in violation of Nigerian law. And, some of the payments were authorized to obtain TIP extensions that exceeded the number and duration of TIP extensions allowed under Nigerian law.

For these reasons, the SEC respectfully requests that the Court grant its motion for partial summary judgment that the facilitating payment exception is not applicable in this case.”

SEC Expert Motions

In addition to the above motions, the SEC also filed 5 motions seeking to exclude defendants’ experts:  (1) Alan Bell (CPA – regarding internal controls and books and records issues); (2) Gary Goolsby (CPA – regarding corporate governance and internal controls issues; (3) John Campbell (former U.S. ambassador to Nigeria – regarding Nigeria specific issues; (4) Professor Ronald Gilson (regarding various corporate governance and internal controls issues); and (5) H. Lowell Brown (regarding various FCPA compliance issues).

Jackson’s Motion for Summary Judgment

The motion, signed by David Krakoff (BuckeySandler) , states as follows.

“This case is entirely about Mr. Jackson’s state of mind: Did he act “corruptly” in violation of the FCPA when he approved certain payments to Nigerian customs officials? In denying the Defendants’ Motions to Dismiss, the Court held that an act is done corruptly when it is “done with an evil motive or wrongful purpose of influencing a foreign official to misuse his position.”  It is the SEC’s burden to prove that “Defendants acted corruptly.”

The SEC failed to come close to carrying that burden. Put simply, discovery revealed only one thing: Undisputed evidence that Mr. Jackson acted with the “good faith” belief that Noble’s payments facilitated getting temporary import permits and extensions to which Noble was entitled.  But as the Court observed regarding permit extensions, to establish corrupt intent the SEC must show “that Defendants knew they were not entitled to extensions as a matter of right upon satisfying certain basic threshold requirements.”

Mr. Jackson was repeatedly advised by Noble management that Noble was entitled to those permits and extensions. He was advised by management and PricewaterhouseCoopers that as long as the rigs had contracts to drill oil for the benefit of the Nigerian government, the rigs could stay in the country to perform those contracts. He was advised and observed that legal and audit experts were reviewing Noble’s FCPA compliance and, specifically, compliance in its Nigerian operations. And he was advised that Noble’s Nigerian lawyer had counseled that the use of the so-called “paper process,” where rigs obtained new permits without leaving the country, was legal in Nigeria.

The SEC has no evidence to prove Mr. Jackson’s state of mind was anything different. Despite many promises in the SEC’s pleadings, promises proved false by discovery, there was no evidence that Mr. Jackson believed Nigerian officials had discretion to deny Noble these permits and extensions. There was no evidence that he knew the “paper process” was illegal in Nigeria, so that any payments related to it had to be corrupt. And there was no evidence that he misled anyone – not the Audit Committee, not auditors, not anyone – about any of Noble’s facilitating payments. Instead, what he knew was that Noble’s legal counsel and internal auditors did not question the propriety of payments to Nigerian customs officials. No reasonable jury could conclude that Mark Jackson acted with the state of mind requisite for a violation of the FCPA. The SEC has not met its burden and the Court should grant summary judgment on all claims.”

Ruehlen’s Motion for Summary Judgment

The motion, signed by Nicola Hanna and Joseph Warin (Gibson Dunn), states as follows.

“The Complaint portrays Jim Ruehlen as a “rogue” employee who, shortly after being promoted to the first management-level position of his career, embarked on an intricate scheme to bribe Nigerian officials to obtain illegal temporary import permits for Noble’s rigs; routinely flouted company policy; ignored directions from Noble’s Audit Committee; and concealed illicit payments in Noble’s books and records. At the motion to dismiss stage, the Court was required to accept those allegations as true. Since then, 15 months of discovery have laid bare the utter falsity of the SEC’s narrative.

The undisputed evidence establishes that Mr. Ruehlen—a diligent and hardworking operations employee with an impeccable reputation for honesty and integrity—at all times acted  in good faith and under the close supervision of Noble’s most senior executives. At no point did he attempt to conceal any conduct or circumvent controls or company processes. To the contrary, it was Mr. Ruehlen who in 2004 first reported Noble’s use of the so-called “paper process”—the central focus of the SEC’s claims in this matter. And it was Mr. Ruehlen who received approval for every one of the payments at issue from Noble’s senior management, executives who had access to experts to assess the nature and propriety of those payments. It is undisputed that none of those executives or experts ever raised concerns to Mr. Ruehlen about the payments. The evidence also shows that Mr. Ruehlen, who had no accounting or legal training, had no role in determining how the payments—which were well known within Noble’s corporate hierarchy—were recorded in Noble’s books. And to compound the irony of the SEC’s charges against Mr. Ruehlen, it was Mr. Ruehlen who independently raised new concerns regarding the temporary import process in early 2007, prompting Noble’s internal investigation and voluntary disclosure to the U.S. government.

Notwithstanding this evidence—much of which was known to the SEC well before it filed this action—the SEC charged Mr. Ruehlen with violating the FCPA’s books and records and internal accounting control provisions (collectively, the “accounting provisions”) “under every stretched legal theory imaginable.” Purportedly to “streamline the presentation of evidence to the jury,” the SEC—on the eve of summary judgment—voluntarily dismissed two of those claims (that Mr. Ruehlen failed to “implement” a system of internal accounting controls and aided and abetted Noble’s alleged failure to “devise and maintain” such a system). But the SEC’s remaining FCPA accounting provision claims fail for the same reasons as the claims it now tacitly admits lacked merit—Mr. Ruehlen simply had no responsibility for or authority over the accounting function at Noble, and had no role in determining how the payments at issue were recorded. Moreover, the SEC failed to develop any evidence during discovery to support the numerous—and illogical—ways that Mr. Ruehlen allegedly “circumvented” Noble’s system of internal accounting controls. The Court should grant summary judgment on these claims in light of the undisputed evidence.

The Court should also grant summary judgment on the SEC’s claims for violations of the FCPA’s anti-bribery provisions. Whether the SEC can prove these claims turns entirely on Mr. Ruehlen’s state of mind—i.e., whether he acted “corruptly.” The undisputed evidence shows that Mr. Ruehlen, like many others within the company, believed in good faith that the payments were to secure or expedite temporary import permits to which Noble was entitled.”

In addition to the above motions, the defendants also jointly filed 3 motions seeking to exclude SEC experts:  (1) Jeffrey Harfenist (CPA – as to various internal controls issues); (2) Wayne Kelley (as to various customs and practices in the oil and gas industry); and (3) Kofo Olugbesan (a former official of the Nigerian Customs Service).

Posted by Mike Koehler at 12:04 am. Post Categories: Books and RecordsCorrupt IntentFacilitating PaymentsInternal ControlsJames RuehlenMark JacksonNoble Corporation




March 28th, 2014

Friday Roundup

Further trimmed, scrutiny alerts and updates, facts and figures, quotable, and for the reading stack.  It’s all here in the Friday roundup.

Further Trimmed

When the SEC announced its enforcement action against James Ruehlen and Mark Jackson  (a current and former executive of Noble Corp.) in February 2012, I said that this would be an interesting case to follow because the SEC is rarely put to its burden of proof in FCPA enforcement actions – and when it has been put to its ultimate burden of proof – the SEC has never prevailed in an FCPA enforcement action.

Over the past two years, the SEC’s case has been repeatedly trimmed.  (See this recent post containing a summary).  In the latest cut, the SEC filed an unopposed motion for partial voluntary dismissal with prejudice on March 25th.  In pertinent part, the motion states as follows.

“To narrow this case and streamline the presentation of evidence to the jury, the SEC hereby moves for leave to voluntarily dismiss with prejudice all portions of its claims … predicated upon Noble Corporation’s violation of [the FCPA's internal controls provisions".

For additional specifics, see the filing.

As highlighted in this previous post, in 2010 the SEC charged Noble Corporation with violating the FCPA's anti-bribery, books and records and internal controls provisions based on the same core conduct alleged in the Jackson/Ruehlen action. Without admitting or denying the SEC’s allegations, Noble agreed to agreed to an injunction and payment of disgorgement and prejudgment interest of $5,576,998.

In short, the SEC's enforcement action against Ruehlen and Jackson is a shell of its former self.   Interesting, isn't it, what happens when the government is put to its burden of proof in FCPA enforcement actions.

Scrutiny Alerts and Updates

Alstom

Bloomberg reports speculation that a future FCPA enforcement action against Alstom could top the charts in terms of overall fine and penalty amounts.  (See here for the current Top 10).

The article states:

"The Justice Department is building a bribery case against Alstom SA , the French maker of trains and power equipment, that is likely to result in one of the largest U.S. anticorruption enforcement actions, according to two people with knowledge of the probe. Alstom, which has a history checkered with corruption allegations, has hindered the U.S. investigation of possible bribery in Indonesia and now faces an expanded probe including power projects in China and India, according to court documents in a related case. Settlement talks haven’t begun, the company said."

In response to the Bloomberg article, Alston released this statement.

"Robert Luskin of Patton Boggs, Alstom’s principal outside legal advisor in the USA, states that the Bloomberg article published on 27 March 2014, regarding the investigation of Alstom by the US Department of Justice, does not accurately reflect the current situation: “Alstom is cooperating closely, actively, and in good faith with the DOJ investigation. In the course of our regular consultations, the DOJ has not identified any on-going shortcomings with the scope, level, or sincerity of the company’s effort”.

“The discussions with the DOJ have not evolved to the point of negotiating a potential resolution of any claims. Any effort to estimate the size of any possible fine is sheer speculation, as would be any comparison with other cases that have recently been resolved. Alstom has agreed to focus its efforts on investigating a limited number of projects that we and the DOJ have identified in our discussions. We are working diligently with the DOJ to answer questions and produce documents associated with these specific projects so that we can address any possible improper conduct”.

VimpelCom

Netherlands-based and NASDAQ traded telecommunications company VimpelCom recently disclosed:

"[T]hat in addition to the previously disclosed investigations by the U.S. Securities and Exchange Commission and Dutch public prosecutor office, the Company has been notified that it is also the focus of an investigation by the United States Department of Justice. This investigation also appears to be concerned with the Company’s operations in Uzbekistan. The Company intends to continue to fully cooperate with these investigations.”

On March 12, 2014, VimpelCom disclosed:

“The Company received from the staff of the United States Securities and Exchange Commission a letter stating that they are conducting an investigation related to VimpelCom and requesting documents. Also, on March 11, 2014, the Company’s headquarter in Amsterdam was visited by representatives of the Dutch authorities, including the Dutch public prosecutor office, who obtained documents and informed the Company that it was the focus of a criminal investigation in the Netherlands. The investigations appear to be concerned with the Company’s operations in Uzbekistan. The Company intends to fully cooperate with these investigations.”

Orthofix International

As noted in this Wall Street Journal Risk & Compliance post, Orthofix International recently disclosed:

“We are investigating allegations involving potential improper payments with respect to our subsidiary in Brazil.

In August 2013, the Company’s internal legal department was notified of certain allegations involving potential improper payments with respect to our Brazilian subsidiary, Orthofix do Brasil. The Company engaged outside counsel to assist in the review of these matters, focusing on compliance with applicable anti-bribery laws, including the Foreign Corrupt Practices Act (the “FCPA”). This review remains ongoing.”

As noted in this previous post, in July 2012 Orthofix International resolved a DOJ/SEC FCPA enforcement action concerning alleged conduct by a Mexican subsidiary.  In resolving that action, the company agreed to a three year deferred prosecution agreement.  As is typical in FCPA DPAs, in the Orthofix DPA the DOJ agreed not continue the criminal prosecution of Orthofix for the Mexican conduct so long as the company complied with all of its obligations under the DPA, including not committing any felony under U.S. federal law subsequent to the signing of the agreement.

See this prior post for a similar situation involving Willbros Group (i.e. while the company while under a DPA it was investigating potential additional improper conduct).  As noted here, Willbros was released from its DPA in April 2012, the original criminal charges were dismissed and no additional action was taken.

Besso Limited

Across the pond, the U.K. Financial Conduct Authority (“FCA”) recently issued this final notice to Besso Limited imposing a financial penalty of £315,000 for failing “to take reasonable care to establish and maintain effective systems and controls for countering the risks of bribery and corruption associated with making payments to parties who entered into commission sharing agreements with Besso or assisted Besso in winning and retaining business (“Third Parties”).”

Specifically, the FCA stated:

“The failings at Besso continued throughout the Relevant Period [2005-2011] and contributed to a weak control environment surrounding the making of payments to Third Parties. This gave rise to an unacceptable risk that payments made by Besso to Third Parties could be used for corrupt purposes, including paying bribes to persons connected with the insured or public officials. In particular Besso:  (1) had limited bribery and corruption policies and procedures in place between January 2005 and October 2009. It introduced written bribery and corruption policies and procedures in November 2009, but these were not adequate in their content or implementation; (2) failed to conduct an adequate risk assessment of Third Parties before entering into business relationships; (3) did not carry out adequate due diligence on Third Parties to evaluate the risks involved in doing business with them; (4) failed to establish and record an adequate commercial rationale to support payments to Third Parties; (5) failed to review its relationships with Third Parties, in sufficient detail and on a regular basis, to confirm that it was still appropriate to continue with the business relationship; (6) did not adequately monitor its staff to ensure that each time it engaged a Third Party an adequate commercial rationale had been recorded and that sufficient due diligence had been carried out; and (7) failed to maintain adequate records of the anti-bribery and corruption measures taken on its Third Party account files.”

The FCA has previously brought similar enforcement actions against Aon Limited (see here), Willis Limited (see here), and JLT Speciality Limited (see here).    For more on the U.K. FCA and its focus on adequate procedures to prevent bribery , see this guest post.

Facts and Figures

Trace International recently released its Global Enforcement Report (GER) 2013 – see here to download.  Given my own focus on FCPA enforcement statistics and the various counting methods used by others (see here for a recent post), I particularly like the Introduction of the GER in which Trace articulates a similar “core” approach that I use in keeping my enforcement statistics.  The GER states:

“[W]hen a company and its employees or representatives face multiple investigations or cases in one country involving substantially the same conduct, only one enforcement action is counted in the GER 2013.  An enforcement action in a country with multiple investigating authorities, such as the U.S., is also counted as one enforcement action in the GER 2013.”

The Conference Board recently released summary statistics regarding anti-bribery policies.  It found as follows.

39% of companies in the S&P Global 1200; 23% of companies in the S&P 500; and 14% of companies in the Russell 1000 reported having a policy specifically against bribery.

Given the results of other prior surveys which reported materially higher numbers, these results are very surprising.

Quotable

This recent Wall Street Journal article “Global Bribery Crackdown Gains Steam” notes as follows.

“Cash-strapped countries are seeing the financial appeal of passing antibribery laws because of the large settlements collected by the U.S., according to Nathaniel Edmonds, a former assistant chief at the U.S. Department of Justice’s FCPA division.  ”Countries as a whole are recognizing that being on the anticorruption train is a very good train to be on,” said Mr. Edmonds, a partner at Paul Hastings law firm.”

The train analogy is similar to the horse comment former DOJ FCPA enforcement attorney William Jacobson made in 2010 in an American Lawyer article that “[t]he government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore.”  For additional comments related to the general topic, see this prior post.

Reading Stack

This recent Wall Street Journal Risk & Compliance Journal post contains a Q&A with former DOJ FCPA Unit Chief Chuck Duross.  Contrary to the inference / suggestion in the post, Duross did not bring “tougher tactics” such as wires and sting operations to the FCPA Unit.  As detailed in prior posts here and here, undercover tactics and even sting operations had been used in FCPA enforcement actions prior to the Africa Sting case.

Speaking of the Africa Sting case, the Q&A mentions reasons for why the Africa Sting case was dropped.  Not mentioned, and perhaps relevant, is that the jury foreman of the second Africa Sting trial published this guest post on FCPA Professor after the DOJ failed in the second trial.  Two weeks later, the DOJ dismissed all charges against all Africa Sting defendants.

Further relevant to the Africa Sting case, the Wall Street Journal recently ran this article highlighting the role of Richard Bistrong, the “undercover cooperator” in the case.  Bistrong has recently launched an FCPA Blog – see here.

*****

A good weekend to all.