July 10th, 2014

Selective Prosecution?

The term selective prosecution is a legal term of art with rather exacting factors.  This post is not about the legal term of art selective prosecution, but rather selective prosecution as a practical matter, in order words, in layman terms.

As highlighted in the below chart, there have been eight corporate Foreign Corrupt Practices Act enforcement actions based largely on alleged improper payments to Nigerian officials in connection with Nigeria’s Temporary Import Process (TIP) for oil and gas rigs.

Company Settlement Amount Related Individual Actions 
Panalpina $81.9 million
$70.6 (DOJ)
$11.3 (SEC)
 
No
Pride Int’l $56.2 million
$32.6 (DOJ)
$23.5 (SEC)
 
No
Royal Dutch Shell $48.1 million
$30 (DOJ)
$18.1 (SEC)
 
No
Transocean $20.7 million
$13.4 (DOJ)
$7.2 (SEC)
 
No
Parker Drilling $15.9 million
$11.8 (DOJ)
$4.1 (SEC)
 
No
Tidewater $15.7 million
$7.4 (DOJ)
$8.3 (SEC)
 
No
Noble Corp. $8.2 million
$2.6 (DOJ)
$5.6 (SEC)
 
Yes
GlobalSantaFe $5.9 million
$5.9 (SEC)
No

As indicated in the above chart, the enforcement agencies collected approximately $253 million in the enforcement actions.  (Note certain of the enforcement actions also alleged other improper payments to Nigerian customs officials and, because of the “where else” question, certain of the enforcement actions also alleged improper payments in other countries as well).

To extent settlement amounts serve as a reasonable proxy for the severity of an FCPA enforcement action, the above chart highlights that among the TIP-related enforcement actions, the enforcement action against Noble Corp. was comparatively minor.  This conclusion is further bolstered by the fact that among the TIP-related enforcement actions to involve a DOJ component, the Noble enforcement action was the only action to be resolved via a non-prosecution agreement.

Nevertheless, as highlighted by the above chart, the Noble enforcement action was the only TIP-related enforcement action to result in any related charges against individuals.  In February 2012, the SEC charged Mark Jackson (Noble’s former CEO) and James Ruehlen (a current Noble executive) in a wide-ranging enforcement action charging violations of, among other things, the FCPA’s anti-bribery provisions and books and records and internal controls provisions.

This contemporaneous post flagged the SEC action as one to follow since the SEC has never been put to its burden of proof in an FCPA enforcement action.  The post further noted that the FCPA’s facilitation payments exception was likely to be at issue and even highlighted the unusual nature of the DOJ’s NPA against Noble Corp. which, not once but twice, stated that the alleged payments at issue “would not constitute facilitation payments for routine government actions within the meaning of the FCPA.”

In an ironic twist, after the enforcement agencies collected more than $200 million in the TIP-related enforcement actions against risk averse corporate defendants, Jackson and Ruehlen did indeed put the SEC to its burden of proof and the court ruled that the SEC “must bear the burden of negating the facilitating payments exception” and that the “exception is best understood as a threshold requirement to pleading that a defendant acted ‘corruptly.’”  (See here for the prior post).

The SEC, a law enforcement agency with merely a civil burden of proof, was never able to carry this burden and this was among other reasons why the SEC’s case against Jackson and Ruehlen failed – and yes – this is the only reasonable conclusion to be drawn from last week’s settlement (see here).

The above facts and circumstances from the many TIP-related enforcement actions should cause any reasonable observer to ask why Jackson and Ruehlen were singled out for prosecution by the SEC?

As will be explored in a future post that goes more in-depth into the SEC’s failed prosecution of Jackson and Ruehlen, the SEC’s case against the individuals  was all the more curious given that Noble actually booked the TIP-related payments as facilitating payments (the SEC of course disagreed with this position) and given that – per the SEC’s own briefing in the matter – its charges were based on little more than a series of supposed inferences supported by little more than circumstantial evidence.

Posted by Mike Koehler at 12:04 am. Post Categories: CustomsGateFacilitating PaymentsJames RuehlenMark JacksonNoble Corporation




July 9th, 2014

Why Do Most Of The Top FCPA Settlements Involve Foreign Companies?

[There is still time to register for the FCPA Institute in Milwaukee next week (July 16-17th).  The FCPA Institute is a unique two-day learning experience ideal for a diverse group of professionals seeking to elevate their FCPA knowledge and practical skills. To register see here]

Over the past several months, I’ve been asked the same general question several times:  why are so many foreign companies found in the top ten list of FCPA enforcement actions?

This post explains why and the answers are fairly straight-forward when one understands the factors under the advisory Sentencing Guidelines that impact fine amounts.

Below is the current top ten list of corporate FCPA enforcement actions in terms of settlement amount.

Company

Amount

              Year 
  1.  Siemens $800   million(DOJ – $450 million)(SEC – $350 million) 2008
  2.  KBR / Halliburton $579   million(DOJ – $402 million)(SEC – $177 million) 2009
  3.  Total $398   million(DOJ – $245 million)(SEC – $153 million) 2013
  4.  Alcoa $384   million(DOJ – $209 million)(SEC – $175 million) 2014
  5.  Snamprogetti / ENI $365   million(DOJ – $240 million)(SEC – $125 million) 2010
  6.  Technnip $338   million(DOJ – $240 million)(SEC – $ 98 million) 2010
  7.  JGC $219   million(DOJ – $219 million) 2011
  8.  Daimler $185   million(DOJ – $94 million)(SEC – $91 million) 2010
  9.  Weatherford   Int’l $153   million(DOJ – $87 million)(SEC – $66 million) 2013
  10.  Alcatel-Lucent $137   million(DOJ – $92 million)(SEC – $45 million) 2010

All but KBR/Halliburton and Alcoa are enforcement actions against foreign companies.

In analyzing the top ten enforcement actions, it is important to first recognize the following salient fact:  4 of the enforcement actions (KBR/Halliburton, Snamprogetti/ENI, Technip and JGC) are the same core enforcement action as the companies were all consortium partners pursuing through the same agents the same $6 billion Bonny Island, Nigeria liquified natural gas project.

The most important factor in determining fine amounts in FCPA enforcement actions under the advisory Sentencing Guidelines is net final benefit allegedly received from the improper payments.  Same is true when it comes to SEC disgorgement amounts.  Not surprisingly, given the Bonny Island project at issue, the net final benefits alleged in the enforcement actions were large.  As detailed here, in KBR/Halliburton the figure was alleged to be approximately $236 million; in Technip approximately $199 million; in Snamprogetti/ENI approximately $214 million; and in JGC approximately $195 million.

Thus, net final benefit allegedly received from the improper payments (and disgorgement amounts related thereto) easily explains 4 of the enforcement actions (the same core enforcement action) in the top 10.

It also explains large settlement amounts in other actions involving foreign companies as well.

Siemens of course was in a league by itself as the enforcement agencies stated that “for much of its operations across the globe, bribery was nothing less than standard operating procedure for Siemens.”  According to the enforcement agencies, the “pattern of bribery by Siemens was unprecedented in scale and geographic scope” and the “corruption involved more than $1.4 billion in bribes to government officials in Asia, Africa, Europe, the Middle East and the Americas.”  The DOJ’s sentencing memorandum states that calculating a traditional loss figure under the Sentencing Guidelines “would be overly burdensome, if not impossible” given the “literally thousands of contracts over many years.”

Like the Bonny Island enforcement actions, the Total enforcement action also involved alleged improper payments in connection with large oil and gas projects in Iran.  According to the DOJ, the alleged value of the benefit received from the improper payments was approximately $147 million.

Large financial benefits received from alleged improper payments in connection with large projects or contracts are a major reason why so many foreign companies are found in the FCPA’s top 10 list of settlements.

However, it is not the only reason as other factors under the advisory Sentencing Guidelines can also increase fine amounts in FCPA enforcement actions.

Three such factors are the involvement of high-level personnel in the alleged improper conduct, the failure to voluntary disclose, and lack of cooperation. Application of these factors (which result in a company’s so-called “culpability score” under the Guidelines) to foreign companies has also contributed to large settlement amounts.

For instance, as noted in this prior post, the Daimler action, like Siemens, involved allegations regarding a “corporate culture that tolerated and/or encouraged bribery,” the involvement of various high-level executives, and allegations of improper conduct at the highest levels of the company including the boardroom.  Not surprisingly, as noted in the DOJ’s sentencing memorandum, Daimler’s culpability score was increased based on these allegations which then increased the fine range.

Moreover, few, if any, of the enforcement actions involving foreign companies were the result of voluntary disclosures – a practice that is “foreign” to most legal regimes outside of the U.S.

As to cooperation, as noted in this prior post, JGC Corp. was dinged by the DOJ for “initially declining to cooperate” with the DOJ. This factor, among others, increased the company’s “culpability score” under the Guidelines.

Each FCPA enforcement action is of course unique, involving specific projects or contracts, specific actors, and specific responses to alleged wrongdoing.  Yet common factors in all of the enforcement actions involving foreign companies in the top 10 list are some combination of very large projects or contracts, involvement of high level executives or board members in the alleged improper payments, lack of voluntary disclosure and lack of, or delayed, cooperation in the enforcement agencies’ investigation.

Few enforcement actions against U.S. companies have involved a combination of more than one of these factors – hence the few U.S. companies in the FCPA’s top ten list.

So there you have it – an answer to the often asked question – why do most of the top FCPA settlements involve foreign companies?

So is the conclusion to be drawn that foreign companies in the FCPA’s top 10 list are less ethical and less committed to corporate governance best practices?  Perhaps, but it is important to note that the majority of foreign company enforcement actions in the top 10 involved conduct that allegedly took place in the 1990′s or early 2000′s.

Posted by Mike Koehler at 12:04 am. Post Categories: FCPA StatisticsFine / Penalty IssuesSentencing Guidelines




July 8th, 2014

New Article Examines Overcriminalization, Plea Bargaining, And The FCPA Africa Sting Case

A guest post today from my Southern Illinois University School of Law colleague Lucian Dervan.  Professor Dervan is a widely recognized expert on plea bargaining and has, among other things, testified before Congress on such issues.

*****

I greatly appreciate the opportunity to guest post on Professor Koehler’s FCPA Professor site.  In my post today, I will focus on my discussion of overcriminalization, plea bargaining, and the Africa Sting case in a new article just posted to SSRN – “The Quest for Finality: Five Stories of White Collar Criminal Prosecution,” 4 Wake Forest Journal of Law & Policy 91 (2014) (available here).

In an article I authored a few years ago for the George Mason Journal of Law, Economics, and Policy (available here), I discussed the growth of overcriminalization in the United States and the impact of broad and vague statutes on white collar criminal enforcement.  In particular, I argued that there is a symbiotic relationship between overcriminalization and plea bargaining because each of these important legal concepts relies on the other to flourish.

As I wrote in that article:

To illustrate the co-dependent nature of plea bargaining and overcriminalization, consider what it would mean if there were no plea bargaining. Novel legal theories and overly-broad statutes would no longer be tools merely for posturing during charge and sentence bargaining, but would have to be defended and affirmed both morally and legally at trial. Further, the significant costs of prosecuting individuals with creative, tenuous, and technical charges would not be an abstract possibility used in determining how great of an incentive to offer a defendant in return for pleading guilty. Instead, these costs would be a real consideration in determining whether justice is being served by bringing a prosecution at all.

Similarly, consider the significant ramifications that would follow should there no longer be overcriminalization. The law would be refined and clear regarding conduct for which criminal liability may attach. Individual benefits, political pressure, and notoriety would not incentivize the invention of novel legal theories upon which to base liability where none otherwise exists, despite the already expansive size of the United States criminal code. Further, novel legal theories and overly-broad statutes would not be used to create staggering sentencing differentials that coerce defendants, even innocent ones, to falsely confess in return for leniency.

In the Over-Criminalization 2.0 article, I went on to focus on the Computer Associates prosecution.  In the Computer Associates case, the government requested the company retain outside counsel to perform an internal investigation regarding allegations of accounting improprieties.  During that internal investigation, several employees allegedly lied to investigating counsel.  The government later brought obstruction of justice charges against those employees.  In the indictment, the government argued that the defendants “knew, and in fact intended, that the company’s law firm would present these false justifications to the United States Attorney’s Office, the SEC and the FBI so as to obstruct and impeded (sic) the government investigations.”

This broad and creative application of an obstruction of justice statute (18 U.S.C. § 1512(c)(2)) led to widespread concern from various sectors of the legal community.  In particular, much unease was expressed about the impact of this charging decision on the role of privately retained investigating counsel.  Had the government deputized law firms?  Embracing similar concerns, including concerns about the impact of this case on the attorney-client privilege, the defendants challenged the government’s theory of the case.  Unfortunately, the district court dismissed the motion without specifically addressing the core issues of concern.  While the stage appeared set for an important review of this charging theory by the United States Court of Appeals for the Second Circuit, no such review ever took place.  As is so common today, the opportunity to examine the broad application of a vague statute was lost to the power of plea bargaining.  Instead of proceeding to the appellate court, all of the defendants pleaded guilty and the corporation entered into a deferred prosecution agreement.  Once again, the symbiotic relationship between overcriminalization and plea bargaining had prevented a true judicial review of this case.

In my new article, The Quest for Finality, I found similar issues in the FCPA Africa Sting case.  As readers of FCPA Professor will recall, the Africa Sting case involved an undercover FCPA operation targeting the defense sector.  As occurred in the Computer Associates case, the government used creative legal theories to build key aspects of its case.  Unlike the Computer Associates case, however, not all of the defendants pleaded guilty.  Therefore, the broad application of vague criminal statutes was tested and the results were very favorable for the defense.

In September 2011, a number of the Africa Sting defendants who had resisted the government’s offers of leniency in return for pleas of guilt went on trial.  Almost immediately, the government’s case began to fall apart under the weight of judicial scrutiny.  At one point, Judge Richard Leon stated, “I read all sixteen indictments, and I didn’t see it. I have zero sense that there was an omnibus grand conspiracy.”  Despite these words of caution, the government continued to pursue the conspiracy charges, the same conspiracy charges to which other defendants had already pleaded guilty.  Finally, after giving the government ample opportunity to make its case, Judge Leon dismissed the conspiracy counts in the middle of the trial.  Eventually, when the trial concluded, the case ended without a single conviction on the remaining counts.

In February 2012, the government asked Judge Leon to dismiss the charges against the remaining defendants awaiting trial in the Africa Sting matter.  As discussed on FCPA Professor at the time (see here), Judge Leon granted the motion and stated:

“This appears to be the end of a long and sad chapter in the annals of white-collar criminal enforcement. Unlike takedown day in Las Vegas, however, there will be no front page story in the New York Times or the Post for that matter tomorrow reflecting the government’s decision today to move to dismiss the charges against the remaining defendants in this case. Funny isn’t it what sells newspapers.
….

Two years ago, at the very outset of this case I expressed more than my fair share of concerns on the record regarding the way this case has been charged and was being prosecuted. Later, during the two trials that I presided over I specifically commented again on the record regarding the government’s very, very aggressive conspiracy theory that was pushing its already generous elasticity to its outer limits. Of course, in the second trial that elastic snapped in the absence of the necessary evidence to sustain it.

In addition, in that same trial, I expressed on a number of occasions my concerns regarding the way this case had been investigated and was conducted especially vis-a-vis the handling of Mr. Bistrong. I even had an occasion, sadly, to chastise the government in a situation where the government’s handling of the discovery process constituted sharp practices that have no place in a federal courtroom.”

In a move seldom seen, the government even went on to dismiss the charges against the defendants who had already pleaded guilty in the case.

In discussing, amongst others, the Africa Sting prosecution in my new article on The Quest for Finality, I examine once again the role of plea bargaining.

It is disturbing to recognize that if all of the defendants in the Broadcom or Africa Sting cases had taken plea deals, we would likely never have learned just how tenuous the government’s positions were in these matters.  Further, evidence demonstrates that it is not unlikely that all the defendants in such a case might plead guilty, even if they were innocent.  During 2011 and 2012, Professor Vanessa Edkins and I conducted a psychological study in which we placed students in a situation where they were accused of cheating.  All the students, regardless of factual guilt or innocence were then offered a deal.  Of the guilty participants, 89% took the plea deal. Of the innocent participants, 56% took the plea deal.  Given the incentives plea bargaining creates for defendants to falsely admit guilt and the observed utilization of plea bargaining as a tool to mask flawed criminal cases where the evidence alone is insufficient for conviction at trial, perhaps it is time to reevaluate our reliance on bargained justice.

The Africa Sting Case is one in which a number of defendants proceeded to trial to challenge the government’s theory of the case.  Such challenges, however, have become a rarity in today’s criminal justice system.  As the Computer Associates case illustrates, even where the government’s aggressive application of broad criminal statutes draws wide attention, most defendants succumb to the powerful incentives plea bargaining offers to forgo trial.

You can read the full examination of the Africa Sting case and related white collar prosecutions by clicking here for a free copy of the article.

Referenced Articles

  • The Quest for Finality: Five Stories of White Collar Criminal Prosecution, 4 Wake Forest Journal of Law & Policy 91 (2014) (available here).
  • Over-Criminalization 2.0: The Symbiotic Relationship Between Plea Bargaining and Overcriminalization, 7 The Journal of Law, Economics, and Policy 645 (2011) (available here).
  • The Innocent Defendant’s Dilemma: An Innovative Empirical Study of Plea Bargaining’s Innocence Problem, 103 Journal of Criminal Law & Criminology 1 (2013) (with Dr. Vanessa A. Edkins) (available here).
Posted by Mike Koehler at 12:03 am. Post Categories: Africa StingGuest PostsPlea Bargaining




July 7th, 2014

Exploring A Deferred Prosecution Agreement Courtesy Of Biomet

Since introduced to the Foreign Corrupt Practices Act context in 2004, most corporate FCPA enforcement actions are resolved via non-prosecution agreements or deferred prosecution agreements (DPAs).

DPAs are essentially contracts, but beyond the fine amount, few of the contractual terms are explored.

This post uses recent events involving Biomet to explore other terms of a typical FCPA DPA.

As highlighted in this previous post, in March 2012 Biomet resolved an FCPA enforcement action involving alleged conduct in Brazil, Argentina, and China by agreeing to pay approximately $22.8 million ($17.3 million via a DOJ deferred prosecution agreement, and $5.5 million via a settled SEC civil complaint).

The three-year DPA stated, as is typical in FCPA DPAs, as follows.

Deferred Prosecution:  In consideration of: (a) the past and future cooperation of Biomet [...] ; (b) Biomet’s payment of a monetary penalty of $17,280,000; and (c) Biomet’s implementation and maintenance of remedial measures, the Department agrees that any prosecution of Biomet for the conduct set forth in the … Statement of Facts, and for the conduct that Biomet disclosed to the Department, prior to the signing of this Agreement, be and hereby is deferred for the Term of this Agreement. The Department further agrees that if Biomet fully complies with all of its obligations under this Agreement, the Department will not continue the criminal prosecution against Biomet [...]  and, after the Term, this Agreement shall expire and the Department shall seek to move to dismiss, with prejudice, the Criminal Information filed against Biomet.”

Breach of Agreement:  If during the term of this Agreement, the Department determines, in its sole discretion, that Biomet has: (a) committed any felony under federal law subsequent to the signing of this Agreement; (b) at any time, provided deliberately false, incomplete or misleading information; or (c) otherwise breached the Agreement, Biomet shall thereafter be subject to prosecution for any federal criminal violation of which the Department has knowledge, including the charges in the Information [...]

As relevant to the above terms of the Biomet DPA, on July 3rd, Biomet disclosed as follows.

“As previously disclosed, on March 26, 2012, Biomet entered into a Deferred Prosecution Agreement, or DPA, with the Department of Justice, or DOJ, and a Consent to Final Judgment, or Consent, with the Securities and Exchange Commission, or SEC, regarding an investigation regarding possible violations of the Foreign Corrupt Practices Act. Pursuant to the DPA, the DOJ agreed to defer prosecution of Biomet in connection with those matters, provided that Biomet satisfies its obligations under the DPA over the term of the DPA. The DPA has a three-year term but provides that it may be extended in the sole discretion of the DOJ for an additional year. Pursuant to the Consent, Biomet consented to the entry of a Final Judgment which, among other things, permanently enjoined Biomet from violating the provisions of the Foreign Corrupt Practices Act.

In October 2013, Biomet became aware of certain alleged improprieties regarding its operations in Brazil and Mexico. Biomet retained counsel and other experts to investigate both matters. Based on the results of the investigation, Biomet terminated, suspended or otherwise disciplined certain of the employees and executives involved in these matters, and took certain other remedial measures. Additionally, pursuant to the terms of the DPA, in April 2014, Biomet disclosed these matters to the independent compliance monitor and to the DOJ and SEC.

On July 2, 2014, the SEC issued a subpoena to Biomet requiring that Biomet produce certain documents relating to such matters. Moreover, pursuant to the DPA, the DOJ has sole discretion to determine whether conduct by Biomet constitutes a violation or breach of the DPA. If the DOJ determines that the conduct underlying these investigations constitutes a violation or breach of the DPA, the DOJ could, among other things, extend or revoke the DPA or prosecute Biomet and/or the involved employees and executives. Biomet continues to cooperate with the SEC and DOJ and expects that discussions with the SEC and the DOJ will continue.”

In short, Biomet’s recent disclosure creates the risk that the company may be in breach of the DPA giving the DOJ the ability, per the terms of the DPA, to continue or resurrect the prosecution of Biomet deferred under the DPA, as well as bring an enforcement action for any conduct occurring after the DPA.

As relevant to DPAs, the DOJ maintains that such agreements “have had a truly transformative effect on particular companies and, more generally, on corporate culture across the globe.”

Yet, Biomet’s recent disclosure puts it in a category of many other companies (such as Orthofix International, Willbros Group, Marubeni, Diebold, IBM, Tyco, Aibel Group, and Ingersoll-Rand) that have become the subject of additional scrutiny or enforcement after resolving FCPA enforcement actions through a DPA or agreeing to an SEC permanent injunction.  For more, see this prior post Do NPAs and DPAs Deter?

Yet, what Biomet’s recent disclosure demonstrates is that not even companies with the greatest incentive to comply with the FCPA – and subject to post-enforcement action compliance obligations – are able to ensure FCPA compliance across its business organization or eliminate FCPA scrutiny.  In short, FCPA compliance can not be guaranteed in a business organization, rather steps can be taken that only minimize the risk of non-compliance occurring.

This fundamental fact (and it is a fact that even the enforcement agencies have recognized)  is one of the policy reasons underlying an FCPA compliance defense.  (See here for the article “Revisiting a Foreign Corrupt Practices Act Compliance Defense”).

Whether Biomet may ultimately be in breach of its 2012 DPA is not the only contractual term that could implicated by recent events at Biomet.

In April 2014, Biomet and Zimmer Holdings announced ”that their respective Boards of Directors have approved a definitive  agreement under which Zimmer will acquire Biomet in a cash and stock transaction valued at approximately $13.35 billion, including the assumption of net debt.” The transactions is expected to close in the first quarter of 2015.

As relevant to this pending merger, the DPA states as follows.

Sale or Merger:  Biomet agrees that in the event it sells, merges, or transfers all or substantially all of its business operations as they exist as of the date of this Agreement, whether such sale is structured as a stock or asset sale, merger, or transfer, it shall include in any contract for sale, merger, or transfer a provision binding the purchaser, or any successor in interest thereto, to the obligations described in this Agreement.”

Posted by Mike Koehler at 12:05 am. Post Categories: BiometDeferred Prosecution AgreementsRepeat Offenders




July 3rd, 2014

“Friday” Roundup

On the brink of trial, statistics of note, the over-hyped U.K. Bribery Act turns 3, say what?, and for the reading stack.  It’s all here in a special Thursday edition of the Friday roundup.

On The Brink of Trial

This February 2012 post highlighting the SEC’s enforcement action against Mark Jackson and James Ruehlen (a former and current executive of Noble Corp. respectively) asked – “will the SEC be put to its burden of proof.”  Among other things, the post noted that the SEC has never prevailed in an FCPA enforcement action when put to its burden of proof.

With the passage of time, the SEC’s case against the defendants was consistently trimmed as the SEC attempted to meet its burden (see this post as well as here).  Among other things, a portion of the SEC’s claims were dismissed or abandoned on statute of limitations grounds and the trial court judge ruled, in an issue of first impression, that the SEC has the burden of negating the FCPA’s facilitation payments exception.

On the brink of the SEC’s first-ever FCPA trial (trial was scheduled to begin next week), the parties have agreed to settle.

Without admitting or denying the SEC’s allegations, Jackson consented to a final judgment permanently restraining and enjoining him from violating the FCPA’s books and records provisions.  Jackson was represented by, among others, David Krakoff (Buckley Sandler).  In a release, Krakoff stated:

“We are very pleased with today’s settlement.  It resolves allegations that have hung over Mr. Jackson for many years without any admission of liability, without any payment of money and without any restriction on Mr. Jackson’s future employment opportunities.  Mr. Jackson can now move forward with his life and career.”

Without admitting or denying the SEC’s allegations, Ruehlen consented to a final judgment permanently restraining and enjoining him from aiding and abetting FCPA books and records violations.  Ruehlen was represented by, among others, Joseph Warin and Nicola Hanna (Gibson Dunn).  In a release, Warin stated:

“We are very pleased with yesterday’s settlement.  Mr. Ruehlen is an exemplary and dedicated employee who first brought the allegations to light and fully cooperated with the SEC’s investigation.  While we were looking forward to presenting our case to a jury, the settlement of one record-keeping claim – without any admission of liability or wrongdoing, monetary penalty, or restriction on Mr. Ruehlen’s employment – satisfactorily ends the matter and allows Jim to focus his energies on his work for Noble.”

In neither consent is Jackson or Ruehlen required to pay any civil fine.

Score this one as you see fit, but my take is that this case represents yet another SEC failure in an FCPA enforcement action when put to its burden of proof.  As the Second Circuit recently recognized, SEC neither admit nor deny settlements are not about the truth, but pragmatism.

Statistics of Note

EY recently released its 13th annual Global Fraud survey (the results were based on interviews with more than 2,700 executives across 59 countries).  Statistics of note include the following.

“Despite the aggressive enforcement environment, our research suggests that the percentage of companies that have anti-bribery/anticorruption (ABAC) policies has increased by only 1% over the past two years, and a persistent minority has yet to take even the basic steps toward an effective compliance program.  One in five businesses still does not have an ABAC policy.  Less than 50% of respondents have attended ABAC training.  There has been a reduction in the level of reporting on compliance issues to boards.”

“The survey results show that executives in different roles have a differing view of the level of risk.  27% of chief compliance officers (CCOs) believe bribery and corrupt practices happen widely in their country versus 38% of all respondents — so they appear to have a more optimistic view than their colleagues.  18% of sales and marketing executives believe it is common practice to use bribery to win contracts in their sector versus 12% of all respondents — so they appear to have a more pessimistic view than their colleagues.”

“Additionally, the survey results suggest that compliance efforts may not always be targeting the right risks in the most effective way.  Less than a third of businesses are always or very frequently conducting anti-corruption due diligence as part of their mergers and acquisitions process.  45% of organizations are not mitigating risks by introducing a whistleblower hotline.  ABAC training is less likely to occur in jurisdictions where there is a higher perceived risk of bribery. Sales and marketing executives are the least likely of all our respondents to be included in risk assessments — despite being exposed to and aware of significant risks.  ABAC training, for example, is more likely to be attended by executives in mature markets, where corruption is perceived to be lower, than in higher-risk emerging markets. Of the survey population, 58% of respondents in developed markets had received ABAC training, compared with just 40% in emerging markets.”

Consistent with the observation in this recent post, these survey results again ought to prompt questions whether the current approach to enforcement – as well as enforcement policy – are effective.

Bribery Act Turns 3

The U.K. Bribery Act, a massively over-hyped law when it was being proposed and went live, has turned three.  On the day it went live, I offered the following two cents.

“As with any new law, there is likely to be a learning phase for both the enforcement agencies and those subject to the law. That was certainly the case in the U.S. in the years following passage of the FCPA in 1977. Thus, it very well may be the case that there are no enforcement actions for some time (recognizing that it often takes a few years from beginning of an inquiry to resolution of an action). Thus the greatest immediate impact of the Bribery Act is sure to be the compliance ethic it inspires. I expect that the enforcement actions that may develop over time to focus on egregious instances of corporate conduct on which no reasonable minds would disagree. I do not get the sense, based on public comments of the Ministry of Justice and the Serious Fraud Office, that the envelope will be pushed too far in the early years of the Bribery Act.”

Indeed, there has yet to be an “FCPA-like” Bribery Act enforcement action.  This troubles Transparency International – see here.

Say What?

Speaking of the Bribery Act, this is from “The Lawyer” regarding corruption allegations at FIFA and the ability of the U.K. Serious Fraud Office to bring an enforcement action against FIFA sponsors.

“Section 7 [of the U.K. Bribery Act] is entitled “Failure of commercial organisations to prevent bribery”. Its reach is as global as the World Cup. The fact that Fifa is a Zurich-based NGO does not mean it’s offside. Similarly for the sponsors so long as some aspect of their business is carried out in the UK. A single sale of an Adidas football boot via a Visa credit card is sufficient for David Green [Director of the SFO] to apply to the courts for search warrants in order to unleash dawn raids on their UK HQs.”

Regarding the italicized portion … say what?

For the Reading Stack

See here for the always informative Debevoise & Plimpton FCPA Update.  Regarding the Second Circuit’s recent decision in SEC v. Citigroup, the Update states:

“For companies subject to the SEC’s authority to enforce the FCPA, the Second Circuit’s decision in the Citi matter provides some comfort that a corporate resolution requiring judicial approval, once achieved, should be subject to appropriate deference when it comes before a district court for review. At the same time, however, the decision also reinforces the understanding that resolutions achieved by settlement, even if approved by a court, do not constitute legal precedent.”

An interesting read here from the BBC regarding “contemporary business culture” in China.

“Chinese workplaces are just as political as those anywhere else in the world, some would argue more so because the value placed on outward harmony in Chinese culture drives the rivalry underground. [...]  The politics in a multinational’s China operation can be especially insidious when there’s a thin layer of western management attempting to operate according to principles which have limited purchase in the Chinese business culture beneath.”

Aboard the “bribery express” – from Eurasianet.

****

A Happy Independence Day to U.S. readers and a good weekend to all.

Posted by Mike Koehler at 12:03 am. Post Categories: ChinaFCPA StatisticsJames RuehlenMark JacksonNeither Admit or DenySerious Fraud OfficeU.K. Bribery Act