December 2nd, 2014

Reading Assignments

Read ThisEnd of the semester reading assignments for those interested in topics related to FCPA enforcement.

Thus far in 2014, every SEC FCPA enforcement action (both corporate and individual) has been resolved via the SEC’s administrative process.  Against this backdrop, Judge Jed Rakoff’s (S.D.N.Y.) recent speech “Is the SEC Becoming a Law Unto Itself” is a suggested read.

Prosecutorial common law most certainly impacts FCPA enforcement.  My amicus brief filed in connection with the recent Supreme Court “foreign official” cert petition highlighted, among other things, how judicial percolation of the “foreign official” issue is unlikely given how the FCPA is enforced. Against this backdrop, a recent statement by Supreme Court Justices Scalia and Thomas is a suggested read.

Both suggested reads are excerpted below.

Judge Rakoff’s Speech

In this recent speech Judge Jed Rakoff (S.D.N.Y.) asks “is the SEC becoming a law unto itself” and discusses “some dangers that seem to lurk … in the SEC’s apparent new policy of bringing a greater percentage of its significant enforcement actions as administrative proceedings.”  In pertinent part, Judge Rakoff stated:

“[I]n recent months the S.E.C. has signaled its intention to bring as administrative actions certain kinds of enforcement actions that historically it has more often brought in the federal courts. As early as October of 2013, Andrew Ceresney, Director of the Division of Enforcement, stated that “Our expectation is that we will be bringing more administrative proceedings given the recent statutory changes.” He followed that up last June when, with specific reference to insider trading cases, which previously had only very rarely been brought administratively, rather than in federal court, Mr. Ceresney stated: “I do think we will bring more insider-trading cases as administrative proceedings in appropriate cases.” Not to be outdone, Kara Brockmeyer, the head of the SEC’s antiforeign- corruption enforcement unit, stated just two weeks ago that “It’s fair to say it’s the new normal. Just like the rest of the enforcement division, we’re moving towards using administrative proceedings more frequently.”

Judge Rakoff next provided an informative historical overview of the SEC’s evolving enforcement powers including recent Section 929 of Dodd-Frank which gave the SEC the power through internal administrative proceedings to impose monetary penalties.

In the words of Judge Rakoff:

“The net result of all this is that the S.E.C. can today obtain through internal administrative proceedings nearly everything it might obtain by going to court. This sea-change has come about almost entirely at the request of the S.E.C., usually by tacking the provisions authorizing such expansion onto one or another statute enacted in the wake of a financial scandal.

What has been the stated rationale for all these changes? Usually nothing more than a claim of greater efficiency. Thus, for example, when then-Director of Enforcement Robert Khuzami submitted a statement to the Senate Judiciary Committee in support of Dodd-Frank, he devoted all of one sentence to what became Section 929P(a), stating: “Additional legislative proposals that would serve to enhance the Division’s effectiveness and efficiency include the ability to seek civil penalties in [administrative] cease-and-desist proceedings.” Similarly, the sole legislative history of Section 929P(a) in the House Report on Dodd-Frank states that “This section streamlines the SEC’s existing enforcement authorities by permitting the SEC to seek civil money penalties in cease-and-desist proceedings under Federal securities laws.”

While a claim to greater efficiency by any federal bureaucracy suggests a certain chutzpah, it is hard to find a better example of what is sometimes disparagingly called “administrative creep” than this expansion of the S.E.C.’s internal enforcement power.

To be sure, an S.E.C. enforcement action brought internally is in some superficial respects more “effective and efficient” and more “streamlined” than a similar action brought in federal court, for the simple reason that S.E.C. administrative proceedings involve much more limited discovery than federal actions, with no provision whatsoever for either depositions or interrogatories. Similarly, at the hearing itself, the Federal Rules of Evidence do not apply and the S.E.C. is free to introduce hearsay. Further still, there is no jury, and the matter is decided by an administrative law judge appointed and paid by the S.E.C. It is hardly surprising in these circumstances that the S.E.C. won 100% of its internal administrative hearings in the fiscal year ending September 30, 2014, whereas it won only 61% of its trials in federal court during the same period.

But, although the informality and arguable unfairness of S.E.C. administrative proceedings might present serious problems for those defending such actions, you might suppose that federal judges would be delighted to have fewer complicated securities cases burdening their overcrowded dockets. The reason, though, that I suggest that the judiciary and the public should be concerned about any trend toward preferring the S.E.C.’s internal administrative forum to the federal courts is that it hinders the balanced development of the securities laws.”

[...]

[G]iven the expansion of its internal jurisdiction occasioned by Dodd-Frank, the S.E.C. might well be tempted in the future to bring such cases as administrative enforcement actions, and thereby likely avoid the sting of well-publicized defeats. But the result would be that the law in such cases would effectively be made, not by neutral federal courts, but by S.E.C. administrative judges.

This is because, at least in the case of administrative decisions that have been formally approved by the S.E.C., such decisions, though appealable to the federal courts of appeals, are presumed correct unless unreasonable. In other words, while the decisions of federal district courts on matters of law are subject to de novo review by the appellate courts, the law as determined by an administrative law judge in a formal administrative decision must be given deference by federal courts unless the decision is not within the range of reasonable interpretations.

To put it in terms that this audience is familiar with, an S.E.C. administrative judge’s formal ruling on an otherwise undecided issue of statutory interpretation of the securities law is, just like rules enacted by the Commission, entitled to “Chevron” deference.”

[...]

In short, what you have here are broad anti-fraud provisions, critical to the transparency of the securities markets, that have historically been construed and elaborated by the federal courts but that, under Dodd-Frank, could increasingly be construed and interpreted by the S.E.C.’s administrative law judges if the S.E.C. chose to bring its more significant cases in that forum. Whatever one might say about the S.E.C.’s quasijudicial functions, this is unlikely, I submit, to lead to as balanced, careful, and impartial interpretations as would result from having those cases brought in federal court.

In the short-run, this would be unfair to the litigants. In the longer-run, it might not be good for the S.E.C. itself, which has its own reputation for fairness to consider. But, most of all, in the both the short-run and the long-run, it would not be good for the impartial development of the law in an area of immense practical importance.

Almost from the very outset of the administrative state, the defense of the huge power we accord to administrative agencies – as classically stated by the second Chairman of the S.E.C., James Landis, in his book The Administrative Process – is that no practical alternative exists in our complex society. But when it comes to interpreting the securities laws, a practical alternative – and the very one provided by the Constitution – has functioned very effectively for decades, namely, adjudication in the federal courts. I see no good reason to displace that constitutional alternative with administrative fiat, and I would urge the S.E.C. to consider that it is neither in its own longterm interest, nor in the interest of the securities markets, nor in the interest of the public as a whole, for the S.E.C. to become, in effect, a law onto itself.”

Justice Scalia / Thomas Statement

Recently, the U.S. Supreme Court denied cert in an insider trading case, Whitman v. United States.  Much of the news surrounding the denial though focused on this statement by Justice Scalia and joined by Justice Thomas.  The statement reads in full (internal citations omitted) as follows.

“A court owes no deference to the prosecution’s interpretation of a criminal law. Criminal statutes “are for the
courts, not for the Government, to construe.” This case, a criminal prosecution under §10(b) of the Securities
Exchange Act of 1934 raises a related question: Does a court owe deference to an executive agency’s interpretation of a law that contemplates both criminal and administrative enforcement?

The Second Circuit thought it does. It deferred to the Securities and Exchange Commission’s interpretation of §10(b), and on that basis affirmed petitioner Douglas Whitman’s criminal conviction. Its decision tilled no new ground. Other Courts of Appeals have deferred to executive interpretations of a variety of laws that have both criminal and administrative applications.

I doubt the Government’s pretensions to deference. They collide with the norm that legislatures, not executive officers, define crimes. When King James I tried to create new crimes by royal command, the judges responded that “the King cannot create any offence by his prohibition or proclamation, which was not an offence before.” James I, however, did not have the benefit of Chevron deference. With deference to agency interpretations of statutory provisions to which criminal prohibitions are attached, federal administrators can in effect create (and uncreate) new crimes at will, so long as they do not roam beyond ambiguities that the laws contain. Undoubtedly Congress may make it a crime to violate a regulation, but it is quite a different matter for Congress to give agencies—let alone for us to presume that Congress gave agencies—power to resolve ambiguities in criminal legislation.

The Government’s theory that was accepted here would, in addition, upend ordinary principles of interpretation. The rule of lenity requires interpreters to resolve ambiguity in criminal laws in favor of defendants. Deferring to the prosecuting branch’s expansive views of these statutes “would turn [their] normal construction . . . upside-down, replacing the doctrine of lenity with a doctrine of severity.”

The best that one can say for the Government’s position is that in Babbitt v. Sweet Home Chapter, Communities for Great Ore., 515 U. S. 687 (1995), we deferred, with scarcely any explanation, to an agency’s interpretation of a law lenity aside in a footnote, stating that “[w]e have never suggested that the rule of lenity should provide the standard for reviewing facial challenges to administrative regulations.” That statement contradicts the many cases before and since holding that, if a law has both criminal and civil applications, the rule of lenity governs its interpretation in both settings. The footnote in Babbitt added that the regulation at issue was clear enough to fulfill the rule of lenity’s purpose of providing “fair warning” to would-be violators. But that is not the only function performed by the rule of lenity; equally important, it vindicates the principle that only the legislature may define crimes and fix punishments. Congress cannot, through ambiguity, effectively leave that function to the courts—much less to the administrative bureaucracy. Babbitt’s drive-by ruling, in short, deserves little weight.

Whitman does not seek review on the issue of deference, and the procedural history of the case in any event makes it a poor setting in which to reach the question. So I agree with the Court that we should deny the petition. But when a petition properly presenting the question comes before us, I will be receptive to granting it.”

Posted by Mike Koehler at 12:02 am. Post Categories: Enforcement Agency PolicyProsecutorial Common LawSEC




December 1st, 2014

Items Of Interest From The Recent Dutch Enforcement Action Against SBM Offshore

Dutch-based SBM Offshore recently resolved an enforcement action in the Netherlands.  With a settlement amount of $240 million, the SBM Offshore enforcement action is believed to be the third largest bribery enforcement action of 2014 with China’s $490 million enforcement action against GlaxoSmithKline and the U.S.’s $384 million enforcement action against Alcoa consisting of the top two.

The enforcement action was pursuant to Article 74 of the Dutch Penal Code, a provision of Dutch law that has been criticized by the OECD.

As stated by the OECD, Article 74 of the Dutch Penal Code “essentially involves the payment of a sum of money by the defendant to avoid criminal proceedings.”  Regarding such out-of-court settlements, the OECD has further noted that “out-of-court settlements in the Netherlands do not require an admission of guilt.”

In its December 2012 Phase 3 review of the Netherlands, one of the follow-up items listed was: “the use of out-of-court transactions for foreign bribery offences, as governed by article 74 of the  Dutch Penal Code, to ensure that they result in the imposition of effective, proportionate and dissuasive sanctions (Convention, Article 3.1).”

Regarding the SBM Offshore action, the Dutch Prosecutor’s Service announced:

“SBM Offshore has accepted an offer from the Dutch Public Prosecutor’s Service to enter into an out-of-court settlement. The settlement consists of a payment by SBM Offshore … of US$ 240,000,000 in total. This amount consists of a US$ 40,000,000 fine and US$ 200,000,000 disgorgement. This settlement relates to improper payments to sales agents and foreign government officials in Equatorial Guinea, Angola and Brazil in the period from 2007 through 2011 [...]. According to the [Dutch prosecutors] those payments constitute the indictable offences of bribery in the public and the private sector as well as forgery.”

According to the release, the reasons for the out-of-court settlement include:

  • SBM Offshore itself brought the facts to the attention of the authorities …SBM Offshore itself investigated the matter and agreed to fully cooperate with subsequent criminal investigations …;
  • there has been a new Management Board since 2012;
  • after it became aware of the facts, the newly established Management Board of SBM Offshore, at its own initiative, has taken significant measures to improve the company’s compliance; and
  • as noted in SBM Offshore’s press release, the current Management Board and Supervisory Board regret the failure of control mechanisms in place in the past.

According to the release, “from 2007 to 2011, SBM Offshore paid approximately US$ 200 million in commissions to foreign sales agents for services.  The largest part of these commissions totaling US $180.6 million, relate to Equatorial Guinea, Angola and Brazil.”

As to Equatorial Guinea, the release states:

“In early 2012, it came to SBM Offshore’s attention that one of its former sales agents might have given certain items of value to government officials in Equatorial Guinea. This reportedly involved one or more cars and a building. In the opinion of the Openbaar Ministerie and the FIOD, SBM Offshore’s former sales agent paid a significant portion of the commissions paid to him by SBM Offshore on to third parties, who in turn would have forwarded parts of these payments to one or more government officials in Equatorial Guinea. There also are other payments, such as education and health insurance costs. In the opinion of the [Dutch authorities], such (forwarded) payments took place with the knowledge of people who at the time were SBM Offshore employees, including someone who at the time was a member of the Management Board. From 2007 through 2011, SBM Offshore paid that particular sales agent USD 18.8 million in total in relation to Equatorial Guinea.”

As to Angola, the release states:

“In the period from 2007 through 2011, SBM Offshore also used several sales agents in Angola. These sales agents received commissions for services regarding certain projects in Angola. In the opinion of the [Dutch authorities], Angolan government officials, or persons associated with Angolan government officials, who are associated with at least one of these sales agents, received funds. In addition, there are payments for travel and study costs to one or more Angolan government officials or their relatives. Also with respect to Angola, the [Dutch authorities] are of the opinion that such payments took place with the knowledge of people who at the time were SBM Offshore employees. In the period from 2007 through 2011, SBM Offshore paid USD 22.7 million in commissions to its sales agents in connection with Angola.”

As to Brazil, the release states:

“With regard to Brazil, certain “red flags” relating to the main sales agent used in Brazil were found during the internal investigation commissioned by SBM Offshore. These red flags included:

  • the high amounts (in absolute terms) of commission that were paid to the sales agent and its companies;
  • a split between commissions paid to the sales agent between its Brazilian and its offshore entities; and
  • documents indicating the sales agent had knowledge of confidential information about a Brazilian client.

The internal investigation conducted by SBM Offshore did not yield any concrete evidence that payments may have been made to one or more government officials in Brazil. In the period from 2007 through 2011, SBM Offshore paid USD 139.1 million in commissions to its sales agents in connection with Brazil.

A mutual legal assistance request in the context of the investigation conducted by the [Dutch authorities] established that payments were made from the Brazilian sales agent’s offshore entities to Brazilian government officials. These findings resulted from means of investigation inaccessible to SBM Offshore.”

The release states, under the heading “Further Investigation” as follows.

“It appears from the criminal investigation that certain natural persons have been involved in the criminal offences committed in the opinion of the [Dutch authorities]. In a case like the one at hand, the [Dutch authorities] has jurisdiction if criminal acts are committed in the Netherlands, or when criminal acts are committed abroad by persons with the Dutch nationality. From the current state of affairs of the investigation, this does not appear to be the case. The [Dutch authorities] will cooperate fully with the countries that have jurisdiction to prosecute the natural persons involved.”

In this release, SBM Offshore stated that “the United States Department of Justice has informed SBM Offshore that it is not prosecuting the Company and has closed its inquiry into the matter.”

The SBM Offshore release further states:

Self-Reporting

The settlement with the [Dutch authorities] is a result of the discussions between the [Dutch authorities] and SBM Offshore, which started after SBM Offshore voluntarily informed the [Dutch authorities] and the United States Department of Justice of its self-initiated internal investigation in the spring of 2012. The findings of the internal investigation were communicated in SBM Offshore’s press release of April 2, 2014. SBM Offshore fully cooperated with the [Dutch authorities] and the United States Department of Justice.

Remedial Measures

With its voluntary reporting of the internal investigation to the [Dutch authorities], the United States Department of Justice and the market in April 2012, SBM Offshore made it clear that it wants to conduct its business transparently. The Supervisory Board appointed a new Management Board that took office in the first half of 2012. The new Management Board has repeatedly stressed the importance of compliance inside and outside the organisation. The Company, with the assistance of its advisors, enhanced its anti-corruption compliance program and related internal controls. The Company shared these measures with the [Dutch authorities] and the United States Department of Justice. The measures include:

  • the appointment of [a] Chief Governance and Compliance Officer, a newly created Management Board position;
  • the appointment of a seasoned compliance professional as Compliance Director, another newly created position;
  • the enhancement of anti-corruption related policies and procedures designed to ensure compliance by Company employees as well as third parties;
  • at the inception of the internal investigation, a review of all sales agents who were active at that time;
  • a decision to no longer use sales agents in those countries where the Company itself has a substantial presence;
  • the enhancement of compliance procedures related to the retention of sales agents, other intermediaries and joint venture partners;
  • the launch of a significant training effort for employees in compliance-sensitive positions;
  • the enhancement of mechanisms to report potential wrongdoing;
  • the enhancement of the Company’s internal financial controls related to anti-corruption compliance and internal audit processes; and
  • disciplinary actions against employees who were involved in or had knowledge of possible improper payments, including termination of employment agreements.

Although the current Management Board and the Supervisory Board regret that in the past, SBM Offshore’s processes relating to the monitoring of its sales agents appeared to not have been of a standard that allowed SBM Offshore to ensure the integrity of the actions taken by its sales agents, SBM Offshore believes that with these measures it offers a transparent and open Company to its clients and other stakeholders.

In the release Bruno Chabas (CEO of SBM Offshore) stated:

“SBM welcomes the conclusion of all discussions with the Dutch and U.S. authorities. We have been open, transparent and accountable throughout this difficult process which has addressed issues from a past era. We can now focus on the future, secure in the knowledge that we have put in place an enhanced compliance culture which embeds our core values.”

To some, the lack of a DOJ enforcement action against SBM Offshore was a declination.  However, such a conclusion implies that there was actually an FCPA enforcement action to bring against SBM Offshore.

Two points are relevant to this issue.  First, as noted in this Global Investigations Review article, SBM Offshore’s outside counsel comments that the company disclosed to the Dutch authorities an the DOJ “before we had done much of the internal investigation.” Second, SBM Offshore could only be prosecuted for FCPA anti-bribery violations to the extent the conduct at issue had a U.S. nexus.

Posted by Mike Koehler at 12:04 am. Post Categories: 2014 Enforcement ActionsAngolaBrazilDeclination DecisionsEquitorial GuineaNetherlandsSBM OffshoreVoluntary Disclosure




November 28th, 2014

Friday Leftovers

Roundup2Scrutiny update, a double standard, ripples, that’s interesting, and for the reading stack.  It’s all here in a leftovers edition of the Friday roundup.

Scrutiny Update

One of the longest-lasting instances of FCPA scrutiny concerns PBSJ Corporation (a global engineering and architectural firm) that first disclosed FCPA scrutiny in December 2009.  PBSJ was subsequently acquired by WS Atkins (a U.K. company) and WS Atkins disclosed in a recently regulatory filing as follows.

“There are ongoing discussions regarding the longstanding and previously reported Department of Justice and Securities and Exchange Commission enquiries relating to potential Foreign Corrupt Practices Act violations by the PBSJ Corporation prior to its acquisition by the Group. We anticipate resolution of this matter before the end of the current financial year.”

Double Standard?

Several FCPA enforcement actions or instances of FCPA scrutiny have been based on providing things of value such as meals, entertainment and consulting fees to foreign physicians.

Against this backdrop, the Wall Street Journal reports:

“As it fights to buy Botox maker Allergan Inc.,  Valeant Pharmaceuticals International Inc. is investing cash and time wooing the doctors it would need on its side after a takeover. A centerpiece of the effort: Valeant said it met with a total of 45 influential cosmetic surgeons and dermatologists in September at events in Aspen, Colo., and Palm Beach, Fla. Valeant paid for the physicians’ airfares, two-night stays at luxury hotels and meals. The company also agreed to provide consulting fees that could amount to as much as $30,000, according to doctors who attended the meetings. Valeant, a smaller player than Allergan in cosmetic medicine, must win over doctors if it wrests control of the Botox maker, since it will rely on the physicians for business. Valeant said the pursuit seems to be paying off. Several doctors who attended the sessions, of what Valeant called its special advisory committee, said they were won over by the company’s plans for Allergan—including attracting patients to physicians’ offices and introducing new products.”

Ripples

My recent article “Foreign Corrupt Practices Act Ripples“ highlights that settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from FCPA scrutiny or enforcement in this new era.

One such ripple is offensive use of the FCPA to further advance a litigating position and that is just what Instituto Mexicano Del Seguro Social (“IMSS”) has done in this recent civil complaint against Orthofix International.

You may recall that in July 2012 Orthofix resolved a $7.4 million FCPA enforcement action based on allegations that its Mexican subsidiary paid bribes totaling approximately $317,000 to Mexican officials in order to obtain and retain sales contracts from IMSS. (See here for the prior post).

In the recent civil complaint, IMSS uses the core conduct at issue in the FCPA enforcement action and alleges various RICO claims, fraud claims, and other claims under Mexican law.

That’s Interesting

As has been widely reported (see here for instance), “President Obama called on the Federal Communications Commission … to declare broadband Internet service a public utility, saying that it was essential to the economy …”.

That’s interesting because – as informed readers know – in the 11th Circuit’s “foreign official” decision the court concluded that an otherwise commercial enterprise can be a “instrumentality” of a government if the “entity controlled by the government … performs a function the controlling government treats as its own.”  Among the factors the court articulated for whether an entity performs a “function the controlling government treats as its own” was “whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function.”

Reading Stack

Several law firm client alerts regarding the DOJ’s recent FCPA Opinion Procedure release concerning successor liability (see herehere, here).  In this alert, former DOJ FCPA Unit Chief Charles Duross leads with the headline “Is DOJ Evolving Away from the Halliburton Opinion Standard?” (a reference to this 2008 Opinion Procedure release).

From Foley & Larder and MZM Legal (India) – “Anti-Bribery and Foreign Corrupt Practices Act Compliance Guide for U.S. Companies Doing Business in India.”

Recent interviews (here and here) with Richard Bistrong, a real-world FCPA violator and undercover cooperator.  See here for my previous Q&A with Bistrong.  As noted here, Bistrong recently spoke to my FCPA class at Southern Illinois University School of Law. Having the ability to hear from an individual who violated the law my students were studying, and being able to hear first-hand of real-world business conditions, was of tremendous value to the students and added an important dimension to the class.

Should the government reconsider its use of deferred prosecution agreements?  That is the question posed in this New York Times roundtable (in the context of recent bank prosecutions).

Finally for your viewing pleasure, an FCPA-related interview here of SciClone’s CEO (a company that has been under FCPA scrutiny since approximately August, 2010).

*****

A good weekend to all.





November 26th, 2014

And The Apples Go To …

applepicOften times there seems to be an echo chamber when it comes to Foreign Corrupt Practices Act reporting, commentary, etc.

One such occasion has been the recent Layne Christensen enforcement action (see here for the prior post).  The theme, which appears to have first been floated by lawyers representing Layne Christensen, but repeated by many others (see here and here for instance), is that the enforcement action was SEC only because of the company’s voluntary disclosure, cooperation and remedial actions.

That’s one narrative.

But some have bucked this narrative and have thankfully injected some informed thought into the conversation surrounding the Layne Christensen enforcement action.  And for this, the various individuals identified below receive FCPA Professor apple awards.

This other narrative is that the conduct alleged in the SEC’s enforcement action does not even violate the FCPA’s anti-bribery provisions.

This Shearman & Sterling Client publication, with former DOJ FCPA enforcement Philip Urofsky listed as the lead author, states:

“While a relatively unremarkable case at first glance, the SEC’s charges against Layne Christensen reflect a troubling approach by enforcement agencies to disregard the “business nexus element” of the FCPA’s anti-bribery provisions. These recent practices appear to contradict the Fifth Circuit’s opinion in United States v. Kay and create greater uncertainty as to the scope of the statute.”

[...]

Although a seemingly unremarkable case in a field known for blockbuster settlements, Layne Christensen illustrates a troubling practice by the SEC and US Department of Justice to disregard the “business nexus element” of the FCPA. Specifically, the FCPA states that to violate the anti-bribery provisions of the law, the defendant must pay a bribe “to assist the issuer in obtaining or retaining business . . . .” While it is often the case that bribes are paid on a quid pro quo basis in exchange for the award of valuable contracts, there are additional scenarios, like that seen in Layne Christensen, where the bribes merely assisted the defendant to improve its profit margins. In United States v. Kay, the Fifth Circuit held that bribes made in exchange for a reduction in tax liability or customs duties did not per se violate the statute without proof that the increased profits were used to obtain or retain some form of business.”

“Layne Christensen is further evidence that the DOJ’s and SEC’s current approach to the “business nexus element” of the FCPA flies in the face of Kay. By charging companies (often under extreme pressure to settle the case against them) with facts that do not show how the bribes were used to assist in obtaining or retaining business, the DOJ and SEC have created significant uncertainty as to the scope of the FCPA.”

[...]

“The SEC’s case against Layne Christensen demonstrates that the government continues to follow the practice … [of] treating the “business nexus requirement” as a seemingly unnecessary feature of the FCPA.”

[...]

“Strikingly, short of simply parroting the language of the statute, the SEC made no effort to allege facts as to what specific business was obtained or retained as a result of the reduced tax liability and customs duties. Such a pleading is clearly at odds with the Fifth Circuit’s opinion in Kay which stated that while bribes in exchange for increased profitability could violate the FCPA, they would not, per se, constitute criminal conduct without an allegation that the increased profits were used to obtain or retain business.”

[...]

“Whether the DOJ’s and SEC’s approach to the business nexus element of the FCPA stems from a misinterpretation of Fifth Circuit’s opinion or an active attempt to challenge Kay remains to be seen. Nevertheless, the lack of clarity ultimately disadvantages defendants who may be pressured to settle charges over conduct which does not necessarily constitute a crime.”

This is not the first time Urofsky, et al have rightly noted the DOJ/SEC’s unhinged enforcement theories relevant to “obtain or retain business.”  (See here for a prior post).

Charles Leeper (DrinkerBiddle) is also deserving of an apple award for his writing on the Layne Christensen enforcement action. He writes:

“According to the Consent Order, between 2005 and 2010 Layne’s subsidiaries made approximately $800,000 in improper payments to foreign officials in various African countries in order to: (1) realize improper tax benefits; (2) secure custom clearance of equipment; (3) avoid assessed customs duties and penalties; and (4) secure work permits for, and avoid deportation of, their employees.  While the SEC alleged that Layne realized financial benefits of approximately $3.9 million by making these payments, the Consent Order does not allege that Layne obtained business from the African governments in question, or even that Layne improved its competitive position in those countries on account of these payments.  Other than a single rote reference to the alleged purpose of “obtain[ing] or retain[ing] business,” the Consent Order contains no indication that the SEC’s investigation produced evidence satisfying the business nexus element of the FCPA.

[...]

Layne’s voluntary disclosure and substantial cooperation likely contributed to the relatively modest penalty that it was assessed by the SEC.  But it is equally likely that the SEC showed uncommon leniency, and the DOJ declined prosecution altogether, because an essential element of the FCPA could not be readily proven.”

Apple awards as well for commentary in this Global Investigations Review article.

“[A] number of lawyers are saying the DoJ failed to file charges as Layne did not satisfy the business-nexus element of the FCPA, which requires violating companies to have paid bribes “to assist the issuer in obtaining or retaining business”. They say the SEC’s decision to bring an administrative proceeding despite the business-nexus element not being met, is part of larger trend in both the SEC and the DoJ to wrongly pursue such cases. Kelly Kramer at Mayer Brown in Washington, DC, agreed that the SEC and DoJ are ignoring the precedent set by Kay. “There is very little court guidance. As a consequence the SEC and DoJ have adopted their own interpretation of the FCPA. Essentially, they presume that bribes that increase corporate profits also help companies to obtain or retain business,” he said. “But that is not always true. The DoJ and SEC seem to be using this presumption to avoid the business-nexus element.” Kramer added that as there are so few appellate FCPA cases, due to the tendency for companies to settle, the SEC and DoJ have created their own “common law of settlement”, which has persuasive value for general counsels, but lacks any legal weight.”

The above commentary should not come as a surprise to frequent readers of FCPA Professor.  The issue of whether the SEC could have actually proved its allegations in the Layne Christensen enforcement action were first flagged in this prior post.

More broadly, I have been writing about the DOJ/SEC’s unhinged “obtain or retain business” theories for years.

See “The Facade of FCPA Enforcement” (an extensive discussion of the Kay case starts at pg. 918 and concludes: Despite the equivocal nature of the Kay holding, the decision clearly energized the enforcement agencies and post-Kay there has been an explosion in FCPA enforcement actions where the alleged improper payments involve customs duties and tax payments or are otherwise alleged to have assisted the payer in securing foreign government licenses, permits, and certifications which assisted the payer in generally doing business in a foreign country. These enforcement actions are profiled [elsewhere in the article.] Because none of these actions have been challenged, it remains an open question whether the payments at issue in these cases, if subjected to judicial scrutiny: (i) would satisfy the FCPA’s “obtain or retain business” element; or (ii) were too attenuated to obtaining or retaining business (such as merely increasing the profitability of an existing profitable business) and thus, per the Kay holding, not a violation of this key FCPA anti-bribery element.”).

See “FCPA Enforcement As Seen Through Wal-Mart’s Potential Exposure” (“[T]he enforcement theory that payments to a foreign official outside the context of foreign government procurement fall under the FCPA’s anti-bribery provisions has been subjected to judicial scrutiny four times. The enforcement agencies lost three of those cases and the fourth case—the Fifth Circuit’s decision in Kay—is equivocal. The decision merely holds that payments to a foreign official outside the context of foreign government procurement can, under appropriate circumstances, fall within the statute. Given the facts and circumstances the Kay court found relevant, it is a highly fact-dependent question whether a payment to a foreign official outside the context of foreign government procurement is subject to the FCPA. A key portion from the Kay ruling logically implicated by Wal-Mart’s alleged payments is the following: ‘‘there are bound to be circumstances in which payments outside the context of foreign government procurement merely increase the profitability of an existing profitable company and thus, presumably, does not assist the payer in obtaining or retaining business.’’).

See “Why You Should Be Alarmed by the ADM Enforcement Action” (The Kay court did conclude that payments outside the context of foreign government procurement ‘‘could’’ violate the FCPA, but only if the payments were intended to lower a company’s cost of doing business enough to assist the company in ‘‘obtaining or retaining’’ business. Specifically, the court stated: If the government is correct that anytime operating costs are reduced the beneficiary of such advantage is assisted in getting or keeping business, the FCPA’s language that expresses the necessary element of assisting in obtaining business would be unnecessary, and thus surplusage—a conclusion that we are forbidden to reach.”

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Posted by Mike Koehler at 12:04 am. Post Categories: Apple AwardLayne ChristensenObtain or Retain Business




November 25th, 2014

The Challenges Of Pursuing Foreign Bribe-Takers

Today’s post is from Mike Dearington, an associate at Arent Fox LLP in Washington, DC. Dearington has previously authored several FCPA Professor guest posts on the Siriwan matter (see here).

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Last week, Leslie Caldwell (Assistant Attorney General for the DOJ Criminal Division) spoke at the American Conference Institute’s International Conference on the Foreign Corrupt Practices Act. Caldwell discussed the Criminal Division’s approach to combatting global corruption, warning that corrupt foreign officials are also in the government’s crosshairs.  “And now we also are prosecuting the bribe takers, using our money laundering and other laws,” Caldwell stated. “[O]ur efforts to hold bribe takers as well as bribe payors accountable for their criminal conduct are greatly aided by our foreign partners.”

Meanwhile, the very same day, federal prosecutors in the Central District of California requested that a court postpone an extradition status hearing in United States v. Siriwan, the government’s bellwether case against a foreign official who allegedly accepted bribes.  In the filing, DOJ prosecutors revealed that the foreign official, Juthamas Siriwan, former governor of the Tourism Authority of Thailand, has been indicted on domestic bribery charges at home in Thailand.  Thailand’s indictment reduces the possibility that it will extradite the former official to the United States to face money-laundering charges.

Prosecutors charged Siriwan in 2009 with violations of the Money Laundering Control Act, alleging that Siriwan used the US financial system to promote or conceal violations of the FCPA and Thai law.  A jury convicted the alleged bribe payers, Hollywood film executives Gerald and Patricia Green, of FCPA violations in 2010 for allegedly paying Siriwan $1.8 million in bribes in exchange for lucrative film festival contracts.  But prosecutors’ case against Siriwan has stalled due to the government’s inability to obtain Siriwan’s extradition from Thailand.  The court has deferred ruling on the government’s somewhat novel legal theory in Siriwan until such time as Siriwan is extradited to the United States to stand trial.  Now that Thailand is contemporaneously prosecuting Siriwan at home, extradition seems even more unlikely, and prosecutors may be unable to convince the court to further stay the case, which has been pending for nearly six years.

The government’s extradition challenges in Siriwan suggest that the Criminal Division’s tactic of pursuing bribe-taking foreign officials can be fraught with diplomatic challenges and uncertainty.  Enforcement agencies in a corrupt official’s home country have a significant interest in holding officials accountable at home.  And a country’s unwillingness to communicate and coordinate with prosecutors in the United States can further complicate an already‑complicated case.  Thailand has been less than clear about whether it intends to extradite Siriwan.  Indeed, prosecutors seem to have learned of Thailand’s decision to indict Siriwan only after finding an article in the Bangkok Post.  In the DOJ’s filing, prosecutors explained, “On November 13, 2014, the Bangkok Post published a report that ‘a joint panel of the Office of the Attorney-General (OAG) and National Anti-Corruption Commission (NACC) has agreed to indict former Tourism Authority of Thailand (TAT) governor Juthamas Siriwan in a film festival bribery case.’  The parties are each gathering more information regarding the development.”

Thailand’s unilateralism with respect to Siriwan has posed problems for prosecutors in the past.  Back in July 2012, after requesting Siriwan’s extradition, prosecutors admitted to the court that the government “has not yet received a response from Thailand regarding extradition,” only to learn from Thailand four months later that, “[Thailand is] in the process of gathering further evidences [sic] before completing the investigation in order to bring both offenders to court to be formally charged.  Hence, we must postpone the extradition . . . as requested by the U.S. Government, according to the Extradition Act . . . .”

Although the Criminal Division has obtained guilty pleas from foreign officials in other enforcement actions since indicting Siriwan in 2009—including in Haiti Teleco (Robert Antoine) and Direct Access Partners/BANDES (Maria de los Angeles Gonzalez de Hernandez)—Siriwan remains an important test case.  Prosecutors will likely encounter extradition challenges in future cases against bribe-taking foreign officials, whose home countries have significant interests in prosecuting the officials domestically.  And while the court in Siriwan awaits further information from the government about whether Thailand plans to extradite Siriwan, prosecutors’ legal theory remains untested.

The views expressed in this post are personal views and do not represent the views of Arent Fox LLP, its partners, employees or clients. Furthermore, the information provided is not intended to be legal advice and does not create an attorney-client relationship.

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