October 6th, 2014

On Being An FCPA Associate … A Q&A With Mario Meeks

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 Mario Meeks, a 2008 graduate of the University of North Carolina School of Law and a current associate in the Washington D.C. office of Shearman & Sterling.

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

What was your first FCPA-related assignment?

I was fresh out of the 2007 summer associate orientation, sitting at my desk, and trying to get acclimated to my office, when my phone rang. My Caller-ID read “DC Reception.” When I answered the phone, it was an FCPA partner (calling on his cell phone). He had been routed through the main line to my office. After a brief introduction, he informed me that he couldn’t talk long as he was about to board a plane headed to Europe in less than fifteen minutes, and that he would be gone for roughly six weeks. From that moment on, I was hooked. The actual assignment was fairly straight forward, yet quite comprehensive. I was asked to prepare a memorandum detailing the data protection and privacy laws of overforty countries across the world in preparation for collecting information related to an allegation of a possible FCPA violation by an entity with a substantial global footprint.

What countries have you visited doing FCPA work?

I have had the opportunity to visit the following countries doing FCPA-related work: China, France, Germany, Guinea, India, Indonesia, Italy, Mali, and Switzerland.

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

There are two memorable experiences that readily come to mind.

Indonesia (2009). The experience was memorable because it marked a number of firsts for me, including my first FCPA-related travel, my first visit to the eastern hemisphere, my first time acquiring a travel visa, my first time flying business class, and my first time putting in back-to-back all-nighters at Shearman. By the time we landed in Indonesia, I had been up for over fifty hours; plus we still had a full day of interviews ahead! It was also memorable because it allowed me to work up-close and personally with a brilliant partner, which gave me invaluable insight into what it takes to be successful at Shearman and generally how to be a better lawyer.

Guinea (2011). En route to remote facilities in Guinea, we had to pass through several roadblocks. At these roadblocks, I observed that frequently vehicles ahead were detained and being inspected by paramilitary forces, while we rolled right through. But  at the last roadblock, the same paramilitary outfit actually detained our vehicle. The  driver pulled off the road into an outpost, where we were instructed to remain inside  the vehicle with no air conditioning. We waited for what felt like several hours, then suddenly the driver came back, hopped in, and we drove off. The driver later informed us that he had to pay a “penalty” because visiting corporate representatives did not have visas.

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

What surprised me most was how easy it is to run afoul of the FCPA, especially its  books and records provisions. Based on my experience, the overwhelming majority of  the FCPA-related matters that I have worked on involved companies with compliance programs (to various degrees) in place that were trying to abide by the requirements of  the applicable jurisdictions. Almost inevitably, however, something occurred at a  satellite entity or at the local level that proved to be quite problematic.

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

I really think there should be an “adequate procedures” affirmative defense similar in many respects to the defense available under the UK Bribery Act. Today, many multinational companies are investing heavily into designing and implementing risk-tiered but comprehensive anti-corruption compliance programs that meet most, if not all, of the identified collective best practices for such programs. Still, many of these companies risk being subjected to substantial fines if the DOJ or SEC (with the benefit of hindsight) deem their risk-tiered approach insufficient upon the government’s discovery of an actual violation.

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

I have three suggestions. First, they need to make sure they have a valid passport. Second and more importantly, they need to be diligent in identifying opportunities to work with partners and senior associates that do FCPA-related work, including working on non-FCPA matters. Lastly, I would suggest that these young professionals perpetually cultivate their craft by staying current on the latest developments in FCPA news and offering to work on non-billable FCPA marketing materials or client publications to further increase their visibility to the FCPA practice group and that group’s visibility to potential clients.

Posted by Mike Koehler at 12:03 am. Post Categories: FCPA Career Interviews

October 3rd, 2014

Friday Roundup

Yesterday at an American Bar Association event in Washington, D.C. Kara Brockmeyer (Chief of the SEC’s FCPA Unit) and Patrick Stokes (Chief of the DOJ’s FCPA Unit) spoke on a panel titled “DOJ-SEC FCPA Update:  Trends and Significant Developments.”  This post rounds up their comments and responses to certain questions.


Brockmeyer began by providing a general overview of the types of FCPA issues that the SEC often encounters.  She commented that – much to her surprise – “old-school sprawling bribery” cases still exist.  She also mentioned gifts, travel and entertainment type cases, charitable donations, and the use of third party intermediaries.

Brockmeyer mentioned the increasing international cooperation the SEC has with law enforcement agencies in other countries.  She indicated that some of this cooperation is visible to the outside world, but is even more visible inside the SEC.  According to Brockmeyer, the increase in international cooperation may not be a “positive development for companies” (she used the analogy that there are “more cooks in the kitchen”), but she did indicate that this dynamic will have a “positive long term impact” because it will level the playing field for U.S. companies.

Consistent with prior statements made by Brockmeyer, she also indicated that more FCPA enforcement will be handled through the SEC’s administrative process.

According to Brockmeyer, corporate self-reporting is “worth it.”  She stated that a “disproportionate number of cases we decline” are because of corporate self-reporting even if the SEC does not report this to the public.  Brockmeyer stated – “declinations are not unicorns – they do exist.”

In response to a question from Peter Clark (moderator of the panel and himself the former head of the DOJ’s FCPA Unit) concerning the quality of corporate compliance programs, Brockmeyer said that the SEC still sees a “lot of paper programs, lots of boxes, forms, but no teeth, no testing.”  She specifically mentioned small to medium size companies as generally having deficient compliance policies and procedures and stated that a message the SEC intended to send with the Smith & Wesson action (here) was that small to medium size companies trying to break into international markets need to have internal controls in place.

Stokes began his talk with statistics and reminded the audience of DOJ enforcement statistics and stressed that a number of cases in the pipeline are significant.  According to Stokes, the “past is a good window into where [the DOJ] is going in the near term.”

Stokes next highlighted various take-away points from recent cases that he thought were instructive.  The first was that the DOJ doesn’t “have a preference or bias for any particular industry.”  He said that the DOJ is “opportunistic” and will look for evidence of crimes anywhere and follow the evidence where it leads.  He reminded the audience that from DOJ’s perspective, it is “not just about high risk industries, but high risk jurisdictions.”

According to Stokes, the DOJ is aware that companies “are trying to push FCPA risk out of the company and onto third parties.”  He said that the DOJ is evolving as bribery schemes evolve and will use more investigative techniques to uncover bribery schemes.

As to another take-away point, Stokes stated that the DOJ is “very focused” on prosecuting individuals (executives, intermediaries) as well as companies.  According to Stokes, “going after one or the other is not sufficient for deterrence purposes.”  Stokes next reminded the audience that the DOJ is using various law enforcement tools available to it and that “corporate executives should wonder who is listening in on their calls and conversations.”

As to corporate self-disclosures, Stokes acknowledged that he often hears from people that there is no benefit.  He disputed this and stated that the reality is the DOJ has declined a number of cases in instances of self-reports as well as based on corporate cooperation and remediation.  According to Stokes, not all cases of voluntary disclosure are going to be rewarded with a declination because the DOJ still needs to prosecute “bad conduct.”

According to Stokes, self-reports are also rewarded in the following ways: various forms of resolution the DOJ uses, including which entity which be included in the enforcement action; penalty amounts; and whether or not a monitor may be required.

According to Stokes, the “risks are high” if a company does not self report because of whistleblowers and foreign law enforcement investigations.

Moderator Clark next asked Stokes if the DOJ has or will consider on an annual basis disclosing the matters that have been declined.  Stokes acknowledged that there is a “tremendous amount of interest in [DOJ] declinations” something that “never ceases to amaze” him.  He said that the DOJ is “very aware of the interest in providing more information about declinations.”

Nevertheless Stokes stated that it is a “difficult balance” because of a corporation’s privacy interest.  Moreover, Stokes noted that many factors go into the declination decision  including the quality of the evidence, self-disclosure, cooperation, whether employees were truly rogue, and whether the company had a strong compliance program.  According to Stokes, it is often a challenge for the DOJ to “encapsulate in a meaningful and helpful way” when it declines and the reason why.

In the end, Stokes stated that “raw” declination numbers might be useful to show the public that the DOJ is “living up to [its] word and declining cases” and that there is “value in the public understanding how [the DOJ is] exercising discretion.” One did get the sense from Stokes’s comments that this is an issue the DOJ is actively considering.  That would be a good thing and I have suggested since 2010 that when a company voluntarily discloses an FCPA internal investigation to the DOJ and the SEC, and when the DOJ and the SEC decline enforcement, the agencies should publicly state, in a thorough and transparent manner, the facts the company disclosed and why the agencies declined enforcement on those facts. (see here).

Stokes was asked a question from the audience – how is one “truly to determine who is a foreign official?”  He mentioned the recent 11th Circuit decision as factors the DOJ “will be looking to” and stated that these factors are “very consistent” with DOJ’s interpretation in other cases.  Stokes also mentioned that the DOJ has an Opinion Procedure Release program in which companies can seek a DOJ opinion.  Asked whether a question could be submitted as to the specific issue of whether someone is a “foreign official,” Stokes stated “yes we can answer that” so long as it is a real issue and forward looking.

As indicated above, both Brockmeyer and Stokes talked about the importance of individual prosecutions.  I asked Brockmeyer and Stokes to respond to statistics (see here, here and here) which highlight that approximately 80% of corporate FCPA enforcement actions lack any related enforcement actions against company employees.

Their response will be the focus of a future post.

Posted by Mike Koehler at 12:03 am. Post Categories: Declination DecisionsEnforcement Agency PolicyEnforcement Agency SpeechesVoluntary Disclosure

October 2nd, 2014

FCPA-Related Securities Fraud Claims Against Avon And Former Executives Dismissed … Securities Fraud Claims Against Wal-Mart And Former CEO Go Forward

As highlighted in “Foreign Corrupt Practices Act Ripples,” although courts have held that the FCPA does not provide a private right of action, plaintiffs’ lawyers representing shareholders often target directors and executive officers of companies subject to FCPA scrutiny with civil suits alleging, among other things, breach of fiduciary duty or securities fraud.

Such claims often follow a predictable pattern. In the days and weeks following an FCPA enforcement action, or even a company disclosing or otherwise being the subject of FCPA scrutiny, purported investigations are launched by plaintiffs’ firms representing shareholders and lawsuits often begin to rain down on the company, its board of directors or executive officers.

Even though such claims rarely survive the motion to dismiss stage, opportunistic plaintiffs’ counsel continue to bring such claims in what is viewed by many as a parasitic attempt to feed off of FCPA scrutiny and enforcement.

The securities fraud lawsuit against Avon Products and Andrea Jung (former Chief Executive Officer) and Charles Cramb (former Chief Financial Strategy Officer) was less worse than a typical suit, yet nevertheless suffered a similar fate.

Earlier this week, Judge Paul Gardephe (S.D.N.Y.) dismissed the claims.

The putative class action was brought on behalf of purchasers of Avon’s stock between July 2006 and October 2011 and the complaint alleged that Avon, Jung and Cramb issued materially false and misleading statements concerning Avon’s compliance with the FCPA in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.

The factual portion of the opinion no doubt foreshadows the likely facts to be alleged in Avon’s upcoming FCPA enforcement action – namely that Avon allegedly made improper payments in connection to obtain Chinese government approval to engage in direct selling.

The plaintiffs alleged a variety of false and misleading statements.

As to general statements in Avon’s ethics codes and corporate responsibility reports, the court ruled (consistent with prior courts) that general statements proclaiming compliance with ethical and legal standards are not material and thus not actionable.  In the words of the court:

“[A] reasonable investor would not rely on the statements … as a guarantee that Avon would, in fact, maintain a heightened standard of legal and ethical compliance.  The … statements from the Ethics Codes and the Corporate Responsibility Reports offer no assurance that Avon’s compliance efforts will be successful, and do not suggest that Avon’s compliance systems give the Company a competitive advantage over other companies.  Instead, these statements merely set forth standards in generalized terms that Avon hoped its employees would adhere to.  Such statements are not material.”

The court did conclude that other statements in Avon’s Corporate Responsibility Report addressing concrete steps that Avon has taken to ensure the integrity of its financial reporting were material, but nevertheless dismissed claims relating to those statements on other grounds such as lack of scienter.

Plaintiffs also alleged that a variety of statements concerning Avon’s business success were false and misleading “because they did not attribute Avon’s success to the bribery of foreign officials or disclose the significant risk that, once the full extent of Avon’s illegal practices become known, the Company would be exposed to criminal and regulatory investigations, significant damage to reputation, and other losses and costs.”

As to these various statements, the court concluded that such statements could be construed as misleading – and thus actionable – but nevertheless concluded that the plaintiffs failed to plead facts sufficient to give rise to a strong inference that the defendants acted with scienter in making such statements.

In pertinent part, the court concluded that “generalized allegations founded solely on an individuals’ corporate position are not sufficient to demonstrate scienter.”  Elsewhere, the court stated that “Avon’s voluntary disclosure of alleged FCPA violations .. weigh against a finding of scienter.”

Another set of plaintiffs’ allegations concerned a whistleblower letter allegedly received by Jung and how this letter allegedly gave rise to a strong inference of scienter that Jung knew of bribery allegations in its China business operations.  However, the court rejected this claim and cited other court decisions standing for the proposition that “defendants are permitted a reasonable amount of time to evaluate potentially negative information and to consider appropriate responses before a duty to disclose arises.”

While the above Avon FCPA-related civil suit was dismissed, not all suits are dismissed.

Recently, in this decision, U.S. District Judge Susan Hickey (W.D. Ark.) adopted a previous magistrate judge’s recommendation denying Wal-Mart and former CEO Michael Duke’s motion to dismiss securities fraud class action claims arising from the company’s FCPA scrutiny.

In pertinent part, the plaintiffs allege that Wal-Mart’s December 2011 FCPA disclosure (see here for prior coverage) deceived the investing public by omitting the fact that Wal-Mart learned of suspected corruption in 2005 and conducted an internal investigation in 2006 (“2005-2006 events”).

According to Plaintiff, the statement was misleading because it could have left investors with the impression that Defendants first learned of the suspected corruption in fiscal year 2012, promptly began an investigation, and then referred the matter to the DOJ and SEC.

The court agreed with the prior magistrate judge’s recommendation that Plaintiff sufficiently alleged that Defendants’ omission from their 2011 statement of the 2005-2006 events renders that statement materially misleading to a reasonable investor. According to the court, the magistrate judge “correctly noted that, without any reference to the 2005 and 2006 events, a reasonable investor could have been left with the impression that Defendants first learned of the suspected corruption in fiscal year 2012, which prompted their investigation and self-reporting to the SEC and DOJ.”

In short, the Court agreed with the magistrate judge “that it is likely that the disclosure of the 2005-2006 events would have been viewed by a reasonable investor as having significantly altered the total mix of information available.”

In the words of the court:

“[The magistrate judge] correctly identified that the issue here is whether Defendant omitted a material fact from the December 2011 statement. She then found that the statement, because of the omission, could have left a reasonable investor with the impression that Defendants first learned of the suspected corruption during fiscal year 2012—an impression that would be untrue. The Court agrees with [the magistrate judge's] conclusion that Plaintiff sufficiently alleges an actionable materially misleading statement.”

As to scienter, the court stated:

“Here, [the magistrate judge] found that Plaintiff sufficiently alleges that when Defendants made the December 2011 statement, they knew certain facts or had access to information suggesting that this statement was not entirely accurate. Plaintiff allege that, in October 2005, a top Wal-Mart attorney gave a detailed description of the suspected corruption allegations to Duke and that Duke rejected calls for a legitimate independent investigation in 2006 and instead assigned the investigation to the very office implicated in the corruption scheme. Plaintiff further alleges that Wal-Mart recognized the materiality of the 2005-2006 events because it reported these events in a June 2012 form.

Plaintiff also alleges that Defendants knew that the omission in the December 2011 statement of the 2005-2006 events was materially misleading. The information that Defendants consciously chose to omit include facts about when and how Defendants first learned of the suspected corruption and how they first responded to these allegations. It was only after the New York Times article was published that Defendants acknowledged that the suspected corruption was the subject of allegations in 2005 and that there were questions about how Defendants handled these allegations in 2005-2006. Plaintiff alleges that this shows that Defendants were concerned about exposure of their alleged mishandling of the suspected corruption. The inference that Defendants intentionally omitted certain information is just as strong, if not stronger, than any competing plausible inference. The Court agrees with [the magistrate judge's] straightforward reasoning and conclusion that Plaintiff sufficiently alleges allegations that both Defendants acted with the requisite scienter.”

Posted by Mike Koehler at 12:02 am. Post Categories: AvonRelated Civil LitigationWal-Mart

October 1st, 2014

What You Need To Know From Q3

This post provides a summary of Foreign Corrupt Practices Act enforcement activity and related events from the third quarter of 2014. (See here for a similar post from Q1 and here for Q2).

DOJ Enforcement (Corporate)

The DOJ did not bring any corporate enforcement actions in the third quarter.

Year-to-date, the DOJ has brought three corporate enforcement actions (HP related entities, Marubeni, and Alcoa).  DOJ recovery in these enforcement actions has been approximately $388 million.  At present, none of these enforcement actions have resulted in any individual charges against company employees.

DOJ Enforcement (Individual)

The DOJ did not bring any individual enforcement actions in the third quarter.

Year-to-date, the DOJ has brought three core actions in which various individuals have been charged. (See here, here and here).

SEC Enforcement (Corporate)

The SEC resolved one corporate enforcement (Smith & Wesson) via an administrative order in the third quarter. SEC recovery in this enforcement action was approximately $2 million.  The enforcement action has not resulted, at least yet, in any individual charges against company employees.

Year-to-date, the SEC has resolved three corporate enforcement actions (Smith & Wesson, HP and Alcoa) – all via administrative orders.  SEC recovery in these enforcement actions has been approximately $195 million.  At present, none of the enforcement actions have resulted in any individual charges against company employees.

Smith & Wesson (July 28th)

See here and here for prior posts.

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

Settlement:  Approximately $2 million ($107,852 in disgorgement, $21,040 in prejudgment interest, and a civil monetary penalty of $1,906,000

Disclosure:   The enforcement action originated after a Smith & Wesson employee was criminally charged in the DOJ’s manufactured Africa Sting enforcement action.

Individuals Charged:  No (as to the conduct alleged in the corporate enforcement action).

Related DOJ Enforcement Action:  No.

SEC Enforcement (Individual)

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

Year-to-date there have not been any SEC FCPA enforcement actions against individuals.

Other Developments or Items of Interest

DOJ Speeches

As in past years, September was a busy month for DOJ policy speeches that touched upon FCPA topics.

As highlighted in this post, DOJ’s Principal Deputy Assistant Attorney General for the Criminal Division, Marshall Miller, delivered a speech focused on how the DOJ is “addressing criminal conduct when it takes place at corporations and other institutions.”  While not specific to the Foreign Corrupt Practices Act, Miller did reference the FCPA several times during the speech.  The post highlighted how an FCPA reform proposal can help the DOJ better achieve its policy objectives, as sensibly articulated in Miller’s speech, in the FCPA context.

As highlighted in this post, DOJ Attorney General Eric Holder, who recently announced his resignation, delivered a speech that touched upon several issues of general interest such as the statement that “the buck needs to stop somewhere where corporate misconduct is concerned.”

“Foreign Official” Cert Petition

As highlighted in this post, for the first time in FCPA history, a substantive cert petition was filed in the Supreme Court asking the court to review the 11th Circuit’s recent “foreign official” decision in U.S. v. Esquenazi.  As highlighted in this post, the Washington Legal Foundation and the Independence Institute joined to file an amicus brief in support of Petitioners as to Question 1 of the Petition (the “foreign official” issue).  As highlighted in this post, I also filed an amicus brief in support of Petitioners as to Question 1.

Odd Whistleblower Dynamics

As highlighted in this post, the Second Circuit’s recent decision in the Liu Meng-Lin v. Siemens creates an odd dynamic in that a foreign national is unable to maintain a private cause of action under Dodd-Frank’s anti-retaliation provisions based on allegations that his foreign employer retaliated against him for internally reporting conduct that could implicate the Foreign Corrupt Practices Act, yet that same foreign national can be awarded a whistleblower bounty under Dodd-Frank should the SEC bring an enforcement action based on the information the foreign national provided to it.

Indeed, the odd dynamic was addressed by the SEC in its recent $30 million whistleblower award to a foreign national (see here for the post).

SEC’s Case Against Jackson & Ruehlen Ends With a Whimper

As highlighted in this post, on the brink of the SEC’s first-ever FCPA trial, the SEC’s enforcement action against Mark Jackson & James Ruehlen ended with a whimper.  Since the case was filed in February 2012, 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. Without admitting or denying the SEC’s allegations, the defendants consented to “obey the law” injunctions and were not required to pay any civil fines.

As highlighted in this post, it was notable that the SEC failed in the individual enforcement action in the aftermath of the DOJ/SEC extracting more than $200 million from a various companies based on the same primary enforcement theory at issue in the Jackson & Ruehlen matter.

Books, Articles, Videos and Events of Interest

The book “The Foreign Corrupt Practices Act in a New Era” continues to generate a buzz.  (See here).

Elevate your FCPA knowledge and practical skills at the FCPA Institute – Miami (Jan. 12-13th).  (See here).

Improve the FCPA compliance discussion through videos here and here.  The first video engages employees in a business organization and inspires them to spot risk.  The second video stresses the important role gatekeepers play in ensuring compliance and minimizing risk.

A new article, “FCPA Ripples,” highlights how 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.

In the spirit of the football season, this article highlights how a successful football organization can inform FCPA compliance in a business organization.

Posted by Mike Koehler at 12:02 am. Post Categories: Year in Review 2014

October 1st, 2014

Free FCPA Essentials Webinar With Continuing Education Credit – October 22nd

In conjunction with Emtrain (an innovative compliance training company with whom I offer a best-in-class online Global Anti-Bribery Course for business organizations), I will be offering a free “FCPA Essentials” webinar on Wednesday October 22nd (2 p.m. ET, 11 a.m. PT).

The webinar will help attendees

  • Understand the basics of the FCPA
  • Understand the common root causes of FCPA scrutiny & enforcement
  • Learn how to minimize FCPA scrutiny through risk assessments
  • Create uniquely tailored compliance training policies & procedures

This webinar has been certified for 1 hour of continuing education for HRCI, MCLE and CE. Attendees will also receive direct access to Emtrain’s anti-bribery videos to use in their own live training or corporate communications.

Posted by Mike Koehler at 12:01 am. Post Categories: Uncategorized