June 12th, 2015

Core FCPA Beliefs

core beliefsThis post is the 1,500th post to be published on FCPA Professor since the launch of this website in July 2009.

This recent post talked about genuine beliefs and accountability in the FCPA space.

Continuing with this theme, I use this milestone occasion to express my core FCPA beliefs and to encourage all readers to hold me accountable to these beliefs in the future.

The below core beliefs have long appeared on this website (see here) but are reprinted below.

I encourage all readers – and particularly those who frequently write about the FCPA and related issues in public forums – to set aside time to reflect on your core FCPA beliefs and to pledge accountability for those beliefs.

*****

My core FCPA beliefs are as follows.

  • The FCPA is a fundamentally sound statute, albeit one that could be improved upon.
  • Actual legal authority defines what the FCPA means, not non-legal sources of information such as enforcement agency guidance or resolved enforcement actions.
  • In a legal system founded on the rule of law, success is best measured when an enforcement agency is put to its burden of proof in the context of an adversarial system, not when an enforcement agency exercises its leverage to secure settlements against risk-averse business organizations through resolution vehicles not subjected to any meaningful judicial scrutiny.
  • Prosecuting individuals achieves greater deterrence than corporate-only enforcement.
  • Trade barriers and distortions are often the root causes of bribery and a reduction in bribery will not be achieved without a reduction in trade barriers and distortions.
  • The U.S. crusade against bribery suffers from several uncomfortable truths, including a double standard regarding corporate interaction with “foreign officials” under the FCPA and corporate interaction with U.S. officials under other U.S. laws.
Posted by Mike Koehler at 12:03 am. Post Categories: Uncategorized




June 11th, 2015

The SEC Frequently Alleges Or Finds Only Books And Records And Internal Controls Violations In FCPA Enforcement Actions

SECThis recent post highlighted critical commentary regarding the recent BHP Billiton enforcement action.

One theme from much of the commentary was that the BHP action was somehow unique in charging (or finding as the case may be since it was an SEC administrative action) books and records and internal controls violations in the absence of anti-bribery violations.

More broadly, some FCPA commentators have suggested (here and here) that the SEC is placing a new emphasis on internal controls in the absence of anti-bribery violations.

However, the enforcement approach in BHP Billiton was hardly unique and more broadly the SEC has long charged or found books and records and internal controls violation in the absence of anti-bribery violations or findings.

Set forth below are numerous instances over the past five years in which the SEC has alleged or found only books and records and internal controls violations in Foreign Corrupt Practices Act enforcement actions.  (All actions can be found on the SEC’s FCPA website).

2014

Avon
Bruker
HP

In other words 3 of 7 (43%) corporate SEC FCPA enforcement actions in 2014 did not allege or find anti-bribery violations.

2013

ADM
Stryker
Philips Electronics

In other words, 3 of 8 (38%) corporate SEC FCPA enforcement actions did not allege or find anti-bribery violations.

2012

Allianz
Oracle
Pfizer
Orthofix

In other words, 4 of 8 (50%) corporate SEC FCPA enforcement actions did not allege of find anti-bribery violations.

2011

Aon
Watts Water
Diageo
Comverse
Rockwell Automation
Ball Corp
IBM
Tenaris

In other words 8 of 13 (62%) corporate SEC FCPA enforcement actions did not allege or find anti-bribery violations.

2010

Natco
Veraz Networks
General Electric

In other words, 3 of 19 (16%) corporate SEC FCPA enforcement actions did not allege or find anti-bribery violations.  (Note 2010 enforcement statistics are impacted by the 7 related Panalpina enforcement actions.  If one counts these related actions as one, 3 of 12 (25%) corporate SEC FCPA enforcement actions did not allege or find anti-bribery violations).

So prominent is SEC FCPA enforcement actions without anti-bribery violations or findings that the term non-bribery charged disgorgement has been part of the FCPA vocabulary for years.  (See here).

Posted by Mike Koehler at 12:03 am. Post Categories: Books and RecordsFCPA StatisticsInternal ControlsNon-Bribery Charged Disgorgement




June 10th, 2015

A Training Solution To A Training Problem

Problem SolutionThe vast majority of corporate Foreign Corrupt Practices Act enforcement actions are based, in whole or in part, on the conduct of third parties (whether agents, representatives, distributors, or joint venture partners).

Against this backdrop, a recent survey found that approximately 50% of companies NEVER train third parties on anti-bribery and corruption laws and related compliance policies and procedures.

As to this survey finding, it was noted “companies may be reluctant to spend money and time to push training to third parties because they suspect they will not get much enthusiasm from third parties, who may view it as one more compliance exercise.”

That of course depends on what type of training it is.

I myself would not be enthusiastic about much of the FCPA and related training I’ve come across as it is filled with powerpoints and legalese.

FCPA and related training doesn’t have to be this way.

There is another option.

It’s the Global Anti-Bribery and Corruption Training Course I developed with Emtrain (an innovative compliance training company) and numerous companies across industry sectors have already selected it for their on-line anti-bribery training needs.

The approximate 60-minute course features several interactive components such as 20+ video clips that engage learners and illustrate real-world business scenarios that present risk and an enforcement risk spectrum that helps learners “issue spot” bribery and corruption risks. Other features of the course include:

  • Executive and non-executive versions;
  • The ability to configure the course with company-specific messages and videos from corporate leaders, company specific policies, and company employee hotline or reporting information;
  • Availability in the following languages: English, Spanish, Portuguese, Chinese (simplified), Japanese, French, Russian and others upon request.
  • The ability to use video scenes outside the e-Learning experience in live training, discussion groups, or company emails and reminders; and
  • A compliance Learning Management System enabling an administrator to launch and track training efforts and generate audit-ready training reports showing time spent on each video, screen, policy, etc.

To see what others are saying about the Global Anti-Bribery and Corruption Training Course, see here.

To preview the course, use the below button. 

 

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




June 9th, 2015

Potpourri

PotpourriA mixture of various things worthy of highlighting.

*****

Recently, former high-ranking SEC officials William McLucas and Matthew Martens took to the pages of the Wall Street Journal with this piece titled “How to Rein in the SEC.”

The authors stated as follows concerning the SEC’s recent preference of resolving enforcement actions internally through its own administrative process.

“The timing of the agency’s decision in late 2013 to move toward more in-house proceedings couldn’t have been worse. In the months surrounding the SEC’s shift, it suffered several high-profile defeats in federal court. In October 2013, the SEC lost the trial on its insider-trading charges against Mark Cuban, the owner of the Dallas Mavericks NBA franchise. A few months later, the SEC lost an accounting-fraud trial against the chief financial officer of a publicly traded company in Kansas. A number of other SEC actions against supposed inside traders were dismissed by federal courts or rejected by juries. (Disclosure: The authors participated on various sides of some of these matters.)

It was against this backdrop that the SEC publicly vowed to bring more cases as administrative proceedings. The agency contends that it was simply making use of new tools provided by the Dodd-Frank law, which authorized the SEC to charge virtually any offense in an administrative forum and to impose extraordinarily harsh financial penalties without the benefit of a jury. But the Dodd-Frank power to move more cases in-house was conferred in 2010 and lay largely unused until the agency’s 2013 announcement of its new plans to make greater use of that authority.

One need not be a conspiracy theorist to wonder whether at least part of the SEC’s rationale was to avoid the federal courts. In government as in comedy, timing is everything. And here the SEC’s timing raises serious questions about the agency’s move toward the in-house forum.”

Three cheers for this observation.

In my 2014 article “A Foreign Corrupt Practices Act Narrative,” I likewise observed as follows.

 ”The SEC’s response to [recent] judicial scrutiny [of SEC enforcement theories] has been, as strange as it may sound, to bypass the judicial system altogether when resolving many of its enforcement actions including in the FCPA context.”

As reported today by the Wall Street Journal:

“A federal judge ruled Monday that the Securities and Exchange Commission’s use of an in-house judge to preside over an insider-trading case was “likely unconstitutional,” a potential blow to the agency’s controversial use of its internal tribunal. The decision possibly creates a serious headache for the SEC, which is increasingly using its five administrative-law judges to hear its cases, rather than sending them to federal court, legal experts said. Although the ruling was preliminary, and won’t necessarily be duplicated in other federal courts, it could have ramifications for other SEC cases and potentially other federal agencies.”

*****

AlixPartners recently released this “Combating Corporate Corruption” survey. Among the results that caught my eye.

“As much as 64% of our respondents said they believe there are places in the world where it’s impossible to do business without encountering corruption. When asked to identify such places, 62% cited Russia; 53%, Africa; and 46%, China. Still, a number of companies opted to do business in high-risk regions; specifically, 66% said they have not avoided doing business in a region because of the risk of corruption. Although battling corruption remains a priority, our findings suggest that many companies see an uneven playing field.

Among survey participants who are with organizations that have dedicated compliance programs, such programs are tailored to a variety of legal requirements (figure 3). For example, 73% said the program specifically addresses the US Foreign Corrupt Practices Act; 55%, the UK Bribery Act; and 44%, the US Office of Foreign Assets Control.”

[...]

“We asked respondents to take stock of their most-successful anticorruption programs and to cite what they see as the top factors in reducing corruption risk in their organizations. The most-important practices they identified were proper anticorruption training for employees (44%), compliance policies that specifically address corruption (42%), and internal audits (usually done on an annual basis) (39%) (figure 4). Only 21% cited expanding the scope of their audits for foreign subsidiaries, and just 11% mentioned the increased use of incentives.”

I am all for creative marketing teasers, but the below statement from the survey report is not true. (See here).

“Anticorruption enforcement remained active in 2014, with a sharp rise in enforcement actions taken by both the US Department of Justice and the US Securities and Exchange Commission against corporate defendants.”

*****

Comparing enforcement of the FCPA with enforcement of FCPA-like laws around the world is not a valid comparison for the reasons highlighted in this article “Ten Seldom Discussed FCPA Facts That You Need to Know.”

There are other limitations as well.  As noted in the most recent version of Trace International’s Global Enforcement Report:

“The TRACE Compendium and the GER 2014 cannot provide a precise and objective measurement of global anti-corruption enforcement. Instead, they are meant to provide general information on trends in international anti-corruption efforts on a broad scale.”

Despite the many limitations, the GER does as good of job as any tracking global enforcement of FCPA-like laws.

Moreover, given my own focus on FCPA enforcement statistics and concern of the various creative counting methods used by others (see here for example), I particularly like the Introduction of the GER in which Trace articulates a similar “core” approach that I use in keeping my enforcement statistics.  The GER states:

“When a company and its employees or representatives face multiple enforcement actions involving substantially the same conduct, only one enforcement action is counted in the GER 2014. If a company does not face an enforcement action but its employees or representatives do, the enforcement action is counted as one enforcement action.”

Posted by Mike Koehler at 12:02 am. Post Categories: FCPA StatisticsSEC




June 8th, 2015

Developments From Across The Pond

Across the PondA few developments from the United Kingdom worth highlighting.

The SFO Loses Another Bribery Trial

It is one thing for a law enforcement agency to allege a crime.

It is quite another for a law enforcement agency to prove a crime to someone other than itself.

In legal systems based on the rule of law, the later matters more than the former; however it seems that more attention is paid to the former rather than the later.

In December 2013, the U.K. Serious Fraud Office’s (SFO) case against Victor Dahdaleh on bribery and corruption charges collapsed after the SFO concluded there was no “longer a realistic prospect of conviction.”

Recently the SFO lost another bribery trial when put to its burden of proof.

As stated in this SFO release:

“Three employees of Swift Technical Solutions Ltd were found not guilty at Southwark Crown Court of corruption offences in relation to the tax affairs of a Nigerian subsidiary.  The jury was unable to reach a verdict on one count against the third defendant and was discharged.  The SFO today indicated in court that it did not intend to seek a retrial on that count and a verdict of not guilty was entered.

The defendants were:

Bharat Sodha (age 51) of Middlesex, the former International Tax Manager

Nidhi Vyas (age 49) of Middlesex, the former Financial Controller

Trevor Bruce (age 46) of Northern Ireland, the former Area Director for Nigeria

Bharat Sodha was acquitted of two counts of conspiracy to make corrupt payments. Nidhi Vyas was acquitted of one count of conspiracy to make corrupt payments on the direction of the judge at the close of the prosecution case and was acquitted by the jury of another similar count. Trevor Bruce was acquitted of one count of conspiracy to make corrupt payments and the jury was unable to reach a verdict on the other.

The prosecution case was that these defendants conspired to make corrupt payments to officials of two Nigerian Boards of Internal Revenue, one in Rivers State and the other in Lagos State.  Swift co-operated with the SFO, providing documents and making staff available for interview.  It was not charged with any offence.”

Despite the loss, the SFO deserves credit for issuing the above release.

By comparison, when the DOJ loses an FCPA trial, it’s as if it never happened because the normally robust DOJ press office suddenly develops a case of writer’s cramp (see here for the prior post).

*****

SFO Official Gives U.S. Style Speech

Ben Morgan (Joint Head of Bribery and Corruption at the SFO) recently delivered this speech.  It was very much a U.S. style speech that encouraged corporates to engage early with the SFO and cooperate.  In the speech, Morgan also championed U.K. style DPAs.

Prior to excerpting the speech, a brief comment.

Regarding Morgan’s comment that corporates should “live your corporate values” by submitting to the SFO’s every wishes, corporate leaders on both sides of the Atlantic should reject such self-serving enforcement agency rhetoric that somehow it is immoral or unethical to do the following when faced with an internal potential bribery or corruption issue: thoroughly investigate the issue, promptly implement remedial measures, and effectively revise and enhance compliance policies and procedures – all internally and without disclosing to the enforcement agencies.

Such as response is a perfectly acceptable, legitimate, and legal response to potential bribery and corruption issues in but all the rarest of circumstances.

In pertinent part, Morgan stated as follows.

“Although I am billed in a section entitled “regulator update”, actually the SFO is not a regulator, and I’m not going to tell you how to “remain compliant in an evolving regulatory environment”. The SFO is a prosecutor, and that is not just a semantic distinction, it is a practical one. As our Director has memorably said in the past, “we are not in the business of telling people how not to rob banks”. We are in the business of catching those that do, and holding them to account.

We were created by the Criminal Justice Act 1987 and our statutory remit is to investigate and prosecute the most serious or complex fraud, a concept that includes bribery and corruption. The unusual feature of the SFO is that combination of both investigators and prosecutors under the same roof, something I think is absolutely essential for the work we do. So for any given case we will have a multi-disciplinary team from day one – investigators, accountants, digital forensic experts, lawyers, and other specialists, looking into the case, gathering evidence to understand whether any criminal offences have taken place.

So that is the world we are in – one in which the SFO is investigating precisely what has happened in order to pursue the most appropriate criminal justice outcome if the evidence of an offence is there. It is important to emphasise that if you do find yourself in our world there are a range of possible outcomes and that is why I’d like to explain to you what the SFO is doing at the moment; so that you have a chance, if you want to, to positively influence what happens if something does go wrong.

If there is one message to take away from what I say today it’s this – if you find out about a problem I think it is overwhelmingly in your best interests to engage with us early and to do so fully, honestly and with integrity. Just as you urge those in your business not to treat the compliance process as a passive, box-ticking exercise but rather something that needs substance more than just form, so too engaging with us at the back-end of that process needs substance. If it is worth doing at all, it is worth doing properly.

There are three reasons why I say that I think engaging with us properly is in your interests, and I’ll expand on those in the time I have left. The first is that we will be unimpressed if we find out about a problem from someone other than you, and there is a good chance we will. The second is that when we do find out about it, if the evidence is there we will prosecute those who didn’t tell us about their own wrong-doing, or who did so in an artificial, less-than-frank way. And thirdly – a more positive note- for those who do engage with us properly, there is an opportunity to deal with a problem in something other than a traditionally adversarial way. And while we don’t start from this point, it seems to me this option has the potential to be, by some distance, the most effective commercial outcome for a responsible company wanting to resume honest business quickly.

Taking these three things in turn then – what if the SFO finds out about a problem from someone else? Well, it is more likely than ever that we will so if anyone is thinking that just sitting on something is a sensible strategy they need to reflect on that. In complex business like yours there are just too many people in the know, too many channels through which the truth might surface.

[...]

[W]e know the problem is there and we are working with whistle-blowers, disgruntled competitors, domestic partner agencies and international colleagues who share our interest to find out what’s happening. I think the very existence of a conference like this, on this scale, and this well attended, shows we are on the same page in terms of appreciating the inherent risk in the mining sector. There are obviously problems, so I would urge you to come and talk to us about yours before someone else does. It is easy for you to do, but it is just as easy for someone else to do, so be careful assuming you have a head start on us.

My second point is that if you don’t tell us, or you do and don’t engage with us properly, prosecution is a likely outcome. As I said earlier, the SFO is a prosecutor first and foremost and our Director has made it very clear that that is our function. We are not in the business of cosy deals, short-cuts or easy targets. We have the stamina and resources to take on the most demanding cases …

[...]

Not only do we have that case load though, but in terms of trial outcomes relating to corruption we have built a good trajectory over the last year – we’ve had our first contested conviction of individuals for overseas corruption (senior managers of Innospec who got custodial sentences), our first contested conviction of a corporate for overseas corruption (Smith & Ouzman, paying bribes into Africa, in relation to election ballot papers, of all things), and our first convictions of individuals under the Bribery Act – and in total the SFO convicted 18 defendants (corporates and individuals) in the last calendar year. If that trajectory continues through our current case load, then common sense tells you that we will soon have convictions of major organisations under the Bribery Act – the kind of work the SFO exists to do, and the public expect us to deliver. So if you try to hide a problem, or engage with us in anything less than a full and frank way, if the evidence is there you can expect to be prosecuted.

So what about that more positive note I mentioned earlier? Well, there is an alternative. If you have a problem somewhere in your network and you are prepared to engage with us honestly then we can have a different relationship. The Deferred Prosecution Agreement regime provides a structure for those wanting to resolve their criminal liability to do so quickly and with a degree of control and certainty largely absent from traditional prosecution. A DPA responds to criminal liability – as I said, no cosy deals – so don’t be under any illusion. In a process scrutinised by a Crown Court judge, criminal proceedings will be commenced against the organisation but immediately suspended pending compliance with the terms of the agreement. Those terms can pack a hefty punch too – a fine, compensation, remedial measures, in some cases a monitor and other possible terms. But it has a lot going for it too – speed and certainty, as I have said; a level of compatibility that enables us to get a bit closer to that hallowed ground of a global resolution for conduct that crosses borders, as I suspect much of the activity in your sector inevitably would; and also the chance to really live your corporate values – integrity around facing up to what’s gone wrong and putting it right rather than being on the back foot, having to be defensive. That’s a much better message for your stakeholders is it not? – employees, customers, shareholders, potential investors, the media, regulators even. You could show that it isn’t just rhetoric: that the ‘tone from the top’ means something in real life in your business, not just on paper. And while it’s not my area of expertise, from attending conferences like this one I always get the impression that the way you talk about compliance and ethics now isn’t about moral high ground, nor about threat even, but actually about adding commercial value. Well if that’s right, I put it to you that genuine engagement with us is the consistent extension of that message; the appropriate and commercial way to fix problems that your well-considered compliance procedures identify.

So those are my three reasons for cooperating with us – if you don’t, we stand a good chance of finding out anyway; anything other than proper cooperation risks prosecution; yet proper cooperation offers the chance to resolve risk sensibly.

The final thing I want to say is a word on proper cooperation. I’ve mentioned a few times how important it is to do things properly if you do choose to engage with us, if you set off down that fork in the road as opposed to electing to be a traditional adversary. And it is really important – it’s what I want you to take away from this. We are no longer, at the SFO, in the world of having to talk up DPAs like some sort of salesmen; corporates want them and some will get them. We have issued our first invitation letters giving corporates the opportunity to enter into DPA negotiations. Where we are now is working with corporates on how best to go through that process – not “why DPA”, but “how DPA”. And when it comes to “how”, the DPA Code is clear; we and the court need you to cooperate fully with our investigation. I and others at the SFO have spoken in some detail about what that looks like so I’m not going to go over that ground extensively again, I will just say this. We have made clear what we expect. It’s all there in the DPA Code. Crucially, where suspicions of corrupt activity arise, we do not require you to carry out internal investigations; investigation is our job. And while we do understand that up to a point you will need to do some work to look into allegations of bribery, we find internal investigations that ‘trample over the crime scene’ to be unhelpful. Our stance is to ask for genuine cooperation with our investigation, not duplication of it. We don’t expect you to keep us in the dark while you carry out extensive private investigations and some months or even years later present us with a package of your findings. If there is suspected criminal conduct, that is our job and there are some important issues around access to, and integrity of, evidence (especially regarding witness accounts) and we expect those to be respected in the same way they would be in any other criminal investigation. We expect you to engage with us early, and to work with us as we investigate, not to rush ahead and, whether intentionally or not, complicate the work we need to do. This is, we appreciate, to some extent a departure from the way things used to be and the way certain practices have built up in other jurisdictions, but we make no apology for that. Our job is to investigate possible criminal offences and we take a very dim view of anything anyone does that makes that job more difficult than it needs to be.

You should know that from where I sit, there appear to be emerging two schools of practice among those advising companies like yours. There are those who seem to view our requests for cooperation as some sort of game, to be instinctively resisted but, I’m sure they would think, cleverly managed nevertheless. They roll out the same stale tactics we have come to know well. And then there are those who seem to actually listen to what we are saying, and take the more innovative approach of genuinely trying to respond to it. It is very clear to me which of those approaches is in the respective companies’ best interests, but until the examples of those who have co-operated filter out across the market I suppose there will continue to be people who want to do things the old way. That’s fine, but you can expect no credit for doing your minimum legal duty. You don’t have to cooperate with us, it is your choice. If you do want to then you have to move beyond that, really make the effort to make our job of investigating a possible crime easier. That is what it takes – not the “impression of cooperation”, saying one thing while really working a more guarded agenda (we know all about that) but actually helping us, being fully frank and honest with us, as little by little, some companies now are.

Remember also that engaging with us doesn’t necessarily mean a criminal sanction at all. We are not looking for scalps. If the evidence is not there then we must conclude that it is not a matter that should be prosecuted. That is an entirely valid and appropriate outcome, and one we are perfectly content to reach. We must be – and will be – fair, and make decisions based on evidence and the public interest alone. So there is that safety-valve built into any engagement you have with us. You can come to us early, before you have gone to the four corners of the earth to form a final view of what has happened, and we can work together to understand what has happened. It could well be the case that having done so, no further action on our part is appropriate – you are not committing yourselves to an inevitable sanction, but you are giving yourselves the best shot at a controlled outcome if it turns out there is criminal conduct that needs to be resolved.”

Posted by Mike Koehler at 12:01 am. Post Categories: Bharat SodhaNidhi VyasSerious Fraud OfficeTrevor BruceUnited Kingdom