January 19th, 2016

Ten Things That Will Likely Happen In 2016

predictionI’ve never been much for predictions when it comes to the Foreign Corrupt Practices Act and related topics.

After all, FCPA enforcement is often unpredictable largely on account of the enforcement agencies having a tremendous amount discretion (some would say too much), coupled with the fact that much FCPA enforcement takes place around conference room tables in Washington D.C. in the absence or practical absence of outside scrutiny.

Nevertheless, set forth below are ten things that will likely happen in 2016 (presented in a slightly jocular, yet equally serious manner) based on my experience in following FCPA enforcement (and the flow of FCPA information) as close as anyone for the past six years.

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  • Sometime during the year there will be a lull in FCPA enforcement, yet one minor, inconsequential enforcement action will be announced (probably in the early spring) and everyone will write about it as well as the purported new trends and compliance messages from the enforcement action.  Why? Because it happens all the time as FCPA Inc. is an active group of writers that frequently make mountains out of mole hills by using recent enforcement action as a “hook” to market their practices and compliance services. In 2015, it was the late February enforcement action against Goodyear that generated a substantial amount of commentary. I fielded more media calls about this inconsequential action than any other FCPA enforcement action in recent memory. During one call, the reporter asked for my reaction, I looked outside my window and it was raining, and I said “well it’s raining out, it’s really no big deal.” The reporter said, “that may be true, but to others this is a thunderstorm.” Precisely my point.
  • On more than one occasion in 2016, the media contingent of FCPA Inc. is likely to publish an article or post that is false, misleading, embellished, breathless, or taken completely out of context.  Why? Because it happens all the time (see here for a collection of examples) and is the end result of non-lawyer journalist and/or FCPA Inc. participants with financial motives serving as the gatekeepers of much information.
  • The most active month for SEC enforcement will likely be September.  Why? Because September is the end of the SEC’s fiscal year and historical statistics demonstrate that September tends to be a very active month for FCPA enforcement.
  • Speaking of September, there will likely be some “major” DOJ/SEC policy speech.  Why? Because it happens almost every September as the enforcement agencies seemingly seek to reassert their authority and re-articulate their message after the summer hiatus.  In connection with this “major” policy speech (which in reality will likely not be “major” at all) the aforementioned media contingent of FCPA Inc. will likely churn out articles and client alerts (most of which will simply regurgitate the policy position as if the policy announcement – much of it old news to those informed – of a political actor represented a big deal).
  • In months leading up to November a certain for-profit conference firm will, in a truly disgraceful practice, likely market DOJ / SEC FCPA enforcement attorneys who will speak at their event as if the enforcement attorneys are a commodity they own and can profit from. Why? Because it happens every year. The speech delivered by the public officials at the private event will generate much FCPA Inc. media coverage, but sophisticated observers will have already heard the speech. Why? Because it will likely be basically the speech delivered last year at the event (See here and here).
  • Marketing the holidays seems to occur sooner and sooner each year, thus this next development will likely take place in November, but perhaps even as early as October or September. FCPA Inc. participants will churn out client alerts and publications warning of the FCPA risks of the holidays and gift giving.  Why? Because it happens every year and is convenient hook to try to sell compliance services.
  • Back to SEC FCPA enforcement. The SEC will likely not have to prove any of its FCPA enforcement theories to anyone other than itself.  Why? Because in the FCPA’s 38 year history, the SEC has never gone to trial in an FCPA matter (corporate or individual) and in the rare instances when it has been put to its ultimate burden of proof, the SEC has never prevailed. (See here).
  • Like September, December will also likely be an active month for FCPA enforcement. Why? Because even though December 2015 was a clear outlier, December is the end of the calendar year and historical statistics demonstrate that December tends to be a very active month for FCPA enforcement.
  • A high-ranking FCPA enforcement attorney will likely leave either the DOJ or SEC for a lucrative, guaranteed multi-million dollar position at a law firm and then almost immediately begin writing client alerts and other publications criticizing recent FCPA enforcement theories.  Why? Because it happens all the time and in 2016 or early 2017 there is likely to be substantial turnover at the DOJ and SEC given the change in executive administration.
Posted by Mike Koehler at 12:02 am. Post Categories: FCPA Inc.




January 18th, 2016

A Summary Of FCPA Enforcement Statistics

Survey ResultsFCPA Professor has been the place to visit this month for in-depth 2015 Foreign Corrupt Practices Act enforcement statistics as well as comparisons to historical statistics.

If you missed the daily posts, no worries.

This post consolidates in one place the statistics published on FCPA Professor in January.

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This post highlights various facts and figures from 2015 SEC FCPA enforcement. The post breaks down the statistics into specific categories such as settlement amounts, settlement specifics, and voluntary disclosures as well as provides a comparison to historical statistics.

This post highlights various facts and figures from 2015 DOJ FCPA enforcement. The post breaks down the statistics into specific categories such as settlement amounts, settlement specifics, voluntary disclosures, and monitors as well as provides a comparison to historical statistics.

This post compares 2015 corporate FCPA enforcement to prior years and highlights how overall corporate FCPA enforcement in 2015 was up slightly compared to 2014 and 2013 corporate enforcement even though DOJ corporate FCPA enforcement in 2015 was at its lowest level since 2006 and even though overall FCPA settlement amounts were well below historical averages.

This post highlights the alleged “foreign officials” from 2015 corporate DOJ and SEC FCPA enforcement actions. Similar to prior years,  the majority of corporate enforcement actions involved, in whole or in part, employees of alleged state-owned or state-controlled entities. In 2015, these entities ranged from health care providers, to sovereign wealth funds, to a real estate development firm, a sugar factory, a cement company, a diamond mine, and an oil and gas company.

This post focuses on individual FCPA enforcement actions by the SEC and highlights the key fact, that despite SEC rhetoric about the importance of individual enforcement actions, of the 81 corporate SEC FCPA enforcement actions since 2008, 67 (or 83%) have not (at least yet) resulted in any SEC charges against company employees.

This post contains the same analysis regarding individual FCPA enforcement actions by the DOJ and likewise highlights the key fact, that despite DOJ rhetoric about the importance of individual enforcement actions, of the 69 corporate DOJ FCPA enforcement actions, 50 (or 72%) have not (at least yet) resulted in any DOJ charges against company employees. Moreover, DOJ individual FCPA actions exhibit a clustering phenomenon in that 53% of the individuals charged by the DOJ with FCPA criminal offenses since 2008 have been in just six cases and 72% of the individuals charged by the DOJ since 2008 have been in just eleven cases.

Further to the analysis of DOJ individual actions, as highlighted in this post there is a sharp public – private divide.  In short, of the 107 individuals charged by the DOJ with FCPA criminal offenses since 2008, 82 of the individuals (77%) were employees or otherwise affiliated with private business organizations.  This is a striking statistic given that 53 of the 69 corporate DOJ FCPA enforcement actions since 2008 (79%) were against publicly traded corporations.

Posted by Mike Koehler at 12:03 am. Post Categories: FCPA StatisticsYear in Review 2015




January 15th, 2016

Friday Roundup

Roundup2Scrutiny alert, on cue, across the pond, survey says, and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Alert

According to various Nigerian media reports (here and here):

“A group which goes by the name: Concerned Itsekiri Coastal Dwellers Association, CICDA, has petitioned the United States, US Department of Justice, Criminal Division over alleged fraudulent and corrupt practices by some Delta state government officials with Chevron Nigeria Limited, CNL.”

In 2007 ,Chevron agreed to pay $30 million to resolve an FCPA enforcement action in connection with the Iraq Oil for Food program (see here).

On Cue

This prior post analyzed the recent U.K. deferred prosecution agreement against Standard Bank (SB)  - specifically “what” the DPA resolved – and stated:
“Given the allegations and findings, it is curious why SB even voluntarily disclosed the conduct at issue to the SFO, particularly in light of Sec. 7′s adequate procedures defense.
But then again, counsel to SB (like counsel in other FCPA or related internal investigations) no doubt secured substantially more in legal fees by making the disclosure (compared to the other reasonable alternative of not disclosing and remedying any internal control deficiencies) plus the deferred prosecution agreement comes with post-enforcement action compliance obligation. Moreover, counsel achieved name recognition by being the first law firm to represent a Sec. 7 corporate defendant and secure a DPA on behalf of its client. (One can only imagine the speaking opportunities in the future for “how they did it”).”

As if on cue, the law firm that represented SB is currently marketing a seminar about the enforcement action.  The teaser e-mail states:

“Join the legal team who acted on the UK’s first ever Deferred Prosecution Agreement for a breakfast seminar about the process. [...] We hope you will join us to hear how this ground-breaking and highly anticipated agreement was arrived at, the pivotal legal points which were discussed, and the key lessons for senior in-house counsel from the process.”

Across the Pond

The U.K. Serious Fraud office recently announced:

“UK printing company Smith and Ouzman Ltd, [previously] convicted of making corrupt payments, was … ordered to pay a total of £2.2 million in a sentencing hearing at Southwark Crown Court. The conviction and sentence follows a four-year investigation by the Serious Fraud Office.

The … company, which specialises in security documents such as ballot papers and exam certificates, was convicted in December 2014 under the Prevention of Corruption Act 1906. The corrupt payments totalling £395,074 were made to public officials for business contracts in Kenya and Mauritania.

The sum broken down included a fine of £1,316,799 as well as £881,158 to satisfy a confiscation order applied for by the SFO and £25,000 in costs. The fine is payable in instalments every six months until the full amount is paid, while the confiscation order must be satisfied within 28 days and the costs paid within six months.

In passing sentence, Recorder Andrew Mitchell QC said:

“Corruption of foreign officials is damaging to the country in which the corruption occurs, is damaging to the reputation of UK business and of course, in the market in which a business operates, it is anti-competitive.”

Director of the SFO, David Green CB QC commented:

“The bribery of foreign officials by UK companies damages this country’s reputation, commercially, politically and ethically. The SFO will pursue such criminal behaviour at both the corporate and individual level.”

Survey Says

According to this recent survey of South Africans conducted by the Ethics Institute of South Africa and sponsored by Massmart, only 22% of respondents believe that it is possible to successfully navigate daily life in the country without paying a bribe.

For the Reading Stack

In a recent article “Four Ways to Improve SEC Enforcement,” Professor Andrew Vollmer (a former Deputy General Counsel of the SEC and former partner in the securities enforcement practice of Wilmer Cutler) touches on some basic rule of law principles that sometimes bear repeating

“The first way to improve SEC enforcement is for the Commission to assert violations of law based only on well established and widely accepted legal principles and not to base claims on new, untested, and extreme legal theories.

[...]

Regulating and enforcing by unelaborated and expanding legal rules raise serious issues for both the private party and the system as a whole. Once the government charges a private party, the person is labeled publicly as a law breaker, even if a small group of knowledgeable practitioners appreciates that the legal theory is new and untested, and faces severe and frequently career or business ending sanctions. The private party must incur the costs, distress, and adverse publicity associated with a defense or succumb and settle, and the pressure to settle is over-powering even when the SEC case lacks merit.

The threats to the overall system are equally grave, and here they come in two forms. First, a federal agency breaks fundamental bonds of trust and accountability in our system of democratic governance when it exceeds its governing law. An Executive Branch agency must take care to stay well within the legal boundaries set by Congress or it acts as lawlessly as those who really violated the securities laws.

Second, enforcement agencies must exercise their power within established rules and precedent so regulated persons know what is required of them and may act accordingly and “so that those enforcing the law do not act in an arbitrary or discriminatory way.” “A fundamental principle in our legal system is that laws which regulate persons or entities must give fair notice of conduct that is forbidden or required.” A charge based on a new agency legal interpretation is essentially a claim against an innocent person. “It is one thing to expect regulated parties to conform their conduct to an agency’s interpretations once the agency announces them; it is quite another to require regulated parties to divine the agency’s interpretations in advance or else be held liable when the agency announces its interpretations for the first time in an enforcement proceeding and demands deference.” An SEC enforcement case based on an interpretation that has not been properly communicated to the public is not valid.

Thus, when the Chair said SEC enforcement should be “aggressive and creative,” she sent the wrong message to her staff. Expansive, untested theories of law to impose liability weaken the SEC’s enforcement efforts, short-change investigations of core misconduct, mistreat the private parties who must respond, and breach a trust between the agency and the country. One way to improve the SEC enforcement process therefore is to reward the staff for recommending cases based on established and accepted legal doctrines and to eschew over-reaching legal positions.

[...]

Another area worth attention is the time SEC investigations take. Potential wrongdoing must be investigated promptly and charges, when justified, must be brought promptly to serve a range of important interests. Avoiding delay during investigations helps deter, uses SEC resources efficiently, reduces uncertainty and costs for private parties, keeps evidence fresh, and promotes finality.

Unfortunately, investigations lasting for many years are the norm.

[...]

Extended investigations disserve the enforcement process and the persons being investigated. The delays increase the costs of defense and the burdens on private parties. Lengthy investigations create uncertainty for both companies and individuals, and uncertainty about the SEC’s plans can harm reputations, stall careers, and postpone financings and investments, research, and product development.

The delays also seriously harm the quality of justice and the SEC’s cases.”

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A good weekend to all.

Posted by Mike Koehler at 12:01 am. Post Categories: ChevronFCPA Inc.Serious Fraud OfficeSmith & Ouzman LtdSmith and Ouzman LtdSouth AfricaStandard Bank




January 14th, 2016

DOJ Individual Actions: The Strange Public – Private Divide

SurpriseThis recent post highlighted certain facts and figures regarding the DOJ’s prosecution of individuals for FCPA offenses in 2015 and historically.

As highlighted in the prior post, DOJ FCPA individual enforcement actions are significantly skewed by a small handful of enforcement actions and the reality is, despite the DOJ’s rhetoric, that 72% of DOJ corporate enforcement actions since 2008 have not (at least yet) resulted in any DOJ charges against company employees.

Another very interesting and significant picture emerges when analyzing DOJ individual FCPA prosecutions based on whether the individual charged was employed by or otherwise associated with a publicly traded corporation or a private business organization.

Of the 107 individuals charged by the DOJ with FCPA criminal offenses since 2008, 82 of the individuals (77%) were employees or otherwise affiliated with private business organizations.  This is a striking statistic given that 53 of the 69 corporate DOJ FCPA enforcement actions since 2008 (79%) were against publicly traded corporations.

In the 16 private business organization DOJ FCPA enforcement actions since 2008, individuals were charged in connection with 9 of those actions (56%).  In contrast, in the 53 publicly traded corporation DOJ FCPA enforcement actions since 2008, individuals were charged in connection with 10 of those cases (19%). Indeed, since 2012 there have been only three instances of an individual associated with a publicly traded company being criminally charged with FCPA violations (Garth Peterson, Alain Riedo and Vicente Garcia).

In short, a DOJ FCPA enforcement against a private business organization is approximately three times more likely to have a related DOJ FCPA criminal prosecution of an individual than a DOJ FCPA enforcement action against a publicly traded corporation.

The below information highlights all individuals criminally charged with FCPA violations since 2008 and whether they were associated with a publicly traded company or private business organization.

Individuals Charged With FCPA Criminal Offenses Since 2008 (Employer / Affiliation)

Bold = employed or affiliated with a private business entity

Gerald Green, Patricia Green (owners / operators of several private companies)

Martin Eric Self (employees of Pacific Consolidated Industries LP – a private business entity)

Shu Quan Sheng (owner of AMAC International Inc., but acting on behalf of French Company A – a publicly traded corporation)

Misao Hioki (employee of Bridgestone Corporation – a publicly traded corporation)

Nam Nguyen, Joseph Lukas, Kim Nguyen, An Nguyen (employees / agents of Nexus Technologies – a private business entity)

James Tillery and Paul Novak (employee / agent of Willbros Group)

Albert Jack Stanley, Jeffrey Tesler, Wojciech Chodan (employees / agents of KBR Inc., – a publicly traded corporation and/or other publicly traded corporations)

Richard Morlock, Stuart Carson, Hong Carson, Paul Cosgrove, David Edmonds, Flavio Ricotti, Han Yong Kim, Mario Covino (employees of Control Components Inc. – a private business entity)

Ousama Naaman (agent of Innospec – a publicly traded corporation)

John Jospeh O’Shea, Fernando Maya Basurto (employee / agent of ABB Ltd. – a publicly traded corporation)

Charles Paul Edward Jumet, John Warwick (employees of Ports Engineering Consultants Corporation – a private business entity)

Jorge Granados, Manuel Caceres, Juan Pablo Vasquez, Manuel Salvoch (employees of Latin Node Inc. – a private business entity)

Juan Diaz, Antonio Perez, Joel Esquenazi, Carlos Rodriguez, Marguerite Grandison, Jean Fourcand, Washington Vasconez Cruz, Amadeus Richers, Cecilia Zurita (employees / agents of Terra Telecommunications Corp., Telecom Consulting Services Corp., JD Locator Services, Inc. or Cinergy Telecommunications – all private business entities)

Enrique Faustino Aguilar, Angela Maria Gomez Aguilar, Keith Lindsey, Steve Lee (employees / agents of Lindsey Manufacturing Corp. – a private business entity)

Richard Bistrong (employee of Armor Holdings Inc. – a publicly traded corporation)

Jonathan Spiller John Mushriqui, Jeanna Mushriqui, David Painter, Lee Wares, Pankesh Patel, Ofer Paz, Israel Weisler, Michael Sacks, John Benson Wier, Haim Geri, Yochanan Choan, Saul Mishkin, R. Patrick Caldwell, Stephen Giordanella, Andrew Bigelow, Helmie Ashiblie, Daniel Alvirez, Lee Allen Tolleson, John Gregory Godsey (all employees of private business entities), Mark Morales (employee of Allied Defense Group – a publicly traded corporation), Amaro Goncalves (employee of Smith & Wesson – a publicly traded corporation)

Bobby Elkin (employee of Alliance One International – a publicly traded corporation)

Uriel Sharef, Herbert Steffen, Andres Truppel, Ulrich Bock, Stephan Signer, Eberhard Reichert, Carlos Sergi and Miguel Czysch (employees / agents of Siemens – a publicly traded corporation)

Garth Peterson (employee of Morgan Stanley, a publicly traded corporation

Peter DuBois, Neah Uhl, Bernd Kowalewski, Jald Jenson (associated with BizJet Int’l – a private business entity)

William Pomponi, Lawrence Hoskins, David Rotschild, Frederic Pierucci (associated with Alstom Power – a private business entity [note the individuals were charged under the dd-2 prong of the FCPA even though Alstom (the parent company) was a publicly traded company]

Joseph Sigelman, Knut Hammarskjold, Gregory Weisman (associated with Petro Tiger Ltd – a private business entity)

Dmitry Firtash, Andras Knopp, Suren Gevorgyan, Gajendra Lal, Periyasamy Sunderalingam (associated with DF Group – a private business entity)

Benito Chinea, Joseph DeMeneses, Tomas Clark, Alejandro Hurtardo, Ernesto Lujana (associated with Direct Access Partners – a private business entity)

Alain Riedo (associated with Maxwell Technologies – a publicly traded corporation)

Dmitrij Harder (associated with Chestnut Consulting Group – a private business entity)

James Rama (associated with IAP Worldwide – a private business entity)

Richard Hirsch, James McClung (associated with Louis Berger Int’l – a private business entity)

Vicente Garcia (associated with SAP – a publicly traded corporation)

Daren Condrey (associated with Transport Logistics International – a private business entity)

Roberto Rincon, Abraham Shiera (associated with private business entities)

Posted by Mike Koehler at 12:03 am. Post Categories: DOJ Enforcement ActionFCPA StatisticsIndividual Enforcement Action




January 13th, 2016

A Tribute To Andrew Smith

SmithFCPA Professor goes off-topic today to pay respect to Andrew Smith, a former Butler University basketball player who passed away of cancer yesterday at the age of 25. (For media coverage of Smith’s passing see hereherehere and here. For prior media coverage regarding Smith’s battle with cancer see herehere and here).

I can’t claim to have know Smith very well.

However, I did enjoy having him as a top student when I taught at Butler University (2009-2012) and was otherwise impressed with how he  interacted with others (including my young boys) on campus during those exciting years when he was a key player on Butler’s basketball team which made back to-back national championship appearances (a feat which seems all the more amazing with each passing year). Butler is such a small place where everyone, it seemed, felt a connection to the student-athletes.

My heart aches for those who did know Smith well, including his friends and family, particularly his wife who has moved and inspired many through her frequent blog posts on Andrew’s condition and their battle.

Any kid who has picked up a basketball has dreamed of that “one shining moment” and a national championship game. However, what happened to Smith and his body in such a short time is the stuff of nightmares.

Death of course is inevitable.

But when a young person with a full and promising life ahead passes away in the manner that Smith did, it is heartbreaking and should cause us to pause and ponder our blessings for the things we often take for granted.

The spouse we get to grow old with, the children we have and the opportunity to watch them grow before our eyes, the career we have and find meaning in, as well as the other seemingly mundane aspects of daily life.

Life being what it is, we often view the above pleasures as rights. Yet the truth is, they are privileges – privileges not all get to experience.

Here’s to you Andrew Smith – may you rest in peace. Thanks for the memories.

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