August 8th, 2014

Friday Roundup

Scrutiny alerts and updates, an FCPA fumble, checking in with the SFO, and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Alerts and Updates

Cobalt International Energy

Cobalt has been under FCPA scrutiny since 2011 for its alleged business relationships in Angola.  (See here and here for prior posts).

In this recent SEC filing, the company states:

“As previously disclosed, the Company is currently subject to a formal order of investigation issued in 2011 by the SEC related to its operations in Angola.  [...] In connection with such investigation, on the evening of August 4, 2014, the Company received a “Wells Notice” from the Staff of the SEC stating that the Staff has made a preliminary determination to recommend that the SEC institute an enforcement action against the Company, alleging violations of certain federal securities laws. In connection with the contemplated action, the Staff may recommend that the SEC seek remedies that could include an injunction, a cease-and-desist order, disgorgement, pre-judgment interest and civil money penalties. The Wells Notice is neither a formal allegation nor a finding of wrongdoing. It allows the Company the opportunity to provide its reasons of law, policy or fact as to why the proposed enforcement action should not be filed and to address the issues raised by the Staff before any decision is made by the SEC on whether to authorize the commencement of an enforcement proceeding. The Company intends to respond to the Wells Notice in the form of a “Wells Submission” in due course.

The Company has fully cooperated with the SEC in this matter and intends to continue to do so. The Company has conducted an extensive investigation into these allegations and the receipt of the Wells Notice does not change the Company’s belief that its activities in Angola have complied with all laws, including the U.S. Foreign Corrupt Practices Act. The Company is unable to predict the outcome of the SEC’s investigation or any action that the SEC may decide to pursue.”

Rare are so-called Wells Notices in the FCPA context for the simple reason that few issuers actually publicly push back against the SEC.  However, this is the second instance in the past four months of the SEC sending an issuer a Wells notice in connection with an FCPA inquiry. (See here for the prior post regarding Qualcomm).

As highlighted by the below excerpts, the Wells notice was a hot topic during Cobalt’s most recent quarterly earnings call.  The below excerpts also capture the candid statements of Cobalt’s CEO concerning the SEC’s position.

Joseph Bryant - Chairman and Chief Executive Officer

Before we get into the Q&A, let me say a few words about our 8-K disclosure from earlier this morning. As it noted, last evening, less than 24 hours ago, we received a Wells Notice from the Securities and Exchange Commission related to the investigation the agency has been conducting relating to Cobalt’s operations in Angola and the allegations of Angolan government official ownership of Nazaki Oil and Gas, one of the other working interest owners in Blocks 9 and 21 offshore Angola. In the notice, the staff of the SEC stated that it had made a preliminary and, in our view erroneous, determination to recommend that the SEC move forward with an enforcement action against the company. I think it’s important to point out that the Wells Notice is neither a formal allegation nor a finding of wrongdoing. It merely allows Cobalt the opportunity to provide its reasons of law, policy and fact as to why the proposed enforcement action should not be filed before any enforcement decision is made by the SEC. As you know, we have fully cooperated with the SEC and the investigation since it began nearly 3.5 years ago. And we will continue to do so. In the same vein, we will, of course, take this opportunity and respond to the SEC as part of the Wells process. But let me be very clear. This Wells Notice does nothing to change our prior conclusion that our activity in Angola have fully complied with all laws, including the Foreign Corrupt Practices Act, and Cobalt continues to strongly refute any allegation of any wrongdoing.”

[...]

Evan Calio – Morgan Stanley, Research Division

I appreciate your comments on the Wells Notice and underlying FCPA claims. Is there any — can you comment if there’s any potential collateral effect in a negative outcome scenario, meaning other than a potential fine? Could it affect your career or anything in your leases?

Bryant

Well, good question, Evan. We obviously disagree with the staff’s position in the Wells Notice and we’ll respond to the notice in due course. As we’ve stated repeatedly over the past several years, Cobalt has and always will conduct all aspects of our business to the highest ethical standards and in full compliance with all laws and regulations in all jurisdictions, not just Angola, where we operate. This is the case of all of our Angolan operations. We fully plan and expect to pursue the exploration, appraisal and development of all of our Angolan assets, including Cameia development in a timely manner as we’ve previously discussed. And that’s about all I can say, Evan.

Calio

Okay, that’s great. And do you have a hearing date on the Wells Notice? Or is that — just not at this time?

Bryant

No. There’s a process, but to be honest, it’s just like some other things, it can just wander on.

[...]

Joseph Allman - JP Morgan Chase & Co, Research Division

So just back to the Wells Notice for a few minutes, John. Are you planning on taking a reserve? I assume it’s not estimable at this point if there is any fine, so I assume the answer is no. And then just — could you just describe the next steps a little bit? I think you guys have to write a response. If I’m not mistaken, you’ve got about 2 weeks to file that response. Is that correct? Could you just give us some more details on that?

John Wilkerson – Chief Financial Officer, Principal Accounting Officer and Executive Vice President

We are not planning on taking a reserve.

Bryant

And yes, there is a formal process that we respond to. Our view of the facts — and of course, we know the facts incredibly well since we’ve been investigating this for a very long time, and so we will submit our facts to the SEC here in the next several weeks.

[...]

Edward Westlake – Crédit Suisse AG, Research Division

Let’s then get into the Wells Notice as well. So I mean, my understanding, which may be incorrect, of the FCPA is that one aspect of it is doing due diligence, which is the standard of reasonable inquiries, and then the other aspect of it is if some exchange took place in order to get access to the block. It seems from the outside to me that perhaps some disagreements with you and the SEC on how much due diligence was needed could be a civil sort of issue whereas if there was some exchange, that seem to me would be more criminal. So I’m just trying to get a sense of what it is that the SEC, if you know, disagree with you on in terms of their assessment as to why they’d want to go towards an enforcement.

Bryant

Well, the way the process works is it’s somewhat opaque, to be honest with you, on one side, but it’s fully transparent on our side. So we know all the facts, we know them very well. And I’ve said many times that we built Cobalt the right way from day 1 before we ever considered leases in Angola. All of our FCPA, all of our compliance, all of our due diligence systems were built into the company from day 1. I didn’t fall off the turnip truck yesterday and neither did any of these guys around the table. We know all about FCPA and we weren’t about to wander into anything there unknowingly. So all I can say for sure is we know what we’ve done. We know what compliance is required. We’ve gone above and beyond that and we’ll stand firm on our actions.

Westlake

Okay. And all of the due diligence which I’ve done also suggests that your staff has done a very good job in terms of doing their due diligence. But maybe a different way of asking the question, do you think it’s just the level of due diligence which the SEC disagree with you on? Or do you think that there has been some exchange? I understand that Nazaki is a full paying member of the consortium, in fact, was imposed on you rather than something that you chose. But I’m just trying to get some understanding as to what it is you think they disagree with you on.

Bryant

Ed, I appreciate your probing nature, but I really can’t answer that. Again, what I can tell you is, again, we understand the requirements. We understand the law, we understand compliance, we understand due diligence. And we have gone above and beyond in every case. And we sit here today confident in our position, and I cannot and will not speculate on what the SEC’s views are.

Westlake

Okay. And then have there been any inquiries from the DOJ?

Bryant

We have — at every step of the last 3.5 years, we have managed both the SEC and the DOJ simultaneously to make sure that both of those federal agencies are fully up to speed on what we’ve done and what we know about. So I would say constant communication with both agencies has been a routine over the past 3 years.

[...]

Westlake

Right. And maybe just a follow-up on the Wells Notice. Will we ever see the actual SEC letter? Is that a public domain or is it private in terms of their allegations, when eventually they make them.

Bryant

It’s currently private, and we’ll — I hope we’re demonstrating how transparent we are. When we know something, we’ll tell you. And when we have something we can release, we’ll release it. That’s about all really I can say about it.

Westlake

I mean, it would be helpful, I think, for investors to see what the allegation specifics are to be able to make a judgment call but, obviously, I leave that up to you.

Bryant

Got it.

[...]

Al Stanton – RBC Capital Markets, LLC, Research Division

[J]ust back to the Wells notice. Can I ask whether the letters are addressed to the company or do they actually name specific individuals?

Bryant

The company.

Staying with Cobalt-related issues, Global Witness recently issued this press release stating:

“BP and its partners including Houston-based Cobalt have contributed US$175 million over the past two-and-a-half years to fund a project in Angola known as the Sonangol Research and Technology Center (SRTC), with another US$175 million due to be paid by January 2016. Global Witness asked BP and Cobalt to provide any information that confirms the SRTC exists. The companies did not provide this information in their responses. BP stated that Sonangol, Angola’s state-owned oil company, “has informed BP that the SRTC is still in planning stage.” Cobalt said they “monitor the progress of our social contributions in Angola, including the Research and Technology Center” but did not provide any further information about the project. Global Witness asked Sonangol for information to confirm the existence of the SRTC, but the company did not respond. We commissioned interviews with well-placed industry insiders, but none of them could confirm that the SRTC exists.  Global Witness is calling on the Angolan authorities to disclose where this money has gone.”

SBM Offshore

The company has been under FCPA (and related scrutiny) since 2012 concerning allegations primarily in Equatorial Guinea and Angola and disclosed in this press release as follows.

“As previously disclosed in various press releases, SBM Offshore voluntarily reported in April 2012 an internal investigation into potentially improper sales practices involving third parties to the relevant authorities, and has since been in dialogue with these authorities. SBM Offshore is discussing a potential settlement of the issues arising from the investigation. While these discussions are ongoing, it is sufficiently clear that a resolution of the issues will have a financial component, and consequently SBM Offshore has recorded a non-recurring charge of US$240 million in the first half of 2014, reflecting the information currently available to the Company. Until the matter is concluded, SBM Offshore cannot provide further details regarding a possible resolution of the issues arising from the investigation, and no assurance can be given that a settlement will actually be reached. As always, the Company will inform the market as soon as further information can be provided.”

FCPA Fumble

U.S. Senator Roger Wicker (R-MS) is not the first member of Congress to fumble an FCPA issue, just the latest.  As noted in this Radio Free Europe article:

“A U.S. senator has asked federal authorities to investigate whether a powerful Russian media mogul seen as the mastermind behind the Kremlin-funded RT network used dirty money to purchase pricey California real estate.   U.S. Senator Roger Wicker (Republican-Mississippi) has asked the Justice Department to investigate whether Mikhail Lesin, Russian President Vladimir Putin’s former press minister, violated the Foreign Corrupt Practices Act or laundered money by acquiring multimillion-dollar homes in the Los Angeles area.”  [See here for Senator Wicker's letter to the DOJ].

Dear Senator Wicker, alleged “foreign officials” are not subject to the FCPA.  See U.S. v. Castle, 925 F.2d 831 (5th Cir. 1991).

Checking In With the SFO

The U.K. Serious Fraud Office recently announced the following sentences of individuals in connection with the Innospec prosecution.

Dennis Kerrison, 69, of Chertsey, Surrey, was sentenced to 4 years in prison. Paul Jennings, 57, of Neston, Cheshire, was sentenced to 2 years in prison. Miltiades Papachristos, 51 of Thessaloniki, Greece, was sentenced to 18 months in prison. David Turner, 59, of Newmarket, Suffolk, was sentenced to a 16 month suspended sentence with 300 hours unpaid work

Mr Kerrison and Dr Papachristos were convicted of conspiracy to commit corruption in June 2014 in relation to Indonesia only. Mr Jennings pleaded guilty in June 2012 to two charges of conspiracy to commit corruption and in July 2012 to a further charge of conspiracy to commit corruption in relation to Indonesia and Iraq. Dr Turner pleaded guilty to three charges of conspiracy to commit corruption in January 2012 in relation to Indonesia and Iraq.

Further information on the guilty verdict delivered in the trial of Mr Kerrison and Dr Papachristos can be found here, while information on the guilty pleas entered into by Dr Turner and Mr Jennings can be found here and here.

Upon sentencing the defendants, HHJ Goymer said:

“Corruption in this company was endemic, institutionalised and ingrained… but despite being a separate legal entity it is not an automated machine; decisions are made by human minds.

“None of these defendants would consider themselves in the same category as common criminals who commit crimes of dishonesty or violence….. but the real harm lies in the effect on public life, the effect on community and in particular with this corruption, its effect on the environment.  If a company registered or based in the UK engages in bribery of foreign officials it tarnishes the reputation of this country in the international arena.”

Concerning the sentencing of Dr Turner, the Judge also said:

“It is necessary to give encouragement to those involved in serious crime to cooperate with authorities.  You [Dr Turner] very narrowly indeed escaped going to prison.”

David Green CB QC, Director of the SFO said:

“This successful conclusion to a long-running investigation demonstrates the SFO’s ability and determination to bring corporate criminals to justice.”

Innospec itself pleaded guilty in March 2010 to bribing state officials in Indonesia and was fined $12.7 million in England with additional penalties being imposed in the USA.

Dr Turner was also ordered to pay £10,000 towards prosecution costs and Mr Jennings was ordered to pay £5000 towards these costs.  Dr Turner and Mr Jennings have already been subject to disgorgement of benefit by the US Securities and Exchange Commission.  The matter of costs for Mr Kerrison and Dr Papachristos has been adjourned pending the hearing of confiscation proceedings against them.”

For more on the sentences, see here from thebriberyact.com.

Reading Stack

Professor Stephen Bainbridge knows Delaware corporate law and related corporate governance issues as well as anyone.  In regards to the Wal-Mart Delaware action (see here for the prior post noting that despite the hype, the decision was much to do about little), Professor Bainbridge writes:

“There’s been a fair bit of blawgosphere chatter about [the Wal-Mart Delaware action].”  [...]  Personally, it just doesn’t seem that big a deal. Somebody want to explain to me why I should care more?”

Spot-on.

*****

Sometimes a suitable proxy for potential red flags may be whether, upon reading a certain set of facts and circumstances, one becomes dizzy.  This recent New York Times article regarding former U.K. Prime Minister Tony Blair may make you dizzy.

*****

A good weekend to all.





August 7th, 2014

Are We Carelessly Inviting Corrupt Behavior?

Today’s post is from Dr. Roger Miles.  Dr. Miles (PhD, Risk) is Behavioral Risk Lead at Thomson Reuters and he develops human factor analyses for Conduct Risk governance and compliance solutions.  His academic research focus is the “what actually happens” gap between designed systems and enacted human behavior.

*****

Are We Carelessly Inviting Corrupt Behavior?

By Dr Roger Miles

As regulators wrestle to assert new controls over corruption (and of course various other abuses), we’re reminded that the wider history of regulation resembles a trail littered with the carcasses of well-intended initiatives that failed.  Regulatory controls tend to fail because the people who design them often ignore how real people respond in practice, often contrarily, to having a control imposed on them.

A function of effective risk leadership in senior management – including compliance officers – should therefore be to pause to consider human aspects of control failures.  Where are the human-factor hazards brewing?  Do we know enough about these to keep ahead of them and head off problems early?

One way to overtake this hazard is to familiarize oneself with “dark side” research among people who game the rules (my special research interest as it happens).  This insight will rapidly rid us of the faulty assumption that rulebooks (whether in the context of the Foreign Corrupt Practices Act or otherwise) describe, or prescribe, what actually happens in organizations.  The reality of what actually happens is always something different, usually that the rulebook doesn’t foresee.  Once we make a habit of questioning the gap between what the rulebook says should be happening, and our observations of how people behave in reality, we become better both at spotting the early signs of “creative compliance” and at preventing all kinds of troublesome behavior.  A few examples make the point:

What Groups Do…

Formal demands (including the top-down introduction of rules and sanctions) often provoke ‘informal groups’ of work colleagues to respond in unorthodox local ways that create conditions for the control to fail later on.  The alert manager will watch for signs that ‘game-playing’ is becoming accepted as normal behavior, such as meaningless box-ticking (in response to quality control questionnaires); and filtering of inconvenient incident reports.  Also be alert for the many ways of massaging statistical reports, such as cherry-picking only the most favorable test results, re-basing of a reporting index, or redefining the thing that we’re reporting on.  Informal groups also like to ridicule anyone who dissents from their view of “how we do things here” – even (perhaps especially) when this contradicts what the rules require.  For the FCPA compliance leader, therefore, the first question should always be “who’s really in charge in this organization?”

What Individuals Do…

At a personal level, gaming responses include ‘presenteeism’ (physically turning up for work but leaving your motivation at the front door) and seeking to shift onto others any blame for failures.  Watch for early warning signs such as a person disengaging from routine involvement in work activities, disowning their own presence in management processes, or ignoring the legitimate authority of others.  Consistent with informal groups’ “how we do things”, individual rule-gamers will be active at making alternative sense of how rules apply (or don’t apply) locally to them.  They will be adept at coping, workarounds, and writing creative reports.  Alternatively they may retreat into fatalism, rationalizing that “it’s OK not to care because either nothing will change if I do, or I’ll only be labelled a trouble maker”.

In the Organization’s Structure

Sometimes we inadvertently design an organization to encourage rule-gaming responses.  To prevent this effect we need to become more skilled at spotting these preconditions for bad behavior, and design them out.  The preconditions include:

  • Lack of any coherent challenge from outsiders (advocacy groups, regulators, government)
  • A regulator who depends on regulatees for information (“enforced self-regulation”)
  • No apparent penalties for delay in responding to a question
  • Risk-taking uncoupled from consequence, with short-term rewards
  • Little required interaction with shareholders or other funding sources
  • The full Board meets only rarely; executive committees hand-picked by the Chairman
  • Power concentrated narrowly with CEO, Chairman, or Head of Sales
  • Penalties for non-compliance reported as a “normal friction cost of business”
  • An except reporting (whistleblowing) procedure exists but gets no explicit support from managers – it may          even be the  target of jokes

There is a large and expanding research field examining the gaps between control systems as designed and “what actually happens” when real people are told to use the controls.  A new approach to regulatory design intended to deal with this in the FCPA context and otherwise, behavioral regulation, is still in its infancy.  We should watch for developments.

Posted by Mike Koehler at 12:03 am. Post Categories: ComplianceGuest PostsInternal Controls




August 6th, 2014

Judge Rakoff Offers A Few Final Zingers

If you have not noticed by now, I admire Judge Jed Rakoff (S.D.N.Y.).

Although outside the Foreign Corrupt Practices Act context, FCPA Professor has covered from day one (see here and here) Judge Rakoff’s concerns about SEC settlement policy as expressed in SEC v. Citigroup.  As highlighted in this post, the Second Circuit recently rebuked Judge Rakoff for his refusal to sign off on the settlement and concluded that the SEC does not need to establish “the truth” of the allegations against a settling party as a condition for approving consent decrees because, in the words of the Court, “trials are primarily about truth” whereas “consent decrees are primarily about pragmatism.”

On remand and obligated to assess the SEC v. Citigroup settlement through the narrow prism the Second Circuit adopted, Judge Rakoff had little choice but to approve of the settlement.  However, in doing so in his opinion yesterday, Judge Rakoff offered a few final zingers as he wrote:

“Nonetheless, this Court fears that, as a result of the Court of Appeal’s decision, the settlements reached by governmental regulatory bodies and enforced by the judiciary’s contempt powers will in practice be subject to no meaningful oversight whatsoever. But it would be a dereliction of duty for this Court to seek to evade the dictates of the Court of Appeals. That Court has now fixed the menu, leaving this Court with nothing but sour grapes.”

In the prior post highlighting the Second Circuit’s decision, I noted that the most troubling aspect of the decision is the statement that if the “S.E.C. does not wish to engage with the courts, it is free to eschew the involvement of the courts and employ its own arsenal of remedies instead.”  As highlighted in my article “A Foreign Corrupt Practices Act Narrative,” in the FCPA context this is largely the path the SEC has chosen.  As noted,  in 2013 50% of SEC corporate FCPA enforcement actions were not subjected to one ounce of judicial scrutiny either because the actions were resolved via a non-prosecution agreement or administrative cease and desist orders.

On this issue, Judge Rakoff states in a footnote as follows.

“[T]he Court of Appeals invites the SEC to avoid even the extremely modest review it leaves to the district court by proceeding on a solely administrative basis. (“Finally, we note that to the extent that the S.E.C. does not wish to engage with the courts, it is free to eschew the involvement of the courts and employ its own arsenal of remedies instead.” ). One might wonder: from where does the constitutional warrant for such unchecked and unbalanced administrative power derive?”

As to this last point, see also this recent Wall Street Journal opinion piece by Russell Ryan ((King & Spalding and previously an Assistant Director of the SEC Enforcement Division).

“[A]  surge in administrative [SEC] prosecutions should alarm anyone who values jury trials, due process and the constitutional separation of powers. The SEC often prefers to avoid judicial oversight and exploit the convenience of punishing alleged lawbreakers by administrative means, but doing so is unconstitutional. And if courts allow the SEC to get away with it, other executive-branch agencies are sure to follow. [...]  On its website, the SEC accurately describes itself as “first and foremost” a law-enforcement agency. As such, the agency should play no role in deciding guilt and meting out punishment against the people it prosecutes. Those roles should be reserved for juries and life-tenured judges appointed under Article III of the Constitution. Today’s model of penal SEC law enforcement is categorically unsuited for rushed and truncated administrative hearings in which the agency and its own employees serve as prosecutor, judge and punisher. Such administrative prosecution has no place in a constitutional system based on checks and balances, separation of powers and due process.”

*****

I also tipped my hat to Judge Rakoff in this November 2013 post for his speech “Why Have No High Level Executives Been Prosecuted in Connection with the Financial Crisis?” As highlighted in the post, Judge Rakoff hit on many of the same general issues (outside the FCPA context) I discussed in my 2010 Senate FCPA testimony - namely the general lack of individual enforcement actions in connection with most corporate FCPA enforcement actions and how this dynamic (far from the “but nobody was charged” claim)  could best be explained by the quality and legitimacy of the corporate enforcement action in the first place given the prevalent use of non-prosecution and deferred prosecution agreements to resolve corporate FCPA enforcement actions.  As highlighted in the post, in answering his own question, Judge Rakoff offered that “one possibility … is that no fraud was committed.  This possibility should not be discounted.”

Posted by Mike Koehler at 12:03 am. Post Categories: Enforcement Agency PolicyNeither Admit or DenySEC




August 5th, 2014

Leading FCPA Practitioner Calls For An FCPA Compliance Defense

Joseph Warin (Gibson Dunn) is a leading FCPA practitioner.  With the DOJ’s blessing, Warin has also served as a corporate monitor in connection with several Foreign Corrupt Practices Act enforcement actions.

In short, Warin knows the FCPA and FCPA compliance.

In this recent article in Corporate Disputes, Warin and his co-authors renew the call for an FCPA compliance defense.  In pertinent part, the article states:

“[This new era of FCPA enforcement] has wrought drastic change on the compliance landscape for transnational corporations, which devote significant resources to promoting FCPA compliance among their thousands of employees and contractors operating in international fora.  In particular, internal compliance, reporting and mitigation systems have grown significantly more robust in past years as companies seek to prevent corrupt practices and – when issues of noncompliance arise – to ferret them out and terminate them.  Even so, the lack of binding guidelines for framing compliance programs and the lack of assurances that robust programs will reliably mitigate the DOJ’s decisions to bring criminal charges leaves corporations in a state of uncertainty:  despite pouring millions into meaningful compliance regimes and sincere efforts to comply with the law, corporations are no more certain than they were 30 years ago that the actions of one, or a few, rogue employees will not bring debilitating criminal liability upon an entire entity.”

[...]

[The enforcement agencies] continued resistance to a compliance defense in light of a completely changed FCPA playing field is short-sighted.  The DOJ and SEC have strong interests in promoting self-policing within companies and turning them into corporate partners.  Where corporate compliance programs are functioning as they should – i.e. internally identifying employees who are operating outside of the bounds of company policy and extinguishing and mitigating illegal practices – companies should be rewarded with indemnification from the actions of those outsider employees, not punished with the threat of criminal and/or civil charges for actions that they took substantial steps to prevent.”

[...]

“It is time to reconsider the need for either an administrative or a statutory compliance defense.  The government’s focus on stemming corporate corruption has also raised the stakes for transnational corporations with ties to the United States.  The costs of internal investigations and compliance efforts are higher than ever before, and yet – as the DOJ and SEC acknowledge in their 2012 FCPA Resource Guide – ‘no compliance program can ever prevent all criminal activity by a corporation’s employees.’  Rather than continue to toe the anti-compliance defense line of a decade ago, the DOJ and SEC should acknowledge this changed landscape and give ethical companies that implement strong compliance programs assurance that they will not be punished for those occasional, inevitable acts by rogue employees who violate otherwise effective corporate policies.”

Warin’s call for an FCPA compliance defense mirror my own – see here for my 2011 article “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (the most extensive article written on the subject).

Numerous posts on FCPA Professor have since returned to the issue of an FCPA compliance defense – see here, here, and here for the most recent posts.

An FCPA compliance defense is a not panacea, but it is the best positive incentive to achieve greater FCPA compliance. The goal of an FCPA enforcement program ought to be constructing an enforcement regime that best promotes compliance, reduces improper conduct, and best advances the FCPA’s objective of reducing bribery.  However, the DOJ and SEC have a “wooden attitude” when it comes to a compliance defense and are seemingly incapable of grasping the benefits of a compliance defense to their enforcement programs.  Can the enforcement agencies soften this “wooden attitude”?  Are the enforcement agencies capable of diverting attention from enforcement statistics, settlement amounts, and political statements filled with empty rhetoric?

The FCPA has witnessed courageous moments before and a courageous moment is once again presented.

Warin’s call for an FCPA compliance defense is an important contribution to the current dialogue.

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




August 4th, 2014

Former Alstom Executive Lawrence Hoskins Files Motion To Dismiss

Lawrence Hoskins is a United Kingdom citizen who lived and worked his entire life in the U.K. with the exception of a 35 month period between 2001 and 2004 during which he worked for Alstom in France.  In 2004, he resigned from his job at Alstom to resume his career in the U.K. and retired in 2010.  In April 2014 Hoskins and his wife disembarked from a ferry in the U.S. Virgin Islands en route to Dallas, Texas when he was arrested by U.S. authorities for an alleged bribery scheme dating back to his time at Alstom.

So began the Foreign Corrupt Practices Act journey of Lawrence Hoskins.

As highlighted in this previous post, Hoskins was criminally charged in connection with the same Indonesian power plant project that also resulted in criminal charges against other individuals associated with Alstom - Frederic Pierucci, David Rothschild, and William Pomponi.

Pierucci, Rothschild and Pomponi have all pleaded guilty.  However Hoskins is fighting the criminal charges filed against him and last week he filed a motion to dismiss.

The Memorandum in Support of the Motion to Dismiss states, in pertinent part, as follows.

“Resting as it does, upon an infirm foundation of aged allegations, overly expansive applications of law, and novel theories of criminal liability, the Indictment in this case suffers from numerous and fatal defects of law and logic. Among other things, it charges stale and time-barred conduct that occurred more than a decade ago; it asserts violations of U.S. law by a British citizen who never stepped foot on U.S. soil during the relevant time period; and, it distorts the definition of the time-worn legal concept of agency beyond recognition. In other words, the Indictment marks an excessive and improper exercise of executive authority. This is an Indictment that never should have been brought.

The Indictment seeks to hold Lawrence Hoskins, a retired 63-year-old British citizen, responsible for his alleged conduct that occurred—outside the United States more than ten years ago—while he was working in Paris at Alstom Holdings, SA (―Alstom‖), the parent company of the French conglomerate. The Indictment asserts that Mr. Hoskins, in his capacity as a Senior Vice-President of the Alstom parent company, approved and authorized the retention and compensation of two consultants, knowing that they would bribe Indonesian officials to help a consortium (including Alstom and one of its U.S. subsidiaries) obtain a contract to construct a power plant in Indonesia. According to the Indictment, Mr. Hoskins‘s limited, dated, and purely extraterritorial conduct subjects him to liability for two conspiracies and a total of ten substantive violations of the Foreign Corrupt Practices Act (―FCPA‖) and United States‘ money-laundering statutes. These charges all fail.

First, the Indictment is time-barred. Mr. Hoskins resigned from Alstom ten years ago, in August 2004, after 35 months of employment with the parent company and, when he did so, he withdrew from any alleged conspiracy operating therein. Second Circuit precedent makes clear that resignation from a business constitutes withdrawal from any criminal conduct operating within that entity if, following resignation, there is no promotion of or benefit received from the alleged illegal activity. Mr. Hoskins passes the Second Circuit‘s test with ease. After he resigned from Alstom, he immediately moved from Paris back to his home in England and started a new job, at a new company, in a new industry. He had no contact with, and received nothing from, any of his alleged co-conspirators. He also had no involvement with criminal conduct of any kind. To the point, the last act attributable to Mr. Hoskins in the Indictment occurred in March 2004, and the wire transfers that constitute the FCPA and money-laundering offenses all occurred long thereafter, between November 2005 and October 2009. Thus, Mr. Hoskins successfully withdrew from any alleged criminal conduct upon his resignation from Alstom. As such, all of the charges in the Indictment are time-barred and should be dismissed.

Second, the FCPA charges are facially defective. The Indictment alleges that Mr. Hoskins was an ―agent of a domestic concern,‖ to wit, an agent of Alstom‘s U.S. subsidiary. While it is black letter law that the fundamental characteristic of agency is control, the supporting factual allegations in the Indictment make plain that Mr. Hoskins was in no way under the control of the U.S. subsidiary. Indeed, much to the contrary, the Indictment demonstrates that Mr. Hoskins was ―approving‖ and ―authorizing‖ certain requests from employees of subsidiary companies ―in his capacity‖ as an executive of the Alstom parent company. Thus, because the allegations in the Indictment describe conduct bearing no semblance to an agency relationship, the FCPA-related charges are facially defective and should be dismissed.

Third, the Indictment‘s use of the term ―agent‖ is so counter-intuitive to the common understanding of that phrase that its application to Mr. Hoskins‘s relationship with the U.S. subsidiary renders the FCPA unconstitutionally vague as applied. Such a construction of the term ―agent‖ could not have provided Mr. Hoskins with fair warning that his alleged conduct—authorizing and approving matters at the request of employees of subsidiaries in his oversight capacity at the parent company—could expose him to criminal liability. As such, the FCPA charges are also constitutionally flawed and should be dismissed.

Fourth, the FCPA charges do not apply to Mr. Hoskins‘s purely extraterritorial conduct. Though Congress directed certain provisions of the FCPA to have extraterritorial effect, the subsection of the FCPA charged in the Indictment was not included in any such direction. Accordingly, the presumption against extraterritoriality applies. Thus, because all of Mr. Hoskins‘s alleged conduct occurred outside of the United States in the territory of a foreign sovereign, the substantive FCPA charges fail and should be dismissed.

Fifth, given the pronounced defects with the Indictment‘s FCPA charges, any theory of liability premised upon conspiracy and/or aiding and abetting also necessarily fail. Applicable Supreme Court precedent holds that when Congress affirmatively chooses to exclude a certain class of individuals from liability under a criminal statute, the government cannot circumvent that intent by alleging conspiracy. Moreover, federal courts have repeatedly held that ancillary offenses, including aiding and abetting and conspiracy, are only deemed to confer extraterritorial jurisdiction to the extent of the offenses underlying them. For these reasons, the conspiracy and aiding and abetting theories advanced in the Indictment cannot stand once the underlying FCPA charges fail.

Finally, the money-laundering charges are improperly venued in the District of Connecticut. The venue provision of the money-laundering statute establishes that venue lies only where the predicate money laundering transaction was ―conducted. The Indictment makes clear that the allegedly offending transfers were initiated from Maryland. As such, the District of Maryland is the only proper venue for the money-laundering charges, and they should be dismissed.

For the reasons described above and explained below, all of the charges should be dismissed. Mr. Hoskins never should have been charged on such old, infirm, and overextended allegations and legal theories. He should be freed to resume his life in England.”

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Hoskins is represented by Christopher Morvillo (Clifford Chance) and Brian Spears (Brian Spears LLC).  Both were previously AUSAs at the DOJ.

Posted by Mike Koehler at 12:03 am. Post Categories: Agency IssuesALSTOMConspiracyJurisdictionLawrence HoskinsStatute of Limitations