April 6th, 2015

Fittingly Foolish

FoolishLast week – on April Fools’ Day – the SEC announced this administrative action against KBR Inc.

It was fitting because the action was foolish.

In the words of the SEC:

“The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on July 21, 2010, amended the Exchange Act by adding Section 21F, “Whistleblower Incentives and Protection.” The congressional purpose underlying these provisions was “to encourage whistleblowers to report possible violations of the securities laws by providing financial incentives, prohibiting employment-related retaliation, and providing various confidentiality guarantees.” [...]

To fulfill this congressional purpose, the Commission adopted Rule 21F-17, which provides in relevant part: (a) No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.”

As to KBR, the SEC stated:

“As part of its compliance program, KBR regularly receives complaints and allegations from its employees of potential illegal or unethical conduct by KBR or its employees, including allegations of potential violations of the federal securities laws. KBR’s practice is to conduct internal investigations of these allegations. KBR investigators typically interview KBR employees (including the employees who originally lodged the complaint or allegation) as part of the internal investigations.

Prior to the promulgation of Rule 21F-17 and continuing into the time that Rule 21F-17 has been in effect, KBR has used a form confidentiality statement as part of these internal investigations. Although use of the form confidentiality statement is not required by KBR policy, the statement is included as an enclosure to the KBR Code of Business Conduct Investigation Procedures manual, and KBR investigators have had witnesses sign the statement at the start of an interview.

The form confidentiality statement that KBR has used before and since the SEC adopted Rule 21F-17 requires witnesses to agree to the following provisions: I understand that in order to protect the integrity of this review, I am prohibited from discussing any particulars regarding this interview and the subject matter discussed during the interview, without the prior authorization of the Law Department. I understand that the unauthorized disclosure of information may be grounds for disciplinary action up to and including termination of employment.”

And now for the foolish part.  The SEC specifically stated:

“Though the Commission is unaware of any instances in which (i) a KBR employee was in fact prevented from communicating directly with Commission Staff about potential securities law violations, or (ii) KBR took action to enforce the form confidentiality agreement or otherwise prevent such communications, the language found in the form confidentiality statement impedes such communications by prohibiting employees from discussing the substance of their interview without clearance from KBR’s law department under penalty of disciplinary action including termination of employment. This language undermines the purpose of Section 21F and Rule 21F-17(a), which is to “encourage[e] individuals to report to the Commission.”

Based on the above, the SEC found that KBR violated Rule 21F-17.

Without admitting or denying the SEC’s findings, KBR agreed to pay a civil monetary penalty of $130,000.

A far more prudent approach would have been for the SEC to issue a Section 21(a) Report of Investigation (see here).

The supreme irony of the SEC’s enforcement action?

While faulting KBR for its non-existent, theoretical muzzling of individuals, the SEC routinely muzzles corporate defendants in SEC enforcement actions.

For instance, the recent PBSJ deferred prosecution agreement with the SEC stated:

“Respondent agrees not to take any action or to make or permit any public statement through present or future attorneys, employees, agents, or other persons authorized to speak for it, except in legal proceedings in which the Commission is not a party in litigation or otherwise, denying, directly or indirectly, any aspect of this Agreement or creating the impression that the statements in [the Statement of Facts” are without factual basis. [...] Prior to issuing a press release concerning this Agreement, the Respondent agrees to have the text of the release approved by the staff of the Division.”

The Ralph Lauren non-prosecution agreement and the Tenaris deferred prosecution agreement contained the same muzzle clauses.

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

April 3rd, 2015

Friday Roundup

Roundup2Looking for talent – got talent, FBI announcement, Bourke related, to FCPA Inc., and for the reading stack.  It’s all here in the Friday Roundup.

Looking for FCPA Talent?  Got Talent

If your firm or organization is looking for either a summer associate or full-time lawyer with a solid foundation in the FCPA, FCPA enforcement, and FCPA compliance, please e-mail me at fcpaprofessor@gmail.com. I teach one of the only FCPA specific law school classes in the country (see here) and my Southern Illinois University law students who excelled in the class have, I am confident in saying, more practical skills and knowledge on FCPA topics than other law students.

I can recommend several students and I encourage you to give them an opportunity.

FBI Announcement

The FBI recently announced the establishment of international corruption squads.  In pertinent part, the release states:

“The FCPA … makes it illegal for U.S. companies, U.S. persons, and foreign corporations with certain U.S. ties to bribe foreign officials to obtain or retain business overseas. And we take these crimes very seriously—foreign bribery has the ability to impact U.S. financial markets, economic growth, and national security. It also breaks down the international free market system by promoting anti-competitive behavior and, ultimately, makes consumers pay more.

We’re seeing that foreign bribery incidents are increasingly tied to a type of government corruption known as kleptocracy, which is when foreign officials steal from their own government treasuries at the expense of their citizens. And that’s basically what these foreign officials are doing when they accept bribes in their official capability for personal gain, sometimes using the U.S. banking system to hide and/or launder their criminal proceeds.

The FBI—in conjunction with the Department of Justice’s (DOJ) Fraud Section—recently announced another weapon in the battle against foreign bribery and kleptocracy-related criminal activity: the establishment of three dedicated international corruption squads, based in New York City, Los Angeles, and Washington, D.C.

Special Agent George McEachern, who heads up our International Corruption Unit at FBI Headquarters, explains that the squads were created to address the national and international implications of corruption. “The FCPA allows us to target the supply side of corruption—the entities giving the bribes,” he said. “Kleptocracy cases allow us to address the demand side—the corrupt officials and their illicit financial assets. By placing both threats under one squad, we anticipate that an investigation into one of these criminal activities could potentially generate an investigation into the other.”

Corruption cases in general are tough to investigate because much of the actual criminal activity is hidden from view. But international corruption cases are even tougher because the criminal activity usually takes place outside of the U.S. However, members of these three squads—agents, analysts, and other professional staff—have a great deal of experience investigating white-collar crimes and, in particular, following the money trail in these crimes. And they’ll have at their disposal a number of investigative tools the Bureau uses so successfully in other areas—like financial analysis, court-authorized wiretaps, undercover operations, informants, and sources.

Partnerships with our overseas law enforcement counterparts—facilitated by our network of legal attaché offices situated strategically around the world—are an important part of our investigative arsenal. The FBI also takes part in a number of international working groups, including the Foreign Bribery Task Force, to share information with our partners and help strengthen investigative efforts everywhere. And we coordinate with DOJ’s Fraud Section—which criminally prosecutes FCPA violators—and the Securities and Exchange Commission—which uses civil actions to go after U.S. companies engaging in foreign bribery.

Our new squads will help keep the Bureau at the forefront of U.S. and global law enforcement efforts to battle international corruption and kleptocracy.”

Bourke Related

This October 2013 post highlighted a Democracy Now program that attempted to re-script the Frederic Bourke FCPA enforcement action.

Democracy Now returns to the story in this recent interview with former U.S. Senator George Mitchell.  Mitchell, like Bourke, invested in the Azeri project at issue, but unlike Bourke was not prosecuted.

Set forth below is the Q&A:

Democracy Now: Do you believe [Bourke] is a whistleblower, and do you believe that he should be exonerated.

Mitchell: Well, I believe that he should not have been convicted in the trial, in which conviction did occur. I think it was a very unfortunate circumstance, and as you describe it, regrettable from Rick Bourke’s standpoint.

Democracy Now: Do you believe he should now be exonerated, to be able to clear his name fully?

Mitchell: Well, yes, but I’m not sure what process would occur. He was tried, convicted. The conviction was upheld on appeal. But, as I said, I repeat, I do not believe he should have been convicted in the first place.

As noted in the prior post, while each is entitled to his/her own opinion about the Bourke case, the fact is – the case received more judicial scrutiny than arguably any other FCPA enforcement action.

To FCPA Inc.

It happens so often it is difficult to keep track of, but I try my best.

In the latest example of a DOJ FCPA enforcement attorney departing for FCPA Inc., Sidley Austin recently announced that James Cole (former DOJ Deputy Attorney General) “ has joined the firm in Washington, D.C. as a partner in its White Collar: Government Litigation & Investigations practice.”  As stated in the release, ““[Cole's] experience at the highest levels of law enforcement will enable him to counsel our clients facing the most difficult and complex challenges.”  Cole’s law firm bio states that he will focus “his practice on the full range of federal enforcement and internal investigation matters, with a particular emphasis on cross-border and multi-jurisdictional matters.”

While at the DOJ, Cole frequently articulated DOJ FCPA positions and enforcement policies.  (See here for example).

For the Reading Stack

From Professor Peter Henning in his New York Times Dealbook column – “Lawmakers Focus on How the SEC Does Its Job.”

From Miller & Chevalier attorneys – “DOJ is Losing the Battle to Prosecute Foreign Executives.”  An informative article regarding the DOJ’s struggles to prosecute foreign nationals for a variety of offenses (antitrust, FCPA, etc.).

An informative article here in the New York Law Journal by Marcus Asner and Daniel Ostrow  titled “A New Focus On Victims’ Rights in FCPA Restitution Cases.”

An interesting read here from the Wall Street Journal regarding China National Cereals, Oils and Foodstuffs Corp (Cotfco), a state-owned enterprise.

“In a few short years, Cofco has spent a couple billion dollars quietly buying up Australian cane fields, French vineyards and soybean pastures in Brazil, helping it become one of the world’s largest food companies. Now, Cofco is exploring deals in the world’s biggest exporter of agricultural commodities: the U.S.”

Weekend assignment:  are Cofco employees Chinese “foreign officials” under the 11th Circuit’s Esquenazi decision?


A good weekend to all and “On Wisconsin.”

Posted by Mike Koehler at 12:03 am. Post Categories: Asset RecoveryBourkeExtraditionFBIFCPA Inc.Foreign NationalsForeign OfficialSECVictims

April 2nd, 2015

Court Dismisses Wal-Mart Shareholder FCPA-Related Derivative Claims

DismissedIn the aftermath of Wal-Mart’s Foreign Corrupt Practices Act scrutiny, certain company shareholders (as is fairly typical in instances of FCPA scrutiny) filed derivative actions against various current or former Wal-Mart officers and directors alleging, among other things, breach of fiduciary duties.

By way of background as to derivative claims, the internal affairs of a corporation, such as the rights of corporate directors, are governed by state law.  State law, including most prominently Delaware law, provides directors broad discretion to manage the corporation subject to their fiduciary duties to the corporation and its shareholders.  A director’s fiduciary duties include the duty of care and the duty of loyalty, including its subsidiary component the duty of good faith.

A corporate director’s duty of good faith has evolved over time to include an obligation to attempt in good faith to assure that an adequate corporate information and reporting system exists.  In the notable Caremark decision by the influential Delaware Court of Chancery, the court held that a director’s failure to do so, in certain circumstances, may give rise to individual director liability for breach of fiduciary duty.

In Stone v. Ritter, the Delaware Supreme Court provided the following necessary conditions for director oversight liability under the so-called Caremark standard: (i) a director utterly failed to implement any reporting or information system or controls; or (ii) having implemented such systems or controls, a director failed to monitor or oversee the corporation’s operations. The court held that both situations require a showing that a director knew that they were not discharging their fiduciary obligations and courts have widely recognize that a director’s good faith exercise of oversight responsibility may not necessarily prevent employees from violating criminal laws or from causing the corporation to incur significant financial liability or both.

Derivative claims, such as those filed against Wal-Mart’s current and former officers and directors, are subject to unique pleading requirements.  Ordinarily, a company’s board of directors has the exclusive authority to institute corporate action such as filing a lawsuit on behalf of the corporation when it has been harmed.  However, when the harm to the corporation is the result of an alleged breach of fiduciary duty by the directors, the law recognizes that the board of directors is unlikely to sue itself in such a situation.  Thus, the law provides a mechanism for shareholders to bring a lawsuit, not in their individual capacity, but on behalf of the corporation to recover monetary damages for the corporation.

Because a derivative action usurps a traditional board of director function and can be subject to harassment and abuse, state law often requires shareholders to first make a demand on the corporation to file suit or to plead with particularity so-called demand futility, meaning that demand on the board would be futile because the board is incapable of making an independent judgment concerning the conduct at issue.

Most derivative actions, including those in the FCPA context, are brought as demand futility cases because if a shareholder makes a demand on the board of directors to bring the claim it will be assumed that the shareholder views the board of directors as sufficiently independent to analyze the claim and the board’s decision will be analyzed under the board-friendly business judgment rule.  To survive a motion to dismiss, a shareholder pleading demand futility must allege more than conclusory allegations regarding a breach of fiduciary duty.  Rather, the shareholder must allege with particularly facts suggesting that the majority of directors were interested; or that the directors failed to inform themselves; or that the directors failed to exercise due care as to the conduct at issue.

Those who predicted that the Wal-Mart derivative actions would set a new standard for director liability were once again proven wrong (see here for the prior post).

Earlier this week, in this order U.S. District Judge Susan Hickey (W.D. Ark.) dismissed eight Wal-Mart shareholder FCPA-related derivative claims that were consolidated into one action.

Judge Hickey summarized the shareholders allegations as follows.

“Plaintiffs allege that the Individual Defendants breached their fiduciary duties of loyalty and good faith by: (1) permitting violations of foreign and federal laws and Wal-Mart’s code of ethics; (2) permitting the obstruction of an adequate investigation of known potential (and/or actual) violations of foreign and federal laws; and (3) covering up (or attempting to cover up) known potential (and/or actual) violations of foreign and federal laws. Plaintiffs also allege that Individual Defendants violated Sections 14(a) and 29(b) of the Exchange Act by causing Wal-Mart to make false or misleading statements in its April 2010 and April 2011 proxy materials relating to annual director elections.”

After reviewing applicable Delaware law, Judge Hickey stated, in pertinent part, as follows.

“The Complaint consistently implies that Defendants should have or must have known about the alleged misconduct by virtue of their positions and the supposed reporting structure at Wal-Mart. According to Plaintiffs, “senior executives … knew about” the alleged misconduct, those “executives [were] required to regularly report to the Audit Committee of Wal-Mart’s Board,” and the Audit Committee, in turn, “was obligated to report on [this] to Wal-Mart’s full Board.” Plaintiffs allege that, given the “inference” that information concerning bribery was reported to Wal-Mart’s Board, Wal-Mart made a conscious decision not to act on this information.

Plaintiffs reference vague “decisions” made by Defendants but do not plead with particularity who made these decisions, how these decisions were made, or when the decisions were made. Plaintiffs generally allege that the Board made a decision not to act in response to evidence of criminal conduct. Missing from the Complaint are any particularized facts that link a majority of the Director Defendants to any actual decision. Plaintiffs point to no alleged meeting, discussion, or vote where the Board allegedly made one of these decisions. This lack of such particularized facts regarding a conscious decision about how or whether to respond to the alleged misconduct indicates that an analysis under Aronson is inappropriate.”

Elsewhere, Judge Hickey stated:

“According to Plaintiffs, nine Director Defendants knew about the wrongful conduct in 2005-2006 (the alleged bribery in Mexico and the internal investigation that allegedly concealed the wrongdoing) and either actively participated in it or acquiesced in it. Defendants argue that Plaintiffs have failed to sufficiently plead that a majority of the Board knew about or consciously ignored the alleged wrongful conduct in 2005-2006 and therefore cannot show that a majority of the Director Defendants face a substantial likelihood of personal liability. The Court agrees.

Nothing in the Complaint suggests any particularized basis to infer that a majority of the Board had actual or constructive knowledge of the alleged misconduct, let alone that they acted improperly with scienter. Plaintiffs’ allegations do not provide the particulars for what each Director Defendant knew, how he or she learned of the information, or when he or she learned of the information. Thus, as discussed below, Plaintiffs have failed to plead with particularity that at least eight Director Defendants face a substantial likelihood of personal liability so that their ability to consider a demand impartially would be compromised.”


“Courts may not impute knowledge of wrongdoing to directors simply because they serve on the board or because the corporate governance structure requires that notice of the wrongdoing reach the board.”


In a footnote, Judge Hickey’s order states: “The Foreign Corrupt Practices Act prohibits United States companies from bribing foreign officials to secure improper business advantage.”

This is an inaccurate statement of law.

Rather, the FCPA contains an “obtain or retain business” element that must be proved.  Indeed, the DOJ’s position that the FCPA captures payments to “secure an improper business advantage” wholly apart from the “obtain or retain business” element has been specifically rejected by courts. (See here for the prior post).

The inaccurate statement of law in the order is perhaps not surprising given that the Judge referred to the FCPA as the “Federal Corrupt Practices Act.”


For additional coverage of Judge Hickey’s decision – as well as its potential impact on current Delaware court proceedings arising from the same alleged facts – see here form the D&O Blog.

Posted by Mike Koehler at 12:03 am. Post Categories: Obtain or Retain BusinessRelated Civil LitigationWal-Mart

April 1st, 2015

What You Need To Know From Q1

Q1This post provides a summary of Foreign Corrupt Practices Act enforcement activity and related developments from the first quarter of 2015.

DOJ Enforcement (Corporate)

There were no DOJ corporate FCPA enforcement actions in the first quarter.

DOJ Enforcement (Individual)

As highlighted here, the DOJ announced criminal charges against Dmitrij Harder, the former owner and President of Chestnut Consulting Group Inc. for allegedly bribing an official with the European Bank for Reconstruction and Development. The enforcement action is notable in that it invoked the rarely used “public international organization” prong of the FCPA’s “foreign official” element.

SEC Enforcement (Corporate)

PBSJ (Jan. 22nd)

See here for a prior post.

Charges: Violations of the FCPA’s anti-bribery, books and records, and internal controls provisions.

Settlement:  The charges were resolved via a deferred prosecution agreement in which the company agreed to pay approximately $3.4 million (disgorgement and interest of $3,032,875 and a penalty of $375,000).

Disclosure: Voluntary Disclosure

Individuals Charged:  Yes (see below).

Related DOJ Enforcement Action:  No.

Goodyear (Feb. 24th)

See here, here and here for prior posts.

Charges:  None.  Administrative cease and desist order finding violations of FCPA’s books and records and internal controls provisions.

Settlement:  $16,228,065 (disgorgement of $14,122,525 and prejudgment interest of $2,105,540).

Disclosure: Voluntary disclosure.

Individuals Charged:  No

Related DOJ Enforcement Action: No

SEC Enforcement (Individual)

In connection with the PBSJ enforcement action, Walid Hatoum (a former executive of PBS&J International, Inc.) agreed, without admitting or denying the SEC’s findings, to resolve an administrative action finding violations of the FCPA’s anti-bribery, books and records, and internal controls provisions.  Hatoum agreed to pay a $50,000 civil penalty.

Other Developments or Items of Interest

It was an active speaking quarter for SEC enforcement officials.  This post analyzes an FCPA speech given by the SEC’s Director of Enforcement at a pharmaceutical conference and this post analyzes how the same individual was on the hot seat during a Congressional hearing regarding the surge in SEC administrative actions.  This post analyzes how the numbers do not support the SEC Chair’s recent statement that “the Commission is focused on holding individuals accountable in FCPA cases.”

Biomet announced that its 2013 deferred prosecution agreement was extended for a year based on the company’s fresh FCPA scrutiny and this post highlights two issues related to this development.

On the FCPA-related civil litigation front, as highlighted in this post, a federal court judge recently dismissed an Avon shareholder derivative complaint finding, among other things, that just because “the FCPA is not commonly the subject of litigation” does not create a substantial federal interest in state law claims related to the FCPA.

In the spirit of March Madness, this post called a timeout regarding certain commentary about the February FCPA enforcement action against Goodyear.

As highlighted here in connection with hearings of Attorney General Nominee Loretta Lynch, the Senate remains interested in FCPA issues.

As highlighted here, in an action related to U.S. v. Esquenazi (the 11th Circuit’s 2014 “foreign official” decision), the 11th Circuit discussed the “routine governmental action” prong of the FCPA’s facilitating payments exception.

As highlighted here, a federal court judge rejected a DOJ deferred prosecution agreement.  While outside the FCPA context, given the prominence of DPAs (and NPAs) in the FCPA context, the case – and upcoming appeal – are certainly worth watching.

As highlighted here  the DOJ announced that Andrew Weissmann was selected as the Chief of the Criminal Division’s Fraud Section. In recent years, Weissmann has been a vocal advocate of FCPA reform and more broadly reforming corporate criminal liability principles.  For issues raised by Weissmann’s appointment, see this prior post “In the FCPA Space, Who Speaks for Whom?”

Posted by Mike Koehler at 12:02 am. Post Categories: Year in Review 2015

March 31st, 2015

Non-Profits And The FCPA

Non-ProfitsA reader recently asked:

“Do you have any information specific to non-profits and NGO’s in regard to FCPA and anti-bribery and corruption statistics?”

To my knowledge, there has never been a Foreign Corrupt Practices Act enforcement action against a non-profit or NGO.

That is not to say that non-profits can not be subject to the FCPA.

In terms of the FCPA’s books and records and internal controls provisions, those are only applicable to issuers (generally speaking companies with shares traded on a U.S. exchange or otherwise required to file certain reports with the SEC) , so that is easy, such provisions do not apply to non-profits.

However, it would be wise for non-profits to otherwise act consistent with such provisions for the simple reason that they represent good governance and adherence to such provisions can reduce the risk of FCPA anti-bribery violations (to which non-profits and those associated with non-profits can be subject to) as well as reduce the risk of other legal violations.

In terms of the FCPA’s anti-bribery provisions, they apply to “issuers,” “domestic concerns,” and “persons other than issuers or domestic concerns.”

The FCPA defines “domestic concern” as follows:

“(A) any individual who is a citizen, national, or resident of the United States; and (B) any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship which has its principal place of business in the United States, or which is organized under the laws of a State of the United States or a territory, possession, or commonwealth of the United States.”  (“emphasis added).

Not only could a non-profit itself qualify as a “domestic concern,” but U.S. citizens or nationals working for or acting on behalf of a non-profit would independently qualify as a “domestic concern” under the FCPA.

The FCPA defines “person” under the dd-3 prong of the statute applicable to “persons other than issuers or domestic concerns” as follows.

The term “person,” when referring to an offender, means any natural person other than a. national of the United States or any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship organized under the law of a foreign nation or a political subdivision thereof.” (emphasis added).

Here again, not only could a non-profit itself qualify as a “person,” but any natural person working for or acting on behalf of a non-profit would independently qualify as a “person” under the FCPA and could be subject to liability to the extent a bribery scheme involves a U.S. nexus, as stated in the jurisdictional prong of dd-3.

Just because there has not, to my knowledge, been an FCPA enforcement action against a non-profit, there could be.  For instance, this prior post highlighted an instance in which FCPA anti-bribery charges might perhaps have fit.

Indeed, non-profits have in the past raised concerns about potential FCPA liability in the form of FCPA Opinion Procedure Releases.

As highlighted in this prior post, Release 12-02 involved “19 non-profit adoption agencies headquartered in the U.S.” who sought an opinion “related to their proposal to host 18 government officials from a foreign country during visits to the United States.”  The DOJ did provide clearance as to the proposed conduct, but did find that the requestors were indeed “domestic concerns” and thus subject to the FCPA’s anti-bribery provisions.

Release 12-02 was a near carbon-copy of Release 11-01, which as highlighted in this prior post, also involved  a “U.S. adoption service provider” request regarding a proposal “to pay certain expenses for a trip to the United States by one official from each of two foreign government agencies.”

Any FCPA enforcement action against a non-profit would present an interesting question given the FCPA’s required “obtain or retain business” element.  While the 5th Circuit in U.S. v. Kay did conclude that this element could be more broad than just obtaining contracts, it did nevertheless state as follows.

“There are bound to be circumstances in which such a cost reduction does nothing other than increase the profitability of an already-profitable venture or ensure profitability of some start-up venture. Indeed, if the government is correct that anytime operating costs are reduced the beneficiary of such advantage is assisted in getting or keeping business, the FCPA’s language that expresses the necessary element of assisting is obtaining or retaining business would be unnecessary, and thus surplusage—a conclusion that we are forbidden to reach.”

Post-Kay there have been numerous FCPA enforcement actions (none subjected to judicial scrutiny) outside the context of procurement involving taxes, customs duties, licenses, permits, certifications and the like.  Yet, all those enforcement actions concerned profit seeking corporations or other business organizations.

That the “obtain or retain business” element might not apply to non-profits was the focus of this interesting press release from Paul Weiss titled “Paul, Weiss Achieves Favorable Resolution in Unique FCPA Investigation of Nonprofit Organization.”  The release stated in full.

“Paul, Weiss recently secured a complete victory for a large nonprofit organization that provides humanitarian relief and assistance overseas. The organization was being investigated by the Fraud Section of the Criminal Division of the Department of Justice (DOJ) for potential violations of the Foreign Corrupt Practices Act, in one of the first FCPA investigations by the DOJ of a nonprofit entity. The investigation had significant implications not only for the organization, but also for other nonprofit entities whose overseas activities could potentially come under scrutiny if the DOJ determined that the FCPA applied to charitable activities in addition to commercial activities.

After a five-month review analyzing conduct in multiple countries, Paul, Weiss presented its findings and legal analysis to the DOJ at the beginning of June, specifically requesting that the DOJ formally close its investigation. The DOJ recently issued an official declination letter, stating that the DOJ was satisfied that the business nexus element of the statute was not met.  Receiving a formal closure letter from the DOJ is unusual and is a significant victory. The organization has not issued a public statement.

The Paul, Weiss team included litigation partner Mark Mendelsohn and counsel Kevin Loftus.”

Mark Mendelsohn is a former head of the DOJ’s FCPA Unit.

Even though there there has never been an FCPA enforcement action against a non-profit, there have been several FCPA enforcement actions against individuals employed by arguably non-corporate entities.

In 2002, Richard Pitchford (the Vice President and Country Manager in Turkmenistan of The Central Asia American Enterprise Fund (“CAAEF”) was criminally charged and pleaded guilty to, among other charges FCPA violations for making improper payments to a United Kingdom “foreign official” with responsibilities for promoting business opportunities for British companies in the Central Asian region. In the DOJ’s criminal information, CAAEF is described as being incorporated under Delaware law and wholly funded by an appropriation of $150 million from the Congress of the United States pursuant to the Support for Eastern European Democracy Act of 1989 (the “SEED Act”) and the Freedom for Russia and Emerging Eurasian Democracies and Open Market Support Act of 1992 (“FREEDOM SUPPORT ACT”).  In the information, CAAEF is alleged to be a “domestic concern” and Pitchford is alleged to be an officer and agent of a “domestic concern,” as well as a “domestic concern” himself as a U.S. citizen.

Also in 2002, Ramendra Basu (an individual employed in the World Bank’s Consultant Trust Funds Office) and Gautam Sengupta (an individual employed at The World Bank as a Task Manager responsible for The World Bank’s Africa Region) were criminally charged and pleaded guilty to, among other charges FCPA violations for conspiring to assist a contractor in bribing a Kenyan “foreign official.”  In the DOJ criminal informations (here and here), Basu and Sengupta are alleged to be “persons” other than an issuer or domestic concern under the dd-3 prong of the FCPA.

In 2005, Richard Novak was criminally charged and pleaded guilty to, among other charges, FCPA violations for making improper payments to various foreign government officials who “held various positions at the Liberian Embassy in Washington, D.C., the Liberian Embassy in Accra, Ghana, and at the Ministry of Education for the Republic of Liberia in Monrovia, Liberia.”  According to the DOJ superseding information, Novak was employed by two individuals  ”who owned and operated several internet businesses from their principal places of business in the States of Washington and Idaho and from mail forwarding boxes located in Washington, D.C., and Wilmington, Delaware. These 11 internet businesses used the names “Saint Regis University,” “Robertstown University,” and “James Monroe University.” They were diploma mills in that these “universities” had no legitimate faculty members; offered no legitimate academic curriculum or services; required no course or class work; and were not recognized by the United States Department of Education.”

Posted by Mike Koehler at 12:03 am. Post Categories: Gautam SenguptaNon-ProfitsRamendra BasuRichard NovakRichard PitchfordWorld Bank