August 10th, 2015

The Difficulties Of Compliance

DifficultIn the minds of some, compliance with the Foreign Corrupt Practices Act or other similar laws is simple:  you just don’t bribe.

As highlighted in this prior post such a simplistic position is entirely off-target. Indeed what I find ironic about certain commentators who have articulated this position is that they devote their professional lives to selling compliance services and products.

Contrary to the simplistic rhetoric of some, a recent report regarding Siemens once again highlights the difficulties of compliance in a multinational business organization with tens of thousands of employees.

First, a bit of background.

In resolving the record-setting FCPA enforcement action against Siemens in 2008, the DOJ praised Siemens for its substantial compliance transformation.

Specifically in its sentencing memorandum, the DOJ acknowledged that Siemens had “already implemented substantial compliance changes” and a settlement term required the company to further implement “rigorous compliance enhancements.”

The “Remediation Efforts” section of the DOJ’s sentencing memorandum stated, in pertinent part, as follows:

“Siemens also overhauled and greatly expanded its compliance organization, which now totals more than 500 full time compliance personnel worldwide. Control and accountability for all compliance matters is vested in a Chief Compliance Officer, who, in turn, reports directly to the General Counsel and the Chief Executive Officer. Siemens has also reorganized its Audit Department, which is headed by a newly appointed Chief Audit Officer who reports directly to Siemens’ Audit Committee. To ensure that auditing personnel throughout the company are competent, the Chief Audit Officer required that every member of his 450 person staff reapply for their jobs. Siemens also has enacted a series of new anti-corruption compliance policies, including a new anti-corruption handbook, sophisticated web-based tools for due diligence and compliance matters, a confidential communications channel for employees to report irregular business practices, and a corporate disciplinary committee to impose appropriate disciplinary measures for substantiated misconduct. Siemens has organized a working group devoted to fully implementing the new compliance initiatives, which consists of employees from Siemens’ Corporate Finance and Corporate Compliance departments, and professionals from PricewaterhouseCoopers (“PwC”). This working group developed a step-by-step guide on the new compliance program and improved financial controls known as the “AntiCorruption Toolkit.” The Anti-Corruption Toolkit and its accompanying guide contain clear steps and timelier required of local management in the various Siemens entities to ensure full implementation of the global anti-corruption program and enhanced controls. Over 150 people, including 75 PwC professionals, provided support in implementing the AntiCorruption Toolkit at 162 Siemens entities, and dedicated support teams spent six weeks on the ground at 56 of those entities deemed to be “higher risk,” assisting management in those locations with all aspects of the implementation. The total external cost to Siemens for the PwC remediation efforts has exceeded $150 million.

Elsewhere, the DOJ sentencing memorandum stated:

“Siemens also significantly enhanced its review and approval procedures for business consultants, in light of the past problems. The new state-of-the-art system requires any employee who wishes to engage a business consultant to enter detailed information into an interactive computer system, which assesses the risk of the engagement and directs the request to the appropriate supervisors for review and approval. Siemens has also increased corporate-level control over company funds and has centralized and reduced the number of company bank accounts and outgoing payments to third parties.”

In summary, the DOJ recognized that “[t]he reorganization and remediation efforts of Siemens have been extraordinary and have set a high standard for multi-national companies to follow.”

Since the 2008 settlement, Siemens compliance reports as follows:

(1) approximately 600 employees work full time in a single compliance organization managed by a Chief Compliance Officer (of this number approximately eighty work at Siemen’s corporate headquarters with the rest deployed evenly around various sectors/divisions and regional companies); (2) 300,000 employees worldwide have received compliance training, including 100,000 employees who received face-to-face multi-hour courses; (3) all new compliance officers worldwide are required to take an intensive four-day course; (4) approximately 5,500 top managers worldwide have compliance metrics as an aspect of their compensation; and (5) approximately fifty-five high-risk entities and approximately 105 business units were required to implement over 100 compliance systems controls.

(See The Siemens Compliance System: Prevent, Detect, Respond and Continuous Improvement (2011).

In short, there are few companies in the world today that have devoted as many corporate resources towards compliance as Siemens over the past five years.

Despite the above improvements and investment in pro-active compliance that the DOJ labeled as setting “a high standard for multi-national companies to follow,” since 2008 Siemens been involved in numerous allegations of corruption.

This recent report from 100Reporters titled “Siemens Confidential: Reports of Wrongdoing Up, Penalties Down” suggests that since the 2008 FCPA settlement Siemens “received more than 3,000 new internal complaints of wrongdoing … including reports of corruption, bribery, fraud, anti-trust violations, embezzlement and conflict of interest.”  According to the article, the internal company statistics were disclosed by Siemens at industry conferences and obtained by 100Reporters.

To some, the above report and statistics are evidence that Siemens has an ineffective compliance program.

To others, the above report and statistics are evidence of the difficulties of ensuring compliance in a multinational company with tens of thousands employees doing business all over the world.

But remember, in the minds of some it is easy.  Just don’t bribe.

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




August 7th, 2015

Friday Roundup

Roundup2Nominate, scrutiny alerts and updates, and is it asking too much for the enforcement agencies to get the law right. It’s all here in the Friday roundup.

Nominate

As highlighted here, last month marked the six year anniversary of FCPA Professor. If FCPA Professor adds value to your practice or business or otherwise enlightens your day and causes you to contemplate the issues in a more sophisticated way, please consider nominating FCPA Professor for the ABA’s Top Legal Blog contest.

Scrutiny Alerts and Updates

Olympus 

As highlighted in this prior post, Japan-based Olympus has been under FCPA scrutiny since at least August 2012 in connection with alleged relationships with physicians in Brazil.  According to this company document the company recently recorded ¥2.4 billion (approximately $19 million) “based on progress in discussions with U.S. DOJ with regard to Foreign Corrupt Practices Act.”

This “Notice of Recognition of Extraordinary Loss Due to the Investigation by the U.S. Department of Justice Against Subsidiaries Relating to the Foreign Corrupt Practices Act” states:

“Olympus Corporation hereby announces that Olympus Latin America, Inc. (“OLA”), an indirect U.S. subsidiary of ours, and Olympus Optical do Brasil, Ltda. (“OBL”), a Brazilian subsidiary of OLA, have been under investigation by the U.S. Department of Justice (the “DOJ”) relating to the Foreign Corrupt Practices Act concerning their medical business, and that we have recognized an extraordinary loss in connection with such investigation for the first quarter of the fiscal year ending March 2016.

Background of this matter. In October 2011, Olympus Corporation of the Americas (“OCA”), a U.S. subsidiary of ours and the parent company of OLA, self-reported to the DOJ potential issues concerning OLA’s and OBL’s medical businesses in 2011 or earlier. OCA is currently continuing discussions with the DOJ towards a resolution, but in view of the progress at the present time, we have recorded an extraordinary loss of approximately 2,421 million yen as a provision.

Future outlook.  In connection with this matter, we have recognized an extraordinary loss of approximately 2,421 million yen for the first quarter of the fiscal year ending March 2016, the results of which we are announcing today. However, there is no change to the consolidated earnings forecast due to this matter. We will promptly disclose developments concerning this matter.”

Orthofix International

As noted in this previous post, in July 2012 Orthofix International resolved a DOJ/SEC FCPA enforcement action concerning alleged conduct by a Mexican subsidiary.  In resolving that action, the company agreed to a three year deferred prosecution agreement.  During the term of the DPA, Orthofix disclosed that it was “investigating allegations involving potential improper payments with respect to our subsidiary in Brazil.”

Recently, the DOJ and Orthofix filed a Joint Status Report with the court stating:

“The DPA was scheduled to expire on July 17, 2015. The Department and Orthofix agreed on June 15, 2015, however, to extend the Term of the DPA for an additional two months in order to give the Department additional time to (1) evaluate Orthofix’s compliance with the internal controls and compliance undertakings in the DPA and (2) further investigate potentially improper conduct the company disclosed during the term of the DPA. The Department and Orthofix agree that this two-month extension extends all of the terms of the DPA and does not waive, or in any way prejudice, any of the Department’s rights under the DPA.

The DPA’s expiration date has thus been extended to September 17, 2015. The Department intends to complete its evaluation and further investigation in August 2015, and will notify the Court and Orthofix of its proposed course of action shortly thereafter.”

Och-Ziff Capital Management

The company has been under FCPA scrutiny since 2011 concerning various activities in Africa.  Recently the Wall Street Journal went in-depth in this article titled “U.S. Probes Och-Ziff’s Mugabe Tie.”  According to the article:

“U.S. authorities are investigating whether Och-Ziff Capital Management Group LLC knew that part of a $150 million investment in a small African miner would wind up in the hands of Zimbabwe President Robert Mugabe’s government, according to people familiar with the probe. Och-Ziff last year disclosed that a broader Justice Department and Securities and Exchange Commission investigation is examining the $47 billion New York hedge fund’s business in Africa under the Foreign Corrupt Practices Act. The act bars firms doing business in the U.S. from giving money or items of value to foreign officials for business, either directly or through intermediaries. The publicly traded hedge-fund firm is in talks to settle the probe into its ties to a network of investors and deal makers that it worked with on business from Libya to South Africa, according to people familiar with the investigation. Och-Ziff and others have poured hundreds of millions of dollars into mining operations in the past decade as commodities prices soared. In Zimbabwe, U.S. authorities are examining Och-Ziff’s connection to a $100 million payment to Mr. Mugabe’s government in early 2008, the people said. The investigation into Och-Ziff’s ties to the payment, which was made through the African mining company it invested in, Central African Mining & Exploration Co., or Camec, hasn’t been previously disclosed. Camec at the time described the payment as a loan. Och-Ziff has denied that it knew some of the money would end up with the Zimbabwe government. Human-rights groups said the funds were used to carry out a violent crackdown on the opposition during a tough election Mr. Mugabe ultimately won in 2008. U.S. investigators are scrutinizing a March 2008 trip to Zimbabwe taken by Och-Ziff’s Africa director at the time, Vanja Baros,according to people familiar with the investigation. The people said Mr. Baros met several people involved in channeling the money to the Mugabe government, includingBilly Rautenbach, a Zimbabwean businessman with close ties to the dictator.”

Vantage Drilling

The company recently disclosed:

“In July 2015, we became aware of media reports that our agent utilized in the contracting of the Titanium Explorer drillship has entered into a plea arrangement with the Brazilian authorities in connection with the agent’s role in obtaining bribes on behalf of former Petrobras executives.  We have since confirmed that our agent, who has represented multiple international companies in their contracts with Petrobras, has entered into such discussions and provided evidence to the Brazilian authorities of an alleged bribery scheme between the former Petrobras executives and a former director of Vantage.  The former director, Mr. Su, was the sole owner of the company that owned the Titanium Explorer at the time the alleged bribe was paid.  We have not been contacted by any governmental authority in connection with these allegations.  However, we voluntarily contacted the SEC and the Department of Justice (the “DOJ”) to advise them of these recent developments.  We continue to investigate the matter, but as of now, our internal and independent investigations have found no evidence of wrongdoing by our employees or participation in any manner with the inappropriate acts alleged to have been conducted by the agent.

We cannot predict whether any governmental authority will seek to investigate this matter, or if a proceeding were opened, the scope or ultimate outcome of any such investigation. If the SEC or DOJ determines that we have violated the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”), or if any governmental authority determines that we have violated applicable anti-bribery laws, they could seek civil and criminal sanctions, including monetary penalties, against us, as well as changes to our business practices and compliance programs, any of which could have a material adverse effect on our business and financial condition.

On August 21, 2012, we filed a lawsuit against Mr.  Su, a former member of our Board of Directors and the owner of F3 Capital, our largest shareholder, asserting breach of fiduciary duties, fraud, fraudulent inducement and negligent misrepresentation, and unjust enrichment based on Mr. Su’s conduct in his dealings with the Company both immediately prior to, and during his tenure as one of our directors. On June 20, 2014, we received notice that Mr. Su had filed a countersuit against the Company and certain of the Company’s current and former officers and directors. The countersuit alleges fraud, breach of fiduciary duty, negligent misrepresentation, tortious interference with contract, and unjust enrichment and seeks indemnification from us with respect to the matters that are the basis of our lawsuit.”

NCR

As highlighted in this August 2012 post, NCR disclosed:

“NCR has received anonymous allegations from a purported whistleblower regarding certain aspects of the Company’s business practices in China, the Middle East and Africa, including allegations which, if true, might constitute violations of the Foreign Corrupt Practices Act.  NCR has certain concerns about the motivation of the purported whistleblower and the accuracy of the allegations it received, some of which appear to be untrue.  NCR takes all allegations of this sort seriously and promptly retained experienced outside counsel and began an internal investigation that is ongoing.”

Recently the company disclosed:

“With respect to the FCPA, the Company made a presentation to the staff of the Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) providing the facts known to the Company related to the whistleblower’s FCPA allegations, and advising the government that many of these allegations were unsubstantiated. The Company responded to subpoenas of the SEC and to requests of the DOJ for documents and information related to the FCPA, including matters related to the whistleblower’s FCPA allegations. The Company’s investigations of the whistleblower’s FCPA allegations identified a few opportunities to strengthen the Company’s comprehensive FCPA compliance program, and the Company continues to evaluate and enhance its compliance program as appropriate.
With respect to the DOJ, the Company responded to its most recent requests for documents in 2014. With respect to the SEC, on June 22, 2015, the SEC staff notified the Company that it did not intend to recommend an enforcement action against the Company with respect to these matters.”

To some, this represents a “declination.”  To more sophisticated observers this appears to represent unfounded whistleblower allegations.

Alexion Pharmaceuticals

The company recently disclosed:

“[W]e received a subpoena in connection with an investigation by the Enforcement Division of the SEC requesting information related to our grant-making activities and compliance with the Foreign Corrupt Practices Act in various countries. The SEC also seeks information related to Alexion’s recalls of specific lots of Soliris and related securities disclosures. Alexion is cooperating with the SEC’s investigation, which is in its early stages. At this time, Alexion is unable to predict the duration, scope or outcome of the SEC investigation. Any determination that our operations or activities are not, or were not, in compliance with existing United States or foreign laws or regulations, including by the SEC pursuant to its investigation of our compliance with the FCPA and other matters, could result in the imposition of a broad range of civil and criminal sanctions against Alexion and certain of our directors, officers and/or employees, including injunctive relief, disgorgement, substantial fines or penalties, imprisonment, interruptions of business, debarment from government contracts, loss of supplier, vendor or other third-party relationships, termination of necessary licenses and permits, and other legal or equitable sanctions. Other internal or government investigations or legal or regulatory proceedings, including lawsuits brought by private litigants, may also follow as a consequence. Violations of these laws may result in criminal or civil sanctions, which could disrupt our business and result in a material adverse effect on its reputation, business, results of operations or financial condition. Cooperating with and responding to the SEC in connection with its investigation of our FCPA practices and other matters, as well as responding to any future U.S. or foreign governmental investigation or whistleblower lawsuit, could result in substantial expenses, and could divert management’s attention from other business concerns and could have a material adverse effect on our business and financial condition and growth prospects.”

Flowserve

In 2008 Flowserve Corp. and related entities resolved a DOJ and SEC FCPA enforcement action related to the United Nations Oil for Food Program.  In resolving the enforcement action, Flowserve agreed to pay $10.5 million in combined fines and penalties and agreed to a permanent “obey the law” injunction. (see here and here).

Recently, Flowserve disclosed:

“As previously disclosed in our 2014 Annual Report, we terminated an employee of an overseas subsidiary after uncovering actions that violated our Code of Business Conduct and may have violated the Foreign Corrupt Practices Act.  We have completed our internal investigation into the matter, self-reported the potential violation to the United States Department of Justice (the “DOJ”) and the SEC, and are continuing to cooperate with the DOJ and SEC.  We recently received a subpoena from the SEC requesting additional information and documentation related to the matter and are in the process of responding.  We currently believe that this matter will not have a material adverse financial impact on the Company, but there can be no assurance that the Company will not be subjected to monetary penalties and additional costs.”

Is It Asking Too Much?

Practitioners recently snuffed out some subtle changes to the November 2012 FCPA Guidance issued by the DOJ and SEC.

The changes make the FCPA Guidance consistent with … well the law.

Is it asking too much for the enforcement agencies to get the law right? After all, it took the FCPA enforcement agencies over a year to write the pamphlet style FCPA Guidance.

But then again, the law has seemingly never been the FCPA enforcement agencies’ strong suit when all they have to do in the vast majority of situations is convince themselves of their legal interpretations.

The recent changes are not the biggest flub in the original FCPA Guidance.

As highlighted in this prior post, in the original guidance the enforcement agencies literally rewrote the FCPA statute.  Only after being called out, did the Guidance change.  (See here for the prior post).

To learn about other selective information, half-truths, and information that is demonstratively false in the FCPA Guidance see “Grading the Foreign Corrupt Practices Act Guidance.”

*****

A good weekend to all.





August 6th, 2015

Donald Trump: The FCPA Is a “Horrible Law and It Should Be Changed”

TrumpTonight is the first Republican presidential debate. If history is any guide, the candidates will deliver scripted responses and speak in vague generalities about many issues.

Many polls suggest that Donald Trump is leading the field, but whether Trump will ultimately emerge as the Republican candidate remains to be seen.

Nevertheless, one thing about Trump compared to traditional political candidates is that he is unscripted and blunt.

As highlighted in this 2012 post, Trump was unscripted and blunt when speaking of the Foreign Corrupt Practices Act in relation to Wal-Mart’s FCPA scrutiny focused on alleged payments in Mexico to obtain various licenses and permits.

In this CNBC SquawkBox interview (beginning at the 14-minute mark) Trump said that “this country is absolutely crazy” to prosecute alleged FCPA violations in places like Mexico and China.  Moreover, Trump said that the FCPA is a “horrible law and it should be changed” and that it puts U.S. business at a “huge disadvantage.”

In this criticisms, Trump confuses two issues:  (1) the FCPA as passed by Congress and (2) the FCPA as enforced by the DOJ and SEC.  Many of the concerns Trump raises were addressed by Congress when it elected not to capture payments to “foreign officials” in connection with ministerial or clerical acts or licensing and permitting issues.

The FCPA’s legislative history makes clear that in passing the FCPA Congress intended to capture only a narrow category of payments and chose not to capture so-called facilitating payments given the difficult and complex business conditions encountered in many foreign countries.  Consider the following language from the relevant Senate and House Reports.

The Senate Report stated:

“In drafting the bill . . . the Committee deliberately cast the language narrowly, in order to differentiate between such payments [to a foreign official corruptly intended to induce the recipient to use his influence to secure business, influence legislation or regulations] and low-level facilitating payments sometimes called ‘grease payments.’ Thus, [the bill] would not reach a small gratuity paid to expedite shipment through Customs or the placement of a trans-Atlantic telephone call, to secure required permits, or to ensure that a corporation’s warehouses were not put to the torch. In other words, payments made to expedite the proper performance of duties may be reprehensible, but it does not appear feasible for the United States to attempt unilaterally to eradicate all such payments.  […] The Committee fully recognizes that the proposed law will not reach all corrupt payments overseas.”

The House Report likewise stated:

“The bill’s coverage does not extend to so-called grease or facilitating payments. . . . The language of the bill is deliberately cast in terms which differentiate between such payments and facilitating payments, sometimes called ‘grease payments’. In using the word ‘corruptly’, the committee intends to distinguish between payments which cause an official to exercise other than his free will in acting or deciding or influencing an act or decision and those payments which merely move a particular matter toward an eventual act or decision or which do not involve any discretionary action. […] For example, a gratuity paid to a customs official to speed the processing of a customs document would not be reached by the bill. Nor would it reach payments made to secure permits, licenses, or the expeditious performance of similar duties of an essentially ministerial or clerical nature which must of necessity by performed in any event.  While payments made to assure or to speed the proper performance of a foreign official’s duties may be reprehensible in the United States, the committee recognizes that they are not necessarily so viewed elsewhere in the world and that it is not feasible for the United States to attempt unilaterally to eradicate all such payments. As a result, the committee has not attempted to reach such payments. […] The committee fully recognizes that the proposed law will not reach all corrupt payments overseas.”

The FCPA originally contained an indirect facilitating payment exception embedded in the “foreign official” element by excluding from the definition of “foreign official” “any employee of a foreign government or any department, agency, or instrumentality thereof whose duties are essentially ministerial or clerical.”

In 1988, this indirect exception was removed from the definition of “foreign official” in favor of an express stand-alone exception.  The House Report indicates that Congress did not seek to disturb Congress’s original intent and stated:

“The policy adopted by Congress in 1977 remains valid, in terms of both U.S. law enforcement and foreign relations considerations. Any prohibition under U.S. law against this type of petty corruption would be exceedingly difficult to enforce, not only by U.S. prosecutors but by company officials themselves. Thus while such payments should not be condoned, they may appropriately be excluded from the reach of the FCPA. U.S. enforcement resources should be devoted to activities have much greater impact on foreign policy.”

At present, the FCPA’s anti-bribery provisions “shall not apply to any facilitating or expediting payment to a foreign official … the purpose of which is to expedite or to secure the performance of a routine government action by a foreign official …”.

The FCPA defines “routine government action” as follows:

“The term “routine governmental action” means only an action which is ordinarily and commonly performed by a foreign official in

(i) obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country; (ii) processing governmental papers, such as visas and work orders; (iii) providing police protection, mail pick-up and delivery, or scheduling inspections associated with contract performance or inspections related to transit of goods across country; (iv) providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products or commodities from deterioration; or (v) actions of a similar nature.

The term “routine governmental action” does not include any decision by a foreign official whether, or on what terms, to award new business to or to continue business with a particular party, or any action taken by a foreign official involved in the decision-making process to encourage a decision to award new business to or continue business with a particular party.”

Notwithstanding the above legal authority, many corporate FCPA enforcement actions in this new era concern payments made in connection with securing foreign permits, licenses or other official documents needed to do business in a foreign country. This raises the question of whether the facilitating payments exception has any real meaning or whether the enforcement agencies have essentially repealed this exception through its enforcement theories.

Indeed, the SEC’s former Assistant Director of Enforcement has called the FCPA’s facilitating payment exception “illusory” and stated:

“The drafters of the FCPA recognized that such demands for ‘grease payments’ are a reality in many countries, and accordingly made clear that certain payments made to expedite the approval of permits or licenses, or to prompt the expeditious performance of similar low-level ministerial duties, fell outside the ambit of the statute’s anti-bribery provisions. Yet that exception for ‘facilitating payments’ […] is becoming harder and harder to rely on. […]  The DOJ and SEC have pressed a narrow view of the exception in recent years … […] Of course, the fact that the FCPA’s twin enforcement agencies have treated certain payments as prohibited despite their possible categorization as facilitating payments does not mean a federal court would agree. But because the vast majority of enforcement actions are resolved through DPAs and NPAs, and other settlement devices, these cases never make it to trial. As a result, the DOJ and the SEC’s narrow interpretation of the facilitating payments exception is making that exception ever more illusory, regardless of whether the federal courts – or Congress – would agree.”

(See Richard Grime and Sara Zdeb, “The Illusory Facilitating Payments Exception: Risks Posed By Ongoing FCPA Enforcement Actions And The U.K. Bribery Act,” (2011).

As relevant to the de facto repealing of this statutory exception, a current Senior Investigations Counsel with the SEC’s FCPA Unit stated, in his personal capacity:

“While the FCPA contains several core provisions that will always withstand the test of time, the facilitation payments exception is out of date in this modern-day era of commerce and sensibility.”

(See Jon Jordan, “The OECD’S Call for an End to ‘Corrosive’ Facilitation Payments and the International Focus on the Facilitation Payments Exception Under the Foreign Corrupt Practices Act,” 13 Univ. of Pennsylvania Journal of Business Law 881 (2011).

In short, Trump likely confused the issues.  If he meant to say that certain aspects of the current FCPA enforcement landscape are absolutely crazy there are many people who would likely agree.

Posted by Mike Koehler at 12:03 am. Post Categories: Donald TrumpFacilitating Payments




August 5th, 2015

The DOJ’s Latest Public Relations Move – Compliance Counsel

shellThe legal standard by which a business organization can face criminal liability for the conduct (that of course must meet all the substantive elements of a crime) of employees or agents is based on a two-factor test: (i) the employee or agent acted within the scope of employment/agency; and (ii) the conduct, at least in part, benefited the organization.

Under this legal standard, the rank and title of the employee does not matter nor does it matter whether the employee or agent acted contrary to the organization’s pre-existing compliance policies and its good-faith efforts to comply with the law.

This U.S. principle stands in stark contrast to the standard of organizational criminal liability in other peer nations where an organization can only face criminal liability to the extent the conduct was engaged in by so-called “controlling minds” (such as board members or executive officers).

Moreover, as highlighted in my article “Revisiting a Foreign Corrupt Practices Act Compliance Defense” most peer nations have compliance-defense concept relevant to their FCPA-like laws.

The Department of Justice appears, with good reason, to be uncomfortable with respondeat superior corporate criminal liability principles including in the FCPA context where the conduct at issue is often engaged by employees in foreign subsidiary and/or foreign third parties.

However, rather than advocate for substantive changes to the above standard (a standard of course that provides the DOJ substantial leverage over business organizations) the DOJ engages in public relations campaigns to mask its discomfort and to make it appear that the DOJ is addressing the core issue.

First it was non-prosecution and deferred prosecution agreements.  In defending the DOJ’s frequent use of NPAs and DPAs, then DOJ Assistant Attorney General Lanny Breuer stated in 2012 (see here for the prior post):

“I personally feel that it’s my duty to consider whether individual employees with no responsibility for, or knowledge of, misconduct committed by others in the same company are going to lose their livelihood if we indict the corporation. In large multi-national companies, the jobs of tens of thousands of employees can be at stake. And, in some cases, the health of an industry or the markets are a real factor.  Those are the kinds of considerations in white collar crime cases that literally keep me up at night, and which must play a role in responsible enforcement.”

When the FCPA reform movement heated up in 2011 (a component of FCPA reform was to amend the FCPA to include a compliance defense to make the FCPA consistent with the FCPA-like laws of many other peer nations), the DOJ once again stepped in with a public relations move and announced that it would issue FCPA Guidance – guidance that for years prior the DOJ said was unnecessary. (To read more about the relevant chronology of events see the article “Grading the FCPA Guidance“).

Still under pressure to demonstrate fairness in its FCPA enforcement program, in 2012 the DOJ marketed Morgan Stanley’s so-called declination and many drank the DOJ’s kool-aid.  (To learn more see prior posts here and here).

The DOJ’s latest public relations move to hide its justified discomfort of respondeat superior criminal liability is the apparent appointment of “compliance counsel” at the DOJ.  As reported here:

“The [DOJ] is hiring a compliance counsel who will help prosecutors determine whether companies facing corruption allegations are victims of rogue employees or willfully blind. [...] The  new compliance counsel, who has been selected and is undergoing vetting, will help authorities put these claims to the test and aid authorities in deciding whether to prosecute, said Andrew Weissmann, chief of the Justice Department’s fraud section in an interview. “Even if we do proceed, what should the appropriate resolution be, in other words what is the appropriate fine, [is] a monitor needed?” The as-yet unidentified compliance counsel will help prosecutors “differentiate the companies that get it and are trying to implement a good compliance program from the people who have a near-paper program,” said Mr. Weissmann, who was named to head up the fraud section earlier this year. The compliance specialist will also assist the fraud unit in other investigations including healthcare and securities fraud. [...] The Justice Department’s compliance specialist will also give companies more specific guidance on what level of program is appropriate for the risk level of the business, Mr. Weissmann said. The compliance counsel will be “benchmarking with various companies in a variety of different industries to make sure we have realistic expectations….and tough-but-fair ones in various industries,” he said. “It doesn’t do anyone good to have people wasting their compliance dollars on areas that are low risk.”

As suggested by the above report, the DOJ’s new “compliance counsel” is presumably the brainchild of Andrew Weissman.

As first reported by FCPA Professor when Weissmann was appointed head of the DOJ fraud section in January 2015, Weissmann has been a vocal advocate of Foreign Corrupt Practices Act reform and more broadly reforming corporate criminal liability principles.

Yet, the DOJ’s new “compliance counsel” does not substantively address any of Weissmann’s prior concerns, and those of many others, regarding the DOJ’s FCPA enforcement program.

Rather, it is another instance of DOJ smoke and mirrors.

Why?

Among other reasons, in opposing a compliance defense DOJ officials have long maintained – including while testifying at both the Senate’s 2010 hearing and the House’s 2011 hearing – that prosecutors already take into consideration whether the conduct at issue was engaged in by rogue actors and whether the company had pre-existing compliance policies and procedures. (To read more about the specific DOJ statements, see this article). Indeed, such factors are outlined in the DOJ’s Principles of Federal Prosecution of Business Organizations.  However, as highlighted in “Revisiting an FCPA Compliance Defense” the DOJ’s recognition of a “de facto compliance defense” is inadequate because it takes place in the opaque, inconsistent and unpredictable world of unreviewable DOJ decision making.

Thus, the DOJ’s new compliance position has no practical significance because decisions will still be made in an opaque manner behind closed doors in Washington, D.C.

Rather, the compliance counsel position is the DOJ’s latest public relations move. Indeed, a knowledgeable source informs me that that the position may not even be a full-time DOJ position, but rather a contract employee for a specified term.

This is not what FCPA enforcement needs.  Rather, the FCPA needs transparency, consistency and predictably that can only be accomplished through a change to the actual statute.  Moreover, an actual as a matter of law change to the FCPA will yield a host of public policy benefits as well as increase “soft enforcement” of the FCPA as highlighted herehere, here and here.

In short, the DOJ’s recent announcement of compliance counsel represents just the latest public relations move by the DOJ to hide its justified discomfort with respondeat superior corporate criminal liability principles and to make it appear that the DOJ is addressing the core issue.

*****

To read similar reactions to the DOJ’s announcement:

see here (“It’s a clever move because it avoids the Justice Department having to confront a formal compliance defense, which I think can be seen as giving bad incentives. And it gives them a chance to push back on the criticism that they don’t place enough weight on compliance efforts.”);

and here (“I just do not buy this explanation. DOJ prosecutors have a long and valuable expertise in this area. To suggest that they need some assistance is just a little too politically cute for me. [...]  In the absence of some demonstrated need, I think we can put this move into the category of cynical political moves designed to rebut corporate claims that DOJ prosecutors inadequately review and credit corporate compliance programs. [...]  If Mr. Weismann believes that having a compliance counsel available at DOJ is going to quiet advocates for a compliance defense, he is certainly demonstrating his political “immaturity.”)

*****

And yes of course FCPA Inc. is already marketing this development with the goal of attracting more compliance work.  (See here – “With DOJ’s recent hire of a compliance expert, there has never been a more important time for a company to assess its compliance program and identify enhancements that are necessary to appropriately address the evolving global corruption risks.”)

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




August 4th, 2015

Carlos Rodriguez: My Dad, My Hero

CarlosMany people in the FCPA space know the name Carlos Rodriguez.

His name, along with his co-defendant Joel Esquenazi, is synonymous with the “foreign official” issue.  (See this article at pgs. 24-42 to learn more about the 11th Circuit’s flawed”foreign official” decision in May 2014).

Mr. Rodriguez of course is more than just a name associated with a legal concept.

He is a real person, with a real family, who is serving real time in federal prison away from that real family.

In this post, Mr. Rodriguez’s adult daughter, Angeli Rodriguez, shares her perspective on her dad and her hero.

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I’d argue every child has envisioned their parent as a superhero at some point, and no one can argue that all heroes need an alias that denotes their special ability. I was no exception to this naive imagination while growing up, and I’ve concluded the only fitting title for my dad would be the Human Shield.

The funny thing about superhero tales is whenever the protagonist thinks his work is done, the city under his protection is struck by peril worse than the last. While the obvious explanation for this irony is that it’s what keeps the comic industry in business, I like to think this element of comic books grants them the slightest bit of realism. Science deems it the simplest principle of physics, or what goes up must come down. But if you really think about it, a sequence of highs and lows is above all the perfect description for life itself. Unless, of course, you have the Human Shield.

I’m more than lucky to be able to say that my childhood was always one of highs. I had both of my parents who loved my siblings and me unconditionally and raised us in a beautiful home in South Florida. For years, my dad was the vice president of a successful telecommunications company while my mom put her nursing career on hold to care for all of us. When I was four, she was diagnosed with breast cancer but, thanks to the Human Shield, I knew nothing more than “Mommy’s a little sick.” Within a year or so, I was told Mommy was better.

The shielding, however, would only continue.There came a point in elementary school when I realized Dad was no longer wearing ties or coming home at dinnertime. Soon, he was the one picking the kids up from school and Mom was the one at work. I recognized these changes but never questioned them. Instead, I was delighted to see more of my father, who would tell elaborate stories about his day every car ride home. My brother, my sister, and I always knew he was lying and looked forward to laughing with him each time we’d call him out on it. I used to think Dad’s crazy stories were solely meant to entertain us, but I’ve come to realize they were really fabricated by the Human Shield. By the time I reached middle school, I was aware that Dad’s old company had gone bankrupt. He had made a couple of attempts to work from home, but it was evident Mom was the one supporting us now. Nothing seemed different, though. My siblings and I continued to receive a private school education, let alone everything else we ever wanted.

I began to worry something bad was bound to happen, that our lives would finally come down after being up for so long. The Human Shield, on the other hand, never lost a smile. His optimism was contagious and quickly eradicated any concerns I ever had. According to Dad, happiness was all about visualization. He became enthralled with the concept of a “dream board” and helped me paste printed images of my desired future on a poster. With activities like these, I gradually grew closer and closer to my father. By eighth grade, I was blind to the fact that he no longer joined us for family beach days and was careful not to go out too late at night. Those were probably his best acts of shielding but were soon to be his last.

I vividly remember the day my parents broke the news…news which had been on their radars for over a year but nowhere near mine. I did not cry, and I did not speak. I just sat there, half listening to words that could not possibly be true. My father is a good person and good people shouldn’t secretly be on house arrest nor are they supposed to go to prison. Superhero tales just don’t end that way, especially when the “villain” in question is innocent.

In the legal world, my dad’s case is regarded as the “foreign official” issue and considered by many, including the Supreme Court, as unimportant. To me, it stands as the one “low” I could not be protected from, which shattered my shield and changed life as I knew it. I guess I never really realized how powerful my hero was or how much I needed him until he was no longer always by my side. He went away in November of my freshman year of high school, but for months I denied his absence and refused to believe the injustice my family bore. After months of this delusion, however, I forced myself to face reality. It was time for me to garner my own strength and show my dad that I could be super, too. This was much easier to do when I realized how heroic the rest of my family was.

My older brother Giancarlos started college at the University of Florida the same year that Dad was imprisoned. As the only son, his relationship with our father was undeniably special, and the times he visited home were noticeably hard for him. This past December, Gian graduated from UF with three degrees. He now has a full-time job.

My younger sister Natalia was already in middle school when Dad left. Our mom could no longer afford her Catholic school education, however, and she had to transfer schools after attending the same one for nearly ten years. She and Dad had always bonded over her volleyball career and an extremely similar sense of humor. Natalia is now class president for the third year in a row and maintains the second highest GPA of the juniors at her high school.

And, lucky for the three of us, the Human Shield is married to Superwoman. My mom has surely struggled the most with Dad’s sentence yet has managed to not only keep her life in order but all of ours. She sold the house my siblings and I grew up in as well as works two jobs to provide for us. Her spirit, however, never falters and she amazes me each day with her strength. I was empowered by both her and my father to work hard throughout high school but accredit my full ride to Boston University to her encouragement. Had I any other mother, I am positive our situation would have affected me much more negatively.

Since he left, my dad has missed three Thanksgiving’s, four Christmas’s, my 15th-18th birthdays, my brother’s college graduation, and my high school graduation, plus all of the celebratory moments and memories in between. The only contact we have consists of letter exchanges and a restricted 15-minute phone call every two weeks. Courtesy of the U.S. government, my connection to my father will remain this way until January 2018. It’s absurd, surreal, ridiculous, and undeniably unfair, but somehow he has maintained his positive outlook on life. That’s why a very small part of me is grateful for this experience. Because of the “foreign official” issue, I’ve realized how much my father once protected me and, in losing that protection, how much strength I myself possess. I may not have the superpowers needed to free him or convince courts of his innocence, but I like to think that by mimicking his optimism I can one day be someone’s hero.

Posted by Mike Koehler at 12:04 am. Post Categories: Carlos RodriguezGuest Posts