Scrutiny alerts and updates, a first, blunt, and quotable.   It’s all here in this – the 100th edition - of the Friday roundup.

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Scrutiny Alerts and Updates

Wal-Mart

During its third quarter earnings call yesterday, Wal-Mart disclosed $69 million in “FCPA and compliance related expenses” in the quarter.  According to the company “approximately $43.0 million of these expenses represented costs incurred for the ongoing inquiries and investigations and approximately $26.0 million is related to our global compliance program and organizational enhancements.”

Doing the math, $69 million in the third quarter is approximately $1.06 million per working day.  As noted here, the figure for Q2 was approximately $1.26 million per working day and as noted here the figure for Q1 was approximately $1.16 million per working day.  For more on Wal-Mart’s pre-enforcement action professional fees and expenses, see this prior post.

For the fourth quarter, Wal-Mart estimated $75 – $80 million in expenses related to FCPA matters.

JPMorgan

The NY Times returns (here) to the JPMorgan story it first reported in August (see here for the prior post).  The article states:

“To promote its standing in China, JPMorgan Chase turned to a seemingly obscure consulting firm [Fullmark Consultants] run by a 32-year-old executive named Lily Chang.  Ms. Chang’s firm, which received a $75,000-a-month contract from JPMorgan, appeared to have only two employees. And on the surface, Ms. Chang lacked the influence and public name recognition needed to unlock business for the bank. But what was known to JPMorgan executives in Hong Kong, and some executives at other major companies, was that “Lily Chang” was not her real name. It was an alias for Wen Ruchun, the only daughter of Wen Jiabao, who at the time was China’s prime minister, with oversight of the economy and its financial institutions.

[...]

Now, United States authorities are scrutinizing JPMorgan’s ties to Ms. Wen, whose alias was government approved, as part of a wider bribery investigation into whether the bank swapped contracts and jobs for business deals with state-owned Chinese companies, according to the documents and interviews. The bank, which is cooperating with the inquiries and conducting its own internal review, has not been accused of any wrongdoing.  The investigation began with an examination of the bank’s decision to hire the daughter of a Chinese railway official and the son of a former banking regulator who is now the chairman of a state-controlled financial conglomerate.

[...]

Executives at JPMorgan’s headquarters in New York did not appear to be involved in retaining Fullmark, a decision that seemed to have fallen to executives in Hong Kong. And the documents reviewed by The Times do not identify a concrete link between the bank’s decision to hire children of Chinese officials and its ability to secure coveted business deals, a connection that authorities would probably need to demonstrate that the bank violated anti-bribery laws.”

Park-Ohio Holdings Corp.

The diversified manufacturing services and products holding company (here) disclosed as follows in a recent quarterly filing:

“In August 2013, the Company received a subpoena from the staff of the SEC in connection with the staff’s investigation of a third party. At that time, the Company also learned that the Department of Justice (DOJ) is conducting a criminal investigation of the third party. In connection with responding to the staff’s subpoena, the Company disclosed to the staff of the SEC that, in November 2007, the third party participated in a payment on behalf of the Company to a foreign tax official that implicates the Foreign Corrupt Practices Act (FCPA). The Board of Directors of the Company has formed a special committee to review the Company’s transactions with the third party and to make any recommendations to the Board of Directors with respect thereto. The Company intends to cooperate fully with the SEC and the DOJ in connection with their investigations of the third party and with the SEC in light of the Company’s disclosure. The Company is unable to predict the outcome or impact of the special committee’s investigation or the length, scope or results of the SEC’s review or the impact, if any, on its results of operations.”

Wynn Resorts

This previous Friday roundup highlighted the company’s disclosure that the SEC has ended its investigation of the company concerning a $135 million donation to the University of Macau.  In this recent filing, Wynn states as follows concerning a related DOJ investigation.

“[The DOJ] has been conducting a criminal investigation into Wynn Resorts’ donation to the University of Macau [...]. Wynn Resorts has not received any target letter or subpoena in connection with such an investigation.  Wynn Resorts intends to cooperate fully with the government in response to any inquiry related to the donation to the University of Macau.”

SEC’s First Individual DPA

When the SEC announced in January 2010 (see here for the prior post) a series of measures, including non-prosecution and deferred prosecution agreements, “to further strengthen its enforcement program by encouraging greater cooperation from individuals and companies in the agency’s investigations and enforcement actions,” I called the development a blow to those who prefer government law enforcement agencies to enforce a law in an open, transparent matter and in the context of an adversary proceeding.  Not that there was much judicial scrutiny of SEC enforcement prior to January 2010 (largely on account of the SEC’s then neither admit nor deny settlement policy), but the new measures, I noted, would lead to even less judicial scrutiny.

Earlier this week, the SEC announced ”a [five year] deferred prosecution agreement with a former hedge fund administrator who helped the agency take action against a hedge fund manager who stole investor assets.”  According to the SEC, the DPA – outside the context of the FCPA – is the SEC’s “first with an individual” and the SEC’s release further states:

“Deferred prosecution agreements (DPAs) encourage individuals and companies to provide the SEC with forthcoming information about misconduct and assist with a subsequent investigation.  In return, the SEC refrains from prosecuting cooperators for their own violations if they comply with certain undertakings.”

Obviously the above statement is an opinion statement, not a factual statement.

As highlighted in this prior post, the FCPA Guidance indicated that the DOJ has in the past used non-public non-prosecution against individuals in the FCPA context.  Despite claims by the DOJ that its FCPA enforcement program is transparent, my attempts to learn more about these secret FCPA NPA’s with individuals was unsuccessful.

Blunt

DOJ FCPA enforcement attorneys have publicly stated that among the many ways they learn of conduct which could implicate the FCPA is by reading the newspaper.

If so, this recent article in the Miami Herald may generate some interest.  In the article concerning the satellite telephone business in Cuba, a “Miami Man” states that ”he installs each system in Cuba for $3,500 to $4,200 — cash paid in South Florida, with part of the mark up going to bribes on the island. The costs are usually paid by U.S. relatives of the recipients.”

Quotable

From a recent poll regarding corruption in Africa: “corruption is a national sport every day at the direction of customs officials” (see here).

An extensive interview with U.K. Serious Fraud Director David Green (“DG”) in Fraud Magazine (“FM”) in which he discusses:  corporate criminal liability, facilitation payments, Bribery Act Inc., voluntary disclosure and DPAs.  Relevant excerpts include:

FM: What current changes, if any, to the legal system and or legislation would make the SFO more efficient?

DG: To our effectiveness and our reach, I would very much like the test for corporate criminal liability to be looked at again. As you know, in this country, it is extremely difficult to convict a company of an offence because the prosecution has to show that the controlling minds of the company — somebody at the board level — were complicit in the criminality you are trying to prove.  I think that bar is too high, and is a very unrealistic test — not least because I think anyone will agree that if you’re looking into allegations of corporate misconduct spookily the e-mail trail tends to dry up at a fairly junior level.  Where it can be shown that the company had really profited from the criminality of its employees then I think there is a sound case for expanding the ambit of section 7 of the U.K. Bribery Act. Section 7 creates the corporate offence of ‘failing to prevent bribery or corruption by an agent or employee’ with a statutory defence that they took all reasonable precautions.  Now why can’t that be extended to cover fraud and offences of dishonesty so the offence would be failing to prevent fraud or offenses of dishonesty by members of your staff? It seems to me absolutely right that a corporation should have criminal liability for that when it has profited from it. Why should a company which has, in the way I’ve explained, been complicit in criminality just throw a few people over the side and sail bravely on? Why shouldn’t it have its ears clipped and marked as a company that has had dishonest employees and benefitted from it?  Another argument is: Well you’d just be punishing a company for negligence. I would say it would be a pretty high degree of negligence when a company acts in that way and benefits from the dishonesty of its employees.

FM: Doesn’t the Bribery Act prejudice British business in that is a bit too harsh in relation to facilitation payments and hospitality payments?

DG: First of all, I don’t buy this argument that complying with the law is going to hold business back. Secondly, facilitation payments have always been illegal. However, it is a question of the public interest as to whether or not they are prosecuted.  What would be a common facilitation payment? A 20-pound note and a bottle of whisky to some [maritime] pilot to take your ship from somewhere to somewhere else in a single payment; the SFO wouldn’t be interested in that. [Maritime pilots will guide ships into ports for hire.] But if it was a course of conduct over a number of years, then, of course, that becomes not just a very small insignificant little bribe but actually a regular payment over time to ensure that you get that business.

FM: What do you say about those medium to small companies who have ignored the preventative measures required by the Bribery Act?

DG: Well, it’s always difficult, isn’t it? On the one hand, I am very conscious that since the enactment of the act there has grown up a Bribery Act industry in London populated by a lot of American and British lawyers, accountants and so-called experts. I even came across a firm the other day that actually offers certificates to companies saying that they are compliant, and I suppose if the company were to land in court they would try to produce this certificate to say, “We can’t be prosecuted because we’ve got a certificate.”  The effect of this is that these so-called experts have scared the pants off of medium and small enterprises. It is really a question of getting some sensible, reasonably priced legal advice to discern their risk areas and put in place basic safeguards. But the idea that the Serious Fraud Office is going after a ticket to Wimbledon or a bottle of Champagne is, and always has been, utter nonsense.  If, on the other hand, we saw a situation in which the entire board and their spouses of a major corporation were put up in London for a week and then given tickets for the men’s finals at Wimbledon with a couple of banquets before, during and afterwards, then that would be very worrying. Throw in first-class airfare and that would become extremely worrying.  But the key to all this in relation to bribery investigations and whether or not we are interested in them has to do with value and importance but also timing, the motive and the effect of it — was it done at a time when some enormously important decision was going down with a view to influencing it? This is fairly common sense; we use a reasonable approach.

FM: Will companies that self-report escape criminal proceedings?

DG: My predecessor had guidance on self-reporting, in which though it did not say it in so many words, was a very clear implication that if you self-reported as a company you would not be prosecuted, and there would be a civil disposal of what you had done. I disagree with that absolutely and fundamentally as a matter of principle because no prosecutor can ever give guarantees in advance. We have no idea what set of facts are going to come in through the door next. So, we have returned to the old guidance, which has always been there; we will apply the Code for the Crown Prosecutors. In other words, in each situation we would see if there’s enough evidence to prosecute. If there is, we consider if it’s in the public interest to prosecute this company. Now if a company were to come in and say, “Look, we have discovered this misconduct. We have conducted a full investigation; here are the results. We are willing for you to investigate it as you wish. We’ve gotten rid of all the people involved in this, we will hand over any illegal profits obtained as a result of this crime.” In such circumstances, one does struggle to think how it would be in the public interest to prosecute such a company. But it is a question of principle here. If you start — and I feel very strongly about this — if you start blurring the boundaries between what people involved in the criminal justice system do then it’s a dangerous path to follow. Prosecutors shouldn’t be doing deals or making offers in advance and defenders shouldn’t be too familiar with prosecutors. We need to stay where we are and within our own divisions. That’s my view.

FM: Could the deferred prosecution arrangement (DPA) be seen as a type of deal?

DG: Well, I think if you looked at the American model of DPAs you might think it could be described as a deal. We’ve adapted it for use in this country to have judicial involvement and scrutiny from the very beginning. The reason for that is to preserve the principle we have in this country, which they don’t have in the States, that sentencing is a matter for the judge. It’s not a matter for some cozy deal between prosecutor and defence.  If we believe a case is appropriate for a DPA we would go before a judge and say, “Judge, these are the charges which we would be minded to bring against these people. However, we think for these reasons it’s an appropriate case for a DPA. Do you agree?”  Now if the judge says, “No, I don’t I think this is a suitable case for a DPA,” we’ll carry on prosecuting. So, it is a transparent process. Ultimately, if a DPA did go ahead there would be a statement of facts read in court. Nothing would be hushed up.  You can’t really go wrong if you’re transparent. Things go wrong in the criminal justice system if anything appears to be opaque. You lose public confidence and you lose the confidence of the people involved.

Professor Ellen Podgor states, in pertinent part, in this New York Times opinion piece:

“If we intend to punish people, shouldn’t we reasonably expect that they knew their actions were crimes?  [...]  The accumulation of laws and rules has made it harder to assure that individuals who are punished understood that they were breaking the law.  When the law is clear, and an individual deliberately transgresses the law, punishment serves an important purpose.  Attributing criminality to business-related activities is not always so easy. The line between criminal activities and acceptable business judgments can be fuzzy. The conduct may not have a long biblical history of being offensive, and there may be no posted signs. [...]  In the corporate or financial world, multiple individuals may have a finger in a business decision — and some may be unaware that one has breached the law.  Add to this ambiguity in both the law and the corporate world that business-related decisions are often made by individuals who find themselves placed in a forest of regulations and criminal statutes with varying interpretations that even legal scholars can’t agree upon.  Overcriminalization presents unique issues in the white collar and business arena.  There are thousands of criminal statutes scattered throughout the federal code, and there are thousands of regulations with accompanying criminal penalties. The prosecutor’s toolbox also includes overly broad statutes like RICO, mail fraud, wire fraud and offenses like making false statements.   The bottom line is that the government’s power to indict has few restrictions, and overcriminalization provides federal prosecutors with super powers that they can easily abuse.  Congress’s continuous and haphazard adding of criminal statutes and regulations is making it more difficult to assure that individuals who are punished truly understand that they are breaking the law.”

*****

A good weekend to all.