Wednesday, September 30, 2009

North of the Border

We point the compass north in what has become "comparative law week" here at the blog and take a look at Canada's "FCPA-like" domestic statute - the Corruption of Foreign Public Officials Act ("CFPOA").

Saddle up, the Royal Canadian Mounted Police "have established a special unit dedicated to investigating international bribery and enforcing the CFPOA" according to a Canadian law firm which recently released a bulletin titled "Canada's Corruption of Foreign Public Officials Act: What You Need to Know and Why" (see here).

The bulletin is an informative read and "provides an introduction to the CFPOA, contrasts it with the anti-bribery provisions of the FCPA, and provides a brief update on recent developments in Canada."

According to the bulletin, an amendment to CFPOA was recently introduced to provide for extraterritorial jurisdiction much like 78dd-1(g) and 78dd-2(i) provide for U.S. issuers and domestic concerns.

The authors note that "[w]hile the CFPOA has been in force for a decade, it is only recently that it has been the subject of minimal enforcement efforts by Canadian authorities." However, the authors predict, "this is likely to change in the future."

Tuesday, September 29, 2009

An Update From Across the Pond

The U.S. is not the only country with an "FCPA-like" domestic statute. The United Kingdom has a similar law (actually a mix of several different statutes on the books for nearly one-hundred years - however, in March 2009, a new bill - the "Bribery Bill" was introduced in Parliament and is currently being debated).

As discussed in a July post (see here), the U.K.'s Serious Fraud Office ("SFO") (an enforcement agency similar to the U.S. DOJ) announced "the first prosecution brought in the U.K. against a company for overseas corruption."

The company - Mabey & Johnson Ltd. ("M&J") - a U.K. company that designs and manufacturers steel bridges used in more than 115 countries worldwide.

Last week, the SFO issued a press release announcing the details of M&J's £6.6 million sentence (see here).

The SFO also released two "prosecution opening statements" relating to (a) the company's conduct in Jamaica and Ghana; and (b) the company's breach of United Nations Oil for Food Regulations (see here and here).

To state the obvious, one enforcement action does not constitute a practice.

Subject to that qualification, I offer some comments about the SFO's released documents compared to what the DOJ and SEC typically release in an FCPA enforcement action (where indeed a common practice has developed).

Naming Names

Unlike a typical DOJ deferred prosecution, non-prosecution agreement or plea or SEC complaint, the SFO documents name names. Specifically identified in the documents are numerous "public officials" in Jamaica, Ghana, Angola, Madagascar, Mozambique, and Bangladesh (see pages 11, 25, 28, 32, 33, 35, and 38) alleged to have received improper payments from M&J (or its agents) to help secure company business.

The SFO documents also specifically identify the agents and their companies which were used by M&J to make certain of the improper payments (see pages 12, 22, 28, 32, 35, 37).

Is there value to "naming names," does it "punish" the foreign or public official recipient of the improper payment (given that the FCPA only punishes the bribe payor not the bribe recipient)? Does naming the agent effectively blacklist the individual/company and thus serve a useful public function for other companies doing business in that particular market?

All interesting questions to ponder. There is also an interesting historical FCPA angle as well. Many, including the Ford administration, were opposed to the FCPA as it now exists, opting instead for a disclosure approach on the theory, to use the famous Justice Brandeis quote that "sunshine is the best disinfectant."

Back to the SFO documents.

As referenced above, the applicable term used in the SFO documents is "public official" not "foreign official" as used in the FCPA. Do these terms means the same thing? All of the "public officials" identified in the SFO documents are government Ministers or Ambassadors (what I'll call core government officials).

There is no exception though, an exception relevant to the current debate over the FCPA's "foreign official" term and whether it should include employees of state-owned or state-controlled companies.

The Angolan "public officials" appear to be Directors of Empresa Nacional des Pontes, an "Angolan State owned entity."

Joint Venture Partners

Under the FCPA, conventional wisdom seems to hold that joint venture partners will be liable for improper payments made by other joint venture partners, particularly when the joint venture partners share revenues and profits of contracts secured through improper payments and particularly when the joint venture's board includes individuals from both companies. (see here for a discussion of this issue in connection with the recent Halliburton/KBR enforcement action).

Not so in the M&J matter.

The SFO documents reference a joint venture relationship between M&J and Kier International Ltd. ("Kier") in order to facilitate both the construction and engineering aspects of "Jamaica 1" (the contract allegedly secured through the bribe payments).

According to the SFO documents, M&J and Kier agreed that "overall revenue and profits from the JV with respect of Jamaica I would be divided 57% and 43% respectively." The documents further state that under the terms of the JV "a sponsor would have primary responsibility for representing the JV" and that "Kier was nominated to act as the sponsor." Further the documents indicate that "the supervisory board" of the JV comprised both M&J and Kier executives.

However, the documents evidence that the "SFO has investigated the relationship between Kier and M&J in respect of this contract" and "all the evidence currently available to the SFO" indicates that "there is no evidence that Kier [was] privy to these corrupt practices."

Will JV partners in the cross-hairs of a future FCPA enforcement action be citing to the SFO's decision as to Kier in the M&J enforcement action to argue that there is no basis for FCPA liability (whether anti-bribery or books and records of internal controls)? Perhaps so.


Despite these apparent differences between the M&J enforcement action and a "typical" FCPA enforcement action, there are some similarities and it is clear that the SFO is following DOJ's lead when it comes to "rewarding" voluntary disclosure (see pages 40-41 "the SFO have sought where appropriate to have regard to the model for corporate regulation adopted by the Department of Justice in the United States of America under the Foreign Corrupt Practices Act 1977.").

The SFO's stance in the M&J matter, in which it noted that M&J's internal investigation and subsequent voluntary disclosure were "meriting specific commendation" (see pg. 7) is consistent with the approach the SFO set forth in July when it released a memo titled "Approach of the Serious Fraud Office to Dealing with Overseas Corruption" (see here).


Finally, much like the DOJ, the SFO appears interested in charging individuals (not just corporations) for participating in improper payments. The SFO specifically noted that "a number of individuals are the subjects of investigation with regard to the corrupt business practices of M&J" (see pg. 5) and it explained that it did not "name certain directors, executives and employees of M&J at this stage because they may face trial in English Courts."

Again, to restate the obvious, one enforcement action does not constitute a practice. Yet when doing a comparative analysis of the FCPA with other FCPA-like statutes one has got to start "somewhere" and that "somewhere" now exists with release of the specific facts of the U.K.'s first prosecution against a company for overseas corruption."

Saturday, September 26, 2009

Welcome to the Club

Initial Public Offerings (IPO's) were back in the news this week. Leading the way was Shanda Games Ltd. By raising $1.04 billion, Shanda's IPO was the largest since April 2008.

Shanda is a Beijing, China based online computer game company and its listing is the latest example of a foreign issuer (frequently a Chinese company) electing to trade its shares (or a portion of its shares) on a U.S. Exchange.

By becoming an "issuer" Shanda becomes subject to the FCPA.

Presumably, Shanda had experienced securities counsel advising it on its listing and the consequences that flow from such a listing. If not, and if you are listening, welcome to the club Shanda.

Your potential FCPA exposure is not just limited to the books and records and internal control provisions. The FCPA's anti-bribery provisions also apply to you.

Don't take my word for it, listen to the Department of Justice.

In 2006, the Department of Justice announced an FCPA enforcement action against Statoil ASA, a Norwegian company, for making improper payments to Iranian foreign officials - the first time DOJ brought criminal FCPA charges against a non-U.S. company. (See here for the deferred prosecution agreement).

The U.S. prosecuting a Norwegian company for making improper payments to Iranian foreign officials ... how did that happen?

Statoil had shares traded on a U.S. exchange and was thus an "issuer" subject to the FCPA.

In announcing the settlement, the DOJ had this to say - “Although Statoil is a foreign issuer, the Foreign Corrupt Practices Act applies to foreign and domestic public companies alike, where the company’s stock trades on American exchanges" (see here).

And this - “This prosecution demonstrates the Justice Department’s commitment vigorously to enforce the FCPA against all international businesses whose conduct falls within its scope.”

The Statoil FCPA enforcement action is certainly not the only FCPA enforcement action against a foreign issuer. In fact, the largest FCPA enforcement action ever was settled in December 2008 involving Siemens AG, a German company (see here and here).

Despite these, and other, enforcement actions, there is still a common misperception that the FCPA is "the law that applies to only U.S. companies."

With the IPO market showing signs of life again, with foreign companies (like Shanda) increasingly turning to U.S. capital markets, and with many of these companies doing business in FCPA high-risk countries, the number of FCPA enforcement actions against foreign issuers is likely to increase.

Wednesday, September 23, 2009

If H.R. 2152 Were to Be Enacted ...

There is little in terms of substantive FCPA case law. Yet this much is clear - there is no private right of action under the FCPA - enforcement of the law is in the hands of the DOJ and the SEC (as to issuers).

However, Representative Ed Perlmutter (D-CO) would like to change that (at least a bit). In April, 2009, Perlumutter introduced H.R. 2152 - the Foreign Business Bribery Prohibition Act of 2009 (see here).

Big picture, under the proposed law, any "foreign concern" (defined to mean any person other than an issuer, domestic concern or U.S. person) that violates the FCPA's anti-bribery provisions would be liable to any issuer, domestic concern or U.S. person for damages caused by the FCPA violation. Under the proposed law, a plaintiff would need to prove that: (i) the "foreign concern" violated the FCPA's anti-bribery provisions; and (ii) the violation prevented the plaintiff from obtaining or retaining business and assisted the foreign concern in obtaining or retaining business.

In other words, if a U.S. company can prove that it lost business because a "foreign concern" gained that same business by violating the FCPA, the U.S. company could bring a lawsuit seeking damages. Under the proposed law, the damages would be the higher of the total amount of the contract or agreement that the "foreign concern" gained in obtaining or retaining the business or the total amount of the contract or agreement that the plaintiff failed to gain. To sweeten the pot, the proposed law requires treble damages along with attorneys fees and costs.

Certainly, lots to think about here.

But alas, with two foreign wars, government bailouts and debates about financial regulation, and now, the health care debate, H.R. 2152 remains buried in Congress. The last reported activity is from June 12, 2009 when the bill was reported to the House Subcommittee on Crime, Terrorism, and Homeland Security.

It's been a few months since I thought about H.R. 2152.

But I was reminded of the law and its potential application last night while reading an interesting front-page article in the New York Times titled "China Spreads Aid in Africa, With a Catch for Recipients" (see here).

The article talks about business activity by Chinese companies around the globe, and how, according to quoted sources, Chinese companies may be securing contracts through improper payments, kickbacks and the like.

A good portion of the article is about Nuctech Company Ltd. (a Beijing-based scanner company) and its questionable activity in Namibia. The article quotes the Vice President of Nuctech's "American rival, Rapiscan Systems."

I trust you are now thinking about the potential application of H.R. 2152 as well?

Let's go through the elements - "foreign concern" check, potential violation of the FCPA check, a domestic concern damaged by the "foreign concern's" violation check.

Before FCPA lawyers start dusting off their copy of the rules of civil procedure and daydreaming about H.R. 2152's promise of treble damages and attorney fees, H.R. 2152 needs to at least get "out of committee."

In any event, for those in favor of H.R. 2152, the article would seem to present a poster-child of sorts.

Monday, September 21, 2009

Understanding China FCPA Risk

Many thanks to Dan Harris over at China Law Blog for inviting "me over" to share my thoughts on China FCPA risk. My post can be found here.

Books and Records and Internal Controls Compliance ... The Importance of FCPA Goggles

A reader recently commented that most companies know "what to do" when it comes to FCPA anti-bribery compliance training, but that when it comes to FCPA books and records and internal controls compliance training most people "scratch their heads."

Below, I offer some thoughts on books and records and internal controls compliance training, but by no means does this cover the entire landscape.

I think the reader is correct in that most companies do in fact focus compliance efforts (if they have pro-active compliance efforts - see here) on the FCPA's anti-bribery provisions. The FCPA's other prong - the books and records and internal control provisions are usually mentioned (if at all) in passing.

An explanation for why likely has to do with the statute itself.

The anti-bribery provisions have specific elements tied to things we can all generally understand such as - things of value, foreign official, and obtain or retain business - and companies can easily tailor compliance training to those elements, or it is probably more accurate to say, DOJ and SEC's interpretations of those elements.

In contrast, the FCPA's book and records and internal control provisions are rather generic and have key terms such as "reasonable detail," "accurately and fairly," "sufficient," "reasonable assurances, and "general or specific authorization."

Tailoring compliance training to such general concepts can be difficult. Moreover, the books and records, and internal control provisions apply to issuers in ALL instances, not just those instances in which the company is doing business or seeking business abroad. Thus, it may be more difficult to frame books and records and internal control issues to training, because the provisions apply to everything an issuer does.

Against this backdrop, what works best I think is to view FCPA compliance as not just a task that company lawyers and selected key positions from an anti-bribery perspective (i.e. sales, marketing, business development) need to be concerned with, but rather a task that internal audit and finance should also be concerned with and actively involved in as well.

This means that internal audit and finance personnel must be specifically trained to approach their specific job functions not only in a traditional way, but also with "FCPA goggles" on.

It is clear from recent FCPA enforcement actions that the SEC expects much more from non-legal personnel when it comes to FCPA compliance, including the ability to spot FCPA issues and display a high degree of (I'll call it) intellectual curiosity as to certain issues.

For instance, in the 2007 York matter, the SEC alleged in its civil complaint (see here at para 51) that (i) "York International's management had the ability to review or cause internal audit to review [the problematic contracts] and, had this been done, it would have been immediately apparant that the consultancy agreements were a sham; and (ii) it was "clear that local finance personnel did not provide an independent internal control function, but rather acquiesced in questionable practices and documentation without critical review."

Again, because the FCPA's books and records and internal control provisions are rather generic, I think a "best practice" (not only for issuers, but for any company) is to specifically train internal audit and finance personnel to view their job with "FCPA goggles" on.

This means that internal audit and finance personnel should:

(1) Understand the broad interpretations given to the anything of value, foreign official, and obtain or retain business elements of anti-bribery violation so that they clearly understand that conduct other than a "suitcase full of cash to a government official to get a government contract" is problematic. For instance,
excessive travel and marketing expenses, payment of scholarships, etc. can be things of value. Internal audit and finance personnel also need to understand that employees of state-owned or state-controlled companies are considered "foreign officials" by DOJ/SEC (even if that interpretation has not been tested or challenged). This means that things a company does to "wine and dine" its purely private customers can become problematic when state-owned or state-controlled customers receive the same treatment. In terms of state-owned or state-controlled customers, it is also a good idea for a company to maintain a roster of such entities so that heightened review will be triggered when any corporate personnel deals with such customers or prospective customers. Internal audit and finance personnel also need to understand that payments which result in a company securing a foreign license, permit, or certification can satisfy the "obtain or retain business" element of an anti-bribery violation on the theory that such payments help the company, in the general sense, obtain or retain business.

(2) Pay particular attention to employee reimbursement requests and think about FCPA issues in connection with these requests. For instance, if a specific sales and marketing employee is the designated "wine and dine" person, is there any heightened scrutiny of that individuals reimbursement requests?

(3) Be aware of the FCPA's third-party payment provisions and be able to spot (and follow-up on) the following issues relevant to engaging and supervising a foreign agent or representative: payments made to personal (rather than company) bank accounts; payments to off-shore bank accounts; payments which could be made in one lump sum but are split up to avoid detection; and payments made to an account in a country different than where the service provider is located. When utilizing third parties, commission payments are obviously a big FCPA risk. Thus, internal audit and finance personnel need to ask what steps the company has taken to assure itself that the commission payments are reasonable. Moreover, such personnel should specifically look for evidence that the third party actually provided legitimate value-added services before payment was made by the company.

(4) Figure out who within the company, the relevant business unit, etc. has the authority to authorize large payments and make sure those authorizations are scrutinized. Because of title, prestige and in some countries - gender - certain individuals are subjected to less oversight and scrutiny when it comes to authorizing payments. If any such trends or patterns emerge within a company as to this issue, internal audit and finance personnel must be diligent in understanding why.

(5)Pay particular attention to the following accounts (all of which, per recent FCPA enforcement actions, were used to conceal improper payments) - "additional assessments," "extra costs," "extraordinary expenses," "urgent processing," "urgent dispatch," "customs processing," "importation advances," . These accounts, and all other accounts described in a vague or ambiguous manner, should be subject to heightened scrutiny by internal audit and finance personnel.

Back to the original issue raised by the reader as to how best to offer FCPA books and records, and internal controls compliance training. Again, because the books and records and internal control provisions are so generic, I think the "best practice" is to couple such training with anti-bribery training and to make sure that internal audit and finance personnel have the FCPA tools necessary to properly execute their jobs.

Internal audit and finance personnel clearly have an FCPA compliance role to play, and the SEC is clearly expecting them to play that role. However, internal audit and finance personnel can only raise FCPA issues if they first know what FCPA issues to look for. Providing internal audit and finance personnel with a good pair of "FCPA goggles" is a good way to achieve books and records, and internal controls compliance.

Thursday, September 17, 2009

The Enforcement Officials Speak

Over at the wrageblog (see here), Alexandra Wrage, President of Trace International Inc., a leading non-profit membership association focused on anti-bribery compliance, has a good summary post of comments made by Mark Mendelsohn (DOJ's top FCPA prosecutor) and others at a recent FCPA conference.

Given that the enforcement agencies' untested and unchallenged interpretation of the "foreign official" element is one of my favorite FCPA issues, I was happy to see that Mendelsohn, in response to a question, apparently acknowledged that there can be difficult assessments of who qualifies as a "foreign official" under the FCPA.

Looks like FCPA trials are over for the year, but I'm guessing that there will be forthcoming appeals from the three FCPA verdicts reached this summer.

Monday, September 14, 2009

The Results Are In ...

A couple of survey/poll results that may be of interest to FCPA followers.

The first survey is courtesy of Deloitte which obtained over 1,000 on-line survey responses from business professionals in various industries in connection with a recent webcast titled "Global Anticorruption: Risks and Strategies for Today's Global Enterprise."

Results of interest:

Only 31% of respondents indicated that their company had in place a "comprehensive FCPA compliance program." When asked why some companies might not have a comprehensive FCPA compliance program, 23% of respondents cited an "unawareness of the severity and consequences of FCPA violations." Clearly more people need to read this blog (and others) and follow FCPA news!

Only 32% of respondents indicated that their company addresses FCPA risks "proactively."

Respondents are most nervous about FCPA issues arising from: foreign subsidiaries (35%), agent/consultant relationships (28%) and joint venture/strategic alliances (18%).

And finally, 40% of respondents either said "no" or "don't know" to the question of whether the increased FCPA enforcement activity will deter future FCPA violations. You have to wonder what goes through the minds of Mark Mendelsohn and others at DOJ when they read a response like that?

The second survey (see here to download) was sponsored by Integrity Interactive Corporation and Compliance Week. The survey (which covers a wide range of compliance and ethics topics - not just the FCPA) collected approximately 230 responses from executives at global public companies and large private entities. Pgs. 38-39 of the survey contain FCPA data and indicate that executives are most concerned about payments to third parties, followed by inappropriate gifts and entertainment, direct bribes, company-financed "business trips" and unlawful political or charitable contributions.

Verdict In ... Green's Found Guilty

The third FCPA trial of the summer has concluded and Gerald and Patricia Green (two Los Angeles area film executives) have been found guilty by a federal jury of conspiracy to violate the FCPA, substantive FCPA violations, and other charges (see here for the DOJ New Release).

According to the DOJ release, evidence introduced at trial showed that "beginning in 2002 and continuing into 2007, the Greens conspired with others to bribe the former governor of the [Tourism Authority of Thailand] in order to get lucrative film festival contracts as well as other TAT contracts." According to the release, the evidence also established that the Green's attempted to disguise the bribe payments by labeling them "sale commissions" and by making the payments "for the benefit of the former governor through the foreign bank accounts of intermediaries, including bank accounts in the name of the former governor's daughter and friend."

Reacting to the verdict, Assistant Attorney General Breuer stated that the DOJ "will not waiver in its fight against corruption, whether perpetrated within our borders or abroad" and that the FCPA "is a powerful tool that the [DOJ] will continue to use in an effort to stop individuals like the Greens who seek to further their own business interests through bribes paid to foreign officials."

The Greens are to be sentenced in December and the conspiracy and FCPA charges each carry a maximum penalty of five years in prison.

As mentioned, the Green trial was the third FCPA trial of the summer.

The other two were the Bourke matter (see here) and the Jefferson matter (see here).

Leading up to these trials, the FCPA bar and the enforcement officials themselves, predicted that one result of these trials would be greater clarity of some of the FCPA's murky elements.

While the verdicts were, on balance, pro-DOJ verdicts, the verdicts reached in these trials were not exactly uniform.

Bourke was convicted of conspiracy to violate the FCPA (the case did not proceed to trial on a substantive FCPA violation).

Jefferson was also convicted of conspiracy (although it is not entirely clear if the jury found him guilty of conspiracy to violate the FCPA). However, Jefferson was found not guilty on the substantive FCPA charge (the charge predicated on the "cash in the freezer" allegations).

Have these trials provided any greater clarity as to various FCPA elements as widely predicted?

I think it is far to say that as a result of the Bourke verdict (even though it was not a substantive FCPA trial), the FCPA's knowledge standard has never been broader, and can be satisfied even when an investor, like Bourke, does not actually pay a bribe, but is merely aware that others may be making bribe payments in a widely viewed corrupt country for the potential benefit of an entity in which he is an investor (see here and here).

Beyond this, I'm not sure that any further clarity as to substantive FCPA elements has resulted from these trials, but I would be interested to hear what others have to say.

Will these trials and the largely pro-DOJ verdicts send a "proceed with caution" message to any individual or corporation faced with an FCPA enforcement action and stiffle legitimate defense theories based on the FCPA's elements?

I expect so, yet that is indeed unfortunate as a significant portion of FCPA enforcements are based largely on DOJ/SEC's untested and unchallenged interpretations of the law.

Thursday, September 10, 2009

"Foreign Officials" in Puerto Rico?

While reading the DOJ release today regarding the guilty plea of Dr. Candido Negron Mella (see here), I was reminded of a conversation I had a few years back with a former law firm colleague during which we scratched our heads wondering if a Puerto Rico government official could be a "foreign official" under the FCPA. Because the statute defines "foreign official" as being an "officer or employee of a foreign government ..." we surmised that the answer was no, but agreed that the question was nevertheless an interesting issue to ponder.

The Mella enforcement action would seem to bear all the hallmarks of an FCPA enforcement action. As set forth in the release, Mella pleaded guilty to conspiracy to violate the Federal Election Campaign Act for "his participation in a corruption scheme involving the 2000 Resident Commissioner campaign of a former governor of Puerto Rico." The release notes that "Mella was a partner in a company that had a professional relationship with a large Medicaid dental provider in the United States that was interested in obtaining a direct dental agreement with the Commonwealth of Puerto Rico." According to the release, "[i]n order to assist that provider in obtaining a contract in Puerto Rico" Mella agreed to raise contributions for the campaign and he admitted that he hoped that contributing to the campaign "would enable him to obtain access to the government of Puerto Rico to promote his business interests."

All the hallmarks of an FCPA enforcement action that is ... except a foreign official. At least that is my conclusion from reading the Mella enforcement action and the lack of FCPA charges.

I ponder no more.

War of Words in Ecuador

Chevron has been involved in a long, mammoth legal battle in Ecuador involving allegations of environmental contamination at oil fields in the Amazon. Much has been written about the case, which began over 15 years ago and mega money is at issue.

Both sides and their supporters have been pro-active in making their respective positions known (see here and here).

This long, messy battle now includes an FCPA component.

Last week, Chevron went on the offensive offering up what it said is videotaped evidence of a bribery scheme connected to the $27 billion case, including evidence implicating the presiding judge in the matter. (See here, here and here). A few days later, Ecuador's Attorney General (Washington Pesantez) requested that the judge step aside, which he did (see here).

Yesterday, AG Pesantez went on the offensive calling on U.S. authorities to investigate Chevron for potential FCPA violations (see here and here)

Chevron is no stranger to FCPA scrutiny. In 2007, it agreed to pay $30 million in combined fines and penalties to settle enforcement actions relating to its procurement of Iraqi oil under the United Nations Oil for Food Program (see here and here).

This long, messy legal battle is getting more murky by the day.

Friday, September 4, 2009

Corruption in China

Consider the feature story in today's NY Times Business Section titled "The Corruptibles" (in the print edition) (see here) for your long-weekend reading pile.

Among other interesting points, writer David Barboza notes that the "Chinese government has more than 1,200 laws, rules and directives against corruption" and that even with selective enforcement of these laws about "150,000 officials [are] being punished every year for bribery, corruption and other offenses."

The cost of such conduct? According to a cited report, approximately 3% of China's gross domestic product.

Query whether employees of state-owned or state controlled companies are considered government / public officials under any of these various laws, rules or directives applicable to such office holders (as opposed to say commercial bribery laws). If anyone has insight into this issue, please do share.

Thursday, September 3, 2009

FCPA Violations Can Occur Even in Low-Risk Countries

The Department of Justice announced today (see here) that Leo Winston Smith pleaded guilty to conspiracy to violate the FCPA. According to the plea agreement, Smith (the former Director of Sales and Marketing for Pacific Consolidated Industries), along with Martin Eric self (a partial owner and former president of the company), created a sham marketing agreement with a relative of a United Kingdom Ministry of Defense official to facilitate the payment of approximately $70,000 to the official in exchange for Pacific Consolidated receiving contracts.

In May 2008, Self pleaded guilty to violating the FCPA for his role in the scheme and he is currently serving a probation sentence (see here). The DOJ release notes that the U.K. official pleaded guilty in the U.K. to receiving the bribes and he was sentenced to two years in prison.

FCPA violations in the U.K. - such things only happen in places like China and Nigeria right?


Companies need to be diligent about FCPA compliance no matter where they do business, not just traditional FCPA high-risk countries.

In announcing the plea, Assistant Attorney General Lanny Breuer warned, "[b]ribery cannot be viewed as standard operating procedure when representatives from U.S. companies seek contracts abroad," and a FBI official warned "[t]he FBI, with its partners, will continue to actively search for - and counter - these corrupting influences."

Smith is to be sentenced this December.

Benchmarking FCPA Compliance

Over at the White Collar Crime Prof Blog (see here), Professor Ellen Podgor has posted her essay titled "Educating Compliance" (see here) in which she argues that the U.S. government should more actively participate in "promoting compliance with the law."

In discussing some examples of where the government does pro-actively educate compliance with the law, Profesor Podgor refers to the DOJ's Lay-Person's Guide to the FCPA (see here) and the DOJ's Opinion Procedure Regulations (see here).

While perhaps lacking the "pro-active" label Professor Podgor advocates, an additional resource for companies seeking guidance on FCPA "best practices" is the actual FCPA non-prosecution and deferred prosecution agreements themselves. More often than that, these agreements will contain an appendix that contains the minimum elements of an FCPA compliance program that the DOJ has "signed off on" as part of the settlement process.

Reviewing these agreements, one will find, virtually verbatim, the same elements. For instance, see the Novo Nordisk agreement (here - pgs. 19-21), the Fiat agreement (here pgs. 34-36) and the Faro Technologies agreement (here pgs. 14-16).

While these minimum elements are not the "be-all and end-all" of FCPA compliance, and while any FCPA corporate compliance policy should be specifically calibrated to a company's risk profile, these elements consistently included by DOJ in resolution agreements are certainly a good initial benchmark for any company's FCPA compliance policies and procedures.