The Pipeline

It's been a slow last few months in FCPA enforcement land.

Excluding individual pleas or enforcement actions, the last FCPA enforcement action against a corporation (non-Iraqi Oil for Food) was way back in July against Control Components, Inc. (see here).

We keep hearing about those 100+ FCPA investigations in the pipeline, so let's take a look at a few of those cases. In fact, its been a very active week on the FCPA disclosure front as the following companies' SEC filings evidence: RAE Systems, Inc.; Global Crossing Limited; Maxwell Technologies, Inc; and Innospec Inc.

Set forth below are the relevant disclosures.

All sorts of stuff in these disclosures which evidence that no industry is immune from FCPA scrutiny and no one country is FCPA risk free.

The companies involved are in the following industries: (i) a developer and manufacturer of rapidly deployable chemical and radiation detection monitors and multi-sensor networks; (ii) telecommunications solutions; (iii) energy storage and power delivery solutions; and (iv) specialty chemicals.

The conduct at issue took place in the following countries: China, Latin American countries, and Iraq.

The conduct at issue involved/arose because of M&A activity and use of foreign sales agents.

And for good measure one disclosure references a "tag-along" investigation in the U.K.

RAE Systems, Inc. (see here)

"The company is actively engaged in discussions with the Department of Justice and the Securities and Exchange Commission to settle the outstanding joint investigation into the company's alleged violations of the Foreign Corrupt Practices Act (FCPA). Although no assurances can be given as to whether the matter will settle or the amount of any settlement, the company booked an accrual of $3.5 million in the third quarter 2009 relating to this potential settlement."

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"During the quarter, to ensure our long-term success, we furthered initiatives to run the company more efficiently, particularly in China," said Robert Chen, president and CEO of RAE Systems. "Globally, we are prioritizing cost management, business controls and cash generation. For the nine months ended September 30, 2009, we increased our cash balance by $1.3 million to $16.2 million. In China, we installed a new management team; instituted mandatory, ongoing, FCPA compliance training; and began consolidating certain operations."

Global Crossing Limited (see here p. 24, 40)

"We are subject to the Foreign Corrupt Practices Act (“FCPA”), which generally prohibits companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business and/or other benefits. Although we have policies and procedures designed to ensure that the Company, its employees and agents comply with the FCPA, there is no assurance that such policies or procedures will work effectively all of the time or protect us against liability under the FCPA for actions taken by our agents, employees and intermediaries with respect to our business or any businesses that we acquire. We operate in a number of jurisdictions that pose a high risk of potential FCPA violations. In May 2007, we acquired Impsat, which was also subject to the FCPA prior to the acquisition. As described in “Additional Information Regarding Impsat” in Item 4 below, the facts developed in our review of certain payments made by Impsat employees to government officials and foreign government proceedings concerning Impsat personnel show that: first, although Impsat had policies in place prior to the May 9, 2007 acquisition relating to FCPA compliance and contracting with third-party agents, those policies were not implemented; second, Impsat’s documentation relating to third-party agents and certain government contracts was not sufficient; and third, the corporate environment at Impsat did not reflect a sufficient focus by senior management on promotion of, and compliance by the Company with, these policies. We conducted a review of certain agents, government contracts, and potential unauthorized payments in Latin American countries. That review is now substantially complete. We have also brought these matters to the attention of government authorities in the U.S, including the Securities and Exchange Commission, which has commenced a preliminary inquiry into the matter. We are cooperating with that inquiry which may result in legal action. At this point we are unable to predict the duration, scope or result of that inquiry. Failure to comply with the FCPA and other laws governing the conduct of business with government entities (including local laws) could lead to criminal and civil penalties and other remedial measures (including further changes or enhancements to our procedures, policies, and controls and potential personnel changes and/or disciplinary actions), any of which could have an adverse impact on our business, financial condition, results of operations and liquidity. Any investigation of any potential violations of the FCPA or other anti-corruption laws by U.S. or foreign authorities could have an adverse impact on our business, financial condition and results of operations. Furthermore, any remediation measures we take in response to such potential or alleged violations by Impsat or other acquired businesses of the FCPA or other anti-corruption laws, including any necessary changes or enhancements to our procedures, policies, and controls and potential personnel changes and/or disciplinary actions, may adversely impact our business, financial condition and results of operations." (see additional information on pg. 39 of the filing).

Maxwell Technologies, Inc. (see here)

"As reported previously, the company is conducting an internal review of payments made to an independent sales agent in China in connection with sales of high voltage capacitor products produced by Maxwell’s Swiss subsidiary. The company believes that the amount of the payments was immaterial in all periods involved. However, because the company’s international operations make it subject to the U.S. Foreign Corrupt Practices Act (FCPA), management is conducting further review to determine how these payments should be treated for FCPA purposes. The internal review has not been completed, and the company is voluntarily sharing information related to the review with the Securities and Exchange Commission and Department of Justice and has provided documents as requested by the SEC in connection with its review of this matter."

Innospec Inc. (see here)

"On February 7, 2006, the Securities and Exchange Commission (“SEC”) notified the Company that it had commenced an investigation to determine whether any violations of law had occurred in connection with certain transactions conducted by or involving the Company, including those conducted by its wholly owned indirect Swiss subsidiary, Alcor Chemie Vertriebs GmbH (“Alcor”), under the United Nations Oil for Food Program (“OFFP”) between June 1, 1999 and December 31, 2003. As part of its investigation, the SEC issued a subpoena requiring the production of certain documents, including documents relating to these transactions, by the Company and Alcor. Upon receipt of the SEC’s notification and initial subpoena, the Company undertook a review of its participation in the OFFP.

On October 10, 2007 and November 1, 2007, the SEC served two additional subpoenas on the Company. These additional subpoenas required the production of documents relating both to the OFFP, and also to transactions conducted by the Company or its subsidiaries with state owned or state controlled entities between June 1, 1999 and the date of such subpoenas, concerning the use of foreign agents and the possibility of extra-contractual payments to secure business with foreign governmental entities in the context of the U.S. Foreign Corrupt Practices Act (“FCPA”) and other laws. In a coordinated investigation, the Company was also notified by the U.S. Department of Justice (“DOJ”) regarding the possibility of violations by the Company or its subsidiaries arising under other laws stemming from matters covered by the SEC investigation as well as certain preliminary inquiries regarding compliance with anti-trust laws applicable to the U.S. and international tetra ethyl lead markets. The subjects into which the SEC and DOJ have inquired include areas that concern certain former and current executives of the Company, including our former CEO, who resigned on March 20, 2009. The Company, and its officers and directors are cooperating with the SEC and DOJ investigations.

On February 19, 2008, the Board of Directors of the Company formed a committee comprised of the chairmen of the Board, the Audit Committee and the Nominating and Governance Committee, all of whom were independent directors. (The chairman of the Nominating and Governance Committee retired as a director of the Company effective May 6, 2008, but his services were retained in an independent capacity as a member of the committee until October 1, 2009 when he resigned. Mr. Haubold did not resign as a result of any dispute or disagreement with the Company or the committee). External counsel to the Company, reporting to the committee has, on behalf of the committee, conducted and will continue to conduct an investigation into the circumstances giving rise to the SEC and DOJ investigations. External counsel reports directly to the committee and assists in connection with communications and interactions with the SEC and DOJ.

On March 5, 2008, a letter was received by the Company from the DOJ in which a request for a wider and more detailed range of documents was made. A further letter was received from the DOJ on June 13, 2009 which contained requests for information made by the U.S. Office of Foreign Assets Control (“OFAC”). In addition to the voluntary disclosure made in relation to the Bycosin disposal OFAC is inquiring into business the Company may have conducted in countries in respect of which there are U.S. laws and regulations that restrict trade.

On July 31, 2009, the DOJ issued a press release in which it disclosed the arrest of an individual and the unsealing of an August 7, 2008 indictment in the U.S. District Court for the District of Columbia against the individual for certain FCPA violations relating to his alleged participation in an eight-year conspiracy to defraud the OFFP and to bribe Iraqi government officials on behalf of a publicly traded U.S. chemical company in connection with the sale of a chemical additive used in the refining of leaded fuel. This individual is the Company’s former agent for Iraq and certain other markets and the Company understands the indictment to relate to the matters that are the subject of the OFFP and related FCPA investigations of the Company.

Separately, on May 21, 2008, the United Kingdom’s Serious Fraud Office (“SFO”) notified Innospec Limited, a wholly owned subsidiary of the Company, that it had commenced an investigation into certain contracts involving British companies under the OFFP. As part of this investigation, the SFO has asked the Company to produce documents in respect of the Company’s participation in the OFFP between January 1, 1996 and December 31, 2003. Following receipt of the SFO’s notice the Company has instructed external legal counsel to advise and assist in relation to the investigation and the Company and its directors and officers intend to cooperate with the SFO. On October 16, 2008, the Company was further notified that the scope of the SFO’s investigation would extend to matters relating to potential bribery involving overseas commercial agents that are already in the large part the subject of the ongoing DOJ and SEC investigations. This investigation by the SFO similarly includes areas that concern certain former and current executives of the Company.

The Company and its officers and directors intend to continue to cooperate with the SEC, DOJ and SFO.

The outcome of these investigations remains uncertain to the Company. Discussions with the SEC, DOJ and SFO are ongoing in an effort to resolve these investigations, but whether agreement can be reached, and on what terms, is uncertain. On the facts available to us we are currently unable to determine the amount, if any, of probable disgorgement, penalties and/or fines that we may be subject to. The amount of any disgorgements, penalties and/or fines that the Company could face depends on a number of eventual factors which are not currently known to the Company or have not yet been resolved with the relevant government authorities, including findings by relevant authorities regarding the amount, nature and scope of any improper payments, the amount of any pecuniary gain involved, the Company’s ability to pay, and the level of cooperation provided to government authorities during the investigations. For accounting purposes, based on a potential settlement range of $18.3 million to $63.4 million in connection with the ongoing discussions with government authorities, we have recorded in the third quarter of 2009 an $18.3 million accrual for potential global settlement of these investigations as required under U.S. GAAP."

The former agent referenced in Innospec's disclosure is presumably Ousama Naaman (see here).