Step Up to the Podium Friday

Today's post includes FCPA excerpts from various speeches/comments made by enforcement officials over the past couple of days.

Stepping to the podium will be Assistant Attorney General Lanny Breuer; Mark Mendelsohn - Deputy Chief of the DOJ Fraud Section; and Cheryl Scarboro - the head of the SEC's newly formed FCPA unit.

Lanny Breuer

Breuer spoke at the ABA National Institute on White Collar Crime in Miami. See here for his comments.

As to the FCPA, here is what Breuer had to say.

"... As I’m sure many of you are aware, in a recent FCPA investigation, the Criminal Division’s Fraud Section used undercover law enforcement techniques to uncover what we allege to be widespread fraud and corruption. As a result, 22 executives and employees of companies in the military and law enforcement products industry were indicted for their involvement in schemes to bribe foreign government officials. This investigation involved the most expansive use ever of undercover techniques to uncover FCPA violations."

Note - per the DOJ, there was no actual involvement by any real "foreign government official." This dynamic raises some legal issues - see here.

Back to Breuer's comments.

"Let me say a few more words about our very robust FCPA program, because it, in many ways, typifies how we are approaching crime in corporate America."

"The FCPA investigation I just referenced is the largest single prosecution of individuals in the history of DOJ’s enforcement of the FCPA. It thus vividly illustrates one cornerstone of our FCPA enforcement policy: the aggressive prosecution of individuals. Put simply, the prospect of significant prison sentences for individuals should make clear to every corporate executive, every board member, and every sales agent that we will seek to hold you personally accountable for FCPA violations. As we focus on the prosecution of individuals, we will not shy away from tough prosecutions, and we will not shy away from trials. We are ready, willing, and able to try FCPA cases in any district in the country—as we demonstrated with our three FCPA trial victories just last year."
Note - In one of the trials, William Jefferson was acquitted of FCPA substantive charges. He was convicted of, among things, conspiracy, a verdict that may or may not have, included conspiracy to violate the FCPA. See here. In another trial, Frederic Bourke was convicted of conspiracy to violate the FCPA. He was sentenced to 366 days in prison. At sentencing, Judge Shira Scheindin said - “After years of supervising this case, it’s still not entirely clear to me whether Mr. Bourke is a victim or a crook or a little bit of both.” See here.

Back to Breuer's comments.

"To be sure, we are not focusing on individuals to the exclusion of corporations. We will continue to insist on corporate guilty pleas or to bring criminal charges against corporations in appropriate cases – when the criminal conduct is egregious, pervasive and systemic, or when the corporation fails to implement compliance reforms, changes to its corporate culture, and undertake other measures designed to prevent a recurrence of the criminal conduct. We will continue to insist on appropriately stiff corporate fines, applying a consistent, principled approach that considers the facts and circumstances within the Department’s established framework and that is guided by the Sentencing Guidelines in arriving at an appropriate sanction."

"I also want to assure you that the Department’s commitment to meaningfully reward voluntary disclosures and full and complete corporate cooperation will continue to be honored in both letter and spirit. I know that many of you often grapple with the difficult question of whether to advise your client to make a voluntary disclosure. I strongly urge any corporation that discovers an FCPA violation – or any other criminal violation, for that matter – to seriously consider making a voluntary disclosure and to cooperate with the Department. The Sentencing Guidelines and the Principles of Federal Prosecution of Business Organizations obviously encourage such conduct, and your clients will receive meaningful credit for that disclosure and cooperation."

Mark Mendelsohn

Mendelsohn recently spoke at the Dow Jones Global Ethics Summit in New York City. DOJ has not released a transcript of his remarks, but a collection of media sources covered his comments.

See here, here, and here.

As to the Africa Sting case, Main Justice reports the following from Mendelsohn:

That the government is "in a strong position because of the massive volumes of information it has collected. “That should give you an idea of the strength of our case,” he said. Specifically, Mendelsohn said that a simple meeting in a New York hotel to discuss a bribery scheme would fall under the FCPA, even if the rest of the scheme took place entirely outside the U.S. Money and, potentially, e-mails, electronically transferred through the U.S. could bring a bribery scheme under the jurisdiction of the FCPA, he said."

Cheryl Scarboro

Scarboro, an SEC veteran, was recently appointed to lead the SEC's new FCPA unit (see here). Jesse Sunenblick at Main Justice recently sat down with Scarboro for a Q&A (see here).

As to the new FCPA unit Scarboro said:

"... [T]he new unit will give us the resources and the ability to do even more going forward. People on the ground will be focusing exclusively [on FCPA investigations], making them smarter about industry practices problem areas. We will be able to leverage resources and leads we get from others. There are ongoing investigations exactly like oil for food: not just concerning one company, but looking beyond into widespread practice in particular areas. I would expect filed cases in the short term, in a matter of months. These cases will be an illustration of what we’ve already been doing. But the new unit will allow us to do even more of it. We have areas and industries we are focusing on—pharmaceutical is one."

Tetraethyl Lead v. Fighter Jets

The folks at Innospec Inc. may be wishing it sold things like fighter jets in places like Saudi Arabia than what it actually sells - things like Tetraethyl Lead in places like Indonesia. When bribery and corruption take place in the former instance, there is no exposure for bribery and corruption (see here), but when it takes place in the later instance, there is exposure for bribery and corruption.
Today, the U.K. SFO announced (here) that "Innospec Limited, a UK subsidiary of Innospec Inc., a U.S. NASDAQ listed company, has appeared before [a City of Westminster Magistrates' Court] in response to a summons from the court on application from the Serious Fraud Office alleging conspiracy to corrupt ...". According to the release, the case "concerns bribery on a significant scale by Innospec and its agents in Indonesia" and the charges relate to Innospec Limited conspiring "with certain of its directors, executives, employees and agents to give or agree to give corrupt payments ... to public officials and other agents of the Government of Indonesia as inducements to secure, or as rewards for having secured, contracts from the Government of Indonesia for the supply of Tetraethyl Lead ..." According to the release, "details of the alleged offense" will be available on March 4, 2010.

This is perhaps just the first of many hammers to drop on Innospec. See here for its recent disclosure.

A Wide Net

The seemingly minor case involving Telecommunications D'Haiti ("Haiti Teleco") keeps on giving.

The DOJ recently announced (here) that Jean Fourcand pleaded guilty "to engaging in monetary transactions involving property derived from a scheme to bribe former Haitian government officials." According to the criminal information (here) Fourcand "received funds ($18,500) originating from U.S. international telecommunications companies for the benefit of Robert Antoine from in or around November 2001, until in or around August 2002." The information charges that the "funds Fourcand received were bribery payments" to Antoine (an alleged "foreign official" in the eyes of the DOJ because he worked for state-owned Haiti Teleco) and that the "funds were later used by Fourcand in a real estate transaction that benefited Antoine."

The Fourcand plea is the most recent news in a case in which the DOJ has cast a wide net.

In May 2009, the DOJ announced (here) that Juan Diaz and Antonio Perez pleaded guilty to a one-count criminal information charging conspiracy to violate the FCPA's antibribery provisions and money laundering laws for their roles in the same improper payment scheme involving the same Haiti Teleco employees. According to the Diaz criminal information (here), Diaz served as an intermediary for various companies in their business dealings with Haiti Teleco and knowingly conspired and agreed with others to make improper payments to the Haiti Teleco officials. According to the Perez criminal information (here), Perez, a controller for one of the companies seeking business with Haiti Teleco, also knowingly conspired and agreed with others to make improper payments to the Haiti Teleco officials.

In December 2009, the DOJ announced (here) the unsealing of an indictment (here) against Joel Esquenazi, Carlos Rodriguez and Marguerite Grandison charging (among other things) conspiracy to violate the FCPA and substantive FCPA violations for their roles in the same scheme to bribe the same Haiti Teleco employees. As noted in a prior post on this case (here), Esquenazi and Rodriguez are former executives of a privately owned telecommunications company and Grandison served as an intermediary for various companies in their business dealings with Haiti Teleco.

As also noted in the prior post, the same indictment also accomplished what is believed to be an "FCPA" first in that the alleged "foreign officials" Robert Antoine and Jean Rene Duperval were also charged. Because the FCPA only covers "bribe-payers" not "bribe-takers" Antoine and Duperval were charged with money laundering conspiracy and/or substantive money laundering.

The DOJ has clearly cast a wide net in this case and eight individuals, including company employees, intermediaries, and "foreign officials," have been caught in the net.

Another point to consider is that this case involves a whole lot of fishing based on an untested legal theory that has never been accepted by a court - that being employees of state-owned or state-controlled enterprises are "foreign officials" under the FCPA. For numerous prior posts on this issue (see here and here and here).

If you are new to the FCPA you might be wondering why the DOJ comes out with guns-a-blazing in a case like this, yet in a case that involves seemingly clear-cut instances of corporate bribery and corruption (per the government's own evidence) the DOJ agrees to resolve such a case without FCPA antibribery charges. See here.

Well, don't feel bad, even those of us who have followed the FCPA for years wonder the same thing from time to time.

Understanding Issuers

The FCPA (both the antibribery provisions and the books and records and internal control provisions) apply to issuers.

That was easy.

What is not so easy is figuring out just which companies are issuers. The FCPA defines an issuer as when a company "has a class of securities registered" with the SEC pursuant to the securities laws or when a company is "required to file reports" with the SEC pursuant to the securities laws.

These terms can be confusing, particularly when talking about non-U.S. based companies.

In connection with both the BAE and Technip matters, there was some mention of a potential SEC angle despite the fact that neither company currently has shares traded on a U.S. exchange.

Miller & Chevalier's release in connection with the BAE matter (here) states:

"The U.S. pleadings detail significant issues with BAE’s compliance program and internal controls, yet the pleadings did not allege substantive violations of the FCPA’s accounting provisions, and the Securities and Exchange Commission (“SEC”) has yet to bring an action against BAE. The absence of SEC charges may reflect a lack of SEC jurisdiction because BAE was not subject to the registration and reporting requirements of the Securities and Exchange Act during the relevant time period, which is required for FCPA accounting provision jurisdiction. According to press accounts, however, the SEC may have investigated BAE in connection with the al-Yamamah arms sale. The status of this possible investigation remains unclear."

Technip's release (here) speaks of both the DOJ and SEC involvement in resolution of that matter.

Enter James Tillen (here), one of the co-authors of the Miller & Chevalier piece, to help explain SEC jurisdiction in these two similar, yet different matters.

Here is what he had to say.

"We specifically note in the Client Alert that the absence of an SEC resolution was likely due to the fact that the SEC did not have jurisdiction: 'The absence of SEC charges may reflect a lack of SEC jurisdiction because BAE was not subject to the registration and reporting requirements of the Securities and Exchange Act during the relevant time period, which is required for FCPA accounting provision jurisdiction.' Press accounts reported that the SEC was investigating at some point so it was worth raising the question of why no SEC resolution (especially since the DOJ effectively brought an internal controls case).

I looked quite closely at the issue of whether BAE was an issuer and concluded the following:

The definition of issuer includes any entity “which has a class of securities registered pursuant to” Section 12(g) of the Securities Exchange Act of 1934 or “which is required to file reports under” Section 15(d) of the Securities Exchange Act. 15 U.S.C. §§ 78dd-1(a), 78c(a)(8), 781, 78o(d). During the relevant time period, BAE Systems plc’s ADRs were sold in the United States Over The Counter (“OTC”), and not on any national securities exchanges, such as the NYSE, which require registration with the SEC. In fact, BAE has filed for an exemption from registration under Section 12(g) of the Exchange Act since at least 2002. See List of Foreign Issuers That Have Submitted Information Under the Exemption Relating to Certain Foreign Securities, SEC Release No. 34-45855 (May 1, 2002) (BAE listed as British Aerospace plc), SEC Release No. 34-49846 (June 10, 2004), and SEC Release No. 34-51893 (June 28, 2005). Pursuant to this exemption, BAE must provide information to the SEC on a yearly basis by completing Form F-6. See Rule 12g3-2. However, BAE is exempt from the annual and other periodic reports under Section 15(d) of the Act. See 17 C.F.R. § 240.15d-3. Based on these considerations, it would appear that BAE is not subject to the registration and reporting requirements of the Securities Exchange Act and therefore not an “issuer” for purposes of FCPA jurisdiction."

In contrast, Tillen stated that Technip "had American Depository Shares listed on NYSE from at least 2001 until 2007. Thereafter, it delisted (see here and here) and now only trades on the OTC (over-the-counter) market. When it was listed, Technip was an 'issuer' for purposes of the FCPA."

*****

Thanks for the explanation James.

As my mentor was fond of saying ... "at least now I am confused on a higher level."

Friday Roundup

Some FCPA news to pass along on this Friday.

SFO Defends BAE Settlement

Richard Alderman, the Director of the U.K. Serious Fraud Office ("SFO") recently defended the SFO settlement with BAE (see here).

Among other things, Alderman argued that any suggestion BAE "got off lightly" ignores "London's contribution in enabling the U.S. to impose a $400 million fine."

Point taken.

Alderman then says that the DOJ "would not have achieved what they achieved without [the SFO] and [the SFO] would not have achieved what [the SFO] achieved without [the DOJ]."

Point not taken.

What actually did the DOJ and SFO achieve in the BAE matter? What is achieved when a company settles a case invovling allegations of worldwide bribery, per the allegations in the public documents, WITHOUT being held accountable bribery?

What is achieved when you charge BAE's agent (presumably based on evidence that the following did occur) for "conspiracy to corrupt" and for "conspiring with others to give or agree to give corrupt payments [...] to unknown officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc" and then a few days later withdraw the charges and state "[t]his decision brings to an end the SFO's investigations into BAE's defence contracts."

As to this issue, Alderman stated that "the public interet lay in drawing a line under the whole investigation."

The article notes that "two campaigning groups said they would launch a legal challenge to Mr. Alderman's decision, saying it failed to reflect the scale and scope of the bribery allegations relating to BAE's network of hundreds of agents on four continents." If anyone knows who these groups are, or the legal framework (including standing) under U.K. law to allow such a challenge, please do share.

For prior posts on BAE, includng the DOJ's non-bribery, bribery allegations see here.

Alderman did also suggest that additional joints DOJ/SEC settlements are being negotiated.

The Pipes May Soon Burst

Ocassionaly, I have covered "cases" reportedly in the FCPA pipeline (see here). Set forth below is some "pre-news" about some coming attractions.

Given the above, it seems fitting to start with KBR, Inc.

KBR, Inc.

Here's what Halliburton had to say earlier this week regarding its exposure via M.W. Kellogg / KBR for the SFO piece of the investigation into Bonney Island (Nigeria)(pgs. 35-36, 63-64). For a prior post see here.

Pride International Inc.

Earlier this week, Pride disclosed (here) that:

"it has accrued $56.2 million in the fourth quarter of 2009 in anticipation of a possible resolution with the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) of potential liability under the U.S. Foreign Corrupt Practices Act. {...] The accrual in the fourth quarter 2009 represents the company's best estimate of potential fines, penalties and disgorgement related to settlement of the matter with the DOJ and SEC. The monetary sanctions ultimately paid by the company to resolve these issues, whether imposed on the company or agreed to by settlement, may exceed the amount of the accrual."

For prior posts about Pride see here.

Innospec, Inc.

Here is what Innospec had to say about its on-going FCPA matter:

""We have made substantial progress, but not yet completed, negotiations of final settlements of the Oil for Food Program and FCPA investigations, in either the U.S. or United Kingdom. However, we have charged a further $21.9 million in the quarter, based on the status of ongoing discussions, to bring the total amount accrued to $40.2 million. The Company will make no further comments on the ongoing proceedings."

Alcatel-Lucent

Alcatel-Lucent recently provided (here) details (see pg. 112) on its FCPA (and other) exposure concerning conduct in Costa Rica and other places. In pertinent part the company stated:

"As previously disclosed in its public filings, Alcatel-Lucent has engaged in settlement discussions with the DOJ and the SEC with regard to the ongoing FCPA investigations. These discussions have resulted in December 2009 in agreements in principle with the staffs of each of the agencies. There can be no assurances, however, that final agreements will be reached with the agencies or accepted in court. If finalized, the agreements would relate to alleged violations of the FCPA involving several countries, including Costa Rica, Taiwan, and Kenya. Under the agreement in principle with the SEC, Alcatel-Lucent would enter into a consent decree under which Alcatel-Lucent would neither admit nor deny violations of the antibribery, internal controls and books and records provisions of the FCPA and would be enjoined from future violations of U.S. securities laws, pay U.S.
$45.4 million in disgorgement of profits and prejudgment interest and agree to a three-year French anticorruption compliance monitor to evaluate in accordance with the provisions of the consent decree (unless any specific provision therein is expressly determined by the French Ministry of Justice to violate French law)
the effectiveness of Alcatel-Lucent's internal controls, record-keeping and financial reporting policies and procedures. Under the agreement in principle with the DOJ, Alcatel-Lucent would enter into a three-year deferred prosecution agreement (DPA), charging Alcatel-Lucent with violations of the internal controls and
books and records provisions of the FCPA, and Alcatel-Lucent would pay a total criminal fine of U.S. $ 92 million—payable in four installments over the course of three years. In addition, three Alcatel-Lucent subsidiaries—Alcatel-Lucent France, Alcatel-Lucent Trade and Alcatel Centroamerica—would each plead guilty to
violations of the FCPA’s antibribery, books and records and internal accounting controls provisions. The agreement with the DOJ would also contain provisions relating to a three-year French anticorruption compliance monitor. If Alcatel-Lucent fully complies with the terms of the DPA, the DOJ would dismiss the charges upon
conclusion of the three-year term."

For the trials and tribulations on both sides of this corporate hyphen see here and here.

Thirsty for more? OK, here is the last one.

Maxwell Technologies Inc.

Here is what the company's CEO had to say about its $9.3 million accural for a potential FCPA settlement:

"Unfortunately, all this good news is tempered by the GAAP required $9.3 million accrual we recorded in Q4 for the potential settlement of FCPA violations in connection with the sale of high-voltage capacitor products in China by our Swiss subsidiary. As we reported previously, after we became aware of questionable payments made to an independent sales agent in China, we disclosed that discovery and initiated an internal review and we have been voluntarily sharing information with the SEC and the Justice Department."

See also here.

*****

A good weekend to all.

Africa Sting - Update

Yesterday was a busy day in Judge Leon's packed courtroom in Washington D.C.

For a colorful description of what transpired see here for Christopher Matthew's piece at Main Justice. See here for a Reuters piece.

Here are the highlights.

Judge Leon remains skeptical of the government's assertion that all 22 defendants were in one grand conspiracy. According to the reports, Judge Leon read all of the indictments and has "zero sense that there was an omnibus grand conspiracy." Judge Leon reportedly told the DOJ that "what you think is so transparent is not" and he urged the DOJ to "take a step back" given that the DOJ may be so "close to trees that it can't see the forest."

Defense lawyers are troubled by the lack of evidence turned over by the government concerning Richard Bistrong (Individual 1 in the indictments)(see here). One defense lawyer is quoted as saying, "this is an entrapment case [...] we need to know more about Bistrong."

Future dates to keep in mind are: March 10 (when the government must turn over all of its evidence concerning Bistrong) and March 22 (when the government must decide whether to consolidate the cases into one conspiracy). On that issue, Judge Leon again unexpressed an unwillingness to conduct a 22 defendant trial and the DOJ is reportedly in "disposition" talks with some of the defendants.

As previously noted, whether guilty or innocent, there is tremendous pressure on individual criminal defendants in multi-party cases to plead and cooperate in the government's prosecution of others given the "juicy carrots" that are offered by the sentencing guidelines for such "flipping."

Africa Sting - The Lawyers

Christopher Matthews over at Main Justice has a thorough piece (here) about the lawyers representing the Africa Sting defendants.

The lawyers in this high-profile case include an eclectic mix of solo practitioners, small criminal defense firms, and large firms which substantial FCPA expertise. The lawyers include a former U.S. attorney, several former prosecutors, and firm with a public website www.entrapped.com. (See here for prior posts regarding potential entrapment issues in this case).

Lawyers for the Africa Sting defendants are due back in court tomorrow.

While respectful of the obvious human dimension of this case, the Africa Sting case could not have come at a better time for FCPA practitioners, which tend to be employed by large law firms - although not exclusively.

The upside from this case is perhaps more indirect than being directly involved in the actual case. The Africa Sting case has received mounds of media attention and notoriety in sectors of the economy that tend not to have FCPA compliance and risk assessment on the to-do list. If nothing more, the Africa Sting case has raised public consciousness of the FCPA and has nudged certain businesses to pick up the phone and talk to an FCPA practitioner.

In the News

Despite Statoil and Siemens (among other enforcement actions), many continue to describe the FCPA as the law that applies only to U.S. companies. Of course that is a wrong statement, as the FCPA applies to all issuers (foreign or domestic) and any foreign company or national that engages in acts in furtherance of a bribery scheme while in U.S. territory. In any event, it is sometimes hard to change perceptions.

Next time you hear this misperception, think February 12, 2010.

On February 12, 2010, it was reported that Daimler AG (a German carmaker) and Technip (a French oil and gas company) were close to resolving FCPA related enforcement actions.

Daimler

As reported here, Daimler is poised to "pay about $200 million and two subsidiaries will plead guilty to resolve a U.S. investigation into whether it paid bribes to secure business overseas." According to the company's prior filings, an internal investigation found that "improper payments were made in a number of jurisdictions, primarily in Africa, Asia, and Eastern Europe." In addition, the report notes that Daimler has also faced scrutiny in connection with its role in the U.N. Oil-For-Food program in Iraq. The report quotes a Daimler spokesperson as saying, "we are in discussions with the DOJ and SEC regarding consensually resolving the agencies' investigations."

The report also notes that "government lawyers submitted the deal in Washington to U.S. District Judge Richard Leon." Judge Leon is also overseeing the Africa Sting case. If true, the normally transparent DOJ (at least when it comes to alerting the public to FCPA enforcement actions) has yet to publicly announce any Daimler filing on its website. Nor does the DOJ website contain any information about the recent BAE matter. Perhaps it is because of the recent weather in D.C. which resulted in DOJ offices being closed for several days.

Technip

According to the company's release (here), "Technip and the SEC and DOJ have discussed a resolution of all potential claims against the company" arising from an investigation involving TSKJ, a joint venture company in which Technip has a 25% share. The company disclosed that it will record a €245 million charge to reflect the "estimated costs" of the resolution. According to the release, "the potential resolution does not contemplate a criminal conviction for Technips's role in the TSKJ joint venture."

The TSKJ joint venture in Nigeria has been the focus of several previous FCPA enforcement actions. See here, here, and here.

The BAE "Soapbox"

Below is a compilation of what certain others in the FCPA community are saying about the BAE enforcement action.

Steven Tyrrell (here) notes (here) that the BAE "case again demonstrates the DOJ's willingness to push its jurisdictional reach in cases involving foreign-based, non-issuers that make suspect payments outside the United States." Tyrrell notes that "in spite of [a] seemingly slight jurisdictional nexus, DOJ aggressively pursued this FCPA matter and obtained an agreement from BAE to plead guilty to a felony and pay a $400 million penalty." Even though the BAE criminal information contained bribery allegations (see here), the information did not change any FCPA offenses. Yet, Tyrrell and many others, continue to describe the BAE matter as an "FCPA matter." Tyrrell's aggressive comments are curious (and perhaps telling) in that he was the DOJ Chief of the Fraud Section responsible for prosecuting the FCPA from 2006 until his recent departure into private practice. (See here).

Miller Chevalier recently released (here) a thorough alert on the BAE matter. Among other things, the alert points out that the BAE matter "raises a host of significant legal and policy questions that are only partly explained in the public documents" associated with the matter. The alert points the "differences in the factual allegations in the two settlements" [SFO/DOJ] and notes that "the oblique nature of the violations charged, the negotiated terms of the settlements, and the allegations that are not made in the public settlement documents provide a glimpse of the political undercurrents, legal maneuvering, and policy objectives that underlie this settlement and raise potentially far-reaching precedential issues."

Brian Whisler (here) had this to say:

“In a nutshell, the BAE resolution: (1) reconciles with DOJ's publicly-stated commitment to deter corruption and bribery through the enforcement / prosecution of high impact, high profile cases -- there are apparently other similar large scale matters in the DOJ pipeline (e.g., DaimlerChrysler); (2) reconciles with the UK's effort to become a bigger player on the world enforcement scene, with the enhancement of penalties and other legislative efforts to give more teeth to the UK's anti-corruption regime (keeping up with Germans in the aftermath of Siemens); and (3) suggests that defense contractor and procurement fraud in general will remain in the sights of the enforcement community for a considerable time, so long as we have one or more theaters of active military engagement.”

An FCPA lawyer who wished to remain anonymous had this to say:

“First, the SFO and the British justice system in general suffer in this settlement. From the British side, the deal has the feel of something that was quickly put together to put a lid on what else might develop. SFO investigators reportedly were still interviewing people on the morning the BAE resolution was announced. Larger than that issue, BAE clearly did wrong in Tanzania, but its actions in other markets were far equally disturbing and there will be no formal accounting for those acts. The unwritten message seems to be that industrialized nations continue to recognize that certain companies are "too big to fail," and will take steps to protect even a company that does wrong, so long as the company is critical to some important national issue like defense or homeland security. Ultimately, these types of actions erode the moral authority of the industrialized world to demand the developing world to clean up its house. U.S. authorities have made a strong effort to have others step up and take the lead on anti-corruption issues, so that the world does not see anti-corruption as simply a U.S. issue. To some degree, the settlement in the U.S. diminishes that effort, as well. The developing world will see this deal as having been pushed by the U.S. They also will see the deal as not doing much to help the countries that BAE harmed through its corrupt business efforts. The small charity payment to Tanzania seems almost an afterthought inside of a $400 million deal, which is a drop in the bucket compared to BAE's profits. The world likely will view the entire fine as a fairly minor slap for a company that has made a lot of money in the world market place because of its improper conduct.”

Finally, Ben Heineman, Jr. (here) noted that the BAE story is "depressingly familiar." He notes that the BAE matter (and the Siemens matter) represent problems "in the developed world (!!), not in the developing world" and states that if "these iconic developed world companies had such widespread issues, it is reasonable to think that they are hardly alone."

Willing to share you thoughts on the BAE matter? The comment box is open.

Lighthouses and Buoys - Additional Plea

The DOJ announced yesterday (here) that John Warwick pleaded guilty to a one-count criminal indictment charging him with conspiracy to pay bribes to former Panamanian officials to obtain contracts to maintain lighthouses and buoys along Panama's waterways.

For additional posts about this case, including the prior guilty plea of Warwick's co-conspirator Charles Jumet (see here). Warwick and Jumet are both associated with Virginia-based Ports Engineering Consultants Corporation (PECC).

The indictments against both individuals are substantively similar and involve a rather complex and convoluted way of getting the "thing of value" to the "foreign official." According to the indictments, Warwick and Jumet designated certain corporate entities as shareholders of PECC and allowed the "foreign officials" to receive dividend payments and bearer shares from these entities.

BAE - The Non-Bribery Bribery Allegations

Back in law school, a professor was fond of the phrase "“if it walks like a duck, quacks like a duck, looks like a duck, it must be a duck.”

Among other allegations, DOJ's criminal information (here) against BAE alleges that BAE served as the “prime contractor to the U.K. government following the conclusion of a Formal Understanding between the U.K. and the Kingdom of Saudi Arabia (“KSA”)” in which BAE sold to the U.K. government, which then in turn sold to the Saudi government several Tornado and Hawk aircraft, “along with other military hardware, training and services.” The information refers to these frequent arrangements as the “KSA Fighter Deals.”

In connection these deals, the information alleges that “BAE provided substantial benefits to one KSA public official, who was in a position of influence regarding the KSA Fighter Deals (the “KSA Official”), and to the KSA Official’s associates.” The indictment alleges that BAE “provided these benefits through various payment mechanisms both in the territorial jurisdiction of the U.S. and elsewhere.”

WALKS LIKE A DUCK!

This allegation is important from an FCPA perspective because the FCPA only applies to a company like BAE (a foreign company with no shares listed on a U.S. exchange) if conduct in furtherance of a bribery scheme has a U.S. nexus. See 78dd-3. [BAE does have a wholly-owned U.S. subsidiary - a "domestic concern" under the FCPA - but the information states that this entity was not involved in the conduct alleged in the information].

In addition, the information contains additional allegations which clearly demonstrate that BAE’s bribery scheme had a U.S. nexus. For instance, the information alleges that BAE “provided support services to [the] KSA Official while in the territory of the U.S.” and that these benefits “included the purchase of travel and accommodations, security services, real estate, automobiles and personal items.” The information alleges that over $5 million in invoices for benefits provided to the KSA Official were submitted by just one BAE employee during a one year period.

QUACKS LIKE A DUCK!

The information also alleges that BAE “used intermediaries and shell entities to conceal payments to certain advisers who were assisting in the solicitation, promotion and otherwise endeavoring to secure the conclusion or maintenance of the KSA Fighter Deals.”

Specifically, the information alleges that “in connection with the KSA Fighter Deals, BAE agreed to transfer sums totaling more than £10,000,00 and more than $9,000,000 to a bank account in Switzerland controlled by an intermediary. BAE was aware that there was a high probability that the intermediary would transfer part of these payments to the KSA Official.”

Such "high probability" language is a direct quote from the FCPA's so-called third party payment provisions which prohibit making improper payments to any person "while knowing that all or a portion" of the money will be given to a foreign official in order to obtain or retain business. The FCPA specifically provides that "[w]hen knowledge of the existence of a particular circumstance is required for an offense, such knowledge is established if a person is aware of a high probability of the existence of such circumstance, unless the person actually believes that such circumstance does not exist."

In order words, the "high probability" language used in the BAE criminal information is no mere coincidence. In fact, that language (i.e. a company was aware that there was a high probability that the intermediary would transfer part of its payments to a foreign official) is frequently used by the DOJ in resolving FCPA antibribery actions.

For instance, in the InVision FCPA enforcement action, the “investigations by the DOJ and SEC revealed that InVision, through the conduct of certain employees, was aware of a high probability that its agents or distributors” in Thailand, China and the Philippines “had paid or offered to pay money to foreign officials or political parties in connection with transactions or proposed transactions for the sale by InVision of its airport security screening machines.” (See here). Specifically, the non-prosecution agreement (here) notes that: (i) InVision “was aware of a high probability that part of the source of funds” to an agent was to be used by the agent “to fund an offer to promise to make payments” to Thai officials; (ii) InVision authorized a payment to an agent “with awareness of a high probability” that the agent “intended to use part of that payment to influence” Chinese officials; and (iii) InVision sought authorization for a payment to an agent “with awareness of a high probability that” the agent “intended to use part of that payment to influence officials of the government of the Philippines” - all in an effort to obtain or retain business for InVision.

LOOKS LIKE A DUCK!

Yet, the DOJ’s criminal information merely charges one count of conspiracy and it lacks any FCPA antibribery charges. Moreover, the conspiracy charge relates only to “making certain false, inaccurate and incomplete statements to the U.S. government and failing to honor certain undertakings given to the U.S. government, thereby defrauding the United States” and “caus[ing] to be filed export license applications with [various U.S. government entities] that omitted a material fact” concerning fee and commission payments.” Among the false statements BAE is alleged to have made to the U.S. government is its commitment to not knowingly violate the FCPA.

This is the only mention of the FCPA in the information despite the above allegations concerning the KSA Fighter Deals – facts which clearly implicate the FCPA’s antibribery provisions.

In other words, NO DUCK!

For a prior post on BAE (see here).

NPAs, DPAs, and the FCPA

Too many acronyms? For the uninitiated, this post is about non-prosecution agreements (NPAs) and deferred prosecution agreements (DPAs) in the context of the Foreign Corrupt Practices Act (FCPA).

The Government Accountability Office (GAO) recently released a report (here) regarding DOJ's use of NPAs/DPAs. The report follows a prior GAO report on the use of corporate monitors in NPAs/DPAs (see here for the prior post).

The recent GAO report is not FCPA specific, although it does mention the FCPA as being one area where NPAs and DPAs are frequently utilized, and as readers well know, most FCPA enforcement actions against companies are resolved through DPAs or NPAs (see here for the UTStarcom, Inc. NPA, here for the Helmerich & Payne NPA etc.).

Thus, the GAO report is very much "on-point."

While the report talks about other issues, this post will focus on judicial review of NPAs / DPAs - or more accurately the lack of judicial review.

GAO identified 152 NPAs/DPAs that DOJ prosecutors negotiated between 1993 (when the first two were signed) and September 2009.

Because NPAs are not filed with a court, there is absolutely no judicial review of NPAs. Thus, there is no independent review of whether factual evidence actually exists to support the essential elements of the crime "alleged" or whether valid and legitimate defenses exist. Thus, GAO had nothing to analyze in terms of judicial review of NPAs.

DPAs though are filed with a court, and as stated in the report, "the Speedy Trial Act grants a court the authority to approve the deferral of a prosecution pursuant to a written agreement between the government and the defendant." (See 18 USC 3161(h)(2)).

"To assess what role the courts have played in the DPA process," GAO "obtained written responses to structured interview questions from 12 of the 14 judges who had overseen DPAs in federal courts."

The judicial responses were anonymous and safeguards were put in place to protect the confidentiality of the judges' answers.

What did the responses reveal?

According to the GAO, "judges reported they were generally not involved" in the DPA process.

Specifcally, the GAO found that:

"Nine of the 12 judges stated that they did not hold a hearing to review the DPA or its terms, while the 3 remaining judges held hearings. One of these judges did so in the context of a plea hearing. Another judge held a hearing to arraign the company; at which time, the company and DOJ informed the judge to enter into a DPA. The judge then had a second hearing to approve the DPA. The third judge conducted a hearing to arraign the company and verify that the company's decision to enter into the DPA was informed and voluntary. Ten of the 12 judges reported that they relayed their decision approving the DPA through a written order. One judge relayed the decisions orally at a hearing, and one judge did both."

The GAO also interviewed DOJ officials about the role courts should play in the DPA process. Not one DOJ prosecutor who spoke to the GAO on this issue described any advantage to having a greater court role in reviewing DPAs. The report notes that "[a]ccording to DOJ officials, DOJ does not have a position on whether greater judicial involvement in the DPA process creates separation of powers issues; however, DOJ believes that judicial involvement in the NPA process would create concerns related to the separation of powers because no judicial review is involved for NPAs, as they typically do not involve court filings."

It is clear from the above judicial responses (however limited they may be) that judges are routinely rubber-stamping DPAs without inquiring whether factual evidence actually exists to support the essential elements of the crime "alleged" or whether valid and legitimate defenses exist.

Why would a company agree to enter into an NPA/DPA if factual evidence did not exist to support the essential elements of the crime "alleged" or if valid and legitimate defenses did exist?

Quite simply, negotiating an NPA/DPA with the DOJ behind closed doors is easier, more cost effective, and provides more certainty to a company than mounting a defense based on the facts and the law.

Moreover, when a company agrees to resolve a potential criminal matter through a privately-negotiated NPA/DPA, it is a sign of cooperation and an acknowledgment of wrongdoing - both key factors the DOJ will consider when deciding how to resolve the matter and on what terms. See here for the DOJ's Princplies of Federal Prosecution of Business Entities, here for the U.S. Sentencing Guidelines.

Why does this all matter, particularly in the FCPA context?

For the simple reason that law should not develop through privately negotiated agreements that are subject to little or no judicial review.

Yet that is exactly what is occuring in the FCPA context.

It is common knowledge within the FCPA bar and compliance community that FCPA NPAs/DPAs (and I will throw in settled SEC civil complaints as well) represent de facto case law and fill a void that exists because of the general lack of substantive FCPA case law, including case law to support many current enforcement theories.

Even worse, DOJ urges lawyers and companies to look to NPAs/DPAs as evidence of improper conduct and to act accordingly.

For instance, the GAO report includes a DOJ letter which explains, in DOJ's view, why NPAs/DPAs "are beneficial." Included in the DOJ's response is this:

"DPAs and NPAs benefit the public and industries by providing guidance on what constitutes improper conduct."

Wait a minute.

Is DOJ seriously suggesting that NPAs/DPAs evidence improper conduct?

While that may be true in some situations, the fact of the matter is that many NPAs/DPAs are agreed to by companies only after private negotiations with the DOJ. These negotiations covers a wide range of topics - from the facts which will be alleged in the NPA/DPA, to the actual charges alleged, to the form of the resolution.

Rather than evidence improper conduct, these NPAs/DPAs (and settled SEC civil complaints) in the FCPA context represent nothing more, in most instances, than a prviately negotiated agreement subject to no judicial review executed under circumstances in which one of the signatories wields a massive and sharp stick.

What would happen if an FCPA NPA/DPA (or settled SEC civil complaint) were actually subjected to judicial review?

How would a judge react to the uninformative, bare-bones nature of these privately negotiated agreements?

What legal authority would the enforcement agencies cite to support the assertion that employees of state-owned or state-controlled entities are "foreign officials" under the FCPA?

What would the enforcement agencies' arguments be as to why the numerous post-Kay enforcement actions concerning foreign licenses, permits, applications etc. fit within the equivocal ruling in that case, but not the facilitating payment exception to the FCPA (an exception debated and passed by Congress)?

These are just some of the many unanswered FCPA questions which currently exist and these questions are the direct result of an area of law largely developing through privately negotiated agreements subject to little or no judicial scrutiny.

If the above is disconcerting to you, just wait, it is about to get worse as the SEC has announced (see here) plans to also utilize NPAs/DPAs in its enforcement of the securities laws - including the FCPA.

BAE

In a joint enforcement action that is sure to generate much discussion and controversy, the U.K. Serious Fraud Office (SFO) and the U.S. DOJ announced today resolution of an enforcement action against BAE Systems.

The SFO announced (here) that it has "reached an agreement with BAE systems that the company will plead guilty" to the offense of "failing to keep reasonably accurate accounting records in relation to its activities in Tanzania."

BAE's press release (here) notes that "[i]n connection with the sale of a radar system by the Company to Tanzania in 1999, the Company made commission payments to a marketing adviser and failed to accurately record such payments in its accounting records. The Company failed to scrutinise these records adequately to ensure that they were reasonably accurate and permitted them to remain uncorrected. The Company very much regrets and accepts full responsibility for these past shortcomings."

The SFO and company release note that BAE will pay a £30 million penalty "comprising a fine to be determined by the Court with the balance paid as a charitable payment for the benefit of Tanzania."

In a strange turn of events, the SFO also announced (here) that it has withdrawn charges filed last week (see here) against a former agent charged with "conspiracy to corrupt" and for "conspiring with others to give or agree to give corrupt payments [...] to unknown officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc."

The SFO release notes that "[t]his decision brings to an end the SFO's investigations into BAE's defence contracts."

So what happened to the charges and allegations involving certain Eastern and Central European governments, including the Czech Republic, Hungary, and Austria?

Good question.

Much like the wave of magician's wand, they have simply disappeared.

Closer to home, the DOJ announced that it:

"filed a criminal charge (here) in the U.S. District Court for the District of Columbia against BAE Systems plc charging that the multinational defense contractor conspired to impede the lawful functions of the Departments of Defense and State, made false statements to the Departments of Defense and Justice about establishing an effective anti-corruption compliance program to ensure conformance with the Foreign Corrupt Practices Act and paid hundreds of millions of dollars in undisclosed commission payments in violation of U.S. export control laws."

The DOJ and BAE release note that the company "will pay a fine of $400 million and make additional commitments concerning its ongoing compliance."

According to the DOJ release (which is available through the DOJ Office of Public Affairs, but not yet publicly posted on DOJ's website) "BAE Systems is charged with intentionally failing to put appropriate, anti-bribery preventative measures in place, contrary to the representations it made to the United States government, and then making hundreds of millions of dollars in payments to third parties, while knowing of a high probability that money would be passed on to foreign government decision makers to favor BAE in the award of defense contracts. BAE Systems allegedly failed to disclose these payments to the State Department, as it was required to do so under U.S. laws and regulations in order to get necessary export licenses."

The bold language above would expose most companies to an FCPA enforcement action, but BAE is no ordinary company. It is a major defense contractor on both sides of the Atlantic (as noted in the criminal information "in 2008, BAE was the largest defense contractor in Europe and the fifth largest in the U.S. as measured by sales").

You can bet that these charges were the subject of much negotiation so as to not upset current or future government contracts as well as foreign policy issues and concerns.

The BAE charges and thus similar to those against Siemens in December 2008. In that case, despite the company engaging in bribery "unprecedented in scale and geographic scope" and despite the company being one in which "bribery was nothing less than standard operating procedure" (both direct DOJ quotes), the company avoided FCPA antibribery charges. (See here for prior posts about Siemens).

These two cases seriously raise the issue of whether certain companies in certain industries are simply "above" the FCPA.

Can the enforcement agencies on both sides of the Atlantic say with a straight face that this case was merely about improper record keeping, making false statements to the government, and export licenses?

Transparency, corporate accountability, and indeed a criminal justice system all suffered setbacks today.

The FCPA suffered a black-eye as well and one would be right to ask, "what the heck is going on here!"

Africa Sting - Not Guilty Pleas

Today was arraignment day for the Africa Sting defendants in Judge Richard Leon's courtroom in the Federal District Court in Washington D.C.

During the arraignment, the defendants pleaded not guilty.

For a first hand account of what transpired in Judge Leon's courtroom, see here for Christopher Matthew's piece at Main Justice.

Beefing Up the Budget

DOJ recently announced (here) its FY 2011 budget request. The budget request includes a $235 million increase over the FY 2010 enacted appropriation, "including 708 new positions (143 agents and 157 attorneys) to restore confidence in our markets, protect the federal treasury and defend the interests of the U.S. Government."

Included in the $235 million figure (see here) is "$550,000 and 5 positions (3 attorneys) to increase [the Criminal Division's] capacity prosecute crimes of financial and mortgage fraud, procurement and grant fraud, and violations of the Foreign Corrupt Practices Act."

Not exactly a figure that "knocks one's socks off," but nevertheless consistent with repeated DOJ statements about a ramp-up in FCPA resources and enforcement.

The SEC's budget justification (here) does contain any FCPA specific language.

*****

Perhaps it's because my favorite show, Mike Rowe's Dirty Jobs on the Discovery Channel, recently profiled this company (see here). In any event, PBS&J continues to make news and continues to intrigue even though the whole issue, at least it seems, involves a relatively minor potential FCPA issue. This week, Florida media (here) reports that the company's CEO, John Zumwalt, has resigned. The article notes that up until summer 2009, Zumwalt was also the President of PBS&J International, the subsidiary that has become the focus of an FCPA internal investigation. See here for prior posts. According to the article, Zumwalt will continue as Chairman of the company's board. Should PBS&J become the focus of an enforcement action, it will be interesting to follow as the company has millions of public sector contracts.

Blackwater In Hot Water

The New York Times (here) reports that the DOJ "is investigating whether officials of Blackwater Worldwide tried to bribe Iraqi government officials in hopes of retaining the firm's security work in Iraq."

According to the Times, the DOJ's fraud section open an investigation "late last year" to determine whether Blackwater employees violated the FCPA. The investigation follows a November 2009 times article (here) which first raised questions about Blackwater's (now known as Xe Services) conduct in Iraq. That article suggested that the alleged payments at issue were made to Iraqi "foreign officials" to help secure an operating license the company needed to continue doing business in Iraq.

As noted in a prior post (here), this case is interesting on several levels.

First, the case (from an FCPA antibribery perspective) would seem to hinge on the FCPA's "obtain or retain" business element, and is another example of the post-Kay explosion in enforcement actions in which alleged improper payments were made to help secure foreign government licenses, permits, etc. An interesting wrinkle to this analysis is that the Iraqi license was apparently needed so that Blackwater could retain its contract with the U.S. State Department - not with a foreign entity as is usually the case.

Second, rarely if perhaps ever, has an FCPA inquiry focused on the conduct of a company so intertwined with U.S. government agencies (State Department and CIA) operating in a war zone.