Conte To Steptoe & Johnson

The SEC announced yesterday (see here) that Christopher Conte, an Associate Director in the Division of Enforcement, plans to leave the SEC next month to rejoin his previous employer, Steptoe & Johnson LLP, as a partner in the firm's Washington, D.C. office. As noted in the SEC's release, during Conte's tenure at the SEC he oversaw and conducted enforcement investigation involving, among other areas, illicit payments under the Foreign Corrupt Practices Act.

In a release (see here), Roger Warin, Chairman of Steptoe's Executive Committee, noted that Conte's "depth and breadth of experience leading a wide range of SEC enforcement investigations, together with his understanding of the SEC’s approach to enforcement and the agency’s key priorities, will be a valuable contribution to a number of our practices and the clients they serve.” As noted in the release, Conte will join Steptoe's "top-ranked" FCPA practice, which includes, among others, Lucinda Low (see here).

Conte joins several other former SEC FCPA enforcement attorneys who have left the agency for a private practice career focused on the FCPA. Other examples include Fredric Firestone (former Associate Director of Enforcement Division - see here) and Richard Grime (former Assistant Director of the Enforcement Division - see here, see here for a prior related post).

Several DOJ FCPA enforcement attorneys have also recently left government service for a private practice career focused on the FCPA. See here, here, and here for prior posts.

"We May Not Have Conducted Our Business In Compliance With The FCPA"

Those are the words used by Dutch-based Lyondellbasell Industries N.V. (see here) in its August 25th SEC filing (see here).

Lyondellbasell's disclosure is not exactly "new" news as it was first disclosed in a March 2010 court filing in connection with the company's bankruptcy proceeding, but the news is new to me, and perhaps to you as well.

The FCPA disclosure reads as follows:

"We have identified an agreement related to a project in Kazakhstan under which a payment was made in late 2008 that raises compliance concerns under the U.S. Foreign Corrupt Practices Act (the “FCPA”). We have engaged outside counsel to investigate these activities, under the oversight of a special committee established by the Supervisory Board, and to evaluate internal controls and compliance policies and procedures. We made a voluntary disclosure of these matters to the U.S. Department of Justice in late 2009 and are cooperating fully with that agency. We cannot predict the ultimate outcome of this matter at this time or whether we will discover other matters raising compliance issues, including under other statutes. In this respect, we may not have conducted our business in compliance with the FCPA and may not have had policies and procedures in place adequate to ensure compliance. We cannot reasonably estimate any potential penalty that may arise from these matters. We are in the process of adopting and implementing more stringent policies and procedures designed to ensure compliance. We cannot predict the ultimate outcome of this matter at this time since our investigations are ongoing. Violations of these laws could result in criminal and civil liabilities and other forms of relief that could be material to us."

According to this Bloomberg report, "a review of international holdings by a management team installed after the bankruptcy triggered the disclosure."

Citing a company spokesperson and unnamed sources, the Bloomberg article states that "the company’s review involves a petrochemical complex in western Kazakhstan where LyondellBasell was a partner until earlier this year" and that "a LyondellBasell payment of $7 million made about two years ago to an individual affiliated with a Kazakh company, SAT & Co., is at the center of the internal investigation" which is being conducted by Cadwalader Wickersham & Taft LLP .

According to a company spokesperson, "the characterization of the $7 million payment was not accurate."

As noted in the SEC filing, since emerging from bankruptcy on April 30, 2010, there has been a limited market for the company's securities. "LyondellBasell Industries N.V.’s class A ordinary shares and class B ordinary shares have been quoted on Pink OTC Market’s electronic quotation and trading system under the symbols “LALLF” and “LALBF,” respectively, since emergence. We have applied for listing of our class A ordinary shares and our class B ordinary shares on the New York Stock Exchange (“NYSE”)."

Friday Roundup

Writer's cramp at the DOJ, the well fed U.K. Ministry of Defence officials, and a potential cost-savings due diligence tool ... it's all here in the Friday roundup.

Writer's Cramp at the DOJ?

When Charles Paul Edward Jumet was sentenced in April to 87 months in prison for FCPA and related offenses, the DOJ issued a press release the same day (see here).

When John Warwick was sentenced in June to 37 months in prison for conspiracy to violate the FCPA, the DOJ issued a press release the same day (see here).

When Juan Diaz was sentenced in July to 57 months in prison for conspiracy to violate the FCPA, the DOJ issued ... you got it ... a press release the same day (see here).

All three instances represented, in FCPA terms at least, a harsh sentence.

So what happens when a sentencing judge rejects the DOJ's ten year sentencing recommendation and instead sentences the defendants to six months in prison?

Well, let's just say that the DOJ appears to have experienced a sudden case of writer's cramp.

As indicated in this prior post, on August 12th, U.S. District Court Judge George Wu of the Central District of California rejected the DOJ's requested ten year prison sentence for Gerald and Patricia Green and sentenced the couple to six months in prison.

It's not like the DOJ hasn't been issuing press releases throughout this case (see here and here), but apparently when a judge materially disagrees with the DOJ, it is time to stop the presses.

Or perhaps it was a mere oversight in which case the DOJ will soon issue a release.

Well Fed U.K. Ministry of Defence Officials

The Guardian recently ran a story that caught my eye.

Written by Rob Evans, the article (see here) details how BAE Systems "regularly wined and dined mandarins and senior military officers."

The article also claims that BAE Systems "frequently gives jobs to politicians and civil servants in a 'revolving door' after they have left public service, including officials who negotiated multi-million pound deals with the company" and that "MoD secretly lobbied to end the Serious Fraud Office's investigation into allegations that BAE bribed foreign politicians and officials to secure large contracts."

An MoD spokesman is quoted in the article as saying "It is vital for the MoD to maintain a close relationship with the defence industry to ensure that we have the best equipment for our armed forces. All the meetings are subject to strict guidelines."

Due Diligence Co-Op Programme

I don't often highlight the latest in FCPA compliance services, but Red Flag Group's new offering seemed to make sense to me - plus it is a service that would seem to lead to cost savings for companies.

The ad (here) asks a simple question: "tired of paying full price for the same due diligence report that another company ordered just a few months ago?"

If you answered yes to this question, you may be interested in Red Flag Group's Due Diligence Co-Op Programme, also explained in the ad.

*****

A good weekend to all.

Bonny Island Bribery Club Statistics

Bonny Island.

It is located at the southern edge of the Niger delta of Nigeria. (see here).

It is the location featured in several corporate and individual FCPA enforcement actions - actions that have thus far resulted in approximately $1.3 billion in fines, penalties and disgorgement.

This number is sure to grow as one member of the joint venture at the center of bribery scheme - JGC of Japan - has yet to resolve its exposure although (as noted in this post from the FCPA Blog) it has confirmed that it is discussions with the DOJ.

In addition, the DOJ, in its indictments of Jeffrey Tesler and Wojciech Chodan, is seeking forfeiture of $132 million.

Further, as noted in this prior post, Halliburton has disclosed that it faces exposure in the U.K. in connection with a Serious Fraud Office investigation of M.W. Kellogg Company ("MWKL"), a United Kingdom joint venture 55% owned by KBR. In its most recent 10-Q (here) Halliburton stated:

"MWKL is cooperating with the SFO’s investigation. Whether the SFO pursues civil or criminal claims, and the amount of any fines, restitution, confiscation of revenues or other penalties that could be assessed would depend on, among other factors, the SFO’s findings regarding the amount, timing, nature and scope of any improper payments or other activities, whether any such payments or other activities were authorized by or made with knowledge of MWKL, the amount of revenue involved, and the level of cooperation provided to the SFO during the investigations. MWKL has informed the SFO that it intends to self-report corporate liability for corruption-related offenses arising out of the Bonny Island project. MWKL has received confirmation that it has been admitted into the plea negotiation process under the Guidelines on Plea Discussions in Cases of Complex or Serious Fraud, which have been issued by the Attorney General for England and Wales."

While the Bonny Island Bribery Club statistics are not yet final, this post provides a detailed breakdown of the current statistics.

Kellogg Brown & Root LLC / Halliburton Company / KBR Inc. (Feb. 2009)

Attorneys: Paul, Hastings, Janofsky & Walker LLP

DOJ

Entity: Kellogg Brown & Root LLC

Charges: Conspiracy to Violate the FCPA (1 Count), Substantive FCPA Anti-Bribery Violation (4 Counts)

Resolution Vehicle: Criminal Information and Plea Agreement

Benefit Received From Improper Payments: $235.5 Million

Sentencing Guidelines Range: $376.8 Million - $753.6 Million

Amount of Fine: $402 Million

Monitor: Yes - Three Years

SEC

Entity: Halliburton Company, KBR Inc.

Charges: FCPA Books and Records and Internal Controls Violation (Halliburton Company), Substantive FCPA Anti-Bribery Violation, Aiding and Abetting Halliburton's FCPA Books and Records and Internal Controls Violation, Knowingly Falsifying Books and Records and Knowingly Circumventing Internal Controls (KBR Inc.),

Disgorgement Amount: $177 Million

Technip S.A. (June 2010)

Attorneys: Patton Boggs LLP; Wachtell, Lipton, Rosen & Katz

DOJ

Charges: Conspiracy to Violate the FCPA (1 Count), Substantive FCPA Anti-Bribery Violation (1 Count)

Resolution Vehicle: Criminal Information and Deferred Prosecution Agreement (Term - 2 Years, 7 Months)

Value of Benefit Received From Improper Payments: $199 Million

Sentencing Guidelines Range: $318.4 Million - $636.8 Million

Amount of Fine: $240 Million (25% Below Minimum Guidelines Range)

Monitor: Yes - Two Years

SEC

Charges: Substantive FCPA Anti-Bribery Violation, FCPA Books and Records and Internal Controls Violation

Disgorgement Amount: $98 Million

Snamprogetti Netherlands BV, ENI S.p.A (July 2010)

Attorneys: Sullivan & Cromwell LLP

DOJ

Entity: Snamprogetti Netherlands BV

Charges: Conspiracy to Violate the FCPA (1 Count), Aiding and Abetting FCPA Anti-Bribery Violation (1 Count)

Resolution Vehicle: Criminal Information and Deferred Prosecution Agreement (Term 2 Years)

Value of Benefit Received From Improper Payments: $214.3 Million

Sentencing Guidelines Range: $300 Million - $600 Million

Amount of Fine: $240 Million (20% Below Minimum Guidelines Range)

Monitor: No

SEC

Entity: Snamprogetti Netherlands BV, ENI S.p.A.

Charges: Substantive FCPA Anti-Bribery Violation, Knowingly Falsifying Books and Records and Knowingly Circumventing Internal Controls (Snamprogetti Netherlands BV), FCPA Books and Records and Internal Controls Violation (ENI S.p.A.)

Disgorgement Amount: $125 Million

[Note in all three of the above corporate actions, the entity received a -2 reduction in the culpability score for cooperation. Snamprogetti's total culpability score (and thus base fine multiplier) was below that of Kellogg, Brown & Root LLC, and Technip given that the company has fewer employees].

Albert Jackson Stanley (August 2008)

Attorney: Larry Veselka (Smyser, Kaplan & Veselka LLP)

DOJ

Charges: Conspiracy to Violate the FCPA (1 Count), Conspiracy to Commit Mail and Wire Fraud (1 Count)

Resolution Vehicle: Criminal Information and Plea Agreement

Plea Agreement Contemplates an $10.8 Million Restitution Order (the amount Stanley agreed the victim - his former employer - incurred as a monetary loss because of his conduct)

Plea Agreement Contemplates a Sentence of 84 months (subject to a downward departure for cooperation)

SEC

Charges: Substantive FCPA Anti-Bribery Violation, Knowingly Falsifying Books and Records and Knowingly Circumventing Internal Controls

Permanent Injunction

Jeffrey Tesler (March 2009)

Indictment Charges: Conspiracy to Violate the FCPA (1 Count), Substantive FCPA Anti-Bribery Violations (10 Counts)

Indictment Seeks Forfeiture $132 Million

Wojciech Chodan (March 2009)

Indictment Charges: Conspiracy to Violate the FCPA (1 Count), Substantive FCPA Anti-Bribery Violations (10 Counts)

Indictment Seeks Forfeiture $132 Million

More On Alliance One and Universal

Earlier this month (see here) the DOJ and SEC announced FCPA enforcement actions against tobacco companies - Alliance One International, Inc. and Universal Corporation.

Both the DOJ (here) and the SEC (here) issued a consolidated press release - the first time (to my knowledge) the agencies have consolidated an enforcement action against two unrelated companies in such a fashion. Perhaps the reason was, as explained below, a significant part of the improper conduct at both companies involved the same entity - The Thailand Tobacco Monopoly ("TTM") - an alleged agency and instrumentality of the Thai government.

This is a long post, but then again, at nearly 300 pages, there was much in the DOJ and SEC resolution documents.

For instance, Alliance One's entire exposure was based, not on anything it did, but rather successor liability theories.

Both the Alliance One and Universal enforcement actions were the product of voluntary disclosure. In fact, the Universal inquiry began when a former employee contacted the company's internal compliance hotline. Query whether that individual today would do the same thing given Dodd-Frank's whistlblower provisions - provisions which, if applicable, would make him / her a millionaire.

The Universal enforcement action is an FCPA first, in that it concerns conduct in Mozambique and Malawi.

There are also many remedial measures / compliance nuggets waiting to be digested from these enforcement actions.

The Alliance One enforcement action has already spawned a related individual enforcement action against Bobby Elkins (see here) and the Universal enforcement action may do the same as the DOJ's Statement of Facts contains an alphabet soup of employees, including U.S. citizens, allegedly involved in the improper conduct.

This post describes the DOJ and SEC's enforcement actions against Alliance One as well as the DOJ and SEC's enforcement actions against Universal Corp.

Alliance One

The Alliance One enforcement action included a non-prosecution agreement between the DOJ and Alliance One, criminal pleas by Alliance One International AG and Alliance One Tobacco OSH, LLC, as well as an SEC enforcement action against Alliance One.

Edward Fuhr, Hunton & Williams LLP (see here), represented Alliance One entities. Colleen Mahoney, Skadden (see here), the former Deputy Director of the SEC's Division of Enforcement, represented Alliance One's Board of Directors and Audit Committee.

DOJ

Pursuant to a non-prosecution agreement (see here), the DOJ agreed not to prosecute Alliance One related to:

1. "improper payments (or agreements to make improper payments) made by employees and agents of its subsidiary or predecessor corporations in the form of:

a. corrupt payments made to foreign officials in Kyrgyzstan including (i) bribes paid to officials of the Kyrgyz Tamekisi; (ii) bribes paid to Akims; and (iii) bribes paid to Kyrgyz tax officials, which payments were made for the purpose of obtaining and retaining business with Kyrgyzstan government entities; and

b. corrupt payments made to foreign officials in Thailand in the form of
kickbacks paid to officials of the Thailand Tobacco Monopoly, which payments were made for the purpose of obtaining and retaining business with Thailand government entities; and

2. The accounting and record-keeping practices associated with these improper
payments."

Pursuant to the NPA, Alliance One "admitted, accepted, and acknowledged successor corporate responsibility for the conduct of its corporate predecessors" as set forth in a Statement of Facts attached to the NPA.

In summary fashion, the Statement of Facts are as follows:

Prior to 2005, Dimon, Inc. ("Dimon") was a publicly traded leaf tobacco merchant subject to the FCPA. Dimon also had an obligation to ensure that its wholly owned subsidiaries, including Dimon International Kyrgyzstan, Inc. ("DIK") and Dimon International AG ("DIAG"), maintained accurate books and records.

Prior to 2005, Standard Commercial Corp. ("Standard") was a publicly traded leaf tobacco merchant subject to the FCPA. Standard also had an obligation to ensure that its wholly owned subsidiaries, including Standard Brazil Ltd., maintained accurate books and records.

In 2005, Dimon and Standard merged to form Alliance One.

Kyrgyzstan

Dimon maintained a wholly owned subsidiary, DIK, that was organized under Kyrgyzstan law. During the relevant time period, DIK purchased and processed tobacco grown in Kyrgyzstan and shipped processed tobacco to Dimon's customers throughout the world.

According to the Statement of Facts, "DIK maintained its principal place of business in Osh, Kyrgyzstan and made regular reports of its business operations and financial accounts to officers of Dimon located at its headquarters in Danville, Virginia. DIK regularly sought approval for management decisions from Dimon managemeut and worked with and communicated with individuals acting as DIK's agents in Danville, Virginia, and Farmville, North Carolina, who undertook certain acts within the territory of the United States such that DIK was a "person" within the meaning ofthe FCPA.

After the merger of Dimon and Standard in 2005, Alliance changed the name of DIK to Alliance One Tobacco Osh, LLC ("Osh") which continued to operate in Kyrgyzstan as a wholly owned subsidiary of Alliance One.

According to the Statement of Facts, "Osh is the corporate successor to DIK, and is legally accountable for the criminal acts of its predecessor corporation.

Like the DOJ and SEC's prior enforcement action against Bobby Elkins (see here and here), the Statement of Facts focus on improper payments to "Kyrgyz Official A," "the Akims" and the "Kyrgyz Tax Inspection Police."

Kyrgyz Official A served as the "General Director of the Tamekisi" "an agency and instrumentality of the [Kyrgyz] government [established] to manage and control the government-controlled shares of the tobacco processing facilities throughout Kyrgyzstan." According to the Statement of Facts, the Tamekisi agreed to issue a license to Dimon to process and export tobacco and that from October 1996 through at least February 2004, DIK delivered approximately $2.6 million in cash payments to the official. According to the Statement of Facts, these payments were intended to "influence acts or decisions" of the official in his official capacity and to secure DIK's "continued access to the tobacco processing facilities controlled by the Tamekisi."

According to the Statement of Facts, an Akim is a head of Kyrgyz local government with "authority over the sale of tobacco by the growers" within a specific municipality or geographic area. The Statement of Facts indicate that beginning in 1996 "it became necessary for DIK to obtain permission from local Akims to purchase tobacco from the growers in each area" and "several of the Akims demanded payment of a "commission" from DIK "in order to secure the relevant Akim's approval" for DIK to purchase tobacco from local growers. According to the Statement of Facts, from January 1996 to at least March 2004 DIK made cash payments "to the Akims of five different municipalities totaling approximately $283,762 in order to influence the acts and decisions of the Akims and to secure DIK's continued ability to purchase tobacco from growers in the muncipalities controlled by the Akims."

As to the Kyrgyz Tax Inspection Police, the Statement of Facts indicate that "during periodic audits" of DIK, the police assessed penalties and threatened to shut down DIK. According to the Statement of Facts, from March 2000 to March 2003 DIK "made approximately nine cash payments to officers of the Kyrgyz Tax Inspection Police totaling approximately $82,850 in order to influence the acts and decisions" of the police and to secure DIK's "continued ability to conduct its business in Kyrgyzstan."

According to the Statement of Facts, DIK maintained a company bank account in Kyrgyzstan, known as the "special account" to make the above described improper payments and when a DIK employee "needed to replenish money in the special account, he sent requests for funds by electronic mail or facsimile transmission to other employees and officers of Dimon or its affiliates in the U.S." accompanied by a wire transfer request to Dimon's Financial Accounting Department in Virginia.

According to the Statement of Facts, "the financial reporting on the special account from DIK and all other Dimon subsidiaries went directly to Dimon's corporate headquarters in the U.S." and in July 2002 "an internal audit report to Dimon headquarters stated that DIK management continued to be challenged by a 'cash environment' and cited corruption in Kyrgyzstan as a financial risk because of the potential control issue with cash payments."

According to the Statement of Facts, between January 1996 and December 2004, "the Kyrgyzstan business operations of DIK generated profits of approximately $4.8 million for its parent corporation, Dimon."

Thailand

Prior to 2005, Dimon maintained a wholly owned subsidiary, DIAG, which was organized under Swiss law and conducted business in the U.K., Brazil, Thailand, the U.S. and elsewhere. According to the Statement of Facts, "during the relevant time period, DIAG provided financial, accounting and management services to other Dimon subsidiaries that purchased tobacco grown in Brazil, and sold it to Dimon's customers including the [TTM]." According to the Statement of Facts, DIAG, which maintained its principal place of business in the U.K., "made regular reports of its business operations and financial accounts to officers of Dimon located at its headquarters in Danville, Virginia" and DIAG "regularly sought approval for management decisions from Dimon management and worked with and communicated with individuals acting as DIAG's agents" in Virginia and North Carolina "who undertook certain acts while in the territory of the United States such that DIAG was a "person" within the meaning ofthe FCPA.

Prior to 2005, Standard maintained a wholly owned subsidiary, Standard Brazil Ltd ("Standard Brazil"), which was organized under the laws of the Isle of Jersey, Channel Islands, and conducted business in Brazil, Thailand, and elsewhere. During the relevant period, Standard Brazil provided financial, accounting and management services to other Standard subsidiaries that purchased tobacco grown in Brazil, and sold it to Standard's customers including the TTM. Standard Brazil regularly sought approval for management decisions from Standard management and worked with and communicated with individuals at Standard, acting as Standard Brazil's agents in the United States and undertaking certain acts within the territory of the United States such that Standard Brazil was a "person" within the meaning of the FCPA.

The Statement of Facts concern improper payments to TTM (see here) "an agency and instrumentality" of the Thai government established to "manage and control the government-owned tobacco industry in Thailand." According to the Statement of Facts, the TTM "supervised the cultivation of domestic tobacco crops, purchased imported tobacco and manufactured cigarettes and other tobacco products in Thailand."

According to the Statement of Facts, the TTM was headed by a Managing Director ("Thai Official A"), appointed by the Finance Ministry, who reported through a Board of Directors directly to the Minister of Finance of Thailand and, as such, was a "foreign official" within the meaning of the FCPA. (See here for TTM's current organizational chart).

According to the Statement of Facts, during the relevant time period, Dimon purchased tobacco from growers in Brazil and sold the Brazilian tobacco to the TTM through DIAG and Standard sold the Brazilian tobacco to the TTM through Standard Brazil. To help facilitate these sales, Dimon and Standard Brazil retained sales agents in Thailand and the companies paid sales commissions to the agents in varying amounts as a percentage of its tobacco sales to the TTM.

According to the Statement of Facts:

"Beginning in or around 2000 and continuing through at least in or around 2004, Dimon and Standard, through their agents, subsidiaries and affiliates, collaborated together and with a competing tobacco merchant, Company A, [presumably Universal Corp.] to apportion tobacco sales to the TTM among themselves and to coordinate their sales prices in order to ensure that each company would share in the Thai tobacco market. Beginning in or around 2000 and continuing through at least in or around 2004, Dimon, Standard and Company A agreed among themselves to pay bribes to officials of the TTM in exchange for their purchase of tobacco. The three companies agreed to pay 'special expenses,' calculated at an agreed rate per kilogram of tobacco sold to the TTM, that were paid as kickbacks to Thai Official A and other TTM officials to induce the TTM to purchase tobacco and to secure an improper advantage for Dimon, Standard and Company A."

According to the Statement of Facts, between 2000 and 2004 "Dimon realized net profits of approximately $4.3 million from the sale of Brazilian tobacco to the TTM" and paid "special expenses totaling approximately $542,950 as kickbacks to Thai Official A and other TTM officials..." According the Statement of Facts, during the same time period, "Standard realized net profits of approximately $2.7 million from the sale of Brazilian tobacco to the TTM" and paid "special expenses totaling approximately $696,160 as kickbacks to Thai Official A and other TTM officials..."

According to the Statement of Facts, the companies and individuals involved "knew and intended that the corrupt special expenses paid to Thai Official A and other TTM officials" would "secure an improper advantage for Dimon and Standard by influencing the TTM's decision to purchase Brazilian tobacco from Dimono and Standard."

According to the Statement of Facts:

"After the merger of Dimon and Standard in 2005, Alliance One consolidated the assets, liabilities, and business affairs of Standard Brazil with DIAG and renamed the subsidiary corporation Alliance One International AG" ("Alliance One AG"). According to the Statement of Facts, as the successor corporation, Alliance One AG "is legally accountable for the criminal acts of both DIAG and Standard Brazil" and Alliance One AG "continued to operate in the U.K. and elsewhere as a wholly owned subsidiary" of Alliance One and accordingly is a "person" within the meaning of the FCPA."

The Statement of Facts then lists several acts in furtherance of the improper payments that had a U.S. nexus such as e-mail messages and wire transfers to or from the U.S.

According to the DOJ, it agreed to enter into the NPA with Alliance One based, in part, on the following factors: "(a) Alliance's timely, voluntary and complete disclosure of the conduct and events at issue; (b) Alliance's thorough, real-time cooperation with the Department and the Securities and Exchange Commission, including its voluntary production of documents; (c) the remedial compliance efforts undertaken and to be undertaken by Alliance; and (d) no further criminal conduct has occurred since the merger that created Alliance."

During the three-year NPA, Alliance One shall, among other things, cooperate in any related DOJ or SEC investigation. Pursuant the NPA, Alliance One must also strenghen its internal controls and retain an independent corporate monitor.

The criminal informations against Alliance One AG (here) and Osh (here) concern the same core conduct described above.

The criminal information against Alliance One AG concerns Thailand conduct and charges: (i) conspiracy to violate the FCPA and to knowingly falsify books, record and accounts of Dimon and Standard; (ii) substantive FCPA anti-bribery violations; and (iii) aiding and abetting FCPA books and records violations.

The Alliance One AG Plea Agreement (here) notes that the benefit received from the improper conduct was approximately $7 million. The company received a "culpability score" credit for "self-reporting, cooperation, acceptance of responsibility." The fine range, per the U.S. Sentencing Guidelines was $4.2 - $8.4 million. The DOJ and Alliance One AG agreed that the appropriate sentence should be $5.25 million. The plea agreement notes that the plea was "the result of the voluntary disclosure made by [Alliance One AG] and its parent [Alliance One] to the Department beginning in May 2004, and the disclosure of evidence obtained as a result of the extensive investigation subsequently conducted by [Alliance One] into the operations of [Alliance One AG], its parent, affiliates, and subsidiaries." The agreement states that "at the time of the initial disclosure, the conduct was unknown to the Department."

The criminal information against Osh concerns Kyrgyzstan conduct and charges: (i) conspiracy to violate the FCPA and to knowingly falsify books, record and accounts of Dimon; (ii) substantive FCPA anti-bribery violations; and (iii) aiding and abetting FCPA books and records violations.

The Osh Plea Agreement (here) notes that the benefit received from the improper conduct was approximately $4.8 million. The company received a "culpability score" credit for "self-reporting, cooperation, acceptance of responsibility." The fine range, per the U.S. Sentencing Guidelines was $4.2 - $8.4 million. The DOJ and Osh agreed that the appropriate sentence should be $4.2 million. The plea agreement notes that the plea was "the result of the voluntary disclosure made by [Osh] and its parent [Alliance One] to the Department beginning in May 2004, and the disclosure of evidence obtained as a result of the extensive investigation subsequently conducted by [Alliance One] into the operations of [Osh], its parent, affiliates, and subsidiaries." The agreement states that "at the time of the initial disclosure, the conduct was unknown to the Department."

In the DOJ's Consolidated Sentencing Memorandum (here), it notes that the "corporations have executed a tolling agreement that provides that the statute of limitations was tolled on May 24, 2004, the date on which the corporation first notified the Department that they were undertaking an internal investigation."

As to the ultimate fine amounts, the DOJ states that it "and the defendant corporations have negotiated a fine that is at or above the minimum fine in the range."

As to Osh's $4.2 million fine, the DOJ states:

"The Department submits that a fine at the low end of the Guidelines range is
appropriate in this case given the company's prompt and timely self-disclosure of the potentially corrupt payments as soon as they were discovered, the remedial measures taken and the nature and extent of the company's cooperation throughout the
government's investigation. The company retained outside counsel to conduct an extensive internal investigation and voluntarily produced thousands of pages of documents and memoranda of witness interviews. The company's remedial measures, outlined below, included the termination of all employees found to have authorized or participated in the improper payments."

As to Alliance One AG's $5.25 million fine, the DOJ states:

"This fine is above the minimum of the range partly to account for the fact
that two subsidiaries (DIAG and Standard Brazil) participated in the commission of the offense, along with a third unrelated company, although they were subsidiaries of different parent corporations at the time. Further, because DIAG, Standard Brazil and Company A collaborated to fix prices and pay bribes to the Thai officials, the conduct was not limited to a few employees or confined to a single business unit."

The Government's Sentencing Memorandum concludes as follows:

"Alliance's cooperation was both timely and thorough. During the course of the government's investigation, Alliance and its outside counsel fully cooperated in good faith with the Department, and produced thousands of pages of documents and financial records. Alliance tenninated or sought resignations from all employees who were found to have knowledge of or participated in the improper payments. Alliance voluntarily produced memoranda of employee interviews conducted by counsel. Alliance and their counsel have been available to meet with Department attorneys to brief them on the progress and findings of their internal investigation. The agreed dispositions, described above, reflect the Department's recognition of Alliance's timely and thorough cooperation."

"Alliance took remedial actions including enhancement of its corporate compliance program, replacement of responsible management, and discipline or termination of wrongdoers. Specifically, Alliance took the following remedial actions:

• The Special Account maintained in the name of employees was closed.

• On May 24, 2004, the Audit Committee directed management to deliver a "clear and proactive message" that:

o "Illegal acts will not be tolerated in Dimon;"

o "any potentially illegal act should be brought to the attention of the CLO prior to execution of the transaction;" and

o "any individual that believes that an illegal act may have occurred should contact the CLO immediately."

• Management issued a directive to regional executives and all accounting personnel that any questionable expenses or payments and expenses without adequate
explanation or documentation must be reported to the Corporate Compliance Officer.

• The Audit Committee implemented a new policy requiring CFO or Controller pre-approval of any material payment in cash.

• Management issued a direction to employees that "[n]o payments to public officials or political parties are to be made in any form without the express advance approval of the Corporate Compliance Officer."

• Compliance Officer required all personnel to re-take an online training course covering the FCPA provided by Integrity Interactive.

• Responsible personnel, including senior management in Europe and Kyrgyzstan were terminated or left company voluntarily. Other employees were reprimanded.

• Corporate Accounting required supporting information for all payments made in cash from any entity where such payments exceed $2500 annually, and issued a directive to minimize cash payments for anything other than incidental expenses.

• All cash accounts must be maintained in the company's name.

• All cash transactions are required to be documented by receipts and signed by the recipient and they established a periodic review and approval process for all
non-incidental types of expenses paid in cash to ensure payments would comply with Company policy and the law.

A sentencing hearing is scheduled for October 21, 2010.

SEC

The SEC's settled civil complaint (see here) alleges the same core Kyrgyzstan and Thailand conduct as the DOJ's enforcement action.

As to books and records and internal controls, the SEC alleges that "Dimon's Country Manager authorized, directed, and made" the improper payments in Kyrgyzstan through a DIK bank account held under his name (the above mentioned special account), that "Dimon's Regional Financial Director authorized all fund transfers from a Dimon subsidiary's bank account to the Special Account" and that "Dimon's International Controller formalized the accounting methodology used to record the payments made from the Special Account for purposes of internal reporting by Dimon."

In summary fashion, the SEC also alleged as follows:

"Despite their extensive international operations, Dimon and Standard lacked sufficient internal controls designed to prevent or detect violations of the FCPA. During the 2000-2004 period, Dimon and Standard each had a policy manual prohibiting bribery, but the training and guidance provided to their employees regarding compliance with the FCPA were not adequate or effective. Dimon and Standard each also failed to establish a program to monitor compliance with the FCPA by its employees, agents, and subsidiaries."

As I've indicated in prior posts, before a company settles an FCPA enforcement action, it usually has to answer the enforcement agencies' "where else" question - as in, if you engaged in improper conduct or had internal control problems in Kyrgyzstan and Thailand, where else did you engage in improper conduct or have internal control problems. To answer this broad question, the company is forced to conduct a world-wide review of its operations and that is why one sees, as in the SEC's complaint against Alliance One, a laundry list of other alleged improper conduct.

In summary fashion, the SEC's complaint also alleges as follows:

"By at least May 2005, Standard provided gifts, travel, and entertainment expenses to foreign government officials in the Asian Region, including China and Thailand." "For example, in 2002 and 2003, contemporaneous documents show that Standard employees provided watches, cameras, laptop computers, and other gifts to Chinese and Thailand tobacco officials. Standard also paid for dinner and sightseeing expenses during non-business related travel to Alaska, Los Angeles, and Las Vegas for Chinese and Thailand government delegations."

"In 2004, Standard made a $50,000 payment to a political candidate who was also Standard's agent for tobacco sales in Thailand." "The $50,000 payment was falsely recorded in Standard's books as payment for consulting work."

"In April 2003, Dimon's subsidiary in Greece made a payment of $96,000 to a Greek tax official in exchange for the tax official's agreement not to pursue certain irregularities discovered during an audit, thus significantly reducing Greece's tax liability. Separately, the controller of Dimon's subsidiary in Indonesia made a $44,000 cash payment to an Indonesian tax official in exchange for receiving a tax refund."

The SEC complaint charges Alliance One with violations of the FCPA's anti-bribery provisions, books and records and internal control provisions.

The SEC release (here) notes that Alliance One, without admitting or denying the SEC's allegations, consented to entry of a permanent injunction enjoining future FCPA violations and agreed to pay a disgorgement penalty of $10 million.

In an Alliance One press release (see here) R. E. Harrison, the Company's Chairman and Chief Executive Officer, stated:

"Our Company is committed to the highest standards of conduct in all transactions in all jurisdictions where we do business throughout the world. In these cases, although occurring prior to our merger in May, 2005, the conduct by those predecessor companies did not meet our standards and we believe it to be in the best interest of the Company, our shareholders and our other stakeholders to put these issues behind us by means of these negotiated agreements. As indicated in our agreement with the DOJ, we have cooperated fully throughout the course of this investigation and believe that since our merger we have demonstrated our complete commitment to conducting our business in accordance with the highest standards of legal and ethical conduct."

Universal

The Universal enforcement action included a non-prosecution agreement between the DOJ and Universal, a criminal plea by Universal Leaf Tabacos Ltda. ("Universal Brazil"), as well as an SEC enforcement action against Univeral.

Patrick Hanes, Williams Mullen (see here) represented Univeral.

DOJ

Pursuant to a non-prosecution agreement (see here) the DOJ agreed not to prosecute Univeral Corp. related to:

"the making of improper payments, by employees and agents of Universal and/or its subsidiaries to officials of the Government of Thailand in connection with Universal Brazil's efforts to secure business, namely, to secure the improper sale of leaf tobacco to the Thailand Tobacco Monopoly, from 2000 to 2004, and the accounting and record-keeping associated with these improper payments."

Pursuant to the NPA, Universal Corp. "admitted, accepted, and acknowledged responsibility for the conduct of its subsidiaries" as set forth in a Statement of Facts attached to the NPA.

In summary fashion, the Statement of Facts are as follows:

Universal is a publicly traded company headquartered in Richmond, Virginia which, through its subsidiaries, is a worldwide purchaser and supplier of processed leaf tobacco. As an issuer, Universal was required to make and keep accurate books, records and accounts reflecting its transactions and disposition of assets of Universal and its subsidiaries including Universal Brazil.

Universal Brazil, a wholly owned subsidiary of Universal, was a Brazilian corporation, headquartered in Santa Cruz do Sul, Brazil. Universal Brazil was a "person" under the FCPA, and individuals and entities affiliated with and acting on behalf of Universal Brazil while in the territory of the United States, used and caused the use of the mails and means and instrumentalities of interstate commerce and performed other acts in furtherance of an offer, promise, authorization, or payment of money or anything of value to foreign government officials for the purpose of assisting in obtaining or retaining business.

The Statement of Facts refers to the same general kickback scheme involving TTM officials as alleged in the Alliance One enforcement action. The Statement of Facts indicate that "from in or around March 2000 to in or around July 2004, the TTM awarded Universal Brazil five orders for the sale of Brazilian leaf tobacco. To obtain these orders, between June and December 2004, Universal Brazil paid approximately $697,800 in kickbacks to representatives of the TTM through Agent X (a Thai national)."

The Statement of Facts then details the kickback scheme including the involvement of Employee A (a U.S. citizen who was the President of Universal Brazil); Employee B (a Brazilian citizen who was the Commercial Director for Universal Brazil); Employee C (a Brazilian citizen who was a Sales Manager for Universal Brazil); Employee D (a Zimbabwean citizen who was a Sales Director for Universal Brazil); Employee E (a Brazilian citizen who was the Finance Director for Universal Brazil); Employee F (a Brazilian citizen who was the Export Superintendent for Universal Brazil); Employee G (a Brazilian citizen who was a Sales Manager for Universal Brazil); Employee H (a Zimbabwean citizen who was the Sales Director for Universal Leaf Asia); Employee I (a Brazilian citizen who was an account manager in Brazil); Employee J (a U.S. citizen who was a Vice President of Universal Leaf Tobacco - a wholly owned subsidiary of Universal Corp. - who approved wiring instructions for payments to Agent X); Employee K (a U.S. citizen who was the Controller of Universal who approved wiring instructions for payment to Agent X); and Employee L (a U.S. citizen who was the Director of Financial Accounting for Universal Leaf Tobacco who approved wiring instructions for payments to Agent X).

Given the alleged involvement of others, including U.S. citizens, it will be interesting to see if additional DOJ or SEC enforcement actions against such individuals are forthcoming.

According to the Statement of Facts:

"The scheme ended in or about April 2005 when the TTM switched to an 'electronic auction' process to award orders. The electronic auction process increased the transparency of all of the bids received by the TTM, allowed for more open competition, and prevented Universal Brazil [and others] from including additional amounts in the price of their tobacco sales, thereby eliminating the ability of the companies to mask kickback payments used to secure sales orders."

According to the Statement of Facts - "from in or around 2000 through in or around 2004, Employee E and others falsely characterized Universal Brazil's kickback payments to TTM representatives in Universal Brazil's books, records and accounts (which were incorporated into the books, records and acconts of Universal Corp. for purposes of preparing year-end financial statements) as "commission payments" to Agent X."

As to Universal's internal controls, the Statement of Facts indicates as follows:

"Universal Brazil's employees, including Employees E and F, directed that
kickback payments be paid through LATCO, a wholly owned Universal subsidiary. The financial records of LATCO were maintained with insufficient oversight or review by Universal's legal, finance, or compliance departments and were never audited by Universal during the period from 2000 to 2004. Universal Brazil's Finance Department and executives and employees from either Universal Corp. or Universal Leaf Tobacco, including Employee J, Employee K, and Employee L approved or directed the transfer of the multiple 'commission' payments to Agent X even though: (a) some of the payments were described as 'special expense' payments; (b) there was no contractual basis for the payment of the additional commission amounts; (c) the payments were to accounts unassociated with the Agent; (d) the instructions that were provided when wiring the money indicated that Universal Corp. should not identify the agent or that the amounts were for 'special expenses;' and (e) the payments were above the standard five (5) percent commission typically paid by Universal Brazil to its agents.

The Statement of Facts also indicate that "Universal Brazil did not conduct sufficient due diligence prior to engaging Agent X."

According to the DOJ, it agreed to enter into the NPA with Universal based, in part, on the following factors: "(a) Universal's discovery of the violations through its own internal hotline process; (b) timely, voluntary, and complete disclosure of the facts; (c) Universal's extensive, thorough, real-time cooperation with the Department and the SEC; and (d) the remedial efforts already undertaken and to be undertaken by Universal."

During the approximate three-year NPA, Universal Corp. shall, among other things, cooperate in any related DOJ or SEC investigation. Pursuant the NPA, Universal Corp. must also strenghen its internal controls and retain an independent corporate monitor.

The criminal informations against Universal Brazil (see here) concerns the same core conduct described above.

The criminal information against Univeral Brazil charges: (i) conspiracy to violate the FCPA and to knowingly falsify books, record and accounts of Universal; and (ii) substantive FCPA anti-bribery violations.

The Universal Brazil Plea Agreement (here) notes that the benefit received from the improper conduct was between $1 million - $2.5 million. The company received a "culpability score" credit for "self-reporting, cooperation, and acceptance of responsibility." The fine range, per the U.S. Sentencing Guidelines was $$6.3 million - $12.6 million. The DOJ and Univeral Brazil agreed that the appropriate sentence should be $4.4 million. The plea agreement states that the fine amount (30% below the bottom of the sentencing guidelines range) "was appropriate" based on the following factors:

"Universal Corporation and Universal Brazil's extensive cooperation
during the course of the investigation, including the provision of relevant documents and information; Universal Corporation and Universal Brazil's substantial assistance with other related Department investigations regarding the bribery of foreign government officials; and Universal Corporation and Universal Brazil's remedial efforts, including enhancing the companies' compliance resources and compliance policies, procedures, and internal controls."

The plea agreement further states that the investigation was "a result of the voluntary disclosure made by Universal Brazil and its parent corporation Universal Corporation, through their counsel, to the Department and the disclosure of evidence obtained as a result of the investigation subsequently conducted through their counsel and the extraordinary cooperation by Universal Brazil and its parent Universal Corporation throughout the Department's investigation" and that "at the time of the initial disclosure, the conduct was unknown to the Department."

The Agreed Sentencing Memorandum (here) sheds light on how the facts at issue were first uncovered. The memo states:

"The government's investigation began with a self-disclosure by counsel for Universal in 2006. In 2006, a former Univeral Brazil employee with knowledge of the bribery scheme in Brazil reported the conduct to Universal through Universal's website. Based on the tip provided by the former employee, Universal's counsel and outside auditors investigated the matter, identified a series of suspicious payments, and reported this information to the Department. Thereafter, Universal and Univeral Brazil cooperated in the Department's and the U.S. Securities and Exchange Commission's joint investigation of this matter."

In footnotes, the DOJ states as follows:

"The Department encourages companies to disclose evidence of potential FCPA violations promptly. The agreed disposition with Universal Brazil and its parent Universal partly reflect credit given for Universal's timely self-disclosure, thorough investigation, and ongoing cooperation."

"Pursuant to Universal's internal compliance program, Universal maintained on its website an employee 'hotline' that allowed current and former employees to report improper conduct. It is because of this useful compliance initiative that the improper conduct came to light. The agreed upon disposition partly reflects credit given for Universal's pre-existing compliance program."

According to the sentencing memo, Universal Brazil realized net profits of approximately $2.3 million on four contracts secured through the $697,800 in kickbacks to TTM officials.

As to the $4.4 million fine amount, the DOJ stated "that a fine below the Guidelines range is appropriate in this case given the company's prompt and timely self-disclosure of the potentially corrupt payments as soon as they were reported, the nature and extent of the company's cooperation throughout the government's investigation, and the remedial measures taken."

The sentencing memo details timely disclosure and cooperation as follows:

"Universal and Univeral Brazil's cooperation was both timely and thorough. The company retained outside counsel to conduct an extensive internal investigation. Universal, Universal Brazil, and their counsel were consistently available to meet with Department attorneys to brief them on the progress and findings of their internal investigation. During the course of the government's investigation, Universal and Univeral Brazil and its outside counsel fully cooperated in good faith with the Department and produced thousands of pages of documents and financial records and made employees available for interviews. Further, Universal and Univeral Brazil terminated or reprimanded employees who were determined to have authorized and facilitated the improper payments."

As to remedial measures, the sentencing memo states:

"The company's remedial measures, outlined below, included the implementation of an enhanced compliance program. Further, Universal Brazil, pursuant to the plea agreement, and its parent, Universal, pursuant to an Non-Prosecution Agreement (NPA), have agreed to further strengthen their internal controls, implement a rigorous compliance program and engage an independent corporate monitor ("monitor") who will conduct a comprehensive review of the Universal and Univeral Brazil's compliance standards and procedures and its internal controls. The monitor will prepare an initial report and two follow-up reports of his or her findings and make recornmendations for improvements in the companies' compliance programs over the three-year term. Universal and Univeral Brazil took remedial actions including enhancement of the corporate compliance program, replacement of responsible management, and discipline of wrongdoers.

Specifically, Universal and Univeral Brazil took the following remedial
actions:

• Management established a Compliance Committee comprised of the Chief Financial Officer, the General Counsel, the Head of Internal Audit, the Treasurer, the Controller, and the Principle Sales Director. The Compliance Committee meets on a monthly basis to review and evaluate Universal's compliance programs and training.

• Management established a Chief Compliance Officer who is responsible for the day-today operations of Universal's compliance program and Chairs the Compliance Committee.

• Management issued a revised and updated Code of Conduct and translated the Code into fourteen (14) languages.

• Management required sales, finance, and executive-level personnel to attend a day long in-person training session devoted to FCPA and local anti-bribery laws.

• Management revised and enhanced its payment approval policy which now requires an 'approving officer' to review all supporting documentation for a payment and to understand the purpose of the payment prior to approval. The 'approving officer' must certify that he or she has reviewed the existing documentation and obtained an understanding of the legitimate business purpose of the payment. The policy also requires that employees investigate any questionable payments and determine that they
are legal, legitimate, and appropriate prior to approving the payment.

• Management revised and enhanced its due diligence process for agents. Initially, Universal suspended all commission payments to agents worldwide subject to legal department confirmation that each requested payment was adequately supported. Thereafter, Universal instituted a formal and standardized process for the assessment and approval of existing and proposed sales agents, which is coordinated by Universal's Legal Department. As part of this policy, an officer of Universal, known as a 'Relationship Officer,' must complete a 'Sales Agent Due Diligence Checklist' for each prospective sales agent. This detailed checklist includes disclosure of relationships with foreign governments by owners, officers, directors and employees of the third-party agent or their family members, reference checks, and a list of potential red flags.

• Management conducted, and has pledged to continue to conduct, compliance and/or FCPA training at every global conference held for Universal employees.

• Management terminated and reprimanded certain employees involved in the improper
conduct."

SEC

The SEC's settled civil complaint (see here) alleges the same core Thailand conduct as the DOJ's enforcement action.

Further to the "where else" issue discussed above, the SEC's complaint also alleges conduct related to Mozambique and Malawi business.

In summary fashion, the SEC's complaint alleges:

"From 2000 through 2007, Universal Corporation violated the Foreign Corrupt Practices Act of 1977 (the "FCPA") by paying, through its subsidiaries, over $900,000 to govemment officials in Thailand and Mozambique to influence acts and decisions by those foreign officials to obtain or retain business for Universal. Those payments were directed by employees at multiple levels of the company, including management in its corporate offices and at its wholly-or majority-owned and controlled foreign subsidiaries. The Company had inadequate internal controls to prevent or detect any of these improper payments, and improperly recorded the payments in its books and records."

"Between 2000 and 2004, Universal subsidiaries paid approximately $800,000 to bribe officials of the government-owned Thailand Tobacco Monopoly ("TTM") in exchange for securing approximately $11.5 million in sales contracts for its subsidiaries in Brazil and Europe. From 2004 through 2007, Universal subsidiaries made a series ofpayments in excess of $165,000 to government officials in Mozambique, through corporate subsidiaries in Belgium and Africa. Among other things, the payments were made to secure an exclusive right to purchase tobacco from regional growers and to procure legislation beneficial to the Company's business."

"In addition, between 2002 and 2003, Universal, subsidiaries paid $850,000 to high ranking Malawian government officials. Those payments were authorized by, among others, two successive regional heads for Universal's African operations. Universal did not accurately. record these payments in its books and records."

As to the Mozambique payments, the complaint alleges:

(i) that two $10,000 payments were made to the "wife of an official in Mozambique's Ministry of Agriculture and Fisheries" to obtain the official's "assistance in revising legislation to impose a 20% export tax on unprocessed tobacco" - legislation that would have "benefited Universal over competitors because Universal was building a tobacco processing plant in the country;

(ii) that "Universal Leaf Africa directed that Universal's Belgian subsidiary pay $50,000 to the brother of an official of in Mozambique's Ministry of Agriculture and Fisheries" to "enable the Company's Mozambican subsidiary to avoid incurring an export tax that it otherwise would have incurred for shipping unprocessed tobacco out of Mozambique;"

(iii) that "Univeral Leaf Africa made a series of payments totaling $86,830 from its own account and the account of the Mozambican subsidiary to secure a land concession given the subsidiary exclusive rights to purchase tobacco from growers on that land from the 2006 growing season." According to the complaint Universal Leaf made "cash payments to a Governor in Mozambique; and gave gifts including supplies for a bathroom renovation, and personal travel on a Company jet." and

(iv) that "Universal Leaf Africa forgave a debt and directed an additional series of payments from its own accounts and the account of the Mozambican subsidiary totaling $19,061" - according to the complaint the "debt forgiveness and payments were provided to Mozambican government officials and their family members in exchange for continued business favors."

As to the Malawi payments, the complaint alleges as follows:

"Between approximately October 2002 and November 2003, Universal Leaf Africa made payments totaling $500,000 to one high-ranking Malawian government official; $250,000 to a second high-ranking government official; and $100,000 to a political opposition leader."

As to Universal's books and records and internal controls, the SEC alleges in summary fashion that Universal made payments under circumstances in which the Company lacked adequate internal controls to ensure that such payments were not being transmitted to government officials in order to obtain or retain business and that Universal's books and records falsely characterized the payments.

The SEC complaint charges Universal with violations of the FCPA's anti-bribery provisions, books and records and internal control provisions.

The SEC release (here) notes that Universal, without admitting or denying the SEC's allegations, consented to entry of a permanent injunction enjoining future FCPA violations and agreed to pay a disgorgement penalty of approximately $4.6 million.

In a Universal press release (see here) George C. Freeman, III, Universal’s Chairman, President, and Chief Executive Officer, states:

“Universal prides itself on conducting business with honesty and integrity. These past payments were - and are - contrary to the policies and standards of Universal and its subsidiaries. We have absolutely no tolerance for this type of activity. Our Audit Committee conducted a rigorous and thorough investigation, we voluntarily reported this matter to federal authorities, and we have fully cooperated with federal authorities at each step of the investigation. We have since taken steps to strengthen our culture of ethical and legal compliance, and our efforts are supported by our operations around the world. Our regional management is fully committed to our culture.”

Giffen's Contribution to FCPA Case Law

Notwithstanding its mysterious conclusion, the Giffen enforcement action was instructive because it represented a rare instance in which an FCPA defendant mounted an aggressive legal defense. As a result, the long enforcement action yielded FCPA case law, even though the issues subjected to judicial scrutiny did not involve core FCPA elements.

So what did we learn from the Giffen case law?

For starters, we learned that just because the DOJ charges it, does not mean that the charge is legally viable.

As I explored in this prior post, in addition to the FCPA charges, the original indictment also alleged that Giffen's actions violated 18 USC 1346 by depriving the citizens of Kazakhstan of the honest services of their government officials - one of the more curious "tag-a-long" charges ever in an FCPA enforcement action.

In 2004, Giffen moved to dismiss portions of the charges that alleged a scheme to deprive the citizens of Kazakhstan of the honest services of their government officials. He asserted that application of the honest services fraud theory of Section 1346 to Kazakhstan impermissibly extended the mail and wire fraud statutes to cover activities beyond the original intent of Congress.

Judge William Pauley of the Southern District of New York agreed and granted Giffen's motion to dismiss portions of the charges that alleged a scheme to deprive the citizens of Kazakhstan of the honest services of their government officials. See U.S. v. Giffen, 326 F.Supp.2d 497 (S.D.N.Y. 2004).

In so holding, Judge Pauley stated that the DOJ offered "the slenderest of reeds to support its expansive interpretation." Among other things, Judge Pauley noted that the DOJ could not point to "any decision where a court upheld application of the honest services theory in an international setting involving a foreign government and its citizens."

When the DOJ pointed to "two 25-year old indictments" charging a similar theory, Judge Pauley noted that the DOJ "has not unearthed any published decision on the issue" and that the DOJ "conceded that there were no court decisions addressing the validity of the two 25-year old indictments." Judge Pauley further stated that just because certain U.S. Attorneys were able to obtain indictments "under an intangible rights theory, grounded between a foreign government and its citizenry, is not the kind or quality of precedent this Court need consider."

Judge Pauley concluded that "Congress did not intend that the intangible right to honest services encompasses bribery of foreign officials in foreign countries" and that "application of Section 1346 to Giffen [was] unconstitutional."

In the prior post, I noted that many current FCPA legal theories are similarly not supported by any case law or other meaningful precedent or guidance.

I then posed the question - if challenged would a judge (like Judge Pauley in Giffen) conclude that the DOJ offered the "slenderest of reeds" to support many of its expansive FCPA interpretations?

I asked - what case law would the DOJ cite to support certain of its aggressive interpretations (such as employees of seemingly "commercial" enterprises being "foreign officials" under the FCPA)? Would DOJ not have to concede that there are no court decisions addressing the validity of certain of its interpretations? Would the DOJ point to prior enforcement actions settled by companies or individuals to support many of its enforcement theories? If so, presumably a judge would similarly state "this is not the kind of precedent" I need to consider.

We also learned during the Giffen enforcement action that an act of state doctrine is near impossible to properly assert in an FCPA enforcement action. In addition to claiming that his actions were taken with the knowledge and support of the Central Intelligence Agency, the National Security Council, the Department of State and the White House, Giffen also asserted that he was acting as an official of the Kazakh government and thus, under the act of state doctrine, the court was precluded from considering the validity of Kazakh law and the officials acts of its leaders.

However, Judge Pauley stated that the act of state doctrine has a territorial dimension in that it is limited to acts done within the applicable foreign state in the exercise of government authority. Because the Giffen allegations, like most FCPA allegations, did not relate solely to conduct within Kazakhstan, Judge Pauley concluded that the act of state doctrine did not bar Giffen's prosecution. For instance, and among other things, the indictment alleged that Giffen transferred funds from Swiss bank accounts.

Another Stumble For The DOJ In The Kozeny Affair

The DOJ continues to encounter problems in some of its signature FCPA prosecutions.

Earlier this month, it was the Giffen Gaffe (see here).

Last fall, U.S. District Court Judge Shira Scheindin (S.D.N.Y.) remarked at Fredrick Bourke's sentencing that "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).

And then there is Victor Kozeny, indicted along with Bourke, and the alleged mastermind of the fraudulent investment scheme related to the privatization of state-owned businesses in the Republic of Azerbaijan.

In 2005, Kozeny was criminally charged (see here) with, among other charges, one count of engaging in a conspiracy to violate the FCPA and twelve counts of violating the FCPA.

To make a long story short, Kozeny remains the most famous FCPA fugitive living a comfortable life in the Bahamas. The DOJ's repeated efforts to extradite him from the Bahamas to the U.S. have failed. See here.

In the indictment, the DOJ asserted that "Peak House" a multi-million dollar property in Aspen, Colorado was the site of certain of Kozeny's criminal activity.

Peak House was sold in 2001 for approximately $22 million and the DOJ sought civil forfeiture of the funds it alleged were connected to Kozeny's criminal activity.

However, U.S. District Court Judge Harold Baer (S.D.N.Y.) recently concluded that the DOJ's attempt was barred by the statute of limitations.

This latest DOJ setback in the Kozeny affair would seem embarrassing for the DOJ given that Judge Baer criticized the DOJ's lack of diligence in even attempting to file a civil forfeiture suit in a timely fashion.

Judge Baer concludes his opinion (see here) by stating:

"It is unfortunate that this action, which appears to have some merit and involves a substantial amount of funds, must be dismissed on procedural grounds, but there is no question that the Government learned of the Peak House funds at the very latest by 2005 and sat on its hands until 2009."

Brian Whisler (here), a former federal prosecutor and current partner in
Baker & McKenzie's white collar practice and individual who brought this decision to my attention, noted that "this defeat on procedural grounds represents yet another bump in the road for DOJ in the Bourke/Kozeny matter and suggests that DOJ will likely persist in its pursuit of Kozeny now that a criminal conviction is legally required to effect forfeiture of the sale proceeds of Kozeny's Aspen home and other assets."

Friday Roundup

The Bribery Act is not the only thing delayed in the U.K., where in the world is James Tillery, Thai authorities looking into Alliance One and Universal Corp bribe recipients, and corporate directors appear satisfied ... it's all here in the Friday roundup.

BAE U.K. Plea Agreement Delayed

In a recent article in The Times (London), Alex Spence and David Robertson report that the BAE - SFO plea agreement "is unlikely to come before the courts for approval before November."

In February (see here) the SFO announced that it "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." The SFO resolution was controversial given that BAE was viewed by many to have engaged in bribery around the world.

The Times reports "that the SFO fears that a judge may now refuse to approve the BAE settlement or increase the penalties imposed on the company." The article indicates that "BAE, which has always denied bribery, is understood to be frustrated by the slow progress of the SFO case, but the delay is not thought to have had an impact on the company's operations."

James Tillery

In December 2008, James Tillery, a former executive of Willbros International Inc., and Paul Novak, a consultant to the company, were criminally charged "in connection with a conspiracy to pay more than $6 million in bribes to government officials in Nigeria and Ecuador ..." (see here).

In November 2009, Novak pleaded guilty to one count of conspiracy to violate the FCPA and one substantive count of violating the FCPA (see here).

Tillery has apparently been hanging out in Nigeria, but is now apparently in custody according to various Nigerian news outlets. According to the sources, "Tillery was believed to have been handed over by officials of Interpol to officials of the US Federal Bureau of Investigation (FBI)."

Apparently this occurred "without the knowledge of Attorney-General of the Federation and Minister of Justice, Mr. Mohammed Adoke, who is supposed to be notified before such action is taken. Under section 6 of the Extradition Act, a request for extradition is supposed to be sent to the AGF who is supposed to arraign such a deportee before a magistrate court and upon the declaration of the magistrate, the deportee is deported accordingly."

Then it was reported that Tillery's extradition "was stopped by immigration officials at the Murtala Muhammed International Airport, Lagos because he did not have a travel document."

Then Tillery's Nigerian lawyer apparently stepped in and said that the attempted extradition was a "grave assault on the sovereignty of Nigeria" and a violation of Nigeria's Extradition Act because Tillery renounced his U.S. citizenship and became a Nigerian by naturalization in 2009. Thus, the lawyer argued that the U.S. needed to follow legal steps in Tillery's extradition.

Then it was reported that Justice Abang Okon of the Federal High Court in Lagos ordered the Federal Government to halt its alleged plan to extradite Tillery from Nigeria to the U.S.

For more on Willbros Group and other individuals involved in related enforcement actions (see here and here).

Thai Authorities Investigating Alliance One / Universal Corp. Bribe Recipients

Earlier this month, the DOJ and SEC announced a joint FCPA enforcement action against tobacco companies Alliance One International Inc. and Universal Corporation. Certain of the allegations against both companies involved bribe payments to "Thai government officials to secure contracts with the Thailand Tobacco Monopoly (TTM), a Thai government agency, for the sale of tobacco leaf." (See here).

In this prior post, I noted that it is potentially embarrassing for a foreign country to have "one of its own" profiled in a U.S. FCPA enforcement action. With increasing frequency, the end result is that the alleged "foreign official" bribe recipient becomes the subject of an "in-country" investigation.

As noted in this Bangkok Post article:

"A local investigation is expected into US allegations that Thailand Tobacco Monopoly staff accepted US$1.93 million (62 million baht) in bribes to buy Brazilian tobacco. The Department of Special Investigation has asked the Finance Ministry to file a complaint against the TTM staff so it can look into the allegations. DSI director-general Tharit Pengdit told the Bangkok Post yesterday the Finance Ministry, which supervises the state-owned cigarette maker, should file a complaint with the DSI so it can look into the US claims. [...] Sathit Limpongpan, permanent secretary for finance, said his ministry would work with the Justice Ministry to seek information from the US Justice Department and would conduct an initial investigation."

Corporate Directors Are Satisfied

According to a recent legal survey by Corporate Board Member and FTI Consulting (see here), 90% of directors "are satisfied with their in-house legal department's management" of FCPA issues.

A good weekend to all.

In The Blink Of An Eye ... Along Comes A Securities Fraud Suit

In last week's roundup (see here) it was noted that on Monday August 9th, SciClone Pharmaceuticals Inc. disclosed in an 10-Q filing as follows:

"On August 5, 2010 SciClone was contacted by the SEC and advised that the SEC has initiated a formal, non-public investigation of SciClone. In connection with this investigation, the SEC issued a subpoena to SciClone requesting a variety of documents and other information. The subpoena requests documents relating to a range of matters including interactions with regulators and government-owned entities in China, activities relating to sales in China and documents relating to certain company financial and other disclosures. On August 6, 2010, the Company received a letter from the DOJ indicating that the DOJ was investigating Foreign Corrupt Practices Act issues in the pharmaceutical industry generally, and had received information about the Company’s practices suggesting possible violations."

As indicated in the prior post, news of the FCPA inquiry sent SciClone's shares, at one point, down 41% to a 52 week low.

As indicated in this press release on Friday, August 13th, Kahn Swick & Foti, LLC and Former Louisiana Attorney General Charles C. Foti, Jr. filed a securities fraud class action lawsuit against SciClone in the United States District Court for the Northern District of California, on behalf of purchasers of the common stock of the Company between May 11, 2009 and August 10, 2010.

As noted in the law firm release,

"The Complaint alleges that throughout the Class Period, defendants were engaged in illegal and improper sales and marketing activities in China and abroad regarding its products. This ultimately caused the Company to become the focus of a joint investigation by the Securities and Exchange Commission ("SEC") and the Department of Justice ("DOJ") for possible violations of the Foreign Corrupt Practices Act ("FCPA"). It was only at the end of the Class Period, however, that investors ultimately learned the truth about the Company's operations after it was reported that the SEC and DOJ were investigating the Company for violations of the FCPA. At that time, shares of the Company declined almost 40% in the single trading day, on abnormally large trading volume."

This has got to set a record for the least amount of time between disclosure of an FCPA inquiry and collateral civil litigation .... less than 100 hours!

As Nathan Vardi at Forbes correctly notes (see here) plaintiff lawyers have indeed "joined the bribery racket." (In April, Vardi penned a provocative feature article - "The Bribery Racket." See here for my prior post which links to the article).

This & That

A bit of catch up with today's post which discusses the recent sentence of Juan Diaz in the continuing Haiti Teleco saga (including an interesting post-enforcement action twist) and a DOJ release that flew under the radar.

Juan Diaz

Juan Diaz was recently sentenced to 57 months in prison after previously pleading guilty to a one-count information charging him with conspiracy to violate the Foreign Corrupt Practices Act and money laundering. (See here for the DOJ release). As noted in the release, Diaz was also ordered to: (i) serve three years of supervised release following his prison term; (ii) pay $73,824 in restitution; and (iii) forfeit $1,028,851.

In May 2009, (see here) Diaz pleaded guilty for his role in an improper payment scheme involving employees of Haiti Teleco, an alleged state-owned national telecommunications company. In the DOJ's view, that would make the Director of International Relations and the General Director of Haiti Teleco, persons Diaz and others allegedly bribed, Haitian "foreign officials" under the FCPA.

The interesting twist is this.

If Diaz bribed these same employees today, he would be bribing (presumably in the DOJ's view) not Haitian "foreign officials" but Vietnamese "foreign officials."

Why?

Because in May, Viettel, a telecommunications company run by Vietnam's military, purchased a 60% stake in Haiti Teleco. (See here).

The 57 month sentence Diaz received is similar to the 60 month FCPA sentence Charles Jumet received in April (see here). Jumet was sentenced to 87 months after pleading guilty to a two-count criminal information charging conspiracy to violate the FCPA and making false statements to federal agents. The false statements portion of the sentence was 20 months.

Civil Forfeiture Action Against Properties Owned by Former President of Taiwan

In July, the DOJ issued a release (see here) about a civil forfeiture complaint it filed against certain U.S. properties "that represent a portion of illegal bribes paid to the former president of Taiwan and his wife."

With Attorney General Eric Holder's recent announcement of the Kleptocracy Asset Recovery Initiative (see here), the release should be of interest to those who follow this initiative and the general issue of asset recovery.

Bribe recipients can not be prosecuted under the Foreign Corrupt Practices Act, but U.S. based assets (or other assets that flow through U.S. financial institutions) of bribe recipients can be subject to U.S. legal proceedings under other laws.

As noted in this post from November 2009, Attorney General Holder has called asset recovery a "global imperative" and announced a "redoubled commitment on behalf of the United States Department of Justice to recover" funds obtained by foreign officials through bribery.

The prior post discussed the January 2009 civil forfeiture action the DOJ filed in the aftermath of the Siemens enforcement action against bank accounts located in Singapore in the names of Zulfikar Ali, Fazel Selim, and ZASZ Trading and Consulting Pte Ltd. ("ZASZ") (see here). According to the DOJ's complaint (see here), these accounts were used by Siemens and another company to bribe foreign officials in violation of the FCPA, specifically Arafat Rahman ("Koko"), the son of former Bangladeshi Prime Minister Khaleda Zia. The DOJ alleges that the illicit funds in these accounts flowed through U.S. financial institutions thereby subjecting them to U.S. jurisdiction.

Similarly, in January 2010, the DOJ unsealed a criminal indictment against Juthamas Siriwan and Jittisopa Siriwan, the foreign official bribe recipient of the Green's improper payments and her daughter. See here. Among other things, the indictment seeks forfeiture of approximately $1.7 million.

Thus, the DOJ's July announcement that it is pursuing U.S. based assets of the former president of Taiwan and his wife very much continues a trend.

According to the DOJ release:

"The former president and his wife were convicted in Taiwan on Sept. 11, 2009, for bribery, embezzlement and money laundering. They are currently sentenced to 20 years in prison. Their convictions were upheld on appeal and are now pending before the Supreme Court in Taiwan. [...] The former president and his wife are also currently under indictment in Taiwan for additional alleged acts of graft and money laundering."

Director John Morton of U.S. Immigration and Customs Enforcement (ICE) stated that the enforcement action "serves as a warning to those corrupt foreign officials who abuse their power for personal financial gain and then attempt to place those funds in the U.S. financial system" and that "ICE’s Homeland Security Investigations agents will continue to work with our law enforcement partners both here and abroad to investigate and prosecute those involved in such illicit activities and hold corrupt foreign officials accountable by denying them the enjoyment of their ill ?gotten gains.”

What appears to make this recent civil forfeiture action different than the previously filed Siemens-related forfeiture action and the previously filed Siriwan enforcement action is that the bribe payor may be beyond the reach of the FCPA.

According to the DOJ release, the entity paying the bribes to the president of Taiwan and his wife was Yuanta Securities Co. Ltd. (YSC). The release notes that YSC "was attempting to increase its ownership share of Fuhwa Financial Holding Company Limited" and that "YSC paid a bribe of 200 million New Taiwan dollars, or approximately $6 million U.S. dollars, [...] to ensure that the authorities on Taiwan would not interfere with its acquisition of additional shares and to attempt to establish a relationship with the head of the authorities on Taiwan."

Neither YSC (here), nor its parent company, Yuanta Financial Holdings, appear to be U.S. issuers. Under 78dd-3 of the FCPA, foreign companies can be subject to the FCPA's jurisdiction. However, this prong of the FCPA requires a U.S. nexus. A quick scan of the forfeiture complaint does not suggest a U.S. nexus in terms of making the bribe payments - although the complaint clearly does allege a U.S. nexus once the payments were received and used by the former president of Taiwan and his wife.

*****

Curious as to what happened in the above referenced Siemens-related enforcement action? In April 2010, U.S. District Court Judge John Bates granted the DOJ's motion for default judgment and judgment of forfeiture against the subject properties.

What's happening in the Siriwan enforcement action? According to the docket, nothing since the indictment was unsealed in January 2010.

On Being An FCPA Associate ... A Q&A With Rohan Virginkar

Meet Rohan Virginkar (here), a 2004 graduate of The George Washington University School of Law, and current associate at Foley & Lardner in Washington D.C.

Virginkar has a wealth of FCPA experience and in this post he describes what it takes to succeed as an FCPA associate.

Develop fact investigation skills, pay attention to detail, be self-sufficient, and develop a firm grasp of the FCPA - all good pointers to students and young associates interested in a Foreign Corrupt Practices Act practice.

It also helps to have a valid passport and to embrace unpredictability because you may be sitting at your desk on Tuesday and be in Beijing on Saturday in the often fast-paced world of FCPA investigations.

Below is my Q&A with Virginkar.

What was your first FCPA related assignment?

My first FCPA case was within the first few months of starting as an associate. I traveled to Mumbai to investigate an allegation that an Indian subsidiary of our US-based client had paid money to a local government official in exchange for his agreeing not to disrupt their business. The allegations were true, and we discovered that a manager at the company had actually handed a duffel bag of currency to the official under the guise of a "donation" to the official's favorite "charity". It was a valuable introduction to the FCPA: shakedowns by foreign government officials, "charitable donations" to potentially suspect charities; it had many FCPA red flags all in one case.

What countries have you visited doing FCPA work?

In addition to India on that very first investigation, the matters I've had the good fortune of working on have taken me all over: Angola, China, Egypt, Indonesia, Kazakhstan, Kuwait, Lebanon, Nigeria, Qatar, Singapore, Thailand, the United Arab Emirates and Venezuela.

Of those countries, what has been your most memorable experience?

Each country I've visited on these matters has been memorable because the people, places and work have always defied expectations and offered nice surprises. That said, having a manager at a Chinese company who we instructed to stop paying kickbacks threaten us by saying that some of the payments were going to the Chinese Triads and that he would have to tell them that "the American lawyers" made him stop paying them is definitely one that sticks in mind.

As you learned more about the FCPA, what surprised you the most?

I've perhaps been most surprised by the genuine desire of most people around the world to follow the general goals of the FCPA, even if they don't always understand the strictures and even when they occasionally get it wrong.

If you could change one thing about the FCPA or FCPA enforcement, what would it be?

I think the underlying goals of the FCPA are just, so there isn't anything about the law that I would necessarily change. In terms of enforcement, I think the lack of clear judicial guidance on a number of gray areas of the FCPA sometimes makes it difficult to advise clients, who are forced to balance their business interests with a desire to comply with the law. I'd like to see more real case law develop, which is something I'm sure we'll start to see as more individuals face stiff penalties for violations of the FCPA. The newly passed whistleblower provisions also give me some pause, because companies that have put in the resources to develop effective compliance programs with internal reporting mechanisms may now see that undermined because potential whistleblowers may see a financial incentive to make allegations, when such information may or may not be the basis of an FCPA allegation. However, it is too early at this point to know for sure what the practical effect on both enforcement and compliance will be.

What advice to you have to students or young associates interested in having an FCPA practice?

It's important for young lawyers to hone their general litigation skills. Internal investigations (particularly when they have international elements) are a different beast from general commercial litigation, but the same skills that make someone a good litigator also form the foundation of being a good investigator. You have to be logical, methodical, with an eye for detail, because you never know what the smoking gun will look like. Being flexible and maintaining a good attitude helps too. You quickly learn that things will rarely go as you plan when working abroad, and many of the technological and other comforts we rely on in our legal practices here in the US are often unavailable when you're overseas. Additionally, having to navigate the social and cultural norms of the people and places where you're doing an investigation (and the fact that you're often operating in an environment where the people you're investigating may resent you and try to make your life more difficult), can make the mechanics of actually conducting the investigation as complex as the substantive issues you're investigating. You also won’t regret developing a habit of over-preparing and over-thinking, so that when you and your group face an unexpected issue, you have already considered it, or at least have the foundation to think your way through it. Finally, learn the law backwards and forwards. When I started working in this area, one of the attorneys who mentored me told me that he always kept the statute handy and referred to it often, because the answers he was looking for were usually found inside. In practice, I've more often than not found this to be true. At a minimum, having a solid working knowledge of the law and its intricacies helps you communicate with your clients about why you may be offering certain advice or asking them to make certain changes to how they do business.

Anonymous Reporting ... Common, But Effective?

A company looking to establish "best-practices" FCPA policies and procedures will often implement anonymous reporting mechanisms so that employees and others can report misconduct that may violate the Foreign Corrupt Practices Act or company policy.

The conventional wisdom (see here for example) is that such anonymous reporting mechanisms are effective because, among other things, they remove the stigma of reporting misconduct.

Anonymous reporting is common, but is it effective?

That is question asked by James Hunton (Bently College - see here) and Jacob Rose (University of New Hampshire - see here) in a recently published study in the Journal of Management Studies titled: "Effects of Anonymous Whistle-Blowing and Perceived Reputation Threats on Investigations of Whistle-Blowing Allegations by Audit Committee Members."

The answer according to Hunton and Rose?

No it isn't.

Here is the abstract of the paper.

"A total of 83 experienced audit committee members participated in an experiment in which they evaluated the credibility of and allocated investigative resources towards a whistle-blowing allegation of financial reporting malfeasance by corporate executive officers. We manipulated whether the whistle-blowing allegation was made through anonymous or non-anonymous channels and whether the allegation posed a relatively high or low threat to the personal reputation of the audit committee member who was charged with investigating the allegation. Results indicate that the participating audit committee members attributed lower credibility and allocated fewer investigatory resources when the whistle-blowing report was received through an anonymous versus non-anonymous channel, and when the allegation posed a relatively high versus low level of reputation threat. While the Sarbanes–Oxley Act of 2002 requires audit committees of publicly traded firms to provide an anonymous whistle-blowing channel to employees, our findings suggest disturbing unintended consequences of such regulation; specifically, audit committee members might fail to sufficiently investigate whistle-blowing allegations received through anonymous whistle-blowing channels, particularly if the allegation poses a personal reputation threat."

As noted by the authors, the study "is the first to examine whether and how anonymous whistle-blowing affects corporate directors who are charged with determining the veracity of such allegations" and the study questions "whether anonymous whistle-blowing improves the quality of corporate governance ..."