Armor Holdings Resolves Enforcement Action / BAE Avoids Successor Liability

In February 2009, Richard Bistrong a former employee of Armor Holdings Inc. (a former publicly-traded company, currently a subsidiary of BAE Systems) pleaded guilty to charges he conspired with others to, among other things, obtain United Nations body armor contracts valued at $6 million by causing his employer to pay $200,000 in commissions to an agent while knowing that the agent would pass along a portion of that money to a United Nations procurement officer (a "foreign official" under the FCPA) to cause the officer to award the contracts. (See here and here for the prior posts).

Bistrong then became an informant for the government and helped the FBI manufacture an entirely different case - the Africa Sting case - against, among others, Jonathan Spiller (the former CEO and President of Armor Holdings and Bistrong's boss) and Stephen Gerard Giordanella (formerly associated with Armor Holdings). Spiller, who testified at the first Africa Sting trial that resulted in a mistrial (see here for the prior post) is one of the Africa Sting defendants that has pleaded guilty. Giordanella is scheduled for a September trial.

Yesterday, in a related development, the DOJ and SEC announced an FCPA enforcement against Armor Holdings. Total fines and penalties are approximately $16 million ($10.3 million via a DOJ non-prosecution agreement and $5.7 million via a settled SEC civil complaint).

That the DOJ would resolve the matter solely against Armor Holdings without also holding BAE accountable stands in stark contrast to other recent FCPA enforcement actions where the DOJ has used successor liability theories against acquiring companies (see here for the 2010 enforcement action against Alliance One International for instance). But then again, in 2010 the DOJ resolved an enforcement action against BAE - one that per the DOJ's own allegations directly implicated the FCPA's anti-bribery provisions - without FCPA charges. See here for the prior post.

This post analyzes both the DOJ and SEC enforcement actions against Armor Holdings.

DOJ

The NPA (here) begins as follows.

The DOJ "will not criminally prosecute Armor Holdings, Inc., or any of its present or former parents, subsidiaries, or affiliates for any crimes ... related to the making of, and agreement to make, improper payments by Armor employees and agents to a procurement official of the United Nations in connection with efforts to obtain and retain body armor contracts for an Armor subsidiary from the U.N. in 2011 and 2003, and related accounting and record-keeping associated with these improper payments ...".

The NPA has a term of two years. As is typical in FCPA NPAs or DPAs, Armor agreed "not to make any public statement contradicting" the described conduct.

According to the NPA, the DOJ agreed to resolve the action via an NPA based, in part, on the following factors.

(a) Armor's complete disclosure of the facts at issue;

(b) Armor's self-investigation and cooperation with the DOJ and SEC;

(c) "the fact that all of the conduct [at issue] took place prior to the acquisition of Armor by BAE Systems; and

(d) "the extensive remedial efforts undertaken by Armor, before and after Armor's acquisition by BAE Systems, including but not limited to terminating the Armor employees who were involved in the misconduct; terminating approximately 1,700 international sales representatives and distributors of Armor Holdings Products LLC immediately after the acquisition closed; conducting extensive FCPA compliance training for over 1,000 Armor employees; implementing BAE Systems' due diligence protocols and review processes for any new Armor foreign sales representatives and distributors; and applying BAE Systems' compliance policies and internal controls to all Armor businesses."

According to the Statement of Facts in the NPA, "Armor manufactured security products, vehicle armor systems, protective equipment and other products for use, primarily, by military, law enforcement, security and corrections personnel." The conduct at issue focuses on Armor Holdings Products Group ("Products Group"), which was a wholly owned division of Armor, Bistrong (Product Group's Vice President for International Sales) and Armor Products International Ltd. ("API"), which was a wholly owned subsidiary of Armor that was a part of the Products Group and headquartered in the U.K.

Under the heading "Improper Conduct" the NPA states as follows. From 2001 to 2006, "API and its employees and agents made corrupt payments to a United Nations procurement official to induce that official to provide non-public, inside information to API, and to cause the U.N. to award body armor contracts to API." The NPA further states that "Armor employees falsely recorded the nature and purpose of these improper payments, as well as other payments, in Armor's books and records."

Under the heading "Books and Records" the NPA states as follows. From 2001 to 2006, "Bistrong, Products Employee A and others caused the Products Group to keep off Armor's books and records approximately $4.4 million in payments to agents and other third-party intermediaries used by the Products Group to assist it it obtaining business from foreign government customers."

Pursuant to the NPA, the DOJ agreed not to prosecute Armor based on the above described conduct if it complies with the compliance-related obligations set forth in the NPA. In an interesting sentence similar to the recent Tenaris DOJ NPA, the DOJ also agreed not to prosecute Armor for conduct "Armor specifically disclosed to the DOJ in meetings during its voluntary disclosure from March 2007 to December 2010." This sentence suggests that Armor disclosed other conduct to the DOJ in addition to the conduct described above.

See here for the DOJ's release announcing the enforcement action. Among other things, the release states as follows. "Due to Armor’s implementation of BAE’s due diligence protocols and review processes, its application of BAE’s compliance policies and internal controls to all Armor businesses, its extensive remediation and improvement of its compliance systems and internal controls, as well as the enhanced compliance undertakings included in the agreement, Armor is not required to retain a corporate monitor. Armor will be required to report to the department on implementation of its remediation and enhanced compliance efforts every six months for the duration of the agreement."

SEC

The SEC's settled civil complaint (here) is based on the same core conduct described above.

In summary, the complaint states as follows. "From 2001 through 2006, certain agents of Armor Holdings participated in a bribery scheme in which corrupt payments were authorized to be made to an official of the United Nations ("U.N."), for the purpose ofobtaining and retaining U.N. business. Armor Holdings generated more than $7.1 million in improper revenues, and realized over $1.5 million in improper profits, through the award of U.N. body armor contracts to its subsidiary during this period. From 2001 through June 2007, another Armor Holdings subsidiary employed an accounting practice that disguised in its books and records approximately $4,371,278 in commissions paid to intermediaries who brokered the sale of goods to foreign governments. By virtue of this conduct, Armor Holdings violated the anti-bribery, books and records, and internal controls provisions of the FCPA and the Exchange Act."

In an SEC release (here), Robert Khuzami (Director of the SEC’s Division of Enforcement) stated that "illicit payments to U.N. officials are no less reprehensible than bribes to foreign government officials." As noted in the SEC release, Armor, without admitting or denying the SEC's allegations, consented to the entry of a permanent injunction against further FCPA violations and agreed to pay $1,552,306 in disgorgement, $458,438 in prejudgment interest, and a civil monetary penalty of $3,680,000.

The SEC release also contains the following summary statistic. "Since 2010, the SEC has filed 32 FCPA cases, including the case against Armor Holdings, and obtained more than $600 million in penalties, disgorgement and interest."

Roger Witten and Kimberly Parker (here and here of Wilmer Cutler Pickering Hale and Dorr) represented Armor Holdings.

The Final Act In The BAE Circus?

Last week, the State Department announced (here) that "BAE Systems plc of the United Kingdom (BAES), including its businesses, units, subsidiaries, and operating divisions and their assignees and successors, except BAE Systems, Inc. and its subsidiaries, entered into a civil settlement with the Department of State for alleged violations of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR)." The release states that "under the four-year term of the Consent Agreement, BAES will pay in fines and in remedial compliance measures an aggregate civil penalty of $79 million, the largest civil penalty in Department history."

The State Department action follows the March 1, 2010 guilty plea of BAE Systems plc. (see here for the prior post). BAE pleaded guilty to "conspiring to defraud the United States by impairing and impeding its lawful functions, to make false statements about its FCPA compliance program, and to violate the Arms Export Control Act and International Traffic in Arms Regulations." In that DOJ enforcement action, BAE Systems plc agreed to pay a $400 million criminal fine.

I previously called (here) the BAE "bribery, yet no bribery" enforcement action one that contributes to the "facade of FCPA enforcement" (see here) and was asked several questions about the enforcement action by former Senator Arlen Specter (see here).

Like the DOJ enforcement action, the State Department action specifically notes that BAE Systems, Inc. was not involved in the conduct giving rise to the enforcement actions. BAE Systems Inc. is "the U.S.-based segment of BAE Systems plc" and "is responsible for relationships with the U.S. Government...". (See here).

The State Department action involved BAE Systems plc entering into a consent decree (see here for the relevant documents) "to settle 2,591 violations of the AECA and ITAR in connection with the unauthorized brokering of U.S. defense articles and services, failure to register as a broker, failure to file annual broker reports, causing unauthorized brokering, failure to report the payment of fees or commissions, and failure to maintain records involving ITAR-controlled transactions."

Certain of the improper conduct identified in the State Department documents relate to the lease and lease/sale of Gripen aircraft to the Ministries of Defence in the Czech Republic and Hungary - conduct also at issue in the DOJ's prosecution of BAE (see here for the criminal information).

The State Department documents also relate to BAE's use of advisers for defense transactions and proposed defense transactions involving U.S. defense articles and services without obtaining authorization from the State Department.

One of the advisors identified is Alfons Mensdorff-Pouilly. As noted in this previous post, the U.K. Serious Fraud Office ("SFO") originally charged Alfons Mensdorff-Pouilly 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." Within days, the SFO dropped the charges. As noted in this previous post, the SFO explained that BAE would not agree to the SFO plea (watered down as it was) without the SFO agreeing to drop the charges against Count Mensdorff.

As to debarment, the State Department consent agreement states (at page 20) that the State "Department has determined to impose a statutory debarment of BAE Systems plc pursuant to section 127 of the ITAR [see here], based on the criminal charges [in the previous DOJ enforcement action].

Yet, the next sentence of the consent decree states as follows. "However, based on the foregoing and additional information provided by Respondent, and request for reinstatement by BAE Systems plc, the Assistant Secretary of State for Political-Military Affairs has determined under Section 38(g)(4) of the AECA [see here] that Respondent has taken appropriate steps to address the causes of the violations and to mitigate law enforcement concerns. Accordingly, BAE Systems plc shall be reinstated."

The consent decree did however "place under a policy of denial" BAE Systems CS&S International, Red Diamond Trading Ltd. and Poseidon Trading Investments Ltd. Per the consent decree, this means that there will be "an initial presumption of denial during the case-by-case review of all licenses and other authorizations" involving these subsidiaries even though the consent decree states that "Transaction Exceptions" may be granted by the State Department. Furthermore, the consent decree states that all licenses, agreements, and other authorizations involving these subsidiaries previously issued "are not affected and are not revoked."

The most recent annual report on BAE's website states as follows regarding CS&S International. "The operating group’s CS&S International business predominantly acts as prime contractor for the UK government-to government defence agreement with Saudi Arabia and has a major in-country presence. Its main activities include operational capability support to both the Royal Saudi Air Force and Royal Saudi Naval Force and, more recently, the commencement of supply of 72 Typhoon aircraft." Neither Red Diamond Trading Ltd. nor Poseidon Trading Investments Ltd. are mentioned in the 190 page annual report.

According to this U.K. Guardian article "BAE's Secret Money Machine," "in February 1998 Red Diamond Trading Ltd was anonymously incorporated in the British Virgin Islands and was used to channel payments all over the world, via Red Diamond accounts in London, Switzerland and New York." As to Poseidon Trading, the same article states as follows. "BAE set up a second front company, purely to handle the Saudi commission payments for al-Yamamah. Poseidon Trading Investments Ltd was incorporated in the British Virgin Islands on June 25 1999."

The DOJ's criminal information contains various allegations regarding Saudi Arabia - without specifically mentioning the al-Yamamah contract. For more on the al-Yamamah contract see here -a PBS Frontline documentary titled Black Money.

The State Department's recent $79 million enforcement action against BAE is in addition to the DOJ's $400 million enforcement action against BAE from 2010. However, as Dru Stevenson (Professor of Law, South Texas College of Law) and Nick Wagoner (a law student at South Texas College of Law) explored in this recent post, in the 365 days that followed the 2010 DOJ enforcement action, BAE was awarded U.S. contracts in excess of $58 billion dollars.

*****

Speaking of debarment (or lack thereof) Senator Al Franken continues to lead on this issue. Earlier this month, during a Senate Judiciary Committee hearing, Franken questioned Attorney General Eric Holder why, over the past three years, hundreds of billions of dollars have been awarded to defense contractors who have previously been convicted of fraud. See here for the video. Senator Franken similarly questioned Assistant Attorney General Lanny Breuer during a January Senate Judiciary Committee hearing. See here for the video.

In connection with the Senate's November 2010 hearing "Examining Enforcement of the Foreign Corrupt Practices Act" the DOJ was asked whether it favored "mandatory, conduct-based, debarment remedy for companies that engage in egregious bribery." See here for the prior post including the DOJ's response.

Uneven Justice: A Critical Look at FCPA Enforcement

The week starts with a guest post from Michael Volkov.

Volkov (here) is a partner at Mayer Brown LLP. His practice focuses on white collar defenses, FCPA enforcement and compliance, and litigation. The views expressed in this article are his own and do not represent those of his law firm, Mayer Brown LLP. He can be reached at mvolkov@mayerbrown.com.

*****

UNEVEN JUSTICE: A CRITICAL LOOK AT FCPA ENFORCEMENT

By Michael Volkov

The United States is a nation of laws: badly written and randomly enforced. ~Frank Zappa

Much has been written about the overall fairness of the Justice Department’s and the Securities and Exchange Commission’s aggressive FCPA enforcement program. Some have argued that DOJ and SEC have engaged in uneven justice: corporations plead to non-FCPA offenses, pay big fines, and continue business as usual. Others argue that DOJ has failed to prosecute individual executives and officers, or to ensure that corporations are debarred or suspended from continuing to sell to the federal government.

As a former federal prosecutor with nearly 20 years experience in the criminal justice system, I can assure you that some of the criticisms are accurate but some completely miss the mark. Last year, the Senate Judiciary Committee examined the controversy surrounding FCPA enforcement, and this year the House Judiciary Committee is planning to look at the issue.

DOJ is proud of its enforcement program. And rightly so – they have resuscitated a program which was dormant for years which now collects over one half of all criminal fines imposed each year in the United States. That is an impressive record.

Aside from the fundamental deficiencies inherent in DOJ’s voluntary disclosure process, DOJ claims that it gives adequate credit for corporate compliance programs, early cooperation and full disclosure. In response some suggest that plea agreements which are designed to protect companies from debarment and include pleas to non-FCPA charges are unfair. Part of that point is correct; the other part is flat out wrong.

Our criminal justice system operates day-to-day based on plea agreements. In the federal system, over 90 percent of federal cases are resolved through plea agreements. As part of that process, charge-bargaining is a critical component. DOJ’s decision to permit corporations, or typically country-specific subsidiaries to plead guilty to a non-FCPA offense, is in keeping with this long tradition. The underlying conduct as described in the plea agreement is known to all – the company engaged in systematic and widespread bribery. Nothing more, nothing less. To extrapolate from such a plea that DOJ is not enforcing the law is misguided and ignores the realities of the plea bargaining process.

On the other hand, DOJ’s willingness to forego debarment and/or suspension is certainly an issue that needs to be examined. As Professor Koehler testified at the Senate Judiciary Committee, BAE was awarded a government contract on the same day it plead guilty to a non-FCPA offense but paid a criminal fine over $400 million. That is certainly uneven justice, and Senators and policymakers should have taken note of this ironic enforcement twist.

Senator Specter and others have criticized the Justice Department for failing to include individual corporate executives and officers in its enforcement actions. The Justice Department’s Antitrust Division has a much better record on this score – corporations and individuals are prosecuted in criminal antitrust cases with equal vigor and results. Why has DOJ shied away from linking corporate cooperation to requiring cooperation against individual executives and officers at the offending company?

If the goal of DOJ’s enforcement program is corporate compliance, then the enforcement program needs to be recalibrated. Deterrence is an admirable objective and will certainly increase compliance, but DOJ has more tools available to it to encourage and promote cooperation. DOJ’s antitrust amnesty/leniency is an example of a program which has been incredibly successful on the enforcement and the compliance ends. While there are certainly problems with the application of a cartel-focused (multi-actor) model to FCPA cases, there are lessons which can be learned from the amnesty/leniency program.

We all aspire to equal justice and we all admire the image of justice that is blind as the hallmark of our judicial system. But right now what is needed is for justice to listen so that it operates with fairness and equal justice for all.

"FCPA Sanctions: Too Big To Debar?"

Debarment (or lack thereof) is a periodic topic on this site.

Previously, I covered "Siemens ... The Year After" (here), a post that highlighted in the year after resolution of the Siemens record-setting December 2008 FCPA matter, the U.S. government continued to do substantial business with the company it charged with engaging in a pattern of bribery “unprecedented in scale and geographic scope.”

In September 2010, I highlighted (here) the FBI's $40 million contract with BAE - months after the FBI participated in resolution of the $400 million FCPA related enforcement action against the company.

In my November 2010 testimony (here) before the U.S. Senate, I stated as follows. "In order for the DOJ’s deterrence message to be completely heard and understood egregious instances of corporate bribery that legitimately satisfy the elements of an FCPA anti-bribery violation involving high-level executives and/or board participation should be followed with debarment proceedings against the offender."

This testimony prompted then Senator Arlen Specter (who chaired the hearing) to ask me several follow-up questions for the record relating to debarment. (See here for the Q&A's). Senator Christopher Coons (who also participated in the November 2010 hearing) also asked debarment follow-up questions of the DOJ.

As highlighted last week (here), the DOJ is opposed to a "mandatory, conduct-based, debarment remedy for companies that engage in egregious bribery." As noted in the prior post, the DOJ's responses seemed anchored in self-interest in that such a remedy would lessen its FCPA caseload, would make its job more difficult, and would take away it flexibility and leverage and resolving FCPA enforcement actions.

Enter Dru Stevenson (Professor of Law, South Texas College of Law - here and a past contributor to the site) and Nick Wagoner (a law student at South Texas College of Law).

Stevenson and Wagoner recently released a yet to be published article titled "FCPA Sanctions: Too Big to Debar?" (See here).

The authors (who can be reached at dstevenson@stcl.edu and nicholas.wagoner@gmail.com) provide this article summary.

"Despite the dramatic escalation in corporate fines and imprisonment imposed under the FCPA in recent years, a particularly lethal sanction for combating foreign corruption remains unused—suspension or debarment of prosecuted entities from future contracts with the U.S. Many of the firms caught bribing foreign officials have extensive contracts with a number of domestic federal agencies; meaning debarment may be a particularly devastating penalty both for the government contractor and the agency it transacts business with.

This begs the question: are certain private contractors too big to debar? As this Article demonstrates, it appears so. Certain federal agencies have become highly dependent on a handful of private firms responsible for satisfying the vast majority of government contracts. Because of the potential “collateral consequences” that may result from the collapse of a debarred contractor, these firms have enjoyed bailouts from agency officials who refuse to sanction corrupt practices through suspension or debarment. If ridding foreign markets of corruption truly is a top priority of the U.S., it seems both unfair and imprudent for federal agencies to continue awarding lucrative, multibillion-dollar contracts to firms recently prosecuted for fraudulently obtaining such contracts overseas.

This situation leads to the jaded viewpoint that paying fines when caught bribing foreign officials has “simply become a cost of doing business.” To help illuminate these concerns and lend support to the thesis, this Article examines the third largest FCPA-related enforcement actions to date: the BAE Systems case. On March 1, 2010, BAE Systems paid approximately $400 million in fines for its corrupt practices abroad. In the 365 days that followed however, BAE was awarded U.S. contracts in excess of $58 billion dollars. The U.S.’s refusal to debar BAE because of the risk of “collateral consequences” provides a case study of the benefits and drawbacks to deterring foreign corruption through suspension and debarment. This Article concludes that the U.S. must begin to diversify its portfolio of federal contractors so that prosecutors may leverage the legitimate threat of suspension and debarment to more effectively deter foreign corruption."

A Conversation with Richard Alderman Regarding BAE

In October 2010, I published (here) a detailed Q&A with Richard Alderman (Director of the U.K. Serious Fraud Office).

Given that the BAE matter was still pending in the U.K. courts, Mr. Alderman declined to answer BAE related questions.

In February, I re-submitted my BAE questions (along with a few additional questions relating to the December 2010 U.K. resolution of the BAE matter - see here for the prior post) to Mr. Alderman.

Our Q&A can be found here.

Publication of Mr. Alderman's BAE-specific responses are timely given recent developments regarding BAE.

WikiLeaks recently published (here) a cable detailing certain information regarding termination of the U.K. inquiry regarding BAE and its relationship with certain Saudi officials, including in connection with the al-Yamamah contract.

Even though the cable adds little to what is already in the public domain regarding this matter (see here for the April 2009 PBS Frontline documentary Black Money - including interviews with several of the individuals referenced in the cable), the WikiLeaks cable has generated significant interest and has prompted a senior MP, Sir Menzies Campbell, to call for a Commons investigation.

The U.K. Telegraph (here) quotes Campbell as follows:

“This leak tells us how strong a case was available. If the information in this document had been before Parliament and the British public, there is no way that the Labour government could have influenced the termination of the investigation. The particular issue which will cause a great deal of annoyance is the fact there was prima facie evidence that a government department had been subjected to fraud. If prosecution is no longer possible, it is open to the Commons’ business innovation and skills committee to conduct a full investigation.”

For additional coverage, see here from Sue Reisinger (Corporate Counsel) and here from Samuel Rubenfeld (Wall Street Journal Corruption Currents).

Returning to my Q&A with Mr. Alderman, the following topics, among others, are explored:

(i) how the U.K. law on double jeopardy significantly affected the SFO's investigation of BAE and how the "current system [in the U.K.] for dealing with parallel criminal investigations conducted in a number of different countries does not work effectively and needs change;"

(ii) whether the U.K. government was faithful to its OECD obligations in its handling of the BAE matter;

(iii) criticism of the SFO-BAE plea agreement by the U.K. sentencing judge; and

(iv) "shortcomings" in the U.K. system and how Mr. Alderman would like a system that "is far more transparent [...] that commands public confidence, together with a much stronger role for the judiciary."

One Year Since The FCPA's Darkest Day

One year ago today, the DOJ filed a criminal information (here) against BAE Systems plc.

The first paragraph of the charging document stated that BAE was "the largest defense contractor in Europe and the fifth largest in the United States as measured by sales."

The information alleged 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 several Tornado and Hawk aircraft, “along with other military hardware, training and services,” to the U.K. government, which sold the material and services to the Saudi government. The information refers to these frequent arrangements as the “KSA Fighter Deals.” In connection with 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.”

According to the indictment, BAE “provided these benefits through various payment mechanisms both in the territorial jurisdiction of the U.S. and elsewhere." 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 a single BAE employee during one year submitted over $5 million in invoices for benefits provided to the KSA Official.

Yet, BAE was not charged with violating the FCPA.

Rather, BAE was charged with one count of conspiracy for “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 …”. Among the false statements BAE made to the U.S. government was its commitment to not knowingly violate the FCPA.

365 days ago I wrote (here) as follows:

"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!"

Interesting twists and turns followed.

One month later (see here), BAE announced yesterday that Michael Chertoff, President Bush's former Secretary of Homeland Security, joined its board. Since 2005, BAE has received over $200 million in Department of Homeland Security contracts.

September turned out to a strange month.

The DOJ blessed BAE's monitor, a person per the plea agreement that shall have “sufficient independence from [BAE] to ensure effective and impartial performance of the monitor’s duties.”

Yet, the monitor blessed by the DOJ was a lawyer in a U.K. law firm that represented BAE and a law firm that represented the Saudi official who was the alleged recipient of the improper payments given rise to the enforcement action that required the monitor in the first place. (See here).

As Bruce Carton, writing for Compliance Week noted (here), "perception-wise, at least, I would think that a monitor who is not employed by a law firm that has multiple clients involved in the underlying alleged conduct would be a far 'cleaner' choice."

Then a few weeks later (see here) the FBI, the same agency that assisted in the investigation of BAE’s conduct giving rise to the February 2010 enforcement action, awarded a $40 million information security contract to a BAE entity. This contract was merely the most noteworthy of the millions of dollars in government contracts BAE entities have received in the last 365 days.

Every time I hear the DOJ say that bribery "will not be tolerated," that it will hold "accountable" those who corrupt foreign officials, that it will "vigorously pursue violations of the FCPA, and that it will apply a “consistent, principled approach” in prosecuting cases ... I think of the FCPA's darkest day and its aftermath.

Senate Hearing Follow-Up

On November 30, 2010, the Subcommittee on Crime and Drugs of the Senate Judiciary Committee held a hearing "Examining Enforcement of the Foreign Corrupt Practices Act." (See here).

During the hearing, Senator Specter asked if I "would be willing to give [the committee] a hand" as to certain issues.

Shortly after the hearing, I received and responsed to five follow-up questions from Senator Specter for the hearing record. The questions related to the Siemens and BAE enforcement actions; debarment issues; and what I termed "bribery, yet no bribery" in my "Facade of FCPA Enforcement" article and my prepared statement. (see here and here).

With the permission of the Senate Judiciary Committee, I provide the responses here.

U.K. Judge Reluctantly Accepts The "Loosely and Hastily Drafted" SFO - BAE Plea Agreement

In February 2010, the U.K. Serious Fraud Office ("SFO") and the U.S. DOJ announced resolution of a joint enforcement action against BAE Systems. (See here for the prior post).

Despite years of widespread bribery allegations and despite the DOJ's bribery, yet no bribery allegations (see here), BAE escaped bribery and corruption charges. The U.S. enforcement action came to a formal conclusion in March (see here). As noted in the DOJ release (here) BAE pleaded guilty to "conspiring to defraud the United States by impairing and impeding its lawful functions, to make false statements about its FCPA compliance program, and to violate the Arms Export Control Act and International Traffic in Arms Regulations" and was sentenced to "pay a $400 million criminal fine, one of the largest criminal fines in the history of DOJ's ongoing effort to combat overseas corruption in international business and enforce U.S. export control laws."

The SFO's plea agreement with BAE was even more limited. As noted in this SFO release, the SFO "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." As noted in the SFO release BAE agreed to 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."

Days before the SFO-BAE plea agreement, the SFO charged BAE's former agent 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." However, these charges were quickly withdrawn and the SFO release states that "[t]his decision brings to an end the SFO's investigations into BAE's defence contracts." As discussed in this prior post, the SFO agreed to drop the criminal charges against BAE's former agent because BAE would not agree to the proposed SFO plea (as watered down as it was) without the SFO agreeing to drop the charges against the former agent.

Under no circumstances, it appeared, could BAE (or anyone associated with it) be accused of bribery or corruption. This would have complicated things too greatly for BAE, the world's second largest defense contractor. (See page 15 of the DOJ's sentencing memo - here).

With BAE's U.S. legal exposure in the rear-view mirror, the final act in this circus was approval of the SFO - BAE plea agreement by a U.K. court.

Fast forward to December 20th, the day BAE was supposed to be fined and sentenced.

Enter Mr. Justice David Michael Bean.

As widely reported, Justice Bean, notwithstanding the accounting only charges, wanted to know "whether some of the payments had been channelled corruptly to decision makers in Tanzania." (See here). Justice Bean said "he couldn’t approve the settlement until he knew the intended use of $12.4 million in payments to a local businessman, because Bean said it looked to him as though the money was so he could pay “whatever was necessary to whomever it was necessary” to win the $40 million contract." (See here). Justice Bean suggested the "obvious inference" was that part of the secret payments was used as a "bribe" to win a lucrative contract. (See here).

Prosecutor Victor Temple QC for the SFO said it was not part of his case that any part of the payments at issue was improperly used. David Perry, QC, representing BAE, said the SFO was not alleging bribery or offering evidence of it. He said this was “fundamental to the plea agreement” between the company and the prosecutor to end the corruption probe.

Remember, under no circumstance could BAE be accused of bribery or corruption.

Justice Bean wanted to hear more arguments and postponed BAE's fine and sentence.

The delay was termed (see here) a blow to the SFO and its use of U.S. style plea agreements.

Yesterday, Justice Bean announced his decision.

Justice Bean fined BAE £500,000 for failing to keep proper records of payments it made to an adviser in Tanzania. He also ordered BAE to pay £225,000 in costs.

Because the SFO-BAE plea agreement allowed BAE to deduct the court-ordered fine from the £30m it had offered to the people of Tanzania to settle the case, Justice Bean said he felt pressure to keep the court fine to a minimum. As noted here, Justice Bean stated "the structure of this settlement agreement places moral pressure on the court to keep the fine to a minimum so that the reparation is kept at a maximum."

Justice Bean called the SFO-BAE plea agreement “loosely and hastily drafted” and said the fine he levied reflected that he couldn’t “sentence for an offense which the prosecution failed to charge,” such as conspiracy to corrupt or false accounting. (See here).

See here for Justice Bean's sentencing remarks.

See here for the SFO release.

As noted here, the only money BAE is legally obliged to pay is a £500,000 fine and costs of £250,000 as ordered by Mr Justice Bean. After the sentencing, Richard Alderman, the SFO Director said: “I expect BAE to honour the agreement. I expect the company to pay it [the reparation payment to Tanzania] as quickly as possible.” As noted in the article, such a payment could be problematic.

In a statement (here) BAE stated:

"Today's judgment concludes and draws a line under this historical matter. The company accepts the decision of the Court and will abide by it. In the decade since the conduct referred to in this settlement occurred, the Company has systematically enhanced its compliance policies and processes with a view to ensuring that it is as widely recognised for responsible conduct as it is for high quality services and advanced technologies."

In a statement (see here) Transparency International UK noted that despite Justice Bean's "damning comments, [BAE] has not admitted bribery and no individuals have been punished." Chandrashekhar Krishnan, Executive Director of Transparency International UK stated as follows: "This hearing also highlights the need for a thorough review of sentencing law and procedures, to ensure that judges presented with agreed settlements are able to sentence on a fully informed and transparent basis. It is clear that BAE Systems has got off lightly. The best that can now happen is that the company demonstrates it has turned a new leaf and is irrevocably committed to clean business."

In an editorial, the Financial Times stated as follows.

"The plea-bargain deal BAE Systems struck earlier this year with the UK’s anti-corruption authority was designed to draw a line under the company’s murky past. This may indeed be the judicial outcome of the deal, which was sanctioned by a court on December 21. But the manner of its achievement leaves a sour taste. Justice has probably not been done; it has certainly not been seen to be done. The Serious Fraud Office has long been accused, with justice, of being toothless. So this newspaper welcomed its decision last year to prosecute BAE for allegedly paying bribes to foreign governments to win contracts in several African and eastern European countries. Although the SFO later switched to pursuing a more limited plea bargain, it was still hoped that this might raise the agency’s profile as a crusader against corporate corruption. This week’s court proceedings, which saw a judge reluctantly accept the SFO’s deal, have undermined that hope. British courts bridle at plea bargains because of the way they fetter judicial discretion. But even allowing for this aversion, the BAE deal rightly stuck in the judge’s craw. The company did not admit to any corruption, pleading guilty only to a trivial charge of keeping inadequate accounting records. In return, BAE and its officers were extraordinarily given blanket immunity from any offences before 2004 – whether admitted to or not. A cap was placed on the total amount BAE would pay to settle the litigation – whether as a fine or in compensation. There is nothing wrong with using plea bargains to settle complex cases, but these must satisfy the requirements of justice. This means that defendants in such cases must own up to what they have done wrong. Immunity should be offered sparingly, with prosecutors reserving the right to single out officers for prosecution even if a settlement is reached with the company. The best way to change corporate conduct is to put individuals in the firing line. Fines must fit the crime and not be arbitrarily capped. The UK is trying to get its act together. But it is still some way from – to quote a minister in the last government – “giving the Americans a run for their money”. There are grounds for hope. Britain has passed a bribery bill that would make it easier to prosecute cases such as the BAE one. The government is planning to replace the SFO with a new economic crime agency – hopefully with real teeth. On the evidence of the BAE case, these initiatives are needed."

*****

Hope is a fitting word to end the BAE circus.

Hope that a case of this magnitude is never again resolved the way it was resolved both in the U.S. and the U.K.

A U.K. Friday Roundup

With all the focus on the Senate's FCPA hearing earlier this week, let's take a break and go across the pond for the Friday roundup.

Debarment and the Bribery Act, BAE's upcoming sentencing hearing, and Royal interest in the SFO's BAE investigation, its all here.

Debarment and the U.K. Bribery Act

Pass a new Bribery Act that creates a new offense for corporate bribery and it is bound to intersect with other laws.

So the U.K. Ministry of Justice is learning, specifically as to the European Union's debarment directive which provides that companies found guilty of bribery offenses shall be debarred from public contracts.

According to this article in the U.K. Telegraph, the Ministry of Justice is "considering how the regulations implementing the 2004 EU Procurement Directives should be amended to reflect the new Bribery Act and we intend to clarify this point before commencement of the Act" - scheduled for April 2011.

European Union Directive 2004/18/EC (here) was a specific factor the DOJ considered in its resolutions of the Siemens, BAE, and Daimler enforcement actions.

See here for the DOJ's sentencing memo in Siemens (p. 11), here for the DOJ's sentencing memo in BAE (p. 15), and here for the DOJ's sentencing memo in Daimler (p. 12).

If the DOJ would have prosecuted these companies with the charge best fitting the facts (an FCPA anti-bribery violation) the companies would have been at risk of being debarred from certain EU public contracts - not to mention U.S. government contracts pursuant to 48 CFR 9.406.

BAE Hearing Scheduled

BAE's sentencing hearing in connection with the U.K. portion of the case is scheduled for Dec. 20th in London (see here for more). The U.S. portion of the case concluded in March (see here).

The last time a U.K. Serious Fraud Office ("SFO") plea agreement in a bribery case was before a court (in the Innospec matter), the SFO received several lashings (see here).

Prince Andrew's Keen Interest in the BAE Case

The U.K. Guardian (here) reports that Prince Andrew, the Duke of York, took a keen interest in the SFO's investigation of the BAE matter, specifically the al-Yamana deal with Saudi Arabia. According to the Guardian, Prince Andrew demanded a special meeting with the SFO, the SFO thought the request was out of order, but SFO Director Richard Alderman was ultimately summoned to Buckingham Palace in May 2008 for a meeting. The Guardian quotes the SFO as saying that "no confidential details" were discussed during the meeting.

***

A good weekend to all.

FBI Awards BAE $40 Million Contract

Yesterday's post (here) discussed the shortcomings of HR 5366 (the Overseas Contractor Reform Act). As highlighted in that post, HR 5366 represents impotent legislation because it exhibits little understanding of how conduct violating the FCPA is typically resolved.

One matter discussed in the post was the February 2010 enforcement action against BAE in which the DOJ alleged, among other things, that the company “provided substantial benefits,” including through U.S. payment mechanisms, to a Saudi public official “who was in a position of influence regarding” a lucrative fighter jet contract. (See here). The bribery was so extensive per the DOJ's allegations, that just one BAE employee submitted $5 million in invoices for benefits to the official during a one year period.

Yet, these bribery, but no bribery allegations (see here) did not result in any FCPA anti-bribery charges against BAE - the largest defense contractor in Europe and the fifth largest in the U.S. as measured by sales.

Thus, even if HR 5366 was enacted prior to February 2010, it would not have prevented BAE from securing federal government contracts because the DOJ did not charge BAE with any FCPA anti-bribery offenses.

How many federal government contracts has BAE secured since the DOJ alleged that the company “provided substantial benefits” to a Saudi public official “who was in a position of influence regarding” a lucrative fighter jet contract?

Judging just by BAE's press releases (see here) many - so many that separate links would be distracting.

None stand out more than the $40 million contract BAE was recently awarded by the FBI "to provide critical information security safeguards, including certification and accreditation, to ensure the confidentiality and privacy of FBI computer networks in the United States and around the world." (see here).

BAE's conduct giving rise to the February 2010 enforcement action, in which BAE agreed to pay a $400 million criminal fine, "was investigated by FBI special agents who are part of the Washington Field Office’s dedicated FCPA squad." (See here).

In connection with the BAE resolution, the FBI issued its own press release (see here).

In the release, Shawn Henry, Assistant Director in Charge of the FBI’s Washington Field Office stated: “competition is one of the foundations of our economic system,” and “corporations and individuals who conspire to defeat this basic economic principle not only cause harm but ultimately shake the public’s confidence in the entire system.”

I agree.

The public's confidence in the entire system is shaken, but not for the reason Henry articulated.

A Favor ... Plus The Friday Roundup

A Favor

Each year, LexisNexis honors a select group of blogs that set the online standard for a given industry.

I am pleased to share that FCPA Professor is one of the nominated blogs for the LexisNexis Top 25 Business Law Blogs of 2010.

LexisNexis invites the business law community to comment on the list of nominees so that it can narrow the field to the Top 25.

The link to submit comments is here.

To submit a comment, you must register, but registration is free and does not result in sales contacts. The comment box is at the very bottom of the page and the comment period ends on October 8, 2010.

Many of the other blogs nominated are the work of multiple bloggers and/or for-profit entities. Thus, as a single blogger, I am honored to be included on this list. My mission remains the same since I launched FCPA Professor in July 2009. That is to inject a much needed scholarly voice into FCPA and related issues, to explore the more analytical “why” questions increasingly present in this current era of aggressive enforcement, and to foster a forum for critical analysis and discussion of the FCPA and related topics among FCPA practitioners, business and compliance professionals, scholars and students, and other interested persons.

I hope you value the content delivered to you each day on FCPA Professor and I thank you for your consideration.

Friday Roundup

HP speaks, checking in with the Africa Sting case, Smith & Wesson's reduced international shipments, BAE news, The Bribery Centre, and the International Anti-Corruption Academy ... it's all here in the Friday roundup.

HP Speaks

In April (see here) it was reported that German and Russian authorities were investigating whether Hewlett-Packard Co. (HP) executives paid millions of dollars in bribes to win a contract in Russia with the office of the prosecutor general of the Russian Federation. U.S. authorities then launched an investigation, something HP publicly acknowledged (see here). Yesterday, for the first time, HP "talked" about the investigation(s) in an SEC filing. In its 10-Q filing (see here) the company disclosed as follows:

"Russia GPO and Related Investigations

The German Public Prosecutor's Office ("German PPO") has been conducting an investigation into allegations that current and former employees of HP engaged in bribery, embezzlement and tax evasion relating to a transaction between Hewlett−Packard ISE GmbH in Germany, a former subsidiary of HP, and the Chief Public Prosecutor's Office of the Russian Federation. The €35 million transaction, which was referred to as the Russia GPO deal, spanned 2001 to 2006 and was for the delivery and installation of an IT network. The German PPO has recently requested information on several non−public sector transactions entered into by HP and its subsidiaries on or around 2006 involving one or more persons also involved in the Russia GPO deal.

The U.S. Department of Justice and the SEC have also been conducting an investigation into the Russia GPO deal and potential violations of the Foreign Corrupt Practices Act ("FCPA"). Under the FCPA, a person or an entity could be subject to fines, civil penalties of up to $500,000 per violation and equitable remedies, including disgorgement and other injunctive relief. In addition, criminal penalties could range from the greater of $2 million per violation or twice the gross pecuniary gain or loss from the violation. The U.S. enforcement authorities have recently requested information from HP relating to certain governmental and quasi−governmental transactions in Russia and in the Commonwealth of Independent States subregion dating back to 2000.

HP is cooperating with these investigating agencies."

Africa Sting

It's been a while since I posted on the Africa Sting case (see here for numerous prior posts). You'll recall that the 20+ defendants were snared in an undercover operation in which FBI agents posed as a Gabon "foreign official." Entrapment is sure to be a legal issue the defendants will formally raise - and indeed it has been an issue defense lawyers have already publicly stated. As noted in this Blog of Legal Times post, during a hearing earlier this week, defense counsel "are demanding access to internal Justice Department and FBI manuals that govern the planning and execution of undercover operations." According to the post, defense counsel have already claimed violations of DOJ/FBI policy in connection with the sting operation.

Smith & Wesson's Reduced Shipments

Speaking of the Africa Sting case, one of the company's indirectly, at least at this point, implicated in the matter is Smith & Wesson, the employer of Amaro Goncalves - one of the indicted individuals. In July (see here), the company disclosed the existence of a DOJ/SEC investigation and yesterday's 10-Q filing (see here) does not seem to add much from the previous filing. However, this sentence from pg. 26 of the filing caught my eye: "Pistol sales decreased 25.3%, driven by the reduction in consumer demand as well as reduced international shipments related to our investigation of the FCPA matter."

BAE News

The BAE bribery, yet no bribery enforcement action (see here) may be over in the U.S. and the U.K. Serious Fraud Office - BAE plea agreement may be waiting judicial approval in the U.K. (see here), but that does not mean that BAE's potential exposure in other jurisdictions is over. For instance, this recent Businessweek article suggests that South African authorities remain interested in corruption allegations concerning the purchase of fighter jets from BAE. In addition, according to this recent story in The Prague Post "the Czech Republic has asked the United States for help in its inquiry into alleged corruption in a 2002 deal to buy 24 fighter jets from ... BAE Systems." The DOJ's non-FCPA criminal information against BAE (see here) included allegations regarding the sale of fighter jets to the Czech Republic.

The Bribery Centre

The U.S. is not the only country with a vibrant and aggressively marketed anti-bribery sector. With implementation of the U.K. Bribery Act expected in April 2011, an industry is developing on the other side of the Atlantic as well. The Bribery Centre (here) seeks to provide a "unique resource to manage compliance to the Bribery Act 2010." Described as a "collaboration between Ten Alps plc and Venalitas Ltd" the Centre "aims to become the predominant online resource for those companies who need assistance to become compliant with this new landmark piece of legislation." Contributors include Clifford Chance and KPMG. As noted near the top of the site, you only have "29 weeks to implement adequate procedures."

International Anti-Corruption Academy

The IAAC as it is known (see here) recently had its coming out party. As described on its website, the IAAC is "a joint initiative by the United Nations Office on Drugs and Crime, the Republic of Austria, the European Anti-Fraud Office, and other stakeholders" and it "is a pioneering institution that aims to overcome current shortcomings in knowledge and practice in the field of anti-corruption."

Located near Vienna, Austria, the academy "will function as an independent centre of excellence in the field of anti-corruption education, training, networking and cooperation, as well as academic research."

*****

A good weekend to all.

Is BAE's Monitor Independent?

As has been widely reported (see here and here among other places) David Gold has been appointed to be BAE's corporate monitor.

Gold (here) is a partner at Herbert Smith LLP, a leading U.K. based law firm, a firm Gold has been associated with for 37 years and will continue to be associated with until his retirement on April 30, 2011.

BAE is a client of Herbert Smith, as the firm candidly acknowledged in this release announcing Gold's appointment.

In the release, Herbert Smith states:

"This appointment is a mark of some distinction not only for David, reflecting as it does his international standing as one of the City's leading lawyers, but also for Herbert Smith."

Herbert Smith should have plenty of institutional knowledge as to many of the facts prompting the need for BAE's monitor in the first place.

Why?

Because Herbert Smith previously represented Saudi Prince Bandar - the person at the epicenter of BAE's alleged Saudi bribery scheme - the same bribery scheme that makes up the bulk of the DOJ's bribery, yet no bribery allegations against BAE (see here).

A June 8, 2007 article in The Guardian (London) details how "Prince Bandar released a statement through his London solicitors Herbert Smith" the same day an article appeared in the Guardian titled "BAE accused of secretly paying £1 billion to Saudi Prince".

On June 9, 2007, The Guardian detailed how "lawyers for Prince Bandar, the Saudi royal who received £1bn from BAE, accepted last night that he had spent $17m (£8.6m) on refurbishing one of his palaces, using cash from the US accounts concerned." The article states, "[b]ut his lawyers, Herbert Smith, said that as the palace in Riyadh was an official residence, there was nothing illegal or untoward spending money out of a Saudi official defence ministry account held at Riggs Banks in Washington DC."

In a June 13, 2007 article, The Guardian further notes how "the multi-milllionaire prince has hired for his defence the city lawyers Herbert Smith."

So it turns out that BAE's monitor is a lawyer who has been with Herbert Smith for 3 years - and will continue to be with Herbert Smith until his retirement - the same firm that represents BAE and the same firm that represented Saudi Prince Bandar the unnamed, yet widely reported, recipient of certain of BAE's payments as set forth in the DOJ's bribery, yet no bribery criminal information (see here).

Why does this matter?

Because the DOJ-BAE plea agreement (see here - Appendix C) requires an "independent corporate monitor." The plea agreement states that this individual shall have "sufficient independence from [BAE] to ensure effective and impartial performance of the Monitor's duties ..."

Not only did the DOJ approve of David Gold as BAE's monitor, but so too did the U.K. government - at least that is what the plea agreement requires.

So, what do you think? Is BAE's monitor independent?

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.

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.

Year Two ... Plus The Friday Roundup

I missed my own anniversary, the anniversary of FCPA Professor that is.

On July 17, 2009, I formally launched FCPA Professor with this Mission Statement.

Approximately 220 posts later, year two has arrived and the mission remains the same.

It is a pleasure to make frequent deliveries to the marketplace of ideas. FCPA Professor is read worldwide by a diverse group of readers and I thank you for making this space a part of your day.

Now for the Friday roundup.

BAE U.K. Settlement Still Pending

BAE's bribery, yet no bribery U.S. settlement has long been signed, sealed and delivered. See here and here for more. Yet things are taking a bit longer on the other side of the Atlantic according to this report from a U.K. financial website.

According to the report, Serious Fraud Office director Richard Alderman has admitted "that legal challenges by anti-arms campaigners, and the need to get the case's extensive documentation in order, have seen the conclusion of the bribery investigation put off until autumn at the earliest."

With the lashing the SFO took in the Innospec enforcement action (see here), the SFO understandably wants to get this one right.

The BAE U.K. settlement is not the only event that has been delayed. As highlighted in this post from earlier week so too is the new U.K. Bribery Act.

Business is Booming

Furthering the notion that anti-bribery and compliance work is an industry in and of itself, the San Jose Business Journal reports in this recent piece that business is booming - and not just among law firms - as the article profiles Deloitte and KPMG.

The article touches upon certain topics highlighted by others, including Nathan Vardi in this Forbes piece, and Steve Pearlstein in this Washington Post piece.

Noble and Nigeria

A recent post (see here) described Nigeria as a challenging market and highlighted a recent report that found that one in three companies reported paying a bribe to Nigerian public officials in undertaking administrative tasks. The post talked about facilitation payments, which are allowed by the FCPA - at least as written, yet highlighted the many FCPA enforcement actions seemingly based on facilitating payments.

Throw a pending enforcement action against Noble Corporation into that mix.

Here is what the company said in its recent 8-K filing:

"In 2007, we began, and voluntarily contacted the SEC and the U.S. Department of Justice (“DOJ”) to advise them of, an internal investigation of the legality under the FCPA and local laws of certain reimbursement payments made by our Nigerian affiliate to customs agents in Nigeria. The SEC and the DOJ have indicated that they believe that violations of the FCPA occurred and will seek civil and/or criminal sanctions against us, including monetary penalties, and may include additional sanctions against us and/or certain of our employees, as well as additional changes to our business practices and compliance programs. We could also face fines or sanctions in relevant foreign jurisdictions.

We consider the matter relating to the Nigeria investigation to be ongoing and cannot predict (a) when it will conclude, (b) whether either the SEC or the DOJ will open its own proceeding to investigate this matter, or (c) if a proceeding is opened, what potential sanctions, penalties or other remedies these agencies may seek. Based on information obtained to date, we believe it is probable that we will pay an amount to settle this matter with the DOJ and SEC. Given that the matter is not finally resolved, we cannot predict with certainty what amount we will pay in civil and criminal fines and penalties; however, as of June 30, 2010, we accrued approximately $5.1 million relating to this ongoing matter. Any of the sanctions as a result of the Nigerian investigation or any other future violation of the FCPA or similar law could have a material adverse effect on our business or financial condition and could damage our reputation and ability to do business, to attract and retain employees and to access capital markets.

Frontier identified certain payments totaling approximately $35,000 made by one of its former agents to Nigeria immigration officials in 2009 and reported this matter to the DOJ as a possible violation of the FCPA. We reviewed this matter as part of our diligence investigation of Frontier. The DOJ has not indicated what, if any, action it may take with respect to such payments, although the DOJ could seek civil and/or criminal sanctions against Frontier. Upon closing the Frontier acquisition, we would be responsible for such sanctions as well as any other sanctions relating to violations of applicable laws by Frontier, except to the extent that they may be covered by indemnities contained in the merger agreement with Frontier. Any such sanctions could have a material adverse effect on our business or financial condition."

The Holder Memo and FCPA Enforcement

Attorney General Eric Holder recently issued a memo (here) regarding "Department Policy on Charging and Sentencing."

There is little that is new is this memo; in fact Holder states that the purpose of the memo is "to reaffirm the guidance" provided by Title 9 of the U.S. Attorneys' Manual, Chapter 27" (see here) - a manual which has "guided federal prosecutors" for "nearly three decades."

Nor is there anything FCPA specific in the memo.

Yet the memo, and the broad pronouncements Holder makes, call into question whether several recent Foreign Corrupt Practices Act enforcement actions contradict the guidance the Attorney General has reaffirmed.

In the memo, Holder states - "persons who commit similar crimes and have similar culpability should, to the extent possible, be treated similarly."

Under the law, "persons" include both individuals and business entities, including corporations.

However, as explored in this post, a two-tiered justice system has seemingly developed in FCPA enforcement.

Certain corporations in certain industries, most often selling certain things to certain customers, can seemingly violate the FCPA's anti-bribery provisions with very little consequence. In fact, with increasingly frequency, such companies are not even charged with FCPA antibribery violations and/or may not even have to plead guilty to anything. See here for the recent Daimler, here for the recent BAE, and here for the Siemens "bribery, yet no bribery" enforcement actions.

On the other hand, the DOJ seeks long prison sentences for individuals such as Charles Paul Edward Jumet, who make payments that pale in comparison to the payments made by the above corporations. In doing so, the DOJ usually trots out its get tough language (i.e. "bribery isn't just a cost of doing business overseas [... but] a serious crime that the U.S. government is intent on enforcing").

The Holder memo also states "in accordance with long-standing principle, a federal prosecutor should ordinarly charge 'the most serious offense that is consistent with the nature of the defendant's conduct, and that is likely to result in a sustainable conviction."

Again, reference is made to the Daimler, BAE, and Siemens enforcement actions.

In Daimler, the DOJ release (here) notes that Daimler "brazenly offered bribes in exchange for business around the world" and that Daimler "saw foreign bribery as a way of doing business." Yet, Daimler was not charged with FCPA anti-bribery violations. In fact, Daimler was not required to plead guilty to anything as it received a deferred prosecution agreement.

In BAE, the DOJ's criminal information (here) alleges that “BAE provided substantial benefits to one KSA (Kingdom of Saudi Arabia) 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.” Yet, BAE was not charged with FCPA anti-bribery violations.

In Siemens, the DOJ release (here) states, among other things, that for "much of its operations across the globe, bribery was nothing less than standard operating procedure for Siemens." Yet, Siemens was not charged with FCPA anti-bribery violations.

It is difficult to reconcile the charging decisions in these recent enforcement actions with the language of the Holder memo.

As to sentencing, the Holder memo states - "in a typical case" the appropriate sentence should be reflected by the "applicable guidelines range, and prosecutors should generally continue to advocate for a sentence within that range."

Apparently, neither Siemens and Daimler were "typical" cases, because in both enforcement actions the DOJ advocated for a sentence significantly below the guidelines range.

In Siemens, the guidelines range (see here) was $1.35 billion - $2.7 billion. However, the ultimate DOJ fine was $448.5 million. Siemens did not voluntarily disclose the conduct at issue, nevertheless, the DOJ gave Siemens greater sentencing credit than allowed for under the guidelines because the guidelines calculation was "incongruent with the level of cooperation and assistance provided by the company in the Department’s investigation." For more on Siemens' fine, see here and here.

In Daimler, the guidelines range (see here) was $116 million - $232 million. However, the ultimate DOJ fine was approximately $94 million. Again, Daimler did not voluntarily disclose the conduct at issue, nevertheless, the DOJ gave Daimler greater sentencing credit allowed for under the guidelines. The DOJ stated, "indeed, because Daimler did not voluntarily disclose its conduct prior to the filing of the whistleblower lawsuit, it only receives a two-point reduction in its culpability." However, the DOJ "respectfully submit[ed] that such reduction is incongruent with the level of cooperation and assistance provided by the company in the Department's investigation."

As demonstrated above, three of the DOJ's most high-profile FCPA or "FCPA like" enforcement actions seemingly contradict many of the guiding principles in the Holder memo.

With Attorney General Holder now re-affirming these principles, it will be interesting to see if future FCPA enforcement actions comply more closely with these principles or if the future holds more facade enforcement actions.

*****

Speaking of Attorney General Holder, while most of us were enjoying the Memorial Day barbeque, he was delivering remarks at the OECD Conference in Paris. See here for a copy of his remarks.

Congressman Towns Is Asking The Right Questions

One interesting, surprising, and controversial aspect of FCPA enforcement is that the U.S. government remains a lucrative customer for many FCPA violators, including some of the most egregious violators.

Last December, on the one-year anniversary of the record-setting Siemens enforcement actions, I ran this post - "Siemens ... The Year After."

Among other things, the post noted that in the year since resolution of the Siemens FCPA matter, the U.S. government continues to do substantial business with the company it charged with engaging in a pattern of bribery “unprecedented in scale and geographic scope.”

Using www.recovery.gov, the post then identifies many of the hundreds of government contracts awarded to Siemens' business units with funds made available from the American Recovery and Reinvestment Act, the $787 billion stimulus bill passed by Congress and signed by President Obama in February 2009.

These contracts have been awarded by the following government agencies: Department of Defense, Department of the Air Force, Department of the Army, Department of Transportation, Department of Health and Human Services, Department of Energy, Department of Commerce, Department of Housing and Urban Development, and the General Services Administration. According to Recovery.gov, even the DOJ (i.e. the same government agency that prosecuted Siemens for a pattern of bribery the agency termed “unprecedented in scale and geographic scope”) awarded a Siemens business unit a contract funded with stimulus dollars. Because these are just government contracts awarded with stimulus money, they represent merely the tip of the iceberg.

Siemens is not alone.

In February, BAE settled "FCPA-like" charges. Since the enforcement action, the company has been inking contracts with U.S. government agencies left and right.

Last week it was a $10.7 million contract with the U.S. Army (see here). The week before it was a $5.5 million contract and a $10 million contract with U.S. government agencies (see here and here).

Numerous other FCPA violators could be listed as well.

Against this backdrop, Congressman Edolphus Towns (D-NY), Chairman of the House Committee on Oversight and Government Reform, is asking the right questions.

In a May 18th letter to Attorney General Eric Holder (see here) the Committee expresses its concern "that settlements of civil and criminal cases by DOJ are being used as a shield to foreclose other appropriate remedies, such as suspension and debarment, that protect the government from continuing to do business with contractors who do not have satisfactory records of quality performance and business ethics."

The letter specifically mentions Kellogg, Brown & Root (KBR), including its 2009 FCPA enforcement action (see here and here).

The letter notes that "remarkably, neither the criminal [FCPA] conviction" nor KBR's other legal woes "have precluded KBR from continuing to receive new government contracts."

The letter then correctly notes, as detailed above, that "KBR does not appear to be an isolated example of this inconsistent policy whereby DOJ pursues fines and criminal sanctions for illegal actions by government contractors, yet the negotiated resolution of these cases does not have any effect on the company's eligibility to continue to receive new contracts. In fact, an agreement by DOJ to intervene on the company's behalf in any collateral proceedings, such as suspension and debarment, is a staple of deferred prosecution agreements."

The letter continues:

"This type of clause, in which DOJ agrees to take the company's side in suspension and debarment proceedings, has become standard and continues to this day. In a settlement just last month in which Daimler paid $185 million to settle criminal and civil charges that it violated the Foreign Corrupt Practices Act, DOJ "agrees to cooperate with Daimler" "[w]ith respect to Daimler's present reliability and responsibility as a government contractor." (See here for the Deferred Prosecution Agreement - para 21).

The letter concludes by the Committee asking for answers to the following questions by May 28th.

1. Does DOJ consider resolution of charges to foreclose action by other government agencies to suspend or debar companies from contracting?

2. In view of the fact that suspension and debarment is not a penalty, but is an important means for government agencies to protect themselves from unscrupulous and poorly performing contractors, please provide a detailed explanation of whether the Justice Department believes it is in the government's best interest to continue to award contracts to those with a record of violations of law.

3. Does DOJ consult with federal government contracting authorities when entering into settlement agreements with companies that compete for government contracts?

4. Identify all instances in which DOJ officials intervened in a suspension and debarment proceeding on behalf of government contractors since 2005 and explain the basis for the DOJ intervention.

These are all the right questions to ask of the DOJ.

I've noted in numerous other posts (and elsewhere) that DOJ's deterrance message will not fully be heard until an FCPA violator is debarred from receiving lucrative government contracts.

For a copy of the Committee's news release (see here).

Is the FCPA a Government Cash Cow?

Last December, I noticed this piece which discussed the increase in FCPA enforcement. One reason, according to the authors (including a former assistant director of the Division Enforcement of the SEC) - "governments will keep pursuing corrupt business practices for one very simple reason--it's lucrative."

Interesting point isn't it?

If one were to calculate the "rate of return" / "return on investment" in a typical Foreign Corrupt Practices Act enforcement action it would be enormous. Most FCPA enforcement actions result from corporate voluntary disclosures whereby company counsel deliver to the prosecutors three-ring binders of the relevant documents and witness interview memos from the internal investigation and otherwise cooperate. Thus, it does not take much in terms of government resources to prosecute a typical FCPA enforcement action which typically leads to multi-million dollar fines and penalties.

Where does this money go?

Straight to the U.S. treasury.

Say what you want about the SFO's BAE enforcement action, but at least a portion of that money went to the alleged "victims" of the wrongful conduct prosecuted - the people of Tanzania. (See here).

The suggestion that one of the reasons for the rise in FCPA enforcement is because it is a lucrative cash cow for the government would seem not to be dispelled by comments made this week in an American Lawyer article "Here Comes the Payoff Police" (here) by a former high-ranking DOJ FCPA official. The comment that caught my attention is this:

"The government sees a profitable program, and it's going to ride that horse until it can't ride it anymore."

*****

Here are some other tidbits that caught my eye this week.

More Pre-Enforcement Action News

It used to be that FCPA enforcement actions made the news. Now, it's pre-enforcement action. Alcatel-Lucent (here) stay tuned it's coming. Technip (here) stay tuned it's coming. Panalpina (here) stay tuned it's coming.

Add to the list Pfizer and Johnson & Johnson. See here for the Main Justice piece.

FCPA Unit in S.F.

As detailed here and elsewhere, the SEC's San Francisco branch office has a new unit devoted exclusively to the FCPA. "The fact that we have a significant presence of companies in Silicon Valley who do business internationally, specifically in Asia, makes us well-suited for addressing these kinds of issues," said Tracy L. Davis, the assistant regional director in charge of the new San Francisco unit. "That's one of the reasons why San Francisco is a particularly good location for an FCPA unit."

A good weekend to all.