Mission Creep At The SEC?

Today's post is from Bruce W. Bean (Professor and Director, LLM Program at Michigan State University College of Law - here).

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Last week FCPA Professor had a post (see here) describing the SEC’s internal search for the new Head of the Division of Enforcement’s FCPA Unit.

As previously reported (see here), Cheryl Scarboro, Head of the Commission’s FCPA Unit, will shortly join the Washington, D.C. office of Simpson Thacher.

The internal SEC marketing materials for this position state that this “Unit seeks to expand the Commission's global reach in this area by executing targeted sweeps and sector-wide investigations, identifying systemic practices that give rise to potential FCPA violations and aggressively enforcing anti-bribery statutes.”

“[E]xpand the Commission’s global reach?” We do not find this concept in the FCPA. Nor is it in the original Securities Exchange Act that established the SEC. Has the Commission really run out of legitimate domestic prosecution targets? Does the Commission actually believe that, having long ignored stock manipulation by Wall Street traders (who can afford to mount a vigorous defense), it should declare victory in the domestic equities markets, shout “Mission Accomplished” and move on to police the rest of the world?

The most revealing aspect of this internal job posting for the new Head of the FCPA Enforcement Unit is this sentence, which encapsulates the SEC’s jurisdictional philosophy. "The Unit selects cases that present unique legal, evidentiary and policy challenges and attempts to develop case law and legal precedent that will have the greatest deterrent impact on conduct that violates the FCPA."

Certainly “unique legal, evidentiary and policy challenges” are presented each time we have the Commission stretch and distort the language of the FCPA as it “attempts to develop case law.” For example, there is no FCPA language supporting the determination that millions of Chinese employees at State-Owned Enterprises are “foreign officials.” Similarly, we search in vain for the statutory basis for FCPA liability for a foreign company whose foreign subsidiary committed an act which the prosecutor claims violates the FCPA.

This newly developed FCPA “case law,” of course, is largely created by the enforcement attorneys. (See here for a prior post on "prosecutorial common law"). It is seldom fully litigated before the Judicial Branch. After all, few defendants can afford to litigate against the Government, and those that could most often do not wish to risk “debarment” from doing further business with the Government until proven innocent.

FCPA enforcement has come to mean, “Let’s see just how far we can push the inherent ambiguities in the statute.” When that rare defendant does stand up and fight as in U.S. v. Giffen, we see a multi-year, multi-million dollar legal defense during which a Federal Court ultimately did not endorse the prosecutor’s attempt to “develop new case law."

Unquestionably, there is marvelous deterrent value when the SEC makes clear that it aggressively pursues FCPA violators. Prosecutors also find good value in high profile prosecutions, since this accelerates their passage through the SEC’s revolving door to much more lucrative private practice.

A closing note of warning. As outrageous as it may seem, the SEC’s jurisdictional and enforcement philosophy is comparatively good news. On Friday, July 1, the former Head of the Unit, Cheryl Scarboro, is likely to start at Simpson Thacher. That is also the date the U.K. Bribery Act comes into force. The Bribery Act actually does purport to give British prosecutors statutory authority to pursue bribery anywhere on the planet Earth. Stay tuned!

What Does The SEC FCPA Unit Chief Do?

[The below post has been revised since first posted]

Wonder no longer.

Given Cheryl Scarboro's recently announced departure from the FCPA Unit Chief position (see here for the prior post), the SEC recently posted the opening for the position.

The "Major Duties" portion of the job posting is actually an interesting and informative read.

Want proof that the SEC executes "targeted sweeps and sector-wide investigations." It is in the job description.

The "Major Duties" section of the job posting states, in full, as follows.

"The Division of Enforcement assists the Commission in executing its law enforcement functions by, among other things, conducting investigations of possible violations of the federal securities laws, making recommendations to the Commission concerning enforcement actions and initiating and conducting administrative proceedings and civil actions arising out of its investigations. The Division of Enforcement's Foreign Corrupt Practices Act Unit operates on a nationwide basis, exercises the full range of the Division's investigative and law enforcement powers and focuses on actual and suspected violations of the Foreign Corrupt Practices Act (collectively, "FCPA") . The Unit is comprised of staff from the Division of Enforcement and Regional Offices. The principal functions of the Unit include developing and maintaining significant specialized knowledge and expertise in the identification and investigation of FCPA violations. Members of the Unit gain in-depth knowledge of industries and regional practices as they may relate to potential FCPA violations on a global basis. Over the course of its investigations, and from case-to-case, the Unit develops specialized insights and understanding of foreign business practices by U.S. and international public companies involving all manner of questionable payments (bribes, kickbacks, gratuitous payments etc.) involving foreign officials, U.S. and foreign executives and the agents and intermediaries through whom they may operate. The Unit seeks to expand the Commission's global reach in this area by executing targeted sweeps and sector-wide investigations, identifying systemic practices that give rise to potential FCPA violations and aggressively enforcing anti-bribery statutes. The Unit selects cases that present unique legal, evidentiary and policy challenges and attempts to develop case law and legal precedent that will have the greatest deterrent impact on conduct that violates the FCPA. Members of the Unit establish contacts and forge close relationships with foreign regulators and law enforcement authorities and US counterparts, including the U.S. Department of Justice and other federal and state regulatory authorities with interests in this area. The Unit communicates with staff throughout the Commission, the Division and regions and with other specialized units to disseminate information, share analysis, develop and distribute high quality enforcement leads and determine investigative strategies. The Unit performs risk assessment relating to areas within its specialty and communicates with the Division and other Commission offices and divisions concerning its findings. The Unit conducts regular and ongoing training for its staff, engages in public outreach and represents the Commission in industry meetings, conferences and other market-related events."

One has to reach far into FCPA history to discover an instance where the SEC was challenged in an adversary proceeding and put to its burden of proof in an FCPA case. Thus the following sentence from the job description was a bit amusing - "the Unit selects cases that present unique legal, evidentiary and policy challenges and attempts to develop case law and legal precedent that will have the greatest deterrent impact on conduct that violates the FCPA."

The position, only open to current SEC employees, has a pay range of $150,372 to $226,160.

However, the prestige of this position, the national and international platform it provides for speeches etc., and the knowledge and experience gained will allow the successful applicant (should he or she choose) a smooth transition into an FCPA private practice career at a major law firm and the ability to make several times the above salary range.

Branch Office Of The Prosecutor

David Hilzenrath of the Washington Post recently profiled a dynamic that readers of this site know well – and that is “as the U.S. government steps up investigations of companies suspected of paying bribes overseas, law enforcement officials are leaving much of the detective work to the very corporations under suspicion.” See here for the article.

The article touches upon themes also addressed in Nathan Vardi’s “Bribery Racket” article in Forbes (see here) as Hilzenrath notes that “for the people who conduct the internal investigations – many of them former Justice and SEC employees – it is big business.” Hilzenrath notes - “The corporations, sometimes at the request of the government, hire teams of lawyers and accountants to interview employees, gather electronic records and sift through documents. The government reviews the results and decides whether further legwork is warranted – and ultimately, whether to pursue charges.”

The recent Washington Post article motivated me to read a law review article that has long been on my reading stack and that is “Branch Office of the Prosecutor: The New Role of the Corporation in Business Crime Prosecutions.” (See here).

Written by Harry First, the Charles Denison Professor of Law at New York University School of Law (see here) and published by the North Carolina Law Review, the “article describes the evolution of the public corporation's role in the criminal justice process - from potential defendant to "branch office of the prosecutor," partnering with the government in investigating business crime - and assesses the impact of this evolution on criminal justice policy."

Scarboro to Simpson Thatcher

Earlier this week, law firm Simpon Thatcher announced (here) that Cheryl Scarboro, Chief of the SEC's FCPA Unit, will join the firm as a partner in its Government and Internal Investigations Practice.

The firm's release notes that "[a]s head of the SEC’s FCPA practice, Ms. Scarboro played a role in all of the SEC’s recent major FCPA cases and acted as the SEC liaison with the Department of Justice (DOJ) and regulators around the world."

Pete Ruegger, Chairman of the firm’s Executive Committee stated that Scarboro's "extensive experience in high-profile SEC investigations and enforcement actions, particularly involving the Foreign Corrupt Practices Act, will enhance our talented Government and Internal Investigations Practice Group" and Paul Curnin, Co-Head of the firm's Litigation Practice added as follows. "In recent years, the SEC and other regulatory bodies have increased their focus on identifying violations under the FCPA. Cheryl’s experience and insight developed over her 19 year tenure at the SEC will be extremely beneficial to our clients.”

Scarboro's departure is the latest in a clear trend of high-profile SEC or DOJ FCPA enforcement attorneys, who enforce this niche law in often aggressive and novel ways, depart for high-paying jobs in the private sector to provide FCPA defense and compliance services - a niche legal practice that has expanded in response to enforcement - as noted by Simpson's release. For other recent examples see here, here, and here.

So will say this is just how Washington works, others will say this is a pressing public policy issue deserving of attention. As explained in this piece, I fall into the latter camp and expressed my concerns (as noted in the article) when interviewed by the Government Accountability Office in March in connection with its Congressionally mandated study examining issues related to employees leaving the SEC to work for related private sector entities.

Dionne Searcey at the Wall Street Journal Law Blog (here) notes as follows. "When Scarboro joined the SEC 19 years ago the FCPA was barely a twinkle in enforcement authorities’ eyes. But in recent years amid an uptick in FCPA investigations as well as a huge increase in fines for offenses, Scarboro has had a hand in every major FCPA investigation the agency carried out and has worked closely with the Justice Department’s FCPA team."

Samuel Rubenfeld at the Wall Street Journal Corruption Currents blog (here) notes as follows. "Scarboro is the latest SEC official to leave the enforcement world for private practice, marking a practice known as the “revolving door” that has received harsh criticism from activists and others."

Joshua Gallu at Bloomberg notes (here) that "under Scarboro’s watch, the SEC focused corruption probes to look across industries and regions it considered more prone to bribery, instead of targeting individual firms."

Luke Balleny at Trustlaw (a Thompson Reuters on-line publication) recently let me play U.S. Attorney General in a Q&A (here) and asked me how I would change FCPA enforcement. One suggestion I had was to require all FCPA Unit enforcement attorneys to sign a pledge whereby the enforcement attorney agrees, post-DOJ employment, not to provide FCPA defense or compliance services for a five-year time period - a suggestion I would also extend to SEC FCPA enforcement attorneys.

A Q&A With Homer Moyer

In running a site called "FCPA Professor" it is only appropriate to touch base with a "Dean" on occasion.

I do so in this post with Homer Moyer, a "dean" of the FCPA bar. Moyer, a partner with Miller & Chevalier (see here) addresses a variety of topics in this Q&A - from evolution of the FCPA and FCPA enforcement to voluntary disclosure and investigative fees. Moyer closes out the Q&A with a few FCPA reform proposals of his own.

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Your government experience prior to law practice was with the Commerce Department, not the DOJ or SEC as is typical of many FCPA enforcement lawyers. How has your Commerce Department experience informed your FCPA practice?

I was at the Commerce Department when the FCPA was enacted, and I chaired an inter-agency group on FCPA issues. Of greater value to my later FCPA practice, however, was having served as general counsel of the Department that deals most directly with corporate issues and that both promotes and regulates American businesses. Also of great value were the experiences of having litigated cases as both a prosecutor and defense counsel. Perhaps most important, however, is having now seen hundreds of different FCPA issues for dozens of different clients.

Working on FCPA cases at the SEC or DOJ provides prosecutors with unique experience, but not the opportunity to counsel and represent corporate clients, manage complex legal issues for them, or help them devise and implement innovative compliance programs.

Describe your first FCPA matter or case? What were the issues? What were your client's concerns?

One of my early cases, some 20 years ago, presented a host of issues that had not yet become commonplace. The case I have in mind involved potential vicarious liability for the acts of a third party, a third party who claimed that the work it did for a U.S. company created a “constructive partnership” that entitled it to share the company’s profits, questions of whether to consult voluntarily with DOJ, an industry with which DOJ was not yet well-acquainted, innovative compliance enhancements, related civil litigation, and forged evidence presented to a court.

That matter ended well, but it presented issues of first impression and foreshadowed how complicated FCPA cases could be.

The FCPA has evolved much since your first case. From your perspective, has this evolution been positive? Any negative aspects of this evolution? How has this evolution affected your practice and your clients?

The evolution of FCPA enforcement has unquestionably brought more and more attention to the issue of official corruption and has had an indisputable impact on corporate behavior, or the “supply side” of the bribery equation. In addition, it has done something that unilateral U.S. laws rarely do, namely, led to a far-reaching change and consensus in the international legal landscape, as now reflected in international anti-corruption conventions to which more than 150 countries have become signatories.

Despite two sets of amendments, the FCPA itself has changed relatively little since it was adopted in 1977. Its “evolution” has primarily been through a steady escalation in enforcement -- the number and variety of enforcement actions, expansive interpretations of key provisions, the size and variety of penalties, the frequency of voluntary disclosures, and a steady rise in the levels of sophistication the government looks for in independent investigations, due diligence processes, and compliance programs.

Has this evolution been positive or negative? Few people would now dispute that corruption and bribery of foreign officials imposes staggering economic and social costs, frequently on countries that can afford it least. The question then becomes whether FCPA enforcement has made a positive difference in reducing or eliminating corruption. It probably has, but more relevant today is the continuing pervasiveness of official corruption and the daunting challenges to controlling it on a global basis.

With respect to the FCPA itself, complaints that it has created an “uneven playing field” have been somewhat undercut by aggressive FCPA enforcement against non-U.S. companies, by new international anti-corruption conventions, and by the beginnings of genuine enforcement in some other countries. And the lament that few FCPA cases are adjudicated in court does not distinguish FCPA enforcement from the enforcement patterns of many other regulatory laws. The infrequency of judicial review may occasionally embolden the government to overreach, but it has rarely resulted in abusive prosecutions.

In terms of our own practice, the increase in enforcement has plainly caused clients to be far more focused on anti-corruption issues than was once the case. This has certainly caused Miller & Chevalier’s long-standing FCPA practice to grow dramatically. It also appears to have created something of a traffic jam of newly minted “FCPA lawyers.”

Your point “that few FCPA cases are adjudicated in court does not distinguish FCPA enforcement from the enforcement patterns of many other regulatory laws” is a very valid point. However, isn’t a key difference though that other laws have benefited from several dozen circuit court opinions and perhaps a few Supreme Court decisions, such that the parameters of the law are at least set by someone other than the enforcement agencies? [Granted, 2011 will likely see several trial court decisions as to certain FCPA elements, but the FCPA is still a law that is lacking much meaningful precedential case law.]

One has to take the view -- and I certainly do -- that independent judicial review is a good thing -- a critical part of our legal system and important to preserving the rule of law. Judicial review, or the prospect of judicial review, can help prevent regulatory or enforcement excesses. In some regulatory programs -- environmental statutes come to mind -- the level of judicial review is robust. And we are beginning to see more judicial review in FCPA cases involving individual defendants.

At the same time, some regulatory areas have been subject to as little, or even less, judicial scrutiny than the FCPA. Statutory restrictions on judicial review and judicial deference to agency interpretations of regulations having “national security” ramifications effectively reduce judicial oversight. One can look long and hard for good case law on the regulations enforced by the Office of Foreign Assets Controls (“OFAC”) or on export controls rules under the ITAR (International Traffic in Arms Regulations), each of which has seen regulatory overreaching and little accountability. One recent Federal Circuit Court opinion referred to the discretion reserved by the Executive Branch combined with the lack of clarity in the ITAR as something that would be expected of a totalitarian regime, not the United States Government.

In the end, however, the amount of judicial review is determined by the private sector. Clients are, of course, free to challenge FCPA enforcement actions, although historically corporate clients have tended to favor settlement as a preferable route. Moreover, recent FCPA court decisions reflect that courts will not necessarily interpret laws differently from enforcement agencies. Nonetheless, both corporate and individual defendants are free to challenge agency interpretations of the laws they enforce, and I and many other counsel would undoubtedly be available to help.

When President Obama, high-ranking DOJ officials and others in government talk about corruption and bribery, they talk about the bridge that crumbles because the contractor was selected based on a bribe payment or other similar scenarios. However, very few FCPA enforcement actions fit this scenario, rather the alleged violator is generally viewed as an industry leader that sells the best products for the best prices. Do you agree that a divide exists between such government or civil society statements and typical FCPA enforcement action scenarios? If so, how do we bridge this divide?

Bribery of foreign officials is, in the first instance, typically designed to overcome market forces and to distort competition, not to ensure the purchase of the best products at the best price. Whether or not a bridge is the best metaphor, FCPA violations reflect illicit payments that are made to enrich corrupt officials and that shift that cost to consumers and taxpayers. The consistent scenario in FCPA enforcement actions is that an alleged violator, or someone acting on its behalf, did, in fact, pay bribes, often egregious ones.

The most significant “divide” today is the uneven enforcement among signatories to anti-corruption conventions. Whereas the 1980s saw an industry push to repeal or relax the FCPA on the grounds that it was creating a competitive disadvantage for American companies, the more common complaint today is that other countries must consistently and meaningfully enforce their own anti-corruption laws to assure that the proverbial playing field is level.

Many calls to roll back the FCPA are now anomalous, as they would put the United States out of compliance with international conventions that the FCPA inspired and that the United States fought hard to achieve. They also run counter to the anti-corruption momentum of the last 20 years and would effectively legalize some practices that are coming to be universally condemned, if not yet universally punished.

I find that most U.S. multinational corporations would be delighted to compete on the merits. Indeed, some companies are affirmatively using integrity in the marketplace to gain a competitive advantage. Many have voluntarily prohibited “facilitating payments,” even though they are permissible under the FCPA. It is also interesting to note that Siemens, after paying record-shattering FCPA fines and taking aggressive steps to transform its entire corporate culture, has been posting record profits.

What is your reaction to this statement from a recent high-ranking DOJ official - "“the government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore.” Do you believe that FCPA enforcement has become a government cash cow? FCPA enforcement fines and penalties simply go into the U.S. Treasury. Are there better places for this money accepting the notion that bribery results in victims?

FCPA fines probably don’t rise to the level of a governmental “cash cow.” In fiscal terms, they are of no real moment. The government unfortunately needs some much bigger revenue cows.

I do believe, however, that law enforcement penalties should be a consequence of, not a reason for, enforcing criminal laws. And although penalties have risen, I do not have the sense that revenue production has been a driver of FCPA enforcement.

Your interesting question about whether penalties might be used to compensate the “victims” of corruption is a favorite in developing countries. It highlights the difficulties of tracing, seizing, and repatriating funds that corrupt officials have stolen from their countries. Even where recovery of funds is possible, assuring that they are then used to benefit the citizens who were cheated by official corruption is a challenge. That is, however, the right use of repatriated funds.

Because countries that have been cheated by their own rulers have rarely been able to recover the stolen funds, some have asked whether they should be compensated with funds collected as penalties in anti-corruption enforcement actions. This would be a break from past law enforcement patterns, and the idea appears not to have gained significant traction. The strongest case for making that break probably relates to funds collected as disgorgement of profits rather than pure fines. Indeed, one could argue that it would be more just for the bounties that whistleblowers can now earn under the Dodd-Frank law to go not to whistleblowers, but rather to the countries affected for the benefit of the victims of corruption.

Your response speaks of corrupt “officials,” “official corruption” and “rulers.” Yet, the vast majority of FCPA enforcement actions involve no such individual – rather the alleged recipient of the bribe is an employee of an alleged state-owned or state-controlled enterprise. In these cases, would not the most direct victim be the competitor who lost the contract or did not have the opportunity to bid. Are you in favor of an FCPA private right of action?

In most FCPA violations, there is more than one victim. Competitors can certainly be victims. So can government agencies or instrumentalities that are procuring goods or services. Even where there is an admitted bribe, however, determining which competitors may have been “victims” would undoubtedly be a messy and imperfect process. And allegations of improper payments are far more common than proof of improper payments, as any practitioner knows, and the complications of trying to identify victims and allocate compensation among everyone claiming status as a victim might make us long for the days when the principal issues were simply the ones you have asked about here.

What percentage of internal investigations you have worked on in the past 3-5 years that ended with a conclusion that the company violated the FCPA resulted in a voluntary disclosure? Same question for investigations you worked on during the time period 1995-2005? Why the difference?

Although we have clients who, after weighing all the relevant factors, have elected not to disclose, the percentage of matters that result in voluntary disclosures has plainly been rising. The reasons include changes in the sentencing guidelines, the enactment of Sarbanes-Oxley, greater Audit Committee oversight of investigations, the campaign by enforcement agencies to assure companies that voluntary disclosure and cooperation will result in “tangible benefits,” and the gradually spreading view that this is true, if not numerically predictable.

With Avon's recent disclosure that it has spent over $100 million in professional fees and expenses in connection with an FCPA inquiry and other similar disclosures (albeit perhaps not as dramatic) have professional fees and expenses (law firm, accounting firm, etc.) associated with FCPA internal investigations gotten out of control?

I have to confess to being stunned at some of the reported costs of investigations. To be sure, the costs of investigations have risen with increased emphasis on electronic documents and the insistence that investigations must be independent, thorough, and knowledgeable.

Accepting those requirements, the cost-effectiveness of an investigation can be significantly improved by developing a careful work plan, utilizing a firm with experienced FCPA lawyers at all levels of seniority, tailoring the type of investigation to the type of issue, and making informed and reasonable judgments about when to stop an investigation and focus on remediation. In my experience, it is often possible to have a reasoned and productive dialogue with enforcement agencies about the scope and extent of investigations.

FCPA reform proposals are floating around and are reportedly being considered by certain members of Congress. In your view what reform proposals have merit and what issues are at the top of Homer Moyer's FCPA reform list?

I find some of the calls for statutory reform less than compelling. Proposals to change the statute in ways that would be inconsistent with international conventions to which the U.S. is committed are unlikely to be successful, in my view, and could well open the door to other “reforms” that advocates for change might dislike, such as eliminating the exception for facilitating payments.

To be sure, in enforcing the FCPA, the government tries to overreach from time to time -- exercising anti-bribery jurisdiction over foreign subsidiaries and aggressive applications of dd-3 jurisdictional on the grounds that some step in the process took place “in the territory of the United States” come to mind as occasional examples. When enforcement agencies overreach, they should be challenged.

My dream list of “reforms” might read something like the following:

• Internal DOJ guidance that voluntarily disclosed matters must normally be resolved by the Department within 90 days after completion of an internal investigation; that agencies should make public their calculations of credit for voluntary disclosure and coordination; and that the Department will publish sanitized summaries of its declinations.

• An amendment to tweak the whistle-blower provision of Dodd-Frank to relieve the SEC of the conundrum of implementing the statute consistent with its terms but in a manner that does not undercut effective corporate compliance programs;

• An agreement among prosecutors that in the case of parallel investigations by more than one country, private parties may request state-to-state consultations (as called for by the OECD convention), and the consulting states should assure that investigations are coordinated and penalties made complementary so that companies do not face redundant penalties or unnecessarily overlapping investigations.

• Insistence by the OECD that OECD membership for China, Russia, and India must include accession to the Anti-Corruption Convention, accelerated peer review, and possible reconsideration of OECD membership if implementation and enforcement of anti-corruption laws prove to be insufficient.

• Multilateral reform measures designed to minimize current legal impediments to identifying and seizing funds stolen by corrupt officials and to facilitate repatriation of such funds.

Another Top SFO Official To Depart

The U.K. Bribery Act is set to go live on July 1st.

But will anyone be left at the SFO to enforce the new law?

Of course there will be. As has been witnessed in the U.S., carrying the "enforcement stick" makes one a valuable target for law firm recruiters in this era of increased enforcement - as the firms are eager to provide clients with insight and advice from those who carried or shaped the "enforcement stick."

Coming on the heels of other recent high-level SFO departures (see here and here for the prior posts), yesterday it was reported (see here for the coverage from Legal Week) that Vivian Robinson (SFO - General Counsel) will soon leave the agency and join the London office of U.S. based law firm McGuireWoods LLP.

Over the past year, Robinson has been a very active speaker on behalf of the SFO on the Bribery Act. See here and here for prior posts as to certain of Robinson's speeches or commentary.

Commenting on his move, Robinson told Legal Week - "It has also been a privilege to take part in bringing to the attention of a wide national and international audience the importance of the new Bribery Act, its implications, and the essential role to be played by the SFO as principal enforcer of its provisions."

As has been previously reported, Richard Alderman (Director of the SFO) is also looking to soon retire from the SFO.

FCPA Insurance

This "new era of FCPA enforcement" (see here) has resulted in “a thriving and lucrative anti-bribery complex” that is - in the words of the DOJ's former FCPA head from a different era - “good business for law firms […] good business for accounting firms, […] good business for consulting firms, the media - and Justice Department lawyers who create the marketplace and then get [themselves] a job." (See here).

FCPA practices are now profit centers at law firms and accounting firms and dozens of companies have appeared on the landscape to provide all imaginable services related to the FCPA. Persons "working in this growing field" can now even receive "a professional accreditation" as an anti-bribery compliance specialist. (See here).

As if further evidence was needed that FCPA Inc. is indeed a full-fledged industry in and of itself, an insurance company has begun to offer Foreign Corrupt Practices Act insurance.

Chartis, a New York based "world leading property-casualty and general insurance organization" recently announced (here) the introduction of "Investigation Edge, developed by its Executive Liability Division as the first insurance solution to cover company costs arising from SEC investigations, including those related to internal investigations."

According to the release, "Investigation Edge covers legal expenses, discovery costs and insurable settlements resulting from investigations by enforcement authorities – including the SEC and the Department of Justice – into insider trading, restatements, accounting fraud and reporting violations."

Need a specific endorsement for FCPA issues?

No problem - as the release notes "coverage is also available via endorsements for investigations into Foreign Corrupt Practices Act violations and derivative investigations."

It is not surprising that an insurance company is now offering such a product.

FCPA professional fees and expenses have reached, in some cases, nine figures such as Avon's recent disclosure that it has spent approximately $100 million just to investigate conduct that may implicate the FCPA. In addition will be any enforcement action fines, penalties, and disgorgement, as well as any post-enforcement action compliance fees and expenses. In addition, collateral civil litigation seems to have become a new norm (see here for example).

However, would it not be easier, more cost efficient, and more desirable for any number of policy reasons to address the root causes for why the "new era of FCPA enforcement" exists in the first place?

For some - yes.

For others - no. The current era is suiting them just fine.

Friday Roundup

Fear mongering and the dark empire, FCPA scrutiny of Hamid Karzai's brother, the DOJ's kleptocracy unit takes shape, and survey findings ... it's all here in the Friday roundup.

Fear Mongering and the Dark Empire

What does Sharie Brown (here), Chair of DLA Piper's Foreign Corrupt Practices Act, Anti-Corruption and Corporate Compliance Practice, think about the U.K. Bribery Act, the surge in FCPA Inc., and the revolving door? See here for a recent interview with Corporate Crime Reporter.

A Future Afghanistan Related FCPA Enforcement Action?

A federal grand jury in the Southern District of New York is reportedly hearing evidence against Mahmood Karzai (a dual Afghan and U.S. citizen and the brother of Afghan President Hamid Karzai) including possible evidence that Afghan Investment Co. (incorporated in Virgina until 2010) bribed Afghanistan's then mining minister to secure a lease on the country's only cement factory. See Matthew Rosenberg "Grand Jury Investigates Karzai Brother) (Wall Street Journal - Feb. 16th).

If evidence exists that Karzai did indeed violate the FCPA, one can only imagine the political / foreign policy considerations of criminally indicting the brother of the Afghan President. I like to think that the government blindly goes where the evidence leads them, but the BAE and James Giffen enforcement actions suggests that may not always be the case.

To my knowledge, there has never been an FCPA enforcement action involving conduct in Afghanistan.

DOJ Kleptocracy Unit

Joe Palazzolo (Wall Street Journal Corruption Current) recently spoke with several officials involved in the DOJ's nascent kleptocracy unit. See here for previous discussion and other links regarding the kleptocracy initiative.

Palazzolo reports (here) that the unit will be housed in the DOJ's Asset Forfeiture and Money Laundering Section and staffed by five lawyers. The FBI's Asset Forfeiture and Money Laundering Unit will also divert two agents to the new unit. According to the report, "U.S. officials expect that most cases will involve foreign politicians who have left office and are no longer in a position to obstruct investigations." Palazzolo reports that the unit's "first major case could be ready in the next month and several more are expected this year."

Survey Findings

Among the findings in Deloitte and Forbes Insights 4th annual "Look Before You Leap" survey (here) is the following:

"Almost two-thirds (63%) of total survey respondents identified Foreign Corrupt Practices Act (FCPA) and anti-corruption issues that led to an aborted deal or a renegotiation over the past three years. Lack of transparency or unusual payment structures in contracts was cited by one in five and 18% pointed to the use of agents, consultants, distributors, or third parties to obtain or facilitate business."

The survey results indicate that strategic buyers are more impacted (and perhaps more sensitive to FCPA issues) than financial buyers such as private equity firms and hedge funds.

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A good weekend to all.

U.K. Developments

A Bribery Act review, high profile departures from the Serious Fraud Office - the agency gearing up to enforce the Bribery Act - but wait, will the Serious Fraud Office even be the agency to enforce the Bribery Act?

Bribery Act

As widely reported last week (see here and here), the U.K. Bribery Act, set for implementation in April 2011, is to undergo a review ordered by Prime Minister David Cameron's office.

Richard Alderman, Director of the U.K. Serious Fraud Office, stated as follows in an e-mail.

"It is for the UK Government and Parliament to consider implementation of the Bribery Act. The SFO is well placed to provide assistance to any review because of our experience in this area particularly following the many discussions we have had with business and professional advisers in the UK and the US."

Barry Vitou and Richard Kovalevsky have a good overview of recent events here at briberyact.com.

SFO Departures

The U.K. Serious Fraud Office is gearing up to enforce the Bribery Act, but it has recently lost two senior officials instrumental in Bribery Act preparation and guidance development.

Robert Amaee (SFO Head of Anti-Corruption) is joining Covington & Burling's London office. See here for Covington's release which states as follows: "[Amaee's] leading government role in anti-bribery and anti-money laundering issues will add an important new dimension to our global practice in this critical area of law. We see our clients focusing increasingly on these matters, and Robert will be a tremendous asset to our clients not only in the UK but across all of our offices.”

Charlie Monteith (SFO Head of Assurance) is joining White & Case's London office. See here for the firm's release which states as follows: "When it comes into force in April 2011, the UK's new Bribery Act will change the risk landscape for any company which carries out business in the UK, wherever it's located ... having [Monteith] onboard is going to be an enormous asset to clients in helping them understand and comply with this seismic piece of legislation."

See here for the Bloomberg article regarding the SFO departures.

Which Agency Will Enforce the Bribery Act?

While the SFO is gearing up to enforce the Bribery Act, efforts are afoot to reorganize how white collar crime is investigated and enforced in the U.K. See here for more.

Statistics of Note

Fulbright & Jaworski's Annual Litigation Trends Survey Report is always an interesting read and this year's report (available for download here) is no exception.

The report compiles survey data from "senior corporate counsel on their experiences and opinions regarding various aspects of litigation and related matters." "There were 403 participants in the Litigation Trends Survey of 2010, including 275 in the U.S. and 128 in the U.K. (a record high)." Approximately 50% of the survey participants were employed by a company with gross revenues of over $1 billion.

Some statistics that caught my eye.

"Companies that have engaged outside counsel to assist with a corruption or bribery investigation in the past 12 months (including, but not limited to, FCPA in the U.S. and equivalent in U.K.)"

12% U.S., 26% U.K.

Surprising on both fronts. The spike in the U.K. rate 26% in 2010 vs. 12% in 2009 is not surprising given the increased attention to bribery and corruption issues in the U.K. as the Bribery Act nears implementation.

According to the survey, "a quarter of manufacturers have conducted bribery/corruption investigations" and this sector "continues to lead other industries, as it has for the past two years."

"Companies that have engaged in due diligence for bribery or corruption (including FCPA matters) relating to a merger, acquisition or other business transaction with a foreign country in the past 12 months."

17% U.S., 28% U.K.

Again surprising on both fronts. FCPA-specific due diligence in M&A and other cross-border transactions is frequently preached by the enforcement agencies, but apparently companies are not getting the message, or if they are, they don't view FCPA specific due diligence as a value added exercise.

This next statistic is also surprising, particulary given (what at least appears to be from media and other reports) high anxiety levels as to the upcoming U.K. Bribery Act. I like how Miller & Chevalier states it in its recent FCPA Autumn Review 2010 (see here) - the U.K. Bribery Act "about which so much is being said and written" an issue already the "subject of lively debate and ominous forebodings" and a topic "commanding considerable commentary and concern."

"Do you foresee changes in the way your company operates due to the new U.K. Bribery Act?"

89% no - U.S.

65% no - U.K.

The following non-FCPA statistic was also interesting.

"A quarter of the companies that have conducted an internal investigation reported the matter to a regulatory agency, as a result of the investigation." I suspect that if this topic was FCPA specific the percentage would have been higher than 25%.

*****

As to FCPA, Inc. issue generally, this recent article in The Lawyer by Matt Byrne caught me eye. It discusses Shearman & Sterling's "radical strategy" to boost litigation related revenue. The article quotes N.Y. based partner Herb Washer as saying that, among other areas, FCPA-related matters are acting as a catalyst for Shearman’s litigation push. “FCPA enforcement has become an explicit priority of the Department of Justice,” says Washer. “There’s not only a greater number of cases but the fines are trending upwards. There’s very big money at risk and companies are spending big money to defend themselves against allegations. There’s no doubt this is a significant driver for the growth of our practice and many of our competitors.”

SciClone - An FCPA Feeding Frenzy

On August 9, 2010 SciClone Pharmaceuticals made an FCPA-related disclosure.

This post discusses what has happened since.

August 10th

Shares of SciClone plunged, at one point down 40% from the previous day's close, closing down 31.9%. (This is clearly in stark contrast to the recent situation involving Schlumberger discussed in yesterday's post - here).

Levi & Korsinsky LLP announce that it is investigating SciClone on behalf of shareholders for possible violations of state and federal securities laws.

The Law Offices of Howard G. Smith announce that it is investigation SciClone on behalf of shareholders for possible violations of federal securities laws.

The law firm of Kahn Swick & Foti, LLC announces the commencement of an investigation into SciClone to determine whether it has violated federal securities laws.

Roy Jacobs & Associates announce that it is investigating SciClone for potentially violating the federal securities laws.

August 11

Pomerantz Haudek Grossman & Gross LLP announce that it is investigating claims on behalf of investors of SciClone to determine whether it has violated federal securities laws.

The law firm of Statman, Harris & Eyrich, LLC announce that it is investigating SciClone for potential violations of state and federal law.

Goldfarb Branham, LLP announce that it is investigating SciClone for shareholders who purchased stock of the company and preparing a possible derivative lawsuit against company executives.

Finkelstein Thompson LLP announce that it is investigating potential shareholder claims concerning SciClone.

August 12

Robbins Umeda LLP announce that it commenced an investigation into possible breaches of fiduciary duty and other violations of the law by certain officers and directors at SciClone.

August 13

The law firm of Kahn Swick & Foti announce that the firm has filed the first 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.

August 19

Barroway Topaz Kessler Meltzer & Check, LLP announce that a class action lawsuit was filed in the United States District Court for the Northern District of California on behalf of purchasers of the securities of SciClone.

Brower Piven, A Professional Corporation, announce that a class action lawsuit has been commenced in the United States District Court for the Northern District of California on behalf of purchasers of the common stock of SciClone.

August 20

Kendall Law Group announce an investigating of SciClone for shareholders.

Ryan & Maniskas, LLP announce that a class action lawsuit has been filed in the United States District Court for the Northern District of California on behalf of purchasers of SciClone.

August 28

Roy Jacobs & Associates (again) announce that it is investigating SciClone for potentially violating the federal securities laws.

September 7

The Shuman Law Firm announces that a class action lawsuit has been filed in the United States District Court for the Northern District of California on behalf of anyone who purchased or otherwise acquired SciClone common stock between May 11, 2009and August 10, 2010.

September 8

Kaplan Fox & Kilsheimer LLP announce that it has filed a class action suit against SciClone alleging violations of the Securities Exchange Act of 1934 on behalf of purchasers of SciClone's common stock during the period May 11, 2009 and August 9, 2010.

September 16

The law firm of Strauss & Troy announce that a class action lawsuit has been filed in the U.S. District Court for the Northern District of California against SciClone for potential violations of state and federal law.

September 23

The law firm of Lieff Cabraser Heimann & Bernstein, LLP announce that class action lawsuits have been brought on behalf of purchasers of the common stock of SciClone.

Given the above, you are probably wondering, geez, what did SciClone disclose - how extensive were the disclosed FCPA violations? Did the company's CEO or CFO resign? Is the company still in business?

Well, not exactly.

On August 9th, SciClone disclosed (see here) 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."

During SciClone's August 9th earnings conference call Friedhelm Blobel (President and CEO) stated that SciClone "intends to cooperate fully with the SEC and DOJ in the conduct of their investigations, and has appointed a special committee of independent directors to oversee the Company's efforts." Blobel noted that "as far as timing is concerned, the lawyers tell us that these investigations typically are long lasting." In response to the question - is the investigation disrupting day-to-day operations or ongoing sales, Gary Titus (CFO) said that "it is business as usual for SciClone, and we continue to focus on all of the priorities that we have set for the Company ..."

That's right.

All of the above occured because the SEC initiated a formal investigation of SciClone and issued a subpoena to the company and because SciClone received a letter from the DOJ as to an industry-wide investigation suggesting possible improper conduct by the company.

You be the judge.

Are the above referenced investigations and lawsuits a rational and value added exercise for shareholders of SciClone or rather indicative of an FCPA feeding frenzy where everyone, it seems, is trying to get a slice of the pie?

Has this all gotten a bit out-of-hand?

*****

Yesterday, SciClone (see here) announced "continued topline growth and strong cash position in the Third Quarter of 2010."

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.

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.

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).

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.

Friday Roundup

The former DOJ top cop speaks, Senator Feingold joins the debarment discussion, anything is possible, and a House Resolution focused on BP ... it's all here in the Friday roundup.

Mendelsohn Interview

During the period of the FCPA's resurgence, Mark Mendelsohn was the public face and voice on FCPA issues at the Department of Justice. In April, he announced his departure and now maintains an FCPA private practice at Paul Weiss. (See here and here for more).

See here for Mendeloshn's recent interview with The Metropolitan Corporate Counsel as he reflects back on his DOJ tenure and other issues.

Senator Feingold Joins The Debarment Discussion

Earlier this week Senator Russ Feingold (D-WI) testified before the Senate Judiciary Subcommittee on Administrative Oversight and the Courts (see here). The hearing was on the topic of "Protecting the Public Interest: Understanding the Threat of Agency Capture." He began his testimony by stating that a better job needs to be done to ensure that there are no significant conflicts of interest or other inappropriate ties between regulators and the corporations they purport to regulate."

He then stated:

"I want to raise a concern that a new, more subtle type of agency capture is beginning to emerge as a result of our increasing reliance on government contractors. The Council of the Inspectors General on Integrity and Efficiency recently reported that the total number of suspensions and debarments in FY 2008 was half the total from five years ago, and that suspensions and debarments had been steadily decreasing over the last five years. This is a disturbing statistic, especially when you consider that the number of contract fraud, Foreign Corrupt Practices Act, and other corruption investigations involving contractors is on the rise."

For more on debarment issues, including an FCPA debarment bill pending in the House see here and here and here.

Is It Possible?

Is it possible to spend $3.2 million on "professional costs" associated with an internal investigation "limited in size and scope" to a branch office that represents approximately one-half of one percent of the company's annual consolidated revenues?

Apparently it is.

In January I ran this post about Team Inc. and its voluntary disclosure of less than $50,000 in potentially improper payments in its Trinidad branch.

Earlier this week, when disclosing its financial results, the company stated as follows:

"The results of the FCPA investigation were communicated to the SEC and Department of Justice in May 2010 and the Company is awaiting their response. The results of the independent investigation support management's belief that any possible violations of the FCPA were limited in size and scope. The total professional costs associated with the investigation were approximately $3.2 million." (emphasis added).

Exhibit A for how even isolated instances of improper conduct under the FCPA in a branch office can be very expensive or Exhibit A for just how out of whack professional costs associated with an FCPA internal investigation and disclosure have become?

It's your conclusion to make.

BP House Resolution

This recent post discussed Senator Charles Schumer's (D-NY) request that the Department of Justice investigate BP for FCPA violations.

On July 30, House Resolution 1597 was introduced. Sponsored by Representative Daniel Maffei (D-NY) and co-sponsored by Representatives Christopher Lee (R-NY) and Michael McMahon (D-NY) the resolution (see here) encourages the United Kingdom to "investigate British Petroleum (BP) for foreign corrupt practices."

The reason?

The same as offered by Senator Schumer - that BP attempted to influence the August 2009 release of Abdel Baset al-Megrahi, the Libyan terrorist convicted of the 1988 bombing of Pan-Am flight 103 that killed 270 people, including 189 Americans.

The resolution states, in part:

"Whereas the Scottish courts released al-Megrahi from prison on August 20, 2009, under the understanding that he was suffering from terminal prostate cancer;

Whereas the Scottish authorities have never clarified why al-Megrahi could not receive humane treatment while still in captivity;

Whereas al-Megrahi seems to have well outlived his original diagnosis;

Whereas it is very troubling that al-Megrahi received a hero’s welcome to his home country of Libya;

Whereas British Petroleum (BP) admitted on July 15, 2010, that a delayed prisoner-transfer between Britain and Libya ‘could have a negative impact’ on BP’s oil negotiations;

Whereas there are allegations that BP inappropriately attempted to affect the Scottish Government’s decision and possibly even the doctor’s diagnosis; and

Whereas al-Megrahi’s release sends an incredibly offensive message to the families that lost loved ones on Pan Am Flight 103: Now, therefore, be it

Resolved, That the House of Representatives encourages the United Kingdom to investigate British Petroleum (BP) for foreign corrupt practices."

As I asked in my original post - following Schumer's (and now Maffei's) lead will a British politician request that the U.K. Serious Fraud Office or the U.S. government investigate a U.S. company because it lobbied its own government officials in connection with a business purpose?

*****

A good weekend to all.

DOJ, SEC Receive FCPA Training

The Department of Justice and the Securities and Exchange Commission enforce the Foreign Corrupt Practices Act.

It is thus a bit strange that the DOJ and SEC are receiving FCPA training.

Yet, piecing together information from two prominent law firm event calendars (see here and here) that is exactly what is occuring today in Washington D.C. at the SEC headquarters.

Described as a "joint FCPA training program" for the DOJ, SEC, and FBI and the "SEC's FCPA Boot Camp" the speakers appear to include a who's who of the FCPA defense bar.

What prompted this training session? What is the full agenda of topics? What type of questions will DOJ and SEC personnel ask?

Inquiring minds want to know.

Inquiring minds may also wonder - is it proper for the DOJ and SEC to receive training from lawyers and law firms that are frequent "adversaries" in FCPA enforcement actions?

The event is not included on the SEC's event calendar (see here), but DC readers may want to show up at the SEC's headquarters today and say "I'm here for the FCPA training" to see what happens.

If anyone has information or insight as to this event, please leave a comment.

A few other DOJ / SEC items of interest to pass along.

Make Your Voice Heard

According to this release, the SEC is seeking public comment on various sections of the recently enacted Dodd-Frank financial reform package. The SEC will post all submissions on SEC's Internet Web site. As noted in the release, "members of the public who wish to submit official comments on particular rulemaking initiatives should submit comments during the official comment period that starts with the notice of the initiative published in the Federal Register." (emphasis added).

To learn more about Section 922's whistleblower provisons, see here and here. To learn more about Section 1504's Resource Extraction Issuer Disclosure provisions see here.

The Revolving Door Continues to Revolve

Some of you, I know, think it is no big deal when a DOJ prosector enforces a law one day and then the next day defends clients against enforcement of that same law.

Others of you, I know, think that this is an important public policy issue worthy of discussion.

Whatever your persuasion, it should be noted that yet another DOJ attorney with FCPA responsibilties has left government service for a private law firm to engage in an FCPA practice.

According to this Main Justice story, Steven Fagell, Assistant Attorney General Lanny Breuer's deputy chief of staff, is leaving the DOJ to return to Covington & Burling LLP (Breuer's previous employer), the firm he worked at prior to joining the DOJ in January 2009. Main Justice reports that "as a member of the Criminal Division’s senior leadership team, Fagell served as a counselor to Breuer and worked on a broad range of issues including the Financial Fraud Enforcement Task Force and the Foreign Corrupt Practices Act." According to Tim Hester, Covington's managing partner, Fagell is expected to work on FCPA matters at the firm (see here).

For other recent movement betweent the DOJ and the FCPA bar see here, here and here.