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.
Showing posts with label H-P. Show all posts
Showing posts with label H-P. Show all posts
Friday, September 10, 2010
Friday, August 13, 2010
Six Months For The Greens ... Plus The Friday Roundup
In September 2009, Gerald and Patricia Green were found guilty by a federal jury of substantive FCPA violations, conspiracy to violate the FCPA, and other charges. According to the DOJ release (see here) the Los Angeles-area film executives were found guilty of engaging in "sophisticated bribery scheme that enabled the defendants to obtain a series of Thai government contracts, including valuable contracts to manage and operate Thailand’s yearly film festival."
As noted in the DOJ release:
"The conspiracy and FCPA charges each carry a maximum penalty of five years in prison, and each of the money laundering counts carries a maximum penalty of up to 20years in prison. The false subscription of a U.S. income tax return carries a maximum penalty of three years in prison and a fine of not more than $100,000."
Sentencing was originally set for December 17, 2009, was delayed several times, and, at one point, was removed from the calendar altogether (see here).
U.S. District Court Judge George Wu of the Central District of California reportedly wanted to learn more about other FCPA sentences as well as Mr. Green's health issues.
The DOJ requested a 10 year sentence for both Gerald and Patricia Green.
The DOJ stated that the "court must decline defendants' remarkable invitation to join the wholesale speculation of FCPA 'pundits' as to whether corporate settlements are 'shielding' to corporate executives from punishment."
In closing, the DOJ urged the court to "disregard defendants' efforts to obscure the landscape of FCPA sentencing, which generally reflects significant prison terms for convicted individuals."
According to this report, Judge Wu yesterday sentenced the Greens, before a packed courtroom, to six months in prison, followed by three years probation (six months of which must be served as home confinement).
According to the report, Judge Wu "also set a restitution figure of $250,000" but "if the Greens, who have had their accounts frozen and assets seized since being arrested in 2007, can prove that none of the $1.8 million they paid in bribes to Thai officials can be recovered, then they will only have to pay $3,000 in restitution."
Does the "landscape of FCPA sentencing" truly reflect "significant prison terms" as stated by the DOJ?
True, any prison term is significant for a defendant and his/her family and friends.
But with a top sentence of 60 months (Charles Jumet - see here), the 366 day sentence for Frederic Bourke in November 2009 (see here), the 15 month sentence for Jason Edward Steph and the 366 day sentence for Jim Bob Brown both in January 2010 (see here) and now the 6 month sentence for the Greens - is this yet another instance in which DOJ's FCPA rhetoric does not match reality?
*****
H-P news that does not involve its former CEO, what others are saying about the Giffen Gaffe, SciClone's stock drop, and Siemens $1 billion customer ... it's all here in the Friday roundup.
H-P Inquiry Escalates
According to a story in today's Wall Street Journal by David Crawford, the DOJ "has asked Hewlett-Packard Co. to provide a trove of internal records as part of an international investigation into allegations that H-P executives paid bribes in Russia, according to people familiar with the investigations."
According to the story, the DOJ request "came after German prosecutors complained H-P had refused to provide them with all of the records they requested" and after "H-P initially argued that the German request for bookkeeping records, some of which are five years old, imposed an 'undue hardship' on the company."
The article indicates that the DOJ "asked H-P to comply voluntarily with the request and hasn't subpoenaed the records" and that "H-P has yet to provide some records" but is "cooperating with the investigations." According to H-P, the investigation
"involves people that have largely left the company and matters that happened as much as seven years ago."
What Others Are Saying About Giffen
It's been one week since the Giffen Gaffe (see here).
Here is what others are saying about the enforcement action that began with charges that James Giffen made "more than $78 million in unlawful payments to two senior officials of the Republic of Kazakhstan in connection with six separate oil transactions", yet ended with a misdemeanor tax violation against Giffen and an FCPA anti-bribery charge against a functionally defunct entity (The Mercator Corporation -in which Giffen was the principal shareholder, board chairman, and chief executive officer) focused merely on two snowmobiles.
Scott Horton, writing at Harper's Magazine (see here) noted that "[t]he outcome is a huge embarrassment to federal prosecutors, who had invested a decade in resources in the effort to convict Giffen of FCPA and related violations."
Horton, who has been following the case for years, highlighted how the "case has been the focus of political manipulation concerns for years" and closed with this paragraph:
"Kazakhs have long claimed that their government’s strategy of resolving the Giffen case by using the right levers with the American administration–a process that led them to hire former attorneys general and high-profile retired prosecutors, private investigators, and public-relations experts–would be successful. The outcome in the Giffen case appears to ratify that view. The notion of an independent, politically insulated criminal-justice administration in America has just taken another severe hit."
Steve LeVine, author of The Oil and The Glory page at Foreign Policy, noted (here) that the Giffen resolution is "a considerable comedown for the federal government" and that Giffen's lawyer "understood correctly that he could set up a collision between the Justice Department and the CIA in which the latter would probably prevail."
The FCPA and Stock Price
What affect, if any, does an FCPA disclosure or resolution have on a company's stock price?
It's an issue I've explored before (see here) and best I can tell the evidence is inconclusive and the answer is - it depends.
In the case of a company that does business almost exclusively in China disclosing an FCPA inquiry focused on China, the answer is that disclosure of the FCPA inquiry matters - and quite a bit.
On Monday, SciClone Pharmaceuticals Inc., a Delaware company based in California, disclosed in a 10-Q filing (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."
SciClone's business is focused primarily on China with 90+% of its revenue derived from China sales. Thus, it is not surprising that an FCPA inquiry focused on China had a material impact on the company's stock price.
As noted in this Reuters story, news of the FCPA inquiry sent SciClone's shares, at one point, down 41% to a 52 week low.
Siemens $1 Billion Customer
In December 2008, Siemens agreed to pay $800 million in combined U.S. fines and penalties to settle FCPA charges for a pattern of bribery the DOJ termed “unprecedented in scale and geographic scope.” According to the DOJ, for much of Siemens’ operations around the world, “bribery was nothing less than standard operating procedure.”
The Siemens enforcement action remains the largest FCPA settlement ever (even though Siemens itself was not charged with FCPA anti-bribery violations).
On the one year anniversary of the Siemens enforcement action, I ran a post - Siemens - The Year After (see here) which highlighted how 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.”
This U.S. government business has helped Siemens outperform its competitors in a difficult recessionary environment and much of the company’s recent success is the direct result of government stimulus programs around the world.
Using Recovery.gov (a U.S. government website designed “to allow taxpayers to see precisely what entities receive Recovery money ..”), I highlighted how several Siemens’ business units have been awarded several dozen contracts funded by U.S. taxpayer stimulus dollars.
It is against this backdrop that Paul Glader's recent piece in the Wall Street Journal "Siemens Seeks More U.S Orders" caught my eye.
According to the article, Siemens Corp. (the U.S. division of Siemens) currently brings in about $1 billion a year from the U.S. government, a figure the division hopes to double by 2015.
Eric Spiegel, chief executive of Siemens Corp., is quoted in the article as saying: "[o]ne of the beauties of the federal-government spending is it didn't drop off during the recession."
To that, I'll add that one of the unfortunate beauties of engaging in bribery the U.S. government terms “unprecedented in scale and geographic scope" is no slow down in U.S. government contracts in the immediate aftermath of the enforcement action.
It's one of the FCPA greatest headscratchers - FCPA violaters are and remain some of the U.S. government's biggest suppliers and contracting partners.
As I've noted in numerous prior posts, efforts are underway to try to change this. See here, here and here.
*****
A good weekend to all.
As noted in the DOJ release:
"The conspiracy and FCPA charges each carry a maximum penalty of five years in prison, and each of the money laundering counts carries a maximum penalty of up to 20years in prison. The false subscription of a U.S. income tax return carries a maximum penalty of three years in prison and a fine of not more than $100,000."
Sentencing was originally set for December 17, 2009, was delayed several times, and, at one point, was removed from the calendar altogether (see here).
U.S. District Court Judge George Wu of the Central District of California reportedly wanted to learn more about other FCPA sentences as well as Mr. Green's health issues.
The DOJ requested a 10 year sentence for both Gerald and Patricia Green.
The DOJ stated that the "court must decline defendants' remarkable invitation to join the wholesale speculation of FCPA 'pundits' as to whether corporate settlements are 'shielding' to corporate executives from punishment."
In closing, the DOJ urged the court to "disregard defendants' efforts to obscure the landscape of FCPA sentencing, which generally reflects significant prison terms for convicted individuals."
According to this report, Judge Wu yesterday sentenced the Greens, before a packed courtroom, to six months in prison, followed by three years probation (six months of which must be served as home confinement).
According to the report, Judge Wu "also set a restitution figure of $250,000" but "if the Greens, who have had their accounts frozen and assets seized since being arrested in 2007, can prove that none of the $1.8 million they paid in bribes to Thai officials can be recovered, then they will only have to pay $3,000 in restitution."
Does the "landscape of FCPA sentencing" truly reflect "significant prison terms" as stated by the DOJ?
True, any prison term is significant for a defendant and his/her family and friends.
But with a top sentence of 60 months (Charles Jumet - see here), the 366 day sentence for Frederic Bourke in November 2009 (see here), the 15 month sentence for Jason Edward Steph and the 366 day sentence for Jim Bob Brown both in January 2010 (see here) and now the 6 month sentence for the Greens - is this yet another instance in which DOJ's FCPA rhetoric does not match reality?
*****
H-P news that does not involve its former CEO, what others are saying about the Giffen Gaffe, SciClone's stock drop, and Siemens $1 billion customer ... it's all here in the Friday roundup.
H-P Inquiry Escalates
According to a story in today's Wall Street Journal by David Crawford, the DOJ "has asked Hewlett-Packard Co. to provide a trove of internal records as part of an international investigation into allegations that H-P executives paid bribes in Russia, according to people familiar with the investigations."
According to the story, the DOJ request "came after German prosecutors complained H-P had refused to provide them with all of the records they requested" and after "H-P initially argued that the German request for bookkeeping records, some of which are five years old, imposed an 'undue hardship' on the company."
The article indicates that the DOJ "asked H-P to comply voluntarily with the request and hasn't subpoenaed the records" and that "H-P has yet to provide some records" but is "cooperating with the investigations." According to H-P, the investigation
"involves people that have largely left the company and matters that happened as much as seven years ago."
What Others Are Saying About Giffen
It's been one week since the Giffen Gaffe (see here).
Here is what others are saying about the enforcement action that began with charges that James Giffen made "more than $78 million in unlawful payments to two senior officials of the Republic of Kazakhstan in connection with six separate oil transactions", yet ended with a misdemeanor tax violation against Giffen and an FCPA anti-bribery charge against a functionally defunct entity (The Mercator Corporation -in which Giffen was the principal shareholder, board chairman, and chief executive officer) focused merely on two snowmobiles.
Scott Horton, writing at Harper's Magazine (see here) noted that "[t]he outcome is a huge embarrassment to federal prosecutors, who had invested a decade in resources in the effort to convict Giffen of FCPA and related violations."
Horton, who has been following the case for years, highlighted how the "case has been the focus of political manipulation concerns for years" and closed with this paragraph:
"Kazakhs have long claimed that their government’s strategy of resolving the Giffen case by using the right levers with the American administration–a process that led them to hire former attorneys general and high-profile retired prosecutors, private investigators, and public-relations experts–would be successful. The outcome in the Giffen case appears to ratify that view. The notion of an independent, politically insulated criminal-justice administration in America has just taken another severe hit."
Steve LeVine, author of The Oil and The Glory page at Foreign Policy, noted (here) that the Giffen resolution is "a considerable comedown for the federal government" and that Giffen's lawyer "understood correctly that he could set up a collision between the Justice Department and the CIA in which the latter would probably prevail."
The FCPA and Stock Price
What affect, if any, does an FCPA disclosure or resolution have on a company's stock price?
It's an issue I've explored before (see here) and best I can tell the evidence is inconclusive and the answer is - it depends.
In the case of a company that does business almost exclusively in China disclosing an FCPA inquiry focused on China, the answer is that disclosure of the FCPA inquiry matters - and quite a bit.
On Monday, SciClone Pharmaceuticals Inc., a Delaware company based in California, disclosed in a 10-Q filing (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."
SciClone's business is focused primarily on China with 90+% of its revenue derived from China sales. Thus, it is not surprising that an FCPA inquiry focused on China had a material impact on the company's stock price.
As noted in this Reuters story, news of the FCPA inquiry sent SciClone's shares, at one point, down 41% to a 52 week low.
Siemens $1 Billion Customer
In December 2008, Siemens agreed to pay $800 million in combined U.S. fines and penalties to settle FCPA charges for a pattern of bribery the DOJ termed “unprecedented in scale and geographic scope.” According to the DOJ, for much of Siemens’ operations around the world, “bribery was nothing less than standard operating procedure.”
The Siemens enforcement action remains the largest FCPA settlement ever (even though Siemens itself was not charged with FCPA anti-bribery violations).
On the one year anniversary of the Siemens enforcement action, I ran a post - Siemens - The Year After (see here) which highlighted how 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.”
This U.S. government business has helped Siemens outperform its competitors in a difficult recessionary environment and much of the company’s recent success is the direct result of government stimulus programs around the world.
Using Recovery.gov (a U.S. government website designed “to allow taxpayers to see precisely what entities receive Recovery money ..”), I highlighted how several Siemens’ business units have been awarded several dozen contracts funded by U.S. taxpayer stimulus dollars.
It is against this backdrop that Paul Glader's recent piece in the Wall Street Journal "Siemens Seeks More U.S Orders" caught my eye.
According to the article, Siemens Corp. (the U.S. division of Siemens) currently brings in about $1 billion a year from the U.S. government, a figure the division hopes to double by 2015.
Eric Spiegel, chief executive of Siemens Corp., is quoted in the article as saying: "[o]ne of the beauties of the federal-government spending is it didn't drop off during the recession."
To that, I'll add that one of the unfortunate beauties of engaging in bribery the U.S. government terms “unprecedented in scale and geographic scope" is no slow down in U.S. government contracts in the immediate aftermath of the enforcement action.
It's one of the FCPA greatest headscratchers - FCPA violaters are and remain some of the U.S. government's biggest suppliers and contracting partners.
As I've noted in numerous prior posts, efforts are underway to try to change this. See here, here and here.
*****
A good weekend to all.
Thursday, May 20, 2010
The FCPA and Reputational Damage
Nearly every FCPA presentation one sees or hears seems to talk about collateral sanctions which flow from an FCPA enforcement action, including the reputational harm companies "suffer" when disclosing FCPA issues or settling FCPA enforcement actions.
But is it true?
Do companies that disclose FCPA issues or settle FCPA enforcement actions actually suffer any reputational damage?
For companies, reputation is traditionally measured by stock price performance and business revenue.
Do companies that disclose FCPA issues or settle FCPA enforcement actions have a decrease in stock price or lose business?
How does one even measure such an issue?
Stock price movement upon the market first learning of a potential FCPA issue? Stock price movement upon settlement of an FCPA enforcement action? Something in between? Business revenue during the period of uncertainty (i.e. from disclosure to settlement)? Business revenue in the year after settlement of an FCPA enforcement action?
Whatever the metric, the answer to whether companies suffer reputational damage upon disclosing an FCPA issue or settling an FCPA enforcement action seems to be inconclusive.
That was the conclusion of a January 2009 study by Nera Economic Consulting (see here). Among other things, the study concluded that "the extent of the fallout from the relatively recent trend of increased FCPA enforcement actions remains uncertain." For some companies "there was no statistically significant price reaction" yet for other companies there was a "negative price reaction."
The below examples also seem to support the inconclusive answer.
Last month, (see here) Hewlett-Packard Co.'s (HP) Moscow offices were raided in connection with an investigation focusing on whether company executives made millions in payments to the prosecutor general of the Russian Federation to secure contracts. It was front page news in several publications, including the Wall Street Journal. This week HP (see here) disclosed second quarter results (the same quarter the issue surfaced). The results ... stellar. "Second quarter net revenue of $30.8 billion, up 13%, or $3.5 billion, from a year earlier." HP's Chairman and CEO said "HP had an exceptional quarter with strong performance across every region," - "we've built the best portfolio in the industry, and our customers are responding. We're winning in the marketplace, investing for the future and confident in the enormous opportunity that lies ahead." What about the company's performance in Russia? Even better. The HP release notes "revenue from outside of the United States in the second quarter accounted for 66% of total HP revenue, with revenue in the BRIC countries (Brazil, Russia, India and China) increasing 25% while accounting for 10% of total HP revenue."
Front page press coverage of HP's potential FCPA issues seems to have had no affect on the company's reputation when viewed through the prism of financial performance.
What about Siemens?
In the 365 days after the Siemens enforcement action, Siemens outperformed its competitors and received mounds of new business from the U.S. government, including taxpayer funds from the $787 billion stimulus bill passed by Congress and signed by President Obama in February 2009 (see here). This despite the fact (according to DOJ statements) that Siemens engaged in a pattern of bribery "unprecedented in scale and geographic scope" and for much of Siemens operations around the world "bribery was nothing less than standard operating procedure." Siemens surely paid a hefty fine/penalty amount, but did its reputation suffer? It would appear not.
What about BAE?
When the BAE "FCPA-like" enforcement action was announced, the company's stock rose. Since the February 2010 enforcement action, the company has been inking contracts with the U.S. and U.K. governments (the prosecuting governments) left and right. This week it was a $10.7 million contract with the U.S. Army (see here). Last week it was a $5.5 million contract and a $10 million contract with U.S. government agencies (see here and here). Throw in a recent £111 million contract from the UK's Ministry of Defence (see here) and one would be justified in concluding that it matters very little if a company is caught engaging in bribery and corruption.
However, just when one is set to reach such a conclusion, along comes a company like Avon. Last month, the company shares dropped 8% upon news that its previously disclosed FCPA issues appear to have escalated. (see here, here and here). It sure looks like Avon's reputation (viewed through the prism of its stock price) has suffered because of the FCPA escalation.
*****
Somewhat "on topic" is the recent news that Daimler AG, after a 17 year listing on the New York Stock Exchange, has decided to delist. Purely coincidence that this delisting is occuring approximately one month after Daimler resolved its FCPA case?
Daimler agreed to enter into a deferred prosecution agreement for conspiring to violate the FCPA's books and records provisions and knowingly falsifying books, records and accounts, provisions which only apply to "issuers".
(The DOJ's allegations as to Daimler also allege use of U.S. bank accounts and U.S. entities - an independent basis by which a foreign company like Daimler can become subject to the FCPA). For more on the Daimler enforcement action (see here and here).
But is it true?
Do companies that disclose FCPA issues or settle FCPA enforcement actions actually suffer any reputational damage?
For companies, reputation is traditionally measured by stock price performance and business revenue.
Do companies that disclose FCPA issues or settle FCPA enforcement actions have a decrease in stock price or lose business?
How does one even measure such an issue?
Stock price movement upon the market first learning of a potential FCPA issue? Stock price movement upon settlement of an FCPA enforcement action? Something in between? Business revenue during the period of uncertainty (i.e. from disclosure to settlement)? Business revenue in the year after settlement of an FCPA enforcement action?
Whatever the metric, the answer to whether companies suffer reputational damage upon disclosing an FCPA issue or settling an FCPA enforcement action seems to be inconclusive.
That was the conclusion of a January 2009 study by Nera Economic Consulting (see here). Among other things, the study concluded that "the extent of the fallout from the relatively recent trend of increased FCPA enforcement actions remains uncertain." For some companies "there was no statistically significant price reaction" yet for other companies there was a "negative price reaction."
The below examples also seem to support the inconclusive answer.
Last month, (see here) Hewlett-Packard Co.'s (HP) Moscow offices were raided in connection with an investigation focusing on whether company executives made millions in payments to the prosecutor general of the Russian Federation to secure contracts. It was front page news in several publications, including the Wall Street Journal. This week HP (see here) disclosed second quarter results (the same quarter the issue surfaced). The results ... stellar. "Second quarter net revenue of $30.8 billion, up 13%, or $3.5 billion, from a year earlier." HP's Chairman and CEO said "HP had an exceptional quarter with strong performance across every region," - "we've built the best portfolio in the industry, and our customers are responding. We're winning in the marketplace, investing for the future and confident in the enormous opportunity that lies ahead." What about the company's performance in Russia? Even better. The HP release notes "revenue from outside of the United States in the second quarter accounted for 66% of total HP revenue, with revenue in the BRIC countries (Brazil, Russia, India and China) increasing 25% while accounting for 10% of total HP revenue."
Front page press coverage of HP's potential FCPA issues seems to have had no affect on the company's reputation when viewed through the prism of financial performance.
What about Siemens?
In the 365 days after the Siemens enforcement action, Siemens outperformed its competitors and received mounds of new business from the U.S. government, including taxpayer funds from the $787 billion stimulus bill passed by Congress and signed by President Obama in February 2009 (see here). This despite the fact (according to DOJ statements) that Siemens engaged in a pattern of bribery "unprecedented in scale and geographic scope" and for much of Siemens operations around the world "bribery was nothing less than standard operating procedure." Siemens surely paid a hefty fine/penalty amount, but did its reputation suffer? It would appear not.
What about BAE?
When the BAE "FCPA-like" enforcement action was announced, the company's stock rose. Since the February 2010 enforcement action, the company has been inking contracts with the U.S. and U.K. governments (the prosecuting governments) left and right. This week it was a $10.7 million contract with the U.S. Army (see here). Last week it was a $5.5 million contract and a $10 million contract with U.S. government agencies (see here and here). Throw in a recent £111 million contract from the UK's Ministry of Defence (see here) and one would be justified in concluding that it matters very little if a company is caught engaging in bribery and corruption.
However, just when one is set to reach such a conclusion, along comes a company like Avon. Last month, the company shares dropped 8% upon news that its previously disclosed FCPA issues appear to have escalated. (see here, here and here). It sure looks like Avon's reputation (viewed through the prism of its stock price) has suffered because of the FCPA escalation.
*****
Somewhat "on topic" is the recent news that Daimler AG, after a 17 year listing on the New York Stock Exchange, has decided to delist. Purely coincidence that this delisting is occuring approximately one month after Daimler resolved its FCPA case?
Daimler agreed to enter into a deferred prosecution agreement for conspiring to violate the FCPA's books and records provisions and knowingly falsifying books, records and accounts, provisions which only apply to "issuers".
(The DOJ's allegations as to Daimler also allege use of U.S. bank accounts and U.S. entities - an independent basis by which a foreign company like Daimler can become subject to the FCPA). For more on the Daimler enforcement action (see here and here).
Friday, April 16, 2010
H-P Under Scrutiny
A few weeks ago the U.S. wrapped up an FCPA enforcement action against a German company for improper conduct in, among other places, Russia (see here).
This week, it is German and Russian authorities investigating a U.S. company for improper conduct in Russia.
It's an ironic world we live in.
Tit for tat or merely a coincidence?
Likely the later.
As widely reported, German and Russian authorities are investigating whether Hewlett-Packard Co. (H-P) executives paid millions of dollars in bribes to win a contract in Russia with ... get this ... the office of the prosecutor general of the Russian Federation - the office that handles criminal prosecutions in Russia, including corruption cases.
According to "investigation-related documents submitted to a German court and reviewed by the Wall Street Journal," the payments, approximately $11 million, were reportedly funneled through a "network of shell companies and accounts in places including Britian, Austria, Switzerland, the British Virgin Islands, Belize, New Zealand, Latvia, Lithuania, Delaware and Wyoming."
According to the Wall Street Journal, "H-P learned details of the probe in December when police in Germany and Switzerland presented search warrants detailing allegations against 10 suspects."
Media reports indicate that earlier this week Russian investigators raided H-P's Moscow headquarters in connection with the investigation.
According to the Wall Street Journal, both the DOJ and SEC have joined the probe.
According to the Wall Street Journal, "the investigation was started in 2007 when a tax auditor discovered bank records showing that between 2004 and 2006, the H-P subsidiary paid €22 million into the account of ProSoft Krippner GmbH, a small computer-hardware company in Leipzig" and that "the size of the payment to ProSoft Krippner caught the tax auditor's attention, and that he flagged the transfer to a special prosecution team in Dresden that handles major corruption cases." The Wall Street Journal reports that ProSoft Krippner's Chief Executive, Ralf Krippner, is also a member of the local parliament in the German district of North Saxony."
According to the WSJ, "an H-P spokeswoman said the company had discussions Thursday with the SEC regarding the German probe 'and is fully cooperating with U.S. and German authorities on this matter.'"
This week, it is German and Russian authorities investigating a U.S. company for improper conduct in Russia.
It's an ironic world we live in.
Tit for tat or merely a coincidence?
Likely the later.
As widely reported, German and Russian authorities are investigating whether Hewlett-Packard Co. (H-P) executives paid millions of dollars in bribes to win a contract in Russia with ... get this ... the office of the prosecutor general of the Russian Federation - the office that handles criminal prosecutions in Russia, including corruption cases.
According to "investigation-related documents submitted to a German court and reviewed by the Wall Street Journal," the payments, approximately $11 million, were reportedly funneled through a "network of shell companies and accounts in places including Britian, Austria, Switzerland, the British Virgin Islands, Belize, New Zealand, Latvia, Lithuania, Delaware and Wyoming."
According to the Wall Street Journal, "H-P learned details of the probe in December when police in Germany and Switzerland presented search warrants detailing allegations against 10 suspects."
Media reports indicate that earlier this week Russian investigators raided H-P's Moscow headquarters in connection with the investigation.
According to the Wall Street Journal, both the DOJ and SEC have joined the probe.
According to the Wall Street Journal, "the investigation was started in 2007 when a tax auditor discovered bank records showing that between 2004 and 2006, the H-P subsidiary paid €22 million into the account of ProSoft Krippner GmbH, a small computer-hardware company in Leipzig" and that "the size of the payment to ProSoft Krippner caught the tax auditor's attention, and that he flagged the transfer to a special prosecution team in Dresden that handles major corruption cases." The Wall Street Journal reports that ProSoft Krippner's Chief Executive, Ralf Krippner, is also a member of the local parliament in the German district of North Saxony."
According to the WSJ, "an H-P spokeswoman said the company had discussions Thursday with the SEC regarding the German probe 'and is fully cooperating with U.S. and German authorities on this matter.'"
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