What You Need To Know From Q2

This post provides a summary of FCPA enforcement actions and FCPA related events from the second quarter of 2011. For a similar post regarding the first quarter of 2011 - see here.

As to enforcement actions, this post covers DOJ and SEC enforcement separately and only covers enforcement actions initiated and resolved during the second quarter of 2011. For a summary of other indictments, guilty pleas and sentences during the second quarter see here - the FCPA Blog's Q2 Enforcement Report.

DOJ Enforcement

The DOJ resolved four FCPA enforcement actions in the second quarter. Total DOJ recovery in these enforcement actions was approximately $245 million. All of the enforcement actions were resolved via non-prosecution agreements (two) or deferred prosecution agreements (two). All of the enforcement actions were based on voluntary disclosures or (in the case of JGC of Japan) disclosure based on a previous foreign law enforcement investigation. No enforcement action has, at present, resulted in any individual prosecutions of company employees.

Year to date, the DOJ has resolved six FCPA enforcement actions. Total DOJ recovery year to date has been approximately $257 million. All of the enforcement actions have been resolved via non-prosecution agreements (two) or deferred prosecution agreements (four). All of the enforcement actions have been based on voluntary disclosures or (in the case of JGC of Japan) disclosure based on a previous foreign law enforcement investigation. No enforcement action has, at present, resulted in any individual prosecutions of company employees.

JGC of Japan (April 6th)

See here for the prior post.

Charges: Conspiracy to violate the FCPA's anti-bribery provisions and aiding and abetting FCPA anti-bribery violations.

Resolution Vehicle: Criminal charges resolved through a deferred-prosecution agreement - term two years.

Guidelines Range: $312.6 million to $625.2 million

Penalty: $218.8 million (30% below the minimum amount suggested by the guidelines).

Disclosure: Yes, based on a previous foreign law enforcement investigation.

Monitor: Yes.

Individuals Charged: No.

Comverse Technology (April 7th)

See here for the prior post.

Charges: None - although the non-prosecution agreement refers to a "knowing violation of the books and records provisions of the FCPA."

Resolution Vehicle: non-prosecution agreement - term two years.

Guidelines Range: Not set forth in the NPA.

Penalty: $1.2 million.

Disclosure: Yes, voluntary disclosure.

Monitor: No.

Individuals Charged: No.

Johnson & Johnson (April 8th)

See here for the prior post.

Charges: FCPA anti-bribery violations and conspiracy to violate the FCPA's anti-bribery and books and record provisions.

Resolution Vehicle: Criminal information resolved through a deferred prosecution agreement (three year term).

Guidelines Range: $28.5 million to $57 million.

Penalty: $21.4 million (25% below the minimum amount suggested by the guidelines).

Disclosure: Yes, voluntary disclosure (however Iraq Oil for Food conduct was not voluntarily disclosed).

Monitor: No.

Individuals Charged: None by U.S. authorities (Robert Dougall (a former DePuy executive) previously plead guilty to a U.K. SFO enforcement action - see here).

Tenaris (May 17th)

See here for the prior post.

Charges: None, although the non-prosecution agreement refers to "knowing violations of the FCPA's anti-bribery and books and records provisions."

Resolution Vehicle: NPA - term two years.

Guidelines Range: Not set forth in the NPA.

Penalty: $3.5 million.

Disclosure: Yes, voluntary disclosure.

Monitor: No.

Individuals Charged: No.

SEC Enforcement

The SEC resolved four FCPA enforcement actions in the second quarter. Total recovery in these enforcement actions was $58.3 million. Of the $58.3 million, $57.9 million (99%) has been disgorgement and prejudgment interest. All of the enforcement actions were based on voluntary disclosures.

Year to date, the SEC has resolved nine FCPA enforcement actions. Total recovery year to date has been $76.3 million. Of the $76.3 million, $73.8 million (97%) has been disgorgement and prejudgment interest. All of the corporate enforcement actions have been based on voluntary disclosures (one of the SEC's enforcement actions was against an individual - David Turner - see here).

Comverse Technologies (April 7th)

See here for the prior post.

Charges: Settled civil complaint charging FCPA books and records and internal control violations.

Settlement: Approximately $1.6 million (approximately $1.2 million in disgorgement and approximately $360,000 in prejudgment interest)

Disclosure: Yes, voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Johnson & Johnson (April 8th)

See here for the prior post.

Charges: Settled civil complaint charging FCPA anti-bribery violations and FCPA books and records and internal controls violations.

Settlement: Approximately $48.6 million (approximately $38.2 million in disgorgement and $10.4 million in prejudgment interest).

Disclosure: Yes, voluntary disclosure (however the Iraq Oil for Food conduct was not voluntarily disclosed).

Related DOJ Enforcement Action. Yes.

Rockwell Automation (April 7th)

See here for the prior post.

Charges: None. SEC administrative cease and desist order finding violations of the FCPA's books and records and internal control provisions.

Settlement: Approximately $2.7 million (approximately $1.7 million in disgorgement; approximately $590,000 in prejudgment interest; and a $400,000 civil penalty).

Disclosure: Yes, voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: No.

Tenaris (May. 17th)

See here for the prior post.

Charges: None - resolved via a deferred prosecution agreement - term two years.

Settlement: $5.4 million in disgorgement and prejudgment interest.

Disclosure: Yes, voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Other Events

"Foreign Official" Challenges and Related Developments

On April 20th, Judge Matz (C.D. of Calif.) issued a written decision in the Lindsey "foreign official" challenge. See here for the prior post. Judge Matz denied the challenge "because a state-owned corporation having the attributes of CFE [the Mexican utility at issue] may be an 'instrumentality' of a foreign government within the meaning of the FCPA, and officers of such a state-owned corporation ... may therefore be 'foreign officials' within the meaning of the FCPA." Judge Matz identified the following "non-exclusive list" of "various characteristics of government agencies and departments" that fall within the description of instrumentality: (i) the entity provides a service to the citizens – indeed, in many cases to all the inhabitants – of the jurisdiction; (ii) the key officers and directors of the entity are, or are appointed by, government officials; (iii) the entity is financed, at least in large measure, through governmental appropriations or through revenues obtained as a result of government-mandated taxes, licenses, fees or royalties, such as entrance fees to a national park; (iv) the entity is vested with and exercises exclusive or controlling power to administer its designated functions; and (v) the entity is widely perceived and understood to be performing official (i.e., governmental functions). As to the FCPA's legislative history, Judge Matz stated as follows. "It is unnecessary to base this ruling upon the legislative history of the FCPA, given that the meaning of 'instrumentality' under Defendants' definition of the term clearly encompasses CFE. Nevertheless, Judge Matz stated in dicta as follows. "The Court finds that the legislative history of the FCPA is inconclusive. Although it does not demonstrate that Congress intended to include all state-owned corporations within the ambit of the FCPA, neither does it provide support for Defendants' insistence that Congress intended to exclude all such corporations from the ambit of the FCPA."

On May 18th, Judge Selna (also in the C.D. of Calif.) issued a written decision in the Carson "foreign official" challenge. See here for the prior post. Judge Selna concluded that "the question of whether state-owned companies qualify as instrumentalties under the FCPA is a question of fact." He then stated that "several factors bear on the question of whether a business entity constitutes a government instrumentality" including the following: (i) the foreign state’s characterization of the entity and its employees;
(ii) the foreign state’s degree of control over the entity; (iii) the purpose of the entity’s activities; (iv) the entity’s obligations and privileges under the foreign state’s law, including whether the entity exercises exclusive or controlling power to administer its designated functions; (v) the circumstances surrounding the entity’s creation; and (vi) the foreign state’s extent of ownership of the entity, including the level of financial support by the state (e.g., subsidies, special tax treatment, and loans). Recently (see here), defendants and the DOJ filed dueling "instrumentality" jury instructions in the case. Also relevant in the Carson matter during Q2 was the Travel Act challenge filed by the Defendants (see here for the prior post).

The O'Shea "foreign official" challenge (see here) remains pending in the S.D. of Texas. This challenge involves the same CFE entity at issue in the Lindsey matter.

As to "foreign official" in the Comverse Technology enforcement action, a new "foreign official" limbo low was reached (see here for the prior post). The conduct at issue focused on "individuals connected to" "Hellenic Telecommunications Organization S.A. ["OTE"] - a telecommunications provider controlled and partially owned by the Greek Government" During the time period relevant to the enforcement action, the Greek State owned between 33% - 38% of OTC's shares.

Lindsey Convictions

On May 10th, after a five week trial in the C.D. of California, a jury returned guilty verdicts against Lindsey Manufacturing and its executives Keith Lindsey and Steven Lee on charges of conspiracy to violate the FCPA and five counts of FCPA violations. See here for the prior post. Contrary to numerous media reports, it was not the first instance of a company putting the DOJ to its burden of proof in an FCPA trial, but it was the first DOJ jury trial victory against a company (see here for the prior post regarding the DOJ's loss in the Harris Corporation trial). However, as explored in yesterday's post (here) given what transpired in Judge Matz's courtroom on June 27th (in connection with defendants' prosecutorial misconduct motion) and based on his comments during the hearing, it appears that the DOJ's jury trial conviction may be hanging by a thread.

DD-3 Development

When listing reasons why FCPA enforcement has increased, the 78dd-3 prong of the FCPA's anti-bribery provisions should be on the list. The FCPA, since its inception in 1977, always applied to "issuers" and "domestic concerns", but the 1998 amendments added a third prong providing jurisdiction as to "persons other than issuers or domestic concerns." As to this class of persons, the FCPA provides the following jurisdictional requirement: "while in the territory of the United States, corruptly to make use of the mails or any means or instrumentality of interstate commerce or to do any other act in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value ...". (emphasis added). Several recent FCPA enforcement actions have been based on the dd-3 prong of the statute, but the DOJ's enforcement theories have generally escaped judicial scrutiny. However, in the Africa Sting case, in what is believed to be the first judicial ruling on the jurisdictional prong of the dd-3 prong of the FCPA, Judge Leon granted defendant Pankesh Patel's Rule 29 acquittal motion at the end of the DOJ's case as to an FCPA substantive charge premised on his sending a DHL package - containing a purchase agreement in furtherance of the alleged corrupt scheme - from the U.K. to the U.S. See here for the prior post.

House Hearing

On June 14th, Representative James Sensenbrenner (R-WI) chaired a hearing of the House Judiciary Committee, Subcommittee on Crime, Terrorism, and Homeland Security titled "Foreign Corrupt Practices Act." See here for the prior post. The hearing focused on a wide range of issues and in many ways was similar to FCPA reform hearings in the 1980's in that a common theme explored during the hearing was whether the current state of FCPA enforcement harms U.S. business. There is clearly a push to introduce FCPA reform legislation and members of both parties appeared receptive (to at least certain) FCPA reform proposals most notably clarifying the FCPA's definition of "foreign official" / "instrumentality" and exploring an FCPA compliance defense. The DOJ supports neither of these (or other) FCPA reform proposals.

SEC's First Use Of An Alternative Resolution Vehicle In An FCPA Enforcement Action

On May 17th, the SEC announced the use of an alternative resolution vehicle (a deferred prosecution agreement) for the first time in the Tenaris FCPA enforcement action. See here for the prior post. In recent years, the DOJ's use of NPAs and DPAs in the FCPA context has increased and various of its enforcement theories as to corporate entities has thus escaped judicial scrutiny. With the SEC's first use of an alternative resolution vehicle in the FCPA context, the SEC’s enforcement of the FCPA will now be even further removed from judicial scrutiny and resolutions will now more frequently be negotiated over private conference room tables. This is a troubling development. See this prior post for what others are saying.

ICE Victim Claim

If bribery is not a victimless crime, then why do FCPA fines and penalties simply go directly into the U.S. Treasury? Why are there no efforts to identify the victims of FCPA violations and to compensate those victims? Bigger picture, who are the victims when FCPA violations occur?

In May, Instituto Constarricense de Electricidad ("ICE") of Costa Rica petitioned a Court "for protection of its rights as a victim" of Alcatel-Lucent's bribey scheme. See here for the prior post. Even though ICE acknowledged that "three disloyal and corrupt Directors and two disloyal and corrupt employees" were the recipients of Alcatel-Lucent's bribe payments, ICE nevertheless claimed it was a victim because the "corrupt activities" of Alcatel-Lucent caused the company "massive losses" and caused "ICE catastrophic harm." ICE's petition was denied by the district court and its claim also received a chilly reception at the 11th Circuit - see here for the prior post. ICE's petition for victim status was factually difficult from the start and it is not surprising that ICE did not prevail. Yet, the ICE petition did succeed in raising the victim issue and causing those interested in bribery and corruption issues to ponder the valid and legitimate question of victims a bit more closely.