In October 2010, I published (here) a detailed Q&A with Richard Alderman (Director of the U.K. Serious Fraud Office).
Given that the BAE matter was still pending in the U.K. courts, Mr. Alderman declined to answer BAE related questions.
In February, I re-submitted my BAE questions (along with a few additional questions relating to the December 2010 U.K. resolution of the BAE matter - see here for the prior post) to Mr. Alderman.
Our Q&A can be found here.
Publication of Mr. Alderman's BAE-specific responses are timely given recent developments regarding BAE.
WikiLeaks recently published (here) a cable detailing certain information regarding termination of the U.K. inquiry regarding BAE and its relationship with certain Saudi officials, including in connection with the al-Yamamah contract.
Even though the cable adds little to what is already in the public domain regarding this matter (see here for the April 2009 PBS Frontline documentary Black Money - including interviews with several of the individuals referenced in the cable), the WikiLeaks cable has generated significant interest and has prompted a senior MP, Sir Menzies Campbell, to call for a Commons investigation.
The U.K. Telegraph (here) quotes Campbell as follows:
“This leak tells us how strong a case was available. If the information in this document had been before Parliament and the British public, there is no way that the Labour government could have influenced the termination of the investigation. The particular issue which will cause a great deal of annoyance is the fact there was prima facie evidence that a government department had been subjected to fraud. If prosecution is no longer possible, it is open to the Commons’ business innovation and skills committee to conduct a full investigation.”
For additional coverage, see here from Sue Reisinger (Corporate Counsel) and here from Samuel Rubenfeld (Wall Street Journal Corruption Currents).
Returning to my Q&A with Mr. Alderman, the following topics, among others, are explored:
(i) how the U.K. law on double jeopardy significantly affected the SFO's investigation of BAE and how the "current system [in the U.K.] for dealing with parallel criminal investigations conducted in a number of different countries does not work effectively and needs change;"
(ii) whether the U.K. government was faithful to its OECD obligations in its handling of the BAE matter;
(iii) criticism of the SFO-BAE plea agreement by the U.K. sentencing judge; and
(iv) "shortcomings" in the U.K. system and how Mr. Alderman would like a system that "is far more transparent [...] that commands public confidence, together with a much stronger role for the judiciary."
Tuesday, March 15, 2011
Monday, March 14, 2011
Tesler Pleas to Bonny Island Bribery Charges
Last Friday, the DOJ announced (here) that Jeffrey Tesler, a U.K. citizen and licensed solicitor who was recently extradited to the U.S., pleaded guilty before U.S. District Judge Keith P. Ellison (S.D. of Texas) to one count of conspiracy to violate the FCPA and one count of violating the FCPA.
In February 2009, Tesler (a former consultant to Kellogg, Brown & Root Inc. and its joint venture partners - Technip, Snamprogetti and JGC Corporation of Japan - in in the Bonny Island, Nigeria project) was charged via an 11 count indictment (1 count conspiracy to violate the FCPA and 10 counts of substantive FCPA violations) (see here) for his role in the massive Bonny Island, Nigeria bribery scheme.
According to the DOJ release announcing Tesler's plea:
"Tesler admitted that from approximately 1994 through June 2004, he and his co-conspirators agreed to pay bribes to Nigerian government officials, including top-level executive branch officials, in order to obtain and retain the EPC contracts. The joint venture hired Tesler as a consultant to pay bribes to high-level Nigerian government officials and hired a Japanese trading company to pay bribes to lower-level Nigerian government officials. During the course of the bribery scheme, the joint venture paid approximately $132 million in consulting fees to a Gibraltar corporation controlled by Tesler and more than $50 million to the Japanese trading company. Tesler admitted that he used the consulting fees he received from the joint venture, in part, to pay bribes to Nigerian government officials."
As part of his plea agreement (here), Tesler agreed to forfeit $148,964,568 to the U.S. - an amount which "represents proceeds traceable" to the charges Tesler pleaded guilty. The forfeiture amount is the largest individual forfeiture in the FCPA's history. Tesler is to be sentenced on June 22, 2011.
In December 2009, Tesler's co-defendant Wojciech Chodan pleaded guilty to conspiracy to violate the FCPA (see here for the prior post). Chodan faces a maximum penalty of 60 months in prison and as part of his plea agreement he agreed to forfeit $726,885. Chodan is to be sentenced on April 27, 2011.
Both Tesler and Chodan reported to KBR's former CEO Albert Jack Stanley who pleaded guilty in September 2008 to conspiracy to violate the FCPA and conspiracy to commit mail and wire fraud (see here). Stanley's plea agreement (here) contemplates a $10.8 million restitution payment and a sentence of 84 months.
For a summary of the corporate entities previously settling Bonny Island bribery charges see here. In January 2011, JGC (the remaining joint venture partner that has not yet settled) disclosed that it was in discussions with the DOJ to resolve its exposure via an agreement that would require it to pay approximately $218 million.
For additional coverage of Tesler's plea see here from Bloomberg and here for certain questions raised by the FCPA Blog as to the forfeiture amount.
In February 2009, Tesler (a former consultant to Kellogg, Brown & Root Inc. and its joint venture partners - Technip, Snamprogetti and JGC Corporation of Japan - in in the Bonny Island, Nigeria project) was charged via an 11 count indictment (1 count conspiracy to violate the FCPA and 10 counts of substantive FCPA violations) (see here) for his role in the massive Bonny Island, Nigeria bribery scheme.
According to the DOJ release announcing Tesler's plea:
"Tesler admitted that from approximately 1994 through June 2004, he and his co-conspirators agreed to pay bribes to Nigerian government officials, including top-level executive branch officials, in order to obtain and retain the EPC contracts. The joint venture hired Tesler as a consultant to pay bribes to high-level Nigerian government officials and hired a Japanese trading company to pay bribes to lower-level Nigerian government officials. During the course of the bribery scheme, the joint venture paid approximately $132 million in consulting fees to a Gibraltar corporation controlled by Tesler and more than $50 million to the Japanese trading company. Tesler admitted that he used the consulting fees he received from the joint venture, in part, to pay bribes to Nigerian government officials."
As part of his plea agreement (here), Tesler agreed to forfeit $148,964,568 to the U.S. - an amount which "represents proceeds traceable" to the charges Tesler pleaded guilty. The forfeiture amount is the largest individual forfeiture in the FCPA's history. Tesler is to be sentenced on June 22, 2011.
In December 2009, Tesler's co-defendant Wojciech Chodan pleaded guilty to conspiracy to violate the FCPA (see here for the prior post). Chodan faces a maximum penalty of 60 months in prison and as part of his plea agreement he agreed to forfeit $726,885. Chodan is to be sentenced on April 27, 2011.
Both Tesler and Chodan reported to KBR's former CEO Albert Jack Stanley who pleaded guilty in September 2008 to conspiracy to violate the FCPA and conspiracy to commit mail and wire fraud (see here). Stanley's plea agreement (here) contemplates a $10.8 million restitution payment and a sentence of 84 months.
For a summary of the corporate entities previously settling Bonny Island bribery charges see here. In January 2011, JGC (the remaining joint venture partner that has not yet settled) disclosed that it was in discussions with the DOJ to resolve its exposure via an agreement that would require it to pay approximately $218 million.
For additional coverage of Tesler's plea see here from Bloomberg and here for certain questions raised by the FCPA Blog as to the forfeiture amount.
Friday, March 11, 2011
DOJ Files "Foreign Official" Opposition Brief In Lindsey Matter
Yesterday, the DOJ filed its opposition brief (here) in the Lindsey matter pending in the C.D. of California.
As noted in this prior post, the defendants filed a motion to dismiss challenging the DOJ's interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA.
Other "foreign official" challenges pending include the Carson matter (also in the C.D. of California - see here) and the O'Shea matter (in the S.D. of Texas - see here).
As noted in this prior post, the defendants filed a motion to dismiss challenging the DOJ's interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA.
Other "foreign official" challenges pending include the Carson matter (also in the C.D. of California - see here) and the O'Shea matter (in the S.D. of Texas - see here).
Thursday, March 10, 2011
Regime Change Due Diligence?
Today's post is from a reader with government experience who wished to remain anonymous.
*****
"I have read with interest this blog's prior post (here) relating to the recent political turmoil in Egypt, and the possible implications of those events from the standpoint of the FCPA and other anti-corruption laws and regulations around the world. Also of interest was this blog raising the question whether the next generation enforcement device by anti-corruption officials looking at these regime changes might include the "country sweep" as a corollary to the "industry sweep" that has been used in past corruption exercises. These considerations are brought further under the klieg light when considering the evolving state of affairs in the Middle East and the possible additional regime changes that may take place after certain leaders have been in power for decades and have amassed reported family fortunes that would make the most ardent of capitalists sit up and take notice.
Reading posts on this blog and others (see here for a similar recent post on the FCPA Blog), as well as observing general media reports on the amounts that these leaders have supposedly put in their bank accounts, makes one wonder of the level of criminality that must have occurred. It shouldn't take one with an overly cynical view to surmise that we must be talking of thousands of crimes by hundreds or more actors.
Surely, there will be investigations galore by new regimes to try to discredit the vanquished and reclaim national funds. It will be easier to determine who were the beneficiaries or recipients of all the funds to the extent tracing is possible. But given the sums that are being bandied about, there will be a far larger number of sources from which such funds may have originated that ultimately found their way to the autocrats and their legion. And it will be interesting to see where the investigations and questioning leads in terms of where all that money has come from. One can only hope that people with important titles on their business cards sitting in governmental agencies around the world are also sitting up and paying attention and are planning to use those titles and the power that goes along with them to further the goals of the laws they have sworn to uphold. It goes far beyond simply freezing assets. It will be a massive undertaking. Where it leads could raise delicate issue for businesses. Perhaps also national security and statecraft.
All this also makes one test their empathy skills by playing the "What-Would-You-Do" game. That game goes something like this: imagine you were standing in the high priced wing-tips of a Chief Risk/Compliance Officer or a General Counsel of any public company that has been doing business in that part of the world. What should you be thinking just about now? Surely you have seen the news reports and heard the stories. Do you just shake your head on the speed with which change occurs? Or would you feel compelled (either because you believe it's the right thing to do, or, more basically, because you would never want to be in a position of being criticized later for at least never having raised it) to walk down the hall to the CEO's office or the board room for that matter, and say: "we really should be thinking about running an audit or review or bringing in people to run an audit of everything we've been doing in [Insert Country or Countries of Choice] just so we understand what we've got in terms of any issues. We should be refreshing and testing our protocols." Board members should be thinking along these lines too. They should be asking these kinds of questions if their own management teams aren't raising them. You can bet your shareholders' bottom dollar that plaintiffs' counsel are or will be thinking like this and pursuing claims, and D&O insurance providers will be concerned about it too. It may be a long way off, and telescoping is never easy, but it will be surprising if the fallout zone in the aftermath doesn't include some of this laundry."
*****
"I have read with interest this blog's prior post (here) relating to the recent political turmoil in Egypt, and the possible implications of those events from the standpoint of the FCPA and other anti-corruption laws and regulations around the world. Also of interest was this blog raising the question whether the next generation enforcement device by anti-corruption officials looking at these regime changes might include the "country sweep" as a corollary to the "industry sweep" that has been used in past corruption exercises. These considerations are brought further under the klieg light when considering the evolving state of affairs in the Middle East and the possible additional regime changes that may take place after certain leaders have been in power for decades and have amassed reported family fortunes that would make the most ardent of capitalists sit up and take notice.
Reading posts on this blog and others (see here for a similar recent post on the FCPA Blog), as well as observing general media reports on the amounts that these leaders have supposedly put in their bank accounts, makes one wonder of the level of criminality that must have occurred. It shouldn't take one with an overly cynical view to surmise that we must be talking of thousands of crimes by hundreds or more actors.
Surely, there will be investigations galore by new regimes to try to discredit the vanquished and reclaim national funds. It will be easier to determine who were the beneficiaries or recipients of all the funds to the extent tracing is possible. But given the sums that are being bandied about, there will be a far larger number of sources from which such funds may have originated that ultimately found their way to the autocrats and their legion. And it will be interesting to see where the investigations and questioning leads in terms of where all that money has come from. One can only hope that people with important titles on their business cards sitting in governmental agencies around the world are also sitting up and paying attention and are planning to use those titles and the power that goes along with them to further the goals of the laws they have sworn to uphold. It goes far beyond simply freezing assets. It will be a massive undertaking. Where it leads could raise delicate issue for businesses. Perhaps also national security and statecraft.
All this also makes one test their empathy skills by playing the "What-Would-You-Do" game. That game goes something like this: imagine you were standing in the high priced wing-tips of a Chief Risk/Compliance Officer or a General Counsel of any public company that has been doing business in that part of the world. What should you be thinking just about now? Surely you have seen the news reports and heard the stories. Do you just shake your head on the speed with which change occurs? Or would you feel compelled (either because you believe it's the right thing to do, or, more basically, because you would never want to be in a position of being criticized later for at least never having raised it) to walk down the hall to the CEO's office or the board room for that matter, and say: "we really should be thinking about running an audit or review or bringing in people to run an audit of everything we've been doing in [Insert Country or Countries of Choice] just so we understand what we've got in terms of any issues. We should be refreshing and testing our protocols." Board members should be thinking along these lines too. They should be asking these kinds of questions if their own management teams aren't raising them. You can bet your shareholders' bottom dollar that plaintiffs' counsel are or will be thinking like this and pursuing claims, and D&O insurance providers will be concerned about it too. It may be a long way off, and telescoping is never easy, but it will be surprising if the fallout zone in the aftermath doesn't include some of this laundry."
Wednesday, March 9, 2011
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.
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.
Tuesday, March 8, 2011
Another "Foreign Official" Challenge
For the third consecutive Monday, an FCPA defendant has filed a motion to dismiss challenging the DOJ's interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA.
Yesterday in the S.D. of Texas, lawyers for John Jospeh O'Shea filed this motion.
In November 2009, O'Shea was charged in an eighteen count indictment (see here). See here for the DOJ release.
O'Shea is the former general manager of ABB Network Management. In September 2010 ABB Ltd. and certain of its affiliated entities resolved an FCPA enforcement action based in part on the conduct at issue in the O'Shea indictment. See here for the DOJ release and here for the prior post.
O'Shea's trial is scheduled to begin on May 3, 2011.
For the other recent "foreign official" challenges (both in the C.D. of California) see here and here.
Yesterday in the S.D. of Texas, lawyers for John Jospeh O'Shea filed this motion.
In November 2009, O'Shea was charged in an eighteen count indictment (see here). See here for the DOJ release.
O'Shea is the former general manager of ABB Network Management. In September 2010 ABB Ltd. and certain of its affiliated entities resolved an FCPA enforcement action based in part on the conduct at issue in the O'Shea indictment. See here for the DOJ release and here for the prior post.
O'Shea's trial is scheduled to begin on May 3, 2011.
For the other recent "foreign official" challenges (both in the C.D. of California) see here and here.
Monday, March 7, 2011
Salvoch Enforcement Action Flies Under The Radar
It is not every day that a former chief financial officer is criminally charged with conspiracy to violate the FCPA.
On December 17, 2010 a criminal information (here) was filed under seal against Manuel Salvoch, the former CFO of LatiNode. On January 11, 2011 Salvoch was arrested, the case unsealed, and a plea agreement (here) was executed on January 12, 2011.
This is likely the first you have heard of the Salvoch enforcement action. The DOJ did not issue a press release and, to my knowledge, this enforcement action has never been reported.
Salvoch was charged in connection with payments to Hondutel (see here), according to the charging documents a state-owned telecommunications company in Honduras responsible for providing telecommunications services in Honduras. The Hondutel payments have also resulted in criminal charges against Jorge Granados (the founder and former CEO and Chairman of the Board of LatiNode) and Manuel Caceres (a former Vice President of Business Development) (see here).
The theory of prosecution in these cases is the same theory of prosecution being challenged in the Carson and Lindsey cases (see here and here) - that employees of alleged state-owned or state-controlled enterprises are "foreign officials" under the FCPA.
This theory of prosecution was also the support for the March 2009 enforcement action against LatiNode (see here) a former privately held Florida telecommunications company that agreed to a pay a $2 million criminal penalty for violating the FCPA in connection with alleged Hondutel payments as well as payments to officials of Tele Yemen, the Yemeni government-owned telecommunications company. LatiNode was acquired by eLandia International Inc. (an issuer) in June 2007.
The conduct at issue in the Salvoch criminal information and plea agreement is similar to the conduct at issue in the Granados and Caceres indictment (see here for the prior post).
The Granados and Caceres case remains open (their trial is set for September 26, 2011) and in his plea agreement Salvoch agreed to "cooperate fully" with the DOJ including by "providing truthful and complete information and testimony" at any trial, or other Court proceeding. According to the docket, Salvoch is to be sentenced on March 23rd, but it is likely that his sentencing will be delayed until after the Granados and Caceres trial.
Thanks to Gregory Bates (here - Squire Sanders) who stumbled upon this case while wandering around on the DOJ's FCPA website. Bates is a contributor to Squire Sanders' Anticorruption blog (see here).
On December 17, 2010 a criminal information (here) was filed under seal against Manuel Salvoch, the former CFO of LatiNode. On January 11, 2011 Salvoch was arrested, the case unsealed, and a plea agreement (here) was executed on January 12, 2011.
This is likely the first you have heard of the Salvoch enforcement action. The DOJ did not issue a press release and, to my knowledge, this enforcement action has never been reported.
Salvoch was charged in connection with payments to Hondutel (see here), according to the charging documents a state-owned telecommunications company in Honduras responsible for providing telecommunications services in Honduras. The Hondutel payments have also resulted in criminal charges against Jorge Granados (the founder and former CEO and Chairman of the Board of LatiNode) and Manuel Caceres (a former Vice President of Business Development) (see here).
The theory of prosecution in these cases is the same theory of prosecution being challenged in the Carson and Lindsey cases (see here and here) - that employees of alleged state-owned or state-controlled enterprises are "foreign officials" under the FCPA.
This theory of prosecution was also the support for the March 2009 enforcement action against LatiNode (see here) a former privately held Florida telecommunications company that agreed to a pay a $2 million criminal penalty for violating the FCPA in connection with alleged Hondutel payments as well as payments to officials of Tele Yemen, the Yemeni government-owned telecommunications company. LatiNode was acquired by eLandia International Inc. (an issuer) in June 2007.
The conduct at issue in the Salvoch criminal information and plea agreement is similar to the conduct at issue in the Granados and Caceres indictment (see here for the prior post).
The Granados and Caceres case remains open (their trial is set for September 26, 2011) and in his plea agreement Salvoch agreed to "cooperate fully" with the DOJ including by "providing truthful and complete information and testimony" at any trial, or other Court proceeding. According to the docket, Salvoch is to be sentenced on March 23rd, but it is likely that his sentencing will be delayed until after the Granados and Caceres trial.
Thanks to Gregory Bates (here - Squire Sanders) who stumbled upon this case while wandering around on the DOJ's FCPA website. Bates is a contributor to Squire Sanders' Anticorruption blog (see here).
Friday, March 4, 2011
U.K. Roundup
Is the U.K. Serious Fraud Office's ("SFO") active engagement policy a bit too active (and too private as well), is anyone left at the SFO to activley engage, the recent Mabey & Johnson individual sentences, and the U.K. anti-corruption champion calls out Bribery Act plc ... its all here in a special U.K. Roundup.
Corporate Crime Reporter Questions SFO's Active Engagement Policy
The SFO has a clear policy of active engagement when it comes to the Bribery Act and I have previously stated (here) that this policy ought to be modeled by other enforcement agencies."
Corporate Crime Reporter ("CCR"), in a recent piece (here) titled "Behind Closed Doors, UK Anti-Corruption Chief Alderman Advises Corporations, Law Firms" questions whether this engagement approach has become too active and questions whether the engagement needs to take place behind closed doors.
Writes CCR - "You would never see a US federal prosecutor visit a private law firm to give private advice – behind closed doors – to the firm’s corporate defense lawyers and their clients. But the chief law anti-corruption law enforcement official of the UK says – no problem. Over the past couple of years, Alderman has been visiting American law firms regularly. Briefing the lawyers. Answering questions from corporate clients. All behind closed doors. All in secret. To the very same corporations that Alderman will prosecute if they engage in corruption overseas."
Alderman is quoted as saying he is "an equal opportunity debriefer" and that he has met with, among others, U.K. anti-corruption public interest groups - like Corner House.
As I highlighted in this prior post, in September 2010, I was pleased to accept the invitation of the SFO to visit its offices and meet top-level personnel to discuss Bribery Act and other anti-corruption issues and topics.
Another SFO Departure
With all the recent SFO departures one might wonder whether there is anyone left at Elm House to actively engage.
Recent SFO departures have included Robert Amaee (former SFO Head of Anti-Corruption) who jointed Covington & Burling's London office and Charlie Monteith (former SFO Head of Assurance) who jointed White & Case's London office. (See here for the prior post).
Add Kathleen Harris (former head of the Fraud Business Group at the SFO) to the list. Arnold & Porter recently announced (here) that Harris will join the firm's London office as a partner in June. Arnold & Porter Chair Thomas Milch said Harris "is especially well-positioned to help navigate the UK's new Bribery Act and address the difficult investigatory, compliance, and defense challenges that companies face in a heightened global enforcement environment."
As has been reported, Alderman is also looking to retire from the SFO in the next year.
Mabey & Johnson Individual Sentences
This prior post discussed the February 10th guilty verdicts of Charles Forsyth and David Mabey (two former directors of Mabey & Johnson Ltd.) for inflating the contract price for the supply of steel bridges in order to provide kickbacks to the Iraqi government of Saddam Hussein. Richard Gledhill, a Sales Manager for contracts in Iraq, previously pleaded guilty.
Recently, the SFO announced (here) the following sentences:
Forsyth - 21 months imprisonment, disqualified from acting as a company director for five years and ordered to pay prosecution costs of £75,000;
Mabey - eight months imprisonment, disqualified from acting as a company director for two years and ordered to pay prosecution costs of £125,000;
Gledhill - eight months imprisonment, suspended for two years.
As noted in the release:
"In passing sentence HHJ Rivlin QC said 'The bare truth of this case is that Mr Forsyth bears the most culpability'. In relation to David Mabey, HHJ Rivlin QC said 'When a director of a major company plays even a small part, he can expect to receive a custodial sentence. SFO Director Richard Alderman said 'This shows that the SFO is determined to go after senior corporate executives who break the law. I am pleased with the result. It sends out a very strong message from the courts on this type of offending.'"
For additional analysis of the Mabey & Johnson individual sentences see this recent alert from Amaee and John Rupp of Covington & Burling. The authors note as follows. "It is clear that once the UK enacts its new Bribery Act, UK prosecutors will take a close look at the provisions contained in section 14 of the Bribery Act to deal with any Senior Officers of companies who can be said to have consented to or connived in the commission of bribery offences and that the courts will not shy away from imposing appropriate custodial sentences on those found guilty."
As I noted in the prior post, in just its single Mabey & Johnson prosecution, the SFO would appear to have prosecuted (and now sentenced) more individuals than the U.S. has in its approximately 15 Iraqi Oil for Food corporate enforcement actions combined.
Kenneth Clarke's Comments
It is not every day that a high-ranking government official lends credence to fear mongering (see here) and mass hysteria (see here) comments regarding a soon-to-be implemented law. But that is what Kenneth Clark, a U.K. Justice Secretary and the U.K's international anti-corruption champion (see here), did in a recent appearance in the House of Commons. During a Q&A session (see here for the video - approximately the 1 minute 45 second mark) Clark stated as follows: "I hope to put out very clear guidance to save [businesses] from the fears that are sometimes aroused by the compliance industry, the consultants and lawyers who will, of course, try to persuade companies that millions of pounds must be spent on new systems that, in my opinion, no honest firm will require to comply with the Act."
*****
A good weekend to all.
Corporate Crime Reporter Questions SFO's Active Engagement Policy
The SFO has a clear policy of active engagement when it comes to the Bribery Act and I have previously stated (here) that this policy ought to be modeled by other enforcement agencies."
Corporate Crime Reporter ("CCR"), in a recent piece (here) titled "Behind Closed Doors, UK Anti-Corruption Chief Alderman Advises Corporations, Law Firms" questions whether this engagement approach has become too active and questions whether the engagement needs to take place behind closed doors.
Writes CCR - "You would never see a US federal prosecutor visit a private law firm to give private advice – behind closed doors – to the firm’s corporate defense lawyers and their clients. But the chief law anti-corruption law enforcement official of the UK says – no problem. Over the past couple of years, Alderman has been visiting American law firms regularly. Briefing the lawyers. Answering questions from corporate clients. All behind closed doors. All in secret. To the very same corporations that Alderman will prosecute if they engage in corruption overseas."
Alderman is quoted as saying he is "an equal opportunity debriefer" and that he has met with, among others, U.K. anti-corruption public interest groups - like Corner House.
As I highlighted in this prior post, in September 2010, I was pleased to accept the invitation of the SFO to visit its offices and meet top-level personnel to discuss Bribery Act and other anti-corruption issues and topics.
Another SFO Departure
With all the recent SFO departures one might wonder whether there is anyone left at Elm House to actively engage.
Recent SFO departures have included Robert Amaee (former SFO Head of Anti-Corruption) who jointed Covington & Burling's London office and Charlie Monteith (former SFO Head of Assurance) who jointed White & Case's London office. (See here for the prior post).
Add Kathleen Harris (former head of the Fraud Business Group at the SFO) to the list. Arnold & Porter recently announced (here) that Harris will join the firm's London office as a partner in June. Arnold & Porter Chair Thomas Milch said Harris "is especially well-positioned to help navigate the UK's new Bribery Act and address the difficult investigatory, compliance, and defense challenges that companies face in a heightened global enforcement environment."
As has been reported, Alderman is also looking to retire from the SFO in the next year.
Mabey & Johnson Individual Sentences
This prior post discussed the February 10th guilty verdicts of Charles Forsyth and David Mabey (two former directors of Mabey & Johnson Ltd.) for inflating the contract price for the supply of steel bridges in order to provide kickbacks to the Iraqi government of Saddam Hussein. Richard Gledhill, a Sales Manager for contracts in Iraq, previously pleaded guilty.
Recently, the SFO announced (here) the following sentences:
Forsyth - 21 months imprisonment, disqualified from acting as a company director for five years and ordered to pay prosecution costs of £75,000;
Mabey - eight months imprisonment, disqualified from acting as a company director for two years and ordered to pay prosecution costs of £125,000;
Gledhill - eight months imprisonment, suspended for two years.
As noted in the release:
"In passing sentence HHJ Rivlin QC said 'The bare truth of this case is that Mr Forsyth bears the most culpability'. In relation to David Mabey, HHJ Rivlin QC said 'When a director of a major company plays even a small part, he can expect to receive a custodial sentence. SFO Director Richard Alderman said 'This shows that the SFO is determined to go after senior corporate executives who break the law. I am pleased with the result. It sends out a very strong message from the courts on this type of offending.'"
For additional analysis of the Mabey & Johnson individual sentences see this recent alert from Amaee and John Rupp of Covington & Burling. The authors note as follows. "It is clear that once the UK enacts its new Bribery Act, UK prosecutors will take a close look at the provisions contained in section 14 of the Bribery Act to deal with any Senior Officers of companies who can be said to have consented to or connived in the commission of bribery offences and that the courts will not shy away from imposing appropriate custodial sentences on those found guilty."
As I noted in the prior post, in just its single Mabey & Johnson prosecution, the SFO would appear to have prosecuted (and now sentenced) more individuals than the U.S. has in its approximately 15 Iraqi Oil for Food corporate enforcement actions combined.
Kenneth Clarke's Comments
It is not every day that a high-ranking government official lends credence to fear mongering (see here) and mass hysteria (see here) comments regarding a soon-to-be implemented law. But that is what Kenneth Clark, a U.K. Justice Secretary and the U.K's international anti-corruption champion (see here), did in a recent appearance in the House of Commons. During a Q&A session (see here for the video - approximately the 1 minute 45 second mark) Clark stated as follows: "I hope to put out very clear guidance to save [businesses] from the fears that are sometimes aroused by the compliance industry, the consultants and lawyers who will, of course, try to persuade companies that millions of pounds must be spent on new systems that, in my opinion, no honest firm will require to comply with the Act."
*****
A good weekend to all.
Thursday, March 3, 2011
Significant China Law Development
The June 2010 OECD Working Group on Bribery Annual Report (here) notes that China's "Ministry of Supervision informed the [OECD] Secretariat that China had begun considering how it would establish an offence of bribing a foreign public official, but was not yet at the stage of drafting legislation."
As this recent Covington & Burling alert highlights: "on February 25, 2011, the legislature of the People’s Republic of China (“PRC”), the National People’s Congress, passed a slate of 49 amendments to the Criminal Law, one of which is a provision that criminalizes paying bribes to non-PRC government officials and to officials of international public organizations (“the Amendment”)." The alert explain that "this Amendment represents the first instance in which PRC law has prohibited PRC nationals and PRC companies from paying bribes to non-PRC government officials."
Eric Carlson (here), an attorney based in Covington's Beijing office who specializes in anti-corruption compliance with a particular focus on China and other regions of Asia and one of the authors of the alert, answered the following questions.
Is this China’s version of the FCPA?
At one level, the Amendment’s aim appears to be similar to the FCPA’s -- prevent citizens and companies based in the country from bribing government officials outside the country. This is China’s first foray into this area, however, and the provisions are not as detailed or developed as in certain other countries’ anti-bribery laws. The PRC Amendment is a rather high-level law, whereas the text of the FCPA includes considerably more detail, even if the interpretation of those details is being actively debated and litigated. The absence of clear definitions, exceptions, and affirmative defenses also would appear to require PRC prosecutors to exercise somewhat more discretion in interpreting and enforcing the law.
Is China really going to enforce this law against its own companies operating outside of China?
Unclear. China’s enforcement of its domestic bribery laws historically has been somewhat uneven and focused mainly on the demand side (i.e., prosecuting officials who take bribes). Recently, however, the government has shown an increasing willingness to target bribe-payers as well, as corruption remains a primary concern of the general population and thus a concern for the government and ruling Communist Party, which is at its core focused on social stability. It remains to be seen whether the Amendment will actually be enforced in a way that deters bribe-paying by PRC companies and citizens. (To be fair, a goodly number of countries have strict laws criminalizing bribery of foreign officials outside their countries but have done little to enforce these laws.)
How will this new law affect multinationals operating in China?
The impact will obviously depend on how a multinational structures its operations in China. The Amendment (like the underlying Criminal Law) applies to all PRC citizens, wherever located, all natural persons of any nationality within China, and all companies, enterprises, and institutions organized under PRC law, which generally includes, in addition to PRC domestic companies, Sino-foreign joint ventures, wholly foreign-owned enterprises (WFOEs), and representative offices. Under the Amendment, a joint venture between a PRC company and a non-PRC company organized under PRC law, or a WFOE, could be prosecuted for paying bribes to non-PRC government officials. (Paying bribes to Chinese government officials is of course already illegal under pre-existing law.)
For most multinationals whose China operations don’t do any business outside of China, the larger risk may be China’s existing criminal and commercial bribery laws. (Many multinationals operating in China are not aware of local commercial bribery laws, which prohibit both public- and private-sector bribery.)
*****
As suggested above, having a law on the books and enforcing a law can sometimes be two different things. However, based on numerous media reports (see here for instance) there would seem to be plenty of enforcement opportunities when China's law comes into force.
As this recent Covington & Burling alert highlights: "on February 25, 2011, the legislature of the People’s Republic of China (“PRC”), the National People’s Congress, passed a slate of 49 amendments to the Criminal Law, one of which is a provision that criminalizes paying bribes to non-PRC government officials and to officials of international public organizations (“the Amendment”)." The alert explain that "this Amendment represents the first instance in which PRC law has prohibited PRC nationals and PRC companies from paying bribes to non-PRC government officials."
Eric Carlson (here), an attorney based in Covington's Beijing office who specializes in anti-corruption compliance with a particular focus on China and other regions of Asia and one of the authors of the alert, answered the following questions.
Is this China’s version of the FCPA?
At one level, the Amendment’s aim appears to be similar to the FCPA’s -- prevent citizens and companies based in the country from bribing government officials outside the country. This is China’s first foray into this area, however, and the provisions are not as detailed or developed as in certain other countries’ anti-bribery laws. The PRC Amendment is a rather high-level law, whereas the text of the FCPA includes considerably more detail, even if the interpretation of those details is being actively debated and litigated. The absence of clear definitions, exceptions, and affirmative defenses also would appear to require PRC prosecutors to exercise somewhat more discretion in interpreting and enforcing the law.
Is China really going to enforce this law against its own companies operating outside of China?
Unclear. China’s enforcement of its domestic bribery laws historically has been somewhat uneven and focused mainly on the demand side (i.e., prosecuting officials who take bribes). Recently, however, the government has shown an increasing willingness to target bribe-payers as well, as corruption remains a primary concern of the general population and thus a concern for the government and ruling Communist Party, which is at its core focused on social stability. It remains to be seen whether the Amendment will actually be enforced in a way that deters bribe-paying by PRC companies and citizens. (To be fair, a goodly number of countries have strict laws criminalizing bribery of foreign officials outside their countries but have done little to enforce these laws.)
How will this new law affect multinationals operating in China?
The impact will obviously depend on how a multinational structures its operations in China. The Amendment (like the underlying Criminal Law) applies to all PRC citizens, wherever located, all natural persons of any nationality within China, and all companies, enterprises, and institutions organized under PRC law, which generally includes, in addition to PRC domestic companies, Sino-foreign joint ventures, wholly foreign-owned enterprises (WFOEs), and representative offices. Under the Amendment, a joint venture between a PRC company and a non-PRC company organized under PRC law, or a WFOE, could be prosecuted for paying bribes to non-PRC government officials. (Paying bribes to Chinese government officials is of course already illegal under pre-existing law.)
For most multinationals whose China operations don’t do any business outside of China, the larger risk may be China’s existing criminal and commercial bribery laws. (Many multinationals operating in China are not aware of local commercial bribery laws, which prohibit both public- and private-sector bribery.)
*****
As suggested above, having a law on the books and enforcing a law can sometimes be two different things. However, based on numerous media reports (see here for instance) there would seem to be plenty of enforcement opportunities when China's law comes into force.
Wednesday, March 2, 2011
The Shrinking U.K. Bribery Act
Recent developments reported by the U.K. Telegraph suggest that when Bribery Act guidance is finalized and released, the Bribery Act will look very much like the FCPA. In fact, because of the Bribery Act's adequate procedures defense and other hinted at limitations, the Bribery Act may turn out to be more lenient than the FCPA.
The Telegraph reported (here) that eventual guidance to be released by the U.K. government "will make allowances for the use of so-called 'facilitating payments'" and that the guidance "will clarify how the law will view corporate hospitality and will give companies some protection against illegal acts committed by joint venture partners."
According to the Telegraph, "the new guidance will acknowledge [facilitating payments] payments are a global problem that cannot be eradicated overnight." According to the Telegraph, the eventual guidance "will say that while facilitating payments remain illegal, payments not considered 'serious' may not attract prosecution."
This eventual guidance seems to be similar to the conclusion Congress arrived at in 1977 when enacting the FCPA. For instance, House Report No. 95-640 (September 28, 1977) states as follows:
“The language of the bill is deliberately cast in terms which differentiate between [corrupt payments] and facilitating payments, sometimes called ‘grease payments.’ […] For example, a gratuity paid to a customs official to speed the processing of a customs document would not be reached by this bill. Nor would it reach payments made to secure permits, licenses, or the expeditious performance of similar duties of an essentially ministerial or clerical nature which must of necessity be performed in any event. While payments made to assure or to speed the proper performance of a foreign official’s duties may be reprehensible in the United States, the committee recognizes that they are not necessarily so viewed elsewhere in the world and that it is not feasible for the United States to attempt unilaterally to eradicate all such payments. As a result, the committee has not attempted to reach such payments.”
Even though the Bribery Act will still apparently prohibit facilitating payments - in contrast to the FCPA's express facilitating payment exception - numerous prior posts (see here, here and here for example as well as all the CustomsGate enforcement actions) raise the issue of whether the enforcement agencies recognize such an exception and whether the FCPA's facilitating payment exception has any real meaning.
The expected U.K. guidance on corporate hospitality would seem to be akin to the FCPA's current affirmative defense for "reasonable and bona fide expenditures, such as travel and lodging expenses, incurred by or on behalf of a foreign official" " directly related to (A) the promotion, demonstration, or explanation of products or services; or (B) the execution or performance of a contract with a foreign government or agency theorof."
Without the benefit of an actual analysis of the expected guidance on joint ventures, it is a bit difficult to draw conclusions from the Telegraph article. But if, as reported, the eventual guidance "will give companies some protection against illegal acts committed by joint venture partners" this protection will make the Bribery Act even more lenient than the FCPA (or at least FCPA enforcement theories).
Several FCPA enforcement actions in recent years, including some of the most high profile (see e.g., Bonny Island, Nigeria enforcement actions), have been based on conduct of joint venture partners.
Of note, the reported U.K. guidance regarding joint ventures would seem to conflict with the justification underlining the recent SFO charges against MK Kellog Ltd. under the Proceeds of Crime Act. (See here).
The oft-cited statement that the Bribery Act is the "FCPA on steroids" was curious to begin with; the statement now appears to be completely off-base given expected guidance on the Bribery Act.
The Telegraph reported (here) that eventual guidance to be released by the U.K. government "will make allowances for the use of so-called 'facilitating payments'" and that the guidance "will clarify how the law will view corporate hospitality and will give companies some protection against illegal acts committed by joint venture partners."
According to the Telegraph, "the new guidance will acknowledge [facilitating payments] payments are a global problem that cannot be eradicated overnight." According to the Telegraph, the eventual guidance "will say that while facilitating payments remain illegal, payments not considered 'serious' may not attract prosecution."
This eventual guidance seems to be similar to the conclusion Congress arrived at in 1977 when enacting the FCPA. For instance, House Report No. 95-640 (September 28, 1977) states as follows:
“The language of the bill is deliberately cast in terms which differentiate between [corrupt payments] and facilitating payments, sometimes called ‘grease payments.’ […] For example, a gratuity paid to a customs official to speed the processing of a customs document would not be reached by this bill. Nor would it reach payments made to secure permits, licenses, or the expeditious performance of similar duties of an essentially ministerial or clerical nature which must of necessity be performed in any event. While payments made to assure or to speed the proper performance of a foreign official’s duties may be reprehensible in the United States, the committee recognizes that they are not necessarily so viewed elsewhere in the world and that it is not feasible for the United States to attempt unilaterally to eradicate all such payments. As a result, the committee has not attempted to reach such payments.”
Even though the Bribery Act will still apparently prohibit facilitating payments - in contrast to the FCPA's express facilitating payment exception - numerous prior posts (see here, here and here for example as well as all the CustomsGate enforcement actions) raise the issue of whether the enforcement agencies recognize such an exception and whether the FCPA's facilitating payment exception has any real meaning.
The expected U.K. guidance on corporate hospitality would seem to be akin to the FCPA's current affirmative defense for "reasonable and bona fide expenditures, such as travel and lodging expenses, incurred by or on behalf of a foreign official" " directly related to (A) the promotion, demonstration, or explanation of products or services; or (B) the execution or performance of a contract with a foreign government or agency theorof."
Without the benefit of an actual analysis of the expected guidance on joint ventures, it is a bit difficult to draw conclusions from the Telegraph article. But if, as reported, the eventual guidance "will give companies some protection against illegal acts committed by joint venture partners" this protection will make the Bribery Act even more lenient than the FCPA (or at least FCPA enforcement theories).
Several FCPA enforcement actions in recent years, including some of the most high profile (see e.g., Bonny Island, Nigeria enforcement actions), have been based on conduct of joint venture partners.
Of note, the reported U.K. guidance regarding joint ventures would seem to conflict with the justification underlining the recent SFO charges against MK Kellog Ltd. under the Proceeds of Crime Act. (See here).
The oft-cited statement that the Bribery Act is the "FCPA on steroids" was curious to begin with; the statement now appears to be completely off-base given expected guidance on the Bribery Act.
Tuesday, March 1, 2011
Another "Foreign Official" Challenge
In "The Facade of FCPA Enforcement" (here) I noted that "no enforcement agency interpretation contributes more to the facade of FCPA enforcement and no FCPA element is more urgently in need of judicial scrutiny than the FCPA's 'foreign official' element."
Last week, various defendants in the U.S. v. Stuart Carson et al. case filed a motion to dismiss challenging the DOJ's interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA. See here for the prior post.
Yesterday, Lindsey Manufacturing Company, Keith Lindsey, and Steve Lee - defendants in U.S. v. Enrique Faustino Aguilar Noriega, et al. also filed a motion to dismiss challenging the same enforcement theory.
See here for the motion to dismiss.
Last week, various defendants in the U.S. v. Stuart Carson et al. case filed a motion to dismiss challenging the DOJ's interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA. See here for the prior post.
Yesterday, Lindsey Manufacturing Company, Keith Lindsey, and Steve Lee - defendants in U.S. v. Enrique Faustino Aguilar Noriega, et al. also filed a motion to dismiss challenging the same enforcement theory.
See here for the motion to dismiss.
Monday, February 28, 2011
Judge Blasts SEC's Lack of Dilligence
Dig into the details of most FCPA enforcement actions and one quickly discovers that the conduct at issue is old - in some cases very old.
The February 2011 enforcement action against Tyson Foods for instance related to conduct between 2004 and 2006. See here for the SEC's complaint.
The January 2011 enforcement action against Maxwell Technologies alleged conduct going back to 2002. See here for the SEC's complaint.
The December 2010 enforcement action against Alcatel-Lucent alleged conduct going back to 2001. See here for the SEC's complaint.
The June/July 2010 Bonny Island bribery enforcement actions alleged conduct going back to 1995. See here for the SEC's complaint against Technip for instance.
The FCPA does not have a specific statute of limitations, rather the "catch-all" provisions in 18 USC 3282 (for criminal actions) and 28 USC 2462 (for civil actions) apply.
Cooperation is often the name of the game in FCPA enforcement inquiries and, because of that, tolling agreements are frequently agreed to. Thus, discussing a fundamental black-letter law concept like statute of limitations in the FCPA context seems foolish.
But imagine a world (a world that perhaps is slowly developing - see here for instance) in which individuals and companies in FCPA enforcement actions do mount legal defenses based on black-letter legal principles such as statute of limitations.
In that world, it is likely one would see judicial opinions like the recent opinion from U.S. District Court Judge Jane Boyle (N.D. Tex.) in SEC v. Microtune, Inc. et al (see here for the opinion).
The relevant facts are as follows.
In June 2008, the SEC filed an enforcement action against Microtune and two of its former executives alleging a fraudulent stock-option backdating scheme between 2000 and mid-2003. As noted in the opinion, the "crux" of the limitations defense "was that most of the acts forming the basis of the SEC's case occured between 2001 and mid-2003."
The precise issue before the court was "whether the doctrine of fraudulent concealment, relied on by the SEC, operate[d] to toll the running of the five-year limitations period under the facts of the case." The SEC argued that it was entitled to judgment as a matter of law on the limitations defense "because the 'discovery rule' and certain equitable tolling principles including 'fraudulent concealment' and the 'continuing violations doctrine' applied and salvaged claims that would otherwise be barred by the five-year statute of limitations." The court had previously rejected the SEC's "discovery rule" and "continuing violations doctrine" claims, and focused on the SEC's "fraudulent concealment" theory for tolling the statute of limitations.
The court noted that in order for the SEC to prevail on its "fraudulent concealment" claim, it had to show that it "acted diligently once [the SEC] had inquiry notice, i.e., once [the SEC] knew of or should have known of the facts giving rise to [its] claim." The court held that there was "no genuine issue of material fact as to whether the SEC acted diligently nor as to whether the SEC discovered the alleged wrongdoing within the limitations period."
As noted in the opinion, "when asked about the SEC's diligence" counsel for the SEC explained as follows: "we, often for resource reasons, wait until the company does its own investigation before we complete ours." [In July 2006, Microtune announced it was commencing an internal review as to the alleged practices].
Judge Boyle was not persuaded and stated as follows. "While perhaps an understandable method of allocating Commission resources, such justification does not excuse the SEC's apparent inactivity from mid-2004 to mid-2006, when further investigation would have uncovered the full extent of Microtune's backdating and would have allowed the SEC to bring a complaint against Microtune much earlier than 2008."
Accordingly, the judge dismissed all claims against the defendants falling outside of the five year limitations period - except those saved as a result of tolling agreements reached in 2007 and 2008.
See here for an article about the ruling from Shannon Green at Corporate Counsel.
Ask any FCPA practitioner and, in a candid moment, they will tell you that SEC FCPA inquiries often unnecessarily drag on for many years, including long stretches of complete inactivity, unreturned phone calls, and other delays due to SEC resource issues - including turnover of SEC attorneys assigned to the case.
Again, because cooperation tends to be the name of the game in FCPA inquiries and because tolling agreements are frequently agreed to, the SEC's lack of diligence in an FCPA matter is generally not a relevant issue.
However, every once in a while it is interesting to think of what would happen if FCPA enforcement largely took place in the context of an adversarial system.
The recent Microtune decision would seem to provide a glimpse.
The February 2011 enforcement action against Tyson Foods for instance related to conduct between 2004 and 2006. See here for the SEC's complaint.
The January 2011 enforcement action against Maxwell Technologies alleged conduct going back to 2002. See here for the SEC's complaint.
The December 2010 enforcement action against Alcatel-Lucent alleged conduct going back to 2001. See here for the SEC's complaint.
The June/July 2010 Bonny Island bribery enforcement actions alleged conduct going back to 1995. See here for the SEC's complaint against Technip for instance.
The FCPA does not have a specific statute of limitations, rather the "catch-all" provisions in 18 USC 3282 (for criminal actions) and 28 USC 2462 (for civil actions) apply.
Cooperation is often the name of the game in FCPA enforcement inquiries and, because of that, tolling agreements are frequently agreed to. Thus, discussing a fundamental black-letter law concept like statute of limitations in the FCPA context seems foolish.
But imagine a world (a world that perhaps is slowly developing - see here for instance) in which individuals and companies in FCPA enforcement actions do mount legal defenses based on black-letter legal principles such as statute of limitations.
In that world, it is likely one would see judicial opinions like the recent opinion from U.S. District Court Judge Jane Boyle (N.D. Tex.) in SEC v. Microtune, Inc. et al (see here for the opinion).
The relevant facts are as follows.
In June 2008, the SEC filed an enforcement action against Microtune and two of its former executives alleging a fraudulent stock-option backdating scheme between 2000 and mid-2003. As noted in the opinion, the "crux" of the limitations defense "was that most of the acts forming the basis of the SEC's case occured between 2001 and mid-2003."
The precise issue before the court was "whether the doctrine of fraudulent concealment, relied on by the SEC, operate[d] to toll the running of the five-year limitations period under the facts of the case." The SEC argued that it was entitled to judgment as a matter of law on the limitations defense "because the 'discovery rule' and certain equitable tolling principles including 'fraudulent concealment' and the 'continuing violations doctrine' applied and salvaged claims that would otherwise be barred by the five-year statute of limitations." The court had previously rejected the SEC's "discovery rule" and "continuing violations doctrine" claims, and focused on the SEC's "fraudulent concealment" theory for tolling the statute of limitations.
The court noted that in order for the SEC to prevail on its "fraudulent concealment" claim, it had to show that it "acted diligently once [the SEC] had inquiry notice, i.e., once [the SEC] knew of or should have known of the facts giving rise to [its] claim." The court held that there was "no genuine issue of material fact as to whether the SEC acted diligently nor as to whether the SEC discovered the alleged wrongdoing within the limitations period."
As noted in the opinion, "when asked about the SEC's diligence" counsel for the SEC explained as follows: "we, often for resource reasons, wait until the company does its own investigation before we complete ours." [In July 2006, Microtune announced it was commencing an internal review as to the alleged practices].
Judge Boyle was not persuaded and stated as follows. "While perhaps an understandable method of allocating Commission resources, such justification does not excuse the SEC's apparent inactivity from mid-2004 to mid-2006, when further investigation would have uncovered the full extent of Microtune's backdating and would have allowed the SEC to bring a complaint against Microtune much earlier than 2008."
Accordingly, the judge dismissed all claims against the defendants falling outside of the five year limitations period - except those saved as a result of tolling agreements reached in 2007 and 2008.
See here for an article about the ruling from Shannon Green at Corporate Counsel.
Ask any FCPA practitioner and, in a candid moment, they will tell you that SEC FCPA inquiries often unnecessarily drag on for many years, including long stretches of complete inactivity, unreturned phone calls, and other delays due to SEC resource issues - including turnover of SEC attorneys assigned to the case.
Again, because cooperation tends to be the name of the game in FCPA inquiries and because tolling agreements are frequently agreed to, the SEC's lack of diligence in an FCPA matter is generally not a relevant issue.
However, every once in a while it is interesting to think of what would happen if FCPA enforcement largely took place in the context of an adversarial system.
The recent Microtune decision would seem to provide a glimpse.
Friday, February 25, 2011
Big, Bold, and Bizarre
Many words could be used to describe Foreign Corrupt Practices Act enforcement in 2010.
The words I selected in this Year in Review piece recently published by BNA's White Collar Crime Report are big, bold, and bizarre.
The article provides an overview of the year that was and describes the big, bold, and bizarre year in FCPA enforcement; the increased scrutiny of the FCPA and FCPA enforcement; and events related to the FCPA as well as other anti-corruption laws and initiatives.
The words I selected in this Year in Review piece recently published by BNA's White Collar Crime Report are big, bold, and bizarre.
The article provides an overview of the year that was and describes the big, bold, and bizarre year in FCPA enforcement; the increased scrutiny of the FCPA and FCPA enforcement; and events related to the FCPA as well as other anti-corruption laws and initiatives.
Thursday, February 24, 2011
The FCPA in 2015 - What Will It Look Like?
The Dow Jones Global Compliance Symposium (see here for details) is set for March 31st and April 1st in Washington DC at the Park Hyatt Washington.
I am pleased to be participating in a panel discussion on March 31st titled "The FCPA in 2015 - What Will It Look Like?"
Moderated by Dionne Searcey (Legal Correspondent - Wall Street Journal), other panelists will include: Mark Mendelsohn (Paul Weiss); Peter Jaffe (Chief Ethics & Compliance Officer, AES); and Frederic Miller (PricewaterhouseCoopers).
Other panels or interviews at the Symposium will focus on the FCPA and related issues as well.
Joe Palazzolo (Dow Jones and Wall Street Journal Corruption Currents) will speak with Stephen Reynolds (SVP & General Counsel, Alcatel-Lucent) in a keynote interview titled "Moving Forward: Alcatel-Lucent's Anti-Corruption Program." See here for prior posts on the December 2010 Alcatel-Lucent FCPA enforcement action.
Georg Kell (Executive Director, UN Global Compact) will be interviewed on "Stamping Out Corruption: The Role That Corporations Can Play."
Dionne Searcey will speak with Commissioner Dabney Friedrich (U.S. Sentencing Commission) in a featured interview expected to cover how new and evolving corporate and anticorruption regulations are being enforced.
David Wessel (Economics Editor, Wall Street Journal) will speak to former U.S. Senator Arlen Specter in a keynote interview titled "FCPA Enforcement: How to Comply. If No Compliance, Then Jail Time, Not Just Fines." As highlighted in this previous post, Senator Specter chaired the November 30, 2010 Senate Judiciary Subcommittee hearing on "Examining Enforcement of the Foreign Corrupt Practices Act."
Jean Eaglesham (Senior Reporter, The Wall Street Journal) will speak with Lorin Reisner (Deputy Director, Enforcement Division, Securities & Exchange Commission) in a keynote interview expected to cover the SEC's enforcement of the Foreign Corrupt Practices Act.
Cassell Bryan-Low (Reporter - Wall Street Journal) will speak with Vivian Robinson (General Counsel - U.K. Serious Fraud Office) in a featured interview titled "The U.K. Bribery Act: Dispelling the Myths."
In addition, other events or interviews at the Symposium are sure to touch upon FCPA issues as well.
I am pleased to be participating in a panel discussion on March 31st titled "The FCPA in 2015 - What Will It Look Like?"
Moderated by Dionne Searcey (Legal Correspondent - Wall Street Journal), other panelists will include: Mark Mendelsohn (Paul Weiss); Peter Jaffe (Chief Ethics & Compliance Officer, AES); and Frederic Miller (PricewaterhouseCoopers).
Other panels or interviews at the Symposium will focus on the FCPA and related issues as well.
Joe Palazzolo (Dow Jones and Wall Street Journal Corruption Currents) will speak with Stephen Reynolds (SVP & General Counsel, Alcatel-Lucent) in a keynote interview titled "Moving Forward: Alcatel-Lucent's Anti-Corruption Program." See here for prior posts on the December 2010 Alcatel-Lucent FCPA enforcement action.
Georg Kell (Executive Director, UN Global Compact) will be interviewed on "Stamping Out Corruption: The Role That Corporations Can Play."
Dionne Searcey will speak with Commissioner Dabney Friedrich (U.S. Sentencing Commission) in a featured interview expected to cover how new and evolving corporate and anticorruption regulations are being enforced.
David Wessel (Economics Editor, Wall Street Journal) will speak to former U.S. Senator Arlen Specter in a keynote interview titled "FCPA Enforcement: How to Comply. If No Compliance, Then Jail Time, Not Just Fines." As highlighted in this previous post, Senator Specter chaired the November 30, 2010 Senate Judiciary Subcommittee hearing on "Examining Enforcement of the Foreign Corrupt Practices Act."
Jean Eaglesham (Senior Reporter, The Wall Street Journal) will speak with Lorin Reisner (Deputy Director, Enforcement Division, Securities & Exchange Commission) in a keynote interview expected to cover the SEC's enforcement of the Foreign Corrupt Practices Act.
Cassell Bryan-Low (Reporter - Wall Street Journal) will speak with Vivian Robinson (General Counsel - U.K. Serious Fraud Office) in a featured interview titled "The U.K. Bribery Act: Dispelling the Myths."
In addition, other events or interviews at the Symposium are sure to touch upon FCPA issues as well.
Tuesday, February 22, 2011
"Foreign Official" First
For the first time in FCPA history, a federal court judge, with the benefit of a detailed and complete overview of the FCPA’s extensive legislative history on the “foreign official” element, is being asked to rule on the DOJ’s interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA.
See here for the motion to dismiss in U.S. v. Stuart Carson, et al.
See here for my declaration.
See here for the motion to dismiss in U.S. v. Stuart Carson, et al.
See here for my declaration.
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