On Tuesday, Nathaniel Edmonds (Assistant Chief, DOJ Fraud Section who is specifically involved in the Carson "foreign official" challenge) participated in a webcast sponsored by the Conference Board titled "Enforcement of The Foreign Corrupt Practices Act: A Dialogue with Regulators" (see here).
According to a May 4th article authored by Christopher Matthews and published on the Just Anti-Corruption page of the website Main Justice, during the webcast Edmonds "warned defendants facing charges under the foreign bribery law against contesting that definition."
The article states as follows.
[“It’s not necessarily the wisest move for a company,” Assistant Chief Nathaniel Edmonds said Tuesday during a webcast on the FCPA sponsored by The Conference Board. Edmonds reiterated the Justice Department’s belief that employees of state-owned or controlled companies can be considered foreign officials under the FCPA, which prohibits bribes to foreign officials to obtain or retain business. “Quibbling over the percentage ownership or control of a company is not going to be particularly helpful as a defense,” Edmonds said.]
Yesterday, in a supplement to its reply brief (here) the Carson defendants brought the article to the attention of the court and stated as follows.
"Defendants respectfully submit that Mr. Edmonds’ comments supplement at
least two important points made in Defendants’ Motion and Reply. First, there is a reason the Government’s maximalist position on the definition of “foreign official” has avoided serious judicial scrutiny for so long, and the reason is that individuals and companies are reluctant to challenge the Government’s interpretation for fear of the consequences. Second, the Government does not have a definition of “instrumentality” that can withstand judicial scrutiny because, among other things, it is unable to say what would make one state-owned enterprise, but not another, an “instrumentality” under the FCPA."
Friday, May 6, 2011
Thursday, May 5, 2011
Johnson & Johnson's "Enhanced Compliance Obligations"
Last month, Johnson & Johnson (J&J) settled an FCPA enforcement action focused on voluntary disclosed conduct in Greece, Poland, Romania involving various health care providers. See here for the prior post. [The enforcement action also involved conduct in connection with the U.N. Oil for Food Program in Iraq - conduct that was not voluntarily disclosed].
The enforcement action was resolved via a deferred prosecution agreement (DPA) and in the DPA (here) the DOJ specifically states as follows: "J&J had a pre-existing compliance and ethics program that was effective and the majority of problematic operations globally resulted from insufficient implementation of the J&J compliance and ethics program in acquired companies." (emphasis added).
The J&J enforcement action is thus a rare instance of the DOJ finding a company's pre-existing compliance and ethics program "effective" notwithstanding the fact that conduct allegedly violating the FCPA took place within the overall organization.
The J&J DPA contains the standard compliance metrics found in typical DPAs and non-prosecution agreements (Attachment C of the J&J DPA) that the company must abide by during the three year term of the DPA.
However, the DPA also contains (see Attachment D) "Enhanced Compliance Obligations" that J&J must abide by during the term of the DPA. These "enhanced compliance obligations" are unusual and surprising given the DOJ's conclusion that J&J already generally had "effective" policies and procedures.
Even though the DPA states that J&J, as part of the voluntary disclosure and cooperation process, "conducted an extensive, global review of all of its operations to determine if there were problems elsewhere and [...] reported on any area of concerns to the Department and the SEC," the "enhanced compliance obligations" nevertheless require J&J to "conduct risk assessments of markets where J&J has government customers and/or other anticorruption compliance risks on a staggered, periodic basis."
In what seems like a "full employment act" for some, the DPA requires J&J to "identify no less than five operating companies that are high risk for corruption because of their sector and location and [...] conduct FCPA Audits of those operating companies at least once every three years." According to the DPA, "FCPA Audits of other operating companies that pose corruption risk shall occur no less than once every five years."
Pursuant to the DPA, "each FCPA Audit shall include" the following.
"a. On-site visits by an audit team comprised of qualified auditors who have received FCPA and anticorruption training;
b. Where appropriate, participation in the on-site visits by personnel from the compliance and legal functions;
c. Review of a statistically representative sample appropriately adjusted for the risks of the market, of contracts with and payments to individual health care providers;
d. Creation of action plans resulting from issues identified during audits; these action plans will be shared with appropriate senior management, including the Chief Compliance Officer, and will contain mandatory undertakings designed to enhance anticorruption compliance, repair process weaknesses, and deter violations; and
e. Where appropriate, feasible, and permissible under local law, review of the books and records of distributors which, in the view of the audit team, may present corruption risk."
Such "enhanced compliance obligations" seem wholly inappropriate given the DOJ's conclusion that J&J already had "effective" compliance policies and procedures and given that J&J, prior to resolving the enforcement action, already "conducted an extensive, global review of all of its operations to determine if there were problems elsewhere...".
Remediation and effective compliance policies and procedures are good.
But if the "enhanced compliance obligations" found in the J&J DPA are a new norm, how long will corporate defendants tolerate being required by the government (under the risk of prosecution for failure to do so) to engage in fishing expeditions (when the company already went fishing) just for the sake of going fishing again?
The enforcement action was resolved via a deferred prosecution agreement (DPA) and in the DPA (here) the DOJ specifically states as follows: "J&J had a pre-existing compliance and ethics program that was effective and the majority of problematic operations globally resulted from insufficient implementation of the J&J compliance and ethics program in acquired companies." (emphasis added).
The J&J enforcement action is thus a rare instance of the DOJ finding a company's pre-existing compliance and ethics program "effective" notwithstanding the fact that conduct allegedly violating the FCPA took place within the overall organization.
The J&J DPA contains the standard compliance metrics found in typical DPAs and non-prosecution agreements (Attachment C of the J&J DPA) that the company must abide by during the three year term of the DPA.
However, the DPA also contains (see Attachment D) "Enhanced Compliance Obligations" that J&J must abide by during the term of the DPA. These "enhanced compliance obligations" are unusual and surprising given the DOJ's conclusion that J&J already generally had "effective" policies and procedures.
Even though the DPA states that J&J, as part of the voluntary disclosure and cooperation process, "conducted an extensive, global review of all of its operations to determine if there were problems elsewhere and [...] reported on any area of concerns to the Department and the SEC," the "enhanced compliance obligations" nevertheless require J&J to "conduct risk assessments of markets where J&J has government customers and/or other anticorruption compliance risks on a staggered, periodic basis."
In what seems like a "full employment act" for some, the DPA requires J&J to "identify no less than five operating companies that are high risk for corruption because of their sector and location and [...] conduct FCPA Audits of those operating companies at least once every three years." According to the DPA, "FCPA Audits of other operating companies that pose corruption risk shall occur no less than once every five years."
Pursuant to the DPA, "each FCPA Audit shall include" the following.
"a. On-site visits by an audit team comprised of qualified auditors who have received FCPA and anticorruption training;
b. Where appropriate, participation in the on-site visits by personnel from the compliance and legal functions;
c. Review of a statistically representative sample appropriately adjusted for the risks of the market, of contracts with and payments to individual health care providers;
d. Creation of action plans resulting from issues identified during audits; these action plans will be shared with appropriate senior management, including the Chief Compliance Officer, and will contain mandatory undertakings designed to enhance anticorruption compliance, repair process weaknesses, and deter violations; and
e. Where appropriate, feasible, and permissible under local law, review of the books and records of distributors which, in the view of the audit team, may present corruption risk."
Such "enhanced compliance obligations" seem wholly inappropriate given the DOJ's conclusion that J&J already had "effective" compliance policies and procedures and given that J&J, prior to resolving the enforcement action, already "conducted an extensive, global review of all of its operations to determine if there were problems elsewhere...".
Remediation and effective compliance policies and procedures are good.
But if the "enhanced compliance obligations" found in the J&J DPA are a new norm, how long will corporate defendants tolerate being required by the government (under the risk of prosecution for failure to do so) to engage in fishing expeditions (when the company already went fishing) just for the sake of going fishing again?
Wednesday, May 4, 2011
Rockwell Automation Resolves SEC Action
[Note - because of my involvement in the below Rockwell matter while in private practice, this post is devoid of my customary commentary and analysis as to the enforcement action]
Yesterday, the SEC announced (here) a cease and desist proceeding and imposition of a cease and desist order as to Rockwell Automation, Inc.
As stated in the SEC's order, the matter involved "violations of the books and records and internal controls provisions of the Foreign Corrupt Practices Act ("FCPA") by Rockwell, through one of its former subsidiaries in China, Rockwell Automation Power Systems (Shanghai) Ltd. ("RAPS-China"), which was divested by Rockwell in January, 2007."
In summary fashion, the SEC found as follows.
"From 2003 to 2006, certain employees of RAPS-China paid approximately $615,000 to Design Institutes, which were typically state-owned enterprises that provided design engineering and technical integration services that can influence contract awards by end-user state-owned customers. The payments were made through third-party intermediaries at the request of Design Institute employees and at the direction of RAPS-China’s Marketing and Sales Director. RAPS-China’s Marketing and Sales Director intended that these funds be paid directly to the Design Institute employees, with the expectation that they would influence the ultimate state-owned customers to purchase RAPS products. While the Design Institutes did provide some bona fide engineering and other services in connection with RAPS-China’s end-user contracts, RAPS-China could not substantiate the specific services rendered or the value of those services. Also during the same period, employees of RAPS-China paid approximately $450,000 to fund sightseeing and other non-business trips for employees of Design Institutes and other state-owned companies."
"Rockwell realized approximately $1.7 million in net profits on sales contracts with end-user Chinese government-owned companies that were associated with payments to the Design Institutes."
"Rockwell failed to accurately record the payments in its books and records, and failed to implement or maintain a system of internal accounting controls sufficient to prevent and detect the payments."
Under the heading, "Discovery, Self-Reporting and Remediation" the SEC order states as follows.
"Rockwell discovered the DI Payments and the third-party payment mechanism in 2006 through its normal financial review process. This process was part of Rockwell’s global corporate compliance/internal controls program, which had targeted China for enhanced FCPA training and scrutiny starting in 2004. Upon discovery of the issue, Rockwell hired counsel and investigated the DI Payments with the oversight of its Board of Directors. It voluntarily self-reported the DI Payments to the Commission and voluntarily provided the Commission Staff with all relevant facts found in the investigation, and otherwise cooperated with the Commission. As a result of the discovery of this matter, Rockwell undertook numerous remedial measures, including employee termination and disciplinary actions, enhancements to its internal controls and compliance program and conducted a broad, global review of its other operations."
The SEC order further states as follows.
"In connection with the payments described above, Rockwell failed to make and keep accurate books, records and accounts as required by Section 13(b)(2)(A) of the Exchange Act."
"Further, as evidenced by the DI Payments (as described above) and leisure travel payments, Rockwell failed to devise or maintain sufficient internal controls as required by Section 13(b)(2)(B) of the Exchange Act."
As noted in the SEC order, Rockwell, without admitting or denying the SEC's findings, agreed to "pay disgorgement of $1,771,000, prejudgment interest of $590,091and a civil money penalty of $400,000."
The SEC order concludes by noting that "the Commission is not imposing a civil penalty in excess of $400,000 based upon [Rockwell's] cooperation" in the investigation.
See here for Rockwell's press release.
David Simon (Foley & Lardner - here) and Greg Bruch (Willkie Farr & Gallagher - here) represented Rockwell.
*****
The Rockwell matter represents the second time in the past month (approximately) that the SEC has resolved an FCPA inquiry via the administrative cease and desist route. See here for the prior post regarding Ball Corporation.
*****
Other FCPA enforcement actions focused on alleged improper travel and entertainment benefits to employees of Chinese state-owned enterprises include: Lucent Technologies (see here) and UTStarcom Inc. (see here).
*****
Other FCPA enforcement actions focused (in whole or in part) on allegedly improper payments to employees of so-called Chinese "Design Institutes" include: ITT Corp. (see here); and Avery Dennison (see here).
Yesterday, the SEC announced (here) a cease and desist proceeding and imposition of a cease and desist order as to Rockwell Automation, Inc.
As stated in the SEC's order, the matter involved "violations of the books and records and internal controls provisions of the Foreign Corrupt Practices Act ("FCPA") by Rockwell, through one of its former subsidiaries in China, Rockwell Automation Power Systems (Shanghai) Ltd. ("RAPS-China"), which was divested by Rockwell in January, 2007."
In summary fashion, the SEC found as follows.
"From 2003 to 2006, certain employees of RAPS-China paid approximately $615,000 to Design Institutes, which were typically state-owned enterprises that provided design engineering and technical integration services that can influence contract awards by end-user state-owned customers. The payments were made through third-party intermediaries at the request of Design Institute employees and at the direction of RAPS-China’s Marketing and Sales Director. RAPS-China’s Marketing and Sales Director intended that these funds be paid directly to the Design Institute employees, with the expectation that they would influence the ultimate state-owned customers to purchase RAPS products. While the Design Institutes did provide some bona fide engineering and other services in connection with RAPS-China’s end-user contracts, RAPS-China could not substantiate the specific services rendered or the value of those services. Also during the same period, employees of RAPS-China paid approximately $450,000 to fund sightseeing and other non-business trips for employees of Design Institutes and other state-owned companies."
"Rockwell realized approximately $1.7 million in net profits on sales contracts with end-user Chinese government-owned companies that were associated with payments to the Design Institutes."
"Rockwell failed to accurately record the payments in its books and records, and failed to implement or maintain a system of internal accounting controls sufficient to prevent and detect the payments."
Under the heading, "Discovery, Self-Reporting and Remediation" the SEC order states as follows.
"Rockwell discovered the DI Payments and the third-party payment mechanism in 2006 through its normal financial review process. This process was part of Rockwell’s global corporate compliance/internal controls program, which had targeted China for enhanced FCPA training and scrutiny starting in 2004. Upon discovery of the issue, Rockwell hired counsel and investigated the DI Payments with the oversight of its Board of Directors. It voluntarily self-reported the DI Payments to the Commission and voluntarily provided the Commission Staff with all relevant facts found in the investigation, and otherwise cooperated with the Commission. As a result of the discovery of this matter, Rockwell undertook numerous remedial measures, including employee termination and disciplinary actions, enhancements to its internal controls and compliance program and conducted a broad, global review of its other operations."
The SEC order further states as follows.
"In connection with the payments described above, Rockwell failed to make and keep accurate books, records and accounts as required by Section 13(b)(2)(A) of the Exchange Act."
"Further, as evidenced by the DI Payments (as described above) and leisure travel payments, Rockwell failed to devise or maintain sufficient internal controls as required by Section 13(b)(2)(B) of the Exchange Act."
As noted in the SEC order, Rockwell, without admitting or denying the SEC's findings, agreed to "pay disgorgement of $1,771,000, prejudgment interest of $590,091and a civil money penalty of $400,000."
The SEC order concludes by noting that "the Commission is not imposing a civil penalty in excess of $400,000 based upon [Rockwell's] cooperation" in the investigation.
See here for Rockwell's press release.
David Simon (Foley & Lardner - here) and Greg Bruch (Willkie Farr & Gallagher - here) represented Rockwell.
*****
The Rockwell matter represents the second time in the past month (approximately) that the SEC has resolved an FCPA inquiry via the administrative cease and desist route. See here for the prior post regarding Ball Corporation.
*****
Other FCPA enforcement actions focused on alleged improper travel and entertainment benefits to employees of Chinese state-owned enterprises include: Lucent Technologies (see here) and UTStarcom Inc. (see here).
*****
Other FCPA enforcement actions focused (in whole or in part) on allegedly improper payments to employees of so-called Chinese "Design Institutes" include: ITT Corp. (see here); and Avery Dennison (see here).
Tuesday, May 3, 2011
Carson "Foreign Official" Challenge Fully Briefed
Yesterday various defendants in the U.S. v. Carson case pending in the Central District of California filed a reply brief (see here).
The brief begins as follows.
"In 1977, Congress could have enacted a general anti-bribery statute that made it a crime to pay a commercial bribe to any foreign national, but it did not. Rather, the FCPA criminalizes improper payments only to a “foreign official.” Thus, making an improper payment to a “foreign official” violates the FCPA; making that same payment to someone who is not a “foreign official” does not. This is undisputed."
"The Government argues that “[s]tate-owned business enterprises [‘SOEs’] may, in appropriate circumstances, be considered instrumentalities of a foreign government and their officers and employees to be foreign officials.” But Congress (i) knew about SOEs when it enacted the FCPA, (ii) knew that some of the questionable payments in the pre-FCPA era may have been made to employees of SOEs, and (iii) knew how to include SOEs in the definition of “foreign official” if it had wanted to do so. Clearly, Congress did not do so, and contrary to the Government’s arguments, there is no evidence that Congress intended SOEs to be covered by this criminal statute, or intended the word “instrumentality” to encompass broadly anything through which a foreign government achieves an “end or purpose.” In fact, the plain language of the statute and its history illustrate that the FCPA was aimed at preventing improper payments to traditional government officials. If Congress had wanted SOEs to be included in the definition of “instrumentality,” it would have expressly said so – just as it did in 1976 when it enacted the Foreign Sovereign Immunities Act (“FSIA”)."
"Having no statutory authority for its sweeping position, the Government is thus unable to define the “appropriate circumstances” when an SOE allegedly falls within the FCPA. The Government states only that it is a “fact-based determination.” But facts in isolation are irrelevant unless analyzed in the context of a legal framework. And for over two hundred years it has been “emphatically the province and duty of the judicial department” – not the jury – “to say what the law is.” Marbury v Madison, 5 U.S. (1 Cranch) 137 (1803). Thus, while a jury may decide disputed issues of fact, this Court must first decide the law."
"Defendants’ Motion squarely challenges the Government’s unsupported legal
interpretation of the FCPA by arguing that the term “instrumentality” simply does not include SOEs, and thus employees of SOEs are not, as a matter of law, “foreign officials.” The Government labels Defendants’ position as extreme, insisting that it “is not asking for a legal conclusion that all SOEs are instrumentalities,” only for a ruling that “the term instrumentality . . . can include SOEs.” But it is the Government’s position that is unreasonable, because the Government cannot articulate any principled test – and there is no test, other than one invented from whole cloth – for what would make one SOE, but not another, a government “instrumentality” under the FCPA. Accordingly, the Government’s concession, that some SOEs fall within and some outside the statute, coupled with the complete lack of any meaningful or discernable standards for deciding which is which, undermines the Government’s position and requires that it be rejected because it would render the FCPA unconstitutionally vague as applied."
"Accordingly, the Court should hold that employees of SOEs are not “foreign
officials” under the FCPA and should dismiss Counts One through Ten of the
Indictment. Contrary to the Government’s overblown rhetoric, the sky will not fall upon such a ruling; rather, the issue will be returned to its proper forum: Congress. See Skilling v. United States, 561 U.S. ___, 130 S. Ct. 2896, 2933 (2010) (“If Congress desires to go further . . . it must speak more clearly than it has.”)."
This previous post links to the Defendants' motion and my declaration filed in support. This previous post links to the DOJ's opposition brief as well as supporting declarations from the State Department and the FBI.
The Carson defendants also moved (see here) to strike the State Department declaration or in the alternative for a court order requiring the State Department employee to appear for questioning at next week's hearing). As noted in this prior post, the same State Department declaration was ordered stricken in the Lindsey "foreign official" challenge and is also being challenged in the O'Shea "foreign official" challenge - see here.
*****
In a related development, last week the DOJ announced (here) that "Flavio Ricotti, a former executive of [Control Components, Inc. - the same employer as the above referenced defendants challenging the DOJ's "foreign official" interpretation] has pleaded guilty for his participation in a conspiracy to secure contracts by paying bribes to officials of foreign state-owned companies as well as officers and employees of foreign and domestic private companies." See here for the plea agreement.
As noted in the DOJ release, "Ricotti pleaded guilty [...] to a one-count superseding information [see here] charging him with conspiring to make corrupt payments to foreign government officials, and officers and employees of private companies in several countries, including Saudi Arabia and Qatar, in violation of the Foreign Corrupt Practices Act (FCPA) and the Travel Act."
The DOJ release further states as follows. "In connection with his guilty plea, Ricotti admitted that he conspired with other CCI employees to offer a payment to an official of Saudi Aramco, a Saudi Arabian state-owned oil company, in connection with attempting to obtain a valve contract for CCI in 2003. Ricotti also admitted to conspiring with other CCI employees to make a payment to an employee of a private company so that the employee would assist in awarding to CCI a valve contract in Qatar."
As further noted in the DOJ release:
"In related cases, two defendants previously pleaded guilty to conspiring to bribe officers and employees of foreign state-owned companies on behalf of CCI. On Jan. 8, 2009, Mario Covino, the former director of worldwide factory sales for the valve company, pleaded guilty [see here] to one count of conspiracy to violate the FCPA and admitted to causing the payment of approximately $1 million in bribes to officers and employees of several foreign state-owned companies. On Feb. 3, 2009, Richard Morlok, the former finance director for the valve company, pleaded guilty [see here] to one count of conspiracy to violate the FCPA and admitted to causing the payment of approximately $628,000 in bribes to officers and employees of several foreign state-owned companies. Covino and Morlok are scheduled to be sentenced in February 2012."
See here for July 2009 enforcement action against Control Components, Inc.
The brief begins as follows.
"In 1977, Congress could have enacted a general anti-bribery statute that made it a crime to pay a commercial bribe to any foreign national, but it did not. Rather, the FCPA criminalizes improper payments only to a “foreign official.” Thus, making an improper payment to a “foreign official” violates the FCPA; making that same payment to someone who is not a “foreign official” does not. This is undisputed."
"The Government argues that “[s]tate-owned business enterprises [‘SOEs’] may, in appropriate circumstances, be considered instrumentalities of a foreign government and their officers and employees to be foreign officials.” But Congress (i) knew about SOEs when it enacted the FCPA, (ii) knew that some of the questionable payments in the pre-FCPA era may have been made to employees of SOEs, and (iii) knew how to include SOEs in the definition of “foreign official” if it had wanted to do so. Clearly, Congress did not do so, and contrary to the Government’s arguments, there is no evidence that Congress intended SOEs to be covered by this criminal statute, or intended the word “instrumentality” to encompass broadly anything through which a foreign government achieves an “end or purpose.” In fact, the plain language of the statute and its history illustrate that the FCPA was aimed at preventing improper payments to traditional government officials. If Congress had wanted SOEs to be included in the definition of “instrumentality,” it would have expressly said so – just as it did in 1976 when it enacted the Foreign Sovereign Immunities Act (“FSIA”)."
"Having no statutory authority for its sweeping position, the Government is thus unable to define the “appropriate circumstances” when an SOE allegedly falls within the FCPA. The Government states only that it is a “fact-based determination.” But facts in isolation are irrelevant unless analyzed in the context of a legal framework. And for over two hundred years it has been “emphatically the province and duty of the judicial department” – not the jury – “to say what the law is.” Marbury v Madison, 5 U.S. (1 Cranch) 137 (1803). Thus, while a jury may decide disputed issues of fact, this Court must first decide the law."
"Defendants’ Motion squarely challenges the Government’s unsupported legal
interpretation of the FCPA by arguing that the term “instrumentality” simply does not include SOEs, and thus employees of SOEs are not, as a matter of law, “foreign officials.” The Government labels Defendants’ position as extreme, insisting that it “is not asking for a legal conclusion that all SOEs are instrumentalities,” only for a ruling that “the term instrumentality . . . can include SOEs.” But it is the Government’s position that is unreasonable, because the Government cannot articulate any principled test – and there is no test, other than one invented from whole cloth – for what would make one SOE, but not another, a government “instrumentality” under the FCPA. Accordingly, the Government’s concession, that some SOEs fall within and some outside the statute, coupled with the complete lack of any meaningful or discernable standards for deciding which is which, undermines the Government’s position and requires that it be rejected because it would render the FCPA unconstitutionally vague as applied."
"Accordingly, the Court should hold that employees of SOEs are not “foreign
officials” under the FCPA and should dismiss Counts One through Ten of the
Indictment. Contrary to the Government’s overblown rhetoric, the sky will not fall upon such a ruling; rather, the issue will be returned to its proper forum: Congress. See Skilling v. United States, 561 U.S. ___, 130 S. Ct. 2896, 2933 (2010) (“If Congress desires to go further . . . it must speak more clearly than it has.”)."
This previous post links to the Defendants' motion and my declaration filed in support. This previous post links to the DOJ's opposition brief as well as supporting declarations from the State Department and the FBI.
The Carson defendants also moved (see here) to strike the State Department declaration or in the alternative for a court order requiring the State Department employee to appear for questioning at next week's hearing). As noted in this prior post, the same State Department declaration was ordered stricken in the Lindsey "foreign official" challenge and is also being challenged in the O'Shea "foreign official" challenge - see here.
*****
In a related development, last week the DOJ announced (here) that "Flavio Ricotti, a former executive of [Control Components, Inc. - the same employer as the above referenced defendants challenging the DOJ's "foreign official" interpretation] has pleaded guilty for his participation in a conspiracy to secure contracts by paying bribes to officials of foreign state-owned companies as well as officers and employees of foreign and domestic private companies." See here for the plea agreement.
As noted in the DOJ release, "Ricotti pleaded guilty [...] to a one-count superseding information [see here] charging him with conspiring to make corrupt payments to foreign government officials, and officers and employees of private companies in several countries, including Saudi Arabia and Qatar, in violation of the Foreign Corrupt Practices Act (FCPA) and the Travel Act."
The DOJ release further states as follows. "In connection with his guilty plea, Ricotti admitted that he conspired with other CCI employees to offer a payment to an official of Saudi Aramco, a Saudi Arabian state-owned oil company, in connection with attempting to obtain a valve contract for CCI in 2003. Ricotti also admitted to conspiring with other CCI employees to make a payment to an employee of a private company so that the employee would assist in awarding to CCI a valve contract in Qatar."
As further noted in the DOJ release:
"In related cases, two defendants previously pleaded guilty to conspiring to bribe officers and employees of foreign state-owned companies on behalf of CCI. On Jan. 8, 2009, Mario Covino, the former director of worldwide factory sales for the valve company, pleaded guilty [see here] to one count of conspiracy to violate the FCPA and admitted to causing the payment of approximately $1 million in bribes to officers and employees of several foreign state-owned companies. On Feb. 3, 2009, Richard Morlok, the former finance director for the valve company, pleaded guilty [see here] to one count of conspiracy to violate the FCPA and admitted to causing the payment of approximately $628,000 in bribes to officers and employees of several foreign state-owned companies. Covino and Morlok are scheduled to be sentenced in February 2012."
See here for July 2009 enforcement action against Control Components, Inc.
Monday, May 2, 2011
Stay Tuned for More
As have been widely reported (see here for the New York Times article), an FCPA sweep of the pharmaceutical / medical device industry is currently underway. Merck, Medtronic, Zimmer and several other companies are reportedly under investigation.
For instance, last week Eli Lilly disclosed (here) that it is "in advanced discussions with the SEC to resolve their investigation" that began in August 2003 as to "compliance by Polish subsidiaries of certain pharmaceutical companies, including Lilly, with the [FCPA]."
AstraZeneca disclosed (here) last week as follows. "As previously disclosed, AstraZeneca has received inquiries from the US Department of Justice and the Securities and Exchange Commission in connection with an investigation into Foreign Corrupt Practices Act issues in the pharmaceutical industry across several countries. AstraZeneca is cooperating with these inquiries and is investigating, among other things, sales practices, internal controls, certain distributors, and interactions with healthcare providers, institutions, and other government officials. AstraZeneca is investigating inappropriate conduct in certain countries, including China."
Johnson & Johnson, previously included in the group of companies under investigation, resolved an FCPA enforcement action last month (see here for the prior post).
Many have suggested that J&J's voluntarily disclosed conduct served as the point of entry for the industry wide sweep based on this sentence from the J&J deferred prosecution agreement - "J&J has cooperated and agreed to continue to cooperate with the Department in the Department's investigations of other companies and individuals in connection with business practices overseas in various markets."
Thus, the J&J enforcement action in many ways provides a glimpse into potential future FCPA enforcement actions involving the pharmaceutical / medical device industry.
Two issues likely to be found in such future FCPA enforcement actions are discussed below.
42 USC 1320a-7(a)
The J&J deferred prosecution agreement states - for why the DOJ agreed to resolve the case the way it did - as follows. "Were the Department to initiate a prosecution of J&J or one of its operating companies and obtain a conviction, instead of entering into this Agreement to defer prosecution, J&J could be subject to exclusion from participating in federal health care programs pursuant to 42 U.S.C. 1320a-7(a)." (See here for those provisions).
This component of the J&J enforcement is nothing new - as many companies such as Siemens, BAE and others - have escaped the most serious consequences of the alleged criminal conduct because of "who" the companies were (i.e. the products sold and to whom).
This feature of FCPA enforcement is controversial (for additional reading - see here for my Q&A exchange with former Senator Arlen Specter and here for the recent article titled "FCPA Sanctions: To Big to Debar").
In recent months, the DOJ has pledged allegiance to the OECD Convention on Bribery to defend certain of its sentencing and "foreign official" enforcement positions (see here for instance).
Does the OECD Convention say anything about enforcement agencies looking at the unique aspects of an alleged violator and then crafting a resolution to fit that alleged violator?
Yes it does.
Article 5 of the OECD Convention (here), under the heading "Enforcement," states that investigation and prosecution of bribery offenses "shall not be influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved."
Health-Care Providers as "Foreign Officials"
As noted in the prior J&J post (here) the principal FCPA enforcement theory at issue in the pharmaceutical / medical device industry sweep would seem to be the notion that [insert country] had a national healthcare system wherein most [insert country] hospitals are publicly owned and operated and thus health care providers who work at publicly-owned hospitals are government employees providing health care services in their official capacities. According to the DOJ, the individuals are therefore "foreign officials" "as that term is defined in the FCPA."
Against this backdrop, it is interesting to observe that in the United States approximately 20% of hospitals are owned by state or local governments (see here). In addition, approximately 150 more medical centers are run by the Veterans Health Administration (see here).
Are we calling 20+% of U.S. health-care providers U.S. officials? If not, why not and why the difference?
Something to keep in mind as additional pharmaceutical / medical device FCPA enforcement actions burst onto the scene.
For instance, last week Eli Lilly disclosed (here) that it is "in advanced discussions with the SEC to resolve their investigation" that began in August 2003 as to "compliance by Polish subsidiaries of certain pharmaceutical companies, including Lilly, with the [FCPA]."
AstraZeneca disclosed (here) last week as follows. "As previously disclosed, AstraZeneca has received inquiries from the US Department of Justice and the Securities and Exchange Commission in connection with an investigation into Foreign Corrupt Practices Act issues in the pharmaceutical industry across several countries. AstraZeneca is cooperating with these inquiries and is investigating, among other things, sales practices, internal controls, certain distributors, and interactions with healthcare providers, institutions, and other government officials. AstraZeneca is investigating inappropriate conduct in certain countries, including China."
Johnson & Johnson, previously included in the group of companies under investigation, resolved an FCPA enforcement action last month (see here for the prior post).
Many have suggested that J&J's voluntarily disclosed conduct served as the point of entry for the industry wide sweep based on this sentence from the J&J deferred prosecution agreement - "J&J has cooperated and agreed to continue to cooperate with the Department in the Department's investigations of other companies and individuals in connection with business practices overseas in various markets."
Thus, the J&J enforcement action in many ways provides a glimpse into potential future FCPA enforcement actions involving the pharmaceutical / medical device industry.
Two issues likely to be found in such future FCPA enforcement actions are discussed below.
42 USC 1320a-7(a)
The J&J deferred prosecution agreement states - for why the DOJ agreed to resolve the case the way it did - as follows. "Were the Department to initiate a prosecution of J&J or one of its operating companies and obtain a conviction, instead of entering into this Agreement to defer prosecution, J&J could be subject to exclusion from participating in federal health care programs pursuant to 42 U.S.C. 1320a-7(a)." (See here for those provisions).
This component of the J&J enforcement is nothing new - as many companies such as Siemens, BAE and others - have escaped the most serious consequences of the alleged criminal conduct because of "who" the companies were (i.e. the products sold and to whom).
This feature of FCPA enforcement is controversial (for additional reading - see here for my Q&A exchange with former Senator Arlen Specter and here for the recent article titled "FCPA Sanctions: To Big to Debar").
In recent months, the DOJ has pledged allegiance to the OECD Convention on Bribery to defend certain of its sentencing and "foreign official" enforcement positions (see here for instance).
Does the OECD Convention say anything about enforcement agencies looking at the unique aspects of an alleged violator and then crafting a resolution to fit that alleged violator?
Yes it does.
Article 5 of the OECD Convention (here), under the heading "Enforcement," states that investigation and prosecution of bribery offenses "shall not be influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved."
Health-Care Providers as "Foreign Officials"
As noted in the prior J&J post (here) the principal FCPA enforcement theory at issue in the pharmaceutical / medical device industry sweep would seem to be the notion that [insert country] had a national healthcare system wherein most [insert country] hospitals are publicly owned and operated and thus health care providers who work at publicly-owned hospitals are government employees providing health care services in their official capacities. According to the DOJ, the individuals are therefore "foreign officials" "as that term is defined in the FCPA."
Against this backdrop, it is interesting to observe that in the United States approximately 20% of hospitals are owned by state or local governments (see here). In addition, approximately 150 more medical centers are run by the Veterans Health Administration (see here).
Are we calling 20+% of U.S. health-care providers U.S. officials? If not, why not and why the difference?
Something to keep in mind as additional pharmaceutical / medical device FCPA enforcement actions burst onto the scene.
Friday, April 29, 2011
Mum's The Word As To Perez Sentence
On January 21st, the DOJ announced (here) that Antonio Perez was sentenced to 2 years in prison in connection with the Haiti Teleco case.
I did not cover the sentence as it happened because, as I hope readers recognize and appreciate, I like to analyze things a bit before posting.
Thus, when it comes to FCPA sentences, the actual sentence only tells part of the story; the complete story requires knowledge of the sentence the DOJ was actually requesting.
For instance, the DOJ sought a 37 month sentence as to Leo Winston Smith, but the judge sentenced him to six months (see here). The DOJ sought a 38 month sentence as to Bobby Elkins, but the judge sentenced him to probation (see here). The DOJ sought a 14-17 year sentence as to Nam Nguyen, but the judge sentenced to him to 16 months (see here).
Numerous other examples abound and I've previously noted that the DOJ may be charging more individuals with FCPA violations (although in 2010, 70% of corporate enforcement actions did not involve any related enforcement action against company employees), and those individuals may be pleading guilty (perhaps because of the "carrots" and "sticks" the DOJ possesses), but when it comes time to sentencing, judges are viewing FCPA cases much differently than the DOJ.
Back to Perez.
There is nothing in the publicly filed documents that indicate the sentence the DOJ was seeking in this case.
I contacted Perez's attorney, Michael Chavies (see here) and asked him - what sentence was the DOJ seeking - the answer - no comment.
I've exchanged e-mails with the Public Affairs Office at Justice Department and, after nearly three months, I've still yet to learn the answer to the rather simple question of what sentence the DOJ was seeking as to Perez.
Perhaps someday the answer will be known and a more thoughtful analysis of the Perez sentence will be possible.
For now, mum's the word.
So ... in case you had not heard, Antonio Perez was sentenced to two years in prison and ordered to serve two years of supervised release following his prison term, and to forfeit $36,375.
For numerous prior posts on the Haiti Teleco, please visit the Haiti tab on the right.
*****
A good weekend to all.
I did not cover the sentence as it happened because, as I hope readers recognize and appreciate, I like to analyze things a bit before posting.
Thus, when it comes to FCPA sentences, the actual sentence only tells part of the story; the complete story requires knowledge of the sentence the DOJ was actually requesting.
For instance, the DOJ sought a 37 month sentence as to Leo Winston Smith, but the judge sentenced him to six months (see here). The DOJ sought a 38 month sentence as to Bobby Elkins, but the judge sentenced him to probation (see here). The DOJ sought a 14-17 year sentence as to Nam Nguyen, but the judge sentenced to him to 16 months (see here).
Numerous other examples abound and I've previously noted that the DOJ may be charging more individuals with FCPA violations (although in 2010, 70% of corporate enforcement actions did not involve any related enforcement action against company employees), and those individuals may be pleading guilty (perhaps because of the "carrots" and "sticks" the DOJ possesses), but when it comes time to sentencing, judges are viewing FCPA cases much differently than the DOJ.
Back to Perez.
There is nothing in the publicly filed documents that indicate the sentence the DOJ was seeking in this case.
I contacted Perez's attorney, Michael Chavies (see here) and asked him - what sentence was the DOJ seeking - the answer - no comment.
I've exchanged e-mails with the Public Affairs Office at Justice Department and, after nearly three months, I've still yet to learn the answer to the rather simple question of what sentence the DOJ was seeking as to Perez.
Perhaps someday the answer will be known and a more thoughtful analysis of the Perez sentence will be possible.
For now, mum's the word.
So ... in case you had not heard, Antonio Perez was sentenced to two years in prison and ordered to serve two years of supervised release following his prison term, and to forfeit $36,375.
For numerous prior posts on the Haiti Teleco, please visit the Haiti tab on the right.
*****
A good weekend to all.
Thursday, April 28, 2011
Another Top SFO Official To Depart
The U.K. Bribery Act is set to go live on July 1st.
But will anyone be left at the SFO to enforce the new law?
Of course there will be. As has been witnessed in the U.S., carrying the "enforcement stick" makes one a valuable target for law firm recruiters in this era of increased enforcement - as the firms are eager to provide clients with insight and advice from those who carried or shaped the "enforcement stick."
Coming on the heels of other recent high-level SFO departures (see here and here for the prior posts), yesterday it was reported (see here for the coverage from Legal Week) that Vivian Robinson (SFO - General Counsel) will soon leave the agency and join the London office of U.S. based law firm McGuireWoods LLP.
Over the past year, Robinson has been a very active speaker on behalf of the SFO on the Bribery Act. See here and here for prior posts as to certain of Robinson's speeches or commentary.
Commenting on his move, Robinson told Legal Week - "It has also been a privilege to take part in bringing to the attention of a wide national and international audience the importance of the new Bribery Act, its implications, and the essential role to be played by the SFO as principal enforcer of its provisions."
As has been previously reported, Richard Alderman (Director of the SFO) is also looking to soon retire from the SFO.
But will anyone be left at the SFO to enforce the new law?
Of course there will be. As has been witnessed in the U.S., carrying the "enforcement stick" makes one a valuable target for law firm recruiters in this era of increased enforcement - as the firms are eager to provide clients with insight and advice from those who carried or shaped the "enforcement stick."
Coming on the heels of other recent high-level SFO departures (see here and here for the prior posts), yesterday it was reported (see here for the coverage from Legal Week) that Vivian Robinson (SFO - General Counsel) will soon leave the agency and join the London office of U.S. based law firm McGuireWoods LLP.
Over the past year, Robinson has been a very active speaker on behalf of the SFO on the Bribery Act. See here and here for prior posts as to certain of Robinson's speeches or commentary.
Commenting on his move, Robinson told Legal Week - "It has also been a privilege to take part in bringing to the attention of a wide national and international audience the importance of the new Bribery Act, its implications, and the essential role to be played by the SFO as principal enforcer of its provisions."
As has been previously reported, Richard Alderman (Director of the SFO) is also looking to soon retire from the SFO.
Wednesday, April 27, 2011
Does DOJ Expect FCPA Counsel To Roll Over And Play Dead?
Remember those "issue spotting" exams in law school?
Well, here is one.
A Japanese company (without shares traded on a U.S. exchange) participated in a joint venture operating in Nigeria. The joint venture operated through three Portuguese special purpose corporations. The joint venture hired a U.K. citizen who, along with his Gibraltar corporation, allegedly paid bribes to Nigerian government officials. The U.S. Department of Justice starts an investigation as to your Japanese company client. Consistent with your duty to zealously advocate on behalf of your client, discuss likely legal defenses your client may raise to a U.S. enforcement action based on the described conduct?
Got the answer?
Your answer includes jurisdictional issues does it not?
In fact, a lawyer representing the Japanese company would likely fall short of his/her professional duties without raising a jurisdictional defense.
Why am I even talking about this?
Because of this troubling sentence in the recent JGC Corporation of Japan deferred prosecution agreement (here p. 3) - "after initially declining to cooperate with the Department based on jurisdictional arguments, JGC began to cooperate, and has agreed to continue to cooperate, with the Department in its ongoing investigation of the conduct of JGC and its present and former employees, agents, consultants, contractors, subcontractors, subsidiaries, and other relating to violations of the FCPA."
The above sentence - save for the portion in italics - is standard fare in DOJ resolution agreements.
However, the portion in italics is troubling.
For starters, what does it mean to decline "to cooperate with the Department based on jurisdictional arguments?"
The DOJ's Principles of Federal Prosecution of Business Organizations ("Principles") (here) talk about the "Value of Cooperation" (at 9-28.700), but the discussion focuses on issues such as "identifying potentially relevant actors and locating relevant evidence, among other things, and in doing so expeditiously." Further, 9-28.720 discusses cooperation as disclosing "relevant facts."
However, nothing in the Principles suggest that raising legal arguments obviously implicated by the DOJ's investigation is not cooperating.
Surely the DOJ carries a big stick and has juicy carrots at its disposal. Thus, cooperation - along the lines outlined in the Principles - may be warranted in certain cases.
However, is the message tucked in the JGC DPA that the DOJ now expects FCPA counsel to roll over and play dead and that the failure to do so will be adverse consequences for the client?
After all, JGC's total culpability score under the U.S. Sentencing Guidelines (a score that impacts the ultimate fine amount) was only reduced by -1 whereas the other joint venture partners that previously resolved enforcement actions (Technip, Snamprogetti, and KBR) all received a "better" -2 reduction.
Well, here is one.
A Japanese company (without shares traded on a U.S. exchange) participated in a joint venture operating in Nigeria. The joint venture operated through three Portuguese special purpose corporations. The joint venture hired a U.K. citizen who, along with his Gibraltar corporation, allegedly paid bribes to Nigerian government officials. The U.S. Department of Justice starts an investigation as to your Japanese company client. Consistent with your duty to zealously advocate on behalf of your client, discuss likely legal defenses your client may raise to a U.S. enforcement action based on the described conduct?
Got the answer?
Your answer includes jurisdictional issues does it not?
In fact, a lawyer representing the Japanese company would likely fall short of his/her professional duties without raising a jurisdictional defense.
Why am I even talking about this?
Because of this troubling sentence in the recent JGC Corporation of Japan deferred prosecution agreement (here p. 3) - "after initially declining to cooperate with the Department based on jurisdictional arguments, JGC began to cooperate, and has agreed to continue to cooperate, with the Department in its ongoing investigation of the conduct of JGC and its present and former employees, agents, consultants, contractors, subcontractors, subsidiaries, and other relating to violations of the FCPA."
The above sentence - save for the portion in italics - is standard fare in DOJ resolution agreements.
However, the portion in italics is troubling.
For starters, what does it mean to decline "to cooperate with the Department based on jurisdictional arguments?"
The DOJ's Principles of Federal Prosecution of Business Organizations ("Principles") (here) talk about the "Value of Cooperation" (at 9-28.700), but the discussion focuses on issues such as "identifying potentially relevant actors and locating relevant evidence, among other things, and in doing so expeditiously." Further, 9-28.720 discusses cooperation as disclosing "relevant facts."
However, nothing in the Principles suggest that raising legal arguments obviously implicated by the DOJ's investigation is not cooperating.
Surely the DOJ carries a big stick and has juicy carrots at its disposal. Thus, cooperation - along the lines outlined in the Principles - may be warranted in certain cases.
However, is the message tucked in the JGC DPA that the DOJ now expects FCPA counsel to roll over and play dead and that the failure to do so will be adverse consequences for the client?
After all, JGC's total culpability score under the U.S. Sentencing Guidelines (a score that impacts the ultimate fine amount) was only reduced by -1 whereas the other joint venture partners that previously resolved enforcement actions (Technip, Snamprogetti, and KBR) all received a "better" -2 reduction.
Tuesday, April 26, 2011
A Focus on Russia
In this guest post, I am pleased to turn it over to Robert Wieck (a high school classmate - Elkhart Lake (WI) Class of '93 - Go Resorters!).
Robert is currently the Forensic Audit Senior Manager (Europe, Middle East and Africa) for Oracle Corporation and is based in Bucharest, Romania. He has thirteen years of experience in both “Big 4” and US listed multi-national companies. Twelve of these years have been focused on emerging markets including countries in the former Soviet Union, former Yugoslavia, and the Balkan region.
Robert participated as a panelist at the “3rd Annual Anti-Corruption Summit for Russia & CIS” held on March 16-17th in Moscow. See here for the prior post regarding Assistant Attorney General Lanny Breuer's comments at the event.
Below is Robert's guest post and the opinions expressed below are his own and do not necessarily reflect the opinion of his employer, Oracle Corporation.
*****
"I think it is clear to most people that the current business climate in Russia is troublesome for multi-national companies trying to do business legitimately. Presentations and discussions held at the conference seemed to confirm that companies are becoming increasingly concerned about being able to do business successfully in Russia and at the same time maintaining compliance with the FCPA.
One interesting point which I believe set the tone for the conference was that while the DoJ accepted the invitation for two senior officials (Mr. Breuer and Mr. Andres) to travel to Moscow to address the conference attendees, there were no Russian counterparts from the Russian Ministry of Justice present to advise on what they are doing to address the corruption problems on the ground in Russia.
While the transcript for Mr. Breuer’s speech is linked above, Mr. Andres’s comments are summarized below:
• Russia is clearly not the only place in the world where corruption is a problem. There have been a considerable number of prosecutions of US Citizens under the FCPA.
• There have been a record number of prosecutions under the FCPA in 2010, and more than 1 Billion USD in fines collected as a result. According to Mr. Andres, none of these cases involved a single, low level act of corruption or bribery, but systematic corruption involving hundreds of thousands of dollars, and involving dozens of people.
• While there were a record number of prosecutions in 2010, there were also a record number of cases that the DoJ declined to prosecute. Decisions to decline to prosecute a case were made based on a company’s ability to demonstrate that they have sound internal procedures and compliance programs. Andres believed this also highlights the benefits of companies self-reporting potential FCPA violations, and further mentioned that self-disclosure was an important factor in how many of those cases were resolved.
• There has been an uptick in the number of individuals being prosecuted under the FCPA, which totaled 50 for 2009 and 2010. This is up from 2 individuals prosecuted in 2004.
• In terms of FCPA trends for the future, Andres noted that it appears more companies are cooperating with the DoJ. More industry-wide prosecutions are being undertaken where they find that activities that violate the FCPA are not confined to one company within an industry, but represent an industry practice that multiple companies within the industry are all engaging in. The DoJ has noted increased cooperation with national law enforcement agencies and international organizations (including the OECD).
• Companies continue to criticize the DoJ for not providing enough guidance regarding their approach to FCPA prosecutions. However, Mr. Andres stated that the DoJ does a good job in maintaining the FCPA compliance website where a wealth of case information is published and available for review.
• Currently there is much debate ongoing about the definition of a public sector official, and the DOJ continues to see an increasing number of litigations surrounding the interpretation of who is a "foreign official" under the provisions of the FCPA.
• Andres believes the trend of increasing prosecutions under the FCPA will continue, and that the DoJ has added resources to address this trend.
Among the most interesting comments made by Mr. Andres, from my point of view, were his final comments in which he stated that the DoJ is demanding the same level of compliance with the FCPA from Russia as it does from other countries. He further stated that there would not be any “Russia-specific exception” when pursuing prosecutions under the FCPA.
One other interesting presentation was delivered by the General Director for Transparency International, Ms. Elena Panfilova. In what I consider a brutally honest way, she confirmed that based on research conducted by her team on the ground in Moscow, the fraud and corruptions problems in Russia are indeed getting worse, despite information that might suggest otherwise. The schemes used by these perpetrators are becoming more and more complex and they no longer appear to be shy about engaging in corruption. This has resulted in a diminished sense of public trust and led to a very cynical environment in Russia in regards to corruption. Ms. Panfilova believes that one of the barriers to reversing this trend is the lack of whistleblower protection for people reporting alleged cases of corruption. Whistleblowers currently have no guarantees of support from anyone when they raise concerns. And usually when people do report instances, whistleblowers become targets of unfounded prosecution. To demonstrate her point, she made reference to statistics which suggest that while corruption is on the rise, the number of whistleblowers making claims is decreasing. It is understood that the role of the whistleblower is critical in the fight against corruption. Thus, legal protection from prosecution (both civil and criminal), protection of property and labor rights (anti-retaliation legislation) is required in order to allow whistleblowers to come forward and voice their concerns regarding corrupt activities they might have witnessed or been a victim of.
My participation in the panel discussion covered best practices in conducting investigations in Russia. Over my twelve years of experience working in emerging markets in Europe (including Russia and CIS), I have noted common themes that should be considered while trying to conduct an audit or investigate potential misconduct in Russia (and any emerging market, for that matter). One aspect would be the high risk of document falsification in the Russian environment. In Russia, a “form over substance” approach is taking to maintain supporting documentation for transactions. Thus, in the context of an audit or investigation, the audit objectives should be managed carefully in order to ensure documentation is not “custom” prepared. Another aspect is the sometimes difficult task of getting complete/honest answers to questions or queries. It is common to receive conflicting stories and different versions of answers to the same question, sometimes for no apparent reason. A Russian celebrity summed it up in a Russian newspaper article I read recently by saying “For some reason, it's not the custom to tell the truth in our country, even when it is clear to everyone”. Lastly, I would say that securing full cooperation from auditees can be a tedious and exhausting process. It can only be recommended that companies use legal resources (both internal and external) when necessary, in order to ensure that they receive cooperation which might be required in the form of an employment agreement, internal code of conduct or other type of contract (in the case of third parties)."
Robert is currently the Forensic Audit Senior Manager (Europe, Middle East and Africa) for Oracle Corporation and is based in Bucharest, Romania. He has thirteen years of experience in both “Big 4” and US listed multi-national companies. Twelve of these years have been focused on emerging markets including countries in the former Soviet Union, former Yugoslavia, and the Balkan region.
Robert participated as a panelist at the “3rd Annual Anti-Corruption Summit for Russia & CIS” held on March 16-17th in Moscow. See here for the prior post regarding Assistant Attorney General Lanny Breuer's comments at the event.
Below is Robert's guest post and the opinions expressed below are his own and do not necessarily reflect the opinion of his employer, Oracle Corporation.
*****
"I think it is clear to most people that the current business climate in Russia is troublesome for multi-national companies trying to do business legitimately. Presentations and discussions held at the conference seemed to confirm that companies are becoming increasingly concerned about being able to do business successfully in Russia and at the same time maintaining compliance with the FCPA.
One interesting point which I believe set the tone for the conference was that while the DoJ accepted the invitation for two senior officials (Mr. Breuer and Mr. Andres) to travel to Moscow to address the conference attendees, there were no Russian counterparts from the Russian Ministry of Justice present to advise on what they are doing to address the corruption problems on the ground in Russia.
While the transcript for Mr. Breuer’s speech is linked above, Mr. Andres’s comments are summarized below:
• Russia is clearly not the only place in the world where corruption is a problem. There have been a considerable number of prosecutions of US Citizens under the FCPA.
• There have been a record number of prosecutions under the FCPA in 2010, and more than 1 Billion USD in fines collected as a result. According to Mr. Andres, none of these cases involved a single, low level act of corruption or bribery, but systematic corruption involving hundreds of thousands of dollars, and involving dozens of people.
• While there were a record number of prosecutions in 2010, there were also a record number of cases that the DoJ declined to prosecute. Decisions to decline to prosecute a case were made based on a company’s ability to demonstrate that they have sound internal procedures and compliance programs. Andres believed this also highlights the benefits of companies self-reporting potential FCPA violations, and further mentioned that self-disclosure was an important factor in how many of those cases were resolved.
• There has been an uptick in the number of individuals being prosecuted under the FCPA, which totaled 50 for 2009 and 2010. This is up from 2 individuals prosecuted in 2004.
• In terms of FCPA trends for the future, Andres noted that it appears more companies are cooperating with the DoJ. More industry-wide prosecutions are being undertaken where they find that activities that violate the FCPA are not confined to one company within an industry, but represent an industry practice that multiple companies within the industry are all engaging in. The DoJ has noted increased cooperation with national law enforcement agencies and international organizations (including the OECD).
• Companies continue to criticize the DoJ for not providing enough guidance regarding their approach to FCPA prosecutions. However, Mr. Andres stated that the DoJ does a good job in maintaining the FCPA compliance website where a wealth of case information is published and available for review.
• Currently there is much debate ongoing about the definition of a public sector official, and the DOJ continues to see an increasing number of litigations surrounding the interpretation of who is a "foreign official" under the provisions of the FCPA.
• Andres believes the trend of increasing prosecutions under the FCPA will continue, and that the DoJ has added resources to address this trend.
Among the most interesting comments made by Mr. Andres, from my point of view, were his final comments in which he stated that the DoJ is demanding the same level of compliance with the FCPA from Russia as it does from other countries. He further stated that there would not be any “Russia-specific exception” when pursuing prosecutions under the FCPA.
One other interesting presentation was delivered by the General Director for Transparency International, Ms. Elena Panfilova. In what I consider a brutally honest way, she confirmed that based on research conducted by her team on the ground in Moscow, the fraud and corruptions problems in Russia are indeed getting worse, despite information that might suggest otherwise. The schemes used by these perpetrators are becoming more and more complex and they no longer appear to be shy about engaging in corruption. This has resulted in a diminished sense of public trust and led to a very cynical environment in Russia in regards to corruption. Ms. Panfilova believes that one of the barriers to reversing this trend is the lack of whistleblower protection for people reporting alleged cases of corruption. Whistleblowers currently have no guarantees of support from anyone when they raise concerns. And usually when people do report instances, whistleblowers become targets of unfounded prosecution. To demonstrate her point, she made reference to statistics which suggest that while corruption is on the rise, the number of whistleblowers making claims is decreasing. It is understood that the role of the whistleblower is critical in the fight against corruption. Thus, legal protection from prosecution (both civil and criminal), protection of property and labor rights (anti-retaliation legislation) is required in order to allow whistleblowers to come forward and voice their concerns regarding corrupt activities they might have witnessed or been a victim of.
My participation in the panel discussion covered best practices in conducting investigations in Russia. Over my twelve years of experience working in emerging markets in Europe (including Russia and CIS), I have noted common themes that should be considered while trying to conduct an audit or investigate potential misconduct in Russia (and any emerging market, for that matter). One aspect would be the high risk of document falsification in the Russian environment. In Russia, a “form over substance” approach is taking to maintain supporting documentation for transactions. Thus, in the context of an audit or investigation, the audit objectives should be managed carefully in order to ensure documentation is not “custom” prepared. Another aspect is the sometimes difficult task of getting complete/honest answers to questions or queries. It is common to receive conflicting stories and different versions of answers to the same question, sometimes for no apparent reason. A Russian celebrity summed it up in a Russian newspaper article I read recently by saying “For some reason, it's not the custom to tell the truth in our country, even when it is clear to everyone”. Lastly, I would say that securing full cooperation from auditees can be a tedious and exhausting process. It can only be recommended that companies use legal resources (both internal and external) when necessary, in order to ensure that they receive cooperation which might be required in the form of an employment agreement, internal code of conduct or other type of contract (in the case of third parties)."
Monday, April 25, 2011
UK Bribery Act - Sensible and Senseless
The U.K. Bribery Act, set to go live on July 1st after much delay, has been the focus of much prognostication and the foundation for many marketing initiatives.
In this post, I highlight two recent events - one sensible, the other senseless.
Sensible
Mark Miller (a partner at Baker Botts - see here) recently published "The U.K. Bribery Act 2010 - Enforcement is the Rest of the Story" in BNA's White Collar Crime Report. See here.
Miller sensibly notes as follows.
"Much of the commentary about the new U.K. Bribery Act 2010 has been filled with alarm that the new law will be even stricter—and therefore more dangerous—than the U.S. Foreign Corrupt Practices Act. Although there are ways in which the Bribery Act is stricter than the FCPA, that is not the whole story. The real measure of how dangerous the Bribery Act will be is not the provisions of the law itself but how that law will be enforced, and from indications so far, that is a big unknown."
Countering alarmist commentary of the Bribery Act - including that it represents a major change in law because facilitating payments are not allowed - Miller rightly points out "the predecessors to the Bribery Act (the Prevention of Corruption Acts 1889 to 1916 and the Anti-Terrorism, Crime and Security Act 2001) did not have exceptions for facilitating payments either ...".
Indeed this same point was noted by the U.K. Ministry of Justice in its March 30th guidance (see here). Can anyone point to a prior U.K. enforcement action concerning facilitating payments?
Miller also notes as follows. "The other Bribery Act provision usually pointed to as being stricter than the FCPA is the new offense described in Section 7, failure of commercial organizations to prevent bribery." However, Miller again sensibly notes as follows. "This appears to create a strict liability standard for companies whose employees, officers, or agents engage in bribery on their behalf. Although the FCPA itself contains no analogous provision, the standard in U.S. law for attributing criminal liability to corporate entities is similar. The more important distinction between the Bribery Act and U.S. law is that the former contains a defense for when the corporation is able to "prove that [it] had in place adequate procedures designed to prevent persons associated with [the corporation] from undertaking such conduct.'"
As to the Bribery Act's coverage of purely commercial bribery, Miller states as follows. "Another aspect of the Bribery Act has been pointed to as being broader than the FCPA: its prohibition against bribery of nongovernmental officials." Here again, Miller sensibly points out as follows. "True, the FCPA itself does not contain such a provision, but U.S. law does. The federal government routinely uses other statutes—such as the Travel Act and the mail and wire fraud statutes—to prosecute conduct that would not fall strictly within the FCPA’s prohibitions."
Miller then notes as follows. "The real story here is not the Bribery Act itself, because there is nothing truly revolutionary about it - except possibly the publicity it has generated. The real story is enforcement, and how the SFO will carry out its duties remains a big question mark." Miller then identifies several "reasons to believe that the SFO’s enforcement of the Bribery Act will turn out to be a less serious threat than U.S. enforcement."
All sensible observations and consistent with my own observations that "the Bribery Act may turn out to be more lenient than the FCPA" (see here) and that "enforcement of the U.K. Bribery Act will be disciplined and measured." (See here).
Senseless
The alarmist commentary Miller spoke of in the above article was on display last week as Deloitte issued a press release (here) stating that "few business professionals are familiar with UK Bribery Act taking effect July 1."
According to Deloitte's own survey results - results not actually released - 73% of "business professionals" participating in a Deloitte webcast "earlier this year" said "they are not familiar with provisions in the U.K. Bribery Act." The leader of Deloitte's FCPA "consulting services practice" is quoted as saying that "organizations should focus on expanding their anti-corruption programs beyond FCPA to fully address the new Bribery Act 2010 provisions.”
What Deloitte's release doesn't mention is that its own survey took place on January 18th (see here) - a time when it was uncertain if or when the Bribery Act would ever go live and a full two months before the U.K. Ministry of Justice released (here) extensive guidance and case studies on the Bribery Act.
Against this backdrop, it is surprising not that 73% of "business professionals" were not "familiar" with the Bribery Act, but that 27% of "business professionals" were familiar with the Bribery Act.
Is it often that the majority of "business professionals" are "familiar" with a foreign law months before the law is scheduled to go live?
In this post, I highlight two recent events - one sensible, the other senseless.
Sensible
Mark Miller (a partner at Baker Botts - see here) recently published "The U.K. Bribery Act 2010 - Enforcement is the Rest of the Story" in BNA's White Collar Crime Report. See here.
Miller sensibly notes as follows.
"Much of the commentary about the new U.K. Bribery Act 2010 has been filled with alarm that the new law will be even stricter—and therefore more dangerous—than the U.S. Foreign Corrupt Practices Act. Although there are ways in which the Bribery Act is stricter than the FCPA, that is not the whole story. The real measure of how dangerous the Bribery Act will be is not the provisions of the law itself but how that law will be enforced, and from indications so far, that is a big unknown."
Countering alarmist commentary of the Bribery Act - including that it represents a major change in law because facilitating payments are not allowed - Miller rightly points out "the predecessors to the Bribery Act (the Prevention of Corruption Acts 1889 to 1916 and the Anti-Terrorism, Crime and Security Act 2001) did not have exceptions for facilitating payments either ...".
Indeed this same point was noted by the U.K. Ministry of Justice in its March 30th guidance (see here). Can anyone point to a prior U.K. enforcement action concerning facilitating payments?
Miller also notes as follows. "The other Bribery Act provision usually pointed to as being stricter than the FCPA is the new offense described in Section 7, failure of commercial organizations to prevent bribery." However, Miller again sensibly notes as follows. "This appears to create a strict liability standard for companies whose employees, officers, or agents engage in bribery on their behalf. Although the FCPA itself contains no analogous provision, the standard in U.S. law for attributing criminal liability to corporate entities is similar. The more important distinction between the Bribery Act and U.S. law is that the former contains a defense for when the corporation is able to "prove that [it] had in place adequate procedures designed to prevent persons associated with [the corporation] from undertaking such conduct.'"
As to the Bribery Act's coverage of purely commercial bribery, Miller states as follows. "Another aspect of the Bribery Act has been pointed to as being broader than the FCPA: its prohibition against bribery of nongovernmental officials." Here again, Miller sensibly points out as follows. "True, the FCPA itself does not contain such a provision, but U.S. law does. The federal government routinely uses other statutes—such as the Travel Act and the mail and wire fraud statutes—to prosecute conduct that would not fall strictly within the FCPA’s prohibitions."
Miller then notes as follows. "The real story here is not the Bribery Act itself, because there is nothing truly revolutionary about it - except possibly the publicity it has generated. The real story is enforcement, and how the SFO will carry out its duties remains a big question mark." Miller then identifies several "reasons to believe that the SFO’s enforcement of the Bribery Act will turn out to be a less serious threat than U.S. enforcement."
All sensible observations and consistent with my own observations that "the Bribery Act may turn out to be more lenient than the FCPA" (see here) and that "enforcement of the U.K. Bribery Act will be disciplined and measured." (See here).
Senseless
The alarmist commentary Miller spoke of in the above article was on display last week as Deloitte issued a press release (here) stating that "few business professionals are familiar with UK Bribery Act taking effect July 1."
According to Deloitte's own survey results - results not actually released - 73% of "business professionals" participating in a Deloitte webcast "earlier this year" said "they are not familiar with provisions in the U.K. Bribery Act." The leader of Deloitte's FCPA "consulting services practice" is quoted as saying that "organizations should focus on expanding their anti-corruption programs beyond FCPA to fully address the new Bribery Act 2010 provisions.”
What Deloitte's release doesn't mention is that its own survey took place on January 18th (see here) - a time when it was uncertain if or when the Bribery Act would ever go live and a full two months before the U.K. Ministry of Justice released (here) extensive guidance and case studies on the Bribery Act.
Against this backdrop, it is surprising not that 73% of "business professionals" were not "familiar" with the Bribery Act, but that 27% of "business professionals" were familiar with the Bribery Act.
Is it often that the majority of "business professionals" are "familiar" with a foreign law months before the law is scheduled to go live?
Thursday, April 21, 2011
Judge Matz Issues Narrow "Foreign Official" Decision / Calls DOJ Post-Hearing Request "Astounding"
As noted in an April 1st post (see here), United States District Judge Howard Matz (C.D. of California) issued an oral ruling denying the Lindsey defendants "foreign official" challenge. See here for a transcript of the hearing.
As noted in the hearing transcript, Judge Matz stated that the "foreign official" challenge "warrants and will receive a very considered written ruling."
Yesterday, Judge Matz issued his written decision. See here.
According to Judge Matz, "the question presented by the motion is whether an officer or employee of a state-owned corporation can be a 'foreign official' for purposes of FCPA liability." [In a footnote, Judge Matz noted, "[a]s discussed in the Addendum to this order, the Government never directly challenged that assumption until more than two weeks after the Court had issued its oral ruling denying Defendants' motion to dismiss and trial had commenced." (emphasis added)].
Judge Matz's holding is as follows. "The Court denies the motion to dismiss, because a state-owned corporation having the attributes of CFE may be an 'instrumentality' of a foreign government within the meaning of the FCPA, and officers of such a state-owned corporation, as Messrs. Nestor Moreno and Arturo Hernandez are alleged to be, may therefore be 'foreign officials' within the meaning of the FCPA."
As to the meaning of "instrumentality," Judge Matz stated as follows. "Instrumentality is a noun having an inherently broad scope, but it is unnecessary for this Court to choose a particularly elastic dictionary definition of that word. Instead, the Court will adopt the very definition that Defendants themselves proffer." Judge Matz then analyzed those definitions.
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, because legislative history was so central to Defendants' motion, the Court will summarize the parties' contentions."
After providing such a summary, 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." (emphasis in original).
As discussed above, Judge Matz's decision contains an Addendum. It begins as follows.
"After the jury trial had been underway for more than two weeks, and just before this order was to be filed, the Government asked the Court to take judicial notice of what the Government claims is this fact. 'CFE was created by Mexico as a decentralized public entity with its own legal status and assets.' In a footnote the Government added, '... [U]nder Mexican law, CFE is a decentralized public entity, not a corporation.' This request is astounding."
Judge Matz then stated, among other things, that:
"throughout the hundreds of pages of argument and exhibits that were filed as part of motion practice, the Government never stated that CFE is not a corporation;"
"nor did it assert that view at the hearing on this motion;"
"in a lengthy footnote in its opposition papers the Government stressed that in more than a dozen FCPA prosecutions, 'guilty pleas were accepted by U.S. District Courts, involved bribery of officials of state-owned companies'" (emphasis added)
"the Government cited two cases in which state-owned companies were found to fall within the scope of the FCPA" and the Government "cited and attached jury instructions in yet two additional cases, to the effect that 'the definition of government instrumentality includes companies owned or controlled by the state;" (emphasis added)
"still later, the Government continued in this vein, purporting to refute the Defendants' legislative history analysis by stressing that the author of the declaration that the Defendants' cited 'is unable to find a single reference ... that Congress intended to exclude state-owned companies from the definition of instrumentality ...'"; (emphasis added)
"the Government concluded , "from the FCPA's inception, state-owned and state-controlled companies were within Congress's intended definition of instrumentalities of a foreign government.'" (emphasis added).
Judge Matz then ends the Addendum as follows.
"There is nothing in the Government's peculiar request for judicial notice which warrants a change in the foregoing ruling."
As noted in the hearing transcript, Judge Matz stated that the "foreign official" challenge "warrants and will receive a very considered written ruling."
Yesterday, Judge Matz issued his written decision. See here.
According to Judge Matz, "the question presented by the motion is whether an officer or employee of a state-owned corporation can be a 'foreign official' for purposes of FCPA liability." [In a footnote, Judge Matz noted, "[a]s discussed in the Addendum to this order, the Government never directly challenged that assumption until more than two weeks after the Court had issued its oral ruling denying Defendants' motion to dismiss and trial had commenced." (emphasis added)].
Judge Matz's holding is as follows. "The Court denies the motion to dismiss, because a state-owned corporation having the attributes of CFE may be an 'instrumentality' of a foreign government within the meaning of the FCPA, and officers of such a state-owned corporation, as Messrs. Nestor Moreno and Arturo Hernandez are alleged to be, may therefore be 'foreign officials' within the meaning of the FCPA."
As to the meaning of "instrumentality," Judge Matz stated as follows. "Instrumentality is a noun having an inherently broad scope, but it is unnecessary for this Court to choose a particularly elastic dictionary definition of that word. Instead, the Court will adopt the very definition that Defendants themselves proffer." Judge Matz then analyzed those definitions.
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, because legislative history was so central to Defendants' motion, the Court will summarize the parties' contentions."
After providing such a summary, 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." (emphasis in original).
As discussed above, Judge Matz's decision contains an Addendum. It begins as follows.
"After the jury trial had been underway for more than two weeks, and just before this order was to be filed, the Government asked the Court to take judicial notice of what the Government claims is this fact. 'CFE was created by Mexico as a decentralized public entity with its own legal status and assets.' In a footnote the Government added, '... [U]nder Mexican law, CFE is a decentralized public entity, not a corporation.' This request is astounding."
Judge Matz then stated, among other things, that:
"throughout the hundreds of pages of argument and exhibits that were filed as part of motion practice, the Government never stated that CFE is not a corporation;"
"nor did it assert that view at the hearing on this motion;"
"in a lengthy footnote in its opposition papers the Government stressed that in more than a dozen FCPA prosecutions, 'guilty pleas were accepted by U.S. District Courts, involved bribery of officials of state-owned companies'" (emphasis added)
"the Government cited two cases in which state-owned companies were found to fall within the scope of the FCPA" and the Government "cited and attached jury instructions in yet two additional cases, to the effect that 'the definition of government instrumentality includes companies owned or controlled by the state;" (emphasis added)
"still later, the Government continued in this vein, purporting to refute the Defendants' legislative history analysis by stressing that the author of the declaration that the Defendants' cited 'is unable to find a single reference ... that Congress intended to exclude state-owned companies from the definition of instrumentality ...'"; (emphasis added)
"the Government concluded , "from the FCPA's inception, state-owned and state-controlled companies were within Congress's intended definition of instrumentalities of a foreign government.'" (emphasis added).
Judge Matz then ends the Addendum as follows.
"There is nothing in the Government's peculiar request for judicial notice which warrants a change in the foregoing ruling."
O'Shea "Foreign Official" Challenge Fully Briefed
Earlier this week, lawyers for John Joseph O'Shea filed a replly brief (here) in the "foreign official" challenge pending in the Southern District of Texas. The "foreign officials" at issue in the O'Shea matter are alleged to be officials of Comision Federal de Electricidad ("CFE"), a Mexican utility, the same entity at issue in the Lindsey matter currently in trial in the Central District of California. See here for the prior post.
O'Shea's argument begins as follows.
"The Government Relies on 'Prosecutorial Common Law' and Rulings from Cases That Did Not Consider or Inadequately Considered the Meaning of Foreign Official."
The reply brief then states as follows. "As long as FCPA defendants - both individuals and corporations - enter into non-prosecution agreements, deferred prosecution agreements, and plea agreements, the government will continue to build its arsenal of 'prosecutorial common law' to supports its aggressive and slanted interpretation of the FCPA. Yet court acceptance of plea agreements does not convert the government's pronunciations on the law into sources of legal authority. Indeed, the government's strategy of creating its own would-be common law threatens to strip the federal courts of their judicial power to interpret the FCPA."
See here for the prior post on O'Shea's motion to dismiss.
See here for the prior post on the DOJ's response brief.
Along with the reply brief, O'Shea's lawyers also filed (here) a motion to strike the Declaration of Clifton Johnson ((Assistant Legal Adviser for Law Enforcement and Intelligence in the Legal Adviser's Office of the United States Department of State). Johnson's declaration was ordered stricken in the Lindsey challenge (see here) and was also filed earlier this week in the Carson "foreign official" challenge pending in the Central District of California. (See here).
O'Shea's argument begins as follows.
"The Government Relies on 'Prosecutorial Common Law' and Rulings from Cases That Did Not Consider or Inadequately Considered the Meaning of Foreign Official."
The reply brief then states as follows. "As long as FCPA defendants - both individuals and corporations - enter into non-prosecution agreements, deferred prosecution agreements, and plea agreements, the government will continue to build its arsenal of 'prosecutorial common law' to supports its aggressive and slanted interpretation of the FCPA. Yet court acceptance of plea agreements does not convert the government's pronunciations on the law into sources of legal authority. Indeed, the government's strategy of creating its own would-be common law threatens to strip the federal courts of their judicial power to interpret the FCPA."
See here for the prior post on O'Shea's motion to dismiss.
See here for the prior post on the DOJ's response brief.
Along with the reply brief, O'Shea's lawyers also filed (here) a motion to strike the Declaration of Clifton Johnson ((Assistant Legal Adviser for Law Enforcement and Intelligence in the Legal Adviser's Office of the United States Department of State). Johnson's declaration was ordered stricken in the Lindsey challenge (see here) and was also filed earlier this week in the Carson "foreign official" challenge pending in the Central District of California. (See here).
Wednesday, April 20, 2011
"FCPA Sanctions: Too Big To Debar?"
Debarment (or lack thereof) is a periodic topic on this site.
Previously, I covered "Siemens ... The Year After" (here), a post that highlighted in the year after resolution of the Siemens record-setting December 2008 FCPA matter, the U.S. government continued to do substantial business with the company it charged with engaging in a pattern of bribery “unprecedented in scale and geographic scope.”
In September 2010, I highlighted (here) the FBI's $40 million contract with BAE - months after the FBI participated in resolution of the $400 million FCPA related enforcement action against the company.
In my November 2010 testimony (here) before the U.S. Senate, I stated as follows. "In order for the DOJ’s deterrence message to be completely heard and understood egregious instances of corporate bribery that legitimately satisfy the elements of an FCPA anti-bribery violation involving high-level executives and/or board participation should be followed with debarment proceedings against the offender."
This testimony prompted then Senator Arlen Specter (who chaired the hearing) to ask me several follow-up questions for the record relating to debarment. (See here for the Q&A's). Senator Christopher Coons (who also participated in the November 2010 hearing) also asked debarment follow-up questions of the DOJ.
As highlighted last week (here), the DOJ is opposed to a "mandatory, conduct-based, debarment remedy for companies that engage in egregious bribery." As noted in the prior post, the DOJ's responses seemed anchored in self-interest in that such a remedy would lessen its FCPA caseload, would make its job more difficult, and would take away it flexibility and leverage and resolving FCPA enforcement actions.
Enter Dru Stevenson (Professor of Law, South Texas College of Law - here and a past contributor to the site) and Nick Wagoner (a law student at South Texas College of Law).
Stevenson and Wagoner recently released a yet to be published article titled "FCPA Sanctions: Too Big to Debar?" (See here).
The authors (who can be reached at dstevenson@stcl.edu and nicholas.wagoner@gmail.com) provide this article summary.
"Despite the dramatic escalation in corporate fines and imprisonment imposed under the FCPA in recent years, a particularly lethal sanction for combating foreign corruption remains unused—suspension or debarment of prosecuted entities from future contracts with the U.S. Many of the firms caught bribing foreign officials have extensive contracts with a number of domestic federal agencies; meaning debarment may be a particularly devastating penalty both for the government contractor and the agency it transacts business with.
This begs the question: are certain private contractors too big to debar? As this Article demonstrates, it appears so. Certain federal agencies have become highly dependent on a handful of private firms responsible for satisfying the vast majority of government contracts. Because of the potential “collateral consequences” that may result from the collapse of a debarred contractor, these firms have enjoyed bailouts from agency officials who refuse to sanction corrupt practices through suspension or debarment. If ridding foreign markets of corruption truly is a top priority of the U.S., it seems both unfair and imprudent for federal agencies to continue awarding lucrative, multibillion-dollar contracts to firms recently prosecuted for fraudulently obtaining such contracts overseas.
This situation leads to the jaded viewpoint that paying fines when caught bribing foreign officials has “simply become a cost of doing business.” To help illuminate these concerns and lend support to the thesis, this Article examines the third largest FCPA-related enforcement actions to date: the BAE Systems case. On March 1, 2010, BAE Systems paid approximately $400 million in fines for its corrupt practices abroad. In the 365 days that followed however, BAE was awarded U.S. contracts in excess of $58 billion dollars. The U.S.’s refusal to debar BAE because of the risk of “collateral consequences” provides a case study of the benefits and drawbacks to deterring foreign corruption through suspension and debarment. This Article concludes that the U.S. must begin to diversify its portfolio of federal contractors so that prosecutors may leverage the legitimate threat of suspension and debarment to more effectively deter foreign corruption."
Previously, I covered "Siemens ... The Year After" (here), a post that highlighted in the year after resolution of the Siemens record-setting December 2008 FCPA matter, the U.S. government continued to do substantial business with the company it charged with engaging in a pattern of bribery “unprecedented in scale and geographic scope.”
In September 2010, I highlighted (here) the FBI's $40 million contract with BAE - months after the FBI participated in resolution of the $400 million FCPA related enforcement action against the company.
In my November 2010 testimony (here) before the U.S. Senate, I stated as follows. "In order for the DOJ’s deterrence message to be completely heard and understood egregious instances of corporate bribery that legitimately satisfy the elements of an FCPA anti-bribery violation involving high-level executives and/or board participation should be followed with debarment proceedings against the offender."
This testimony prompted then Senator Arlen Specter (who chaired the hearing) to ask me several follow-up questions for the record relating to debarment. (See here for the Q&A's). Senator Christopher Coons (who also participated in the November 2010 hearing) also asked debarment follow-up questions of the DOJ.
As highlighted last week (here), the DOJ is opposed to a "mandatory, conduct-based, debarment remedy for companies that engage in egregious bribery." As noted in the prior post, the DOJ's responses seemed anchored in self-interest in that such a remedy would lessen its FCPA caseload, would make its job more difficult, and would take away it flexibility and leverage and resolving FCPA enforcement actions.
Enter Dru Stevenson (Professor of Law, South Texas College of Law - here and a past contributor to the site) and Nick Wagoner (a law student at South Texas College of Law).
Stevenson and Wagoner recently released a yet to be published article titled "FCPA Sanctions: Too Big to Debar?" (See here).
The authors (who can be reached at dstevenson@stcl.edu and nicholas.wagoner@gmail.com) provide this article summary.
"Despite the dramatic escalation in corporate fines and imprisonment imposed under the FCPA in recent years, a particularly lethal sanction for combating foreign corruption remains unused—suspension or debarment of prosecuted entities from future contracts with the U.S. Many of the firms caught bribing foreign officials have extensive contracts with a number of domestic federal agencies; meaning debarment may be a particularly devastating penalty both for the government contractor and the agency it transacts business with.
This begs the question: are certain private contractors too big to debar? As this Article demonstrates, it appears so. Certain federal agencies have become highly dependent on a handful of private firms responsible for satisfying the vast majority of government contracts. Because of the potential “collateral consequences” that may result from the collapse of a debarred contractor, these firms have enjoyed bailouts from agency officials who refuse to sanction corrupt practices through suspension or debarment. If ridding foreign markets of corruption truly is a top priority of the U.S., it seems both unfair and imprudent for federal agencies to continue awarding lucrative, multibillion-dollar contracts to firms recently prosecuted for fraudulently obtaining such contracts overseas.
This situation leads to the jaded viewpoint that paying fines when caught bribing foreign officials has “simply become a cost of doing business.” To help illuminate these concerns and lend support to the thesis, this Article examines the third largest FCPA-related enforcement actions to date: the BAE Systems case. On March 1, 2010, BAE Systems paid approximately $400 million in fines for its corrupt practices abroad. In the 365 days that followed however, BAE was awarded U.S. contracts in excess of $58 billion dollars. The U.S.’s refusal to debar BAE because of the risk of “collateral consequences” provides a case study of the benefits and drawbacks to deterring foreign corruption through suspension and debarment. This Article concludes that the U.S. must begin to diversify its portfolio of federal contractors so that prosecutors may leverage the legitimate threat of suspension and debarment to more effectively deter foreign corruption."
Tuesday, April 19, 2011
DOJ Files Opposition Brief in Carson "Foreign Official" Challenge
On February 21st, various defendants in the U.S. v. Carson case pending in the Central District of California filed a historic challenge to 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, the DOJ filed its opposition brief (see here).
The DOJ brief is supported by the same declaration from Clifton Johnson (Assistant Legal Adviser for Law Enforcement and Intelligence in the Legal Adviser's Office of the United States Department of State) ordered stricken in the Lindsey "foreign official" challenge (see here and here) and also filed in the O'Shea "foreign official" challenge (see here).
The DOJ brief is also supported by a declaration from FBI Special Agent Brian Smith (here) as to "some facts related to certain of the entities involved" in the case and "information pertaining to state-owned enterprises in China" and "certain portions of legislative history related" to the FCPA.
Also yesterday, Nathaniel Edmonds (Assistant Chief, DOJ Fraud Section) filed a notice of appearance in the case.
Yesterday, the DOJ filed its opposition brief (see here).
The DOJ brief is supported by the same declaration from Clifton Johnson (Assistant Legal Adviser for Law Enforcement and Intelligence in the Legal Adviser's Office of the United States Department of State) ordered stricken in the Lindsey "foreign official" challenge (see here and here) and also filed in the O'Shea "foreign official" challenge (see here).
The DOJ brief is also supported by a declaration from FBI Special Agent Brian Smith (here) as to "some facts related to certain of the entities involved" in the case and "information pertaining to state-owned enterprises in China" and "certain portions of legislative history related" to the FCPA.
Also yesterday, Nathaniel Edmonds (Assistant Chief, DOJ Fraud Section) filed a notice of appearance in the case.
Monday, April 18, 2011
Potpourri
AG Holder On Corruption
Last week Attorney General Eric Holder was in Slovenia to speak at The Balkans Justice Ministerial. In his speech (here) AG Holder focused on the "global fight against corruption."
Holder stated as follows.
"Corruption strikes hardest at the most vulnerable among us, siphoning scarce resources away from those most in need. It advances the selfish desires of a dishonest few over the best interests of those who work hard and obey the law. In countries rich and poor, large and small – corruption erodes trust in government and private institutions alike. It undermines confidence in the fairness of free and open markets. It stifles competition and repels foreign investment. It hinders progress, and it breeds contempt for the rule of law."
"And yet corruption continues to flourish."
Holder stressed that "all nations struggle against corruption" and that the U.S "is no exception."
Holder called on all nations "to ratify – and to fully implement – the UN Convention Against Corruption." (See here).
As to asset recovery, Holder repeated his call first made in Qatar (see here for the prior post) that asset recovery (i.e. ensuring that corrupt officials do not retain illicit proceeds) "isn’t just a global necessity – it’s a moral imperative."
U.K. Oil for Food Sentence
With its approximately twenty corporate enforcement actions connected to the U.N. Iraq Oil for Food Program, the U.S. is clearly the leader in collecting corporate fines connected to this scandal plagued, defunct program.
The U.K. however has clearly emerged as the leader in holding individuals (not just corporations) to account for illegal behavior in connection with the program.
Last week, the U.K. Serious Fraud Office announced (here) that Mark Jessop admitted to breaking U.N. sanctions during the Oil For Food Program by making illegal payments to Saddam Hussein's government. The release states that Jessop was sentenced to 24 weeks' imprisonment. According to the release, Jessop was ordered to pay £150,000 to the Development Fund for Iraq and pay prosecution costs of £25,000. Jessop sold medical goods to Iraq, initially as an employee of a British surgical instruments company, but later through his own companies - JJ Bureau Ltd and Opthalmedex Ltd, of which he was sole director.
For other recent U.K. Oil for Food sentences, see here for the prior post.
Resource Extraction Disclosures
Remember Section 1504 of the Dodd-Frank Act? (See here for the prior post).
The Huffington Post reports (here) that the April 15th deadline for the SEC to issue final implementing regulations has passed. According to the SEC (see here) the new target date for final implementing rules is between August and December.
I guess this is what happens when an ill-conceived, poorly drafted law is inserted into a massive piece of legislation as a miscellaneous provision at the last moment without any meaningful debate or analysis.
World Bank News
Last week, the World Bank released (here) a "Declaration of Agreed Principles for Effective Global Enforcement to Counter Corruption." See here for the press release.
The release also notes that the World Bank's Integrity office's ("INT") FY10 results include "117 investigations in FY10, with 45 debarments of firms and individuals for engaging in wrongdoing." For INT's FY2010 Annual Report, see here.
Last week Attorney General Eric Holder was in Slovenia to speak at The Balkans Justice Ministerial. In his speech (here) AG Holder focused on the "global fight against corruption."
Holder stated as follows.
"Corruption strikes hardest at the most vulnerable among us, siphoning scarce resources away from those most in need. It advances the selfish desires of a dishonest few over the best interests of those who work hard and obey the law. In countries rich and poor, large and small – corruption erodes trust in government and private institutions alike. It undermines confidence in the fairness of free and open markets. It stifles competition and repels foreign investment. It hinders progress, and it breeds contempt for the rule of law."
"And yet corruption continues to flourish."
Holder stressed that "all nations struggle against corruption" and that the U.S "is no exception."
Holder called on all nations "to ratify – and to fully implement – the UN Convention Against Corruption." (See here).
As to asset recovery, Holder repeated his call first made in Qatar (see here for the prior post) that asset recovery (i.e. ensuring that corrupt officials do not retain illicit proceeds) "isn’t just a global necessity – it’s a moral imperative."
U.K. Oil for Food Sentence
With its approximately twenty corporate enforcement actions connected to the U.N. Iraq Oil for Food Program, the U.S. is clearly the leader in collecting corporate fines connected to this scandal plagued, defunct program.
The U.K. however has clearly emerged as the leader in holding individuals (not just corporations) to account for illegal behavior in connection with the program.
Last week, the U.K. Serious Fraud Office announced (here) that Mark Jessop admitted to breaking U.N. sanctions during the Oil For Food Program by making illegal payments to Saddam Hussein's government. The release states that Jessop was sentenced to 24 weeks' imprisonment. According to the release, Jessop was ordered to pay £150,000 to the Development Fund for Iraq and pay prosecution costs of £25,000. Jessop sold medical goods to Iraq, initially as an employee of a British surgical instruments company, but later through his own companies - JJ Bureau Ltd and Opthalmedex Ltd, of which he was sole director.
For other recent U.K. Oil for Food sentences, see here for the prior post.
Resource Extraction Disclosures
Remember Section 1504 of the Dodd-Frank Act? (See here for the prior post).
The Huffington Post reports (here) that the April 15th deadline for the SEC to issue final implementing regulations has passed. According to the SEC (see here) the new target date for final implementing rules is between August and December.
I guess this is what happens when an ill-conceived, poorly drafted law is inserted into a massive piece of legislation as a miscellaneous provision at the last moment without any meaningful debate or analysis.
World Bank News
Last week, the World Bank released (here) a "Declaration of Agreed Principles for Effective Global Enforcement to Counter Corruption." See here for the press release.
The release also notes that the World Bank's Integrity office's ("INT") FY10 results include "117 investigations in FY10, with 45 debarments of firms and individuals for engaging in wrongdoing." For INT's FY2010 Annual Report, see here.
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