Another FCPA Speech
By Mike Koehler on November 18, 2009 in Asset Recovery, Declination Decisions, DOJ, Enforcement Agency Policy, Enforcement Agency Speeches, FCPA Inc., Individual Enforcement Action, Monitor, Voluntary Disclosure
Last week it was the Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum (see here), this week the audience for Assistant Attorney General Lanny Breuer was ACI's National Forum on the FCPA
The ACI conference (see here) is a signature event for the FCPA bar and FCPA compliance community. Breuer participated in past ACI events as a private FCPA practitioner at Covington & Burling and yesterday he gave the keynote luncheon address.
The link to the speech on the DOJ website is inactive, but the speech is embedded in this piece from the WSJ Law Blog (see here).
The speech covers a wide range of topics and will be of interest to all FCPA practitioners and others interested in following FCPA developments.
Here are a few highlights:
On individual prosecutions – "…we tried more individuals for FCPA violations than in any prior year. And we indicted more individuals than ever before. That is no accident. In fact, prosecution of individuals is a cornerstone of our enforcement strategy. […] Put simply, the prospect of significant prison sentences for individuals should make clear to every corporate executive, every board member, and every sales agent that we will seek to hold you personally accountable for FCPA violations."
On how the DOJ learns of FCPA issues – "Although many of these cases come to us through voluntary disclosures, which we certainly encourage and will appropriately reward, I want to be clear: the majority of our cases do not come from voluntary disclosures. They are the result of pro-active investigations, whistle blower tips, newspaper stories, referrals from our law enforcement counterparts in foreign countries, and our Embassy personnel abroad, among other sources."
On resolving corporate FCPA matters – "…despite rumors to the contrary, we do also decline prosecution in appropriate cases. […] With regard to corporate cases, the Department will continue to pursue guilty pleas or, if necessary, indictments against corporations – when the criminal conduct is egregious, pervasive and systemic, or when the corporation fails to implement compliance reforms, changes to its corporate culture, and undertake other measures designed to prevent a recurrence of the criminal conduct. We also recognize that there will be situations in which guilty pleas or criminal charges are not appropriate. Now, we may have good-faith disagreements about when those circumstances present themselves, but we do not take our task lightly. We are mindful of direct impact on the company itself, as well as the numerous collateral consequences that often flow from these charging decisions. We are sophisticated attorneys, and we understand the challenges and complexities involved in doing business around the globe."
On corporate monitors – "In appropriate cases, we will also continue to insist on a corporate monitor, mindful that monitors can be costly and disruptive to a business, and are not necessary in every case. That said, corporate monitors continue to play a crucial role and responsibility in ensuring the proper implementation of effective compliance measures and in deterring and detecting future violations."
On whether to make a voluntary disclosure – this is a "sometimes difficult question" […] a question I grappled with as a defense lawyer. I strongly urge any corporation that discovers an FCPA violation to seriously consider making a voluntary disclosure and always to cooperate with the Department. The Sentencing Guidelines and the Principles of Federal Prosecution of Business Organizations obviously encourage such conduct, and the Department has repeatedly stated that a company will receive meaningful credit for that disclosure and that cooperation. […] I can assure you that the Department's commitment to meaningfully reward voluntary disclosures and full and complete cooperation will continue to be honored in both letter and spirit. I am committed to no less."
On the road ahead – "In addition to holding culpable individuals accountable and meaningfully rewarding voluntary disclosures and genuine cooperation, we will continue to focus our attention on areas and on industries where we can have the biggest impact in reducing foreign corruption." Breuer then discusses the pharma industry in particular.
On asset forfeiture and recovery – "We will seek forfeiture in all appropriate cases going forward. […] We will be taking advantage of the expertise of both the Fraud Section and our Asset Forfeiture and Money Laundering Section to forfeit and recover the proceeds of foreign corruption offenses." Breuer's comments on this topic largely shadow the recent comments of Attorney General Holder (see here).
On enhanced resources – "As I imagine most of you have heard, in 2007 the FBI created a squad with agents dedicated to investigating potential FCPA violations. The squad has been growing in size and in expertise over the past two years. In addition, we have begun discussions with the Internal Revenue Service's Criminal Investigation Division about partnering with us on FCPA cases around the country. Finally, we are now pursuing strategic partnerships with certain U.S. Attorney's Offices throughout the United States where there are a concentration of FCPA investigations."
On Mark Mendelsohn's rumored departure as DOJ Deputy Chief – FCPA – "… as we look to the future, we will be building on the extraordinary efforts and success of our Deputy Chief over the FCPA area, my friend Mark Mendelsohn, who is beginning to explore options for the next phase of his career. Mark has been an exceptional public servant and a visionary steward of the FCPA Program. Regardless of where Mark chooses to go, we will miss him greatly."
Last week, I questioned Breuer's characterization of the Jefferson verdict in his pharma address (see here). In that address he said as follows:
"In the past few months, we have the completed the trials of the Greens in California, of Mr. Bourke in New York and of former Congressman William Jefferson in Virginia. In each of these cases, individuals were found guilty of FCPA violations and face jail time."
Yesterday, Breuer correctly noted, as to the Jefferson case, as follows: Jefferson "was convicted of a conspiracy of which one object was to violate the FCPA by bribing former high-ranking Nigerian government officials."
An Update From Across the Pond
By Mike Koehler on September 29, 2009 in Angola, Bangladesh, Ghana, Iraq, Jamaica, Joint Venture, Mabey Johnson, Madagascar, Mozambique, Serious Fraud Office, United Kingdom, Voluntary Disclosure
The U.S. is not the only country with an "FCPA-like" domestic statute. The United Kingdom has a similar law (actually a mix of several different statutes on the books for nearly one-hundred years – however, in March 2009, a new bill – the "Bribery Bill" was introduced in Parliament and is currently being debated).
As discussed in a July post (see here), the U.K.'s Serious Fraud Office ("SFO") (an enforcement agency similar to the U.S. DOJ) announced "the first prosecution brought in the U.K. against a company for overseas corruption."
The company – Mabey & Johnson Ltd. ("M&J") – a U.K. company that designs and manufacturers steel bridges used in more than 115 countries worldwide.
Last week, the SFO issued a press release announcing the details of M&J's £6.6 million sentence (see here).
The SFO also released two "prosecution opening statements" relating to (a) the company's conduct in Jamaica and Ghana; and (b) the company's breach of United Nations Oil for Food Regulations (see here and here).
To state the obvious, one enforcement action does not constitute a practice.
Subject to that qualification, I offer some comments about the SFO's released documents compared to what the DOJ and SEC typically release in an FCPA enforcement action (where indeed a common practice has developed).
Naming Names
Unlike a typical DOJ deferred prosecution, non-prosecution agreement or plea or SEC complaint, the SFO documents name names. Specifically identified in the documents are numerous "public officials" in Jamaica, Ghana, Angola, Madagascar, Mozambique, and Bangladesh (see pages 11, 25, 28, 32, 33, 35, and 38) alleged to have received improper payments from M&J (or its agents) to help secure company business.
The SFO documents also specifically identify the agents and their companies which were used by M&J to make certain of the improper payments (see pages 12, 22, 28, 32, 35, 37).
Is there value to "naming names," does it "punish" the foreign or public official recipient of the improper payment (given that the FCPA only punishes the bribe payor not the bribe recipient)? Does naming the agent effectively blacklist the individual/company and thus serve a useful public function for other companies doing business in that particular market?
All interesting questions to ponder. There is also an interesting historical FCPA angle as well. Many, including the Ford administration, were opposed to the FCPA as it now exists, opting instead for a disclosure approach on the theory, to use the famous Justice Brandeis quote that "sunshine is the best disinfectant."
Back to the SFO documents.
As referenced above, the applicable term used in the SFO documents is "public official" not "foreign official" as used in the FCPA. Do these terms means the same thing? All of the "public officials" identified in the SFO documents are government Ministers or Ambassadors (what I'll call core government officials).
There is no exception though, an exception relevant to the current debate over the FCPA's "foreign official" term and whether it should include employees of state-owned or state-controlled companies.
The Angolan "public officials" appear to be Directors of Empresa Nacional des Pontes, an "Angolan State owned entity."
Joint Venture Partners
Under the FCPA, conventional wisdom seems to hold that joint venture partners will be liable for improper payments made by other joint venture partners, particularly when the joint venture partners share revenues and profits of contracts secured through improper payments and particularly when the joint venture's board includes individuals from both companies. (see here for a discussion of this issue in connection with the recent Halliburton/KBR enforcement action).
Not so in the M&J matter.
The SFO documents reference a joint venture relationship between M&J and Kier International Ltd. ("Kier") in order to facilitate both the construction and engineering aspects of "Jamaica 1" (the contract allegedly secured through the bribe payments).
According to the SFO documents, M&J and Kier agreed that "overall revenue and profits from the JV with respect of Jamaica I would be divided 57% and 43% respectively." The documents further state that under the terms of the JV "a sponsor would have primary responsibility for representing the JV" and that "Kier was nominated to act as the sponsor." Further the documents indicate that "the supervisory board" of the JV comprised both M&J and Kier executives.
However, the documents evidence that the "SFO has investigated the relationship between Kier and M&J in respect of this contract" and "all the evidence currently available to the SFO" indicates that "there is no evidence that Kier [was] privy to these corrupt practices."
Will JV partners in the cross-hairs of a future FCPA enforcement action be citing to the SFO's decision as to Kier in the M&J enforcement action to argue that there is no basis for FCPA liability (whether anti-bribery or books and records of internal controls)? Perhaps so.
Despite these apparent differences between the M&J enforcement action and a "typical" FCPA enforcement action, there are some similarities and it is clear that the SFO is following DOJ's lead when it comes to "rewarding" voluntary disclosure (see pages 40-41 "the SFO have sought where appropriate to have regard to the model for corporate regulation adopted by the Department of Justice in the United States of America under the Foreign Corrupt Practices Act 1977.").
The SFO's stance in the M&J matter, in which it noted that M&J's internal investigation and subsequent voluntary disclosure were "meriting specific commendation" (see pg. 7) is consistent with the approach the SFO set forth in July when it released a memo titled "Approach of the Serious Fraud Office to Dealing with Overseas Corruption" (see here).
Finally, much like the DOJ, the SFO appears interested in charging individuals (not just corporations) for participating in improper payments. The SFO specifically noted that "a number of individuals are the subjects of investigation with regard to the corrupt business practices of M&J" (see pg. 5) and it explained that it did not "name certain directors, executives and employees of M&J at this stage because they may face trial in English Courts."
Again, to restate the obvious, one enforcement action does not constitute a practice. Yet when doing a comparative analysis of the FCPA with other FCPA-like statutes one has got to start "somewhere" and that "somewhere" now exists with release of the specific facts of the U.K.'s first prosecution against a company for overseas corruption."
FCPA Aches and "Payne"s
By Mike Koehler on August 5, 2009 in Argentina, DOJ Enforcement Action, Helmerich and Payne Inc., Non-Prosecution Agreement, Oil and Gas Industry, Permits / Licenses / Customs / Tax, SEC Enforcement Action, Venezuela, Voluntary Disclosure
Helmerich & Payne Inc. ("H&P") is an international drilling contractor headquartered in Tulsa. It has land and offshore operations in South America. To operate in that region, H&P must import and export equipment and materials. According to the DOJ and SEC, therein lies the problem.
H&P recently settled a DOJ and SEC FCPA enforcement action based on the conduct of two wholly-owned second tier subsidiaries, Helmerich & Payne (Argentina) Drilling Company ("H&P Argentina") and Helmerich & Payne de Venezuela, C.A. ("H&P Venezuela").
Pursuant to a two-year DOJ non-prosecution agreement, H&P acknowledged responsibility for the conduct of H&P Argentina and H&P Venezuela in making various improper payments to officials of the Argentine and Venezuelan customs services. According to a DOJ release (see here), the payments "were made in order to import and export goods that were not within regulations, to import good that could not lawfully be imported, and to evade higher duties and taxes on the goods." Pursuant to the agreement, H&P will pay a $1 million penalty.
In a parallel action, H&P agreed to an SEC settlement under which it agreed to pay approximately $375,000. The SEC cease-and-desist order ("Order") (see here) finds that: (i) "H&P Argentina paid Argentine customs officials approximately $166,000 to permit the importation and exportation of equipment and materials without required certifications, to expedite the importation of equipment and materials, and to allow the importation of materials that could not imported under Argentine law; and (ii) "H&P Venezuela paid Venezuelan customs officials approximately 19,673 either to permit the importation and exportation of equipment and materials that were not in compliance with Venezuelan importation and exportation regulations or to secure a partial inspection, rather than a full inspection, of the goods being imported."
According to the Order, the payments were "falsely, or at least misleadingly" described as "additional assessments," "extra costs," "extraordinary expenses," "urgent processing," "urgent dispatch," or "customs processing." The SEC found that as a result of the payments, H&P avoided approximately $320,000 in expenses it would have otherwise incurred had it properly imported and exported the equipment and materials. The subsidiaries' financial results were included in H&P's filings with the SEC and, based on the above conduct, the SEC found that H&P violated the FCPA books and records and internal control provisions.
The Order is silent as to H&P's knowledge of or involvement in the above described payments.
No doubt H&P received an SEC cease and desist order (the least harsh SEC sanction) and a DOJ non-prosecution agreement because of its conduct upon learning of the payments. As described in the Order, during an FCPA training session, an employee voluntarily disclosed some potentially problematic payments, through a customs broker, in Argentina to customs officials. Thereafter, H&P hired FCPA counsel, conducted an internal investigation, and voluntarily reported the conduct at issue to the government.
According to H&P's Form 8-K filed on July 30, 2009 (see here), "[t]here are no criminal charges involved in the settlements and disciplinary action has been taken by the company with respect to certain employees involved in the matter, including in some cases, termination of employment." The 8-K also notes that both settlements "recognize the company's voluntary disclosure, cooperation with both agencies, and its proactive remedial efforts."
By Mike Koehler on July 23, 2009 in Enforcement Agency Policy, Ghana, Jamaica, Mabey Johnson, Serious Fraud Office, United Kingdom, Voluntary Disclosure
Some noteworthy anti-corruption developments to report from the United Kingdom.
Landmark Mabey & Johnson Ltd. Prosecution
Like the U.S., the U.K. has domestic anti-corruption statutes (actually a mix of several different statutes on the books for nearly one-hundred years – in March 2009, a new bill – the "Bribery Bill" was presented to the U.K. Parliament – an issue I will be following).
However, unlike the U.S., the U.K. has never brought a corporate prosecution under the statutes. For this, U.K. government has been criticized. If you want to fill your afternoon with reading just "google" BAE, Saudi Arabia, and corruption. If you prefer listening over reading, you may want to check out portions of Frontline's "Black Money" (See here).
Against this backdrop, it is noteworthy that in July 2009, the U.K.'s Serious Fraud Office ("SFO") (an enforcement agency similar to the U.S. DOJ) announced "the first prosecution brought in the U.K. against a company for overseas corruption." (See here for the SFO Press Release).
According to the SFO press release, the prosecution arises from Mabey & Johnson Ltd.'s (a U.K. company that designs and manufacturers steel bridges used in more than 115 countries worldwide) voluntary disclosure to the SFO "of evidence to indicate that the company had sought to influence decision-makers in public contracts in Jamaica and Ghana between 1993 and 2001." According to the release, the prosecution also involves breach of United Nations sanctions as applied to contracts in connection with the Iraq Oil for Food program.
My efforts to locate the actual Mabey & Johnson charging documents (statement of facts, etc.) have thus far proven fruitless. To the extent such documents are publicly available and you have a copy, please do share them with me.
SFO Memo on Corruption Enforcement and the Benefits of Self-Reporting
Also in July 2009, the SFO released a memo titled "Approach of the Serious Fraud Office to Dealing with Overseas Corruption." The memo notes that the SFO is significantly expanding its anti-corruption resources and staff and that the office will be using "all of the tools at our disposal in identifying and prosecution cases of corruption" as the office "conduct[s] more criminal investigations and prosecutions in the future (particularly if the Bribery Bill becomes law)."
The memo notes that there has been much interest among business and professional advisers for a system of self-reporting cases of overseas corruption to the SFO and the purpose of the memo is thus to set forth SFO policies on self-reporting and the SFO's position on the benefits which can be obtained from self-reporting.
The memo specifically notes that the benefit to a corporation of self-reporting will be "the prospect (in appropriate cases) of a civil rather than a criminal outcome," and that a "negotiated settlement rather than a criminal prosecution means that the mandatory debarment provisions under [the relevant EU Directive] will not apply."
The remainder of the memo touches on general topics familiar to FCPA practitioners currently found in Title 9, Chapter 9-28.000 of the U.S. Attorney's Manual (Principles of Federal Prosecution of Business Organizations) (the so-called Filip Memo – see here). It is encouraging to see that the SFO, unlike the DOJ/SEC thus far, is willing to articulate, in a specific memo, its views and enforcement policies on corruption issues.
The benefits of self-reporting and voluntarily disclosing conduct which does, or could, violate the FCPA is indeed a "hot topic." DOJ/SEC enforcement officials routinely say that the benefits of self-reporting are real, whereas FCPA practitioners and the clients they represent aren't so sure. It now looks like this topic will be debated on both sides of the Atlantic and it will indeed be an interesting issue to monitor.
Of particular interest to FCPA practitioners, the SFO memo notes as follows: "We would also take the view that the timing of an approach to the U.S. Department of Justice is also relevant. If the case is also within our jurisdiction we would expect to be notified at the same time as the DOJ." Of further interest to FCPA practitioners, the memo announces an initial opinion procedure along the lines currently offered by the U.S. DOJ. The memo notes, "[t]he circumstances in which this procedure will be appropriate will need to be discussed, but we are ready to offer assistance in one type of case" and that type of case is where an acquiring company, during due diligence of a target, discovers corruption issues.