FCPA and Anti-Corruption Enforcement on the Rise Leveraging - - PowerPoint PPT Presentation

FCPA and Anti-Corruption Enforcement on the Rise

Leveraging Guidance from Recent DOJ and SEC Enforcement Actions and UK Prosecutions

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WEDNES DAY, MAY 16, 2012

Presenting a live 90-minute webinar with interactive Q&A

Mat t hew J. Feeley, S hareholder, Buchanan Ingersoll & Rooney, Miami Edward J. Fishman, Part ner, K&L Gates, Washingt on, D.C. Elizabeth Robert son, Part ner, K&L Gates, London, England

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FCPA and Anti-Corruption Enforcement on the Rise U.S. Department of Justice Trends and Developments

• Individual Prosecutions
• Third Party Risk
• Industry Sweeps
• Deferred Prosecution Agreements/Non-Prosecution Agreements
• Guidance and/or Reform

Matthew J. Feeley Miami Matthew.feeley@bipc.com 305-347-5794 May 16, 2012

6

Individual Prosecutions

“The number of individual prosecutions has risen and that’s not an accident. . . . It is our view that to have a credible deterrent effect, people have to go to jail.” Mark Mendelsohn, then the DOJ’s chief FCPA prosecutor, September 2008

7

Individual Prosecutions

• DOJ Backs up the Talk:

▫ In 2006 there were 6 individual FCPA indictments ▫ In 2010 there were 48 individual FCPA indictments

8

Individual Prosecutions

• The “ice has been broken” on the FCPA

▫ Individual defendants have more incentive to take a case to trial ▫ Companies usually want to settle rather than face the reputational harm of a criminal conviction ▫ Mixed bag of results ▫ DOJ FCPA omnipotence a thing of the past ▫ Case law development

9

Individual Prosecutions

• Jefferson Case – Success

▫ Former U.S. Congressman William Jefferson ▫ March 26, 2012, Fourth Circuit rejected Jefferson appeal ▫ 13 years sentence – including conspiracy to violate FCPA ▫ Included charges under domestic bribery, wire fraud and money laundering ▫ Jefferson solicited and accepted bribes in exchange for promoting services to African officials and bribing

• ther African officials

10

Individual Prosecutions

• O’Shea Case – Failure

▫ On January 17, 2012, U.S. District Judge Lynn Hughes (S.D. Tex.) granted O’Shea’s motion for acquittal and threw out 12 substantive FCPA counts and one FCPA conspiracy count ▫ O’Shea, a former manager of ABB, Inc. was accused

• f bribing officials at Mexico’s state owned electric

utility company, the Comission Federal de Electricidad (“CFE”) ▫ Lack of documentary evidence, unconvincing cooperating witnesses

11

Individual Prosecutions

• SHOT Show Cases – Failure (Absolute)

▫ February 21, 2012, U.S. District Court Judge Richard

• L. Leon called the cases “a long and sad chapter of

white-collar criminal enforcement” ▫ 22 individuals arrested in January, 2010 and charged with attempting to bribe Gabon government in order to win $15 million contract to supply law enforcement and defense equipment to Gabonese government ▫ Mistrials, hung juries, acquittals and eventual voluntary dismissal against all remaining defendants ▫ On March 29, 2012, DOJ moved to dismiss charges against defendants that previously pled guilty to FCPA conspiracy charge

12

Individual Prosecutions

Looking forward: ▫ Greater pushback from individual defendants ▫ Possible DOJ retrenchment and focus on corporate prosecutions ▫ Certain “tightening” of investigations and prosecutions; back to basics ▫ FCPA enforcement is still a high DOJ priority and it will not be abandoned because of particular failures

• r embarrassments

13

Third Party Risk

“Third party risk still remains most significant FCPA risk.” Charles E. Duross, Deputy Chief, Fraud Section, Criminal Division, U.S. Department of Justice, November 8, 2011

14

Third Party Risk

• Corrupt payments made through third parties are still the

most dominate type scheme found in DOJ enforcement actions

• Agents, consultants, even distributors
• Local reputation/background check, FCPA certification,

provision of sample contracts/contract language, training and monitoring

15

Industry Wide Sweeps

• DOJ concedes that industry wide investigations are “just

easier”

• Not targeted as a matter of policy. Single investigations

yield information about problematic industry-wide practices

16

Industry Wide Sweeps

“If your market competitor has FCPA problems, do not rejoice; you may be

• next. Ask yourself, are their problems the

same problems I have?” Charles E. Duross, Deputy Chief, Fraud Section, Criminal Division, U.S. Department

• f Justice, November 8, 2011

17

Industry Wide Sweeps

• Health Care/Medical Device

▫ Biomet – paid illicit commissions to employees of publicly employed heath care providers to encourage purchase of product ($17.28 million DOJ fine) ▫ Coupled with previous enforcement actions against Johnson & Johnson and Smith & Nephew

18

Industry Wide Sweeps

• Financial Services

▫ Bad credit markets resulted in looking to Sovereign Wealth Funds for capital ▫ Several financial institutions are subject to ongoing investigations ▫ Corrupt inducement to invest is the same as corrupt inducement to buy products or services

19

Increased use of DPAs and NPAs

• Settlement continues to be enforcement action of

choice for companies ▫ Tangible benefit for cooperation ▫ Avoid criminal conviction and possible contractual disbarment (e.g., foreign governments, U.S. governments, World Bank)

• Settlement documents good resource for

development of content of compliance policies and programs

20

Increased Use of DPAs and NPAs

• Deferred Prosecution Agreement (“DPA”)

▫ No conviction ▫ No plea hearing ▫ Criminal information ▫ Acceptance of responsibility and statement of facts ▫ Agreement is public filing ▫ Perhaps independent monitor ▫ If defendant meets obligations of agreement over an agreed time period, charges are dismissed ▫ Biomet DPA: http://www.justice.gov/criminal/fraud/fcpa/cases/biom et/2012-03-26-biomet-dpa.pdf

21

Increased Use of DPAs and NPAs

• Non-Prosecution Agreement (“NPA”)

▫ Agreement is not public filing, although it may be disclosed to the public ▫ DOJ agrees not to prosecute if company agrees to compliance undertakings ▫ Acceptance of responsibility and possible fine ▫ Less formal ▫ Breach will result in prosecution ▫ Tolls statute of limitations ▫ Since 2010 every NPA was a voluntary disclosure ▫ Lufthansa Technik NPA: http://www.justice.gov/criminal/fraud/fcpa/cases/luftha nsa-technik/2011-12-21-lufthansa-npa.pdf

22

DOJ Guidance and/or FCPA Reform

• FCPA Enforcement Criticism

▫ Given the dearth of FCPA case law and preference for DPAs and NPAs, there is limited guidance and too much prosecutorial discretion ▫ FCPA enforcement puts U.S. companies at a strategic disadvantage

23

DOJ Guidance and/or FCPA Reform

• U.S. Chamber of Commerce

▫ Michael Mukasey leading the effort ▫ Proposed reforms: – Compliance defense – Limiting successor liability – Adding willfulness requirement to corporate criminal liability – Limiting parent’s liability for acts of foreign subsidiary – Clarifying definition of “foreign official”

24

DOJ Guidance and/or FCPA Reform

25

DOJ Guidance and/or FCPA Reform

• Esquenazi (15 years) & Rodriguez (7 years)

challenging definition of “foreign official” ▫ Appeal filed with 11th Circuit on May 9, 2012 ▫ Whether “instrumentality” is determined by control (financial or otherwise) or “performance of governmental functions” ▫ Esquenazi brief: http://www.scribd.com/doc/93162705/Esquenazi- Appeal ▫ Rodriguez brief: http://www.scribd.com/doc/93162656/Rodriguez- Appeal

26

DOJ Guidance and/or FCPA Reform

• DOJ Guidance

▫ Perhaps in response to Chamber efforts ▫ November, 2011 Statement from Assistant Attorney General Lanny Breuer: “detailed new guidance” of FCPA “criminal and civil enforcement provisions” in 2012 ▫ Debate in the FCPA compliance community regarding what to expect ▫ Possible early summer release

27

DOJ Guidance and/or FCPA Reform

• Walmart Blow-back

▫ Generally highlights continued pervasiveness of the corruption problem; Walmart is a pillar of U.S. commerce and values ▫ Some commentators are predicting a settlement of at least $1 billon ▫ Weakness of compliance defense ▫ limited liability for foreign subsidiary

28

Take Away

• Continue to watch jurisprudence developed from

individual prosecution: knowledge requirements, definition of “foreign official”

• Monitor industry sweeps
• Focus on third-party relationships
• Content of DPAs and NPAs
• Watch for issuance of DOJ Guidance and reaction
• Confirm that your compliance program is living and

breathing and not just “paper” program (e.g. Walmart)

29

Matthew J. Feeley Miami matthew.feeley@bipc.com 305-347-5794

29

SEC ENFORCMENT OF THE FOREIGN CORRUPT PRACTICES ACT

Prepared for: Strafford Publications CLE Program May 16, 2012 Edward J. Fishman K&L Gates LLP 1601 K Street, NW Washington, DC 20006

31

Brief Overview of SEC Jurisdiction

Anti-bribery Provision:

• Any U.S. or foreign company that has securities registered

with the SEC or that is otherwise required to file periodic reports with the SEC (i.e., an “Issuer”) is subject to the anti- bribery provision of the FCPA

• Any Issuer organized under the laws of the U.S. (i.e., a “U.S.

Issuer”) or any U.S. person that is an officer, director, employee or agent of a U.S. Issuer is prohibited from making an improper payment outside the U.S. even if there is no use

• f an instrumentality of interstate commerce

32

Brief Overview of SEC Jurisdiction

• Accounting Provisions
• U.S. and Foreign Issuers must:
• Maintain Books, Records and Accounts that, in Reasonable

Detail, Accurately Reflect Transactions and the Disposition

• f Assets
• Maintain a System of Internal Accounting Controls Sufficient

to Provide Reasonable Assurance That:

• Transactions Executed as Authorized
• Transactions Recorded to Permit Preparation of GAAP

Statements and to Maintain Accountability for Assets

• Access to Assets Is Restricted
• Assets Are Examined Periodically

33

Applicability to Joint Ventures

• General Legal Framework
• FCPA accounting provisions apply to Issuers and any

entity in which Issuers hold more than 50% of the voting power (through ownership of stock or

• therwise)
• Where Issuer holds 50% or less of the voting power
• f a domestic or foreign firm, the Issuer is required to

“proceed in good faith to use its influence, to the extent reasonable under the issuer’s circumstances, to cause such domestic or foreign firm to devise and maintain a system of internal accounting controls”

34

SEC Enforcement Remedies

• The SEC may bring civil enforcement actions against Issuers

and their officers, directors, employees, stockholders, and agents for violations of the anti-bribery or accounting provisions of the FCPA

• The SEC typically seeks injunctive relief, disgorgement with

prejudgment interest and/or a civil penalty in district court or administrative proceedings

• The SEC can seek civil penalties up to $10,000 per violation

and courts may impose greater fines (e.g. up to the gross amount of the unlawful gain)

35

Recent SEC Enforcement Trends

• SEC established FCPA Task Force, now under leadership of

Kara Brockmeyer

• SEC enforcement activity down in 2012 from numerical

perspective (but what significance?)

• Dodd-Frank Whistleblower Program
• Office of the Whistleblower established by SEC
• Up to 30% monetary reward available where corporate FCPA

settlements exceed $1 million

• Approximately 4% of initial whistleblower tips in first 2 months of

program were FCPA-related complaints

36

Recent SEC Enforcement Actions

• Morgan Stanley (April 2012)
• Former Managing Director for Real Estate in China settled DOJ

and SEC charges arising from alleged personal real estate deal with Chinese official who steered business to Morgan Stanley funds

• SEC civil settlement for violating anti-bribery provision,

knowingly circumventing internal controls and the Advisers Act

• Penalties include permanent bar from securities industry, more

than $250,000 in disgorgement and relinquishment of approximately $3.4 million interest in Chinese real estate

• DOJ and SEC have declined to bring action against Morgan

Stanley and praised the company’s voluntary disclosure, cooperation during the investigation and the effectiveness of its compliance and training program

37

Recent SEC Enforcement Actions

• Biomet (March 2012)
• U.S. medical device company settled DOJ and SEC charges

relating to alleged improper payments by subsidiaries and distributors to public doctors and hospital administrators in Argentina, Brazil and China for over a decade

• Settlement is part of industry-wide sweep of the pharmaceutical

and medical device industries and resulted in “hybrid” independent compliance monitor requirement (18 months)

• U.S. senior VP and Director of Internal Audit allegedly were

aware of and failed to stop improper payments and instructed staff to classify as “commissions”, “royalties”, “consulting fees”

• r “scientific incentives”

38

Recent SEC Enforcement Actions

• Smith and Nephew (February 2012)
• U.K. medical device company settled FCPA charges

by DOJ and SEC that its U.S. and German subs bribed Greek doctors through off-shore payment scheme with distributors

• Evidence included following e-mail from distributor to

S&N employee: “please understand that I am paying cash incentives right after each surgery”

• SEC faulted S&N for failing to conduct due diligence
• n offshore companies purportedly hired to provide

“marketing services”

39

Recent SEC Enforcement Actions

• Executives of Noble Corporation (February 2012)
• 1 current and 2 former executives of U.S. drilling company

charged with bribing Nigerian customs officials to obtain illicit permits for oil rigs

• Noble settled FCPA enforcement actions in 2010 stemming from

the Panalpina industry-wide investigation

• Former CEO and Chairman Mark Jackson and Current Director
• f Nigerian subsidiary James Ruehlen charged with violations of

anti-bribery and accounting provisions due to alleged awareness

• f unreceipted payments to customs agents and preparation of

false documents referring to them as “special handling” or “procurement” expenses

40

Recent SEC Enforcement Actions

• Executives of Noble Corporation (cont.)
• Former CEO Jackson also charged with “control person” liability

for failing to act in good faith and prevent violations by the company and those he supervised (see 2009 SEC settlement with CEO and former CFO of Nature’s Sunshine Products)

• Former Head of Internal Audit Thomas O’Rourke charged with

aiding and abetting company’s violation and with personally violating the account provisions by allegedly helping to approve and improperly book the bribes as legitimate operating expenses despite knowledge that money would be paid to Nigerian customs officials

• O’Rouke settled for $35,000; Jackson and Reuhlen are

contesting the SEC’s charges in federal district court based in part on the facilitating payment exception to the statute

41

Wal-mart Scandal’s Implications

• Wal-Mart de Mexico (“Wal-Mex”) is listed on the Mexican

stock exchange and 69% of its shares are owned by Wal- Mart Inc. (an SEC Issuer)

• Wal-Mex allegedly paid millions in bribes through third

party agents (including lawyers) to obtain permits and

• ther regulatory authority for new stores in Mexico
• Wal-Mart’s senior management in the U.S. (including the

former CEO) and Wal-Mex’s General Counsel allegedly tried to block serious attempts to investigate the scope of the misconduct and did not disclose anything to the DOJ and SEC until late 2011 when Wal-Mart learned about the NY Times investigation

42

Wal-Mart Scandal’s Implications

• The magnitude and frequency of the alleged payments

will make it difficult to assert any defense based on the facilitating payments exception

• The allegedly false books and records relating to these

payments, and the lack of effective internal controls to stop them, will likely result in SEC charges against Wal- Mart and certain senior executives

• Because of the U.S. jurisdictional nexus involved in the

alleged misconduct, the SEC likely will coordinate closely with the DOJ during the investigation (which could implicate new parallel settlement policy)

43

Contact Information

Edward J. Fishman K&L Gates LLP 1601 K Street N.W. Washington, D.C. 20006 (202) 778-9456 (direct) ed.fishman@klgates.com

FCPA and Anti-Corruption on the Rise – UK Perspective

Elizabeth Robertson Head, Corporate Crime Practice Group, London

45

BRIBERY ACT 2010

• Four Offences
• “Bribing” (s1)
• “Being bribed” (s2)
• “Bribery of a foreign public official” (s6)

UK Public Officials?

• “Failure [by a company] to prevent bribery” (s7)
• Also consent or connivance by senior officer (s14)
• ANYWHERE
• and anyone not just public officials

46

BRIBERY ACT 2010 Who can be prosecuted for Bribing, Being Bribed and Bribery of a Foreign Public Official?

• Any part of the offence occurs in the UK – anyone
• Offence committed outside the UK – anyone who

has a “close connection” to UK

• UK Company (incorporated)
• UK national
• Ordinarily resident in the UK

47

BRIBERY ACT 2010: Penalties

• Up to 10 Years Imprisonment
• Unlimited fine
• Debarment from EU government contracts

48

BRIBERY ACT PROSECUTION

• Bribery Act:
• Munir Patel, a court clerk, has so far been the only

person to have been prosecuted under the Bribery Act.

• Requested and received bribe for offering to get rid of

a speeding charge.

• Sentenced to three years’ imprisonment for bribery

and six years’ imprisonment for misconduct in public

• ffice.

49

TRENDS IN ENFORCEMENT

• Government and SFO want to increase the use of

plea agreements and settlements.

• Increase in prosecution of individuals, often

directors or executives of companies.

• Increase use of SOCPA agreements.
• Absence of SFO plea agreements in 2011 –

following Innospec, Dougall and BAE in 2010.

50

SELF-REPORTING

• SFO wants companies to report corruption directly.
• Launched SFO Confidential website and helpline in

November 2011.

• Received 500 tipoffs in November 2011.
• Since 2009 nearly 20 companies have self-reported

to the SFO.

• SFO inclined to settle self-referral cases civilly

“wherever possible”.

• Criticism by UK Judiciary re lack of transparency

and Judicial oversight

51

PROPOSED DEFERRED PROSECUTION AGREEMENTS

• Government to introduce DPAs 2013.
• The power to negotiate deferred prosecutions will be

available to SFO, CPS, FSA and OFT.

• The onus and the financial burden will be on potential

corporate defendants to make sure they comply with the law.

• Middle and senior management “go under a bus”?

52

RECENT INVESTIGATIONS / PROSECUTIONS

• Against Companies:
• Mabey & Johnson - SFO obtained civil recovery order of

£131,201 against shareholders – the first company to be prosecuted by the SFO for overseas corruption. Richard Aldman, the then-director of the SFO said: “shareholders who receive the proceeds of crime can expect civil action against them to recovery the money”.

• British Aerospace – fined £30million (US DoJ US$400million)
• Innospec Limited – fined US$12.7million (sterling equivalent),

(DoJ US$14.1million) and several individuals charged.

• DePuy International Ltd - agreed to pay £4.829m in relation to

unlawful conduct regarding the sale of orthopaedic products in Greece.

53

RECENT INVESTIGATIONS / PROSECUTIONS - contd

• Against Individuals:
• April 2010 – Robert Dougall, DePuy executive received

suspended sentence after acting as whistleblower.

• February 2011 – Charles Forsyth and Davey Mabey, former

directors of Mabey & Johnson, found guilty of inflating contract

• prices. Received prison sentences of 21 months and 8 months

respectively and ordered to pay prosecution costs.

• October 2011 – Two former chief executives of Innospec

charged with a number of corruption and conspiracy offences. Due to enter plea in April 2012.

• January 2012 – David Turner, former Innospec global sales and

marketing director pleaded guilty to conspiracy to corrupt.

54

TCHENGUIZ BROTHERS INVESTIGATION

• SFO arrested property entrepreneurs in March and May 2011

to interview them about their alleged involvement in the collapse of the Icelandic bank Kaupthing.

• SFO admitted it relied on “misinformation” to obtain the

search warrants.

• Tchenguis brothers have brought a judicial review against the

SFO and are threatening legal action for damages.

• Lord Justice Thomas, the judge handling the judicial review,

branded work carried out by the agency as "sheer incompetence".

• SFO ordered to appear at a private hearing to explain how

incorrect information was presented to the court.

55

NEW HEAD OF SFO

• David Green QC – previously head of Revenue & Customs

Prosecution Office where he had a 92% conviction rate.

• “I would like to look to rebalance the relationship between

prosecution and civil settlement. We are primarily a crime- fighting agency, and we’ve got to remember that.”

• “All in favour of prosecuting authorities being funded, to a

greater or lesser extent, by money taken from criminals.”

• “100%” in favour of DPAs.
• Inherits budget of £33.9m (£51.5m in 2008).
• String of high-profile departures.

FCPA and Anti-Corruption on the Rise – UK Perspective

16 May 2012 Elizabeth Robertson

Partner, London 020 7360 8255 elizabeth.robertson@klgates.com