Saturday, October 30, 2010

High Marks for Mounting U.S. Foreign Anti-Bribery Efforts -Part 4 of a 5-Part Series

Guest Blogger - T. Markus Funk

OECD Phase 3 Report's General Findings

The 68-page OECD Phase 3 report, issued on October 21, 2010, represents what some regard as the largest available collection of statistics and other information on the Foreign Corrupt Practices Act (FCPA). The assessment provides issue-by-issue analysis of ongoing U.S. enforcement efforts, highlighting a number of key trends and successful practices:

  • Resolving most FCPA cases through plea agreements, deferred-prosecution agreements, and non-prosecution agreements has paid off, resulting in strong enforcement and private sector compliance, without the attendant costs, time, and resource-drain of trials.
  • The Federal Sentencing Guidelines allowing for stiff criminal sanction, more focused SEC guidance, and the potential for hefty civil penalties motivate companies to establish effective compliance policies and procedures.
  • Internal audits of both domestic and foreign subsidiaries, trainings, and whistleblower tip hotlines are the most critical compliance measures.
  • Many FCPA investigations are launched by, or through, U.S. foreign service officers serving in U.S. Embassies overseas.
  • Foreign data protection laws frequently impede companies' abilities to obtain access to the books and records of subsidiaries abroad.
  • From a risk-evaluation standpoint, there are three primary areas requiring the most robust anti-bribery measures: (1) Third parties, including local agents and joint venture partners, (2) facilitation payments, especially to customs officials, and (3) payments for travel, gifts and hospitality.
  • The business community considers corporate monitors with DOJ experience as being the most desirable.
  • The U.S. has devoted significant resources to FCPA enforcement, creating dedicated FCPA units in the DOJ, SEC, and FBI, which, in turn, yield economies of scale, concentrated expertise, and increased enforcement consistency.
  • New federal legislation, including the recent Dodd-Frank whistleblower bounty provisions, is expected to accelerate the detection of FCPA violations and the initiation of investigations and prosecutions.

For the full text of the OECD Phase 3 report: http://www.oecd.org/dataoecd/10/49/46213841.pdf

v "[The U.S. has achieved a] record level of monetary penalties and disgorgement, which should provide a major disincentive to bribing foreign public officials by U.S. companies, FMNEs listed in the U.S., and individuals and a major incentive for establishing effective compliance programmes and measures."

v "Across the board, these companies cited active enforcement by the DOJ and the SEC, in particular recently imposed large financial penalties, as the main thrust for putting into place these measures."

v "The U.S. authorities believe that in light of [the Dodd-Frank Act's whistleblower bounty provisions], reporting violations of the FCPA is likely to increase."

v "FCPA enforcement figures are expected to increase in the near future."

The corresponding USDOJ press release can be found at http://blogs.usdoj.gov/blog/archives/1020

By T. Markus Funk (mfunk@perkinscoie.com). Markus is a partner in Perkins Coie's Investigations and White Collar Defense Group. Markus spent the past 10 years as an Assistant U.S. Attorney in Chicago, Illinois, most recently serving in U.S. Attorney Patrick Fitzgerald's Public Corruption and Organized Crime Section. Markus' full bio is at www.perkinscoie.com/mfunk

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October 30, 2010 in Corruption | Permalink | Comments (1) | TrackBack (0)

Conrad Black Seventh Circuit Remand Opinion

Oh well. Nobody ever accused Judge Posner of being subtle. Bottom line: the Seventh Circuit upholds the obstruction of justice and two fraud counts and sends one count back for retrial. But then Judge Posner suggests that the government move to dismiss the remanded count and that the trial court re-sentence Black to the original sentence based on the acquitted conduct. He also manages to hold forth on "the obviously nonexistent crime" of "carnal knowledge of a fictional mouse." You just have to read it. Here is yesterday's opinion in U.S. v. Conrad M. Black, et al.

(slw)

October 30, 2010 in Current Affairs, Fraud | Permalink | Comments (0) | TrackBack (0)

Thursday, October 28, 2010

High Marks for Mounting U.S. Foreign Anti-Bribery Efforts -Part 3 of a 5-Part Series

Guest Blogger - T. Markus Funk

DOJ's Heavy Reliance on Non-Prosecution and Deferred-Prosecution Agreements

Although non-prosecution agreements and deferred prosecution agreements have been in use since the early 1990s, the October 21, 2010, OECD Phase 3 report points out that only in recent have they become household tools for Main Justice prosecutors:

  • Non-prosecution agreements and deferred prosecution agreements in FCPA cases began in 2004; since then, they have been used in 30 out of 39 completed criminal enforcement actions against companies.
  • DOJ's annual average number of non-prosecution agreements and deferred prosecution agreements has grown from less than 5 in 2004 to a high of 38 in 2007.
  • Since 1998, 23 of the 44 criminal FCPA enforcement actions have resulted in appointment of corporate monitors to ensure compliance with the agreement's terms, in most cases for three years.

U.S. Administration Message: This Is Only The Beginning

During his May 31, 2010, address to the OECD in Paris, Attorney General Eric Holder reiterated the U.S. Government's continued resolute support for the Anti-Bribery Convention: "As Attorney General, I have made combating [global] corruption one of the highest priorities of the Department of Justice." Attorney General Holder also announced the U.S. government’s intent to strengthen global anti-bribery efforts through enhanced transnational collaboration and the sharing of "best practices." Said Attorney General Holder:

The OECD has been at the forefront of efforts to combat corruption wherever and however it occurs . . . . As Attorney General, I have made combating corruption one of the highest priorities of the Department of Justice . . . . [N]one of the progress the United States has made would have been possible without the long-term cooperation of our law enforcement partners around the globe – cooperation fostered by relationships established through the OECD . . . . I urge the countries [that have not yet achieved criminal convictions in anti-bribery cases] to deepen their commitment to this global effort by dedicating the appropriate resources, such as prosecutors and investigators focused exclusively on foreign bribery cases, and by prioritizing the prosecution of corruption, no matter where the evidence leads.

Attorney General Holder also delivered a diplomatically worded, but in reality quite withering, broadside to the outsized group of foot-dragging signatories: "[I]t is important to note that many of the 38 OECD member countries have no criminal convictions to date. This is not because bribes are not paid by companies in these OECD countries. It is because investigating and prosecuting corruption is difficult, requiring more will, resources, experience, and effort than most crimes." 

Not coincidentally, in the month following the Attorney General's OECD speech, the U.S. House passed the Dodd-Frank Act’s conference report of the bill containing the innovative whistleblower bounty provisions. Such proactive public pronouncements, coupled with targeted, stepped-up law enforcement action yielding tangible results, explain why the OECD report so effusively lauds U.S. efforts to date.

For the full text of the OECD Phase 3 report: http://www.oecd.org/dataoecd/10/49/46213841.pdf

The corresponding USDOJ press release can be found at http://blogs.usdoj.gov/blog/archives/1020

By T. Markus Funk (mfunk@perkinscoie.com). Markus is a partner in Perkins Coie's Investigations and White Collar Defense Group. Markus spent the past 10 years as an Assistant U.S. Attorney in Chicago, Illinois, most recently serving in U.S. Attorney Patrick Fitzgerald's Public Corruption and Organized Crime Section. Markus' full bio is at www.perkinscoie.com/mfunk

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October 28, 2010 in Corruption | Permalink | Comments (0) | TrackBack (0)

Cooperation Costs - New Scholarship

Cooperation Costs by Miriam H. Baer (Brooklyn) - forthcoming article is Washington U. Law Review - here

SSRN Abstract:
This Article explores the costs and benefits of criminal cooperation, the widespread practice by which prosecutors offer criminal defendants reduced sentences in exchange for their assistance in apprehending other criminals. On one hand, cooperation increases the likelihood that criminals will be detected and prosecuted successfully. This is the "Detection Effect" of cooperation, and it has long been cited as the policy’s primary justification.

On the other hand, cooperation also reduces the expected sanction for offenders who believe they can cooperate if caught. This is the Sanction Effect of cooperation, and it may grow substantially if the government signs up too many cooperators, sentences them too generously, or causes them to become overly optimistic about their chances of receiving a cooperation agreement.

When the government allows the Sanction Effect to grow too large, it undermines one of its key tools for improving deterrence. Indeed, when the Sanction Effect outweighs the Detection Effect, cooperation reduces deterrence, and the government unwittingly encourages more crime. Since cooperation is itself administratively costly, the policy perversely causes society to pay for additional crime.

This Article reorients the cooperation debate around the fundamental question of whether cooperation deters wrongdoing. Drawing on economics and behavioral psychology, it provides a framework for better understanding how and when cooperation "works." Government actors who laud and rely on cooperation must address the fundamental question of whether it actually deters wrongdoing. To do otherwise, is to leave society vulnerable to cooperation’s greatest cost.

(esp)

October 28, 2010 in Scholarship | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 26, 2010

High Marks for Mounting U.S. Foreign Anti-Bribery Efforts -Part 2 of a 5-Part Series

Guest Blogger - T. Markus Funk

U.S. Anti-Corruption Efforts At An All-Time High

The U.S. government has placed the fight against bribery of foreign public officials at the top of its list of critical law enforcement priorities. The October 21, 2010, OECD Phase 3 report concludes that this focus translates into vigorous law enforcement action:

  • Prosecutions have increased from less than 5 per year between 2001 and 2005, to almost 19 per year between 2006 and 2009.
  • Between 1998 and September 2010, some 50 individuals and 28 companies were convicted of foreign bribery-related offenses, while 69 individuals and companies have been held civilly liable for foreign bribery.
  • Of the 36 individuals who have been convicted of FCPA violations and sentenced during this period, 25 received sentences of imprisonment, with the average sentence being slightly more than 30 months.
  • 26 companies have been publically sanctioned for foreign bribery under increasingly-popular non-prosecution agreements and deferred prosecution agreements.
  • Since 1998, the U.S. has imposed over $2 billion in bribery-related criminal fines against legal persons.

Rounding out this impressive -- and peerless -- enforcement picture, the OECD report emphasizes the U.S. government's imposition of massive sanctions for accounting misconduct and money laundering related to foreign bribery. Consider, for example, that between 1998 and 2003, the maximum monetary sanctions leveled against a company in an FCPA case was $2.5 million. But in the past 6 years some 23 companies were sanctioned to the tune of more than $10 million each, and during roughly the same time U.S. disgorgement actions have reeled in more than $1 billion in foreign bribery proceeds. In fact, in one case, the U.S. government imposed sanctions totaling $800 million against a single company.

The SEC, a federal agency increasingly in anti-bribery motion, obtains civil penalties separate from DOJ criminal fines for foreign bribery-related misconduct. In the first 9 months of 2010 alone, the SEC obtained over $404 million in disgorgement, interest and civil penalties from 13 companies and 8 individuals.

And the business and legal communities have certainly noticed these ramped-up, multi-faceted (and multi-agency) enforcement efforts. According to the OECD report, business leaders credit heavy sanctions and amplified prosecutions for having "significantly raised the FCPA‘s profile," resulting directly in more finely-tuned anti-bribery measures and internal controls, and more carefully-calibrated compliance systems.

For the full text of the OECD Phase 3 report: http://www.oecd.org/dataoecd/10/49/46213841.pdf

The corresponding USDOJ press release can be found at http://blogs.usdoj.gov/blog/archives/1020

By T. Markus Funk (mfunk@perkinscoie.com). Markus is a partner in Perkins Coie's Investigations and White Collar Defense Group. Markus spent the past 10 years as an Assistant U.S. Attorney in Chicago, Illinois, most recently serving in U.S. Attorney Patrick Fitzgerald's Public Corruption and Organized Crime Section. Markus' full bio is at www.perkinscoie.com/mfunk

(tmf)

October 26, 2010 in Corruption | Permalink | Comments (2) | TrackBack (0)

In the News & Around the Blogosphere

Daniel Wise, law.com, NYLJ, AIG's Greenberg Found Liable for Fraudulent Action

Ginny LaRoe, law.com, The Recorder, Federal Prosecutors Want to Ditch Remainder of Silicon Valley Economic Espionage Case  (hat tip to Ivan Dominguez)

Lynnley Browning, NYTimes, U.S. Drops Criminal Charges Against UBS

ABC News - Should Cyberbullying Be Illegal?, (Including commentary by Dan Gelb (Gelb & Gelb))

Andrew M. Harris, Bloomberg, Ex-Illinois Governor Blagojevich Wins Delay in Retrial of Corruption Case

Nedra Pickler, AP, LATimes, Prosecutor uses lobbyist's own e-mails in corruption trial; defense calls them obvious jokes

David Ingram, BLT Blog, Constitutional Clash Hangs Over Corruption Case

Josh Gerstein, Politico, Judge: Feds violated U.S. Islamic group's rights

Spencer S. Hsu, Wash Post, Retrial of Abramoff lobbyist Ring begins in D.C. federal court

DOJ Press Release, California Company and Two Executives Indicted for Their Alleged Participation in Scheme to Bribe Officials at State-owned Electrical Utility in Mexico

DOJ Press Release, Texas Businessman Pleads Guilty in Virginia to Role in $100 Million Fraud Scheme Involving Life Settlements

DOJ Press Release, Houston-area Patient Recruiter Pleads Guilty in a $5.2 Million Medicare Fraud Scheme

DOJ Press Release, Two Miami Corporations and Four Individuals Indicted for Health Care Fraud Scheme Involving Approximately $200 Million in Medicare Billing

John R. Emshwiller, WSJ, Retrial Dropped, Enron Figure Talks

Samuel Rubenfeld, WSJ, Manhattan DA Announces New Unit To Investigate Public Corruption

T. Markus Funk (Perkins Coie), Wolff, Honey & Obstruction

(esp)

October 26, 2010 in News | Permalink | Comments (0) | TrackBack (0)

Overcriminalization 2.0 - An Incredible Conference

Held at the Georgetown Conference Center, the Journal of Law, Economics and Policy, the Law and Economics Center at George Mason University School of Law, NACDL, and the Foundation of Criminal Justice joined together last Thursday for a conference entitled Covercriminalization 2.0: Developing Consensus Solutions. An introduction to this conference by Norman Reimer, Executive Director of NACDL, was followed by a keynote address by former Deputy Attorney General and now Senior Vice President - Government Affairs, General Counsel & Secretary for PepsiCo, Inc., Larry Thompson.  He said, prosecutors need to ask questions such as: "Is a corporate criminal prosecution really necessary?  Does it serve the goals of deterrence and retribution?" 

The day was spent coming up with solutions to the problem of overcriminalization and many ideas were offered.  Four key presentations were offered by  Professor Roger Fairfax (GW) who spoke about "smart on crime" solutions"; Professor Larry Ribstein (Illinois) who spoke about agency costs and monitoring prosecutors;  Professor Darryl Brown (Virginia) who spoke about regulation or criminalization; and Professor Geraldine Szott Moohr (Houston) who looked at how to restore the mens rea.  

There were a host of commentators.  For example, Cynthia Orr had an incredible Powerpoint that showed the small list of crimes that existed in the early days of this country. She talked about the response to the problem de jour. Solomon Wisenberg, gave his confession of a former prosecutor (see here). Paul Rosenzweig looked at whether elections can make a difference in monitoring prosecutors.He cited to Professor Ron Wright's article How Prosecutor Elections Fail Us, 6 Ohio State J. Crim.. L. 581 (2009) and also looked at what prosecutors were saying in the elections. Glenn Lemmi spoke about the responsible corporate officer doctrine. Professor Lucian Dervan (Southern Illinois) looked at the role of plea bargains. Overcriminalization allowed novel theories to go untested, he noted. Professor Sara Sun Beale noted that guns, drugs, immigration are the bulk of cases and we need to keep our eyes on these big areas. Professor Kate Stith and Carmen Hernandez brought in sentencing considerations.

Three judges wrapped up the day (Hon. Frederic Block, Cormac Carney, and Jed Rakoff). Discussion turned to sentencing issues that cause overcriminalization problems, although there were many other points mentioned.

The papers that are produced from this day are likely to be well read as it was an incredible day with many ideas to move the overcriminalization discussion forward. The Journal of Law, Economics, and Policy will be the proud sponsor of the articles from this issue.

(esp)

October 26, 2010 in Conferences | Permalink | Comments (0) | TrackBack (0)

Monday, October 25, 2010

High Marks for Mounting U.S. Foreign Anti-Bribery Efforts -Part 1 of a 5-Part Series

Guest Blogger - T. Markus Funk

On October 21, 2010, the Organization for Economic Cooperation and Development (OECD) issued its much-anticipated "Phase 3" report. This weighty report formally grades the U.S.'s constantly constricting anti-bribery enforcement noose, concluding that U.S. efforts provide a model other nations seeking to similarly fortify their anti-corruption efforts should emulate.

The OECD points its shaming finger at signatory nations not living up to their anti-bribery obligations, and the organization in its report also identifies certain discrete areas for U.S. improvement. But the deep-dive assessment's bottom-line message is that the U.S. government is out in front – way out front – in its all-out offensive against foreign bribery. And the U.S. is not waiting for others to catch up.

OECD Anti-Bribery Convention: The World's Leading Anti-Bribery Instrument

By way of some background, the historic 1997 OECD "Convention of Combating Bribery of Foreign Public Officials in International Business Transactions," adopted by 38 countries, announces standards criminalizing foreign bribery. The OECD Anti-Bribery Convention, in fact, remains the only such international anti-corruption instrument.

In an effort to encourage compliance, the highly-regarded OECD peer-reviewed Working Group on Bribery Monitoring carefully, and publicly, scrutinizes signatories’ performance. The Working Group, in so doing, takes a holistic approach, collecting input not only from the subject signatory governments, but also from representatives of the private sector and civil society. The end-product is an all-things-considered written assessment which enjoys the high regard of the broader international legal and political community.

In terms of procedure, OECD evaluations take place in phases: Phase 1 evaluates the adequacy of a country’s legislation to implement the OECD Anti-Bribery Convention, and Phase 2 assesses whether a country is applying this legislation effectively. Phase 3 then focuses on enforcement of the Convention, the 2009 Anti-Bribery Recommendation, and any earlier recommendations that remain outstanding. An evaluation for good reason feared by many signatory nations, the OECD Phase 3 probing U.S. compliance with the Anti-Bribery Convention will undoubtedly receive a warm, appreciative reception in the Nation's capitol.

For the full text of the OECD Phase 3 report: http://www.oecd.org/dataoecd/10/49/46213841.pdf

The corresponding USDOJ press release can be found at http://blogs.usdoj.gov/blog/archives/1020

By T. Markus Funk (mfunk@perkinscoie.com). Markus is a partner in Perkins Coie's Investigations and White Collar Defense Group. Markus spent the past 10 years as an Assistant U.S. Attorney in Chicago, Illinois, most recently serving in U.S. Attorney Patrick Fitzgerald's Public Corruption and Organized Crime Section. Markus' full bio is at www.perkinscoie.com/mfunk

(tmf)

October 25, 2010 in Corruption | Permalink | Comments (0) | TrackBack (0)

Sunday, October 24, 2010

Dodd-Frank Rules Could Create Multiple Corporate Headaches

Guest Blogger - Philip Hilder

Critics are complaining that a likely downside to the Dodd-Frank Wall Street Reform and Consumer Protection Act will be a tsunami of complaints from gold digging bounty hunters in the workplace, including many false allegations.

Certainly the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission will have a lot more work. Dodd-Frank also means they will have a lot more help in finding fraud and insider trading.

A bigger problem may be that empowered whistleblowers will be encouraged to ignore their corporate ladder, ignore their internal rules and rush to the government with any perceived problem they hope will be the “original information” that can be the foundation of an enforcement action. This race for cash rewards could conflict with internal company compliance and ethics programs, which encourage employees to internally report wrongdoing.

It also could be good for lawyers who get paid to help clean up the mess, but bad for companies that may lose the opportunity to self-correct before a government investigation is launched.

It is foreseeable that such an investigation could trigger shareholder or derivative lawsuits against the company as well.

My client Sherron Watkins, a former Enron vice president, reported accounting problems at that now-dead company by following the internal rules. Under Dodd-Frank, the next person in Watkins’ position will more likely become a true whistleblower, bypassing internal protocol and heading outside the company to grab for the golden ring.

Just as Congress created Sarbanes-Oxley protections in response to Enron, in part because of Watkins' testimony, Congress also created Dodd-Frank in reaction to the Bernie Madoff scandal. Congress created more lucrative bounties and effectively deputized millions of Americans to skip company protocol by telling the government about insider trading, securities fraud, bribery of overseas businesses and governments, and a host of financial crimes that employees may see on the job.

The stakes are higher than when Watkins warned her bosses in 2001. She was rewarded with inquiries about how to fire her. Dodd-Frank would help in that scenario, too. It not only beefs up the payment to those who reveal real crimes, but it also strengthens the protections against retaliation, and doubles the amount someone can recover in a successful retaliation lawsuit.

Before this Act, total awards to whistleblowers were discretionary and only rewarded for certain insider trading tips. Now, successful enforcement exceeding $1 million could bring a whistleblower between a mandatory 10 percent up to 30 percent of what is government recovered.

Now corporations need not worry only about current and former employees but also about folks at subsidiaries and affiliates of publicly traded companies. Even contractors, consultants and sales agents can blow whistles for cash. Those who can’t reap the rewards include someone convicted of a crime related to the information provided to the government, certain auditors and employees of the SEC, CFTC and U.S. Department of Justice.

Prior to Dodd-Frank being passed, the Department of Labor was barely pursuing whistleblower retaliation complaints. It denied awards in about 98 percent of cases and tossed out more than 1,000 claims. Whistleblowers can now skip over the DOL and proceed directly to federal court where they can double their back pay with interest if they prevail in a lawsuit.

Now we’ll see emboldened employees along with companies who need to be more careful with compliance and self-policing. Congress’ empowerment of employees may create a litigation rich environment where a lot more dirty laundry is aired. 

Philip H. Hilder is a former federal prosecutor and founder of Houston-based Hilder & Associates, P.C., who focuses on white-collar criminal defense and whistle blower lawsuits. philip@hilderlaw.com

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October 24, 2010 in Civil Enforcement, Civil Litigation | Permalink | Comments (1) | TrackBack (0)