White Collar Crime Prof Blog

FCPA - Some New Items

Check out the FCPA Blog here for a discussion of the FCPA count in William Jefferson's trial.  The question is asked " Is William Jefferson still on trial for violating the Foreign Corrupt Practices Act?"

Andy Spaulding, Fulbright Scholar at the University of Mumbai, India, posted a piece on the FCPA on SSRN here.  Here's an abstract of the piece -

Unwitting Sanctions:  Understanding Anti-Bribery Legislation as Economic Sanctions Against Emerging Markets
 
Abstract
Although the purpose of international anti-bribery legislation, particularly the U.S. Foreign Corrupt Practices Act, is to deter bribery, empirical evidence demonstrates a more problematic effect:  in countries where bribery is perceived to be relatively common, the present enforcement regime goes beyond deterring bribery and actually deters investment.  Drawing on literature from political science and economics, this article argues that anti-bribery legislation, as presently enforced, functions as de facto economic sanctions.  A detailed analysis of the history of FCPA enforcement shows that these sanctions have most often occurred in emerging markets, where historic opportunities for economic and social development otherwise exist and where public policy should encourage investment.  This effect is contrary to the purpose of the FCPA which, as the legislative history shows, is to build economic and political alliances by promoting ethical overseas investment.

These perverse and unanticipated consequences create two policy problems.  First, the sanctions literature suggests that the resulting foreign direct investment void may be filled by capital-rich countries that are not committed to effectively enforcing anti-bribery measures.  This dynamic can be observed, for example, in China's aggressive investment in Africa, Latin America, and Central Asia, and creates myriad ethical, economic, and foreign policy problems.  Second, by enforcing these laws without regard to their sanctioning effects, developed nations are unwittingly sacrificing poverty reduction opportunities to combat bribery.  The paper concludes with various proposed reforms to the text and enforcement of international anti-bribery legislation that would further the goal of deterring bribery without deterring investment.

 

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Novo Nordisk Deferred Prosecution Agreement

A DOJ Press Releasereports on a deferred prosecution agreement entered into by "Novo Nordisk A/S (Novo), a Danish corporation based in Bagsvaerd, Denmark."  The agreement calls for the company to pay a penalty of "$9 million penalty for illegal kickbacks paid to the former Iraqi government."  This case is part of the DOJ's investigation "into the UN Oil-for-Food program." The DOJ filed "one count of conspiracy to commit wire fraud and to violate the books and records provisions of the Foreign Corrupt Practices Act (FCPA)."  The DOJ Press Release states:

"According to the agreement and the information filed today, between 2001 and 2003, Novo paid approximately $1.4 million to the former Iraqi government by inflating the price of contracts by 10 percent before submitting the contracts to the United Nations for approval and concealed from the United Nations the fact that the price contained a kickback to the former Iraqi government. Novo also admitted it inaccurately recorded the kickback payments as "commissions" in its books and records."

See also FCPA Blog here; Reuters here.

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Shortcuts on FCPA Due Diligence Today Will Be Costly Tomorrow

Guest Blogger, Sharie A. Brown of DLA Piper -

The current financial crisis and market volatility understandably focuses corporate executives and their employees on corporate survival and improved financial performance. In my experience, corporate consolidations, divestitures, restructurings, and employee layoffs create organizational distractions that can distort sound judgment and reward short-term, but ill-conceived business solutions. At a recent General Counsel Forum in Chicago last week focusing on fraud prevention and anticorruption strategies, the attendees from corporate legal departments and financial functions indicated that they will be required to operate with fewer compliance and internal controls resources. None of the attendees thought their companies will be more susceptible to fraud and corruption violations this year compared to other years. Yet, my observations over the years indicate that from late 2009 through 2012, we should expect to see several currently reputable, large U.S. companies and individual corporate managers under investigation for fraud, corruption, and other criminal and civil violations. These companies and individuals will face enforcement scrutiny because they did not fight the tendency of managers and business units to shortcut legal compliance, internal controls, and due diligence procedures designed to prevent and detect financial crimes, particularly violations of the US Foreign Corrupt Practices Act ("FCPA").

One of the most important FCPA compliance and internal controls involves the conduct of appropriate, risk-based due anticorruption diligence on third party intermediaries, agents and consultants, as well as overseas joint venture partners, and international merger and acquisition target companies in high risk countries and industries for public corruption. This risk-based approach requires companies to take into account the following factors, among others: i) the reputation of the party or agent for corruption in the industry; ii) the local country’s reported reputation for public corruption; iii) whether the party is the subject of local media scandal or enforcement scrutiny, or on any international governmental lists; iv) whether the acquiring company has industry contacts that have information about the targeted party; v) the apparent competence and qualifications of the party for the project or activity contemplated; vi) whether the party was referred by a foreign official; vii) the availability and reliability of information about the targeted party in public databases, websites, and business reporting services; viii) whether the party is a foreign government official within the meaning of the FCPA, and whether there is shareholding by a foreign official in the party ; ix) whether the party is an agency or instrumentality of a foreign government; and x) whether the party or its shareholders are a relative or close associate of a foreign government official. Appropriate FCPA anticorruption due diligence would take into account and address these issues.

A more rigorous due diligence is appropriate in situations where the third party relationship or target company acquisition is highly strategic and economic, but the public corruption risks for the country and the industry are well-documented. For this important high-risk acquisition or joint venture relationship, there is no substitute for an in-country review consisting of in-person interviews of the parties and their key personnel, as well as relevant document reviews and sampling by U.S. professionals who regularly apply U.S. FCPA standards, in consultation with local professionals, to ensure that local anticorruption, data protection, and related fraud laws and rules, are recognized. Yet, during times of tight corporate finances, some companies will forgo such FCPA due diligence in favor of database reviews only, or they will rely on background or financial investigators whose reports list "FCPA" in the report title, but unfortunately those reports do not recognize or actually examine high risk FCPA/anticorruption activities. These seemingly cost-effective due diligence shortcuts actually result in expensive FCPA legal exposure for the acquiring company due to the FCPA risk items overlooked or misunderstood by the background investigators.

U.S.enforcement agencies are watching companies, and seem more determined to ensure that FCPA compliance, and other U.S.legal and financial compliance requirements continue to be fulfilled during the financial crisis. The U.S. Securities and Exchange Commission ("SEC") Office of Compliance Inspections and Examinations issued a letter to CEOs of SEC-registered firms to remind them of the important role that compliance programs play in helping companies meet their obligations under the securities laws. The SEC emphasized that even with the current financial crisis, corporate cost cutting-measures should take into account the need to maintain adequate compliance programs and internal financial controls systems. See Lori Richards, Director, Office of Compliance Inspections and Examinations U.S. Securities and Exchange Commission, Open Letter to CEO's of SEC-Registered Firms (Dec. 2, 2008) (available here). Companies should consider this SEC notice to be an early indication that the financial crisis, standing alone, will not insulate a company against U.S. enforcement actions for fraud, FCPA violations, or other financial and reporting violations arising from a high risk environment created by the failure to maintain controls, or follow FCPA procedures, and test compliance systems.

Aggressive U.S. enforcement of financial fraud, corruption, and other criminal and civil violations is also forecast as a result of Congressional efforts with respect to the Supplemental Anti-Fraud Enforcement Markets Act ("SAFE Markets Act"). This anticipated legislation seeks to materially increase funding for investigative and prosecutorial resources by $110 million for enforcement actions involving financial fraud, corruption, ring the financial crisis may be particularly challenging for companies this year. Senator Charles E. Schumer (D-NY) and Senator Richard C. Shelby (R-Ala) of the Senate Banking Committee believe that 50 new assistant U.S. attorneys and 100 new SEC enforcement employees need to be hired to investigate and prosecute financial crimes.

Further, the U.S. Department of Justice ("DOJ") and the SEC are expected to continue aggressive investigation and enforcement of the FCPA, while imposing several millions (and possibly additional billions) of dollars in fines, penalties, and disgorgements for future violations. Thus, the lesson is clear: in the practice of FCPA due diligence for agents, joint venture partners, and merger and acquisition targets, a due diligence shortcut for savings, could ultimately become the most devastating and costly strategy for companies, managers, individual employees, and corporate boards under the FCPA.

(SAB)

Kellogg, Brown & Root LLC Pleads on FCPA

According to a DOJ Press Release "Kellogg Brown & Root LLC (KBR), a global engineering, construction and services company based in Houston, pleaded guilty today to charges related to the Foreign Corrupt Practices Act (FCPA) for its participation in a decade-long scheme to bribe Nigerian government officials to obtain engineering, procurement and construction (EPC) contracts. . ."  The company plead to a "five-count criminal information" and "agreed to pay a $402 million criminal fine." The company issued a press release that stated that:

"[u]nder the terms of the settlement announced earlier today, KBR will make payments totaling $20 million over the next eight quarters to the DOJ. The information contained in the DOJ and SEC settlements note aggregate financial penalties totaling $579 million. The remainder of the penalties will be paid by Halliburton pursuant to indemnities under the 2006 Master Separation Agreement between KBR and Halliburton."

KBR has also agreed "to retain a compliance monitor to review KBR's continued compliance with anti-corruption laws."  See also the FCPA Blog here

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Halliburton

Check out the FCPA Blog, Halliburton Announces Pending Settlement; Dan Slater, WSJ Blog, Halliburton Breaks FCPA Settlement Record for U.S. Companies.

How much can you fine a company for violating the law? At what point does the fine exceed a cost of doing business and become a deterrent for future conduct, not to mention a general deterrent to other companies?

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More on Siemens

Initially discussed here, the Siemens plea is an interesting one. The go-to place for information on this case is the FCPA Blog here. Some observations -

• Unlike many cases involving a company, this does not appear to be a deferred prosecution agreement - but rather is a plea agreement with specified terms.
• The fine is huge, but it allows the company to resolve the case and move forward and the plea is not to an anti-bribery act, but rather the reporting provisions.
• The timing on this resolution is interesting - before the new administration takes over, before the end of the year - or is that reading too much into this.
• Unlike the deferred prosecution agreement in KPMG (here -p. 26) there is no explicit statement in the agreement precluding debarment. Also in Titan (FCPA case) there was a statement by the company that spoke to there being no debarment. One can find a reference to that here:

"Titan announced that it had reached a settlement to avoid debarment from work on U.S. government contracts. Avoiding debarment was particularly important to Titan, which is a leading provider of information and communications systems to U.S. government agencies."

But here again, we are only discussing reporting provisions and not anti-bribery.  And certainly no one should want to hurt innocent people associated with the company.

• At the government press conference it was stated - "Siemens' cooperation, in a word, has been exceptional.   Siemens has faced facts, accepted responsibility, retained experienced counsel to conduct thorough internal investigations, and has implemented real reforms."  And in the sentencing memo of the government there are repeated references to the extraordinary cooperation of the company.  For example, it states "[t]he reorganization and remediation efforts of Siemens have been extraordinary and have set a high standard for multi-national companies to follow."   The sentencing memo has an incredible description of the internal amnesty program of the company.
• DOJ has a website that provides the FCPA, a lay person's guide, etc.  A key problem one finds is that because most of the cases are resolved, one is unlikely to find a significant body of reported decisions resolving issues involving companies who were alleged to violate the FCPA.  And as for individuals - the DOJ website lists 2 cases, but notes that they last updated the website in 2004.(here)
• The plea agreement letter provides for cooperation, but does not call for providing any privileged material -  something that is good to see on the part of DOJ. (See FCPA Blog here)
• The agreement does limit the ability of the company from disseminating information regarding this matter without first obtaining the approval of DOJ. It states:

"Press Releases: Defendant agrees that if Siemens AG or any of its direct or indirect affiliates or subsidiaries issues a press release in connection with this agreement, defendant shall first consult the Department to determine whether (a) the text of the release is true and accurate with respect to matters between the Department and defendant; and (b) the Department has no objection to the release. Statements at any press conference concerning this matter shall be consistent with this press release."

A waiver of first amendment rights - is the government fearful of the company saying something?  This may explain why the document on the Siemens website - to investors - is extremely brief -Download 20081215_settlement_eng.pdf

(esp)

Addendum - Jordan Weissmann, BLT Blog, Siemens AG Lawyers View $800 Million Fine As a Victory

Siemens AG & 3 Subsidiaries Plead

A DOJ press release is titled - Siemens AG and Three Subsidiaries Plead Guilty to Foreign Corrupt Practices Act Violations and Agree to Pay $450 Million in Combined Criminal Fines - Coordinated Enforcement Actions by DOJ, SEC and German Authorities Result in Penalties of $1.6 Billion.  At a press conference called to announce this settlement, Acting Assistant Attorney General Friedrich stated:

"Under the terms of the plea agreement announced today, first, Siemens AG will plead guilty and has pled guilty to one count of failure to maintain internal controls and a one-count books and records violation.   In addition, three Siemens subsidiaries, those located in Bangladesh, Venezuela and Argentina, have pled guilty to conspiring to violate provisions of the FCPA. 

"Second, Siemens will pay a criminal fine to the United States in the amount of $450 million.   This is far and away the largest criminal fine in FCPA enforcement in U.S. history. 

"Third, Siemens will retain an independent monitor for a period of four years and will continue to implement enhanced controls."

With regard to this last point, the press release states that:

"Under the terms of the plea agreement, Siemens AG agreed to retain an independent compliance monitor for a four-year period to oversee the continued implementation and maintenance of a robust compliance program and to make reports to the company and the Department of Justice.  Siemens AG also agreed to continue fully cooperating with the Department in ongoing investigations of corrupt payments by company employees and agents."

See also FCPA Blog, Final Settlements for Siemens

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KPMG Study Shows the Difficulties Faced By Companies in FCPA Matters

A KPMG study released today demonstrates the difficulties faced by companies trying to comply with the Foreign Corrupt Practices Act (FCPA). A Press Release accompanying the study notes that "[m]ost multinational U.S.companies have programs to meet Foreign Corrupt Practices Act (FCPA) guidelines, but many executives surveyed by the audit, tax and advisory firm KPMG LLP acknowledge they still may not know enough about those with whom they do business in other countries." For example, "78 percent said they had trouble identifying and assessing FCPA risk."  The report can be found here - Download postable_pdf.pdf

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Non-Prosecution Agreement in FCPA Matter

Who gets prosecuted, who gets a deferred prosecution agreement, and better yet - who gets a non-prosecution agreement? Prosecutorial discretion plays an enormous role in answering this question.  And in many ways this is good when prosecutors are factoring in human aspects such as trying to avoid harm to innocent third parties. But many in the world would like the guidance of how to better their case to receive the least damaging result to their company when conduct within the company crosses the line.

Continuing to provide transparency to the process appears to be the best way to discern the nuances that allow for the differing results. But this can be difficult. 

DOJ just announced in a press release the agreement by Faro Technologies Inc. to a non-prosecution agreement. "Faro Technologies Inc. (Faro), a public company that specializes in computerized measurement devices and software, agreed to pay a $1.1 million criminal penalty in connection with corrupt payments to Chinese government officials in violation of the Foreign Corrupt Practices Act (FCPA)."  The non-prosecution agreement has a two year term and includes an agreement for an independent corporate monitor.

On its website, the company describes the resolution of this matter and also notes that "[w]ith approximately 17,000 installations and 7,600 customers globally, FARO Technologies, Inc. designs, develops, and markets portable, computerized measurement devices and software used to create digital models -- or to perform evaluations against an existing model -- for anything requiring highly detailed 3-D measurements, including part and assembly inspection, factory planning and asset documentation, as well as specialized applications ranging from surveying, recreating accident sites and crime scenes to digitally preserving historical sites." (see here)

As with so many white collar matters, there is also a parellel proceeding here. "[T]he Securities and Exchange Commission (SEC) today instituted a settled enforcement action against Faro.  Faro consented to the entry of a cease and desist order and agreed to pay approximately $1.85 million in disgorgement and prejudgment interest . . ." (see also SEC here)

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AGA Medical Corp. Gets Deferred Prosecution Agreement on FCPA Matter

A DOJ Press Release reports that "AGA Medical Corporation (AGA), a privately-held medical device manufacturer, has agreed to pay a $2 million criminal penalty in connection with corrupt payments to Chinese government officials in violation of the Foreign Corrupt Practices Act (FCPA)."  The 2 count Information filed by the government "charges AGA with one count of conspiring to make bribe payments to Chinese officials and one count of violating the FCPA in connection with the authorization of specific corrupt payments to officials in China." 

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Alcoa Investigation

Glenn R. Simpson, of the Wall Street Journal, has an article this morning titled, "U.S. Opens Alcoa Bribery Probe." Alcoa, a global company, clearly has internal rules related to the giving and taking of company gifts. For example, one finds this one on the company website:

"Gifts, favors and entertainment may be given at company expense or accepted by directors, officers or employees from a competitor or an individual or firm doing or seeking to do business with the company only if they meet all of the following criteria:

1. they are consistent with customary business practices and do not violate applicable law or ethical standards;
2. they are not excessive in value;
3. they cannot be construed as a bribe, payoff or improper inducement; and
4. public disclosure of the facts would not embarrass the company or the director, officer or employee.

Payments or gifts of cash (or of cash equivalents such as stocks or commodities) to or from a competitor or an individual or firm doing or seeking to do business with the company are never permitted and may not be solicited, offered, made or accepted by directors, officers or employees"

Although a big believer in the presumption of innocence, one has to wonder what could happen if this investigation turns up a bribe to a foreign official.  The Foreign Corrupt Practices Act is easily explained in this DOJ Layperson's Guide discussed here.  But one notices in looking at the results of a good number of cases (see here) against companies, that if the DOJ does decide to proceed, there is little likelihood of a trial. When a company is involved, the matter tends to end with a payment of a fine and in some cases a deferred prosecution agreement. In a post-Arthur Andersen world, this is easily explained as the cost of fighting can be a death sentence to a company. If the government does find something here, one has to wonder if this will be the result. But, on the other hand, if there is nothing to this investigation - it is hoped that the press received will not hurt the company.

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AB Volvo Gets a Deferred Prosecution Agreement

A DOJ Press Release states that "AB Volvo has agreed to pay a $7 million penalty as part of an agreement with the U.S. Department of Justice regarding charges brought in connection with an ongoing investigation related to the U.N. Oil for Food program." The release describes the breadth of the investigation in stating:

"The Department of Justice today filed an agreement with AB Volvo, as well as criminal informations against AB Volvo subsidiaries, Renault Trucks SAS (Renault Trucks) and Volvo Construction Equipment AB (VCE), in the U.S. District Court for the District of Columbia. The informations charge that Renault Trucks and VCE engaged in separate conspiracies to commit wire fraud and to violate the books and records provisions of the Foreign Corrupt Practices Act.

According to the agreement, AB Volvo has acknowledged responsibility for the actions of its subsidiaries, whose employees, agents and distributors paid kickbacks to the Iraqi government in order to obtain contracts for the sale of trucks and heavy commercial construction equipment. The agreement requires the company to cooperate fully with the Department’s ongoing Oil for Food investigations.

The SEC press release also notes that the "SEC Files Settled Books and Records and Internal Controls Charges Against AB Volvo For Improper Payments to Iraq Under the U.N. Oil for Food Program - Company Agrees to Pay Over $12.6 Million in Civil Penalties, Disgorgement of Profits, and Interest."

The company issued a statement saying that "'[t]he incident is, of course, regrettable, but we do note with some satisfaction that the authorities spoke favorably of the cooperation by Volvo as well as Volvo’s own investigation and measures', says Volvo CEO Leif Johansson. 'It is important that we all now learn from what occurred.'”

SEC Complaint here

Information here

Information (Renault) here

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Deferred Prosecution Agreements & Spitzer

The FCPA Blog appropriately notes we haven't being seeing many deferred prosecution agreements these days (see here).  As the FCPA Blog points out, there have been no reported agreements since Flowserve on February 21.(see here).  It is probably a wise move for the government to lay low on deferred prosecution agreements right now with the microscope focused on how monitors are being appointed on the agreements, and also looking at issues of who should have oversight - prosecutors or the courts.

And then to hear discussion of the possibility of former NY Governor Spitzer obtaining a deferred prosecution agreement sends an interesting message.  One finds this mention noticeably in an article in the Wall Street Journal by Laurie P. Cohen, Glen R. Simpson and Amir Efrati. (see here). In the corporate setting, it is rare that we see an individual obtaining a deferred prosecution agreement.  The last ones of major significance were Former Monster Worldwide CEO Andrew McKelvey (see here) and Frank Quattrone (see here). Now if they decide upon a deferred prosecution agreement with Spitzer, what kind of terms will they include, and will it include a clause used in the Quattrone agreement requiring that he "can only associate with law-abiding persons." 

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Deferred Prosecution Agreement with Flowserve

A press release of the DOJ states that "Flowserve Corporation (Flowserve) has agreed to pay a $4 million penalty as part of an agreement with the U.S. government regarding charges brought in connection with an ongoing investigation related to the United Nations Oil for Food program." Flowserve notes the agreed upon penalty on their website as being "a fine, profit disgorgement and related prejudgment interest to the SEC totaling $6,574,225 and a penalty to the DOJ of $4,000,000."

DOJ notes that "[t]he Information [filed by the government] charges that Flowserve Pompes engaged in a conspiracy to commit wire fraud and to violate the books and records provisions of the Foreign Corrupt Practices Act."

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Wabtec Deals With Government

A DOJ press release tells of their recent "agreement with Westinghouse Air Brake Technologies Corporation (Wabtec) regarding improper payments to government officials in India in violation of the Foreign Corrupt Practices Act." The release states that

"[t]he agreement requires that Wabtec pay a $300,000 penalty, implement rigorous internal controls, and cooperate fully with the Department. The agreement acknowledges Wabtec’s voluntary disclosure and thorough self-investigation of the underlying conduct, the full cooperation provided by the company to the Department, and the remedial efforts undertaken by the company."

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Will Siemens Have the Mother of All Monitorships?

With each passing quarter the internal investigation at Siemens AG keeps delivering more bad news about the company's overseas bribes.  A case that started with accusations of a few payments in one division has now stretched across what seems like the entire company, with total payments exceeding $2 billion, by far the largest FCPA case seen to date.  The latest letter (here) from Debevoise & Plimpton, the law firm conducting the internal investigation, now indicates that the wrongdoing stretches into Siemens' executive suite, specifically members of its Managing Board.  The firm states, "Since November 28, 2007, we have obtained significant new information and developed very substantial leads from participants in Siemens' amnesty program, as well as other sources, regarding topics relevant to our investigation.  In particular, certain of this new information pertains to the conduct and knowledge of a number of individuals who have served on the Managing Board during the past several years." [italics added]  That is certainly bad news for a company that tried to downplay the bribery problems and insisted, at least to this point, that the payments were a localized issue that did not implicate senior managers.  That line of defense is now pretty much over.

Under German corporate law, there are two Boards at a company.  The Managing Board is responsible for the day-to-day management of the enterprise, the equivalent of the senior managers in a U.S. company.  At Siemens, there are eight members of the Managing Board, including CEO Peter Löscher, and they are responsible for the different operating units.  Above them is the Supervisory Board, which has oversight responsibility for the company and appoints (or dismisses) the members of the Managing Board.  This is the equivalent of the board of directors at a U.S. company, although only half the Supervisory Board members are elected by the shareholders, while the other half represent employees, many of whom are members of unions.  That is quite different from the board of an American company, which is elected only by shareholders and the members are usually picked by management to stand for election.

Siemens has already settled an investigation by local German prosecutors, and the SEC and Department of Justice are conducting FCPA investigations.  The latest revelations will make settling the case more difficult, and the involvement of senior management will require that any deferred prosecution agreement include a monitor with wide-ranging responsibilities.  Siemens had almost €87 billion in sales in 2007, and has nearly 475,000 employees in every major country and region in the world.  The scope of the overseas bribery will require a monitor to go into almost every part of the operation, and given the extensive sales in countries like China, where corruption is endemic, it could take years for an outside agency to assess Siemens' compliance with a DPA.

I suspect the Debevoise investigation has already cost Siemens upwards of $50 million, and quite possibly more as it expands -- the letter states that "significant new information continues to be developed on virtually a daily basis."  The monitorship could well cost it over $250 million.  There has been quite a bit of controversy lately over the appointment of monitors in cases settled by DPAs  (see Washington Post story here), and much has been made of the estimated cost of former Attorney General John Ashcroft's monitorship for Zimmer Holdings that will cost the company between $28 million and $52 million.  That case is fairly straightforward, involving illicit payments to doctors to use the company's devices in replacement surgeries.  Indeed, it's not clear how Ashcroft can charge that much for a fairly simple monitorship, but if that's the going rate, Siemens will easily cost ten times as much, and possibly even more. 

The Department of Justice has been formulating guidelines for the appointment of monitors to regularize the process and remove any appearance of impropriety from positions that can be quite lucrative.  The Siemens monitorship will be the big prize, so let's hope that a program is in place for the appointment of the inevitable outside monitor.  And look for Siemens to create a hefty reserve to settle the case, because I suspect the federal government will be looking for a sizable fine and appointment of a long-term monitor to police the global enterprise. (ph) 

Yet Another FCPA Matter - This Time It's Lucent

Cases involving the Foreign Corrupt Practices Act (FCPA) are clearly on the rise.  This time it involves a settlement with Lucent Technologies, Inc. The company will be paying a fine of one million dollars to resolve FCPA allegations. What is happening with these settlements is that the contours of what is permitted expenses and what will not be tolerated are coming to light.  Companies are finding out the hard way, that it is better to err on the side of not paying sums that might in any way be considered bribery to a foreign official.  In the Lucent matter, the DOJ press release states:

"Lucent acknowledged that it provided Chinese government officials with pre-sale trips to the United States to attend seminars and visit Lucent facilities, as well as to engage in sightseeing, entertainment and leisure activities. In 2002 and 2003 alone, there were 24 Lucent-sponsored pre-sale trips for Chinese government customers. Of these, at least 12 trips were mostly for the purpose of sightseeing. Lucent spent over $1.3 million on at least 65 pre-sale visits between 2000 and 2003. The individuals participating in these trips were senior level government officials, including the heads of state-owned telecommunications companies in Beijing and the leaders of provincial telecommunications subsidiaries.

Between 2000 and 2003, Lucent also provided Chinese government officials with post-sale trips that were typically characterized as “factory inspections” or “training” in contracts with its Chinese government customers. By 2001, however, Lucent had outsourced most of its manufacturing and no longer had any Lucent factories for its customers to tour. Nevertheless, Lucent provided individuals with trips for “factory inspections” to the United States, Europe, Australia, Canada, Japan and other countries that involved little or no business content. These trips consisted primarily or entirely of sightseeing to locations such as Disneyland, Universal Studios, the Grand Canyon, and in cities such as Los Angeles, San Francisco, Las Vegas, Washington, D.C., and New York City, and typically lasted 14 days each and cost between $25,000 and $55,000 per trip.

In the agreement, Lucent admits to all of this conduct, as well as other instances of providing travel and educational opportunities to Chinese government officials and to the improper recording of those expenses in its corporate books and records."

An additional cost that many companies can face when having to deal with FCPA allegations is the cost of attorney fees to respond to government investigations and actions. See also the WSJ here that talks about Alcatel-Lucent paying 2.5 million in fines.

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Film Exec and Wife Charged with FCPA Violation

A Press Release of the DOJ tells that "a film executive and his spouse were arrested today on allegations of making corrupt payments to a Thai government official in order to obtain lucrative contracts to run an international film festival in Bangkok, in violation of the Foreign Corrupt Practices Act (FCPA)."  The case - -charged in early December, but just unsealed -- alleges that the defendants "conspired to make more than $1.7 million in bribe payments for the benefit of a government official with the Tourism Authority of Thailand (TAT) in order to obtain the film festival contract and contracts with TAT worth more than $10 million."  The defendants are alleged to have been bidding "for the management contract for the annual Bangkok International Film Festival."

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BAE Investigation

Nelson D. Schwartz and Lowell Bergman have a fascinating NYTimes article titled, "Payload Taking Aim at Corporate Bribery" here.  And without doubt, the BAE investigation is one that needs to be followed. The article details some of the major Foreign Corrupt Practices Act (FCPA) cases of recent vintage. And it notes that Alice Fisher, head of the DOJ Criminal Division is noting the increased prosecution of FCPA cases, and saying the trend will continue. For a discussion of some of the FCPA investigations and cases discussed on the blog - go here. It is interesting to see that TRAC reports white collar crime prosecutions as being down (see here), and Ms. Fisher is saying that FCPA cases are up. Are FCPA not included in the white collar figures?  Or is that other forms of white collar crime are so very low to allow for this higher number here? 

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FCPA - Getting a Basic Education

How does the DOJ interpret the Foreign Corrupt Practices Act (FCPA), and what guidance is available to those attempting to understand its language?

Actually there is more available than one might suspect.  First there is a lay person's guide on the DOJ website here. And then there are opinion releases found here.  The one problem with the web-based opinion releases is that one doesn't find an index available and thus, one may have to hunt through the many there to find applicable guidance - or ask again. But as websites go for the DOJ, this is clearly one of the better ones, with helpful guidance to businesses in that interpretations are offered. For those who advocate for administrative rule-making, you can appreciate what is offered here. 

(esp)

Addendum - Another place to find materials/cases on FCPA - see here (Shearman & Sterling site)(w/ a hat tip to Paul Lekas)