Monday, November 28, 2011
WSJ's Joe Palazzolo reports here this morning on lobbying efforts to weaken/clarify the FCPA. In yesterday's NYTimes, Gretchen Morgenson commented upon the movement to prevent the CFTC from bringing transparency to the swaps market. In a November 4 piece, WSJ's Michael Rapoport detailed Jon Corzine's successful July 2011 campaign, on behalf of MF Global Holdings, to block a CFTC proposal "that would have placed tighter restrictions on how futures-trading firms can invest cash sitting in customer trading accounts." (Prescient move, Jon.) Most or all of the GOP candidates favor repeal of Dodd-Frank. If a Martian fell to Earth he/she/it would never believe that the same financial elites who brought us to the edge of ruin are still having so much success calling the regulatory shots.
FCPA clearly needs clarification. DOJ, in typical fashion, has given the statute the broadest possible interpretation. But don't expect any significant weakening. Why? FCPA is a cash cow. Big companies, most of whom are quite vulnerable, will do anything to avoid a civil or criminal trial. FCPA becomes a cost of doing business. The money flows into the government. Many of the DOJ attorneys flow into private practice. Because big companies do not want to risk losing at trial, bringing FCPA cases and obtaining huge monetary settlements, at least against those companies, is like shooting fish in a barrel. In other words, the cases are easy to do--just like insider trading cases. They bring big headlines. So the public is diverted from thinking about DOJ's remarkable failure to systematically investigate the top tier entitities and individuals who facilitated the worst economic catastrophe since the Great Depression.
Friday, November 25, 2011
"I don't know if there was a stench that developed in this case, but there was a bad odor at times, and so the issue that I'm inviting both sides to address is...whether either through a finding of due process violations or in the exercise of my supervisory power...something akin to the whole being greater than the sum of its parts justifies throwing out this conviction, because a lot of the parts that led up to this conviction are extremely troublesome." U.S. District Court Judge Howard Matz during 6-27-11 post-trial hearing.
The briefs are in and the hearing is set for this Tuesday at 10:00AM in the Lindsey Manufacturing FCPA prosecution. At issue is the Lindsey-Lee Defendants' Motion to Dismiss the Indictment With Prejudice Due to Repeated and Intentional Government Misconduct. A potential bad sign for the Government, as if it needed another one, is the Court's November 16th Order requiring the U.S. Attorney's Office to file certain Government and Court exhibits in the record by November 18. The Court had already publicly criticized the Government for its use and handling of some or all of these exhibits. The Government filed the exhibits in question on November 17, and they are now available through PACER.
Judge Matz has previously characterized the Government's investigation and prosecution of the case as "extraordinarily sloppy at best." He was apparently so troubled by the Government's actions that he generated and kept a post note during trial in order to keep track of them.
Wednesday, September 28, 2011
I get emails almost every day touting the latest FCPA seminars, webinars, panel discussions, compliance programs, and treatises. Many of these events are no doubt helpful to the white collar practitioner. But what really happens in the trenches for the few brave individuals who take the government to trial in FCPA cases? What do the final FCPA jury instructions look like? The following links are to selected portions of actual instructions given to juries by federal district courts in some recent prominent FCPA cases. Enjoy.
Hat tip to Todd Foster for the Patel instructions.
Friday, August 12, 2011
SEC's Dodd-Frank Whistleblower Regulations Take Effect Today. Corporate America Expects More FCPA Woes.
Politico has a story about it here. The new regs implement Section 21F of the Dodd-Frank Act, which authorizes the SEC to award 10 to 30 percent of the monetary sanctions it recovers in a given case to a qualified whistleblower. What seems to most annoy the business community about the implementing regs is the SEC's insistence that whistleblowers are under no obligation to make use of a company's internal complaint procedures before running to the SEC. But the regs do say that an employee who goes through internal company whistleblower protocols is eligible for a Dodd-Frank whistleblower award if his/her employer subsequently self-reports to the SEC, based on the whistleblower's complaint, and a recovery is had. Further, an employee has a 120-day grace period after whistleblowing to his/her company, within which to bring his/her complaint to the SEC. Finally, in determining the amount of a whistleblower reward, the SEC will consider whether the whistleblower made use of his/her internal company procedures. The new regs contain enhanced anti-retaliation provisions as well, which prohibit direct or indirect retaliation for making whistleblower complaints to the SEC and other government entities.
There is an inherent tension between the anti-retaliation provisions and the SEC's and DOJ's often-emphasized warnings to companies that they should have vigorous and authentic internal whistleblower procedures. What if a company's pre-existing compliance policy requires the prompt internal reporting of whistleblower complaints? Can a company punish an employee who ignores such a provision and goes straight to the SEC? What if the employee declines to internally report, even after going to the SEC, because he/she feels that the company procedure is a sham? My guess is that such punishments will occur and that they will be deemed to run afoul of the anti-retaliation provisions. The retaliatory response is an instinctiual, persistent, and virtually universal impulse. It is really hard to eradicate.
Sunday, August 7, 2011
It isn't all about the budget. And perhaps this one is ironic in many ways. But there have been some interesting hearings that are well worth noting. NACDL has a press release on the "Clean Up the Government Act" here. Also they have a Section-by-Section Analysis of the Clean Up the Government Act of 2011 (HR 2572). The hearing can be found here. And don't miss Tim P. O'Toole's (Miller & Chevalier) testimony before the House Committee on the Judiciary, Subcommittee on Crime, Terrorism & Homeland Security - Download OTooleTestimony_07262011
(esp) (blogging from Ottawa)
Monday, July 25, 2011
This weekend saw something unusual in the nation's elite newspapers. Three detailed stories about white collar crime issues.
WSJ Weekend carried this in-depth and outstanding piece by Gary Fields and John R. Emshwiller about overcriminalization--the proliferation of criminal statutes, particularly at the federal level, covering more and more aspects of everyday life. The article also focused on Congress's increasing enactment of statutes that dispense with any meaningful mens rea element. Although both of these problems have been around for years, and the article makes no effort to treat the matter historically, it does a generally good job of framing the issues.
Fields and Emshwiller detail how the Idaho U.S. Attorney's Office successfully prosecuted a father and son for attempting "to take artifacts off federal land without a permit" under the Archaeological Resources Protection Act of 1979. They were out camping and looking for arrowheads, which they failed to find, and apparently did not know that the law existed. According to Fields and Emshwiller, the Act "doesn't require criminal intent." This is true of the Act on its face, but the father and son clearly intended to search for arrowheads and did not have a permit. This case is really more an example of obscure administrative criminal statutes that no normal person can be expected to master. Hence it is terribly unfair in such circumstances to apply the old saw that "ignorance of the law is no excuse." But don't tell that to Idaho U.S. Attorney Wendy Olson. She will just answer that "[f]olks do need to pay attention to where they are."
The article also details how Olson's office convicted an inventor for abandoning covered chemicals under the Resource Conservation and Recovery Act. This was after the inventor had been acquitted in an Alaskan federal court for illegally shipping the same chemicals without proper labeling. Would this have been the proper occasion for the exercise of prosecutorial discretion? Not a chance. According to Ms. Olson, her "office will continue to aggressively prosecute" such crimes.
Meanwhile, on Friday, the Washington Post's David Hilzenrath wrote a story with the headline, Quandary for U.S. companies: Whom to Bribe? The piece purported to give both sides of the FCPA debate, but I found it slanted towards the DOJ view. While discussing the recent convictions in the Lindsey Manufacturing case, Hilzenrath never mentions that the Lindsey guilty verdicts are in serious doubt post-trial, with further briefing due from the parties and a federal district judge who has questioned the case and is angry at the government. Even more amazingly, Hilzenrath nowhere references the recently concluded 10-week jury trial in D.C. against the first wave of defendants in DOJ's heavily publicized African Sting FCPA bribery case. The trial resulted in a hung jury mistrial. According to one of the defense attorneys, Todd Foster, the main theme of the defense was that the FCPA was too complicated to be understood by the defendants. Yet this trial, occurring right under the Post's nose, was not deemed worthy of mention. Hat tip to Todd for bringing the article to my attention.
Finally, the Sunday New York Times focuses on Murdoch's Unlikely Ally, former New York City schools chancellor and DOJ Antitrust Chief Joel Klein, in an article by Jeremy Peters, Michael Barbaro, and Javier Hernandez. It is a very good story and remarkable for its focus on the mechanics of News Corporation's internal investigation. Instead of following the "best practice" and hiring an outside law firm to conduct the investigation and report to an audit or special committee controlled by independent outsiders, News Corporation is employing something of a hybrid. It has appointed Lord Anthony Grabiner as the internal investigation's "Independent Chairman." But Grabiner sat behind, and presumably advised, the Murdochs during last week's parliamentary testimony. Grabiner will report to Klein, a News Corporation executive and trusted Murdoch adviser who also sat behind the Murdochs. Klein will report to Viet Dinh, "an independent director on the News Corporation board," for whom I have enormous respect. The article quotes University of Delaware corporate governance expert Charles Elson to the effect that this arrangement "is not standard practice." It may be more standard than Professor Elson realizes. It is obviously not the best practice for ensuring a truly independent investigation. Virtually by definition, there is no way that such an investigation can be wholly and truly independent.
By the way, even an investigation conducted by outside counsel and reporting to the audit committee (or a specially created independent committee) may only be independent up to a point. Let's say that the investigation is completed and outside counsel submits a report to the audit or independent committee. What happens next? Is the Board of Directors required to follow the recommendations of the independent committee? If not, then what is the point of the process in the first place? But that is a topic for another day.
Thursday, July 14, 2011
Many are talking about whether the U.S. should investigate Murdoch's News Corp for FCPA violations. Obviously no one has a crystal ball to predict whether this will or will not happen, but one thing is for sure - lodging an investigation would be like entering a minefield.
The obstacles facing prosecutors will be enormous, as they should be. Here are a few:
- Stretching the Statute- The FCPA, enacted in 1977, came on the heels of the Watergate Investigation that revealed extensive bribery by U.S. companies to foreign officials. Major corporations had paid foreign officials huge sums of money in order to obtain contracts and other business abroad. The "integrity of the free market" was a key aspect in the passage of the Act. Does this really sound like the allegations here?
- Extraterritoriality - A key concern has always been whether prosecuting extraterritorial conduct was proper. For example, in one FCPA case (Castle), the DOJ was barred from using conspiracy to violate the FCPA when it attempted to circumvent the prohibition against charging foreign officials. Would this really be a case of policing U.S. actors?
- Rogue Employees - Many companies have employees who break the rules. Companies with strong compliance programs have faced prosecution when individuals within the company exceed the boundaries of acceptable conduct. Unfortunately, Congress and the Court have failed to accept a good faith defense when a company tries to comply with the law. This case may present a testing ground for the importance of this principle that applies in many civil areas like harassment cases.
- Overcriminalization - Many are crying for "smart on crime" approaches to crime. Most importantly it is needed with a Congress that reacts to every public outcry with a responsive statute, irrespective of whether the conduct is already covered under law. Here the issue is more pronounced from a different perspective. Do we really need to prosecute what is occurring on the other side of the pond?
- Due Process - Contributing blogger Lawrence S. Goldman said it better than I could, "As much as I would enjoy seeing Murdoch in the dock, so to speak, I think it would be a terrible stretch to punish conduct committed in Britain by British citizens bribing British citizens to invade the privacy of British citizens in Britain. Even Murdoch and News Corp. deserve due process."
- Economics - If everything that is alleged to happen did in fact happen, it sure sounds pretty sad and it needs to get fully exposed and punished. But unless it will provide us with jobs, assist our budget, and not deplete from our precious prosecutorial resources, let's think twice about this one.
And we haven't even gotten to a discussion of all the procedural issues (e.g., getting the witnesses, evidence, and potential defendants to the U.S.)
Sunday, July 10, 2011
Friday, July 1, 2011
Wednesday, June 29, 2011
If I were a federal prosecutor in the Central District of California I would not want to tick off Judge Howard Matz. But that's just what federal prosecutors in the Lindsey Manufacturing FCPA case have done. Matz is an exceptionally thoughtful and intelligent jurist. He is also a former AUSA whose son is a Central District prosecutor. So Matz knows when things aren't right. And things aren't right in the Lindsey Manufacturing case. On Monday, during post-verdict proceedings, AUSA Doug Miller revealed that the government had inadvertently violated a court order by failing to turn over portions of FBI Special Agent Susan Guernsey's grand jury testimony to the defense. Matz was shocked, according to this excellent LAW360 story (subscription required) by Zach Winnick. "I shouldn't be shocked, because it's not the first time you and your colleagues have trailed into court with excuses and benign mea culpas." Ouch.
It is clear from Winnick's piece that Matz has long been troubled with various aspects of the government's presentation. Now Matz is ordering additional briefing on whether the guilty verdicts should be overturned and the case dismissed. My colleague Ellen Podgor posted here in March on earlier Brady problems encountered by the government. And Winnick reported here in May (in LAW360) on Judge Matz's harsh criticism of some of the government's summary charts. Matz called the charts, "ill-advised, misleading, and shockingly incomplete." Oral arguments on the defense motions to dismiss are set for September 8.
Tuesday, June 21, 2011
Guest Bloggers: Stephen Richer – Director of Outreach, Washington Legal Foundation; John Kendrick – Summer fellow, Washington Legal Foundation
"The Foreign Corrupt Practices Act is a huge legal quagmire; companies don’t have a clear idea of what they can and can’t do." – Tony Alexis, Mayer Brown LLP.
In 2004, the DOJ found just two violations of the Foreign Corrupt Practices Act (FCPA). In 2010, that number rose to 48. Have businesses become significantly more corrupt in the past six years? Hardly. Rather, as Mike Volkovpointed out at a recent Washington Legal Foundation (WLF) web seminar, the DOJ has simply realized a cash cow in the FCPA, and they’re milking it for all it’s worth. Consider these FCPA fines from the past four years: Siemens, $800 million; Haliburton, $579 million; Daimler $185 million; Johnson & Johnson, $70 million.
Onlooking companies in similar positions have witnessed such nine digit fines and asked, "How do we steer clear of similar penalties?" Unfortunately, that’s uncertain when it comes to the FCPA. Questions such as "what constitutes a foreign official," are difficult for even attorneys to answer, and the absence of a de minimis provision makes it so even a cup of coffee to a Chinese transportation official could merit an FCPA fine. As Volkov stated later in the WLF program, "The reach of FCPA is unbelievable.
"The FCPA is both vague and broad, and, to make things even easier for the DOJ, it has a generous whistleblower program that doesn’t encourage inter-company solutions first. Volkov called it a, "confessional justice system." All told, the FCPA is a nightmare for American businesses. Especially unwelcome at a time when national unemployment is at 9.1 percent.
Fortunately, Volkov, Alexis, and WLF are not the only ones to recognize the flaws of the FCPA. At a Tuesday House Judiciary Committee hearing on the FCPA, Former Attorney General Michael Mukasey emphasized the need to "clarify the meaning of a ‘foreign official,’" the need for a "willfulness requirement for corporate criminal liability," and the general want for greater "clarity and certainly." George J. Terwilliger of White & Case LLP and Shana Regon of the National Association for Criminal Defense Lawyers also added their ideas to "help clarify ambiguity in the statute and its application."
It can only be hoped that such experts have influence on Congress because, as Volkov put it, the current ambiguity of the laws allow government officials to be "not only enforcers of the law, but also judge and jury," and that’s not a formula for inspiring American business.
Friday, June 17, 2011
NACDL's 1st Annual West Coast White Collar Conference, “Turning The Tables On The Government” – “Defending the Individual in FCPA Cases: Managing the Company, Dealing with the Facts,” Friday, June 17, 2011
Guest Blogger: Darin Thompson, Assistant Federal Public Defender, Office of the Federal Public Defender (Cleveland,OH)
This panel dealt with a hypothetical company which had a deferred prosecution agreement with SEC/DOJ involving small value facilitation payments which were actually bribes. The hypothetical involves an email sent to the company’s auditing committee by a sales agent in Egypt alleging the bribes are taking place.
Following the disclosure to the audit committee, outside counsel is retained, and (due to the deferred prosecution agreement) DOJ/SEC needs to be informed of the situation.
Mr. Rhodes indicated that the company should retain counsel for the whistleblower in response to hypothetical questions involving that individual’s exposure and rights.
Ms. Andrues, acting as counsel for the hypothetical whistleblower, reviewed the information she would want to have access to, and the potential issues she would need to address, including the relevant law in the foreign country (Egypt) that could impact the investigation.
Mr. Knox indicated that he (acting as hypothetical prosecutor) would potentially provide background information to counsel for the whistleblower. However, both Ms. Andrues and Ms. Davis (acting as hypothetical whistleblower counsel) indicated that it was unlikely they would contact the prosecutor, although both indicated that the call could be useful to obtain the lay of the land.
Mr. Rochon proposed a one-way flow of information from company counsel to counsel for the whistleblower as a way to get the attorney up to speed without compromising company’s counsel’s ability to remain as counsel in the event the whistleblower ends up cooperating with the government.
Another employee, an accountant, also needs counsel, and has given statements indicating involvement and potential additional exposure. The panel agreed that counsel for that individual might not allow an interview of that client, although the employee will almost certainly be terminated. Ms. Davis indicated that he may be facing termination even after an interview. The panel agreed that if the accountant still wanted to go forward with the interview, he should be thoroughly advised regarding the risks. However, the panel expressed significant doubts that the company would facilitate investigation.
Another hypothetical client was then discussed: in-house counsel who failed to act on the whistleblower’s initial complaints and who’s (at a minimum) negligence appears to have led to this problem. Because this hypothetical client’s version of the events was unsupported by documents or other witnesses, the panel agreed that this individual would clearly not be allowed to be interviewed by anyone, regardless of employment consequences.
During these exchanges, it was repeatedly discussed that the company’s agreement with DOJ/SEC required them to disclose information it discovered, and that this factored into every decision regarding allowing the various clients to be interviewed.
Mr. Rhodes commented regarding employment futures of these individuals. All appear to be unlikely to remain with the company, but the in-house counsel is most likely to be fired immediately. The accountant was deemed likely to be terminated after another interview. The tension between the interests of the company and the individual appeared especially intense in this scenario.
With regard to interview requests by DOJ/SEC, Ms. Andrues and Ms. Davis expressed skepticism regarding the amount of protection and value of proffer letters. In the event that the interviews were to take place, and a recording was required and defense counsel was not going to be given a copy, it was unlikely that the interview would occur. Mr. Knox noted that admissions by officers during interviews would be considered admissions by the company.
In response to a comment from the audience regarding the dangers of conducting investigations in foreign countries, Mr. Rhodes and Mr. Rochon agreed that local legal issues will always influence investigations and should be carefully considered.
Saturday, May 7, 2011
20th Annual National Seminar on Federal Sentencing Guidelines - Corporate Plea Negotiations and Sentencing
This panel was moderated by Jeff Ifrah (Ifrah Law), with AUSA Arlo Devlin-Brown (SDNY) and Steven Bunnell (O'Melveny & Myers) as speakers. After the typical DOJ disclaimer that he was not speaking on behalf of DOJ, AUSA Devlin-Brown said that monitors are still in use. Monitors, he said, are usually selected by the US Attorney, but getting input in the selection from defense counsel is something done in some cases. The panelists spoke about the lack of attorney-client privilege with the monitor. Steven Bunnell spoke about how expensive monitors can be. One of the items discussed is how the scope of the monitorship is negotiated.
Steven Brunnell noted that corporate plea bargaining is a kind of begging. The corporate reputation is important. Sentencing guidelines are usually not a direct concern. AUSA Devlin-Brown noted how the collateral consequences of charging a corporation, make a difference (I call that the Arthur Andersen effect). As a result both sides try to reach a settlement. He also spoke about the delicate interests of parallel proceedings.
Hypotheticals were used to consider some of the issues. For example, what is the government view of the corporation indemnifying the CEO? How do you deal with employee resistance? One thing was clear from each hypo - the government has a lot of power.
My commentary - One topic discussed during this panel discussion concerned the level of trust between the corporation's attorney and the DOJ. It seemed to make a difference. But I have to ask the academic question -- should the trust between the private attorney and DOJ be a factor in how things progress in a criminal investigation? It is always interesting to see DOJ looking for consistency in sentencing, but then having individual US Attorneys and AUSAs making decisions on different aspects of a case that will be inconsistent based upon the AUSA or the defense attorney handling the matter.
Friday, April 22, 2011
Written Ruling - Officer or Employee of a State-Owned Croporation Can be a Foreign Official for FCPA Liability
One of the more fascinating FCPA cases is in trial right now. At the start of trial, the court held a hearing on defendant's motion to dismiss the charges. It was claimed that a state-owned corporation could not be a department, agency, or instrumentality of a foreign government and therefore was not a person who was a foreign official for purposes of the FCPA.
The Court therefore looked at the question presented -- "whether an officer or employee of a state-owned corporation can be a 'foreign official' for purposes of FCPA liability."
The court's ruling was discussed here by guest blogger Michael L. Volkov (MayerBrown). Now issuing its written order, the court confirmed its ruling that "a state-owned corporation having the attributes of CFE may be an 'instrumentality' of a foreign government within the meaning of the FCPA, and officers of such a state-owned corporation, as [the individuals mentioned] are alleged to be, may therefore be 'foreign officials" within the meaning of the FCPA."
For a copy of the written decision and commentary see, Richard L. Cassin, FCPA Blog, Lindsey Case: Judge Issues Written Ruling On 'Foreign Official'; Mike Koehler, FCPA Professor, Judge Matz Issues Narrow "Foreign Official" Decision / Calls DOJ Post-Hearing Request "Astounding"
Sunday, April 10, 2011
On April 1, 2011, US District Judge Howard Matz, of the Central District of California, held that officials of Mexico’s state-owned utility company qualify as foreign officials for purposes of the FCPA. The ruling is a clear victory for the DOJ’s interpretation of the definition of "foreign officials." Judge Matz’s ruling, which comes in the case of U.S. v. Noriega, No. 2:10-cr-01031, could have far-reaching implications for how other courts interpret the definition of a "foreign official" and for how the DOJ prosecutes FCPA cases going forward.
Judge Matz’s Ruling and its Implication for Future FCPA Cases In Noriega, the Lindsey Manufacturing Company (LMC), along with its president and chief financial officer, were charged by the DOJ with violating the FCPA by conspiring to bribe officials of Mexico’s Comisión Federal de Electricidad (CFE). According to the first superseding indictment, the CFE is "an electric utility company owned by the government of Mexico." The CFE officials are alleged to have held senior level positions at CFE and, thus, in the eyes of the DOJ, are considered "foreign officials" under the FCPA.
Judge Matz’s Ruling and its Implication for Future FCPA Cases
In Noriega, the Lindsey Manufacturing Company (LMC), along with its president and chief financial officer, were charged by the DOJ with violating the FCPA by conspiring to bribe officials of Mexico’s Comisión Federal de Electricidad (CFE). According to the first superseding indictment, the CFE is "an electric utility company owned by the government of Mexico." The CFE officials are alleged to have held senior level positions at CFE and, thus, in the eyes of the DOJ, are considered "foreign officials" under the FCPA.
The defendants moved to dismiss the indictment, principally arguing that officers and employees of state-owned corporations, like the CFE, do not fall within the FCPA’s definition of "foreign official." The statute provides that foreign officials include "officer[s] or employee[s] of a foreign government or any department, agency, or instrumentality thereof[.]"1 The defendants noted that the DOJ was likely hanging its hat on the term "instrumentality," as the plain meaning of "department" and "agency" would not encompass a corporation even if owned by the state. The defendants contended, among other things, that Congress did not intend the word "instrumentality"—which is not defined in the FCPA—to cover state-owned corporations.
In support of their position, the defendants cited a 144-page declaration by Mike Koehler, Associate Professor of Business Law at Butler University and author of the well-known "FCPA Professor" blog, surveying the legislative history of the FCPA. Relying on Keohler’s declaration, the defendants argued that, at the time the FCPA was being considered, Congress was aware of state-owned corporations, had included such entities within the definition of "instrumentalities" in a prior statute (the Foreign Sovereign Immunities Act), but ultimately did not do so in the FCPA itself. This, according to the defendants, clearly showed that Congress intended the FCPA to reach traditional governmental bodies only.
Judge Matz, however, disagreed. In a ruling from the bench, he declined the defendants’ invitation to delve into the FCPA’s legislative history and, instead, relied on certain undisputed facts plus a reading of Mexican law. Judge Matz noted there was no dispute that the CFE supplies electricity to all of Mexico except for Mexico City, that the CFE’s governing board is composed of Mexican government officials, that its Director General is appointed by the President of Mexico, and that the CFE’s English language website described it as an agency of the Mexican Federal Government. The CFE’s status under Mexican law was equally critical to his decision. Specifically, the Mexican Constitution provides that the supply of electricity in Mexico is solely a government function and Mexican statutory law defines the CFE as a "decentralized public entity with legal personality and its own patrimony." In light of these factors, Judge Matz found that the CFE officials identified in the indictment were "foreign officials" under the FCPA.
The decision in Noriega could have a domino effect, as defendants in other FCPA cases have recently raised identical issues. In both U.S. v. O’Shea, No. 09-cr-629, pending in the Southern District of Texas, and U.S. v. Carson, No. 09-cr-00077, pending in the Central District of California, the defendants have moved to dismiss their respective indictments, claiming that the term "instrumentality" does not cover state-owned corporations and, thus, officials and employees of such entities cannot be considered "foreign officials" under the FCPA. Given the lack of judicial authority in this area, these courts will likely have to grapple with the Noriega decision.
Sunday, March 27, 2011
New ABA Website Features U.S. and International Anti-Corruption News and Peer-Reviewed Analysis by and for Practitioners
The American Bar Association’s Criminal Justice Section is launching a new website that provides up-to-date, practitioner-oriented information and analysis on global anti-corruption matters. Managed by the section’s Global Anti-Corruption Task Force, the site features, among other unique categories of information: Peer-reviewed articles and analysis from practitioners worldwide; Up-to-date news reports; Extensive online resource links; A library of presentations; and Notices of upcoming anti-corruption events and seminars. The task force provides a neutral, practitioner-focused online resource to monitor, evaluate and report on anti-corruption news and developments in transnational anti-bribery efforts. Focus is on the interplay between anti-corruption governmental efforts and the effect that those efforts have on global commerce and business development. The website’s distinguishing features are: a) all published articles are peer-reviewed and available free of charge online; b) its subject-matter focus covers the globe, and not just the United States; c) published pieces come from leading practitioners and industry leaders from all over the world; and d) its objective is to provide news and analysis that is "for and by" practitioners who are looking for the latest developments and insights in the ever-changing global anti-corruption arena. The site also provides extensive real-time news announcements and reports on criminal and regulatory enforcement activities relating to the Foreign Corrupt Practices Act, as well as similar international instruments such as the United Kingdom Bribery Act, the German Anti-Corruption Act, Russia’s National Plan for Counteraction to Corruption, and the U.N. Convention Against Corruption. The Global Anti-Corruption Task Force is co-chaired by Assistant U.S. Attorney Andrew S. Boutros (in his personal capacity) and Perkins Coie Investigations and White Collar Defense Group partner (and former Assistant U.S. Attorney) T. Markus Funk. A link to the task force website is available here.
The American Bar Association’s Criminal Justice Section is launching a new website that provides up-to-date, practitioner-oriented information and analysis on global anti-corruption matters. Managed by the section’s Global Anti-Corruption Task Force, the site features, among other unique categories of information:
Peer-reviewed articles and analysis from practitioners worldwide;
Up-to-date news reports;
Extensive online resource links;
A library of presentations; and
Notices of upcoming anti-corruption events and seminars.
The task force provides a neutral, practitioner-focused online resource to monitor, evaluate and report on anti-corruption news and developments in transnational anti-bribery efforts. Focus is on the interplay between anti-corruption governmental efforts and the effect that those efforts have on global commerce and business development.
The website’s distinguishing features are: a) all published articles are peer-reviewed and available free of charge online; b) its subject-matter focus covers the globe, and not just the United States; c) published pieces come from leading practitioners and industry leaders from all over the world; and d) its objective is to provide news and analysis that is "for and by" practitioners who are looking for the latest developments and insights in the ever-changing global anti-corruption arena.
The site also provides extensive real-time news announcements and reports on criminal and regulatory enforcement activities relating to the Foreign Corrupt Practices Act, as well as similar international instruments such as the United Kingdom Bribery Act, the German Anti-Corruption Act, Russia’s National Plan for Counteraction to Corruption, and the U.N. Convention Against Corruption.
The Global Anti-Corruption Task Force is co-chaired by Assistant U.S. Attorney Andrew S. Boutros (in his personal capacity) and Perkins Coie Investigations and White Collar Defense Group partner (and former Assistant U.S. Attorney) T. Markus Funk.
A link to the task force website is available here.
Tuesday, March 1, 2011
This seems to be a hot issue these days. First in the case of United States v. Carson (see discussion of Mike Koehler here) and now in the Lindsay case (see here for prior discussion of this case). The question in the Lindsay case is whether the FCPA applies to state-owned entities.
Tuesday, February 15, 2011
In a case pending and set for trial in March in the Central District of California, with allegations of FCPA and money laundering violations, DOJ prosecutors are seeking to start another grand jury investigation of the defendants. Lawyers for the defendants cried foul and moved to quash five subpoenas calling for testimony today. As a result, the federal judge presiding over the case imposed stringent conditions on any use of the grand jury by DOJ prosecutors.
A grand jury is not to be used for "strengthening [a] case on a pending indictment or as a substitute for discovery." (Beasley, Simels, Arthur Andersen). Prosecutors claimed that their purpose in questioning these witnesses, all current employees of the company under indictment, was for a "new" investigation. Interestingly, the filings show that this "new" grand jury investigation came immediately after DOJ prosecutors were denied access to the employees for pre-trial, witness preparation interviews.
Defense lawyers Jan Handzlik and Janet Levine also argued that the DOJ prosecutors were "manufacturing" a new investigation to create reasons to postpone the trial, set for March 29th. They suspected the government would seek a superseding indictment leading to a trial continuance. Prosecutors disagreed and filed an under seal, in camera declaration to justify the new investigation.
US District Judge Howard Matz denied the defense motion to quash the grand jury subpoenas, but issued an order that handed the DOJ prosecutors what some of us consider to be a stinging defeat. He placed conditions on what the government could do if it chose to proceed with its "new" investigation, stating in part:
(1) At the upcoming trial, the Government may not proffer or refer to any newly obtained evidence derived from the testimony of any witness before any grand jury session conducted after the return of the First Superseding Indictment on October 21, 2010. . . .
(2) The Government may not, and shall not, question any witness about any business and financial relationship that the [defendant ] Company had with [other individuals and entities named in the pending indictment]
(3) The Government may not, and shall not, question any witness about any of the other events that directly form the basis for the charges contained in the first superseding indictment.
(4) The Government shall file under seal a transcript or transcripts of the grand jury testimony it obtains from the aforementioned witnesses, and it shall do so by not later than one week before the start of trial, and
(5) The Government may not point to or rely on whatever evidence it obtains at the upcoming grand jury sessions to seek or obtain a continuance of the trial date.
See Court's Order - Download Matz min order re GJ
See also Richard Cassin, FCPA Blog, Sparks Fly Before LA Trial
Friday, January 7, 2011
Okay, let me take off my white collar defense attorney hat and put on my former prosecutor hat for a minute. Call it my citizenship hat. Don't most of us want real, unadulterated big-time crooks to be investigated and, where appropriate, charged? Where are all the investigations and prosecutions of the accounting control fraud that caused one of the greatest recessions in U.S. history? You know, the current recession.
Back in the late 1980s, when the S&L Crisis hit and the Dallas-based S&L Task Force was formed, federal law enforcement officials quickly realized that, in many instances, colossal fraud had been committed by the very players who controlled the S&Ls. The S&L fraud was overwhelmingly based on sham transactions and sham accounting for those transactions. Massive resources were committed to investigating and prosecuting the S&L fraud. It was understood that the crooked players had hijacked their S&Ls and defrauded depositors and/or the FSLIC. This rather elementary distinction between the savings and loan as an institution and the fraudsters who controlled it was grasped by AUSAs and effectively conveyed to juries across the land.
Nothing like this is happening today with respect to the federal government’s investigation of the housing bubble, liars’ loans, and Wall Street's subprime lending scandal. The overwhelming number of investigations and prosecutions seem to be focused on piker fraudsters—corrupt individual borrowers or mortgage brokers. These cases are easy pickings, but do not get to the massive fraud that clearly permeated the entire financial system.
Professor William Black, of Keating Five fame, has written a scathing piece all about this for the Huffington Post. Here it is. Among Black's revelations? "During the current crisis the OCC and the OTS - combined - made zero criminal referrals." Astounding. These two agencies accounted for thousands of criminal referrals per year during the S&L Task Force years. More fundamentally, Black argues that today's federal prosecutorial authorities do not comprehend that individuals in control of an institution can have an incentive to engage in short-term fraud that enriches them individually while destroying the long-term prospects of the institution and the larger economy.
Nobody should be charged with a white collar crime unless the crime is serious and the prosecution believes in good faith that a jury will find guilt beyond a reasonable doubt. But how about a substantive investigative effort, including commitment of appropriate resources? Why are such huge resources being spent on dubious endeavors like insider trading and FCPA enforcement, while elite financial control fraud goes largely unaddressed? Professor Black's piece is highly recommended reading.
Friday, October 1, 2010
NACDL's 6th Annual Defending the White Collar Case Seminar – “Passport, Please: Defending in an International Enforcement Climate,” Friday, October 1, 2010
Moderator: Abbe David Lowell
It’s a small world after all and the last panel of the conference: “Passport, Please: Defending in an International Enforcement Climate” demonstrated the complexity of defending multi-national corporations and their officers in the new global business environment. There were a lot of familiar themes with some unfamiliar twists and they were all revealed through the discussion of the hypo, summarized here:
Zurich Auto is a Swiss company that produces parts for customization of high-end automobiles. It is headquartered in Zurich with an office in Amaz, the capital city of a very wealthy oil-producing country called Petrastan. For its sales in Petrastan until 2008, the officials in the Petrastan Transportation Ministry added a 10% fee to Zurich’s invoices and then collected that fee from a separate bank account, set up with the help of Zurich Auto’s agent in Amaz, Barack Peres. Barack has his own company, Barack Supplies, established in the Emirates of Tamir (E.T.) where Peres is a citizen. He is also a dual citizen of France. Peres made all the arrangements for the 10% fee being paid and was paid bonuses by Zurich Auto based on total sales he was able to arrange in this system. In addition, Peres had some side arrangement with Petrastan officials where they exchanged gifts from time to time (e.g., vacation, jewelry, dinners, spending money). Swiss law and French law make it illegal for anyone to pay a bribe or inducement to a public official in exchange for any official action and Swiss law requires Swiss companies to report accurately to Swiss tax and other authorities the revenue and expenses it collects and pays. Zurich Auto never reported the additional 10% as income.
In 2007, the U.S. company U.S. Motors, a vehicle manufacturing company, acquired Zurich Auto. As soon as U.S. Auto became aware of the 10% program in 2008, it stopped making such payments but, at the direction of its CFO Thomas Turner, it never reported on any of its S.E.C. or other filings either the payments that had been made by its now subsidiary before or after the acquisition. In 2010, a Wall Street Journal articles revealed the long-standing 10% fee program that had been occurring on all products sold in Petrastan and mentioned Zurich Auto as one of two dozen companies involved.
The panel’s moderator, Abbe Lowell, acted as GC of U.S. Motors and reviewed with the panel the various issues that can come up, including: When do you go to the government and tell them you are aware of the problem? What do you tell them you’re doing about it? What is the scope of your document preservation letter, and who sends it? Do you conduct an internal investigation and do you include in house counsel? How does the issue of successor liability enter into your analysis? How do you account for the possibility of a whistleblower to the SEC? When do you have to make a decision about issuing a new SEC filing relating to material risk?
As is often the case here at the White Collar Conference, we had a representative from the Justice Department on the panel who emphasized that publicity about an FCPA problem of this nature would surely capture their attention and necessitate a phone call to the company if they hadn’t heard from them by Monday morning. An interesting point made here was that any delay in contact would create a suspicion of the possibility of obstruction.
After a discussion of the corporate exposure, we turned to the issues facing the individuals: the seller of the company, the CFO of U.S. Autos and the agent in the foreign country. This discussion raised the following issues: Is the seller of the company still on the hook? And is he better off dealing with law enforcement authorities, in Switzerland or the U.S.? We also turned to the ubiquitous question of who’s paying the individual’s bills because, of course, these individuals have exposure and need separate counsel. This part of the discussion raised some familiar questions about joint defense agreements and advancement of fees, and whether outside counsel still have concerns that these arrangements won’t be perceived well by DOJ and may not be in the company’s best interests. The DOJ representative denied that these factors would be taken into account, but it seemed to me that other panelists did not feel as sure.
The discussion then turned to some of the specific issues created by the multi-national nature of the company and the investigation, including: Will the Swiss company and US Auto work together in gathering evidence? Is there a greater ability to protect documents in Europe, and can that be used to an American company’s advantage? An interesting comparison of punitive consequences was also briefly discussed.
The last topic that was discussed was the representation of foreign individuals, and whether and how to negotiate the service of any period of incarceration in their home countries. The panel agreed that prisoner transfer issues can sometimes be worked out ahead of time, but it can’t happen until one’s client is in BOP custody. At DOJ, the Office of Enforcement Operations is in charge of prisoner transfer operations, but an attendee noted that, as in many other situations, the agreement of the line assistant to these arrangements is critical.