Friday, June 6, 2008
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)
Tuesday, June 3, 2008
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."
Monday, March 24, 2008
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:
- they are consistent with customary business practices and do not violate applicable law or ethical standards;
- they are not excessive in value;
- they cannot be construed as a bribe, payoff or improper inducement; and
- 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.
Friday, March 21, 2008
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 (Renault) here
Friday, March 14, 2008
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."
Thursday, February 21, 2008
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."
Sunday, February 17, 2008
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."
Friday, January 18, 2008
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)
Tuesday, December 25, 2007
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.
Thursday, December 20, 2007
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."
Sunday, November 25, 2007
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?
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.
Addendum - Another place to find materials/cases on FCPA - see here (Shearman & Sterling site)(w/ a hat tip to Paul Lekas)
Saturday, November 17, 2007
The continuing investigation of overseas bribery by industrial giant Siemens A.G. seems to bring to light even more suspect payments throughout the world, with the total now pegged at nearly $2 billion in questionable transactions. The amounts involved are staggering compared to other foreign bribery investigations, which are often in the hudreds of thousands of dollars and rarely exceed $10 million. A BusinessWeek article (here) speculates that the likely fines the company will pay in the United States to resolve criminal and civil investigations will easily exceed the prior record of $44 million for Foreign Corrupt Practices Act violations. Siemens' more recent public disclosure on Form 6-K (here) states:
The Company remains subject to corruption-related investigations in the U.S. and other jurisdictions around the world. As a result, additional criminal or civil sanctions could be brought against the Company itself or against certain of its employees in connection with possible violations of law, including the FCPA. In addition, the scope of pending investigations may be expanded and new investigations commenced in connection with allegations of bribery and other illegal acts. The Company’s operating activities and reputation may also be negatively affected, particularly due to imposed penalties, disgorgements, compensatory damages, the formal or informal exclusion from public procurement contracts or the loss of business licenses or permits.
That's not very reassuring for a quick resolution of the investigations, particularly in the U.S. With the ever-expanding internal and governmental investigations comes the cost of paying for all those lawyers and accountants. According to the most recent disclosure, in fiscal 2007 the company had "€347 million in expenses for outside advisors engaged by Siemens in connection with the investigations into alleged violations of anti-corruption laws and related matters as well as remediation activities." No word yet on the estimated cost of any fines, and in all likelihood one or more outside monitors will be required as part of a settlement, which will drive up the expenses from the overseas bribery even more. (ph)
Thursday, November 15, 2007
Oil giant Chevron Corp. settled civil and criminal investigations related to illegal kickbacks paid into Iraqi-controlled accounts in 2001 and 2002 as part of the UN's Iraq Oil-for-Food program that has turned out to be a cesspool of corruption. According to the SEC Litigation Release (here):
The Commission's complaint alleges that from approximately April 2001 through May 2002, third parties with which Chevron contracted paid approximately $20 million in illegal kickback payments in connection with Chevron's purchases of crude oil under the U.N. Oil for Food Program. Chevron knew or should have known that third parties paid a portion of the premiums they received from Chevron to Iraq as illegal surcharges. The Oil for Food Program provided humanitarian relief to the Iraqi population during the time that Iraq was subject to international trade sanctions. However, the surcharges paid by third parties in connection with Chevron's purchases of oil bypassed the escrow account and were instead paid to Iraqi-controlled bank accounts in Jordan and Lebanon.
The settlement requires Chevron to pay $30 million, to be divided between a $20 million forfeiture payable as part of a settlement with the U.S. Attorney's Office for the Southern District of New York, $5 million in disgorgement in a settlement with the Manhattan D.A.'s office, a civil penalty to the SEC of $3 million, and another $2 million civil penalty to the Treasury Department's Office of Foreign Asset Controls. Looks like everyone gets to claim a piece of this settlement. (ph)
Monday, November 5, 2007
On the heels of a Fifth Circuit Appellate decision affirming a Foreign Corrupt Practices Act (FCPA) conviction (here), the DOJ reports on a plea to a FCPA charge. The press release states that "[a] former executive of a subsidiary of Houston-based Willbros Group Inc. (WGI) has pleaded guilty to conspiring to bribe officials of the government of Nigeria with more than $6 million in violation of the Foreign Corrupt Practices Act (FCPA)." The press release notes that this former executive admitted that "[t]hese payments were offered and made to officials of the Nigerian National Petroleum Corporation (the Nigerian state-owned oil company) and its subsidiary, National Petroleum Investment Management Services, a Nigerian political party, and a senior official in the executive branch of the Nigerian federal government, in order to assist in securing a major gas pipeline construction contract in Nigeria." Willbros Group Inc. had announced the sale of its Nigerian Operations back in February of 2007 (see here).
Saturday, November 3, 2007
The Fifth Circuit Court of Appeals affirmed a Foreign Corrupt Practices Act conviction in the case of United States v. Kay. The court opinion discusses, among other things, the application of the Rule of Lenity and whether the indictment and jury instructions failed to properly account for the element of "willfulness." The court found that "where the legislative history shows that 'Congress meant to prohibit a range of payments wider than only those that directly influence the acquisition or retention of government contracts or similar commercial or industrial arrangements,' the FCPA is not sufficiently ambiguous to merit application of the rule of lenity." The court also found that the failure to include "willfulness" in the indictment was not harmful error.
Friday, November 2, 2007
Energy services firm Willbros Group Inc. disclosed in its third quarter 10-Q (here) that it has reached a tentative settlement with the Department of Justice and the SEC over violations of the Foreign Corrupt Practices Act. The bribes involved former subsidiaries operating in Nigeria, Bolivia and Ecuador, and the company will enter into a three-year deferred prosecution agreement requiring it to pay over $40 million in criminal and civil penalties, disgorgement, and prejudgment interest. According to the company's disclosure -- buried in the footnotes to its financial statements -- the settlement with DOJ will involve:
- A twelve-count criminal information will be filed against WGI and WII as part of the execution of the DPAs between the DOJ and each of WGI and WII. The twelve counts include substantive violations of the anti-bribery provisions of the FCPA, and violations of the FCPA’s books-and-records provisions. All twelve counts relate to operations in Nigeria, Ecuador and Bolivia during the period from 1996 to 2005.
- Provided that WGI and WII fully comply with the DPAs for a period of approximately three years, the DOJ will agree not to continue the criminal prosecution and, at the conclusion of that time, will move to dismiss the criminal information.
- The DPAs will require, for each of their three year terms, among other things, full cooperation with the government; compliance with all federal criminal law, including but not limited to the FCPA; and a three year monitor for WGI and its subsidiary companies, primarily focused on international operations outside of North America, the costs of which are payable by WGI.
- The Company will be subject to $22,000 in fines related to FCPA violations. The fines are payable in four equal installments of $5,500, first on signing, and annually for approximately three years thereafter, with no interest payable on the unpaid amounts.
This is another example of the growing trend to use deferred prosecution agreements in FCPA cases rather than full guilty pleas by companies. (ph)
Thursday, November 1, 2007
Industrial manufacturer Ingersoll-Rand Co. settled criminal and civil investigations of Foreign Corrupt Practices Act violations related to bribes given to participate in the Iraq Oil-for-Food program, which seemed to generate a fountain of corrupt payments. The bribes involved two foreign subsidiaries, in Ireland and Italy, and Ingersoll-Rand agreed to a three-year deferred prosecution agreement (here) and pay a $2.5 million fine. The government filed conspiracy to commit wire fraud charges against the subsidiaries, which will be dismissed if it fulfills the terms of the DPA. In addition, the company settled an SEC civil enforcement action, agreeing to disgorge profits of $1,710,034, and pay $560,953 in pre-judgment interest and a $1,950,000 civil penalty (Litigation Release here). Ingersoll-Rand's total cost was about $6.7 million, which does not include the increased expenses of ensuring compliance with the DPA.
A provision of the DPA that is becoming more common is a section allowing Ingersoll-Rand to assert the attorney-client privilege and work product doctrine to resist producing records prosecutors might request. However, the cost of doing so is that "the Department may consider this fact in determining whether Ingersoll has fully cooperated with the Department." Whether DOJ will ever follow through on such a threat remains to be seen, but this type of provision seems to be designed to avoid claims that the government is demanding across-the-board waivers of the privilege. (ph)
Friday, October 5, 2007
Multinational industrial giant Siemens A.G. settled with German prosecutors the probe of corrupt overseas payments by its telecom unit by agreeing to pay €201 million. The company will also pay an additional €179 million to the tax authorities because it improperly deducted the foreign payments as ordinary business expenses. As discussed in an earlier post (here), the scope of the questionable overseas payments is much broader than first suspected, with Debevoise & Plimpton's internal investigation raising questions about as much as €1.6 billion in transfers throughout the company and not just the telecom unit. While the settlement with the German prosecutors closes one avenue of problems, Siemens still faces investigations by the SEC and Department of Justice in the United States and an inquiry by the Italian authorities. Given the size of the payments and their occurrence in different parts of the company, this is the type of case that the federal government will pursue vigorously. A Bloomberg story (here) discusses the settlement. (ph)
Wednesday, October 3, 2007
York International Corp., now a subsidiary of Johnson Controls, settled an investigation of overseas bribes by agreeing to a deferred prosecution agreement (available below) with the Department of Justice and a civil settlement with the SEC. The case involves a wide range of payments in violation of the Foreign Corrupt Practices Act, as described in the SEC's Litigation Release (here):
The Commission's complaint alleges that York International's Delaware subsidiary paid approximately $522,500 to an intermediary while knowing that most of the money was intended to bribe United Arab Emirate officials; York International's Dubai subsidiary authorized and made approximately $647,110 in kickback payments under the U.N. Oil for Food Program; and that York International's subsidiaries devised elaborate schemes to conceal kickback payments of over $7.5 million made to secure orders on certain commercial and government projects in the Middle East, India, China, Nigeria and Europe.
The company agreed to pay a $10 million criminal fine, a $2 million civil penalty, and disgorge profits and pre-judgment interest of over $10 million, for a total cost of $22 million.
An interesting part of the deferred prosecution agreement concerns waiving the attorney-client privilege and work product protection, an issue that has become quite contentious. The agreement provides that the Department of Justice can request documents and information from the company, including those covered by the privilege, and that York can assert the privilege and protection in response and refuse to provide the requested materials on that basis. However, the agreement goes on to state that "[i]n the event that York withholds access to the information, documents, records, facilities and/or employees of York, the Department may consider this fact in determining whether York has fully cooperated with the Department." While the company has not agreed to waive the privilege, assertion of it could come at the cost of determining whether (and to what extent) it has been cooperative. (ph)