Search

Editors

Richard L. Cassin Publisher and Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Elizabeth K. Spahn Editor Emeritus

Cody Worthington Contributing Editor

Julie DiMauro Contributing Editor

Thomas Fox Contributing Editor

Marc Alain Bohn Contributing Editor

Bill Waite Contributing Editor

Shruti J. Shah Contributing Editor

Russell A. Stamets Contributing Editor

Richard Bistrong Contributing Editor 

Eric Carlson Contributing Editor

Bill Steinman Contributing Editor

Aarti Maharaj Contributing Editor


FCPA Blog Daily News

Thursday
Sep032009

Guilty Plea In UK Bribe Case

The former director of sales and marketing for Pacific Consolidated Industries (PCI) admitted yesterday that he bribed an official from the U.K. Ministry of Defense (MOD) in return for equipment orders. Leo Winston Smith, 73, pleaded guilty in the U.S. federal district court for central California to conspiracy to violate the Foreign Corrupt Practices Act (18 U.S.C. §371) and corruptly obstructing and impeding the due administration of the internal revenue laws (26 U.S.C. §7212(a)).

Smith, along with PCI's former president and part owner, Martin Eric Self, 51, paid at least $70,000 in bribes to the MOD official. The money was funneled through a sham marketing agreement PCI created in 1999 with a relative of the official. In return, PCI was awarded MOD contracts worth around $11 million. Smith also admitted under-reporting income on his 2003 U.S. federal tax return and failing to file a 2003 corporate return for his Nevada company, Design Smith Inc.

Sentencing in Smith's case is scheduled for December 18, 2009. He faces a maximum five years in prison on the FCPA conspiracy charge and three years on the tax charge, and a fine of about $255,000.

His co-conspirator, Martin Eric Self, pleaded guilty in May 2008 to violating the FCPA (here). Although Self faced up to five years in prison on each of two FCPA counts, his plea agreement contemplated a prison term of eight months. He was finally sentenced in November 2008 to two years probation. The MOD official, Michael Hale, pleaded guilty in the United Kingdom to accepting nine separate payments from PCI totaling more than $300,000. He was sentenced in April 2007 to two years in prison.

Privately-held PCI manufactures Air Separation Units (ASUs) and other equipment for the military, medical, and oil and gas markets. ASUs generate oxygen in remote, extreme, and confined locations. The Justice Department said that in late 2003, after the alleged illegal conduct occurred, a group of private investors bought California-based PCI. They referred the case to U.S. prosecutors and "fully cooperated in the government’s investigation."

Download a copy of the DOJ's September 3, 2009 release here.

Download a copy of the plea agreement in U.S. v. Leo Winston Smith (Case No.: CR 07-69(A) - AG) here.
.

Wednesday
Sep022009

Pfizer, Pharmas And The FCPA

Will drug makers be the target of the next industry-wide Foreign Corrupt Practices Act investigation, following in the footsteps of the oil and gas services companies and orthopedic device makers? It's possible. Their sales practices are in the news a lot these days. And amid the healthcare debate, drug-company behavior anywhere invites attention in Washington and beyond.

Remember the orthopedic device makers? Like Pfizer this week and Eli Lilly earlier this year, they resolved enforcement actions based on illegal domestic sales practices. Soon after, most of them disclosed that the DOJ and SEC were looking into their overseas marketing methods for any FCPA offenses. Those investigations are ongoing. See our post Tough Medicine For Medical Device Makers.

Here's some recent pharma news:

◆ Pfizer's $2.3 billion civil and criminal penalty for unlawful prescription drug promotions.

The New York Times reported here that: "To promote the drugs, authorities said Pfizer invited doctors to consultant meetings at resort locations, paying their expenses and providing perks. 'They were entertained with golf, massages, and other activities,' said Mike Loucks, the U.S. attorney in Massachusetts." (In January, Eli Lilly paid $1.42 billion to settle off-label marketing charges.) New York attorney general Andrew Cuomo said yesterday, "Pfizer's corrupt practices went so far as sending physicians on exotic junkets as well as wining and dining health care professionals to persuade them to prescribe the company's drugs for patients in taxpayer-funded programs." Using similar sales techniques with doctors at government-owned hospitals overseas could violate the FCPA.

◆ Forest Laboratories' document, “Lexapro Fiscal 2004 Marketing Plan.”

It's an 88-page extract from the company's strategic plan for turning the drug into a high-priced bestseller. The document was recently made public by the Senate’s Special Committee on Aging. Forest's plan includes tactics such as a ghostwriting program -- like the one discussed in our post Helping Doctors Cheat. The Lexapro marketing blueprint is aimed at the U.S. domestic market. Some tactics described in the plan, if directed overseas, could have FCPA compliance implications. A copy of Forest's marketing plan for Lexapro can be downloaded here.

◆ Pfizer's foreign lobbying practices.

In July, a senator in the Philippines issued a press release here that accused Pfizer of using illegal tactics to block legislation aimed at lowering drug costs. Senator Mar Roxas said he had written a letter to the U.S. Justice Department requesting an FCPA investigation into Pfizer's practices. He accused the company of offering the country's health secretary "discount cards" in exchange for not implementing the retail drug-price law.

In his letter to Mark Mendelsohn, the Deputy Chief of the Fraud Section at the DOJ's Criminal Division, the senator said,

I understand that your good office is responsible for the enforcement of the anti-bribery provisions of the Foreign Corrupt Practices Act, which makes it unlawful to make a corrupt payment to a foreign national for the purpose of obtaining or retaining business. Thus, any assistance that your office can extend in looking into the allegations of bribery against Pfizer will be invaluable to our efforts of lowering the cost of healthcare, starting with the prices of medicines, in our country. At this juncture, I wish to note that the actions of Pfizer may constitute the offense of corruption of public officials under Philippine laws, as defined in the Philippine Revised Penal Code.
Pfizer disputes the senator's charges. It bought full-page ads in Philippines newspapers saying, "We categorically deny this allegation and consider this a grave affront to our reputation … We have always sought to provide wider access to our high quality medicines."

Thanks to Cody Worthington for the link to the Philippine senator's press release.
.

Tuesday
Sep012009

The FCPA's Most Wanted

People charged with a Foreign Corrupt Practices Act-related offense either cop a plea or fight the case in court. Except for those who choose the third option. They run. If they're living outside the U.S. when indicted, they might plan to never come back. That strategy can only work if they happen to be in a country that won't extradite them, which is harder to predict in practice than on paper. Others have tried to find someplace new that's friendly and beyond the reach of the U.S. Justice Department. But as Viktor Kozeny's uncomfortable years in the Bahamas demonstrate, that's not easy either, even with millions of dollars to make it happen.

The first FCPA fugitives appeared in 1982 and the latest this summer. Over the years, plenty have been caught and handed over to U.S. authorities. Others have eventually turned themselves in, deciding a life spent looking over their shoulder isn't for them after all ("Hey there. Small world, isn't it?").

Yet some people facing FCPA charges, including the twelve mentioned below, are still at large, doing whatever they can to stay out of the jurisdiction of the U.S. federal courts.

Let's meet them:

Ousama Naaman, Canadian, intermediary for a U.S. chemical company. Indicted August 2008; arrested July 30, 2009 in Frankfurt, Germany. Now in Germany.

Jeffrey Tesler, British, intermediary for Kellogg Brown & Root (KBR). Indicted February 2009; arrested March 5, 2009 in London, England. Now in the U.K.

Wojciech Chodan, British, salesman for a KBR affiliate. Indicted 2009. Location unknown.

James K. Tillery, American, executive of Willbros International. Indicted 2008. Location unknown.

Edgar Valverde Acosta, Costa Rican, Alcatel’s former senior country officer there. Superseding indictment issued March 2007. Last known location: Costa Rica.

Viktor Kozeny, Czech-born, Irish passport, president and chairman of Oily Rock Group Ltd. Indicted 2005. Now in the Bahamas.

Pablo Barquero Hernandez, Costa Rican, employed by Owl Securities and Investment Ltd. Indicted 2001. Last known location: Costa Rica.

Frerik Pluimers, Dutch, chairman, president and CEO of Saybolt International. Indicted 1998. Last known location: the Netherlands.

Rami Dotan, Israeli, air force officer. Indicted 1994. Last known location: Israel. The brigadier-general in charge of Israeli air force procurement was court martialed in Israel in 1991 and convicted along with two others of bribery, fraud, and theft for skimming at least $10 million from jet engine contracts with General Electric in the U.S. He was demoted to private and sentenced to 13 years' imprisonment. Released in 2003.

Harold Katz, an Israeli and U.S. citizen, Israeli lawyer. Indicted 1994 (with Rami Dotan, above). Last known location: Israel.

Mario S. Gonzalez, Mexican, associated with Grupo Delta, a Mexican corporation acting as intermediary to Pemex. Indicted 1982. Last known location: Mexico.

Ricardo G. Beltran, Mexican, also associated with Grupo Delta. Indicted 1982. Last known location: Mexico.
.

Monday
Aug312009

Ehud Olmert And The FCPA

Will the American businessman implicated in Israel's political corruption scandal be charged with violating the Foreign Corrupt Practices Act? Morris Talansky has said that over nearly a decade he gave Israel's former prime minister, Ehud Olmert (left), envelopes stuffed with cash that was used to fund political campaigns and pay for personal expenses. On Sunday, Olmert was indicted in Israel for fraud, breach of faith and deception. He had resigned last year because of the allegations.

One of the three cases against him, arising from the time he was mayor of Jerusalem and later a government minister, concerns the payments he received from Talansky.

The New York Times said,

The most sensational of the three cases involved Morris Talansky, a Long Island businessman, from whom Mr. Olmert is alleged to have received more than $600,000, partly in cash-stuffed envelopes, from 1997 to 2005. Prosecutors accuse Mr. Olmert of hiding the money and failing to report it to the authorities. Though Mr. Olmert has not been charged with taking bribes in the Talansky case, he is accused of abusing his position as a government minister to promote Mr. Talansky’s private business interests in Israel and abroad, constituting a major conflict of interest.
Talansky, 76, testified against Olmert in a deposition in Israel in May 2008. According to the Times, he provided details about "how he had transferred huge sums of cash to Mr. Olmert. Mr. Talansky said that much of the money was for election campaigns, but that some was for Mr. Olmert’s personal use." The deposition forced Olmert to resign a few months later.

The payments appear likely to have violated the antibribery provisions of the Foreign Corrupt Practices Act (corruptly giving anything of value to a foreign official for the purpose of obtaining or retaining business). Will Talansky be indicted?

In January, New York magazine said Talansky could face FCPA charges. “FBI agents are flying all over the place,” the magazine reported. "And U.S. investigators are now using the testimony he gave in Israel as a road map to a possible prosecution." A federal grand jury sitting in New York City was also reportedly looking into possible tax and money-laundering offenses.
.

Sunday
Aug302009

Former Faro Salesman Settles With SEC

The Securities and Exchange Commission filed a settled enforcement action Friday against Oscar H. Meza, the former sales director in Asia for Faro Technologies, Inc. Florida-based Faro designs, develops, and markets software and portable computerized measurement devices. The SEC's civil complaint alleged that Meza "authorized bribery payments to employees of Chinese state-owned companies in order to obtain contracts, and that in order to conceal the bribes Meza instructed that account entries be altered."

He was charged with violating the FCPA's antibribery provisions (Section 30A of the Securities Exchange Act of 1934 [15 U.S.C. §78dd-1]), the books and records and internal control provisions (Section 13(b)(5) ofthe Exchange Act and Exchange Act Rule 13b21 [15 U.S.C. § 78m(b)(5) and 17 C.F.R. § 240.13b2-1]), and with aiding and abetting Faro's violations of the anti-bribery, books and records, and internal controls provisions.

The SEC's complaint alleged that beginning in 2004, Meza authorized a former employee of Faro's China subsidiary to make the improper payments. Faro China paid $444,492 in bribes from 2004 through 2006, generating about $4.5 million in sales and $1.4 million in net profit.

Meza will pay a $30,000 civil penalty and $26,707 in disgorgement and prejudgment interest. He's also permanently enjoined from future FCPA violations

In June 2008, his employer Faro resolved FCPA charges with the Justice Department and the SEC. The DOJ settlement required the company to pay a $1.1 million criminal penalty and enter into a two-year non-prosecution agreement that included appointment of a compliance monitor. In settling with the SEC, Faro paid about $1.85 million in disgorgement and prejudgment interest. It self-reported the violations in China to U.S. authorities in March 2006. See our post here.

View the SEC's Litigation Release No. 21190 and Accounting and Auditing Enforcement Release No. 3041 (both dated August 28, 2009) here.

Download a copy of the SEC's complaint in SEC v. Oscar H. Meza, Civil Action No. 1:09-CV-01648 (D.D.C.) (Filed August 28, 2009) here.
.

Thursday
Aug272009

Greed, Corruption And Deceit, Feds Say

The trial of the husband-and-wife movie producers accused of violating the Foreign Corrupt Practices Act opened this week in LA. Gerald Green, 77, and his wife Patricia, 54, have pleaded not guilty to all 22 counts of a second superseding indictment. They're charged with conspiracy to violate the FCPA and with substantive FCPA offenses. Other charges include money laundering and illegally transporting money-laundering proceeds, obstruction, and filing false tax returns. The AP has an account here.

Prosecutors say the Greens paid the former governor of the Tourism Authority of Thailand, Juthamas Siriwan, more than $1.8 million in bribes in return for contracts to stage the Bangkok Film Festival. In the prosecution's opening statement, DOJ lawyer Jonathan Lopez told the jury the Greens transferred money into bank accounts of Juthamas' daughter and a friend. He said the "bribes-for-contracts" scheme netted the Hollywood couple about $13.5 million.

"This case is about greed, it's about corruption and it's about deceit," Lopez told the seven man-five woman jury. The Greens "turned TAT into their own personal piggy bank," he said.
Juthamas Siriwan denies taking bribes. She hasn't been charged in Thailand but investigators there say they've found evidence against her. U.S. prosecutors contend the Greens bribed her by disguising the payments as sales commissions and inflating their budgets to cover the costs.

The Greens face up to five years in prison for each FCPA charge, up to 10 years for each tax count, and up to 20 years for the money-laundering and obstruction charges.

The AP said,

Marilyn Bednarski, Patricia Green's lawyer, shot down Lopez's contention that the couple profited heavily from the contracts. She showed jurors tax returns from 2000 — before the couple ran the film festival — and from 2006, the festival's most successful year. The difference was only about $100,000, she said.

"In this case, you will be able to follow every penny that went into the Greens' account," Bednarski told jurors. "There is no sleight of hand here."

The Greens were arrested in December 2007 based on the FBI's affidavit here. Investigators said at least two former insiders gave evidence against the couple. Prosecutors are also trying to subpoena the billing records of the California lawyer who represented several of the Greens' companies. He's claiming the bills are protected by attorney-client privilege. A copy of the government's motion to compel production can be downloaded here.
.

Wednesday
Aug262009

People Without Laws

The following comes from an active-duty officer in the U.S. military:

One of the conceits of the corrupt is that they'll be able to manage the day of their own reckoning. Lies can be covered with more lies. Blame can be shifted to others. The public will forgive them for their good intentions.

This week, after more revelations about the mistreatment of detainees in U.S. custody, the Justice Department widened its probe into C.I.A. interrogations. These developments were especially painful for those of us committed to this current war, where friends are hard to find and mistakes make enemies faster than our successes defeat them.

A quick history of the scandal: in the early days of the War on Terrorism, the Bush Administration secretly authorized harsh interrogations for suspected terrorists that went far beyond the standard procedures. In 2004, pictures of American guards abusing Iraqi detainees appeared on Al Jazeera. While the broader Middle East burned with anger, the Bush Administration quickly crushed the ‘few bad apples’ (Paul Wolfowitz’s words) that were responsible. Many careers were ended. Several soldiers went to prison.

The ranking American officer at Abu Ghraib claimed in mitigation that some of the abuses for which she and others were punished were permissible under official policy. Nobody listened. But soon after, the revelations began flowing — John Yoo’s torture memos, secret ‘black sites’, Vice President Cheney’s personal involvement in the selection of interrogation techniques. This, as they say, went straight to the top.

The elements of the story — secret operatives in overseas bases, cabinet officials whose silent nods maintain their plausible deniability, a nation nervous about the next terrorist attack — are the makings of a great espionage thriller. When the scenario is real, though, and the corruption is at home, its unfolding is painful to watch. It’s tempting, and easier, to look away.

But America has no use for fair-weather citizenship — not now and not ever. By secretly pursuing detainee exploitation policies at odds with our deeply-held moral convictions and then turning on the defenders who carried them out, our government has created a crisis of confidence that will not end soon. As readers of the FCPA Blog know, it is always unwise for governments to trample the rule of law. Because, as veterans of our recent overseas campaigns know, people without laws cannot be governed at all.

* * *
Goodbye, Senator. From Time's Richard Lacayo: "Ted Kennedy would never reach the White House. His weaknesses — and the long shadow of Chappaquiddick — were an obstacle that even his strengths couldn't overcome. But his failure to get to the presidency opened the way to the true fulfillment of his gifts, which was to become one of the greatest legislators in American history."
.

Tuesday
Aug252009

Indicted: Taking Aim At Individuals

It's not just about corporations anymore. FCPA enforcement is now about individuals too -- and in a big way. Here's this year's FCPA roll call of real people: Gerald and Patricia Green, whose Foreign Corrupt Practices Act trial opened in LA this week. Frederic Bourke and William Jefferson went on trial in June; both were convicted of conspiracy to violate the FCPA.

Awaiting trial in California are six former employees of Control Components Inc. -- Stuart Carson and his wife Hong (Rose) Carson, along with Paul Cosgrove, David Edmonds, Flavio Ricotti and Han Yong Kim. Earlier this year, two other former CCI executives pleaded guilty to conspiring to violate the FCPA. Mario Covino and Richard Morlok are scheduled to be sentenced in January 2010.

FCPA prosecutions are also pending against former employees of Philadelphia-based Nexus Technologies Inc. -- Nam Nguyen, Kim Nguyen and An Nguyen. Joseph T. Lukas, also from Nexus, pleaded guilty in June to violating the FCPA. His sentencing is scheduled for April next year.

Juan Diaz and Antonio Perez of Miami pleaded guilty in April to a one-count criminal information charging them with conspiracy to violate the FCPA. They arranged bribes to Haitian officials in exchange for telecommunications contracts. They're waiting to be sentenced.

Jeffrey Tesler and Wojciech Chodan were arrested in March in the U.K. on U.S. indictments in connection with KBR's Nigerian bribery. And Ousama Naaman was arrested in July in Frankfurt, Germany, charged in a U.S. indictment with violating the FCPA under the oil-for-food program. All three are facing extradition to the U.S.

An indictment isn't evidence or proof of guilt, of course, and every accused individual is presumed innocent. But beyond being an "enforcement action," an indictment is a full-blown personal tragedy -- with emotional damage, family stresses, economic hardship, and professional wreckage. It takes a Scott Turow to imagine and describe the awful consequences.

* * *
Aside from the human cost, what happens when someone is indicted? First they're arrested and they formally become a defendant, and their indictment is (usually) unsealed and made public. Federal criminal cases can also begin without an indictment when the lead investigator swears out a criminal complaint called an "information."

Within hours of arrest, the defendant makes an initial court appearance. He hears the charges against him, the judge tells him his rights, and counsel is appointed if he can't afford to hire one. Stuart Carson's April 9, 2009 statement of constitutional rights can be downloaded here.

After the hearing, the defendant is remanded to the custody of the U.S. Marshals Service or released on conditions set by the court -- such as requiring a secured bond, forfeiture of a passport, electronic monitoring, home confinement, etc.* Stuart Carson's April 11, 2009 amended conditions of release can be downloaded here.

The last of the early hearings is arraignment, when the defendant's counsel is asked three questions:

Does the defendant waive a formal arraignment, at which the indictment would be read in its entirety? He usually does.

How does the defendant plead, guilty or not guilty?

Does the defendant request a trial by jury? He usually does. If not, the case will be decided by the judge in what's known as a bench trial.

If formal arraignment is waived the hearing might be over in five minutes.

Under the Speedy Trial Act, criminal defendants are entitled to a trial that begins no later than 70 days from the date the indictment or information was filed, or from the date the defendant appears before a judge, whichever is later. White-collar defendants usually waive the right to a speedy trial; the judge can also waive the speedy-trial requirements in the interests of justice.

Then it's time for pre-trial motions. Common defense motions include change of venue, exclusion of certain pieces of evidence, and requests for access to evidence held by the prosecution.

What about the trial? Well, more than 90 percent of federal criminal defendants don't have one. They plead guilty during the pretrial phase as part of a plea bargain, in exchange for the prosecutors' dropping some charges or recommending a more lenient sentence.
_____________

* The Bail Reform Act of 1984 presumes the defendant should be released on personal recognizance or unsecured personal bond unless it will "not reasonably assure the appearance of the person as required or will endanger the safety of any other person or the community."

This description of federal criminal procedure is adapted from information provided by the Administrative Office of the U.S. Courts here.
.

Monday
Aug242009

Helping Doctors Cheat

From an August 19 AP story: Drugmaker GlaxoSmithKline used a sophisticated ghostwriting program to promote its antidepressant Paxil, allowing doctors to take credit for medical journal articles mainly written by company consultants, according to court documents obtained by the Associated Press.

The AP story here said drug companies often hire outside firms to "draft a manuscript touting a company's drug, retain a physician to sign off as the author and then find a publisher to unwittingly publish the work." It added that doctors eagerly participate because publication credit increases their prestige and professional standing. For their part, the drug-company salespeople "often present medical journal articles to physicians as independent proof that their drugs are safe and effective."

This is the FCPA Blog so let's ask the question: Could a drug-company's ghostwriting program violate the Foreign Corrupt Practices Act?

We think so.

The FCPA's antibribery provisions prohibit among other things (1) giving anything of value (2) to a foreign official (3) to secure any improper advantage. See, e.g., 15 U.S.C. §78dd-1(a) [Section 30A of the Securities & Exchange Act of 1934].

So. . . . .

(1) Anything of value? Producing high-level research and publishing the results in a reputable professional journal is hard work and a rare event for most people. As the AP story says, publishing papers always enhances the author's professional reputation. So an unsigned research-based manuscript of publication quality that a doctor can call his or her own is as good as gold. Strike one.

(2) Doctors working in government-owned or managed hospitals overseas are "foreign officials" under the FCPA. Strike two.

(3) Medical-journal articles that tout a drug and falsely appear to be written by independent doctors can easily secure an unfair advantage for the company and its product. In fact, that's the whole idea. The AP story says Glaxo's ghostwriting program, according to an internal memo, was designed to "strengthen the product positioning and overcome competitive issues." An unfair advantage it is. Strike Three.

And that's how a drug company's ghost-writing program could violate the Foreign Corrupt Practices Act. Will there ever be an enforcement action based on one? Who knows?

Final notes: GlaxoSmithKline has never been accused of violating the FCPA (or apparently any other law) because of its ghostwriting program. A spokesperson for the company said the program mentioned in the AP article "was discontinued a number of years ago." Paxil, the drug promoted by the program, is the subject of wrongful-death lawsuits that allege the company downplayed risks associated with the drug, including increased suicidal behavior and birth defects.
.

Sunday
Aug232009

FCPA Liability Keeps Growing

In late July, the SEC filed a settled enforcement action against Nature's Sunshine Products Inc. (NSP), its CEO Douglas Faggioli and its former CFO Craig D. Huff. The charges involved bribes by NSP's Brazilian subsidiary to customs officials and false accounting to conceal the payments. As we said here, the SEC's complaint alleged that Faggioli and Huff, in their capacities as control persons, violated the books and records and internal controls provisions of the securities laws in connection with the Brazilian bribes.

As control persons. What's that mean?

A nice explanation appears on law.com from Philip Urofsky, the editor-in-chief of the FCPA Digest. He said in an interview that NSP's officers, Faggioli and Huff, were charged individually under Section 20(a) of the Securities Exchange Act of 1934 as those "in control" of the Brazilian employees who paid the bribes. Urofsky said it's the first time control-person liability has been used in the FCPA context. He explained:

What [the SEC charges] allege is that the current CEO, who was at the time the COO, had overall responsibility for the international operations of the company, including the export of products to Brazil. And the people who would know about these issues were under his control, and that the former CEO had authority and responsibility for the internal controls and books and records. This is a departure from the former practice. It's consistent with Section 20A as it's used in private litigation, but I've never seen the SEC use it in an FCPA case.
How significant is the appearance of control-person liability? Urofsky again:
It's an indication of the SEC's willingness to use all the tools at its disposal to hold individuals liable for acts within the corporation. Up until now, they usually would allege some knowledge, direct knowledge, and involvement of an individual. That is limiting because sometimes they don't have the evidence, don't have the last link. Also, in this case it's the CEO and CFO. But Section 20A has been used against a much wider variety of corporate officers and even directors in civil litigation. So there's potential where the directors are very active and involved in the operations of the company. In those circumstances, the SEC might very well look and see if there are facts to justify holding that person responsible.
There's a lot more in the interview on law.com here.
.

Thursday
Aug202009

Tinseltown, Bourke Again, And Margaritaville

More on the Greens. In February 2008 we said: "We're not privy to the Greens' defense, of course, but they appear to have a tough legal battle ahead of them." As their trial was about to begin this week, it was postponed. According to the AP, the Justice Department blamed the one-week delay on "the availability of a prosecution witness." Trial delays aren't unusual. But could the Greens be trying to work out a plea?

As we've said, Perry Mason's clients never ended up behind bars. But real-life FCPA defendants aren't so lucky. Most accused individuals have plea-bargained to reduce or avoid jail time -- FCPA convictions carry a prison term of up to five years. And consider this: Since 1991, not a single FCPA trial has ended with an acquittal.

The Greens -- husband-and-wife Hollywood movie-producers Gerald and Patricia -- are also charged with conspiracy, money laundering, obstruction, and filing false tax returns. He's 76, she's 54, and if convicted on some or all counts they could spend the rest of their lives in prison.

Jury selection in U.S. v. Green is scheduled to start on August 25.

* * *
About those FCPA jury instructions. Responding to this week's post, The Feds Should Take A Meeting, a reader said:

I'm not sure the Professor's criticism of the Bourke instructions on jurisdiction are well-founded. Although the statutory charging language in the conspiracy count does allege that the conspiracy continued to in or about 1999, only two of the overt acts took place after the 1998 amendments were signed into law. One was a trip to Azerbaijan in January 1999 by Farrell and the other a trip in February 1999 by Bourke. Both of these trips are described as being for the purpose of meeting with Azeri officials concerning the privatization investment, but the government did not set out any particular acts in furtherance of the bribery scheme. Moreover, in the original indictment, none of the substantive FCPA counts involved transactions after November 10, 1998. Thus, it is likely that the government chose to play it safe and had the court instruct on the pre-amendment jurisdictional element.
But the pre-1998 jurisdictional instruction wouldn't be needed in U.S. v. Green, where the alleged offending behavior took place from 2002 to 2007.

The government's proposed jury instructions in United States v. Green (United States District Court for the Central District of California, Case #: 08-59(B) - GW) can be downloaded here. The proposed "interstate commerce" instruction is number 28.

The jury instructions from
United States v. Bourke, S1 05 Cr. 418 (SAS) (S. D. N. Y.) can be downloaded here.

* * *
Turks and Caicos-shire. Last Friday, Britain suspended the territory's political institutions and imposed direct rule. A U.K. report (available here) alleged systematic corruption among Turks and Caicos' leading politicians and their friends. A U.K.-appointed governor is now in charge.

In an AP report, former premier Galmo Williams said, "Our country is being invaded and re-colonized by the United Kingdom, dismantling a duly elected government and legislature and replacing it with a one-man dictatorship."

Turks and Caicos is a British Overseas Territory about 500 miles southeast of Florida. Its 25,000 residents have U.K. passports. Its beaches attract around 300,000 tourists a year.

British Foreign Office Minister Chris Bryant said the suspension could last up to two years while governor Gordon Wetherell "puts the Islands' affairs back in good order," according to the AP. Elections for a new government will be held by July 2011, Bryant said.

Meanwhile, will the U.K.'s audit into the government's accounts reveal any FCPA compliance problems for investors in T & C during its former home-rule regime?
.

Wednesday
Aug192009

The SEC Spreads The Love

Millipore's announcement last week was unusual. The Massachusetts-based life science firm said in its 10-Q that the SEC won't bring an enforcement action for potential Foreign Corrupt Practices Act violations the company self-reported in 2006. "By its letter on May 14, 2009," Millipore said, "the Securities and Exchange Commission notified us that its investigation has been completed and it will not pursue any enforcement action on this matter."

Not many companies hear that sort of good news, so why did Millipore?

The company said it decided in January 2006 to consolidate the results of its 40 percent-owned India joint venture. It learned then through its own internal controls "that certain payment and commission practices at the India JV [raised] issues of compliance." There was an internal investigation, self-reporting to the SEC and DOJ, and "certain corrective actions." That's all we know.

But the key to the SEC's no-enforcement decision is probably Millipore's ownership of only 40 percent of the India JV. Under the FCPA's internal controls provisions, an issuer holding 50 percent or less of the voting power in another firm is required to use its influence in good faith -- to the extent reasonable under the circumstances -- to cause the other firm to devise and maintain a system of acceptable accounting controls. (Section 13(b)(6) of the Securities Exchange Act of 1934) That provision, part of the FCPA's 1988 Amendments, was meant "to recognize that it is unrealistic to expect a minority owner to exert a disproportionate degree of influence over the accounting practices of a subsidiary." (H.Rept. 100-576, at 917)

Section 13(b)(6) also says that an "issuer which demonstrates good faith efforts to use such influence shall be conclusively presumed to have complied" with its internal controls obligations. Conclusively presumed to have complied. So the test is whether Millipore acted in good faith to cause the India JV to devise and maintain acceptable accounting controls. Not whether the JV did so or not.

Is it time to celebrate? Not quite. Although now cleared by the SEC on the internal controls side, what about antibribery aspects? Did any of Millipore's employees know about or help the India joint venture make questionable payments? If so, the Justice Department could still come calling. But if no one at Millipore knew anything (which seems likely, given the SEC's no-action), then the company couldn't have acted "knowingly" to help the JV make corrupt payments to foreign officials in violation of the FCPA.

The DOJ rarely tells companies formally that they're in the clear. For Millipore, the FCPA's five-year statute of limitations will be up in 2011, assuming the company didn't waive the time bar after it self-reported the India JV's potential compliance problems.

Millipore Corp. trades on the New York Stock Exchange under the symbol MIL.

Millipore's Form 10-Q filed August 12, 2009 for the period ending July 04, 2009 can be downloaded here.

* * *
From U.S. v. Green. The AP reported here that the Los Angeles trial of Hollywood producers Gerald and Patricia Green has been delayed for at least a week. "A spokesman for the U.S. attorney's office in Los Angeles, said Tuesday that the delay was due to the availability of a prosecution witness. Jury selection is slated to begin Aug. 25." The Greens are charged with violating the FCPA and other laws by paying $1.8 million in bribes to Thai officials in exchange for $14 million in contracts. The movies they produced include Salvador, Rescue Dawn, and Diamonds.
.