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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

Monday
Apr122010

Leading Backwards

There's no way to measure how much corruption the U.S exports to other countries. But sometimes events reveal what may be happening. The latest case is Kyrgyzstan and a revolution triggered largely by public disgust with so much sleaze.

Writing in Forbes, Ariel Cohen said, "What's behind the revolution in Kyrgyzstan? Its people were fed up with the graft, nepotism and authoritarian ways of deposed president Kurmanbek Bakiyev. The irony is that Bakiyev rose to power riding the same wave of public discontent and revulsion. It enabled him to depose Askar Akayev, his equally corrupt predecessor, five years ago."

Where did Kyrgyzstan's corruption come from? The U.S. has used the country as a staging area for the war in Afghanistan. "Many Kyrgyz demonstrators," according to Tom Malinowski in Foreign Policy, "were disgusted by signs that their leaders were personally profiting from the increasingly high payments they extracted from the United States for use of the country's Manas air base (and believed that the U.S. government stayed silent about their government's abuses to keep the base)."

In Afghanistan itself, President Hamid Karzai has accused the U.S. of importing corruption into his country. While it's tempting to think he's merely deflecting blame, that's not the whole story. Stephen M. Walt said last week, also in Foreign Policy: "But even as we are telling the Afghans to stop corruption, we are contributing to it by pumping vast sums of cold hard cash into Afghan society. According to yesterday's New York Times, part of our strategy in southern Afghanistan consists of flooding places like Marjah with 'hundreds of thousands of dollars a week,' in an effort to buy the loyalty of the local population."

U.S. companies also play a role in overseas corruption, as FCPA enforcement actions demonstrate. A story in the Chinese press in December 2007 said, "According to a report by local consulting company Anbound, of the 500,000 bribery cases investigated in China over the last 10 years, 64 percent involved foreign companies." It mentioned allegations involving Lucent Technologies Inc., IBM, Cisco and NCR. The story quoted a Beijinger as saying: "I cannot understand after many foreign companies complain about corruption and bribery in China, then why are they doing similar things?"

What should we do with news about American's role in fueling overseas corruption? We shouldn't declare our country hopelessly hypocritical and unworthy of the right to enforce the FCPA. But knowing that American money contributes to the graft we're supposed to be fighting should give us some humility. It's too easy to scold someone else's graft while justifying our own.

Above all, the news should remind those in charge that our actions need to be consistent with our words, including the words of the FCPA. Otherwise, the world will laugh in our face.

Friday
Apr092010

Question Time

Our readers aren't shy, which is nice. When something's on their mind, we hear about it (usually more than once). Like this question:

Aren't you exaggerating the impact of respondeat superior on FCPA enforcement?

Not at all. Talking specifically about the FCPA, the DOJ said: Under U.S. law, corporate liability is not predicated upon authorization by a 'superior' or manager. A corporation is liable for the acts of its employees, of whatever rank, if they act within the scope of their duties and for the benefit of the corporation. Whether the corporate management condoned or condemned the employee's conduct is irrelevant.

The U.S. Sentencing Commission said: An entire organization, despite its best efforts to prevent wrongdoing in its ranks, can still be held criminally liable for any of its employees’ illegal actions.

The United States Attorneys Manual said: The existence of a corporate compliance program, even one that specifically prohibited the very conduct in question, does not absolve the corporation from criminal liability under the doctrine of respondeat superior. See United States v. Basic Constr. Co., 711 F.2d 570, 573 (4th Cir. 1983).

It's all summed up in an amicus brief from U.S. v. Ionia Management, S.A., a Second Circuit case that mounted a serious but unsuccessful challenge to respondeat superior. Written by defense lawyer Andrew Weissmann, formerly the director of the DOJ's Enron task force, it said:

A criminal indictment can be a life-or-death matter for a company. Yet, the vast sweep of the district court’s standard for the imposition of vicarious criminal liability makes corporations accountable for almost all criminal acts of any low level employees—even those acting against explicit instructions and in the face of the most robust corporate compliance program. This has caused a tremendous imbalance between the power of a prosecutor and a corporate defendant. Given the hair-trigger for corporate liability even for the most responsible corporate citizen, many corporations forego any defenses in order to resolve threatened prosecution. . . .

This imbalance and the problems it engenders are not theoretical. For example, one judge found that prosecutors violated the Constitution by causing KPMG to cut off attorneys’ fees to employees in the hope of obtaining a deferred prosecution agreement. . . . In another instance, as part of a deferred prosecution agreement, Bristol-Myers Squibb agreed to endow a professorship at Seton Hall University, the prosecutor’s alma mater.  . . . The potential for abuse is manifested as well in the then‑common requirement that corporations agree to broad waivers of attorney-client privilege as a factor to be considered for a deferred prosecution agreement.

The potential for inappropriate prosecutorial pressure is particularly heightened in the area of corporate criminal investigations that end in Draconian non-prosecution and deferred prosecution agreements, where no court has oversight authority. There, the prosecutor effectively serves as both judge and jury. Because of the disastrous consequences of a corporate indictment and the ease with which corporations may be liable under the doctrine of respondeat superior, corporations are under immense pressure to agree to almost any terms. The vast majority of these negotiations go on behind closed doors, with little public scrutiny and no judicial review. (citations omitted)

Would it even be possible for us to overstate the influence on FCPA enforcement actions of such a dogma?

*   *   *

Our favorite question this week.

Dear FCPA Blog: I am responsible for the compilation of casebooks for the Master of Law Program for the Law Faculty of the University of Auckland, New Zealand (here). This year the Faculty is offering a course called "Fraud and White Collar Crime" taught by Professor John Farrar. Professor Farrar would like to include Here Comes The SFO, Part One from the FCPA Blog in our casebook/reader which is handed out exclusively to the students attending the class. We would like to ask you for copyright permission to do so.

We answered yes.

Thursday
Apr082010

Pulling The Strings

The criminal informations against Innospec and Daimler AG contained counts based on 18 U.S.C. §2. That's not the FCPA, the Travel Act, money laundering, or the conspiracy statute. What is it?

It's the aider and abettor law. Whoever causes someone else to commit a federal crime -- counsels, commands, induces, or procures its commission -- is punishable as a principal

As a principal means the aider and abettor is subject to the same penalties for the crime committed by its agent, as though the principal -- the puppet-master -- had committed the crime itself. Innospec and Daimler each caused a subsidiary to violate the FCPA; therefore they were charged as an aider an abettor of those FCPA violations.

Aiding and abetting isn't an independent crime. The statute provides no penalty; it only abolishes the distinction between common law notions of "principal" and "accessory." United States v. Kegler, 724 F.2d 190, 200 (D.C. Cir. 1983).

Because 18 U.S.C. §2 applies to all crimes under U.S. law, the FCPA doesn't contain an explicit aiding and abetting provision. As mentioned, a person convicted of aiding and abetting is punishable to the same extent as if he had committed the crime himself. So aiding and abetting an FCPA antibribery offense, for example, is punishable by up to five years in prison.

It's not necessary in an aiding and abetting offense that the bribe be actually paid or that it be successful, only that the third party (the puppet) violated the FCPA by offering, promising, or authorizing the unlawful payment or gift. See 18 U.S.C. §§ 78dd-1(a), 78dd-2(a), 78dd-3(a).

Wednesday
Apr072010

The Gallic Shrug

French energy giant Total S.A. said bribery allegations it disclosed last week for its role in the U.N. oil for food program in Iraq are nothing new. A Paris judge brought the charges on February 22, the company said in its annual report released Friday. They include misappropriation of corporate assets and being an accessory to the corruption of foreign public agents. Total's 2009 annual report can be downloaded here.

But in a press release Tuesday, the company said the story is old news. "This formal investigation comes eight years after the initial investigation began and three years after it closed, with no new elements having been uncovered," Total said. "The public prosecutor has already stated that earlier allegations against Total executives in this matter were unfounded and, in September 2009, asked that the case be dismissed."

Total blamed the new charges on a gung-ho judge who just came into the case. "In early 2010," it said, "despite the advice of the prosecutor’s office, a new investigating judge decided to place Total S.A. under formal investigation on bribery charges as well as complicity and influence peddling. . . .There is nothing to support these allegations."

Total said the prosecutor’s office last year recommended dismissing the case against "all current and former employees." Based on the prosecutor's recommendation, the Ministry of Justice can now stop the judge's investigation.

French enforcement actions against overseas corruption are rare. In March 2009, GRECO- the Council of Europe's Group of States Against Corruption -- explained that under French law, corruption offenses committed abroad can only be investigated by French authorities at the request of the foreign prosecutors and following a complaint from the victim, or an official report by the authorities of the country where the offense was committed. In other words, GRECO said, French law provides "exceptional guarantees" to French companies that they won't be prosecuted for bribery abroad. See our post here.

Total S.A. is the fifth largest publicly-traded oil and gas company in the world and the largest company on the Euronext Paris exchange, with a market cap of around €100 billion. It also trades on the New York Stock Exchange under the symbol TOT. It has nearly 100,000 employees in more than 130 countries, and is actively exploring for or producing oil and gas in 40 countries. 

*   *  *

Total's disclosure in its 2009 annual report said:

Several countries have commenced investigations concerning possible violations related to the United Nations (UN) “Oil-for-Food” program in Iraq. Pursuant to a French criminal investigation, certain current or former Group employees were placed under formal criminal investigation for possible charges as accessories to the misappropriation of corporate assets and as accessories to the corruption of foreign public agents.

The Chief Executive Officer of the Company, formerly president of the Group’s Exploration & Production division, was also placed under formal investigation in October 2006. In 2007, the criminal investigation was closed and the case was transferred to the Prosecutor’s office. In 2009, the Prosecutor’s office recommended dismissing the case for all the Group’s current and former employees and for the Chief Executive Officer.

In early 2010, despite the advice of the Prosecutor’s office, a new investigating judge decided to place TOTAL S.A. under formal investigation on bribery charges as well as complicity and influence peddling. This formal investigation has been pronounced eight years after the beginning of the investigation without any new evidence being added to the affair.

The Company believes that its activities related to the “Oil-for-Food” program have been in compliance with this program, as organized by the UN in 1996. The Volker report released by the independent investigating committee set up by the UN had discarded any bribery grievance within the framework of the “Oil-For-Food” program.

*   *   *

 The company's press release Tuesday said:

April 6, 2010: The Group confirms that it published its 2009 Annual Report, specifying that Total S.A. was placed under formal investigation on February 22, 2010 as part of a wider investigation in Paris being conducted into the Oil for Food program.

Contrary to what has been claimed this morning in a French daily newspaper, this is not a new case.

This formal investigation comes eight years after the initial investigation began and three years after it closed, with no new elements having been uncovered. The public prosecutor has already stated that earlier allegations against Total executives in this matter were unfounded and, in September 2009, asked that the case be dismissed.

Nonetheless, Total S.A. is now being accused of bribery, complicity and benefiting from influence peddling by a new investigating judge in charge of this case since the end of 2009.

This judge claims that Total knowingly purchased oil that Iraq had allegedly allocated to prominent French individuals in exchange for influence with the French government.

The judge also contends that Total bribed Iraqi public officials in order to purchase oil in violation of the embargo.

There is nothing to support these allegations.

The Volcker Report, issued by the independent inquiry committee into the United Nations
Oil for Food program, found that no corruption had occurred.

We are confident about the investigation’s outcome and that Total will be cleared of these allegations.

The Group reiterates that it has never, by any means, been sued for compensation by the proceedings entered into by Iraq against the numerous companies concerned by the Oil for Food program.

However complex the situation in our host countries, The Group operates in compliance with applicable legislation and with its Code of Conduct.

Tuesday
Apr062010

Wanted, Dead Or Alive

What do we think, a friend asked a few days ago, about paying FCPA whistleblowers 10 to 30 percent of amounts recovered through SEC and DOJ enforcement actions? That idea is part of a financial reform bill introduced last month by Christopher Dodd, chairman of the Senate Banking Committee. It's well covered in Corporate Compliance Insights, with links to the bill itself.

We're in favor of enforcing the FCPA. And we generally admire the job the DOJ and SEC are doing to fight global public corruption -- and to enlist allies in the fight. But we have serious concerns about Senator Dodd's proposal. We explained our thinking to a Washington policy maker two months ago. Whether our comments made it to Senator Dodd's ear, we don't know.

Here's what we said. Under current U.S. law and the way it's applied to white collar criminal cases, including the FCPA, corporate defendants cannot defend themselves if any employee committed an offense. The legal doctrine of respondeat superior makes corporations vicariously liable for crimes committed by employees at any level acting within the scope of their employment, even for actions in direct violation of company policy. This strict liability leaves organizations defenseless -- completely naked when threatened with criminal prosecution.

What do companies accused of FCPA violations do? Instead of mounting a futile and potentially catastrophic defense (remember Arthur Andersen?), they settle. The corporations -- legal fictions that cannot think, plan, speak, chew bubblegum, or act apart from their people -- are "punished" with financial penalties, ultimately paid by completely innocent shareholders. Sometimes, though not always, people from the company are prosecuted as well. But their financial penalties are tiny compared to those paid by the corporations, and on which the whistleblower rewards would be based.

To make matters worse, a settling company may feel pressured to disclose to prosecutors documents and records about employees, usually without the employees' consent. Those records may even include the employees' conversations with the company's lawyers. The employees lose what they thought was the attorney-client privilege, and their right against self incrimination is history.

So let's rephrase the question: Should a whistleblower be rewarded for information leading to the government's extraction of money from a defenseless corporation through a coerced settlement that tramples its employees' expectation of legal privilege and 5th Amendment rights?

Whistleblower rewards would be great if respondeat superior were reformed. If corporations were given the chance to defend themselves, given the chance to prove they tried to prevent bribery but one or more employees went off the rails anyway. That would end shot-gun settlements. Corporate defendants could then make a reasoned decision -- go to trial or seek settlement. And with those on the losing end of a prosecution presumably guilty in a real sense of the crimes committed by their employees, punishing the companies would make more sense.

Under current U.S. law, however, FCPA whistleblower rewards are likely to hurt companies that act in good faith to prevent corruption and employees whose rights are stripped away.

The criminal justice system has a wheel loose and it's called respondeat superior. Let's fix it before we drive any faster.

Monday
Apr052010

Britain's FCPA Plus

Photo by Steve PunterBy Thomas Fox

The U.K. Bribery Bill, introduced in March 2009, is still on track to pass out of Parliament before the upcoming general election, expected to be in June. The Bribery Bill is a major shift in the U.K.'s overseas anti-corruption regime -- and it goes even further than the FCPA.

Because so many U.S. companies have offices or operations in the U.K., or employ U.K. citizens in their world-wide operations, this legislation exposes them to new risks of prosecution.

Unlike the FCPA, the Bribery Bill has no exception for facilitation payments. It creates strict liability for the failure of a corporate official to prevent bribery, prohibits bribery not just of government officials but also private citizens, and has criminal penalties of up to 10 years prison per offense (not 5 years as under the FCPA).

The Conservative Party tried to introduce amendments that would have allowed facilitation payments "reasonable in amount," "customary in the situation," or the "only reasonable alternative in the situation." Blogger Alan Holroyd reported that Clair Ward, the Parliamentary Under-Secretary of State for Justice, blasted the idea, saying the exceptions (which died in the debate) would have "driven a coach and horses through the policy objectives of the bill."

There's one affirmative defense for "adequate procedures." The defense would allow a corporation to put forward credible evidence that it had adequate procedures (i.e., an effective compliance program) in place to prevent its people from committing bribery offences. The Secretary of State for Justice will be required to publish guidance on "adequate procedures" when the Bill becomes law. And the Government has signaled that it will work with the U.K. business community to develop compliance standards.

Thomas Fox is an attorney in Houston, Texas, specializing in FCPA compliance, risk management and international transactions. He can be reached at tfox@tfoxlaw.com

More information about the Bribery Bill can be found here.

Friday
Apr022010

Hollywood Sentencing Doesn't Happen

Gerald and Patricia Green in happier days.Sentencing for Gerald and Patricia Green was delayed for the third time Thursday and rescheduled to April 29. The Hollywood producers were convicted last year of paying $1.8 million in bribes to a Thai official in exchange for contracts to produce the Bangkok Film Festival.

Gerald Green, 78, and his wife Patricia, 53, were first scheduled to be sentenced by Judge George H. Wu in federal court in Los Angeles on December 17, 2009. The government and the Greens agreed to wait until January 21, 2010. The judge then reset the hearing to April 1 after asking the parties for information about sentences in similar cases.

An LA jury in September 2009 found the Greens guilty of conspiring to violate the Foreign Corrupt Practices Act, nine counts of violating the FCPA, and seven counts of money laundering. Patricia Green was also found guilty of two counts of falsely subscribing to a U.S. income tax return. The conspiracy and FCPA charges are each punishable by up to five years in prison, the money laundering counts by 20 years in prison, and the tax charges against Patricia Green each carry a maximum penalty of three years in prison.

The government has asked for a sentence of about 20 to 25 years for Gerald Green. In an earlier court filing, it said:

The [pre-sentence report] calculates defendant Gerald Green’s Total Offense Level as 38, his Criminal History Category as I, and his sentencing range as 235-293 months. With the inclusion of the additional role and obstruction enhancements recommended above, his Total Offense Level would be 44 and his sentencing range would be life in prison.

The Justice Department said evidence presented during their 2½-week trial showed that beginning in 2002 and continuing into 2007, the Greens conspired with others to bribe the former governor of the Tourism Authority of Thailand with $1.8 million. The payments were used to land $13.5 million in film festival contracts and deals for development of a Thai Privilege Card, a website, book, video, calendars, and public relations services. The Greens, prosecutors said, used different business entities, some with dummy addresses and telephone numbers, to hide how much they were receiving under the contracts.

We've said before that Judge Wu may be reluctant to sentence the Greens to long prison terms. After yesterday's hearing, a report by Dominic Patten of The Wrap said:

Watching the 90-minute session today in Judge Wu's in LA's downtown federal courthouse, it would be easy to think this was an April Fool's joke gone off the rails, or that an actual trial and judgment had never happened. Both U.S. attorneys and defense lawyers seemed to re-argue the entire case, point-by-point, on issues of motivation, damages, medical condition, financial loss and gain, and sentencing guideline calculations.

Somberly dressed in black, both Gerald and Patricia Green say silently throughout the proceedings. The 78-year-old Gerald Green, who had an oxygen tune connected to his nose, only spoke once, to confer with his wife and his attorney Jerome Mooney about upcoming court dates. Because of the charges they face and their advanced age, they face the possibility of life in prison. 

In January, the Thai official named in the Greens' prosecution was indicted with her daughter in Los Angleles. Juthamas Siriwan, the ex-governor of the Tourism Authority of Thailand, and Jittisopa Siriwan, were charged with one count of conspiracy, seven counts of transporting funds to promote unlawful activity (bribery), and one count of aiding and abetting. If convicted, Siriwan and her daughter each face up to 20 years in prison. Siriwan has said she is innocent.

A copy of the indictment in U.S. v. Juthamas Siriwan in the U.S. District Court for the Central District of California (Case No.: CR 09 00081) can be downloaded here.

Download a copy of the government's December 14, 2009 response and objections to the pre-sentence report for Gerald Green here.

Thursday
Apr012010

The Daimler Settlement

The DOJ's release for Thursday, April 1, 2010 said:

WASHINGTON - Daimler AG, a German corporation, and three of its subsidiaries have resolved charges related to a Foreign Corrupt Practices Act (FCPA) investigation into the company’s worldwide sales practices, the Department of Justice announced today.

At a hearing today before U.S. District Court Judge Richard J. Leon in the District of Columbia, Daimler AG’s Russian subsidiary DaimlerChrysler Automotive Russia SAO (DCAR), now known as Mercedes-Benz Russia SAO, and its German subsidiary, Export and Trade Finance GmbH (ETF), each pleaded guilty to criminal informations charging the companies with one count of conspiracy to violate the anti-bribery provisions of the FCPA and one count of violating those provisions. As part of the plea agreements, DCAR and ETF agreed to pay criminal fines of $27.26 million and $29.12 million, respectively.

Daimler AG entered into a deferred prosecution agreement and agreed to the filing of a criminal information charging that company with one count of conspiracy to violate the books and records provisions of the FCPA and one count of violating those provisions. Daimler AG’s Chinese subsidiary DaimlerChrysler China Ltd. (DCCL), now known as Daimler North East Asia Ltd., also entered into a deferred prosecution agreement and agreed to the filing of a criminal information charging it with one count of conspiracy to violate the anti-bribery provisions of the FCPA and one count of violating those provisions. In total, Daimler AG and its subsidiaries will pay $93.6 million in criminal fines and penalties. . . .

In connection with its guilty plea, DCAR admitted that it made improper payments to Russian federal and municipal government officials to secure contracts to sell vehicles by over-invoicing the customer and paying the excess amount back to the government officials, or to other designated third parties that provided no legitimate services to DCAR or Daimler AG. When requested, DCAR or Daimler AG employees caused the wire transfer of payments from Daimler AG’s bank accounts in Germany to, among other destinations, U.S. and Latvian bank accounts held by shell companies with the understanding that the money, in whole or in part, was for the benefit of Russian government officials.

In connection with its guilty plea, ETF admitted that it made corrupt payments directly to Croatian government officials and to third parties, including two U.S.-based corporate entities, with the understanding that the payments would be passed on, in whole or in part, to Croatian government officials, to assist in securing the sale of 210 fire trucks.

In connection with its deferred prosecution agreement, DCCL admitted that it made improper payments in the form of commissions, delegation travel, and gifts for the benefit of Chinese government officials or their designees in connection with sales of commercial vehicles and Unimogs to various Chinese government customers. DCCL admitted that in certain cases it used U.S.-based agents to facilitate the bribe payments.

Today, Judge Leon also entered a separate judgment against Daimler AG resolving a related civil complaint filed by the U.S. Securities and Exchange Commission (SEC). Daimler AG agreed to pay $91.4 million in disgorgement of profits relating to those violations.

*   *   *

Download the March 22, 2010 two-count criminal information in U.S. v. Daimler AG here.

Download a copy of the government's sentencing memorandum in U.S. v. Daimler AG here.

Download a copy of Daimler's deferred prosecution agreement here.

Download the civil complaint in SEC v. Daimler AG here.

Thanks to Marc Bohn for help with this and prior posts about Daimler.

*   *   *

Here's today's release (2010-51) from the SEC:

The Securities and Exchange Commission today announced a settlement with Daimler AG for violations of the Foreign Corrupt Practices Act (FCPA), alleging that the Stuttgart, Germany-based automobile manufacturer engaged in a repeated and systematic practice of paying bribes to foreign government officials to secure business in Asia, Africa, Eastern Europe and the Middle East

Daimler agreed to pay $91.4 million in disgorgement to settle the SEC's charges and pay $93.6 million in fines to settle charges in separate criminal proceedings announced today by the U.S. Department of Justice.

The SEC alleges that Daimler paid at least $56 million in improper payments over a period of more than 10 years. The payments involved more than 200 transactions in at least 22 countries. Daimler earned $1.9 billion in revenue and at least $90 million in illegal profits through these tainted sales transactions, which involved at least 6,300 commercial vehicles and 500 passenger cars. Daimler also paid kickbacks to Iraqi ministries in connection with direct and indirect sales of motor vehicles and spare parts under the United Nations Oil for Food Program. . . .

The SEC's complaint, filed in U.S. District Court for the District of Columbia, alleges that Daimler used bribes to further government sales in such countries as Russia, China, Vietnam, Nigeria, Hungary, Latvia, Croatia, and Bosnia. . . .

The SEC alleges that bribes also were made through phony sales intermediaries and corrupt business partners, as well as through the use of cash desks. Sales executives would obtain cash from the company in amounts as high as hundreds of thousands of dollars, enabling Daimler to obscure the purpose and recipients of the money paid to government officials.

Daimler violated Section 30A of the Securities Exchange Act of 1934 by making illicit payments to foreign government officials in order to obtain or retain business. Daimler violated Section 13(b)(2)(B) of the Exchange Act by failing to have adequate internal controls to detect and prevent the payments, and it violated Section 13(b)(2)(A) of the Exchange Act by improperly recording the payments in its books and records. . . .

 *   *   *

Daimler's statement said:

Stuttgart/Germany, April 1, 2010

Daimler AG announced today that it has reached a settlement of the U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) investigations of violations of the Foreign Corrupt Practices Act (FCPA). Under the terms of the settlements, Daimler will pay a fine of USD 93.6 (approx. EUR 70) million and civil disgorgement of profits of USD 91.4 (approx. EUR 68) million. Sufficient provisions have been made to cover these charges.

Daimler cooperated with the SEC and the DOJ regarding the investigation into the past conduct. In the course of the investigation, which began in the fall 2004, Daimler took appropriate personnel and remedial actions to ensure that its conduct going forward complies with the Company’s Integrity Code and with all applicable laws.

"Compliance has high priority at Daimler,” stated Dr. Dieter Zetsche, Chairman of the Board of Management of Daimler AG. “We have learnt a lot from past experience. Today, we are a better and stronger company, and we will continue to do everything we can to maintain the highest compliance standards." . . .

The deferred prosecution agreements of Daimler AG and Daimler North East Asia Ltd. are premised upon the requirement that no further FCPA violations occur during the two year term of the agreements and that a comprehensive compliance program is maintained. This program is designed to ensure, among other things, compliance with anti-bribery laws such as the FCPA. Upon successful satisfaction of the terms set forth in the deferred prosecution agreements, the matters against Daimler AG and Daimler North East Asia Ltd. will be dismissed without further action.

In addition, Judge Louis Freeh, will serve as a corporate compliance monitor for three years. . . .

Thursday
Apr012010

Enforcement Report For Q1 '10

It was the busiest three months ever for FCPA-related enforcement. Here's what happened since January 1st:

Indictments, guilty pleas, and sentencings. Some aren't strictly FCPA actions, as in the Haiti telecom bribe case. But they're all related to or part of an FCPA prosecution. 

Natco (January 6) resolved civil books and records and internal controls charges with the SEC. Agreed to a $65,000 civil penalty.

Shot-Show Indictments (January 19) charged 22 individuals:

•    Daniel Alvirez, 32, Arkansas

•    Lee Allen Tolleson, 25, Arkansas

•    Helmie Ashiblie, 44, Woodbridge, Va.

•    Andrew Bigelow, 40, Sarasota, Fla.

•    R. Patrick Caldwell, 61, Sunrise, Fla.

•    Stephen Gerard Giordanella, 50, Sunrise, Fla.

•    Yochanan R. Cohen, a/k/a Yochi Cohen, 47, San Francisco

•    Haim Geri, 50, North Miami Beach, Fla.

•    Amaro Goncalves, 49, Springfield, Mass.

•    John Gregory Godsey, a/k/a Greg Godsey, 37, Decatur, Ga.

•    Mark Frederick Morales, 37, Decatur, Ga.

•    Saul Mishkin, 38, Aventura, Fla.

•    John M. Mushriqui, 28, Upper Darby, Penn.

•    Jeana Mushriqui, 30, Upper Darby, Penn.

•    David R. Painter, 56, U.K.

•    Lee M. Wares, 43, U.K.

•    Pankesh Patel, 43, U.K.

•    Ofer Paz, 50, Israel

•    Jonathan M. Spiller, 58, Ponte Vedra Beach, Fla.

•    Israel Weisler, a/k/a Wayne Weisler, 63, Stearns, Ky.

•    Michael Sachs, 66, Stearns, Ky.

•    John Benson Wier III, 46, St. Petersburg, Fla.

Richard T. Bistrong (January 21), the key intermediary identified as “Individual 1” in the Shot Show indictments (above) was charged with conspiracy to violate the FCPA.

Jim Bob Brown (January 28), 48, former Willbros employee, was sentenced in federal court in Houston to one year and one day in prison and fined $17,500 for conspiracy to violate the FCPA.

Jason Edward Steph (January 28), 40, former Willbros employee, was sentenced to 15 months and fined $2,000 for conspiracy to violate the FCPA.

John W. Warwick
(February 10), 64, of Virginia Beach, Va., pleaded guilty to one count of conspiracy to violate the FCPA.

Jean Fourcand (February 19), 62, of Miami, pleaded guilty to laundering money used to bribe former officials at Haiti's state-owned telecommunications company.

BAE Systems plc (March 1) pleaded guilty to conspiring to defraud the U.S. by impairing and impeding its lawful functions, to make false statements about its Foreign Corrupt Practices Act compliance program, and to violate the Arms Export Control Act and International Traffic in Arms Regulations. It was fined $400 million.

Robert Antoine (March 12), 62, pleaded guilty to a money-laundering conspiracy (see Jean Fourcand above).

Nexus Technologies, Inc. (March 16) pleaded guilty to conspiracy, and to violating the Foreign Corrupt Practices Act, and the Travel Act in connection with commercial bribes and money laundering.

Nam Nguyen (March 16), 54, the president and owner of Nexus Technologies, pleaded guilty to conspiracy, a substantive FCPA violation, a violation of the Travel Act, and money laundering.

An Nguyen (March 16), 34, an employee of Nexus Technologies, pleaded guilty to conspiracy, a substantive FCPA violation, a violation of the Travel Act, and money laundering.

Kim Nguyen (March 16), 41, another sibling, pleaded guilty to conspiracy, a substantive FCPA violation, and money laundering.

Innospec (March 18) pleaded guilty to wire fraud and FCPA violations. In its DOJ, settlement, it will pay a $14.1 million criminal fine and retain an independent compliance monitor for three years. In its SEC settlement, It will disgorge $11.2 million in profits for violating the FCPA's anti-bribery, internal controls, and books and records provisions.

Daimler AG (March 24) charged in a criminal information with one count of conspiracy to violate the FCPA (18 U.S.C. §371) and one count of violating the books and records provisions (15  U.S.C. §§78m(b)(2)(A), 78m(b)(5), and 78ff(a), and 18 U.S.C. §2). Daimler is expected to pay $185 million -- $93.6 million for a criminal fine and $91.4 million in civil penalties. Hearing on April 1, 2010.

Sentencing delays:

Gerald and Patricia Green's sentencing in Los Angleles was postponed from January 21 to April 1, 2010 at 8:00 am.

Hans Bodmer (SDNY 03-947): sentencing was scheduled for February 23, 2010. Docket indicates a sealed document was placed in vault on March 25, 2010 (2004 - Bourke/Kozeny – Note: Was not convicted on FCPA count against him). Sentencing may be delayed until the outcome of Bourke's appeal.

Albert "Jack" Stanley's sentencing in Houston was rescheduled from February 24 to May 26, 2010 at 10:30 am.

Leo Winston Smith (CDCA 07-69): sentencing delayed from March 22, 2010; currently scheduled for May 10, 2010 (2007 - Pacific Consolidated).

Charles Paul Edward Jumet (EDVA 09-397): sentencing delayed from March 26, 2010; currently scheduled for April 19, 2010 (2009 - Panama; PECC).

Juan Diaz (SDFL 09-20346): sentencing delayed from March 31, 2010; sentencing currently scheduled for May 27, 2010 (2009 - Haiti Telecom).

Antonio Perez (SDFL 09-20347): sentencing delayed from March 31, 2010; sentencing currently scheduled for May 27, 2010 (2009 - Haiti Telecom).

Extraditions:

Viktor Kozeny (January 26), 46, the Czech-born fugitive wanted in the United States for conspiracy to violate the FCPA won a decision in the Bahamas court of appeal that continues to block his extradition to the U.S. The U.S. may appeal to the U.K. Privy Council.

Jeffrey Tesler (March 25), 61, a U.K. citizen indicted in February 2009 by a federal grand jury in Houston for being KBR's middleman in Nigeria. A judge in London ruled he should be extradited to the U.S. to face trial. His appeal is expected to be lengthy.

In the pipeline. Here are companies that during the quarter announced possible FCPA settlements:

ABB reserve of $850 million

Alcatel-Lucent reserve of $137.4 million

ENI reserve of €250 million

Pride International, Inc. reserve of $56.2 million

Technip reserve of €245 million

Veraz reserve of $300,000

Civil suits. Private parties have no right of action under the FCPA. Only the DOJ and SEC can enforce it. Plaintiffs bring FCPA-related claims under RICO (18 U.S.C. § 1962(c)), conspiracy to violate RICO (18 U.S.C. § 1962(d)), fraud, civil conspiracy, breach of fiduciary duties, and others.

A couple of noteworthy FCPA-related civil suit developments during the quarter were:

Dow Chemical A Delaware chancery court cited Dow's corporate compliance program as a reason for dismissing a shareholder derivative suit against the company's current directors that alleged they failed to prevent overseas bribery.

BAE A federal appeals court affirmed the dismissal of a shareholder derivative suit against some current and former directors and executives of U.K.-based BAE Systems PLC. The trial court applied English law to the case.

If we've missed any companies or individuals that should be included in FCPA-related actions, please let us know.

Special thanks to Marc Bohn for some of the sentencing information.

Wednesday
Mar312010

The Thing About Foreign Officials

Some of our favorite websites are asking whether employees of government-linked companies are really "foreign officials" under the FCPA. The DOJ has always insisted they are. But that interpretation has never been tested in court, allowing proponents to say the DOJ has taken improper liberties with the statute's text.

We've never thought that argument had much promise. Our plain reading of the words in question is that employees of companies owned or run by foreign governments, or even greatly influenced by them, fit within the intended meaning of "foreign officials." How so? The law defines them to include employees of a government or any instrumentality of it. Is a government-linked company an instrumentality?

According to the free dictionary, an instrumentality is "a subsidiary organ of government created for a special purpose." Or it's "the tools or means by which an organization or subset of that organization accomplishes its projects and goals." That might describe a government-linked company. And in the Supreme Court cases we've checked, instrumentality is a catch-all word, like "thing." It pops up in tax cases -- to mean ships, containers, cars, roads, canals, etc. It wouldn't be a stretch to include a state-owned enterprise as another thing.

Proponent Mike Koehler points out, correctly, that the DOJ's expansive view of "foreign official" can produce strange results -- "employees of a Delaware company perhaps being Venezuelan 'foreign officials' and an American citizen perhaps being a Dubai 'foreign official.'" Spot on. The world is now thoroughly corporatized and, yes, globalized. Strange is the new normal.

Beyond that, would a federal judge be willing to abridge FCPA enforcement and presumably unleash a wave of "private" bribery by Americans overseas? Imagine the scolding from China's rulers and our OECD anti-corruption partners. Even if a judge performed such radical surgery, we think Congress (in either party's hands) would act before lunch to restore order.

Nonetheless, this debate has people talking, and that's a good thing.

*   *   *

Here's the FCPA's definition of "foreign official." You be the judge of what's intended and let us know what you think:

The term “foreign official” means any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.

Tuesday
Mar302010

Risk-Based Compliance: First Steps

Scott Moritz: Risk-based compliance can work, even for the world's biggest companies. By Scott Moritz

Who are your highest-risk third parties and what are you doing about them? Most FCPA enforcement actions involve payments through agents and other intermediaries. That's why the DOJ and SEC and their overseas counterparts are watching what companies do to identify high-risk third parties, and the standard of care used to manage the relationships.

Global companies -- often with tens of thousands of suppliers and other third parties to keep track of -- can and should use risk-based compliance. Here are some first steps to make it work:

1.    Knowing what you don't know.

Typical vendor-information files are thin -- the company's legal name, billing address, tax ID number, and payment instructions. But to evaluate compliance risk, more is needed. Basic information can often be extracted from proprietary databases, such as the names of owners and key executives, standard industry code (SIC), and parent / subsidiary relationships. Going further may require a questionnaire covering any ties with current or former government officials; foreign government ownership; sales commission percentages (if applicable); ultimate customer names; annual sales volumes; and the like. 

2.    Privacy, please.

EU countries and many others now have laws protecting personal information. Before transmitting any data, consider privacy laws in each potentially relevant jurisdiction. Data should be subjected to some level of formal privacy review, scrubbing, storage, and transmission using encryption. 

3.    Categorization is key.

A consistent way to categorize third-party relationships, and the relative risk each category represents, is a critical success factor. Labels describing relationships should be functional -- how do they interact with your company? Creating accurate labels requires input from finance, procurement and individual business units. Common relationships include: reseller (sometimes referred to as channel partner), distributor, joint venture partner, agent (or sales agent), freight forwarder, customs broker, lobbyist, law firm, accounting firm, consultant, and so on. Once established, the categories need to be sorted by risk and assigned an appropriate point value as a precursor to final risk scoring.

4.    Do some spring cleaning.

Most master-vendor files contain entries that are no longer active, are duplicates, or are other forms of clutter. Remove duplicates. Delete dormant entities -- those inactive for two years or more. Try a first round of replacing high-risk entries with less risky alternatives. And after due diligence investigations, relationships showing unresolvable red flags should be ended as well.

5.    Education and accountability.

Radar detectors don't just reveal police locations. Over time, they teach you where police officers are likely to be. A well implemented third-party FCPA compliance program can do the same thing -- over time, it teaches business people to recognize the causes of risk in third-party relationships. Such awareness doesn't come easy. Most often, it's a result of driving accountability by compelling business units to make a case to retain a high-risk third party despite red flags, and forcing them to accept responsibility for any liability that follows.

Scott Moritz is an executive director with Daylight Forensic & Advisory LLC where he leads their FCPA and Investigative Due Diligence practices. He's a former FBI Special Agent with 23 years experience investigating international corruption, transnational crime and money laundering. He can be emailed here.

Monday
Mar292010

Headwinds In London

SFO Director Richard Alderman: Good job, don't do it again. A senior Crown Court judge on Friday warned the head of Britain's Serious Fraud Office (SFO) that he doesn't have the legal authority to settle corruption prosecutions with plea bargains.

The judge's comments raise doubts about the SFO's ability to cooperate with the DOJ and SEC in crafting global settlements for companies that agree to plead guilty. And companies seeking joint settlements may now fear being fined twice for the same offenses.

Lord Justice Thomas, Britain's second-ranking criminal judge, was speaking during a hearing involving the British division of Innospec, Inc., the Delaware-based chemical maker that in mid-March reached a global settlement with U.S. prosecutors and the SFO.

The judge approved the U.K. plea deal and penalty but said the $12.7 million fine the SFO agreed with Innospec was inadequate and went beyond the SFO's authority. In the U.S., Innospec agreed with the DOJ to pay a $14.1 million criminal fine and disgorge $11.2 million in profits to the SEC. It also agreed to pay $2.2 million to the U.S. Office of Foreign Assets Control for violating America's embargo against Cuba.

According to the Independent, the judge, who's the deputy head of criminal justice, said: “I have concluded that the director of the SFO had no power to enter into the arrangements made and no such arrangements should be made again.”

The Financial Times (registration required) reported Lord Justice Thomas as saying that "while [SFO director] Alderman's 'vigorous prosecution' of Cheshire-based Innospec was praiseworthy, the director had exceeded his powers in the course of striking a joint deal with the U.S. authorities over the total penalty of just over $40 million the company would pay. The judge said he confirmed the U.K. part of the fine 'reluctantly,' as it was 'wholly inadequate' and should have been in the tens of millions for a 'very serious' offence."

The judge said under English law only judges can impose sentences. “This has always been the position under the law of England and Wales. Agreements and submissions of the type put forward in this case can have no effect,” he said, according to the Times.

Judge Thomas' remarks also open the possibility that BAE's settlement with the SFO may come under judicial fire. The company agreed in February to a U.K. penalty of £30 million. At the same time, it agreed with the DOJ to a U.S. criminal fine of $400 million.

In the U.S., plea bargains also need court approval. However, judges usually defer to the DOJ and SEC and accept the terms those agencies agree with defendants.