Richard L. Cassin Publisher and Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Harry Cassin Managing 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


Prosecutors Appeal Dismissal of FCPA Charges Related to Azerbaijan

The press is reporting that the Department of Justice on August 21, 2007 appealed the dismissal of FCPA charges against three men in connection with a bribery scheme in Azerbaijan.

On June 21, 2007, the U.S. District Court for the Southern District of New York dismissed all FCPA and related counts of an indictment against Viktor Kozeny, Frederic Bourke, Jr. and David Pinkerton. The District Court said the statute of limitations had run. The Justice Department argued that the five-year limitations period should be tolled based on the government's official requests for foreign evidence from the Netherlands and Switzerland.

The October 2005 indictment accused the three in a scheme to bribe senior government officials in Azerbaijan in order to ensure the privatization of the State Oil Company of the Republic of Azerbaijan ("SOCAR").

On July 6, 2007, hedge fund Omega Advisors, Inc. acknowledged that Clayton Lewis, one of its former employees, had learned, prior to Omega’s investment in the privatization of SOCAR, that Kozeny had entered into arrangements with some officials of the government of Azerbaijan that gave those officials a financial interest in the privatization. Lewis pleaded guilty on February 10, 2004 to conspiracy to violate the FCPA .

Omega entered into a settlement agreement with the DOJ and will not be prosecuted for any crimes related to its participation. Omega civilly forfeited $500,000 and agreed to continue to cooperate with the Government in connection with its investigation and prosecution of the case.

As a postscript, the DOJ noted that Omega invested more than $100 million in the Azeri privatization program in the spring and summer of 1998 and lost all of its investment, and to date privatization has not occurred.

View A Press Report of the Government's Appeal Here.

View the DOJ's Announcement of the Omega Settlement Here.

View the DOJ's Announcement of the Indictment Against Kozeny et al Here.


FCPA Compliance For Small Companies

"Small Organizations.—In meeting the requirements [for an effective compliance program under the U.S. Sentencing Guidelines], small organizations shall demonstrate the same degree of commitment to ethical conduct and compliance with the law as large organizations. However, a small organization may meet the requirements . . . with less formality and fewer resources than would be expected of large organizations. In appropriate circumstances, reliance on existing resources and simple systems can demonstrate a degree of commitment that, for a large organization, would only be demonstrated through more formally planned and implemented systems.

"Examples of the informality and use of fewer resources with which a small organization may meet the requirements . . . include the following: (I) the governing authority’s discharge of its responsibility for oversight of the compliance and ethics program by directly managing the organization’s compliance and ethics efforts; (II) training employees through informal staff meetings, and monitoring through regular 'walk-arounds' or continuous observation while managing the organization; (III) using available personnel, rather than employing separate staff, to carry out the compliance and ethics program; and (IV) modeling its own compliance and ethics program on existing, well-regarded compliance and ethics programs and best practices of other similar organizations."

(emphasis added)

Quoted from the 2005 U.S. Federal Sentencing Guidelines, Chapter 8, Part B, §8B2.1., Effective Compliance and Ethics Program, Commentary Application Note 2 (c) (iii).

View Chapter 8, Part B of the U.S. Federal Sentencing Guidelines Here.


An Effective FCPA Compliance Program Might Save the Company (A Great Defense Team Might Not)

“An Overview of the Organizational Guidelines” from the United States Sentencing Commission's May 2004 release includes the following jaw-dropping statement:

Criminal liability can attach to an organization whenever an employee of the organization commits an act within the apparent scope of his or her employment, even if the employee acted directly contrary to company policy and instructions. 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.

(emphasis added)

This is meant to encourage adoption of effective compliance programs in order “to alleviate the harshest aspects of this institutional vulnerability . . . .”

It is also fair warning.

The majority view of the federal courts of appeals which have considered the question have held that a corporation is vicariously criminally liable for the crimes employees commit while acting within the scope of their employment--that is, within their actual or apparent authority and on behalf of the corporation. See Standard Oil Co. v. United States, 307 F.2d 120 (5th Cir. 1962); Developments in the Law--Corporate Crime: Regulating Corporate Behavior Through Criminal Sanctions, 92 Harv.L.Rev. 1227, 1247-5 1 (1979).

Under this view, which constitutes an application of respondeat superior principles to criminal statutes, it may be irrelevant that the employee is not a high managerial official, that the corporation may have specifically instructed the employee not to engage in the proscribed conduct, or that the statute is one that requires willful or knowing violations, rather than one that imposes strict liability. See, e. g., United States v. Hilton Hotels Corp., 467 F.2d 1000 (9th Cir. 1972), cert. denied, 409 U.S. 1125 (1973); Continental Baking Co. v. United States, 281 F.2d 137 (6th Cir. 1960); United States v. Armour & Co., 168 F.2d 342 (3d Cir. 1948); but see Holland Furnace Co. v. United States, 158 F.2d 2 (6th Cir. 1946). The stated rationale is that the criminal statutes impose a duty upon the corporation to prevent its employees from committing the statutory violations.

See Committee Comment to Instruction 5.3, Pattern Criminal Federal Jury Instructions (7th Cir. 1998).

What, then, should corporations do? The "Overview of the Organizational Guidelines" says this:

The [federal sentencing guidelines mitigate] the potential fine range - in some cases up to 95 percent - if an organization can demonstrate that it had put in place an effective compliance program. This mitigating credit under the guidelines is contingent upon prompt reporting to the authorities and the non-involvement of high level personnel in the actual offense conduct.

(emphasis added)

View "An Overview of the Organizational Guidelines" Here.

View the Seventh Circuit’s Pattern Criminal Federal Jury Instructions Here.


Panalpina's Practices Fall Under the FCPA Spotlight

February 6, 2007 -- The DOJ reports Vetco’s admission that payments to Nigerian Customs Officials violated the FCPA. The DOJ says, “These corrupt payments were paid through a major international freight forwarding and customs clearance company to employees of the Nigerian Customs Service, and coordinated largely through Vetco Gray Controls Inc.'s offices in Houston. . . . From at least September 2002 to at least April 2005, . . . [Vetco] authorized that agent to make at least 378 corrupt payments totaling approximately $2.1 million to Nigerian Customs Service officials to induce those officials to provide the defendants with preferential treatment during the customs process.”

April 26, 2007 -- Tidewater Inc. announces an internal investigation of its Nigerian operations. “The Audit Committee commissioned the internal investigation in late February 2007 after management brought to its attention a settlement earlier that month of well-publicized criminal FCPA proceedings (the second in recent years) involving Vetco Gray Controls, a Houston-based oil service company with substantial operations in Nigeria. Tidewater's management and the Audit Committee were concerned that the Company's Nigerian affiliate used the same third-party agent for its temporary importations in Nigeria that was thought to be significantly implicated in the 2007 Vetco Gray proceedings.”

July 24, 2007 -- Panalpina says some customers of its U.S. subsidiary have “been requested by U.S. authorities to produce documents related to the provision of its services to Nigeria for a specific customer and its contractor. This request was triggered by the plea agreement of such customer with the U.S. authorities for allegedly making improper payments to Nigerian officials to secure preferential customs treatment. . . . U.S. authorities have extended the scope of their review to Panalpina’s documents related to services into Nigeria, Kazakhstan and Saudi Arabia for a limited number of customers.”

July 25, 2007 -- carries a Dow Jones Commodities News story, reporting that the DOJ sent letters on July 2, 2007 to eleven oil and oil-service companies, “asking them to detail their relationship with Panalpina . . . The Justice Department letter, which was read to Dow Jones, cited concerns about payments that may violate the U.S. Foreign Corrupt Practices Act. The oil and oil-service firms were asked to list the countries where Panalpina provided it with services in the past five years, and to specify what it paid for those services. Each firm also was asked to meet separately with federal prosecutors in Washington, D.C. A Justice Department spokesman didn't respond to requests for comment.”

(emphasis added)


As mentioned in an earlier post, similar internal investigations into Nigerian operations have now been announced by Tidewater, Nabors Industries, Transocean, GlobalSantaFe Corp., Noble Corp. and Global Industries.

View the DOJ News Release Here.

View the Tidewater News Release Here.

View the Panalpina News Release Here.

View the Story Here.


A Few Words About US . . .

Keeping Tabs on the FCPA

SINGAPORE--LAWFUEL - The Law Newswire – August 14, 2007 – Lawyers, business people, academics and others have a new way to follow developments in the Foreign Corrupt Practices Act. The FCPA Blog, launched earlier this month, describes itself as “News and Views About The United States Foreign Corrupt Practices Act.”

One of the most talked about United States laws, the Foreign Corrupt Practices Act prohibits bribing foreign officials to obtain or retain work. Violators can pay fines and penalties reaching tens of millions of dollars, and serve up to five years in prison.

Interest in the FCPA is likely to intensify. The U.S. Department of Justice recently said it will step up enforcement. More cases of bribery are being reported worldwide, especially in the oil and gas and communications industries.

The FCPA Blog is the product of attorneys from Cassin Law LLC, an American law firm with an international practice. Through the firm’s compliance work, it handles FCPA matters for U.S. and foreign companies that are subject to the law.

“We want to help companies and individuals comply with the FCPA ,” said Richard L. Cassin, one of the lawyers responsible for the blog. “It’s always important to have current information. And we talk about the evergreen issues– those FCPA areas that general counsels and compliance officers deal with every day.”

View the News Release Here.


Hospitality, FCPA Style

The FCPA's promotional expenses affirmative defense is used as a basis to pay for overseas trips by foreign officials. It allows payment or reimbursement of expenses that are directly related to “the promotion, demonstration, or explanation of products or services." 15 U.S.C. §§ 78dd-1(c)(2)(A) and 78dd-2(c)(2)(A).

The Department of Justice’s Opinion Procedure Release 07-01 (July 24, 2007) mentioned earlier is the latest word on the subject. To fit snugly within the affirmative defense, the requestor included representations that are themselves accreted from prior Releases.

The requestor represented, among other things, that:

· it does not currently conduct operations in the foreign country or with the foreign government, although it is interested in pursuing such opportunities in the future;

· it has obtained written assurance, a copy of which has been provided to the Department of Justice, from an established law firm with offices in both the U.S. and the foreign country that the requestor's sponsorship of the visit and its payment of the expenses described in the request is not contrary to the law of the foreign country;

· it did not select the delegates who will participate in the visit; rather, the foreign government selected the delegates;

· to the requestor's knowledge, the delegates have no direct authority over decisions relating to potential contracts or licenses necessary for operating in the foreign country;

· it will host only officials working for the relevant foreign ministries and one private government consultant;

· it intends to pay all costs directly to the providers; no funds will be paid directly to the foreign government or the delegates;

· it will not pay any expenses for spouses, family, or other guests of the officials;

· any souvenirs that the requestor may provide to the delegates would reflect the requestor's name and/or logo and would be of nominal value;

· apart from meals and receptions connected to meetings, speakers, or events the requestor is planning for the officials, it will not fund, organize, or host any entertainment or leisure activities for the officials, nor will it provide the officials with any stipend or spending money; and

· all costs and expenses incurred by the requestor in connection with the visit will be properly and accurately recorded in the requestor's books and records.

Requestors typically present ultra-safe scenarios, as in the case here.

Which will leave would-be hosts of foreign officials wondering if they can really follow the de facto guidelines without offending their guests.

View Opinion Procedure Release 07-01 here.


The Facilitating Payments Exception is a Narrow Gate

There are strict requirements for Facilitating Payments -- the one exception written into the FCPA. Among other things, the payment must be for “routine governmental action . . . which is ordinarily and commonly performed by a foreign official." See 15 U.S.C. §§78dd-1 (b) and (f) (3) [Section 30A of the Securities & Exchange Act of 1934].

The clear implication is that the exception will not apply if there was no legitimate routine governmental action pending and for which the payment or any part of it was made. A governmental action obtained or sought to be obtained by subornation of the official’s duty probably is not an action “ordinarily and commonly performed by a foreign official” and therefore is outside the scope of the exception.

For example, paying a customs clerk to schedule an inspection of goods already in the customs queue may be permissible. But paying a customs clerk to jump the queue, or paying for positive inspection results, may be outside the exception.

The question is whether the payment relates purely to “routine governmental action . . . which is ordinarily and commonly performed by a foreign official."

Any time an official is asked to do something more – something beyond the scope of his or her normal discretion, the Facilitating Payments exception is unlikely to apply.


Does ABB Have an Effective Compliance Program?

Zurich, Switzerland-based engineering giant ABB Ltd's Q2 earnings release contained the following item:

On July 13, 2007, ABB disclosed to the U.S. Department of Justice and the U.S. Securities and Exchange Commission suspect payments made by employees of company subsidiaries in Asia, South America and Europe, in particular Italy. These suspect payments were discovered as a result of ABB's internal audit and compliance program. The payments may be in violation of the Foreign Companies (sic) Practices Act or other applicable laws. If ABB is found to have violated any of these laws, the company could be liable for penalties and other costs and the violations could otherwise negatively impact its business. ABB is cooperating on these issues with the relevant authorities and is continuing its internal investigations and compliance reviews.

In July 2004, ABB and two subsidiaries disgorged $5.9 million and paid a $10.5 million penalty for FCPA violations involving Nigeria, Angola and Kazakhstan.

That same month, ABB said:

ABB has undertaken an extensive compliance review of its upstream business . . . in full cooperation with the DoJ and the SEC. As part of the agreement with the U.S. authorities, both ABB and the upstream business will adopt enhanced compliance procedures intended to detect and prevent future violation of laws related to improper payments. (emphasis added)

Whether ABB has had an "effective compliance program" since 2004 is likely to be an issue now that new potential violations have been found.

ABB's American Depositary Shares trade on the New York Stock Exchange under the symbol: ABB.

View ABB's July 26, 2007 Earnings Release here.

View the SEC's July 6, 2004 Litigation Release here.

View ABB's July 7, 2004 News Release here.


Question: Why Do Bribes to Reduce Foreign Taxes Violate the FCPA?

The answer, from the United States Court of Appeals for the Fifth Circuit, is this:

[T]he concern of Congress with the immorality, inefficiency, and unethical character of bribery presumably does not vanish simply because the tainted payments are intended to secure a favorable decision less significant than winning a contract bid. Obviously, a commercial concern that bribes a foreign government official to award a construction, supply, or services contract violates the statute. Yet, there is little difference between this example and that of a corporation’s lawfully obtaining a contract from an honest official or agency by submitting the lowest bid, and —— either before or after doing so —— bribing a different government official to reduce taxes and thereby ensure that the under-bid venture is nevertheless profitable. Avoiding or lowering taxes reduces operating costs and thus increases profit margins, thereby freeing up funds that the business is otherwise legally obligated to expend. And this, in turn, enables it to take any number of actions to the disadvantage of competitors. Bribing foreign officials to lower taxes and customs duties certainly can provide an unfair advantage over competitors and thereby be of assistance to the payor in obtaining or retaining business.

From U.S. v. David Kay and Douglas Murphy (February 4, 2004) at page 21.

View the Fifth Circuit's Opinion here.


U.S. Anticorruption Laws Reach Everywhere

SINGAPORE--LAWFUEL - The Law Newswire – August 2, 2007 – Companies located anywhere in the world whose shares are traded on a U.S. stock exchange are subject to the United States Foreign Corrupt Practices Act. The FCPA, as it is known, makes it illegal to bribe foreign public officials in order to obtain or retain business or gain any unfair advantage.

“Most business people are shocked by the reach of the FCPA,” said Richard L. Cassin, an American lawyer with the Singapore-based international law firm, Cassin Law LLC. “The FCPA even criminalizes behavior between two non-U.S. persons who are acting entirely outside the borders of the United States. That’s unusual and alarming by any standard.”

For example, explains Cassin, the FCPA applies directly to more than 440 non-U.S. companies whose shares are registered on either the New York Stock Exchange or the NASDAQ. Another 600 or so have shares registered on the OTC and may be subject to the FCPA.

An FCPA offense can inflict permanent reputational damage and lead to fines of tens of millions of dollars. Shareholders, directors, officers, employees and agents who violate the FCPA face up to five years in prison.

View the News Release Here.


Nigerian Problems Trigger Another FCPA Investigation

The Houston Chronicle reports that Nabors Industries is conducting an internal investigation in response to a federal investigation into possible violations of the Foreign Corrupt Practices Act. The article says,

The Justice Department is investigating alleged Foreign Corrupt Practices Act violations by oil-service companies that used Panalpina [a Swiss based freight forwarder] and other brokers in Nigeria and other parts of the world, the company said.

In addition to Nabors, similar investigations into Nigerian operations have been announced by Transocean, GlobalSantaFe Corp., Noble Corp., Tidewater and Global Industries, among others.

View the Houston Chronicle Article here.


Fallout Continues From Schnitzer Steel Industries' FCPA Violations

The Securities and Exchange Commission announced in late June 2007 that it charged a former executive of Portland, Oregon-based Schnitzer Steel Industries, Inc. with violating the anti-bribery provisions of the FCPA. Si Chan Wooh of Tacoma, Washington, the former Executive Vice President and head of a Schnitzer subsidiary, agreed to pay approximately $40,000 in disgorgement, interest and penalties.

The complaint alleged that from at least 1999 through 2004, Wooh paid over $200,000 in cash bribes and other gifts to managers of government-owned steel mills in China to induce them to purchase scrap metal from Schnitzer. Schnitzer realized over $6.2 million in profits from sales to customers procured through these illicit payments. During the same period, Wooh made or authorized similar payments totaling over $1.7 million to managers of privately owned steel mills in both China and South Korea.

Without admitting or denying the charges, Wooh agreed to disgorge $14,819.38 in bonuses plus prejudgment interest of $1,312.52, to pay a $25,000 civil penalty, and to an order enjoining him from violations of the FCPA in the future.

In October 2006, Schnitzer settled related charges by the Commission by paying $7.7 million in disgorgement. Schnitzer also paid $7.5 million in penalties to settle related criminal charges brought by the U.S. Department of Justice.

View the SEC's Press Release here.

View the SEC's Complaint here.

View the October 2006 Schnitzer Cease and Desist here.