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Harry Cassin Publisher and Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Richard L. Cassin Editor at Large

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

Sunday
Mar232008

Questions And More Questions About Alba v. Alcoa

What's the story behind this case? To be honest, we've got lots of questions and so few answers.

This we know: Aluminum Bahrain BSC ("Alba") sued Alcoa Inc., its long-time raw materials supplier, for corruption and fraud in a Pittsburgh federal court. Alba -- majority owned by the government of Bahrain -- alleged that it paid $2 billion in overcharges over a 15-year period. The money went to overseas accounts controlled by Alcoa's agent. Some of the money was then used to bribe Alba's executives in return for more supply contracts. Among the Bahraini officials alleged to be involved is Alba's former chairman, who also served as the country's powerful minister of petroleum.

Before filing the suit, Alba confronted Alcoa. It demanded a payment of $1 billion within two weeks. A spokesman for Alcoa reported later, “We said we’d be happy to do a more extensive investigation with them - they said ‘we’ll see you in court.’”

Alba launched its lawsuit in late February 2008. As if on cue, the U.S. government appeared in the same federal court in Pittsburgh three weeks later. The government asked the court to stay Alba's civil suit pending a criminal investigation into whether Alcoa and its executives and agents violated the Foreign Corrupt Practices Act and mail and wire fraud statutes. Alcoa said it's innocent and will cooperate with the feds.

So what's going on here?

First off, we're having trouble understanding why Alba sued Alcoa in a U.S. court. Foreign governments and their companies work extra hard to avoid being dragged into civil litigation in the United States. Despite arguments about confidentiality, privilege and sovereign immunity, civil lawsuits expose foreign parties to U.S.-style discovery, and that's bad news. They can be compelled to turn over any documents or other information that might lead to the other side's discovery of relevant evidence. That's a broad category. Their representatives can be deposed and their facilities inspected. In other words, in civil litigation there's no place to hide.

Dan Newcomb -- author of the annual FCPA Digest -- said this in a Wall Street Journal story about the case: "The reason it's rare for governments to accuse U.S. companies of corruption in American courts is that once you raise a question of corruption, the sovereign runs the risk they will be embarrassed by the requests of discovery from the private party." In this case, he added,"They have to be prepared to withstand Alcoa coming back to them and saying, 'We want to look at every other corrupt transaction you have been involved in.' "

Alcoa's version of recent events is important. It said Alba gave it just two weeks to pay $1 billion or face a lawsuit. Two weeks? That's a meaningless deadline. As Alba and its lawyers would know, corporate giants cannot possibly decide to settle huge claims involving potentially felonious allegations in two weeks. More like a year or maybe two. Which is probably less time than a complicated and well-defended civil suit would require.

Alba's allegations are filled with dynamite. Alcoa's reaction to them was what we'd expect. It wanted to investigate the facts and, we imagine, start the process of reconciliation with its huge, long-time customer. That's a normal commercial response, and it makes sense. What doesn't make sense is why Alba refused -- why it rushed into a public lawsuit in U.S. federal court without first giving private negotiations with Alcoa a chance to work.

Did Alba file the lawsuit because it wanted the U.S. government to investigate Alcoa? Probably not. The civil suit, after all, was the long way around to the Justice Department. Alba could have taken its allegations and evidence directly to the DOJ from the start. The prosecutors would have been compelled to call on Alcoa right away. So again, what was the point of the civil suit? We're not sure. The suit, by the way, now looks like a distraction for everyone, as demonstrated by the DOJ's move last week to stay the proceedings -- which even Alba didn't oppose.

If Alba didn't expect to be paid the $1 billion in two weeks -- if instead it wanted all along to file its lawsuit and make a big splash in the U.S. press -- the question is why? Why file the civil suit when it could have dealt with Alcoa in a safer and less public way? So our real question is whether Alcoa is the target of Alba's U.S. lawsuit? Or is the target something or someone else? Is Alcoa collateral damage? We're not conspiracy theorists -- the simple explanation is usually right -- and we have no idea what's happening inside Bahrain's leadership. But we're having trouble seeing the big picture here.

Finally, what if Alcoa's account of Alba's two-week payment demand isn't accurate? In that case, Alcoa has some tough questions to answer. When did it learn about the fraud and bribery allegations? What investigation did it do? Who within Alcoa might have been involved? Did it self-report the allegations and its internal reactions to them to the SEC and the DOJ? If not, why not? And when was it planning to disclose all this to shareholders?

Stay tuned.

View prior posts about Alba and Alcoa here.

Friday
Mar212008

Feds Investigating Alcoa For FCPA Violations

The U.S. Justice Department has opened a criminal investigation into allegations that Alcoa Inc. violated the Foreign Corrupt Practices Act and other laws by bribing officials in Bahrain.

The federal investigation was triggered when Aluminum Bahrain BSC ("Alba") filed a civil lawsuit three weeks ago in federal court in Pittsburgh accusing Alcoa of a 15-year conspiracy linked to overcharging, fraud and bribery. The suit alleges that more than $2 billion in Alba's payments under supply contracts passed from Bahrain to tiny companies in Singapore, Switzerland and the Isle of Guernsey, and that some of the money was then used to bribe Bahraini officials involved in granting the contracts. See our prior posts here.

Federal prosecutors this week asked the U.S. District Court to stay Alba's federal civil lawsuit because the U.S. has a "direct and substantial interest" in Alba's allegations. A Wall Street Journal report (here) says the U.S. government's court filing is a possible prelude to the empanelment of a federal grand jury, although for the moment prosecutors are working directly with Alcoa. "We will cooperate fully with the DOJ and believe this will help bring this matter to a speedy conclusion," Alcoa communications director Kevin Lowery said.

The government's filing says the Justice Department's fraud section is looking into whether Alcoa, its executives and its agents "have engaged in conduct with respect to their commercial relationship with Alba in alleged violation of various criminal laws, including the FCPA, and the mail and wire fraud statutes. . . . The Alba complaint alleges numerous facts which, if true, could be relevant to the government's criminal investigation and a potential criminal trial."

Bahrain's own investigation centers on Sheikh Isa bin Ali al-Khalifa, the country's former minister of petroleum and chairman of Alba, and on Jordan-born Canadian businessman Victor Dahdaleh, who acted as Alcoa's agent in Bahrain.

A report in Resource Investor (here) said the Justice Department approached Alcoa earlier this week with plans to stay the litigation with Alba in order to conduct its own investigation. Alcoa's Kevin Lowery said the civil suit arose after Alba confronted Alcoa with a series of allegations and demanded compensation of $1 billion in two weeks time. Alcoa investigated the claims, he said, and found “no evidence of any wrongdoing.”

“We said we’d be happy to do a more extensive investigation with them - they said ‘we’ll see you in court,’” Lowery told Resource Investor.

The WSJ reported that Alba's lawyer, Mark MacDougall of Akin Gump Straus Hauer & Feld LLP, won't oppose the stay in the civil case. "Our clients certainly respect the important role that the Department of Justice may play in this case," he said.

Thursday
Mar202008

AB Volvo Settles FCPA Charges For $19.6 Million

AB Volvo today entered into a consent agreement with the U.S. Securities and Exchange Commission and a deferred prosecution agreement with the Department of Justice to resolve Foreign Corrupt Practices Act violations in Iraq caused by two subsidiaries under the U.N. Oil for Food Program. The settlements include financial penalties, disgorgement and interest of about $19.6 million.

AB Volvo was charged with violating the FCPA's books and records and internal controls provisions. Two of its subsidiaries, Renault Trucks SAS and Volvo Construction Equipment AB, were also charged with engaging in separate conspiracies to commit wire fraud and to violate the books and records provisions of the FCPA. AB Volvo's settlement with the SEC includes an agreement permanently enjoining it from future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, ordering it to disgorge $7,299,208 in profits plus $1,303,441 in pre-judgment interest, and to pay a civil penalty of $4,000,000.

The Swedish truck and equipment maker will also pay a $7,000,000 penalty pursuant to a deferred prosecution agreement with the DOJ. The agreements with the DOJ and SEC also provide for improved internal compliance programs at AB Volvo and its subsidiaries. If the two subsidiaries abide by the terms of the deferred prosecution agreement for three years, the DOJ will dismiss the criminal charges against them.

Between November 2000 and July 2001, AB Volvo's subsidiary, Renault Trucks SAS, entered into at least 18 contracts under the Oil for Food Program to supply trucks to the Iraqi government. Renault Trucks then subcontracted with truck bodybuilders to tailor the trucks to the Iraqi ministries' specifications. In order to mask its bribe payments, Renault Trucks devised a scheme in which the bodybuilders added the cost of so-called after-sales service fees into their bodybuilding costs and submitted the total cost to Renault Trucks for payment. In reality, no bona fide after-sales services were provided. The bodybuilders then passed the payments to Iraq. According to the SEC, AB Volvo's internal documents discuss the fact that had Renault Trucks made the payments in its own name, "we would have been caught red-handed." Illegal payments of $5,103,941 were made and another $1,255,922 was authorized but not paid.

From October 1999 to July 2000, another subsidiary, Volvo Construction Equipment International ("VCEI"), entered into four contracts under the Oil for Food Program in which more than $103,000 in kickbacks were paid to Iraqi ministries. On two contracts, illegal payments between 5% and 11.27% of the contract value were paid. An internal VCEI document discussed the extra trips VCEI staff had to make to Iraq in order to make the payments, and the possibility of having to give more payments. On one contract, VCEI's internal documents indicate that it gave its Jordanian agent a total of $15,950 as "the commitment to the third party whom support us and VOLVO to gain orders in the said ministry." In addition, VCEI's internal documents show that $19,000 was given to the Jordanian agent to purchase a car for the Ministry of Interior. VCEI did not disclose the payments or the car to the U.N.

According to a U.N. report of an interview of the Jordanian agent, he admitted that he personally paid kickbacks on behalf of VCEI. That company also used a Tunisian distributor to facilitate additional sales of its products to Iraq, and reduced its prices to enable the distributor to make the illegal payments based on bogus after-sales service fees. In total, VCEI or its distributors authorized more than $2.2 million in illegal payments.

The Oil for Food Program was intended to provide humanitarian relief for the Iraqi population, which faced hardship under international trade sanctions. The Program allowed the Iraqi government to purchase humanitarian goods through a U.N. escrow account. There were numerous abuses. Including AB Volvo's $7 million criminal penalty, the DOJ has now collected more than $24 million in penalties in cases involving suppliers of humanitarian goods under the Oil for Food Program.

The SEC said AB Volvo either knew or was reckless in not knowing that illicit payments were either offered or paid in connection with these transactions. "The company failed to maintain an adequate system of internal controls to detect and prevent the payments and its accounting for these transactions failed properly to record the nature of the payments," the SEC said. AB Volvo has already taken remedial acts and it cooperated with the SEC, DOJ and other authorities. “The incident is, of course, regrettable, but we do note with some satisfaction that the authorities spoke favorably of the cooperation by Volvo as well as Volvo’s own investigation and measures”, said AB Volvo CEO Leif Johansson. “It is important that we all now learn from what occurred,” he said in a company press release.

The DOJ explained its jurisdiction in the case this way: VCEI was a wholly-owned subsidiary of Aktiebolaget Volvo ("AB Volvo"), a company that had American Depositary Receipts ("ADRs") publicly traded on the National Association of Securities Dealers Automated Quotations ("NASDAQ"). AB Volvo issued and maintained a class of publicly-traded securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934 (15 U.S.C. § 781), and was required to file periodic reports with the United States Securities and Exchange Commission under Section 13 of the Securities Exchange Act (15 u.s.c. § 78m). Accordingly, AB Volvo was an "issuer" within the meaning of the FCPA, 15 u.s.c. § 78dd-1(a). By virtue of its status as an issuer within the meaning of the FCPA, AB Volvo was required to make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflected the transactions and disposition of assets of AB Volvo and its subsidiaries, including those of VCEI which were incorporated into the books of AB Volvo.

View SEC Litigation Release No. 20504 / March 20, 2008 here.

View the SEC's Complaint in Securities & Exchange Commission v. AB Volvo, Civil Action No. 08 CV 00473 (D.D.C.) (JB) Here.

View the DOJ's March 20, 2008 News Release Here.

View the DOJ's Crininal Informations Against AB Volvo's Subsidiaries Here and Here.

View AB Volvo's News Release Here.

Wednesday
Mar192008

All In The Family

In a post here we described our edits to Wikipedia's article on the Foreign Corrupt Practices Act (here). Wiki's old article said a bank owner (pictured far left) whose brother was the minister of finance (far right) would be a foreign official for the FCPA. That's wrong, we said, because although consanguinity might be important, it has never been a definitive test of foreign-officialdome under the FCPA.

One of our readers had this to say about our edits: The omission of prohibitions on payments to family members creates a significant loophole. Are there any cases where business dealings with family members have been examined? My reading of the SEC statement on Statoil is that the Iranian official may not have had the formal authority to guarantee the contract but that it was his family connections which were being purchased.

We replied this way: Good point. But as far as we know, neither the FCPA itself nor any Opinion Releases or cases say that commercial dealings with family members of government officials are per se violations of the FCPA. If a family member is being used to make an illegal payment "indirectly" to a foreign official, then a violation would probably result, in the same way that indirect payments through other agents are illegal. But the mere fact of the consanguinity is not determinative, and that was the problem with Wiki's original article. No question, however, that dealing with family members of foreign officials always raises compliance red flags. It should probably be avoided in most cases because of the risks. But under some circumstances commercial relationships with family members of foreign officials may be permissible under an effective compliance program.

Exhibit A for our answer is FCPA Review Procedure Release No. 82-04 (November 11, 1982) [mislabeled as 82-02 on the DOJ site]. It's available here. In it, the Department of Justice received a review request from Thompson & Green Machinery Company, Inc. ("T & G"). It hired a foreign businessman ("Mr. X") as its agent in connection with a generator sale in a foreign country. However, Mr. X's brother was an employee of the same foreign government to whom T & G was trying to sell its generator. The DOJ gave its blessing, however, after receiving assurances from T & G that (i) the written consultant agreement with Mr. X prohibited him from using any part of his commission to pay a finder’s fee to a third party, and also expressly referred to the FCPA; and (ii) both Mr. X and his brother signed separate affidavits in which they pledged to adhere to the FCPA’s antibribery provisions.

So it's not illegal per se under the FCPA to have commercial dealings with family members of foreign officials. No question, however, that doing so is full of risk. For example, Paradigm's hiring of the brother of an official from Pemex, from which Paradigm was then awarded a contract, was cited as an offense. See our post here. Family members were also involved in FCPA convictions or allegations in U.S. v. Kozeny (see our posts here), U.S. v. Sapsizian & Acosta [see also Alcatel] (S.D. Fla. 2006), SEC v. Bellsouth Corporation (N.D. Ga. 2002), U.S. v. Metcalf & Eddy (D. Ma. 1999), and others.

But the FCPA itself doesn't mention family members, and as of today, Exhibit A above -- FCPA Review Procedure Release No. 82-04 -- remains "good law," if we can refer to a DOJ opinion that way. It means the fact that someone is related by blood or marriage to a foreign official doesn't make the person a foreign official for the FCPA. It does, however, mean dealing with them is always a high-risk proposition. That's why lots of compliance-minded companies ban the practice entirely.

Many thanks to our reader who contributed the thoughtful comment about family relationships and the FCPA.

Tuesday
Mar182008

More Weight On The Greens

Thailand's investigation of the alleged bribery case involving Hollywood movie producers Gerald and Patricia Green is moving ahead. The Thai press reported last week (here, among other places) that the Department of Special Investigation has found enough evidence of alleged bribery to refer the matter to the National Counter Corruption Commission (NCCC), which handles prosecutions involving high-level public corruption. "The case will be transferred to NCCC before the end of this month," DSI spokesman Colonel Piyawat Kingket said.

The Greens were arrested in December 2007 and charged in federal court in Los Angeles with violating the Foreign Corrupt Practices Act. The complaint alleges that the husband and wife paid $1.7 million in bribes to the head of the Tourism Authority of Thailand. Their purpose, according to U.S. prosecutors, was to obtain a no-bid contract to manage the prestigious Bangkok International Film Festival. The FBI said the Greens' company received $10 million under the contract. The Greens, now out on bail, pleaded not guilty and had their trial postponed from February until September 2008.

The FBI didn't name the Thai official. But Juthamas Siriwan headed the Tourism Authority of Thailand from 2001 to 2006 and was in charge of the film festival. She has denied any wrongdoing and threatened to sue anyone implicating her in the case. Soon after news of the Greens' arrest in the U.S. broke last year, she resigned from her post as deputy chair of Thailand's Puea Pandin (People's Power) Party.

During its investigation, the FBI apparently sent agents to Bangkok, where they observed and may have listened to meetings between the Greens and Ms. Siriwan. Some of the evidence cited by the Thai Department of Special Investigation might have come from the FBI. If the DSI has collected more evidence on its own and is sharing it with U.S. authorities, the Greens could be in for a rough ride.

View prior posts about the Greens here.

View the FBI's Affidavit here.

Monday
Mar172008

Shell Discloses FCPA Investigation Related To Panalpina

In its Annual Report and Form 20-F for the year ended December 31, 2007, Royal Dutch Shell plc includes a Foreign Corrupt Practices Act disclosure. It relates to the Department of Justice's ongoing investigation of Panalpina. Shell says,

"In July 2007, Shell’s US subsidiary, Shell Oil, was contacted by the US Department of Justice regarding Shell’s use of the freight forwarding firm Panalpina, Inc and potential violations of the US Foreign Corrupt Practices Act (FCPA) as a result of such use. Shell has started an internal investigation and is cooperating with the US Department of Justice and the United States Securities and Exchange Commission investigations. While these investigations are ongoing, Shell may face fines and additional costs."

Shell's Annual Report can be downloaded here. Warning -- it's a 224 page pdf file.

Shell is the first major oil and gas producer we know of to be named in the Panalpina investigation. Before this, oil and gas services firms were disclosed as targets, but not producers. For those unfamiliar with the Panalpina investigation, here's some background:

In February 2007, the DOJ said in connection with the Vetco case that bribes in Nigeria "were paid through a major international freight forwarding and customs clearance company to employees of the Nigerian Customs Service . . .” Since then, about a dozen leading oil and gas services companies have announced FCPA investigations resulting from their relationship with logistics leader Panalpina.

By mid 2007, the DOJ and SEC had extended the investigation into Panalpina's activities in Nigeria, Kazakhstan and Saudi Arabia, and had sent letters to its customers, “asking them to detail their relationship with Panalpina . . . ." Schlumberger, Tidewater, Nabors Industries, Transocean, GlobalSantaFe Corp., Noble Corp. and Global Industries are among those involved. In September 2007, Panalpina said it is cooperating with U.S. prosecutors and exiting the Nigeria logistics and freight forwarding market for all oil and gas services customers.

We commented earlier that with crude prices at triple digits, can the U.S. government afford to cripple output anywhere in the name of FCPA enforcement? Probably not. But in addition to encouraging Panalpina to stop doing business in Nigeria for oil and gas services firms, the DOJ may have made special arrangements directly with the Nigerian government for customs clearance and permitting on behalf of Panalpina's former customers. That will allow them to keep working in Nigeria but still comply with the FCPA.

View prior posts about Panalpina here.

Sunday
Mar162008

Back On Track

A reader pointed out that our assault last week on Wikipedia (here) was senseless. That's because if you don't like something on Wiki -- in our case its FCPA article -- just change it. The community site, after all, calls itself "the free encyclopedia that anyone can edit." We adopted our reader's advice. And today we can report that all is well. There's a newly revised FCPA page on the site (here).

In the old article there was a bank owner mistakenly designated as an FCPA foreign official because his brother was the minister of finance. Well, in the revised article he has a new incarnation. He's still a bank owner, but he's also the minister of finance. That's right -- we combined the brothers into a single person. It sounds awkward, but at least our new man's status as a foreign official is confirmed -- not by family relations, which he couldn't do anything about even if he wanted to, but by his choice to take on governmental duties in the unnamed country.

That scenario, by the way, has played out in Indonesia and other countries from time to time. It happens when local business people -- who might be agents or partners of U.S. companies -- are named to government posts, thereby becoming foreign officials for the FCPA. Whenever a sales agent or business partner suddenly becomes a foreign official, there's an urgent compliance need to review the commercial relationship -- and probably terminate it. That's because any business-related payments to the newly-minted foreign official might violate the FCPA. So the example of the bank owner cum-minister of finance works fine for Wiki.

Our few other alterations also found their way into the paragraph at issue. It now reads in relevant part like this:

The meaning of foreign official [under the FCPA] is broad. For example, an owner of a bank who is also the minister of finance would count as a foreign official according to the U.S. government. Doctors at government-owned or managed hospitals are also considered to be foreign officials under the FCPA, as is anyone working for a government-owned or managed institution or enterprise. Employees of international organizations such as the United Nations are also considered to be foreign officials under the FCPA. There is no materiality to this act, making it illegal to offer anything of value as a bribe, including cash or non-cash items. The government focuses on the intent of the bribery rather than on the amount.

It's not a perfect description of the FCPA's coverage, but it's improving. Go Wiki.

Thursday
Mar132008

The FCPA Takes A Holiday?

It's been a quiet time here at the FCPA Blog. Not much to report -- which isn't a bad thing. We've had a chance to clean our desk, get our shoes shined, and pick on Wikipedia. On that score, we even had time to submit some edits for Wiki's FCPA article. Now we're biting our nails, waiting for the editorial lords to make a ruling on our hoped-for alterations.

Still, we're wondering why it's so quiet, why the Department of Justice hasn't announced a deferred prosecution agreement since Flowserve's on February 21? We know from various public disclosures that companies are standing in line. Faro Technologies, Inc. is one of them (see our post here). Aon Corporation could be another (see our post here), and there are more.

We're not sure why there seems to be a moratorium on FCPA settlements right now. But it could be linked to what's happening in Washington. As we mentioned yesterday, the U.S. House of Representatives' Subcommittee on Commercial and Administrative Law is holding hearings this week. The hearings have the moniker: "Deferred Prosecution: Should Corporate Settlement Agreements Be Without Guidelines?" And sparks are flying.

It's fair to say that all aspects of deferred prosecution agreements are in play. Media attention has focused on the corporate monitorships. That's due mainly to New Jersey U.S. Attorney Chris Christie's appointment of his former boss, ex-U.S. Attorney General John Ashcroft, as a monitor for orthopedic device maker Zimmer Holdings Inc. The case involves domestic bribery. Mr. Ashcroft's firm could make as much as $52 million from the appointment. Not surprisingly, that ignited the controversy that now engulfs every aspect of the monitorships and even the idea of deferred prosecution agreements.

While the storm blows on Capitol Hill, the DOJ can't be anxious to announce any new agreements and monitorships just yet. And no company would want to get caught in the political crossfire by being part of a fresh settlement, just as potential monitors wouldn't risk an appointment while the flap over Mr. Ashcroft et al is in the news.

All this is speculation, to be sure. Perhaps the DOJ will make a formal announcement about what's happening, or at least send out some smoke signals, to let everyone know if we're in for a long wait. Meanwhile, we're off to get a haircut, wash the car and catch some zzzzzzzzz. What a life!

Thanks to photo.jacko.com for the great picture.

Tuesday
Mar112008

The DOJ's Wrong Medicine For Monitors

Hearings by the U.S. House of Representatives' Subcommittee on Commercial and Administrative Law on "Deferred Prosecution: Should Corporate Settlement Agreements Be Without Guidelines?" are now underway. In advance of the hearings, the DOJ last week issued new internal guidelines on the selection and handling of monitors. Ellen Podgor at the White Collar Crime Prof Blog critiques the DOJ's guidelines in an excellent post here. Her conclusion: the problem now is too much DOJ discretion and control over the monitorships, so more of the same -- which is the essence of the DOJ's proposal -- is exactly the wrong medicine. Instead, federal legislation is needed to fix the problem.

This story, in case you've missed the background, started late last year. Five leading orthopedic device makers had been charged with bribing doctors in the U.S. to get their business. (Now they're being investigated for bribing doctors overseas in violation of the Foreign Corrupt Practices Act.) In September, New Jersey's U.S. Attorney Chris Christie used deferred prosecution agreements to settle the domestic cases. The terms required the appointment of compliance monitors -- private parties who police the corporations from the inside, report directly to the DOJ, and send their bills for doing so to the companies themselves.

For the orthopedic device makers, Mr. Christie's corporate monitors were ex-U.S. Attorney General John Ashcroft (Christie's former boss), former U.S. Attorney for the Central District of California Debra Yang, former New Jersey Attorney General David Samson, former U.S. Attorney for the Southern District of New York in Manhattan David N. Kelly, and former counsel to the Federal Trade Commission during the Reagan Administration John Carley. In other words, the monitors were people close to Mr. Christie. In Mr. Ashcroft's case, his monitorship could be worth as much as $52 million.

As we said in an earlier post, no matter how you spin it -- and Messrs. Christie and Ashcroft have been doing plenty of that -- the appointments have the appearance of impropriety. Peel away the PR and the best you can say is that there was some obvious cronyism going on. The worst you can say is that the DOJ created a scheme by which U.S. Attorneys can extract millions of dollars from wrongdoers and funnel the money to former bosses, friends and political allies.

Meanwhile at the hearings, witness Ashcroft came out swinging. He's quoted in Law.com here as saying in his testimony, "No law that I know of has been violated." The story says that at one point, Ashcroft told Rep. Linda Sanchez, D-Calif., the subcommittee's chairwoman, that "this hearing costs more money than any corporate monitorship."

The story continues:

"Not a single cent of tax dollars is spent on deferred prosecution agreements," Ashcroft said. He later criticized her for "attacking" Christie, whom he called an accomplished prosecutor, and suggested that Sanchez's concerns about impropriety were so misplaced as to be discriminatory against former public officials. "This is not a conflict of interest," Ashcroft said. "There is not an appearance of conflict."

"Very interesting answer, Mr. Ashcroft," Sanchez said.

Of 31 cases last year involving deferred prosecution agreements and monitors, 12 were for violations of the Foreign Corrupt Practices Act, 10 for health care and food and drug industry offenses, 3 for commodities fraud, 2 for banking secrecy, 2 for internet gaming and 2 for other fraud.

View prior posts about monitors here.

Monday
Mar102008

The FCPA For Everyone

Wikipedia -- "the free encyclopedia that anyone can edit" -- has a page on the Foreign Corrupt Practices Act here. It defines the FCPA this way:

The Foreign Corrupt Practices Act of 1977 (15 U.S.C. §§ 78dd-1, et seq.) is a United States federal law known primarily for two of its main provisions, one that addresses accounting transparency requirements under the Securities Exchange Act of 1934 and another concerning bribery of foreign officials.

The article sets out the elements of an antibribery offense like this:

The antibribery provisions of the FCPA, prohibit: 1. Issuers, domestic concerns, and any person 2. From making use of interstate commerce 3. Corruptly 4. In furtherance of an offer or payment of anything of value 5. To a foreign official, foreign political party, or candidate for political office 6. For the purpose of influencing any act of that foreign official in violation of the duty of that official or to secure any improper advantage in order to obtain or retain business.

So far so good.

But be very careful with this article. For example, a paragraph about the application of the FCPA, which strangely appears under the heading "History," makes some good points. But an unqualified statement about "the brother of the minister of finance" misses the mark: The meaning of foreign official is broad. For example an owner of a bank who is also the brother of the minister of finance would count as a foreign official according to the U.S. government. Not really. Consanguinity might be important but it has never been a definitive test of foreign-officialdome under the FCPA.

Wikipedia's article -- one of 2,274,622 in English-- is not among the site's better entries. We're confident, though, that it'll improve with time.

On a higher note, in the article's "External Links" section is one of our all-time favorite FCPA-related pages. Trace International's BRIBEline here says everything you need to know about the universality of public bribery.

Thursday
Mar062008

Europe Discovers The FCPA

John Russell, the managing editor of London-based Ethical Corporation magazine, has a nice article here about enforcement of the Foreign Corrupt Practices Act against European companies. This "new" FCPA compliance risk, the article says, is catching a lot of people by surprise. But it's today's reality, so get used to it.

Here's a sample from the article:

-- Lax enforcement of bribery laws to date could explain why European companies are ill-prepared to deal with FCPA liability. Energy companies and others at high-risk of bribery are starting to embed internal anti-corruption policies. But on the question of whether European companies are prepared for increased FCPA activity, [Simmons & Simmons solicitor-advocate Eoin] O’Shea, like his peers, is clear. “In general, they are not,” he says.

And this:

-- “It is fair to assume there will be a continued flow of new cases filed in 2008,” says Gibson, Dunn & Crutcher partner and FCPA lawyer Lee Dunst. US law enforcers see anti-graft as a particularly “target-rich environment for investigations”, he says, adding that recent corruption cases are just the tip of the iceberg of corporate wrongdoing. Assessing the readiness of European companies to deal with enhanced US regulatory zeal, Dunst says: “US companies are a little ahead of the game here compared to their European counterparts.”

And we add our two cents as well:

-- As long as Europe does not police its own companies, US regulators have a right to step in, argues Cassin Law founder Dick Cassin. He says: “They have to. Otherwise, US companies have a very legitimate complaint about being seriously disadvantaged by the FCPA – despite decades of assurance by the government to level the playing field.”

The article also sets out the growing list of European companies currently under FCPA investigation by U.S. authorities:

ABB (Switzerland, energy)
Alcatel Lucent (France, communications)
AstraZeneca (UK-Sweden, pharmaceuticals)
BAE Systems (UK, defence)
Daimler (Germany, automotive)
Innospec (UK, chemicals)
Magyar Telekom (Hungary, telecoms)
Norsk Hydro (Norway, energy)
Novo Nordisk (Denmark, health, pharmaceuticals)
Panalpina (Switzerland, transport)
Siemens (Germany, engineering, electronics)
Smith & Nephew (UK, medical devices)
Total (France, energy)

If you're not familiar with it, Ethical Corporation is an independent publisher and conference organizer launched in 2001 to "encourage debate and discussion on responsible business." With 20,000 subscribers to the magazine and 350,000 visitors a month to the website, they're making an impact.

The group's reach is evident from the list of 42 speakers (so far) who'll be part of its 2008 Anticorruption Summit USA in Chicago on April 16 and 17, 2008. The FCPA is sure to attract plenty of attention -- with speakers from BAE Systems, the FBI, Lockheed Martin, Trace International, Transparency International, the U.S. Department of Justice, the Securities and Exchange Commission, and lots more.

Wednesday
Mar052008

More Monitors, More Controversy

Reporter Mary Flood writes about deferred prosecution agreements in the February 29, 2008 Houston Chronicle here. For those new to the subject, deferred prosecution agreements (sometimes called non-prosecution agreements) allow corporations to avoid trials and criminal convictions in exchange for fines and compliance monitoring.

The FCPA tops the table. Ms. Flood, who also writes the Chronicle's Legal Trade Blog, says that in 2007 the Department of Justice entered into 31 deferred prosecution agreements. Of those, 12 were for violations of the Foreign Corrupt Practices Act, 10 for health care and food and drug industry offenses, 3 for commodities fraud, 2 for banking secrecy, 2 for internet gaming and 2 for other fraud.

The story cites the work of Larry Finder, a former Houston U.S. Attorney now with Haynes and Boone, and Ryan McConnell, who interned at the firm. They started tracking deferred prosecutions a few years ago. They found that from 2002 to 2005 there were twice as many deferred prosecution agreements as in the previous 10 years. In 2006 there were 20 corporate pretrial agreements, and more than 30 in 2007.

In the spotlight.
Finder and McConnell's empirical data has become important because of the controversy now surrounding these DOJ deals. The story says, "Though there has been mounting concern about the increased use of agreements to help bad-acting corporations avoid business-crushing criminal trials, scrutiny heightened recently with revelations of prosecutors passing lucrative monitoring jobs to former colleagues. One such contract worth potentially $52 million went to ex-top prosecutor John Ashcroft's firm to monitor Zimmer Holdings in a case about kickbacks in the medical field."

Who decides? Ellen Podgor at the indispensable White Collar Crime Prof Blog gets to the heart of the matter -- as usual. The story quotes her as as saying the idea of corporate deferred prosecution is a good one "but I see enormous problems in the way they are operating."

The story continues:

"[Podgor] said the problem is the government's role. It gets to decide whether the corporation is in breach, it gets to pick the monitor and all this without the judicial oversight in regular plea bargains or probations, she said. Podgor said the requirement that a corporation sometimes waive attorney-client privilege is worrisome. And, she said, some of the terms can be very specific and skewed, as in a Bristol-Myers Squibb agreement wherein the company has to set up an endowed chair at the prosecutors' alma mater. 'Oversight is what is needed,' Podgor said."

The story reports that in earlier testimony before Congress, U.S. Attorney General Michael Mukasey "could not say when his department will develop better guidelines. Mukasey himself was in line for one of the monitoring deals before he was nominated for his current post. The Justice Department did not return a call about this story."

View prior posts about monitors here.