The SFO's Red Flags

The U.K.'s Serious Fraud Office has a neat list of 'red flags' on its site. But they're not called 'red flags.' That term is apparently an Americanism.

The SFO's list of 'corruption indicators,' it says, is 'not exhaustive and the ingenuity of those involved in corruption knows no bounds!'

(We always enjoy the SFO's enthusiasm. Has the DOJ ever used an exclamation point except when referring to Yahoo!?)

Here, then, are the SFO's 'corruption indicators':

•     Abnormal cash payments

•     Pressure exerted for payments to be made urgently or ahead of schedule

•     Payments being made through 3rd party country, eg. goods or services supplied to country 'A' but payment is being made, usually to shell company in country 'B'

•     Abnormally high commission percentage being paid to a particular agency. This may be split into 2 accounts for the same agent, often in different jurisdictions

•     Private meetings with public contractors or companies hoping to tender for contracts

•     Lavish gifts being received

•     Individual never takes time off even if ill, or holidays, or insists on dealing with specific contractors him/herself

•     Making unexpected or illogical decisions accepting projects or contracts

•     Unusually smooth process of cases where individual does not have the expected level of knowledge or expertise

•     Abusing decision process or delegated powers in specific cases

•     Agreeing contracts not favourable to the organisation either with terms or time period

•     Unexplained preference for certain contractors during tendering period

•     Avoidance of independent checks on tendering or contracting processes

•     Raising barriers around specific roles or departments which are key in the tendering/contracting process

•     Bypassing normal tendering/contractors procedure

•     Invoices being agreed in excess of contract without reasonable cause

•     Missing documents or records regarding meetings or decisions

•     Company procedures or guidelines not being followed

•     The payment of, or making funds available for high value expenses or school fees etc on behalf of others.

The DOJ's list of 'red flags' in the Lay Person's Guide to FCPA can be downloaded as a pdf here.

A Short Benchmarking Quiz

Of the more than 100 organizations participating in the Anti-Corruption Compliance Program Benchmarking Survey conducted by Kaplan & Walker LLP and the FCPA Blog, what do you think is the approximate percentage of respondents that:

1. Utilize a stand-alone, documented risk assessment process dedicated solely or largely to Anti-Corruption risk?

            a) 10%    b) 25%    c) 33%    d) 50%

2. Have a stand-alone Anti-Corruption manual or other Anti-Corruption policy document (separate from an Anti-Corruption provision of the Code of Conduct)?

            a) 25%    b) 33%    c) 50%    d) 75%

 3)  Require compliance training of some or all third-party intermediaries?

            a) 24%    b) 38%    c) 52%    d) 67%

4) Have not formally designated a senior company official to oversee the Anti-Corruption compliance program?

            a) 4%    b) 14%    c) 24%    d) 44%

Answers will be posted on the FCPA Blog tomorrow. 

Or you can find the answers to these -- and dozens of other important Anti-Corruption Compliance Program benchmarking questions –- by ordering the report today.

Due Diligence To Prevent Touting

By David Elesinmogun, Obumneme Egwuatu, & Marcus R. Cohen

To the untrained eye, they often appear as scrubby derelict vagabonds, haunting the steps of administrative offices throughout the developing world. Yet, this unassuming guise belies their predatory importance as quasi-official intermediaries – serving as both roadblocks and essential intercessors. They are “touts” and if your company has ever obtained official documents in West Africa, touts have likely paid cash to government officials on your behalf. And with or without your knowledge, touts may have caused your company to violate the FCPA.

To date, the preponderance of FCPA prosecutions have been related to corrupt payments to Nigerian government officials. Most of these cases involved the classic suitcase of cash given to a high-ranking dignitary. However, garden variety bribes in violation of the FCPA are paid by U.S. companies on a daily basis to middling Nigerian civil servants, and almost always by touts.

In Nigeria, the vast majority of touts linger patiently outside the Corporate Affairs Commission, the Nigerian Ports Authority, Federal Airports Authority, Motor Vehicle Administration, police headquarters, courts, as well as federal and state tax offices, seeking out “customers” in need of operational licenses, government certificates, records, or any number of other bureaucratically-blessed documents crucial to conducting legitimate commercial transactions.

More sophisticated and influential touts are seen driving Italian sports cars and hobnobbing with the official elites in Abuja and Victoria Island. These three-piece-suit touts have honed their craft and cultivated relationships with authorities farther up the official food chain. But whether they don Prada or sandals, all touts serve as shadowy middle-men, circumventing official regulatory processes by paying cash to secure administrative actions while shielding government officials from direct interaction with the bribes’ beneficiaries.

When touts serve as an agents’ agent, they often pay bribes without a company’s actual knowledge. While piercing the local agent/tout veil can be difficult, ensuring that no bribes are paid on your company’s behalf is essential. While the FCPA is not a strict liability statute, there have been convictions based on conscious avoidance of knowledge of a “substantial probability” that money would be used by a third party to make bribes. Farther down the slippery slope, the UK Bribery Act imposes strict liability on corporations that fail to prevent bribes by those acting on their behalf.  Simply trusting agents not to employ touts is a business strategy fraught with peril.

As touts and corrupt agents thrive on corporate ignorance, non-native companies doing business in the Nigerian market should consider arming themselves with local counsel, who are well-versed in local law and required procedures. Although local agents often offer assistance with corporate registration, preparation of contract bids, as well as a host of other issues, Nigerian attorneys are considerably better suited to provide such assistance. Additionally, companies doing business in Nigeria are well advised to adopt heightened due diligence practices to prevent touts from infiltrating their operations. Often the best procedures to avoid the involvement of touts and the inevitable bribes associated with them are also the most straightforward.

The Nigerian government, for its part, has recognized the economic scourge that touts represent and have moved to eradicate touting at the federal, state, and local levels. The Nigerian government recently initiated laws, instituted policies, and revamped existing systems in an effort to curb the contrivances of touts. Notwithstanding these anti-touting initiatives, the problem persists. Touting presents a unique challenge for multinational corporations conducting business in Nigeria and companies should adopt proactive strategies to avoid violating the FCPA.

Basic Recommended Tout-Prevention Measures: Ask local agents if they use touts; Verify the reputation of the local agents in the business community; Ensure that local agents deal directly with government officials and do not employ additional intermediaries; Scrutinize invoices from local agents and request official government receipts; Review official government websites to understand the applicable fees and appropriate procedural time frames; and Contact a Nigerian Foreign Mission or the Nigerian Embassy to inquire about various regulatory processes.

___________________

Marcus Cohen is of Counsel to Sandler, Travis & Rosenberg in Washington DC, where he advises clients on compliance with U.S. and international anti-corruption measures and export controls and sanctions laws. He can be reached at mcohen@strtrade.com. 

David Elesinmogun and Obumneme Egwuatu are founding partners of Elesinmogun & Egwuatu, with offices in Lagos, Nigeria, and Washington DC. Elesinmogun's practice focuses on advising both Nigerian and international corporations in cross-border commercial ventures, banking, criminal law, securities regulation, environmental law and immigration. Egwuatu concentrates his practice on advising multinational corporations on investing in Nigeria and Africa and compliance with both Nigerian and U.S. law. They can be reached, respectively, at de@eandelawyers.com and oe@eandelawyers.com.

A version of this post first appeared in the October 3, 2011 edition of Corporate Counsel at www.Law.com.  All rights reserved by © 2011 ALM Media Properties.

Will Tesler Make A Deal?

We reported this week that Jeffrey Tesler, the British lawyer accused of helping KBR and its partners bribe Nigerian officials, has stopped fighting against extradition to the United States. His lawyers said he'll be traveling to Houston within 28 days.

Two other individuals charged in the case -- Albert "Jack" Stanley, KBR's former CEO, and Wojciech Chodan, KBR's former commercial vice president at a U.K. subsidiary -- have already pleaded guilty.

Will Tesler do the same? Here are some reasons why he might:

• Stanley and Chodan would testify against Tesler. They're big guns -- both former executives who are likely be articulate, knowledgeable, and specific about the bribery Tesler is accused of participating in. And Stanley and Chodan stand to gain sentencing credit for doing a good job helping the DOJ convince a jury to convict Tesler.

• Stanley, Tesler will know, is already the most important cooperating witness in FCPA history. He's helped the DOJ and SEC collect $1.28 billion from three of four TSKJ consortium partners so far, with another $220 million expected from JGC.

• Tesler is 62 and faces 55 years in prison if found guilty on all counts. Why risk spending the rest of his life in a U.S. federal pen when the DOJ might be satisfied in a plea with a lot less time behind bars?

• He's facing a forfeiture count for $132 million. Even if he's acquitted on all FCPA-related counts except one, he'd still lose the forfeiture action. The DOJ could then chase all property he may have acquired around the time of the crime alleged, which for Telser is a bribery conspiracy that started in 1994 and lasted at least a decade.

• Tesler's technical arguments about jurisdiction probably won't work in a U.S. court. Here are two reasons:

First, lawyers for the U.K. and U.S. governments argued at his extradition hearings that U.S.-based companies were involved and money had been channelled through U.S. bank accounts. (jurisdiction over Technip and Snamprogetti, which both pleaded guilty in related enforcement actions, appeared to be based almost entirely on U.S. dollar bank transfers from the Netherlands to Switzerland and Japan.)

Second, in his indictment, the U.S. said Tesler is subject to the FCPA as an "agent" of an "issuer," of a "domestic concern," and of a "person," all within the meaning of the FCPA. That status as "agent" confers jurisdiction over Tesler under the FCPA. (Title 15, U.S.C. §§78dd- 1, 78dd-2, and 78dd-3).

As the DOJ says, an indictment is merely an accusation and defendants are presumed innocent until and unless proven guilty at trial beyond a reasonable doubt.

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Is your organization ready for what's coming? We'll be in Houston on March 10 to talk about FCPA enforcement, along with Michael Volkov, Ryan Morgan, and others. We look forward to seeing you there. The program is free; registration is required. More details here.

News From The Neighborhood

Kevin LaCroix, left, who writes the D&O Diary, had a fascinating post last week about follow-on civil litigation brought by investors against companies that have been the target of an FCPA enforcement action.

He cited a November 1, 2010 Reuters story reporting that "since the beginning of 2010 alone, plaintiffs’ lawyers have filed 24 shareholder suits against companies that have disclosed FCPA investigations.  . . .[T]hough some cases have been dismissed, plaintiffs generally have been successful in these cases. Of the 37 cases in the preceding four years, 26 resulted in settlements."

Imagine that. Plaintiffs are prevailing in 70% of their FCPA-related cases even though there's no private right of action under the FCPA. Private litigants seeking relief have to resort to other claims -- such as violations of Sections 10(b) and 20 of the Securities Act, common law fraud, aiding and abetting common law fraud, and negligent misrepresentation. 

For the record: We're not in favor of any type of private litigation under the FCPA until the courts or Congress fix respondeat superior.

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Ask not what your country can do for you . . . .  We were always a fan of Theodore Sorensen, a lawyer best known as President Kennedy's speech writer.

Sorensen died on October 31. Mike Koehler, left, marked his passing with a post on the FCPA Professor that began this way:

Buried deep in the thousands of pages of FCPA legislative history, one will find a July 1976 article Sorensen, a lawyer who spent a substantial portion of his career with Paul Weiss, authored for Foreign Affairs titled "Improper Payments Abroad: Perspective and Proposals" (abstract available here).

Thanks, Prof Koehler, for teaching us something new about Ted Sorensen and FCPA history.

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A better mousetrap. Legal news aggregator lawgents.com, which we talked about last week, now lists more than 90 feeds, making it the internet's largest law-related news and blog aggregator. "Legal news, fast" is the site's motto, and that's right. We're completely hooked. Readers can access us and all our neighbors there.

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 The SEC's expansive enforcement. A post on Friday by Ashby Jones on the WSJ's lawblog about Panalpina's settlement noted that the company isn't an "issuer." It was charged by the SEC as "an agent and with aiding and abetting violations by its customers who are U.S. issuers." No doubt lots of ink and pixels will be spilled in coming days and months to explore that one.

Our question: If the DOJ and SEC are packaging settlements jointly, can a defendant challenge SEC jurisdiction and still settle with the DOJ? Or does fighting against one destroy settlement hopes with the other?

Finally, our thanks to Joe Palazzolo at the WSJ's corruption currents for referring to this space as "a resource for anyone with an interest in U.S. anti-corruption efforts." His post was about our latest top ten list.