Yesterday we posted our 2011 FCPA enforcement index. Today we look at corporate enforcement for all the years from 2006.
Entries in Delta Pine (6)
Mergers and acquisitions are back. Seeking Alpha just said: "Over the past few weeks, there has been a resurgence in acquisition activity, fueling an already strong market rally. This news has spanned all regions of the economy ranging from the transportation sector (Burlington Northern being taken over by Berkshire Hathaway) to pharmaceuticals (Schering Plough being acquired by Merck). Most recently, in the consumer sector, Kraft announced its intention to take over confectionery giant Cadbury while Hewlett Packard announced plans to buy 3com."
When M&A numbers climb, so do Foreign Corrupt Practices Act enforcement actions. That's because all acquisitions involve due diligence, either before or after the deal is done. Due diligence is one way potential FCPA offenses are discovered. And once discovered, most are now self-reported to the Justice Department or the Securities and Exchange Commission. Directors protect themselves through disclosure. Beyond that, buyers in friendly M&A deals commonly insist that the target's compliance problems be reported and resolved before the closing.
In the past, M&A activity has led to some well-known FCPA enforcement actions. Cardinal Health's 2003 acquisition of Syncor produced FCPA precedents concerning an acquirer's pre-merger due diligence obligations and successor liability. Titan Corporation's FCPA violations were discovered after a Lockheed tender offer. Lockheed aborted the offer and in 2005 Titan paid a record $28.5 million for its FCPA settlement. More recently, M&A activity resulted in enforcement actions involving Delta Pine, Aibel, and Latin Node, among others. In May, Sun Microsystems self-disclosed an internal investigation into possible FCPA violations discovered during due diligence for Oracle's takeover bid. And last year, Halliburton's clumsy attempt to buy British firm Expro through a hostile takeover produced the most intrusive Justice Department FCPA Opinion Procedure Release on record.
The current M&A wave, combined with the DOJ's already sharpening focus on the FCPA, means there's lots more enforcement action on the way.
* * *
Where do FCPA cases come from? In remarks yesterday to the National Forum on the Foreign Corrupt Practices Act, Assistant Attorney General Lanny Breuer said this: "Although many of these cases come to us through voluntary disclosures, which we certainly encourage and will appropriately reward, I want to be clear: the majority of our cases do not come from voluntary disclosures. They are the result of pro-active investigations, whistleblower tips, newspaper stories, referrals from our law enforcement counterparts in foreign countries, and our Embassy personnel abroad, among other sources. I have personally traveled abroad and spoken with Embassy personnel about this issue."
A copy of Lanny Breuer's November 17, 2009 remarks can be downloaded here.
* * *
Presidential Proclamation 7750 allows the State Department to deny visas to foreign kleptocrats and their families. It was signed into law in 2004 and by 2006 it was being called a key tool in America's anti-corruption arsenal. (The FCPA reaches bribe payers but not bribe takers.) Yet we could say without exaggeration in a post last week that the U.S. press had completely ignored Proclamation 7750.
But that's now changed.
Harper's Magazine published an article by Ken Silverstein on November 16 about the son of Equatorial Guinea's ruler, Teodoro Nguema Obiang Mangue. The article began:
In 2004, George W. Bush issued Presidential Proclamation 7750, which barred corrupt foreign officials from entering the United States and ordered the State Department to compile a list of banned individuals. Three years later Congress approved a complementary measure that said the State Department should take special heed to bar officials when there was “credible evidence” to believe they were involved in the theft of natural resources revenues. Last July, the State Department issued a report noting that corruption eroded “confidence in democratic institutions” and that fighting it was a central tenet of American foreign policy. The report also stated that the Obama administration would “vigorously” enforce 7750, better known as the Anti-Kleptocracy Intiative, and give particularly close scrutiny to visa requests from individuals involved in corruption involving natural resources.
And somewhat improbably, the New York Times carried its own story on the same day by Ian Urbina about Teodoro Nguema Obiang that also featured the hitherto invisible Proclamation 7750.
After five years, what a difference a week makes.
We've mentioned before Dan Newcomb's FCPA Digest, calling it the most definitive publicly-available catalog of FCPA prosecutions, enforcement actions and disclosed investigations. So it's great to see the release of the March 2009 version, available here.
This year, Philip Urofsky becomes editor-in-chief. He told us last week, "In this Digest, we entirely scrapped the previous Trends & Patterns, which had largely become a statistical update, and replaced it with a more analytical piece." The T&P section has always been a favorite of ours, and this year's new-and-improved version (available here) didn't disappoint.
About the prosecution of individuals, for example, it said:
More recently, there is a strong trend of actions against individuals being brought separately or even in advance of charges against their employers and then, in all likelihood, following classic prosecutorial strategy of working up the chain of command, using the individuals to build the government’s case against their superiors and eventually the company. In Willbros, the DOJ charged four employees over a two-year period, with two pleading in previous years (Steph and Brown) and an indictment being returned against two others (Tillery and Novak) in February 2008. Finally, in May 2008, Willbros Group and Willbros International agreed to a deferred prosecution agreement. Similarly, the DOJ entered into a plea agreement with the former CEO of KBR, Stanley, in 2008, well in advance of settling the matter with Halliburton/KBR in early 2009.And concerning disgorgement, a topic we recently talked about here, it said:
A final trend and pattern worth noting is the SEC’s continued demand for disgorgement of ill-gotten profits in cases in which only books & records violations are charged, such as in the [oil for food] cases. Whether or not a false entry in a company’s books and records (or a failure to implement adequate internal controls) truly results in increased profits is open to question. To date, however, no FCPA defendant has publicly challenged the SEC on whether disgorgement is appropriate when the sole charge is false books and records. Prior to the ABB case in 2004, the SEC had never collected disgorgement in FCPA cases; since then it has sought it in virtually every case with only a few exceptions, such as Dow Chemical, Delta & Pine Land, Lucent, and Conway. In Tyco, the SEC collected $1 in ill-gotten gains (along with $50 million in penalties related to other violations). While this is an isolated example of the SEC seeking such nominal disgorgement, the case does underscore the overall policy of levying disgorgement sanctions in nearly all cases against issuers.We spend a lot of time in the FCPA Digest. And whenever we turn to it, we're grateful for the hard work and generosity of founding-editor Dan Newcomb, Philip Urofsky and their entire team.
I have a question for anyone on the FCPA blog, a reader wrote ten days ago: Are there any known cases where an individual was prosecuted allegedly for bribing a foreign official where the "donor" did not ask for anything from the foreign official and where he received nothing?
Can there be a crime without criminal intent? We assume the question is sincere and not a send up related to the Kay case. The petition for cert in Kay is on the docket of the Justice's opening conference today for the Supreme Court's October 2008 term. Part of the defendants - appellants' argument is that bribes to reduce company taxes aren't paid to "assist in obtaining or retaining business," and therefore don't satisfy the FCPA's business nexus element.
Pushing their argument further, the U.S. Chamber of Commerce says in its amicus brief that the Fifth Circuit's decisions in Kay have obliterated the business nexus element, exposing U.S. executives to potential prosecution for nearly any contact with a foreign official. That argument sounds like the question posed by our reader -- Have there been any FCPA prosecutions based on donations to a foreign official where there was no quid pro quo?
The Fifth Circuit itself says in Kay that an FCPA offense requires a corrupt intent. The elements, it says, are (1) to willfully (2) make use of the mails or any means or instrumentality of interstate commerce (3) to corruptly (4) in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to (5) any foreign official (6) for purposes of either influencing any act or decision of such foreign official in his official capacity or inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official or securing any improper advantage (7) in order to assist in obtaining or retaining business for or with, or directing business to, any person. See the Fifth Circuit's Opinion in U.S. v. Kay (October 24, 2007) here.
And while the U.S. Chamber of Commerce warns that the government's view of "obtaining or retaining business" is so broad and vague that it could mean anything or nothing, the cases it cites don't say that. Instead they show that the government has taken action not only against bribes related directly to obtaining or retaining business but also against bribes paid for a quid pro quo intended to produce an indirect commercial advantage. The list below from the amicus brief is annotated with links to our posts where available or with original citations:
(1) Government inspection reports and laboratory certifications. See SEC v. Delta & Pine Land Co. at our post here.The United States Attorneys' Manual hasn't been changed since the Fifth Circuit's opinions in Kay. It says there is no criminal violation without a corrupt intent.
(2) Reductions in annual employment tax obligations. See In the Matter of Bristow Group Inc. at our post here.
(3) Reductions in general tax obligations. In the Matter of Baker Hughes Inc., SEC Admin. Proceeding File No. 3-10572, Cease & Desist Order (Sept. 12, 2001), available at http://www.sec.gov/litigation/admin/34-44784.htm; SEC v. KPMG Siddharta Siddharta & Harsono, No. H-01-3105 (S.D. Tex. filed Sept. 11, 2001); SEC v. Mattson, No. H-01-3106 (S.D. Tex. filed Sept. 11, 2001).
(4) Refunds on previous tax payments. SEC v. Triton Energy Corp., No. 97-cv-00401-RMU (D.D.C. filed Feb. 27, 1997).
(5) Customs clearance for goods or equipment that were improperly or illegally imported. In the Matter of BJ Servs. Co., SEC Admin. Proceeding File No. 3-11427, Cease & Desist Order (Mar. 10, 2004), available at http://www.gov/litigation/admin/34-49390.htm.
(6) Customs clearance for goods delayed due to the failure to post bonds with sufficient funds to cover duties and tariffs. United States v. Vetco Gray Controls Inc., No. 07-cr-004 (S.D. Tex. filed Jan. 5, 2007).
(7) Encourage the repeal or amendment of national regulations limiting foreign investments. SEC v. BellSouth Corp., No. 02-cv-00113-ODE (N.D. Ga. filed Jan. 15, 2002).
(8) Repeal of a government decree requiring an environmental impact study to be conducted. See News Release, Monsanto Announces Settlements With DOJ and SEC Related to Indonesia (Jan. 6, 2005), available at http://Monsanto.mediaroom.com/index.php?s=43&item=278.
(9) Expedited government registration certifications required by law to produce, warehouse, or market products in the country. See SEC v. Dow Chem. Co., No. 07-cv-336 (D.D.C. filed Feb. 12, 2007).
(10) Beneficial changes to laws and regulations relating to land development. United States v. Halford, No. 01-cr-00221-SOW-1 (W.D. Mo. filed Aug. 3, 2001); United States v. Reitz, No. 01-cr-00222-SOW-1 (W.D. Mo. filed Aug. 3, 2001); United States v. King, No. 01-cr-0190-DW (W.D. Mo. filed June 27, 2001).
Under the FCPA, the person making or authorizing the payment must have a corrupt intent. The payment must be intended to induce the recipient to misuse his official position to direct business wrongfully to the payer or to any other person. The FCPA prohibits any corrupt payment intended to influence any act or decision of a foreign official in his or her official capacity, to induce the official to do or omit to do any act in violation of his or her lawful duty, to obtain any improper advantage, or to induce a foreign official improperly to use his or her influence with other government officials or agencies to affect or influence any act or decision. Where such intent is present, the FCPA prohibits paying, offering, promising to pay (or authorizing to pay or offer) money or anything of value. The FCPA does not require that a corrupt act succeed in its purpose. The offer or promise of a corrupt payment can constitute a violation of the statute.See Title 9, Criminal Resource Manual §1018 “Prohibited Foreign Corrupt Practices” (November 2000), available here.
If there is an example of an antibribery prosecution based on a "donation" without a quid pro quo, the Chamber of Commerce would have headlined it. Nothing would better support its argument that U.S. executives should be fearful of criminal prosecution under the FCPA for conduct that is either innocent or at least not expressly prohibited by the statute.
The business nexus element of an offense has been broadened through aggressive enforcement. In the government's view, bribes to foreign officials intended to assist a company to obtain or retain business by giving it an unfair commercial advantage are consistent with the words and history of the statute and fair game for punishment. And so far, at least, there hasn't been a criminal prosecution based on bribes to foreign officials -- or, as our reader puts it, based on donations -- where nothing was asked for or given in return.
The Kay petition for certiorari and all cert-stage briefs including the U.S. Chamber of Commerce's amicus brief are available at scotusblog.com here.
View our prior post about Kay here.
Questions about ambiguity in the Foreign Corrupt Practices Act have been around since its inception. See, for example, our post Looking Again At U.S. v. Kay (November 7, 2007). The Supreme Court will answer those questions soon, either by granting review of Kay and deciding what "obtaining or retaining business" means, or by refusing to take the case and allowing the government to continue its "expansive enforcement" of the law. Here's what's happening.
David Kay and Douglas Murphy were sentenced in 2005 to 37 and 63 months in prison respectively for violating the FCPA. They bribed Haitian officials in order to reduce their company's taxes. The Fifth Circuit denied their final request for a rehearing in January 2008, and in April they petitioned the U.S. Supreme Court for review. Kay v. United States (Docket: 07-1281) is on the docket of the Justice's opening conference on September 29, 2008 for the Court's October 2008 term. The petition for certiorari and all cert-stage briefs are available at scotusblog.com.
Kay and Murphy are arguing, among other things, that the only bribes outlawed by the FCPA are those intended to assist in obtaining or retaining business. That's the so-called "business nexus" element of an offense. And, they say, the bribes they paid to reduce taxes don't fit within the business nexus element at all.
They're supported by the U.S. Chamber of Commerce -- "the world’s largest business federation." It hopes the Supreme Court will hear the case and use it to draw new limits around FCPA enforcement. The Kay case, the Chamber says, has obliterated the business nexus element. Because of that, it says, American executives are now exposed to "expansive enforcement" of the FCPA that threatens them "with prison for conduct not criminalized by the plain language of the statute."
To illustrate the government's expansive approach, the Chamber's amicus brief includes a unique list of FCPA enforcement actions. These are cases based on bribes paid to foreign officials for something other than a direct award of work. We show footnotes from the brief in square brackets.
In the wake of Kay, there have been numerous FCPA actions predicated in part or in whole on payments made to reduce or avoid regulatory burdens, and many additional cases remain under investigation. Among others, the DOJ and SEC have entered into resolutions with companies alleged to have paid bribes to obtainWhat does the government say? That in the context of the entire statute, the language is not ambiguous. "The business nexus element requires that a bribe to a foreign official be made 'in order to assist [the company] in obtaining or retaining business for or with * * * any person.' 15 U.S.C. 78dd-1(a)(1). The word 'business' is ordinarily understood to mean a 'commercial or mercantile activity customarily engaged in as a means of livelihood.' Webster’s Third New International Dictionary of the English Language 302 (1993). Thus, the statutory language does not restrict the FCPA’s coverage to the award or renewal of contracts, but more broadly reaches actions that assist in obtaining or retaining business. Moreover, the FCPA carves out an exception from its prohibition for payments for 'routine governmental action.' 15 U.S.C. 78dd-1(b); see also 15 U.S.C. 78dd-1(f )(3) (defining 'routine governmental action'). That exception would be superfluous if the statute were limited in the manner that [Kay and Murphy] propose."
(1) government inspection reports and laboratory certifications;
(2) reductions in annual employment tax obligations;
(3) reductions in general tax obligations;
(4) refunds on previous tax payments;
(5) customs clearance for goods or equipment that were improperly or illegally imported;
(6) customs clearance for goods delayed due to the failure to post bonds with sufficient funds to cover duties and tariffs;
(7) encourage the repeal or amendment of national regulations limiting foreign investments;
(8) repeal of a government decree requiring an environmental impact study to be conducted;
(9) expedited government registration certifications required by law to produce, warehouse, or market products in the country; and
(10) beneficial changes to laws and regulations relating to land development.
Additional ongoing investigations implicate payments to bribe tax, customs and administrative officials to obtain (1) reduced tax obligations; (2) importation of construction equipment in violation of customs regulations; (3) customs clearance for goods and equipment; (4) immigration and tax benefits; and (5) a beneficial tax audit.
2 See SEC v. Delta & Pine Land Co., No. 07-cv-01352 (D.D.C. filed July 25, 2007); In the Matter of Delta & Pine Land Co., SEC Admin. Proceeding File No. 3-12712, Cease & Desist Order at 3 (July 26, 2007), available at http://www.sec.gov/litigation/admin/ 2007/34-56138.pdf
3 In the Matter of Bristow Group Inc., SEC Admin. Proceeding File No. 3-12833, Cease & Desist Order at 3 (Sept. 26, 2007), available at http://www.sec.gov/litigation/admin /2007/34-5633.pdf; Press Release, SEC Institutes Settled Enforcement Action Against Bristow Group for Improper Payment to Nigerian Gov’t Officials and Other Violations (Sept. 26, 2007), available at http://www.sec.gov/news/press/2007/2007-201.htm.
4 In the Matter of Baker Hughes Inc., SEC Admin. Proceeding File No. 3-10572, Cease & Desist Order (Sept. 12, 2001), available at http://www.sec.gov/litigation/admin/34-44784.htm; SEC v. KPMG Siddharta Siddharta & Harsono, No. H-01-3105 (S.D. Tex. filed Sept. 11, 2001); SEC v. Mattson, No. H-01-3106 (S.D. Tex. filed Sept. 11, 2001).
5 SEC v. Triton Energy Corp., No. 97-cv-00401-RMU (D.D.C. filed Feb. 27, 1997).
6 In the Matter of BJ Servs. Co., SEC Admin. Proceeding File No. 3-11427, Cease & Desist Order (Mar. 10, 2004), available at http://www.gov/litigation/admin/34-49390.htm.
7 United States v. Vetco Gray Controls Inc., No. 07-cr-004 (S.D. Tex. filed Jan. 5, 2007).
8 SEC v. BellSouth Corp., No. 02-cv-00113-ODE (N.D. Ga. filed Jan. 15, 2002). It is worth noting that the Senate originally proposed language that would have prohibited payments made for the purpose of “obtaining or retaining business … or directing business to, any person or influencing legislation or regulations of [the foreign] government.” S. 305, 95th Cong. § 103 (1977) (emphasis added). This language was ultimately rejected in favor of the current statute.
9 See News Release, Monsanto Announces Settlements With DOJ and SEC Related to Indonesia (Jan. 6, 2005), available at http://Monsanto.mediaroom.com/index.php?s=43&item=278.
10 See SEC v. Dow Chem. Co., No. 07-cv-336 (D.D.C. filed Feb. 12, 2007).
11 United States v. Halford, No. 01-cr-00221-SOW-1 (W.D. Mo. filed Aug. 3, 2001); United States v. Reitz, No. 01-cr-00222-SOW-1 (W.D. Mo. filed Aug. 3, 2001); United States v. King, No. 01-cr-0190-DW (W.D. Mo. filed June 27, 2001).
Kay and Murphy reply this way:
Though the Government's reading is consistent with one broad dictionary definition of "business", the court of appeals correctly recognized that other common and narrower definitions of "business" render petitioners' conduct perfectly lawful: "[T]he word business can be defined at any point along a continuum from a 'volume of trade,' to 'the purchase and sale of goods in an attempt to make a profit,' to 'an assignment' or a 'project.'" (quoting Webster's Encyclopedic Unabridged Dictionary 201 (1989)). The spectrum of potential meanings thus runs from a person who hopes to "improve his business" in terms of seeking to better his general economic performance to one who hopes to "receive the business" of a customer in terms of obtaining a particular relationship or contract. Notably, the limiting phrase, "for or with . . . any person" (15 U.S.C. § 78dd-1(a)(1)(B)) favors the latter interpretation. The statutory text is accordingly ambiguous.For those interested in the history of the case, it dates back to Kay and Murphy's indictment in 2001 for bribes they paid in Haiti in the late 1990s. At trial, the district court dismissed the indictment, agreeing that the FCPA's language of “obtaining or retaining business” didn't cover payments to reduce taxes or customs duties. In 2004, the Fifth Circuit Court of Appeals reversed, holding that the payments might fall within the FCPA's prohibitions by giving companies a commercial advantage. It remanded the case for the trial court to decide if there was sufficient evidence that the bribes could satisfy the business nexus element.
The Fifth Circuit's choice of the broadest, government-favoring interpretation of "business" produced a startlingly sweeping interpretation of this frequently employed provision of federal criminal law—one that criminalizes all payments intended to have any positive effect on the company. Under that broad theory, the court of appeals was able to conclude that, because "[a]voiding or lowering taxes reduces operating costs and thus increases profit margins, thereby freeing up funds that the business is otherwise legally obligated to expend", such conduct "assist[s] . . . in obtaining or retaining business" within the meaning of the FCPA. The Government accordingly urges that criminal liability attaches whenever "the resulting savings benefit the company's existing business." The problem is that "[t]he same can be said about virtually any contact with a foreign official that somehow—and no matter how indirectly—enables the company to take some action that reduces costs or otherwise benefits it."
In 2005, a jury convicted Kay and Murphy. They appealed again to the Fifth Circuit, this time also arguing that the mens rea element of an FCPA offense was missing from their indictments. In October 2007, the Fifth Circuit affirmed their convictions. They filed a petition for rehearing en banc, which was denied in January 2008. With appeals to the Fifth Circuit exhausted, in April they petitioned the Supreme Court for review.
FCPA Violations Disclosed During Monsanto's Pre-Acquisition Due Diligence
July 26, 2007 -- The Securities and Exchange Commission has settled Foreign Corrupt Practices Act enforcement actions against Delta & Pine Land Company, a Mississippi-based cottonseed producer, and its 100% owned subsidiary, Turk Deltapine, Inc. From 2001 to 2006, Turk Deltapine made payments of approximately $43,000 to officials of the Turkish Ministry of Agricultural and Rural Affairs in order to obtain various governmental reports and certifications that were necessary for Turk Deltapine to obtain, retain and operate its business in Turkey.
The improper payments were first discovered by U.S. officers of Delta & Pine in 2004. Instead of stopping the payments, Delta & Pine made arrangements to fund them through a third party supplier in Turkey. The payments violated both the antibribery provisions and the accounting standards. Delta & Pine and Turk Deltapine jointly agreed to pay a $300,000 civil penalty and engage an independent compliance consultant.
Monsanto Company acquired Delta & Pine on June 1, 2007. The payments came to light in connection with Monsanto's pre-acquisition due diligence and were then reported to the SEC. The Department of Justice has not yet indicated whether it will seek criminal enforcement action against Delta & Pine, Turk Deltapine, or any of their respective directors, officers, employees and agents.
View the SEC's Complaint here.
View the Cease and Desist Order here.