The FCPA Blog

The debate about medical ghosting has focused on the U.S. market. But could the DOJ and SEC now be looking at the practice overseas, where it might violate the FCPA?

Main Justice reported that in April, the DOJ and SEC sent letters to AstraZeneca PLC, Baxter International Inc., Eli Lilly & Co., and Bristol-Myers Squibb Co. The letters asked about business practices in Brazil, China, Germany, Greece, Italy, Poland, Russia, and Saudi Arabia.

Medical ghosting works like this. Drug companies hire outside firms to draft articles touting a drug, then retain a doctor or scientist to sign off as the author. The drug company then finds a publisher, who doesn't know the article was written by someone other than the person who signed it.

Doctors and scientists eagerly participate because publication credit increases their prestige and professional standing. And the drug-companies use the medical journal articles as "independent" proof that their drugs are safe and effective.

A Senate report released last month and quoted in the New York Times said: “Manipulation of medical literature could lead physicians to prescribe drugs that are more costly or may even harm patients."

The FCPA's antibribery provisions prohibit among other things (1) the giving of anything of value (2) to a foreign official (3) to obtain or retain business. See, e.g., 15 U.S.C. §78dd-1(a) [Section 30A of the Securities & Exchange Act of 1934].

Ghosting has those elements. Giving a doctor or scientist an unsigned manuscript for publication has real value. Doctors and scientists working in government-owned or managed hospitals overseas are "foreign officials" under the FCPA. And articles appearing to independently endorse a drug help its manufacturer obtain or retain business.

We don't know if medical ghosting will figure in any FCPA-related investigations of the drug companies. But it could.

Photo courtesy of World Vision CanadaThe Justice Department has published its second FCPA Opinion Procedure Release of 2010.

The Requestor in Release 10-02 is a U.S. non-governmental organization and a “domestic concern” under the FCPA. It's a non-profit microfinance institution operating globally, providing loans and other basic financial services to the world’s lowest-income entrepreneurs. Funding comes from grants and donations by governments, NGOs, public and private organizations, and individuals.

The Requestor has a wholly-owned, self-sufficient subsidiary organized as a limited liability company in "a Eurasian country." The so-called Eurasian Subsidiary wanted to contribute $1.42 million to a local microfinance institution through a grant.

The Requestor has been converting all of its local operations, including the Eurasian Subsidiary, to commercial entities licensed as financial institutions. The conversion will help the local entities attract capital and offer new services such as savings accounts, microinsurance, and remittances. The Eurasian Subsidiary's $1.42 million grant to the local microfinance organization is required for the subsidiary's license conversion.

During due diligence, the Requestor discovered that one of the board members of the local microfinance institution and its parent "is a sitting government official in the Eurasian country and that other board members are former government officials."

Despite the presence of at least one foreign official on the target's board, the DOJ gave the Requestor a green light for its subsidiary's investment. The sitting foreign official has and will have no government role in the Requestor's activities. And, under the law of the Eurasian country, sitting government officials can't be paid for this type of board service.

Additional controls in the grant included staggered payments, ongoing monitoring and auditing, earmarking of funds to be spent, further prohibitions on compensating board members, and anti-corruption compliance provisions in the grant documents.

The Release said the purpose of the proposed grant is to obtain or retain business. The DOJ reasoned that the Eurasian Subsidiary's nonprofit business is to be followed by for-profit business activity in the Eurasian country, and the proposed grant would be made as a condition precedent to obtaining a license to operate as a profit-making financial institution.

So, the DOJ said, the issue is whether the proposed grant would amount to the corrupt giving of anything of value to any officials of the Eurasian country in return for obtaining or retaining business. "Based on the due diligence that has been done and with the benefit of the controls that will be put into place, it appears unlikely that the payment will result in the corrupt giving of anything of value to such officials."

Release 10-02 also includes a helpful discussion about charitable giving and the FCPA.

Download a copy of the DOJ's FCPA Opinion Procedure Release No. 10-02 dated July 16, 2010 here.

All DOJ Opinion Procedure Releases can be found here.

The DOJ said today that Flavio Ricotti, an Italian citizen indicted in April 2009 with five other former executives of California-based valve-maker Control Components Inc. (CCI), has been extradited to the United States from Germany. He's facing trial for his alleged role in a conspiracy to bribe officials of foreign state-owned companies and private parties.

Ricotti, 49, of Bientina, Italy, was arrested in February this year in Germany and extradited from there last week.

The others indicted with Ricotti are Stuart Carson, CCI’s former chief executive officer; Hong (Rose) Carson, CCI’s former director of sales for China and Taiwan; Paul Cosgrove, CCI’s former director of worldwide sales; David Edmonds, CCI’s former vice president of worldwide customer service; and Han Yong Kim, the former president of CCI’s Korean office. Their trial is scheduled to start on November 2, 2010.

Ricotti and his co-defendants are charged with one count of conspiracy to violate the FCPA and the Travel Act, one count of violating the FCPA, and three counts of violating the Travel Act. The conspiracy count carries a maximum penalty of five years in prison and a fine of $250,000 or twice the value gained or lost. The FCPA count carries a maximum penalty of five years in prison and a fine of $100,000 or twice the value gained or lost. The Travel Act counts each carry a maximum penalty of five years in prison and a fine of the greater of $250,000 or twice the pecuniary gain or loss.

Two other former CCI employees pleaded guilty last year to conspiring to bribe officers and employees of foreign state-owned companies on behalf of CCI. In January 2009, Mario Covino, the company's former director of worldwide factory sales, pleaded guilty to one count of conspiracy to violate the FCPA. He admitted arranging bribes of about $1 million to officers and employees of several foreign state-owned companies. In February last year, Richard Morlok, CCI’s former finance director, pleaded guilty to one count of conspiracy to violate the FCPA and admitted arranging about $628,000 in bribes to officers and employees of several foreign state-owned companies. Covino and Morlok are scheduled to be sentenced in January 2011.

In July 2009, CCI pleaded guilty to violating the anti-bribery provisions of the Foreign Corrupt Practices Act (15 U.S.C. §78dd-2) and the Travel Act (18 U.S. C. §1952). It admitted bribing foreign officials in a decade-long scheme to secure contracts in about 36 countries. CCI's three-year plea agreement imposed a criminal fine of $18.2 million and required appointment of a compliance monitor and cooperation with the DOJ's investigation.

The government alleges that Ricotti, who was CCI’s vice president and head of sales for Europe, Africa and the Middle East from 2001 through 2007, arranged bribes of at least $750,000 to officers and employees of state-owned companies (considered "foreign officials" under the FCPA), and bribes of about $380,000 to officers and employees of private companies. The payments allegedly related to projects in the United Arab Emirates, Kazakhstan, India and Qatar.

CCI designs and makes valves for the oil, gas, nuclear, coal and power plant industries. It is owned by British-based IMI plc, which trades on the London Stock Exchange under the symbol IMI.L.

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

A copy of the DOJ's July 6, 2010 release can be viewed here.

By Michael S. Diamant

Few FCPA compliance challenges are as vexing as the provision of everyday business courtesies, like gifts, meals, drinks, travel, and entertainment. Because the FCPA has no de minimis threshold, even minor expenditures could implicate the statute’s anti-bribery and accounting provisions. Although they are a necessary and common facet of international business, such benefits have led to enforcement actions against companies like Lucent Technologies, Avery Dennison, and UTStarcom.

Multinational companies that do business in China confront this challenge daily. The Chinese business environment particularly amplifies this risk for two reasons. First, the Chinese government owns a huge percentage of its domestic economy.  It is thought to own more than 70% of the country’s productive wealth, and it is the majority shareholder of 31% of publicly listed Chinese companies.

This has profound implications for FCPA compliance due to how the law is currently enforced: In their prosecution of companies like Schnitzer Steel, the U.S. regulators have taken an expansive view of the meaning of “foreign official.” The statute defines “foreign official” as an “any officer or employee of a foreign government or any department, agency, or instrumentality thereof.” According to the U.S. authorities, this includes for-profit businesses, like steel mills, that are only partially owned or controlled by a foreign government.

Therefore, China’s broad ownership of its publicly listed companies qualifies a huge percent of Chinese businesspeople as “foreign officials” according to U.S. regulators.  When you discuss a prospective deal over dinner or a drink with a Chinese business executive, you might be giving a thing of value to a foreign official!

Second, Chinese business culture typically values the provision of things of value to build relationships. This development of business connections, termed guanxi, is especially important for multinational companies trying to develop business in China and make inroads into that country’s booming economy. Further, the failure to reciprocate courtesies that have been provided by your business counterparties in the past may be seen as rude and could hamper business. The risk of offending on one hand may be balanced against the risk of violating the FCPA on the other.

Over the years, we have advised numerous multinational companies on how to handle this conundrum.  This month we published an article in the Virginia Law & Business Review that gathers some of our accumulated wisdom on the issue, both by performing a legal analysis of the FCPA’s anti-bribery provisions to determine why certain business courtesies are permissible while others are not and by providing some internal compliance suggestions to manage this risk with regard to a company’s Chinese operations. We hope readers of the FCPA Blog find it helpful. It can be downloaded here.

Michael Diamant is a member of the white collar defense and investigations practice group in the Washington, D.C. office of Gibson, Dunn & Crutcher. His practice focuses on white collar criminal defense, internal investigations, and corporate compliance. He has conducted internal investigations in eleven countries on four continents regarding possible FCPA violations and assisted clients in complying with government subpoenas and negotiating settlements with enforcement agencies.

A former employee of Haiti’s state-owned national telecommunications company was sentenced yesterday to 48 months in prison for being part of a bribery and money-laundering scheme. 

Robert Antoine, 62, of Miami and Haiti, pleaded guilty in March this year to conspiracy to commit money laundering. He was also ordered by the federal judge in Miami to pay $1,852,209 in restitution and to forfeit $1,580,771, and serve three years of supervised release following his prison term.

Antoine was indicted in December 2009. From 2001 to 2003, he was the director of international affairs for Telecommunications D’Haiti. He admitted accepting bribes from three U.S. telco companies. The Foreign Corrupt Practices Act reaches bribe payers but not bribe takers. Antoine, however, disguised the origin of the bribes by passing them through intermediary companies in the U.S., including J.D. Locator Services. Disguising the origin of funds in U.S. commerce constitutes an offense under the anti-money laundering law 18 U.S.C. §1956.

Juan Diaz, 51, the president of J.D. Locator, pleaded guilty in May 2009, to conspiracy to commit violations of the FCPA and money laundering. He hasn't been sentenced.

Antoine also said some of the bribe money was laundered by Jean Fourcand, who pleaded guilty in February this year to money laundering. He named Antoine in his guilty plea. Fourcand, 62, was earlier sentenced to six months in prison for his involvement.

Antoine said $800,000 of the funds he received were intended to be from a U.S. telco company of which Joel Esquenazi was the president and director, Carlos Rodriguez was the executive vice president, and Antonio Perez was, at times, the controller. Perez, 51, pleaded guilty in April 2009 to conspiring to commit FCPA violations and money laundering. He's also waiting to be sentenced.

Esquenazi and Rodriguez, as well as Jean Rene Duperval, who was director of international relations of Telecommunications D’Haiti from 2003 to 2004, and Duperval’s sister, Marguerite Grandison, were indicted with Antoine in December 2009. Their trial is scheduled to begin July 19, 2010 in U.S. District Court in Miami.

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

Download a copy of the December 4, 2009 indictment in United States v. Joel Esquenazi, et al here.

Download a copy of Robert Antoine's February 19, 2010 plea agreement (entered March 12, 2010) here.

Download a copy of Antoine's factual statement in connection with his guilty plea here.