Fugitive Israel director arrested for Siemens bribes

Emblem of the Israeli police (image courtesy of Wikipedia)Israel arrested a former judge and state electric company executive who allegedly took bribes from Siemens in exchange for huge contracts to supply gas turbines.

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Civil Complaint Against GE Energy Tossed

Khaled Asadi claimed he was fired by the GE subsidiary for telling supervisors and a company ombudsman about potential FCPA problems.

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Diageo's 'Rice Cake' Payments

There's always a danger that an unhealthy corporate practice, even an illegal one, will gain internal acceptance and legitimacy simply because it happens all the time.

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Top Ten Disgorgements (March 2012)

Since we first listed the top ten FCPA disgorgements a year ago, two new companies joined the list -- Johnson & Johnson and Magyar Telekom. They replaced GE and Baker Hughes.

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Exec Claims GE Fired Him For Reporting FCPA Concerns

A former country manager in Iraq for a GE subsidiary claims he was fired for telling supervisors and an ombudsman about potential FCPA problems.

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SEC Posts Cases Eligible For Whistleblower Rewards

The SEC's Office of the Whistleblower (yes, it's real) published its first list of enforcement actions that might be eligible for whistleblower rewards. It includes FCPA-related cases.

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Top Ten Disgorgements

There's been a lot of talk lately about the DOJ's "expansive enforcement practices," and practically none about the SEC's. So let's get started by taking a look at a remedy the SEC uses in most FCPA cases: disgorgement.

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GE In $23 Million SEC Settlement

General Electric Company, whose compliance program is among the most respected and admired in the world, has settled civil violations of the Foreign Corrupt Practices Act with the Securities and Exchange Commission.

The company today agreed to pay $23.4 million to resolve claims that arose from a $3.6 million kickback scheme by four GE subsidiaries -- two of which were acquired after the offenses occurred. The kickbacks were paid under the United Nation's oil-for-food program. The GE subsidiaries were selling medical and water purification equipment to the Iraqi government.

The SEC charged GE and two subsidiaries -- Ionics Inc. and Amersham plc -- with civil violations of the books and records and internal controls provisions of the FCPA.

The kickbacks were paid from 2000 to 2003 and were not properly accounted for. They consisted of cash, computer equipment, medical supplies, and services to the Iraqi Health Ministry or the Oil Ministry. GE acquired two of the subsidiaries in 2004 and 2005 and became liable for their securities law violations, including FCPA offenses.

Cheryl J. Scarboro, the head of the SEC's FCPA unit, said: "GE failed to maintain adequate internal controls to detect and prevent these illicit payments by its two subsidiaries to win oil for food contracts, and it failed to properly record the true nature of the payments in its accounting records. Furthermore, corporate acquisitions do not provide GE immunity from FCPA enforcement of the other two subsidiaries involved."

In the SEC settlement, GE was ordered to disgorge $18,397,949 of profits and pay $4,080,665 in prejudgment interest and a penalty of $1 million. GE and subsidiaries Ionics Inc. and Amersham plc agreed not to violate Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934.

The SEC said it has taken 15 FCPA enforcement actions against companies involved in the now discredited U.N. oil for food program and has recovered more than $204 million. The program was intended to provide humanitarian relief for the Iraqi population, which faced hardship under international trade sanctions. It allowed the Iraqi government to purchase humanitarian goods through a U.N. escrow account. The Iraqi government instructed vendors to use middlemen and to inflate prices to fund the kickbacks.

In addition to GE, other companies charged under the oil-for-food program include Chevron, Total SA, AB Volvo, Innospec, Ingersoll-Rand, Akzo-Nobel, and Fiat.

The DOJ did not join the enforcement action against GE or the subsidiaries. It usually prosecutes criminal antibribery offenses under the FCPA, which require payments to foreign officials. In GE's case, the kickbacks apparently went directly to Iraqi ministries and not to government officials.

The SEC said that in settling the case, it "considered remedial acts promptly undertaken by GE and the cooperation the company afforded the Commission staff in its investigation."

View the SEC's July 27, 2010 press release here.

View the SEC's Litigation Release No. 21602 and Accounting and Auditing Enforcement Release No. 3159 (both dated July 27, 2010) in Securities and Exchange Commission v. General Electric Company; Ionics, Inc.; and Amersham plc, Civil Action No. 1:10-CV-01258 (D.D.C.)(RWR) here.

View the SEC civil complaint against GE, Ionics, and Amersham here.

A Whistleblower Blow-Up

Last month we reported a settlement in a suit by General Electric's former in-house counsel, Adriana Koeck. She claimed she was fired in retaliation for whistleblower activity protected by Section 806 of the Sarbanes-Oxley Act (18 U.S.C. § 1514A) and state law after she warned her superiors about possible FCPA violations in Brazil. She leaked information to the press about GE's alleged conduct, and GE sued her for breaching her duty of confidentiality. The terms of the settlement that ended all of the litigation weren't disclosed.

We don't have any views about the merits of the case. But we have concerns about what it might mean for company lawyers and compliance.

When lawyers allege they were fired for raising compliance concerns, they typically disclose privileged information to support their claims. They're in a tough spot -- they can only prove they were fired for retaliation by revealing the company's underlying behavior that they complained about. But by disclosing it, they'll probably breach their professional obligations of confidentiality.

All company lawyers are privy to the inner workings of their organization. They hear the secret musings about how to sell the company's goods and services. But laymen aren't always expected to know all the implications of what they're talking about; that's why the lawyers are there -- to help everyone stay on the right side of the law. So when those secret deliberations become fodder for a lawsuit, someone's expectation of privacy is violated.

In all companies, lots of different ideas are thrown onto the whiteboard to be vetted and debated, criticized and critiqued. Only a few ever make it into the field. That's how consensus-building works. But if early-stage ideas might be disclosed by the lawyers and cause trouble later on, there'll be less debate of the kind the attorney-client privilege is intended to promote. Companies paying attention to the retaliation suits might change the way they treat their lawyers and compliance professionals -- leaving them out of discussions, or worse, not hiring them to start with.

To be clear, lawyers are entitled to protection against retaliation for blowing the whistle. In fact, lawyers are especially vulnerable. They know the company's secrets and they have a duty to prevent illegal conduct from happening. But whenever lawyers, for whatever reason, go public with protected information, the profession is tarnished and the cause of compliance is hurt.

What's the fix? How about plugging the gap in SOX to make sure whistleblower protections cover lawyers (and all employees) who work at subsidiaries of listed parents? The limited coverage now is forcing claimants into federal court who might not want to be there. Beyond that, perhaps a special tribunal -- under the auspices of the Labor Department and the courts (too bad we don't have a national integrated bar group) -- with an equal measure of protection for company lawyers and for their employers' privileged information.

GE Resolves FCPA-Related Private Claims

General Electric and its former in-house counsel, Adriana Koeck, who claimed she was fired for telling her superiors about the company's possible Foreign Corrupt Practices Act violations in Brazil, have settled their litigation. GE had sued her for wrongfully disclosing its confidential information, while she claimed she was fired in retaliation for whistleblower activity protected by Section 806 of the Sarbanes-Oxley Act (18 U.S.C. § 1514A) and state law.

Koeck went to work for GE in January 2006 as the lead attorney for Latin America at its Consumer and Industrial Division in Louisville, Kentucky. She was fired a year later. With respect to the FCPA, Koeck said she was sent an article in March 2006 from a Brazilian newspaper alleging that GE and a GE / Brazilian joint venture were among a number of major corporations involved in a Brazilian “bribing club.” The corporate participants allegedly met regularly to agree on how they would allocate orders from the public sector throughout Brazil, and how much they would pay as bribes. Brazilian news reports, she said, indicated that more than $20 million in bribes had been paid to more than 150 Brazilian politicians. A copy of her SOX retaliation complaint can be downloaded here.

In June 2008, however, an administrative law judge at the Department of Labor dismissed Koeck's SOX complaint, saying it wasn't filed within the 90-day time limit. That same month, GE sued her in federal court in Alexandria, Virginia. It alleged she had wrongfully disclosed the company's confidential and privileged information contained in internal e-mails, memos, and legal opinions. She claimed the documents proving her retaliation case against GE weren't covered by the attorney-client privilege because of the crime-fraud exception. She also filed counterclaims against GE, alleging illegal retaliation for her whistleblowing activity. General Electric Company v. Adriana Koeck, Case No. 1:08-cv-00591-TSE-JFA)

GE's complaint has remained under seal, along with Koeck's reply and counterclaims. But GE's memorandum in support of its motion to dismiss the counterclaims isn't sealed and can be downloaded here.

In October 2008, the court dismissed Koeck's counterclaims. A month later, she joined the settlement of a federal gender discrimination class action suit against GE (Lorene F. Schaefer v. General Electric Company, et al., Case No. 3:07-CV-0858 (PCD)). With that settlement, she waived any further claims against her former employer, and GE agreed to withdraw its complaint that she wrongfully disclosed its confidential information. Financial terms of the settlement weren't disclosed. In January 2009, GE and Koeck filed a joint stipulation of dismissal, ending their federal court litigation with prejudice, with each party paying its own costs and attorney's fees.

Last year, the Corporate Crime Reporter said the information in Koeck's whistleblower retaliation complaint was also given to the Justice Department's Fraud Section, which was conducting an initial review of the case. The DOJ has never commented publicly on the matter and GE has said Koeck’s claims were without merit.

As an aside, Koeck discharged her D.C.-based trial counsel, Bernabei & Wachtel, in August 2008. She claimed in a subsequent court filing that the firm (1) failed to abide by her explicit instructions, (2) acted in the absence of her authority; and (3) failed to communicate with her about the case. Two months before she fired the firm, it had written to her, saying “we do not believe there is a basis for [your counter-claims] . . . the real settlement value of your case to GE is resolving it and buying peace, not the potential counter-claims.” She later retained another firm to help her. Meanwhile, Koeck has disputed Bernabei & Wachtel's assertion that it has a legal interest “in any monetary settlement payments" she may have received from GE through the Shaefer case.
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