Search

Editors

Richard L. Cassin Publisher and Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Michael Scher
Senior Editor

Elizabeth K. Spahn Contributing Editor

Julie DiMauro Contributing Editor

Eric Carlson Contributing Editor

Michael Kuria Contributing Editor

Thomas Fox Contributing Editor

Philip Fitzgerald Contributing Editor

Marc Alain Bohn Contributing Editor

Bill Waite Contributing Editor

Shruti J. Shah Contributing Editor

Russell A. Stamets Contributing Editor

Connect

Subscribe to receive the free FCPA Blog daily

Close
FCPA Blog Daily News

Entries in Halliburton (59)

Thursday
Oct302008

A Word Of Thanks . . .

We're always thankful for Fridays, of course, but today ranks above others. Finally we can say goodbye to October 2008 -- a month that changed the world. We asked a friend for a favor last week. "What if I don't help you?" he said. "We'll tell everyone you're a banker," we answered. And he really is a banker, poor guy.

We're thankful too for the American political process. No kidding. However you vote, you have to admire what happens every four years. Our street-level democracy may be messy, tacky and shrill, but it's never dull. And the best part? It still works. How brilliant were the Founders?

With Bloody October over and the election passing into history next week, we expect a burst of news about the Foreign Corrupt Practices Act. Some big names to look for are Siemens (it has 29 appearances in this blog), Panalpina (19 appearances), the orthopedic device makers (9 appearances as a group and countless appearances on their own, as Biomet Inc., Stryker Corp., Zimmer Holdings Inc., Smith & Nephew plc, Medtronic Inc. and Wright Medical), Halliburton (9 appearances) and Aon Corporation (5 appearances). John Ashcroft, by the way, the heavyweight titleholder of compliance monitors, has 13 appearances.

A big danka shern (Wayne Newton's preferred spelling) to everyone who has ordered Bribery Abroad in hardcopy or by download, especially those who've taken the time to tell us they enjoyed the book (yo back to you, Mom).

And not least, a salute to the sponsors of the FCPA Blog, who have been more than generous with their support. A warm welcome today, by the way, to our newest sponsor, Daylight Forensic & Advisory. It joins our other sponsors with tangible aid and comfort for our efforts to keep the blog free-to-air, as they say. (Anyone interested in becoming a sponsor can contact us here.)

Enjoy the weekend.

.

Saturday
Sep062008

Jack Stanley's Guilty Plea, Up Close

ProPublica is a privately-funded, non-profit, independent newsroom located in Manhattan. It's led by Paul Steiger, the former managing editor of The Wall Street Journal, and its staff includes some of the best editors and reporters in the business. Its mission is to save investigative journalism, which is going the way of the dodo in commercial newrooms across America.

One story ProPublica is now chasing is the guilty plea a few days ago by Albert "Jack" Stanley, the former chairman and CEO of KBR. He admitted violating the Foreign Corrupt Practices Act by helping arrange and hide more than $182 million in illegal payments to Nigerian government officials. When news about the plea broke, we knew right away the story would be too big for blogs or even most traditional news organizations. The scale of the bribery is enormous, the companies involved are powerhouses, and the cast of characters is daunting. But it's the most important FCPA story around, and maybe the most important one ever. So it needs some special handling.

Enter ProPublica. Its first look at the Stanley plea appeared yesterday, in an article written by T. Christian Miller. He and four others reported the story, including the legendary Lowell Bergman, who's no stranger to the FCPA. This story appeared first in MSN Money, and then on ProPublica's site under what's called a Creative Commons Attribution- Noncommercial- No Derivative Works 3.0 United States License. That means we can republish it with attribution to ProPublica and without any changes.

While this post exceeds our typical word count, we doubt any readers will object.

___________________

Bribery scandal rocks Big Oil

A former Halliburton exec has pleaded guilty to being in cahoots with crooked foreign officials. He's now helping US investigators, and a much wider crackdown is expected to unfold.

By ProPublica and PBS' "Frontline"

In the world of Big Oil, Albert "Jack" Stanley was legendary for winning billion-dollar contracts in Third World countries as the Halliburton executive who knew all the secrets of deals in places like Malaysia, Egypt and Yemen.

In the wake of his admission in a guilty plea last week that he had resorted to bribes, kickbacks and high-level corruption to secure deals in Nigeria, however, Stanley now lies at the center of a widening scandal in the oil industry that has implications for corporations and governments across the globe.

Stanley's case is the first in what federal officials believe will be a string of indictments in coming months against U.S. corporate executives who have participated in bribing foreign officials in recent years.

By agreeing to cooperate with prosecutors, Stanley, who ran KBR when it was a subsidiary to Halliburton, promises to become a hammer for federal investigators seeking to crack open additional cases under a 30-year-old statute designed to halt overseas corporate corruption. About 80 cases involving major corporations accused of overseas bribery were under investigation as of last year, a high-level Justice Department official said.

In addition, Stanley's cooperation may provide a new tool for encouraging industrial countries in Europe and Asia to get more serious about enforcing anti-bribery laws against corporations based there. The $182 million in bribes were allegedly paid not just by Halliburton but by its partners, an international consortium of engineering companies from France, Italy and Japan. The United Kingdom has jurisdiction, too, because much of the bribery scheme was, according to court documents, hatched in London, where Stanley maintained a sumptuous home.

"We are very pleased to see that there has been an uptick in enforcement not only in the U.S. but in other countries as well,'' said Patrick McCormick, a spokesman for Transparency International-USA, an anti-corruption group funded by donations from government development agencies and private businesses and foundations. "We are hoping that (this case) is a sign of things to come."

A nightmare unfolding

The intensifying level of this government effort, pushed by a Republican administration normally friendly to business, cuts two ways for American business executives.

For those who may have been involved in bribery to secure construction contracts or equipment sales in developing countries around the world, it represents a nightmare.

The active involvement of the FBI is particularly worrisome to such people. In contrast to white-collar investigations handled by the Justice Department and the Securities and Exchange Commission, the FBI is believed to be prepared to use techniques more familiar to investigations of organized crime, including wiretapping and undercover agents.

Stanley's high profile and punishment -- he faces a potential seven-year sentence, the longest in the history of the federal statute outlawing the bribing of foreign officials -- also signal the federal government's willingness to seek long prison terms rather than fines and court injunctions.

For those who fret that they have been losing out to foreign competitors in jurisdictions less likely to prosecute bribery, it offers hope that the playing field will soon be leveled.

Stanley has already acknowledged paying bribes to unnamed senior Nigerian officials, although reports have identified the primary recipient as Nigeria’s late president, Sani Abacha. Stanley also has admitted receiving kickbacks of $10.8 million from contracts that Halliburton and predecessor companies signed with governments in Nigeria, Malaysia, Egypt and Yemen. Government officials in those countries, with the exception of Abacha, have not yet been implicated, according to a person familiar with the investigation.

Stanley's testimony may also pose concerns for Vice President Dick Cheney, who ran Halliburton between 1995 and 2000, when Stanley was appointed as KBR's chief executive officer. Cheney has consistently denied wrongdoing.

Law enforcement officials familiar with the investigation said that in previous interviews, Stanley repeatedly said that then-CEO Cheney had no knowledge of the bribes. At the time, however, Stanley was not a cooperating witness, a stance that changed in June when he was confronted with evidence of his involvement in the bribery scheme.

The vice president's office declined to comment, citing the continuing litigation.

Larry Veselka, Stanley's lawyer, said his client will cooperate fully in any investigation. A judge will determine Stanley's final sentence depending on his compliance with the plea agreement.

"He's going to cooperate with wherever they want to go and whatever they want him to do,'' Veselka said Thursday.

When oil mixes with greed

Stanley's rise and fall, detailed in U.S. and leaked French court documents, show what can happen when corporate greed mixes with the autocratic governments that control valuable natural resources such as oil and copper in lawless corners of the globe.

Now 65, Stanley spent nearly his entire career in the oil business, a globe-trotting high-level roustabout who made a specialty of dealing with governments in resource-rich, accountability-poor countries. He owned a million-dollar home in Texas and a residence in one of London's swankest neighborhoods -- a property that he will now have to sell under his plea agreement.

A fearsome competitor, Stanley had a reputation as a hard drinker. At his hearing in Texas, Stanley held himself up by gripping the podium, and he looked frail. He appeared to wince at references to alcoholism as a mitigating factor for his actions and to statements by the government prosecutor William Stuckwisch, who characterized Stanley's behavior as "egregious."

"Jack was . . . extremely capable, smart and totally dedicated to the company,'' said one former colleague, who did not want to be identified because of the continuing investigation. "I was shocked like everyone else when we heard about the bribes."

Others expressed less surprise that Halliburton was involved. Walter Carrington was the U.S. ambassador to Nigeria in 1994, when Stanley acknowledged making the first bribe payments to the Nigerian government.

"I used to brag that because of our Foreign Corrupt Practices Act, Americans weren't involved as other countries were. American businessmen would complain that it wasn't fair -- (that) other countries really ought to be doing more to keep people from doing this. It was a competitive disadvantage,'' said Carrington, who did not recall meeting Stanley. "Halliburton was a different kettle of fish. There were always stories going on about the way in which their people operated."

Stanley began his rise up the corporate ladder with M.W. Kellogg, an oil infrastructure company then owned by Dresser Industries. Dresser would later merge with Halliburton, and Kellogg would become KBR.

Stanley was working as a senior executive at Kellogg in the 1990s when the company formed a joint venture called TSKJ to pursue contracts to construct a liquefied-natural-gas plant on Bonny Island off Nigeria's oil-rich coast. Besides Kellogg, the TSKJ companies were France's Technip; Snamprogetti Netherlands, an affiliate of Italy's Eni.

As Nigerian officials weighed the consortium's bid against a competing group led by San Francisco-based Bechtel Engineering, Stanley decided to improve the chances of winning by offering bribes, according to court documents filed by the Justice Department and the SEC.

He hatched a plan to hire consultants who could direct the money to Nigerian officials, the court documents said. A consultant from the United Kingdom would pay off higher-level Nigerian officials, while a second, from Japan, would be responsible for bribing lower-ranking officials. In November 1994, the U.K. consultant, who was not identified, allegedly told an associate that it would take $60 million to secure the contract, the court documents said. Of that money, $40 million to $45 million would go to the "first top-level executive branch" of Nigerian officials, while an additional $15 million to $20 million would go to other Nigerian officials.

Later that month, Stanley traveled to the Nigerian capital to meet with senior officials and confirm that the U.K. consultant would serve as a go-between, according to court documents and officials familiar with the investigation.

Over the next year, TSKJ, operating through subsidiary companies in Madeira, Portugal, in the Portuguese offshore tax haven of Madeira Island, signed agreements to transfer millions of dollars to the U.K. consultant, according to court documents and people familiar with the investigation.

In December 1995, the Nigerian government awarded the first of the gas plant contracts to TSKJ. Over the next decade, the government awarded TSKJ four contracts worth a total of $6 billion to build and expand the plant.

Throughout that time, Stanley continued traveling to Nigeria to meet with senior officials and continued arranging payments through the U.K. and Japanese consultant firms, according to the court documents.

Abacha died suddenly in 1998. According to Nigerian press accounts, his death was either the result of a marathon Viagra-fueled orgy with four prostitutes or a conspiracy among his closest confidantes to poison him. No autopsy was ever performed. In the decade since Abacha's death, Switzerland alone has returned at least $500 million in his bank accounts to the government of Nigeria.

All told, Stanley traveled to Nigeria to meet with top officials on four occasions between 1994 and 2001 as part of the bribery scheme. TSKJ paid out $130 million in bribes through the U.K. consultant and $50 million through the Japanese firm, according to the court documents.

French and Nigerian investigators have identified the primary consultant to the consortium as Jeffrey Tesler, a London attorney who worked with Nigerian immigrants, according a transcript of testimony from the French case.

Tesler was not identified in U.S. court documents. He has been investigated by British and French authorities but has never been charged with wrongdoing. Last year, British authorities conducted a search of his London office at the urging of U.S. officials. A woman who answered the phone at Tesler's law office Thursday said the attorney could not be reached and would have no comment.

The Cheney connection

In the middle of the bribery and plant construction, Kellogg changed hands. In 1998, Kellogg's parent company, Dresser Industries, merged with Halliburton.

Cheney, then CEO of Halliburton, arranged the merger during a quail-hunting trip. Afterward, Cheney appointed Stanley to head KBR, a newly formed construction and logistics subsidiary that grew out of the merger.

In a 1999 article in Middle East Economic Digest, Cheney praised Stanley: "We took Jack Stanley (and a colleague) . . . to head up the organization, and that has helped tremendously."

As allegations of corruption mounted, however, Halliburton conducted an internal investigation into the charges. In June 2004, the oil services company publicly fired Stanley, who was working as a consultant, for improper personal enrichment. The company also severed all relations with Tesler's firm, Tri-Star Investments.

The bribery scandal is one of many involving Halliburton's KBR subsidiary in the past several years. KBR has repeatedly been criticized for overbilling the U.S. government for providing food, fuel and other services to U.S. soldiers in Iraq. Last year, Halliburton spun off KBR into a separate corporation. KBR spokeswoman Heather Browne said the company has not yet reviewed the plea agreement. "KBR does not in any way condone or tolerate illegal or unethical behavior. The company stands firm in its unwavering commitment to conduct business with the utmost integrity,'' Browne said in a prepared statement.

Halliburton spokeswoman Cathy Mann declined to comment, saying the company had not yet reviewed the plea agreement. Earlier this year, Halliburton reported that the SEC was dramatically widening the scope of the investigation to cover projects built during the past 20 years in multiple countries.

Those investigations may focus on Stanley's activities in other countries. Court documents show that Stanley worked with another consultant, identified as a dual-national Lebanese and American citizen, in an elaborate kickback scheme.

Under the scheme, Stanley hired the consultant to help Halliburton and its predecessor firms arrange deals to build liquefied-natural-gas projects not only in Nigeria but also in Egypt, Yemen and Malaysia. From 1991 to 2004, the consultant directed $10.8 million of the proceeds back to Stanley through a Swiss bank account. These deals involved Stanley's original employer, M.W. Kellogg, as well as KBR.

This story is part of a joint reporting project by PBS's Frontline and ProPublica on international bribery, the subject of an upcoming documentary. Marlena Telvick and Oriana Zill de Granados reported from Houston. Additional reporting was contributed by Lowell Bergman, Jake Bernstein and T. Christian Miller. The story was written by Miller.

_____________________

.

Thursday
Sep042008

Why Comply?

The potential consequences of a Foreign Corrupt Practices Act violation for an individual are easy to explain and understand. Personal tragedies result from the losses of freedom, jobs and reputations, and there's often financial ruin and damage to families. But the possible consequences to a corporation -- and indirectly to its employees, shareholders, creditors, customers, suppliers and other stakeholders -- are more complex. A good explanation, however, comes from KBR in its 2007 annual report. The disclosure is comprehensive and clear, and downright spooky.

As discussed in our prior post, KBR's former chairman and CEO, Jack Stanley, just pleaded guilty to violating the FCPA. He helped arrange (and conceal) at least $182 million in illegal payments to Nigerian government officials. The continuing investigation by U.S. authorities is the focus of KBR's FCPA disclosure. Although the scale of the potential violations behind the disclosure is unusual, most of the possible consequences that KBR describes could apply to most public companies with FCPA concerns.

We've deleted a few KBR-specific references and broken the disclosure into smaller chunks for readability. Otherwise, it's straight from the annual report.

Here it is:

A person or entity found in violation of the FCPA could be subject to fines, civil penalties of up to $500,000 per violation, equitable remedies, including disgorgement (if applicable) generally of profits, including prejudgment interest on such profits, causally connected to the violation, and injunctive relief. Criminal penalties could range up to the greater of $2 million per violation or twice the gross pecuniary gain or loss from the violation, which could be substantially greater than $2 million per violation.

It is possible that both the SEC and the DOJ could assert that there have been multiple violations, which could lead to multiple fines. The amount of any fines or monetary penalties which could be assessed would depend on, among other factors, the findings regarding the amount, timing, nature and scope of any improper payments, whether any such payments were authorized by or made with knowledge of us or our affiliates, the amount of gross pecuniary gain or loss involved, and the level of cooperation provided the government authorities during the investigations.

Agreed dispositions of these types of violations also frequently result in an acknowledgement of wrongdoing by the entity and the appointment of a monitor on terms negotiated with the SEC and the DOJ to review and monitor current and future business practices, including the retention of agents, with the goal of assuring compliance with the FCPA.

Other potential consequences could be significant and include suspension or debarment of our ability to contract with governmental agencies of the United States and of foreign countries. . . . Suspension or debarment from the government contracts business would have a material adverse effect on our business, results of operations, and cash flow.

These investigations could also result in (1) third-party claims against us, which may include claims for special, indirect, derivative or consequential damages, (2) damage to our business or reputation, (3) loss of, or adverse effect on, cash flow, assets, goodwill, results of operations, business, prospects, profits or business value, (4) adverse consequences on our ability to obtain or continue financing for current or future projects and / or (5) claims by directors, officers, employees, affiliates, advisors, attorneys, agents, debt holders or other interest holders or constituents of us or our subsidiaries. . . .

In addition, our compliance procedures or having a monitor required or agreed to be appointed at our cost as part of the disposition of the investigation have resulted in a more limited use of agents on large-scale international projects than in the past and put us at a competitive disadvantage in pursuing such projects.

Continuing negative publicity arising out of these investigations could also result in our inability to bid successfully for governmental contracts and adversely affect our prospects in the commercial marketplace. In addition, we could incur costs and expenses for any monitor required by or agreed to with a governmental authority to review our continued compliance with FCPA law.

The investigations by the SEC and DOJ and foreign governmental authorities are continuing. We do not expect these investigations to be concluded in the immediate future. The various governmental authorities could conclude that violations of the FCPA or applicable analogous foreign laws have occurred . . . In such circumstances, the resolution or disposition of these matters . . . could have a material adverse effect on our business, prospects, results or operations, financial condition and cash flow.

.

Wednesday
Sep032008

Ex-KBR Boss Pleads Guilty

The Justice Department said today that Albert “Jack” Stanley, 65, a former chairman and CEO of KBR, the global engineering and construction firm based in Houston, pleaded guilty to a two-count criminal information charging him with conspiracy to violate the Foreign Corrupt Practices Act and conspiracy to commit mail and wire fraud. He appeared in U.S. District Court in his hometown of Houston before U.S. District Judge Keith P. Ellison.

From 1995 to 2004, Stanley helped a joint venture that included KBR and its predecessors funnel $182 million in bribes to government officials in Nigeria. The bribes were paid in exchange for contracts worth $6 billion to build liquefied natural gas facilities there. Stanley and others met with high-ranking Nigerian government officials and their representatives at least four times to arrange the bribe payments. He also received $10.8 million in kickbacks from a consultant hired in connection with LNG projects around the world.

Under the plea deal accepted by the court, Stanley faces seven years in prison and a restitution payment of $10.8 million. A sentencing date hasn't been set. Criminal violations of the FCPA's anti-bribery provisions are punishable by five years in prison, and criminal violations of the accounting provisions by 20 years in jail. As part of his plea agreement, Stanley agreed to cooperate with law enforcement authorities in the ongoing investigations. The DOJ said it gathered evidence abroad and was helped by authorities in France, Italy, Switzerland and the United Kingdom.

In a related civil enforcement proceeding, the Securities and Exchange Commission said Stanley has consented to a final judgment permanently enjoining him from violating the anti-bribery, record-keeping and internal control provisions of Securities Exchange Act of 1934 (Sections 30A and 13(b)(5) and Rule 13b2-1).

Stanley was a senior vice president of Dresser Industries, Inc. when it merged into Halliburton in September 1998. Dresser's wholly-owned construction subsidiary, Kellogg, was combined with Halliburton's construction subsidiary, Brown & Root, Inc., to form KBR. Stanley became CEO of KBR and was named chairman in 2001. He was fired in June 2004. In November 2006, Halliburton spun KBR off and it became a separate publicly-traded company. Vice President Dick Cheney was Halliburton's chief executive from 1995 to 2000.

KBR's 2007 annual report describes a joint venture called TSKJ "formed to design and construct large-scale projects in Nigeria. TSKJ's members are Technip, SA of France, Snamprogetti Netherlands B.V., which is a subsidiary of Saipem SpA of Italy, JGC [of Japan] and us, each of which has a 25% interest. TSKJ has completed five LNG production facilities on Bonny Island, Nigeria and is nearing completion on a sixth such facility."

As KBR's senior representative in TSKJ, Stanley authorized the hiring of an agent in the U.K. and another in Japan to pay bribes to various Nigerian government officials, and concealed the payments. The SEC's complaint said,

In numerous Dresser, Halliburton and KBR company records, Stanley and others falsely characterized the payments to the UK Agent and the Japanese Agent as legitimate “consulting” or “services” fees when, in fact, Stanley knew they were bribes. For example, Stanley authorized entering into contracts with the UK Agent and the Japanese Agent that he knew falsely described the purpose of the contracts in order to make it appear that the agents would perform legitimate services. Stanley and others also prepared for approval internal company bid documents for the LNG Trains that mischaracterized the bribe payments as legitimate expenses. In addition, certain records falsified by Stanley were used in the companies’ due diligence process for approving use of the UK Agent.
KBR's 2007 annual report added these details:
In connection with the Bonny Island project, TSKJ entered into a series of agency agreements, including with Tri-Star Investments, of which Jeffrey Tesler is a principal, commencing in 1995 and a series of subcontracts with a Japanese trading company commencing in 1996. We understand that a French magistrate has officially placed Mr. Tesler under investigation for corruption of a foreign public official. . . .

Our representatives have met with the French magistrate and Nigerian officials. In October 2004, representatives of TSKJ voluntarily testified before the Nigerian legislative committee. Halliburton notified the other owners of TSKJ of information provided by the investigations and asked each of them to conduct their own investigation. . . .

In June 2004, all relationships with Mr. Stanley and another consultant and former employee of M.W. Kellogg Limited were terminated. The terminations occurred because of violations of Halliburton's Code of Business Conduct that allegedly involved the receipt of improper personal benefits from Mr. Tesler in connection with TSKJ's construction of the Bonny Island project.

Jeffrey Tesler, the Tri-Star Investments principal referred to in the annual report (called "the UK Agent" by the SEC), is a 60-year old lawyer in a small North London law firm called Kaye Tesler & Co.

KBR employs 52,000 people worldwide. Revenue last year was about $8.7 billion. According to its website, "not only is KBR the largest contractor for the United States Army and a top-ten contractor for the U.S. Department of Defense, it is currently the world’s largest defense services provider. "

KBR, Inc. trades on the NYSE under the symbol KBR.

Halliburton Company trades on the NYSE under the symbol HAL.

View the plea agreement here.

View the DOJ's Sept. 3, 3008 release here.

View SEC Litigation Release No. 20700 and Accounting and Auditing Enforcement Release No. 2871 (Sept. 3, 2008) here.

View the SEC's Civil Complaint Securities and Exchange Commission v. Albert Jackson Stanley, 08-CV-02680, S.D. Tex. (Houston) here.

.

Sunday
Jul272008

Calling All Pundits

The mailbag brings plenty of pleasant surprises -- and this morning was no exception. We received the following message (changed slightly to protect identities)

Dear FCPA Blog,
As a member of the Law Review, I am required to write a student note. I am very interested in the FCPA and would love to write a note relating to it. I was wondering if any of the contributors to the FCPA Blog had any suggestions for a topic. Specifically, I am looking to write about an issue that is both novel and non obvious and that would be useful to both scholars and practitioners in this field. Any suggestion would be most appreciated.
Yours truly,

 Rising 2L

First, Rising 2L, congratulations on making the Law Review. It's a major accomplishment and presents lots of challenges and opportunities. With that in mind, here are a few FCPA-related topics that could use some attention. We hope you'll find at least one of them worth exploring:

 1. Respondeat Superior -- the legal doctrine by which corporations are held criminally responsible when an employee breaks the law. We have real difficulties with RS. For starters, it trashes the presumption of innocence.

As we said in our post titled Justice For Corporate Defendants,

If respondeat superior sounds oppressive and unbalanced, that's because it is. It becomes irrelevant to a corporation's defense that the wrongdoer isn't a high managerial official, that the corporation specifically instructed the employee not to engage in the proscribed conduct, or that the statute in question (such as the FCPA) requires willful or knowing violations. The idea, the courts say, is that criminal statutes impose a duty upon the corporation to prevent its employees from committing the statutory violations. So forget intent, mens rea, good faith and so on; think instead of strict liability for the employee's criminal conduct.

The topic is controversial and timely. There's a serious challenge to respondeat superior in a pending Second Circuit case called United States v. Ionia Management, S.A. Prof Ellen Podgor discussed the case on her White Collar Crime Prof Blog here. As she said, "This case forcefully takes on corporate criminal liability both from a policy perspective and in its application. This is clearly a case that needs to be watched." Sounds like a bull's eye, law review-wise.

 2. Opinion Procedure Release No.: 08-02 (June 13, 2008). Halliburton made a hostile bid (now withdrawn) to acquire British firm Expro. But Halliburton couldn't determine whether Expro had undisclosed FCPA compliance problems. If its bid succeeded, therefore, and if Expro had compliance problems, Halliburton could be held responsible by the application of successor liability and respondeat superior. What to do?

Halliburton went to the Justice Department and proposed an aggressive post-acquisition compliance plan. In return it received a de facto non-prosecution agreement. But the cost was high. Halliburton essentially agreed to help the DOJ prosecute Expro's personnel if their pre-acquisition behavior might have violated the FCPA. While we're in favor of FCPA compliance and enforcement, we think something's wrong here.

It's easy to guess how very disturbed Expro's people must have been. Hey, if Halliburton buys us, we might be prosecuted in the U.S. We might even spend time in jail there! Let's find someone else -- anyone else -- to buy our company, and fast.

Here's the question: Should U.S. companies ever be forced to choose publicly between potential FCPA prosecutions of themselves on the one hand or of their M&A targets on the other? Does a choice like that mean Americans can never again compete fairly overseas for unfriendly acquisitions?

This topic is both "novel and non obvious" -- and needs some scholarly unscrambling. We have no idea how to approach it -- commerce clause, equal protection, due process? And that too makes it a good subject for a law review author to tackle.

3. Promotional Expenses -- an affirmative defense under the FCPA that allows businesses to pay travel-related expenses of foreign officials. But the expenses, the FCPA says, must be related directly to “the promotion, demonstration, or explanation of products or services" and must be "reasonable and bona fide.” 15 U.S.C. §§ 78dd-1(c)(2)(A) and 78dd-2(c)(2)(A).

If an expenditure is reasonable and bona fide, however, it is not a corrupt payment. And if it's not a corrupt payment, it's not prohibited by the FCPA. If it's not prohibited by the FCPA, what's the point of the affirmative defense?

The question matters. Today, when companies want to pay promotional expenses, they're forced to adopt increasingly elaborate guidelines to make sure everything is reasonable and bona fide. All the self-imposed restrictions, though, are making Americans look petty, stingy, unsophisticated and inhospitable. It's a national embarrassment, and we're hoping some law review ink will help inspire Congress to fix it.

Those are our ideas, Rising 2L. Perhaps our readers can suggest more FCPA-related law review topics -- by dropping us an email or commenting on this post. In any case, thanks for your interest in the FCPA. It's a great subject with plenty of twists and turns.

We wish you another successful and rewarding year at law school.

Friday
Jun272008

Lights Out On Another Week

Fridays are a mellow and reflective time here at the FCPA Blog. Feet on the desk, head tilted back, wondering what we'll eat over the weekend since the spouse took eggs benedict off our menu.

So we were thinking -- were we too hard on the Justice Department this week? The DOJ appeared in a couple of posts that were a bit off topic, prompting a friend to ask, "Does the FCPA Blog have an opinion about everything or is it just a busy body?" For the record, we admire and respect most of what happens at the DOJ. We appreciate the public service its people perform and our hats are off to them. But they're at the center of all FCPA criminal enforcement and, don't forget, we're all lawyers around here. So we're bound to shower them with attention -- if not always affection.

* * *

A few days ago the folks at the Economist Intelligence Unit, whose logo we're exploiting today, asked us to speak at their September '08 FCPA Conference in New York City. The St. Regis Hotel is a great venue and two of the speakers among many are Mark Mershon, the assistant DIC of the FBI's New York regional office, and Katheryn Nickerson, a senior lawyer at the Commerce Department, whom we've quoted here. They'll have perspectives on the FCPA that'll be different and worth hearing. Our other job, though, means we don't always have tight control over our schedule -- meaning we don't really know where we'll be tomorrow -- so we haven't committed yet to being in New York in September (our favorite month in the city). But we're working on it.

* * *

On Wednesday this week we talked about Halliburton, Expro and Umbrellastream (makes you think of Mary Poppins, doesn't it?). If you haven't read about the DOJ's FCPA Opinion Procedure Release 08-02, try to make some time for it. It's a genuine piece of FCPA history -- the first time on record that an attempted hostile takeover has intersected with the FCPA's compliance requirements. The Release shows some of the enormous influence the FCPA is having on American business, and on companies abroad. It also shows how much involvement our friends at the DOJ can have in an organization's life on questions of compliance. Lawyers, investment bankers, pundits, professors and various experts are going to be talking about this Release (and trying to live with it) for decades.

Well, it'll soon be time to turn the lights off around here. Another week gone by. We don't suppose there's a low-fat, cholesterol-free, no-sodium, high-fiber, nutrient-dense version of eggs benedict on the market yet? Probably not.

.

Wednesday
Jun252008

Halliburton, Expro and Umbrellastream Star In Opinion Procedure Release 08-02

Halliburton's messy battle to acquire British firm Expro via a hostile takeover has been big news in the global business press, with Halliburton up one day and down the next, but fighting on and on. Now, though, the story isn't just big news in the business press. It's big news too in the FCPA press (whatever that is). So what's going on?

Halliburton is the Requestor in the Justice Department's latest Foreign Corrupt Practices Act Opinion Procedure Release No.: 08-02 (June 13, 2008). It's trying to acquire all the shares of the Target, which isn't identified in the Release but is Expro International Group PLC, a U.K.-based company traded on the London Stock Exchange. Expro -- with about 4,000 employees throughout the world -- provides well-flow management for the oil and gas industry.

Competition for Expro comes from a group of foreign investors. In the Release they're called the Competitor but in real life they're known more picturesquely as Umbrellastream.

Halliburton's problem is that it can't do much due diligence because of "U.K. legal restrictions inherent in the bidding process for a public U.K. company." So for FCPA compliance, it's buying a black box. And that's why it's asking the DOJ what will happen if Expro has been paying bribes to foreign officials to obtain business.

Will Halliburton be held responsible for Expro's past FCPA offenses, if there are any, or for violations after the acquisition but before Halliburton has a chance to clean up any compliance problems? Halliburton is worried -- as it should be.

Like most oil and gas services firms, Expro operates in high-risk countries and deals directly with government-owned customers. Halliburton may already have seen evidence of non-compliance but can't say anything now because it signed a non-disclosure agreement with Expro. (In a footnote, the DOJ warns would-be requestors not to limit their ability to put all the facts in an Opinion Request by signing non-disclosure agreements. But it lets Halliburton get away with it this time.)

While Halliburton would like to condition its bid on successful FCPA and anti-corruption due diligence and pre-closing remediation, it can't do that. Umbrellastream's bid is unconditional and unless Halliburton's is the same, it will automatically lose.

The DOJ says it's OK to proceed. But to get the green light, Halliburton has promised to pay a very high price. And that "price" is what makes Release 08-02 unique among all Releases.

If Halliburton wins Expro, it must meet with the DOJ right away and disclose information it has that "suggests that any FCPA, corruption, or related internal controls or accounting issues exist or existed at the Target." That's the kick-off.

Ten days later it will give the DOJ . . .

. . . a comprehensive, risk-based FCPA and anti-corruption due diligence work plan which will address, among other things, the use of agents and other third parties; commercial dealings with state-owned customers; any joint venture, teaming or consortium arrangements; customs and immigration matters; tax matters; and any government licenses and permits. Such work plan will organize the due diligence effort into high risk, medium risk, and lowest risk elements.
Then there are milestones at 90, 120 and 180 days, by when Halliburton must have finished the three "risk" phases of due diligence, all the while providing periodic reports to the DOJ.

Meanwhile Halliburton will impose on Expro its Code of Business Conduct and specific FCPA and anti-corruption policies and procedures; it will give all employees compliance training; fire agents and suppliers who aren't being retained; and require agents and others being retained to sign new contracts that include FCPA and anti-corruption representations and warranties.

In another feature new to Opinion Procedure Releases, Halliburton represents that after the closing it won't divest any of Expro if the DOJ is investigating Expro or "any of its officers, directors, employees, agents, subsidiaries, and affiliates." And no matter what, Expro and all its subsidiaries and affiliates will "retain their liability for past and future violations of the FCPA, if any."

That's not an express waiver of any and all available defenses, but it's close. And anyway, Halliburton will already have given the DOJ all the evidence of Expro's FCPA violations, which the DOJ would then be able to use to charge Expro, along with its aforesaid "officers, directors, employees, agents, subsidiaries, and affiliates."

No wonder the DOJ says that giving Halliburton the go-ahead to buy Expro (and expose everyone there to criminal enforcement action after the closing) "advances the interests of the Department in enforcing the FCPA . . . ."

People from Expro reading Release 08-02 must be seriously cheesed off. Is Halliburton promising to deliver their heads to the DOJ on a platter if they've ever done anything that would or could violate the FCPA? Well . . . . So will it surprise anyone if Expro's leaders aren't overjoyed by Halliburton's bid?

View DOJ Opinion Procedure Release 08-02 here.

______________

As a postscript, here are excerpts from one of many current press reports about Halliburton's tortuous efforts to snare Expro. This is from the Financial Times :

UK court delays Expro sale to Umbrellastream

By Michael Kavanagh and Megan Murphy in London

Published: June 23 2008 20:32 | Last updated: June 23 2008 22:41

Halliburton locked horns with the Takeover Panel on Monday over its failed attempt to kick-start an auction for Expro International, as the High Court postponed its approval of the sale of the British oil services company to a rival bidder.

During a dramatic hearing in London, Halliburton and Mason Capital, a US hedge fund that holds a 7.1 per cent stake in Expro, won a two-day delay on efforts to gain a court sanction on the sale of the UK company to the Candover-led consortium Umbrellastream for £1.8bn. . . .

The High Court’s decision to postpone the hearing is the latest twist in a fiercely contested takeover battle. . . .

Expro says that Halliburton’s bid, while 10p higher, was inadequate given the delays and risks associated with that deal. . . .

Monday
Jun092008

Feeling The Heat Overseas

Foreign companies can't be blamed for wondering if they're being singled out under the Foreign Corrupt Practices Act. The names in the FCPA-related headlines alone are enough to cause high anxiety. ABB, Siemens, BAE, DaimlerChrysler, AstraZeneca and many more. But are U.S. prosecutors really focusing too much attention on U.K., European and other foreign companies instead of American firms? Probably not, at least according to the numbers. Here's the situation.

Foreign companies weren't subject to the FCPA at all until 1998, when the law was amended and, in the words of the U.S. attorneys' manual, "expanded . . . to assert territorial jurisdiction over foreign companies and nationals." For the next five years under the FCPA, the Justice Department hardly gave foreigners a second look. That began to change in 2004, when the number of all FCPA investigations started rising, and the number of purely foreign companies (not foreign subsidiaries of U.S. parents) being investigated rose along with the tide. Of the 20 investigations launched in 2004, says Dan Newcomb in Recent Trends and Patterns in FCPA Enforcement, four concerned purely foreign corporations. The numbers, he says, increased from 2005 to 2007, with about 13 investigations involving purely foreign companies, out of around 50 ongoing FCPA investigations in all. So while the actual number of foreign companies involved in FCPA problems has increased, the percentage of foreign firms under investigation has decreased during the past four years.

So why does it seem like the DOJ is picking on foreign companies? Partly because their headline-making names are so familiar. ABB Ltd (Switzerland) Vetco Gray UK Ltd, Akzo Nobel, NV (the Netherlands) and Statoil ASA (Norway) were all subject to still-fresh DOJ enforcement actions. And foreign companies under ongoing FCPA investigations include similarly big names: AstraZeneca (UK-Sweden, pharmaceuticals), BAE Systems (UK, defence) DaimlerChrysler (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) and Total (France, energy). All of them are well-known at home and most are famous around the globe.

Foreign attention has also been drawn to the FCPA by the so-called parallel investigations, where the DOJ and an anti-corruption agency from another country work together. Again, Dan Newcomb provides the details:

Among recent FCPA investigations by the United States government, parallel investigations in the following foreign jurisdictions were reported: Brazil (Gtech); China (Siemens); Costa Rica (Alcatel Lucent); France (Halliburton, Total SA); Germany (Bristol Meyers, DaimlerChrysler, Siemens); Greece (Siemens); Hungary (Siemens); India (Xerox); Indonesia (Freeport, Monsanto, Siemens); Israel (Siemens); Italy (Immucor, UDI, Siemens); Korea (IBM); Liechtenstein (Siemens); Nigeria (Halliburton, Siemens); Norway (Siemens); Russia (Siemens); and Switzerland (Siemens).
There's no way to know what percentage of FCPA violations are actually caused by foreign companies. So there's no way to know if foreign companies are getting more or less FCPA attention than they deserve. But in some cases, the DOJ doesn't have a choice. For example, it had to launch investigations when Siemens and BAE made headlines around the world for alleged corrupt practices on U.S. soil, and when evidence emerged that Panalpina's Houston office may have led an entire industry into an FCPA quagmire with its customs clearance and permitting practices for the oil and gas services segment.

But whether foreign companies receive exactly the "right" amount of FCPA attention from the DOJ isn't so important. What's important now is that when foreign companies are subject to the FCPA's compliance requirements because of where and how they do business, they should do everything reasonably necessary to comply with the law. They should have an effective compliance program. That should be true not only for the FCPA, by the way, but for the laws of all the countries they're subject to. The only other option is to watch for their names in the headlines.

Thursday
Mar272008

Roll Call

It was just two weeks ago that we were waxing about the quiet times for FCPA watchers, due to the temporary bottleneck in the appointment of corporate monitors. But come to think of it, the Justice Department's Fraud Section, the group in charge of FCPA enforcement, has a lot on its mind right now.

In addition to the monitor controversy, there are sensitive investigations of BAE and Saudi Prince Bandar, along with Siemens, Panalpina and most of the oil and gas services industry. Giant insurance brokerage Aon announced an FCPA investigation. Medtronic is under the microscope with the rest of the leading orthopedic device makers (whose deferred prosecution agreements in their domestic bribery cases helped ignite the aforementioned controversy about corporate monitors).

Last week, even stolid Alcoa joined the FCPA line up, courtesy of an inexplicable federal civil suit filed against it by Bahrain's Alba (in Pittsburgh, of all places) -- which the DOJ promptly stayed while it plays investigative catch-up. And let's not forget that at least three dozen other companies have disclosed yet-unresolved FCPA investigations over the past few years -- Shell recently became one of them (see also Panalpina, above); Halliburton and DaimlerChrysler are two others. And there's Total, ABB, Bristol Myers Squibb, Tyco and . . . . well, it's a long list.

So it's not a quiet time over at the DOJ after all. That means the hardworking people there can be forgiven for little things, like gremlins making mischief on their FCPA Opinion Procedure Release website. Sometimes Releases disappear. This time, it's Release 08-01. When it was published earlier this year, we posted about it here, and it should be accessible as a pdf file here. As a reminder, Release 08-01 is the wordiest on record. It's about a proposed investment in an overseas privatization, and describes in detail the due diligence for the deal, protracted negotiations over the parties' compliance rights and obligations, and some final, remedial due diligence. In other words, it's packed with issues, action and guidance -- so it might come in handy.

Quiet times for the FCPA? Not nearly. In fact, when the dam breaks for the appointment of new corporate monitors, which should be any day now, we're expecting the busiest FCPA enforcement season ever.

Page 1 ... 2 3 4 5 6