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Entries in John Ashcroft (14)

Wednesday
Apr152009

More On The Monitors

Ah, Spring. And the corporate compliance monitors are back in the news. Here's what's happening:

It's an annual event. Democrats in Congress have re-introduced a bill from last year to regulate the way monitors are selected, paid and held accountable. The Project on Government Oversight has a nice report here. The retitled "Accountability in Deferred Prosecution Act of 2009" can be downloaded here.

Two of the bill's sponsors are from New Jersey, where the big flap about monitors first started. In late 2007, New Jersey's U.S. Attorney Chris Christie used deferred prosecution agreements to settle domestic bribery charges against orthopedic device makers. To monitor their compliance, he selected former U.S. Attorney General John Ashcroft, former U.S. Attorney for the Central District of California Debra Yang, former New Jersey Attorney General David Samson, former U.S. Attorney for the Southern District of New York in Manhattan David N. Kelly, and former counsel to the Federal Trade Commission during the Reagan Administration John Carley.

Sticker shock. The monitors were seen as being close to Christie. On top of that, his ex-boss John Ashcroft's monitorship had a price tag of $28 million to $52 million for 18 months of work. Democratic lawmakers (and plenty of Republicans) were unhappy to learn that federal prosecutors, acting alone, could tap party big shots and friends for such lucrative (part-time) posts. In early 2008, Congress launched investigations into all aspects of the monitors -- their appointment, pay, oversight and reporting responsibilities -- and even whether deferred prosecution agreements make sense in the first place. The hearings ended without any action by the Congress.

Where are they now? The orthopedic device makers completed their deferred prosecution agreements a couple of weeks ago. In their September 2007 settlements, they together paid $310 million to resolve charges that they bribed U.S. doctors to buy their products. After that, the Justice Department and the Securities and Exchange Commission began investigating whether the companies also gave kick-backs to overseas doctors employed by government-owned hospitals. Such payments could violate the Foreign Corrupt Practices Act. Biomet Inc., Stryker Corp., Zimmer Holdings Inc., Smith & Nephew plc and Medtronic Inc. disclosed FCPA investigations during 2007 and Wright Medical reported a similar investigation in June 2008.

Christie, meanwhile, resigned as New Jersey's U.S. Attorney in November 2008 and is running for governor as a Republican. In recent days he's had to defend his anti-corruption image against charges concerning the monitor appointments. The AP's report is here. "At issue," the AP says, "is Christie's acceptance of campaign cash from Herbert Stern, a former monitor for the state's medical and dental school, and his choice of two other monitors with whom he had prior ties: John Ashcroft, the former U.S. attorney general and Christie's old Justice Department boss, and David Kelley, a former U.S. attorney in Manhattan who investigated a stock fraud case involving Christie's younger brother, Todd, but declined to prosecute him." Christie, 46, says he's done nothing wrong.

Don't need 'em, don't want 'em. The always-resourceful Corporate Crime Reporter has a neat story dated April 3, 2009 titled, Guess Which U.S. Attorney Doesn’t Do Corporate Deferred Prosecution Agreements? It's Philadelphia. Linda Dale Hoffa, the office's Criminal Division chief since 1984, said this:

We haven’t done [deferred prosecution agreements] because we think it’s better to make a clear bright line decision that we are prosecuting or not prosecuting. There is either sufficient evidence to prosecute or not to prosecute. A deferred prosecution agreement can be more of a gray area. If the crime is serious enough, and it is warranted, then we will bring a prosecution. It’s not a written policy. But it has been the practice in our office.
She also said it's the same with non-prosecution agreements. Either the office makes a decision to prosecute or to decline to prosecute, in which case "we close our file.”
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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.

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Thursday
Jul242008

Readers' Choice

Based on total page views, here are the top five posts from the FCPA Blog so far in 2008:

1. Feeling the Heat Overseas, June 9, 2008

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. . . .
2. Why We Keep Plugging, July 17, 2008
It's a familiar and unwelcome moment. Those on the other side of the table spot the FCPA compliance language for the first time:

The joint venture and all its personnel shall comply in all respects with the requirements of the United States Foreign Corrupt Practices Act.

Faces darken. The mood in the room goes sour. . . .

3. Grynberg v. BP et al, April 15, 2008
Last week we reported here about the civil suit filed in the U.S. District Court in D.C. by Colorado-based oilman Jack Grynberg, 76, against BP, Statoil and British Gas, along with some of their current or former top executives. The core allegation is that the defendants, without Grynberg's knowledge and using some of his money, bribed officials in Kazakhstan in order to win oil rights for joint ventures in which Grynberg had an interest. . . .
4. The FCPA Is No Private Matter, March 3, 2008
Last week we heard that Alba -- not the movie star Jessica but the smelter Aluminum Bahrain BSC -- had sued Alcoa for bribing Bahraini officials in exchange for supply contracts. The allegations sounded exactly like an offense under the Foreign Corrupt Practices Act. Alba's federal lawsuit, however, is based not on the FCPA but on common law fraud and RICO -- the Racketeer Influenced & Corrupt Organizations Act found at 18 U.S.C. §§1961-68. So what happened to the FCPA? . . .
5. Scandal Hits The Compliance Monitors, January 19, 2008
. . . No matter how you spin it -- and Messrs. Christie and Ashcroft have been doing plenty of that -- the appointments have the appearance of impropriety. Peel away the PR and the best you can say is that there was some obvious cronyism going on. The worst you can say is that the DOJ created a scheme by which U.S. Attorneys can extract millions of dollars from wrongdoers and funnel the money to former bosses, friends and political allies. We don't buy the sinister version for a second, but lots of people will take it as gospel. . . .
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Thursday
Jul102008

Heading For The Hammock

It's the weekend again. Good thing. We need (and deserve) some rest. What serious mind, after all, wouldn't be exhausted pondering how Tampa Bay can be one and a half games clear of the Red Sox? Strangely, our spouse seems to hold no opinion on the subject. So in our household the burden of the American League East falls entirely on our shoulders.

Still, we managed to cover some new ground this week. Iraq's civil suit against those implicated in the oil-for-food scandal caught our eye. And we noted the appeal to the House of Lords by Britain's Serious Fraud Office. We're not sure if the bigger scandal there involves BAE and Prince Bandar or the SFO itself.

What else? Oh yes -- we were wowed by the D&O Diary's trend-spotting. Looks like FCPA-inspired civil litigation is the next big hazard in the lives of our already-pummeled corporate leaders.

Meanwhile, we're waiting for the DOJ to deal with Panalpina. The global logistics firm may have stretched "facilitating payments" well beyond the current legal definition -- and in the process caused compliance headaches for practically everyone in the oil-and-gas services sector.

Siemens' hopes for a quick resolution in the U.S. of its massive corruption problems have now evaporated. Our first post about that company was back in September 2007, an eon ago in the life of a blog.

Speaking of eons . . .

Aon Corporation -- the giant insurance broker -- disclosed back in November 2007 an internal investigation into possible violations of the FCPA. When it self-reported to the DOJ it also agreed to toll the statute of limitations. So we guess no one's in a big hurry to wrap up that one.

The orthopedic device makers are waiting to learn their fate with the FCPA. We first wrote about the investigation by the DOJ and SEC into the group's overseas sales practices in October 2007. That post was also our first mention of John Ashcroft's appointment as a compliance monitor in a domestic bribery case for Zimmer Holdings.

The revelation that Mr. Ashcroft might take home $52 million from the appointment prompted our favorite blog editor emeritus, Prof Peter Henning, to note in his '07 Thanksgiving Day message: That's not a bad payday, and Zimmer -- like every other company that enters into a deferred or non-prosecution agreement -- can hardly object to the fees lest it look uncooperative and bring down the wrath of the U.S. Attorney's Office. So much to give thanks for this Thanksgiving.

Well, with the FCPA backlog still growing, we could keep at this for a long time. But our thoughts must now return to more weighty matters. That's right -- the mystery of the American League East.

Enjoy the weekend.

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Thursday
Jun052008

Faro Pays $2.95 Million For FCPA Settlement

Faro Technologies Inc. confirmed that it has resolved Foreign Corrupt Practices Act offenses with the Department of Justice and the Securities and Exchange Commission. The DOJ settlement requires payment of a $1.1 million criminal penalty and entry into a two-year non-prosecution agreement with appointment of a compliance monitor. In settling with the SEC, Faro will pay about $1.85 million in disgorgement and prejudgment interest.

Florida-based Faro -- which designs, develops, and markets software and portable, computerized measurement devices -- self-disclosed potential FCPA violations in China to U.S. authorities in March 2006. It announced an anticipated settlement with prosecutors in its October 30, 2007 earnings release (see our post here).

Faro began selling its products directly to customers in China in 2003 through a Shanghai-based subsidiary, Faro China. In 2004 and 2005, a Faro employee authorized corrupt payments in the form of “referral fees” directly to employees of state-owned or controlled entities to secure business. It made illicit payments of $444,492 to obtain contracts worth about $4.9 million, and its net profit from the contracts was $1,411,306.

Faro employees routed the corrupt payments through a shell company to “avoid exposure,” according to internal e-mails. The employees also caused Faro China to enter into a bogus service contract with an intermediary, using it to pay the bribes. The intermediary aggregated the payments and invoiced Faro for reimbursement under the service contract. In its books and records, Faro falsely recorded the bribes as referral fees. The DOJ and SEC said the company failed to devise and maintain a system of internal controls for foreign sales sufficient to ensure compliance with the FCPA.

Faro's own documents, the DOJ said, revealed the extent of the bribery. "Profit lists" reflected the price of contracts and the costs of manufacture, along with line items for "referral fees" of 10%-15% of the contract price that were kickbacks to employees of state-owned customers. The DOJ gave the following examples:
A 2005 profit list for Purchase Order CH2005-VW34 for a purchase by Shanghai Turbine Generator Co., Ltd., a Chinese government entity, shows a contract value of $148,700 and an anticipated referral fee of $14,800, or approximately 10% of the contract value.

A 2005 profit list for Purchase Order Ch-2005-VW50(SW) for a purchase by Jiangxi Changhe Auto Co., Ltd. Hefel Plant, a Chinese government entity, shows a contract value of $53,086 and a referral fee of $8,000, or approximately 15% of the contract value.

Faro's non-prosecution agreement has a two-year term instead of the usual three years, presumably reflecting the company's prompt and detailed self-disclosure and effective corrective action. Faro said its estimated costs associated with the monitoring and stepped-up compliance obligations will be "in the range of $1 million to $2 million."

Neither Faro nor the DOJ explained why it took more than nine months to formally approve the previously announced settlement. We've speculated (here) that the Justice Department was delaying settlements involving compliance monitors, including Faro's, pending some accommodation with lawmakers on safeguards for the appointments. Controversy erupted last year after New Jersey U.S. Attorney Chris Christie appointed his former boss, ex-U.S. Attorney General John Ashcroft, as a monitor in a domestic bribery case for orthopedic device maker Zimmer Holdings Inc. The news that Mr. Ashcroft's firm could make as much as $52 million from the appointment sent shock waves around Capitol Hill and triggered Congressional hearings.

It appears from FCPA settlements announced in the past month involving Willbros, AGA Medical, and now Faro that monitor appointments are back on track. The solution appears to have been relatively simple. As with Willbros and AGA Medical, Faro will nominate its candidate to act as compliance monitor (after consulting with the DOJ), and the DOJ will have final approval over its choice. Provided the DOJ doesn't interfere directly and allows Faro and the other companies to pick their own qualified candidates, the selection is taken out of the hands of the DOJ. That should prevent the appearance of political abuse or cronyism in the appointments.

Faro Technologies, Inc. trades on NASDAQ under the symbol FARO.

View the DOJ's June 5, 2008 news release here.

View the SEC's Securities Exchange Act of 1934 Release No. 57933 / June 5, 2008, Accounting and Auditing Enforcement Release No. 2836 / June 5, 2008, and Administrative Proceeding File No. 3-13059 here.

View Faro's June 5, 2008 press release here.
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Monday
May122008

A Strange Season

The last time it happened, North America was still deep in winter. On February 22nd, Flowserve agreed to appoint a monitor under a deferred prosecution agreement with the Department of Justice. Since then, just one corporate FCPA case is known to have settled. AB Volvo's agreement with the DOJ was announced on March 22nd. But -- typical of oil-for-food cases -- it didn't call for appointment of a monitor. In April and so far in May, no corporate FCPA settlements have made the news, with or without monitors.

What's going on? Last year -- even with fewer FCPA cases pending -- the DOJ still settled an average of one corporate case a month. Why the slowdown in 2008? Well, as we've mentioned before, there's an undeclared moratorium at the DOJ on new appointments of monitors. And since most corporate FCPA settlements involve a monitor, that means settlements must wait.

The de facto moratorium started after ex-U.S. Attorney General John Ashcroft's controversial appointment by his former subordinate, U.S. Attorney Chris Christie. Ashcroft became a monitor for orthopedic device maker Zimmer Holdings Inc. as part of Zimmer's settlement of a domestic bribery case. The news that Ashcroft's firm could rake in as much as $52 million from the appointment triggered sticker shock on Capitol Hill. Democratic lawmakers (and plenty of Republicans) were very unhappy to learn that Bush-appointed prosecutors, acting alone, could tap Republican big shots and other friends for such lucrative (part-time) posts. So Congress launched investigations into all aspects of the monitors -- their appointment, pay, oversight and reporting responsibilities -- and even whether deferred prosecution agreements make sense in the first place. Until the political firestorm is doused, nobody wants new appointments to happen -- not Congress, the DOJ, companies in trouble, or potential monitors themselves.

It's up to Attorney General Michael Mukasey to make peace with Congress and end the stalemate. Can he do it? A better question may be, is he willing to do it? According to a story in the Washington Post from April 17th, the AG's approach with lawmakers hasn't been . . conciliatory. The story focused not on the monitorship mess but on other disagreements between the DOJ and Congress -- warrantless wiretapping operations, the media shield law, updating the state secrets law, the use of national security letters, and attorney-client privilege for military detainees. Based on comments from Republican Sen. Arlen Specter, the story said on these issues the new Attorney General has been overly obstinate and unwilling to compromise. Ouch. If that's the attitude, it could be blocking resolution of the monitorship logjam as well.

For some companies, the delay is bad news. Siemens has been saying publicly since Christmas that it wants a quick resolution with U.S. authorities -- so it can concentrate on repairing its scandal-damaged business. Panalpina's bottom line is also hurting, in part, it says, because of the DOJ's pending FCPA case. Other companies, though, are sure to be using the delay to their advantage -- by conducting deep internal investigations, firing or demoting people who caused the FCPA violations, and adopting best practices to create effective compliance programs. Those companies should be in a better position to deal with the DOJ when the time finally comes.

For now, though, the strange season continues.

Thursday
Mar132008

The FCPA Takes A Holiday?

It's been a quiet time here at the FCPA Blog. Not much to report -- which isn't a bad thing. We've had a chance to clean our desk, get our shoes shined, and pick on Wikipedia. On that score, we even had time to submit some edits for Wiki's FCPA article. Now we're biting our nails, waiting for the editorial lords to make a ruling on our hoped-for alterations.

Still, we're wondering why it's so quiet, why the Department of Justice hasn't announced a deferred prosecution agreement since Flowserve's on February 21? We know from various public disclosures that companies are standing in line. Faro Technologies, Inc. is one of them (see our post here). Aon Corporation could be another (see our post here), and there are more.

We're not sure why there seems to be a moratorium on FCPA settlements right now. But it could be linked to what's happening in Washington. As we mentioned yesterday, the U.S. House of Representatives' Subcommittee on Commercial and Administrative Law is holding hearings this week. The hearings have the moniker: "Deferred Prosecution: Should Corporate Settlement Agreements Be Without Guidelines?" And sparks are flying.

It's fair to say that all aspects of deferred prosecution agreements are in play. Media attention has focused on the corporate monitorships. That's due mainly to New Jersey U.S. Attorney Chris Christie's appointment of his former boss, ex-U.S. Attorney General John Ashcroft, as a monitor for orthopedic device maker Zimmer Holdings Inc. The case involves domestic bribery. Mr. Ashcroft's firm could make as much as $52 million from the appointment. Not surprisingly, that ignited the controversy that now engulfs every aspect of the monitorships and even the idea of deferred prosecution agreements.

While the storm blows on Capitol Hill, the DOJ can't be anxious to announce any new agreements and monitorships just yet. And no company would want to get caught in the political crossfire by being part of a fresh settlement, just as potential monitors wouldn't risk an appointment while the flap over Mr. Ashcroft et al is in the news.

All this is speculation, to be sure. Perhaps the DOJ will make a formal announcement about what's happening, or at least send out some smoke signals, to let everyone know if we're in for a long wait. Meanwhile, we're off to get a haircut, wash the car and catch some zzzzzzzzz. What a life!

Thanks to photo.jacko.com for the great picture.

Tuesday
Mar112008

The DOJ's Wrong Medicine For Monitors

Hearings by the U.S. House of Representatives' Subcommittee on Commercial and Administrative Law on "Deferred Prosecution: Should Corporate Settlement Agreements Be Without Guidelines?" are now underway. In advance of the hearings, the DOJ last week issued new internal guidelines on the selection and handling of monitors. Ellen Podgor at the White Collar Crime Prof Blog critiques the DOJ's guidelines in an excellent post here. Her conclusion: the problem now is too much DOJ discretion and control over the monitorships, so more of the same -- which is the essence of the DOJ's proposal -- is exactly the wrong medicine. Instead, federal legislation is needed to fix the problem.

This story, in case you've missed the background, started late last year. Five leading orthopedic device makers had been charged with bribing doctors in the U.S. to get their business. (Now they're being investigated for bribing doctors overseas in violation of the Foreign Corrupt Practices Act.) In September, New Jersey's U.S. Attorney Chris Christie used deferred prosecution agreements to settle the domestic cases. The terms required the appointment of compliance monitors -- private parties who police the corporations from the inside, report directly to the DOJ, and send their bills for doing so to the companies themselves.

For the orthopedic device makers, Mr. Christie's corporate monitors were ex-U.S. Attorney General John Ashcroft (Christie's former boss), former U.S. Attorney for the Central District of California Debra Yang, former New Jersey Attorney General David Samson, former U.S. Attorney for the Southern District of New York in Manhattan David N. Kelly, and former counsel to the Federal Trade Commission during the Reagan Administration John Carley. In other words, the monitors were people close to Mr. Christie. In Mr. Ashcroft's case, his monitorship could be worth as much as $52 million.

As we said in an earlier post, no matter how you spin it -- and Messrs. Christie and Ashcroft have been doing plenty of that -- the appointments have the appearance of impropriety. Peel away the PR and the best you can say is that there was some obvious cronyism going on. The worst you can say is that the DOJ created a scheme by which U.S. Attorneys can extract millions of dollars from wrongdoers and funnel the money to former bosses, friends and political allies.

Meanwhile at the hearings, witness Ashcroft came out swinging. He's quoted in Law.com here as saying in his testimony, "No law that I know of has been violated." The story says that at one point, Ashcroft told Rep. Linda Sanchez, D-Calif., the subcommittee's chairwoman, that "this hearing costs more money than any corporate monitorship."

The story continues:

"Not a single cent of tax dollars is spent on deferred prosecution agreements," Ashcroft said. He later criticized her for "attacking" Christie, whom he called an accomplished prosecutor, and suggested that Sanchez's concerns about impropriety were so misplaced as to be discriminatory against former public officials. "This is not a conflict of interest," Ashcroft said. "There is not an appearance of conflict."

"Very interesting answer, Mr. Ashcroft," Sanchez said.

Of 31 cases last year involving deferred prosecution agreements and monitors, 12 were for violations of the Foreign Corrupt Practices Act, 10 for health care and food and drug industry offenses, 3 for commodities fraud, 2 for banking secrecy, 2 for internet gaming and 2 for other fraud.

View prior posts about monitors here.

Wednesday
Mar052008

More Monitors, More Controversy

Reporter Mary Flood writes about deferred prosecution agreements in the February 29, 2008 Houston Chronicle here. For those new to the subject, deferred prosecution agreements (sometimes called non-prosecution agreements) allow corporations to avoid trials and criminal convictions in exchange for fines and compliance monitoring.

The FCPA tops the table. Ms. Flood, who also writes the Chronicle's Legal Trade Blog, says that in 2007 the Department of Justice entered into 31 deferred prosecution agreements. Of those, 12 were for violations of the Foreign Corrupt Practices Act, 10 for health care and food and drug industry offenses, 3 for commodities fraud, 2 for banking secrecy, 2 for internet gaming and 2 for other fraud.

The story cites the work of Larry Finder, a former Houston U.S. Attorney now with Haynes and Boone, and Ryan McConnell, who interned at the firm. They started tracking deferred prosecutions a few years ago. They found that from 2002 to 2005 there were twice as many deferred prosecution agreements as in the previous 10 years. In 2006 there were 20 corporate pretrial agreements, and more than 30 in 2007.

In the spotlight.
Finder and McConnell's empirical data has become important because of the controversy now surrounding these DOJ deals. The story says, "Though there has been mounting concern about the increased use of agreements to help bad-acting corporations avoid business-crushing criminal trials, scrutiny heightened recently with revelations of prosecutors passing lucrative monitoring jobs to former colleagues. One such contract worth potentially $52 million went to ex-top prosecutor John Ashcroft's firm to monitor Zimmer Holdings in a case about kickbacks in the medical field."

Who decides? Ellen Podgor at the indispensable White Collar Crime Prof Blog gets to the heart of the matter -- as usual. The story quotes her as as saying the idea of corporate deferred prosecution is a good one "but I see enormous problems in the way they are operating."

The story continues:

"[Podgor] said the problem is the government's role. It gets to decide whether the corporation is in breach, it gets to pick the monitor and all this without the judicial oversight in regular plea bargains or probations, she said. Podgor said the requirement that a corporation sometimes waive attorney-client privilege is worrisome. And, she said, some of the terms can be very specific and skewed, as in a Bristol-Myers Squibb agreement wherein the company has to set up an endowed chair at the prosecutors' alma mater. 'Oversight is what is needed,' Podgor said."

The story reports that in earlier testimony before Congress, U.S. Attorney General Michael Mukasey "could not say when his department will develop better guidelines. Mukasey himself was in line for one of the monitoring deals before he was nominated for his current post. The Justice Department did not return a call about this story."

View prior posts about monitors here.

Thursday
Jan312008

Who's Monitoring The Monitors?

Ellen Podgor at the indispensable White Collar Crime Prof Blog has a post about the federal compliance monitors program here. It links to an article in the Washington Post here, and sets out the text of proposed federal legislation to regulate the monitors and their appointments. (Our earlier posts on the subject are here.)

In the Washington Post article -- which deals mainly with how U.S. Attorney General Michael Mukasey almost became a monitor before his appointment as AG -- reporter Carrie Johnson nicely summarizes the monitor-program controversy this way:

"Scrutiny of the monitor arrangements and complaints about their secrecy have mounted in recent weeks after a deal worth as much as $52 million was awarded to a consulting firm led by former attorney general John D. Ashcroft. The Justice Department launched a policy review last year to determine whether national standards should be imposed to avoid the appearance of impropriety. Lawmakers and legal experts have sounded alarms about possible political patronage, raising questions about whether prosecutors have steered the sole-source contracts to people with ties to the Bush administration, the Justice Department and the Securities and Exchange Commission. In the vast majority of cases, monitors operate without a judge's oversight of their work and their bills. The agreements have risen more than sevenfold in recent years as prosecutors have settled corporate fraud cases rather than bringing them to trial, which might destroy the business and cost employees their jobs. "

The bill proposed by Rep. Frank Pallone (D-NJ) would remove most of the discretion for the appointment of monitors from the hands of individual U.S. attorneys. It would also create a mechanism to set their pay and hold them accountable for reporting back to the Justice Department and the federal courts. Part of the bill reads:

SEC. 3. FEDERAL MONITORS.

(a) In General- A Federal monitor shall oversee a deferred prosecution agreement.

(b) Appointment of Federal Monitors- A Federal monitor shall be appointed by an independent third party (a United States district court judge or a United States magistrate judge) from a pool of pre-qualified firms or individuals (or both).

(c) Qualifications of Federal Monitors- A Federal monitor shall have experience in criminal and civil litigation.

(d) Payment of Federal Monitors- A Federal monitor shall be paid according to a pre-determined fee schedule set by the United States district court.

(e) Report Requirement in Deferred Prosecution Agreement-

(1) A deferred prosecution agreement shall include a requirement that a Federal monitor submit reports to the United States attorney and to the United States district court.

(2) A deferred prosecution agreement shall include the number and frequency of reports required by a Federal monitor.

Thursday
Jan242008

Handicapping The FCPA

We heard a few days ago (here) that some Siemens insiders are trying to calculate the company's potential financial penalties for alleged Foreign Corrupt Practices Act offenses. Apparently the insiders think that past FCPA settlements reveal a correlation between the amount of bribes paid and the financial penalties imposed on the organizations. We don't think the correlation exists, but we're never going to be mistaken for mathematicians. So we're providing the raw data below in case any real mathematicians are paying attention.

Who knows? Maybe there is a pattern after all. Even so, we don't advise anyone to decide about FCPA compliance after a cost - benefit analysis. For individuals, there is a 100% chance that an FCPA offense can result in five years behind bars. No matter how you figured it beforehand, ending up in prison will always turn out to be an enormous tragedy. And no, we're not suggesting that organizations should compute their odds. The only bet that makes any sense is to comply.

So for purely academic purposes, here are the numbers. They're for FCPA matters that companies resolved with the SEC, DOJ or both during 2007. As a caveat, most of the companies also agreed to appoint monitors or compliance consultants. The cost of doing that is not included in the amounts shown. As we've learned from John Ashcroft's recent appointment by Zimmer Holdings in a domestic bribery case, monitors can cost millions or even tens of millions of dollars a year. Nor do the numbers reveal the damage done to the fabric of organizations by FCPA problems, and the ruined lives of men and women who lost their jobs and perhaps a lot more because of non-compliance.

El Paso Corp.
, Feb. 7, 2007 Amount of alleged bribes: approximately $5.5 million. Financial penalties: $7.65 million ($5.4 million in disgorgement and a $2.25 million civil penalty).

The Dow Chemical Co., Feb. 13, 2007 Amount of alleged bribes: about $200,000. Financial penalties: $325,000 civil penalty.

Baker Hughes Inc., Apr. 26, 2007 Amount of alleged bribes: $15.4 million. Financial penalties: $44 million (about $22 million in disgorgement and pre-judgment interest, a $10 million civil penalty for violating a prior cease-and-desist order, and an $11 million criminal fine).

Delta & Pine Land Co., July 26, 2007 Amount of alleged bribes: $43,000. Financial penalties: $300,000 civil penalty.

Textron Inc., Aug. 23, 2007 Amount of alleged bribes: about $650,000. Financial penalties: about $4.5 million (over $3 million in disgorgement and pre-judgment interest, an $800,000 civil penalty, and a $1.15 million fine).

Bristow Group, Inc., Sept. 26, 2007 Amount of alleged bribes: over $423,000. Financial penalties: Nil.

York International Corp., Oct. 1, 2007 Amount of alleged bribes: about $7.5 million. Financial penalties: $22 million (over $10 million in disgorgement and pre-judgment interest, a civil penalty of $2 million, and a $10 million fine).

Ingersoll-Rand Co. Ltd., Oct. 31, 2007 Amount of alleged bribes: over $1.5 million. Financial penalties: $6.7 million (over $2.2 million in disgorgement and pre-judgment interest, a $1.95 million civil penalty, and a $2.5 million fine).

Chevron Corp., Nov. 14, 2007 Amount of alleged bribes: over $20 million. Financial penalties: $30 million ($25 million in disgorgement, a $3 million civil penalty and a $2 million penalty to the Office of Foreign Asset Controls of the U.S. Department of the Treasury).

Akzo Nobel NV, Dec. 20, 2007 Amount of alleged bribes: $280,000. Financial penalties: $2.9 million (over $2.2 million in disgorgement and a $750,000 civil penalty).

Lucent Technologies, Inc., Dec. 21, 2007 Amount of alleged bribes: at least $1.3 million. Financial penalties: $2.5 million ($1.5 million civil penalty and a $1 million fine).

________

View more information by clicking on the subject headings to the right.

Saturday
Jan192008

Scandal Hits The Compliance Monitors

The problems started for the Justice Department's corporate monitoring program late last year. Five leading orthopedic device makers had been charged with bribing doctors in the U.S. to get their business. (Now they're being investigated for bribing doctors overseas in violation of the Foreign Corrupt Practices Act.) In September, New Jersey's U.S. Attorney Chris Christie used deferred prosecution agreements to settle the domestic cases. The terms required the appointment of compliance monitors -- private parties who police the corporations from the inside, report directly to the DOJ, and send their bills for doing so to the companies themselves.

For the orthopedic device makers, Mr. Christie's corporate monitors were ex-U.S. Attorney General John Ashcroft (his former boss), former U.S. Attorney for the Central District of California Debra Yang, former New Jersey Attorney General David Samson, former U.S. Attorney for the Southern District of New York in Manhattan David N. Kelly, and former counsel to the Federal Trade Commission during the Reagan Administration John Carley. In other words, the monitors were people close to Mr. Christie.

No matter how you spin it -- and Messrs. Christie and Ashcroft have been doing plenty of that -- the appointments have the appearance of impropriety. Peel away the PR and the best you can say is that there was some obvious cronyism going on. The worst you can say is that the DOJ created a scheme by which U.S. Attorneys can extract millions of dollars from wrongdoers and funnel the money to former bosses, friends and political allies. We don't buy the sinister version for a second, but lots of people will take it as gospel.

At this point, we might ask whether we need corporate monitors at all? Was there something terribly wrong with the old fashioned approach? Our experience with companies involved in the FCPA forerunner cases -- companies that were required to operate under pre-FCPA consent decrees with the DOJ and SEC because of bribe-paying overseas -- taught that the threat of expedited enforcement and enhanced penalties really worked. With the stakes always high -- including potential jail time for executives -- the companies changed their culture. Compliance became real, not cynical, and recidivism wasn't an issue. Many of those monitorless companies are today's model citizens of FCPA compliance.

Wherever the debate about corporate monitors ends up, the reality is that the program is badly wounded. And the people responsible for the bloodletting -- with Messrs. Christie and Ashcroft at the top of the list -- should have known better. This scandal is just beginning, but here's a sample of what some others are already saying about it. By the sound of things, this is another problem for the Justice Department that isn't going away any time soon.

  • Federal prosecutors are steering no-bid contracts to former government officials who earn millions of dollars by monitoring companies accused of cheating investors and other schemes. . . . In the past few years, U.S. attorneys in Alabama, New York and Virginia have turned to corporate monitors to keep companies clean, hiring various former prosecutors and SEC officials with ties to President Bush, his father and other Republican luminaries. Some prosecutors hammer out with companies a short list of candidates from which to choose, while others have retained veto power over a business's choice. A smaller group has given corporate executives little input on the selection.-- The Washington Post
  • In a letter to the Government Accountability Office, Sen. Patrick Leahy (D-Vt.) and U.S. Rep. John Conyers (D-Mich.) asked for that office to investigate "if political or personal favoritism played a role" in the appointment of dozens of monitors to potentially lucrative but secretive contracts. -- The (New Jersey) Star Ledger
  • When the top federal prosecutor in New Jersey needed to find an outside lawyer to monitor a large corporation willing to settle criminal charges out of court last fall, he turned to former Attorney General John Ashcroft, his onetime boss. With no public notice and no bidding, the company awarded Mr. Ashcroft an 18-month contract worth $28 million to $52 million. -- The New York Times
  • . . . much has been made of the estimated cost of former Attorney General John Ashcroft's monitorship for Zimmer Holdings that will cost the company between $28 million and $52 million. That case is fairly straightforward, involving illicit payments to doctors to use the company's devices in replacement surgeries. Indeed, it's not clear how Ashcroft can charge that much for a fairly simple monitorship . . . . -- The White Collar Crime Prof Blog
  • In November the Law Blog took interest in an eye-poppingly lucrative contract that the U.S. Attorney in New Jersey awarded to John Ashcroft, the former attorney general-turned-confidential strategic consultant. Now it seems that Ashcroft’s former employer — i.e., the Justice Department — has taken an interest too . . . Now, the DOJ has begun an internal inquiry into its procedures for selecting outside monitors to police settlements with large companies. Apparently, aides to [U.S. Attorney General] Mukasey were concerned about the appearance of favoritism. -- The Wall Street Journal's Law Blog