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Entries in Lucent (12)

Monday
Jun172013

Corruption Risks -- China Travel Edition (Part I)

In any country, paying for travel for government officials, customers at state-owned enterprises, or customers at purely private enterprises can present corruption risks. . . .

Click to read more ...

Wednesday
May252011

Under The FCPA, Where Are Victim’s Rights?

As readers of the FCPA Blog know, the past few years have seen a dramatic rise in FCPA prosecutions. In 2010 alone, companies settling FCPA-related charges paid $1.8 billion in monetary penalties, nearly tripling the $641 million paid in 2009.

Click to read more ...

Thursday
Aug192010

Defending The Defense

By Thomas Fox

I want to thank Kyle Sheahen for his recent post and paper arguing that the promotional expenses defense under the FCPA is illusory. His work has stimulated a useful debate.

From a perspective different than previous commenters (here), I'd like to state the case for the value of the defense.

Generally, enforcement actions that discuss promotional expenses -- including those Kyle cited in his paper -- involve expenses that were neither bona fide nor reasonable as required by the FCPA. The cases include:

Lucent Technologies - $10 million in trips, primarily to vacation destinations in the U.S., including $34,000 for five days of sightseeing, wrapped onto a three day trip of business activity.

Ingersoll Rand - holiday excursion to Florence after visiting the company’s facilities in Vigante, Italy. The excursion to Florence included payment of $1000 in “pocket money”.

Metcalf & Eddy - first-class travel to the U.S. for foreign officials and per diem cash payments equivalent to 150% of estimated daily expenses.

Syncor -the SEC said payments for promotional expenses came “mostly came in the form of sponsorships for the doctors' attendance at educational seminars, including payments for registration fees, travel, lodging, and meals” but also included “gifts of computer equipment, software, office furniture, and medical supplies to doctors and their hospitals; sponsorships of social functions and fundraisers at the hospitals; funds provided to cover the cost of temporary employees at the hospitals; and payments made for outside testing when a particular hospital's laboratory equipment was not functioning properly.”

Titan Corporation - there's a reference to an authorization for a $20,000 payment for promotional travel expenses, with the notation that it was unclear if the payment was made. However this was in the context of at least $2 million paid in bribes to government officials. Even if the $20,000 was not paid, there were other  facts on which to base the enforcement action.

I would argue that none of the above enforcement actions involved promotional expenses which were either bona fide or reasonable. Based on the foregoing, I think companies subject to the FCPA have sufficient guidance on what constitutes a bona fide or reasonable promotional expense. I also believe the cases cited in the article can be used as solid teaching points on what is not bona fide or reasonable without having to try and ascertain the intent to corrupt.

Thomas Fox is an attorney in Houston, Texas, specializing in FCPA compliance, risk management and international transactions. His blog can be found here and he can be reached at tfox@tfoxlaw.com.

Tuesday
Jun292010

Asian Values, FCPA Risks

By Michael S. Diamant

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

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

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

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

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

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

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

Friday
Feb192010

Alcatel-Lucent Headed For Settlement

According to its latest consolidated financial statements, Alcatel-Lucent has reached agreement in principle with the Justice Department and the Securities and Exchange Commission to settle Foreign Corrupt Practices Act offenses related to Costa Rica, Taiwan and Kenya. If the settlement goes ahead, the company will pay a $92 million criminal fine (payable over three years) and a $45.4 million in disgorgement to the SEC.

The settlement with the DOJ would be structured similar to Siemens', with the company entering into a three-year deferred prosecution agreement for accounting and internal controls offenses, while three subsidiaries — Alcatel-Lucent France, Alcatel-Lucent Trade and Alcatel Centroamerica — would each plead guilty to violating the FCPA’s antibribery, books and records and internal controls provisions. The DOJ agreement would require appointment of a French compliance monitor (in Siemens' case, the monitor was German).

The Paris-based telecommunications company was formed with the 2006 merger of French-firm Alcatel and the American company Lucent Technologies Inc. Before the merger, Alcatel had American depositary receipts traded on the New York Stock Exchange and Lucent was also listed on the NYSE. The merged company's shares trade on the NYSE under the symbol ALU.

We've written about both companies before.

In September 2008, former Alcatel executive Christian Sapsizian, 62, was sentenced to 30 months in prison, three years of supervised release, and forfeiture of $261,500 for bribing employees of the state-owned telecommunications authority in Costa Rica. He had pleaded guilty in June 2007 to two counts of violating the Foreign Corrupt Practices Act.

Sapsizian, a French citizen, was a 20-year Alcatel employee and served as the company's deputy vice president for Latin America. In August 2001, Alcatel received a $149 million cellular network contract from Costa Rica's El Instituto Costarricense de Electricidad (ICE). Sapsizian had promised to pay an ICE board member and other officials up to 2 percent of the value of the contract. Before being fired in 2004, he caused Alcatel to wire $14 million in “commission” payments to a consultant, who then transferred $2.5 million to the ICE official.

Sapsizian admitted to conspiring with Edgar Valverde Acosta, a citizen of Costa Rica who was Alcatel’s senior country officer there, to arrange the bribes. Acosta was indicted with Sapsizian on June 14, 2007. He's an FCPA fugitive, last known address: Costa Rica.

The U.S. indictments of Sapsizian and Acosta resulted from bribery investigations by Costa Rican authorities. In October 2004, Alcatel learned of the investigations. It fired Sapsizian and Acosta and disclosed to U.S. authorities that it had uncovered payments from employees and consultants to government officials, ICE employees, and political parties.

Lucent, meanwhile, settled Foreign Corrupt Practices Act charges in December 2007 with the DOJ and SEC. Its violations occurred before the merger with Alcatel. The settlement included a $1 million criminal fine and $1.5 million in civil penalties. Lucent's offenses involved payment of travel expenses for Chinese government officials from 2000 to 2003. The FCPA includes an affirmative defense that allows payment or reimbursement of expenses of foreign officials that are directly related to “the promotion, demonstration, or explanation of products or services." 15 U.S.C. §§ 78dd-1(c)(2)(A) and 78dd-2(c)(2)(A). Many of Lucent's payments, however, were not directly related to legitimate business purposes and were not recorded accurately in its books and records.

In April 2009, Alcatel-Lucent signed agreements in Washington, D.C. worth $1.7 billion with China Mobile and China Telecom to help the Chinese companies roll out 3G technology.

Here's part of the company's disclosure from its latest Form 10-K:

As previously disclosed in its public filings, Alcatel-Lucent has engaged in settlement discussions with the DOJ and the SEC with regard to the ongoing FCPA investigations. These discussions have resulted in December 2009 in agreements in principle with the staffs of each of the agencies. There can be no assurances, however, that final agreements will be reached with the agencies or accepted in court. If finalized, the agreements would relate to alleged violations of the FCPA involving several countries, including Costa Rica, Taiwan, and Kenya.

Under the agreement in principle with the SEC, Alcatel-Lucent would enter into a consent decree under which Alcatel-Lucent would neither admit nor deny violations of the antibribery, internal controls and books and records provisions of the FCPA and would be enjoined from future violations of U.S. securities laws, pay U.S. $45.4 million in disgorgement of profits and prejudgment interest and agree to a three-year French anticorruption compliance monitor to evaluate in accordance with the provisions of the consent decree (unless any specific provision therein is expressly determined by the French Ministry of Justice to violate French law) the effectiveness of Alcatel-Lucent's internal controls, record-keeping and financial reporting policies and procedures. Under the agreement in principle with the DOJ, Alcatel-Lucent would enter into a three-year deferred prosecution agreement (DPA), charging Alcatel-Lucent with violations of the internal controls and books and records provisions of the FCPA, and Alcatel-Lucent would pay a total criminal fine of U.S. $ 92 million—payable in four installments over the course of three years.

In addition, three Alcatel-Lucent subsidiaries—Alcatel-Lucent France, Alcatel-Lucent Trade and Alcatel Centroamerica—would each plead guilty to violations of the FCPA’s antibribery, books and records and internal accounting controls provisions. The agreement with the DOJ would also contain provisions relating to a three-year French anticorruption compliance monitor. If Alcatel-Lucent fully complies with the terms of the DPA, the DOJ would dismiss the charges upon conclusion of the three-year term.

Monday
May182009

Second Chances And More

What a difference a year or so makes. In December 2007, Lucent Technologies Inc. -- which became part of Alcatel SA in November 2006 -- settled Foreign Corrupt Practices Act charges. It had illegally paid millions of dollars for Chinese officials to take more than 300 trips to the U.S., Europe and elsewhere. They were supposed to be business missions but ended up being junkets -- "sightseeing, entertainment and leisure." Lucent paid $2.5 million to resolve the offenses.

But last month, Alcatel-Lucent signed agreements in Washington, D.C. worth $1.7 billion with China Mobile and China Telecom. The company said the agreements are the first of many that will help Chinese companies roll out 3G technology.

We've said before that we believe in corporate redemption and second chances. It looks like Alcatel-Lucent is making the most of its freshly cleaned slate. The winners will be its stakeholders, Chinese partners, and the Chinese people who'll benefit from upgraded technology. (And we like its nifty 3D logo, above.)

* * *
Corruption in Iraq is so bad that it's blocking the country's recovery. The New York Times' Sam Dagher wrote a great story about it (here). Here's how he started:

Iraq’s main anticorruption watchdog has no shortage of cases, as its new report makes clear: embezzlement of $80 million; tampering with government tea imports; the theft of 50 Italian-made Beretta pistols; procuring forged Ph.D.’s; and scores of other crimes.

The real problem is the difficulty of prosecuting people for corruption, which is so widespread that it has become one of the main obstacles to stability and progress in Iraq, according to Iraqi and American officials. Among the barriers, the officials say, are laws that give ministers the right to pardon offenders, as well as partisan and sectarian interference, pressure, infighting, vendettas, blackmail and death threats.

* * *
The expense-account scandal in the British Parliament sure is . . . grubby. Petty corruption always looks that way. And that goes for FCPA-compliant "facilitating payments" too.

* * *
Mahatma Gandhi's 1948 message about graft in India is universal:

Corruption will go when the large number of persons given unworthily to it realize that the nation does not exist for them to exploit but that they exist to serve the nation. This requires morals, and extreme vigilance on the part of those who are free of the taint. Indifference will be criminal…
* * *
Our friends at Trace International sent us "Toxic Transactions: Bribery, Extortion and the High Price of Bad Business," their hour-long anti-bribery training video. The interviews with current and former prosecutors and others make one thing clear -- those who pay bribes are likely to be caught and punished, with jail a real possibility. So compliance is the only option that makes sense. Great message. Congratulations to Alexandra Wrage and Trace. Clips from the video can be seen here.

* * *
The FCPA has been around for more than 30 years now and, as Trace's video shows, people are getting better at talking about it. That includes those from government, private practice and corporations. So the subject seems a lot less mysterious than it used to and more accessible. That's good news. It's also a gentle plug for the books at the right -- Bribery Abroad and the newly released Bribery Everywhere (both are in stock and can be ordered now). Anyway, we're glad people are more comfortable these days talking about the FCPA in a way that's less formal and not so legalistic.
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Wednesday
Mar112009

On The Subject Of Resources

We've mentioned before Dan Newcomb's FCPA Digest, calling it the most definitive publicly-available catalog of FCPA prosecutions, enforcement actions and disclosed investigations. So it's great to see the release of the March 2009 version, available here.

This year, Philip Urofsky becomes editor-in-chief. He told us last week, "In this Digest, we entirely scrapped the previous Trends & Patterns, which had largely become a statistical update, and replaced it with a more analytical piece." The T&P section has always been a favorite of ours, and this year's new-and-improved version (available here) didn't disappoint.

About the prosecution of individuals, for example, it said:

More recently, there is a strong trend of actions against individuals being brought separately or even in advance of charges against their employers and then, in all likelihood, following classic prosecutorial strategy of working up the chain of command, using the individuals to build the government’s case against their superiors and eventually the company. In Willbros, the DOJ charged four employees over a two-year period, with two pleading in previous years (Steph and Brown) and an indictment being returned against two others (Tillery and Novak) in February 2008. Finally, in May 2008, Willbros Group and Willbros International agreed to a deferred prosecution agreement. Similarly, the DOJ entered into a plea agreement with the former CEO of KBR, Stanley, in 2008, well in advance of settling the matter with Halliburton/KBR in early 2009.
And concerning disgorgement, a topic we recently talked about here, it said:
A final trend and pattern worth noting is the SEC’s continued demand for disgorgement of ill-gotten profits in cases in which only books & records violations are charged, such as in the [oil for food] cases. Whether or not a false entry in a company’s books and records (or a failure to implement adequate internal controls) truly results in increased profits is open to question. To date, however, no FCPA defendant has publicly challenged the SEC on whether disgorgement is appropriate when the sole charge is false books and records. Prior to the ABB case in 2004, the SEC had never collected disgorgement in FCPA cases; since then it has sought it in virtually every case with only a few exceptions, such as Dow Chemical, Delta & Pine Land, Lucent, and Conway. In Tyco, the SEC collected $1 in ill-gotten gains (along with $50 million in penalties related to other violations). While this is an isolated example of the SEC seeking such nominal disgorgement, the case does underscore the overall policy of levying disgorgement sanctions in nearly all cases against issuers.
We spend a lot of time in the FCPA Digest. And whenever we turn to it, we're grateful for the hard work and generosity of founding-editor Dan Newcomb, Philip Urofsky and their entire team.
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Tuesday
Sep232008

French Citizen Jailed For FCPA Offenses

Former Alcatel executive Christian Sapsizian, 62, has been sentenced to 30 months in prison, three years of supervised release, and forfeiture of $261,500 for bribing employees of the state-owned telecommunications authority in Costa Rica. Sapsizian had pleaded guilty in June 2007 to two counts of violating the Foreign Corrupt Practices Act. Under his guilty plea, he faced a maximum sentence of 10 years in prison, a $250,000 fine, and $330,000 in forfeiture.

Sapsizian, a French citizen, was a 20-year Alcatel employee and served as the company's deputy vice president for Latin America. In August 2001, Alcatel received a $149 million cellular network contract from Costa Rica's El Instituto Costarricense de Electricidad (ICE). Sapsizian had promised to pay an ICE board member and other officials up to 2 percent of the value of the contract. Before being fired in 2004, he caused Alcatel to wire $14 million in “commission” payments to a consultant, who then transferred $2.5 million to the ICE official.

Sapsizian admitted to conspiring with Edgar Valverde Acosta, a citizen of Costa Rica who was Alcatel’s senior country officer there, to arrange the bribes. Acosta was indicted with Sapsizian and on June 14, 2007, the federal court in Miami transferred him to fugitive status.

Alcatel learned in October 2004 that Costa Rican authorities were investigating payments from its consultants to government officials, political parties, and officials of ICE. The company's internal investigation led to the firing of employees and consultants who were involved and its self-disclosure to the U.S. Justice Department and the Securities and Exchange Commission. Until late 2006, when it merged with Lucent, Alcatel was a French company with American depositary receipts traded on the New York Stock Exchange. It's now called Alcatel-Lucent.

The Justice Department said an ongoing investigation is being conducted by the FBI and Immigration and Customs Enforcement. It also said it received help from Costa Rican and French law enforcement authorities.

View the DOJ's September 23, 2008 release here.

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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.

Wednesday
Jan302008

Another Look At China

Yesterday we talked about a recent story in the Chinese press blaming foreign companies for more than half of the PRC's corruption, and singling out U.S. companies that violated the Foreign Corrupt Practices Act in China. On reflection, we may have been unduly skeptical about China's motives for publishing the story. So today we want to set the record straight.

To be clear, the PRC's economic policies and the results they've produced are phenomenal. Last year the country attracted nearly $75 billion in foreign direct investment. Total FDI has topped $700 billion. There are now some 120,000 foreign-invested enterprises in the PRC, double the number from just 2002. The economy is still growing at over 11% a year, and in a country of more than 1.3 billion people, per capita income has reached around $5,500. Foreign businesses in China are getting bigger. McDonald's this week said it plans to open 125 more outlets there in 2008, and Dunkin' Donuts wants 100 new locations in Shanghai alone over the next 10 years. What's the growth look like at street level? Our first visit to China was in 1993. Crossing main roads in Beijing was nearly impossible because of the streaming bicycles pedaled by factory workers wearing black Mao suits. The same blocks now make up some of the world's fanciest neighborhoods -- upscale condos and cafes filled with world-class fashionistas, and streets flowing with BMWs and Audis, Lamborghinis and more.

With such a staggering level of foreign activity in the economy, it's logical that a lot of the corruption over the past ten years can be traced to foreign companies. We thought 64% -- the amount noted in the aforementioned story -- sounded too high. But it could be close to the mark after all. For sure, the number of Foreign Corrupt Practices Act enforcement actions and investigations related to China has ballooned over the past few years. Among the companies involved are Lucent Technologies Inc., Faro Technologies, Inc., York International Corporation, Paradigm B.V., Schnitzer Steel Industries Inc., InVision Technologies, Inc., Diagnostics Products Corporation, Alltel Corporation, BearingPoint Inc. and UTStarcom Inc. Siemens may have FCPA issues in China, and there could be others. That's a long list in the rather limited FCPA universe. So what gives?

We've wondered before if some companies go into certain countries -- China, Nigeria and Indonesia come to mind -- expecting to find a corrupt environment. And once there -- no matter what they find -- they lower their compliance standards instead of raising them. Some pundits in Nigeria have talked about this syndrome and how it victimizes the local economy and the people in it. Perhaps the Chinese press is now sensitive to the same thing.

So in the spirit of the approaching Lunar New Year -- the beautiful character above means "rat," the sign next up on the Chinese calendar -- we acknowledge that ten years ago China put out the welcome mat to the world's entrepreneurs on a scale never seen before. Since then people by the billions have enjoyed the fruits, both in China and around the globe. At the same time, the Chinese government has struggled with public corruption -- as most developing economies do. It has fought against it using all available weapons. [Sometimes we cringe to read about executions for bribe-taking there.] Now China is telling the international community that a big part of its corruption problem is imported from overseas -- even from the United States. It's a good reminder to foreign companies -- especially those required to comply with the FCPA -- that instead of being part of the problem they should be part of the solution.