The FCPA Blog

There hasn't been a new FCPA enforcement action from the DOJ since Daimler's on April 1 and only Dimon's from the SEC. That's strange. The first three months of this year were the busiest in FCPA history. But since then, hardly a peep.

With around 150 cases pending and pressure building to resolve long-standing actions involving Panalpina, Technip, ENI, ABB, Alcatel-Lucent, Pride International, Inc., Alcoa, the medical device makers, and pharmas, you have to ask: Where are the enforcement actions for April and May?

In a typical year, we'd expect a couple of actions a month; this year, we'd expect more. So what's happening?

Here are a few guesses:

• Changing horses. Mark Mendelsohn, head of the DOJ's FCPA unit, left government service in mid-April. His departure would be a natural time for those still there or newly arrived to take inventory -- to use the white board to plot their present location and itinerary for the coming year.

• Resources are stretched. With all the pending prosecutions, including the 22-defendant shot-show case, the DOJ's FCPA group has to be stretched. Maybe they're taking a couple of months to catch their breath, bring in reinforcements, and lift their eyes above the trenches to make sure they aren't about to make any big mistakes.

• A new strategy. Could the DOJ be assessing its overall enforcement approach? Looking, perhaps, at how decisions are made to prosecute corporations (which are defenseless because of respondeat superior)? Or whether financial penalties that punish innocent stakeholders make sense? Or if enforcement should zero in on individuals, or find new ways to spotlight foreign officials who demand bribes . . . ?

There's precedent for the current FCPA moratorium. In February and March 2008, the DOJ also came to a dead stop. The reason was never announced but it could have been the controversy over the unregulated appointment of compliance monitors. Former Attorney General John Ashcroft's $52 million gig with Zimmer in a domestic kickback case threw Washington into a spin. The storm blew over and the DOJ was back in the FCPA business after about two months.

For the second time in recent months, U.K. judges have warned the Serious Fraud Office not to make plea deals in overseas bribery cases, throwing into doubt the agency's whistleblower program and its partnership with the U.S. Justice Department in resolving global corruption cases.

This week a U.K. appeals court affirmed the suspended sentence agreed between the SFO and a former sales executive who helped bribe Greek doctors and then turned whistleblower. But at the same time, the court said the SFO's U.S.-style approach was unconstitutional.

Robert John Dougall, 45, formerly marketing director of DePuy, pleaded guilty in April to making £4.5 million in corrupt payments to Greek medical professionals within the state-controlled healthcare system. DePuy, acquired by Johnson & Johnson in 1999, makes and sells orthopedic devices. 

The SFO said Dougall was the first "co-operating defendant" in a major SFO corruption investigation. It had recommended leniency in exchange for his guilty plea and help in the case, as typically happens in U.S. white-collar prosecutions. The SFO asked for a suspended sentence; the trial court instead sent Dougall to prison for a year.

The appeals court reversed the sentence but hammered the SFO. It said "agreements between the prosecution and the defense about the sentences to be imposed in fraud and corruption cases were constitutionally forbidden" and solely under the purview of judges, according to reports.

In March, Britain's second-ranking criminal judge said the $12.7 million fine the SFO agreed with a U.K. division of Innospec Inc. went beyond the SFO's authority. Delaware-based Innospec had reached what it believed was a $40 million global settlement with U.S. prosecutors and the SFO.

At Innospec's hearing, Lord Justice Thomas, the deputy head of criminal justice in the U.K. courts, said: “I have concluded that the director of the SFO had no power to enter into the arrangements made and no such arrangements should be made again.” Although he confirmed the U.K. part of the fine agreed by the SFO, he called the amount "wholly inadequate." See our post here.

The SFO first charged Dougall in November 2009 after a "referral" from the U.S. Justice Department. Two months earlier, DePuy and four other orthopedic device makers -- Biomet, Zimmer, Smith & Nephew and Stryker -- had agreed to pay $310 million to settle charges they paid kickbacks to induce U.S. doctors to buy their products. Since the U.S. settlement, the four companies, along with Medtronic Inc. and Wright Medical Group, have disclosed DOJ and SEC Foreign Corrupt Practices Act investigations. See our post here.

The U.K.'s Serious Fraud Office said this week that a former DePuy executive pleaded guilty to making £4.5 million in corrupt payments to Greek medical professionals within the state-controlled healthcare system. He was sentenced to 12 months in prison.

Robert John Dougall, 45, was DePuy's marketing director. The company, acquired by Johnson & Johnson in 1999, makes and sells orthodpedic devices. The SFO said from 2002 to 2005, Dougall arranged the payment of commissions to surgeons as an inducement to use DePuy's products. The payments were made through agents and offshore accounts.

The SFO said its investigation began "following a referral by the U.S. Department of Justice in October 2007."  Dougall, it said, is the first "co-operating defendant" in a major SFO corruption investigation, which is ongoing.

Dougall was first charged by the SFO in November 2009. In September 2007, DePuy and four other orthopedic device makers -- Biomet, Zimmer, Smith & Nephew and Stryker -- agreed to pay $310 million to settle charges they paid kickbacks to induce U.S. doctors to buy their products. Since the U.S. settlement, the four companies, along with Medtronic Inc. and Wright Medical Group, have disclosed DOJ and SEC Foreign Corrupt Practices Act investigations. See our post here.

A copy of the SFO's April 14, 2010 release can be viewed here.

Director Richard Alderman says, "The Serious Fraud Office has changed significantly over the past year. We have become much more proactive and innovative in our approach to combating serious fraud and corruption." The Financial Times reported Thursday that David Mabey, the former head of British construction firm Mabey & Johnson Ltd, will be charged by the Serious Fraud Office with false accounting and breaching the United Nations' sanctions on Iraq.

Mabey & Johnson was sentenced in September last year by an English court for overseas corruption and violating the U.N.'s oil-for-food program. The bridge-building specialist paid £6.6 million in criminal fines and related assessments. It had pleaded guilty to bribing officials in Jamaica and Ghana to win public contracts, and paying more than £123,000 to the pre-war Iraqi regime in violation of U.N. sanctions. The privately-held company was also required to retain and pay for an SFO-approved compliance monitor.

The press report said David Mabey is scheduled to appear at the City of Westminster Magistrates' Court on February 2. It said,

The prosecution of Mr Mabey highlights a new potential legal pitfall facing existing directors and those aiming for boardroom jobs. Follow-on criminal cases against individual directors in corrupt businesses are common in the U.S., where prosecutors have for many years successfully used companies' confessions as platforms to pick off executives allegedly involved.

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In December, the SFO charged a former executive of a Johnson & Johnson subsidiary with overseas corruption. Robert John Dougall, 44, an ex-vice president of DePuy International Limited, was accused of making corrupt payments to medical professionals in the Greek public healthcare system in order to sell orthopaedic products. A copy of the SFO's December 1 announcement is here.

In February 2007, Johnson & Johnson said it had "voluntarily disclosed to the U.S. Department of Justice and the U.S. Securities and Exchange Commission that subsidiaries outside the United States are believed to have made improper payments in connection with the sale of medical devices in two small-market countries. "

DePuy and four other orthopedic device makers -- Biomet, Zimmer, Smith & Nephew and Stryker -- agreed in September 2007 to pay $310 million to settle charges they paid kickbacks to induce U.S. doctors to buy their products. Since the U.S. settlement, the four companies, along with Medtronic Inc. and Wright Medical Group, have disclosed DOJ and SEC Foreign Corrupt Practices Act investigations. 

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The SFO's website says the agency is "an independent Government department that investigates and prosecutes serious or complex fraud and corruption." It's part of the U.K. criminal justice system with jurisdiction in England, Wales and Northern Ireland but not in Scotland, the Isle of Man or the Channel Islands. The director (Richard Alderman, above) is appointed by and accountable to the attorney general (Baroness Scotland).

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The SFO now has about 80 ongoing cases and is pushing for enactment of the new Bribery Bill. In November the bill was sent to the House of Lords. The Ministry of Justice says the legislation would replace the "fragmented and complex offences at common law and in the Prevention of Corruption Acts 1889-191." It would also create two general offences -- paying or offering bribes, and asking for or receiving bribes. Like the FCPA, it would create a separate offence of bribery of a foreign public official, and add a new corporate offence of failing to prevent a bribe being paid on the company's behalf. See our post here.

Britain's Serious Fraud Office charged a former executive of a Johnson & Johnson subsidiary with overseas corruption. Robert John Dougall, 44, an ex-vice president of DePuy International Limited of Leeds, appeared Tuesday in the City of Westminster Magistrates' Court. He's accused of making corrupt payments to medical professionals in the Greek public healthcare system in order to sell orthopaedic products. The conduct allegedly occurred between February 2002 and December 2005.

The summons charged Dougall with conspiracy to corrupt in violation of the Criminal Law Act 1977. He was released on unconditional bail. A copy of the SFO's December 1 announcement is here.

The SFO said it began working on the case in March 2008. In February 2007, Johnson & Johnson said it had "voluntarily disclosed to the U.S. Department of Justice and the U.S. Securities and Exchange Commission that subsidiaries outside the United States are believed to have made improper payments in connection with the sale of medical devices in two small-market countries. " The company said then that Michael J. Dormer, the officer responsible for the overseas medical device business, had accepted responsibility and retired.

In September 2007, DePuy and four other orthopedic device makers -- Biomet, Zimmer, Smith & Nephew and Stryker -- agreed to pay $310 million to settle charges they paid kickbacks to induce U.S. doctors to buy their products. Since the U.S. settlement, the four companies, along with Medtronic Inc. and Wright Medical Group, have disclosed DOJ and SEC Foreign Corrupt Practices Act investigations. 

The Serious Fraud Office -- which has a new-look website and says it now has 88 ongoing cases -- didn't say if DePuy or others will also face charges.