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Editors

Harry Cassin Publisher and Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Richard L. Cassin Editor at Large

Elizabeth K. Spahn Editor Emeritus 

Cody Worthington Contributing Editor

Julie DiMauro Contributing Editor

Thomas Fox Contributing Editor

Marc Alain Bohn Contributing Editor

Bill Waite Contributing Editor

Shruti J. Shah Contributing Editor

Russell A. Stamets Contributing Editor

Richard Bistrong Contributing Editor 

Eric Carlson Contributing Editor

Bill Steinman Contributing Editor

Aarti Maharaj Contributing Editor


FCPA Blog Daily News

Friday
Dec212007

Lucent Settles FCPA Violations For $2.5 Million

It Misused Affirmative Defense For Promotional Expenses

Lucent Technologies Inc. settled U.S. Foreign Corrupt Practices Act charges with the Department of Justice and the Securities and Exchange Commission for $2.5 million. The settlement includes a $1 million criminal fine and $1.5 million in civil penalties. Lucent's violations involved promotional expenses for Chinese government officials. 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.

According to the DOJ, from at least 2000 to 2003, Lucent -- a global communications company that became part of Alcatel SA in November 2006, after the violations occurred -- spent millions of dollars on approximately 315 trips for Chinese government officials that included primarily sightseeing, entertainment and leisure. These trips were requested and approved with the consent and knowledge of the most senior Lucent Chinese officials and with the logistical and administrative assistance of Lucent employees in the United States, including at corporate headquarters in Murray Hill, N.J. Lucent improperly recorded expenses for these trips in its books and records and failed to provide adequate internal controls to monitor the provision of travel and other things of value to Chinese government officials.

Lucent provided Chinese government officials with pre-sale trips to the United States to attend seminars and visit Lucent facilities, as well as to engage in sightseeing, entertainment and leisure activities. In 2002 and 2003 alone, there were 24 Lucent-sponsored pre-sale trips for Chinese government customers. Of these, at least 12 trips were mostly for the purpose of sightseeing. Lucent spent over $1.3 million on at least 65 pre-sale visits between 2000 and 2003. The individuals participating in these trips were senior level government officials, including the heads of state-owned telecommunications companies in Beijing and the leaders of provincial telecommunications subsidiaries.

Between 2000 and 2003, Lucent also provided Chinese government officials with post-sale trips that were typically characterized as “factory inspections” or “training” in contracts with its Chinese government customers. By 2001, however, Lucent had outsourced most of its manufacturing and no longer had any Lucent factories for its customers to tour. Nevertheless, Lucent provided individuals with trips for “factory inspections” to the United States, Europe, Australia, Canada, Japan and other countries that involved little or no business content. These trips consisted primarily or entirely of sightseeing to locations such as Disneyland, Universal Studios, the Grand Canyon, and in cities such as Los Angeles, San Francisco, Las Vegas, Washington, D.C., and New York City, and typically lasted 14 days each and cost between $25,000 and $55,000 per trip.

The DOJ's non-prosecution agreement requires Lucent to adopt new or modify existing internal controls, policies and procedures. Those enhanced internal controls must ensure that Lucent makes and keeps fair and accurate books, records and accounts, as well as a rigorous anti-corruption compliance code, standards and procedures designed to detect and deter violations of the FCPA and other applicable anti-corruption laws. Lucent will not be prosecuted if it complies with all of the requirements contained in the agreement for two years.

View other posts about promotional expenses Here.

View the DOJ's December 21, 2007 release Here.

Tuesday
Dec182007

That's Entertainment?

Wow! It's not often -- never, in fact -- that we can talk about the LA movie scene and tap Variety as one of our sources. But here it is. The Department of Justice just announced that a Los Angeles film executive and his wife were arrested on allegations of making corrupt payments to a Thai government official in order to obtain lucrative contracts to run an international film festival in Bangkok, in violation of the Foreign Corrupt Practices Act.

Gerald Green, 75, and his wife Patricia Green, 52, both of Los Angeles, were arrested on a criminal complaint filed on Dec. 7, 2007, in federal court in Los Angeles and unsealed today. The complaint alleges that the Greens conspired to pay more than $1.7 million in bribes for the benefit of a government official with the Tourism Authority of Thailand (TAT) in order to obtain the film festival contract and other contracts with the TAT worth more than $10 million.

The Greens owned and operated Film Festival Management, a Los Angeles-based business that was formed in 2003 specifically to bid for the management contract for the annual Bangkok International Film Festival (BIFF). The complaint alleges that from 2003 and continuing into 2007, the Greens conspired with others to bribe a senior Thai government official who was, at the time, the President of the BIFF and the Governor of the TAT. More than $1.7 million in payments were allegedly made for the benefit of the Governor.

The complaint also alleges that the Greens attempted to conceal their bribery. The government says they used different business entities -- some with dummy business addresses and telephone numbers -- to hide the large amounts they were being paid under the contracts with the TAT. The complaint also alleges that they paid “commissions” to the Governor through the foreign bank accounts of intermediaries. The conspiracy and FCPA allegations each carry a maximum of five years in prison. The government relied on at least two cooperating witnesses from within the Greens' organization, obtained detailed bank records and raided their offices to gather evidence.

What about Variety? Well, it nearly scooped the DOJ by a year. Last December, it reported here that the Tourism Authority of Thailand had canceled the Greens' contract to run the Bangkok International Film Festival and had decided to postpone the event for at least six months. Variety reported lots of wrangling among the parties about money but nothing specific about alleged corruption. While Variety didn't quite get the story, at least we got to mention Variety -- and quite shamelessly feature its logo on our post. What a day.

View the Department of Justice's release Here.

View the FBI's affidavit Here.

Tuesday
Dec182007

Making History In Pune

Pune, India was the site of a groundbreaking conference on December 16, 2007 about the U.S. Foreign Corrupt Practices Act. The first-ever FCPA compliance event to be staged in India was organized by Indiaforensic, a non-profit group for anti-fraud professionals. Presenters included Anil Roy, partner and head of Grant Thornton India, Sidarth Khasu, manager, E & Y, India, Jagdeep Singh, associate director, KPMG, Dr Vishnu Kanhere, director of KCPL and Vidya Rajarao, Associate Director of PWC India. Host Indiaforensic was founded in 2003 by Chartered Accountant Mayur Joshi (pictured above), who serves as the group's chairman.

Congratulations to Indiaforensic for this unique event. And our thanks to Pradeep Akunoor for the heads up.

Friday
Dec142007

Coming Clean At Siemens

Spiegel's December 12, 2007 online edition has a fascinating interview with Peter Löscher (left), who became ceo of Siemens AG in July 2007. There's lots for him to talk about. In October 2007, the German engineering and industrial giant settled global corruption charges with Munich prosecutors for €201 million, based on questionable payments of €420 million -- an amount the company later revised upward to €1.3 billion. In the United States, the Securities and Exchange Commission and the Department of Justice are investigating whether Siemens violated the Foreign Corrupt Practices Act. The company is also facing possible charges of public corruption in Italy, China, Hungary, Indonesia and Norway.

In the interview, Mr. Löscher slams Siemens' former culture. He also provides a neat preview of arguments the company will marshal in talks with U.S. prosecutors early next year. It's always a good idea when facing FCPA charges to stress corrective measures already taken -- such as aggressive house cleaning among management and real efforts to create a new culture of compliance. Mr. Löscher apparently will be doing just that.

Here are excerpts from the interview:

SPIEGEL: Siemens has been shaken by what has probably been the biggest corruption scandal ever made public. Were you truly aware of what you were getting yourself into?

Löscher: To be honest, I underestimated the scope of the problem. The sum of questionable payments has now increased to €1.3 billion ($1.9 billion). In the summer, the charges centered on the Com division, that is, the communications business. But it's now clear that other parts of the company were clearly infected, as well.

SPIEGEL: The company has already incurred costs of €1.5 billion in penalties, back taxes and legal and consultants' fees.

Löscher: And the investigation is still underway.

* * *

SPIEGEL: So it was a system based on a shadow economy. How could something like this have developed in the first place?

Löscher: It's completely clear that the management culture failed. Managers broke the law. But this has nothing to do with a lack of rules. Siemens had and still has an outstanding set of rules. The only problem is that they were apparently being violated on an ongoing basis. The management culture was simply not practiced consistently and uniformly. This is why my job now is to install a new culture. And I can guarantee you that senior management will practice what it preaches -- to a T.

* * *

SPIEGEL: Why did corruption at Siemens continue for so many years, even after the laws had been toughened in Germany, and after Siemens had been listed on US stock exchange, thereby subjecting itself to tighter American controls?

Löscher: Once again, our management culture failed. And that's something we will address -- all of it. Four-hundred-seventy executives have already been sanctioned, and we have parted ways with 130. It is important that every Siemens employee knows that rules and laws must be observed. Anyone who fails to comply can expect the most serious of consequences.

SPIEGEL: What if someone confesses to old sins and asks for a second chance?

Löscher: We have implemented an internal amnesty program that runs until the end of January. In addition, any employee can anonymously report confidential information. This could raise new suspicions that haven't even been part of the discussion until now. I want a comprehensive inquiry and the complete truth.

* * *

SPIEGEL: Siemens is a company with global operations. What will you do in the future in regions or in situations where landing a contract may depend on paying bribes?

Löscher: Siemens endorses clean business. Period. I am not interested in deals that can only be had through corruption. This doesn't necessarily mean that we have to stop doing business in an entire country, but perhaps it does mean turning down specific projects or customers.

SPIEGEL: You would turn down the prospect of sales voluntarily?

Löscher: Do I even have to? Our orders were up by 19 percent last quarter. Infrastructure projects worth €500 billion will be awarded in the coming years in India alone. Business is booming. Our worldwide opportunities are promising and by no means exhausted.

SPIEGEL: The Nigerian government has imposed a moratorium on doing business with Siemens. Do you expect other countries to follow its lead?

Löscher: I would rather not speculate about that.

* * *

View prior posts about Siemens Here.

View Spiegel's Interview with Siemens' CEO Peter Löscher Here.

Thursday
Dec132007

Schnitzer's Former Boss Settles FCPA Charges

The former chairman and ceo of Schnitzer Steel Industries, Inc. resolved charges on December 13, 2007 brought by the Securities and Exchange Commission under the U.S. Foreign Corrupt Practices Act. Robert W. Philip, 60, of Portland, Oregon, will pay about $250,000 to settle charges that he violated the antibribery, books and records and internal controls provisions of the FCPA (Section 30A of the Securities Exchange Act of 1934 [15 U.S.C. § 78dd-1], Section13(b)(2)(A) [15 U.S.C. § 78m(b)(2)(A)], and Section 13(b)(2)(B) [15 U.S.C. § 78m(b)(2)(B)]). He served as Schnitzer's president beginning in 1991, as its chief executive officer from 2002, and as chairman from 2004. He left the company in May 2005.

In October 2006 -- after an internal investigation and self-disclosure to authorities -- Schnitzer paid more than $15 million to resolve FCPA violations with the SEC and the Department of Justice. In June 2007, Si Chan Wooh, Schnitzer's former executive vice president and head of a foreign subsidiary, agreed with the SEC to pay about $40,000 in disgorgement, interest and penalties for FCPA violations.

The SEC's complaint against Mr. Philip said that from at least 1999 through 2004, Schnitzer paid more than $1.9 million in bribes to managers of steel mills in China and South Korea to induce them to purchase scrap metal from Schnitzer, generating over $500 million in gross revenue for the company. He authorized the payment of the bribes, aided and abetted Schnitzer's failure to make and keep accurate books and records, and failed to implement internal controls reasonably designed to detect and prevent Schnitzer's FCPA violations. The SEC's complaint alleged that after approving the improper payments, he instructed that they be falsely recorded in Schnitzer's books as "sales commissions," "commission to the customer," "refunds," or "rebates."

Schnitzer Steel Industries Inc. trades on NASDAQ under the symbol SCHN.

View prior posts about Schnitzer Here.

View the SEC's Litigation Release No. 20397 (December 13, 2007) Here.

View the SEC's complaint in Securities and Exchange Commission v. Robert W. Philip, Case No. CV 07-1836 (MO) (D. Or. filed December 13, 2007) Here.

Wednesday
Dec122007

A Six Pack For The Holidays

We're getting into the spirit of the season, thankful for the many great blessings enjoyed during 2007. We won't disappear completely during the holidays, but we'll slow things down for a few weeks while we spend time with family and friends in other parts of the world. Before we pack our toothbrush, we'd like to leave a short list of our favorite posts, sites and other inspirations from 2007 (not in any particular order):

1. An Effective FCPA Compliance Program Might Save the Company (A Great Defense Team Might Not)

Our post from August 20, 2007. An entire organization, despite its best efforts to prevent wrongdoing in its ranks, can still be held criminally liable for any of its employees’ illegal actions. Those words are from the U. S. Sentencing Commission's May 2004 release, and they tell everything you need to know about the importance of Foreign Corrupt Practices Act compliance programs. No organization will ever eliminate the possibility of FCPA violations. But any organization can prepare itself for the consequences.

2. Another Look At Facilitating Payments

Our post from September 12, 2007. As the lone exception written into the U.S. Foreign Corrupt Practices Act, facilitating payments have a reputation for being safe and practical. In truth, grease payments are often dangerous and potentially damaging. When we talk about FCPA compliance with the people on the ground in difficult countries -- such as China, Indonesia, Nigeria and others -- the hottest and most troublesome topic is facilitating payments.

3. The Russia (Ware) House

Our post from October 31, 2007. It requires 54 procedures, takes 704 days, and costs 3,788% of annual per capita income to obtain the licenses and permits needed to build a warehouse in Moscow. Red tape breeds public corruption. It adds more misery and poverty to the world than any other cause. It belongs in the trash heap of history.

4. White Collar Crime Prof Blog

An astonishingly high-quality legal blog produced by Peter Henning of Wayne State University Law School and Ellen Podgor of Stetson University College of Law. They set the standards of intelligent discourse and consistency for law-related blogs and inspire us by their example.

5. WSJ.com's law blog

Peter Lattman's blog for the Wall Street Journal Online overflows with good humor. Any lawyer tempted to take himself or herself too seriously (which is most of us, most of the time) should dip into the law blog on a daily basis. The Wall Street Journal may be an unlikely source for such an entertaining blog, but the Journal's great writing and readability show through in every post, some of which deal with the weighty issues of our day -- like mustaches and bow ties.

6. Our readers -- you've been extraordinarily generous with your feedback, support and encouragement.

Tuesday
Dec112007

Watch That Inkblot

It's too soon to call it a pattern. But there's something new in Foreign Corrupt Practices Act enforcement. During 2007, the U.S. ramped up two investigations that covered not just individual companies but entire industries. That, we think, is worth a second look.

One industry-wide investigation involves about a dozen oil and gas services firms -- among them are Schlumberger, Tidewater, Nabors Industries, Transocean, GlobalSantaFe Corp., Noble Corp. and Global Industries. They were all customers of Swiss-based logistics firm Panalpina. It allegedly bribed customs agents and other government officials, especially in Nigeria, Saudi Arabia and Kazakhstan. The second industry-wide investigation includes the leading manufacturers of orthopedic implants. The Securities and Exchange Commission and the Department of Justice want to know whether they violated the FCPA by making payments to doctors employed by government-owned hospitals overseas. Biomet Inc., Stryker Corp., Zimmer Holdings Inc., Smith & Nephew plc and Medtronic Inc. disclosed investigations during the year and denied violating any laws.

The two investigations had very different beginnings. The one covering the oil and gas services companies germinated in 2004, when ABB Vetco Gray settled FCPA violations. Some of its offenses involved customs-clearance practices in Nigeria and other countries, where Panalpina was its clearing agent. The medical device makers' overseas practices probably came under scrutiny in early 2007. That's when Johnson & Johnson (which owns device maker Depuy) said it voluntarily disclosed to the Department of Justice and the 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. "

Despite their different starts, one question about the two investigations is, why now? Why, after thirty years of FCPA history, are there two industry-wide investigations? What's changed? Here's one theory. Since the Sarbanes-Oxley Act became law on July 30, 2002, U.S. reporting companies have to investigate and self report any potential violations of U.S. law, including the FCPA. Failing to do that isn't just bad housekeeping -- it's a go-to-jail offense. So internal investigations and self-reporting practices are now more independent, robust and comprehensive. In the SOX-driven era, directors and officers have to be absolutely certain that what they disclose to regulators and prosecutors (and shareholders, of course) is the truth, the whole truth, and nothing but the truth. Coming up an inch short of the bar is not an option.

Today's performance-enhanced internal investigations -- which have multiplied, thanks in part to the SOX whistleblower provisions -- often produce credible evidence about industry-wide practices. A chapter or two about competitors is common -- and the Feds expect to read the unabridged versions. Medtronic -- a huge orthopedic device maker -- alluded to the government's expectation in its latest Form 10-Q: "The letter [from the SEC requesting information] notes that the Company is a significant participant in the medical device industry, and seeks any information concerning certain types of payments made directly or indirectly to government-employed doctors."

We can also do some speculating. Could companies that become potential targets of FCPA prosecutions bargain for leniency by implicating others? We don't know if that's happened yet. But in price fixing cases, for example, there have long been well-recognized rewards for companies that are the first to talk about their co-conspirators. Could similar behavior emerge in FCPA cases among industry peers?

As we said at the top, there's no pattern yet -- just a couple of industry-wide investigations that got rolling in the same year. But we'll keep watching.

View prior posts about the oil and gas services companies here.

View prior posts about the medical device makers here.

Sunday
Dec092007

Enforcement Sans Frontières

By most counts, U.S. authorities are now investigating between 50 and 60 companies for possible violations of the Foreign Corrupt Practices Act. That's a record number. How many of them will face enforcement actions is anyone's guess. But three investigations worth watching have this in common: the targets are industry-leading multinationals headquartered outside the United States. The U.S. government hasn't said much about the cases, but the message seems clear: if other countries won't police their corporate citizens, American authorities will do it for them -- at least when it comes to international public corruption.

Panalpina (Switzerland) -- In February 2007, the Department of Justice said in connection with the Vetco case that bribes in Nigeria "were paid through a major international freight forwarding and customs clearance company to employees of the Nigerian Customs Service . . .” Since then, about a dozen leading oil and gas services companies have announced FCPA investigations resulting from their relationship with logistics leader Panalpina. By mid year, the DOJ and the Securities and Exchange Commission had extended the investigation into Panalpina's activities in Nigeria, Kazakhstan and Saudi Arabia, and had sent letters to its customers, “asking them to detail their relationship with Panalpina . . . ." Schlumberger, Tidewater, Nabors Industries, Transocean, GlobalSantaFe Corp., Noble Corp. and Global Industries are among those involved. In September, Panalpina said it is cooperating with U.S. prosecutors and exiting the Nigeria logistics and freight forwarding market for all oil and gas services customers. With crude prices near triple digits, can the U.S. government afford to cripple output anywhere in the name of FCPA enforcement? Probably not. But the DOJ may have made special arrangements directly with the Nigerian government for customs clearance and permitting on behalf of the oil services companies. That will allow them to keep working but still comply with the FCPA. Meanwhile, the investigation of Panalpina continues. Prior posts about Panalpina are here.

Siemens (Germany) -- In early October 2007, the German engineering and industrial giant settled global corruption charges with Munich prosecutors. Siemens paid a fine of €201 million and at the time admitted to questionable payments around the globe of approximately €420 million. But the settlement didn't resolve the FCPA investigation by U.S. authorities, and Siemens later disclosed that its internal review, run by a U.S. law firm, has identified questionable payments of up to €1.3 billion. The company is also facing possible charges of public corruption in Italy, China, Hungary, Indonesia and Norway. When Siemens finally reaches a deal with U.S. prosecutors, it will likely pay the highest penalties ever for FCPA offenses. The current record of $44.1 million is held by Baker Hughes. Prior posts about Siemens are here.

BAE Systems (United Kingdom) -- The defense contractor is accused of paying £1 billion to Prince Bandar (who allegedly passed money to other officials) in return for help selling Typhoon jet fighters to the Saudi government. The Serious Fraud Office started an investigation but Prime Minister Tony Blair shut it down last year, citing national security. That darkened the OECD's tenth anniversary celebration of its Anti-Corruption Treaty, to which the United Kingdom is a signatory. Meanwhile, the U.S. Department of Justice picked up the investigation and started gathering evidence about possible FCPA violations directly from British witnesses. The U.K. government has already complained about U.S. investigative tactics. And Prince Bandar has lawyered up big time -- retaining Freeh Group International, whose partners include former FBI director Louis Freeh, former head of enforcement at the SEC Stanley Sporkin, and a retired British high court judge, Sir Stephen Mitchell. Prior posts about BAE are here.

Wednesday
Dec052007

Tough Medicine For Medical Device Makers

The Securities and Exchange Commission said in October this year it is investigating possible violations of the U.S. Foreign Corrupt Practices Act by the leading manufacturers of orthopedic implants. Biomet Inc., Stryker Corp., Zimmer Holdings Inc., Smith & Nephew plc and Medtronic Inc. all made announcements about the SEC's investigation and denied violating any laws. In September this year, four of them plus Depuy Orthopedics (part of Johnson & Johnson) paid $310 million to settle charges they paid kickbacks to induce U.S. doctors to buy their products.

Medtronic wasn't part of the domestic case. But it now confirms that the SEC and the Department of Justice are asking for information about payment practices abroad that might violate the FCPA. Medtronic -- based in Minneapolis -- does business in some 120 countries and employs more than 37,000 people worldwide. The company's latest Form 10-Q disclosed these details about the FCPA investigation:

"On September 25, 2007, the Company received a letter from the SEC requesting information relating to any potential violations of the U.S. Foreign Corrupt Practices Act in connection with the sale of medical devices in an unspecified number of foreign countries, including Greece, Poland and Germany. The letter notes that the Company is a significant participant in the medical device industry, and seeks any information concerning certain types of payments made directly or indirectly to government-employed doctors. A number of competitors have publicly disclosed receiving similar letters. On November 16, 2007, the Company received a letter from the Department of Justice requesting any information provided to the SEC. The Company intends to cooperate with both requests."

Doctors at government-owned or managed hospitals overseas are "foreign officials" for purposes of the FCPA. That means payments to them intended to obtain or retain business might violate the antibribery provisions. Application of the FCPA to overseas doctors made the headlines in 2002, when the SEC settled civil and administrative proceedings against Syncor International Corp. and the DOJ settled criminal FCPA charges against Syncor's Taiwan subsidiary. Payments to doctors have since resulted in FCPA enforcement actions against DPC (Tianjin) Co. Ltd. -- the Chinese subsidiary of Los Angeles-based Diagnostic Products Corporation -- and Micrus Corporation.

Those cases -- and the current investigation of Medtronic and its peers -- demonstrate the compliance risks involved when doing business with foreign hospitals that are owned or controlled by government authorities. The companies face a dilemma. Often the only way to promote their products is through direct contact with local physicians. Much of that contact is educational and might include, for example, sponsoring the doctors' evaluations of the companies' products and subsidizing the presentation of papers at medical seminars. The payments, however -- unless expressly permitted by the written laws or regulations of the host country -- can violate the FCPA.

The investigations of Medtronic and its peers will lead to better compliance practices by companies dealing with government-linked hospitals overseas. Another result, we suspect, will be that more countries -- with the backing of the global medical industry -- will pass laws and regulations to allow some level of financial support from foreign companies to local doctors for product evaluations and related programs.

Medtronic Inc. trades on the New York Stock Exchange under the symbol MDT.

View Medtronic's Form 10-Q (December 4, 2007) Here.

Wednesday
Dec052007

Release 07-02, Where Are You?

We noticed a week ago that U.S. Department of Justice Opinion Procedure Release No.: 07-02 (September 11, 2007) is missing. It no longer appears on the DOJ's website that indexes all FCPA Releases (here). The text of the Release is still available from the old link here, but not through the index.

Release 07-02 is one of our favorites -- as discussed here and here. It deals with a problem-filled defense written into the U.S. Foreign Corrupt Practices Act 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). Release 07-02 is (or was) the latest word on the subject from the DOJ.

We're trying to find out what happened to it, so stay tuned. Or better yet, if you have some news, please drop us a line. We'll be surprised if this isn't just a glitch in the DOJ's index. But until we know more, we'll include a caveat when we use Release 07-02 to give advice.

Note to Readers -- It's back! Release 07-02 again appears on the DOJ's index of FCPA Releases. Our thanks to the web wizards at the DOJ for fixing the problem. -- The Editors / posted on 06.12.07

Tuesday
Dec042007

An Effective Compliance Program Redux

The question that lands most often in our mailbox is this: What are the elements of an effective Foreign Corrupt Practices Act compliance program? It's a great question. While proactive compliance programs reduce the chances of violations, no one can guarantee that a violation will never happen. So an "effective compliance program" (as defined by U.S. law) might be a company's last and best defense. How? By reducing the potential penalties against the company by up to 95%, according to the U.S. Sentencing Guidelines. That mitigation might just save the company, as well as the careers and enforcement records of senior executives and others. So we're always happy to talk about this subject, even if it means repeating ourselves.

In a prior post here we set out the elements of an "effective compliance program" based on the U.S. Department of Justice's Opinion Procedure Release 04-02. The Release responded to a request from a JP Morgan-led group and its investment vehicles ("Newcos"). They were acquiring companies and assets from ABB Ltd., which had already been charged with violating the FCPA in connection with the target assets. Because some of the assets were actually going concerns, JP Morgan et al wanted to make sure the businesses would have a clean slate with the DOJ going forward. To achieve that, the Newcos proposed a comprehensive compliance program. The elements of it are derived from the U.S. Sentencing Guidelines but are specific to the FCPA, making the Release the clearest statement on record from the government about what an "effective compliance program" for the FCPA should look like.

The 12 elements are:

(A) A clearly articulated corporate policy against violations of the FCPA and foreign anti-bribery laws and the establishment of compliance standards and procedures to be followed by all directors, officers, employees, and all business partners, including, but not limited to, agents, consultants, representatives, and joint venture partners and teaming partners, involved in business transactions, representation, or business development or retention in a foreign jurisdiction (respectively, "Agents"; and "Business Partners") that are reasonably capable of reducing the prospect that the FCPA or any applicable foreign anti-corruption law of Newco's Compliance Code will be violated;

(B) The assignment to one or more independent senior Newco corporate officials, who shall report directly to the Compliance Committee of the Audit Committee of the Board of Directors, of responsibility for the implementation and oversight of compliance with policies, standards, and procedures established in accordance with Newco’s Compliance Code;

(C) The effective communication to all shareholders' representatives directly involved in the oversight of Newco ("Shareholders") and to all directors, officers, employees, Agents, and Business Partners of corporate and compliance policies, standards, and procedures regarding the FCPA and applicable foreign anti-corruption laws, by requiring (i) regular training concerning the requirements of the FCPA and applicable foreign anti-corruption laws on a periodic basis to all Shareholders, directors, officers, employees, Agents, and Business Partners and (ii) annual certifications by all Shareholders, directors, officers, employees, including the head of each Newco business or division, Agents, and Business Partners certifying compliance therewith;

(D) A reporting system, including a "Helpline"; for directors, officers, employees, Agents, and Business Partners to report suspected violations of the Compliance Code or suspected criminal conduct;

(E) Appropriate disciplinary procedure to address matters involving violations or suspected violations of the FCPA, foreign anti-corruption laws, or the Compliance Code;

(F) Clearly articulated corporate procedures designed to assure that all necessary and prudent precautions are taken to cause Newco to form business relationships with reputable and qualified Business Partners;

(G) Extensive pre-retention due diligence requirements pertaining to, as well as post-retention oversight of, all Agents and Business Partners, including the maintenance of complete due diligence records at Newco;

(H) Clearly articulated corporate procedures designed to ensure that Newco exercises due care to assure that substantial discretionary authority is not delegated to individuals whom Newco knows, or should know through the exercise of due diligence, have a propensity to engage in illegal or improper activities;

(I) A committee consisting of senior Newco corporate officials to review and to record, in writing, actions relating to (i) the retention of any Agent or subagents thereof, and (ii) all contracts and payments related thereto;

(J) The inclusion in all agreements, contracts, and renewals thereof with all Agents and Business Partners of provisions: (i) setting forth anti-corruption representations and undertakings; (ii) relating to compliance with foreign anti-corruption laws and other relevant laws; (iii) allowing for internal and independent audits of the books and records of the Agent or Business Partner to ensure compliance with the foregoing; and (iv) providing for termination of the Agent or Business Partner as a result of any breach of applicable anti-corruption laws and regulations or representations and undertakings related thereto;

(K) Financial and accounting procedures designed to ensure that Newco maintains a system of internal accounting controls and makes and keeps accurate books, records, and accounts, and;

(L) Independent audits by outside counsel and auditors, at no longer that three-year intervals, to ensure that the Compliance Code, including its anti-corruption provisions, are implemented in an effective manner.

View Department of Justice Opinion Procedure Release No .: 04-02 (July 12, 2004) Here.

Sunday
Dec022007

The Empty Chair

It's official. Britain's absence from the global war on public corruption is now a full-fledged scandal. Nearly ten years after the U.K. ratified the Anti-Bribery Convention of the Organisation for Economic Co-operation and Development (OECD), there hasn't been a single British prosecution. And as England shirks, its friends are both baffled and alarmed.

The only investigation of overseas graft launched by the Serious Fraud Office involved BAE's alleged billion-pound bribe to Saudi royals. But Prime Minister Tony Blair quashed the inquiry last year, spooking the international community. As the Wall Street Journal said, "The OECD, which isn't prone to naming and shaming uncooperative member states took the unusual step of voicing 'serious concerns.' But that didn't move Mr. Blair, who warned the probe could harm relations with Saudi Arabia." The New York Times reported that during the OECD's recent tenth anniversary celebration of the Anti-Bribery Convention in Rome, its head, Angel Gurria, said "national security concerns — the reason Mr. Blair gave for terminating the BAE investigation in Britain — 'should not be used' as a reason for quashing bribery investigations. He also voiced concern that anti-corruption efforts were in danger of weakening. "

Meanwhile, the U.S. Department of Justice is finding creative ways to work around recalcitrant U.K. prosecutors. The Americans have opened their own investigation of BAE, collecting evidence by flying at least one British witness to Washington, routing him through Paris to avoid attention. When that maneuver came to light, how did Whitehall react? It protested to U.S. authorities and warned the witness to mind his manners.

What's behind Britain's bizarre behavior? We remember the Middle East in the 1980s, where the partnership between the British Foreign Office and big U.K. companies was unspoken but evident. To the envy of Americans and others, Her Majesty's Government went door-to-door with British salesmen, helping them hawk their goods and services to the region's oil-rich regimes. We thought the arrangement was a useful remnant from the days of the East India Company and the Raj. But was it less benign than we assumed?

The question has to be asked: Does the U.K. government fight overseas bribery or promote it? The answer is crucial. After all, if Britain is thumbing its nose from the sidelines, why should new recruits like South Korea and Germany stick around for the battle? What moral authority will the OECD have to lecture Nigeria or Kazakhstan about the importance of the rule of law? Why should Australia, France or China worry what their citizens do abroad, if the British government is already doing worse? And what about that level playing field American business people -- who are bound by the U.S. Foreign Corrupt Practices Act -- were promised decades ago?

In April 2005, the smart folks at the White Collar Crime Prof Blog reported the OECD's unusual criticism of the U.K.: "[The OECD's progress] report notes that 'given the size of the UK economy and its level of exports and outward FDI, along with its involvement in international business transactions in sectors and countries that are at high risk for corruption, it is surprising that no company or individual has been indicted or tried for the offence of bribing a foreign public official since the ratification of the Convention by the UK.'" [emphasis added]

Nothing has changed since those words were written. So today we're also asking: Where is Britain in the global battle against public corruption?

View the November 21, 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions Here.

View (by subscription) the November 28, 2007 Wall Street Journal Article Here.

View the November 25, 2007 New York Times Article Here.

View the April 4, 2005 White Collar Crime Prof Blog Post Here.

View the March 17, 2005 OECD Country Report on the U.K. Here.