U.S. House Wants to Reform the FCPA; Is That A Good Thing?
The Foreign Corrupt Practices Act has become a gold standard for anti-bribery laws worldwide. However, as other nations follow the United States' lead and strengthen their anti-corruption laws, some legislators are considering taking a step back.
Some politicians—mostly majority Republicans, but a few Democrats as well--in the House of Representatives warn that too-stringent enforcement of the FCPA may harm businesses in the fragile, recovering economy. Rep. James Sensenbrenner (pictured) is drafting a bill that he says will provide better and clearer guidance regarding the 1977 law. According to Sensenbrenner (R-Wisconsin), ...
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Proposed Foreign Corrupt Practices Act Reforms
This six-point plan is sponsored by the U.S. Chamber of Commerce, a business lobbying group, and written by former Attorney General Michael Mukaskey.
Some of the proposed amendments have merit, although firms with effective FCPA compliance programs in place have likely already dealt with the issues they touch upon. Others would serve as steps backward in the fight against corruption, encouraging poor management and corporate ignorance. (Source: Forbes)
Security and Exchange Commission Anti-Foreign Bribery Chief
Goes into Private Practice
On June 1, 2011, FCPA chief Cheryl Scarboro--who spearheaded increased enforcement of the Foreign Corrupt Practices Act during her 19 years with the federal agency—left the public sector for Simpson Thatcher & Bartlett LLP. According to the law firm's official statement, Scarboro will be part of their government and internal investigations practice, working out of their FCPA-focused Washington, D.C. office. She is best known for her involvement in prosecuting FCPA violations in the United Nations oil-for-food kickback scheme in Iraq, in addition to supervising the SEC's historic first-ever deferred prosecution agreement with Tenaris. Her experience will undoubtedly be a help to the firm's clients, but raises further concerns of a "revolving door" of former federal officials leaving for the private sector. (Source: WSJ Corruption Currents)
Russian Army Officer Convicted of Taking Dog,
Other Bribes from Unit Member
Yulai Giniyatov, an Army officer in Russia, was convicted of accepting several bribes from a conscript in his unit in exchange for allowing the man under his command passes to leave his unit for days longer than the normal 24 hours. Apparently, some of the other soldiers did not know what the conscript, Yevgeny Klimentyev, looked like. He purchased Giniyatov plumbing equipment and tables for his mechanized infantry company, as well as car repairs, a laptop computer, mobile phone, and even a puppy for the officer's girlfriend. In total, Klimentyev spent over 60,000 rubles (about $2,000 US) to gain privileges, although he is not subject to any charges. Meanwhile, Giniyatov was charged with extortion and fraud, and sentenced to a two-year ban from executive positions in state agencies 350,000 ruble ($12,500 USD) fine on June 16, 2011. Prosecutors wanted him to get the maximum four years of jail time, in addition to demoting Giniyatov to a private in the Russian Army. Most of the assets in question, including the Yorkshire terrier, have been confiscated by the court. (Source: Moscow Times)
UK Bribery Act Guidance: Muddy[ing] the Waters
Contributed by Richard Cassin, FCPA Blog and
Michael Volkov, Partner, Mayer Brown LLP
After all the dust has settled, the political recriminations have been leveled, and the issuance of reams of client alerts by every law firm on the planet, companies are now staring at July 1, 2011: the effective date of the UK Bribery Act. The build up to the issuance of the Ministry of Justice’s Guidance was historic; leak after leak, political infighting and threats by international anti-corruption organizations and other governments against a weakening of the UK Bribery Act were prevalent. After all this build up, we are left with the following: the UK Bribery Act still stands, while the Guidance--which was intended to add some clarity and safe harbors for businesses--is a mish mosh of policies and general conclusions which provide little comfort or real guidance to businesses.
By describing its “talismanic” credo to be “common sense,” the Ministry of Justice failed miserably in providing real guidance or explaining a real prosecution policy. The Ministry of Justice owes businesses more than general pronouncements.
In the end, companies have to comply with the UK Bribery Act. Businesses need to recognize that ultimately it will be prosecutors and the courts that will draw the lines; there is nothing surprising in that. The inevitable result is that prosecutors will ..
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Rockwell Automation Agrees to $2.2 Million FCPA Settlement
Industrial manufacturer Rockwell Automation, Inc. settled Foreign Corrupt Practices Act charges with the U.S. Securities and Exchange Commission on May 3, 2011. They have agreed to pay a $400,000 USD fine, in addition to forfeiting $1.8 million in profits. The firm is alleged to have made improper payments for travel and other expenses in China through its former subsidiary, Rockwell Automation Power Systems (Shanghai) Ltd. Although the Chinese subsidiary was divested in early 2007, the parent company is still subject to a cease-and-desist order from the SEC. According to the SEC, Rockwell violated the internal controls and books and records provisions of the FCPA by failing to accurately record the payments in its books and records, as well as failing to implement or maintain a system of internal accounting controls sufficient to prevent and detect the payments.
FCPA “Shot Show” Trial Involving Gabon Bribery Sting Begins
As of May 17, 2011, 22 security industry defendants are currently standing trial for Foreign Corrupt Practices Act violations related to their promises to pay a total of $3 million in kickbacks to a Gabonese public official, which was to assist them in gaining a $15 million weapons contract with the African nation. They were indicted with a total of 44 counts of FCPA conspiracy (maximum five-year prison sentence), bribery (five years prison time), and conspiracy to commit money laundering (maximum 20 years). Unfortunately for the defendants, the supposed defense minister of Gabon they believed they were speaking to was actually an undercover agent for the FBI. It is believed to be the largest foreign bribery prosecution in the history of the U.S. government, and was sparked from a tip from a defendant-turned-informant from a separate case, Richard Bistrong. The investigation has been at least three years in the making. Those arrested include Protective Products of America Inc.’s R. Patrick Cadwell and former Smith & Wesson Holding Corp. executive Amaro Goncalves. The attorney of four of the defendants-- John Wier III, Andrew Bigelow, Lee Tolleson and Pankesh Patel—claims that the FBI was overzealous in claiming there was a conspiracy, and that Bistrong was catered to inappropriately by the investigators. However, three other defendants have pled guilty to the charges and are currently cooperating with the investigation.
Tenaris SA Pays $8.9 Million in First FCPA Deferred Prosecution Agreement
On May 17, 2011, Luxembourg-based steel pipe supplier and manufacturer Tenaris SA settled with the U.S. Securities and Exchange Commission for foreign bribery violating the FCPA. The firm reached the first deferred-prosecution agreement in the SEC’s history, while agreeing to pay $5.4 million in prejudgement interest and disgorgement. Tenaris also signed a two-year non-prosecution agreement with the Department of Justice and agreed to pay them a penalty of $3.5 million. This comes after Tenaris admitted that several of its agents and employees made improper payments to officials from a state-owned oil and gas production company in Uzbekistan, hoping to obtain information about competitors’ contract bids. In addition, those employees and agents failed to record said payments accurately in Tenaris’ books and records. The historic settlement conditions are largely due to the firm’s voluntary disclosure and cooperation with the United States’ investigation.
Kraft Foods Receives FCPA Subpoena
The recent trend in FCPA investigations is to closely examine companies that have recently performed acquisitions. On February 1, 2011, the U.S. Securities and Exchange Commission subpoenaed major food producer Kraft Foods for an FCPA investigation. Kraft disclosed this issue in their annual report for shareholders. The multinational corporation is on the SEC's radar for potential violations of the Foreign Corrupt Practices Act in India. An Indian facility, acquired last year as part of Kraft's $19 billion acquisition of Cadbury, is the center of the investigation.
According to a statement from Kraft, the SEC is looking for information regarding approvals of the operation of the plant, specifically involving dealings with government officials and agencies. Presumably, the U.S. government suspects that bribery may have been involved. For their part, Kraft insists that it undertook both pre- and post-acquisition due diligence procedures when purchasing the United Kingdom-based Cadbury, and found potential compliance problems in India, as well as in other areas; however, the company did not go into further detail. They have begun their own, more extensive, internal investigation.
Tesler Pleads Guilty to FCPA Violations in Nigerian Joint Venture Case
On March 11, 2011, Jeffrey Tesler pled guilty to one count of conspiring to violate the Foreign Corrupt Practices Act and one count of substantive violation of the FCPA. Tesler was heavily involved in the TSKJ joint venture in Nigeria, which was found to have paid a total of $180 million USD in bribes to local government officials between 1994 and 2004. His consulting firm, Tri-Star Investments Ltd., received about $132 million USD in wire transfers for the bribes.
The result of the bribery was lucrative contracts—worth $6 billion USD--to build natural gas facilities on Bonny Island. Tesler was indicted in 2009 (in addition to his partner Wojciech J. Chodan), and was originally charged with 10 counts of violating the FCPA, in addition to the conspiracy charge. He was extradited from the U.K. to face the charges in January 2011. As part of the plea bargain, he has forfeited $149 million. He will be sentenced on June 22, and could spend up to 10 years in prison.Meanwhile, three of the companies that were part of the joint venture had to pay a total of up to $1.28 billion in fines to the U.S. Department of Justice. The fourth company’s settlement is pending.
IBM to Pay $10 Million in Foreign Corrupt Practices Act Fines
Subsidiaries and affiliates of IBM were found to have violated the FCPA by giving entertainment, travel, and cash gifts to Chinese and South Korean government officials between 1998 and 2009. One of the most sensational allegations has the company’s Korean subsidiary winning a $12 million government contract in 2002, after its employees met South Korean officials in parking lots with bags full of Korean currency. In addition to the actual bribes, IBM was also found to have had insufficient internal compliance controls, which would have caught the improper payments.
As a result, the company must disgorge $5.3 million USD in profits, in addition to $2.7 million of prejudgement interest on that amount. IBM must also pay a $2 million civil penalty to the U.S. Securities and Exchange Commission. They have not admitted or denied any wrongdoing.
U.S. v. Goyal: Stretching The Criminal Law Beyond Its Normal Bounds
Contributed by Michael Volkov and Adeel Muhammad Bashir
To most it's an obvious point: The purview of criminal law should be limited to criminal conduct. Yet that point maybe lost on some since, as Chief Judge Alex Kozinski points out, United States v. Goyal, No. 08-10436 (9th Cir. Dec. 10, 2010) is just the latest in a "string of recent cases in which courts have found that federal prosecutors overreached by trying to stretch criminal law beyond its proper bounds." Id. at 19761-19762. It is no surprise then that in Goyal the U.S. Court of Appeals for the Ninth Circuit reversed the defendant's convictions, and Judge Kozinski took the opportunity to rebuke the government with a simple message: Prosecutors should not bring criminal charges unless they have clear evidence of criminal wrongdoing.
Goyal involved charges of securities fraud and making materially false statements to auditors against Prabhat Goyal, who from 1997 to 2001 served as the chief financial officer of the popular anti-virus software company Network Associates, Inc. (NAI). The government alleged that while under Goyal's supervision, NAI violated..
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Tyson Foods Agrees to $5.2 Million Settlement over FCPA Violations
On February 10, 2011, Tyson Foods, Inc. agreed to pay a total of $5.2 million in criminal and civil penalties to the Department of Justice and the Securities and Exchange Commission as a result of Foreign Corrupt Practices Act violations. Since 1994, its Mexican subsidiary--Tyson de Mexico—allegedly paid about $350,000 to two government veterinarians charged with inspecting the safety of their poultry for export. Consumers in other countries, including Japan, were in danger of becoming sick from inferior meat as a result.
Tyson de Mexico was accused of paying a $100,000 bribe in early 2007 alone. The money was paid to the Mexican veterinarians through their spouses, as well as directly. The DOJ will receive $4 million from the settlement, while the SEC will receive the remaining $1.2 million.
RAE Systems Agrees to Pay $1.7 Million Penalty for FCPA Violations
On December 10, 2010, it was announced that RAE Systems Inc. reached an agreement with the U.S. Department of Justice to pay a 1.7 million USD fine due to its joint ventures' violations of the Foreign Corrupt Practices Act in China. Approximately $400,000 was directly or indirectly paid to Chinese government officials by RAE-KLH (Beijing) Co., Limited and RAE Coal Mine Safety Instruments. These illegal payments resulted in a total of $3 million in revenue for RAE Systems from business they obtained or retained from governmental entities in China. Their profit from the deals, made between 2004 and 2008, was $1,147,800.
Telecommunications Company CEO and VP of Business Development Charged with Violations
Former chief executive officer of Latin Node Inc. Jorge Granada, along with former vice president of business development Manuel Caceres, has been charged with money laundering and violations of the Foreign Corrupt Practices Act. The charges stem from a $500,000 bribe the Miami-based telecommunications company allegedly paid to Honduran government officials in 2005. LatiNode was the sole winner of a contract with the state-owned Empresa Hondureña de Telecomunicaciones (Hondutel) to provide long distance service between the United States and Honduras; the agreement allowed them to use Hondutel's telecommunication lines for a set per-minute rate.
Layne Christensen Company Being Investigated for Alleged FCPA Violations in the Congo
Drilling service provider Layne Christensen Company is currently the subject of an investigation into payments it made to customs clearing agents in the Democratic Republic of the Congo. Layne Christensen disclosed these payments, related to importing equipment, may have violated the FCPA in a regulatory filing. The investigation is centered on whether the firm's directors were aware of any improper payments made.
The Bribery Act: Raising the Enforcement Bar
Contributed by Michael L. Volkov
The UK Bribery Act 2010 (“Bribery Act”) has been described as the toughest anti-corruption legislation in the world. It was enacted in April 2010 and will come into force in April 2011.
Businesses with a presence in the United Kingdom must now get to grips with the Bribery Act. The key differences1 between the FCPA and the Bribery Act include the following:
1. A STRICT LIABILITY CORPORATE OFFENSE
The Bribery Act introduces a new strict liability corporate offence of failing to prevent bribery by a person “associated” with the organization, where that person intends to obtain or retain business for the organization or to obtain or retain an advantage in the conduct of business for the organization. This is the biggest change to the current position in the United Kingdom and will have the greatest impact on compliance programmes.
An “associated” person is one who performs services for or on behalf of the organization. The Bribery Act indicates that it may include employees, agents or subsidiaries. This is not, however, an exhaustive list – it could also include self-employed persons, consortia and joint ventures which provide services for or on behalf of the organization. It should be borne in mind that there is..
SEC and DOJ Investigating Drug Companies for FCPA Violations
According to federal investigators earlier this month, major pharmaceutical firms may be bribing regulatory officials and hospital committees overseas to approve and purchase their products, as well as using sales agents’ commissions as a kickback for government-employed doctors. The companies involved are heavy hitters in the industry, including:
Tata Communications under Investigation for Bribery
Tata Communications, a global telecommunications firm based in India, recently disclosed that it is being investigated for bribery practices that violate the Foreign Corrupt Practices Act. It is subject to the legislation because Tata conducts business in the United States.According to its filings with the Security and Exchange Commission, a subsidiary allegedly bribed..
ABB Settles with DOJ, SEC over FCPA Violations in Mexico
Swiss firm ABB, a major player in the electrical technology industry, has reached two expensive settlements regarding its violations of the Foreign Corrupt Practices Act. The penalties total $58 million: $16.5 million in civil penalties and $22.8 million in revenue returned to the Security and Exchange Commission, and a criminal fine of $19.1 million paid to the U.S. Department of Justice.
House Passes Bill Barring FCPA Violators from Government Grants, Contracts
The Overseas Contractor Reform Act, introduced earlier this year by Democratic Representative Peter Welch (Vermont), would forbid any U.S. government contracts or grants from going to any organization found to have been in violation of the Foreign Corrupt Practices Act.
Continuous Monitoring and FCPA Compliance
Contributed by Michael L. Volkov
The steady drumbeat of FCPA enforcement continues -- now the pharma and medical device industries are on the target list, and tobacco companies recently reached plea agreements with the government.
The enforcement horizon looks like more of the same -- companies hope to escape the enforcement eye of the Justice Department and the Securities Enforcement Commission.
More and more companies are asking the fundamental question -- is the cost of proactive compliance steps justified in light of the risk of enforcement?
Even considering that the cost of an internal investigation can easily reach the millions of dollars, some companies are choosing to avoid the proactive compliance cost, and instead rely on...
Rio makes changes in China after bribery
Anglo-Australian mining giant Rio Tinto has made changes to how it does business in China, following the convictions of four employees on bribery and trade secrets charges, a report said Saturday.
Chief executive Tom Albanese said in Shanghai that the cases brought against Australian former executive Stern Hu and three of his ex-colleagues had prompted a wide-ranging reassessment of the company's China operations.
"Recommendations from that review have been put in place," the Wall Street Journal quoted Albanese as saying. "We all have to learn from our experiences," he added.
Albanese offered few specifics about the changes made, but in February, the company named a new managing director for China, based in Shanghai. On Friday, Albanese also introduced...
UK’s new Bribery Act stirs debate
The new United Kingdom Bribery Act received Royal Assent on April 8 this year. In an effort to provide a new consolidated body of bribery offences, the Act replaces the offences in previous legislation, and introduces the discrete offence of “bribery of a foreign public official”, as well as a new offence where a commercial organization fails to prevent bribery. The Act has generated considerable discussion as it has implications not only for individuals and commercial organizations operating inside the United Kingdom, but also for British and foreign companies engaging in business transactions on an international scale. Although not yet in force, it is expected that the Act will be become law in 2011.
DOJ, SEC announce enforcement actions against tobacco companies
The DOJ and SEC announced enforcement actions against two major tobacco companies, Universal Corporation, Inc. and Alliance One International, Inc.
“The DOJ filed criminal actions against a Universal subsidiary and two Alliance One subsidiaries charging each of them with one count of conspiring to violate the FCPA and one count of violating the anti-bribery provisions of the FCPA. Universal and Alliance One entered into non-prosecution agreements with the DOJ and agreed to pay criminal penalties of $4,400,000 and $9,450,000, respectively, and retain independent monitors for a period of three years.”
Arms suspect Bout turns to PM to stop extradition
Suspected Russian arms smuggler Viktor Bout has sought help from Prime Minister Abhisit Vejjajiva to block his extradition to the US. Mr Bout made the request in an 11-page, hand-written letter submitted through his lawyer Lak Nittiwattanawichan to an official at Government House yesterday.
"We want the prime minister to provide security because there may be threats [in jail]," Mr Lak told reporters. "We oppose the extradition because the process is not being done according to the law. Mr Bout will not receive justice in the United States and he will not be safe there."
Mr Abhisit said he had not received the letter but he had already ordered better security for Mr Bout. The prime minister denied on his weekly talk show that ...
Most Common FCPA Myths
Written by Michael L. Volkov
The FCPA doesn’t apply to conduct that takes place entirely outside of the United States without U.S. parent company involvement
False. The harsh reality is that turning a “blind eye” to business operations in the far corners of the globe is a sure-fi re way to invite FCPA non-compliance and regulatory scrutiny.
The 1998 amendments to the FCPA expanded the jurisdictional reach of the statute to include an alternative nationality test.
Whereas, prior to the amendments, “use of the mails or any means of instrumentality of interstate commerce in furtherance of” an improper payment was needed for the FCPA to apply, under the alternative nationality test, the FCPA applies to improper payments made by U.S. companies and citizens that take place wholly outside of the United States without regard to whether “the mails or any of other means of instrumentality of interstate commerce” were used in furtherance of the improper payment.
Thus, proof of a U.S. territorial nexus is not required for the FCPA to be implicated and FCPA violations can,...
Robert Antoine was a former offi cial of the Republic of Haiti’s state-owned national telecommunications company, Telecommunications D’Haiti (better known as Haiti Teleco). On May 12th, 2010, he pled guilty to a money laundering conspiracy charge in connection with a foreign bribery scheme, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division; U. S. Attorney Jeffrey H. Sloman of the Southern District of Florida; and Daniel W. Auer, Special Agent in Charge of the Internal Revenue Service, Criminal Investigation (IRS-CI) Miami Field Office.
The British international defense contractor, BAE Systems PLC (BAES) has pled guilty in a U.S. District Court to conspiring to defraud the United States by impairing and impeding its lawful functions; to making false claims about its Foreign Corrupt Practices Act (FCPA) compliance program and to violating the Arms Export Control Act (AECA) as well as International Traffi c in Arms Regulations (ITAR.).
These charges were brought after an investigation by the U.S. Immigration and Customs Enforcement Agency as well as other federal agencies. As a result of the violations, BAES was sentenced to pay...
Rod Blagojevich is charged with trying to sell President Barack Obama’s old Senate seat to the highest bidder and prosecutors say he tried to extort Jackson to raise a $1 million for his campaign war chest in exchange for the appointment.
But during opening statements in the federal corruption trial of Blagojevich and his brother, Robert Blagojevich, defense attorney Sam Adam, Jr., insisted that the former governor was simply trying to get the attention of power brokers in Washington by floating Jackson’s name. And the brothers never asked for money, Adam insisted.
In all, Blagojevich is charged with...
Former Massachusetts State Senator DIANNE WILKERSON pled guilty today to public corruption charges stemming from her acceptance of more than $20,000 in cash payments in connection with her offi cial duties.
The counts to which WILKERSON pled guilty to represent the government’s core charges against WILKERSON, stemming from her acceptance of eight cash payments over a period of 16 months, totaling $23,500 from undercover agents and...
What is the Cost of FCPA Compliance? Or what is the cost of non-compliance?
Written by Thomas R. Fox
How do you measure the cost of poor performance? In the baseball world how do you measure the cost of the Houston Astros abysmal April and equally poor start to May, which is projected to lead to a 50-108 season record? One measure is the number of people who pay to come out to the ballpark. As reported in the May 2nd edition of the Houston Chronicle, the Astros home attendance is down 2,640 which translates into a per game revenue loss of up to $660,000. That works out to a full season loss of revenue of up to $5,436,000. This, of course, assumes that the drop in attendance is based directly on poor performance and not other factors such as the drop in disposable income due to the economy or some other factor. But is this the sole measure of the Astros loss?
Avon’s Trouble with FCPA Violation Investigation
Major cosmetics industry company Avon Products Inc. has suspended four executives in relation to an internal investigation of possible violations of the Foreign Corrupt Practices Act. Three of the suspended employees were the president of Avon’s China unit, S.K. Kao; the unit’s chief financial officer Jimmy Beh; and C.Q. Sun, the head of the corporate affairs and government relations group at the unit. The fourth suspended employee was the head of Avon’s internal audit unit based in New York, Ian Rossetter.
Robert Antoine was a former official of the Republic of Haiti’s state-owned national telecommunications company, Telecommunications D’Haiti (better known as Haiti Teleco). On May 12th, 2010, he pled guilty to a money laundering conspiracy charge in connection with a foreign bribery scheme, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division; U. S. Attorney Jeffrey H. Sloman of the Southern District of Florida; and Daniel W. Auer, Special Agent in Charge of the Internal Revenue Service, Criminal Investigation (IRS-CI) Miami Field Office.
The British international defense contractor, BAE Systems PLC (BAES) has pled guilty in a U.S. District Court to conspiring to defraud the United States by impairing and impeding its lawful functions; to making false claims about its Foreign Corrupt Practices Act (FCPA) compliance program and to violating the Arms Export Control Act (AECA) as well as International Traffic in Arms Regulations (ITAR.).
Daimler, the maker of Mercedes-Benz, Maybach and Smart brand cars, has agreed to pay $185 million in fines and penalties to the U.S. government to settle charges that it violated the Foreign Corrupt Practices Act (FCPA) by giving tens of millions of dollars to officials in at least 22 countries including Russia, Egypt, Nigeria and China between 1998 and 2008.
Innospec Inc., a Delaware chemical corporation, pleaded guilty on March 18, 2010 to defrauding the United Nations, violating the Foreign Corrupt Practices Act (FCPA) as well as violating the U.S. embargo against Cuba.
This case is the first bribery -related settlement managed between the SEC, the Department of Justice, and the Serious Fraud Office.