Author: Doug Cornelius

You can find out more about Doug on the About Doug page

Securities Litigation and the FCPA

last week the Ninth Circuit handed down a decision in a securities litigation case related to FCPA violations in Glazer Capital Management LP v. Magistri.

Glazer’s claims arose after InVision Technologies, Inc. (InVision) announced, in March 2004, that it had entered into a merger agreement with General Electric (GE). Several months later, in July 2004, InVision issued a press release, casting doubt on the merger because of the discovery of potential violations of the Foreign Corrupt Practices Act of 1997(FCPA), 15 U.S.C. § 17dd-1. Although the proposed merger ultimately was consummated, the July 2004 announcement resulted in an immediate drop in InVision’s share price. A class action complaint was filed by InVision shareholders and Glazer was appointed lead plaintiff.

The suit was largely based on three alleged misstatements in the merger agreement attached to the 10-K filed to announce the transaction. The merger agreement has representations that InVision was in compliance with all applicable law, in compliance with the books and record provisions of the FCPA and that the company had no knowledge of any FCPA violations. The merger agreement was signed by the President/CEO and the COO of the company.

One element of securities litigation is to show the element of scienter, that is the the required state of mind for the violation. In this case, that the defendant intended to commit the fraud. There is a concept of “collective scienter” where the intent of the company is imputed on the individual.  In this case, the court found that since the CEO and COO are the ones that signed the merger agreement the plaintiff needs to prove that one of those two new that the statements were not correct.

As Kevin M. LaCroix of the D & O Diary points out:

[I]n the InVision case, “the surreptitious nature of the transactions creates an equally strong inference that the payments would have deliberately kept secret – even within the company.” Obviously, payments of this kind invariably are of a surreptitious nature and of a kind that would be kept secret, even within the company. The implication is that in order for a securities claim alleging FCPA-related disclosures to survive the initial pleadings stage, the claimants may have to plead that the company officials who prepared the company’s public disclosures were aware of the improper activities.

Know Your Customer Podcasts

You can find a seried of FINRA Compliance Podcasts on their Compliance Podcast webpage and from iTunes.  Last summer they have a few on Customer Identification Programs and Anti-Money Laundering programs:

Kozeny Decision Limits Defense to FCPA

Melissa Klein Aguilar wrote a peice on Compliance Week about the decision in U.S. v. Kozeny decision that limits the local law defense under the Foreign Corrupt Practices Act: FCPA Decision Narrows Local-Law Defense.

The Kozeny decision makes clear that if the payment itself is illegal, the local-law defense can’t be used even if the common practice in that country is to forgive the offense; the transaction must be permitted under local law.

In the facts of the Kozeny case were unusual. Local Azerbaijani law the voluntary declaration of having committed bribery absolves the bribe-giver and his accomplices from criminal responsibility. The Kozeny court did not seem to think this was the same as the bribe being legal.

The judge also finds that mere economic coercion is not a defense. The Kozeny judge equates true extortion with a “payment made to an official to keep an oil rig from being dynamited.”

The article also points us to two law firm legal alerts:

Code of Business Ethics for Jones Lang LaSalle

Jones Lang LaSalle Incorporated was named to The Ethisphere Institute’s 2008 World’s Most Ethical Companies list.

The World’s Most Ethical Companies are the ones that go above and beyond legal minimums, bring about innovative new ideas to expand the public well being, work on reducing their carbon footprint rather than contributing to green washing and won’t be found next to the words “Billion Dollar Fine” in newspaper headlines any time in the near future. These are the companies that stand out among the competition in their industry.

The Jones Lang LaSalle Code of Ethics (.pdf) is published on the “investor relations” section of their website.

Making Smarter Risk Decisions

PriceWaterhouseCoopers published Making Smarter Risk Decisions.

The paper looks at how the most successful organisations define their risk appetite and integrate this appetite into business strategy and culture so that all facets of the business consistently apply the desired risk thresholds, top down, to decision making, an organisation can achieve optimal performance and compliance and avoid investing in redundant or ineffective functions, processes and technology.

One section of the paper addresses risk appetite:

Developing this culture requires leadership to not only define risk appetite and ethical
business standards, but to encourage employees to do the right thing through clear communication of objectives and risk appetite; incentive and reward systems that are aligned to employees “doing the right thing”; and role specific ethics, compliance and risk training programmes. It also requires that management be prepared to take a hard line with employees who don’t “do the right thing”, but not with those employees who truly “do the right thing” and achieve sub-optimal results.

No business deal should ever justify putting your company’s reputation at risk.

What You Need to Know About U.S. Sanctions Against Drug Traffickers

As part of OFAC‘s Specially Designated National List, OFAC includes narcotics kingpins. OFAC has published What You Need to Know About U.S. Sanctions Against Drug Traffickers (.pdf).

On December 3, 1999, the President signed into law the Foreign Narcotics Kingpin Designation Act (the “Kingpin Act”), 21 U.S.C. § 1901-1908, 8 U.S.C § 1182. The related regulations are styled the “Foreign Narcotics Kingpin Sanctions Regulations” (31 C.F.R. Part 598).

The Kingpin Act blocks all property and interests in property, subject to U.S. jurisdiction, owned or controlled by significant foreign narcotics traffickers as identified by the President. In addition, the Kingpin Act blocks the property and interests in property, subject to U.S. jurisdiction, of foreign persons designated by the Secretary of Treasury, in consultation with the Attorney General, the Director of Central Intelligence, the Director of the Federal Bureau of Investigation, the Administrator of the Drug Enforcement Administration, the Secretary of Defense, and the Secretary of State, who are found to be: (1) materially assisting in, or providing financial or technological support for or to, or providing goods or services in support of, the international narcotics trafficking activities of a person designated pursuant to the Kingpin Act; (2) owned, controlled, or directed by, or acting for or on behalf of, a person designated pursuant to the Kingpin Act; or (3) playing a significant role in international narcotics trafficking.

Significant foreign narcotics traffickers and foreign persons designated by the Secretary of the Treasury are referred to collectively as Specially Designated Narcotics Traffickers. Foreign persons designated under the Kingpin Act are referred to as “[SDNTK]s” on OFAC’s listing of “Specially Designated Nationals and Blocked Persons” to differentiate them from the Specially Designated Narcotics Traffickers named under Executive Order 12978.

U.S. persons are prohibited from engaging in any transaction or dealing in property or interests in property of [SDNTK]s and from engaging in any transaction that evades or avoids the prohibitions of the Kingpin Act. These prohibitions affect trade transactions as well as accounts, securities, and other assets.

Bribery and Corruption Have Become Endemic in Russia

The Economist ran a special report on Russia. The article that caught my eye was Grease My Palm. In looking at the scope of the problem in Russia, the articel cites the corruption market being estimated at $300 billion, which is about 20% of Russia’s GDP. INDEM (a Russian NGO) says 80% of all Russian businesses pay bribes.

It makes you wonder how any U.S. business can being doing business in Russia without violating the FCPA.

Iraq Is Quietly Firing Fraud Monitors

From James Glanz and Riyadh Mohammed of the New York Times: Premier of Iraq Is Quietly Firing Fraud Monitors.

The dismissals, which were confirmed by senior Iraqi and American government officials on Sunday and Monday, have come as estimates of official Iraqi corruption have soared. One Iraqi former chief investigator recently testified before Congress that $13 billion in reconstruction funds from the United States had been lost to fraud, embezzlement, theft and waste by Iraqi government officials.

Iraq, in its earliest days of existence, looks like it headed toward being a kleptocracy and will be another example of the resource course.

Standards and Best Practices for Records and Information Management

ARMA International maintains a collection of best practice procedures:

JD Supra Expands its Reach to Facebook and Twitter

This post originally appeared in my old blog, KM Space.

I was one of the founding contributors to JD Supra. I was intrigued by the idea of a collective repository of legal documents. Intrigued enough that I was also a top ten contributor for a while.

One of criticisms was that a mere online repository of documents is not that compelling. Why should I publish to JD Supra? They started showing some value [See my post: JD Supra Revisited about how I was contacted to write a story based on my publications in JD Supra.] Now there are two new reasons.

One is their new connectivity with Facebook. You can “fan” JD Supra on their Facebook page:
http://www.facebook.com/apps/application.php?id=26217609291.

Even better, your publications in JD Supra can show up in your Facebook news and profile. JD Supra created a new application that ties your publications to your Facebook profile.

Below you can see the three documents I published last week. They go into my update stream, so my “friends” in Facebook can see my publications.

There is also a “box” on my Facebook profile that accesses all of my documents in JD Supra through Facebook.

Second, JD Supra is tying the publication of documents in JD Supra to some Twitter stream. I noticed my Blogging / Social Internet Policy go into the twitter stream last week.

It looks like JD Supra is using these Twitter handles to re-publish alerts:

I am a huge fan of the connectivity between online communities. It creates much more value by republishing information in different ways so people can access and find the information they need in a way that works for them.

See some other takes on the new feature of JD Supra: