Category: Bribery and Corruption

Blue Collar or White Collar

Undercover agents, wire taps and search warrants. For a criminal case it sounds like your typical organized crime investigation. You would expect the indictment to have charges for drug dealing, racketeering, murder or something similar.

But last week we heard that these were the techniques used to catch the 22 people indicted for violations of the Foreign Corrupt Practices Act. An undercover FCPA sting?

The FBI and DOJ are now using blue collar investigation tools for white collar crimes. As Scott Greenfield points out, in prison all collars are striped.

These white collar defendants used email and left a nice paper trail for undercover feds to put together their indictments. One defendant even ran the issue past his compliance department, but ignored their advice. These defendants made it easy.

A smart drug dealer will wonder if the person on the other side of the deal is a cop. Now white collar criminals need to start having the same concerns. After all, briefcases are great for holding recording equipment.

But Everyone Else is Doing it

In my hasty post on last week’s FCPA sting operation my focus was on the aggressive use of an undercover operation to catch violations of the Foreign Corrupt Practices Act. That was big news. It’s the first time that’s happened. The indictments did not disclose the companies involved.

It’s now clear that this sting operation was much bigger deal. The Department of Justice went after an entire industry. Richard Cassin dug around and found that those arrested came from dozens of different companies. Small companies, big companies, private companies, public companies.

Twenty-one of the arrests happened at the Shooting, Hunting, Outdoor Trade Show and Conference (SHOT Show), “the largest and most comprehensive trade show for all professionals involved with the shooting sports and hunting industries.” The SHOT show attracts tens of thousands of people from across the US and the world, with 1,800 exhibitors covering 700,000 square feet.

The sting was clearly a statement that the Department of Justice is not going to take an excuse that “everyone else is doing it.”

It does not matter if greasing palms happens to be a common way to transact commerce in the industry. They are willing to take on an entire industry. They are willing to use undercover operations. They are willing to make a big splash at a big media event.

Sources:

DOJ Nets 22 in FCPA Sting

“The largest single investigation and prosecution against individuals in the history of DOJ’s enforcement of the Foreign Corrupt Practices Act”

The Department of Justice has gotten serious about the FCPA.

“This ongoing investigation is the first large-scale use of undercover law enforcement techniques to uncover FCPA violations and the largest action ever undertaken by the Justice Department against individuals for FCPA violations,” said Assistant Attorney General Lanny A. Breuer. In connection with these indictments, approximately 150 FBI agents executed 14 search warrants in locations across the United States. Plus, the United Kingdom’s City of London Police executed seven search warrants.

According to the indictments, the defendants agreed to pay a 20 percent “commission” to a sales agent who the defendants believed represented the minister of defense for a country in Africa to win a portion of a $15 million deal. The “sales agent” was actually an undercover FBI agent. The defendants were told that half of that commission would be paid directly to the minister of defense. The defendants allegedly agreed to create two price quotes in connection with the deals, with one quote representing the true cost of the goods and the second quote representing the true cost, plus the 20 percent commission. The defendants also allegedly agreed to engage in a small “test” deal to show the minister of defense that he would personally receive the 10 percent bribe.

I have not gotten through all of the indictments, but the DOJ purposefully omitted the name of the employers of the indicted individuals. I would guess that he have not heard the end of this. People can run; companies cannot.

Sources:

2009 Year-End FCPA Update

gibsondunn

In case you missed it, 2009 was full of FCPA enforcement actions and trials. The Department of Justice and Securities and Exchange Commission worked hand in hand over the past year bringing actions for FCPA violations. They set a record by bringing more FCPA prosecutions during 2009 than in any prior year in the FCPA’s history.

From Gibson, Dunn & Crutcher LLP
From Gibson, Dunn & Crutcher LLP

To pull it all together, the law firm of Gibson, Dunn & Crutcher LLP put together a 2009 Year-End FCPA Update.

This update provides an overview of the FCPA and a survey of FCPA enforcement activities during 2009.  It also analyzes recent enforcement trends and offers practical guidance to help companies and their executives avoid or minimize liability under the FCPA.

They also claim that there are over 100 FCPA investigations pending at the Justice Department, and “a robust stock of FCPA matters” under investigation at the SEC.

Mike Koehler takes issue with some of the numbers. But you can’t argue with the success of FCPA actions over the past year. Success breed success. In response the DOJ and SEC have organized special groups to focus on FCPA violations. I expect that we will continue to see more activity in this area.

References:

New Massachusetts Lobbying Law is now in Effect

massachusetts-quarter

In mid-2009, the Massachusetts Legislature was rocked by the highly public federal indictments of a state senator and speaker of the Massachusetts House. In response, the legislature passed a sweeping overhaul of its campaign finance, lobbying and government ethics laws.

There are new rules in the Commonwealth that went effective on January 1. (Massachusetts is a commonwealth, not a state, which of course is longer but has no legal meaning.)

Last week, “lobbying” was limited to direct contact with elected officials or other government employees. With the new law in place, “executive lobbying” and “legislative lobbying” have much broader definitions.

“Executive lobbying,” any act to promote, oppose, influence, or attempt to influence the decision of any officer or employee of the executive branch or an authority, including but not limited to, statewide constitutional officers and employees thereof, where such decision concerns legislation or the adoption, defeat or postponement of a standard, rate, rule or regulation promulgated pursuant to any general or special law, or any act to communicate directly with a covered executive official to influence a decision concerning policy or procurement; provided further, that executive lobbying shall include acts to influence or attempt to influence the decision of any officer or employee of a city or town when those acts are intended to carry out a common purpose with executive lobbying at the state level; and provided further, that executive lobbying shall include strategizing, planning, and research if performed in connection with, or for use in, an actual communication with a government employee; and provided, further, that “executive lobbying” shall not include providing information in writing in response to a written request from an officer or employee of the executive branch or an authority for technical advice or factual information regarding a standard, rate, rule or regulation, policy or procurement for the purposes of this chapter.

You have to register if you are an “executive agent” or “legislative agent.” There are four parts of those definition:

  • engage in executive or legislative lobbying (defined by the statute)
  • receive compensation for lobbying in excess of $2,500 in a six-month reporting period as regular salary or payments for lobbying
  • spend 25 hours or more engaged in lobbying activities in the 6 month reporting period
  • personally make at least one direct lobbying communication with a government employee.

Having trouble following along? The Secretary of Commonwealth put together this flow chartpdf-2.

References:

International Anti-Corruption Day

Corruption Your No Counts

The theme of this year’s observance of the International Anti-Corruption Day is

“Don’t let corruption kill development.”

“When public money is stolen for private gain, it means fewer resources to build schools, hospitals, roads and water treatment facilities. When foreign aid is diverted into private bank accounts, major infrastructure projects come to a halt. Corruption enables fake or substandard medicines to be dumped on the market, and hazardous waste to be dumped in landfill sites and in oceans. The vulnerable suffer first and worst.”

What can you do?

The Your No Counts website has a number of things you can do.

  • Ratify and enact the UN Convention against Corruption.
    Countries that successfully attack corruption are far more legitimate in the eyes of their citizens, creating stability and trust.
  • Know what Convention requires of your government and its officials.
    Rooting out corruption allows social and economic development.
  • Educate the public about the government’s responsibility to be corruption-free.
    Equal and fair justice for all is a crucial element for a country’s stability and growth. It also helps to effectively fight crime.
  • Raise awareness with the public, media and government about the costs of corruption for key services such as health and education.
    All of society benefits from functioning basic services.
  • Engage the youth of your country about what ethical behavior is, what corruption is and how to fight it, and to demand their right to education.
    Ensuring that future generations of citizens are brought up to expect corruption-free countries is one of the best tools to ensure a brighter future.
  • Report incidents of corruption.
    Create an environment where the rule of law prevails.
  • Refuse to participate in any activities that are not legal and transparent.
    Increases both domestic and foreign investment. Everyone is more willing to invest in countries when they see that funds are not being siphoned off into the pockets of corrupt officials.
  • Foster economic stability by enforcing zero-tolerance practices towards corruption.
    A transparent and open business community is a cornerstone of any strong democracy.

New Anti-Bribery Compendium

trace-compendium-logo

Trace International has launched an online, fully-searchable database containing summaries and analyses of international anti-bribery enforcement actions and investigations in the U.S. and throughout the world. The Trace Compendium summaries are searchable by name or by numerous other criteria, including year, substantive criteria, enforcement authority, and enforcement result.

Want the actions involving officials in Thailand?
You can see the actions involving Thailand Officials.

Want the actions from the Tokyo District Public Prosecutors Office?
You can find the actions from the Tokyo District Public Prosecutors Office.

Want all the cases involving property development?
You can search for the cases involving property development.

It’s a fantastic resource if you are looking at bribery and corruption cases.

References:

  • The Trace Compendium
  • Trace Launches Anti-Bribery Compendium from the Wrage Blog

FCPA: Overcoming the Toughest Issues

FCPA panel

Bruce Carton and SecurtiesDocket presented this informative webinar. The panelists were:

securitiesdocket

– Hank Walther, Dept. of Justice
– Larry Urgenson, Kirkland & Ellis
– Elliot Leary, KPMG Forensic
– Phil Desing, KPMG Forensic

The panel started of with parallel international investigations. This is a new topic because for years there was no other country enforcing anti-bribery laws. There are some limitations on investigations. In particular, there is the secrecy of grand jury information. The Justice Department is willing to get a court order for the benefit of a foreign government’s prosecution.

As for self-reporting in jurisdictions outside the US, the panelists see instances of disclosures to other governments. Companies want a one stop shop for disclosure.

Due diligence on agents, distributors, and in connection with M&A activity continues to be a challenge, In a KPMG Survey, 82% respondents found performing effective due diligence on foreign agents/third parties “somewhat” to “very” challenging. Two of the three DOJ FCPA opinion releases in 2008 address merger and acquisition due diligence matters: 08-01 and 08-02.

Of course, the current global financial crisis may increase opportunities for corruption, given the greater competitive atmosphere and fewer resources being available.

You want to conduct proactive due diligence. Require the third party to fill out a Questionnaire that will include among other things, FCPA representations and warranties, disclosure of government affiliations, employment information, company ownership. Conduct media and public record searches. Also conduct due diligence evaluations on company personnel. Agreements should contain FCPA specific language, including audit rights.

In high risk countries, be sure to focus on the safety of your employees. If there is a concern for physical safety, pay and get out.

After an acquisition, make sure that you quickly roll out your policies and procedures. Start the monitoring as soon as you can.

References:

No Bribe, Just a Thanks

fly fishing

The Commonwealth of Massachusetts Ethics Commission fined Norfolk property developer Jack Scott for violating section 3 of M.G.L. c. 268A, the conflict of interest law, by offering an illegal gift to a municipal employee. Scott offered a free week’s stay at his fly-fishing cabin in Pennsylvania to the chairman of the Norfolk Conservation Commission at a time when Scott had matters pending before the Commission.

My favorite part is this statement from Scott to the Chairman in an email:

Lastly when you step down from the commission so no one in this dame [sic] town can say anything about anything my cabin is yours for a week with your family… the best trout fishing in the east and great for the kids. Jeff no bribe just a thanks for being on the up and up with us regardless of how this all plays out. [my emphasis]

Just saying something is not a bribe does not work. If you offer something of value to a public official when you have a matter in front of the public official, it’s going to be considered a bribe.

Press release: Norfolk Property Developer Jack Scott Fined $2,000

Decision and Order in Mass. Ethics Comm. In the Matter of John F. Scott – hosted on JD Supra

Image is by koliver

Canada’s Foreign Corrupt Practices Act

canada

In the United States, the Foreign Corrupt Practices Act has received significant attention due to some recent high-profile prosecutions. Just to the North, there is the Canadian equivalent to the FCPA: the Corruption of Foreign Public Officials Act. It has not yet been a significant concern for most businesses that fall within its jurisdiction.

But that is likely to change.

The CFPOA was passed in 1999,  in ratification of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

3.(1) Every person commits an offence who, in order to obtain or retain an advantage in the course of business, directly or indirectly gives, offers or agrees to give or offer a loan, reward, advantage or benefit of any kind to a foreign public official or to any person for the benefit of a foreign public official.

(a) as consideration for an act or omission by the official in connection with the performance of the official’s duties or functions; or

(b) to induce the official to use his or her position to influence any acts or decisions of the foreign state or public international organization for which the official performs duties or functions.

Canada has jurisdiction over the bribery of foreign public officials when the offense is committed in whole or in part in its territory. To be subject to the jurisdiction of Canadian courts, a significant portion of the activities constituting the offense must take place in Canada.

References: