Category: Foreign Corrupt Practices Act

Diplomatic Immunity, Corruption and Parking Tickets

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The Foreign Corrupt Practices Act only applies to those making bribes. It does not apply to the recipients of bribes. Since the recipient must be a “foreign official” you run into the issue of “diplomatic immunity.” Richard Cassin looked at one of the approaches to taking actions against the kleptocrats in Proclamation 7750 Unwrapped on The FCPA Blog.

The concept of diplomatic immunity is that officials should only be held accountable to the laws in their home state. We would not want our officials being courted off to a foreign country for prosecution. Other countries should not expect their officials to be courted off to the U.S. for prosecution. I am sure you have seen an episode of Law & Order or Lethal Weapon 2 where a criminal runs free under diplomatic immunity.

It should not surprise you that there is a correlation between parking violations scofflaws under diplomatic immunity and the corruption in their home country.  Ray Fishman and Edward Miguel published a paper researching parking violations and diplomatic immunity in New York City.

The Clinton-Schumer Amendment, which gave the New York City permission to tow diplomatic vehicles, revoke their official parking permits, and have 110 percent of the total amount due paid from U.S. government aid to the offending diplomats’ countries of origin, resulted in a substantial decrease in diplomatic parking scofflaws.

The authors also found that there is strong correlation between the affinity for the U.S. and the diplomat’s home country.

Here is the top ten from the study:

  • KUWAIT
  • EGYPT
  • CHAD
  • SUDAN
  • BULGARIA
  • MOZAMBIQUE
  • ALBANIA
  • ANGOLA
  • SENEGAL
  • PAKISTAN

Most of these are well known for corruption. It seems these countries also export their corruption.

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FCPA Compliance & Investigative Due Diligence

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EthicsPoint sponsored a webinar with Ellen Zimiles of Daylight Forensic and Advisory LLC, talking about FCPA Compliance & Investigative Due Diligence. This presentation is supposed to provide an overview of current FCPA trends and highlight elements to implement an effective FCPA compliance policy. These are my notes.

Ellen started off with a summary of current FCPA activity showing a surge in the number of enforcement actions underway by the DOJ and SEC on global corruption and bribery. There is also increased global coordination on corruption investigations and prosecutions. She also noted that there is a focus on individuals. In 2008, 60% of the FCPA defendants were individuals.

The first element of an effective FCPA compliance program is a risk assessment. You need to look at whether a foreign government is your customer or whether you need government intervention as part of your business operations. Obviously, there are some countries that are more prone to fraud. You also need to revisit this assessment periodically.

Next you want to establish and document your FCPA compliance policy. It needs to be clearly documented and understood at all levels in the company. The policies can vary from business unit to business unit and region to region.

You need a designated FCPA compliance officer. The person needs enough authority to make the sales and marketing people listen.

You need internal accounting controls. It is not just anti-bribery. There are also penalties for failure to properly maintain books and records, thereby disguising potential bribery. Your FCPA policy needs to reference the controls over accounting maintenance.

You need enterprise-wide training. Ellen thinks that your overseas employees are the ones more likely to get you in trouble. In part, some countries have a culture of corruption and your employees may have grown up in that culture.

Ellen recommends having a periodic independent audit. Large multi-nationals are increasingly having specialized FCPA compliance personnel.

Your FCPA compliance program should have a plan for dealing with investigations. Obviously, prevention is better than the cure. Make sure you have a good case management system, with document translations.

Ellen moved on to Investigative Due Diligence which is the proactive identification of risks not ordinarily apparent from financial or legal reviews.

a. Application of exploratory techniques developed by law enforcement agencies
b. Analyze large volumes of publiclly available information
c. Identification of red flags

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France Decides Not to Criminalize International Bribery

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“France has severely restricted its jurisdiction and its ability to prosecute cases with an international dimension, which, given the country’s importance in the international economy and the scale of many of its companies, is very regrettable,” according to a report by GRECO. The Group of States against Corruption (GRECO) was established in 1999 by the Council of Europe to monitor States’ compliance with the organization’s anti-corruption standards.

In June of 2000, France introduced legislation related to the OECD Convention. However in the GRECO report the evaluation team wonders “why, despite the economic weight of France and its close historical links with certain regions of the world considered to be rife with corruption, it has not yet imposed any penalties for bribing foreign public officials.” (¶ 76)

France ratified the Criminal Law Convention on Corruption (ETS 173) on April 25, 2008 with an effective date of August 1, 2008. France entered two reservations as part of enacting the law.

France’s Reservation on the Offense:

“In accordance with Article 37, paragraph 1, of the Convention, the French Republic reserves the right not to establish as a criminal offence the conduct of trading in influence defined in Article 12 of the Convention, in order to exert an influence, as defined by the said Article, over the decision-making of a foreign public official or a member of a foreign public assembly, referred to in Articles 5 and 6 of the Convention.”

France’s Reservation on Jurisdiction:

“In accordance with Articles 17, paragraph 2, and 37, paragraph 2, of the Convention, the French Republic declares that it reserves the right to establish its jurisdiction as regards Article 17, paragraph 1.b, of the Convention, only when the offender is one of its nationals and the offences are punishable under the legislation of the country where they have been committed, and that it reserves the right not to establish its jurisdiction regarding the situations referred to in Article 17, paragraph 1.c, of the Convention.”

In my reading of the GRECO report, it sounds like France dropped the international bribery charge because it is too hard to prove and obtain conviction. (¶ 83)

To be fair to France, GRECO has not yet completed the Third Evaluation Round for all 46 members. So other countries many take a similar position. But the 11 made public so far have not excluded bribery of foreign officials.

France causes other problems with compliance programs. France blocks traditional SOX whistleblower programs because of concerns abut worker’s privacy.  If you want a whistleblower program in France, you need to register it with the CNiL and it must be limited to reports about the “vital interests of the company or it its employee’s physical or mental integrity”

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Approaching the Sphinx: The DOJ’s Opinion Release Procedure under the FCPA

wrageblogAlexandra Wrage of the WrageBlog shares her experiences using the Department of Justice’s opinion release procedure under the Foreign Corrupt Practices Act: Approaching the Sphinx: The DOJ’s Opinion Release Procedure.

Ms. Wrage takes us through the experiences of TRACE International in obtaining FCPA Opinion Procedure Release 08-03.

The opinion release procedure for the Foreign Corrupt Practices Act is fairly unique for a criminal law. You can ask the government if your proposed action is potentially criminal.

Recent Trends and Patterns in FCPA Enforcement

shearmanPhilip Urofsky and Danforth Newcomb of Shearman & Sterling LLP have released their latest update on the Recent Trends and Patterns in FCPA Enforcement (.pdf).

The Foreign Corrupt Practices Act has been front page news quite a bit lately with the enormous settlement of Siemens. The first to break through $1 billion. The Hallibuton/KBR settlement followed up with enormous numbers, just not quite as big as Siemens. There has been rumors floating around that there are several other cases out there with substantial fines as a result of FCPA prosecutions. Of course these numbers have been swallowed up by Madoff, Stanford and al of the gyrations in the market.

What do Mr. Urofsky and Mr. Newcomb have to say?:

The past year has seen the announcement of a number of FCPA enforcement actions with unprecedented fines and penalties. However, while such major cases as Siemens and Halliburton/KBR have obviously dominated the news, it is hard to say whether they represent a trend toward large-scale high-penalty FCPA prosecutions although there are likely several cases with similarly substantial fines to come. More important than the size of the penalty are the multi-year trends of increasing numbers of enforcement investigations and enforcement actions against both corporations and individuals, which have been accompanied by expansive assertions of jurisdiction by the U.S. enforcement authorities and a rapidly growing body of interpretative guidance, both from the courts and the enforcement agencies themselves. The increased risk of investigation or enforcement action has resulted in increased sensitivity to FCPA concerns in M&A transactions, as well as in common commercial transactions and business relationships. Further, as demonstrated by the Siemens matter, non-U.S. enforcement agencies have begun to initiate investigations of their own, suggesting that, in the future, there is a greater likelihood that multinational corporations will have to respond to, defend, and possibly settle investigations and enforcement actions in multiple jurisdictions.

Morgan Stanley Self-Reports FCPA Violation

morganstanley_logoIn a February 9, 2009, 8-K Filing with the SEC, Morgan Stanley self-reported a violation of the Foreign Corrupt Practices Act:

II. In an unrelated matter, Morgan Stanley announced today that it has recently uncovered actions initiated by an employee based in China in an overseas real estate subsidiary that appear to have violated the Foreign Corrupt Practices Act. Morgan Stanley terminated the employee, reported the activity to appropriate authorities and is continuing to investigate the matter.

Gibson Dunn 2008 Year-End FCPA Update

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Gibson Dunn & Crutcher LLP has published its 2008 Year-End FCPA Update.

By any measure, 2008 was a monster year in Foreign Corrupt Practices Act (“FCPA”) enforcement.  With thirty-three enforcement actions between the Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”), the statute’s dual enforcers, 2008 was the second busiest numerical year on the books, trailing only 2007.  But beyond the numbers (after all, with the massive Siemens resolution, 2008 dwarfs all other years combined in fines and disgorgement), 2008 saw the FCPA’s enforcement regime mature like never before.  There were no unimportant FCPA enforcement actions this year.  Whether the trend was increasingly aggressive enforcement against individuals, ramped up international coordination, the joining of FCPA prosecutions with prosecutions for distinct federal crimes, or others trends discussed herein, every case fits an important trend in foreign bribery enforcement that we expect to continue into 2009 and beyond.

They go on to highlight five trends in FCPA enforcement:

1.  Escalating corporate financial penalties;
2.   Increasing focus on individual prosecutions;
3.   Internationalization of foreign anti-corruption enforcement;
4.   DOJ’s coupling of FCPA prosecutions with other charges; and
5.   Continuing upswing in FCPA litigation.

Avery Dennison and the Pitfalls in China

Don Lee of the Los Angeles Times has a great story about the pitfalls encountered by Avery Dennison when it was trying to build its road and traffic business in China: Avery Dennison case a window on the pitfalls U.S. firms face in China.

It highlights the gray area between building relationships and corrupt transactions, especially in an economy like China’s where corruption is more pervasive and accepted.

Avery Dennison ended up under a federal investigation for violations of the Foreign Corrupt Practices Act.

FCPA Trends and Patterns

Danforth Newcomb and Philip Urofsky of Shearman and Sterling have updated their  FCPA Digest of Cases and Review Releases and Recent Trends and Patterns in FCPA Enforcement (.pdf).

In addition to a general increase in FCPA enforcement activity in recent years, four distinctive new trends can be seen. First, both the frequency and severity of enforcement have increased in recent years. While there are fluctuations over short periods, over the past five years there is clearly the trend toward more aggressive investigations and enforcement proceedings by the DOJ and the SEC, including a steady increase in proceedings brought against individuals. These proceedings are also resulting in more severe punishments in the form of fines for corporations and jail time for individuals.

The second trend is the use of more creative methods in resolution of criminal cases. In recent years, the DOJ has increasingly used non-prosecution (or deferred prosecution) agreements in FCPA matters apparently to provide a reward to defendants who voluntarily disclose and cooperate in the DOJ’s investigation and, of course, to provide an incentive to other companies to do likewise.

Third, the DOJ and the SEC have increasingly included a requirement that a company retain an independent compliance monitor as part of any settlement – whether it be a plea, deferred prosecution, or civil settlement. In the past year, however, the DOJ has issued guidance on the circumstances in which a monitor is appropriate and the manner in which one should be selected. In addition, in several recent cases, the DOJ has chosen not to impose a monitor apparently in recognition of the company’s own credible remedial steps.

The final development is a spike in enforcement actions resulting from self-reporting of FCPA problems discovered as part of merger or acquisition activity. This may be somewhat of a self-fulfilling prophecy as more parties are worried about successor liability arising from prior corrupt conduct by the acquired company.

Time may show each of these trends to be mere anomalies in a larger anti-corruption movement, but at this point, one thing is clear: this is a period of rapid change in anticorruption enforcement activity.

Siemens to Pay Huge Fine in Bribery Inquiry

The DOJ’s Information charging Siemens in the biggest FCPA enforcement action ever tells of more than 4,000 payments worth at least $1.4 billion to foreign officials to obtain or retain business. Siemens also had systematic and intentional violations of the internal controls and books and records provisions that might have prevented or detected the corrupt payments.

Unfortunately, the DOJ is not charging Siemens under the anti-bribery provisions of the FCPA. This would have barred them as a government contractor.

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