Tag: FCPA

It Does Not Take Much to Get You Into FCPA Trouble

The recent FCPA enforcement actions brought against Veraz Networks, Inc. shows that it does not take huge piles of money to get in trouble. Veraz admitted to making improper payments of only $40,000.

Not that $40,000 is an insignificant amount. It just pales in comparison to the huge dollars we have seen on other FCPA enforcement actions.

That $40,000 in improper payments led to a $300,000 fine and $3,000,000 of investigation expenses.

Back in 2008 Veraz was involved in an SEC investigation that resulted in the company not being able to timely file its 10Q for March 31, 2008. The FCPA violation was uncovered by the company during this investigation. It’s not clear what the original SEC investigation was focused on, but I would guess it was not FCPA violations. They were merely a byproduct of another investigation.

What lessons can we learn from the Veraz?

It does not take a lot of zeros to have an FCPA violation. It’s clear from the statute that even a nominal amount can be a violation.

FCPA violations are on the SEC’s checklist when they start poking around. The SEC is getting easy wins from the FCPA.

Sources:

FCPA Opinion Procedure Release 10-01

The Department of Justice released its latest Opinion Procedure Release under the Foreign Corrupt Practices Act. It’s one of the quirks of the FCPA that you can ask the Department of Justice whether a particular situation would be a violation of the FCPA.

This opinion is also quirky. The company requesting the opinion was in the odd situation of having to hire a foreign official as the director of a facility it is building in a foreign country.

Hiring a foreign official is an obvious red flag for a potential violation of the FCPA.

The quirk of the situation is that the United States government directed the company to hire the foreign official. The company is building the facility under a government contract as part of US assistance to the foreign country. The foreign country identified the individual they wanted as facility director. They told the US government, who directed the company to hire the individual.

Here are the reasons stated why this situation is not a violation of the FCPA:

  • [T]he Individual is being hired pursuant to an agreement between the U.S. Government Agency and the Foreign Country, and will not be in a position to influence any act or decision affecting the Requestor.
  • [T]he Requestor is contractually bound to hire and compensate the Individual as directed by the U.S. Government Agency.
  • The Requestor did not play any role in selecting the Individual, who was appointed by the Foreign Country based upon the Individual’s qualifications.
  • In neither position will the Individual perform any services on behalf of, or receive any direction from, the Requestor.
  • [T]he Individual will have no decision-making authority over matters affecting the Requestor, including procurement and contracting decisions.

I don’t think this release offers much insight to the FCPA. It does point out that you may be able to hire a foreign official if directed by the US government.

Sources:

Daimler Charged with FCPA Violations

Daimler AG, the parent company of Mercedes-Benz, has been charged with violations of the Foreign Corrupt Practices Act.

The Department of Justice accuses the company of engaging in a long-standing practice of paying bribes worth tens of millions of dollars to foreign officials in over 22 countries.

There is an April 1 hearing in U.S. District Court in Washington D.C.

Daimler is accused of making “hundreds of payments” between 1998 and January 2008 to officials in 22 countries, including China, Croatia, Egypt, Greece, Hungary, Indonesia, Iraq, Ivory Coast, Latvia, Nigeria, Russia, Serbia and Montenegro, Thailand, Turkey, Turkmenistan, Uzbekistan and Vietnam.

Daimler is accused of having “interne Fremdkonten” or third party accounts with over 2000 in place at the time of the Chrysler merger in 1998. There is also mention of cash desk in Stuttgart that sounds a lot like the suitcase room at Siemens, where executives could fill up suitcases of cash to pay bribes.

In China the “819 account” was used to pay special commissions. The account number’s last three digits were “819.”

In addition to the payment of bribes, Daimler is also accused of improperly accounting for the funds in violation of the books and records provisions of the FCPA.

It looks ugly for the company.

Here is a copy of the Information Filing in US v. Daimler AG – hosted on JD Supra:

Sources:

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.

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2009 Year-End FCPA Update

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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:

FCPA: Overcoming the Toughest Issues

FCPA panel

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

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– 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:

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:

FCPA Conviction

bangkok_film_festival

Gerald Green and Patricia Green, Los Angeles-area film executives, were found guilty of conspiracy to violate the Foreign Corrupt Practices Act and money laundering laws of the United States, as well as substantive violations of the FCPA and U.S. money laundering laws. The verdict was handed down late on Friday.

The Greens were charged by the Department of Justice with having bribed Thai authorities up to $1.8 million between 2002 and 2006 to receive approximately $14 million in government contracts and grants to run the Bangkok International Film Festival.

The conspiracy and FCPA charges each carry a maximum penalty of five years in prison, and each of the money laundering counts carries a maximum penalty of up to 20 years in prison. The false subscription of a U.S. income tax return carries a maximum penalty of three years in prison and a fine of not more than $100,000. Sentencing has been set for Dec. 17, 2009, before the Honorable George Wu in the Central District of California.

DOJ Press Release: Film Executive and Spouse Found Guilty of Paying Bribes to a Senior Thai Tourism Official to Obtain Lucrative Contracts