INTRODUCTION

For the last several years we have reported on the developing trend of enhanced anti-corruption enforcement and the concomitant dedication of resources by prosecutors, regulators and other interested parties around the world. Not only have we witnessed a continued commitment toward enhanced anti-corruption activities, but it would appear prudent at this point to conclude that we have passed the tipping point: anti-corruption norms are no longer a trend whose ebbs and flows are properly followed, but are better considered fixtures in the firmament of good corporate governance.

Accordingly, we continue to see regulatory and prosecutorial authorities seeking and obtaining financial penalties amounting to tens of millions of dollars and jail sentences for individuals. While the United States Department of Justice has had several set-backs in its prosecution efforts in the past year, we see no evidence that the DOJ will diminish its efforts or that it has been dealt systemic blows. Rather, the set-backs are best considered as individual bumps in the road for a very determined government agency that continues to dedicate considerable resources and effort to enforcing anti-corruption norms.

We have seen not only the emergence of regulatory and prosecutorial efforts outside the United States, including in Nigeria and other jurisdictions whose enforcement efforts were thought to be lagging, but also the World Bank and other international financial institutions pushing forward individually and collectively (e.g., through cross-debarment) a sophisticated regulatory agenda that increasingly bears hallmarks of a quasi-governmental agency, including published decisions of the World Bank's Sanctions Board.

Enforcement efforts are not limited to companies that have failed to adopt appropriate policies and procedures or have a rogue employee. Rather, we have seen regulatory attention dedicated to companies who had publicly (or privately to regulatory authorities) indicated that they had adopted an effective compliance program only to be found to have either a mere paper program or one that was begun and abandoned. Such instances have been and will be dealt with harshly by authorities who rely on companies to develop and maintain programs, particularly in instances where they have provided assurances in this regard or where regulatory authorities have reduced penalies in reliance on the adoption of an enhanced compliance program.

Finally, there is the persistent question of whether anti-corruption laws, most prominently the United States Foreign Corrupt Practices Act, will be watered down. Despite the various criticisms of the FCPA, recent instances where companies have appeared to make determined efforts to ignore the FCPA's prohibitions or attempt to conduct white-wash style investigations potentially as cover for illicit conduct (or at least to save costs if nothing more nefarious), would seem to provide more than enough fodder to assure that no governmental support will likely accrue to efforts to weaken the FCPA or its sister laws and regulations outside the United States.

Hughes Hubbard's FCPA/Anti-Bribery Alert Summer 2012 discusses these and other anti-bribery developments. This Alert is divided into two parts. Part I begins with a summary and analysis of certain critical enforcement trends and lessons to be learned from recent settlements and other related developments. Following that summary and analysis are (i) a review of focus issues; (ii) a description of FCPA settlements and criminal matters from 2011 and 2012 in reverse chronological order; and (iii) a discussion of selected recent FCPA and related developments. Part II contains: (i) a brief discussion of the statutory requirements of, and penalties under, the FCPA; (ii) a description of FCPA settlements and criminal matters from 2005 through 2010 in reverse chronological order; (iii) a discussion of other FCPA and related developments; and (iv) a summary of each DOJ Review and Opinion Procedure Release issued from 1980-present.

PART I

SUMMARY AND ANALYSIS

The combination of resolved actions, ongoing criminal and regulatory investigations, DOJ Opinion Releases, and other developments discussed below underscore a number of important lessons and themes of which companies should be aware in conducting their operations, designing and implementing their compliance programs, considering whether to enter into potential transactions or to affiliate with an international agent, intermediary or joint venture partner, and dealing with government agencies. These lessons take the form of both enforcement trends and practice lessons.

Enforcement Trends

  • Requirement of Monitors or Consultants: The imposition of compliance monitors as part of FCPA-related settlements continues to be common. Innospec's global settlement with U.S. and U.K. authorities included the appointment of the first-ever joint U.S.-U.K. compliance monitor—Kevin T. Abikoff, one of this Alert's authors and Chair of Hughes Hubbard's Anti-Corruption and Internal Investigations Practice Group. The landmark Siemens settlement involved not only the first non-U.S. national appointed as a monitor (former German Finance Minister Dr. Theo Waigel), but also the appointment of "Independent U.S. Counsel" to advise the monitor. Certain settlements, such as those with Siemens, Willbros Group, AGA, and Faro appear to reflect a change in practice: rather than the DOJ appointing the monitor directly, the settling company is permitted to choose its own corporate monitor, subject to DOJ approval. In addition to the above, the SFO required the appointment of a monitor in the Mabey & Johnson case; and with the use of a French monitor in the Alcatel-Lucent and Technip settlements, this tool has become more common internationally. Indeed, even the World Bank has been utilizing its own form of monitor in connection with entering into negotiated resultion agreements including in the recent case involving Alstom. However, use of monitors is not a universal feature of settlements, the recent Johnson & Johnson settlement instead imposed a requirement of six corporate compliance reviews to be undertaken by the company and provided to the DOJ. Similarly, the Marubeni and JGC settlements instead required retention of a "Compliance Consultant," whose facially more limited reports would be provided to the Board of Directors rather than to the DOJ, as is standard under a monitorship. (See, e.g., Innospec, Siemens, Faro, AGA, Willbros Group, Delta & Pine, Baker Hughes, Vetco, Mabey & Johnson, Alcatel-Lucent, Johnson & Johnson, JGC, Marubeni).
  • Vigorous Enforcement in the United States: There can be no doubt that FCPA violations pose one of the most, if not the most, significant corporate challenges to U.S. companies operating internationally and international companies listed on the American exchanges or with activities that touch the U.S. As Assistant Attorney General Lanny Breuer said at a November 2010 speech, "you are right to be more concerned ... we are in a new era of FCPA enforcement; and we are here to stay." In the same speech, Breuer noted that, "in the past year, we've imposed the most criminal penalties in FCPA-related cases in any single 12-month period – ever. Well over $1 billion." All told, in the 2010 calendar year, U.S. authorities imposed approximately $1.7 billion in monetary penalties against corporations to resolve FCPA-related investigations. Penalties imposed in 2011 did not match those heights, but remained significant, with high water marks for the year including JGC settling for $218.8 million and Magyar Telekom and Deutsche Telekom settling for $95 million.
  • Other Countries' Increased Enforcement of Their Own Anti-Corruption Laws: Countries around the globe from Cambodia to the U.A.E. are actively evaluating and enhancing their anti-corruption efforts. Russia, Spain, and, perhaps most notably, the U.K., for example, have adopted strengthened anti-corruption statutes, while OECD Convention signatories like Germany, France, Australia, Norway and Switzerland (to name a few) are facing increasingly aggressive pressure to actively enforce their anti-corruption laws. Non-OECD nations such as China and Nigeria (albeit on a more selective basis), have also aggressively investigated and prosecuted corruption offenses, including with respect to foreign nationals.
  • Cooperation Between International Anti-Corruption Regulators: To a greater extent than ever, international regulators are cooperating in their anti-corruption enforcement efforts. The BAES, Siemens, Innospec, and Alcatel-Lucent settlements all included cooperation between U.S. and European authorities, and the ongoing Hewlett-Packard investigation appears to involve German, Russian and U.S. authorities. Moreover, U.S. regulators may consider enforcement activities by non-U.S. regulators in determining the ultimate disposition of a matter, as illustrated by the Aon, Siemens, Flowserve, and Akzo Nobel matters. Indeed, in the Siemens and Akzo Nobel proceedings, the DOJ was willing to take into account settlements with foreign regulators when determining whether, and to what extent, to impose a criminal sanction. U.K. authorities took a similar approach in the Johnson & Johnson case, limiting their prosecution to account for double-jeopardy concerns based on the U.S. enforcement action. Echoing and encouraging this trend, the OECD's Recommendation of the Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions encourages member countries to cooperate with authorities in other countries in investigations and legal proceedings, and the OECD's 2010 Phase 3 Report on the United States praised U.S. enforcement agencies for their frequent initiation of such international cooperation. (See, e.g., Alcatel-Lucent, Flowserve, AGCO, Innospec, Siemens, Akzo Nobel, BAES, Hewlett-Packard, OECD Developments, Aon, Johnson & Johnson).
  • Increased Anti-Corruption Enforcement by and Cooperation Among Multinational Development Banks:Increasingly, multinational development banks' anti-corruption standards and enforcement activity are important considerations for companies providing goods or services that are, or potentially will be, financed through international development funding. The World Bank Group has been a leader in this regard, having debarred more than 530 entities and individuals since 1999. In 2006, the World Bank and several other international financial institutions agreed on the harmonization of anti-corruption standards, common investigative practices, and information-sharing, and in 2010 several of these institutions agreed to impose cross-debarment for any debarment imposed for a period of more than one year. This cross-debarment agreement greatly amplifies the impact of debarment by any one of the participating institutions on an entities ability to compete for international development contracts.
  • Large Corporate Penalties: Corporate penalties In the tens and hundreds of millions of dollars have, over the last several years, become commonplace. In November 2008, SEC Deputy Director of Enforcement Scott Friestad stated that "[t]he dollar amounts in cases that will be coming within the next short while will dwarf the disgorgement and penalty amounts that have been obtained in prior cases." His words certainly proved accurate with the combined $1.6 billion in penalties levied against Siemens, collectively by U.S. and German authorities, far exceeding all previous FCPA-related sanctions. Siemens was quickly followed by the KBR/Halliburton settlement totaling $579 million. The BAES ($400 million to resolve an FCPA investigation through a false statement plea), Snamprogetti/ENI ($365 million), JGC ($218 million), Daimler ($185 million), and Alcatel-Lucent ($137 million) settlements are among others to break nine figures.
  • Prosecutions of Individuals: The SEC and DOJ remain willing to pursue charges against individuals when the facts warrant such action. U.S. regulators have indicated that, even within the context of corporate settlements involving heavy fines, they will also seek to hold culpable individuals criminally liable, and the U.K. Serious Fraud Office ("SFO") has indicated that, in appropriate circumstances, it will prosecute individuals without prosecuting the company itself. As in the Fu, Martin, Philip, Srinivasan, and Wooh cases, individual enforcement actions can follow or coincide with settlements with the company. By contrast, in such cases as Sapsizian, Stanley, and Steph, the government brought cases against the individuals before reaching a resolution with their employers.
    • Prosecution of Individuals Rather Than Employers: The government has also shown it is willing to pursue individuals in their capacity as "domestic concerns" without pursuing associated entities, as illustrated by the actions against Garth Peterson, Gerald and Patricia Green, Mario Covino, Richard Morlok, and the former officers of PCI among others. These individuals may not even be United States citizens, though they work for United States companies or in United States offices. The Control Components prosecutions included indictments of foreign citizens acting abroad as agents of a domestic concern. The SEC remains similarly willing to charge rogue individuals. As stated in the SEC's press release regarding Peterson, "[t]his case illustrates the SEC's commitment to holding individuals accountable for FCPA violations, particularly employees who intentionally circumvent their company's internal controls."
    • Severe Prison Sentences: In October 2011 and May 2012, the DOJ obtained its most severe sentences for individuals' FCPA violation to date, the 15-year prison term handed to Joel Esquenazi, nine year prison term handed to Jean Rene Duperval, and seven year prison term handed to Carlos Rodriguez as part of the Terra Telecommunications/Haiti Teleco action. These follow several years of increasingly harsh sentences for individual offenders and serve as perhaps the starkest reminder to employees and directors of the FCPA's true teeth. They also contrast with the perhaps short-lived trend of judges diverting from DOJ requests to impose more lenient sentences, such as the Bobby Elkin, Leo Winston Smith, and James Giffen cases. (See, e.g., Terra Telecommunications, Garth PetersonEnrique & Angela Aguilar, Julian Messent, Control Components, Covino, Willbros Group, PCI, ITXC, Philip, Green, Srinivasan, Fu, Martin, Wooh, Alcatel-Lucent, Steph, Jumet & Warwick, Innospec, Tesler & Chodan).
  • Willingness to Try Corruption Charges: With the now completed trials of Frederic Bourke, Congressman William Jefferson, and Gerald and Patricia Green, Lindsey Manufacturing and its executives, and John O'Shea, among others, it is clear that the United States government is willing to try corruption charges to a jury when it is unable to reach a satisfactory settlement agreement. Prosecutors have not encountered universal success in such trials, but there remains no reason to believe that the DOJ will shy away from trials as a matter of policy or practice.
  • Regulators May Force or Reward Management Changes: In certain circumstances, regulators may use enforcement actions as a tool to force a change in management where the regulators believe management is insufficiently attuned to FCPA concerns. Regulators may also reward companies that change management in response to findings of misconduct or seek lesser penalties where management changed before the misconduct came to light. For example, the DOJ praised Siemens for its remedial efforts, including that it "replaced nearly all of its top leadership." Similarly, in the case of Bristow, the misconduct was discovered by the company's newly-appointed CEO, and the SEC imposed no monetary penalty on the company. (See, e.g., Technip, Siemens, Schnitzer, Bristow).
  • Emphasis on Systemic Controls: Enforcement agencies have placed additional emphasis on the ability of companies to generate reports analyzing and compiling company-wide data on key anti-bribery issues such as travel and exceptions, and appear to reward companies that can effectively analyze and present otherwise voluminous data as part of their cooperation, such as in the recent Bizjet settlement. Companies considering or undertaking systems modifications should consider building such tools in on the front end. (See, e.g., Bizjet).
  • Expansive Jurisdictional Reach: As the Siemens settlement (among others) confirms, U.S. regulators continue to take an expansive jurisdictional view as to the applicability of the FCPA. The charging documents applicable to Siemens Venezuela, Siemens Bangladesh, and Siemens Argentina detail connections, but not particularly close or ongoing connections, between the alleged improper conduct and the United States. Similarly, the United States government obtained the extradition of Wojciech Chodan and Jeffrey Tesler, both United Kingdom citizens who were indicted for their involvement in the Bonny Island, Nigeria bribery scheme and who are described in the charging documents as "agents" of a domestic concern. Clearly, regulators, in what they deem to be appropriate circumstances, will look carefully for hooks to establish U.S. jurisdiction over perceived violations of anti-corruption legislation. (See, e.g., BAES, Siemens, Tesler and Chodan).
  • Use of Industry Sweeps: The SEC and DOJ have continued to use industry-wide sweeps in conducting their investigations, including into the oil-services industry, pharmaceutical industry, and most-recently, film industry. Given the successful prosecutions that have come from these sweeps, further sweeps should be expected. (See, e.g., Hollywood Sweep, Panalpina-Related Oil-Services Sweep, Biomet, Smith & Nephew, Johnson & Johnson).
  • Use of Related Statutes: The BAES case demonstrates the continuing use by U.S. authorities and other regulators of complementary statutes (such as those governing export control or false statements) to bring bribery-related charges. The interconnectivity of the various statutes, and the relative ease by which certain offenses can be established, is a reminder not to take a narrowly technical view of anti-corruption compliance. In addition, U.S. authorities' use of other statutes to bring charges allows them to seek greater penalties and expands their ability to punish corrupt conduct, even when an FCPA violation might not be established.
    • Export Control and Government Contracts Connection: Government contractors and companies subject to U.S. export controls may face heightened scrutiny and risks with regard to anti-corruption compliance. As the BAES case illustrates, such companies may be required to make representations to the government, which can themselves become the source of legal liability if those representations are inaccurate or incomplete with respect to anti-corruption elements. Such companies must be cognizant not only of anti-corruption rules, but also of the legal liability they face for making statements regarding their anti-corruption efforts as part of regulatory schemes such as the export control laws and federal acquisition regulations. As the DOJ's push to broaden anti-corruption enforcement continues, this intersection of different enforcement regimes will become even more important.
    • Breadth of the False Statement Statute: The willingness of the DOJ to take a more expansive approach to anti-corruption enforcement is underscored by the use of the false statement statute, which generally can reach a wide-range of conduct, from informal communications (such as the letters sent by BAES to the Department of Defense) to court, regulatory, or congressional testimony. Companies must be cognizant that they will potentially be held accountable for virtually any representation made to the U.S. government or a U.S. government official regarding anti-corruption compliance.
    • Money Laundering, Wire Fraud, and Related Financial Crimes: Prosecutors also remain committed to enforcing laws prohibiting other financial crimes, such as money-laundering and wire fraud, that often intersect with FCPA enforcement actions. These statutes can also apply—unlike the FCPA—to foreign officials for their conduct related to the corrupt payment. Anti-trust laws may also be used by prosecutors or in civil actions where the improper conduct negatively affects competition, such as by bid-rigging. (See, e.g., Terra Telecommunications, Green, O'Shea, Terra Telecommunications, Innospec, Military and Law Enforcement Products Sting, Bridgestone).
  • Prosecution for Payments to Foreign Ministries or Private Parties: The United States government has shown its willingness to prosecute improper payments to individuals and entities other than "foreign officials." In the Schnitzer Steel and related settlements, the government asserted violations of the FCPA based on payments not only to government officials in China, but also to employees of private steel mills in China and South Korea, explaining "[t]hese mills were privately owned and the managers were not foreign officials. However, Schnitzer violated the FCPA by failing to properly account for and disclose the bribes in its internal records and filings." Similarly, without addressing the issue directly, the Oil-for-Food prosecutions are premised on improper payments made to government accounts rather than to foreign officials, with the York proceeding also including allegations of numerous payments to commercial, non-governmental parties outside the Oil-for-Food Programme. Numerous pharmaceutical industry related proceedings similarly involved payments to persons employed by both public and private hospitals, while the Control Components' prosecutions coupled FCPA charges with charges that the company violated the Travel Act by making corrupt payments to private entities, both in the United States and abroad, in violation of California state law against commercial bribery. (See, e.g., Control Components, AB Volvo, Flowserve, Akzo Nobel, Philip, Chevron, Ingersoll-Rand, York, Fu, Textron, Wooh, El Paso, Johnson & Johnson, Biomet, Smith & Nephew).
  • Prosecution for Payments to Former Government Officials: The DOJ prosecuted Alcatel- Lucent for, among a host of other conduct, an improper payment made by a subsidiary to a former Nigerian Ambassador to the United Nations for the purpose of arranging meetings with a government official. The DOJ did not pursue an FCPA anti-bribery charge on the point, but the company was penalized for not accurately and fairly reporting the payment in its books and records. As with improper payments to private parties, the DOJ will look for ways to prosecute what they view as improper conduct even if it cannot prosecute FCPA anti-bribery charges. (See, e.g., Alcatel-Lucent).
  • Creative Methodologies for Uncovering Information: The Siemens settlement demonstrated regulatory approval (manifested by its consideration as part of the company's cooperation credit) of a groundbreaking amnesty and leniency program aimed at providing company counsel with timely, complete, and truthful information about possible violations of anti-corruption laws. Siemens instituted an amnesty program whereby employees were encouraged to voluntarily report corrupt practices without fear of termination or claims by the company for damages. The approval of such a program likely signals regulatory acceptance of the broader use of creative approaches to collect and process accurate and complete information from within a company and, in turn, respond appropriately to such information. The Dodd-Frank Act, passed by Congress on July 15, 2010, takes a more aggressive approach, mandating that the SEC pay whistleblowers who provide it with original information leading to enforcement actions over $1 million a reward of 10-30% of the total sanctions collected. The SFO has no also instituted a whistleblower service. (See, e.g., Siemens, Dodd-Frank Act, SFO Whistleblower Service).
  • Increased Use of Traditional Law Enforcement Techniques: The common thinking has been that enforcement actions are most likely to arise from self-reporting companies or whistleblowers. As the SHOT Show indictments demonstrated, despite the defendants' eventual acquittal, the DOJ is increasingly using the assistance of the FBI and traditional law enforcement techniques to find and investigate violations of the FCPA. For example, The New York Times reported that law enforcement officials had indicated that as many as six other undercover operations are currently underway. This use of sting operations also signals the DOJ's willingness to seek out individuals and companies that are willing to violate the law, not just investigate those who have already done so. As Assistant Attorney General Lanny Breuer stated, "[f]rom now on, would-be FCPA violators should stop and ponder whether the person they are trying to bribe might really be a federal agent." (See, e.g., Military and Law Enforcement Products Sting).
  • Increase in FCPA-Related Civil Suits: In recent years, there has been a noticeable increase in the number of FCPA-related civil actions. These suits have taken several forms, including suits by foreign governments, public company shareholders and business partners. (See, e.g., Immucor, Iraqi Oil-for-Food Suit, Faro, Grynberg, Argo- Tech v. Yamada, Harry Sargeant, Panalpina).
  • Clarification on Successor Liability: Companies often face uncertainty over the legal liabilities they may inherit as a result of mergers, acquisitions or partnerships. A critical question is under what circumstances, if any, a company can be held liable for acts deemed "in furtherance" of an acquired company's or joint venture partner's improper payments. In Release 08-02, the DOJ addressed this question and reasoned that the requestor, Halliburton, would not violate the FCPA by acquiring the target, Expro, which may or may not have violated the FCPA prior to the acquisition. The DOJ premised this determination on the fact that the money to be paid to acquire the company would go to Expro's shareholders, not Expro itself. Moreover, the stock ownership in Expro was widely disbursed. Thus, it was unlikely that any of the shareholders were corruptly given their shares such that they would be improperly enriched by the acquisition. Implicitly, the Release can be read to endorse the view that payments to shareholders or joint venture partners who have received their shares corruptly would violate the FCPA. Similarly, numerous FCPA settlements have arisen out of pre-acquisition due diligence, and companies will often postpone acquisitions pending resolution of any FCPA issues discovered in due diligence. The DOJ has indicated that acquirers may be held liable for the pre-acquisition misconduct of their targets, at least where they do not undertake significant remedial measures and disclose the discovered misconduct. (See, e.g., DOJ Opinion Procedure Releases 08-02, 03-01, 04-02, Syncor, Titan).
  • Direct Parent Company Involvement Not Required: The DOJ and SEC will prosecute or charge parent companies based on the conduct of even far-removed foreign subsidiaries and even in the absence of alleged knowledge or direct participation of the parent company in the improper conduct. As a result, and as the Willbros Group and several Oil-for-Food settlements make clear, companies must ensure that their anti-corruption compliance policies and procedures are implemented throughout the corporate structure and extended quickly to newly acquired subsidiaries. The SFO has taken a similar line in moving against Mabey Engineering (Holdings) Ltd. under the Proceeds of Crime Act for actions of its subsidiary Mabey & Johnson. (See, e.g., Fiat, Faro, Willbros Group, AB Volvo, Flowserve, Westinghouse, Akzo Nobel, Ingersoll-Rand, York, Bristow, Paradigm, Textron, Delta & Pine, Dow, Deutsche Telekom, Diageo, Mabey & Johnson).
  • Foreign Subsidiaries Treated as Agents of the Parent: The criminal information underlying the DOJ's action against Schnitzer Steel's Korean subsidiary describes the subsidiary as Schnitzer Steel's "agent." The government has asserted that a foreign subsidiary acted as the agent of its United States parent corporation on at least one other occasion (in the 2005 enforcement proceedings against Diagnostic Products Corporation and its Chinese subsidiary). The agency theory reflected in Schnitzer and Diagnostic Products could potentially be used (at least as an initial enforcement posture) to hold parent companies liable for acts of bribery by a foreign subsidiary, despite the parent's lack of knowledge or participation. In addition, when the subsidiary's financials are consolidated into its own, this can give rise to an independent violation by the parent of the FCPA books and records and internal controls provisions if the parent company is a U.S. issuer. (See, e.g., Philip (Schnitzer)).
  • Control Person Liability: The SEC charged individuals such as Noble CEO Mark Jackson and Nature's Sunshine Products, Inc. executives Douglas Faggioli and Craig D. Huff as control persons under Section 20(a) of the Exchange Act. Control person liability theory allows the SEC more flexibility to charge individuals within a company with securities violations even when evidence of direct knowledge or participation in the violative behavior may be lacking. The SEC's charging documents did not allege any direct involvement or participation of Faggioli or Huff in the underlying books-andrecords and internal controls FCPA violations. The Jackson, Faggioli, and Huff prosecutions underscore the risks faced by executives who do not adequately supervise those responsible for compliance with the accounting provisions of the FCPA. (See, e.g., Noble, Nature's Sunshine).
  • Broad Reading of the "Obtain or Retain" Business Element: The SEC and DOJ continue to read the "obtain or retain business" element of the FCPA broadly to capture a wide range of conduct beyond the prototypical payment to win a contract award, including payments to expedite and approve patent applications, obtain favorable treatment in pending court cases, schedule inspections, obtain product delivery certificates, alter engineering design specifications in favor of a particular bidder, to obtain preferential customs treatment, avoid or expedite necessary inspections, alter the language in an administrative decree, obtain governmental reports and certifications necessary to market a product, reduce taxes, or receive favorable referrals and reports to customers. This interpretation was praised by the OECD in its Phase 3 Report on the U.S. (See, e.g., Helmerich & Payne, Nature's Sunshine, AGA Medical Corporation, Willbros Group, Bristow, Delta & Pine, Martin, Dow, Vetco, Kay, Dimon, OECD Phase 3 Report, Rockwell, Watts Water).
  • Recidivism will be Punished Harshly: Repeat offenders will be punished harshly. In both Vetco and Baker Hughes, the large fines reflected, in part, the fact that the companies had previously violated the FCPA and had failed to implement the enhanced compliance processes and procedures to which they agreed as part of the settlements of those earlier prosecutions. In the case of ABB, which reached an FCPA settlement in 2004 and subsequently disclosed and settled other violations, the DOJ sought, but did not obtain, recidivism points in the fine calculation, despite the fact that, although disclosed later, the underlying conduct had occurred at the same time as the previously disclosed violations. (See, e.g., Vetco, Baker Hughes, ABB).
  • Payments To Recover Legitimate Debts May be Punished:Among the misconduct charged by the SEC in the Pride settlement was a payment of $30,000 to a third party to bribe officials of a state-owned entity to pay receivables owed to Pride. Though the outstanding receivables were legitimately owed, the SEC took the view that the payment nevertheless ran afoul of the FCPA's books and records and internal controls provisions. Alcatel-Lucent was also charged with books and records violations related to payments made for the purposes of securing recovery of a debt owed by the government of Nigeria. (See, e.g., Pride, Alcatel-Lucent).
  • Self-Reporting, Remedial Measures, and Cooperation: Through a variety of means, the DOJ and SEC have signaled that companies that self-report violations and cooperate extensively with their investigations may face less severe penalties. For example, despite allegations of wide-ranging improper conduct over a sustained period, including illicit payments to government officials in Kazakhstan, China, Mexico, Nigeria, and Indonesia between 2002 and 2007, the DOJ entered into a Non-Prosecution Agreement with Paradigm in return for the company paying a relatively small fine of $1 million, implementing new enhanced internal controls, and retaining outside counsel for eighteen months to review its compliance with the Non-Prosecution Agreement. In doing so, the DOJ emphasized as "significant mitigating factors" the fact that Paradigm "had conducted an investigation through outside counsel, voluntarily disclosed its findings to the Justice Department, cooperated fully with the Department and instituted extensive remedial compliance measures." The SEC has since announced standards to evaluate cooperation by companies and individuals, including the use of DOJ-like Deferred Prosecution Agreements (first used in the Tenaris settlement) with the attendant requirements of full cooperation, waiver of statute of limitations, and enhanced compliance measures. (See, e.g., BizJet, Smith & Nephew, Bridgestone, Rockwell, Tenaris, ABB, Innospec, Siemens, Faro, AGA, Westinghouse, Bristow, Paradigm, Textron, Dow, Baker Hughes).
  • Declination Forecast: It is not unreasonable to assume that, where companies have compliance programs in place and can demonstrate that they have conducted credible, good-faith internal reviews which uncover misconduct by low-level employees, enforcement agencies will increasingly prove willing to decline enforcement activity. We may also expect future guidance from these agencies as to when the conditions might support such determinations, in similar fashion to the landmark "Seabord Report" of 2001. (See, e.g., Garth Peterson).
  • Continued Cooperation as a Condition of Settlement: In many instances, initial settlements require a party to continue to cooperate with an ongoing investigation, and until recently, a company's willingness to waive the attorney-client privilege was factored into such cooperation credit. Although the DOJ's prosecutorial guidelines prohibit the practice of seeking attorney-client waivers as an element of cooperation, this has little impact on the DOJ's ability to require that companies continue to provide it with significant factual information in order to be given credit for cooperation. (See, e.g., Martin, Wooh, Vetco, El Paso, Textron, Kozeny, Johnson & Johnson).
  • Opinion Releases as Guidance: The DOJ has, to date, issued 56 Opinion Procedure Releases. While the releases each caution that they have "no binding application to any party that did not join in the request," the Releases nevertheless serve as a significant body of guidance as to the DOJ's position on numerous factual circumstances and interpretations of the statute. In fact, in Opinion Release 08-02, the DOJ explicitly refers to one of its previous Opinion Releases as "precedent," and in Opinion Release 10-03 it explicitly uses past Opinion Releases as guidance. The DOJ's invocation of the word precedent (even if not sufficient to be relied on in court proceedings or otherwise) underscores the seriousness with which companies should view the guidance offered by the DOJ in its releases. (See DOJ Opinion Procedure Releases 08-02, 10-03).
  • Use of Constructive Knowledge Standard: Though the DOJ did not charge BAES with any violation of the FCPA, the case involves BAES's failure to maintain an effective anti-corruption compliance program. The Information repeatedly states that BAES failed to maintain an effective anti-corruption program because it ignored signaling devices that should have alerted it of a "high probability" that third parties would make improper payments. The frequent invocation of the "high probability" language and the reliance on circumstantial factors should be taken as a stark reminder of the DOJ's willingness to rely on this constructive knowledge element of the FCPA and a further reminder that the standard can be seen as satisfied by the DOJ where conduct falls short of actual knowledge. The recent Second Circuit decision upholding Frederic Bourke Jr.'s conviction on a constructive knowledge standard further strengthens this position. (See, e.g., BAES, Alcatel-Lucent, GlobalSantaFe, Bourke).
  • Targeting Suspect Jurisdictions: The BAES Information provides a firm reminder that conducting business in or through suspect jurisdictions is itself a red flag. The DOJ took particular issue with BAES's utilization of both the British Virgin Islands and Switzerland as jurisdictions notorious for discretion. Companies are well advised to ensure that there is a legitimate reason for the use of such jurisdictions, as opposed to using them as a masking technique or for an illicit motive (such as inappropriate tax avoidance by the agent). The Senate PSI Report also highlights the need for enhanced scrutiny when dealing with transactions involving accounts in notoriously opaque banking centers. The Second Circuit's Bourke decision directly stated that Bourke's knowledge that corruption was pervasive in Azerbaijan contributed to his constructive knowledge of improper payments. (See, e.g., BAES, Bourke, Senate PSI Report, NATCO).
  • Willingness to Prosecute Foreign Government Officials: Though the FCPA does not apply to foreign officials, enforcement agencies have begun to use alternative avenues to prosecute foreign officials implicated in corrupt conduct. Both the Terra Telecommunications and Gerald and Patricia Green cases have recently seen charges brought against government officials for charges such as money laundering and transportation of funds to promote unlawful activity. And the DOJ's recently-launched Kleptocracy Asset Recovery Initiative directly targets corrupt foreign officials for forfeiture actions. Other jurisdictions such as China have also targeted officials. (See, e.g., Gerald and Patricia Green, Terra Telecommunications, Kleptocracy Asset Recovery Initiative ).

To read this Alert in full, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.