This article was reprinted with permission
from FCPA Professor
Motion to dismiss filed in the former Magyar Telekom
execs case, a noticeable lack of FCPA charges, checking in on recent
disclosures, quotable from the current SEC FCPA Unit Chief, quotable
regarding FCPA Inc., what's up with that investigation, I hear you
travel alot, there's an app for that, counter-points, and for the weekend
reading stack. It's all here in the Friday roundup.
Motion to Dismiss Filed in SEC Enforcement
post highlighted how former Magyar Telekom executives Elek Straub,
Andras Balogh and Tamas Morvai planned to challenge the SEC's charges
against them. Earlier this week, the defendants filed this
memorandum in support of their motion to dismiss.
In summary fashion, the memorandum states as follows.
"There are several bases for dismissing the
First, this Court lacks personal
jurisdiction over the defendants. The complaint alleges conduct by foreign
national defendants that occurred wholly outside, and with no nexus to, the
United States. Nowhere does the complaint allege that defendants purposefully
directed their conduct at the United States. Following constitutional due
process principles, the defendants lack the requisite minimum contacts with the
forum, and it would be inconsistent with traditional notions of fair play and
substantial justice to require them to defend this action in the United States.
Indeed, the SEC has acknowledged that its jurisdictional position lacks
precedent "on all fours factually" and "may be breaking new ground[.]"
"Second, the SEC's claims are
time-barred [...] There is no doubt that the complaint was
filed outside the five-year period. Specifically, the complaint was filed on
December 29, 2011, more than five years after all three defendants had left
Magyar Telekom, and more than five years after the alleged conduct occurred.
Consequently, the five-year period has expired."
"Third, with regard to the remaining claims,
the complaint fails to adequately state the claims alleged. More specifically,
the complaint: (i) fails to adequately plead that the defendants corruptly made
use of interstate commerce, as is required to state a claim for bribery and the
claims stemming from the alleged bribery under the FCPA (books and records
and internal controls violations, falsifying books and records, and lying to
auditors); (ii) fails to adequately plead that the intended payment recipients
were "foreign official[s]" under the FCPA; (iii) fails to allege sufficient
facts supporting the aiding and abetting claims; and (iv) fails to meet the
heightened pleading requirements under Rule 9, including allegations of
individualized culpable conduct by each defendant. The complaint also merely
parrots the statutory language and fails to allege that the defendants profited
personally from any of the alleged conduct. For all these reasons, the
complaint should be dismissed with prejudice."
As to "foreign official" the motion states that the
complaint's reference to "officials" "government officials" and other vague
allegations represent "mere legal conclusions that the recipients were "foreign
officials" under the FCPA. The motion states as follows. "A
legal conclusion couched as a 'factual allegation' is insufficient to establish
the essential element that the intended recipient be a foreign official.
Repeated references to "government officials" without underlying facts presents
nothing 'more than labels and conclusions' that constitute 'a formulaic
recitation of the elements of a cause of action.""
Indeed, in my 2010 article "The Facade of FCPA
Enforcement" (here) I
noted the frequency in which enforcement agency FCPA pleadings "contain
little more than uninformative, bare-bones statement of facts replete with
legal conclusions." I said that the "most common and troubling use of
bare-bones, uninformative, legal conclusory statements of facts or
allegations is when the enforcement agencies describe the 'foreign officials'
involved in the alleged conduct giving rising to the FCPA violation." In
the article, I noted that because there is generally no threat that these
bare-boned, uninformative facts or legal conclusions will ever be subject to
meaningful judicial scrutiny, that the enforcement agencies get away with such
At least until recently.
Noticeable Lack of FCPA Charges
Numerous FCPA enforcement actions have been based on
allegations of payments to foreign customs personnel in connection with
customs, license, permit type issues.
Thus, the lack of FCPA charges were noticeable in
the DOJ's recent criminal indictment of APEGO Inc., and various of is employees
and agents. As noted in this recent
DOJ Release (N.D. of Georgia), charges were filed alleging conspiracy
and twelve counts of importing notebooks and filler paper from China using
The indictment (here)
includes the following allegations.
"It was further part of the conspiracy that [certain
individuals] paid bribes to Taiwanese customs officials on behalf of defendants
APEGO and Gung to allow U.S.-bound lined paper products made by the
Watanabe Group in China but lacking required country of origin labels, or
mislabeled 'Made in Taiwan,' to enter Taiwan from China and clear Taiwanese
Elsewhere, the indictment alleges: (i) that in
December 2006 various bribes were paid to Taiwanese customs officials which
"allowed defendant APEGO to transship these products from Taiwan to the
United States more quickly and less expensively by limiting the need to
'rework' the products and cartons (i.e. relable 'Made in Taiwan') in Taiwan";
(ii) that in March 2007 when customs officials at a certain Taiwan port no
longer accepted bribes, the company arranged for its shipments to be processed
through another port in a different part of the country where bribes were paid
for the same purpose
Owens-Illinois, Inc. (an Ohio based company that
describes itself as the world's largest glass container manufacturer
and preferred partner for many of the world's leading food and beverage brands)
recently disclosed as follows.
"The Company is conducting an internal
investigation into conduct in certain of its overseas operations that may have
violated the antibribery provisions of the United States Foreign Corrupt
Practices Act (FCPA), the FCPA's books and records and internal controls
provisions, the Company's own internal policies, and various local laws. In
October 2012, the Company voluntarily disclosed these matters to the U.S.
Department of Justice (DOJ) and the Securities and Exchange Commission (SEC).
The Company intends to cooperate with any investigation by the DOJ and the SEC.
The Company is presently unable to predict the duration, scope or result of its
internal investigation, of any investigations by the DOJ or the SEC or whether
either agency will commence any legal action. The DOJ and the SEC have a broad
range of civil and criminal sanctions under the FCPA and other laws and
regulations including, but not limited to, injunctive relief, disgorgement,
fines, penalties, and modifications to business practices. The Company also
could be subject to investigation and sanctions outside the United States.
While the Company is currently unable to quantify the impact of any potential
sanctions or remedial measures, it does not expect such actions will have a
material adverse effect on the Company's liquidity, results of operations or
Given the recent FCPA scrutiny of the beverage
industry (Diageo, Beam Inc., and Central European Distribution Company)
one might wonder whether Owens-Illinois's recent disclosure is connected to those developments.
post detailed how Barclays PLC's relationship with Qatar's sovereign-wealth
fund was under scrutiny by U.K. authorities.
The company recently disclosed (here) as
follows. "Subsequent to reporting the investigations of the Financial
Services Authority and Serious Fraud Office in July and August 2012
respectively, Barclays has been informed by the US Department of Justice
(DOJ) and US Securities and Exchange Commission (SEC) that they are undertaking
an investigation into whether the Group's relationships with third parties who
assist Barclays to win or retain business are compliant with the United
States Foreign Corrupt Practices Act. Barclays is investigating and fully
co-operating with the DOJ and SEC."
According to this article
in the Wall Street Journal, the focus is "on Barclay's use of external brokers
who facilitated meetings between bank officials and powerful Middle Eastern
families." The article further notes that "Barclays recently started
conducting an internal investigation, with the help of an outside law firm, to
figure out whether it or its Middle Eastern introducers might have run
afoul" of the FCPA.
The company recently disclosed as follows.
"In 2007, Schlumberger received an inquiry
from the United States Department of Justice ("DOJ") related to the DOJ's
investigation of whether certain freight forwarding and customs clearance
services of Panalpina, Inc., and other companies provided to oil and oilfield
service companies, including Schlumberger, violated the Foreign Corrupt
Practices Act. In October 2012, Schlumberger was advised by the DOJ that it has
closed its inquiry as it relates to Schlumberger."
For more on the numerous
Panalpina-related enforcement actions - what I've termed CustomsGate - see
The company's recent disclosure would seem not to address
the issues previously the focus of a front-page Wall Street Journal article in
October 2010 concerning alleged conduct in Yemen. (See here
for the prior post).
In this recent
Reuters article, current SEC FCPA Unit Chief Kara Brockmeyer stated as
"I would hate to think the companies view [FCPA]
enforcement actions as the cost of doing business. If we find that out,
it will certainly increase the size of the penalty."
One thing that is becoming increasingly clear in
this new era of FCPA enforcement is that investors do appear to view FCPA
scrutiny and enforcement actions as a cost of doing business and akin to a
The Reuters article also stated that there has
yet to be a repeat FCPA prosecution. This is a false
statement. Companies that have resolved more than one
FCPA enforcement action over time include: Tyco, ABB, Baker Hughes and
On his Corruption, Crime & Compliance site (here)
Michael Volkov recently observed as follows.
"The FCPA Paparazzi has done a great disservice to
the business community. Call it a complete lack of credibility.
Legal marketing has become confused in this day and age - marketing has now
been turned into the "Fear Factor," meaning that lawyers need to scare
potential clients into hiring them. That is flat out
wrong. Each week, new client alerts, client warnings and other
cries of impending disaster are transmitted through the Internet to
businesses. If I were a general counsel, I would have them on "auto
delete." Talk about a waste of time and effort."
What's Up With That Investigation?
One of the many FCPA industry sweeps reportedly underway
concerns Hollywood movie industry in China. (See here for the prior
post). This recent
post on the New York Times Media Decoder blog highlights the "powerful
gatekeeper of China's rapidly growing film world, the China Film Group chairman
Han Sanping who was recently in the U.S. to receive a China
Entertainment Visionary of the Year award, and asks what's up with the
I Hear You Travel Alot
My frequent searches for FCPA content often turn up
interesting content. Such as this thread
from top-law-schools.com which asks what type of attorneys get to travel the
most? One response was as follows. "From what I hear,
FCPA is the way to go for travel to other countries because you have lots
of interviews of foreign employees."
The FCPA is certainly the reason for the majority of
stamps in my passport.
Alexandra Wrage (President of Trace International) made
some observations recently in her Corporate Counsel column (here)
about FCPA enforcement in various Presidential administrations.
While interesting to think about, the actual stats have little substantive
value. Instances of FCPA scrutiny tend to last between 2-4 years
(and thus straddle administrations) and various instances of FCPA scrutiny
(for instance Pfizer) can last approximately 8 years. Moreover, rather
than "aggressively enforce the FCPA," as the article notes, what the
enforcement agencies more often than not actually do (as evidenced by
statistics demonstrating which enforcement actions resulted from voluntary
disclosures) is process corporate voluntary disclosures.
There's An App for That
Law firm O'Melveny & Myers announced (here) the "launch of
its FCPA app, the first multi-functional mobile application (app) created
by a law firm." Richard Grime, partner and head of
O'Melveny's FCPA practice stated as follows. "We understand the
complexities our clients and colleagues face in achieving their business goals
in the global marketplace, and thus, have created this mobile application as a
fast, yet informative, way for them to remain current with the evolving
statutes and provisions imposed by the FCPA and other anti-corruption laws."
Sidley & Austin recently released its Anti-Corruption
Among other articles is one focused on the new "sheriff in town."
The article states as follows.
"Investigating potential violations of the
FCPA historically has been the purview of the SEC and the DOJ, but
recently, Congress has entered the fray. Two House committees, the House
Oversight and House Energy committees, recently instituted an independent FCPA
investigation of Wal-Mart, after a New York Times article reported on an
alleged massive bribery campaign at Wal-Mart's Mexican affiliate. These House
investigations mean that companies now have to consider the possibility of
facing a congressional investigation-in addition to investigations by the SEC
and the DOJ-when FCPA violations have occurred."
The article further states as follows.
"Although congressional committees routinely investigate
companies, the current congressional investigation into Wal-Mart is the first
investigation in the FCPA context and it may signal the beginning of a
trend: high-profile companies or companies that are drawn into political fights
(often unwillingly) may find themselves the target of a congressional inquiry
if their FCPA problems become public. Whatever effect the congressional
investigation may have on Wal-Mart, the possibility of such an investigation is
a factor that high-profile companies facing FCPA concerns should weigh."
For more on Wal-Mart's FCPA scrutiny, see my recent
article "Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart's
Potential Exposure" (here).
Miller Chevalier also recently released its FCPA
Autumn Review - see here.
Morrison Foerster also recently released its End of
Summer Round-Up - see here.
Jones Day publication concerning upcoming FCPA Guidance contains the
following paragraph that should be read by those who simply label
companies that have resolved FCPA enforcement actions or are the subject
of FCPA scrutiny as bad or corrupt companies.
"It is the job of a prosecutor to make charging decisions
and to decide in the first instance what does and does not violate the law. As
prosecutors and enforcement attorneys assess the facts to make charging
decisions, they are compelled to view the world, therefore, in binary terms:
black and white, right and wrong. As defense counsel, settlement discussions
with our counterparts in the DOJ and SEC frequently hinge on which side of the
line the conduct sits. Particularly for those of us who served as prosecutors,
we acknowledge in these discussions the difficult mission of the enforcement
officials to draw and defend lines. The world of business, however, frequently
operates in territory that is somewhat grey: a world in which business persons
strive to grow the company ethically in situations where the application of the
existing rules are not entirely clear. For instance, in the current era of
FCPA enforcement, international businesses struggle with their
responsibilities to monitor and control the conduct of third parties with whom
they do business: distributors and sub-distributors, joint venture partners,
dealers, and resellers. Even for companies that are firmly dedicated to
compliance with the FCPA, is not always clear when a third party amounts to an
agent whose improper conduct might someday be ascribed to the company and its
employees. Good and ethical companies struggle, every day, with the concept of
defining an agent of the company as opposed to an independent customer who
engages in an arm's-length transaction to purchase the company's products."
A good weekend to all.
Read more articles on the FCPA by Mike
Koehler at FCPA
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