Friday FCPA Roundup for Week Ending August 2

Friday FCPA Roundup for Week Ending August 2

by Mike Koehler

This article was reprinted with permission from FCPA Professor

Scrutiny alerts, misleading yet interesting, the flip side, and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Updates

ENI

IntelliNews report here:  “ENI SpA  chief executive Paolo Scaroni will become a target of a major US Foreign Corruption Practices Act investigation by the US Department of Justice and the US Securities Exchange Commission in connection with an Algerian bribery scandal, [Italian] judicial sources said.” Among other things, the article states: “Judicial sources in Milan said they have compelling evidence Scaroni had personal knowledge of the bribe paid by SAIPEM and that SAIPEM is directly controlled by ENI and its management.”

As noted in this previous post, Eni has ADRs registered with the SEC.  In 2010, Eni resolved (see here) an SEC FCPA enforcement action concerning Bonny Island, Nigeria conduct.  In resolving the action, Eni consented to the entry of a court order permanently enjoining it from violating the FCPA’s books and record and internal controls provisions.

Weatherford

The company recently disclosed as follows concerning its long-lasting FCPA scrutiny.

“During the quarter ended June 30, 2013, negotiations related to the oil-for-food and FCPA matters progressed to a point where we recognized a liability for a  loss contingency that we believe is probable and for which a reasonable estimate  can be made.  Certain significant issues remain unresolved in the negotiations and, if these issues are not resolved to the Company’s satisfaction,  negotiations may be discontinued and such unresolved issues may ultimately  impact our ability to reach a negotiated resolution of the matters.  At this  time, the Company estimates that the most likely amount of this loss is $153 million.”

A $153 million settlement would be the eighth largest in FCPA history.

Avon

The company recently disclosed as follows concerning its long-lasting FCPA scrutiny.

Owens-Illinois

The beverage company recently disclosed as follows.

“The Company conducted an internal investigation into conduct in certain of its overseas operations that may have violated the anti-bribery provisions of the United States Foreign Corrupt Practices Act (the “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 (the “DOJ”) and the Securities and Exchange Commission (the “SEC”). The Company intends to cooperate with any investigation by U.S. authorities. On July 18, 2013, the Company received a letter from the DOJ indicating that it presently did not intend to take any enforcement action and is closing its inquiry into the matter. The Company is presently unable to predict the duration, scope or result of any investigation by the SEC or whether the SEC will commence any legal action.”

AB InBev

The beverage company recently disclosed as follows.

“As previously disclosed, we have been informed by the SEC that it is conducting an investigation into our affiliates in India, including our non-consolidated Indian joint venture, InBev India Int’l Private Ltd, and whether certain relationships of agents and employees were compliant with the FCPA. We continue to cooperate in this investigation and have been informed by the Department of Justice (DOJ) that it is also conducting a similar investigation. Our investigation into the conduct in question is ongoing and we are cooperating with the SEC and the DOJ.”

Misleading Yet Interesting

Perhaps one reason for why there appears to much confusion about the FCPA and FCPA enforcement is due to the vast amount of misleading information in the public domain concerning the FCPA.

This recent article in the Economic Times of India concerning Wal-Mart is an instructive example.

Stating that the FCPA is a “law that prohibits American companies and their foreign subsidiaries from bribing officials” is not a completely accurate statement concerning the scope of the law.  Stating that “the anti-bribery provisions of the FCPA are enforced by the Department of Justice and the accounting provisions by the Securities and Exchange Commission” is not completely accurate either.  The SEC can also bring civil actions for FCPA anti-bribery violations and the DOJ can also bring criminal actions for wilful violations of the accounting provisions.

“In 2008, for example, Siemens paid a fine of $1.6 billion, the largest ever for an FCPA violation.”  This is a false statement.  While the Siemens enforcement action is indeed the largest in FCPA history in terms of fine and penalty amount, the amount was $800 million.”

Citing a source that says Wal-Mart’s FCPA scrutiny could result in an enforcement action ”between $4.5 billion and $9 billion” is outrageous beyond belief.

Despite its deficiencies, the article highlights an interesting tension between conducting a thorough internal investigation and the treatment of employees.  The article states:

“The long shadow of Bentonville, channelled by the permanent gaze of investigators, is causing angst among the Indian staff of Walmart. A company official quoted earlier says the army of investigators, who enjoy sweeping powers to seize documents and equipment of the staff, are seen by many employees as intrusive and as an extra-judicial authority in the office. For example, the investigators scan even the couriers sent out by the staff. The official quoted above says the objective to ensure FCPA compliance is causing even minor situations to snowball.”

[...]

“In another case, Richard Leonard, a British citizen and general manager for asset protection in India, was on a store visit to Ludhiana, that too with Asia head Price, when he received a frantic call from a colleague that KPMG executives were trying to seize his desktop computer and break open his drawer. He immediately called other colleagues, asking them to stop the investigators from taking possession of his workstation. On his return to the office, Leonard dashed off e-mails to his bosses, including Walmart’s global head Mike Duke, on how employees like him have lost respect in the office and they are being portrayed as “criminals” by independent auditors.”

The article also states:

“Walmart is asking all India employees who have left or been suspended to sign a three-page ‘consultancy and cooperation agreement’, ostensibly with the FCPA fallout in mind. The agreement essentially requires them to make themselves available to provide any information or explanation of materials or documents requested by Walmart or any government authority. “The manner in which lawyers and audit team are going about doing their business, I have started believing that I have done something wrong,” says an employee.”

The Flip Side

This Forbes columnist asks – in the context of GlaxoSmithKline –  ”is big pharma addicted to fraud?”

The question reminded me of the spot-on statement previously profiled here.  In a Law360 interview, Stephen Jonas (here), a partner in the Boston office of WilmerHale, was asked “what aspects of law in your practice are in need of reform, and why?”  He stated:

“One area greatly in need of reform, in my view, is the investigation of alleged health care fraud. This is an area in which the government regularly secures enormous settlements, starting in the tens of millions of dollars, and now exponentially expanding to the billions of dollars. Virtually every pharmaceutical company has now been subjected to one or more of these investigations and the results are predictable — enormous monetary contributions to the federal government. I find it hard to believe that wrongdoing is so rampant in this industry that every company has at least several hundred million dollars worth of it. The more likely answer is that these settlements often have far more to do with the leverage the government enjoys than the merits of what the company did or didn’t do. In order to stay in business, pharmaceutical and medical device companies must be able to sell products that can be paid for by Medicaid and Medicare. But a conviction for a health care offense would result in exclusion of the companies from federal health insurance and essentially a death sentence for their business. So they cannot afford to fight even the most debatable of charges. One of the results is that novel legal theories and sketchy evidence will never be tested in a court of law and negotiated settlements (under threat of exclusion) serve as “precedent” for the next case. That is a system badly in need of reform.”

Related to GSK, see here for my recent TV interview with LinkAsia.

Reading Stack

The always informative Miller & Chevalier FCPA Summer Review 2013.  As noted in the review “while investigation activity levels appear robust, the overall pace of  enforcement in 2013, in terms of resolved dispositions, remains at its lowest  level since 2006.”  This is correct, although difficult to square with a recent article from Compliance Week titled “FCPA Enforcement on the Rise Once Again.”  This is why an FCPA lingua franca is so important.  (See prior posts here and here).  Among other things, the Miller & Chevalier review contains useful charts including the nationality of companies under FCPA investigation and the countries implicated most frequently in FCPA enforcement actions.

Press coverage of BSG Resources and Beny Steinmetz (the wealthy Israeli for whom BSG Resources is named) regarding its business in Guinea continues.  (See this recent article from the U.K. Guardian).

An informative read from John Rupp (Covington) on how corporate interests and individual interests in a bribery investigation can collide and what corporate counsel can do to prevent this dynamic.

An interesting read from Trace Blog on how bribery schemes fall apart.  The post states:

“The reality is that many bribery schemes simply self-implode.  Think of it this way, once a bribe is paid, a corresponding debt is created to all who are involved in the scheme:  to the business partner who provides the funds; to the third party “consultant” who launders them through false pretense; to the accountant who cooks the books; to the bagman who delivers the payment; to each and every role player, big or small, who helps to bring about the bribe. At the time, loyalties may seem obvious: each co-conspirator will usually have a clear self-interest in keeping the bribery scheme hidden.  But as situations change, so too do incentives, and in business there are few guarantees as unsure as the honor among thieves.  [...] Think of all the bribery stories that have come to light simply by their own accord.”

*****

A good weekend to all.

Read more articles on the FCPA by Mike Koehler at FCPA Professor.

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