FCPA Autumn Review 2007
Breaking News: On October 4, 2007, Siemens AG reached a €201 million ($283.3 million) settlement with German prosecutors in a corruption probe into hundreds of millions of illicit payments by its telecom unit.
2007 Trends in Recent FCPA Cases
An analysis of U.S. Foreign Corrupt Practices Act (“FCPA”) enforcement actions from the first nine months of 2007, particularly when compared to prior years, reflects several noteworthy trends:
- Emphasis on improper payments to Customs officials
- Heightened focus on the oil and gas industry
- Increased prosecution of non-U.S. companies
- More enforcement actions against individuals
- Multi-company investigations
- Vicarious liability for the acts of third parties
- Due diligence of third parties as an internal control
- Successor liability for the acts of acquired companies
- FCPA due diligence as a prerequisite to mergers and acquisitions
- Accounting violations in lieu of bribery violations
Expansion of Sanctions
- Record high penalties
- A greater variety of sanctions
- Disgorgement of profits as an additional penalty
- Refinement of the model for independent compliance monitors
- Evolving standards of cooperation with enforcement officials
- Mixed record of enforcement in OECD countries
- Growing mutual legal assistance among national enforcement agencies
- Heightened enforcement of anti-corruption standards at the World Bank
- A pipeline of investigations, including large, multi-jurisdictional cases
A. Vetco -- Payments to Customs Officials
In February of 2007, Vetco International Ltd. (“Vetco”) entered into a plea agreement admitting FCPA violations by three of its wholly-owned subsidiaries. Vetco Gray Controls Ltd., Vetco Gray Controls Inc., and Vetco Gray UK Ltd. agreed to pay combined criminal fines totaling $26 million. The Department of Justice (“DOJ”) also entered into a deferred prosecution agreement (“DPA”) with a fourth Vetco subsidiary, Aibel Group Ltd., based on the same underlying conduct.
Private investors acquired Vetco from ABB Ltd. in 2004. At that time, Vetco and ABB Ltd. resolved FCPA violations with the U.S. Government in connection with the payment of more than $1 million to officials of NAPIMS, a Nigerian government agency that evaluates and approves potential bidders for contract work on oil exploration projects. The group that acquired Vetco obtained a DOJ Opinion Procedure Release protecting it from successor liability for Vetco’s disclosed violations provided that they continued to cooperate with the DOJ and the Securities and Exchange Commission (SEC), disclosed any further pre-acquisition violations discovered post-acquisition, and implemented internal controls and anti-corruption compliance programs. Subsequently, other previously undisclosed payments made to Nigerian Customs officials prior to the acquisition came to light, and Vetco voluntarily disclosed them to the government. The result was the February 2007 plea agreement and DPA wherein Vetco admitted making over 370 payments totaling approximately $2.1 million to receive preferential treatment during the customs process. Further, Vetco admitted that illegal payments underlying the 2004 plea agreement continued until at least mid-2005. The new plea agreement requires completion of the commitments made in the 2004 Opinion Procedure Release and the use of an independent compliance monitor to implement robust compliance procedures.
In July of 2007, Vetco’s former parent company, ABB Ltd., announced that it was again conducting an internal investigation of potential FCPA violations.
Noteworthy Aspects of the Vetco Enforcement Action:
- “Repeat Offenders” and Failure to Implement Adequate Controls - Repeat offender violations of the FCPA have emerged as a focus of enforcement officials, who are likely to impose stiffer penalties where there is evidence of prior FCPA violations by the organization in question. Enforcement officials in the Vetco case emphasized and punished the repeated nature of Vetco’s violations.
- Successor Liability, Mergers, Acquisitions and the FCPA - FCPA “best practices” today include specific due diligence related to potential FCPA risks of entities with which companies might merge or which they acquire. The new Vetco case emphasizes that FCPA compliance obligations continue post-acquisition, and liability might be imposed on a new owner for past undisclosed violations of an acquired entity. In the 2004 plea agreement between the DOJ and Vetco, the DOJ’s stated intention not to apply successor liability was based in part on the new acquirer’s representations that it would implement a compliance system, internal controls, training, continuing internal audits and other procedures to deter and detect FCPA violations. The 2007 plea agreement and DPA faulted the Vetco entities for failing to institute and implement these compliance obligations, demonstrating that an acquirer may be held responsible for non-disclosed payments that it fails to stop. The DOJ mandated that any future acquirer of Vetco will be obligated to comply with the monitoring and investigating obligations enumerated in the 2007 plea agreement and may be subject to liability where it fails to do so.
- FCPA Liability for Non-American Companies - Vetco, as well as three of the subsidiaries subject to the enforcement action, are U.K. entities. Although U.S. enforcement efforts are principally focused on U.S. companies, the FCPA allows prosecution of foreign companies that issue securities on U.S. markets, engage in acts in furtherance of corruption in the United States, or act as agents of covered companies. Because of this expansive jurisdictional reach, corporations should not assume that because they are from a foreign country or region with lax or rarely-enforced anti-bribery laws that they are outside the reach of the FCPA.
- Monitoring Requirements - In the Vetco case, the DOJ mandated that a compliance monitor acceptable to the DOJ be engaged to oversee the actions of Vetco and its affiliates. In the event that Vetco and the DOJ are unable to agree on a monitor, the DOJ will appoint one itself.
In the Aibel Group DPA, the DOJ permitted the appointment of “outside Compliance Counsel” to perform the activities of a monitor. Unlike past monitor arrangements (including the contemporaneous Vetco plea agreement), existing Compliance Counsel of Aibel Group is free to perform the monitor-like functions and is not prevented from representing the Aibel Group following the end of the monitorship. The Aibel DPA also required, however, that the Aibel Group establish a Compliance Committee of the Board of Directors, consisting of a majority of members not affiliated with the lead shareholders, and an Executive Chairperson, also not affiliated with the lead shareholders. These appointed individuals will assist in monitoring FCPA issues, and their appointment is subject to DOJ approval. If the company and the DOJ are not able to reach an agreement on the individuals who will be appointed, including Compliance Counsel, the DOJ will select the individuals on its own. These monitoring and compliance structure requirements not only illustrate the diverse sanctions that the enforcement agencies have at their disposal, but also demonstrate that the DOJ has taken for itself a more direct role in shaping the post-settlement monitoring process.
B. Baker Hughes - Payments by Agents and Consultants
The total combined sanction of $44.1 million, including $23 million in disgorgement plus interest, in the April 2007 Baker Hughes Incorporated (“Baker Hughes”) settlement reflects both the largest total penalty and the largest disgorgement of profits in any FCPA case to date. Both the DOJ and the SEC took into account a cease-and-desist order imposed on the company in connection with a prior settlement of FCPA issues in 2001 in determining the amount of the disposition.
On the DOJ side, Baker Hughes’s wholly-owned U.S. subsidiary, Baker Hughes Services International (“BHSI”), pleaded guilty to violating the FCPA’s anti-bribery provisions, conspiracy to violate the FCPA, and aiding and abetting the falsification of the books and records of its parent. BHSI paid a criminal fine of $11 million as part of the plea. The DOJ also announced a DPA with the parent Baker Hughes in connection with the same underlying conduct. Under the DPA, Baker Hughes agreed to continue to cooperate with the DOJ in its ongoing investigations into other issues for two years and to hire an independent compliance monitor for three years.
The plea agreement and DPA state that BHSI made approximately $4.1 million in improper payments in connection with a bid submitted to Kazakhoil, the state-owned oil company, for a major oil fields services contract in Kazakhstan in October 2000. In the plea, BHSI admitted to paying a consultant with knowledge that all or part of the payments to would be passed through to Kazakh officials.
According to public documents, before Kazakhoil awarded the contract to BHSI, Kazakhoil officials demanded that Baker Hughes pay a commission to a consultant in the Isle of Man to act as the company’s agent. BHSI agreed to pay a commission equal to 2% of revenue from the project and 3% on future projects in Kazakhstan to the agent, despite the fact that the agent performed no services for the company. Pursuant to this arrangement, Baker Hughes paid a total of $4.1 million from a BHSI bank account in Houston to the consulting firm’s account in London. The public documents state that the oil field services contract with Kazakhoil generated more than $219 million in gross revenues for Baker Hughes from 2001 through 2006.
The SEC complaint alleged additional violations. According to the complaint, Baker Hughes retained another agent in 1998 in connection with the award of a chemical contract with KazTransOil, Kazakhstan’s national oil transportation operator. The SEC alleged that over $1 million was paid to the agent’s Swiss bank account, even though it was known that the agent’s representative was also an executive at KazTransOil.
The SEC’s complaint also alleged several violations of the FCPA’s books and records and internal controls provisions with regard to Baker Hughes’s operations in Angola, Indonesia, Kazakhstan, Nigeria, Russia, and Uzbekistan. The agreement with the SEC requires Baker Hughes to pay $10 million in civil penalties for violating the 2001 cease-and-desist order, and $23 million in disgorged profits and prejudgment interest for violations of the FCPA.
Noteworthy Aspects of the Baker Hughes Enforcement Action
- Disgorgement as a Significant Penalty - The SEC has increasingly used disgorgement of “tainted profits” as a penalty for FCPA violations. Disgorgement is designed to make improper payments unprofitable in that any gains from the aforementioned behavior are sacrificed, and the incentive to engage in such behavior is eliminated. A potentially powerful enforcement tool, disgorgement introduces complexities of proof in identifying and quantifying profits that may appropriately be attributed to a past improper payment. In cases involving large projects or transactions, disgorgement could emerge as the largest component of a penalty package, as was the case in Baker Hughes.
- Enforcement Against “Repeat Offenders” - In its settlement with Baker Hughes, the SEC stressed the fact that the violations in part occurred while the company was subject to the 2001 cease-and-desist order and imposed a $10 million fine for violating the order. As with the Vetco resolution, the enforcement agencies took the fact that the company had been involved in a previous FCPA case into account when imposing penalties, furthering their interest in the deterrence of bribery of foreign public officials.
Recognition and Effect of Baker Hughes’s “Exceptional” Cooperation and “Significant” Remediation - In a memorandum to the court, the DOJ recognized and applauded Baker Hughes’s “exceptional” cooperation with the investigation over a five-year period and the company’s “significant” remedial efforts aimed at FCPA compliance. The DOJ commended Baker Hughes for voluntarily disclosing the violations to the government “within a reasonably prompt time.” It recognized the efforts made by Baker Hughes to cooperate with authorities as “sincere and complete,” devoting “considerable resources” to an “extensive and thorough” internal investigation. The DOJ noted that the company made employees available to be interviewed, made documents available for review, and disciplined wrongdoers. The company was commended for taking “significant” remedy actions by bolstering its internal compliance program and adopting FCPA “best practices,” such as hiring chief compliance officers for each of its seven operating divisions and instituting a complete ban on facilitating payments.
The DOJ’s acknowledgements were echoed by the District Court in the case. The court described Baker Hughes’s cooperation as “extraordinary” and its remedial and preventative efforts as “sweeping.” The court noted that the company’s cooperation “has resulted in an enormous savings of scarce prosecutorial resources.” It noted that, during the five-year investigation, Baker Hughes spent more than $50 million, engaged more than 300 lawyers, 30 forensic accountants and 80 support staff, reviewed material from approximately 300 computers constituting a volume of data roughly equivalent to 90 million pages of documents, and interviewed more than 245 witnesses. The court also explained that Baker Hughes “radically changed its business model by reducing the number of third-party commercial agents and subjecting existing agents to rigorous oversight.” The company reduced the number of agents from 650 to 77, and continues to do so. In the eyes of the court, these actions represent “the highest standards of responsible corporate citizenship.”
- Discovery of Violations - Baker Hughes voluntarily disclosed the FCPA violations after thorough internal investigations. Voluntary disclosure is a consideration in determining the apportionment of penalties in an FCPA case and is typically viewed as cooperation. Nonetheless, the case still yielded the largest combined settlement amount in an FCPA enforcement action. The fact that Baker Hughes was subject to a cease-and-desist order in connection with prior FCPA violations may have countered the potential benefit of voluntary disclosure. At the same time, the public papers in the case indicate that the profits earned from the Kazakhstan contract were more than the amount ordered to be disgorged, suggesting that the amount of disgorgement and fines could have been higher. It is possible that Baker Hughes’s voluntary disclosure and subsequent cooperation with enforcement authorities resulted in the imposition of a smaller penalty than what could have been imposed.
- Violations for the Acts of Third Parties - In the Baker Hughes settlement, every alleged improper payment involved a third party agents, customs brokers, or freight forwarders. A frequent feature of FCPA cases since the FCPA’s inception, the expansive vicarious liability provisions continue to be invoked frequently by U.S. enforcement officials.
- Due Diligence as a Component of Internal Controls - A second conspicuous feature of the violations for third party behavior is the government’s reliance on accounting violations when the details of a likely third-party payment are not otherwise provable. Specifically, to make out an anti-bribery violation, the government must show both that the company made a payment to a third party and that the third party, in turn, bribed or offered to bribe a government official. In the first of the five instances of FCPA violations recited by the government in the Baker Hughes settlement, there was proof of both the first and second payment legs.
However, with respect to the four other third party violations, it appears that there existed no proof that the third party paid or offered to pay the money received to a government official. In these circumstances, in which a bribe by the third party appeared likely but could not be proved or documented, the government ultimately alleged that the company’s failure to have in place sufficient controls or otherwise to have determined that the money paid to third parties did not go to government officials constituted violations of the accounting provisions of the FCPA. As documentation of the second leg i.e., payment or offer by a third party to an official is often lacking, under this approach the government can seek to punish likely, but unproven bribes by third parties.
- Cooperation Between Foreign and Local Enforcement Agencies - Baker Hughes demonstrates that a global interest in preventing and limiting the bribery of foreign officials has spurred increasing cooperation between foreign governments. The SEC acknowledged help from authorities in the United Kingdom, Switzerland, the Isle of Man, and Guernsey in the investigation and resolution of the Baker Hughes case.
- Multiple Sanctions - The package of penalties imposed in the Baker Hughes case reflects the flexibility that enforcement officials have developed in fashioning final dispositions of FCPA violations. Counting sanctions imposed on Baker Hughes and its subsidiary, BHSI, the government alleged violations of both the anti-bribery and the accounting provisions of the FCPA, along with conspiracy and aiding and abetting. Included as elements of the total sanctions package were a criminal fine, a civil fine, disgorgement of profits, prejudgment interest, a guilty plea, a DPA, requirement of a monitor, compliance program enhancements, and a permanent injunction. Although this array of variables gives companies facing settlements greater negotiating flexibility, they provide similar flexibility to enforcement officials, particularly when both the SEC and the DOJ are involved.
C. Omega Advisors, Inc. - Continued Fallout from Azeri Privatization
On July 6, 2007, the DOJ announced a non-prosecution agreement with Omega Advisors, Inc. (“Omega”), a hedge fund. Omega was investigated for its involvement with an alleged scheme to bribe officials of Azerbaijan in order to gain control of the Azeri state oil company. In the mid 1990’s, Azerbaijan started a program to privatize state-owned industries. Viktor Kozeny, a Czech national, allegedly brought “planeloads of cash” into Azerbaijan in order to acquire a controlling interest in the state oil company, SOCAR. Some of this money was allegedly used for bribes and the DOJ claims that the investment plan arranged by Kozeny gave Azeri officials a financial interest in the privatization of SOCAR. Omega invested more than $100 million in the Kozeny privatization scheme through a co-investment agreement with two companies controlled by Kozeny. Omega lost this entire investment and SOCAR has yet to be privatized.
Clayton Lewis, the Omega employee with primary contact with Kozeny, admitted that he knew about Kozeny’s illegal arrangements before investing Omega funds in the scheme. In February 2004, Lewis pled guilty to violating the FCPA and conspiring to violate the FCPA.
In exchange for the non-prosecution agreement, Omega agreed to civilly forfeit $500,000 and continue to cooperate with the government’s investigation and prosecution of the matter. The DOJ stated that among the factors they considered in agreeing to not prosecute Omega was (1) Omega’s cooperation with the investigation, (2) Omega’s commitment to cooperate in the future, (3) Omega’s remedial actions, including implementation of an FCPA compliance policy, (4) no prior history of FCPA violations, and (5) the prosecution of Lewis.
The government is continuing its prosecution of Kozeny and executives of American International Group, Inc. (“AIG”), which also allegedly participated in the scheme. Charges against the AIG executives were dismissed because the statute of limitations expired in their cases. However, the DOJ recently appealed the decision dismissing these charges.
Noteworthy Aspects of the Omega Enforcement Action:
- Investigation of a Financial Institution - In Omega, enforcement officials targeted a financial institution investing in a scheme that involved violations of the FCPA. Omega did not take any action in furtherance of the violations except knowingly providing capital for the venture. Furthermore, Omega’s investment was through a co-investment agreement with a company they did not control. Nevertheless, as this and other FCPA cases illustrate, knowingly providing money that will be used for bribes violates the FCPA’s vicarious liability provisions.
- Light Sentence in Exchange for Cooperation - The DOJ stated that one of the reasons Omega was treated relatively lightly, only a $500,000 fine, was that it cooperated with authorities, including aiding in the prosecution of their former employee, Clayton Lewis.
D. Delta & Pine land - A Due Diligence Discovery
On July 26, 2007, the SEC announced two settled enforcement proceedings involving Delta & Pine Land Company (D&PL), a U.S. producer of cottonseed, and Turk Deltapine, Inc., D&PL’s subsidiary. The SEC alleged that D&PL violated the books and records and internal controls provisions of the FCPA and that Turk Deltapine, a Delaware corporation operating in Turkey, violated the antibribery violations of the FCPA. The underlying conduct involved payment of approximately $43,000 to officials of the Turkish Ministry of Agricultural and Rural Affairs from 2001 - 2006 in order to obtain reports and certifications required to sell and export cottonseed. D&PL and Turk Deltapine agreed to a cease-and-desist order and to pay a $300,000 fine. In addition, D&PL was required to retain an independent consultant to review the company’s FCPA compliance program.
Noteworthy Aspects of the Delta & Pine Land Enforcement Actions:
- Discovery of Issues During Due Diligence - According to the SEC complaint, the payments were detected during due diligence conducted by a potential acquirer of D&PL. Review of FCPA issues has become a common feature of pre-acquisition due diligence. It has also led to several FCPA enforcement actions over the years involving Syncor International Corp., Titan, ABB Ltd., InVision, and now D&PL.
- If Not Handled Properly, Small Payments Can Lead to Big Violations - The amount and types of payments -- $43,000 in cash, payment of travel and hotel expenses, air conditioners, computers, office furniture, and refrigerators to multiple officials over a five-year period may seem small in total and in the amounts likely provided to individual officials. The SEC, however, still required a fine and a monitor. This was likely due to what the SEC deemed to be D&PL’s inadequate response to the issue. According to the SEC documents, D&PL management learned that Turk Deltapine was making the payments in May 2004. Management stopped Turk Deltapine employees from directly making payments but approved an arrangement where a Turkish chemical company would make the payments and include the amounts in its invoices to Turk Deltapine for chemicals supplied. In approving this procedure, an internal D&PL memorandum noted that there was “no effective controls to put in place to monitor this process.”
E. Textron - Oil-for-Food Kickbacks
On August 23, 2007, the SEC settled an action against Textron, Inc. for violations of the books and records provisions of the FCPA and the DOJ entered into a non-prosecution agreement with Textron. The government alleged that from 2001 to 2003, two French subsidiaries of Textron authorized and made kickback payments of approximately $650,000 to Iraqi officials in exchange for contracts under the United Nations Oil for Food Program. Under this program, Iraq was allowed to use oil revenues to purchase humanitarian supplies for its population.
Money from oil sales was held in a U.N. escrow account that could be used to make these purchases and the Iraqi government decided which firms were awarded contracts. The Textron subsidiaries, which were selling pumps, conducted business in Iraq through Lebanese and Jordanian consulting firms. In exchange for contracts, the Textron subsidiaries agreed to pay what the Iraqi government called “after-sales service fees.” These fees amounted to ten percent of the total contract price. These payments bypassed the U.N. escrow account that was supposed to facilitate all transactions relating to the Oil for Food Program and were deposited directly into accounts in the name of Iraqi individuals for the benefit of Iraqi ministries. The contracts submitted to the U.N. did not disclose that the bids were inflated to include the cost of these kickbacks. Textron subsidiaries made $1,936,926 in profits from these contracts with Iraq.
In addition, during the course of Textron’s internal investigation into this matter, the company discovered about $115,000 worth of illicit payments to other government officials around the world that were not connected to the Oil for Food Program contracts. These payments were also typically made to third parties who funneled some of the money to government officials as kickbacks in exchange for awarding contracts to Textron.
The SEC complaint alleged that Textron management knew about the payments to Iraqi officials and either knew or was reckless in not knowing about the payments to officials in other countries. The SEC alleged that Textron failed to maintain an effective system of internal controls, failed to enter into a written agreement with consultants despite company policy to the contrary, and that management of the subsidiaries failed to report known problems to higher-level management. Also, despite knowing about corruption problems in the Middle East, Textron failed to adequately ensure that its employees were fulfilling their compliance duties. In addition, with both the Iraqi payments and the payments in other countries, some of these payments were inaccurately recorded as consulting fees or commissions. Textron self-disclosed these problems to the government.
In its settlement with the SEC, Textron was ordered to disgorge over $2.5 million in profits and pre-judgment interest and to pay a civil fine of $800,000. In accordance with its non-prosecution agreement with the DOJ, Textron was ordered to pay a $1.15 million fine.
Noteworthy Aspects of the Textron Enforcement Action
- Lack of Written Contract with a Third Party - In its complaint, the SEC made it a point to note that Textron failed to enter into written contracts with the consultants that funneled kickbacks to Iraqi officials. This was in violation of Textron company policy. Not having a written agreement creates a lack of transparency that could lead enforcement officials to assume, in this case rightly so, that the relationship reflects illicit activity. Furthermore, not following company compliance policy also creates the impression that the transaction is inappropriate.
- Cooperation with International Organizations - In Textron, the government investigators received assistance from the U.N. Independent Inquiry Committee. More and more international organizations such as the U.N. and the World Bank are creating their own corruption investigative arms and sharing the information they gather with governments around the world. In the wake of the Oil for Food scandal, this trend is likely to continue.
- Unrelated Problems Found During Internal Investigation - Textron voluntarily disclosed its violations of the FCPA. After being alerted to the possibility of a problem with the Oil for Food Program, the company conducted an internal investigation. In the course of that investigation, the company discovered unrelated violations in various countries. As illustrated by the Vetco matter, it is in a company’s best interest to identify and resolve all violations with the U.S. Government at one time rather than risk having to make a second disclosure to enforcement officials. Expanding investigations to review other business units for similar issues will also anticipate what is often one of the U.S. Government’s first questions upon making a disclosure “Where else did you look?”
- Avoidance of Monitor - Textron is one of the few recent corporate cases in which enforcement officials did not require that the company retain a compliance monitor.
F. Paradigm B.V. - Pre-IPO Due Diligence
On September 24, 2007, the DOJ announced a non-prosecution agreement with Paradigm B.V. (“Paradigm”), an enterprise solutions software provider to the oil and gas industry. Paradigm, while conducting due diligence in preparation for an anticipated initial public offering in January 2007, identified potential violations of the FCPA. In response, the company hired outside counsel to conduct an investigation which uncovered a series of improper payments to government officials in China, Indonesia, Kazakhstan, Mexico and Nigeria in violation of the FCPA. Paradigm then voluntarily disclosed these violations to the DOJ and cooperated fully with a subsequent government investigation. In entering into a non-prosecution agreement, Paradigm agreed to pay a $1 million fine, implement rigorous internal controls, retain outside compliance counsel for a period of 18 months, and continue to cooperate fully with the DOJ.
Paradigm, whose headquarters is in the Netherlands, moved its principal place of business from Herzliya, Israel to Houston, Texas in July 2005, thereby becoming a “domestic concern.” In its agreement with the DOJ, Paradigm acknowledged violations that occurred both before and after it became a domestic concern.
Specifically, Paradigm admitted to wiring a $22,250 “commission” on October 21, 2005, to a British West Indies consulting firm they retained at the recommendation of an official of KazMunaiGas, Kazakhstan’s national oil company. The payment was made after Paradigm secured a large contract for geological software with KazMunaiGas. Paradigm also admitted to making commission payments in 2006 through an agent to representatives of Zhonghai Petroleum, a subsidiary of the China National Offshore Oil Company (“CNOOC”). These payments were made in connection with the sale of software to the CNOOC subsidiary. It also hired employees of state-owned entities as “internal consultants” in an attempt to influence these entities’ procurement divisions to purchase Paradigm software.
Paradigm has acknowledged similar conduct in business dealings in Mexico, Nigeria, and Indonesia. In Mexico in 2004 and 2005, Paradigm paid several invoices to an agent in connection with a $1.48 million subcontract it secured with the Mexican Bureau of Geophysical Contracting (“BGP”) on an underlying contract with Pemex, the Mexican national oil company. It spent at least $22,000 entertaining a governmental decision maker in connection with that BGP contract and two other Pemex contracts. Paradigm also hired the decision maker’s brother as a driver. In Indonesia, Paradigm employed an agent to help conduct its business. In April 2003, employees of Pertamina, Indonesia’s national oil company, sought payments in exchange for obtaining or retaining business. Paradigm’s agent was involved in making these payments and received his commissions through a New York bank account. In Nigeria in May 2005, Paradigm agreed to make corrupt payments of between $100,000 and $200,000 through an agent to unidentified Nigerian politicians to obtain a contract with a subsidiary of the Nigerian National Petroleum Corporation.
Because Paradigm conducted an investigation using outside counsel, voluntarily disclosed its findings, cooperated fully with the DOJ, and instituted significant remedial compliance measures, the DOJ agreed not to prosecute Paradigm for both making and agreeing to make improper payments.
Noteworthy Aspects of the Paradigm B.V. Enforcement Action
- Discovery of Issues During Due Diligence - According to the DOJ non-prosecution agreement, the violations were detected during due diligence conducted in preparation for Paradigm’s anticipated initial public offering. As discussed above in relation to the Vetco and D&PL cases, a review of FCPA issues has become a common feature of pre-acquisition or initial public offering due diligence.
- Aggressive Enforcement Against Foreign Companies - Paradigm, a Dutch company, only became a domestic concern in 2005, when it switched its principal place of business from Israel to Texas, but the non-prosecution agreement covers activities as far back as 2002. As reflected in several matters in the past few years (including this year’s Vetco settlement), U.S. enforcement officials are aggressively pursuing actions against foreign companies.
- Evolution of Monitorship - Instead of hiring an independent monitor, the DOJ is allowing Paradigm to use its existing compliance counsel to monitor Paradigm during the 18 month term. While the non-prosecution agreement calls for the compliance monitor to make periodic reports to the DOJ, the agreement does not discuss any issues surrounding waiver of privilege, a common feature of monitor requirements.
G. Bristow Group - Nigerian Officials
On September 26, 2007, the SEC announced a settled enforcement proceeding involving the Bristow Group, Inc. (“Bristow”), a U.S. company headquartered in Houston, for violations of the anti-bribery, books and records, and internal controls provisions of the FCPA. Bristow, which operates oil and gas production facilities and provides helicopter transportation services, discovered potentially improper payments in October 2004, and, after an internal investigation, promptly brought the matter to the SEC.
From at least 2003 to 2004, the SEC alleges that a Bristow subsidiary, AirLog International, Ltd. (“AirLog”), made improper payments totaling $423,000 to Nigerian state government officials. The SEC claims these payments were made through AirLog’s Nigerian affiliate, Pan African Airlines Nigeria, Ltd. (“PAAN”) in exchange for reductions of PAAN’s expatriate employment taxes in Nigeria, which saved the company upwards of $1 million in payroll taxes. During the same time period, PAAN also underreported its expatriate payroll expenses to certain Nigeria state governments. As a result, these expenses were not properly recorded in AirLog’s books and records which caused Bristow to subsequently file inaccurate reports with the SEC. In reviewing Bristow’s internal controls prior to October 2004, the SEC found Bristow lacked the compliance procedures necessary to detect and prevent improper payments and underreported expenses of this type.
As part of the settled enforcement action, the SEC ordered Bristow to cease and desist from committing or causing any future FCPA violations.
Noteworthy Aspects of the Bristow Enforcement Action:
- Light Penalty in Exchange for Cooperation - Bristow’s settled enforcement action resulted in a cease and desist order with no financial penalties and without the appointment of a monitor. The SEC stated that one of the reasons it accepted Bristow’s Offer of Settlement was because of “remedial acts promptly undertaken by Respondent and cooperation afforded the Commission staff.”
- Discovery of Issues During Corporate Change Over - The improper payments at issue in Bristow were uncovered after Bristow’s new CEO overheard a comment suggesting that payments may have been made to Nigerian officials. The CEO immediately alerted the audit committee and contacted outside counsel, which led to Bristow’s internal investigation.
H. York International Corp. - Another Oil-for-Food Action
On October 1, 2007, the SEC settled an action against York International, Corp. (“York”) for violations of the anti-bribery, internal controls, and books and records provisions of the FCPA, and the DOJ agreed to defer the prosecution of York for three years.
The DOJ alleged that between November 2000 and March 2003, employees of York ‘s subsidiaries York Air Conditioning and Refrigeration (“YACR”) and York Air Conditioning and Refrigeration FZE (“FZE”), circumvented the United Nations Oil for Food Program by paying a total of $647,000 in kickbacks to the Iraqi government through inflating the price of its humanitarian contracts with Iraq before submitting the contracts for U.N. approval. York’s investigation into these illicit payments in Iraq led to the discovery of hundreds of other kickbacks and bribes made and authorized by YACR and FZE and paid to the employees of government customers and contractors of government customers in order to obtain and retain contracts on governmental projects in various countries.
The SEC complaint alleged that between 2000 and 2006, in addition to the kickbacks to Iraq, York’s subsidiaries paid approximately $522,500 to UAE officials through an intermediary and devised elaborate schemes to conceal over $7.5 million in other payments made to secure commercial and government contracts in the Middle East, India, China, Nigeria and Europe. York referred to these payments as “consultancy payments,” but received no bona fide services for them. York made a total of 854 “consultancy payments” on around 774 contracts, 302 of which involved government end-users.
The DPA calls for York to pay a $10 million fine, cooperate fully with the DOJ’s ongoing Oil for Food investigations, and have its compliance program and procedures reviewed by an independent monitor.
Under its settlement with the SEC, York consented to the filing of a complaint without admitting or denying the allegations and agreed to pay a $2 million penalty and disgorge just over $10 million in profits, including pre-judgment interest. York was also ordered to retain an independent compliance monitor.
Noteworthy Aspects of the York Investigations:
- Pursuit of Oil for Food Violators - York is just one of several actions this year stemming from the scandal surrounding the U.N. Oil for Food program in Iraq. In its settlement with Textron, the SEC ordered the company to pay an $800,000 fine and disgorge over $2.5 million in profits and interest for books and records violations under the FCPA, while the DOJ imposed an additional $1.15 million fine. In El Paso (discussed below), the SEC levied an almost $8 million penalty in fines and disgorged profits for books and records violations relating to $5.5 million in illegal payments to Iraqi officials in connection with oil purchases under the program. And on October 1, Oscar Wyatt, Jr., pleaded guilty to one count of conspiracy to commit wire fraud in connection with millions in illegal payments he allegedly made to Iraqi officials in exchange for oil allocations from 2000 to 2002. Under the plea agreement, Wyatt faces 18 to 24 months in prison and will forfeit $11 million in assets.
I. Siemens - Record Levels of Improper Payments and Resulting Fines
On October 4, 2007, Siemens AG reached a settlement with German prosecutors in a corruption probe into hundreds of millions of euros in allegedly illicit payments by its telecom unit. In its settlement, Siemens agreed to pay a €201 million ($283.3 million) penalty as well as €179 million ($252.2 million) in additional taxes because of approximately €420 million ($592 million) in improperly claimed tax deductions.
Siemens was accused of hording hundreds of millions of euros in a secret slush fund used to pay bribes in order to secure lucrative contracts. The main focus of this inquiry was into bribes allegedly paid by a company unit that makes telecommunications equipment. Siemens has already uncovered €420 million in suspicious payments, and the company issued a statement indicating that it was braced to discover a “significant increase” in other possible bribes as it widened its investigation to other units. In recent weeks, Siemens internal investigations have shown that the scope of questionable payments could involve as much as €1.6 billion ($2.25 billion) throughout various units within the company.
This settlement resolves one of several possible problems for Siemens, but the company still must deal with pending investigations in the United States by both the SEC and DOJ, and similar inquiries in Switzerland, Greece and Italy. The DOJ investigation includes a review of Siemens possible involvement in the U.N. Oil for Food program improprieties. Siemens has also been accused by German authorities of channeling funds to an independent labor union that was considered friendly to management and that could act as a counterweight to IG Metall, the most powerful German union, which holds nearly half the seats on the Siemens board. Separately, German authorities have handed down the first indictment in the probe to a former Siemens employee, identified only as Reinhard S., for his part in the scheme. Several other individuals, including former management board members and the former financial chief, also remain under investigation.
All of this follows the conviction of two former Siemens officials by a German court in May 2007, on charges of bribery and assisting bribery for their involvement in multimillion-dollar payments to officials at an Italian utility Enelpower SpA (“Enel”). The two former employees admitted to paying €6 million ($8.5 million) to managers at Enel between 1999 and 2002, in order to win a series of turbine contracts. Siemens’ former Finance Chief, Andreas Kley, received a two-year suspended sentence while Horst Vigener, a former business consultant employee, received a nine-month suspended sentence. The German court also ordered Siemens to forfeit €38 million ($53.5 million) in profits from deals with Enel despite the fact that the employees maintained that Siemens did not suggest the bribe. Kley and Vigener claimed that officials at Enel suddenly demanded payments shortly before a final contract agreement was reached. Kley and Vigener also argued that at the time the payments were made, Enel was actually privately owned. Thus, any payments made were to private individuals as opposed to public officials. The German court disagreed, finding that Enel was still effectively controlled by the state. The court further opined that the route traveled by the bribe, including the transfer of funds in Dubai and Monte Carlo, was comparable to that of organized crime gangs. Siemens has indicated its intention to appeal the decision, stating that no illegal activity occurred, and noting that it has already been punished in an Italian court. Further, Siemens indicated that, in any case, it did not profit in the long run after it agreed to a settlement with Enel.
On October 1, 2007, Siemens announced that it was establishing a Managing Board position for legal and compliance matters in an effort to strengthen its internal controls and reorganize company-wide how it handles compliance-related issues.
Noteworthy Aspects of the Siemens Enforcement Action:
- International Anti-Bribery Laws - With the proliferation of international trade, more and more nations have signed anticorruption initiatives, including the Organization for Economic Co-operation and Development (“OECD”) Convention on Combating Bribery of Foreign Public Officials, and demonstrated their commitment in that vein by more consistently prosecuting charges of bribery of foreign officials. As a result, the business environment in some locales where foreign bribes were formerly condoned has changed. For example, Germany previously permitted tax deductions for foreign bribes. In the Siemens case, it prosecuted such action. This notable development is indicative of the changing attitudes toward corruption worldwide.
Overall, however, the record of enforcement of anti-bribery laws outside of the United States is mixed. According to a 2007 Transparency International Report, 20 of the 37 countries that have ratified the OECD Convention have had little or no enforcement of related bribery laws since 1999. U.K. authorities have recently been subject to sharp public criticism for their decision not to pursue an investigation of BAE’s activities in Saudi Arabia due to national security concerns. U.S. enforcement actions against foreign persons may reflect an attempt to compensate for a perceived lack of enforcement against such persons by other jurisdictions.
- Multi-Jurisdictional Enforcement - While this settlement resolves a number of legal concerns for Siemens in Germany, the company still faces potential for liability in several other jurisdictions for the illicit payments in question. Before settling, Siemens had initially tried to argue that it should not be subject to penalty in a German court because it had already been penalized in an Italian court based on the same charges. A number of FCPA enforcement actions have also involved local prosecution of companies. Although, as reflected in the U.S. prohibition on double jeopardy, fairness suggests that a party should be punished only once and in proportion to his crime, that prohibition may not be triggered in multi-jurisdictional matters. Thus, while international law typically aims to resolve such a conflict, organizations are often subject to penalty in more than one jurisdiction based on a single offense. However, there has been substantial cooperation between foreign governments and enforcement agencies in the investigation and prosecution of cases involving the bribery of foreign officials. It follows that this cooperation may involve discussion of and agreements as to which jurisdiction may appropriately prosecute the parties involved.
J. Panalpina Investigation - Cascading Investigations
In July of 2007, the media reported that the DOJ was conducting investigations into more than a dozen oil and oil services companies that have a relationship with Panalpina World Transport Holding Ltd. (“Panalpina”), a freight forwarder.
According to the press accounts, the DOJ suspects that, on behalf of these companies, Panalpina made illegal payments to customs officials in Nigeria and other countries in order to expedite shipments. The oil and oil services companies were asked to detail their relationships with Panalpina and list the services Panalpina provided to them over the last five years. Panalpina announced that is conducting its own internal investigation and that the DOJ has requested documents from Panalpina relating to activities in Nigeria, Kazakhstan and Saudi Arabia. These investigations are ongoing.
Noteworthy Aspects of the Panalpina Investigations:
- Leveraging One Case Into Many - In this matter, it appears that the government is leveraging its investigation into Panalpina into a number of investigations into Panalpina’s customers and vice-versa. As evidenced by the Oil for Food Program investigations involving Textron, York, and El Paso (discussed below) and the investigation of kickbacks in the medical industry over the past few years (e.g., Micrus, Syncor, and Diagnostic Products Corporation), an SEC and DOJ investigation into one company often leads to voluntary disclosures and/or investigations of different companies operating in the same country or industry.
- Focus on Nigeria - Nigeria is notorious for being one of the most corrupt countries in the world. Doing business there is always a challenge and, as this investigation and the Vetco, Baker Hughes, and Paradigm B.V. settlements highlight, it carries a very high risk of potential FCPA violations.
- Focus on Oil Industry - With the Panalpina investigation, the Vetco, Baker Hughes, Paradigm B.V., and Bristow settlements, and last year’s matters against Statoil and Oil States International, the oil and oilfield services industries have faced unparalleled scrutiny over the past two years.
- Focus on Customs - The Panalpina investigation also reflects continued attention on payments to customs officials. The Vetco and Dow Chemical (discussed below) settlements also included payments to customs officials, as have several other cases prior to 2007, including U.S. v. Murphy and Kay, Chiquita, and B.J. Services.
K. The FCPA’s Books and Records and Internal Control Provisions - El Paso and Dow
Two 2007 cases reflect the SEC’s insistence on the accurate recording of payments and implementation of adequate internal controls. In February 2007, the SEC announced settlements with El Paso Corporation and Dow Chemical Company for violations of the FCPA’s books and records and internal control provisions. According to public releases, El Paso Corporation indirectly made illegal payments of $5.5 million to Iraqi officials in connection with purchases of crude oil under the U.N. Oil-for-Food Program. The SEC alleged that El Paso knew or should have known of these payments, and that it failed to accurately record them in the company’s books and records. El Paso agreed to pay $2.25 million in fines and $5.48 million in disgorged profits.
According to SEC documents, Dow Chemical’s FCPA violations related to approximately $200,000 in improper payments made by its fifth-tier subsidiary in India. The initial payments were made to an official at India’s Central Insecticide’s Board (“CIB”) to expedite the registration of certain Dow Chemical pesticides. However, the payments were made through agreements with contractors, who added fictitious charges to the bill charged back to the Dow subsidiary. Later payments were made to sales tax officials, excise tax officials and customs officers to facilitate the distribution and sale of products. These payments were typically under $100. None of the payments was accurately recorded in Dow Chemical’s books and records. Dow Chemical and the SEC agreed on a cease and desist order.
While these cases did not invoke the FCPA’s anti-bribery provisions, they serve as reminders that companies must diligently and accurately record payments that they make and be able to verify the purpose of the payments. Failure to do so may result in violations of the FCPA.
Sanctions Against Individuals under the FCPA and Anti-Bribery Laws:
Enforcement actions against individuals for FCPA violations have continued in early 2007, following a record year in 2006, in which 7 of the 11 enforcement matters involved individuals. The cases below reflect a clear pattern of following up corporate prosecutions and settlements with enforcement actions against the individuals corporate employees or consultants who were individually involved.
Charles Martin - In March 2007, the SEC reached a settlement agreement with Charles Martin. In its complaint, the SEC alleged that Martin authorized and directed an Indonesian consulting firm to pay a bribe of $50,000 to a senior Indonesian Ministry of Environment official in 2002. Without admitting or denying the Commission’s allegations, Martin consented to the entry of a final judgment permanently enjoining him from violating and/or aiding and abetting violations of the anti-bribery, books and records, and internal control provisions of the FCPA. Martin also agreed to pay a civil penalty of $30,000.
Roy Fearnley - In connection with the Baker Hughes case, the SEC filed a complaint against the former business development manager, Roy Fearnley, who is alleged to have been involved in engaging the agent in the Kazakhoil bid. Fearnley allegedly also pressured one of Baker Hughes’s subcontractors to hire the same agent in a separate bidding process by implying that failure to hire the agent might result in a decision not to renew the subcontractor’s contract on the project. The subcontractor subsequently contacted Fearnley to inform him that the agent had in fact been hired. Fearnley has not reached any settlement with the SEC regarding these charges.
Congressman William Jefferson - On June 4, 2007, Congressman William J. Jefferson was indicted on federal charges of racketeering, soliciting bribes and money-laundering in a long-running bribery investigation into business deals he attempted to broker in Nigeria. The indictment lists 16 alleged violations of federal law, including one count of violating the FCPA. With respect to the FCPA charge, the indictment alleges that Jefferson, a member of the U.S. House of Representatives representing Louisiana, made an up-front payment of $100,000 in cash to a Nigerian government official for the purposes of obtaining and retaining business for a Nigerian joint venture. The initial up-front payment allegedly took place at some time between April 2005 and August 3, 2005. A later payment was to consist of a share of the joint venture’s future profits directed to the Nigerian official for his help in securing the improper advantage. Jefferson allegedly received monthly fees, retainers, consulting fees, flat fees for items sold, and stock ownership in the companies to which he provided assistance.
Two of Jefferson’s associates have already struck plea bargains with prosecutors and have been sentenced. One of those associates, Vernon Jackson, a telecommunications executive, pleaded guilty to paying between $400,000 and $1 million in bribes to Jefferson in exchange for his assistance securing business deals in Nigeria and other African nations.
Jackson received a sentence in excess of seven years for those acts. The other associate, Brent Pfeffer, admitted to soliciting bribes on behalf of Jefferson and received an eight-year sentence for his involvement. Jefferson is awaiting trial.
Christian Sapsizian - On June 7, 2007, Christian Sapsizian, a French citizen and former deputy vice president of Alcatel CIT, pled guilty to conspiracy to violate the FCPA and violating the FCPA. Sapsizian admitted to paying bribes, with co-conspirator Edgar Valverde Acosta, from February 2000 through September 2004, to the director the Instituto Costarricense de Electricidad (“ICE”), Costa Rica’s state-owned telecommunications authority. According to Sapsizian, the more than $2.5 million in bribes were for the purposes of securing a mobile telephone contract and were intended to cause the ICE director and a senior government official to exercise their influence in a bidding process and to vote to award Alcatel a mobile telephone contract. ICE was responsible for awarding all telecommunications contracts in Costa Rica. Alcatel was ultimately awarded a $149 million mobile telephone contract in August 2001. Sapsizian faces a maximum sentence of 10 years in prison, a $250,000 fine, and $330,000 in forfeiture. Until November 30, 2006, Alcatel was a French telecommunications company whose American Depositary Receipts (“ADRs”) were traded on the New York Stock Exchange. In December 2006, Alcatel merged with Lucent Technologies and became Alcatel-Lucent.
Si Chan Wooh - On June 29, 2007, Si Chan Wooh, a U.S. citizen and former executive of Schnitzer Steel Industries, pled guilty to conspiracy to violate the FCPA in connection with payments to officers and employees to Schnitzer Steel’s government-owned customers in China. Wooh also settled with the SEC for violations of the FCPA anti-bribery provisions and for aiding and abetting Schnitzer’s violations of the recordkeeping provisions in connection with the above payments as well as payments to employees of privately owned steel mills in China and South Korea. In connection with the SEC settlement, Wooh agreed to pay approximately $40,000 in disgorgement, interest, and penalties. In October 2006, Schnitzer Steel settled related charges, disgorged $7.7 million, and entered into a three-year DPA requiring the retention of a compliance monitor. At that time, the South Korean subsidiary of Schnitzer Steel pled guilty to FCPA and other charges and paid a $7.5 million criminal fine.
Jason Steph - On July 23, 2007, the DOJ announced the indictment of Jason Steph, a former employee of Willbros International, Inc., on charges of violating the FCPA. Steph is accused of conspiring to make more than $6 million in payments to Nigerian government officials in exchange for obtaining and retaining pipeline construction business from a joint venture controlled by the Nigerian state oil company. This is the second Willbros executive to face charges of bribery in Nigeria. Jim Brown has already pleaded guilty to violating the FCPA by arranging a $1.5 million payment to government officials to obtain pipeline construction business.
Steven Ott and Roger Young - This summer, the DOJ also prosecuted three former executives of ITXC Corporation for their involvement in a conspiracy to pay bribes to employees of state-owned telecommunications companies in order to obtain contracts for ITXC. Steven Ott and Roger Young pled guilty on July 25, 2007, to conspiring with each other and other former ITXC employees to pay approximately $266,000 in bribes to employees of state-owned telecommunications companies in Nigeria, Rwanda, and Senegal. Their sentencing is scheduled for October 2007. Yaw Amoako, a former regional manager for ITXC, has already been sentenced to 18 months in prison for this conspiracy to violate the FCPA and pay bribes to government officials in Africa.
Monty Fu - Most recently, on September 27, 2007, the SEC filed a settled civil injunctive action against Monty Fu, a resident of California and founder and former chairman of Syncor International Corp. (“Syncor”). The action relates to payments made by a former subsidiary of Syncor’s in Taiwan to doctors employed in private and public hospitals in Taiwan from 1985 through 2002. The SEC alleged that Fu aided and abetted Syncor’s violations of the books and records and internal controls provisions of the FCPA. Without admitting or denying the SEC’s allegations, Fu consented to the entry of a final judgment imposing a permanent injunction and ordering him to pay a civil penalty of $75,000. In October 2002, Syncor had previously settled a related enforcement proceeding with the SEC, agreeing to pay a $500,000 civil penalty and consenting to the issuance of an administrative order. Its Taiwanese subsidiary entered into a plea agreement with the DOJ and paid a $2 million fine.
The DOJ and SEC both have stressed the deterrent value of individual prosecutions as an enforcement tool. The sanctions for individuals in FCPA cases include both civil and criminal penalties. As such, top corporate officials have a particular interest in maintaining internal compliance programs and controls to prevent violations, as they may be the subject of FCPA investigations where company policies fail to adequately protect against FCPA violations or where they knew or should have known of bribes taking place. These prosecutions will not be limited to the individuals who actually pay bribes, but will also target executives and officers who fail to take the necessary steps to prevent such conduct.
Opinion Procedure Releases - Travel and Hosting
- On July 24, 2007, the DOJ released its first Opinion Procedure Release of the year, release number 07-01. An American company requested an opinion regarding its plans to host a six-person delegation from an Asian country for an educational and promotional tour of its U.S. operations sites. The company stated that it would only pay for the officials’ domestic airfare. The Asian government would pay for reasonable domestic lodging, local transport and meals during the four-day visit. The company stated that it did not currently have business in the Asian country but wished to conduct business in the Asian country similar to that conducted at the visited site. The company obtained an opinion letter from an American law firm stating that its plan did not violate the local law of the Asian country. It also stated that the Asian country selected the delegates and that these people had no direct authority over decisions relating to potential contracts or licenses affecting the company. The company stated that it would pay all expenses directly to vendors and would not pay for spouses, family or any other people to accompany the government officials. It also stated that all gifts would have the company name or logo on it and all expenses would be accurately recorded. The DOJ stated that it did not intend to take any enforcement action in this matter.
- On September 11, 2007, the DOJ released Opinion Procedure Release 07-02, in which it favorably considered a U.S. insurance company’s request to pay certain domestic expenses for a six-day educational trip to the company’s headquarters by a delegation of foreign government officials selected by the foreign government agency. The U.S. company wished to educate the officials from the unnamed country regarding the operation of a U.S. insurance company. The trip to the company’s headquarters would follow the delegation’s attendance at an internship program in the United States and would not involve international travel. The requesting company would only pay for domestic travel, local transport, meals and incidental expenses (up to a modest set amount per day upon presentation of a receipt) and a four-hour site-seeing tour. The Opinion Procedure Release noted that the requesting company had no “non-routine” business under consideration by the government agency. The DOJ stated that it did not intend to take any enforcement action in this matter.
The Institutional Integrity Department (“INT”) of the World Bank’s Anti-Corruption Program has been embroiled in controversy for the past several years. A recent independent review of INT’s anticorruption efforts headed by former Federal Reserve Chairman Paul Volcker, however, recognized that the INT has achieved notable success in combating corruption while also suggesting ways in which the World Bank might improve its efforts. The report exonerated the INT with regard to allegations of unfairness and political motivation levied against the Department and expressed support for the aggressive Voluntary Disclosure program the Bank has put in place. The report’s recommendations included: (1) elevating the INT Director to Vice-President status and strengthening INT’s relationship to the Bank’s audit committee; (2) creating an external Advisory Oversight Board to monitor and advise Bank management about INT’s practices and performance; (3) enhancing the prevention of fraud and corruption beyond merely investigations; (4) ensuring a comprehensive response to fraud and corruption to ensure that the Bank will take and coordinate appropriate action upon finding fraud and corruption; (5) broadening the disclosure INT’s investigative findings (without disclosing information and names that must be kept confidential); and (5) using peer groups along with Bank oversight groups to develop criteria for evaluating the impact of its efforts and consider the contribution made to improving controls, building capacity and enhancing the Bank’s reputation. World Bank President Robert B. Zoellick has embraced the report and promised that the Volcker panel’s detailed recommendations would be carefully and promptly considered.
2007 Corruption Perception Index (“CPI”) - Myanmar and Somalia Overtake West Africa and “the Stans”
On September 26, 2007, Transparency International released an updated CPI, an index which tracks perceived levels of public sector corruption based on 14 expert opinion surveys and this year ranked 180 countries and territories. As in past years, the index establishes a strong correlation between corruption and poverty, with the World Bank classifying nearly half of those in the bottom 80 as low income countries. Somalia and Myanmar scored the worst, a 1.4 out of a scaled score of 10, while Denmark, Finland, and New Zealand topped this year’s index with a 9.4. The United States received a 7.2, placing it 20th for the second straight year.
Miller & Chevalier’s FCPA Practice Group has authored The Global Overview and the United States Chapter in the recently published Getting the Deal Through: Anti-Corruption, which was distributed at the 5th Annual International Bar Association’s Anti-Corruption Conference in Paris, France. This book includes a discussion by local practitioners of anti-corruption legal frameworks and enforcement developments in more than twenty countries.
Miller & Chevalier’s Mark Rochon and James Tillen authored “Foreign Affairs: When Buying Overseas, Companies Need Enforcement Action” which appeared in the August edition of The Deal.
Miller & Chevalier’s John Davis coauthored the article, “Development in U.S. and International Efforts to Prevent Corruption,” which was published in the August 1, 2007 issue of The International Lawyer.
Homer Moyer shared the latest trends in FCPA investigations on the “Inside Track with Broc” podcast featured by DealLawyers.com.
Upcoming Speaking Engagements
Homer Moyer, recently named the Chairman of the IBA’s new Anti-Corruption Committee, will co-chair a Showcase Session on “The Many Faces of Corruption” at the IBA’s October 2007 annual meeting in Singapore, where the committee will hold its first business meeting and co-sponsor five program sessions.
The American Conference Institute will host its 18th National FCPA Conference on November 13 and 14, 2007, at the Hilton Alexandria Mark Center in Arlington, Virginia. Homer Moyer is the conference chair and will speak on the panel, “Conducting Pre-Merger (or Pre-IPO) FCPA Due Diligence.” Another member of Miller & Chevalier, Kate Cameron Atkinson will be a panel speaker for “Conducting Due Diligence of Foreign Third Parties to Minimize Liability Risks.”
On November 29, 2007, Homer Moyer will be speaking to the International Judicial Relations Committee of the Federal Judiciary on the topic of foreign official corruption. In particular, he will discuss judicial corruption in new democracies, the recent measures taken by international bodies to combat such corruption, and other efforts underway to deal with the problem.
The International Bar Association’s 6th Annual Anti-Corruption Conference - The Awakening Giant of Anti-Corruption Enforcement will take place on April 23-25, 2008 in Paris, France.
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