Richard L. Cassin Publisher and Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Michael Scher
Senior Editor

Elizabeth K. Spahn Contributing Editor

Julie DiMauro Contributing Editor

Eric Carlson Contributing Editor

Michael Kuria Contributing Editor

Thomas Fox Contributing Editor

Philip Fitzgerald Contributing Editor

Marc Alain Bohn Contributing Editor

Bill Waite Contributing Editor

Shruti J. Shah Contributing Editor

Russell A. Stamets Contributing Editor

Brook Horowitz Contributing Editor


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Corporate Enforcement Countdown

We're searching for clues about how enforcement decisions are made, and whether corporate settlements might be replacing individual prosecutions. Now we've got some numbers to help in the search.

Click to read more ...


Making War On Red Tape

India and China are among the world's worst countries for red tape. But their economies are growing. How? Bribery. So to beat bribery, let's kick red tape in the trash can of history.

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In Search Of Good Red Tape

Red tape weighs people down and creates obstacles to commerce and everyday life. But does it bring any benefits? The one most commonly cited is that governments need information. So how do the world's most efficient and cleanest governments balance their need for information with the fight against red tape?

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The Enforcement Rap Sheet

If the DOJ and SEC are prosecuting corporations instead of individuals for FCPA violations -- an idea raised in another post -- the numbers should show it. So let's take a look.

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China's Clean Up Continues

One of China's top corruption fighters this week was given a suspended death sentence after being convicted of corruption.

Wang Huayuan, 62, was charged with taking bribes while serving as secretary of the provincial commissions for discipline in Guangdong and Zhejiang provinces between 1998 and 2009. The bribes amounted to 7.71 million yuan (about $1.13 million).

He was arrested last year, expelled from the Communist Party, and all of his personal property was confiscated. He was sentenced by the Intermediate People's Court in Shandong.

The official Xinhua News Agency said Wang's death sentence was suspended for two years, which usually results in life in prison.

In return for bribes, the court said, Wang "dispensed favorable treatment that helped others in business, employment, litigation and in avoiding arrest."

His arrest came amid China's biggest anti-corruption campaign, which the government said has resulted in 256,000 arrests.

Wang was one of eight ministerial-level officials investigated during last year's sweep, according to Xinhua. The others included the former vice president of the supreme court, Huang Songyou, who was sentenced on January 19 to life in prison for taking bribes and embezzlement, and the former vice president of the state-owned China Development Bank, Wang Yi, who received a suspended death sentence on April 15 for taking bribes.

In August last year, China executed the former head of Beijing airport's management company. Li Peiying, 62, was convicted of accepting almost $4 million in bribes and embezzling about $12 million in public money since 1995. He headed Capital Airports Holding Co., the operator of more than 30 airports in nine provinces with 38,000 employees.

Earlier this year, China's Ministry of Commerce said that over the past three decades, about 4,000 corrupt officials had fled to Canada, the United States, Australia, and other countries, taking with them more than $50 billion in China's public funds.

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Hewlett-Packard's Troubles. HP's disclosure in its latest 10-Q indicates the investigation into possible corruption overseas is spreading.

It said:

The German Public Prosecutor's Office ("German PPO") has been conducting an investigation into allegations that current and former employees of HP engaged in bribery, embezzlement and tax evasion relating to a transaction between Hewlett-Packard ISE GmbH in Germany, a former subsidiary of HP, and the Chief Public Prosecutor's Office of the Russian Federation. The €35 million transaction, which was referred to as the Russia GPO deal, spanned 2001 to 2006 and was for the delivery and installation of an IT network. The German PPO has recently requested information on several non-public sector transactions entered into by HP and its subsidiaries on or around 2006 involving one or more persons also involved in the Russia GPO deal.

The U.S. Department of Justice and the SEC have also been conducting an investigation into the Russia GPO deal and potential violations of the Foreign Corrupt Practices Act ("FCPA"). Under the FCPA, a person or an entity could be subject to fines, civil penalties of up to $500,000 per violation and equitable remedies, including disgorgement and other injunctive relief. In addition, criminal penalties could range from the greater of $2 million per violation or twice the gross pecuniary gain or loss from the violation. The U.S. enforcement authorities have recently requested information from HP relating to certain governmental and quasi-governmental transactions in Russia and in the Commonwealth of Independent States subregion dating back to 2000.

HP is cooperating with these investigating agencies.


Overheard In Hollywood

After Gerald and Patricia Green were convicted last year of one count of conspiring to violate the Foreign Corrupt Practices Act, nine counts of violating the FCPA, and seven counts of money laundering, prosecutors asked for ten-year jail terms. The Greens' lawyers argued for no time behind bars.

In August, and after much delay, Judge George Wu sentenced the husband-and-wife Hollywood movie producers to just six months in jail and six months home confinement. The sentences were among the most lenient for individuals convicted of FCPA and related offenses.

We don't know Judge Wu's reasons for imposing the light jail terms. But here's a fascinating excerpt from a sentencing memo filed by the Greens' lawyers. Regular readers will see familiar arguments from posts here and here (and we continued the discussion in a more recent post here).

Defense counsel said:

The ten highest FCPA settlements ever have occurred within the last five years. . . . Most involve some combination of criminal fines and SEC disgorgement of profits.
These ten cases have monetary penalties totaling approximately $2.8 billion. Of the ten, the six highest occurred within last 20 months and total approximately $2.67 billion.
This trend has begged the question among pundits whether the government’s goal relating to FCPA cases is actually enforcement, or simply putting a price tag on noncompliance. Do these giant financial penalties actually punish and deter the giants or, simply establish a cost of doing business and shield top executives culpable in the most egregious FCPA violations from punishment?

Despite the government’s repeated assertions regarding increased criminal prosecution of individuals and the sentences those individuals receive, such examples are glaringly absent . . . . In fact, of the ten cases listed, only Titan, Willbros, and KBR have resulted in criminal prosecution of individuals potentially resulting in a term of incarceration.

The prosecutors said in a reply brief:

[T]his Court must decline defendants' remarkable invitation to join the wholesale speculation of FCPA "pundits" as to whether corporate settlements are "shielding" top corporate executives from punishment. Aside from being pure conjecture, such a question has no bearing on "the need to avoid unwarranted sentence disparities among defendants with similar records who have been found guilty of similar conduct." . . . . (citations omitted)

*     *     *

Our Top Ten post was also cited and linked in the D & O Diary's much anticipated annual event, What to Watch Now in the World of D&O.

Kevin LaCroix wrote:

Indeed, the top ten FCPA settlements collectively total $2.8 billion, but the top six, all of which took place just in the last 20 months, represent 95% of the total. Four of the top six settlements were reached just in 2010. Because of the massive scale of the settlements that the SEC has been achieving in this area, the potential rewards for whistleblowers are enormous.

*     *     *

Many thanks to all readers, inside the courtroom and elsewhere.

If anyone knows what it means to be called a "pundit" with quotation marks, please let us know. But only if it's flattering, which we somehow doubt.


Double-Barreled Prosecutions

After a corporation makes a deal to settle an FCPA case, it's on the government's side. For employees accused of violating the FCPA, that can mean facing the overwhelming firepower of both the government and the corporation.

In U.S. v. Carson, for example, six defendants -- Stuart Carson, Hong "Rose" Carson, Paul Cosgrove, David Edmonds, Flavio Ricotti, and Han Yong Kim -- were indicted in April 2009 on conspiracy, FCPA, and Travel Act charges. Rose Carson also faces an obstruction charge. Their trial is set for November this year.

Two years earlier, their former employer, Control Components Inc., had hired counsel to conduct an internal investigation into overseas corruption. On August 15, 2007, CCI disclosed the investigation to the U.S. government.

In October 2007, CCI and its owner IMI entered into a Confidentiality and Non-Waiver Agreement with the DOJ. The companies agreed to cooperate "by producing document compilations, oral summaries of witness interviews, and other investigative findings."

CCI eventually turned over to the government 41,000 pages from the 5.5 million generated during the internal investigation, including four charts showing all the alleged corrupt payments that had been uncovered.

Before indicting the six former employees in April 2009, the government showed some grand jury witnesses the charts showing all the alleged corrupt payments. When the six defendants asked for copies of the charts, the government said no. Under the Confidentiality and Non-Waiver Agreement, it said, the charts were protected by CCI's attorney-client privilege, and only the company could waive it. 

The defendants filed a motion to compel. They argued CCI waived the privilege because its counsel created the charts with the intention of turning them over to the government, not keeping them confidential inside the company. The government has said it will honor the Confidentiality and Non-Waiver Agreement and defer to CCI, meaning if CCI waives the privilege and agrees to produce the charts, the government won't object.

Meanwhile, CCI and IMI have intervened in the case to defend their privilege in the charts (and presumably other materials) against discovery by the defendants. CCI pleaded guilty in July 2009 to violating the FCPA and Travel Act. It paid a criminal fine of $18.2 million and agreed to cooperate with the DOJ. It isn't clear if defending its privilege against the six defendants is a formal part of its cooperation.

Two former CCI executives also pleaded guilty a few months before CCI to conspiracy to violate the FCPA. Mario Covino and Richard Morlok are now cooperating with the government and haven't been sentenced.

Judge James V. Selna has scheduled a hearing on the six defendants' motion to compel discovery of the charts for September 13, 2010.


Rose Carson's Big Flush

On August 17, 2007, the government alleges, Hong "Rose" Carson learned that her employer, California-based Control Components Inc., had hired lawyers to conduct an internal investigation into corrupt payments overseas. Just prior to her interview, prosecutors say, she tore up documents relevant to the internal investigation and flushed them down a toilet in CCI's ladies room.

She goes on trial in November. With her will be her husband, Stuart Carson, and Paul Cosgrove, David Edmonds, Flavio Ricotti, and Han Yong Kim. They were all indicted in April 2009, charged with 15 counts of making corrupt payments to foreign officials and private parties to obtain or retain work for CCI. The charges include conspiracy, and violating the FCPA and the Travel Act.

But Rose Carson faces an additional count, one that carries a maximum penalty of 20 years in prison. The DOJ charged her "with obstructing an investigation within the jurisdiction of a federal agency when she destroyed documents relevant to CCI’s internal investigation of the corrupt payments by flushing them down the toilet of CCI’s ladies’ restroom."

Obstructing a federal investigation? That's right. Even though she allegedly flushed the documents before an interview that was part of CCI's internal investigation, she's charged with a federal crime.

The charge is based on Section 802 of the Sarbanes-Oxley Act of 2002 -- codified at 18 U.S.C.§ 1519 -- which says:

Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States . . . or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both.

CCI had made a a voluntary disclosure to the government on August 15, 2007, two days before Carson allegedly flushed the documents down the toilet in the ladies room. Did the timing of CCI's disclosure matter? 

Maybe not. In United States v. Ray, No. 2:08-cr–01443 (C.D. Cal. Dec. 15, 2008), the government charged Gary Ray, the former head of human resources at KB Homes, with obstruction under 18 U.S.C.§ 1519. The government said he tried to mislead his company's general counsel's internal investigation into stock-option grant practices before any federal investigation was pending or planned. The federal crime was lying to company counsel and it didn't matter what the government then knew or intended to do.

The lesson is clear. Company counsel investigating FCPA-related offenses are "deputized" by federal law. Lying to them, or destroying evidence to keep it from them, can be a federal crime punishable by 20 years in prison.

How many employees (or even directors and officers) know that? 


Work We Love

The first Labor Day holiday, according to the U.S. Department of Labor, was celebrated on Tuesday, September 5, 1882, in New York City. The idea came from the Central Labor Union. After a couple of years, the day moved to the first Monday in September. The idea spread and within ten years, 27 states were honoring their workers. In 1894, Congress made the first Monday in September of each year a national holiday.

*     *     *

We start every day happy to be tending this garden. Work you love, the teacher said, is a gift from God. But a long weekend ain't bad either. Especially when it marks the end of another summer and the promise of autumn -- cool weather, leaves turning, the smell of wood burning in the fireplace. The day after Labor Day, no matter how old you are, starts a new year.

*     *     *

It sounded like a warning when the general counsel said, "If you're always working long hours and at weird times, there's something wrong with the job or with you, and either way, I'll fix it."

But we never heard kinder words or better advice about how to live and work.


BAE Gets Monitor, Keeps Whining

BAE's Compliance Monitor: David GoldAs of yesterday, BAE has a compliance monitor. He's David Gold, a former senior partner of Herbert Smith.

His term is three years, but BAE wants it cut short by 90 days.

A monitor was supposed to be in place by the end of June. That didn't happen. The company blamed the DOJ for rejecting qualified candidates. The DOJ said BAE proposed the wrong people.

Judge John Bates granted BAE a 90-day extension for appointing the monitor. He also changed the description of the monitor's term to make sure he or she would serve a full three years, as called for in the plea agreement, and not three years minus 90-days. But BAE objected. It said the judge could extend the appointment deadline but lacked authority to change the way the monitor's term is described. The judge called BAE's position "odd."

In March, BAE paid a $400 million fine after pleading guilty to conspiracy, including lying to the U.S. government about its FCPA compliance program. Under federal sentencing guidelines, it could have been fined $720 million.

With Gold's appointment, is BAE any happier? It doesn't look like it. As far as we can tell, it's still appealing the part of Judge Bates' order that made sure the monitor would serve three full years.

We thought the U.S. government was generous with BAE. It let the company plead guilty to a single conspiracy count instead of a substantive FCPA charge. It reduced the criminal fine by $320 million, and allowed BAE to appoint a non-U.S. compliance monitor. But as Judge Bates might say, BAE's way of showing gratitude is odd.

Dowload a copy of the judge's June 4, 2010 order in US v. BAE Systems plc here.

Download a copy of BAE's June 16, 2010 notice of appeal here.