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Thursday
Jun102010

Plaintiffs Keep Trying

Parker Drilling's directors are facing a shareholder suit that was brought after the company's detailed disclosure earlier this month that it is being investigated by the Justice Department and Securities and Exchange Commission for compliance problems in Nigeria and Kazakhstan.

Courthouse News said the derivative suit was filed in Harris County Court in Texas.

The suit alleges breach of fiduciary duty, abuse of control, gross mismanagement and wasting corporate assets. It named Robert Parker Jr., Robert Parker, John Gibson, Roger Plank, Robert McKee, George Donnelly, Robert Goldman, Gary King, Rudolph Reinfrank and David Mannon.

As we've reported, Parker is one of the dozen or so oil and gas-related companies dragged into FCPA compliance problems by Panalpina, the Swiss logistics firm that allegedly bribed overseas customs and licensing officials on behalf of its clients. Among those investigated by the DOJ and SEC in addition to Parker are Schlumberger, Shell, Tidewater, Nabors Industries, Transocean, GlobalSantaFe Corp., ENSCO, Cameron, Noble Corp., and Pride International. Panalpina itself was hit with a shareholder derivative suit in federal court in Texas last year. 

There's no private right of action under the FCPA. So private litigants have to resort to other causes of action -- such as common law fraud, RICO, securities law violations, or breach of fiduciary duties. But private litigants haven't done well with FCPA-related claims. BAE directors this year won dismissal of a bribe-related case, as did Dow Chemical's.

In 2008, the Ninth Circuit in Glazer Capital Management v. Magistri put an obstacle in the path of plaintiffs. The court raised the "scienter" bar for FCPA-related claims against officers and directors under the federal securities laws. Since then, plaintiffs have filed FCPA-based derivative claims in state court, including one in Texas a year ago against some of the officers and directors of Halliburton and its one-time subsidiary, KBR

Wednesday
Jun092010

Shop Till You Drop

Some readers have noticed (and used) a new feature -- the FCPA Blog Store. In it are Yearbooks for 2007 (partial), 2008, and 2009. What are they?

Compilations of every post we've published in a searchable, downloadable PDF format.

That means you can read the blog offline if you want to, or keep it on a hard drive, mobile device, or thumb drive for safe keeping. (We hope to be around for a long time but you never know!). We'll add a Yearbook with each year that passes to keep the set current and complete.

We're grateful to those who have already visited the Store and shown their support.

Tuesday
Jun082010

What Boards Should Ask

By Jeffrey M. Kaplan and Rebecca Walker    

As discussed in Part Two of this post, the U.S. Sentencing Commission recently approved changes to the compliance-and-ethics (“C&E”) program-related provisions of the Federal Sentencing Guidelines for Organizations. One of these changes concerns reporting to the board of directors by individuals with operational responsibility for the program, including reporting “no less than annually on the implementation and effectiveness of the C&E program.” 

In our prior post, we described what such reports should generally include, and also noted that companies should consider providing the person with C&E operational responsibility the opportunity to meet with the audit committee in executive session on a periodic basis. In this post, we offer suggestions for some questions that board members might want to raise in such sessions.

Risk Assessment/Program Scope

How do we know the risk assessment process is effective?

Despite using the process, have we been caught by surprise before by FCPA risks?

Does the program reach all relevant company operations (e.g., not just sales, but also appropriate corporate activities)?

Training and Other Communications

Are we addressing the specific FCPA issues that we need to (based on our risk assessment) – and reaching the at-risk employee population?

Do we train/communicate on FCPA compliance with sufficient frequency and impact?

Program Management and Support

Does the C&E officer (or other individual in charge of the FCPA compliance program) have adequate “clout” and resources for the job?

Is she sufficiently independent of those who could create FCPA risks?

Do other managers (in both corporate functions and business units) play enough of a role in FCPA compliance (e.g., through messaging in their respective parts of the business)?

Third-Party Measures

Are we doing sufficient due diligence on third parties?

What are our third-party FCPA communication and audit efforts?

How do our third parties ensure that their employees and agents follow our anti-bribery standards when acting on our behalf?

Other

How do incentives at our company possibly impact FCPA compliance – both positively and negatively? (Same question with respect to company culture.)

Is there anything that other companies do to prevent/detect FCPA violations that our company doesn’t, but should, do?

Of course, this is not intended as a complete list, and nor would directors want to ask all of the questions in every executive session. This should, however, help directors develop the FCPA oversight questions that make the most sense for their respective companies.

*   *   *

Jeffrey M. Kaplan and Rebecca Walker are partners at Kaplan & Walker LLP. They are currently writing a chapter for the BNA/ACC Compliance Manual on Compliance with the Foreign Corrupt Practices Act. He can be reached at jkaplan@kaplanwalker.com. Rebecca Walker's book, Conflicts of Interest in Business and the Professions: Law and Compliance, is available here. She can be reached at rwalker@kaplanwalker.com.

Monday
Jun072010

Greens' Sentencing Removed From Calendar

Sheldon Reiss, MD, an internist and pulmonologist with Cedars-Sinai Health Associates, has been ordered to prodice Gerald Green's medical records.A federal judge last week vacated the June 3 sentencing date for Gerald Green and his wife Patricia. He also ordered production of Mr. Green's medical records from his Hollywood doctor, continued the status conference until July 1, and failed to set a new date for sentencing, raising the possibility that the Greens may never spend time behind bars.

Mr. Green, 78, and his wife Patricia, 53, were first scheduled to be sentenced by Judge George H. Wu in Los Angeles in December 2009. The Hollywood movie producers were convicted last year of paying $1.8 million in bribes to a Thai official in exchange for contracts worth about $13.5 million to produce the Bangkok Film Festival.

Sentencing has now been delayed five times. This was the first time the judge continued the case without setting a new date for sentencing.

At last week's status conference, Judge Wu ordered Gerald Green's Wilshire Boulevard doctor, Sheldon Reiss, a pulmonary specialist, to turn over Mr. Green's medical records. Mr. Green has emphysema and appears in court with an oxygen bottle to help him breathe. A copy of the court's order can be downloaded here.

At a series of post-trial hearings, the judge has asked the parties to talk about penalties handed out in similar cases. He's also heard testimony about Mr. Green's medical condition, the legal merits of the Greens' convictions, and arguments for and against their going to jail.

An LA jury in September 2009 found the Greens guilty of conspiring to violate the Foreign Corrupt Practices Act, nine counts of violating the FCPA, and seven counts of money laundering. Patricia Green was also found guilty of two counts of falsely subscribing to a U.S. income tax return. After arguing that the federal guidelines call for sentences of around 20 in prison for each of the Greens, prosecutors are now apparently asking for 10-year jail terms. 

Why would Judge Wu hesitate to sentence the Greens? Mr. Green's age and health are both concerns. Is it also possible the judge wasn't happy with the prosecution in the first place? It was by any measure aggressive and, to some, over the top, with the piling on of multiple bribery counts, money-laundering and tax charges. Did the judge think the government somehow unfairly ambushed the Greens? Is he resentful about the DOJ's handling of the case, which must have sent shivers down the spine of the Hollywood movie industry? We don't know the answers.

But it's clear the judge is in no hurry to send them to jail. Beyond that, he's treating Mr. and Mrs. Green as one defendant even though he could deal with them separately. If the judge believes Gerald Green's age and medical condition prevent his imprisonment, what about Mrs. Green and her sentence? Convicted couples are often handled separately. Why not the Greens? Only the judge knows and for now he's not talking.

Stay tuned for more from this sentencing cliffhanger.

*   *   *

Here's the docket entry for May 27, 2010 in US v. Green et al, United States District Court, Central District of California (Western Division - Los Angeles), Case #: 2:08-cr-00059-GW-1:

MINUTES OF Status Conference 05/27/2010 held off the record before Judge George H. Wu as to Defendants Gerald Green and Patricia Green. The Court orders counsel for Mr. Green to forward the medical records to the Government by June 3, 2010. The Governments response will be due by June 17, 2010. Defendant Gerald Greens response will be due on June 24, 2010. The Status Conference is continued to July 1, 2010 at 9:30 a.m. The Sentencing hearing as to Defendants Gerald Green and Patricia Green, presently set for June 3, 2010, is vacated and taken off calendar. Court Reporter: n/a. (rs) (Entered: 06/01/2010)

Friday
Jun042010

BAE To Feds: Stop Moving The Goalposts

When BAE pleaded guilty in February to a one-count criminal information, it agreed to appoint a compliance monitor by the end of May. But that didn't happen. BAE blamed the Justice Department for rejecting six qualified candidates; the DOJ blamed BAE for picking the wrong people. To which BAE responded: we followed your rules until you changed them.

BAE complained that the DOJ rejected as unqualified a couple of batches of candidates, "all of whom [from the first group] had served as members of the English judiciary, without even agreeing to conduct interviews or seeking additional information about them. The Department has also, thus far, declined to accept any one of the second group of candidates, who are highly accomplished and respected lawyers in the U.K., including a former Senior Partner of a leading British law firm."

It sounds to us like a trans-Atlantic culture clash -- two great nations once again separated by their common language.

It boils down to this: The DOJ naturally wants a monitor deeply familiar with U.S. law -- including the Foreign Corrupt Practices Act, the Arms Export Control Act, and the International Traffic in Arms Regulation (ITAR), all of which, according to its plea deal, BAE had trouble complying with. BAE, though, says those specific laws weren't mentioned in the plea deal's description of the monitor, so why is the DOJ talking about them now?

This one's easy. The DOJ agreed that BAE could appoint a U.K. citizen, which was culturally sensitive, but said the monitor had to be "acceptable" to both parties. Finding a U.K. citizen who really understands those three U.S. criminal laws was never going to be simple. But that word "acceptable" covers a lot of ground. It's used by American lawyers who don't want to list every specific requirement but leave some discretion to final decision-makers. Could a U.K. lawyer or former judge, even one with lots of white hair, who doesn't know the FCPA, Arms Export Control Act and ITAR, ever be an "acceptable" BAE monitor? No way.

In any case, the special relationship is safe. The DOJ agreed to give BAE 90 more days. The feds will interview a couple of the candidates in early June and get back to BAE right away, in plenty of time for the company to meet its new August 31 deadline. That, at least, is what the two English-speaking legal teams think has been agreed.

Download a copy of BAE's May 27, 2010 motion to extend the deadline to appoint a compliance monitor here.

Thursday
Jun032010

Four-Year Sentence In Haiti Case

A former employee of Haiti’s state-owned national telecommunications company was sentenced yesterday to 48 months in prison for being part of a bribery and money-laundering scheme. 

Robert Antoine, 62, of Miami and Haiti, pleaded guilty in March this year to conspiracy to commit money laundering. He was also ordered by the federal judge in Miami to pay $1,852,209 in restitution and to forfeit $1,580,771, and serve three years of supervised release following his prison term.

Antoine was indicted in December 2009. From 2001 to 2003, he was the director of international affairs for Telecommunications D’Haiti. He admitted accepting bribes from three U.S. telco companies. The Foreign Corrupt Practices Act reaches bribe payers but not bribe takers. Antoine, however, disguised the origin of the bribes by passing them through intermediary companies in the U.S., including J.D. Locator Services. Disguising the origin of funds in U.S. commerce constitutes an offense under the anti-money laundering law 18 U.S.C. §1956.

Juan Diaz, 51, the president of J.D. Locator, pleaded guilty in May 2009, to conspiracy to commit violations of the FCPA and money laundering. He hasn't been sentenced.

Antoine also said some of the bribe money was laundered by Jean Fourcand, who pleaded guilty in February this year to money laundering. He named Antoine in his guilty plea. Fourcand, 62, was earlier sentenced to six months in prison for his involvement.

Antoine said $800,000 of the funds he received were intended to be from a U.S. telco company of which Joel Esquenazi was the president and director, Carlos Rodriguez was the executive vice president, and Antonio Perez was, at times, the controller. Perez, 51, pleaded guilty in April 2009 to conspiring to commit FCPA violations and money laundering. He's also waiting to be sentenced.

Esquenazi and Rodriguez, as well as Jean Rene Duperval, who was director of international relations of Telecommunications D’Haiti from 2003 to 2004, and Duperval’s sister, Marguerite Grandison, were indicted with Antoine in December 2009. Their trial is scheduled to begin July 19, 2010 in U.S. District Court in Miami.

As the DOJ says, an indictment is merely an accusation and defendants are presumed innocent until proven guilty beyond a reasonable doubt.

Download a copy of the December 4, 2009 indictment in United States v. Joel Esquenazi, et al here.

Download a copy of Robert Antoine's February 19, 2010 plea agreement (entered March 12, 2010) here.

Download a copy of Antoine's factual statement in connection with his guilty plea here.

Wednesday
Jun022010

The Obama Doctrine

In a policy shift that could lead to the international arrest and trial of kleptocrats, the White House last week said it views widespread corruption as a violation of basic human rights and is working to advance that view globally.

According to the administration's May 2010 National Security Strategy, the U.S. will "promote the recognition that pervasive corruption is a violation of basic human rights and a severe impediment to development and global security." Although the prior administration linked corruption to global and national security, viewing graft as a human-rights violation is a new position.

The administration said:

Strengthening International Norms Against Corruption: We are working within the broader international system, including the U.N., G-20, Organization for Economic Cooperation and Development (OECD), and the international financial institutions, to promote the recognition that pervasive corruption is a violation of basic human rights and a severe impediment to development and global security. We will work with governments and civil society organizations to bring greater transparency and accountability to government budgets, expenditures, and the assets of public officials. And we will institutionalize transparent practices in international aid flows, international banking and tax policy, and private sector engagement around natural resources to make it harder for officials to steal and to strengthen the efforts of citizens to hold their governments accountable.

The International Criminal Court in the Hague hasn't been used against kleptocrats. The Rome Statute that created the court extends to "crimes against humanity" but no one knows if that includes graft. Commentators, academics and activists have been pressing the case that grand corruption should be internationally outlawed. This is the first formal indication that President Obama, who may be frustrated that the FCPA doesn't reach corrupt foreign officials, could be putting his weight behind the idea as well.

There's a catch. As of today, the United States isn't one of the 108 State Parties to the Rome Statute. Under the Clinton administration, the U.S. joined the 60 countries that supported the founding of the International Criminal Court. But the Bush administration reversed that policy, citing risks to national sovereignty, and never signed the Rome Statute.

Download the May 2010 National Security Strategy here.

Special thanks to an astute reader in Washington for help with this post.

Tuesday
Jun012010

Feds Seek Sojitz Stay

The Justice Department has intervened for the second time in civil suits brought by Aluminium Bahrain BSC -- known as Alba -- against its raw material suppliers and brokers. Last week, the DOJ asked for a stay in Alba's suit against Japanese trading company Sojitz Corp. and its U.S. subsidiary. More than two years ago, the Justice Department obtained a stay in Alba's civil suit against Alcoa, Inc. The DOJ said discovery in the cases could interfere with the government's own investigation into potential criminal wrongdoing by Alcoa, Sojitz and other parties, including possible violations of the Foreign Corrupt Practices Act.

Alba sued Sojitz in December 2009, filing a $31 million claim in federal court in Houston. The suit alleged that from 1993 to 2006, Sojitz paid $14.8 million in bribes to two of Alba's employees in exchange for access to metals at below-market prices. Alba is majority-owned by the government of Bahrain.

In March 2008, Alba sued Alcoa Inc., its long-time raw materials supplier, for corruption and fraud. The suit in federal court in Pittsburg alleged that Alba paid $2 billion in overcharges during a 15-year period. The money, according to the suit, first went to overseas accounts controlled by Alcoa's agent, London-based Victor Dahdaleh, and some was then used to bribe Alba's executives in return for supply contracts.

Just weeks after Alba sued Alcoa, the Justice Department intervened in the case. It asked the court for a stay while the government investigates possible criminal violations of the FCPA and other laws by Alcoa and its executives and agent. The DOJ said the stay was needed to protect potential witnesses against civil discovery. The court granted the stay, which is still in effect. The DOJ hasn't commented on the status of its criminal investigation. Alcoa denied wrongdoing and said it is cooperating. Sources with knowledge of the government's investigation have reported to the FCPA Blog that the Justice Department had questions about Alcoa's initial explanations, which may have delayed potential settlement talks.

Alba did not oppose the DOJ's requests for stays in the Alcoa and Sojitz cases.

There's no private right of action under the Foreign Corrupt Practices Act. So Alba's claims against Alcoa and Sojitz were based on other federal laws, including RICO (18 U.S.C. § 1962(c)), conspiracy to violate RICO (18 U.S.C. § 1962(d)), fraud, and civil conspiracy to defraud. The complaint against Sojitz alleged the Japanese company used bribes to buy underpriced product and then "resold the aluminum it bought from Alba at below-market rates to U.S. companies including Enron Corp." Alcoa's conspiracy, Alba said in the civil complaint, "succeeded in exacting hundreds of millions of dollars in over payments, which continue to accumulate to this day. Among other things, Plaintiff seeks damages in excess of $1 billion, including punitive damages, for this massive, outrageous fraud."

Sojitz Corp. consists of 522 companies including 147 subsidiaries and affiliates in Japan and 375 overseas. Together they have 17,331 employees. The parent company's ADRs trade in the over-the-counter pink sheets under the symbol SZHFF.PK.

Download a copy of the government's May 27, 2010 memorandum in support of a stay in Aluminium Bahrain B.S.C v. Sojitz Corporation and Sojitz Corporation of America here.

Download a copy of the December 18, 2009 federal civil complaint in Aluminium Bahrain B.S.C v. Sojitz Corporation and Sojitz Corporation of America here.

Friday
May282010

Not A Perfect Law

Our good fortune here at the FCPA Blog is to be able to think and talk about the Foreign Corrupt Practices Act. It's not perfect -- no human law is. But it makes a difference in the world by exposing and punishing public bribery.

Fighting graft is the right thing to do. Corruption means public decisions are made in private, with no accountability to the citizens paying the tab. It erodes trust in government, turning leaders into either powerless figureheads or usurpers and occupiers.

It makes food and shelter more expensive, clean water harder to find. It puts medical care, education, police protection, and other public services beyond the reach of those who need them most. It destroys forests, pollutes the air, and leads to shoddy construction and unsafe products. And it discourages honest people, robbing them of hope.

Corrupt bosses wreck companies and the livelihoods of countless stakeholders. Subordinates forced into criminal conduct also risk ruin for themselves and their families, and the circle of destruction keeps growing.

Corruption scandals confirm the public's dark fears about big corporations and the people who run them. Graft taints the marketplace for all of us.

We're thankful for the FCPA and laws like it.

*   *   *

Our trumpets sound once more. Memorial Day is a complicated holiday. We're honoring not war but those who didn't return from war. And because Memorial Day ceremonies are usually presided over by men with white hair, it's easy to forget how young most soldiers are, how most who have fallen in battle were in the spring of life. So this holiday at best is a mixture of pride and sadness, honor and grief.

Oliver Wendell Holmes, Jr. delivered remarks on May 30, 1884 in Keene, New Hampshire (our childhood home). As a senior at Harvard in 1861, he joined the army and saw action in the Civil War, suffering wounds at Ball's Bluff, Antietam, and Fredericksburg. No one, we think, ever found better words to say on Memorial Day:

Such hearts—ah me, how many!—were stilled twenty years ago; and to us who remain behind is left this day of memories. Every year—in the full tide of spring, at the height of the symphony of flowers and love and life—there comes a pause, and through the silence we hear the lonely pipe of death. Year after year lovers wandering under the apple boughs and through the clover and deep grass are surprised with sudden tears as they see black veiled figures stealing through the morning to a soldier's grave. Year after year the comrades of the dead follow, with public honor, procession and commemorative flags and funeral march—honor and grief from us who stand almost alone, and have seen the best and noblest of our generation pass away.

But grief is not the end of all. I seem to hear the funeral march become a pæan. I see beyond the forest the moving barriers of a hidden column. Our dead brothers still live for us, and bid us think of life, not death—of life to which in their youth they lent the passion and glory of the spring. As I listen, the great chorus of life and joy begins again, and amid the awful orchestra of seen and unseen powers and destinies of good and evil our trumpets sound once more a note of daring, hope, and will.

Thursday
May272010

More Enforcement, Less Justice

The Senate's version of the financial reform bill can be downloaded here. Under the bill, which still needs to be reconciled with the House version and signed into law, FCPA whistleblowers could receive from 10% to 30% of amounts recovered through enforcement actions. The SEC would decide the final amount based on the originality and value of the information provided and how directly it led to the financial penalty against the defendant.

As we said last month, paying FCPA whistleblowers will increase enforcement actions. But will justice be served?

The way U.S. law now works in most places, organizations are strictly liable for crimes committed by employees who are doing their jobs. Even if a company has an effective compliance program and has done everything possible to prevent violations, that's no defense under respondeat superior. When the DOJ and SEC find an employee's FCPA violation, the company is presumed guilty and forced to settle the case, usually by paying a big penalty.

Beyond that, most FCPA settlements require the company to help prosecutors make cases against employees and agents. The companies may have to disclose to the feds documents and conversations the individuals probably thought were privileged. So the presumption of guilt and denial of legal protections spreads from the company to its people.

Someone in government asked us not long ago if we're in favor of private enforcement of the FCPA -- civil suits by private litigants against FCPA violators -- as happens with antitrust, RICO, and securities law violations, among others. We said no. Private FCPA enforcement sounds good but because of respondeat superior, it's also worrying.

Companies facing FCPA allegations are forced to settle with the DOJ and SEC. Those settlements and the admissions leading to them -- whether supported by trial-worthy evidence or not -- could put corporations at an extreme disadvantage in follow-on civil suits. Private FCPA enforcement would magnify the injustice caused by the undiluted application of respondeat superior.

What's the fix? Give organizations the right to defend themselves against criminal charges. Let them show that they tried to prevent the bribery. The good-faith defense would be a powerful incentive for companies to have strong compliance programs. It would give them their day in court if they want it, and relieve pressure for shot-gun settlements that can rob both the company and its people of a fair trial. The only thing that might be lost is the DOJ's perfect batting average in FCPA cases against organizations -- a legal anomaly that's a symptom not of health in the criminal justice system but disease.

Enforcement of the FCPA is a good thing. But not when the price is fundamental fairness for corporate and individual defendants.