Richard L. Cassin Publisher and Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Elizabeth K. Spahn Editor Emeritus

Cody Worthington Contributing Editor

Julie DiMauro Contributing Editor

Thomas Fox Contributing Editor

Marc Alain Bohn Contributing Editor

Bill Waite Contributing Editor

Shruti J. Shah Contributing Editor

Russell A. Stamets Contributing Editor

Richard Bistrong Contributing Editor 

Eric Carlson Contributing Editor

Bill Steinman Contributing Editor

Aarti Maharaj Contributing Editor

FCPA Blog Daily News


The Eight Year Itch

Last week we wondered why there hasn't been a new FCPA enforcement action from the DOJ since Daimler's on April 1. Among our guesses were personnel changes, trial-team stresses, and strategic reviews. But here's another -- prep time for the Phase 3 Review under the OECD's Anti-Bribery Convention

The OECD holds members accountable by naming and shaming -- what it calls "a dynamic process of mutual evaluation and peer pressure." For each member, there's a regular cycle of public review, starting with a questionnaire, followed by an on-site visit and more written questions.

The review cycle is eight years. That last inspection of the U.S. happened in 2002. That means the OECD's group will descend on Washington again this year -- next month according to the published schedule. After eight years, including the last five in FCPA hyperdrive, the DOJ (in tandem with the SEC) has plenty to report.

The OECD's Phase 3 questionnaire is 13 pages of intense accountability -- the instructions for it are 110 pages. In 2002 -- still sleepy days for the FCPA -- the OECD's Working Group on Bribery Phase 2 evaluation report needed 53 pages for the U.S. response. This year's inspection covers the busiest stretch in FCPA history. It's easy to imagine the DOJ folks scrambling to assemble their Phase 3 deliverable by the month-end deadline. We're guessing a fulsome response could bury the FCPA team for six to eight weeks at least.

Under OECD procedures, the country being inspected is supposed to assemble expert witness panels for the examiners to speak with during the onsite visit. And to supplement the questionnaire, the OECD's lead examiners typically come up with country-specific questions that are eventually made public. It all takes work.

in 2005, the U.S. drafted its follow-up written report on its implementation of recommendations made during Phase 2. The report, authored by the U.S. government, can be found here

Meanwhile, there are some signs of life. The DOJ's FCPA unit doesn't typically announce international cooperation. But a few days ago a member of the Russian Duma apparently leaked news that the Justice Department had just delivered to its Russian counterpart documents concerning the Daimler investigation.


The Sporting Life

We don't normally follow snooker news (snooker is like billiards or pool but the balls have no numbers, just colors). And the U.K.'s News of the World isn't one of our regular sources.

But earlier this month the paper posted a video of its undercover reporters apparently making a match-fixing deal with John Higgins, 34, the world's best player. Also filmed was his agent, Pat Mooney, 63, one of the sport's top four officials charged with policing the game. Here's the full report.

There hasn't been an FCPA case involving sports but there could be. Bribes to those working for "public international organizations" are covered by the statute, including members of sports sanctioning bodies such as the International Olympic Committee, or IOC. It has already been linked to a few scandals.

Bribery allegations tied to Salt Lake City's bid for the winter games in the mid 1990s led to the resignation or dismissal of 10 IOC members. Atlanta's Olympic bid was the subject of a 1996 report to Congress that revealed abuses -- "many gifts worth more than $1,000, including offers of scholarships to IOC family members," according to Time magazine. And in 2006, a report ordered by the Nagano, Japan governor said the Japanese city provided millions of dollars to IOC members in an "illegitimate and excessive level of hospitality," including $4.4 million for entertainment alone.

Catching sports cheats isn't easy. But the FBI has a sports bribery desk as part of its organized crime bureau. And this month the head of European soccer, Michel Platini, proposed a special pan-European police force devoted to sports-related crimes.

The News of the World team arranged the meeting with the snooker champ and his agent in the Ukrainian capital of Kiev. Higgins and Mooney said they believed they were dealing with the mafia. They agreed to the plot, they said, to save their skins and never intended to follow through. Higgins, meanwhile, has been banned from match play. His agent Mooney resigned from the board of the World Professional Billiards and Snooker Association.

The video can be viewed here.


Feds Call Time Out

There hasn't been a new FCPA enforcement action from the DOJ since Daimler's on April 1 and only Dimon's from the SEC. That's strange. The first three months of this year were the busiest in FCPA history. But since then, hardly a peep.

With around 150 cases pending and pressure building to resolve long-standing actions involving Panalpina, Technip, ENI, ABB, Alcatel-Lucent, Pride International, Inc., Alcoa, the medical device makers, and pharmas, you have to ask: Where are the enforcement actions for April and May?

In a typical year, we'd expect a couple of actions a month; this year, we'd expect more. So what's happening?

Here are a few guesses:

  • Changing horses. Mark Mendelsohn, head of the DOJ's FCPA unit, left government service in mid-April. His departure would be a natural time for those still there or newly arrived to take inventory -- to use the white board to plot their present location and itinerary for the coming year.
  • Resources are stretched. With all the pending prosecutions, including the 22-defendant shot-show case, the DOJ's FCPA group has to be stretched. Maybe they're taking a couple of months to catch their breath, bring in reinforcements, and lift their eyes above the trenches to make sure they aren't about to make any big mistakes.
  • A new strategy. Could the DOJ be assessing its overall enforcement approach? Looking, perhaps, at how decisions are made to prosecute corporations (which are defenseless because of respondeat superior)? Or whether financial penalties that punish innocent stakeholders make sense? Or if enforcement should zero in on individuals, or find new ways to spotlight foreign officials who demand bribes . . . ?

There's precedent for the current FCPA moratorium. In February and March 2008, the DOJ also came to a dead stop. The reason was never announced but it could have been the controversy over the unregulated appointment of compliance monitors. Former Attorney General John Ashcroft's $52 million gig with Zimmer in a domestic kickback case threw Washington into a spin. The storm blew over and the DOJ was back in the FCPA business after about two months.


A Prince Of Persia

Iran has all the ingredients to be an FCPA minefield. It's big -- 66 million people in an area about the size of Alaska -- and it's the world's 6th largest oil producer. On top of that, it has a corruption problem, ranking near the bottom of the latest Corruption Perception Index -- 168th, tied with Burundi, Equatorial Guinea, Haiti, and Turkmenistan.

But although the country routinely makes world headlines, it's hardly mentioned on the FCPA Blog. Why not?

Iran has been off limits to U.S. companies from around the time the FCPA became law in 1977. The U.S. first imposed sanctions on Iran in 1979. After the takeover of the American embassy in Teheran, President Carter banned  imports of Iranian oil and blocked all transfers of property in the U.S. owned by the Central Bank and Government of Iran. In 1980, he embargoed all U.S. exports to and imports from Iran, and stopped U.S. citizens from traveling or conducting financial transactions there.

Some of those sanctions were loosened after the U.S. hostages were released. But in 1987, President Reagan imposed a new embargo on Iranian-origin goods and services. And in 1995, after Iran was labelled a sponsor of international terrorism, President Clinton again banned U.S. involvement with Iran's oil and gas development. He later confirmed that "virtually all trade and investment activities with Iran by U.S. persons, wherever located, are prohibited," according to the Treasury Department. With some small adjustments, that's how things stand today.

Criminal penalties for violating the U.S. sanctions are stiff -- fines up to $1,000,000 and prison for up to 20 years, four times harsher than the FCPA's penalties.

Even without America's business, Iran was the focus of an important FCPA case. In 2006 the Norwegian company Statoil was hit with DOJ and SEC enforcement actions for bribery and books and records violations. Statoil in 2002 had paid $5.2 million in bribes to a modern-day prince of Persia -- the son of a former president of Iran, and promised to pay $20 million more for access to the giant Pars oil field. The company eventually self-disclosed the payments and paid $3 million to Norwegian prosecutors and $21 million in penalties and disgorgement to the DOJ and SEC (with credit for the $3 million it paid back home).

That was the first FCPA criminal enforcement action against a foreign company -- Statoil is an "issuer," trading on the NYSE under the symbol STO. Its three-year deferred prosecution agreement with the DOJ expired in November 2009.

We could be hearing more FCPA news involving Iran. Last week the Wall Street Journal said the SEC's enforcement and corporation finance divisions have sent letters to several pharmaceutical and energy companies that work in Iran, as well as in Cuba, Sudan, and Syria -- which all appear on the State Department's list of countries that sponsor terrorism. (Some medicines and medical devices are licensed for export from the U.S. to Iran.) The letters reportedly asked the companies, which haven't been named, what they are doing in the four countries to ensure compliance with the FCPA.


Sentencing Guidelines: What's Changed?

By Jeffrey M. Kaplan and Rebecca Walker

In April, the U.S. Sentencing Commission approved changes to the compliance-and-ethics-program related provisions of the Federal Sentencing Guidelines for Organizations. Absent Congressional action to the contrary (which is quite unlikely), the changes will go into effect in early November. The changes are noteworthy in two respects bearing on FCPA compliance programs, as we will explore in this and a soon-to-follow post.

First, the current Guidelines provide that, following the discovery of criminal conduct, a company should, among other things, make “any necessary modifications to the organization's compliance and ethics program.” A new commentary to that provision specifies that this includes “assessing the compliance and ethics program and making modifications necessary to ensure the program is effective … and may include the use of an outside professional advisor to ensure adequate assessment and implementation of any modifications.” 

While not addressed to any one area of law, this provision may have particular importance to FCPA compliance, given that both the Department of Justice and SEC have real expertise in reviewing FCPA programs (much more so than with most other risk areas). This expertise makes it more likely that government officials will be able to detect when a company has failed to implement appropriate program modifications. Indeed, in some FCPA enforcement actions, the government seems to have credited companies for conducting post-violations assessments (in particular, using outside resources) See e.g., , par. 11.

While every violation should trigger a program assessment of some kind, not all can or should result in “the use of an outside professional advisor to ensure adequate assessment and implementation of any modifications.” In determining when to seek such assistance, companies may wish to consider:

  • The seriousness/severity of the violation.
  • The magnitude and complexity of the contemplated program modifications, as bearing on the need for an outside advisor’s expertise.
  • The extent to which implementation of modifications seem likely to meet resistance within a company, as bearing on the need for an independent party to ensure that the modifications indeed take place.
  • Our next post will discuss the Guidelines modification concerning reporting to the board of directors on compliance.

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 Rebecca Walker's book, Conflicts of Interest in Business and the Professions: Law and Compliance, is available here. She can be reached at


Black Knights In Ghana?

A story in the Financial Times (here) earlier this year said authorities in the U.S. and Ghana are investigating corruption allegations involving a privately held Texas oil company, Kosmos Energy. It controls a large share of the 1.8 billion barrel Jubilee field, one of Africa's biggest recent oil finds.

The paper said Ghanian prosecutors are preparing criminal charges against Kosmos' local partner, EO. It said EO was formed by two allies of John Kufuor, Ghana's president until last year. One of EO's founders was Houston-based businessman George Owusu, who was Kosmos’ representative in Accra. The other was Kwame Bawuah Edusei, later appointed Ghana's ambassador to the U.S.

The report said the U.S. Justice Department "is also understood to be probing the relationship between EO and Kosmos, although the department on Thursday declined to confirm or deny this."

Kosmos' local partner, EO, reportedly holds a 3.5 percent stake in the offshore oil block found to be commercial in 2007. In October last year, Kosmos announced the sale of all its interests in Ghana, including the Jubilee field assets, to Exxon Mobil Corporation for $4 billion. EO's stake, the Financial Times said, could be worth more than $200 million.

The Financial Times said EO brought Kosmos into Ghana three years ago. In exchange, Kosmos gave EO the 3.5 percent interest and paid EO's "share of exploration and development costs, according to an agreement between the two companies obtained by the Financial Times."

Kosmos is mainly owned by private equity firms Warburg Pincus and Blackstone Capital Partners.

The charges in Ghana against EO, according to the Financial Times, would include causing a financial loss to the state, money laundering, and making false declarations to public agencies. Both EO and Kosmos have denied any wrongdoing.

Kosmos told the Financial Times that "Ghana now wants to secure a share of the profits by forcing Kosmos to sell itself at a knock-down price to GNPC, the state oil group, which could then sell it to the highest bidder."

A few days ago, a Ghanian website reported that Ato Ahwoi, Board Chairman of GNPC -- the Ghana National Petroleum Corporation -- and other key government officials with diplomatic passports were initially "refused visas to travel to the U.S. for no specific reason, sparking huge diplomatic controversy." The officials, later granted visas, were reportedly traveling to attend meetings with Kosmos' owners Warburg Pincus and Blackstone Capital Partners.

The Wall Street Journal said last month: "The fiasco has become an embarrassment for the Obama Administration, which singled out Ghana as an example of good governance during the President's trip to Africa last year. The State Department has lately stepped up criticism of the country, suggesting that future aid and investment will be contingent on the country's behavior, noting that the resolution of the Kosmos issue 'reflects on Ghana's reputation as an investment destination.'"

The New York Times reported in October last year that Kosmos' sale to Exxon Mobil requires approval by Ghana’s government, which is itself interested in buying the assets. Ghanian sources have also said the government opposes Kosmos' sale to Exxon Mobil and is "considering cutting a deal with a leading Chinese oil company for the stake."

The Financial Times reported that Duke Amaniampong, a California-based lawyer working for the Ghanaian investigation, said Ghana’s attorney general had accumulated “enough evidence of criminal culpability to bring charges against the EO group and its directors." A website called Modern Ghana said Amaniampong was appointed to help Ghana's attorney general prosecute “Kufuor's men." It said he is a graduate of Santa Clara University law school and was admitted to the State Bar of California in 1996.

When production begins later this year from the Jubilee field -- expected to be 120,000 barrels a day -- Ghana will become an oil exporting country.

[Editor's note: A version of this post originally appeared on the Global Graft Report, a site not currently available to the public. It is republished here with updates by special request.]


SFO Facing Uncertain Future

For the second time in recent months, U.K. judges have warned the Serious Fraud Office not to make plea deals in overseas bribery cases, throwing into doubt the agency's whistleblower program and its partnership with the U.S. Justice Department in resolving global corruption cases.

This week a U.K. appeals court affirmed the suspended sentence agreed between the SFO and a former sales executive who helped bribe Greek doctors and then turned whistleblower. But at the same time, the court said the SFO's U.S.-style approach was unconstitutional.

Robert John Dougall, 45, formerly marketing director of DePuy, pleaded guilty in April to making £4.5 million in corrupt payments to Greek medical professionals within the state-controlled healthcare system. DePuy, acquired by Johnson & Johnson in 1999, makes and sells orthopedic devices. 

The SFO said Dougall was the first "co-operating defendant" in a major SFO corruption investigation. It had recommended leniency in exchange for his guilty plea and help in the case, as typically happens in U.S. white-collar prosecutions. The SFO asked for a suspended sentence; the trial court instead sent Dougall to prison for a year.

The appeals court reversed the sentence but hammered the SFO. It said "agreements between the prosecution and the defense about the sentences to be imposed in fraud and corruption cases were constitutionally forbidden" and solely under the purview of judges, according to reports.

In March, Britain's second-ranking criminal judge said the $12.7 million fine the SFO agreed with a U.K. division of Innospec Inc. went beyond the SFO's authority. Delaware-based Innospec had reached what it believed was a $40 million global settlement with U.S. prosecutors and the SFO.

At Innospec's hearing, Lord Justice Thomas, the deputy head of criminal justice in the U.K. courts, said: “I have concluded that the director of the SFO had no power to enter into the arrangements made and no such arrangements should be made again.” Although he confirmed the U.K. part of the fine agreed by the SFO, he called the amount "wholly inadequate." See our post here.

The SFO first charged Dougall in November 2009 after a "referral" from the U.S. Justice Department. Two months earlier, DePuy and four other orthopedic device makers -- Biomet, Zimmer, Smith & Nephew and Stryker -- had agreed to pay $310 million to settle charges they paid kickbacks to induce U.S. doctors to buy their products. Since the U.S. settlement, the four companies, along with Medtronic Inc. and Wright Medical Group, have disclosed DOJ and SEC Foreign Corrupt Practices Act investigations. See our post here.


The Future Is Here

Dell Inc.'s FCPA compliance program was in the news this week for the right reasons. The program was certified by the Open Compliance & Ethics Group. The OCEG helps companies think about compliance systems that can be embedded into the corporate fabric. It's a non-profit group supported by some big names: Dell, Microsoft, Deloitte, SAP, Visa, Ernst & Young, Thomson Reuters, Baker Hughes, and many more.

Individuals can become basic members for free (we did) or can upgrade to paid memberships with access to more information. Companies can buy memberships that cover their people as well.

OCEG's basic product is its Red Book 2.0, a 200-page pdf file that members can download from the site. OCEG said it worked with "a committee of hundreds of esteemed experts, including many in-house GRC professionals, external advisors and auditors, and academics" to develop Red Book 2.0. (GRC means governance, risk and compliance.)

At the center of the Red Book approach is the GRC Capability Model™. It's made up of couplets like Context & Culture, Monitor & Measure, Organize & Oversee, Respond & Resolve, and so on. In the pages that follow, each couplet is presented under the headings: principles, common causes of failure, guidelines and practices, key deliverables, and enabling technology components.

The OCEG speaks the language of modern global corporations -- so unless you're fluent in the lingua franca, the Red Book may take some getting used to. But there's valuable information inside and plenty of comfort for those who rely on systems tools and processes to think about problems and solutions. (Corporations today are almost unimaginably large and complex -- a hundred thousand employees, tens of thousands of suppliers, operations in 50 countries -- who can think about them without getting a little rattled? The Red Book is one way to deal with it.) While there's always a risk of mistaking the model for the real thing, there's also value in using different approaches to involve new people in compliance.

The OCEG said it created its certification program "to enable a company and its stakeholders to gain transparency into the steps the company has taken to establish a strong and effective approach to governance, risk management and compliance." Transparency we're not so sure about -- mainly because corporate-systems-speak isn't our native language -- but steps to compliance are certainly there.

As for Dell, the OCEG says the company received "not a point in time certification of FCPA compliance, [but] an acknowledgement that Dell has taken significant, proactive steps to design a program that will enhance its ability to appropriately prevent, detect and react to non-compliance."


Sorry For The Harm

The World Bank last week debarred a U.K subsidiary of Macmillan Publishers for six years (reviewable after three years) after the parent company self-reported to the bank corrupt payments to public officials in Sudan. The bribes were unsuccessful in landing sales of textbooks under the World Bank-administered Sudan Multi-Donor Trust Fund.

The company also announced last week that it self-disclosed the payments to the U.K.'s Serious Fraud Office.

Graft is always bad. In a country like Sudan, its impact is magnified. After 20 years of civil war and lawlessness, Sudan ranks fourth worst on the Corruption Perception Index and third worst on the Failed States Index, trailed only by Somalia and Zimbabwe. Its people can expect to live about 52 years, compared with 62 in Cambodia, 72 in Indonesia, and 82 in Japan. Per capita gross domestic product (purchasing power) for its 41 million people is $2,300 while the world average is $10,500.

Millions there struggle every day for shelter, drinkable water, food, medicines, and education. Public corruption diverts money from basic necessities. It literally takes food off the table and textbooks out of the hands of children.

The World Bank's press release about the debarment was all business but Macmillan's was different, carrying a hint of sadness that was entirely fitting. In her public statement, Annette Thomas, Macmillan's chief executive, did something rare in the business world: she acknowledged the victims of corruption and the harm inflicted on them (even unsuccessful bribes help perpetuate corrupt systems and rulers).

Awareness of that harm was a factor leading to enactment of the Foreign Corrupt Practices Act. Although this case doesn't involve the FCPA, it's a reminder of why the FCPA and laws like it matter.

When A. A. Sommer, Jr. was a commissioner of the SEC in 1976, a year before the FCPA became law, he said: "[T]here are moral problems as well as legal problems that go far beyond simply the question of illegal payoffs to foreign officials. There are questions concerning the role of multi­national corporations, the extent to which they have obligations to the countries in which they conduct their business, the extent to which they should seek to raise the standards of conduct there, the respect which they should show the laws of other countries." Three decades later the once skeptical Wall Street Journal could say the quixotic Foreign Corrupt Practices Act had turned into one of Congress's finer moments.

Corruption ruins millions, maybe billions of lives. Those who say graft is a crime against humanity are more right than the rest of us like to admit. The DOJ, SEC, Serious Fraud Office, and World Bank should use all available tools to pursue and punish those who commit public bribery anywhere. Prosecutors shouldn't be diverted by the weird corporatization of government services that blurs the distinction of who's a "foreign official." And they shouldn't compromise ethics because "black knights" will rush in where honest companies fear to tread. That's a short-term and short-sighted view of the world and the marketplace.

Macmillan didn't say how much it paid Sudanese officials. But a bribe of any size that could have deprived a child of a textbook would be disturbing. CEO Annette Thomas said, "We are deeply shocked to have discovered these issues, and are sorry for the harm that such behaviour will have done."

The World Bank's April 30, 2010 announcement of Macmillan (U.K.) Limited's debarment is here.

Macmillan Publisher's May 6, 2010 announcement is here.


The Hard Timers

Compliance officers will want to keep a copy of the table below close at hand. What better way to answer those who insist that the FCPA is small potatoes, after all, when you look at the relatively few enforcement actions over the past 33 years.

Here are the 22 men (no women so far), most of them former company executives, who've spent time in prison for FCPA-related convictions. Each name that follows represents a terrible tragedy, often with permanent damage extending to families. As the compiler of the list said: "By my count there have been 187 people charged with violating the FCPA. This list will look a little different at the end of the year."

We'd like to thank the generous individual responsible for this post, but that's not possible. He or she has asked to remain anonymous, making this contribution pro bono publico.

The information is compiled from the Federal Bureau of Prisons' inmate locator. Readers with suggestions and corrections are welcome to let us know.



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Why So Many Words?

Parker Drilling 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.

In its latest quarterly report, Houston-based Parker, which trades on the New York Stock Exchange under the symbol PKD, disclosed details of the investigation, including potential compliance problems in Nigeria and, unexpectedly, Kazakhstan. Some might argue the amount of Parker's disclosure goes beyond the technical requirements of the securities laws. If that's true, why so many words?

First, there's really no downside risk in disclosing more instead of less. We've been debating this point for years with securities lawyers, who often ask us why there's so much voluntary FCPA disclosure when it may not be legally required. We in turn ask what's to be gained by not disclosing an internal investigation?

Second, there are two men named Parker on the board of directors -- Robert L. Parker, the Chairman Emeritus who bought the company from his father in 1957, and Robert L. Parker Jr., who now leads the firm. So although it's a public company, Parker Drilling retains a family-owned aspect. With their name on the door, the Parkers are probably more sensitive than most professional managers to reputational risks. No doubt they want to put the FCPA troubles in the rear-view mirror as soon as possible. One strategy for doing that is to disclose everything -- dissipate the news by releasing it to the public and the press in one go. Don't leave shareholders, bankers, customers, and other stakeholders guessing.

Finally, a detailed disclosure can reduce the chances of future compliance problems. It educates everyone inside the company about FCPA risks, especially in challenging places where oil drillers often find themselves. We think Parker's disclosure reads in some ways like an FCPA compliance manual, full of real-life warnings about what can go wrong, the damage caused, and the way to fix things.

*   *   *

Here's the full text of the FCPA disclosure from Parker Drilling Company's Form 10-Q dated May 7, 2010:

Customs Agent and Foreign Corrupt Practices Act (FCPA) Investigation
As previously disclosed, we received requests from the United States Department of Justice (DOJ) in July 2007 and the United States Securities and Exchange Commission (SEC) in January 2008 relating to our utilization of the services of a customs agent. The DOJ and the SEC are conducting parallel investigations into possible violations of U.S. law by us, including the FCPA. In particular, the DOJ and the SEC are investigating our use of customs agents in certain countries in which we currently operate or formerly operated, including Kazakhstan and Nigeria. We are fully cooperating with the DOJ and SEC investigations and are conducting an internal investigation into potential customs and other issues in Kazakhstan and Nigeria. The internal investigation has identified issues relating to potential non-compliance with applicable laws and regulations, including the FCPA with respect to operations in Kazakhstan and Nigeria. At this point, we are unable to predict the duration, scope or result of the DOJ or the SEC investigation or whether either agency will commence any legal action.
Further, in connection with our internal investigation, we also have learned that an individual who may be considered a foreign official under the FCPA owns in trust a substantial stake in a foreign subcontractor with whom we do business through a joint venture relationship in Kazakhstan. We are currently engaged in efforts to evaluate and implement alternatives to restructure or end the relationship with the subcontractor. At this point, we are unable to predict the outcome of our restructuring efforts or whether termination will result, either of which could negatively impact some of our operations in Kazakhstan and potentially have a material adverse impact on our business, results of operations, financial condition and liquidity.
The DOJ and the SEC have a broad range of civil and criminal sanctions under the FCPA and other laws and regulations, which they may seek to impose against corporations and individuals in appropriate circumstances including, but not limited to, injunctive relief, disgorgement, fines, penalties and modifications to business practices and compliance programs. These authorities have entered into agreements with, and obtained a range of sanctions against, several public corporations and individuals arising from allegations of improper payments and deficiencies in books and records and internal controls, whereby civil and criminal penalties were imposed. Recent civil and criminal settlements have included multi-million dollar fines, deferred prosecution agreements, guilty pleas, and other sanctions, including the requirement that the relevant corporation retain a monitor to oversee its compliance with the FCPA. In addition, corporations may have to end or modify existing business relationships. Any of these remedial measures, if applicable to us, could have a material adverse impact on our business, results of operations, financial condition and liquidity.
We have taken certain steps to enhance our anti-bribery compliance efforts, including retaining a full-time Chief Compliance Officer who reports to the Chief Executive Officer and Audit Committee, and implementing efforts for the adoption of revised FCPA policies, procedures, and controls; increased training and testing requirements; contractual provisions for our service providers that interface with foreign government officials; due diligence and continuing oversight procedures for the review and selection of such service providers; and a compliance awareness improvement initiative that includes issuance of periodic anti-bribery compliance alerts.
Demand Letter
In April 2010, we received a demand letter from a law firm representing Ernest Maresca. The letter states that Mr. Maresca is one of our stockholders and that he believes that certain of our current and former officers and directors violated their fiduciary duties related to the issues described above under “Customs Agent and Foreign Corrupt Practices Act (FCPA) Investigation.” The letter requests that our Board of Directors take action against the individuals in question. In response to this letter, the Board has formed a special committee to evaluate the issues raised by the letter and determine a course of action for the Company.


The Compliance Paradox

There are signs everywhere that the FCPA is a growth industry. Enforcement activity is up, law firms, auditors, and consultants now specialize in the practice. Even the mainstream press is getting into the act -- this week with Forbes' mindless clubbing of the DOJ - Biglaw revolving door.

So let's ask: How will all this attention impact the FCPA and those who deal with it? Will compliance become second nature, part of the corporate fabric, so that FCPA violations become rare? Will the growth and success of the compliance industry result in its own demise? Where are we on the growth curve -- at the beginning, somewhere near the middle, or already close to the end?

As we often say in this space, compliance isn't about math but human beings and how they behave. That's why we think the FCPA will grow, as it has for the past five years, then ebb somewhat, then grow again, and so on.

Here's the reason for the cycle. Effective FCPA compliance prevents most violations from happening. Illegal payments aren't made; books aren't cooked; corporate crack-ups are averted. That's all good news but it can produce unexpected results.

When allegations of overseas bribery hit the fan, people often appear from outside the company to control the damage and clean up the mess, and they get the credit. But when a company stays out of trouble, those responsible for compliance aren't in the news. And as more time passes without a compliance problem, they fall further from the corporate center. When enough time has passed with no FCPA blow up, others start asking what compliance people do all day, since there don't seem to be any FCPA problems around here that need fixing.

People seldom receive much credit for things that don't happen. We spend little time pondering non-events. Instead our attention falls on things that do happen, and the bigger the disaster, the more of our attention it gets. So rather than pinning medals on the heroes who have kept the company out of trouble, campaigns to undermine them spring up, usually through budget shrinkage. Companies can end up with no one watching for trouble. That in turn increases the chances of a compliance meltdown.

Taking a broader look, the pattern is similar. Today, compliance officers and related professionals are visible and valued. That's largely because the DOJ (backed by presidents, congress, and NGOs) threw enforcement into hyper-drive a few years ago. The feds grabbed the action and set the agenda. Companies everywhere, with help from the compliance community, have been scrambling since then to catch up. Eventually there'll be more equilibrium between enforcement and compliance, and that's when enforcement should begin to decline.

When it does, companies will start wondering what their compliance people do all day. And so once again the DOJ will find plenty of low-hanging enforcement fruit . . . .