Richard L. Cassin Publisher and Editor

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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


Tinseltown, Bourke Again, And Margaritaville

More on the Greens. In February 2008 we said: "We're not privy to the Greens' defense, of course, but they appear to have a tough legal battle ahead of them." As their trial was about to begin this week, it was postponed. According to the AP, the Justice Department blamed the one-week delay on "the availability of a prosecution witness." Trial delays aren't unusual. But could the Greens be trying to work out a plea?

As we've said, Perry Mason's clients never ended up behind bars. But real-life FCPA defendants aren't so lucky. Most accused individuals have plea-bargained to reduce or avoid jail time -- FCPA convictions carry a prison term of up to five years. And consider this: Since 1991, not a single FCPA trial has ended with an acquittal.

The Greens -- husband-and-wife Hollywood movie-producers Gerald and Patricia -- are also charged with conspiracy, money laundering, obstruction, and filing false tax returns. He's 76, she's 54, and if convicted on some or all counts they could spend the rest of their lives in prison.

Jury selection in U.S. v. Green is scheduled to start on August 25.

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About those FCPA jury instructions. Responding to this week's post, The Feds Should Take A Meeting, a reader said:

I'm not sure the Professor's criticism of the Bourke instructions on jurisdiction are well-founded. Although the statutory charging language in the conspiracy count does allege that the conspiracy continued to in or about 1999, only two of the overt acts took place after the 1998 amendments were signed into law. One was a trip to Azerbaijan in January 1999 by Farrell and the other a trip in February 1999 by Bourke. Both of these trips are described as being for the purpose of meeting with Azeri officials concerning the privatization investment, but the government did not set out any particular acts in furtherance of the bribery scheme. Moreover, in the original indictment, none of the substantive FCPA counts involved transactions after November 10, 1998. Thus, it is likely that the government chose to play it safe and had the court instruct on the pre-amendment jurisdictional element.
But the pre-1998 jurisdictional instruction wouldn't be needed in U.S. v. Green, where the alleged offending behavior took place from 2002 to 2007.

The government's proposed jury instructions in United States v. Green (United States District Court for the Central District of California, Case #: 08-59(B) - GW) can be downloaded here. The proposed "interstate commerce" instruction is number 28.

The jury instructions from
United States v. Bourke, S1 05 Cr. 418 (SAS) (S. D. N. Y.) can be downloaded here.

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Turks and Caicos-shire. Last Friday, Britain suspended the territory's political institutions and imposed direct rule. A U.K. report (available here) alleged systematic corruption among Turks and Caicos' leading politicians and their friends. A U.K.-appointed governor is now in charge.

In an AP report, former premier Galmo Williams said, "Our country is being invaded and re-colonized by the United Kingdom, dismantling a duly elected government and legislature and replacing it with a one-man dictatorship."

Turks and Caicos is a British Overseas Territory about 500 miles southeast of Florida. Its 25,000 residents have U.K. passports. Its beaches attract around 300,000 tourists a year.

British Foreign Office Minister Chris Bryant said the suspension could last up to two years while governor Gordon Wetherell "puts the Islands' affairs back in good order," according to the AP. Elections for a new government will be held by July 2011, Bryant said.

Meanwhile, will the U.K.'s audit into the government's accounts reveal any FCPA compliance problems for investors in T & C during its former home-rule regime?


The SEC Spreads The Love

Millipore's announcement last week was unusual. The Massachusetts-based life science firm said in its 10-Q that the SEC won't bring an enforcement action for potential Foreign Corrupt Practices Act violations the company self-reported in 2006. "By its letter on May 14, 2009," Millipore said, "the Securities and Exchange Commission notified us that its investigation has been completed and it will not pursue any enforcement action on this matter."

Not many companies hear that sort of good news, so why did Millipore?

The company said it decided in January 2006 to consolidate the results of its 40 percent-owned India joint venture. It learned then through its own internal controls "that certain payment and commission practices at the India JV [raised] issues of compliance." There was an internal investigation, self-reporting to the SEC and DOJ, and "certain corrective actions." That's all we know.

But the key to the SEC's no-enforcement decision is probably Millipore's ownership of only 40 percent of the India JV. Under the FCPA's internal controls provisions, an issuer holding 50 percent or less of the voting power in another firm is required to use its influence in good faith -- to the extent reasonable under the circumstances -- to cause the other firm to devise and maintain a system of acceptable accounting controls. (Section 13(b)(6) of the Securities Exchange Act of 1934) That provision, part of the FCPA's 1988 Amendments, was meant "to recognize that it is unrealistic to expect a minority owner to exert a disproportionate degree of influence over the accounting practices of a subsidiary." (H.Rept. 100-576, at 917)

Section 13(b)(6) also says that an "issuer which demonstrates good faith efforts to use such influence shall be conclusively presumed to have complied" with its internal controls obligations. Conclusively presumed to have complied. So the test is whether Millipore acted in good faith to cause the India JV to devise and maintain acceptable accounting controls. Not whether the JV did so or not.

Is it time to celebrate? Not quite. Although now cleared by the SEC on the internal controls side, what about antibribery aspects? Did any of Millipore's employees know about or help the India joint venture make questionable payments? If so, the Justice Department could still come calling. But if no one at Millipore knew anything (which seems likely, given the SEC's no-action), then the company couldn't have acted "knowingly" to help the JV make corrupt payments to foreign officials in violation of the FCPA.

The DOJ rarely tells companies formally that they're in the clear. For Millipore, the FCPA's five-year statute of limitations will be up in 2011, assuming the company didn't waive the time bar after it self-reported the India JV's potential compliance problems.

Millipore Corp. trades on the New York Stock Exchange under the symbol MIL.

Millipore's Form 10-Q filed August 12, 2009 for the period ending July 04, 2009 can be downloaded here.

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From U.S. v. Green. The AP reported here that the Los Angeles trial of Hollywood producers Gerald and Patricia Green has been delayed for at least a week. "A spokesman for the U.S. attorney's office in Los Angeles, said Tuesday that the delay was due to the availability of a prosecution witness. Jury selection is slated to begin Aug. 25." The Greens are charged with violating the FCPA and other laws by paying $1.8 million in bribes to Thai officials in exchange for $14 million in contracts. The movies they produced include Salvador, Rescue Dawn, and Diamonds.


Top Eyes On Russian Graft

When they met in July, Presidents Obama and Medvedev not only dressed alike, they created a Bilateral Presidential Commission. They'll chair it and Secretary of State Clinton and Foreign Minister Lavrov will act as coordinators. Working groups under the commission's umbrella will include energy, security, environment, arms control, counter-terrorism, cultural exchanges, and -- the reason we're talking about it -- business development. That group will be headed by Secretary of Commerce Gary Locke and Minister of Economic Development Elvira Nabiulline.

The press offices at the White House and Kremlin didn't provide other details. But Reuters talked to the head of the U.S.-Russia Business Council, a Washington-based group that helps American companies do business in Russia. Edward Verona said he thinks the new presidential commission will increase U.S. - Russia trade, which at $36 billion in 2008 was the same as U.S. trade with Thailand.

"The commission is very important and I don't think you can do deals without some government involvement and the blessing of both governments," Verona said. "Corruption, the rule of law and bureaucracy are easier to address through this channel . . . instead of individual companies going to the press and announcing that they may be suspending their investment in the country," he said.

Russia ranks near the bottom of the World Bank's Doing Business Index (here). Endless red tape and stories about bureaucratic shakedowns discourage foreign investors.

Earlier this year, for example, Swedish furniture retailer Ikea loudly suspended a store-opening outside Moscow. It acted after local bureaucrats imposed a last-minute requirement that its new building be able to withstand winds nearly twice as strong as the most powerful gusts ever recorded at the store's location.

Secretary Clinton will travel to Moscow in the fall for the commission's first coordinator meetings.


The Feds Should Take A Meeting

Husband-and-wife movie producers Gerald and Patricia Green are now on trial in LA for violating the Foreign Corrupt Practices Act. Prosecutors allege they paid more than $1.8 million in bribes to Juthamas Siriwan, a former governor of the Tourism Authority of Thailand, in return for $14 million in contracts to stage the Bangkok Film Festival. They're also charged with conspiracy, money laundering, obstruction, and filing false tax returns. He's 76, she's 54, and they're now facing up to five years in prison for each FCPA charge, up to 10 years for each tax count, and up to 20 years for the money-laundering and obstruction charges.

Theirs is the third FCPA-related trial this year. In July, Frederick Bourke of the Dooney & Bourke handbag company was convicted by a jury in Manhattan of conspiracy to violate the FCPA. A month later, William Jefferson, the former nine-term congressman from Louisiana, was found guilty on a similar charge (among 10 others) in Alexandria, Virginia.

We don't know how many currently-serving U.S. Attorneys or Assistant U.S. Attorneys had seen an FCPA trial before this year. But the number could be zero or close to it. So going into the recent trials, prosecutors didn't have a lot of courtroom-tested resources to draw from. That might explain why the government's proposed jury instructions on the FCPA counts in the Greens' case are copied verbatim from Judge Shira Scheindlin's instructions in Frederic Bourke's trial. There's one problem though. Those instructions contained some errors.

The most glaring mistake concerns the "interstate commerce" element of an FCPA offense. That instruction, as they'd say in Hollywood, is just so 1997. As Prof Mike Koehler explained on his blog,
The [Bourke] instructions say (on pg. 24) that a "domestic concern" (as Bourke is under FCPA-speak) "must have intended to make use of the mails or a means or instrumentality of interstate commerce" in order to violate the FCPA. This is the so-called "territorial" jurisdictional provision found at 78dd-2. However, the 1998 amendments to the FCPA expanded the jurisdictional reach of the FCPA, as applied to "domestic concerns," by adding an alternative "nationality" jurisdictional provision found at 78dd-2(i) which removes the interstate commerce / U.S. territorial nexus requirements. Thus, a "domestic concern" can be charged and found liable for a substantive FCPA violation even if the prohibited activity took place entirely outside of the U.S. The jury instruction that the "domestic concern" "must have intended to make use of the mails or a means or instrumentality of interstate commerce" is thus just plain wrong.
Another problem in the Bourke instructions and repeated by the government's requested instructions in U.S. v. Green concerns the definition of "foreign official." The instructions depart from the text of the FCPA by inserting a reference to "an instrumentality" where it shouldn't be. True, the word "instrumentality" pops up all over the FCPA, but not in the place in the statute's definition of a "foreign official" where the instructions put it. The government has gone one instrumentality too far.

How serious are the errors? Not very. In Bourke's trial, the anachronistic "interstate commerce" element probably hurt the government's case but not Bourke's defense. Prosecutors had to present evidence that wasn't really needed to prove his FCPA-related violation -- i.e., Bourke's use of an instrumentality (that word again) of interstate commerce while offering or making a corrupt payment to a foreign official. And the reference to "instrumentality" in the description of a foreign official is a bit confusing but not a big deal -- probably harmless error. Still, the government might want to have a quick huddle and check its notes.

The jury instructions from United States v. Bourke, S1 05 Cr. 418 (SAS) (S. D. N. Y.) can be downloaded here.

The government's proposed jury instructions in United States v. Green (United States District Court for the Central District of California, Case #: 08-59(B) - GW) can be downloaded here.

Read all our posts about U.S. v. Green here.

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More from Hollywood: A couple of years ago, LA Times reporter Glenn F. Bunting wrote a great story (here) about the budget for the movie "Sahara." The information he extracted from documents filed in a court case included this:
"Courtesy payments," "gratuities" and "local bribes" totaling $237,386 were passed out on locations in Morocco to expedite filming. A $40,688 payment to stop a river improvement project and $23,250 for "Political/Mayoral support" . . .
Since that story appeared, lawyers and pundits have wondered when the FCPA hammer would fall on Hollywood's overseas "community relations" practices. Could the Greens' case be the first of many?

* * *
New Addresses: The wrageblog has a fascinating post (here) about prison assignments in white-collar criminal cases. Here's what it says about two convicted FCPA defendants who started serving their time this year:
Douglas Murphy of American Rice, sentenced to 63 months after his FCPA conviction, is serving his sentence at the Federal Correctional Institution in El Reno, a medium security facility. However, David Kay, who was tried with Murphy, is serving his 37 month sentence at Texarkana, a low security facility.


China's Execs In The Crosshairs

Offering or paying bribes to Chinese officials and local employees puts the hosts at enormous risk. A case in point may be Control Components Inc. (CCI). When it pleaded guilty in late July to violating the Foreign Corrupt Practices Act and the Travel Act, it admitted bribing employees from at least six Chinese state-owned companies: Jiangsu Nuclear Power Corp., Guohua Electric Power, China Petroleum Materials and Equipment Corp., PetroChina, Dongfang Electric Corporation, and the China National Offshore Oil Corporation (CNOOC). On Saturday, CNOOC issued an unusual statement saying none of its people took bribes from CCI. Xinhua's report is here.

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One of China's most visible executives was sentenced to death last month for corruption but will probably end up serving a life sentence instead. Chen Tonghai, 61, the former chairman of Sinopec Corp, was convicted of taking $29 million in bribes between 1999 and June 2007. The court said he was also involved in illegal land transfers involving the company's property. Chen's death sentence was suspended for two years after he confessed and helped with the government's investigation.

Sinopec -- China Petroleum & Chemical Corporation -- is the biggest oil refiner in Asia and has a market cap of around $80 billion. The Chinese government owns just over 75%.

Chen joined the company in 1999 and became chairman 2003. According to the China Daily, he previously served as mayor of Ningbo in Zhejiang province and as deputy commissioner of the State Planning Commission. The paper said his father was "Chen Weida, a high-profile revolutionist and senior official."

None of the bribe-payers have been named in the case and the Chinese government hasn't said if any foreign firms may be implicated.

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A couple of weeks ago the China Daily also reported the execution of the former head of Beijing airport's management company. An intermediate court found 60-year-old Li Peiying guilty in February 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.

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Last Friday, China's media reported the detention of the head of the China National Nuclear Corporation, the state agency leading the country's nuclear power industry. Kang Rixin is being investigated in a $260 million corruption case for allegedly using public funds to buy stocks, accepting bribes and interfering with the bidding process for nuclear power projects. Kang, 56, is also a member of the Chinese Communist Party Central Committee and sits on the party disciplinary committee that is investigating him.

* * *
The AP said, "China puts to death more people every year than all other countries combined, with 5,000 executions expected to take place this year, according to the San Francisco-based Dui Hua Foundation, a human rights monitoring group. The Chinese government itself does not provide an annual count."


Juiced Up Enforcement

For those who missed any of the FCPA enforcement news during the recent hyper-active stretch, here's what happened:

July 28 -- Label-maker Avery Dennison Corporation resolved civil and administrative charges brought by the Securities and Exchange Commission. The SEC filed settled enforcement actions in the United States District Court for the Central District of California charging Avery with violating the FCPA's books and records and internal controls provisions. In the administrative action, the SEC ordered Avery to disgorge $273,213 plus $45,257 in prejudgment interest. In the federal civil action, Avery will pay a civil penalty of $200,000.

July 30 -- Oil and gas driller Helmerich & Payne Inc. was hit with a $1 million criminal penalty by the Justice Department to settle Foreign Corrupt Practices Act violations related to improper payments to government officials in Argentina and Venezuela. The SEC ordered the Tulsa, Oklahoma-based firm to disgorge $320,604 plus prejudgment interest of $55,077.22.

July 31 -- The Justice Department announced that valve-maker Control Components Inc. (CCI) of Rancho Santa Margarita, California pleaded guilty to violating the anti-bribery provisions of the Foreign Corrupt Practices Act (15 U.S.C. §78dd-2) and the Travel Act (18 U.S. C. §1952). CCI admitted bribing foreign officials and private parties in a decade-long scheme to secure contracts in about 36 countries. CCI's plea agreement requires it to pay a criminal fine of $18.2 million, implement an anti-bribery compliance program, retain a compliance monitor for three years, serve a three-year term of organizational probation, and cooperate with ongoing investigations.

July 31 -- The SEC filed a settled enforcement action against Nature's Sunshine Products Inc. (NSP), its Chief Executive Officer Douglas Faggioli. 54, and its former Chief Financial Officer Craig D. Huff, 53. According to the SEC, the charges relate to cash payments made in 2000 and 2001 by the Brazilian subsidiary of NSP, a manufacturer of nutritional and personal care products, to import unregistered products into Brazil and the subsequent falsification of its books and records to conceal the payments.

July 31 -- The Justice Department said a Canadian citizen has been indicted for his alleged role in an eight-year conspiracy to defraud the United Nations Oil for Food Program and to bribe Iraqi government officials in connection with the sale of a chemical additive used in refining leaded fuel. Ousama Naaman, 60, of Abu Dhabi, United Arab Emirates, was indicted on Aug. 7, 2008, in U.S. District Court for the District of Columbia. The indictment charges Naaman, who's in Germany, with one count of conspiracy to commit wire fraud and to violate the Foreign Corrupt Practices Act and two counts of violating the FCPA.

August 4 -- The year's third Foreign Corrupt Practices Act trial started when the husband-and-wife movie producers arrested in 2007 faced a federal jury in Los Angeles. Prosecutors allege that Gerald and Patricia Green paid more than $1.8 million in bribes to a former governor of the Tourism Authority of Thailand in return for $14 million in contracts to stage the Bangkok Film Festival. In July this year, Frederic Bourke was convicted of conspiracy to violate the FCPA. And . . .

August 5 -- William Jefferson, the former nine-term congressman from Louisiana, was found guilty of 11 of 16 corruption charges by a federal jury, including conspiracy to violate the Foreign Corrupt Practices Act. He was acquitted of a substantive charge of violating the FCPA. He was also found guilty of soliciting and taking bribes, depriving citizens of honest services, money laundering and racketeering, and conspiracy to solicit bribes.

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Another day, another lesson. Concerning state-law violations underlying federal Travel Act charges, a reader has pointed out that the CCI indictments weren't the first. He or she cited U.S. v. David H. Mead and Frerik Pluimers, (Cr. 98-240-01) D.N.J., Trenton Div. 1998, where defendant Mead was convicted following a jury trial of conspiracy to violate the FCPA and the Travel Act (incorporating New Jersey's commercial bribery statute) and two counts each of substantive violations of the FCPA and the Travel Act. The reader said there have been other similar cases. For us (and others we've heard from), it's been a prosecutorial tactic hidden in plain sight. Our eyes are now open. And we say again: Compliance programs shouldn't overlook the dangers of bribes to private parties overseas.

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We remember laying on our back as a kid, outdoors on clear nights in New Hampshire, mesmerized by the annual Perseid meteor shower. This week we were city-bound and missed the show. Maybe next year.

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We're outta here for a three-day weekend. Thanks to everyone who helped make this another great week. See you Monday.


An Abundance Of Caution

The Justice Department last week issued its first Foreign Corrupt Practices Act Opinion Procedure Release of the year. The Requestor in Release No. 09-01 is a medical device maker that wants to introduce its product to a foreign government. Unlike its few global competitors, it isn't well known in the target country. To introduce itself, it plans to donate samples to government health centers -- ten devices for ten different centers -- worth $19,000 each or $1.9 million for all 100 units.

The medical centers will select the 100 ultimate recipients of the devices. All candidates will have to be financially needy and generally can't be family members of government officials.

The DOJ said the Requestor's plan won't trigger any FCPA enforcement action. Why not? Because the donated devices won't go to government officials but to needy patients. Bottom line: No foreign official, no FCPA offense.

Sound familiar? It should. The same question came up in FCPA Opinion Procedure Releases No. 97-02 (November 5, 1997) and No. 06-01 (October 16, 2006). We talked about them here. So if the question's been asked and answered twice already, why did this Requestor ask again? Probably because medical device makers have been feeling the heat of the FCPA.

The DOJ and SEC are investigating their overseas sales practices. In 2007, Depuy and four other device makers paid $310 million to settle charges they paid kickbacks to induce U.S. doctors to buy their products. The same year, Johnson & Johnson (which owns Depuy) self-disclosed that "subsidiaries outside the United States are believed to have made improper payments in connection with the sale of medical devices in two small-market countries." So the SEC and DOJ want to know whether the companies bribed overseas doctors at government-owned hospitals to use their products.

Biomet Inc., Stryker Corp., Zimmer Holdings Inc., Smith & Nephew plc and Medtronic Inc. disclosed FCPA investigations during 2007; Wright Medical reported a similar investigation in June 2008.

View a copy of Opinion Procedure Release No. 09-01 (August 3, 2009) here.


Prosecuting Private Overseas Corruption

Hold on. When did the United States criminalize commercial overseas bribery? We're not talking about bribes to foreign officials under the Foreign Corrupt Practices Act.* But bribes overseas to private parties. When did that become a federal offense? Well, it happened this year when the Justice Department indicted California valve-maker Control Components Inc. (CCI) and six of its former employees. Here's how.

They were all charged under both the FCPA and the Travel Act (18 U.S. C. §1952). The latter prohibits traveling between states or countries or using an interstate facility in aid of any crime, and carries a 5-year jail sentence for most offenses. Here's the thing. The underlying crime doesn't have to be a federal offense. Traveling around or using the mails to violate a state law can also trigger a Travel Act violation.

In the cases of CCI and the six ex-employees, the federal government alleged they violated or conspired to violate California's anti-bribery law (California Penal Code section 641.3). It bans corrupt payments anywhere of more than $1,000 between any two persons, including private commercial parties. In the federal indictments, the Travel Act charges relied on alleged violations of California's anti-corruption law. CCI pleaded guilty to its three-count indictment; the six ex-employees have pleaded not guilty and are presumed innocent unless convicted at trial.

When it announced CCI's guilty plea, the DOJ talked about the company's private overseas bribery. It said:

According to the information and plea agreement, from 1998 through 2007, CCI violated the FCPA and the Travel Act by making corrupt payments to numerous officers and employees of state-owned and privately-owned customers around the world, including in China, Korea, Malaysia and the United Arab Emirates, for the purpose of obtaining or retaining business for CCI. Specifically, from 2003 through 2007, CCI paid approximately $4.9 million in bribes, in violation of the FCPA, to officials of various foreign state-owned companies and approximately $1.95 million in bribes, in violation of the Travel Act, to officers and employees of foreign and domestic privately-owned companies.
We've seen references to private bribery in other FCPA enforcement actions. Schnitzer Steel is one example. The DOJ said its employees had bribed people not only at government-owned enterprises but also at private companies abroad. But Schnitzer was charged only under the books and records and internal controls provisions of the FCPA and not the Travel Act, so specific allegations about private bribery weren't part of the actual charges.

In CCI's case, however, its private overseas bribery violated California law. That's what formed the basis of the Travel Act charge in the indictment. And in its plea agreement, one of CCI's undertakings was directed specifically at private bribery that fell outside the scope of the FCPA. The plea agreement said:

CCI shall truthfully disclose . . . all matters relating to corrupt payments to foreign public officials or to employees of private customers . . . about which CCI has any knowledge . . . .
What does it all mean? That the DOJ is now prosecuting (and monitoring) not just bribes to foreign officials that violate the Foreign Corrupt Practices Act but also corrupt payments to private overseas parties that violate state law. Is this a massive expansion of the DOJ's battle against foreign corruption by U.S. companies and their employees? Oh yes.

What's next? All of a sudden, it seems like a very good time to re-evaluate compliance programs -- and make sure they cover both public and private overseas bribery.

We're grateful to an extremely astute reader in Asia for helping us understand the importance of the Travel Act charges in the CCI-related indictments.

* Foreign official is defined in the FCPA at 15 U.S.C. §78dd-1(f)(1)(A), §78dd-2(h)(2)(A) and §78dd-3(f)(2)(A). "The term 'foreign official' means any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization."

Download the DOJ's July 31, 2009 release about CCI's guilty plea here.

Download a copy of CCI's July 22, 2009 plea agreement here.

Download the July 22, 2009 criminal information against CCI here.

Download the indictment of the six former executives of CCI here.


More Heat Coming

The head of the SEC's Division of Enforcement, Robert Khuzamii, said last week the agency will put more attention on the Foreign Corrupt Practices Act. Among five specialized enforcement units to be created will be one devoted to the FCPA. He said:

The Foreign Corrupt Practices Act unit will focus on new and proactive approaches to identifying violations of the Foreign Corrupt Practice Act, which prohibits U.S. companies from bribing foreign officials for government contracts and other business. While we have been active in this area, more needs to be done, including being more proactive in investigations, working more closely with our foreign counterparts, and taking a more global approach to these violations.
His agency, he said, will be coming up with new standards to evaluate cooperation by companies and individuals. And to encourage cooperation, the SEC will expedite processing of witness-immunity requests and start using DOJ-like deferred prosecution agreements -- subject to full cooperation, a waiver of statutes of limitations, and compliance with ongoing undertakings. It all points to more FCPA enforcement pressure on public companies.

On a historical note, the SEC hasn't said much about cooperation standards since its so-called Seaboard Report in 2001. That release identified these measures of a company’s compliance:

· Self-policing prior to the discovery of the misconduct, including establishing effective compliance procedures and an appropriate tone at the top;

· Self-reporting of misconduct when it is discovered, including conducting a thorough review of the nature, extent, origins and consequences of the misconduct, and promptly, completely, and effectively disclosing the misconduct to the public, to regulators, and to self- regulators;

· Remediation, including dismissing or appropriately disciplining wrongdoers, modifying and improving internal controls and procedures to prevent recurrence of the misconduct, and appropriately compensating those adversely affected; and

· Cooperation with law enforcement authorities, including providing the SEC with all information relevant to the underlying violations and the company’s remedial efforts.

View the August 5, 2009 speech by Robert Khuzamii, the SEC's Director of the Division of Enforcement, to the New York City Bar: "My First 100 Days as Director of Enforcement" here.

View the SEC's "Seaboard Report," Release No. 44969 and Accounting and Auditing Enforcement Release No. 1470 (both dated October 23, 2001) Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 and Commission Statement on the Relationship of Cooperation to Agency Enforcement Decisions here.


Measuring Compliance

After a public company finds evidence of illegal payments overseas, there are decisions to make. Should the board launch an internal investigation? Should the company self-report its findings to the DOJ and SEC? What about a public disclosure? Before those decisions are made, though, there's usually a discussion about "materiality." It's a common subject in this setting. But it shouldn't be.

As we've said before, the measure for compliance under the Foreign Corrupt Practices Act's books and records and internal control provisions isn't materiality but reasonableness. Issuers must "make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer." They must "devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are properly executed and recorded."

Reasonableness, not materiality, explains a disclosure this week by Team Inc. The Alvin, Texas-based pipeline and valve repair specialist is investigating what it thinks are $50,000 of illegal payments in Trinidad over a five-year period. Just $10,000 a year. Not much by most measures, and impacting sales equivalent to just one-half of one percent of Team's global revenues.

But lots of small bribes that go undetected for several years (if that's what happened) might mean lapses in accounting standards and gaps in internal controls -- and violations of the FCPA. That can be a big deal.

Here's Team's disclosure from its August 4th Form 8-K:

During a recent internal management review of one of our branch operations in Trinidad, we were informed of allegations of improper payments, made by our local employees, to employees of certain customers, including foreign government owned enterprises. Consequently, the Audit Committee of our Board of Directors initiated an investigation of those allegations with the assistance of independent outside counsel.

The investigation has found evidence suggesting that payments, which may violate the Foreign Corrupt Practices Act (FCPA), were made to employees of foreign government owned enterprises. While the investigation is ongoing, there has been no indication that the improper payments extend beyond the one Trinidad branch. Based upon the evidence obtained to date, we believe that the total of these improper payments over the past five years did not exceed $50,000. The total annual revenues from the impacted Trinidad branch represent approximately one-half of one percent of our annual consolidated revenues.

We have voluntary disclosed information relating to the initial allegations, the investigation and the initial findings to the U.S. Department of Justice and to the Securities and Exchange Commission, and we will cooperate with the DOJ and SEC in connection with their review of this matter. The outcome of this investigation cannot be predicted at this time; however, the FCPA and related statutes and regulations do provide for potential monetary penalties as well as criminal and civil sanctions in connection with FCPA violations.

Team Inc.'s common stock trades on the NASDAQ Global Select Market under the symbol TISI.

Download Team Inc.'s August 4, 2009 Form 8-K here.

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From William Jefferson's Trial. The jury convened for the last time Thursday and decided the former congressman must forfeiture close to $470,000. He was convicted Wednesday on 11 of 16 corruption charges, including conspiracy to violate the Foreign Corrupt Practices Act, soliciting and taking bribes, depriving citizens of honest services, money laundering and racketeering, and conspiracy to solicit bribes. Jefferson was acquitted of a substantive charge of violating the FCPA. He's now free pending his October 30 sentencing, when he faces a maximum penalty of 150 years in prison.


Jefferson Convicted of Conspiracy to Violate the FCPA

William Jefferson, the former nine-term congressman from Louisiana, was found guilty of 11 of 16 corruption charges on Wednesday by a federal jury, including conspiracy to violate the Foreign Corrupt Practices Act. He was also found guilty of soliciting and taking bribes, depriving citizens of honest services, money laundering and racketeering, and conspiracy to solicit bribes. He was acquitted of a substantive charge of violating the FCPA.

A chart showing the charges and the verdict can be downloaded from the Times Picayune here.

Jefferson's case started in 2005 when the FBI raided his congressional office. He then became the first elected U.S. official to be charged under the Foreign Corrupt Practices Act. A 16-count indictment alleged among other things that he conspired to bribe the then Nigerian vice president, Atiku Abubakar, and later paid or promised to pay him bribes to steer telecommunications contracts to companies controlled by Jefferson's family.

The jury convicted Jefferson on Count 1 of the indictment that charged him with conspiracy to solicit bribes, deprive citizens of honest services, and violate the FCPA. The Times Picayune reported that the law only required the jury to find Jefferson guilty on two out of three of those charges -- conspiring to solicit bribes, deprive honest services, or violate the FCPA. The jury's verdict form did not require it to specify which conspiracy charges the panel agreed on. "It may or may not have included conspiracy to violate the Foreign Corrupt Practices Act," the paper said. Nevertheless, a guilty verdict will be recorded for the FCPA conspiracy charge under Count 1 of the indictment.

The jury acquitted Jefferson on Count 11 of the indictment -- the substantive FCPA charge.

Jefferson's case is best known for the FBI's discovery in August 2005 of $90,000 cash in the freezer of his Washington home. The money was given to Jefferson by Lori Mody, the government's cooperating witness who didn't testify at his trial. Prosecutors said Jefferson planned to use the cash to bribe Abubakar; Jefferson's lawyers said the cash in the freezer proved the ex-lawmaker didn't use the money as a bribe.

The jury deliberated five days before reaching a decision. Jefferson is now free pending his October 30 sentencing. He faces a maximum penalty of 150 years in prison. The jury will reconvene Thursday to decide whether he will also face forfeiture of up to $456,000 plus stock certificates.

His alleged co-conspirators were Vernon L. Jackson, a Louisville, Ky., businessman, and Brett M. Pfeffer, a former Jefferson congressional staff member. Jackson was sentenced to 87 months in prison after pleading guilty to conspiracy to commit bribery and paying bribes to a public official. Pfeffer was sentenced to 96 months in prison after pleading guilty to conspiracy to commit bribery and aiding and abetting the solicitation of bribes by a member of Congress.

Jefferson's lawyers are planning to appeal.

Read all our posts about William Jefferson here.


Here Comes The SFO, Part Two

The U.K.'s Serious Fraud Office is supposed to prosecute overseas corruption. But its track record has been weak. Last month, however, it announced a break-through enforcement action against Mabey & Johnson (here). We wondered if that case could mark the emergence of an energized Serious Fraud Office. According to the SFO itself, the answer is yes.

The agency issued an "operational note" on July 21 that spells out how companies can benefit from self-reporting overseas corruption and proving they have an effective compliance program. The document amounts to an enforcement blueprint similar to the way the U.S. Justice Department enforces the Foreign Corrupt Practices Act. The SFO said part of its reason for the new approach is eventual adoption of the U.K.'s pending anti-corruption bill that we discussed here.

The SFO hopes to soon have 100 staff working on overseas bribery cases. And it said that after the Mabey & Johnson prosecution, "More will follow. We shall be using all of the tools at our disposal in identifying and prosecuting cases of corruption that we find."

The idea is to reward self-reporting with civil instead of criminal penalties. But if a company hasn't been sincere about compliance -- if it doesn't have what amounts to the U.K.'s version of an effective compliance program -- it might still face criminal penalties. As the SFO explained:

In any discussions about procedures within the corporate [defendant] we shall be looking to find evidence of adequate procedures to assess how successful the corporate has been in mitigating risk. We shall also be looking closely at the culture within the corporate to see how well the processes really reflect what is happening in the corporate. For example, we shall look for the following:

• a clear statement of an anti-corruption culture fully and visibly supported at the highest levels in the corporate.

• a Code of Ethics.

• principles that are applicable regardless of local laws or culture.

• individual accountability.

• a policy on gifts and hospitality and facilitation payments.

• a policy on outside advisers/third parties including vetting and due diligence and appropriate risk assessments.

• a policy concerning political contributions and lobbying activities.

• training to ensure dissemination of the anti-corruption culture to all staff at all levels within the corporate.

• regular checks and auditing in a proportionate manner.

• a helpline within the corporate which enables employees to report concerns.

• a commitment to making it explicit that the anti-bribery code applies to business partners.

• appropriate and consistent disciplinary processes.

• whether there have been previous cases of corruption within the corporate and, if so, the effect of any remedial action.

Finally, the SFO said that no matter how much the company cooperates, individuals -- including directors -- could still face criminal prosecution. It added that it will help self-reporting companies resolve potential liabilities they face in other jurisdictions, presumably including the U.S.

The SFO's July 21, 2009 operational note on self-reporting overseas bribery can be downloaded here.