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FCPA Blog Daily News

Entries in Westinghouse (4)

Tuesday
Aug032010

Cracking Open The FCPA's Secrets

Law firm Hughes Hubbard & Reed, a sponsor of the FCPA Blog, has released its FCPA/Anti-Bribery Mid-Year Alert 2010.

The authors say it's both a quick desk reference and -- at 241 pages -- an authoritative collection of FCPA resources. They're right.

There's exhaustive enforcement-related information -- DOJ and SEC actions, DOJ opinion procedure releases, civil suits and related litigation, and domestic and foreign investigations. There's also plenty of high-level analysis of what's going on with enforcement and compliance. (The "Lessons Learned" section is particularly strong.)

Kevin Abikoff, one of the partners responsible for the Alert, said: "We developed it originally as a comprehensive internal resource for our lawyers and clients. On reflection, we decided to open-source it to the compliance community and beyond. We hope people will find it useful. And we're happy to be able to make a contribution."

Here, for example, is what it says about a subject we've never covered -- management changes:

In certain circumstances, regulators may use enforcement actions as a tool to force a change in management where the regulators believe management is insufficiently attuned to FCPA concerns. Regulators may also reward companies that change management in response to findings of misconduct or seek lesser penalties where management changed before the misconduct came to light. For example, the DOJ praised Siemens for its remedial efforts, including that it “replaced nearly all of its top leadership.” Similarly, in the case of Bristow, the misconduct was discovered by the company’s newly-appointed CEO, and the SEC imposed no monetary penalty on the company. (See, e.g., Technip, Siemens, Schnitzer, Bristow)

On the puzzle of FCPA jurisdiction, it says:

As the Siemens settlement (among others) confirms, U.S. regulators continue to take an expansive jurisdictional view as to the applicability of the FCPA. The charging documents applicable to Siemens Venezuela, Siemens Bangladesh, and Siemens Argentina detail connections, but not particularly close or ongoing connections, between the alleged improper conduct and the United States. Similarly, the United States government has continued to seek the extradition of Jeffrey Tesler and Wojciech Chodan, both United Kingdom citizens who were indicted for their involvement in the Bonny Island, Nigeria bribery scheme and who are described in the charging documents as “agents” of a domestic concern. Clearly, regulators in what they deem to be appropriate circumstances, will look carefully for hooks to establish U.S. jurisdiction over perceived violations of anti-corruption legislation.

And on parent-company liability for foreign subsidiaries, it says:

The U.S. Government will prosecute parent companies based on the conduct of even far-removed foreign subsidiaries and even in the absence of alleged knowledge or direct participation of the parent company in the improper conduct. As a result, as the Willbros Group and several Oil-for-Food settlements make clear, companies must ensure that their anti-corruption compliance policies and procedures are implemented throughout the corporate structure and are extended quickly to newly acquired subsidiaries. (See, e.g., Fiat, Faro, Willbros Group, AB Volvo, Flowserve, Westinghouse, Akzo Nobel, Ingersoll-Rand, York, Bristow, Paradigm, Textron, Delta & Pine, Dow).

The FCPA/Anti-Bribery Mid-Year Alert 2010 was written by Hughes Hubbard & Reed partners Kevin T. Abikoff, John F. Wood, and Gregory M. Williams.

Monday
Mar022009

The SEC Takes It Back

Disgorging profits is a common and prominent feature these days in Foreign Corrupt Practices Act settlements with the Securities and Exchange Commission. Last year Siemens disgorged $350 million and this year KBR paid $177 million. Maybe because disgorgements now happen so often, or because the payments have become so enormous, we automatically accept them as a suitable remedy. We don't question why the SEC uses disgorgement, where the remedy came from, or where it's going.

But at least one person has asked those questions. He's David C. Weiss (Dartmouth College, Michigan Law School), student-author of an extended note in the January 17, 2009 edition of the Michigan Journal of International Law.

According to Weiss, disgorgement never appeared in an FCPA enforcement action until just five years ago. That's right -- 27 years passed without a single FCPA-related disgorgement order. Then, in 2004, ABB Vetco Gray, Inc. paid $16.4 million in disgorgement and prejudgment interest. Next came Titan Corp. in 2005, paying $15.5 million. That same year, Diagnostics Products Corp. disgorged $2.8 million and DPC (Tianjin) Co. Ltd. $2.8 million. In 2006, Schnitzer Steel Industries, Inc. disgorged $7.7 million and Statoil $10.5 million. In 2007, Baker Hughes Inc. disgorged $23 million, El Paso Corp. $5.5 million, and York International $10 million.

Want to hear the rest? In 2008, Fiat disgorged $7.2 million, Siemens $350 million, Faro Technologies $1.8 million, Willbros $10.3 million, AB Volvo $19.6 million, Flowserve $3.2 million, and Westinghouse Air Brake Technologies Corp. $289,000. And so far this year, ITT Corporation has disgorged $1.4 million, and KBR $177 million.

Disgorgement, then, has a short but intense history in FCPA enforcement actions, and it seems to have appeared out of the blue. As Weiss puts it, "The SEC has developed the 'law' of disgorgement with neither the input, contemplation, nor blessing of Congress, and it is for this reason that one should ask normative questions about the role of disgorgement in the future enforcement of the prohibition on foreign bribery."

He points out that the SEC began requiring disgorgement just when other countries (with U.S. encouragement) started enacting their own extra-territorial anti-corruption laws. So here's the question: When more than one country enforces antibribery laws against a single company, which jurisdictions, if any, should use disgorgement as a remedy? Who decides, for example, if Siemens should forfeit ill-gotten gains to the United States Treasury or the German Chancellery? How about Italy or Norway, Greece or Argentina?

Weiss looks at laws around the world aimed at punishing foreign public bribery, and particularly those with disgorgement-like remedies. "The penal codes of at least twenty-one countries," he says, "include provisions for 'forfeiture' or 'confiscation' of the proceeds of a crime, or they base the amount of a fine on such proceeds." His survey shows just how new most of the laws are -- the majority coming into force either following enactment of the OECD anti-corruption convention in 1998 or after the events of 9/11 in 2001.

There's no evidence, Weiss says, that "Congress intended that the SEC pursue disgorgement as it has done since 2004. This fact alone should at least make one question the normative function of disgorgement." Disgorgement, he says, wasn't mentioned when the FCPA was first debated and adopted in 1977, nor when Congress amended the law in 1988 or 1998. Weiss himself doesn't say the SEC lacks the legal mandate to pursue disgorgement or that the remedy is somehow improper. But he does point out that the "lack of any statement that disgorgement should be part of the SEC’s enforcement arsenal, and the rarity of the remedy at the time that Congress passed the FCPA and its amendments, are reasons that some commentators have used to question the impropriety of the remedy."

It's great to see the Foreign Corrupt Practices Act as the object of some fresh research and scholarship. And at 47 pages and 238 footnotes (a couple of which mention the FCPA Blog), Weiss' work is thorough and thoughtful.

The cite for the note is: Weiss, David C.,The Foreign Corrupt Practices Act, SEC Disgorgement of Profits, and the Evolving International Bribery Regime: Weighing Proportionality, Retribution, and Deterrence, Michigan Journal of International Law, Vol. 30, No. 2 (January 17, 2009).

It's available from SSRN here.
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Tuesday
Jan272009

Dealing With The DOJ

The Justice Department resolves corporate FCPA enforcement actions these days by using deferred and non-prosecution agreements. And the go-to guys for information about them are Ryan McConnell, an Assistant United States Attorney in Houston, and Larry Finder, a partner in Houston with Haynes and Boone. They've identified, cataloged, analyzed and published findings about every "corporate pre-trial agreement" (their term) used from 1993 to 2008 -- all 112 of them.

They were joined for their latest study by Scott Mitchell, the head of the high-profile Open Compliance & Ethics Group, a nonprofit organization that helps member companies improve their culture by "integrating governance, risk management, and compliance processes."

In 2008, the authors say, there were just 16 deferred and non-prosecution agreements, down 60% from the record-setting 40 agreements in 2007. (From 2003-2006, there were 47 agreements; before 2003, there were just 9.) Seven of the 16 agreements last year related to Foreign Corrupt Practices Act settlements, compared with about a third in 2007. Last year's pre-trial agreements involved Sigue Corp., Jackson Country Club, WABTEC, Flowserve, AB Volvo, Willbros Group, AGA Medical, Faro Technologies, ESI, Milberg Weiss, Lawson Products, Republic Services, American Italian Pasta Co, Penn Traffic, IFCO and Fiat.

We asked Larry Finder a couple of questions about the 2008 study. Here's what he had to say:

The FCPA Blog: Why were the DPA / NPA numbers down so much last year?

Lary Finder: Your guess is as good as mine. It's possible that the DOJ was distracted with Congressional hearings and the possibility of federal legislation on the monitor issue, but I truly can't divine the reasons. It is equally as possible that in the post-9/11 environment, more investigatory resources, e.g., FBI and U.S. Attorney, have been concentrated on terrorism-related matters rather than fraud cases. I just don't know.

The FCPA Blog: Your 2008 study talks about the Justice Department's recent clarification [at United States Attorneys Manual 9-28.710] that it won't require waivers of attorney-client or attorney work-product privileges when determining corporate "cooperation." You also talk about the DOJ's new internal rules on the appointment of monitors and the ban on "extraordinary restitution" payments by corporate targets. Do the DOJ's internal rules have the force of law?

LF: As I recall, the DOJ often states (in its published monographs, for example) that its policies are generally not enforceable against the government. The federal case the Department often cites as authority for that proposition is United States v. Caceres, a Supreme Court case from the late 1970s. That being said, our analysis suggests that the Department has been abiding by its own waiver policy. We saw that the privilege waiver language in DPAs was the exception (statistics from 2007 showed only 3 waivers, while in 2008 we found but two) . Further, the Department has every incentive to avoid the perception of violating its own policies on privilege and monitors, lest the organized white collar bar again lobby for curative federal legislation. We'll have to wait and see.

* * *
Ellen Podgor at the White Collar Crime Prof Blog has already said, "This piece should be a must-read for in-house counsel and all attorneys working with companies on compliance programs." She's right. We don't know of any other way to get a clearer picture of what's going on with the DOJ's compliance agreements. This is practical information and a welcome bit of accountability.

The article can be downloaded now from SSRN here. It will appear in the May 2009 Corp. Counsel Rev. - Published by S. Tex. College Of Law, Volume XXVIII, No. 1.
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Thursday
Feb142008

Wabtec Resolves FCPA Violations Related To India

Westinghouse Air Brake Technologies Corporation ("Wabtec") will pay about $675,000 and enter into a deferred prosecution agreement to resolve Foreign Corrupt Practices Act offenses caused by its Indian subsidiary, Pioneer Friction Limited. In the Securities and Exchange Commission's administrative proceeding, Wabtec will disgorge $259,000 and prejudgment interest of $29,351. It will also retain an independent consultant to review and make recommendations concerning its FCPA compliance. The SEC's federal civil action further requires Wabtec to pay a civil penalty of $87,000. Separately, the company will pay a fine of $300,000 to the Department of Justice and enter into a non-prosecution agreement imposing a strict compliance program and further cooperation with the DOJ.

In 2006, Pennsylvania-based Wabtec -- which has about 5,000 employees worldwide and manufactures brakes and related products for train locomotives and cars, among other things -- discovered that over the prior five years, Pioneer had paid more than $137,400 in cash to various officials from an agency in India’s Ministry of Railroads. According to the DOJ, "The payments were made in order to: assist Pioneer in obtaining and retaining business with the [Indian Railway Board]; schedule pre-shipping product inspections; obtain issuance of product delivery certificates; and curb what Pioneer considered to be excessive tax audits." Wabtec investigated the payments and voluntarily disclosed its findings to U.S. authorities. It also took remedial compliance measures.

Wabtec's consolidated financial statements include Pioneer's results. So in addition to causing Wabtec to violate the FCPA's antibribery provisions, Pioneer's financial improprieties triggered Wabtec's violation of the books-and-records and internal controls provisions of the FCPA. According to the SEC's complaint, Pioneer's agents "submitted invoices for materials that Pioneer did not receive in whole or in part. Pioneer issued checks to the marketing agent for the amount of the invoice and the marketing agent returned cash (less the service fee and any amount owed for any material actually received) to Pioneer. Pioneer maintained the cash generated through the use of marketing agents in a locked metal box, and documented each unlawful payment on a voucher that was maintained with the cash. Pioneer also kept track of the unlawful payments on a spreadsheet. The vouchers and the spreadsheet were maintained separately from Pioneer's other books and records and were not subject to review during annual audits."

As a result, Wabtec violated Sections 13(b)(2)(A), 13(b)(2)(B) and 30A of the Securities Exchange Act of 1934 [15 U.S.C. §§ 78m(b)(2)(A), 78m(b)(2)(B) and 78dd-1].

The SEC's complaint noted that although Wabtec's Code of Conduct in effect from 2001 to 2006 prohibited giving anything of value to improperly influence any person in a business relationship with Wabtec, the company had no FCPA policy and did not provide training or education to any of its employees, agents, or subsidiaries regarding the requirements of the FCPA. Wabtec also failed to establish a program to monitor its employees, agents, and subsidiaries for compliance with the FCPA.

Wabtec trades on the New York Stock Exchange under the symbol WAB.

View the SEC's Litigation Release No. 20457 (February 14, 2008) here.

View the SEC's Complaint in SEC v. Westinghouse Air Brake Technologies Corporation, Civil Action No. 08-CV-706 (E.D.Pa.) here.

View the DOJ's February 14, 2008 Release here.