FCPA Compliance and Ethics Blog

December 6, 2012

ICE ICE BABY – Can a Party to Bribery be a Victim under the Crime Victim’s Rights Act?

It is the matter that my This Week In FCPA colleague Howard Sklar calls “This little lawsuit that could.” As reported by the FCPA Professor last week, the Instituto Costarricense De Electricidad (ICE) filed a Petition for Writ of Certiorari in the US Supreme Court in November. In the Petition ICE asked the following question, “Whether a crime victim who is denied rights conferred by the federal Crime Victims’ Rights Act (CVRA) has a right to directly appeal the denial of those rights?” ICE is the Costa Rican telephone company, who had several top executives bribed by Alcatel-Lucent (or its predecessor) to obtain telecommunications contracts in Costa Rica.

A.    District Court

The question posed by ICE in the underlying District Court was a significant one: whether an entity which had senior officials engaged in receipt of bribes which violated the Foreign Corrupt Practices Act (FCPA) have a right to intervene in any FCPA enforcement actions, such as a Deferred Prosecution Agreement (DPA), where an Information is filed, or indeed in a Non-Prosecution Agreement (NPA) where a fine or penalty is paid to the US government.

Before the District Court, ICE claimed that it was a victim of Alcatel-Lucent and that as such it was entitled to protection by the US Department of Justice (DOJ) in the settlement of the matter. ICE objected the Plea Agreement and DPA for three reasons: (a) The proposed settlement is inconsistent with 18 USC 3771; (b) The proposed settlement is inconsistent with the interests of justice, the public’s interest and public policy; and (c) The Defendants have already violated the DPA. ICE fleshed out these arguments as follows:

I.                18 USC 3771

ICE alleged that under 18 USC 3771, the “Crime Victims’ Rights Act”, an aggrieved party such as ICE had the right to be kept informed by the DOJ, the right to be heard in court and the right to “full and timely restitution.” ICE claimed that rights were mandatory under the CVRA and ICE further had the full right to be heard at any hearing resolving the matter regarding Alcatel-Lucent. ICE said it is a victim of over-priced products and services from Alcatel-Lucent due to the bribery that Alcatel-Lucent admitted to in the court filings related to the DPA. Additionally, ICE claims separate business interruption and related losses that are all subject to restitution under the CVRA.

 II.             Not in the Interest of Justice or Public Policy

Here ICE made several arguments which are as follows:

1)      That the DPA fails to satisfy the fundamental requirements of law because it is too lenient and, hence, it is not in the interest of either the public or the interest of justice.

2)      ICE urged that the plea agreement failed to reflect the actual conduct which was an offense under the FCPA.

3)      ICE alleged that the methodology used to calculate the sentencing is flawed and fails to take into account victim losses.

4)      ICE claimed that the plea agreement did not punish any officers or directors of Alcatel-Lucent despite several references in the documents to their criminal conduct.

5)      ICE argued that the plea agreement between the DOJ and Alcatel-Lucent failed to follow standard mandatory pre-trial services.

III.           The Defendants Continue to Violate the DPA

In a very interesting section, ICE claims that Alcatel-Lucent continued to violate the DPA. ICE alleged that under the DPA, Alcatel-Lucent was prohibited from making statements “contradicting their supposed acceptance of responsibility.” However, ICE claims that Alcatel-Lucent went into court in Costa Rica and announced, in a criminal case involving Alcatel-Lucent’s former agents, that Alcatel-Lucent had no knowledge of the agents’ actions and indeed Alcatel-Lucent “was a victim of these ex-employees.” (italics mine)

ICE’s filing was opposed by the DOJ. Interestingly, the DOJ’s response did not focus on the substance of ICE’s claims under the CVRA but rather how much Alcatel-Lucent co-operated (at least after they got rid of their initial counsel – who apparently didn’t cooperate with the DOJ); the substantive nature of Alcatel-Lucent’s internal investigation and remedial actions and the heftiness of the fine, under the US Sentencing Guidelines and Culpability Score thereunder. About the only substantive thing the DOJ said about ICE was that it was part of the conspiracy because senior executives were involved. Neither the DOJ nor District Court provided any substantive analysis of whether the CVRA applied to this fact scenario.

The ICE Petition was eventually dismissed by the District Court which noted that it would be difficult to “figure out the behavior of who was the victim and who was the offender” and also noted was that ICE was “essentially” a co-conspirator with Alcatel-Lucent regarding the bribery. All of this led to a finding that ICE was not a victim under the CVRA.

B.     Court of Appeals

ICE then filed a Petition for Mandamus in the 11th Circuit Court of Appeals which was denied without explanation. It also filed a Direct Appeal to the 11th Circuit which was also denied on two grounds. The first was that ICE had no standing because no Final Judgment had been entered and second, ICE lacked standing to appeal any Final Judgment. It also noted that the Writ of Mandamus was the only avenue available for review under the CVRA. The Court of Appeals did go further in addressing the substantive claim under the CVRA by holding that the CVRA does not provide for an aggrieved party to intervene in a criminal matter but only that the CVRA grants to a victim “the right to full and timely restitution as provided in law.” That final sentence would seem to render the entire CVRA moot as if a party already has a right “provided in law” that the party does not need another statute to affirm said right.

C.    Supreme Court and Beyond

In its Petition to the Supreme Court, ICE argued that there was a split in the US Circuit Courts as to whether a Party under the CVRA has a right of Direct Appeal or whether the only avenue open is via a Writ of Mandamus. There was no appeal of the substantive issues presented under the CVRA so if ICE succeeds it would seem that its remedy will be to go back to the District Court or the Court of Appeals.

The questions raised by ICE are difficult to answer and may be even more difficult when put into practice. First and foremost is whether an entity which would appear to have been a party to bribery and corruption alleged to be in violation of the FCPA can then turn around and claim that it was a victim of the same conduct which at least some of its employees engaged in. If ICE has such a right, then probably every foreign entity which takes a bribe in violation of the FCPA could turn around and seek victim status. There are other avenues open to aggrieved parties, such as the Alba civil action against Alcoa for allegedly bribing its Chief Executive Officer (CEO); this was not pursued by ICE. Of course there is always the example of the Nigerian government who tried to indict Dick Cheney in the Bonny Island bribery scandal almost a dozen years after the Nigerian governmental officials took the money in question. But, as Howard Sklar says, “it’s the little lawsuit that could”.

Considering there is a split in the US Courts of Appeal on the type of appeal that can or must be taken in a CVRA action, perhaps the US Supreme Court will deem this an important enough case to select for review and ICE may finally get to assert that it is a victim and not a ‘co-conspirator’ in the admitted bribery of the Costa Rican telephone company by Alcatel-Lucent.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2012

December 3, 2012

Using History to Create or Rebuild a Compliance Culture

I have wondered how organizations such as Siemens, Alcatel-Lucent or any others that have faced a wide-ranging, global charge of systemic bribery and corruption might change their culture. Many others have written about the structural changes that such companies have made. For instance, the compliance monitor for Alcatel-Lucent, Laurent Cohen-Tanugi, was quoted in a recent Corporate Crime Reporter article, entitled “Alcatel-Lucent Monitor Questions Morgan Stanley FCPA Declination”, as saying “I’ve noted a very significant change in the tone at the top since the time of those events that led to this deferred prosecution agreement. These changes are due to a number of factors – such as the merger between Alcatel and Lucent. Most of the facts predated the merger. But also the new leadership that came to the company – in the persons of Ben Verwaayen and Philippe Camus. I have noted that the company has in place the policies and processes that are generally expected to fight corruption. And that is very good news.”

Another method was used by the first Chief Executive Officer (CEO) who came into Siemens after its bribery and corruption scandal. One of the things that Peter Löscher did in his first 100 days with the company was to go on a round the world tour of the company’s facilities, including meetings with employees, customers and local governmental officials. He accomplished this final component through meetings with local leadership teams, town hall-style meetings with all employees and dinners with top leadership teams in specific locations. He basically learned that Siemens employees were “shocked and ashamed, because they were very proud to be a part of Siemens.” They wanted him to help clean up the company and they communicated that to him in these town hall meetings.

I have worked for and with a number of companies that may seem to have lost their compliance path and have become embroiled in a lengthy Foreign Corrupt Practices Act (FCPA) or UK Bribery Act investigation. They may need to try and change a culture that has slipped down a path that needs redirecting. I was, therefore, interested to read a recent article in the December issue of the Harvard Business Review (HBR) by John Seaman Jr and George David Smith, entitled “Your Company’s History As A Leadership Tool”, where the authors write about a different manner in which to change or modify culture, or what I call the “historical path.”

The authors begin by stating they believe that “For a leader who hopes to take an organization into the future, one of the most powerful tools may be a sophisticated understanding of its past.” To accomplish this, the authors advocate thinking like a historian because they believe that if you do not know where you have been, it is difficult to know where you are going. By this they mean that you should base any serious decision on facts. Next, you must be willing to treat facts “with intellectual integrity – viewing them with an open mind and a willingness to be surprised.” The authors recognize that many CEO’s are faced with great pressure regarding “quarterly earnings reports and the need to react to one crisis (real or perceived) after another,” yet they believe that the best leaders have “a long range perspective on the companies they manage.”

I believe that most employees want to engage in business ethically and that they do not want their company to be known as one which engages in illegal conduct, such as FCPA or UK Bribery Act violations. Employees want their companies to be successful because of better products, better services and better delivery of both to their customers. They want to understand, be a part of and have a sense of legacy for the company that they work for and the people that they work with as employees. To help facilitate this, the authors suggest that a company can engage in seven steps to help understand where a company has been to in order to help guide it where it may be going in the future. The authors call this the “Seven Tips for Getting History on Your Side” and they are:

  1. Company Archives. Your company should begin with the archives. You should visit or begin compiling your company’s archives. The authors believe that your company’s history is “only as good as the raw material – documents, images and artifacts – that you have at your disposal.”
  2. Enrich. You should expand and enlarge your company’s archives through interviews with departing executives and long-term employees and here the authors advise “especially the outlaws and the iconoclasts.” These interviews will help to ‘flesh out the written record, which often omits the rationale for decisions or fails to note what might turn out to be important ideas or events.”
  3. Survey. Your company should find out what is known about your company’s values and history through surveys. The authors believe that this can assist in separating “fact from fiction, identify missing pieces which you will need to address and begin to understand how history has shaped perceptions about your company today.”
  4. Dialogue.  Encourage your employees to engage in a dialogue about your company. Use social media to “capture stories about the company’s past” and about what the meaning of the past has for your company’s work and values today.
  5. Post-mortems. Conduct post-mortems on major projects and initiatives – both the successful and unsuccessful. You must recognize that you can learn as much from failure as you can from success.
  6. Perspective. Your company should seek to entertain a historical perspective “before every new decision, whether it involves a new strategy, a major acquisition or investment, or a new marketing campaign or communications initiative.”
  7. Talk-Up. Your company should talk about its rich history. Its leaders, breakthrough innovations and decisive impacts and “what it says about the company you are today or want to become.”

The authors conclude by stating that “A company’s store of experience—its evolving culture and capabilities, its development within the broader contexts in which it has competed, and its interactions with government and other forces—shapes the choices executives have to make and influences how people think about the future. Great leaders respect and honor that basic truth.”

If your company needs to refocus its commitment to compliance, in addition to the compliance processes and procedures that you will need to install or enhance, you may be able to call upon a rich corporate history to assist you. It is there if you look for it and what you find may be similar to what Siemens CEO Peter Löscher found at Siemens, that employees were both proud of their company and ashamed that it had engaged in such bribery and corruption. But you do have to look.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2012

December 30, 2011

Top Ten 2011 Enforcement Actions-Corporate Division

As December is a time for reflection on the past twelve months, I have been considering the FCPA Enforcement Action year. I submit for your consideration my Top 10 FCPA Enforcement Actions for 2011 in the Corporate Division. Happy and Safe New Year to all and we will see you next week in 2012 with our list of Top FCPA issues from 2011.

1.         Alcatel-Lucent ($137MM) or non-cooperation will cost you.-the company lost between $10MM to $20MM in penalty reduction because its initial investigative counsel did not fully cooperate with the DOJ after self-disclosure.

2.         AON-($16.2MM)(NPA) or it’s still not a good thing to send that foreign official to Disneyland-the world wide insurer Aon was issued an NPA for setting up a “educational fund” which paid for travel and entertainment of Nicaraguan insurance officials and then not recording it properly.

 

3.         Armor Holdings ($10.29MM)(NPA) or you can step back from the abyss-the company which had 92 separate instances of disguising bribes yet was able to obtain a NPA, through self-disclose, cleaning house, remediation and implementing a best practices compliance program.

4.         Bridgestone ($28MM)-don’t double down a FCPA violation by adding Anti-Trust violationsthe company was found to have engaged in both bribery of foreign officials by using such corrupt acts in furtherance of bid-rigging.

5.         JGC ($218.8MM)-and then there were nonethe final corporate conclusion of the infamous Bonney Island, Nigeria Bribery Scandal. Joining with previously settled defendants, Halliburton, Technip and Snamprogetti/ENI to bring a total settlement amount of over $1.5 billion. Four of the top 6 FCPA settlements of all-time came out of this enforcement action and that does not even count the $147MM in disgorgement agreed to by Jeffery Tessler.

6.         Johnson and Johnson ($77MM)-enhanced compliance obligations, the new normal?-not only did J&J agree to implement a minimum best practices compliance program, it also agreed to “enhanced compliance obligations”.

7.         Maxwell Technologies ($14.3 MM) –start you day with a risk assessmentone of several cases where the DOJ specified some of the parameters of the risks you should assess to inform your compliance program. Further the implementation or enhancement of any anti-corruption compliance program should occur after and not before you complete your risk assessment. (Same holds true for the UK Bribery Act)

8.         SciClone ($2.5MM to date) or the plaintiff’s bar finds compliancenot an enforcement action but the settlement of a shareholder derivative action during the pendency of a FCPA investigation, where the company agreed to implement a best practices compliance program. Settlement of the enforcement action is yet to come.

9.         Tenaris ($8.9MM) or the SEC joins the DPA party-the first instance of the SEC entering into a Deferred Prosecution Agreement for the settlement of civil FCPA violations.

10.       Watts Water ($3.7MM) or it is a good thing to keep up with the news-the company’s General Counsel read about an enforcement action involving a non-related company in a different industry but with the same sales model as his company and wondered if it the same sales model might be a FCPA problem for his company. It was.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2011

June 13, 2011

Recent DPAs Provide Guidance on FCPA Compliance Best Practices

The House Judiciary Committee will hold hearings Tuesday on the Foreign Corrupt Practices Act. At this point the Witness List as set forth on the Committee’s website is as follows:

  • Hon. Michael Mukasey
    Former Attorney General
    Partner
    Debevoise & Plimpton LLP
  • Mr. Greg Andres
    Deputy Assistant Attorney General
    Criminal Division
    U.S. Department of Justice
  • Mr. George Terwilliger
    Partner
    White & Case LLP
  • Ms. Shana-Tara Regon
    Director
    White Collar Crime Policy
    National Association of Criminal Defense Lawyers

At this point no preview of the witnesses’ testimony has been released. However, other than Greg Andres, the testimony will probably not be a defense of the FCPA or even the need to expand it to meet the anti-bribery and anti-corruption enhancements found in the UK Bribery Act. Indeed it reads like a list of representatives from the US Chamber of Commerce, which has been engaged in a campaign to amend the FCPA.

However in the past 12 months or so many of the complaints which have practitioners have made regarding the FCPA have been addressed by the Department of Justice (DOJ) or by recent court rulings. In a blog entitled, “House Judiciary FCPA Hearing: An Opportunity for Greater Information” I have reviewed the federal district court rulings in the CCI and Lindsey Manufacturing cases, which both discussed the factors which should go into an analysis of what is a foreign governmental instrumentality under the FCPA. So at this point, I thought it might be propitious to review some of the information which has come out from the DOJ on what it considers the current best practices for a FCPA compliance program.

Alliance One/Universal Corp.-actions during the pendency of an investigation

Last July, the DOJ released joint Deferred Prosecution Agreement (DPAs) for two companies in the tobacco industry: Alliance One and Universal Corp. These DPAs started a year-long process by which the DOJ has informed the compliance community about specific steps companies can take to enhance their FCPA compliance program or benchmark their current compliance programs against DOJ suggested best practices. These two DPAs in question provided to companies in the midst of FCPA enforcement actions specific steps that should be implemented during the pendency of an investigation to present to the DOJ, which could reduce the overall penalties at the end of the day. Initially it should be noted that full cooperation with the DOJ at all times during the investigation is absolutely mandatory. Thereafter from the Alliance One matter, the focus was on accounting procedures and control of cash payments. From the Universal case, a key driver appears to be the due diligence on each pending international transaction, and subsequent full due diligence on each international business partner. Next is the management of any international business partner after due diligence is completed and a contract executed. Lastly is the focus on the Chief Compliance Officer position, emphasizing this new position throughout the organization and training, training and more training on FCPA compliance.

Panalpina Settlements-Best Practices

In the DOJ settlement with the freight forwarder Panalpina and all related settlements announced on the same day last November, the DOJ attached as Attachment C (Attachment B to the Noble Non-Prosecution) a list of 13 best practices which included the collective Corporate Compliance Programs provided the FCPA compliance practitioner with the most current components that the Department of Justice believes should be included in a FCPA compliance program. Hence, this information is a valuable tool by which companies can assess if they need to adopt new or to modify existing their internal controls, policies, and procedures in order to ensure that it maintains: (a) a system of internal accounting controls designed to ensure that a Company makes and keeps fair and accurate books, records, and accounts; and (b) a rigorous anti-corruption compliance code, standards, and procedures designed to detect and deter violations of the FCP A and other applicable anti-corruption laws. The Preamble notes that these suggestions are the “minimum” which should be a part of a Company’s existing internal controls, policies, and procedures:

1. Code of Conduct.

2. Tone at the Top.

3. Anti-Corruption Policies and Procedures.

4. Use of Risk Assessment.

5. Annual Review.

6. Sr. Management Oversight and Reporting.

7. Internal Controls.

8. Training.

9. Ongoing Advice and Guidance.

10.  Discipline.

11. Use of Agents and Other Business Partners.

12. Contractual Compliance Terms and Conditions.

13. Ongoing Assessment.

The DOJ goes on to fill in each of these categories so that it a valuable list to create, enhance or benchmark your FCPA compliance program.

Alcatel-Lucent, Maxwell Technologies and Tyson Foods-Risk Assessments

The three enforcement actions, all announced in early 2011, involving the companies Alcatel-Lucent, Maxwell Technologies and Tyson Foods, had common areas that the DOJ indicated were FCPA compliance risk areas which should be evaluated for a minimum best practices FCPA compliance program. In both Alcatel-Lucent and Maxwell Technologies, the Deferred Prosecution Agreements (DPAs) listed the seven following areas of risk to be assessed.

1.         Geography-where does your Company do business.

2.         Interaction with types and levels of Governments.

3.         Industrial Sector of Operations.

4.         Involvement with Joint Ventures.

5.         Licenses and Permits in Operations.

6.         Degree of Government Oversight.

7.         Volume and Importance of Goods and Personnel Going Through Customs and Immigration.

In the Tyson Foods DPA, this list was reduced to the following (1) Geography, (2) Interaction with Governments, and (3) Industrial Sector of Operations. As with all DPAs released since the Panalpina settlements, each DPA has included an Attachment C, compliance program best practices. However these three DPAs give the compliance practitioner the guidance that the DOJ considers a risk assessment to be the starting pointing for any compliance program. In addition to this information on the starting point, there are specific risks which should be assessed listed by the DOJ. 

Johnson and Johnson-self disclosure and enhanced compliance obligations

  1. Self-Disclosure

FCPA practitioners have repeatedly asked the DOJ for specific guidance as to what will be the tangible results of self-disclosure. In the Johnson & Johnson DPA this question is clearly answered. Listed under the section “Relevant Considerations” one of the reasons the DOJ entered into the DPA is the following:

a.         J&J voluntarily and timely disclosed the majority of the misconduct described in the [Criminal] Information and Statement of Facts;

So the self-disclosure was one of the reasons that the DOJ entered into the DPA, however, and perhaps more importantly, the self-disclosure brought to Johnson & Johnson a monetary benefit with a tangible reduction in its overall fine and penalty. The DPA reported a reduction by 5 points of the company’s overall Culpability Score with the following:

(g)(1) The organization, prior to an imminent threat of disclosure or government investigation, within a reasonably prompt time after becoming aware of the offense, reported the offense, fully cooperated, and clearly demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct;  -5

It is not possible to determine from the DPA how much of the reduction was attributable to the self-disclosure and how much was attributed to the conduct thereafter. However, this precise language makes clear that the DOJ places a real value on such self-disclosures and companies should take this as a clear sign that, at the end of the day, it will be better for them to self-disclose.

  1. Attachment D-Enhanced Compliance Obligations

The following nine points will not be unfamiliar to the FCPA compliance practitioner. These points are recognized to be in most ‘good to best’ compliance programs. However, the Johnson & Johnson DPA goes much further by adding an Attachment D, entitled “Enhanced Compliance Obligations” which is designed to be in addition to, and to build upon, the commitments made by Johnson & Johnson in Attachment C. These enhanced obligations include the following:

A.        Compliance Department

B.        Gifts, Hospitality and Travel

C.        Complaints and Reports

D.        Risk Assessments and

E.         Acquisitions

F.         Relationships with Third Parties

G.        Training

H.        Annual Certifications

This Attachment D “Enhanced Compliance Obligations” is an excellent road map for the FCPA practitioner in which to establish, enhance, or simply review a company’s FCPA compliance program. As with the Attachment C, the DOJ expands upon each of these categories. The Johnson & Johnson DPA demonstrates that a company’s commitment to ongoing FCPA remediation and program enhancement will help it reduce its overall FCPA liability in a case with facts as bad as those presented in this matter.

These DPAs demonstrate that the DOJ is committed to releasing information on what it believes will constitute a best practices compliance program. It will be interesting to see if any of the witnesses before the House Judiciary Committee will acknowledge the DOJ’s efforts in this area or the recent federal court rulings on what may constitute an foreign governmental instrumentality under the FCPA in their testimony.

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Join Me for Following Upcoming Webinars

Tuesday, June 21 at 1 EDT, I am co-presenting on a webinar with Mary Shaddock Jones, former Assistant General Counsel and Director of Compliance at Global Industries, Ltd., on “Supply Chain Relationship Management Under the FCPA and Bribery Act”. The event is co-hosted by Ethisphere and World Check. For information and registration details click here.

Wednesday, June 22 at 1 PM EDT, I am a co-panelist with Henry Mixon, Managing Director of Mixon Consulting, in a webinar hosted by Corporate Compliance Insights, entitled, “Internal Controls Under the FCPA & UK Bribery Act”. For information and registration details click here.

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This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2011

May 9, 2011

ICE and the Alcatel-Lucent DPA: A Pandora’s Box for Settling FCPA Defendants

In what my colleague Howard Sklar called the “opening of Pandora’s Box” and as reported by the FCPA Blog with what are “new issues raised in a FCPA case”, Costa Rica’s Instituto Costarricense de Electricidad (ICE), filed a Petition last week for relief from and objections to Alcatel-Lucent’s plea agreement and proposed Deferred Prosecution Agreement (DPA), regarding its settlement of charges that it violated the Foreign Corrupt Practices Act (FCPA). This Petition was filed in the federal district court where the settlement and proposed DPA will be passed upon.

As reported in the FCPA Blog last week in an article entitled, “Costa Rican ‘Victim’ Objects to Alcatel-Lucent Settlement”, back in December, 2009, Alcatel-Lucent S.A. agreed to pay $137 million for bribing officials in Costa Rica, Honduras, Malaysia, and Taiwan. The company and three subsidiaries will pay $92 million to resolve criminal charges with the Department of Justice (DOJ) and $45 million in disgorgement to the Securities and Exchange Commission (SEC). By agreeing to plead guilty, Alcatel-Lucent escaped substantive bribery charges. In a two-count criminal information, the DOJ charged the company with violating the internal controls and books and records provisions of the FCPA.

ICE claimed in its Petition that it was a victim of Alcatel-Lucentand that as such it was entitled to protection by the DOJ in the settlement of the matter. ICE objected the Plea Agreement and DPA for three reasons: (a)The proposed settlement is inconsistent with 18 USC 3771; (b) The proposed settlement is inconsistent with the interests of justice, the public’s interest and public policy; and (c) The Defendants have already violated the DPA.

I.                18 USC 3771

ICE alleges that 18 USC 3771, the “Crime Victims’ Rights Act”, gives ICE the right to be kept informed by the DOJ, the right to be heard in court and the right to “full and timely restitution.” These rights are mandatory and ICE claims that it has the full right to be heard at any hearing resolving the matter regarding Alcatel-Lucent. ICE claims that it is a victim of over-priced products and services from Alcatel-Lucent due to the bribery that Alcatel-Lucent admitted to in the court filings related to the DPA. Additionally, ICE makes separate business interruption and related losses that are all subject to restitution under the Crime Victim Rights’ Act.

    II.             Not in the Interest of Justice or Public Policy

In this claim ICE makes several arguments. (1) The DPA fails to satisfy the fundamental requirements of law because it is too lenient and hence it is not in the interest of either the public or in the interest of justice. (2) The plea agreement fails to reflect the actual offense conduct. (3) The methodology used to calculate the sentencing is flawed and fails to take into account victim losses. (4) The plea agreement does not punish any officers or directors of Alcatel-Lucent despite several references in the documents to their criminal conduct. (5) The failure of the plea agreements to follow standard mandatory pre-trial services.

    III.           The Defendants Continue to Violate the DPA

In a very interesting section, ICE claims that Alcatel-Lucenthas already and is continuing to violate the DPA. ICE alleges that under the DPA, Alcatel-Lucent is prohibited from making statements “contradicting their supposed acceptance of responsibility.” However, ICE claims that Alcatel-Lucent went into court in Costa Rica and announced, in a criminal case involving Alcatel-Lucent’s former agents, that Alcatel-Lucent had no knowledge of the agents’ actions and indeed Alcatel-Lucent “was a victim of these ex-employees.” (italics mine)

Although ICE claims that it has been in contact with the DOJ and SEC regarding its allegations and claims, we are not aware of any public statements made by these agencies regarding ICE’s claims. Therefore, we do not know the DOJ or SEC position on these claims by ICE. However, if ICE does successfully assert a claim under the Crime Victims’ Rights Act, it could well open up court review of any DPA or other agreement, both in this case and going forward. This could truly be a Pandora’s Box for many settling defendants if the people of Costa Rica can assert such a claim through ICE.

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This week, Howard Sklar and I will discuss the ICE filing as well as other topics. Please check us out at This Week in the FCPA.

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If you are in Rutherford NJ or Washington DC, the World Check FCPA Tour will be in your city this next week. Please come out and hear about the most current FCPA best practices.

Wednesday, May 19 from 8-10 AM PDT at the Renaissance Meadowlands Hotel, in Rutherford, NJ. For information and registration details click here.

Thursday, May 20 from 8-10 AM PDT at Mayflower Renaissance Washington, DC, in Washington, DC. For information and registration details click here.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2011

February 16, 2011

FCPA Risk Assessments: New Input into Current Best Practices

We believe that Risk Assessment is a tool and is one with which a company should begin to craft its Foreign Corrupt Practices (FCPA) or UK Bribery Act compliance program. The simple reason is straightforward; one cannot define, plan for, or design an effective compliance program to prevent bribery and corruption unless you can measure the risks you face. Both the both the Principles of Federal Prosecution of Business Organization (US Sentencing Guidelines) and its section on corporate compliance programs and the UK Bribery Act’s Consultative Guidance list Risk Assessment as the initial step in creating an effective anti-corruption and anti-bribery program. So far, in 2011 the US Department of Justice (DOJ) has concluded three FCPA enforcement actions which specify some factors which a company should review when making a Risk Assessment.

The three enforcement actions, involving the companies Alcatel-Lucent, Maxwell Technologies and Tyson Foods all had common areas that the DOJ indicated were FCPA compliance risk areas which should be evaluated for a minimum best practices FCPA compliance program. In both Alcatel-Lucent and Maxwell Technologies, the Deferred Prosecution Agreements (DPAs) listed the seven following areas of risk to be assessed.

1.         Geography-where does your Company do business.

2.         Interaction with types and levels of Governments.

3.         Industrial Sector of Operations.

4.         Involvement with Joint Ventures.

5.         Licenses and Permits in Operations.

6.         Degree of Government Oversight.

7.         Volume and Importance of Goods and Personnel Going Through Customs and Immigration.

In the Tyson Foods DPA, this list was reduced to the following (1) Geography, (2) Interaction with Governments, and (3) Industrial Sector of Operations. It would seem that the DOJ did not believe that Tyson Foods had the same compliance risks as Alcatel-Lucent and Maxwell Technologies because (a) there limited internal sales market and (b) the fact it only has 6 food processing plants outside the United States.

These factors provide guidance into some of the key areas that the DOJ apparently believes can put a company at higher FCPA risk. These factors supplement those listed in the UK Bribery, Consultative Guidance which states, “Risk Assessment – The commercial organization regularly and comprehensively assesses the nature and extent of the risks relating to bribery to which it is exposed.” The Guidance points towards several key risks which should be evaluated in this process. These risk areas include:

1.         Internal Risk – this could include deficiencies in

•           employee knowledge of a company’s business profile and understanding of associated bribery and corruption risks;

•           employee training or skills sets; and

•           the company’s compensation structure or lack of clarity in the policy on gifts, entertaining and travel expenses.

2.         Country risk – this type of risk could include:

(a) perceived high levels of corruption as highlighted by corruption league tables published by reputable Non-Governmental Organizations such as Transparency International;

(b) factors such as absence of anti-bribery legislation and implementation and a perceived lack of capacity of the government, media, local business community and civil society to effectively promote transparent procurement and investment policies; and

(c) a culture which does not punish those who seeks bribes or make other extortion attempts.

3.         Transaction Risk – this could entail items such as transactions involving charitable or political contributions, the obtaining of licenses and permits, public procurement, high value or projects with many contractors or involvement of intermediaries or agents.

4.         Partnership risks – this risk could include those involving foreign business partners located in higher-risk jurisdictions, associations with prominent public office holders, insufficient knowledge or transparency of third party processes and controls.

Risk Assessment as ‘Best Practices’

Both the Consultative Guidance and the recent DPAs provide guidance to the FCPA compliance practitioner and include ongoing Risk Assessment as a key component of any best practices program. A well-managed organization makes an assessment of the risks it faces now and in the future and then designs appropriate risk management and control mechanisms to control such risks. However, the key point is that a Risk Assessment is absolutely mandatory and must be used as a basis for the design of an effective compliance policy, whether under the FCPA or the UK Bribery Act. If a Risk Assessment is not used, it might be well nigh impossible to argue that your compliance program meets even the basic standards of either law.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2011

January 7, 2011

Alcatel-Lucent-Did the Baby Get Thrown Out With the Bathwater?

Ed. Note-today we host a Guest Blog from our Colleague Mary Shaddock Jones, Assistant General Counsel and Director Of Compliance at Global Industries, Ltd.

The recent Alcatel-Lucent FCPA settlement in the amount of $137 Million has rightfully made headlines. Clearly no one other than the parties intimately involved know all of the facts and circumstances of the investigation. However, there are certainly lessons that can be learned from reading the eighty-three page deferred prosecution agreement (“DPA”). Two of the items which merit highlighting from page 3 of the DPA entitled “Relevant Considerations” are the following:

I. “(d) after limited and inadequate cooperation for a substantial period of time, Alcatel-Lucent substantially improved its cooperation with the Department’s investigation of this matter, as well as the SEC’s investigation”.

Contrast this language with that of the government its publicly filed sentencing memorandum for Siemens in 2008 wherein, the government noted Siemens’ “extraordinary cooperation” and “uncommonly sweeping remedial action.”

In addition, as previously noted in this blog, in the RAE Systems settlement agreement, despite having actual knowledge of an FCPA violation, RAE Systems did not have a criminal prosecution brought against it. It appears that this decision was at least in part based upon the cooperation RAE Systems provided to the government during the investigation. The letter to the Siemens DPA contained the following statement:

“…non-prosecution agreement based, in part, on the following factors: (a) RAE Systems’s timely, voluntary, and complete disclosure of the facts described in Appendix A; (b) RAE Systems’s thorough, real-time cooperation with the Department and the U.S. Securities and Exchange Commission (“SEC”); (c) the extensive remedial efforts already undertaken and to be undertaken by RAE Systems; and (d) RAE Systems’s commitment to submit periodic monitoring reports to the Department.”

There was no indication in terms of actual dollars in the Siemens or RAE Systems settlement agreements how much higher the fine would have been without such “extraordinary cooperation” and/or “thorough, real-time cooperation”. Nor does the Alcatel-Lucent agreement provide the reader with any indication of how much lower the $137 million fine would have been if Alcatel-Lucent would have provided “extraordinary cooperation” , “thorough, real-time cooperation and/or “uncommonly sweeping remedial action” similarly to that noted by the DOJ in the RAE Systems and Siemens settlements. The “Lesson to be Learned” from both of these settlement agreements; however, is a reiteration that the DOJ and SEC clearly consider the cooperation or lack thereof by the company during the internal investigation when calculating the ultimate fine.

II. “(f) on its own initiative and at a substantial financial cost, Alcatel-Lucent determined as a matter of company policy to no longer use third party sales and marketing agents in conducting its worldwide business”.

Does this mean that if one of the subsidiaries of Alcatel-Lucent hires a third party sales and marketing agent anywhere in the world for the term of the DPA (3 years) that the DOJ could determine that the Alcatel-Lucent breached the agreement under Paragraph 16 and continue with criminal prosecution against the company? What is the difference between “sales and marketing agents” described above and “agents and business partners” described in the Corporate Compliance Program Attachment C described below? The more concerning aspect is the DOJ’s announcement focused on Alcatel’s business model- that of pursuing business opportunities in foreign countries using third-party agents and consultant and stated that “this business model was shown to be prone to corruption”. In previous DPA agreements (such as the RAE settlement previously discussed in this blog), the focus has not been on walking away from the use of third party sales and marketing agents (or Agents and Business Partners?), but rather strengthening the due diligence and controls surrounding the use of these third parties. The Corporate Compliance Program agreed to by RAE (and interestingly enough by Alcatel-Lucent) contains the following elements:

11. Use of Agents and Other Business Partners. To the extent that the use of agents and business partners is permitted at all by RAE, it should institute appropriate due diligence and compliance requirements pertaining to the retention and oversight of all agents and business partners, including:

a. Properly documented risk-based due diligence pertaining to the hiring and appropriate and regular oversight of agents and business partners;

b. Informing agents and business partners of RAE’s commitment to abiding by laws on the prohibitions against foreign bribery, and of RAE’s ethics and compliance standards and procedures and other measures for preventing and detecting such bribery; and

c. Seeking a reciprocal commitment from agents and business partners.

12. Contractual Compliance Terms and Conditions. RAE should include standard provisions in agreements, contracts and renewals, thereof, with all agents and business partners that are reasonably calculated to prevent violations of the anticorruption laws, which may, depending upon the circumstances, include: (a) anticorruption representations and undertakings relating to compliance with the anticorruption laws; (b) rights to conduct audits of the books and records of the agent or business partner to ensure compliance with the foregoing; and (c) rights to terminate an agent or business partner as a result of any breach of anti-corruption laws, and regulations or representations and undertakings related to such matters.

At this point, it is unclear from just reading the Alcatel-Lucent DPA what facts were considered by the company in agreeing to completely walk away from the use of third party sales and marketing agents. One would hope that such a drastic step would not become a common tool in settlement agreements with the DOJ/SEC. It appears from Attachment A pages A:11-15 that the issue was not so much the use of third party sales and marketing agents as it was the decentralized business structure and approval process wherein the due diligence performed (if any) was done by local employees who, according to the statement of facts, were “more interested in obtaining business than ensuring that business was won ethically and legally”. In addition to the apparent lack of an adequate due diligence was the apparent lack of attention paid to the invoices and/ or commission rates being charged by the third party sales and marketing agents. There really is no need to “throw the baby out with the bathwater”, it is just better to have a “cleaner baby” in the bathwater!

Mary Shaddock Jones is Assistant General Counsel and Dir. Of Compliance at Global Industries, Ltd. Mary can be reached at maryj@globalind.com. The views and opinions expressed here are her own and not necessarily those of her employer.

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