FCPA Compliance and Ethics Blog

June 19, 2014

What a Long Strange Trip It’s Been – The First 1000 Blog Posts

1000Yes, indeed the Grateful Dead can and does inform your compliance regime as today is my 1000th blog posting on the FCPA Compliance and Ethics Blog. To say that I ever thought I would see this day or this many blog posts, would portend a level of clairvoyance that even Carnac the Great could not conceive of pontificating upon. I had struggled with a theme for this momentous accomplishment but my sublimely-grounded English wife brought me down from the ethereal clouds with the following suggestion, “Even an old dog can learn new tricks.” Nothing like being married to a younger woman.

So today, I want to write about some of the things I have learned on this 4+ year journey, which began in late 2009/early 2010 after a serious automobile/bicycle event (Box Score: Hummer-1 Tom-0) where about the only thing I had on my hands was time while I was at home convalescing. I started to explore the world of social media, engaging on Twitter, webinaring from my home office and blogging. I was so un-savvy in this arena that about the only positive thing my teenaged daughter could say about me was “Dad, you are so unhip, you are retro. But that is cool too.” The first thing I learned was that even a complete computer misfit and social media idiot could set up a blog on WordPress. It is not only easy but free. I cannot say with any pride that some of my early blogs were very good but I can say that for a lawyer, whose only skill was to be able to perform word processing in Microsoft Word, I could type and then upload a blog post into WordPress. At that point in my blogging career, that was a major accomplishment.

Although it did take some time, I learned how to stop writing like a lawyer, with full citations in each blog, coupled with as much lawyerese as I could manage, by finally adjusting to a blogging format. I also relearned an old lesson, which says that if you really want to learn about a subject, write on it. I remember one of the first things I learned when researching the Travel Act was that this Kennedy era law, passed largely through the efforts of Bobby Kennedy, was designed to help in the fight against organized crime. So who would say a 60 year old law cannot be used for a 21st century purpose? Or maybe even a Watergate-era like the Foreign Corrupt Practices Act (FCPA) could not have an expansive use, beyond that for which it was passed in 1977? I also learned that if you put out solid content people will read and listen to what you have to say.

I learned there are some great people out there blogging in the ethics and compliance space. I have met some fabulous colleagues through my blogging who have not only been incredibly supportive but whom I now cherish as good friends. Some of them include Mike Koehler, the FCPA Professor, for his scholarly rigor and continued intellectual challenges. Dick Cassin, the Dean of FCPA bloggers, for his unflinching support to myself and so many others. Mike Volkov, former prosecutor and DC-insider, who is always around to bounce a tough question off. Howard Sklar, who was my This Week in FCPA podcast partner, until we lost him to the corporate world. Francine McKenna, a great and generous mentor for myself and many others and the go-to person all issues in and around the accounting world. Jim McGrath, the internal investigations guy, who brings a former state prosecutor’s perspective to how investigations should be handled and critiqued. Matt Ellis, whose focus on and insights into South America (as in – it’s not a country) continue to shine a light on anti-corruption issues south of the border. Matt Kelly, Editor of Compliance Week, who saves some great witticisms for his weekly blog posts. These are but a very few of the folks I am now privileged to call friends because of my blogging.

I learned that there is way too much white noise in the FCPA space. The FCPA Professor calls them FCPA Inc. and Mike Volkov derides them as the FCPA paparazzi. Whatever you might call them, they put out reams and reams of information, sometimes useful but many times not. What I have tried to do is synthesize some of the most useful for the Chief Compliance Officer (CCO), compliance practitioner or anyone else who does the day-to-day work of anti-bribery/anti-corruption compliance. There are many, many things you can know but a far smaller subset of what you need to know. I try to bring to the compliance practitioner what they need to know. That is why the subtitle of my blog is ‘The Nuts and Bolts of FCPA Compliance’. I have tried to write about things which the compliance professional can use in the everyday practice of compliance.

I have learned that blog posts, which I thought were the most important, may turn out to be the least viewed blogs. Conversely, posts I did not think would be of great interest turned out to have the largest number of one-day hits. For instance, the largest single number of one-day hits I had was an article from two years ago about the SNC-Lavalin corruption investigation in Canada. [For a blog about FCPA compliance-go figure.] The second largest number was a recent blog post using the GM internal investigation as an exploration in the differences between a corporate legal function and its compliance function.

I have learned that by committing to something, you become much better at it. My first year of blogging, I tried to put out 2-3 blogs per week but beginning in 2011, I committed to a daily blog post. Once I made that commitment, blogging became a part of my workday. Once it became a part of my workday, it was like any other project or assignment. I had to set aside the time to work on it. It has made me a much more efficient and better writer to know that I need write something, during my workday. Yes there have been times I was up at 5 AM to write a post or stayed up way past my school-night bedtime trying to crank something out but those situations have become few and far between as I became more disciplined about my blogging.

But most of all I have learned that blogging is fun. It is fun because it is a challenge to write about something in an informative and engaging manner. It is fun to tie a Shakespeare play to a compliance and ethics theme. It is fun to read a week’s worth of Sherlock Holmes’ stories and tie a compliance topic to a story each day for one week. It is fun to find out what happened this day in history and use it as a hook to grab your readers’ attention. It is fun to engage in a debate with the FCPA Professor on a topic of mutual interest, where we look at the same thing, yet see it from different perspectives. And it is fun when you meet someone for the first time and after you introduce yourself, they say to you “When is a rose, not a rose? When it’s a FCPA violation”.

Where will the next 1000 blogs posts take me? I have no clue but if they are as much fun as the first 1000 posts have been I hope that you will continue to join my on This Long Strange Trip.

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, 2014

November 13, 2013

Travel Act Prosecutions under the FCPA

Last week I was in Miami and part of the discussion was over the Esquenazi appeal and Direct Access Partners (DAP) enforcement actions; both based upon violations of the Foreign Corrupt Practices Act (FCPA). In the DAP enforcement action, the defendants Tomas Clarke, Alejandro Hurtado and Maria Gonzalez were also charged with conspiracy to violate the Travel Act. Hurtado and Gonzalez were charged with substantive Travel Act violations. For both charges, the defendants were looking at potential sentences of up to five years in prison; three years of supervised release; fines of either the greatest of $250,000 or twice the gross gain or loss; $100 special assessment; plus making restitution. All three defendants pled guilty to FCPA violations only.

What does a nearly 50 year old statute aimed at US based organized crime now impact the FCPA? It turns out quite a bit and perhaps it will be quite a bit more in significantly widening the scope of the FCPA. The Travel Act was enacted in 1961 and was passed as part of the same series of bills as the Wire Act and was a part of a program to combat organized crime and racketeering. The Travel Act is aimed at prohibiting interstate travel or use of an interstate facility in aid of a racketeering or an unlawful business enterprise. It prohibits the use of communications and travel facilities to commit state or federal crimes, but until now was mostly known for its use in prosecutions for domestic crimes. Its impact to the FCPA is that the Travel Act applies to foreign as well as interstate commerce; it can be also used to prosecute those US companies and individuals which engage in bribery and corruption of foreign officials AND commercial bribery and corruption of private foreign citizens.

As stated in the FCPA Guidance, “The Travel Act, 18 U.S.C. § 1952, prohibits travel in interstate or foreign commerce or using the mail or any facility in interstate or foreign commerce, with the intent to distribute the proceeds of any unlawful activity or to promote, manage, establish, or carry on any unlawful activity. “Unlawful activity” includes violations of not only the FCPA, but also state commercial bribery laws. Thus, bribery between private commercial enterprises may, in some circumstances, be covered by the Travel Act. Said differently, if a company pays kickbacks to an employee of a private company who is not a foreign official, such private-to-private bribery could possibly be charged under the Travel Act.”

The Travel Act elements are: (1) use of a facility of foreign or interstate commerce (such as email, telephone, courier, personal travel); (2) with intent to promote, manage, establish, carry on, or distribute the proceeds of; (3) an activity that is a violation of state or federal bribery, extortion or arson laws, or a violation of the federal gambling, narcotics, money-laundering or RICO statutes. This means that, if in promoting or negotiating a private business deal in a foreign country, a sales agent in the US or abroad offers and pays some substantial amount to his private foreign counterpart to influence his acceptance of the transaction, and such activity may a violation of the state law where the agent is doing business, the Justice Department may conclude that a violation of the Travel Act has occurred. For instance, in the state of Texas there is no minimum limit under its Commercial Bribery statute (Section 32.43, TX. Penal Code), which bans simply the agreement to confer a benefit which would influence the conduct of the individual in question to make a decision in favor of the party conferring the benefit. As noted further in this article, the state of California bans payment of more than $1,000 between private parties for the purposes of influencing a business decision.

The DAP enforcement action was not the first case to use the Travel Act in conjunction with the FCPA. Reported in the FCPABlog is the matter of U.S. v. David H. Mead and Frerik Pluimers, (Cr. 98-240-01) D.N.J., Trenton Div. 1998. In this case 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. In its 2008 article, entitled “The Foreign Corrupt Practices Act: Walking the Fine Line of Compliance in China”, the law firm of Jones, Day reported the case of United States v. Young & Rubicam, Inc., 741 F.Supp. 334 (D.Conn. 1990) where a Company and individual defendants pled guilty to FCPA and Travel Act violations and paid a $500,000 fine.

In addition to the Mead and Young and Rubicam cases, the FCPA Guidance specifies that the Department of Justice (DOJ) has “previously charged both individual and corporate defendants in FCPA cases with violations of the Travel Act. For instance, an individual investor was convicted of conspiracy to violate the FCPA and the Travel Act in 2009 where the relevant “unlawful activity” under the Travel Act was an FCPA violation involving a bribery scheme in Azerbaijan.277 Also in 2009, a California company that engaged in both bribery of foreign officials in violation of the FCPA and commercial bribery in violation of California state law pleaded guilty to conspiracy to violate the FCPA and the Travel Act, among other charges.”

What does this mean for US companies doing business overseas? The FCPA Professor and others have written extensively on the broadening of the definitions of who is a ‘foreign official’ and what is a ‘state owned entity’ under the FCPA. However, with the incorporation of the Travel Act into FCPA prosecutions, these broad definitions may be completely blurred away if all foreign private citizens can be brought in under the FCPA by application of the Travel Act. US companies doing business overseas, which have a distinction in their FCPA compliance policies between gifts for and travel and entertainment of employees of private companies and employees of state owned entities or foreign officials, should immediately rethink this distinction in their approach. The new decade is upon us the Kennedy-era statute of the Travel Act may become as relevant in overseas law enforcement in the 20-teens as it was in the domestic arena for the past 50 years.

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, 2013

March 2, 2011

CCI:Background Facts and Criminal Allegations Part II

CCI: Background and Criminal Allegations-Part II

We are reviewing the background facts and some of the criminal allegations involved in the Control Components Inc., (CCI) matter. Yesterday we reviewed the background facts and guilty pleas to date. Today we will visit criminal allegations brought against the remaining defendants.

As we noted in yesterday’s post on April 8, 2009, six former CCI executives were charged in a 16-count indictment with violating the FCPA and the Travel Act (here). They are: Stuart Carson, CCI’s former chief executive officer, Hong (Rose) Carson, CCI’s former director of sales for China and Taiwan, Paul Cosgrove, CCI’s former director of worldwide sales, David Edmonds, CCI’s former vice president of worldwide customer service, Flavio Ricotti, CCI’s former vice-president and head of sales for Europe, Africa and the Middle East, and Han Yong Kim, the former president of CCI’s Korean office. Hong (Rose) Carson was also charged with one count of destruction of records in connection with a matter within the jurisdiction of a department or agency of the United States. These defendants are alleged to have made corrupt payments for the purpose of influencing the recipients to award contracts to CCI or skew technical specifications of competitive tenders in CCI’s favor.

I. The Travel Act

One of the unique aspects of this Foreign Corrupt Practices Act (FCPA) prosecution is that in addition to criminal charges based upon the FCPA, the Department of Justice (DOJ) has brought the defendants up on charges under the federal US law commonly known as the “Travel Act” (8 U.S.C. § 1952).

The Travel Act is aimed at prohibiting interstate travel or use of an interstate facility in aid of a racketeering or an unlawful business enterprise. It prohibits the use of communications and travel facilities to commit state or federal crimes, but until now was mostly known for its use in prosecutions for domestic crimes. Its impact to the FCPA is that the Travel Act applies to foreign as well as interstate commerce; it can be also used to prosecute US companies and individuals which engage in bribery and corruption of foreign officials AND commercial bribery and corruption of private foreign citizens.

The Travel Act elements are: (1) use of a facility of foreign or interstate commerce (such as email, telephone, courier, personal travel); (2) with intent to promote, manage, establish, carry on, or distribute the proceeds of; (3) an activity that is a violation of state or federal bribery, extortion or arson laws, or a violation of the federal gambling, narcotics, money-laundering or RICO statutes. This means that, if in promoting or negotiating a private business deal in a foreign country, a sales agent in the United States or abroad offers and pays some substantial amount to his private foreign counterpart to influence his acceptance of the transaction, and such activity may a violation of the state law where the agent is doing business, the DOJ may conclude that a violation of the Travel Act has occurred. For example in the state of Texas there is no minimum limit under its Commercial Bribery statute (Section 32.43, TX. Penal Code), which bans simply the agreement to confer a benefit which would influence the conduct of the individual in question to make a decision in favor of the party conferring the benefit.

The Travel Act came into play for these defendants as the DOJ alleged they violated or conspired to violate California’s anti-bribery law (California Penal Code section 641.3), which bans corrupt payments anywhere of more than $1,000 between any two persons, including private commercial parties. In the indictments, the Travel Act charges relied on alleged violations of California’s anti-corruption law. The CCI matter was not the first case to use the Travel Act in conjunction with the FCPA. As reported in the FCPA Blog, the matter of U.S. v. David H. Mead and Frerik Pluimers, (Cr. 98-240-01) D.N.J., Trenton Div. 1998, 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. In its 2008 article entitled, “The Foreign Corrupt Practices Act: Walking the Fine Line of Compliance in China” the law firm of Jones, Day reported the case of United States v. Young & Rubicam, Inc., 741 F.Supp. 334 (D.Conn. 1990), where a Company and individual defendants pled guilty to FCPA and Travel Act violations and paid a $500,000 fine. In addition to the Mead and Young and Rubicam cases, the DOJ’s website on “A Lay Person’s Guide to the FCPA, specifically states that “other statutes such as the mail and wire fraud statutes, 18 U.S.C. § 1341, 1343, and the Travel Act, which provides for federal prosecution of violations of state commercial bribery statutes, may also apply…” to US companies doing business overseas.

All of these machinations brought about by the DOJ bringing a claim under the Travel Act would not be relevant under the UK Bribery Act. The UK Bribery does not make a distinction between public and private actors so that bribery of a private citizen by a UK company to further its business interests is just as illegal as bribery of a foreign governmental official.

II. Rose Carson and the “Big Flush”

In a separate criminal allegation against the individual defendant Hong “Rose” Carson, the DOJ alleged that she engaged in conduct which constituted obstruction of justice. This an additional count and it carries a maximum penalty of 20 years in prison. The criminal complaint alleges that after she learned that CCI had hired lawyers to conduct an internal investigation into corrupt payments overseas and sometime prior to her interview, Ms. Carson tore up documents relevant to the internal investigation and flushed them down a toilet in CCI’s ladies room. Thus she was charged “with obstructing an investigation within the jurisdiction of a federal agency when she destroyed documents relevant to CCI’s internal investigation of the corrupt payments by flushing them down the toilet of CCI’s ladies’ restroom.”

So you might wonder how someone who flushes documents down a toilet and then is interviewed by company lawyers not federal agents can be charged with federal obstruction of justice. This brings up a host of questions. One posed by the FCPA Blog was whether Ms. Carson was warned by any company employee “that concealing information from company lawyers conducting an internal FCPA investigation could be a federal crime?” Even if the company attorneys handling the investigation provided the now standard corporate attorney Upjohn warnings, how does a company attorney asking questions morph into a de facto federal agent during an internal company investigation regarding alleged FCPA violations and is the attorney thereby required to provide a Miranda warning to employees during a FCPA investigation?

As we have previously noted, in a recently released paper entitled “Navigating Potential Pitfalls in Conducting Internal Investigations: Upjohn Warnings, “Corporate Miranda,” and Beyond” Craig Margolis and Lindsey Vaala, of the law firm Vinson & Elkins, explored the pitfalls faced by counsel, both in-house and outside investigative, and corporations when an employee admits to wrong doing during an internal investigation, where such conduct is reported to the US Government and the employee is thereafter prosecuted criminally under a law such as the FCPA.

Employees who are subject to being interviewed or otherwise required to cooperate in an internal investigation may find themselves on the sharp horns of a dilemma requiring either (1) cooperating with the internal investigation or (2) losing their jobs for failure to cooperate by providing documents, testimony or other evidence. Many US businesses mandate full employee cooperation with internal investigations or those handled by outside counsel on behalf of a corporation. These requirements can exert a coercive force, “often inducing employees to act contrary to their personal legal interests in favor of candidly disclosing wrongdoing to corporate counsel.” Moreover, such a corporate policy may permit a company to claim to the US government a spirit of cooperation in the hopes of avoiding prosecution in “addition to increasing the chances of learning meaningful information.”

Where the US Government compels such testimony, through the mechanism of inducing a corporation to coerce its employees into cooperating with an internal investigation, by threatening job loss or other economic penalty, the in-house counsel’s actions may raise Fifth Amendment due process and voluntariness concerns because the underlying compulsion was brought on by a state actor, namely the US Government. Margolis and Vaala note that by utilizing corporate counsel and pressuring corporations to cooperate, the US Government is sometimes able to achieve indirectly what it would not be able to achieve on its own – inducing employees to waive their Fifth Amendment right against self-incrimination and minimizing the effectiveness of defense counsel’s assistance.

So, what are the pitfalls if private counsel compels such testimony and it is used against an employee in a criminal proceeding under the FCPA? Margolis and Vaala point out that the investigative counsel, whether corporate or outside counsel, could face state bar disciplinary proceedings. A corporation could face disqualification of its counsel and the disqualified counsel’s investigative results. For all of these reasons, we feel that the FCPA Blog summed it up best when it noted, “the moment a company launches an internal investigation, its key employees — whether they’re scheduled for an interview or not — should be warned about the “federal” consequences of destroying or hiding evidence. With up to 20 years in jail at stake, that seems like a small thing to do for the people in the company.”

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Ed. Note-on March 3, the FCPA Blog reported that the DOJ unilaterally dismissed its Obstruction of Justice allegation against Rose Carson. See post 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

March 1, 2011

CCI: Background and Criminal Allegations-Part I

The US anti-bribery/anti-corruption and compliance world has literally been “a-twitter” over the filing of a brief which puts squarely before a federal district court the questions of just what is an “instrumentality” of a foreign government and who is a foreign government official under the Foreign Corrupt Practices Act (FCPA).

The individual defendants were all former employees of the California valve-maker Control Components Inc., (CCI), of Rancho Santa Margarita, California. While the case has been ongoing for over two years, we thought that it might be a propitious time to review the background facts of the case and the allegations against the individual defendants. Today we will discuss the background facts and the plea of the company. In tomorrow’s post, we will discuss the criminal allegations, separate and apart from the FCPA allegations against the individual defendants.

I. The Underlying Facts

CCI designs and manufactures service control valves for use in the nuclear, oil and gas, and power generation industries. It is owned by British-based IMI plc., which trades on the London Stock Exchange under the symbol IMI.L. In July 2009, CCI pled guilty to violating the anti-bribery provisions of the FCPA and the Travel Act. It admitted bribing foreign officials 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 the Department of Justice’s (DOJ) ongoing investigation.

As reported in the FCPA Blog, CCI admitted that from 2003 through 2007, they  made about 236 corrupt payments to foreign officials in more than 30 countries amounting to $4.9 million. The corrupt payments were made to foreign officials at state-owned entities including Jiangsu Nuclear Power Corp., Guohua Electric Power, China Petroleum Materials and Equipment Corp., PetroChina, Dongfang Electric Corporation (China), China National Offshore Oil Corporation, Korea Hydro and Nuclear Power, Petronas (Malaysia) and National Petroleum Construction Company (United Arab Emirates). The bribes resulted in sales that produced net profits of about $46.5 million.

II. Charges Against the Individual Defendants

a.     Settling Defendants

In addition to CCI’s guilty plea, two former executives pleaded guilty in 2009 to conspiring to bribe officers and employees of foreign state-owned companies on behalf of the valve company. Mario Covino, CCI’s former director of worldwide factory sales, pled guilty on January 8, 2009 to one count of conspiracy to violate the FCPA and admitted to causing the payment of $1 million in bribes to officers and employees of several foreign state-owned companies.

Richard Morlok, CCI’s former finance director, pled guilty on February 3, 2009 to one count of conspiracy to violate the FCPA and admitted to causing the payment of $628,000 in bribes to officers and employees of several foreign state-owned companies. Morlok said in his plea agreement that CCI earned about $3.5 million in profits from contracts obtained through the bribes. Illegal payments, he said, went to employees at China National Offshore Oil Company, PetroChina, Jiangsu Nuclear Power Corporation (China), KHNP (Korea), Rovinari Power (Romania) and Safco (Saudi Arabia), among others. Morlok also admitted that during a 2004 audit he provided false and misleading information about CCI’s commission payments to agents.

b. Non-Settling Defendants

On April 8, 2009, six former CCI executives were charged in a 16-count indictment with violating the FCPA and the Travel Act. They are: Stuart Carson, CCI’s former chief executive officer, Hong (Rose) Carson, CCI’s former director of sales for China and Taiwan, Paul Cosgrove, CCI’s former director of worldwide sales, David Edmonds, CCI’s former vice president of worldwide customer service, Flavio Ricotti, CCI’s former vice-president and head of sales for Europe, Africa and the Middle East, and Han Yong Kim, the former president of CCI’s Korean office. As reported by the FCPA Blog the charges against the individual defendants are as follows:

  • Stuart Carson – charged with one count of conspiracy to violate the FCPA and the Travel Act, and two counts of violating the FCPA;
  • Hong (Rose) Carson – charged with one count of conspiracy to violate the FCPA and the Travel Act, five counts of violating the FCPA and one count of destruction of records in connection with a matter within the jurisdiction of a department or agency of the United States;
  • Paul Cosgrove – charged with one count of conspiracy to violate the FCPA and the Travel Act, six counts of violating the FCPA and one count of violating the Travel Act;
  • David Edmonds – charged with one count of conspiracy to violate the FCPA and the Travel Act, three counts of violating the FCPA and two counts of violating the Travel Act;
  • Flavio Ricotti – charged with one count of conspiracy to violate the FCPA and the Travel Act, one count of violating the FCPA and three counts of violating the Travel Act; and
  • Han Yong Kim – charged with one count of conspiracy to violate the FCPA and the Travel Act, and two counts of violating the FCPA.

As reported by the FCPA Professor, defendant Ricotti was arrested on February 14, 2010, in Frankfurt, Germany and was extradited to the US in connection with his alleged participation in a conspiracy to secure contracts by paying bribes to officials of foreign state-owned companies as well as officers and employees of foreign and domestic private companies. He arrived in the United States on July 2, 2010.

In tomorrow’s post we will review the criminal allegations brought against the defendant for violations of the Travel Act and the federal obstruction of justice charge against defendant Hong Carson.

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

 

 

 

 

April 16, 2010

Changes Coming: US Sentencing Guidelines, UK Bribery Billand the OECD on Facilitation Payment-Part II

At its April 7, 2010 meeting the United States Sentencing Commission approved amendments to its Sentencing Guidelines. The next day on April 8, 2010, the UK Bribery Bill received Royal Assent. These two events follow the December 9, 2009 release by the Organization for Economic Co-Operation and Development’s (OECD) Recommendation for Further Combating Bribery of Foreign Public Officials, when the OECD marked the tenth anniversary of the entry into force of the OECD Anti-Bribery Convention.

These three releases, which comprise of two changes in the legal schemes by two of the world’s largest economic players and the proposal of one of the largest Non-Governmental Organizations (NGO) dedicated to ending corruption across the globe portend significant changes in how companies will be structured and transact business going forward in the new decade. This is the second of three postings in which will discuss the changes that companies, with any US or UK presence, will be required to implement. The initial post will was on the changes to the US Sentencing Guidelines; in this post, we will consider the changes required by the UK Bribery Bill; and in the third and final post we will consider the recommendations as found in the OECD’s Recommendation for Further Combating Bribery of Foreign Public Officials regarding ending of facilitation payments.

 

There are several differences between the Foreign Corrupt Practices Act (FPCA) and the UK Bribery Bill which all companies should understand. These include:

  • The Bribery Bill
    • has no exception for facilitation payments.
    • creates strict liability of corporate offense for the failure of a corporate official to prevent bribery.
    • specifically prohibits the bribery or attempted bribery of private citizens, not just governmental officials.
    • not only bans the actual or attempted bribery of private citizens and public officials but all the receipt of such bribes.
    • has criminal penalties of up to 10 years per offense not 5 years as under the FCPA.

 

There is one affirmative defense listed in the Bribery Bill and it is listed as the “adequate procedures” defense. The Explanatory Notes to the Bribery Bill indicate that this narrow defense would allow a corporation to put forward credible evidence that it had adequate procedures in place to prevent persons associated from committing bribery offences. The legislation requires the Secretary of State for Justice to publish guidance on procedures that relevant commercial organizations can put in place to prevent bribery by persons associated with their entity.

Other than this commentary, the Bill provides no further information on what might constitute “adequate procedures” as a defense but the Government has signaled that it will work with the UK business community to provide appropriate guidance to this critical component of the Bribery Bill. The UK law firm KattenMuchin has indicated that they expect the Government will apply a test regarding the “adequate procedures” defense “with regard to the size of the company, its business sector and the degree to which it operates in high risk markets”. The law firm of Covington and Burling, in a client advisory dated March 31, 2010, has opined that the Bribery Bill will not come into force until late 2010 because it will take the UK government until then to issue guidance on what may constitute ”adequate procedures”.

The Bribery Bill is a significant departure for the UK in the area of foreign anti-corruption. It cannot be emphasized too strongly that the Bribery Bill is significantly stronger than the US FCPA. The Bribery Bill provides for two general types of offence: bribing and being bribed, and for two further specific offences of bribing a foreign public official and corporate failure to prevent bribery. All the offences apply to behavior taking place either inside the UK, or outside it provided the person has a “close connection” with the UK. A person has a “close connection” if they were at the relevant time, among other things, a British citizen, an individual ordinarily resident in the UK, or a body incorporated under the law of any part of the UK. Many internationally focused US companies have offices in the UK or employ UK citizens in their world-wide operations. This legislation could open them to prosecution in the UK under a law similar to, but stronger than, the relevant US legislation.

These changes include the outright banning of facilitation payments and the outright banning of all bribery and corrupt payments by US companies to not only foreign governmental officials but all private citizens. The Bribery Bill certainly does away with any legal question of “who is a foreign governmental official” under the FCPA and the use of other legislation, such as the Travel Act, which bans bribery generally, to back corrupt actions made to a foreign person who is not a governmental official, into an FCPA violation. All US companies with UK subsidiaries or UK citizens as employees, should ban such acts as part of their overall compliance and ethics policies sooner rather than later.

 

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 can be reached at tfox@tfoxlaw.com.

 

© Thomas R. Fox, 2010

January 11, 2010

Robert Kennedy, the Travel Act and the FCPA

Robert Kennedy, the Travel Act and the FCPA

What does Robert Kennedy have to do with the Foreign Corrupt Practices and how has a nearly 50 year old statute aimed at US based organized crime now impacted the FCPA? It turns out quite a bit and perhaps it will be quite a bit more in significantly widening the scope of the FCPA.

Robert Kennedy’s contribution is that while Attorney General, he urged Congress to enact the Travel Act in 1961 which was passed as part of the same series of bills as the Wire Act and was a part of his program to combat organized crime and racketeering. The Travel Act is aimed at prohibiting interstate travel or use of an interstate facility in aid of a racketeering or an unlawful business enterprise. It prohibits the use of communications and travel facilities to commit state or federal crimes, but until now was mostly known for its use in prosecutions for domestic crimes. Its impact to the FCPA is that the Travel Act applies to foreign as well as interstate commerce; it can be also used to prosecute those US companies and individuals which engage in bribery and corruption of foreign officials AND commercial bribery and corruption of private foreign citizens.

The Travel Act elements are: (1) use of a facility of foreign or interstate commerce (such as email, telephone, courier, personal travel); (2) with intent to promote, manage, establish, carry on, or distribute the proceeds of: (3) an activity that is a violation of state or federal bribery, extortion or arson laws, or a violation of the federal gambling, narcotics, money-laundering or RICO statutes. This means that, if in promoting or negotiating a private business deal in a foreign country, a sales agent in the United States or abroad offers and pays some substantial amount to his private foreign counterpart to influence his acceptance of the transaction, and such activity may a violation of the state law where the agent is doing business, the Justice Department may conclude that a violation of the Travel Act has occurred. For instance, in the state of Texas there is no minimum limit under its Commercial Bribery statute (Section 32.43, TX. Penal Code), which bans simply the agreement to confer a benefit which would influence the conduct of the individual in question to make a decision in favor of the party conferring the benefit. As noted below, the state of California bans payment of more than $1,000 between private parties for the purposes of influencing a business decision.

The Travel Act was most recently used when four executives of Control Components, Inc. (“CCI”) were indicted on April 8, 2009 for alleged violations of the FCPA’s anti-bribery provision and the Travel Act. According to the indictment, the defendants conspired to make hundreds of corrupt payments with the purpose of influencing the recipients to award contracts to CCI or skew technical specifications of competitive tenders in CCI’s favor. The Travel Act came into play as the DOJ alleged the CCI employees violated or conspired to violate California’s anti-bribery law (California Penal Code section 641.3), which bans corrupt payments anywhere of more than $1,000 between any two persons, including private commercial parties. In the indictments, the Travel Act charges relied on alleged violations of California’s anti-corruption law.

On July 31, 2009, CCI itself pleaded guilty to substantive FCPA anti-bribery charges and to conspiring to violate both the FCPA and the Travel Act. CCI admitted that, between 2003 and 2007, its employees made more than 150 corrupt payments, totaling approximately $4.9 million, to officials of state-owned enterprises in China, Korea, Malaysia, and the United Arab Emirates, and paid $1.95 million in bribes to officers and employees of foreign and domestic private companies in violation of the Travel Act. CCI agreed to pay a criminal fine of $18.2 million and to retain an independent compliance monitor for three years.

In July 31, 2009 Press Release announcing CCI’s guilty plea, the DOJ referenced 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. [DOJ Press Release: http://www.justice.gov/criminal/pr/press_releases/2009/07/07-31-09control-guilty.pdf

The CCI matter was not the first case to use the Travel Act in conjunction with the FCPA. As reported in the FCPABlog, is the mater of U.S. v. David H. Mead and Frerik Pluimers, (Cr. 98-240-01) D.N.J., Trenton Div. 1998. In this case 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. In its 2008 article entitled, “The Foreign Corrupt Practices Act: Walking the Fine Line of Compliance in China” the law firm of Jones, Day reported the case of United States v. Young & Rubicam, Inc., 741 F.Supp. 334 (D.Conn. 1990), where a Company and individual defendants pled guilty to FCPA and Travel Act violations and paid a $500,000 fine. In addition to the Mead and Young and Rubicam cases, the DOJ’s website on “A Lay Person’s Guide to the FCPA, specifically states that “other statutes such as the mail and wire fraud statutes, 18 U.S.C. § 1341, 1343, and the Travel Act, 18 U.S.C. § 1952, which provides for federal prosecution of violations of state commercial bribery statutes, may also apply…” to US companies doing business overseas. See: http://www.justice.gov/criminal/fraud/docs/dojdocb.html

What does this mean for US companies doing business overseas? The FCPA Professor and others have written extensively on the broadening of the definitions of who is a ‘foreign official’ and what is a ‘state owned entity’ under the FCPA. However with the incorporation of the Travel Act into FCPA prosecutions, these broad definitions may be completely blurred away if all foreign private citizens can be brought in under the FCPA by application of the Travel Act. US companies doing business overseas, which have a distinction in their FCPA compliance policies between gifts for and travel and entertainment of employees of private companies, and employees of state owned entities or foreign officials should immediately rethink this distinction in approach. The new decade is upon us the Kennedy-era statute of the Travel Act may become as relevant in overseas law enforcement in the 20-teens as it was in the domestic arena for the past 50 years.

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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.

© Thomas R. Fox, 2010

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