Live from SCCE’s Utilites & Energy – Recent Lessons Learned from FCPA Enforcement Actions

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1ca85fbby Kortney Nordrum, CHC

Presentation by

Thomas Fox

Enforcement trends by the numbers

  • 10 companies settled for $1.565 billion in fines.
  • 11 individuals indicted for FCPA offenses last year.
  • Guilty Pleas
    • 1 BizJet, 2 Alstom, 2 Direct Access Partners
  • 11 publicly known corporate declinations.

Organization Enforcement Actions

  • Alcoa
    • $384 million fine, including $175 million in profit disgorgement. This represents the largest fine of all time and the top disgorgement amount.
    • One was found guilty in the UK (the bribe receiver).
  • HP
    • $108 million total fine for multi-country bribery schemes due to a complete breakdown in internal controls.
    • They cooperated so well and fully with the DOJ, that their fine represented less than half of what the minimum fine was for their bribery actions.
  • Avon
    • $135 million in total fines, with $67 million to DOJ, $52.85 in profit disgorgement from the SEC, and $14.5 million in pre-judgment.
    • Represents the highest pre-settlement costs to date, and will total as high as much as $500 million.
      • The attorneys’ fees were so high that the DOJ pulled the attorneys and forced them to explain their fees.
    • Ongoing more than 6 years from the initial whistleblower report.
    • $8 million in bribes resulting in Avon paying as much as $750 million in total expense.
  • Alstom
    • $772 million fine, which is the highest FCPA criminal fine ever. There was no SEC prosecution.
    • The entire company refused to cooperate with the investigation until 3 US citizens were indicted personally for their roles in the bribery.
    • Four executives were indicted and plead guilty.

Individual Enforcement Actions

  • PetroTiger
    • Joseph Sigelman, the former co-CEO, was charged with substantive FCPA violations. He is awaiting trial.
    • Sigelman tried to hide behind attorney-client privilege. It didn’t work for several reasons, mostly because there wasn’t any legal advice given during their conversations.
  • Direct Access Partners
    • A former managing director charged in federal count in New York for bribery involving Venezuela’s state bank.
    • Venezuela cooperated, helped investigate, and extradited individuals to the US for this case.

Esquanazi

  • First court to hold that state-owned enterprises can be instrumentalies under the FCPA
  • The Court developed a 2-prong test:
    • Control Test
      • The foreign government’s formal designation of the entity;
      • Whether the government has an interest in the entity;
      • The government’s ability to hire and fire the entity’s principals;
      • The extent to which the entity’s profits, if any, go directly into the government;
      • The extent to which the government funds the entity if it fails to break even; and
      • The length of time these indicia have existed.
    • Function Test
      • Does the entity have a monopoly over the function it exists to carry out;
      • Does the foreign government subsidize the costs associated with the entity providing the services;
      • Does the entity provide services to the public at large in the foreign Country; and
      • Does the foreign government generally perceive the entity to be performing a governmental function?

GlaxoSmithKline & China

  • Reilly and 3 others found guilty (in a one-day secret trial) and were fined $491 million. Had sentences suspended, but are not allowed to leave China.
  • 46 other employees caught up in the prosecution.
  • GSK is currently investigating corruption in Poland, Syria and other countries.
  • The UK & US have started a formal investigations.

SEC & Internal Controls

  • Smith & Wesson
    • Declination from the DOJ – no evidence that they committed corruption.
    • They did not have any internal controls when conducting oversees business.
    • $2.1 million fine from the SEC.
  • Layne Christensen
    • Declination from the DOJ.
    • SEC issued a Cease and Desist Order – $5.1 million for mischaracterization of payments.
    • Their internal controls failed by not having a second set of eyes.

Tips from Tom Fox:

Follow the money. Bribery money has to come from somewhere, look where the money is requested and where (if you can find it) it appears on the books.

When a whistleblower complaint is made, take it seriously.

Perception is reality.

To see Tom’s entire presentation click here http://bit.ly/1B5nhEB