FCPA Compliance and Enforcement Trends Annual Guide: April 2016

Transcription

1 FCPA Compliance and Enforcement Trends Annual Guide: April 2016

2 2016 Smith Pachter McWhorter PLC. This publication is not intended to provide legal advice but to provide information on legal matters. Transmission is not intended to create and receipt does not establish an attorney-client relationship. Readers should seek specific legal advice before taking any action with respect to matters mentioned in this publication.

3 SMITH PACHTER McWHORTER PLC Table of Contents I. Introduction II. III. The Statutory Framework 10 Frequently Asked Questions Regarding FCPA Anticorruption Compliance Programs 1. What subject areas must anticorruption compliance policies and procedures address? How much and what kind of training must a company provide to satisfy DOJ/SEC standards? What should an American company do to prevent misconduct by a non-u.s. subsidiary? What measures should be taken to prevent third party misconduct? Can travel, entertainment, gifts, or product discounts be provided to non-u.s. government officials? Should a company s anticorruption compliance policy prohibit facilitation payments? What is a company expected to do with respect to investigating potential corrupt payments? What do DOJ/SEC expect a company to do to assess its FCPA compliance risk? Does an SEC-registered company have to take additional anticorruption compliance measures beyond those taken by non-registered companies? Should a company s compliance program take into account non-u.s. anticorruption laws?... 8 IV. Recent Enforcement Developments and Trends The Yates Memo DOJ Compliance Counsel DOJ FCPA Pilot Program for Disclosure and Cooperation Credit DOJ and SEC Enforcement Trends DOJ and SEC FCPA Trends Notable Cases in DOJ Credit for Disclosure and Cooperation...16 V Enforcement Actions...17 VI. VII. FCPA Statutory Provisions and Penalties...28 DOJ Principles & Requirements for an Adequate Compliance Program...30 Smith Pachter McWhorter White Collar Practitioners...32 i

4 I. Introduction Our company has an anti-bribery policy and some associated procedures, but what else should we have? What do DOJ and SEC expect? Can we both satisfy enforcement standards with respect to our program and still run a viable business with operations and sales abroad? In this annual Guide to the FCPA, we discuss answers to frequently asked questions regarding FCPA compliance programs, discuss recent developments and trends in FCPA enforcement, and provide a roundup of the cases from the most recent year. Although the FCPA will soon be approaching its fortieth anniversary (in 2017), enforcement has been much more common in the past 5-10 years than previously. That, along with increased sophistication and care in the corporate community more generally about the issues of adequate ethics and compliance programs, has meant that there is an ever present, and ever growing, interest among members of the corporate community as how to assess and mitigate their corruption risk in a way that does not unduly burden the company s resources or impede it from doing business abroad. For this reason, we focus first and foremost on addressing frequently asked compliance program questions that we receive in our practice. We then turn to the enforcement trends and recent cases. In this regard, this year we focus on developments in DOJ s enforcement policies and their increased focus on evaluation of companies compliance programs; key cases from the SEC docket that reflect that agency s continued aggressive approach to interpretation and enforcement of the FCPA s books and records and internal controls provisions; and trends in credit for voluntary disclosure. II. The Statutory Framework The FCPA has two sets of provisions: The anti-bribery provision, which makes it unlawful to make a corruption payment to a foreign official for the purpose of obtaining or retaining business; and The books and records and internal controls provisions, which require companies with securities listed on stock exchanges in the United States to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. All of these provisions can be enforced against both corporate entities and individuals, and all of them can be enforced both criminally and civilly. A more detailed explication of these statutory provisions, and the penalties for noncompliance, is provided at the end of this Guide. III. 10 Frequently Asked Questions Regarding FCPA Anticorruption Compliance Programs To state the obvious, law-abiding companies and their leadership are looking for ways to prevent an FCPA problem, and to adequately address such problems when they occur even despite the company s best efforts. Below are ten frequently asked questions regarding adequate FCPA compliance measures and our general answers and approach to these topics. Of course, any particular situation or question would require specific advice based on information about the circumstances.

5 SMITH PACHTER McWHORTER PLC 1. What subject areas must anticorruption compliance policies and procedures address? As a general matter, a company s policies and procedures should address both classic areas of FCPA risk, and any risks that are particular to the company s business profile. Classic risk areas include: Third party due diligence, compliance requirements, and monitoring Gifts, meals and entertainment Customer travel Employee expense reimbursements Use of cash (e.g., petty cash, or other cash needed for overseas payments) Political contributions and charitable donations and sponsorships Facilitation payments Solicitation of payments, and extortion Mergers and acquisition: anticorruption due diligence and post-m&a compliance program integration Risks that may be specific to a company s business profile can include, among others: Non-U.S. government sales and bidding Interaction with non-u.s. government regulators, e.g., customs, visa agencies, labor authorities, tax authorities, licensing authorities Non-U.S. sponsors required to conduct business in certain countries Local requirements to partner with local companies or to use local companies as suppliers or service providers Doing business in countries with a high degree of state involvement in the economy/state-owned or controlled enterprises A company s policies and procedures also need to address certain compliance program processes: Training and certification Compliance guidance resources Internal reporting mechanisms, including a hotline where reports can be made anonymously, and non-retaliation Ethics and compliance internal investigations Employee discipline for violations Corruption risk assessments Monitoring and updating of the anticorruption compliance program It is also helpful to review the specific requirements that DOJ has set forth for an effective anticorruption compliance program, as reflected in its published settlements, and which are listed at the end of this Guide. FCPA COMPLIANCE AND ENFORCEMENT TRENDS ANNUAL GUIDE: APRIL

6 2. How much and what kind of training must a company provide to satisfy DOJ/SEC standards? The DOJ and SEC expect that all personnel who could confront corruption in performing their job duties, based on their function with the organization and/or location of work, and all personnel with managerial or supervisory responsibility over others in that position, to be trained as to the company s anticorruption policies, procedures and program. It is furthermore expected that employees in positions of leadership or trust will receive more in-depth and/ or more frequent training. Such positions include senior executives and managers, personnel who occupy watchdog or gatekeeper functions (legal, compliance, finance, procurement, human resources), and personnel whose positions require them to handle transactions or situations that could put the company at risk (e.g., employees who manage non-u.s. government bids or interaction with non-u.s. government regulators, or who supervise third parties who perform such functions for the company). There are no specific rules regarding the specific training methodology including, for example, whether it is webbased or in-person or frequency that is required. The right answer for any given company as to any given portion of its workforce will vary based on the degree of risk, practicality, and resource commitment. Moreover, when a problem has occurred, it is unfortunately all too easy for enforcement authorities to criticize in retrospect the company s training program (or, for that matter, other aspects of the company s compliance program). Nor are the enforcement agencies typically sympathetic to arguments that it would have cost more than the company wanted to spend to do things differently: certainly, as a policy matter, enforcement agencies cannot take such arguments into account if they view the training provided as inadequate. The best way to develop an effective, and defensible, training program is to be able to demonstrate that, whatever the particularities of the company s training program, that program is reasonably designed and effectively implemented given the three factors just mentioned: risk, practicality, and resources required. Training of third party service providers, suppliers, subcontractors, business partners, and representatives or agents, raises its own set of questions, and is more complex to administer. Here, though, again, the three factors come into play: risk, practicality, and resource commitment. For all third parties, the practicality factor has to take into account the fact that a company does not control a third party in the way that it controls employees. This means for example that a company cannot reasonably be expected to train all third parties on the company s anticorruption compliance program in the way that, generally speaking, a company will be expected to provide at least some level of training to all or most employees (exceptions when it comes to employees might be, for example, a blue collar workforce with no possibility of triggering or observing FCPA issues based on their job function). Third parties, however, with significant responsibility for interacting with government authorities on the company s behalf, and who operate in high risk environments, must receive strong training at the inception of the business relationships, and periodic refreshers if the relationship continues over time. The only exception to such third party training requirements may be where the third party is itself a demonstrably sophisticated and compliant organization with its own rigorous anticorruption policies, procedures and training. Regarding third parties who pose less risk, whether specific training and if so what kind of training should be provided will depend on the circumstances. Finally, the DOJ and SEC expect that training will be documented and verified, including through a certification process. 3

7 SMITH PACHTER McWHORTER PLC 3. What should an American company do to prevent misconduct by a non-u.s. subsidiary? From a compliance program perspective, American companies must treat wholly-owned and majority-owned or controlled subsidiaries as entirely their own. U.S. enforcement authorities will view the American parent company as responsible, full stop, for conduct by such subsidiaries. Occasionally there might be technical arguments about U.S. jurisdiction that could lead to a viable defense in litigation against an enforcement action involving a non-u.s. subsidiary. But a compliance program cannot be structured around the hypothetical, and typically remote, possibility of such a defense in the event of a problem in the future. Thus, the company s anticorruption compliance program should be implemented at such subsidiaries, subject to any tailoring or modification reasonably needed to address local risks and local laws. With respect to minority-owned subsidiaries, American companies will be expected take all measures that are reasonable and practical under the circumstances to ensure a robust anti-corruption compliance program is in place. What that looks like will depend on the degree and nature of the American company s influence over the operations. But it should also be remembered that if an American company staffs the minority-owned subsidiary with its own personnel, for example as secondees, then misconduct by such personnel should be presumed to be directly attributable to the American company and to trigger corporate liability. Thus, particular care must be taken to ensure that such personnel are well-trained in the American company s anticorruption policies and practices, and that such personnel flag any potential misconduct that they observe at the minority-owned subsidiary. 4. What measures should be taken to prevent third party misconduct? Third party intermediaries, service providers, suppliers, subcontractors, distributors, and partners (e.g., JV partners) pose one of the most important risk areas for a company to focus on in its anticorruption compliance program. Quite simply, third parties have historically been used to cover up corruption schemes, because that is generally the easiest way to avoid detection within the company itself. In addition, no matter how close the relationship, third parties and their expenditures, communications and actions are inherently subject to fewer controls and less oversight than company employees. All of this means that a company that works with third parties to conduct business abroad must take a hard look at which third parties pose a risk of getting the company into trouble based on the scope of the engagement, the location of the work, the size and sophistication of the third party (from a compliance point of view), the nature and significance of the government interaction that could occur on behalf of the company (is the government a client? A regulator? Are the transactions at issue high value? Etc.). Then the company must develop appropriate due diligence/vetting procedures, compliance requirements, training and monitoring for those third parties that pose risk. In order for such measures to be practical and capable of effective implementation and maintenance, a company needs to have a workable process for categorizing third parties by risk (typically, companies develop a process for categorizing them as low, medium and high risk), and clear, standardized process for conducting due diligence, imposing contractual requirements related to ethics and compliance, and monitoring or auditing company payments to third parties and the activities conducted by those third parties on the company s behalf. A company must also have a mechanism for going beyond its standard approach to respond to warning signs that might be particular to a given third party or set of circumstances. All of this can require significant planning, care and, even more importantly, expenditure of company resources. Fortunately, there are many valuable lessons to be drawn from the enforcement cases and, in addition, for experienced practitioners, from our work over many years on any number of FCPA cases involving all types of third parties and associated compliance risks or problems. Tailoring a company s anticorruption compliance program to adequately FCPA COMPLIANCE AND ENFORCEMENT TRENDS ANNUAL GUIDE: APRIL

8 address third party risk in a way that is practical and sensitive to resource constraints, can be done effectively by bringing these lessons learned and experience to bear. 5. Can travel, entertainment, gifts, or product discounts be provided to non-u.s. government officials? These items can be provided to non-u.s. government officials under some circumstances. First, the FCPA provides an affirmative defense for providing such items where they constitute reasonable (in terms of the value and type of item) expenses to support the promotion, demonstration or explanation of a company s products or services, or in support of the performance of a contract. As an affirmative defense, this means that the burden will be on the company to show that the expenditure meets these requirements. There are quite a few published examples of permissible scenarios provided via the DOJ s published Opinion Releases, as well as in the DOJ/SEC Guide to the Foreign Corrupt Practices Act. Examples that we have dealt with in practicing in this area are many and varied, and have included, among other situations, product discounts, gifts of product samples, business dinners with individual officials or larger dinner events for groups of officials, travel to company facilities for training accompanied by modest entertainment as a professional courtesy, and business-class air travel where appropriate based on the length of travel, level of the official, and consistent with company policies for its own employees, among many others. At bottom, the core principles are: is one or more of the recognized purposes under the statute truly in play; is the type and value of the item or benefit to be provided reasonable in light of the purpose or, to put it another way, could a reasonable prosecutor or other enforcement authority conclude the value of a trip or other hospitality is high enough to begin to corruptly influence the recipient; is there appropriate review and approval within the company, including, typically, by legal or compliance or, at least, by management personnel with sufficient authority and training as to compliance issues; and is there transparency with the foreign official s employer or otherwise associated government agency. Second, because FCPA liability is only triggered where the provision of the thing of value is corrupt, there may be circumstances where this element is not met. As a legal matter, that means that the government could not meet its burden of proof to show that there was an intent to influence the official to obtain or retain business. That said, this is a legal distinction that as a matter of practice will make little difference for a company s anticorruption compliance program: the same factors that would support the affirmative defense typically would support an argument that the government cannot show a corrupt purpose in the first place. 6. Should a company s anticorruption compliance policy prohibit facilitation payments? It has become increasingly common for companies to prohibit facilitation payments, i.e., low value payments made to officials to perform or to expedite non-discretionary, routine government acts to which a company is entitled, but for which the official seeks in essence a tip to perform. Facilitation payments are permitted under the FCPA. The trend to prohibit them despite that fact appears to stem from one or more of the following reasons: first, in today s global economy and with heightened awareness of compliance issues more generally in the corporate world, companies are increasingly sensitive to the fact that such payments typically are not permitted under other nation s anti-corruption laws; second, some companies take the view, which is the view taken by the Organisation for Economic Co-operation and Development (OECD), that permitting such payments could lead to a sense of complacency amongst company employees about bribery and/or encourage more demands for these and other types of payments from officials; and third, some companies have concluded that navigating permissible vs. impermissible payments is too difficult to be worth the burden in training, legal review, and oversight of relevant transactions. Ultimately, because these payments are legal under U.S. law, from a U.S. perspective it is a business decision rather than a legal decision whether or not to prohibit them. And the reality is that in some parts of the world, it can be extremely 5

9 SMITH PACHTER McWHORTER PLC difficult to obtain routine government acts to which a company is entitled without paying such tips. Failure to do so can lead to delays or outright denials of the act to which the company is entitled. If a company chooses to prohibit them, it is important to provide the support, including with respect to helping employees plan ahead for these obstacles and develop effective strategies for resisting such demands without unduly compromising the needs of the business. We have seen that this can be done, but it does require thought and some dedication of internal training, legal guidance, and business planning resources to have a ban on facilitation payments that truly works in practice. 7. What is a company expected to do with respect to investigating potential corrupt payments? When a company has reason to think that an employee or a business partner may have made corrupt payments to a foreign official, the DOJ and SEC expect that the company will look into the issue with sufficient rigor and depth to be able to assess: did payments occur or, even if they did not occur, were they offered or authorized; what was the benefit obtained or sought by the company; which company employees were involved, and how high up did the knowledge go; were there supervisors who either knew, were willfully blind, or failed to adequately train or supervise subordinates who were involved; why did the compliance failure occur, e.g., was it a bad apple employee or were there also failures in company policies, procedures, training, internal reporting mechanisms, culture (is there a culture of the end justifying the means), or other process issues; did personnel who serve as compliance watchdogs and gatekeepers (legal, compliance, finance, procurement, human resources) fail in their responsibilities; is there evidence that the incident was isolated or one-off or, by contrast, evidence that it reflected a pattern or larger set of corruption issues; if a business partner was involved, what was their culpability and must the relationship be terminated or can the partner be trusted in the future; and are there disclosure obligations under local or U.S. law based on the nature of the conduct (there is no general legal obligation to disclose an FCPA violation to U.S. authorities; but there could be an obligation to disclose locally, or even to U.S. authorities, depending on the circumstances, e.g., if the payments were made to foreign officials in connection with performing a U.S. government contract, there might be mandatory disclosure obligation under the Federal Acquisition Regulations). It is also worth noting that a 2015 policy memorandum issued by Deputy Attorney General, Sally Q. Yates, stresses that, if a company wants to be eligible for cooperation credit from DOJ, the company must provide to DOJ all relevant facts about the individuals involved in the corporate misconduct. This means the investigation must have inquired into the facts sufficient to provide such evidence. In truth, experienced practitioners have long structured their investigations in this manner in any case: identifying who at the company was involved and the degree of their culpability is a core element of any rigorous investigation, and critical to develop appropriate remediation. That said, the Yates memorandum serves to reiterate the importance of this element. Finally, a note on expectations as to investigation methods: there is no pre-set recipe for what constitutes sufficient investigation steps. But enforcement agencies expect to see strong evidence of preservation efforts, thorough and non- collection (including from servers, laptops, personal devices, and other media) and review, analysis of financial records, and interviews of employees, former employees and/or third parties if relevant. How far to go in any given case will depend on what is reasonable and can be defended as such if the need arises in the circumstances of the case. 8. What do DOJ/SEC expect a company to do to assess its FCPA compliance risk? The DOJ and SEC expect that a company will take specific steps to assess its FCPA compliance risk with respect to both ongoing and prospective business. The degree of formality and the complexity of this risk assessment will vary according to the size, nature and complexity of the company as well as factors such as the extent of the company s FCPA COMPLIANCE AND ENFORCEMENT TRENDS ANNUAL GUIDE: APRIL

10 non-u.s. business and operations, the countries with the highest corruption risk in which the company has business, the degree of interaction with foreign government agencies and officials required to conduct the company s business, and the extent to which the company relies on third parties to assist in those interactions. Some large companies engage in very formal and structured FCPA risk assessment processes, for example, by conducting risk assessment workshops with leadership from the business and from key corporate functions that seek to address risk both on a company-wide basis and more specifically with respect to the operations in particular countries or for particular lines of business; synthesizing the results of these workshops; and developing risk mitigation plans based on the results. This type of risk assessment process is also accompanied by taking into account information generated by compliance-related investigations, consultations to Legal/Compliance raised by the business, the results of internal audit activity, and other information sources. Other companies, based on their size, complexity of the operations or extent of non-u.s. business, or stage of development of their risk assessment processes, may undertake a risk assessment process that is somewhat less complex. Even in those cases, however, it is important that the company undertake to identify who within the company is in a position to assist in identifying corruption risk in the company s business, and to develop a process for collecting information from such sources, organizing it, using it to inform the company s anti-corruption compliance program, and then updating this information on a periodic basis. This is not only because DOJ and SEC expect it, but also because such a process is necessary to be able to deploy precious compliance resources wisely: all of this costs time and money, and the primary purpose of a business is to be a successful business for the company s customers and clients, shareholders or owners, and employees. An effective risk assessment process will help the company focus those resources on where they are most needed. 9. Does an SEC-registered company have to take additional anticorruption compliance measures beyond those taken by non-registered companies? The short answer to this question is: Yes, but. Yes: because the FCPA places additional obligations on public companies, i.e., they are legally required to maintain accurate books and records, and an adequate system of internal accounting controls. Those obligations extend to all parts of a public company that it owns, including wholly owned and majority-owned subsidiaries and other corporate affiliates. Public companies are moreover strictly liable for failures to comply: no bad intent is required for civil liability, although it is for criminal liability under these provisions. But: all companies should be aware that the DOJ has imported the books and records and internal controls legal standard into the Department s requirements, as a policy matter, for an effective anticorruption compliance program. This is manifested in the requirements that DOJ imposes on all companies both public and private when it settles an FCPA matter with them. Those requirements now require as a standard measure that the company maintain an anticorruption compliance program that satisfies 18 different elements, 1 and one of those elements is that the company maintain internal controls and financial and accounting procedures sufficient to ensure: accurate books and records and to ensure execution and recordation of transactions is per management authorization; that access to assets is authorized; and that recorded assets are compared with existing assets at regular intervals. 1 A complete list of DOJ s requirements is set forth at the end of this Guide. 7

11 SMITH PACHTER McWHORTER PLC 10. Should a company s compliance program take into account non-u.s. anticorruption laws? Certainly, any company with non-u.s. business or operations must take into account applicable anti-corruption laws of the local country, and of other countries if their laws apply to the company and have extraterritorial applicability (such as the U.K. Bribery Act). Failure to do so means legal risk. That said, the U.S. remains the leading enforcer in this area, and is likely to remain so for many years to come. Thus, it is no surprise that companies subject to U.S. jurisdiction tend to focus their anticorruption compliance programs first and foremost on the FCPA. It is also worth noting that the core precepts of U.S. and non-u.s. anticorruption laws tend to be the same or very similar. And where there are differences, U.S. laws tend to be as complete, or more expansive. As one example, the U.K. Bribery Act criminalizes both government and private sector bribery (aka commercial bribery ), whereas the FCPA criminalizes only government bribery, other U.S. laws exist to prosecute commercial bribery, including when such bribery is committed outside of the U.S. As another example, while there are a number of countries in the world whose criminal law systems do not provide for corporate criminal liability absent high-level management involvement in the conduct, under U.S. law corporate liability is triggered by the acts of any employee, no matter how low in the company pecking order, or third party acting as the company s agent within the meaning of vicarious liability principles. Of course, there are some exceptions: the U.S. permits facilitation payments, whereas other nation s anticorruption laws tend not to do this; the U.K. Bribery Act goes even farther than the FCPA in terms of premising liability on the acts of third parties, through the U.K. Bribery Act corporate failure to prevent bribery provision; and others. It is for this reason that, while it is generally reasonable to focus a company s anticorruption compliance program on U.S. law, the laws of other countries must also be taken into account where applicable to the company s operations. IV. Recent Enforcement Developments and Trends Although, as further discussed below, the Department of Justice (DOJ) had relatively few corporate FCPA matters in 2015, the Department was active from an enforcement policy perspective. The three most notable developments in this regard were: 1) Issuance of a memorandum by Deputy Attorney General Sally Q. Yates regarding DOJ policies on credit for cooperation in corporate criminal matters (the Yates Memo ); 2) Creation of a new Compliance Counsel position within the FCPA group; and 3) the announcement of DOJ s new FCPA pilot program for credit for disclosure and cooperation. 1. The Yates Memo After the 2008 financial crisis, DOJ was heavily criticized for its treatment of financial industry executives. Some critics argued that the Department had a pattern of treating corporate executives more leniently than other types of individual criminal defendants, reflected in this case by failing to prosecute industry executives involved in the financial crisis. Whether or not that criticism had merit, the DOJ did respond by reemphasizing its long-stated commitment to individual White Collar prosecutions by issuing the Yates Memo on September 9, Among other things, the Yates Memo states a clear Department policy with respect to credit for cooperation for corporate defendants, putting pressure on such defendants to assist the Department by providing all relevant evidence against individuals involved in the corporate misconduct or, if not, there will be no credit for cooperation in any corporate resolution. The Yates Memo also articulates other DOJ policies related to the subject of individual prosecutions. Specifically, and in sum, the Yates Memo sets forth six enforcement policies: a. In order to receive cooperation credit, a corporation must provide to DOJ all relevant facts about the individuals involved in the corporate misconduct. This is an all-or-nothing rule: failure to provide such evidence will result in no credit. FCPA COMPLIANCE AND ENFORCEMENT TRENDS ANNUAL GUIDE: APRIL

12 b. DOJ attorneys are directed to focus criminal and civil investigations on individuals from the beginning. Through this directive, DOJ seeks to increase the likelihood that lower-level employees will cooperate with the investigation and provide information against individuals higher up the corporate hierarchy. c. Attorneys from both the Criminal and Civil Divisions of DOJ are directed to be in early and routine communication with each other. This is to allow the government to consider the full range of civil and criminal options for pursuing individuals. d. Except in extraordinary circumstances and with approval from senior decision-makers, DOJ will not release culpable individuals from civil or criminal liability when settling with corporate entities. e. DOJ attorneys are instructed not to resolve matters with a corporation without a clear plan to resolve related individual cases. Declinations in individual cases must be memorialized and approved by senior decision makers. f. DOJ Civil Division attorneys are encouraged to bring claims against individuals, even if the individuals have no ability to pay, to deter misconduct. Some practitioners, including most notably former Deputy Attorney General James D. Cole, have questioned the practicality of the approach set forth in the Yates memo, stating that it gives companies little reason to cooperate and will likely result in the government s retreat from this all or nothing approach. 2 That said, in our experience, and certainly in FCPA matters, being required to provide fulsome information regarding individual wrongdoers in order to receive corporate cooperation credit is not a new concept. Nor in our experience has it ever been very likely, at least under existing enforcement approaches in recent years, that corporate cooperation can be partial and yet still successful in obtaining credit: if the government is interested in a particular aspect of a case, or a particular individual or set of individuals, it will expect the company to provide any and all information available on those subjects. The adage, In for a penny, in for a pound, is apt here. This has been true even where the government in the end fails to prosecute the individuals: they still have typically required fulsome disclosure of evidence about individuals from the corporation in order to deem the company a cooperator. What the Yates Memo certainly does do is strike a clear renewed emphasis on the issue of providing evidence regarding individuals. Companies who are cooperating with the Department will have no doubts about this being required. It is also possible that the behavior of individuals involved in FCPA internal investigations may be affected. Individual executives may be more sensitized to the possibility that they require separate counsel to protect their own interests in such investigations. Again, in our experience, a company and their counsel must always be scrupulous and precise about identifying when individuals who work for the corporation have a distinct legal interest from the corporation, and avoid dual representation in those cases. Relatedly, in interviewing individuals in an internal investigation, it is always critical to provide clear Upjohn warnings that advise the individual that any privilege over the conversation belongs to the company, and that information learned from the interview may be revealed by the company to third parties (including the government) if the company chooses to do so. Thus, we do not see the Yates Memo as changing best practices for White Collar counsel. But it certainly makes very clear this particular policy goal of the DOJ and that cooperation will be judged against it. 2. DOJ Compliance Counsel Also in 2015, DOJ established a new Compliance Counsel position within the Department s Fraud Section, and hired Ms. Hui Chen, previously the Global Head for Anti-Bribery and Corruption at Standard Chartered Bank and, prior to that, Assistant General Counsel in the Compliance Division of Pfizer, Inc., and an Assistant United States Attorney. 2 U.S. Will Retreat on Yates Memo, Former DOJ Official Predicts, Bloomberg Law (Nov. 23, 2015), available at 9

13 SMITH PACHTER McWHORTER PLC The DOJ Compliance Counsel is to provide guidance to Fraud Section prosecutors in evaluating companies corporate compliance programs under the standards set forth in the United States Attorneys Manual. 3 It is expected that she will aid in developing benchmarks for these prosecutors to use in conducting such assessments, and provide them with advice in connection with specific matters. That guidance will be relevant to Fraud Section prosecutors decisions regarding whether to charge a company and what type of resolution to offer. It will also be relevant to prosecutors review of companies compliance programs post-settlement, as many corporate settlements require a period of self-reporting by the company to the Department on the status of its compliance program. As Ms. Chen was only hired in November of 2015, it remains to be seen exactly how this new position will shape the Department s approach towards evaluating companies anticorruption compliance programs. Certainly, however, creating this position reflects a strong focus as a matter of DOJ policy on this issue and a desire to bring increased subject matter expertise from their side of the table to bear on that question. 3. DOJ FCPA Pilot Program for Disclosure and Cooperation Credit The DOJ has initiated a one-year FCPA pilot program that the DOJ hopes will encourage voluntary disclosures and cooperation by corporations with FCPA matters. 4 Effective immediately, the guidance issued by the DOJ regarding this program delineates the type of credit that corporations can receive for disclosure and cooperation. The guidance also notes that the program seeks to respond to criticisms that DOJ has not been sufficiently transparent in identifying the credit that corporations receive for self-disclosure, cooperation and remediation. The most complete credit under the program can result in a discount off of the Sentencing Guidelines fine amount of up to 50%. The guidance also notes that disclosure will be taken into account in considering the type of resolution, and references the possibility of declination, i.e., the Department closing the file without requiring any type of settlement. Even in the case of a declination, however, disgorgement of ill-gotten gains will be required. In addition, the guidance specifically notes that there are many factors that must be taken into account in deciding whether a case warrants declination. At the end of the day, then, the guidance does little to clarify when a company will obtain that type of disposition. Under the guidance, and consistent with existing practices, credit can also be obtained based on cooperation and remediation without voluntary disclosure. In such cases the maximum discount off of the Sentencing Guidelines fine will be 25%. Thus, while the concept of credit for cooperation and remediation, even without disclosure, has been reflected in the Department s FCPA settlements over the past several years, the guidance does specifically limit the discount that can be obtained. The maximum 25% discount provided is consistent with what past settlements reflect, see our discussion of fine discount data below at page 16, but now it is an express limitation. The guidance issued by the DOJ lays out the following requirements to obtain credit. Voluntary Disclosure This voluntary self-disclosure must occur prior to an imminent threat of disclosure or government investigation The disclosure must be made within a reasonably prompt time after becoming aware of the offense, with the burden being on the company to demonstrate timeliness 3 These standards are reflected in DOJ s settlements in the FCPA arena, listed at the end of this Guide, and are also consistent with the standards established by the federal Sentencing Guidelines, see USSG 8B See Andrew Weissman, Chief, Fraud Section, DOJ Criminal Division, The Fraud Section s Foreign Corrupt Practices Act Enforcement Plan and Guidance (April 5, 2016). FCPA COMPLIANCE AND ENFORCEMENT TRENDS ANNUAL GUIDE: APRIL

14 The corporation must disclose all relevant facts known to it, including all relevant facts about the individuals involved in the FCPA violation Full Cooperation Disclose on a timely basis all facts relevant to the wrongdoing at issue, including with respect to the company s officers, employees or agents Provide relevant information before being asked to do so by the government Preserve, collect and disclose all relevant documents, including information relating to their provenance Provide timely updates on the status of a corporation s own internal investigation (including rolling disclosures of information) If requested, de-confliction of the corporation s internal investigation with the DOJ s investigation Provide all facts relevant to potential criminal conduct by third-party individuals or companies (including officers and employees) Make available on request for DOJ interviews all current or former corporate officers or employees that possess relevant information, including those that are located overseas Subject to attorney-client privilege, disclose all relevant facts gathered during the corporation s internal investigation, including attribution of facts to specific sources Disclose overseas documents, including the location where found and the person who found them (where disclosure is impossible under foreign law, the burden of proof will be on the corporation to establish such prohibition) Subject to foreign law, facilitate the third-party production of documents and witnesses from foreign jurisdictions Where requested and appropriate, provide translations of relevant documents that are in foreign languages. Remediation Implementation of a an effective compliance and ethics program that includes the following elements i. Establishment of a culture of compliance ii. iii. iv. Dedication of sufficient resources to the compliance function; Experienced and qualified compliance personnel Independence of the compliance function v. Effective risk assessment and tailor the compliance program based on that assessment vi. vii. viii. A procedure for establishing how compliance personnel are compensated and promoted vis à vis other employees An audit function to ensure the compliance program s effectiveness Reporting structure for compliance personnel within the company A procedure to appropriately discipline employees responsible for the misconduct Any additional steps to demonstrate recognition of the seriousness of the misconduct, acceptance of responsibility for it, and measures to reduce the risk of repetition 11

15 SMITH PACHTER McWHORTER PLC Many of the elements for obtaining credit discussed by the DOJ are familiar as they are reflective of the Department s existing enforcement practices, or in some cases even the express requirements of the U.S. Sentencing Guidelines (for example, that disclosure be prompt and before an imminent threat of discovery by the government). Moreover, as will always be the case with any Department policy statement or guidance of this type, no guarantees are given of any particular result. The Department has and will always retain its discretion in this regard. However, the guidance does consolidate into one document the various factors that the DOJ will look at, and it does provide express, quantitative parameters in terms of how much credit can be obtained for disclosure and cooperation. When it comes to remediation and effective compliance programs, the guidance also introduces some different elements beyond those reflected in the U.S. Sentencing Guidelines or even those reflected in the appendix that now accompanies DOJ s FCPA settlements as a matter of course, and which specifies the elements that an effective anticorruption compliance program must address. Since the elements described in the guidance which principally focus on independence of and support for the compliance function do not include all of the elements discussed in those other sources, it is advisable to consider all of the elements from these multiple sources as constituting DOJ s guidance or requirements in this regard. At the end of one year, the DOJ plans to review the program. At that time, the DOJ could cease the program or, alternatively, limit or even expand it. It will be interesting to see whether companies disclosure practices are affected, or if it will be possible even to draw conclusions in that regards after one year. Moreover, while the DOJ s new guidance does provide some additional clarification, it is far from a sea change in policy. Nor does it address certain other considerations that a company considering disclosure must take into account, including the expense and drain on company time that disclosure and the subsequent cooperation with a DOJ investigation entails, as well as the fact that FCPA matters can take years to resolve. We also cannot fail to note that in calculating the fine, there can be a certain amount of discretion in terms of how the U.S. Sentencing Guidelines are applied and thus in the resulting fine amount to which a discount would then be applied. All that said, DOJ s efforts to respond to criticisms about lack of transparency as to its practices for giving credit for disclosure and cooperation are welcome. We hope that in the future even more significant steps are taken in this regard. 4. DOJ and SEC Enforcement Trends in 2015 In 2015, the total number of enforcement actions by DOJ and the Securities Exchange Commission (SEC) was down somewhat from recent years. Perhaps most notable was that the DOJ was the enforcement agency in only two of the twelve corporate matters settled in Thus, the SEC was significantly more active than DOJ in this regard. Also, for the first time since 2001, none of the corporate resolutions with the SEC were simultaneously executed with DOJ. Because DOJ does not explain its reasoning when it decides not to pursue an enforcement case, it is not possible to know with certainty why DOJ did not pursue settlements in the ten SEC corporate matters from However, it is the case that DOJ has been attempting as a policy matter to demonstrate that it will use its discretion to decline enforcement in cases that it believes merits such treatment, based on the seriousness of the matter, whether there was a voluntary disclosure, and the strength of the company s cooperation and remediation. Another reason can be that the evidence is not sufficient to support a criminal case even though it will support a civil one: for example, if there is insufficient evidence of offers, promises, authorization, or provision of improper payments, and if issues with inaccurate books and records or inadequate internal controls do not rise to the level of knowing violations, then the factual basis for a criminal FCPA matter is lacking. DOJ is also subject to a higher standard of proof (beyond a reasonable doubt, rather than preponderance of the evidence), and even if a matter is not litigated, the FCPA group prosecutors are required to take the standard of proof into account in their analysis of a matter, even if they believe a company would settle without litigation. Finally, it may be that in 2015, DOJ was more focused on dedicating its resources to pursuing individual FCPA COMPLIANCE AND ENFORCEMENT TRENDS ANNUAL GUIDE: APRIL

16 enforcement actions. These types of matters require a significant dedication of time and staffing because individuals are far more likely to resist settling their cases given the risk of prison time than are corporate defendants. In 2015, DOJ increased its FCPA group by hiring ten new attorneys, and tripled the number of FBI agents tasked with investigating foreign bribery cases. Certainly we would expect to see an increase in matters pursued by DOJ in light of this augmentation of resources and, perhaps, a reduction in the sometimes very significant time lag that can occur between the time a company discloses or DOJ otherwise identifies a matter and the time it takes to settle the matter. 5. DOJ and SEC FCPA Trends The tables below reflect trends in FCPA enforcement over the last five years. DOJ & SEC FCPA Actions ( ) FCPA Enforcement Actions SEC DOJ YEAR DOJ FCPA Actions Against Individuals ( ) FCPA Cases Individuals YEAR 13

17 SMITH PACHTER McWHORTER PLC SEC FCPA Actions Against Individuals ( ) FCPA Cases Individuals YEAR 6. Notable Cases in 2015 BHP Billiton This case, which was a gifts and hospitality case involving invitations to attend the 2008 Olympic Summer Games extended to a number of different foreign officials (and their spouses), was notable because it was based on the SEC s criticism of the company s anticorruption compliance program and controls over the company s Olympic Games hospitality program, even where the company put in place certain procedures related to managing corruption risk, instructed its personnel to review the company s anti-bribery policy before inviting officials, and took other measures to mitigate corruption risk in connection with the program. In the SEC s view, the steps taken by the program were inadequate to provide sufficient internal controls within the meaning of the FCPA, and represented a forms over substance approach. It is also notable that in the majority of the cases where officials were invited, most did not ultimately accept or attend, and indeed of the four invitations specifically called out by the SEC in the settlement as objectionable, only one of those officials attended. To be sure, the SEC has brought gifts and hospitality cases in the past that, at least in our view, lacked significant exacerbating factors. The 2015 FLIR Systems case (one trip involving multiple stops but with unspecified value; other travel and hospitality worth $40,000; watches worth $7,000), the 2010 Veraz Networks case ($4,500 in gifts; an attempted $35,000 cash payment; gifts and entertainment of unspecified value, and flowers for an official s wife), and the 2009 Avery Dennis case (payments, sightseeing trips, and gifts worth about $81,000), are just three examples. The SEC has also brought many gifts and hospitality cases on the basis of books and records and internal controls violations alone, without also charging violation of the anti-bribery provision. But we believe that BHP Billiton went the farthest of any SEC case to date in charging a company where the SEC s allegations reveal no intent to improperly influence government officials with the gifts and hospitality that were provided in the case, and where the company also did take some specific steps towards mitigation the corruption risk associated with the gifts and hospitality activity. FCPA COMPLIANCE AND ENFORCEMENT TRENDS ANNUAL GUIDE: APRIL

18 BNY Mellon This case was the SEC s first matter involving hiring practices as a form of providing improper benefits to government officials. In this matter, the company allegedly provided paid and unpaid internships to family members of government officials who were important to the company s business. This case is also the first ever SEC resolution in an FCPA matter that did not include a charge for inaccurate books and records. Instead, the SEC only charged the company with failure to maintain adequate internal controls over its hiring practices. 5 PBSJ This case was notable in that it was only the second time that the SEC resolved claims against a company with a civil deferred prosecution agreement. The SEC first introduced the concept of non-prosecution and deferred prosecution agreements in its cases in From the SEC s perspective, this is part of the agency s attempt to have a more clear and structured approach towards recognizing cooperation in corporate matters. That said, some practitioners have questioned whether these tools have the same usefulness in civil matters as they undoubtedly do in the criminal context: there is a stake difference in terms of reputational harm and other collateral consequences for a corporation that has to plead guilty to a criminal offense as compared with obtaining a non-prosecution or even a deferred prosecution agreement; by contrast, while there are procedural differences between agreeing to an administrative order or even a federal court preliminary injunction, vs. obtaining a civil non-prosecution or deferred prosecution agreement, the differences are not as stark. The SEC continues however to argue that these tools are important, and has highlighted them in recent statements by agency officials. For example, in November 2015, the SEC s Enforcement Director Andrew Ceresney announced that in FCPA matters the SEC will only consider agreeing to a non-prosecution or deferred prosecution agreement if the company has self-reported the matter. 7 Standard Bank This case was notable because, while it involved allegations of conduct amounting to bribery indeed, the company was separately charged by U.K. authorities with violating the anti-bribery provisions of the U.K. Bribery Act the SEC had to pursue the matter under a separate, non-fcpa related section of the Securities and Exchange Act because the company does not trade securities on any U.S. stock exchange, and thus is not subject to SEC s FCPA jurisdiction. Thus, the SEC had to pursue the matter under a different theory, namely, failure to satisfy SEC requirements related to disclosures required in a securities offering. The information that the SEC alleged should have been disclosed related to payments made by an affiliate of Standard Bank to a company that had a foreign government official as one of its directors. The SEC alleged that Standard Bank failed to conduct adequate due diligence on the company receiving the payments, and failed to meet disclosure requirements regarding those payments in connection with the offering. Vadim Mikerin While not the first of its kind, this case is notable because the DOJ charged not only the individuals involved in a bribery scheme, but also the foreign official who received the payments, which has occurred on very few occasions. To do so, the DOJ utilized U.S. anti-money laundering laws. In this case, the official was the Russian director and president of a nuclear service provider owned by the government-owned nuclear energy corporation of Russia, Vadim Mikerin. Under the FCPA, such charges are not possible because the FCPA does not address the issue of bribe-taking, but U.S. anti-money laundering laws can provide a vehicle for the DOJ to charge foreign officials. For those in the corporate community who face corruption risk when doing business in many parts of the world, enforcement efforts against the 5 In re Bank of New York Mellon Corp., Exchange Act Release No. 75,720 at 8-10 (Aug. 18, 2015). 6 In 2011, the SEC settled an FCPA case with Tenaris S.A. with a deferred prosecution agreement, and in 2013 the SEC settled an FCPA case with Ralph Lauren Corporation with a Non-Prosecution Agreement. 7 Andrew Ceresney, Director, Division of Enforcement, SEC, 32nd Annual FCPA Conference Keynote Address (Nov. 17, 2015) 15

19 SMITH PACHTER McWHORTER PLC corrupt officials who solicit such payments can only be welcome, as those officials and the governments of which they are a part are, to state the obvious, the ultimate source of the problem. 7. DOJ Credit for Disclosure and Cooperation Whether or not a company will receive credit and, if so, how significant a credit, for voluntarily disclosing an FCPA matter to U.S. enforcement authorities is always a topic of discussion when a company is facing an FCPA issue that is not known to the authorities. The company must decide whether or not to disclose, as disclosure is not mandated by the FCPA. In our experience, companies do receive some consideration for having voluntarily disclosed a matter, although saying that does not answer the question of whether the credit is significant enough for a company to disclose in light of the other ramifications of disclosure. For its part, the DOJ has in recent years been making efforts to demonstrate through criminal fine discounts and in some cases even through declinations that it does recognize and credit voluntary disclosure. We undertook an analysis of DOJ settlements since 2009 to see if we could identify evidence of a monetary benefit, in terms of the criminal fine amount, from voluntary disclosure. At the outset, we should note that the Sentencing Guidelines provide for a specific credit for disclosure that reduces the applicable fine. But in addition, in settled matters it is typical that the DOJ will provide a discount off of the applicable fine range 8 in recognition of a company s disclosure and/or cooperation with the government s investigation post-disclosure. We focused our analysis on those discount figures. In doing so, we found that companies that both disclosed and cooperated received an average of just over a 22% discount off of the applicable Sentencing Guidelines range, while companies that only cooperated, and did not disclose, received an average of just under a 15% discount off of that range. Thus, we did observe differences in the discount range on average, although the difference was less than 10%. We should also note that a company is much less likely to receive a deferred prosecution or non-prosecution agreement if the matter did not come to DOJ s attention by way of a voluntary disclosure, although there are exceptions to that pattern. It is also the case that a handful of companies have been required to enter into a guilty plea or at least, have some subsidiary or otherwise affiliated company enter into a guilty plea despite having voluntarily disclosed. These are however the minority of cases and typically reflect scenarios in which the violation was particularly egregious, widespread or longstanding. Of course, there are also considerations beyond the issue of a discount on the criminal fine that must factor into a disclosure decision, including the risk of detection and the consequences of non-disclosure if the matter is discovered by enforcement authorities; whether there are any independent legal obligations to disclose triggered by the facts; and the philosophy or disposition of company leadership and/or the company s Board regarding the issue of disclosure. The disclosure question cannot be answered in the abstract but rather only in the context of a particular matter. It is moreover as much a business decision as a legal one, although advice from counsel experienced in such matters is always advised. Finally, a note on the SEC. This enforcement agency has also stated on many occasions that it will give credit for disclosure, as well as for cooperation. The SEC s disgorgement remedy, however, is not subject to such considerations; only the civil fine element is. In addition, there is no equivalent of the Sentencing Guidelines in the SEC context, so there is relatively less visibility into how the SEC reached a particular result with respect to any civil fine. It is more difficult to measure the fine in any given case against what it would have been absent credit for disclosure. Thus, while we do not doubt there is some degree of benefit, it is not possible to express that benefit as a discount percentage, even on average. 8 Under the federal Sentencing Guidelines, various factors relating to the seriousness of the conduct as well as the size and sophistication of the company are analyzed and then result in a fine range that has a low end and a high end. This range is what federal courts are to use as a guideline in imposing a fine and thus the range is also utilized by DOJ to settle on the fine in a settled matter. Typically (though not always) in an FCPA matter the low end of the range will be used as the starting point and then a discount may be provided off of that low end. FCPA COMPLIANCE AND ENFORCEMENT TRENDS ANNUAL GUIDE: APRIL

20 V Enforcement Actions 9 Bank of New York Mellon Enforcement Agency(ies): SEC Summary of Conduct: The Bank of New York Mellon (BNYM) allegedly 10 provided paid and unpaid internships to family members of officials employed by a Middle Eastern sovereign wealth fund that placed assets for management with the bank. BNYM provided these internships at the request of sovereign wealth fund officials even though these interns did not meet the bank s ordinarily rigorous internship standards. Hiring these officials family members was viewed as a personal favor to the officials, as well as an expensive one because of the dedication of resources to supporting these interns and, in two cases, paying them above the regular internship salary amount. BNYM also provided these officials family members with a wider variety of work experiences and longer internship periods than those interns who came through BNYM s established internship program, and BNYM tolerated low work performance by the officials family members. After granting the internship requests, BNYM retained existing business with the sovereign wealth fund, which BNYM had been concerned would be transferred to a competitor, and in addition further assets were transferred by the sovereign wealth fund to BNYM to manage. Although BNYM had an FCPA policy, the company had few specific controls related to the hiring of customers and relatives of customers, including foreign government officials. Decisions around such hiring were left largely to the discretion of sales staff and client relationship managers, and human resources personnel were not trained to flag potentially problematic hires. There was also no mechanism for triggering legal or compliance review where the internship placement was required by a foreign official. As a result, the SEC concluded that BNYM lacked sufficient internal controls to prevent and detect the improper hiring practices. Those controls were insufficiently tailored to the corruption risks inherent in the hiring of client referrals, and were thus inadequate to fully effectuate Bank of New York Mellon s FCPA policy. Improper Payment: Paid and unpaid internships. Benefit Sought or Obtained: The SEC did not explain the details of its disgorgement theory, but required BNYM to disgorge $8.3M, representing the benefit obtained by BNYM in fees for managing monies invested with BNYM by the sovereign wealth fund. Disclosure, Cooperation and Remediation: BNYM cooperated with the SEC s investigation and instituted improvements to its anti-corruption compliance program. Charges or Allegations: Violation of the anti-bribery and internal controls provisions. Disposition: Administrative order. Financial Sanctions or Remedies: Disgorgement $8.3M; prejudgment interest $1.5M; civil fine $5M. Reporting Obligations or Other Significant Non-Financial Obligations: Not applicable. * * * * * 9 All information regarding matters described in this Guide was obtained from publicly available sources. 10 In SEC settlements, the respondent typically agrees neither to admit nor deny the SEC s findings in connection with the SEC proceeding. 17

21 SMITH PACHTER McWHORTER PLC BHP Billiton Enforcement Agency(ies): SEC Summary of Conduct: BHP Billiton (BHP) allegedly invited and offered to pay for 176 government officials and state employees to attend the 2008 Olympic Games. BHP ultimately paid for 60 foreign officials and government employees, as well as some spouses and friends, to attend the Olympic Games. Each of these individuals received a hospitality package valued between $12,000 and $16,000 per person that included event tickets, excursions, and luxury hotel accommodations. However, of the four examples detailed in the SEC s order as involving officials who were directly involved with, or in a position to influence, BHP Billiton business, only one official (and his wife) attended. The company s Olympic Games hospitality program was open and documented within the company, and included various rules and procedures directed in part at mitigating bribery risk. For example, applications to invite an official had to be approved by upper-level management within a business unit, and the application form described the company s anti-bribery policy and urged employees to review the policy before completing the form. Nonetheless, the SEC found that it was lacking in adequate controls, criticizing the program as a check the box, forms over substance approach to compliance. More specifically, SEC criticized the hospitality program because: 1) there was no Legal or Compliance review of the applications; 2) application forms were not always accurate or complete, e.g., many used cut-and-pasted content; 3) there was no process for updating applications if circumstances changed, for example, to reflect that an official not presently in a position to help the company get business later had such a position; 4) applications were submitted by individual business units with no process to determine full scope of invitee influence, i.e., whether an invitee had the potential to help other business units; and 5) employees and the executives approving the invitations were trained on BHP Billiton s ethics code and anti-bribery policy generally, but there was no specific training on completing the Olympic Games applications or on how to evaluate whether an invitation complied with the company s anti-bribery policy. Improper Payment: SEC did not allege that any of the benefits provided constituted bribe payments. Benefit Sought or Obtained: SEC did not allege that BHP actually sought or obtained any business benefit. Disclosure, Cooperation and Remediation: BHP voluntarily disclosed the conduct, cooperated with the SEC s investigation, and instituted improvements to its anti-corruption compliance program. Charges or Allegations: Violation of the books and records and internal controls provisions. Disposition: Administrative order. Financial Sanctions or Remedies: $25M civil fine. Reporting Obligations or Other Significant Non-Financial Obligations: Reporting to the SEC on the company s anticorruption program for a one-year period. * * * * * FCPA COMPLIANCE AND ENFORCEMENT TRENDS ANNUAL GUIDE: APRIL

22 Bristol-Myers Squibb Enforcement Agency(ies): SEC Summary of Conduct: A Chinese joint venture majority-owned by Bristol-Myers Squibb allegedly made cash payments and provided other benefits to health care providers at state-owned and state-controlled hospitals in exchange for prescription sales. Between 2009 and 2014, sales representatives of the joint venture sought to secure and increase business by providing health care providers in China with cash, jewelry and other gifts, meals, travel, entertainment, and sponsorships for conferences and meetings. These items were then recorded as legitimate business expenses in the company s books and records. In addition, Bristol-Myers Squibb allegedly failed to respond effectively to red flags indicating that sales personnel provided bribes and other benefits to generate sales from health care providers in China; did not investigate claims by terminated employees of faked invoices, receipts, and purchase orders used to fund payments to health care providers; and was slow to remediate gaps in internal controls over interactions with health care providers and to monitor potential inappropriate payments identified repeatedly in annual internal audits of the joint venture. Improper Payment: SEC did not quantify the amount of improper benefits provided. Benefit Sought or Obtained: The SEC did not explain the details of its disgorgement theory, but required Bristol-Myers Squibb to disgorge $8.3M in profits from sales by the joint venture. Bristol-Myers Squib cooperated with the SEC s investigation, terminated more than 90 employees and disciplined 90 more, implemented new accounting systems, and instituted other improvements to its anti-corruption compliance program. Disclosure, Cooperation and Remediation: The SEC did not comment on Bristol-Myers Squibb s cooperation, but noted that the company had undertaken significant remediation by making various changes to its anti-corruption compliance program. Charges or Allegations: Violation of the internal controls and books and records provisions. Disposition: Administrative order. Financial Sanctions or Remedies: Disgorgement $11.4M; prejudgment interest $500K; civil fine $2.75M. Reporting Obligations or Other Significant Non-Financial Obligations: Reporting to the SEC on the company s anticorruption program for a two-year period. * * * * * 19

23 SMITH PACHTER McWHORTER PLC Boris Rubizhevsky, Daren Condrey and Vadim Mikerin Enforcement Agency(ies): DOJ Summary of Conduct: DOJ charged Darin Condrey, the owner and executive of company that sold transportation tanks and vessels for oil, gas, nuclear and marine use, and Boris Rubizhesky, the owner of a consulting company to Condrey s company, with conspiring to make payments to the director and president of a nuclear service provider owned by the government-owned nuclear energy corporation of Russia, Vadim Mikerin. The payments were intended to influence the award of contracts to Condrey s company. Improper Payment: $2.1M. Benefit Sought or Obtained: Contracts with the Russian government s nuclear energy corporation. Charges or Allegations: Condrey: conspiracy to violate the FCPA anti-bribery provision and to commit wire fraud. Rubizhevsky: conspiracy to commit money laundering. Mikerin: conspiracy to commit money laundering. Disposition: All three defendants pleaded guilty. Sentence and Financial Sanctions or Remedies: Mikerin: 48 months and a $2.1M forfeiture order. Condrey and Rubizhevsky were not yet sentenced at the time of this publication. * * * * * FLIR Systems, Inc. Enforcement Agency(ies): SEC Summary of Conduct: FLIR Systems, Inc. (FLIR), allegedly paid for a personal world tour trip to Casablanca, New York, Paris, Dubai and Beirut, as well as certain miscellaneous personal travel, and provided expensive watches, to Saudi government officials. The SEC order described the travel as including a 20-night world-tour to Casablanca, New York, Paris, Dubai, and Beirut for several officials who played a role in contract decisions. FLIR also allegedly spent about $40,000 in additional travel for Saudi officials. SEC s press release also notes that FLIR s accounting department accepted insufficient back-up documentation for costs of extended travel for Egyptian officials in The travel and gifts were improperly recorded in FLIR s books and records, and FLIR did not have sufficient internal controls to detect the activity. Improper Payment: The SEC did not specify the amount spent on the world tour trip. The miscellaneous Saudi travel was valued at approximately $40K and the watches at $7K. Benefit Sought or Obtained: A $7.5M contract to sell infrared binoculars to the Saudi government. Disclosure, Cooperation and Remediation: FLIR voluntarily disclosed the conduct, cooperated with the SEC s investigation, and instituted improvements to its anti-corruption compliance program. Charges or Allegations: Violation of the anti-bribery, internal controls, and books and records provisions. Disposition: Administrative order. In 2014, two former FLIR employees were also charged by the SEC in connection with this case. Financial Sanctions or Remedies: Disgorgement $7.5M; prejudgment interest $970K; civil fine $1M. Reporting Obligations or Other Significant Non-Financial Obligations: Reporting to the SEC on the company s anticorruption program at nine-month intervals for a two-year period. * * * * * FCPA COMPLIANCE AND ENFORCEMENT TRENDS ANNUAL GUIDE: APRIL

24 Vicente Garcia Enforcement Agency(ies): DOJ and SEC. Summary of Conduct: Vicente Garcia, the former head of Latin American sales for SAP International, Inc., a whollyowned U.S. subsidiary of the German company SAP A.G., allegedly bribed Panamanian officials in order to obtain four contracts to sell software to the Panamanian government. Garcia also arranged to receive a kickback for himself in the amount of $85.9K. In order to execute the scheme, Garcia caused SAP to sell software to a partner in Panama at discounts of up to 82%, enabling the partner to create a fund from its earnings to pay the bribes and kickbacks. Improper Payment: $145K to one official, and offers of bribes whose amount was not specified by the SEC to two other officials. Benefit Sought or Obtained: Software license sales to the government of Panama valued at $3.7M. Charges or Allegations: DOJ: Conspiracy to violate the anti-bribery provision. SEC: Violation of the anti-bribery and books and records provisions. Disposition: DOJ: Guilty plea. SEC: Administrative order. Sentence and Financial Sanctions or Remedies: DOJ: 22 months in prison. SEC: Disgorgement $85.9K; prejudgment interest $6.4K. * * * * * Goodyear Tire & Rubber Company Enforcement Agency(ies): SEC Summary of Conduct: Goodyear Tire & Rubber Company (Goodyear), through a distributor in Kenya in which Goodyear owned a minority interest, and a wholly-owned subsidiary in Angola, allegedly made $3.2M in improper payments to foreign officials in Kenya and Angola, and to employees of private companies in Kenya, to obtain tire sales as well as various other benefits from local authorities. The government officials included Kenyan city council members, police, and building inspectors. The government officials in Angola included employees of various public works, public utility, and natural resources agencies, as well as police and tax authorities. Improper Payment: $3.2M. Benefit Sought or Obtained: Tire sales to public and private entities, and various other benefits from local authorities. Disclosure, Cooperation and Remediation: Goodyear voluntarily disclosed the conduct, cooperated with the SEC s investigation, instituted improvements to its anti-corruption compliance program, disciplined employees, sold its interests in its Kenyan distributor, and divested its interests in its Angolan subsidiary. Charges or Allegations: Violation of the books and records and internal controls provisions. Disposition: Administrative order. Financial Sanctions or Remedies: Disgorgement $14M; prejudgment interest $2M. Reporting Obligations or Other Significant Non-Financial Obligations: Annual reporting to the SEC on the company s anti-corruption program for a three-year period. * * * * * 21

25 SMITH PACHTER McWHORTER PLC Dmitrij Harder Enforcement Agency(ies): DOJ Summary of Conduct: Dmitrij Harder, the former owner and President of Chestnut Consulting Group Inc. and Chestnut Consulting Group Co., was charged with bribing an official with the European Bank for Reconstruction and Development, a public international organization, in exchange for influencing the official s actions on financing applications submitted by the Chestnut Group s clients. The alleged payments totaled more than $3.5M and were made to the official s sister for consulting and other services that allegedly were not actually provided. Improper Payment: $3.5M. Benefit Sought or Obtained: Approvals on two applications for financing from two of Chestnut Group s corporate clients, one resulting in an $85M investment and a $90M loan, and one resulting in a $40M investment and a $60M loan. Charges or Allegations: Violations of the FCPA anti-bribery provision, money laundering, Travel Act violations, and conspiracy. Disposition: Trial is set to occur in * * * * * Walid Katoum Enforcement Agency(ies): SEC. Summary of Conduct: This individual was involved in the conduct described in the PBSJ Corporation matter, infra. Disposition: Administrative order. Sentence and Financial Sanctions or Remedies: Civil fine $50K. * * * * * Richard Hirsch and James McClung Summary of Conduct: These individuals were involved in the conduct described in the Louis Berger International matter, infra. Charges or Allegations: Violation of the anti-bribery provision and conspiracy. Disposition: Guilty Plea. Sentence and Financial Sanctions or Remedies: The defendants had not been sentenced at the time of this publication. * * * * * FCPA COMPLIANCE AND ENFORCEMENT TRENDS ANNUAL GUIDE: APRIL

26 Hitachi, Ltd. Enforcement Agency(ies): SEC Summary of Conduct: Hitachi, Ltd. (Hitachi), a Japanese corporation, allegedly sold 25% of the shares in its South African subsidiary to a local South African company that was a front for South Africa s ruling party, the African National Congress, in exchange for the local company to use its political connections to steer procurement contracts to HPA. Allegedly as a result of the local company s efforts, Hitachi s South African subsidiary was able to secure two power station contracts in South Africa jointly worth approximately $5B. The local company received a $1.1M success fee (but recorded as a consulting fee), a dividend payment of approximately $5M, and a payment of $4.4M to repurchase Hitachi s ownership stake in the local company. Improper Payment: $10.5M. Benefit Sought or Obtained: Contracts. The SEC did not allege a value for the benefit obtained. Charges or Allegations: Violation of the FCPA internal controls and books and records provisions. Disposition: Preliminary injunction. Financial Sanctions or Remedies: Civil fine $19M. * * * * * Hyperdynamics Enforcement Agency(ies): SEC Summary of Conduct: Hyperdynamics, through a subsidiary, allegedly paid $130K for public relations and lobbying services in the Republic of Guinea to two supposedly unrelated local entities. The payments were recorded as public relations and lobbying expenses, but the company lacked sufficient supporting documentation to determine whether the services were actually provided and to identify the ultimate recipient of the funds. Beginning in July 2009, Hyperdynamics replaced its senior management team and its entire Board of Directors. The company also hired its first in-house lawyer, who implemented a number of training programs and revised company policies related to its Guinean operations. Hyperdynamics also increased the number of its accounting personnel, and instituted a series of procedures to more strictly control and identify transfers of funds to Guinea, including the transfer of signature authority over Guinean accounts to Houston-based employees, as well as requiring corporate pre-approval for all Guinean expenditures. Improper Payment: SEC did not allege that any of the benefits provided were in bribe payments. Benefit Sought or Obtained: SEC did not allege that Hyperdynamics actually sought or obtained any business benefit. Disclosure, Cooperation and Remediation: Hyperdynamics replaced its senior management team and its Board of Directors, hired its first in-house lawyer, increased the number of its accounting personnel, and implemented various anticorruption compliance controls related to its Guinean operations. Charges or Allegations: Violation of the books and records and internal controls provisions. Financial Sanctions or Remedies: Civil fine $75K. Reporting Obligations or Other Significant Non-Financial Obligations: None. * * * * * 23

27 SMITH PACHTER McWHORTER PLC IAP Worldwide Services, Inc. Enforcement Agency(ies): DOJ Summary of Conduct: Certain former personnel of the company signed a $4M contract with the Kuwait Ministry of Interior in 2006 to conduct feasibility studies for the award of a network of security cameras and detection devices. They also agreed with an unofficial intermediary to the Kuwait Ministry of Interior to pay nearly half of the contract amount to the intermediary. The funds were paid to the intermediary through a services subcontract designed to obscure that the intermediary was receiving those funds. Improper Payment: $1.78M. Benefit Sought or Obtained: Contract award. Disclosure, Cooperation and Remediation: IAP cooperated with DOJ, disciplined and terminated personnel, and enhanced its anticorruption compliance program. Charges or Allegations: This matter was resolved with a non-prosecution agreement; no charges were filed against the company. Disposition: Non-Prosecution Agreement. Financial Sanctions or Remedies: $7.1M fine. Reporting Obligations or Other Significant Non-Financial Obligations: Annual reporting to the DOJ on the company s anti-corruption compliance program for a three-year period. * * * * * Louis Berger International Inc. Enforcement Agency(ies): DOJ Summary of Conduct: Louis Berger International (LBI) made payments to foreign officials in India, Indonesia, Vietnam, and Kuwait in exchange for securing government construction management projects. The payments were disguised by among things, referring to them as commitment fees or counterpart per diems, or by making payments to subcontractors, consultants, or other vendors, sharing bribe obligations with consortium partners, creating phone contracts with other partners, or by using a local labor pool as the conduit. Improper Payment: $3.9M. Benefit Sought or Obtained: Government construction contracts. Disclosure, Cooperation and Remediation: LBI voluntarily disclosed the conduct, cooperated with the DOJ s investigation, instituted improvements to its anti-corruption compliance program, and terminated personnel involved in the conduct. Charges or Allegations: Conspiracy to violate the anti-bribery provision of the FCPA. Disposition: Deferred Prosecution Agreement. Financial Sanctions or Remedies: Fine $17.1M. Reporting Obligations or Other Significant Non-Financial Obligations: Compliance monitor for three years. * * * * * FCPA COMPLIANCE AND ENFORCEMENT TRENDS ANNUAL GUIDE: APRIL

28 Mead Johnson Nutrition Co. Enforcement Agency(ies): SEC Summary of Conduct: A Chinese subsidiary of Mead Johnson Nutrition Company (MJN) allegedly made improper payments to health care professionals at government-owned hospitals to recommend the company s infant formula to patients who were new or expectant mothers. The payments were made through distributor allowance funds paid to third-party distributors. Although the funds contractually belonged to the distributors, employees of MJN s Chinese subsidiary exercised some control over how the money was spent and provided specific guidance to distributors on how to use the funds. Improper Payment: $2M. Charges or allegations: Violation of the books and records and internal controls provisions. Disclosure, Cooperation and Remediation: MJN did not initially self-report allegations received internally nor promptly disclose the existence of the allegations in response to a subsequent inquiry by the SEC. However, thereafter the company terminated senior staff at the Chinese subsidiary, enhanced its anticorruption compliance program, and cooperated with the SEC. Disposition: Administrative order. Financial Sanctions or Remedies: Disgorgement $7.77M; prejudgment interest $1.26M; civil fine $3M. Reporting Obligations or Other Significant Non-Financial Obligations: None. * * * * * PBSJ Corporation Enforcement Agency(ies): SEC Summary of Conduct: The then-president of a foreign subsidiary of PBSJ Corporation, Walid Hatoum, allegedly offered improper payments and employment to foreign officials in an attempt to secure two multi-million dollar government contract awards approved by a Qatari government real estate development entity. The payments were provided to a company owned by a Qatari official by including the official s company as a subcontractor and paying the company in the form of agency fees. In return, the official allegedly provided access to confidential sealed-bid and pricing information. Improper Payment: $1.4M. Benefit Sought or Obtained: $2.9M in profits from a contract related to a light rail project in Qatar. Charges or Allegations: Violation of the anti-bribery, books and records and internal controls provisions. Disclosure, Cooperation and Remediation: PBS&J voluntarily disclosed the conduct, cooperated with the SEC s investigation, instituted improvements to its anti-corruption compliance program, disciplined and terminated personnel involved in the conduct, and withdrew all proposals in the Middle East initiated during Hatoum s tenure. Disposition: Deferred Prosecution Agreement. Financial Sanctions or Remedies: Disgorgement $2.9M; prejudgment interest $140K; civil fine $375K. 25

29 SMITH PACHTER McWHORTER PLC Non-Financial Sanctions or Remedies: Agreement to maintain an anticorruption compliance program consistent with various specific requirements of the SEC during the two-year deferred prosecution agreement term. * * * * * James Rama Summary of Conduct: See description of the IAP Worldwide Services matter, supra. Charges or Allegations: Conspiracy to violate the FCPA anti-bribery provision. Disposition: Guilty Plea. Sentence and Financial Sanctions or Remedies: 120 days in prison. * * * * * Roberto Enrique Rincon Fernandez and Abraham Jose Shiera Bastidas Summary of Conduct: Roberto Enrique Rincon Fernandez and Abraham Jose Shiera Bastidas were charged with making improper payments to officials from a Venezuelan state-owned oil and natural gas producer in exchange for rigging the company s competitive bidding process in their favor. Rincon Fernandez and Shiera Bastidas allegedly bribed the Venezuelan officials with money as well as travel, meals, and other entertainment in exchange for agreeing to place one or more of Rincon s and Shiera s closely held companies in the bidding pool, to create an illusion of competition, and for directing the contracts to one of Rincon Fernandez s and Shiera Bastidas companies. Improper Payment: $790K. Benefit Sought or Obtained: $16M in project contracts. Charges or Allegations: Violation of the FCPA anti-bribery provision and money laundering. Disposition: Both cases remained pending as of the time of this publication. Sentence and Financial Sanctions or Remedies: None at the time of this publication: open cases. * * * * * FCPA COMPLIANCE AND ENFORCEMENT TRENDS ANNUAL GUIDE: APRIL

30 Standard Bank Enforcement Agency(ies): SEC Summary of Conduct: Standard Bank Plc (Standard Bank), in connection with a securities offering, allegedly failed to disclose certain payments in connection with debt issued by the Government of Tanzania for which the London-based bank acted as a lead manager for the offering. The payments were made by an affiliate to a Tanzanian firm that had a Tanzanian official as one of its directors, and that performed no substantive role in the transaction. Standard Bank allegedly did not seek to understand the Tanzanian firm s role in the transaction despite red flags that the $6 million payment was intended to induce the Government of Tanzania to select Standard and another company as managers for the offering. Improper Payment: $6M. Benefit Sought or Obtained: $8.4M in investment fund management fees. Charges or Allegations: Standard Bank is not an issuer, and thus not subject to FCPA jurisdiction. Rather, the SEC charged the bank with obtaining money in a securities offering by means of materially untrue statements or omissions. As part of a coordinated global settlement, the company also settled an enforcement action by the U.K. Serious Fraud Office for violations of the anti-bribery provisions of the U.K. Bribery Act. Disposition: SEC: Administrative order. U.K. Serious Fraud Office: Deferred Prosecution Agreement. Financial Sanctions or Remedies: SEC: Disgorgement $8.4M; civil fine $4.2M (satisfied by payment in the UK case). U.K. Serious Fraud Office: $32.3M. The latter sum was satisfied by Standard Bank s payment in connection with the U.K. settlement. 27

31 SMITH PACHTER McWHORTER PLC VI. FCPA Statutory Provisions and Penalties The FCPA s anti-bribery provisions make it unlawful for: To offer, pay, promise to pay, or authorize a corrupt payment or other thing of value Directly or indirectly To a foreign official, candidate for foreign political office, official of an international public organization, or a foreign political party For the purpose of influencing any official act or decision, including any act or omission in violation of a lawful official duty, or securing an improper advantage To assist in obtaining, retaining, or directing business to any person See 15 U.S.C. 78dd-1 (public companies and persons associated with them), 78dd-2 (domestic companies and persons associated with them), and 78dd-3 (non-u.s., private held companies and foreign nationals). Criminal penalties for violation of the anti-bribery provision are: Individuals Up to five years imprisonment Fine of up to $250,000 Corporate entities Fine of up to $2,000,000, or up to double the amount of the bribe or the gain from the bribe. Non-monetary sanctions such as a monitorship or self-reporting obligations can also be imposed Note that fines are calculated under the United States Sentencing Guidelines, and typically a matter involves enough separate instances of violative conduct that the statutory maximum per violation does not come into play to limit the total fine to that amount. The FCPA s books-and-records and internal controls provisions require public companies to: Maintain accurate books and records (no false or misleading entries and no undisclosed or unrecorded accounts or assets) Maintain adequate accounting and controls systems (expenses must be accurately and completely documented) Individuals can be charged under these provisions if they knowingly falsify a public company s books and records or knowingly circumvent a public company s internal controls. These provisions are often used in SEC enforcement cases involving corrupt payments, but such payments are not required to trigger liability. See 15 U.S.C. 78m. FCPA COMPLIANCE AND ENFORCEMENT TRENDS ANNUAL GUIDE: APRIL

32 Criminal penalties for violation of the books and records and internal controls provisions are: Individuals Up to twenty years imprisonment Fine of up to $5 million Corporate entities Fine of up to $25 million Civil penalties and remedies for violation of the books and records and internal controls provisions are: Individuals $7,500 to $160,000 depending on the seriousness of the violation Disgorgement of ill-gotten gains Bar on serving as a director or officer of a public company Corporate entities $75,000 to $775,000 depending on the seriousness of the violation Disgorgement of ill-gotten gains Non-monetary sanctions such as a monitorship or self-reporting obligations can also be imposed Note that, similarly to criminal fines, a matter typically involves enough separate instances of violative conduct that the statutory maximums per civil violation do not come into play to limit the total fine to such an amount. 29

33 SMITH PACHTER McWHORTER PLC VII. DOJ Principles & Requirements for an Adequate Anti-Corruption Program 1. Demonstrate corporate commitment to compliance code and against violations of anti-corruption laws through strong, explicit and visible support of directors and senior management 2. Clearly articulated and visible policies against violations of anti-corruption laws, whether domestic or foreign, government or private. 3. Policies and procedures designed to reduce likelihood of violations; encourage support and observance of ethics and compliance. a. Applicable to directors, officers, employees, third party intermediaries (agents, intermediaries, consultants, representatives, distributors, teaming partners, contractors and suppliers, consortia, and JV partners), and to all subsidiaries. b. Compliance is a duty of all individuals; non-compliance to which can lead to discipline and termination; includes duty to report misconduct by others. c. Specific policies should address gifts, hospitality, entertainment, expenses, customer travel, political contributions, charitable donations and sponsorships, facilitation payments, solicitation and extortion. 4. Internal controls and financial and accounting procedures to ensure accurate books and records and to ensure execution and recordation of transactions is per management authorization; access to assets is authorized; compare recorded assets with existing assets at intervals. 5. Periodic risk assessments based on geography, governmental interaction, industry sector, use of JVs, need for licensing/ permitting, government oversight and inspection, degree of customs and immigration clearance, tax exposure. Compare to industry peers. 6. Review anti-corruption policies and procedures annually; update as appropriate. 7. Assign responsibility for the anti-corruption compliance program to one or more senior executives with the ability to communicate directly with internal audit, the Board, or appropriate Board committees, and who has sufficient autonomy and resources. 8. Effectively communicate the ethics code and policies per appropriate mechanisms to all relevant personnel and where appropriate third parties. a. Periodic training for employees in positions of leadership or trust. This would include senior leadership and employees whose positions require them to handle transactions or situations that could put the company at risk. b. Verify any training through certification process. 9. System for providing advice effectively and if needed urgently. 10. System for internal and where possible confidential reporting and protection to those reporting. a. Where appropriate, include reporting options for third parties. FCPA COMPLIANCE AND ENFORCEMENT TRENDS ANNUAL GUIDE: APRIL

34 11. Well-resourced and reliable process for documenting and investigating allegations of violations of anti-corruption laws or of the anti-corruption compliance code, policies or procedures. 12. Mechanisms to effectively enforce the code, policies and procedures, to incentivize compliance and discipline violations. 13. Appropriate disciplinary procedures to address violations and that are fairly and consistently applied to all directors, officers and employees. 14. Risk-based due diligence and compliance requirements for agents and business partners a. Properly documented due diligence for hiring and regular oversight b. Inform business partners of Company s commitment to anti-corruption compliance c. Obtain reciprocal commitment 15. Include standard provisions in agreements, contracts and renewals with agents and business partners that are reasonably calculated to prevent violations of the anti-corruption laws. a. Representation of compliance with Code; right to terminate; right to audit. 16. Mergers and acquisitions subject to appropriate risk-based due diligence, including anti-corruption due diligence. 17. Ensure that newly acquired entities or businesses brought promptly into compliance with compliance code, policies and procedures. a. Train directors, officers, employees, agents and business partners. b. Where warranted, conduct anti-corruption audit post-acquisition/merger. 18. Conduct periodic reviews and testing of the anti-corruption compliance program. 31

35 Smith Pachter McWhorter White Collar Practitioners

36 Iris E. Bennett Member Ms. Bennett has deep experience counseling clients on the investigation, defense, and resolution of white collar matters, as well as the corporate compliance programs designed to avoid such liabilities. She has represented numerous Fortune 100 corporate and individual clients in matters relating to potential violations of criminal or civil fraud statutes, including the Foreign Corrupt Practices Act (FCPA), the False Claims Act, the Anti-Kickback Act, and antitrust laws. She has also represented companies in matters implicating the federal mandatory and voluntary disclosure rules and brought those matters to successful resolution. She has conducted internal investigations in cases across the globe and represented companies before the Criminal and Civil Divisions of the Department of Justice as well as the Securities and Exchange Commission, in all phases of U.S. government investigations and settlement. Ms. Bennett s fluency in Spanish has enabled her to conduct many investigations in that language. In addition to her extensive investigation and defense experience, Ms. Bennett has many years of FCPA compliance counseling experience. She regularly advises corporate clients on their anti-corruption compliance programs and on specific policies, procedures and compliance questions. She has also designed and led large-scale corporate compliance reviews and audits. Ms. Bennett clerked for the Honorable Robert W. Sweet of the United States District Court for the Southern District of New York, and for the Honorable David S. Tatel of the United States Court of Appeals for the District of Columbia. Ms. Bennett entered private practice after serving as a federal criminal defense lawyer in the District of Columbia Federal Public Defenders office. New York University School of Law (J.D., 1999; magna cum laude); Order of the Coif; New York University Law Review Harvard College (A.B., 1989; summa cum laude); Phi Beta Kappa SMITH PACHTER McWHORTER PLC 8000 Towers Crescent Drive, Suite 900 Tysons Corner, VA Telephone: (703) Fax: (703) ibennett@smithpachter.com

37 Joseph P. Covington Member Mr. Covington has over 35 years of white collar litigation and counseling experience in the domestic and international marketplaces, with expert knowledge of the Foreign Corrupt Practices Act (FCPA), the Anti- Kickback Act, the False Claims Act, and other criminal and civil fraud statutes and regulations. Mr. Covington s FCPA experience began in 1977 as a trial attorney in the Fraud Section at the Department of Justice investigating foreign bribery cases, and later served as head of DOJ s FCPA prosecution unit, after which Mr. Covington entered private practice. Mr. Covington has successfully represented hundreds of corporate clients in FCPA internal investigations, government investigations, and compliance matters, in countries ranging from Albania to Zimbabwe. He has counseled clients on post-violation remediation, guided them in establishing and maintaining compliance programs, and advised on third-party due diligence and contracting issues. Mr. Covington recently was appointed by the International Bank for Reconstruction and Development and International Development Association (World Bank) as the Independent Compliance Monitor for SNC-Lavalin Group Inc., with a mandate to review and evaluate the company s global anti-corruption compliance program. Mr. Covington also has two decades of experience with the False Claims Act (FCA) and its qui tam provisions. He has investigated and litigated numerous FCA cases, identifying and implementing strategies to resolve these cases. He has represented corporate and individual clients involving a range of other federal statutes and regulations, including those governing conflicts of interest, procurement integrity, and anticompetitive behavior. Mr. Covington is also well-versed in the mandatory and voluntary disclosure obligations of government contractors and has represented numerous clients in those matters. Mr. Covington has represented companies before government agencies including the Department of Justice Civil and Criminal Divisions, the Securities and Exchange Commission, the Special Investigator General for Afghan Reconstruction, and other investigatory bodies as well as suspension and debarment officials. SMITH PACHTER McWHORTER PLC 8000 Towers Crescent Drive, Suite 900 Tysons Corner, VA Telephone: (703) Fax: (703) jcovington@smithpachter.com Mr. Covington is AV Peer Review Rated, Martindale-Hubbell s highest peer recognition for ethical standards and legal ability. In 2012, Mr. Covington was named a DC Super Lawyer in White Collar Defense. Before his legal career, he served in the United States Army in combat in Vietnam and received a Purple Heart. Mr. Covington is proficient in German. University of Virginia School of Law (J.D., 1973) University of Virginia (B.A. History, 1968) Washington DC Super Lawyers, Criminal Defense: White Collar (2012)

38 Sean J. Hartigan Member Mr. Hartigan specializes in white collar defense and compliance counseling. In the international compliance context he concentrates on the Foreign Corrupt Practices Act (FCPA) and in the domestic context on the False Claims Act, Procurement Integrity Act, Federal Acquisition Regulation (FAR), and other statutes and regulations governing the conduct of government contractors and their employees. Mr. Hartigan has represented corporate clients in the course of numerous internal and government investigations, including before the Department of Justice, Securities and Exchange Commission, and Office of the Inspector General. With bilingual skills, he has conducted many investigations in Spanish. Mr. Hartigan has also led teams in planning and conducting FCPA compliance audits and program reviews, and provides compliance counseling in this area. Mr. Hartigan has substantial in-house experience with a major government contractor in the areas of contract negotiation, investigation of potential voluntary and mandatory disclosures, and analysis of FAR clauses for flow-down to business partners. University of Michigan Law School (J.D., 2003, cum laude); Book Review Editor, Michigan Law Review University of Michigan - Gerald R. Ford School of Public Policy (M.P.P., 2003) Dartmouth College (B.A., 1994) SMITH PACHTER McWHORTER PLC 8000 Towers Crescent Drive, Suite 900 Tysons Corner, VA Telephone: (703) Fax: (703) shartigan@smithpachter.com

39 Stephen D. Knight Member Mr. Knight counsels and represents clients in litigation on all aspects of government contracts. Mr. Knight places special emphasis on claims and disputes, government contract cost accounting, cost allowability, Cost Accounting Standards, defective pricing, government audits, and contract compliance. He has substantial expertise in performance issues, including defective specifications, delay and disruption, changes, and terminations. Mr. Knight also has significant experience in procurement fraud matters, representing clients during grand jury and Inspector General criminal investigations, as well as civil investigations and litigation pursuant to the Civil False Claims Act. Mr. Knight is a frequent author and speaker on government contract issues. Some of his publications include: Co-author, Metron, Inc.: A Primer for Proving Compensation Cost Reasonableness, 98 Federal Contracts Report 254, The Bureau of National Affairs, Inc., August 20, 2012; Co-author, Maropakis: The Federal Circuit Imposes Forfeiture of Defenses to Government Claims When Contractor Fails to Certify Them as Contractor Claims, 94 Federal Contracts Report 221, The Bureau of National Affairs, Inc., July 27, 2010; Certified Estimates and Mandatory Disclosure: A Bad Decision Makes for a Worse Regulation, The Procurement Lawyer, Vol. 44, No.4, Summer 2009; Geren v. Tecom, Inc.: The Federal Circuit Creates A New FAR Cost Principle, Government Contract Costs, Pricing & Accounting Report, Vol. 4, No. 4 27, July 2009 (with Richard C. Johnson, John S. Pachter and D. Joe Smith); Federal Circuit Cost Decisions Bode Ill for Contractors, The Procurement Lawyer, Vol. 39, No. 2, Winter 2004; and Compliance Problems for American Contractors in Iraq, The Construction Lawyer, Vol. 24, No. 2, Spring Mr. Knight is fluent in French. As an adjunct professor of law with the George Washington University Law School, Mr. Knight teaches in the university s LL.M. in Government Procurement Law Program. University of Virginia School of Law (J. D., 1978) SMITH PACHTER McWHORTER PLC University of Virginia (B.A. with Honors, 1975) 8000 Towers Crescent Drive, Suite 900 Tysons Corner, Virginia Telephone: (703) Fax: (703) sknight@smithpachter.com

40 Kathryn T. Muldoon Member Ms. Muldoon represents clients in the government contracts and construction practice areas. Her experience includes contract claims and disputes, bid protests, resolution of prime-subcontractor disputes, audits and investigations, procurement fraud, government contract cost accounting, cost allowability, Cost Accounting Standards, Buy America issues, development of contractor ethics and compliance programs, and representation of contractors who have been suspended or proposed for debarment. She is experienced in the conduct of internal investigations and employee interviews pertaining to compliance issues and in support of independent monitor engagements. Ms. Muldoon s experience ranges from contract administration to claims and litigation, on federal, state, and private projects. She has experience in claim analysis and presentation, including work with technical experts, scheduling experts, and cost and pricing experts. She has also worked with national, international, and local construction and engineering firms on major contracting issues including defective specifications, differing site conditions, constructive changes, contractor performance evaluations, and liquidated damages. Pepperdine University School of Law (J.D., 2006) University of Virginia McIntire School of Commerce (B.S. Commerce Accounting Concentration, 2002) SMITH PACHTER McWHORTER PLC 8000 Towers Crescent Drive, Suite 900 Tysons Corner, Virginia Telephone: (703) Fax: (703) kmuldoon@smithpachter.com

41 Erica J. Geibel Associate Ms. Geibel represents clients in both the government contracts and construction practice areas. Ms. Geibel s government contracts experience includes work on costing and pricing issues involving cost allocability and allowability, contractor responsibility and integrity issues, internal investigations, Foreign Corrupt Practices Act compliance counseling, False Claims Act issues, small business issues, contract claims and disputes, bid protests, Service Contract Act disputes, contract negotiations, contract review and contract drafting. Ms. Geibel has significant experience in the area of compliance and regularly reviews ethics and compliance programs, assists in training, and evaluates and tests internal controls. Ms. Geibel has represented major national and international contractors, as well as local contractors on a wide variety of construction issues. Her construction experience includes work on general negligence, differing site conditions, defective specifications, design changes, payment and performance bond disputes, contract interpretation issues, payment disputes, insurance and warranty issues, delay, constructive changes, and analysis of contractor claims. She has litigated disputes at the federal, state, city and private levels and has been involved in dispute resolution through negotiation and mediation. Ms. Geibel graduated cum laude from the George Mason University School of Law. She is an active member of the ABA Section of Public Contract Law and is Co-Chair of the Fairfax Bar Association Government Contracts Section. Prior to joining Smith Pachter McWhorter, Ms. Geibel served as a law clerk for the United States Attorney s Office for the District of Columbia. George Mason University School of Law (J.D., cum laude; Moot Court Board; Trial Advocacy; Writing Fellow) George Mason University (B.A., Government & International Politics, Departmental Honors, cum laude) SMITH PACHTER McWHORTER PLC 8000 Towers Crescent Drive, Suite 900 Tysons Corner, VA Telephone: (703) Fax: (703) egeibel@smithpachter.com

42 Carlos Andre G. Grover Associate Mr. Grover practices in the areas of white collar including compliance counseling, monitoring, investigations and defense; and government contracts. He has served as lead associate on internal investigations using his language abilities in Spanish and Portuguese. He is currently assisting members Joseph P. Covington, Iris E. Bennett and Sean J. Hartigan with their mandate to review and evaluate SNC-Lavalin Group Inc. s global anti-corruption compliance program as a part of Mr. Covington s role as Independent Compliance Monitor for the World Bank. Mr. Grover also has experience assisting with subpoena response, and supporting e-discovery collection, review, and production. Additionally, his government contracts experience includes conflicts of interest issues, GSA contracts, and compliance counseling. Mr. Grover is a dual citizen of Brazil and the United States and is fluent in Portuguese and Spanish. He was born in Brasilia, Brazil and also lived in Belize City; London; Charleston, South Carolina; and New Orleans, Louisiana. Prior to joining Smith Pachter McWhorter, Mr. Grover was a judicial intern for the Honorable Judge Blackburne-Rigsby of the D.C. Court of Appeals. Mr. Grover also served as an editor and translator for the Honorable Judge Ricardo Perlingeiro of the Tribunal Regional Federal da 2 a Região. American University-Washington College of Law, cum laude, (J.D., 2014) American University-School of Internationals Studies, International Affairs (M.A., 2014) Tulane University, Political Science and Latin American Studies, Magna cum laude (B.A., 2011). Latin American Studies Senior Scholar Award. SMITH PACHTER McWHORTER PLC 8000 Towers Crescent Drive, Suite 900 Tysons Corner, VA Telephone: (703) Fax: (703) grover@smithpachter.com

43 Erica A. Reed Associate Ms. Reed has extensive experience representing corporate entities and their executives in connection with litigation and investigations arising out of white collar criminal prosecutions, grand jury investigations, criminal antitrust investigations, and corporate compliance matters. She has conducted numerous internal investigations and employee interviews across the globe pertaining to FCPA investigations, government investigations, and in support of independent monitor engagements. A seasoned litigator who has successfully handled numerous cases in federal and state courts, Ms. Reed has also represented her clients in civil matters such as breach of contract, tortious interference, business conspiracy, fraud, securities litigation and arbitration, and class actions. Prior to returning to private practice, Ms. Reed was an Assistant United States Attorney for the District of Columbia and the Northern District of Florida. Ms. Reed also served as a Trial Attorney in the Department of Justice s (DOJ) Civil Division, National Courts Section. While in the National Courts Section, Ms. Reed represented the United States in government contract and procurement dispute litigation. While in law school, Ms. Reed was an intern for the Hon. Eric Washington, Chief Judge, of the District of Columbia Court of Appeals Fordham University (B.A., 2002) New York University School of Law (J.D., 2005) New York University School of Law, Trade Regulation (L.L.M., 2009) SMITH PACHTER McWHORTER PLC 8000 Towers Crescent Drive, Suite 900 Tysons Corner, VA Telephone: (703) Fax: (703) ereed@smithpachter.com

44 Armani Vadiee Associate Mr. Vadiee s practice focus is government contracts, commercial contracts, compliance, white collar and construction matters. Mr. Vadiee provides counsel to domestic and international clients on a wide range of issues including contract negotiation, contract terms and conditions, bid protests, contract changes and claim preparation, contract termination settlements, regulatory audit and compliance litigation and oversight on independent monitor engagements. Mr. Vadiee provides regulatory compliance counseling on wide range of areas including export controls, subcontractor evaluations and mandatory reporting requirements. Mr. Vadiee has experience litigating contract disputes in federal and state courts and administrative bodies including before the Civilian Board of Contract Appeals, the Armed Services Board of Contract Appeals, the United States Government Accountability Office, the United States Court of Federal Claims and the United States Court of Appeals for the Federal Circuit. Prior to law school, Mr. Vadiee was a contracting officer for a U.S. Department of Energy research laboratory and during law school clerked at the U.S. Government Accountability Office. Mr. Vadiee is fluent in Farsi and has a working knowledge of Spanish. As an active member of the American Bar Association Section of Public Contract Law and the Federal Bar Association s Government Contracts Section, Mr. Vadiee instructs courses in Cost and Price Realism in Government Contracts, Government Contracts Ethics and Compliance, and Cybersecurity and the impact on law firms. University of Maryland School of Law (J.D., 2010) University of New Mexico, Anderson Graduate School of Management (M.B.A., 2004) University of New Mexico, Anderson School of Management (B.B.A., 2002) SMITH PACHTER McWHORTER PLC 8000 Towers Crescent Drive, Suite 900 Tysons Corner, VA Telephone: (703) Fax: (703) avadiee@smithpachter.com