We are pleased to present the 2013 edition of Jenner & Block s Foreign Corrupt Practices Act Business Guide.

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3 We are pleased to present the 2013 edition of Jenner & Block s Foreign Corrupt Practices Act Business Guide. This Guide provides the latest guidance on how best to confront the reality of corruption in the world s marketplaces with practical tips for how to deal with Foreign Corrupt Practices Act (FCPA) issues both before and after the government is involved if that occurs. If you have any questions about this Guide, or the FCPA in general, please feel free to contact any of the authors below. Author Information 1 Joseph P. Covington Tel: Fax: jcovington@jenner.com Thomas C. Newkirk Tel: Fax: tnewkirk@jenner.com Iris E. Bennett Tel: Fax: ibennett@jenner.com Jessie K. Liu Tel: Fax: jliu@jenner.com Michael K. Lowman Tel: Fax: mlowman@jenner.com Cynthia J. Robertson Tel: Fax: crobertson@jenner.com 2013 Jenner & Block LLP. Jenner & Block is an Illinois Limited Liability Partnership including professional corporations. 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. The attorney responsible for this publication is Joseph P. Covington. ATTORNEY ADVERTISING. PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. 1 The authors would like to thank associates Andrew D. Kennedy and Coral A. Negron for their invaluable assistance on this Guide.

4 TABLE OF CONTENTS INTRODUCTION TO THE PRACTICE GUIDE...1 THE STATUTORY FRAMEWORK...3 The Anti-Bribery Provisions...3 The Books-and-Records Provisions...9 CONSEQUENCES OF FCPA VIOLATIONS...11 FREQUENTLY ASKED QUESTIONS Who Is Subject To The FCPA? When Is An American Company Liable For The Acts Of A Foreign Subsidiary? What Does It Mean To Authorize An Improper Payment? What Is A Facilitating, Or Grease, Payment? Are American Companies Liable For The Prior Illegal Acts Of Companies They Purchase? Can The U.S. Government Prosecute Foreign Companies Under The Act? What Provisions Should An Agreement With A Foreign Representative Contain? May A Company Make Charitable/Educational Contributions At The Request Of A Foreign Official? May A Company Sponsor An Educational Trip For Foreign Officials Or Provide Other Hospitality? May A Company Make Commission Payments? Is A Company Liable For Improper Payments By Distributors Or Other Third Parties? If Necessary, How Should A Company Make Overseas Payments? How Should A Company Handle Subcontractor Payments? Who Qualifies As A Foreign Official? Can A U.S. Company Do Business With A Business Entity In Which A Foreign Official Is A Participant? Can Companies Make Payments To Foreign Government Entities? Are Payments To Resolve Tax Or Customs Disputes Covered By The FCPA? Are There Benefits To Voluntary Disclosure? Should Companies Be Concerned About Other Statutes, Such As The Money Laundering Statutes? Can An Individual Be Liable Under The Books-And-Records Provisions?...25 i

5 21. Can Companies Or Individuals Be Convicted Of An FCPA Violation If They Do Not Themselves Pay The Bribe? Does The U.S. Government Engage In Sting Operations To Identify FCPA Violations? DOJ OPINION RELEASES FCPA ENFORCEMENT ACTIVITY FCPA FEDERAL COURT LITIGATION...45 JENNER & BLOCK S FOREIGN CORRUPT PRACTICES ACT PRACTICE...49 PRACTICE MEMBER BIOGRAPHIES...51 ii

6 INTRODUCTION TO THE PRACTICE GUIDE The DOJ and SEC brought a combined total of 22 enforcement actions in 2012, the lowest number since The year 2012 also saw fewer FCPA actions against individuals than in recent years: four of the 22 actions were against individuals. This decline from recent years is more likely an anomaly than the beginning of a trend. DOJ and SEC officials have given no indication that the agencies intend to let up on FCPA prosecutions. Moreover, as the prosecution of individuals has increased over time, there has also been an important resulting trend, i.e., an increase in federal court litigation in FCPA cases. That increase in litigation means that not all cases are resolved by pleas or other forms of settlement, and thus some take longer to resolve. It also means that the enforcement agencies must devote resources to court litigation. Indeed, there were recently no fewer than three district court decisions rendered in cases pending during 2012, regarding a variety of defenses raised by individuals against SEC prosecutions. 2 The most significant development arguably was not any particular case or enforcement trend reflected in the cases but, rather, the joint release of the long-awaited Resource Guide to the U.S. Foreign Corrupt Practices Act (FCPA) by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) (the DOJ/SEC Resource Guide ). The overall approach to FCPA enforcement as well as the statutory interpretations set forth in the DOJ/SEC Resource Guide reflect principles established over the years through DOJ and SEC prosecutions and settlements, DOJ Opinion Releases, and federal court litigation. The DOJ/SEC Resource Guide does not necessarily break new legal ground. However, it constitutes a useful compilation and in some cases clarifications of the cases and of the guidance previously provided. Topics addressed by the DOJ/SEC Resource Guide include among others the obtain or retain business element; gifts and hospitality; facilitation payments; the definition of a foreign official; parent liability for acts of a subsidiary; extraterritorial jurisdiction; due diligence regarding mergers & acquisitions; successor liability; and what is expected in terms of adequate internal accounting controls. 3 Last year s enforcement docket continued and reinforced the trend that began two to three years ago of a decline in the imposition of external monitors and independent compliance consultants. Those measures now are reserved for only the most serious cases. At the same time, the government has taken to imposing self-reporting requirements in many corporate settlements, i.e., requirements that the settling company self-audit and report back to the government on its FCPA compliance for a designated period of time after the settlement. Of the 22 DOJ and SEC resolutions in 2012, only four imposed a monitor or independent compliance consultant, while six imposed a self-reporting requirement. The period of self-reporting typically ranged from 18 months to three years. A recurring question for companies facing FCPA issues is whether there is an identifiable and significant benefit from self-disclosure. Both the DOJ and SEC have made repeated public pronouncements that they give credit for self-disclosure, and such statements were reiterated in the DOJ/SEC Resource Guide. That said, it remains difficult to isolate the effect of disclosure on the 2 3 These decisions are discussed in more detail in the section titled 2012 FCPA Federal Court Litigation, infra at 45. The guidance set forth in the DOJ/SEC Resource Guide is discussed in more detail in a client advisory published on November 14, 2012, A Resource Guide to the U.S. Foreign Corrupt Practices Act, available at 1

7 monetary sanction. We took a fresh look at this issue taking into account last year s settlements and going back to In reviewing corporate settlements with the DOJ over that five-year period, we determined that discounts off the applicable Sentencing Guidelines fine in a given case were comparable for disclosers and non-disclosers, provided the company cooperated fully once a government investigation was initiated and demonstrated fulsome remediation. Specifically, this data reflects that, on average, both categories of companies received a percent reduction off the lower end of the applicable Sentencing Guidelines fine. 4 It should be noted that of course the Sentencing Guidelines offer a separate credit for disclosure that results in a lower Guidelines range in the first instance, so that any further discount would be deducted from a lower starting point. Yet, there is plenty of flexibility in the Guidelines for the government to insist on penalty enhancements based on factors other than non-disclosure, and indeed one sees variation in the application of these types of enhancements in the settlements. Moreover, a number of the cases involving non-disclosers with high fines also happen to be cases involving some of the most serious underlying conduct, such as the Siemens and KBR matters. As a result, the effect of disclosure on the financial sanctions in FCPA cases remains uncertain. As with past versions, the 2013 edition of Jenner & Block s FCPA Business Guide describes and analyzes the latest developments in FCPA enforcement and provides practice guidance. We also provide an overview of the statute and address typical questions that a company operating in the international marketplace may have about how to avoid running afoul of the statute. Naturally, the information presented herein is not intended to be legal advice in any specific situation. Such advice could only be provided after a full evaluation of all of the facts and circumstances of a particular matter. 4 In reaching these results, we relied on cases where the government s calculation under the Sentencing Guidelines was available. The averages reported here exclude the Siemens matter, a case involving a non-discloser who then cooperated fully: despite not having voluntarily disclosed, Siemens received an unusually high discount 66% off its Sentencing Guidelines; this was likely a result not only of its extensive cooperation and remediation but also the fact that the criminal fine would have been extraordinarily high otherwise (at least $1.35B). 2

8 THE STATUTORY FRAMEWORK The FCPA s anti-bribery provisions prohibit payments to foreign officials for the purpose of obtaining or retaining business. See 15 U.S.C. 78dd-1, dd-2, and dd-3. The statute s booksand-records provisions require the maintenance of reasonably accurate accounting records and adequate internal controls. The Anti-Bribery Provisions The FCPA s anti-bribery provisions make it unlawful: (1) Corruptly to make use of the mails or any means or instrumentality of interstate commerce, or for persons only, to commit any other act, while in the territory of the United States; (2) In furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to any of the following: (i) (ii) (iii) (iv) a foreign official; a foreign political party or official thereof; a candidate for foreign political office; or any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any of the above. 5 (3) For the purposes of: (i) (ii) (iii) (iv) influencing any act or decision of such foreign official in his official capacity; inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official; securing any improper advantage; or inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality. 5 For convenience, the foregoing terms will hereinafter be referred to collectively as foreign official. 3

9 (4) In order to assist such issuer or domestic concern in obtaining or retaining business for or with, or directing business to, any person. Some comments regarding certain key elements: Corruptly. The FCPA requires that the pertinent acts be committed corruptly. The Act s legislative history reflects that the payments must be intended to induce the recipient to misuse his official position. H.R. Rep. No , at 8 (1977). An act is corruptly done if done voluntarily and with a bad purpose of accomplishing either an unlawful end or result, or a lawful end or result by some unlawful method or means. United States v. Liebo, 923 F.2d 1308, 1312 (8th Cir. 1991); see also Stichting Ter Behartiging Van de Belangen Van Oudaandeelhouders In Het Kapitaal Van Saybolt Int l B.V. v. Schreiber, 327 F.3d 173, (2d Cir. 2003) (a bad or wrongful purpose and an intent to influence a foreign official to misuse his official position satisfy this element). In a 2008 decision, Kozeny, a federal district court considered whether a defendant may obtain a jury instruction regarding whether corrupt intent was lacking because the bribe was the result of extortion. The court agreed that true extortion can be a viable defense and held that, where a defendant presents sufficient evidence, the court should instruct the jury as to what constitutes true extortion such that a defendant cannot be found to have the requisite corrupt intent. The Kozeny court was not called upon to decide the precise parameters of true extortion but concluded that it must involve more than a simple demand for payment. Citing the FCPA s legislative history, the court stated: while the FCPA would apply to a situation in which a payment [is] demanded on the part of a government official as a price for gaining entry into a market or to obtain a contract, it would not apply to one in which payment is made to an official to keep an oil rig from being dynamited.... United States v. Kozeny, 582 F. Supp. 2d 535, 539 (S.D.N.Y. 2008). In Furtherance of an Unlawful Payment. This provision requires a nexus between a person or entity s use of interstate commerce and the unlawful payment or, if the person is a non-u.s. person or the company a foreign, non-issuer entity, between any act within the United States and the unlawful payment. In most cases it is easily met for example, by or telephonic communications relating to the payments, or by the wiring of money or other payment mechanisms. Importantly, the DOJ reads the provision as encompassing a much broader range of circumstances. An example is the 2008 AGA Medical Corporation matter. AGA Medical involved a scheme of improper commissions to doctors and patent agents in China in connection with the sales of and patent approvals for certain medical devices. While the charging documents describe communications relating to the payments, the DOJ also deemed the in furtherance of requirement to be met by the shipping of the products to China. Something of Value. In analyzing whether something of value has been offered to a foreign official, the courts have looked not only to objective value but also to the value the [official] subjectively attaches to the items received. United States v. Gorman, 807 F.2d 1299, 1305 (6th Cir. 1986). Things of value under the statute include both tangible and intangible objects. See, e.g., United States v. Girard, 601 F.2d 69, 71 (2d Cir. 1979). In addition to cash and cash equivalents (i.e., stock, stock options), in the FCPA context, things of value have included: college scholarships, see United States v. McDade, 827 F. Supp (E.D. Pa. 1993), aff d in part, 28 F.3d 283 (3d Cir. 1994); the service of a prostitute, see Girard, 601 F.2d at 71, and United States v. 4

10 Marmolejo, 89 F.3d 1185, 1193 (5th Cir. 1996); and offers of future employment, see Girard, 601 F.2d at 71. Authorization of Unlawful Payments. The FCPA prohibits not only the making but also the authorization of any payment or giving of anything of value to an official. 15 U.S.C. 78dd- 1(a). As discussed at more length at FAQ 3, infra, authorization does not have to be explicit. The Payment Need Not Be Consummated. The statute also prohibits not only improper payments but offers or promises to make such payments; thus, the payment need not actually be made in order for there to be a violation. Knowing. The statute employs a broad definition of knowing, which is a key element where, for example, payments to a third party are at issue. Knowledge of a relevant circumstance exists if a person is aware of a high probability of the existence of such circumstance, unless the person actually believes that such circumstance does not exist. 15 U.S.C. 78dd-1(f)(2)(B). Willful blindness to circumstances indicating a high probability of unlawful activity will thus satisfy the knowledge requirement. Improper Purpose. The offer, gift, or promise to a foreign official must be given for one of four purposes in order to be punishable: (1) to influence any act or decision of such foreign official in his official capacity; (2) to induce such foreign official to do or omit to do any act in violation of the lawful duty of such official; (3) to secure any improper advantage; or (4) to induce such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality. These purposes encompass nearly every act a foreign official might take that could benefit the party making the promise, payment, or offer. The first applies when the foreign official has some sort of discretion within the laws of the pertinent foreign country, and the offer, gift, or promise was given in order to influence the exercise of that discretion. The second applies when a foreign official breaks the laws of the pertinent foreign country. The third purpose, securing any improper advantage, broadly concerns something to which the company concerned was not clearly entitled, [such as] an operating permit for a factory which fails to meet the statutory requirements. United States v. Kay, 359 F.3d 738 (5th Cir. 2004) ( Kay I ). Any advantage that was not readily available to other competitors and which was secured by a payment could be deemed to fall within the scope of this provision. Id. at The fourth listed purpose focuses on persuasion of the receiving foreign official to use his or her influence within the foreign government. For example, in the 2006 Statoil matter, the government brought an enforcement action against a foreign oil company that entered into a $15 million consulting agreement with an Iranian official, the purpose of which was to induce the Iranian official to use his influence to assist the company in obtaining a contract. Statoil ASA, Exchange Act Release No (Oct. 13, 2006). To Obtain or Retain Business. The leading case on this issue is Kay I, in which the Fifth Circuit held that this statutory requirement was satisfied by payments designed to secure illegally reduced customs and tax liability, because lower tax payments would more generally help[] a domestic payor obtain or retain business for some person in a foreign country. Kay I, 359 F.3d 738. Thus, the obtain or retain business provision will be read broadly. 5

11 The breadth of the FCPA is reinforced by the relatively narrow nature of the exceptions and affirmative defenses to liability. Kay I, 359 F.3d at 756 ( Furthermore, by narrowly defining exceptions and affirmative defenses against a backdrop of broad applicability, Congress reaffirmed its intention for the statute to apply to payments that even indirectly assist in obtaining business or maintaining existing business operations in a foreign country. ). The exception to liability is the so-called facilitating or grease payment exception, designed to permit companies to accelerate the normal operations of government without receiving special exercises of discretion by foreign officials. The exception provides that the FCPA does not apply to any facilitating payment or expediting payment to a foreign official, political party, or party official the purpose of which is to expedite or to secure the performance of a routine governmental action. 15 U.S.C. 78dd-1(b). This exception is designed to cover routine, nondiscretionary ministerial activities performed by mid- or low-level foreign functionaries, see Kay I, 359 F.3d at , such as: (a) (b) (c) (d) (e) Obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country; Processing governmental papers; Providing police protection, mail pickup and delivery, or scheduling inspections associated with contract performance or inspections related to transit of goods; Providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products; or Actions of a similar nature so long as the official s decision does not involve whether, or on what terms, to award new business to or to continue business with a particular party. 15 U.S.C. 78dd-1(f). By carving out these narrow categories of payments from the FCPA s coverage, Congress sought to draw a line between those acts that induce an official to act corruptly, i.e., actions requiring him to misuse his official position and his discretionary authority, and those acts that are essentially ministerial [and] merely move a particular matter toward an eventual act or decision or which do not involve any discretionary action. Kay I, 359 F.3d at 747. The key is discretion a payment that convinces an official to bestow his good graces upon a company is suspect, whereas a payment that merely advances in time a decision that would have been made anyway is less so. Should one seek to justify a payment under the facilitating payment exception, one should focus on the amount in question and whether the official must exercise any discretion or 6

12 judgment in deciding whether to issue the permit or take other requested action. Companies that permit such payments should ensure that they are reviewed and approved in advance by in-house or other counsel. The FCPA contains two affirmative defenses to anti-bribery liability. First, it is an affirmative defense that the payment, gift, offer, or promise of anything of value that was made, was lawful under the written laws and regulations of the foreign official s, political party s, party official s, or candidate s country. 15 U.S.C. 78dd-1(c)(1). Note that the payments must be legal under the written laws or regulations of the foreign country, and that the authorization must be express. Indirect references, such as a tax deduction for payments, do not suffice. Kozeny addressed the scope of this affirmative defense. The defendant was alleged to have made bribes in Azerbaijan related to obtaining business with SOCAR, the state oil company. The defendant argued that the alleged payments were legal under local law because he had reported the payments to Azeri authorities, and under Azeri law the payor of a bribe is relieved from punishment if he makes such a report. 582 F. Supp. 2d at 538. The court disagreed, concluding that the Azeri legal provision may waive punishment but does not render the payment itself lawful. [T]here is no immunity from prosecution under the FCPA if a person could not have been prosecuted in the foreign country due to a technicality. Id. at 539. Second, it is an affirmative defense that the payment or thing of value was a reasonable and bona fide expenditure, such as travel and lodging expenses... and was directly related to... the promotion, demonstration, or explanation of products or services; or... the execution or performance of a contract U.S.C. 78dd-1(c)(2). This provision creates a limited exception for typical, focused demonstration and product-testing by companies seeking government contracts, or for ongoing inspections associated with the execution of such a contract. What is clear from the DOJ Opinions 6 is that any paid expenses must be closely tailored to the company s legitimate goals. If the purpose of a trip is to demonstrate a product, then expenses should be paid for non-extravagant travel, lodging, and meals for a period of time closely related to how long it takes to demonstrate the product. See Opinion (approving expenses paid directly to providers for domestic air travel and other expenses of delegation of six junior to midlevel foreign officials for educational program at company s U.S. headquarters); Opinion (approving domestic expenses for four-day trip by six-person delegation of the government of an Asian country). The DOJ may permit some digression for the officials entertainment. In Opinion 07-02, for example, the DOJ approved the payment for a modest four-hour city sightseeing tour for the six visiting foreign officials. However, expenses cannot resemble added perks for the officials. If a company is to pay air fare, for example, it should be economy class. See Opinion (approving expenses paid directly to providers for domestic economy air travel and other 6 Under 15 U.S.C. 78dd-1(e), the Attorney General is obligated to have in place an opinion procedure by which the Department of Justice provides responses to specific inquiries by issuers concerning conformance of their conduct with the FCPA. The opinions are available on the Department s website. 7

13 expenses of delegation of six junior to mid-level foreign officials for educational program at company s U.S. headquarters). It must also be clear from the overall expense plan that the trip is for the purposes outlined in the statute and that the vast majority of expenses are advancing those ends. 7 Finally, although there may be situations in which official s family members may be included, see Opinion (approving payment of less than $5,000 to pay for the wife of a foreign official to travel with the official while in the United States visiting company sites), instances where that would be appropriate will be rare and should be avoided. FCPA jurisdiction is broad and extends to all U.S. companies or persons, as well as foreign companies that are registered with the SEC and foreign companies or persons that commit an act in furtherance of an improper payment or offer while in the United States. Territorial-based jurisdiction extends to any issuer, domestic concern, officer, director, employee, or agent of such issuer or domestic concern, or stockholder acting on behalf of such issuer or concern, that makes use of any instrumentality of interstate commerce in furtherance of any improper payment or offer of payment. 15 U.S.C. 78dd-1(a); id. 78dd-2(a). 8 An issuer is any company American or foreign that either issues securities within the United States or is required to file reports with the SEC. Id. 78c(a)(8). A domestic concern is a U.S. citizen, national, or resident, or a corporation or other business entity with its principal place of business in the United States or organized under the laws of the United States. Id. 78dd-2(h). Another type of territorial-based jurisdiction extends to foreign companies (or more specifically, foreign companies that are not issuers) that, while in the territory of the United States, commit any act in furtherance of an improper payment or offer. 15 U.S.C. 78dd-3(a). Finally, nationality-based jurisdiction renders the FCPA anti-bribery provisions applicable, based on U.S. nationality alone, to those who act outside the United States in furtherance of an improper payment or offer: (1) any issuer organized under the laws of the United States; (2) U.S. persons that are officers, directors, employees, agents, and stockholders of such issuer and are acting on behalf of such issuer; (3) any other corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship organized under the laws of the United States; or (4) any other citizen or national of the United States. 15 U.S.C. 78dd-1(g); id. 78dd-2(i). Thus, U.S. companies and citizens are subject to the FCPA regardless 7 8 See also Opinion (reasonable travel, meals, and entertainment); Opinion (product samples to government officials for testing and quality assurance); Opinion (included travel and entertainment expenses of official s wife) (note, however, that more recent enforcement actions suggest that companies should not pay any expenses for an official s family); Opinion (U.S. company provided travel expenses for French ministry inspection tour in U.S.); Opinion (annual expenditures of $250,000 approved for training expenses of Pakistani officials); and Opinion (approved $15,000/year training costs for ten officials). Interstate commerce includes making use of the mail, telephones, , and any form of interstate travel. E.g., United States v. Brika, 487 F.3d 450, 455 (6th Cir. 2007) (telephone); United States v. Hausmann, 345 F.3d 952, 959 (7th Cir. 2003) (interstate mail and wire communications systems); Doe v. Smith, 429 F.3d 706, 709 (7th Cir. 2005) ( and internet). 8

14 of where the act in furtherance of an improper payment or offer takes place, and without any requirement that a means of interstate commerce be used. The Books-and-Records Provisions The books-and-records provisions of the FCPA work in tandem with the anti-bribery provisions by requiring accurate accounting and reporting of expenditures, but they also generally impose obligations to maintain accurate books and records, whether or not there is any issue of improper payments. The books-and-records provisions require that any issuer: (A) (B) Make and keep books, records and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer; and Devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) (ii) (iii) (iv) transactions are executed in accordance with management s general or specific authorization; transactions are recorded as necessary (I) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (II) to maintain accountability for assets; access to assets is permitted only in accordance with management s general or specific authorization; and the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 15 U.S.C. 78m(b)(2). These provisions make clear that issuers must compile records in accordance with generally accepted accounting standards. These requirements are not based on any sense of materiality as that term is generally used in securities laws. Rather, the requirement is grounded in the concept of reasonableness and accuracy what a business manager would reasonably want and expect in his day-to-day operation of a business. Moreover, transactions below a certain amount are not exempted. Because liability under the books-and-records provisions does not depend on proving an improper payment, these provisions may be used to sanction a company in cases involving suspected improper payments but where the government may not be able to prove, or for whatever reason chooses not to pursue, an anti-bribery charge. For example, the SEC brought administrative charges against Oil States International for violating the books-and-records and internal controls 9

15 provisions of the FCPA, even though the SEC believed that the company provided approximately $348,350 in improper payments to employees of an energy company owned by the government of Venezuela. Companies should avoid all arrangements which cannot be or are not openly recorded in the books. The books-and-records provisions apply only to issuers that is, entities that have a class of securities registered pursuant to 15 U.S.C. 78l and entities that are required to file reports with the SEC pursuant to 15 U.S.C. 78o(d). See 15 U.S.C. 78m(b)(2). There is no jurisdictional requirement for civil liability for failure to maintain adequate books and records or internal controls pursuant to 15 U.S.C. 78m(b)(2). Any issuer within the meaning of the statute must comply with the statute s requirements to maintain accurate books and records and adequate internal controls. Where a subsidiary s financial results are consolidated with a parent issuer s financial statements, these requirements have been found to apply to booksand-records or internal control deficiencies occurring at the subsidiary. Thus, inaccurate booksand-records or internal control failures at the subsidiary level can trigger civil liability for the parent issuer without any U.S. nexus (beyond issuer status of the parent). Another provision to be concerned with is knowing violation of the books-and-records or internal controls requirements. Section 78m(b)(5) states: No person shall knowingly circumvent or knowingly fail to implement a system of internal accounting controls or knowingly falsify any book, record, or account... of an issuer. 15 U.S.C. 78m(b)(5). This provision can trigger both civil and criminal liability. On its face, there is no jurisdictional requirement built into this provision. The limits have not been fully tested, for example, whether this provision applies to a foreign non-issuer defendant who acts entirely outside the United States so as to knowingly falsify the books and records of an issuer. The government s likely position, however, would be that a U.S. prosecution would fall within established principles of extraterritorial jurisdiction: that Congress clearly intended this provision to have extraterritorial reach and that the conduct at issue inherently has an impact on the United States (or the U.S. securities market) because it involved the books and records of an issuer. Section 78m(b)(5) was utilized in the 2008 Siemens FCPA matter to bring criminal charges against the parent, Siemens AG, a foreign issuer directly subject to this provision. Specifically, Siemens AG pleaded guilty to engaging in numerous acts (via conduct by officers and employees of the parent) by which the company failed to address internal controls and books-and-records problems in the face of information that the company had grave issues with its internal controls and with accuracy in books and records as a result of its ongoing engagement in bribery. No U.S. jurisdictional nexus was alleged. Undoubtedly it was deemed unnecessary. In addition, one of Siemens AG s foreign subsidiaries, Siemens Argentina, pleaded guilty to conspiracy to knowingly falsify and cause to be falsified the books and records of an issuer (i.e., of its parent corporation, Siemens), in violation of 18 U.S.C. 371 (the conspiracy statute). In order to bring this conspiracy charge, a jurisdictional hook was required, and in this case the DOJ alleged two meetings in the United States and a bank transfer of bribe funds that went through a U.S. correspondent bank account. See, e.g., United States v. MacAllister, 160 F.3d 1304, 1307 (11th Cir. 1998) (the United States may prosecute an extraterritorial conspiracy if there is an overt act within the United States in furtherance of the conspiracy). 10

16 CONSEQUENCES OF FCPA VIOLATIONS Violations of the FCPA s provisions can entail monetary penalties, extensive costs associated with waging a defense, harm to reputation, imposition of onerous compliance programs, and the risk of imprisonment. The maximum statutory penalties per violation of the anti-bribery provisions are a $2,000,000 criminal fine and a $16,000 civil penalty for a corporate entity. For individuals, the maximum criminal fine is $250,000 and the maximum civil penalty is $16,000. But also, a criminal fine of up to twice the amount of the benefit obtained may be levied under the Alternative Fines Statute. 9 And finally, individuals may be sentenced to up to five years incarceration per violation. 10 See 15 U.S.C. 78ff(c)(1), 78dd-2(g), 78dd-3(e); 18 U.S.C There are three tiers of civil penalties for violations of the books-and-records provisions, depending on a series of aggravating factors. The penalties range from $7,500 for individuals and 11 $75,000 for corporate entities, to $150,000 for individuals and $725,000 for corporate entities. In addition, the SEC typically seeks disgorgement of any ill-gotten gains. 12 Violations of the booksand-records provisions are civil violations unless they are committed willfully, in which case they are punishable as criminal offenses. See 15 U.S.C. 78m(b)(4)-(5). Criminal violations carry maximum penalties of a $25 million fine for entities, and a $5 million fine and 20 years incarceration for natural persons. 15 U.S.C. 78ff(a). In some cases the government will also require appointment of an independent compliance monitor, at the company s expense, for some period of time (typically two or three years). The independent monitor is charged with making recommendations to the company for FCPA compliance with which the company generally must comply, and the monitor has reporting duties to the government. Unsurprisingly, the independent monitor requirement is an expensive and burdensome proposition for any company subject to it. In other cases, the government will refrain from imposing an outside compliance monitor, but will require a company to self-review and selfreport on its FCPA compliance for a period of time after a settlement, e.g., for a two- or three-year period. Self-reporting requirements have become a staple of settlements, with compliance monitors reserved for the most serious cases. Nonetheless, self-reporting requirements are still burdensome and intrusive The Federal Sentencing Guidelines also provide that the fine range under the Guidelines may be up to two times the amount of the benefit sought to be obtained. This penalty requires a willful violation. However, the Fifth Circuit has held that this element requires only that the defendant acted intentionally, and not by accident or mistake and with the knowledge that he was doing a bad act under the general rules of law. United States v. Kay, 513 F.3d 432, (5th Cir. 2007). 15 U.S.C. 78u(d)(3)(B)(i)-(iii); 17 C.F.R The values of all SEC penalties are subject to periodic inflation adjustments under the Debt Collection Improvement Act of 1996; the inflation-adjusted penalties are published in 17 C.F.R The most recent adjustments to the civil penalties became effective March 3, See Securities & Exchange Comm n, Adjustments to Civil Monetary Penalty Amounts, 74 Fed. Reg (Mar. 3, 2009), available at 11

17 FREQUENTLY ASKED QUESTIONS 1. The anti-bribery provisions apply to issuers, domestic concerns, and persons. An issuer is any company that issues securities within the United States or files reports with the SEC. A domestic concern is a U.S. citizen, national, or resident, or a business entity with its principal place of business in the United States or organized under U.S. law. Any person that acts in furtherance of a corrupt payment within the territory of the United States, including foreign entities or persons, is also covered. Liability under the books-and-records provisions is limited to issuers. 2. A company subject to the FCPA may be liable for the acts of a foreign subsidiary. Under the books-and-records provisions, even an issuer owning 50 percent or less of the voting power of a subsidiary must make good faith efforts to use its influence, to the extent reasonable under the issuer s circumstances, to cause such domestic or foreign firm to devise and maintain a system of internal accounting controls consistent with the FCPA. 15 U.S.C. 78m(b)(6). Relevant factors include the relative degree of the issuer s ownership of the domestic or foreign firm and the laws and practices governing the business operations of the country in which such firm is located. Id.; see also H. Lowell Brown, Parent-Subsidiary Liability under the Foreign Corrupt Practices Act, 50 Baylor L. Rev. 1, 21 (1998). As for issuers owning more than 50 percent of the voting power of a subsidiary, the legislative history of the books-and-records provisions makes it apparent that such issuers must ensure that their subsidiaries comply with those FCPA provisions. See Brown, 50 Baylor L. Rev. at See also H.R. Rep. No , at (1988), available at Although liability for the acts of subsidiaries typically arises in connection with books-andrecords violations, a parent corporation or its officials also may be held liable for the acts of [a] foreign subsidiar[y] where they authorized, directed, or controlled the activity in question. U.S. Department of Justice, Layperson s Guide to FCPA, available at criminal/fraud/docs/dojdocb.html. The statutory text is amenable to that interpretation. See 15 U.S.C. 78dd-1(a) ( authorization of the payment of any money ). Thus, there is significant risk that a parent may be held liable for the acts of a subsidiary if the subsidiary acts in contravention of the anti-bribery provision. Nor does a parent company s potential liability in this context turn on majority versus minority ownership. Instead, liability will arise under the anti-bribery provision if the corporate parent authorizes a corrupt payment, or if the parent provides funds to the subsidiary while knowing that the monies are to be used for a corrupt purpose. A parent company must take care not to conduct itself in a way that could trigger one of these provisions, such as ignoring red flags with respect to subsidiary conduct. Moreover, if a parent company learns of evidence of possible corrupt payments by a subsidiary, the parent should take strong investigative and corrective measures to help demonstrate responsible action at the parent level, including that the conduct was not authorized by the parent. Moreover, it is important to be alert to the possibility that a foreign subsidiary may be alleged to be an agent of its parent, a situation which could trigger FCPA liability for the foreign subsidiary and/or the parent corporation. The statute makes agents of issuers as well as agents 12

18 of domestic concerns subject to the FCPA. In addition, under U.S. common-law principles of vicarious liability, a corporation can be held liable for the conduct of its agent. Neither the FCPA nor its legislative history define the term agent as used in that statute. However, agent has an accepted common-law meaning. An agent is a person or entity that has been either explicitly or implicitly authorized to act on behalf of another person or entity (the principal). When an agent acts within the scope of its authority, the principal can be held liable for the agent s actions. See generally Jonathan M. Purver, Liability of Parent Corporation for Acts of Subsidiary, Am. Jur. Proof of Facts 2d (2009), at 2. The term agent in the anti-bribery provision of the FCPA likely will be deemed to have the same scope as the common-law concept. Under common-law principles, the existence of an agency relationship between a parent and its subsidiary is anything but presumed. The parent corporation must have exercised sufficient control over that subsidiary as to render the subsidiary a mere conduit or instrumentality of the parent corporation. Id. 1. Nonetheless, the 2005 DPC Tianjin case is an example of how broadly the government views both the FCPA statutory term agent and the common-law principles of agency. In DPC Tianjin, an issuer s foreign subsidiary had engaged in improper payments. The DOJ charged the foreign subsidiary as an agent of the U.S. issuer without making any specific allegation in the charging papers as to what rendered the foreign sub an agent of its parent. For its part, the SEC charged the parent corporation on a theory of vicarious liability, alleging that the improper payments at issue were made by the parent through its subsidiary even though the SEC s complaint alleged no actions at the parent level (other than stopping the payments and instituting remediation once they were discovered). As a result, the fact that the subsidiary had sent an to the United States that contained a budget including the improper payments creating an interstate commerce jurisdictional hook sufficed to render both the parent and the sub liable, respectively The FCPA does not define the term authorization, and as with many aspects of the Act, the case law is undeveloped. The legislative history makes clear that authorization can be implicit or explicit. See H.R. Rep (Sept. 28, 1977) ( [I]n the majority of bribery cases... some responsible official or employee of the U.S. parent company had knowledge of the bribery and either explicitly or implicitly approved the practice.... [S]uch persons could be prosecuted. ); see also Business Accounting and Foreign Trade Simplification Act: Joint Hearings on S. 414, 98th Cong., 1st Sess. (1983) at 38 (Memorandum from Deputy Attorney General Edward C. Schmults) (describing standard for implicit authorization under the FCPA, noting that one may implicitly authorize a corrupt payment merely by pursuing a course of conduct that conveys an intent that an illicit payment be made). In cases resolved up to this point, the DOJ and the SEC have not had to rely on mere implicit authorization to support FCPA charges. Nonetheless, the government s ability to bring a 13 The 2008 Wabtec matter is another case in point. In that matter, the parent corporation Wabtec settled charges with the DOJ and the SEC that stemmed from improper payments made by Wabtec s foreign subsidiary in India. Both agencies thus deemed the subsidiary to be an agent of the parent, triggering liability at the parent level for actions by its sub. Yet none of the publicly available documents for this case shed light on why the sub should have been deemed to be an agent of its parent. 13

19 case based on no more than authorization, express or tacit, should be taken into account in FCPA compliance programs and in assessing the risk of prosecution under a given set of facts. It can be expected that government investigators will look at all the surrounding circumstances for evidence of authorization, including when and how the responsible person became aware of a possible illegal payment, whether questions were asked, whether there was clear repudiation of improper conduct, and whether coded or ambiguous language was employed in the relevant communications. 4. The FCPA does not apply to any facilitating payment or expediting payment to a foreign official, political party, or party official the purpose of which is to expedite or to secure the performance of a routine governmental action. 15 U.S.C. 78dd-1(b). This exception for what are colloquially referred to as grease payments is designed to cover routine, nondiscretionary ministerial activities performed by mid- or low-level foreign functionaries, Kay I, 359 F.3d at , such as: obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country; processing governmental papers; or providing general governmental services, such as police protection, mail, power, or water. 15 U.S.C. 78dd-1(f). This narrow exception exempts from liability only those acts that are essentially ministerial [and] merely move a particular matter toward an eventual act or decision or which do not involve any discretionary action. Kay I, 359 F.3d at 747. It is recommended that companies seeking to justify payments under this exception make sure that the proposed payments are scrutinized by counsel familiar with the FCPA and the DOJ s enforcement policy. Issues to consider would be the amount of the payment and whether the official at issue must exercise any discretion or judgment in deciding whether to take the requested action. 5. An American company may be held liable for or suffer other consequences from the prior illegal acts of a company that it acquires or becomes associated with via a merger. A company may mitigate its risk by conducting due diligence prior to an acquisition or merger or, sometimes, immediately following an acquisition or merger, but that is not a legal defense and the company may still be legally susceptible to criminal prosecution because the DOJ takes an aggressive approach to success or liability. The 2010 Alliance One matter is an instructive example. Alliance One was formed in 2005 when Dimon Incorporated ( Dimon ) and Standard Commercial Corporation ( SCC ) merged. Employees and agents of two foreign subsidiaries of Dimon and SCC committed FCPA violations before the merger. In 2010, the DOJ, Alliance One, and the foreign entities that were now subsidiaries of Alliance One, entered into a settlement. The foreign subsidiaries pleaded guilty to having committed FCPA violations based on their pre-merger conduct and paid, together, roughly $9.5 million in fines. In addition, Alliance One, which was not in existence at the time of the conduct, was required to enter into a non-prosecution agreement obligating it to cooperate with the DOJ s ongoing investigation and to retain an independent compliance monitor for a minimum of three years to oversee the implementation of a compliance program. Alliance One also settled a related civil complaint brought by the SEC and agreed to disgorge approximately $10 million in profits. 14

20 Another example is the DOJ s case against Snamprogetti, a wholly owned Dutch subsidiary of a company called ENI S.p.A. Snamprogetti participated in a far-reaching bribery scheme from 1994 to In 2006, ENI sold Snamprogetti to another company, Saipem S.p.A. The DOJ charged Snamprogetti with FCPA criminal violations in July 2010 and reached a deferred prosecution agreement with Snamprogetti, ENI, and Saipem. Saipem s inclusion in the deferred prosecution agreement indicates that the DOJ took the view that Saipem could be deemed criminally liable for Snamprogetti s actions on a theory of successor liability. The agreement provides that Snamprogetti pay a $240 million penalty, for which ENI and Saipem are jointly and severally liable, and all three companies were required to institute a corporate compliance program. The statute of limitations for any related action against Snamprogetti, ENI, and Saipem was tolled for the duration of the agreement. In a limited number of opinion releases, the DOJ has declined to pursue successor liability based on the specific circumstances. See, e.g., Opinion (an American company purchased a foreign company and its existing contracts obtained through an agent; the DOJ took no action based on the American company s lack of knowledge of prior illegal acts in accepting the benefits of contracts); Opinion (investment group acquired from ABB, Ltd. certain companies that had pleaded guilty to FCPA violations; the DOJ took no enforcement action where the acquirer agreed, inter alia, to institute an FCPA compliance plan, cooperate with the government during its continuing investigation, discipline those involved in the FCPA violations, and institute appropriate internal audit procedures). In the DOJ s Opinion Procedure Release No ( Opinion ), the DOJ advised a company regarding the amount of post-acquisition due diligence required on a target company when pre-acquisition due diligence could not be undertaken. The DOJ permitted a grace period for the acquiring company to identify and disclose potential risk areas, and required a complex and far-reaching internal investigation. The DOJ likewise indicated that it would still hold the company liable not only for ongoing violations by the target company not uncovered during the first 180 days of due diligence, but also for prior violations by the target company disclosed to the DOJ to the extent that such violations were not investigated to conclusion within one year of closing. 6. Prosecution of foreign companies has been a growing enforcement trend. The 2011 Deutsche Telekom matter exemplifies both the government s aggressive jurisdictional theories with respect to the anti-bribery provision, and the power of the books-and-records/internal controls provisions, which require no jurisdictional hook. This matter involved alleged improper payments in Macedonia made through sham consultancy contracts between a Greek intermediary and MakTel, an entity owned by Deutsche Telekom s wholly owned subsidiary Magyar Telekom. The contracts were recorded as legitimate consultancy arrangements on MakTel s books and records, which were then consolidated into Magyar Telekom s and Deustche Telekom s financial statements. In addition, Magyar Telekom made improper payments through sham consultancies in order to acquire a state-owned telecommunications company in Montenegro. In the end, the parent foreign corporation Deutsche Telekom was required to enter into a non-prosecution agreement, and the foreign subsidiary Magyar Telekom was required to enter into a deferred prosecution agreement with the DOJ for both anti-bribery and books-and-records violations, as well as a civil settlement with the SEC. Jurisdiction for the anti-bribery violation was premised on the fact that 15

21 s that furthered the improper payment scheme were transmitted through servers located in the United States. (Both the sender and the recipient of the s were located abroad.) There is no jurisdictional requirement for the books-and-records/internal controls provisions. Aggressive theories have also been advanced to support jurisdiction over a foreign nonissuer company. In such a case, the company must have acted within the territory of the United States. In the 2003 Syncor Taiwan matter, the DOJ premised jurisdiction against a foreign nonissuer company on the sending of an by an officer of the subsidiary while in the United States, where the contained a budget referring to the improper payments, to be a relevant act while in... the United States. In the 2006 SSI Korea matter, a foreign company was deemed to have acted within the United States by virtue of sending requests to the United States for approval and for wire transfers of monies to be paid to foreign officials in South Korea and China. It is not clear why sending these communications from outside of the United States to the United States qualified as acts while in... the United States, unless it was because those communications caused individuals in the United States to then send the funds (itself an aggressive reading of the statute). 7. Agreements with foreign representatives should include the elements outlined in the DOJ s Bechtel Opinion, 81-01, the agency s most comprehensive pronouncement on the subject: 1. A requirement that all company payments be (a) by check or bank transfer, (b) to the foreign representative by name, (c) at its business address in-country (or where services were rendered), and (d) upon the written instructions of the foreign representative; 2. A requirement that the foreign representative independently represent its familiarity with and commitment to adhere to the FCPA. In addition to promising to make no illegal payments, the agreement should also require the representative to notify the company of any request it receives for improper payments from any company employee; 3. A provision requiring a representation that no member of the entity is a government official, an official of a political party, a candidate for political office, a consultant to a government official, or affiliated with the government official (with limited exceptions); 4. A provision confirming that the agreement is lawful in the foreign country; 5. A requirement that any assignment by the representative of any right, obligation and/or services to be performed under the agreement must be approved in writing by the company; 6. A provision permitting the company to terminate the agreement upon a belief that the entity has violated any of its provisions; 16

22 7. A provision permitting the company to disclose the agreement to anyone, including government organizations; 8. Provisions mandating the existence of adequate controls over reimbursable expenses. See, e.g., Opinion (describing provisions requiring entertainment and business meetings to occur on the same day; written approval of travel expenses; that gifts be lawful and customary in the country and be under $500; and that all reimbursements be on a detailed invoice, subject to company audit); and 9. Provisions demonstrating that representatives are well-established entities, with sufficient resources to perform the work. The agreement should also refer to the company s selection criteria for representatives, which should include: years in operation, size and adequacy of support staff, business outlook, reputation, professional and/or technical expertise, and familiarity with and willingness to adhere to the FCPA. See Opinion (documenting depth of due diligence). A country s reputation for bribery also should be considered in assessing the sufficiency of steps taken to minimize risk in the selection of agents. In addition to these recommendations, companies should also consider adopting a separate policy containing these guidelines and other procedures for conducting due diligence with respect to retaining and working with foreign agents. All employees involved with international agreements should be familiar with this policy and with the FCPA. The policy should contain a statement from senior management declaring the company s commitment to FCPA compliance. Finally, although a company may conclude that it will not undertake the same degree of due diligence for service providers and distributors, those persons or entities must also be selected and managed so as to address FCPA risk. Payments to service providers or distributors can be used as a vehicle for improper payments to foreign officials. 8. The DOJ will closely scrutinize donations made to charitable organizations or for educational purposes to ensure that any officials requesting donations, or otherwise associated with the donees, have no possible role in reviewing matters for, or providing preferential treatment to, the donating business. For example, in the matter of Schering-Plough Corporation, the SEC charged the company with violating the books-and-records and internal controls provisions when one of the corporation s Polish subsidiaries made charitable contributions to a legitimate charity affiliated with a Polish governmental official for the purpose of influencing the official to purchase the company s pharmaceutical products. See Schering-Plough, Inc., Complaint, Admin. Proc. Rel. No (June 9, 2004). See also Opinion (declining to take enforcement action when American firm sought to provide $10,000 annually for education of adopted children of an 17

23 honorary government official whose duties... are only ceremonial and do not involve substantive decision-making responsibilities ); Opinion (declining to take enforcement action where facts demonstrated that donation would be given directly to a government entity and not to any foreign government official for the purposes of building a school). 9. Yes, but only under the strictest conditions. The DOJ will not take enforcement action against U.S. companies that co-sponsor seminars or pay for foreign study tours when caution is taken to ensure that expenses are reasonable, relate to legitimate educational or training needs, and are not provided in circumstances indicating an attempt to induce favorable treatment with regard to the company s business. The DOJ has issued several Opinion Releases over the years that provide guidance in this regard. In Opinion Release 11-01, the DOJ stated that it would not take enforcement action against a requestor company that planned to provide economy-class airfare and other expenses for two foreign officials to travel to the United States to learn more about the company s business. The company represented that it had no non-routine business before the relevant foreign agencies; its routine business was governed by well-established rules and standards; the foreign government would choose which officials would travel; no expenses would be paid for the officials spouses or family members; all payments would be made directly to service providers and not to the officials; souvenirs would be of nominal value and would reflect the company s business or logo; the company would not fund side-trips, entertainment, or leisure activities; and the duration of the visit would be limited to the amount of time necessary to educate the officials about the company s operations. Helpfully, the DOJ also cited two of its prior Opinion Releases concerning educational trips and noted that similar factors weighed against taking enforcement action on those occasions. 14 The issues surrounding educational trips provide a sound framework to consider gifts and hospitality generally. Hospitality and gifts may be extended if they are reasonable, have a sound business purpose, and are not intended to influence a government official to use his authority improperly to the business advantage of the company. These common-sense guidelines dictate that reasonable travel and lodging is usually acceptable if related to product demonstrations or contract performance activities, and reasonable entertainment (e.g., meals) if connected to conducting business. Similarly, low-value tangible gifts (e.g., marketing items with company logos, such as pens, caps, cups, and shirts) may be given, provided such gifts are acceptable under the officials applicable government rules and the U.S. company s ethics policies. Of course, any such gifts and hospitality should also be legal under foreign laws and regulations applicable to the officials at issue. 14 Opinions and were cited. In the former, the requestor planned to pay the costs of domestic economy-class travel for the officials, domestic lodging, local transport, and meals directly to vendors, while the foreign government would pay the costs of the international travel. In the latter, the requestor proposed that, after the conclusion of a foreign government-sponsored internship program, the foreign officials could attend a five-day educational program at the company s headquarters. 18

24 10. The payment of commissions to foreign agents is perfectly appropriate. However, they can be vehicles for bribes. That a commission s percentage rate is either low or consistent with the market rate in the country does not ensure the commission s legality. Companies should follow the guidance set forth in Opinion (discussed at Question 5, supra) and ensure that any commission paid is economically defensible, see Opinion and Opinion (generally approving market rates). For other examples, see Opinion (in which 1 percent commission to clerk of Embassy for marketing support was approved, probably because of the clerk s lack of influence, disclosure, and legality in country); Opinion (agent s hourly compensation arrangement reasonable); and Opinion (10 percent commission on large boat sale approved). Similarly, while it is of course appropriate to make payments to service providers for services performed, or to distributors for costs in connection with product distribution, adequate due diligence also should be undertaken to ensure that payments to service providers and distributors are not used to fund bribes. 11. The general rule is that upon final sale of an item, subsequent illegal payments made by a reseller cannot be attributed to the original seller, absent a prior specific conspiratorial agreement to make the payment or an ongoing relationship between the seller and the franchisee/distributor in which the seller knowingly benefits from the illicit activity. For example, in Opinion 87-01, the DOJ took no action on an American company s sale of product to a foreign company that planned to resell the product to its government on terms to be negotiated. The American company represented that it was not aware of any illegal payment plans. It is important to note, however, that payments made to an agent, sales consultant, or other intermediary acting on behalf of the company can create liabilities for a U.S. company even after those payments have left the company s hands. Specifically, the FCPA provides that the making of a payment to any person is illegal if the person making or authorizing the payment knows that all or a portion of the payment will be redirected to improper ends. The statutory definition for knowing makes clear that a well-founded suspicion will suffice. 15 Thus, while it may seem reasonable to take the position that because one cannot be sure what a service partner will do with funds provided to it, it is preferable to know as little as possible about the payment once it leaves a U.S. company s hands, exactly the opposite is true. Under the FCPA liability framework, U.S. companies should document such payments to ensure that they are not viewed as taking a head in the sand approach should the payments ultimately be redirected to government officials. The DOJ press release describing the 2008 prosecution of Martin Self highlights this fact. Self had admitted that he was unaware of what services were being provided by a third-party service provider (who was also related to a foreign 15 The FCPA indicates that a person knows about conduct if he or she is either aware that the conduct is occurring or has a firm belief that such circumstance exists or that such result is substantially certain to occur. 15 U.S.C. 78dd-1(f)(2)(A). The statute further explains: When knowledge of a particular circumstance is required for an offense, such knowledge is established if a person is aware of a high probability of the existence of such circumstance, unless the person believes the circumstance does not exist. Id. 78dd-1(f)(2)(B). 19

25 government official) but nevertheless initiated several of the wire transfers to that individual, while he deliberately avoided learning the true facts of the arrangement. The DOJ explained that using an intermediary to make bribe payments will not insulate individuals from prosecution The DOJ insists on visibility and transparency in payments made to agents and other representatives abroad. Generally, the government demands that payments are sent to the agent s country, the location where the work was performed or at a business normal address and bank account. Opinion 81-01, for example, cited these factors in support of a decision against taking enforcement action. Wire transfers are preferable to checks because they provide proof that funds were in an agent s primary business account. If checks are used, they should be retained to show the place of deposit. Domestic parents should require their subsidiaries to follow American accounting rules regarding business expenditures. 13. Often, foreign governments require that an American contractor hire a local entity to do some portion of the work on a contract. The negotiations of such arrangements should be carefully monitored and documented because subcontractor arrangements differ from those involving distributors. A corrupt subcontractor could easily pad its subcontract price to include improper payments. Once included, subsequent payments made to a foreign official can be said to have been made with funds received from the American company, creating a predicate for liability. Accordingly, margins should be reasonable. The DOJ is concerned with the knowledge of relevant company actors as to the destination of the payments. Litigating that issue against the DOJ will prove costly and time-consuming, and will place any company in an unfavorable public light. The best safeguards against this sort of liability are to demand reasonable profit margins and to monitor subcontractors closely. Moreover, changes in the structure of the arrangement or scope of work should be closely examined for improper motives. All subcontracts should include provisions requiring subcontractors to certify their compliance with the FCPA and permitting termination if an improper payment is discovered. If termination is not possible, the American company should closely monitor contract costs and require the subcontractor to certify its compliance with the FCPA. 14. The FCPA s definition of a public official, which encompasses employees of any government instrumentality, is quite broad. The term includes elected and appointed government officials, as well as officials of international organizations such as the International Monetary Fund, The World Bank, and the Red Cross. The term can also include employees of state-owned enterprises involved in activities normally reserved for the private sector in the United States, such as airlines, power companies, telecommunications, and the like. Government ownership or control is enough. 16 See 20

26 In April 2011, a California district court decision, United States v. Noriega et al., considered a challenge to whether employees of a state-controlled public utility company in Mexico were foreign officials. The Court provided guidance for how to assess whether a stateowned or controlled company constitutes a foreign government instrumentality whose employees thus will be deemed foreign officials, outlining the following factors: Whether the entity provides a service to the citizens of the jurisdiction; Whether key officers and directors are, or are appointed by, government officials; Whether and to what extent the entity is financed through government appropriations; Whether the entity is vested with and exercises exclusive or controlling power to administer its designated functions; and Whether the entity is widely perceived and understood to be performing official (i.e., governmental) functions. Under these factors, presumably those entities that look most like private-sector corporations those in which the government s ownership stake is small, government funding is minimal, and which compete in an open marketplace against privately-held competitors would have the best case for not being considered an instrumentality of a foreign government. Those cases are likely to be rare. On a separate note, members of a royal family present particular difficulty. Often, such individuals have no official role in government. Mere membership in the royal class does not make them foreign officials. However, payments to royals or organizations including royals should be made with great care. In many countries, members of the royal family occupy important ceremonial roles and wield significant governmental influence. Reasonable steps should be taken to ensure that the royal does not exercise an inappropriate or corrupt influence over government decisions. In Opinion Release 12-01, the DOJ explains that the key factors for assessing whether a royal constitutes a government official are: (1) the degree of control or influence the individual has over the levers of governmental power, execution, administration, finances, and the like; (2) whether the foreign government characterizes the individual as having governmental power; and (3) whether and under what circumstances the individual may act on behalf of, or bind, a government. Finally, it is clear that the government reads the FCPA to mean that consultants and unofficial advisors to government officials, or others outside the formal government apparatus, may, under the right circumstances, be deemed to be government officials pursuant to the statute s definitional provision including any person acting in an official capacity on behalf of a foreign government. Thus, the individual need not be on the government s payroll. The issue is better understood as being whether the person has some type of decision-making authority with respect to the government. The 2006 Statoil ASA matter, in which Statoil settled FCPA allegations with both the SEC and the DOJ, is instructive in this regard. The individual who received the improper payments from Statoil was President of the National Iranian Oil Company. However, the DOJ did not allege that this position in itself rendered him an official. Instead, the Department relied on allegations that he was an advisor to the Iranian Oil Minister and a very important guest ; that his family controlled all contract awards within oil and gas in Iran ; and that Statoil had tested his influence by having him send a message back 21

27 to Statoil through the Iranian Oil Minister. See U.S. v. Statoil ASA, Deferred Prosecution Agreement, available at Opinion 10-03, discussed infra, also touches on this issue. 15. The mere passive ownership of stock by a foreign official in an entity with which an American company does business is not a violation of the FCPA. The DOJ Opinions focus on whether the official s participation in the affairs of the entity is transparent to his government agency or any other procuring authority of the foreign government; whether the official adequately recused himself from participation in any transaction involving the American company; and whether his participation in the entity is legal according to the laws of his country. In Opinion 80-04, a business partner of an American company served as an outside director of a foreign state-owned airline. The DOJ took no action based on the director s recusal from participation in any matter affecting the American company s business with the government, his full and public disclosure of the relationship, and assurances that the director s participation would not violate the laws of the country. In Opinion 82-04, the DOJ took no action with respect to commission payments to an agent whose brother was a government employee. To ensure compliance with the FCPA, the DOJ required the agent and his brother to sign affidavits promising compliance with the FCPA, and guaranteeing that payments to be made in the foreign country would be in accordance with the foreign country s currency laws. Similarly, upon assurances of compliance and other prophylactic measures, the DOJ has taken no action when an American firm sought to establish an agency agreement with a foreign company that had principals that were related to and managed the affairs of a foreign country s head of state. See Opinion In another case, the DOJ took no action for the participation of an American company in a joint venture with a foreign official whose director was related to the foreign country s leader and was himself a public official. See Opinion (approval based on stringent conditions ensuring that the leader did not participate in the government approval of company business). A foreign employee of an American concern can even become an official in the host country under limited circumstances. In Opinion 80-02, a foreign employee of an American subsidiary wanted to run for an office in his country. The DOJ took no action based on assurances that his pay would be for his work only, his work did not involve advocacy or representation to the government, it was customary in that country to hold outside employment, he would notify his government of his recusal from any matters involving the company s business and, local law was not violated. The DOJ also dealt with this question in Opinion 08-01, which described a joint-venture opportunity with a company in which a foreign government official was involved. The DOJ indicated that despite the fact that one of the company s principals was a foreign official, no enforcement action was warranted because of (1) the U.S. Company s extensive due diligence and disclosures; (2) the U.S. Company s decision to obtain representations and warranties that the private company had not and would not violate anti-corruption laws; and (3) the U.S. Company s retention of a broad contractual right to terminate the joint venture agreement in the event of a violation of anti-corruption laws. 22

28 16. The FCPA prohibits payments to government officials, but not to government entities themselves. Nevertheless, there is an inherent risk that any payment directed toward the government may end up in the account of an official. Thus, any payments to government entities should be made to accounts clearly identified as such, in the country where the government operates, and with clear documentation. Such payments should only be made on written direction of the government entity. See Opinion (documenting the DOJ approval of payments to African customs department to develop incentive program for law enforcement to improve anticounterfeiting measures); Opinion (permitting payments to Yugoslav military entity acting as sales agent); Opinion (permitting use of a Sudanese government entity as a sales agent); Opinion (permitting legally-required commission payments to a government-owned entity for defense sales paid to treasury of country); Opinion (commission payments permitted to a government entity acting as sales agent for American company); and (permitting $100,000 donation to government entity to build a school). But see Opinion (the DOJ stating its intention to initiate a criminal investigation if proposed payments of fines and modalities were made to foreign officials rather than to an agency account). 17. Yes. The FCPA forbids payments to foreign officials in obtaining or retaining business. This prohibition is not limited to traditional commercial transactions between a business and a foreign government, such as the award or renewal of contracts. The Fifth Circuit, after analyzing at great length the statute s legislative history, has held that the FCPA prohibits payments intended to assist the payor either directly or indirectly in obtaining or retaining business, and that the scope of the prohibition encompass[es] the administration of tax, customs, and other laws and regulations affecting the revenue of foreign states. Kay I, 359 F.3d at 748. For example, payments to Haitian officials to understate quantities of imported grain so as to obtain reduced import taxes violated the FCPA. Id. 18. The government encourages companies to come forward with potential violations of the FCPA and promises leniency in exchange. Thus in 2006, in a speech before the American Bar Association s National Institute on the Foreign Corrupt Practices Act, Assistant Attorney General Alice S. Fisher emphasized the benefits of voluntary disclosures. In discussing the Schnitzer Steel case, Fisher noted that the matter was an excellent example of how voluntary disclosure followed by extraordinary cooperation with the Department result[ed] in a real, tangible benefit to the company. According to Fisher, the company s exceptional cooperation was critical to its ability to obtain a deferred prosecution agreement, and resulted in a Department recommendation that Schnitzer s subsidiary pay a criminal fine well below what it would otherwise have received. In November 2009, the new Assistant Attorney General for the DOJ s Criminal Division, Lanny Breuer, stated: I... want to assure you that the Department s commitment to meaningfully reward voluntary disclosures and full and complete corporate cooperation will continue to be honored in both letter and spirit. I know that many of you often grapple with the difficult question of whether to advise your client to make a voluntary disclosure. For its part, last year the SEC for the first time issued formal cooperation guidelines that address voluntary disclosure and other forms of cooperation and that seek to encourage companies to take this route. 23

29 Whether or not voluntary disclosure is advisable in any given situation is obviously highly factspecific. Certainly, however, the rewards are nowhere near as clear-cut as those that inure under certain programs, such as the DOJ Antitrust Division s amnesty program, which can confer amnesty on a company that is first in to report participation in antitrust activity; or the Department of Defense s prior program for government contractors, pursuant to which companies clearly had a significantly decreased risk of suspension or debarment from government contracting if they made a voluntary disclosure. The DOJ made increased efforts to demonstrate that it gives credit by being somewhat more transparent about the fact that it was doing so, and about the amount of credit being given. Nonetheless, voluntary disclosure will not necessarily lead to the avoidance of substantial monetary penalties. A company that makes a voluntary disclosure is more likely, however, to obtain a deferred or non-prosecution agreement than a company that does not disclose. There may be many circumstances in which such an agreement will not be afforded even though there has been a disclosure. And, while preferable to a guilty plea, such agreements do not provide ironclad insulation against criminal prosecution. Indeed, a 2008 FCPA prosecution came about because the company Aibel Group Ltd. was found to have violated an FCPA deferred prosecution agreement from In addition, often when a company discloses alleged FCPA violations, the illegal activity is made public through the press or filings with the SEC. Thus, while the threat of prosecution is often a company s greatest concern, voluntary disclosures may result in shareholder suits. Numerous companies have faced FCPA-related shareholder suits in recent years, some of which have resulted in costly settlements. Any company contemplating a voluntary disclosure must ensure that it has conducted an exhaustive internal investigation prior to doing so, and must recognize, once a matter is disclosed, that the government will almost certainly require yet further investigation and vetting efforts on the part of the company in order to discover any potential violations (and going beyond the violation or violations that have been disclosed). Finally, a voluntary disclosure to the government will not spare a company from reputational damage because the violations are eventually disclosed to the public. Even a brief reference to a potential FCPA violation in a company s SEC filings can attract attention. Once discovered, the illegal activity will inevitably be discussed in the press. Although the negative publicity is likely to be more short-lived than if the government and the company were engaged in protracted litigation, allegations of bribery still result in unwanted reputational damage. 19. Yes. The money laundering statutes make it a felony to conduct a financial transaction knowing that the funds are the proceeds of specified unlawful activity. 18 U.S.C. 1956(a)(1). The statute expressly lists any felony violation of the Foreign Corrupt Practices Act in its definition of specified unlawful activity. Id. 1956(c)(7)(D). Accordingly, if financial transactions either involve the proceeds of an FCPA violation (e.g., profits derived from an illicit payment), or if a company s illicit payment to an agent aids or abets that official s moneylaundering activities under 18 U.S.C. 2, then a company might expose itself to criminal liability beyond that imposed by the FCPA itself. The DOJ has also used the mail and wire fraud statutes with great frequency in this area. In addition, the Travel Act can be used to prosecute foreign commercial bribery. 24

30 20. Yes. In terms of primary or direct liability, the books-and-records and internal controls provisions apply by their terms to issuers only. However, natural persons can be liable as aiders and abettors, as control persons (civil liability only), and for knowing falsification of books and records or circumvention or failure to implement adequate internal controls. There are a number of cases of individuals being charged either civilly or criminally in connection with books-andrecords or internal controls provisions. 21. Yes. Because the knowledge prong of the FCPA is so broadly worded, an individual may be charged with a criminal FCPA violation if they pay money to a third party while knowing that there is a high probability that the funds will be used for a bribe. This means that the defendant need not pay the bribe themselves and indeed need not have specific knowledge that a bribe is being paid willful blindness to circumstances giving rise to a high probability that the funds will be used for a bribe payment is sufficient. In a 2009 FCPA trial, the DOJ secured a conviction of defendant Frederic Bourke, an investor in a privatization project in Azerbaijan, in a case where the prosecution argued a willful blindness theory of criminal liability. Although some direct evidence of Bourke s knowledge was also presented testimony from other individuals involved in the scheme who were cooperating with the prosecution the government pressed a willful blindness to the jury, such that the jury did not have to believe the cooperators testimony in order to convict. Bourke was convicted and sentenced to 366 days in prison and a $1 million fine. 22. Yes, although the government experienced great difficulties in prosecuting the cases that arose out of the single largest FBI FCPA undercover operation in history, in early 2010, pursuant to which the U.S. government announced the arrest of 22 individuals accused of offering bribes to FBI agents posing as African government officials. After failing to connect any defendants at trial during the first two of several planned trials, in February 2012 the DOJ dismissed the indictments. Although this extensive sting operation caught many by surprise, it was not the first time that the U.S. government had used agents posing as bribe-takers. In a 2006 case involving a U.S. contractor employee in Iraq, an undercover agent working with the Office of the Special Inspector General for Iraq Reconstruction posed as a police official after the defendant offered to bribe a local Iraqi officer. The defendant pleaded guilty to offering the undercover agent bribes for using his official position to facilitate contracts. 17 The more recent sting operation, however, dwarfed all previous undercover FCPA enforcement efforts. The DOJ s losses at trial in this matter will presumably lead to careful evaluation of such tactics in the future but undercover work can always be expected to be a tool that the DOJ may employ. 17 See Department of Justice Press Release, U.S. Civilian Translator Pleads Guilty to Offering Bribe to Iraqi Police Official, Aug. 4, 2006, available at 06_crm_500.html. 25

31 2012 DOJ OPINION RELEASES Opinion Release In this Opinion Release, the DOJ addressed for the first time the circumstances under which a member of a royal family constitutes a foreign government official within the meaning of the FCPA. The Requestor sought the DOJ s opinion as to whether it was permissible to hire a consulting firm where one of the consulting firm partners is a member of the royal family in the country at issue. The company hoped to represent the foreign embassy of the country in question in lobbying activities in the U.S., and sought to hire the consulting firm to assist in dealings with the company s intended client the foreign embassy and in the company s work on behalf of that client. The DOJ concluded that, under the circumstances presented, the royal family member who was a partner in the consulting firm did not constitute a foreign official and therefore there was no issue in hiring him/his consulting company. In reaching this result, the DOJ noted that mere membership in a royal family does not per se render an individual a foreign official. The DOJ then set forth the following factors for evaluating whether a royal is also a government official: [T]he question requires a fact-intensive, case-by-case determination that will turn on, among other things, the structure and distribution of power within a country s government; a royal family s current and historical legal status and powers; the individual s position within the royal family; an individual s present and past positions within the government; the mechanisms by which an individual could come to hold a position with governmental authority or responsibilities (such as, for example, royal succession); the likelihood that an individual would come to hold such a position; an individual s ability, directly or indirectly, to affect governmental decision-making; and numerous other factors. The DOJ observed that the analysis is similar to the one that must be undertaken to determine whether an entity constitutes a government instrumentality, and thus the key factors are: (i) how much control or influence the individual has over the levers of governmental power, execution, administration, finances, and the like; (ii) whether a foreign government characterizes an individual or entity as having governmental power; and (iii) whether and under what circumstances an individual (or entity) may act on behalf of, or bind, a government. In the case at issue in this Opinion Release, the DOJ concluded that the individual who was to be hired as a consultant was not a government official so long as he does not directly or indirectly represent that he is acting on behalf of the Royal Family or in his capacity as a member of the Royal Family.... [T]he Royal Family Member presently has no official or unofficial title or role in the Foreign Country s government, nor does he have any official or unofficial power over any aspect of the Foreign Country s governmental decision-making process, executive function, administration, finances, or, indeed, any aspect whatsoever of the government, including 26

32 specifically the direct or indirect power to award the business the Requestor seeks. The Royal Family Member also cannot, by virtue of his membership in the royal family, ascend to a governmental position and has no benefits or privileges because of his status as a Royal Family Member. Further, the Royal Family Member has no relationship personal, professional, or familial with the decision-makers in the Foreign Country s Embassy and the Foreign Country s government who will decide whether to award the business the Requestor seeks. It has long been the understanding of practitioners that mere membership in a royal family does not per se render an individual a government official, but that royals certainly may under certain circumstances occupy such a role, making caution in dealing with royals and careful assessment of the facts surrounding their role critical. Opinion Release confirms these principles and provides helpful explication of the factors to be assessed. Opinion Release In this Opinion Release, the DOJ addressed a request concerning whether certain proposed payments for travel for foreign officials would be deemed to fall within the FCPA s affirmative defense for legitimate, reasonable expenses related to promotion, demonstration, or explanation of products or services. The Requestors were a number of adoption agencies who wished to host a trip to the United States for foreign government officials who were involved in overseeing the adoption process in the foreign country. The purpose of the trip was for the officials to interview the Requestors staff, inspect the Requestors files, and meet with families who had adopted children from the foreign country. The proposed expenses included business-class airfare for the higherranking officials, business-class hotel accommodations for all, meals, local transportation, and certain entertainment events of nominal cost and that will involve families who have adopted children in the Foreign Country. Under the circumstances, the DOJ concluded that there was no indicia of corrupt intent and that the proposed expenses fell comfortably within the parameters of the affirmative defense. There have been a large number of Opinion Releases on this topic, and Opinion Release effectively reconfirmed the principles established in those prior Releases without adding new elements. 27

33 2012 FCPA ENFORCEMENT ACTIVITY The summaries below collect the significant events in FCPA cases during 2012, including all new complaints and resolutions of ongoing matters. Over 2012, the DOJ brought or settled 11 new FCPA criminal prosecutions and the SEC brought or settled 11 new FCPA civil enforcement actions. Allianz Se Securities and Exchange Commission Civil Settlement December 17, 2012 According to an order filed by the SEC, Allianz SE, a German insurance company, allegedly engaged in a seven-year-long practice of making improper payments to government officials in Indonesia to obtain or retain insurance contracts on large government projects. According to the SEC s order, in some cases, the payments were hidden on invoices as overriding commissions and, in other cases, the payments were structured as reimbursement for overpayments of government insurance premiums. The funds were then allegedly used to pay the foreign officials who helped procure the government insurance contracts. The practice allegedly continued even after complaints to Allianz and its external auditor. The SEC s order alleged that Allianz violated the books-and-records and internal controls provisions of the FCPA. The SEC did not charge Allianz under the FCPA s anti-bribery provision. $650,626. More than $5.3 million in profits. Allianz entered into a settlement agreement with the SEC in which it agreed to pay disgorgement, penalties, and prejudgment interest of more than $12.3 million to settle the charges. The SEC s investigation followed several whistleblower complaints. After the first complaint, in 2005, Allianz ordered the account in question closed but, due to inadequate controls over its subsidiary, the account remained opened and served as a slush fund for improper payments through A second whistleblower complaint led to an internal investigation in 2009 that was not disclosed to the government. The SEC s investigation began after an anonymous complaint in Public reports indicate that the DOJ has closed a related investigation into Allianz and will not prosecute Allianz in connection with this matter. Robert Antoine Department of Justice Sentence Reduced May 29, 2012 Robert Antoine s four-year sentence for participation in a money laundering conspiracy was reduced to 18 months in recognition of his substantial assistance to law enforcement. Antoine, a former official with state-owned Haiti Teleco, had pleaded guilty in 28

34 March 2010 to laundering money in connection with a foreign bribery scheme. The scheme involved improper payments made by U.S.-based telecommunications firms in order to obtain favorable rates from Haiti Teleco. The payments were concealed through various shell companies and false records for consulting services. 800,000. The improper payments were intended to secure favorable telecommunication rates from Haiti Teleco. Antoine previously pleaded guilty to conspiracy to launder money. Antoine s original four-year sentence was later reduced to 18 months in recognition of his assistance to law enforcement. Antoine also paid $1.9 million in restitution and forfeited $1.6 million. Because Antoine was a foreign official and the recipient of improper payments, he was not directly liable under the FCPA. The DOJ therefore brought money laundering charges against him. Antoine was succeeded at Haiti Teleco by Jean Rene Duperval, who was also charged in the money-laundering scheme, convicted, and sentenced to a nine-year prison term. Fernando Basurto Department of Justice Sentencing April 6, 2012 Fernando Basurto was sentenced to time served (22 months) for his role in a conspiracy to make improper payments to officials of Comisión Federal de Electricidad, a Mexican state-owned utility company. Basurto had previously pleaded guilty to one count of conspiracy to violate the FCPA in Basurto is a Mexican citizen who formerly worked as a sales representative for the Texas-based unit of Swiss corporation ABB Group. In that role, he conspired to make corrupt payments to multiple CFE officials in exchange for lucrative contracts to provide network management services. More than $900,000. Contracts for network management in power generation, transmission, and distribution from CFE. Sentenced to time served (22 months) and required to forfeit any proceeds traceable to the conspiracy. Basurto was the government s chief witness against John O Shea, the general manager of ABB s Texas business unit. O Shea was initially charged with 18 counts of conspiracy, violations of the FCPA, money laundering, and falsification of records. O Shea was acquitted of all substantive FCPA charges on January 16, 2012, and the government subsequently moved to dismiss the remaining counts. 29

35 Biomet Inc. Department of Justice and Securities and Exchange Commission Deferred Prosecution Agreement and Civil Settlement March 26, 2012 Biomet, Inc. ( Biomet ), an Indiana medical device company, and four of its subsidiaries allegedly paid consulting fees, commissions, and royalties to doctors employed by public hospitals and agencies in Argentina, Brazil, and China, to secure sales of their products. Biomet and its subsidiaries paid more than $1.5 million to doctors employed by public hospitals and agencies. Unspecified amount in sales of Biomet medical devices. Biomet entered into an 18-month deferred prosecution with the DOJ, which requires the retention of a compliance monitor, and agreed to pay a $17.28 million criminal penalty. As part of its civil settlement with the SEC, Biomet agreed to pay an additional $5.4 million in disgorgement of profits, including prejudgment interest. This is the latest in a series of FCPA cases involving medical device companies, following Johnson & Johnson and Smith & Nephew. In addition, the DOJ and SEC alleged that although internal auditors were aware of the improper payments for nearly a decade, nothing was done to stop them. Richard T. Bistrong Department of Justice Sentencing July 31, 2012 Bistrong, the cooperating witness in the failed Catch-22 prosecution, allegedly participated in the payment of $4.4 million in bribes to government officials in Nigeria, the Netherlands, and the United Nations while employed by Armor Holdings, a military equipment manufacturer, to win business for the company. Approximately $4.4 million. Approximately $8.4 million in contracts for body armor and other equipment. Guilty plea to one count of conspiracy to violate the FCPA; sentenced to 18 months in prison and 36 months of supervised release. Although the government asked that Bistrong be given no jail time in exchange for his cooperation, the court sentenced him to 18 months. 30

36 Bizjet International Sales and Support, Inc. and Lufthansa Technik AG Department of Justice Deferred Prosecution Agreement March 14, 2012 BizJet International Sales and Support Inc. ( BizJet ), an aircraft maintenance, repair, and overhaul company based in Tulsa, Oklahoma, allegedly made improper payments to government officials in Mexico and Panama to cause them to award contracts to BizJet to perform aircraft MRO services. According to a criminal information, some of the payments were made directly to government officials, whereas others were made through a shell company run out of a BizJet sales manager s residence. More than $500,000. BizJet received contracts to perform aircraft MRO contracts for government agencies in Mexico and Panama. According to the deferred prosecution agreement, the value of the benefits BizJet obtained exceeded $7 million. BizJet entered into a three-year deferred prosecution agreement and agreed to pay an $11.8 million criminal penalty. The deferred prosecution agreement did not require BizJet to retain a corporate monitor. The agreement explicitly stated that the $11.8 million penalty represented an approximately 30 percent discount off the bottom of the fine range. Bizjet s indirect parent company, Lufthansa Technik AG, a German provider of aircraft maintenance services, also entered into an agreement under which the DOJ agreed not to prosecute it for three years provided that Lufthansa Technik meets its obligations under the agreement, including continued cooperation and maintenance of rigorous internal controls. Manuel Caceres, Juan Pablo Vazquez, and Manuel Salvoch Department of Justice Sentencings April 19, April 25, and June 5, 2012 Three former officials of Latin Node, Inc., ( LatiNode ) were sentenced for their roles in a scheme to make improper payments to officials of the Honduran state-owned telecommunications company, Hondutel. On April 19, Manuel Caceres, the former vice president for business development at LatiNode, was sentenced to 23 months in prison. He had earlier pleaded guilty to conspiracy to violate the FCPA. Caceres had approved and facilitated the company s payments to third parties from 2004 to 2007 while knowing that all or part of the funds would be paid to Hondutel officials. 31

37 On April 25, Juan Pablo Vazquez, the former COO of LatiNode, was sentenced to three years probation and fined $7,500 for his role in the scheme. Vazquez had previously pleaded guilty to conspiracy to violate the FCPA. On June 5, Manuel Salvoch, the former CFO of LatiNode was sentenced to ten months in prison and three years of supervised release for his role in the scheme. He had previously pleaded guilty to conspiracy to violate the FCPA. Salvoch cooperated with the DOJ in its case against co-defendants Jorge Granados and Manuel Caceres. LatiNode s scheme overall involved an unknown portion of $1 million in payments to third parties. The payments allowed LatiNode to obtain favorable terms for interconnection agreements with Hondutel. Guilty pleas for conspiracy to violate the FCPA and sentences ranging from three years probation to 23 months in prison. In April 2009, LatiNode admitted paying more than $1 million to third parties while knowing that all or some of the funds would be passed to Hondutel officials. This case is one of many in which corporate executives are resolving individual charges years after their companies have done so. In addition to Salvoch, Vazquez, and Caceres, former CEO Jorge Granados pleaded guilty. He was previously sentenced a 46-month prison term, one of the longest FCPA sentences issued to date. Stuart and Hong Rose Carson, Paul Cosgrove, and David Edmonds Department of Justice Guilty Pleas April 16, May 29, and June 15, 2012 Sentencing September 13, November 8, and December 17, 2012 Four former executives of valve manufacturer Control Components, Inc. ( CCI ), were sentenced for their role in violations of the FCPA. Stuart Carson, the former CCI president, approved a two percent consulting fee to be paid to the Polish end customer, a Polish state-owned electrical utility, via a third party. Stuart Carson pleaded guilty on April 16, 2012, and was sentenced to four months in prison and eight months home detention and ordered to pay a $20,000 fine on November 8, Hong Rose Carson, a former CCI employee, approved a $40,000 payment via a third party to officials of a Taiwanese state-owned nuclear power plant. Rose Carson pleaded guilty on April 16, 2012, and was sentenced to six months home detention and three years probation and ordered to pay a $20,000 fine on November 8, Paul Cosgrove, the former CCI executive vice president, approved a $7,500 commission payment in connection with a valve sale to a Chinese state-owned 32

38 chemical company. The payment was earmarked for a very kind and important customer at the government entity. Cosgrove pleaded guilty on May 29, 2012, and was sentenced to 13 months home detention and three years probation and ordered to pay a $20,000 fine on September 13, David Edmonds, the former vice president for worldwide customer services at CCI, admitted to approving a $45,000 sales commission subsequently paid over to an official of a Greek state-owned power company. Edmonds plead guilty on June 15, 2012, and was sentenced to four months in prison and four months probation and ordered to pay a $20,000 fine on December 17, All four defendants denied having actual knowledge that the commissions would be used to make corrupt payments for the purpose of securing business, but each admitted awareness of a high probability that the money would be used in that manner. The individual executives conduct was part of a broader practice by CCI. In 2009, CCI pleaded guilty to violating the FCPA and the Travel Act, based on a decade-long scheme to secure contracts in numerous countries, including China, Korea, Malaysia, and the United Arab Emirates. In total, CCI admitted that from 2003 to 2007 it made approximately 236 corrupt payments in more than 30 countries, resulting in profits of $46.5 million. : $7,500 to $45,000. : Payments were meant to influence the award of service contracts at state-owned entities. : Each executive pleaded guilty to one count of violating the anti-bribery provisions of the FCPA. Data Systems & Solutions LLC Department of Justice Deferred Prosecution Agreement June 18, 2012 Data Systems & Solutions LLC ( DS&S ) allegedly made improper payments to high-level officials of the Ignalina Nuclear Power Plant, a state-owned facility in Lithuania. DS&S offers design and maintenance services to nuclear plants. According to the government, DS&S attempted to disguise the payments by routing them through several subcontractors located both in the United States and abroad. In addition to the payments, a DS&S executive was alleged to have taken foreign officials on vacations to Florida and Hawaii and to have provided a Cartier wristwatch. The government information alleged more than $375,000 in improper payments, as well as vacations to Florida and Hawaii and a Cartier wristwatch. The payments were intended to win service contracts at the Ignalina Nuclear Power Plant worth a total of $36 million. 33

39 DS&S accepted a two-year deferred prosecution agreement and agreed to pay $8.82 million in criminal penalties to settle charges of conspiracy to violate, as well as violations of, the FCPA s anti-bribery provisions. DS&S must also continue to cooperate with the government, report periodically on its compliance efforts, and implement an enhanced compliance program and internal controls. In reaching resolution, the government cited DS&S s extraordinary cooperation, its own extensive internal investigation and remediation, and enhanced compliance programs. Jean Rene Duperval Department of Justice Conviction After Jury Trial March 13, 2012 Sentencing May 21, 2012 Jean Rene Duperval, the former director of international relations for Telecommunications D Haiti S.A.M. ( Haiti Telco ), the Haitian state-owned telecommunications company, was convicted after a jury trial of two counts of conspiracy to commit money laundering and 19 substantive counts of money laundering. According to the evidence presented at trial, two Miami-based telecommunications companies paid bribes to Duperval in order to secure various business advantages. In order to hide the bribes, Duperval directed the companies to forward funds to two shell companies. The companies characterized the transfers to the shell companies as payments for consulting services or for international minutes from USA to Haiti. When disbursing the funds to Duperval and his family, the shell companies described them as commissions or payroll. The two telecommunications companies paid $497,331 to shell companies controlled by Duperval. The telecommunications companies obtained various benefits from Haiti Telco, such as the continuation of a contract, favorable telecommunications rates, and an ongoing relationship with the Haitian telecommunications market. Duperval was convicted on two counts of conspiracy to commit money laundering and 19 counts of money laundering. He was sentenced to nine years in prison. Duperval has filed a notice of appeal. Because Duperval was a foreign official and the recipient of improper payments, he was not directly liable under the FCPA, but the DOJ prosecuted him for violations of the money laundering laws. Duperval is the eighth individual defendant to be convicted in the Haiti Telco bribery scheme. 34

40 Eli Lilly and Company Securities and Exchange Commission Civil Settlement December 20, 2012 Eli Lilly and Company ( Lilly ), an Indiana-based pharmaceutical corporation, entered into a settlement with the SEC for alleged FCPA violations taking place in Russia, Brazil, China, and Poland between 1994 and On December 20, the SEC filed and settled a complaint alleging that Lilly secured millions of dollars in business over those 15 years by allowing improper payments to be made on its behalf in each of those countries, maintaining flawed internal controls to prevent such activities, and improperly documenting those payments in its books and records. The SEC alleged that Lilly s Polish subsidiary made eight improper payments to a charity founded and administered by a government official who, through allocation of public funds, was responsible for influencing hospitals and other healthcare providers to purchase Lilly s drugs. Officials from Lilly s subsidiary were aware that the government official established the charitable organization and that it was his hobby. In China, the SEC alleged that Lilly s subsidiary allowed its sales representatives to submit false expense reports to pay for gifts and entertainment provided to government-employed physicians who would, in turn, purchase and prescribe Lilly drugs. Those payments, made from 2006 through 2009, though individually very small, were made routinely. The SEC alleged that Lilly s Brazilian subsidiary allowed its distributor to purchase drugs at a pronounced discount, which the distributor then used to bribe government officials to influence the government to purchase Lilly products. In Russia, the SEC alleged that from 1994 through 2005, Lilly s subsidiary paid offshore entities for marketing services to influence pharmaceutical distributors and government entities to purchase Lilly s drugs. The SEC s complaint against Lilly alleged violations of the anti-bribery, books-andrecords, and internal controls provisions of the FCPA. At least $7.3 million. Disgorgement totaled $13.96 million. Lilly entered into an agreement with the SEC in which it agreed to pay penalties, disgorgement, and prejudgment interest totaling nearly $29.4 million. In the complaint, the SEC praised Lilly s response to the investigation, noting that [s]ince the time of the conduct noted in this Complaint, Lilly has made improvements to its global anti-corruption compliance program, including: enhancing anti-corruption due diligence relationships with third parties; implementing compliance monitoring and corporate auditing specifically tailored to anti-corruption; enhancing financial controls and governance; and expanding anti-corruption training throughout the organization. Although the DOJ s Fraud Section and the FBI assisted the SEC with the investigation, the DOJ did not announce any criminal charges against Lilly. 35

41 Mark A. Jackson, James J. Ruehlen, and Thomas F. O rourke Securities and Exchange Commission Charges Brought; Civil Settlement as to O Rourke February 24, 2012 In November 2010, Noble Corporation, an offshore drilling contractor for the oil and gas industry, entered into a non-prosecution agreement with the DOJ, and a civil settlement with the Securities and Exchange Commission, resolving allegations that Noble s Nigerian subsidiary made improper payments to Nigerian customs agents. Jackson is Noble s former CEO; Ruehlen is currently Director and Division Manager of Noble s subsidiary in Nigeria; and O Rourke is Noble s former controller and head of its internal audit department. The SEC s complaint alleged that Nigerian customs regulations allow foreign companies oil rigs to remain in the country for one year, with up to three six-month extensions. After the expiration of this time period, the rigs were required either to be exported or re-imported or to be imported permanently with the payment of substantial customs duties. According to the SEC, Jackson and Ruehlen bribed Nigerian customs officials to process false paperwork purporting to show the export and re-import of oil rigs when in fact the rigs never moved. As a result, Noble avoided the expenses associated with export and re-import, and also avoided paying customs duties. The SEC alleged that O Rourke approved the bribes and allowed them to be booked as legitimate expenses. Unknown. Unknown. Jackson and Ruehlen are contesting the SEC s charges. O Rourke entered into a settlement with the SEC in which he consented to entry of a court order requiring him to pay a $35,000 penalty and permanently enjoining him from further violations of the securities laws. For unknown reasons, the DOJ chose not to bring criminal charges in this matter, even though the SEC s charges included allegations that the defendants violated the FCPA s antibribery provisions. Marubeni Corporation Department of Justice Deferred Prosecution Agreement January 17, 2012 Marubeni Corporation ( Marubeni ), a Japanese company, allegedly participated in a decade-long scheme to bribe Nigerian government officials to obtain contracts connected to a liquefied natural gas (LNG) project on Bonny Island, Nigeria. Marubeni was hired as an agent by a joint venture known as TSKJ, comprising four companies, Technip S.A., Snamprogetti Netherlands, B.V., Kellogg Brown & Root LLC, and JCG Corporation, to help TSKJ obtain and retain contracts to build LNG facilities on Bonny Island. TSKJ used Marubeni to funnel bribes to lower-level Nigerian officials. The two-count information charged Marubeni with one count of conspiracy and one count of aiding and abetting substantive FCPA violations. 36

42 Over the course of ten years, TSKJ paid Marubeni $51 million with the intent that part of that amount be paid to Nigerian officials as bribes. TSKJ was awarded four contracts, with a total value of more than $6 billion, to build LNG facilities on Bonny Island. Marubeni entered into a two-year deferred prosecution agreement with the DOJ and agreed to pay a $54.6 million criminal penalty. The Marubeni deferred prosecution agreement is part of the longstanding Bonny Island bribery case. Between 2009 and 2011, each of the four companies that formed the TSKJ joint venture either pleaded guilty (in the case of Kellogg Brown & Root LLC) or entered into deferred prosecution agreements (in the case of the other three joint venture partners) to resolve FCPA charges. In February 2012, three of the most significant individual players in the bribery scheme Albert Jack Stanley, Jeffrey Tesler, and Wojciech Chodan were sentenced to terms of imprisonment and to probation. The Nordam Group, Inc. Department of Justice Non-Prosecution Agreement July 17, 2012 The NORDAM Group, Inc. ( NORDAM ), an Oklahoma-based provider of aircraft maintenance, repair, and overhaul ( MRO ) services, allegedly paid bribes to employees of Chinese state-owned airlines to secure contracts to provide MRO services. To effect the bribes, three NORDAM employees entered into sales representation agreements with fictitious entities and then used the fees NORDAM paid those entities to pay bribes to the airline employees. Unknown. Unknown. NORDAM entered into a three-year non-prosecution agreement with the DOJ and agreed to pay a $2 million penalty. The DOJ stated that a factor in the non-prosecution agreement and the relatively low fine, which was below the guidelines range, was the fact that NORDAM self-disclosed the improper conduct. Oracle Corporation Securities and Exchange Commission Civil Settlement August 16, 2012 Oracle Corporation ( Oracle ), a California-based computer technology corporation, allegedly failed to properly supervise a subsidiary that secretly set aside 37

43 money from government sales, which it then used to make unauthorized payments to unauthorized vendors, thus creating a substantial risk that those funds would be used for bribery or embezzlement. According to the civil complaint, the Indian subsidiary parked a portion of the proceeds from certain government sales in an off-book account to which its distributors had access and then directed these distributors to make payments to various third parties, including some that were merely storefronts. The civil complaint did not allege any improper payments, but nonetheless charged Oracle with violations of the books-and-records and internal controls provisions of the FCPA because the practice creat[ed] the potential for bribery or embezzlement. $2.2 million was allegedly held by Oracle India s distributors in unauthorized side funds which the vendors used to pay government officials. Unknown. Oracle consented to the entry of a final judgment with the SEC in which it agreed to pay a $2 million penalty. Oracle was charged with a violation of the FCPA without any allegations of improper payments. Rather, the allegations were based on the potential for bribery or embezzlement. Orthofix International N.A. Department of Justice and Securities and Exchange Commission Deferred Prosecution Agreement and Civil Settlement July 10, 2012 A Mexican subsidiary of Texas-based medical device company Orthofix International N.A. ( Orthofix ) allegedly paid bribes to officials at Mexico s governmentowned health care and social services institution, in order to obtain sales contracts with government hospitals. The bribes took the form not only of cash but of laptop computers, televisions, and appliances that were provided either directly to the officials or to shell companies that the officials owned. The payments were referred to as chocolates by the employees of Orthofix s subsidiary and were booked as cash advances and promotional and training advances. Approximately $317,000. Illicit net profits of approximately $4.9 million. Orthofix entered into a three-year deferred prosecution agreement with the DOJ and agreed to pay $2.2 million. Its civil settlement with the SEC required it to pay a total of $5.2 million, including $4.98 million in disgorgement and $242,000 in prejudgment interest. Orthofix self-disclosed the bribes to the SEC. 38

44 Garth Peterson Department of Justice and Securities and Exchange Commission Guilty Plea and Civil Settlement April 25, 2012 Garth Peterson, a former managing director for Morgan Stanley s Chinese real estate business, pleaded guilty to conspiracy to evade the company s internal accounting controls in violation of the FCPA. He also settled a related SEC civil action. Peterson allegedly conspired to sell an interest in certain Shanghai property to a shell company controlled by himself and a Chinese public official. The property was transferred at a discount from market value, resulting in an immediate profit of $2.5 million. In addition, Peterson arranged to have more than $1.8 million paid to himself and the official, disguised as finder s fees. $1.8 million in finder s fees paid to Peterson and the Chinese officials, as well as a valuable interest in Shanghai real estate. Chinese government approval to close on a real estate deal. Peterson pleaded guilty to willfully conspiring to circumvent the FCPA s internal controls provisions. He has yet to be sentenced in the criminal matter. He also settled an SEC civil action, according to which he will pay $254,589 in disgorgement; relinquish his interest in the Shanghai property, valued at $3.4 million; and be permanently barred from the securities industry. Neither the DOJ nor the SEC pursued charges against Morgan Stanley itself. DOJ explained that Morgan Stanley had maintained a robust system of internal controls, corporate policies, and compliance training intended to prevent FCPA violations. Pfizer Inc. Department of Justice and Securities and Exchange Commission Deferred Prosecution Agreement and Civil Settlement August 7, 2012 According to a deferred prosecution agreement entered into between the DOJ and Pfizer H.C.P. Corporation ( Pfizer HCP ), an indirect wholly owned subsidiary of U.S.-based pharmaceutical company Pfizer, Inc., and a civil complaint filed by the SEC against Pfizer Inc,, employees of Pfizer HCP allegedly gave cash and other items of value to government officials in Bulgaria, China, Croatia, the Czech Republic, Italy, Kazakhstan, Russia, and Serbia. The payments were allegedly made from 1997 to 2007 in order to influence purchasing decisions, regulatory approvals, and customs processing. The payments were allegedly covered up by collusive vendors through the use of fraudulent invoices recording the payments in Pfizer HCP s books and records as training, marketing, promotional activities, travel and entertainment, clinical trials, conferences, advertising, and freight. The deferred prosecution agreement resolved a twocount information filed by the DOJ charging Pfizer HCP with conspiracy and violation of the FCPA s anti-bribery provision. The SEC charged Pfizer Inc. with violations of the books-andrecords and internal controls provisions of the FCPA. 39

45 More than $2 million in bribes. More than $16 million. Pfizer HCP entered into a two-year deferred prosecution agreement with the DOJ and agreed to pay a $15 million penalty. Pfizer settled the SEC s books-and-records charges by agreeing to pay more than $26.3 million in disgorgement and prejudgment interest. Pfizer cooperated extensively with authorities in this matter, including initiating a global internal investigation in at least 19 countries, resulting in the identification of additional potential violations. Pfizer agreed to continue to implement enhanced compliance measures throughout its subsidiaries; to provide to the Department written reports on its progress and experience in maintaining and enhancing its compliance policies and procedures ; and to pledge continued cooperation with the DOJ and foreign law enforcement authorities. Smith & Nephew Inc. and Smith & Nephew PLC Department of Justice and Securities and Exchange Commission Deferred Prosecution Agreement and Civil Settlement February 6, 2012 Smith & Nephew Inc., a U.S. medical device company that is a subsidiary of London-based Smith & Nephew plc, allegedly engaged in a ten-year scheme to bribe publicly-employed Greek physicians to induce them to buy Smith & Nephew products. The threecount criminal information charged Smith & Nephew Inc. with conspiracy, a substantive violation of the FCPA, and a books-and-records violation. The SEC s complaint against Smith & Nephew plc charged violations of both the anti-bribery and books-and-records provisions of the FCPA. Unclear from deferred prosecution agreement. Sales of Smith & Nephew products of $5.4 million. Smith & Nephew Inc. entered into an 18-month deferred prosecution agreement with the DOJ and agreed to pay a $16.8 million criminal penalty. Smith & Nephew plc settled the SEC s books-and-records charges by agreeing to pay more than $5.4 million in disgorgement and prejudgment interest. Smith & Nephew Inc. s deferred prosecution agreement required a corporate monitor. The deferred prosecution agreement also explicitly stated that the $16.8 million penalty represented a 20 percent discount off the bottom of the fine range. 40

46 Albert Jack Stanley, Jeffrey Tesler, and Wojciech Chodan Department of Justice Sentencing February 22 and 23, 2012 Albert Jack Stanley was the former CEO of Kellogg, Brown & Root, Inc., the parent company of Kellogg, Brown & Root LLC, one of the members of the TSKJ joint venture in the Bonny Island case. Jeffrey Tesler was an agent of TSKJ, and Wojciech Chodan was a former salesperson and consultant of a U.K. subsidiary of Kellogg, Brown & Root, Inc. Stanley, Tesler, and Chodan participated in a scheme to bribe Nigerian government officials in order to obtain construction contracts worth more than $6 billion for the joint venture. Specifically, Chodan recommended hiring two agents Tesler and Marubeni Corporation to funnel money to these officials. Stanley approved entering into sham contracts with these agents. Over the course of the scheme, the agents were paid more than $180 million, a substantial portion of which was redirected to Nigerian government officials. More than $180 million was paid to two sham agents. A portion of this amount was redirected to Nigerian officials. More than $6 billion in contracts. Stanley pleaded guilty to one count of violating the FCPA and one count of conspiracy to commit mail and wire fraud, and was sentenced to 30 months in prison, three years of supervised release, and $10.8 million in restitution to Kellogg Brown & Root, Inc., the victim of a separate kickback scheme. Tesler pleaded guilty to one count of conspiracy to violate the FCPA and one count of violating the FCPA and was sentenced to 21 months in prison, two years of supervised release, a $25,000 fine, and forfeiture of $149 million. Chodan pleaded guilty to one count of conspiracy to violate the FCPA and was sentenced to one year of unsupervised probation, a $20,000 fine, and forfeiture of $726,885. At sentencing, Judge Keith Ellison of the Southern District of Texas seemed to express some sympathy for the defendants, remarking that he had seen studies indicating that prison is harder and less effective on white-collar defendants than on lower-income defendants. Ultimately, however, he said that he was reluctant to make a distinction between street crimes and the crimes of rich people. Tyco International, Ltd. Department of Justice and Securities and Exchange Commission Guilty Plea and Civil Settlement September 24, 2012 Tyco International, Ltd. ( Tyco ), a Swiss-based manufacturer of equipment for the security, fire protection, and energy industries, entered into separate agreements to settle DOJ and SEC charges that it and its foreign subsidiaries used fake commissions and third-party agents to funnel improper payments to government officials in several countries. Tyco s subsidiaries allegedly operated twelve different schemes in various countries throughout the world between 2006 and In one scheme, the SEC charged Tyco itself with a violation of 41

47 the FCPA s anti-bribery provision because Tyco s wholly owned Turkish subsidiary acted as the parent company s agent, in part because four Tyco officers also served as officers of the subsidiary. The SEC found no evidence that any of these individuals was aware of the potentially improper payments, but nevertheless alleged that based on the officers dual roles, Tyco controlled the subsidiary and was therefore vicariously liable. The DOJ charged Tyco with violations of the anti-bribery provision based on the conduct of Tyco Valves & Controls Middle East, a U.S. incorporated subsidiary which allegedly paid bribes to officials from an oil and gas company controlled and managed by the government of the Kingdom of Saudi Arabia. Tyco was also charged with violations of the books-and-records and internal controls provisions of the FCPA based on the actions of its subsidiaries. More than $5 million. More than $10.5 million. Tyco entered into an agreement with the DOJ to pay a $13.68 million penalty for books-and-records violations. Tyco subsidiary Tyco Valves & Controls Middle East, Inc., entered into a plea agreement with the DOJ through which it was sentenced to pay a $2.1 million fine, which was included in the $13.68 million penalty. Tyco entered into a separate agreement with the SEC to pay over $13.1 million in civil penalties and disgorgement. This was the second FCPA action against Tyco arising out of the same investigation. Tyco paid $51 million to the SEC in 2006 to resolve civil charges that primarily related to accounting fraud, but which also included allegations that Brazilian and South Korean subsidiaries of Tyco had made improper payments to foreign government officials. Although the SEC s settlement only covered conduct post-dating the previous settlement, the conduct alleged by the DOJ dated back as far as Both the DOJ and the SEC asserted in public statements that Tyco was given credit for voluntarily disclosing the alleged violations and for the company s extensive remedial action. In the criminal matter, a Tyco subsidiary Tyco Valves and Controls Middle East pleaded guilty to conspiracy to violate the FCPA, while the parent company was given a non-prosecution agreement. This resolution for the parent company may have been the credit for voluntary disclosure afforded by the DOJ. Wyeth LLC Securities and Exchange Commission Civil Settlement August 7, 2012 According to a complaint filed by the SEC, subsidiaries of Wyeth, a U.S.-based pharmaceutical company that was acquired by Pfizer Inc. in 2009, allegedly made improper payments to foreign government officials, which were falsely recorded in Wyeth s books and records. The SEC alleged that, at various times from at least 2005 to 2009, employees and agents of Wyeth subsidiaries in many countries, including Indonesia, Pakistan, and China, allegedly provided payments in cash and in kind to doctors and other employees of governmentowned hospitals to influence them to recommend Wyeth s products, ensure that Wyeth products were available to certain patients, and to obtain statistics for marketing purposes. Those payments were allegedly supported by inaccurate invoices and were improperly recorded with descriptions such as Miscellaneous Expenses Joint Promotions, Medical Education Promo, Trade 42

48 Allowances, and Miscellaneous Selling Expenses. A Wyeth subsidiary in Saudi Arabia also allegedly made a cash payment to customs officials to secure the release of a shipment of promotional items. That payment was allegedly improperly recorded as a facilitation payment. The SEC conceded that the payments were made without knowledge or approval of Wyeth s officers or employees but they nonetheless resulted in inaccurate books and records which Wyeth failed to correct. Unknown. Wyeth profits of approximately $17,217,831. Wyeth consented to the entry of a final judgment ordering it to pay disgorgement and prejudgment interest totaling more than $18.8 million. Wyeth must also update the SEC on the status of its remediation and compliance members for a two-year period. The alleged misconduct occurred before Wyeth was acquired by Pfizer and was disclosed to the SEC as the result of a due diligence review that occurred as part of the acquisition. Following the acquisition, Wyeth delisted from the NYSE and became a wholly owned subsidiary of Pfizer. Another FCPA action against Pfizer for unrelated conduct was settled on the same day. Cecilia Zurita Department of Justice Indictment January 19, 2012 Cecilia Zurita, former vice president of U.S.-based telecommunications companies Cinergy Telecommunications Inc. ( Cinergy ) and Uniplex Telecom Technologies, Inc., was named in a second superseding indictment. The indictment alleged that Zurita, along with other previously indicted co-defendants including her former employers and her husband, former Cinergy and Uniplex president Washington Vazconez Cruz, participated in a scheme from December 2001 through January 2006 to pay money to shell companies that would then use it to bribe government officials from Telecommunications D Haiti ( Haiti Teleco ), the Republic of Haiti s state-owned national telecommunications company. Zurita was allegedly in charge of overseeing the companies finances, wrote checks to shell companies and intermediaries who used the funds to bribe Haiti Teleco officials in Haiti, and concealed the purpose of these payments. In exchange for the bribes, Cinergy allegedly received business advantages, such as telecommunications contract, preferred telecommunications rates, and credits towards sums owed. The DOJ dismissed the claims against Cinergy on February 24, 2012, stating that it is a non-operational entity that effectively exists only on paper for the benefit of two fugitive defendants. According to the DOJ, Zurita and Cruz are currently fugitives. More than $2.6 million. 43

49 Not stated. Unresolved. 44

50 2012 FCPA FEDERAL COURT LITIGATION On December 11, 2012, Judge Keith Ellison of the U.S. District Court for the Southern District of Texas issued an opinion granting in part a motion to dismiss filed by former U.S.-based oil drilling company Noble Corporation Chief Executive Mark Jackson and James Ruehlen, director of Noble s Nigerian subsidiary. Jackson and Ruehlen were charged with violating the FCPA through a bribery scheme designed to obtain improper Temporary Import Permits ( TIPs ) for oil rigs in Nigeria and thereby retain valuable oil drilling contracts and avoid paying permanent import duties. Judge Ellison agreed with the defendants as to two key issues, holding that the case was barred by the statute of limitations and the SEC had failed to allege facts showing that the payments did not fit within the FCPA s exception for facilitation payments. However, Judge Ellison gave the SEC leave to amend its complaint. In addition, Judge Ellison agreed with the SEC, regarding two other issues: whether the identity of a foreign official must be pled with specificity and what it means to have corrupt intent. The statute of limitations applicable to SEC civil charges seeking monetary penalties is five years. Some of Jackson s and Ruehlen s conduct occurred more than five years prior to the filing of the SEC s complaint. Nonetheless, the government brought charges based on that conduct using the theory of fraudulent concealment, which allows the SEC to bring charges based on old conduct where the conduct was hidden from the government due to the conduct of the defendant and the SEC has been diligent in bringing its complaint. The court held that fraudulent concealment was adequately alleged where the complaint stated that the defendants concealed their wrongdoing by virtue of falsely booking improper payments as legitimate business expenses and submitting personal certifications that all deficiencies in internal controls and frauds had been disclosed to the Audit Committee. Judge Ellison nonetheless granted the motion to dismiss because the SEC failed to plead facts demonstrating diligence in bringing the complaint in a timely fashion, but granted the SEC leave to amend its complaint to allege such facts. Finally, consistent with established law, Judge Ellison noted that the statute of limitations was an issue for the claims seeking monetary penalties because the SEC s equitable remedies like injunctive relief and disgorgement are not subject to the five-year statute of limitations. The defendants also moved for dismissal because the SEC failed to allege the names or at least job responsibilities of the foreign officials sought to be influenced. Judge Ellison held that the FCPA does not require a bright line rule that the SEC must plead the precise identity of each foreign official alleged to have received an improper payment. Judge Ellison ruled it was sufficient to allege that payments were made to induce unspecified officials to violate the very laws [they were] charged with implementing. The SEC did not in this case have to allege details about the foreign official s identity, duties and responsibilities. However, Judge Ellison allowed for the possibility that there may be other cases where greater detail about the identity of the recipient of the payments may be required. Judge Ellison acknowledged but disagreed with the holding made by Judge Lynn Hughes, also of the Southern District of Texas, in the case of John O Shea in January Another argument raised by the defendants was that the facilitation payments exception to the FCPA is an exception and not an affirmative defense, meaning that the government must prove that it does not apply. Judge Ellison ruled that the SEC has the burden to negate applicability of 45

51 the exception because it is tied so closely to the issue of corrupt intent, which is an element of the offense that the government must prove. Nonetheless, Judge Ellison held that the SEC successfully negated the exception by alleging that the payments were made to induce officials to grant import permits based on false paperwork, since creating and approving false paperwork is not a routine governmental action falling within the scope of the facilitation payments exception. However, regarding other allegations, Judge Ellison held that the SEC did not meet its burden where all that was alleged were payments made to influence officials in discretionary acts relating to import permits. In the latter case, the SEC was given leave to amend its complaint. Finally, the defendants argued that the FCPA s use of the word corruptly meant that the government had to prove that the defendants were aware that their conduct violated the FCPA. Judge Ellison held that the term corruptly does not mean the defendant had to know his or her actions would violate the FCPA or any other specific law. It was enough that the defendants knew the payments were made to induce foreign officials to approve permits based on documents the officials knew to be false. Judge Ellison noted that, in the criminal context, the government must also prove that the defendant acted willfully, meaning the defendant must have intended to act unlawfully although not specifically to violate the FCPA. To hold civil prosecutions to the same standard would eliminate the distinction between a criminal and civil violation of the FCPA. On February 11, 2013, Judge Richard Sullivan of the U.S. District Court for the Southern District of New York denied a motion to dismiss filed by former Magyar Telekom PLC ( Magyar ) executives Elek Straub, Andras Balogh, and Tamas Morvai. The SEC alleged that the defendants, all foreign nationals, had engaged in a scheme to bribe Macedonian officials to limit proposed legislation that would have licensed a competitor company and imposed various regulatory burdens. The SEC alleged that all three defendants were personally involved in executing the scheme, including by signing illicit agreements with Macedonian government officials. During the time of the alleged scheme, the securities of both Magyar and its parent corporation, Deutsche Telekom AG, were publicly traded through American Depository Receipts listed on the New York Stock Exchange and registered with the SEC. The SEC alleged that the defendants signed management and sub-management representation letters to Magyar s auditors falsely asserting that they had disclosed all relevant financial information and were unaware of any unlawful activity. The SEC claimed that the company s auditors relied on those false statements in preparing their audit reports, which became part of Magyar s annual SEC filings. The defendants were charged with violating the FCPA s anti-bribery provision and with aiding and abetting Magyar s violations of the FCPA s requirement that public companies maintain accurate books and records. Personal Jurisdiction The defendants moved to dismiss the complaint for lack of personal jurisdiction, arguing principally that the SEC failed to establish that they had sufficient minimum contacts with the United States to satisfy the Fifth Amendment s Due Process Clause. Judge Sullivan held that sufficient minimum contacts existed because the defendants made false statements to the company s foreign auditors knowing that those statements would likely affect Magyar s financial filings, including those filings made with the SEC in the United States. Judge Sullivan stated that 46

52 it was not adopting a per se rule for asserting jurisdiction over employees of an SEC-regulated securities issuer, but that a sufficient nexus with the United States was found in this case. Interstate Commerce The defendants also moved to dismiss on the ground that the FCPA s interstate commerce requirement (for charges against non-u.s. persons) was not met because the only alleged use of interstate commerce was that the defendants ed each other from non-u.s. locations using Hotmail accounts and thereby sent s through U.S.-based servers. Judge Sullivan held that the SEC need not show that the defendants intentionally or knowingly used interstate commerce. In this case, it was enough that the defendants s, unbeknownst to them, were routed through the United States. Straub is the first FCPA case in which the government has relied solely on the fact of s going through U.S.-based servers to establish the use of interstate commerce. That said, the concept that an interstate commerce requirement can be satisfied without specific knowledge by the defendants that their actions resulted in that use of interstate commerce is consistent with existing jurisprudence in other contexts. On February 19, 2013, Judge Shira Scheindlin of the U.S. District Court for the Southern District of New York granted a motion to dismiss an SEC FCPA enforcement action filed by Herbert Steffen, a German National who had served as CEO of Siemens s Argentinean subsidiary and group president of another Siemens subsidiary. The SEC had charged seven former executives at Siemens AG (the parent corporation) and its subsidiary in Argentina, including Steffen, with participating in a scheme to bribe Argentinean officials. The SEC alleged that Steffen was recruited for the bribery scheme because of his connections in Argentina and for the purpose of placing pressure on the then- CFO of Siemens Argentina to authorize bribes to Argentinean officials. The then-cfo later authorized the bribes, but only after seeking guidance from his superiors at Siemens, who did not include Steffen. The then-cfo also signed false quarterly and annual certifications presented to the auditors of Siemens Argentina that ultimately resulted in the parent corporation making false SEC filings. The SEC charged all seven defendants with violating the FCPA s anti-bribery provision and with aiding and abetting violations by the parent corporation of the FCPA requirement that public companies maintain accurate books and records. Steffen moved to dismiss for lack of personal jurisdiction. Judge Scheindlin granted the motion, rejecting the SEC s argument that Steffen s alleged participation in a bribery scheme by a company that filed SEC periodic reports created sufficient minimum contacts with the United States. Judge Scheindlin distinguished the case from that in SEC v. Straub, reasoning that Steffen s role was too attenuated from the SEC filings because he neither authorized the bribes nor participated in the alleged cover-up through misrepresentations to auditors, nor knew of any cover-up. The court expressed concern that the SEC s theory would grant federal courts personal jurisdiction over any foreign national employed by a foreign corporation whose securities are publicly traded on an American exchange. Absent any alleged role in the cover ups themselves, let alone any role in preparing false financial statements the exercise of jurisdiction here exceeds the limits of due process

53 John O Shea, general manager of Swiss corporation ABB Group ( ABB ) was charged with 18 counts of conspiracy, violations of the FCPA, money laundering, and falsification of records. On January 16, 2012, he was acquitted of all substantive FCPA charges. In dismissing the substantive charges, Judge Lynn Hughes of the U.S. District Court for the Southern District of Texas ruled that Fernando Basurto, Jr., the principal witness against O Shea, knew almost nothing and his responses to questions were abstract and vague, generally relating gossip. Judge Hughes recognized that while the Government does not have to trace a particular dollar to a particular pocket of a particular official, it has to connect the payment to a particular official, that the funds made under his authority to a foreign official, who can be identified in some reasonable way, that is, with no reasonable doubt. Judge Hughes went on to say that [y]ou can t convict a man promising to pay unless you have a particular promise to a particular person for a particular benefit. If you call up the [intermediary] and say, look, I m going to send you 50 grand, bribe somebody, that does not meet the statute. On February 9, 2012, the government dismissed the remaining charges against O Shea, noting that the dismissal of the substantive FCPA counts was not subject to appellate review. Given the statements Judge Hughes made in granting the motion to dismiss, the government moved to dismiss all remaining charges with prejudice. On November 27, 2012, the U.S. Court of Appeals for the Second Circuit rejected a request for rehearing en banc by Dooney & Burke co-founder Frederic Bourke, who was convicted in 2009 of conspiracy to violate the FCPA in connection with an investment scheme related to the privatization of the state-owned oil company in Azerbaijan. Bourke argued that the prosecution had withheld evidence that could have been used to impeach key witnesses and may have even sponsored false testimony by those witnesses. Bourke has also filed a petition for certiorari to the U.S. Supreme Court on the issue that a jury instruction regarding his acting with willful blindness to improper payments was contrary to Supreme Court precedent. That petition is pending as of the date of this publication. 48

54 JENNER & BLOCK S FOREIGN CORRUPT PRACTICES ACT PRACTICE Jenner & Block has one of the nation s leading FCPA practices, representing global companies in defense of FCPA claims and in all phases of compliance with the FCPA and other anti-corruption laws, including training and development of internal controls, compliance counseling, internal investigations, and negotiations with the United States and other governments. Our lawyers literally wrote the book on the FCPA Practicing Under the U.S. Anti-Corruption Laws (Aspen Publishers 2010 & Supplements). The hallmark of a strong FCPA practice is keeping its clients out of trouble: by working with in-house lawyers and business people to develop appropriate internal controls that meet the specific needs of the company and that detect/prevent violations; by designing and/or conducting regular training of company personnel; by structuring, advising on, and conducting anti-corruption due diligence, whether for third-party service providers or in the context of acquisitions; and by counseling on the resolution of specific compliance issues as they arise in day-to-day business operations. Our attorneys have developed compliance programs for major multi-national companies across numerous sectors of the economy, including the defense industry, financial institutions, oil & gas, media companies, government contractors of all kinds, and retail establishments, among others, and provided training to entities with literally tens of thousands of corporate personnel as well as for smaller businesses with fewer than 500 employees. Our team also brings a nuanced understanding of the intersections of the FCPA with federal securities laws, Sarbanes-Oxley, Dodd-Frank, export control laws, and other anti-corruption laws, including the U.K. Bribery Act. When issues arise, our clients benefit from Jenner & Block s world-class reputation and skill in conducting internal investigations. Our range and depth of experience enables us to conduct internal investigations with care and rigor, ensuring that our clients obtain the facts they need and that the investigation will withstand the strictest of scrutiny by regulators. At the same time, we understand how to operate flexibly and expeditiously and the need to conduct investigations in an efficient and flexible manner that is sensitive to the needs of our clients business operations. Jenner also provides our clients with seasoned judgment to assess the gravity and veracity of the allegations and to make informed decisions under difficult, and often timesensitive, circumstances. We also advise clients on the most effective methods to mitigate the impact of any alleged misconduct, including the potential benefits and risks of voluntary disclosure when appropriate. Jenner & Block brings longstanding experience in negotiating and resolving matters with the Department of Justice, the Securities and Exchange Commission, and other authorities. We have represented many companies before these agencies, in all stages of enforcement actions, from initial investigation by the government to final resolution. We also have a deep understanding of trends in FCPA enforcement and the regulators approach to the issues our clients face. As a result, we understand how to advocate effectively for our clients before the relevant government agencies in order to help achieve the best possible result. We offer clients a wealth of experience, with two former U.S. Attorneys, the former Chief of the DOJ s FCPA enforcement group, the former Associate Attorney General (third-ranking official in the U.S. Department of Justice), and former Assistant United States Attorneys and 49

55 federal defenders from jurisdictions throughout the country. In addition, our practice includes several former SEC enforcement attorneys, including the former Associate Director of the SEC s Division of Enforcement. As a group, our lawyers have represented dozens of companies in FCPA and anti-corruption matters of all types. MAP OF OUR FCPA REPRESENTATIONS 50

56 PRACTICE MEMBER BIOGRAPHIES Anthony S. Barkow, Partner Tel: mail: Anthony S. Barkow is a partner in the New York office and a member of the White Collar Defense and Investigations practice. Mr. Barkow is an accomplished trial and appellate lawyer with experience in both criminal and civil matters. As a federal prosecutor for 12 years in Manhattan and Washington, DC, he was involved in some of the most significant international terrorism and white collar criminal cases in the country, as well as prosecuting a wide variety of other crimes, from homicide, international narcotics trafficking, domestic violence, sexual abuse, and drug and gun street crimes, to securities fraud. Mr. Barkow also litigated civil and criminal matters under federal consumer protection statutes. During his tenure in the government, he tried more than 40 cases and briefed and argued more than ten cases on appeal. In 2005, Mr. Barkow was awarded the Attorney General s Award for Exceptional Service, the highest award bestowed by the Attorney General within the Department of Justice. Mr. Barkow was the Executive Director of the New York University School of Law s Center on the Administration of Criminal Law. Mr. Barkow established the nonprofit advocacy organization, which is dedicated to promoting good government practices in the criminal justice system, in The Center is the first and only organization of its kind in the country. He received his A.B., summa cum laude, from the University of Michigan and his J. D., cum laude, from Harvard Law School, where he served as the Notes Office Co-Chair and Supervising Editor for Harvard Law Review. Iris E. Bennett, Partner Tel: mail: ibennett@jenner.com Iris E. Bennett is a partner in Jenner & Block s Washington, DC office and a member of its White Collar Defense and Investigations practice. She advises and represents companies facing government investigations relating to potential violations of criminal or civil fraud statutes. Ms. Bennett has represented clients in all phases of government investigations and settlements. Companies also turn to her to lead internal investigations, for advice on remediation, and for counseling on their compliance programs. She also handles specific compliance issues, particularly with respect to the Foreign Corrupt Practices Act. Ms. Bennett has conducted numerous internal investigations for Fortune 100 companies and other corporate clients in Europe, Latin America, Asia, and the Middle East. She is bilingual and has conducted many investigations in Spanish. Ms. Bennett came to Jenner & Block in 2003, after serving as a federal criminal defense lawyer in the District of Columbia Federal Public Defenders office. Before joining the Federal Public Defender, she clerked for the Honorable David S. Tatel of the District of Columbia Circuit Court of Appeals and for the Honorable Robert W. Sweet of the Southern District of New York. Ms. Bennett graduated from Harvard College summa cum laude (1989) and obtained her J.D. from New York University Law School magna cum laude, Order of the Coif (1999). Ana R. Bugan, Partner Tel: mail: abugan@jenner.com Ana R. Bugan is a partner in Jenner & Block s Chicago office and is a member of the firm s White Collar Defense and Investigations practice. Ms. Bugan received her J.D. in 2002 from Harvard Law School, where she served as an executive editor of the Harvard Law Review. She clerked for the Honorable Matthew F. Kennelly, United States District Judge for the Northern District of Illinois. Ms. Bugan s practice involves assisting clients with criminal matters, internal investigations, Congressional inquiries, and corporate compliance. 51

57 Joseph P. Covington, Partner Tel: mail: Joseph P. Covington is a partner in Jenner & Block s Washington, DC office and Co-Chair of the firm s White Collar Defense and Investigations practice. He has broad experience representing companies in the international marketplace with respect to the Foreign Corrupt Practices Act ( FCPA ) and various import and export controls of both defense and commercial products. He has assisted numerous American companies involved in business ventures abroad in evaluating agents and questionable payment practices. He provides guidance in the establishment and conduct of company compliance programs. He conducts internal investigations into questionable circumstances and advises companies on available resolution strategies. He advises companies with respect to the subject of voluntary disclosures. He also defends clients faced with grand jury investigations and formal accusations in a range of criminal law contexts. Mr. Covington obtained substantial FCPA experience as a trial attorney in the Multinational Branch of the DOJ s Criminal Fraud Section and later Chief of the FCPA unit of the DOJ s Criminal Fraud Section. Mr. Covington received his B.A. degree in history at the University of Virginia in 1968 and his J.D. degree at the University of Virginia in He received a Purple Heart while serving in Viet Nam. Larry P. Ellsworth, Partner Tel: mail: lellsworth@jenner.com Larry P. Ellsworth is a partner in Jenner & Block s Washington, DC office. He has represented General Motors Corporation in a large SEC investigation, which was recently successfully settled, with no fraud charges or money payments; Fannie Mae in a $2 billion suit against its auditor; a Trustee in bankruptcy in obtaining a $95.5 million settlement in an auction rate securities case against CitiGroup; and a number of other companies and officers in confidential securities investigations, as well as in private class actions and derivative actions, some involving grand jury investigations. He advises boards of directors and others with regard to internal investigations involving allegations of accounting, insider trading and Foreign Corrupt Practices Act violations. He recently negotiated one of the lowest money settlements ever given to an individual under the Foreign Corrupt Practices Act in a case involving alleged bribery of Chinese officials following the company s payment of a substantial penalty. From , Mr. Ellsworth was Assistant Chief Litigation Counsel for the U.S. Securities and Exchange Commission s Trial Unit, where he was named the 2004 winner of the prestigious Stanley Sporkin Award, the highest award for enforcement efforts at the SEC. Among other prior employment, he was Vice President and Director of Litigation for a Fortune 50 company and head of judicial litigation for the U.S. Department of Energy, where he headed the trial team that won a $2 billion judgment against Exxon Corporation, which was then (and may still be) the largest litigated judgment ever won by the United States. Mr. Ellsworth obtained his law degree from Harvard Law School where he was an editor on the Harvard Civil-Rights and Civil Liberties Law Review. He additionally obtained an LL.M. from the Georgetown University Law Center. His undergraduate degree is in Economics from Michigan State University, where he received a B.A. with Highest Honors. Gabriel A. Fuentes, Partner Tel: mail: gfuentes@jenner.com Gabriel A. Fuentes is a partner in Jenner & Block s Chicago office. Mr. Fuentes is a former professional journalist and federal prosecutor at the Chicago U.S. Attorney s Office for five years. His varied experience at Jenner & Block, where he has practiced law for 14 years, includes complex international antitrust and civil matters. These matters have entailed international internal investigations in the United States and Japan, and the management of civil and criminal litigation in India. At the U.S Attorney s Office, Mr. Fuentes investigated and tried cases involving international narcotics smuggling, mortgage fraud, financial institution fraud, criminal tax evasion, identity theft, and mail and wire fraud. In addition, Mr. Fuentes briefed and argued numerous criminal appeals in the U.S. Court of Appeals for the Seventh Circuit. Mr. Fuentes 52

58 graduated cum laude from Northwestern University School of Law in 1993 and received his undergraduate degree from Northwestern s Medill School of Journalism in Katya Jestin, Partner Tel: kjestin@jenner.com Katya Jestin is a partner in Jenner & Block s New York office. She is a member of the firm s Litigation Department and White Collar Defense and Investigations practice. She counsels companies and executives in criminal, regulatory, and congressional investigations, including representing clients before the United States Department of Justice, the Securities and Exchange Commission, and the U.S. Senate Permanent Subcommittee on Investigations. She also conducts internal investigations on behalf of corporate clients, provides counsel to senior management on FCPA and other compliance issues, and served as counsel to the Examiner in the Lehman Brothers bankruptcy examination. Ms. Jestin is one of a number of former federal prosecutors at Jenner & Block. She joined Jenner & Block after serving as an Assistant United States Attorney and a supervisor in the Criminal Division of the Eastern District of New York, where she was involved in investigations, prosecutions and trials involving fraud, money laundering and other white collar offenses. She also successfully prosecuted the leadership of three of the five La Cosa Nostra organized crime families. She was co-counsel in the RICO prosecution of Gambino boss Peter Gotti and 16 co-defendants for labor racketeering, fraud and corruption, resulting in the conviction of all defendants. Ms. Jestin graduated from the University of Texas in 1991 and cum laude from Georgetown University Law Center in Jessie K. Liu, Partner Tel: mail: jliu@jenner.com Jessie K. Liu is a partner in Jenner & Block s Washington, DC office. She represents corporations and individuals, including many government contractors, in connection with criminal and civil investigations, with a particular focus on the Foreign Corrupt Practices Act and the False Claims Act. Prior to rejoining the firm in 2009, Ms. Liu was an Assistant United States Attorney for the District of Columbia. She also held a number of senior positions in the U.S. Department of Justice, including Deputy Assistant Attorney General in the Civil Rights Division; Counsel to the Deputy Attorney General for national security affairs; and Deputy Chief of Staff in the National Security Division. She began her legal career as an associate at Jenner & Block. Ms. Liu graduated from Harvard College, summa cum laude, Phi Beta Kappa, in She received her J.D. in 1998 from Yale Law School, where she was an editor of the Yale Law Journal. From , Ms. Liu served as a law clerk to the Honorable Carolyn Dineen King, U.S. Court of Appeals for the Fifth Circuit. Michael K. Lowman, Partner Tel: mail: mlowman@jenner.com Michael K. Lowman is a partner in Jenner & Block s Washington, DC office. Prior to joining the firm, Mr. Lowman served as Assistant Chief Litigation Counsel for the Securities and Exchange Commission s Division of Enforcement, where he was primary trial counsel in a wide variety of civil and administrative enforcement actions brought in the U.S. District Court for the Southern District of New York and elsewhere. While at the SEC, Mr. Lowman investigated, and where necessary, tried complex financial fraud cases, matters involving insider trading, Foreign Corrupt Practices Act violations, market manipulation schemes and potential U.S. securities law violations by an off-shore brokerage firm and transfer agents. Since joining the firm, Mr. Lowman has represented companies and officers and directors before the SEC, including those involving the FCPA, and advised companies on a variety of FCPA compliance issues and provided due diligence advice involving overseas acquisitions. Mr. Lowman has also been recognized in Washington DC Super Lawyers for Securities Litigation. Mr. Lowman received his J.D. summa cum laude from American University s Washington College of Law in He received his 53

59 B.A. degree summa cum laude and with Phi Beta Kappa honors from the State University of New York at Buffalo in Thomas C. Newkirk, Partner Tel: mail: Thomas C. Newkirk is a partner in Jenner & Block s Washington, DC office. Mr. Newkirk is Co- Chair of Jenner & Block s Securities Litigation and Enforcement practice. He focuses on U.S. Securities and Exchange Commission enforcement matters, related internal investigations, litigation, and counseling. In 2010 and 2011, Mr. Newkirk was recognized by Chambers USA as one of the country s leading lawyers in Securities/Regulation/Enforcement Law. In addition, Mr. Newkirk was recognized in Washington DC Super Lawyers for Securities Litigation, by Legal Times as one of seven Leading Lawyers in the areas of Internal Investigations/Corporate Governance, and as one of Washington s Top Lawyers by Washingtonian magazine in Securities Law. Previously, Mr. Newkirk was a senior official with the U.S. Securities and Exchange Commission for 19 years. Mr. Newkirk received numerous awards during his government service, including two Presidential Meritorious Executive Awards, the SEC Chairman s Award for Excellence, the SEC s Law and Policy Award, the SEC s Capital Markets Award, and the SEC s Distinguished Service Award, the Commission s highest honor. Mr. Newkirk received an LL.B with Distinction in 1966 from Cornell Law School where he was an editor of the Cornell Law Review; he received his B.A. from the College of Arts and Sciences, Cornell University, in Thomas J. Perrelli, Partner Tel: mail: tperrelli@jenner.com Tom Perrelli returned as a partner to Jenner & Block s DC office in December of Tom founded and chairs the firm s Government Controversies and Public Policy Litigation practice group. From 2009 to 2012, Tom was the Associate Attorney General, the third-ranking official at the United States Department of Justice. In that role, he oversaw all of the civil litigation of the United States (as well as specialized areas of criminal enforcement), including the Department s Antitrust Division, Civil Division, Civil Rights Division, Environment and Natural Resources Division, and Tax Division. He represents companies facing litigation, regulatory compliance issues, and other problems where law, business and government regulation intersect, drawing upon a wealth of experience in government service and the Washington, DC political environment. In 2011, Tom was named a Visionary of the Legal Profession by the National Law Journal. Prior to 2009, Tom was Managing Partner of Jenner s DC office and founder and co-chair of the firm s Creative Content practice. Tom clerked for Chief Judge Royce Lamberth of the U.S. District Court for the District of Columbia. He received his A.B. in History from Brown University in 1988 and received his J.D. from the Harvard Law School in 1991, where he served as Managing Editor of the Harvard Law Review. Monica R. Pinciak-Madden, Partner Tel: mail: mpinciak@jenner.com Monica R. Pinciak-Madden is a partner in Jenner & Block s Chicago office. She is a member of the firm s Litigation Department and White Collar Defense and Investigations practice. Ms. Pinciak-Madden has represented both corporations and individuals in connection with federal criminal investigations involving bribery, public corruption, bid rigging, and fraud, and has counseled clients in connection with corporate internal investigations. She has extensive experience dealing with federal law enforcement authorities, including the Federal Bureau of Investigation, and has participated in the negotiation of settlements with the Department of Justice. She has counseled corporations on the development and implementation of corporate compliance programs, with particular emphasis on anti-corruption and anti-bribery measures, and has worked with corporations to design and develop code of conduct provisions dealing with the conduct of ethical business practices. Ms. Pinciak-Madden is also the co-author of a manual titled A 50-State Guide to the Laws Governing Gifts to State and Local Government Officials and 54

60 Employees, which was prepared to assist clients with monitoring compliance with applicable gratuity laws. Ms. Pinciak-Madden has also represented both corporate and individual clients in a broad range of complex civil disputes in state and federal court. Ms. Pinciak-Madden joined Jenner & Block after serving as a staff law clerk to the United States Court of Appeals for the Seventh Circuit. Ms. Pinciak-Madden graduated with honors from DePaul University in 1996, receiving a B.S. in Business Administration. She received her J.D. with high honors from Chicago-Kent College of Law in 1999, where she served as Executive Articles Editor of the Chicago-Kent Law Review. Ms. Pinciak-Madden is a member of the Order of the Coif. She is also a member of the Illinois bar and is admitted to practice before the United States District Court for the Northern District of Illinois, the United States District Court for the Eastern District of Wisconsin, and the United States Court of Appeals for the Seventh Circuit. Peter B. Pope, Partner Tel: mail: ppope@jenner.com Peter Pope is Co-Chair of the firm s White Collar Defense and Investigations practice. He has represented individuals and entities as defendants, targets, subjects or witnesses in criminal and regulatory investigations and proceedings, and has conducted internal investigations around the world. Mr. Pope has represented clients before the Southern and Eastern Districts of New York, the Securities and Exchange Commission, the New York State Attorney General s Office, the New York State Inspector General s Office, and the Manhattan District Attorney s Office. Matters have included insider trading, high-profile government corruption cases, tax crimes, health care fraud, the Madoff case, Foreign Corrupt Practices Act (FCPA) issues, and theft of intellectual property. His clients have ranged from hedge funds, to manufacturers, to health care providers, to the government. Mr. Pope has conducted internal investigations around the world leading teams in China, Europe, Latin America, Africa, and elsewhere. The investigations have involved the theft of intellectual property, due diligence, corporate malfeasance, and FCPA issues. He is a frequent lecturer on fraud and corruption. Having served as the Inspector General for the New York State School Construction Authority, Mr. Pope has a hands-on background in compliance, and has advised clients from the financial to the manufacturing sectors on practical and effective compliance measures. The Hon. Jack Weinstein appointed him Special Master to train and monitor gun dealers who were sued by the City of New York. Before joining Jenner & Block, Mr. Pope served as Deputy Attorney General in charge, Criminal Division, of the New York State Attorney General s Office. In that role, he rebuilt and led a 100-lawyer statewide division that consistently prosecuted cases of national significance. Mr. Pope also served as Director of Policy for New York Governors Eliot Spitzer and David Paterson, where he led negotiations with the New York State Legislature that produced landmark Workers' Compensation reform and the adoption of one of the nation s first Anti-Human Trafficking statutes. Mr. Pope s private sector experience includes a stint as a Vice President at Goldman, Sachs and Co, where he provided counsel on strategic business initiatives, as well as operational, compliance and product risk. Mr. Pope began his career as Assistant District Attorney in the New York County District Attorney s Office in Manhattan where he rose to Deputy Chief, Labor Racketeering Unit. Mr. Pope received his A.B., cum laude, from Harvard College and his J.D. from Yale Law School, where he was Notes Editor of The Yale Law Journal. He is a former law clerk to the Hon. Robert W. Sweet of the U.S. District Court for the Southern District of New York. Reid J. Schar, Partner Tel: mail: rschar@jenner.com Reid J. Schar is a partner in Jenner & Block s Chicago office and Co-Chair of the firm s White Collar Defense and Investigations practice. He is a former Assistant U.S. Attorney for the Northern District of Illinois, where he tried more than 20 criminal cases. Mr. Schar was the lead prosecutor in both corruption trials of former Illinois governor Rod Blagojevich. He has led a number of grand jury investigations into complex corruption and financial matters and has briefed and argued ten appeals in the Seventh Circuit Court of Appeals. Clients regularly turn to 55

61 Mr. Schar with their most significant white collar matters and investigations as well as complex commercial litigation matters. He has led domestic internal investigations and international Foreign Corrupt Practices Act (FCPA) investigations on behalf of a variety of clients. He also has extensive experience handling compliance reviews on behalf of clients around the globe. In addition, Mr. Schar currently represents clients in litigation involving civil RICO actions, fraud claims, antitrust allegations, and breach of contract disputes. Mr. Schar is a prolific speaker on criminal law issues and lectures on a variety of related topics, including the FCPA, around the world. In 2012, he was awarded the Attorney General s Award for Distinguished Service by the Department of Justice; the Director s Award for Excellence: Outstanding Criminal Investigation by the Federal Bureau of Investigation; and the J. Michael Bradford Award by the National Association of Former United States Attorneys. He graduated from Stanford University in 1994 and cum laude from Northwestern University School of Law in 1997 where he was elected to the Order of the Coif and an editor of the Northwestern University Law Review. Mr. Schar served as a law clerk to the Honorable Elaine E. Bucklo, U.S. District Court for the Northern District of Illinois. Charles B. Sklarsky, Partner Tel: mail: csklarsky@jenner.com Charles B. Sklarsky is a partner in Jenner & Block s Chicago office and Co-Chair of the Firm s White Collar Defense and Investigations practice. Mr. Sklarsky is a member of the Illinois Leading Lawyers Network in the area of white collar criminal defense, is recognized by Super Lawyers as one of the top 100 lawyers in Illinois, and is recognized in Chambers USA and Chambers Global as one of America s leading lawyers for business. Mr. Sklarsky has substantial experience in representing individuals and entities in grand jury investigations, SEC investigations, criminal trials, SEC enforcement actions, qui tam litigation, complex civil litigation, and appearances before regulatory bodies. Mr. Sklarsky joined the Firm in 1986 after serving over eight years as an Assistant United States Attorney for the Northern District of Illinois and over four years as an Assistant State s Attorney of Cook County, Illinois. Mr. Sklarsky graduated cum laude from Harvard College in 1968 and received his J.D. degree from the University of Wisconsin in Robert R. Stauffer, Partner Tel: mail: rstauffer@jenner.com Robert R. Stauffer is a partner in Jenner & Block s Chicago office in the Litigation Department, where he is a member of the White Collar Defense and Investigations practice and Chair of the Firm s Health Care practice. He represents clients in domestic and international internal investigations, compliance counseling, government investigations and complex commercial litigation, on topics that include the Foreign Corrupt Practices Act, accounting fraud, and health care fraud. He has also written a variety of articles relating to internal investigations and corporate compliance and maintains the Internal Investigations Resource Center on the Firm s website. Mr. Stauffer received his B.A. summa cum laude in 1983 from the University of Missouri in philosophy and political science. He received his J.D. magna cum laude in 1986 from Harvard Law School, where he served as an executive editor for the Harvard Civil Rights/Civil Liberties Law Review. From 1988 to 1990, Mr. Stauffer served as law clerk to the Honorable Ilana D. Rovner on the United States District Court for the Northern District of Illinois. Mr. Stauffer is admitted to practice in Illinois and is a member of the bars of the United States Supreme Court, the United States Courts of Appeals for the First and Seventh Circuits, the U.S. Court of International Trade, and the U.S. District Court for the Northern District of Illinois. Richard F. Ziegler, Partner Tel: mail: rziegler@jenner.com Richard F. Ziegler is Managing Partner of Jenner & Block s New York office, Co-Chair of the firm s International Arbitration practice and a former Co-Chair of its Complex Commercial 56

62 Litigation practice. He focuses his practice on complex civil litigation and government enforcement matters, including commercial and financial disputes and corporate governance counseling. Prior to joining Jenner & Block, he served as Senior Vice President, Legal Affairs and General Counsel of 3M Company in St. Paul, Minnesota, where among other things he was responsible for its business conduct compliance program. Before joining 3M, Mr. Ziegler was a litigation partner at Cleary, Gottlieb, Steen & Hamilton in New York for more than two decades, and previously served as an Assistant United States Attorney in the Southern District of New York and as Deputy Chief Appellate Attorney in that office. Mr. Ziegler has extensive experience in litigating and arbitrating complex disputes, including white collar matters. He represented a major financial institution in its $600 million resolution of federal criminal charges and related regulatory and civil claims in the Southern District of New York and has handled numerous SEC investigations. Mr. Ziegler was also Chairman of the Committee on Professional Ethics of the New York State Bar Association and taught a seminar on ethics and complex litigation at Columbia Law School. Mr. Ziegler graduated from Yale College summa cum laude in He received his J.D. from Harvard Law School magna cum laude in 1975 and was an editor of the Harvard Law Review. Mr. Ziegler clerked for Federal District Court Judge Milton Pollack in Manhattan. He is a member of the bars of New York and Minnesota, the United States Supreme Court, and numerous federal circuit and district courts. Cynthia J. Robertson, Government Contracts Emerging Issues Attorney Tel: mail: crobertson@jenner.com Cynthia J. Robertson is Department Counsel in Jenner & Block s Washington, DC office. She advises clients about emerging issues stemming from legislation and regulation affecting government contractors and other industries. Ms. Robertson researches and analyzes changes to regulations like the FAR and DFARS and, where appropriate, works with industry associations and clients to offer public comment on rulemaking proceedings. She monitors Department of Defense policies and defense acquisition reform proposals and ensures clients are kept abreast of important changes. Additionally, she analyzes recent trends in Foreign Corrupt Practices Act enforcement in the United States and abroad. Sean J. Hartigan, Associate Tel: mail: shartigan@jenner.com Sean J. Hartigan is an associate in Jenner & Block s Washington, DC office. Mr. Hartigan has assisted clients with various aspects of the Foreign Corrupt Practices Act, including conducting compliance reviews, internal investigations, and advising both corporate and individual clients during Securities and Exchange Commission investigations. Mr. Hartigan has also advised clients on the International Traffic in Arms Regulations and compliance with Office of Foreign Assets Control regulations. Prior to joining Jenner & Block, Mr. Hartigan clerked for the Honorable Jacques L. Wiener, Jr., U.S. Court of Appeals for the Fifth Circuit. Mr. Hartigan received a B.A. in Economics and Spanish from Dartmouth College in In 2003, he received his Masters in Public Policy and Juris Doctor, cum laude, from the University of Michigan. Andrew D. Kennedy, Associate Tel: mail: akennedy@jenner.com Andrew D. Kennedy is an associate in Jenner & Block s Chicago office. Mr. Kennedy has assisted clients with several different matters involving the Foreign Corrupt Practices Act, including conducting domestic and international internal investigations and performing compliance reviews. Mr. Kennedy received a Bachelor of Arts in History, Economics, and Spanish from Washington University in St. Louis in In 2008, he received his Juris Doctor from Vanderbilt University Law School. 57

63 Michael W. Khoo, Associate Tel: mail: Michael W. Khoo is an associate in Jenner & Block s Washington, DC office, where he has specialized in helping clients understand and comply with the Foreign Corrupt Practices Act. He has played a lead role in conducting internal investigations, performing compliance reviews, and providing employee training to clients. Prior to joining Jenner & Block, Mr. Khoo clerked for the Honorable Diana E. Murphy, U.S. Court of Appeals for the Eighth Circuit. Mr. Khoo received a B.A. in Economics from the University of Chicago in In 1998, he was awarded an M.S. in Journalism from the Columbia University Graduate School of Journalism. Mr. Khoo received his J.D. in 2008 from the Yale Law School, where he was an editor of the Yale Law Journal. Coral A. Negron, Associate Tel: mail: cnegron@jenner.com Coral A. Negron is an associate in Jenner & Block s Chicago office. As a member of the White Collar Defense and Investigations practice group, Ms. Negron focuses on internal investigations and corporate compliance programs. Ms. Negron has experience in numerous matters involving the Foreign Corrupt Practices Act, including conducting international internal investigations and compliance reviews. Prior to joining Jenner & Block in 2012, Ms. Negron worked for a law firm in Washington, DC, where she was involved in a large FCPA compliance monitorship, conducted FCPA due diligence reviews, and assisted clients in revising corporate compliance policies. Ms. Negron clerked for the Honorable Andrew J. Kleinfeld of the United States Court of Appeals for the Ninth Circuit. Ms. Negron received a B.S. in Mathematics from Hillsdale College in In 2007, she received her Juris Doctor from the Harvard Law School. Damien C. Specht, Associate Tel: mail: dspecht@jenner.com Damien C. Specht is an associate in Jenner & Block s Washington, DC office. He is a member of the firm s Government Contracts Practice. Mr. Specht advises clients on a variety of government contracts issues related to the Federal Acquisition Regulation, Defense Federal Acquisition Regulation Supplement, False Claims Act, Foreign Corrupt Practices Act, and the Procurement Integrity Act. He also represents clients in all facets of government contracts mergers and acquisitions, mandatory disclosures, preparation of subcontracts and teaming agreements, contract disputes, and both pre- and post-award bid protests. Mr. Specht graduated from Grinnell College in 2002, receiving a B.A. in Political Science. Mr. Specht obtained his J.D. with high honors from The George Washington University Law School in 2007, where he was a member of the Public Contracts Law Journal. 58